<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 29, 1994
REGISTRATION NO. 33-52177
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
GREEN TREE FINANCIAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
MINNESOTA 41-1263905
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
1100 LANDMARK TOWERS
345 ST. PETER STREET
SAINT PAUL, MINNESOTA 55102-1639
(612) 293-3400
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
DREW S. BACKSTRAND
1100 LANDMARK TOWERS
345 ST. PETER STREET
SAINT PAUL, MINNESOTA 55102-1639
(612) 293-3400
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
CHARLES F. SAWYER JEFFREY J. MURPHY
DORSEY & WHITNEY THACHER PROFFITT & WOOD
220 SOUTH SIXTH STREET TWO WORLD TRADE CENTER
MINNEAPOLIS, MINNESOTA 55402 NEW YORK, NEW YORK 10048
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF SECURITIES TO THE
PUBLIC: As soon as practicable after the effective date of this Registration
Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]
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
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Certificates for Home
Improvement Loans...... $134,096,835.87 100% $134,096,835.87 $46,240.29(2)
- ------------------------------------------------------------------------------------------------------------------------------------
Limited Guaranty of
Green Tree Financial
Corporation............ (3) (3) (3)
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- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee on the
basis of the proposed maximum aggregate offering price, pursuant to Rule
457(c).
(2) Of this amount, $344.83 was previously paid and $45,895.46 is being paid
herewith.
(3) No additional consideration will be paid for the Limited Guaranty;
accordingly, no separate filing fee is being paid herewith pursuant to Rule
457(n).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THE REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION MARCH 29, 1994
PROSPECTUS
$134,096,835.87(APPROXIMATE)
(LOGO OF GREENTREE APPEARS HERE)
SELLER AND SERVICER
CERTIFICATES FOR HOME IMPROVEMENT LOANS
HOME IMPROVEMENT LOAN TRUST 1994-A
% PASS-THROUGH RATE
(PRINCIPAL AND INTEREST PAYABLE ON THE 15TH DAY OF EACH MONTH BEGINNING APRIL
15, 1994)
----------
The Certificates for Home Improvement Loans offered hereby (the
"Certificates") will be issued by Home Improvement Loan Trust 1994-A (the
"Trust") and will evidence fractional undivided interests in the Trust. The
Trust will be created by Green Tree Financial Corporation (the "Company")
pursuant to a Pooling and Servicing Agreement, dated as of March 1, 1994 (the
"Agreement"), between the Company and First Trust National Association, as
Trustee (the "Trustee"). The Trust property will consist of a pool of home
improvement retail installment sales contracts and promissory notes (the
"Contracts"), including all rights to receive payments due on such Contracts on
and after March 1, 1994 (the "Cutoff Date") and liens on certain of the related
real estate, amounts held for the Trust in the Collection Account, as described
in "Structure of the Transaction," and the right to receive payments upon
demand from the Cash Collateral Account. Approximately 40.56% of the Contracts
(by principal balance as of the Cutoff Date) are insured by the Federal Housing
Administration ("FHA") to the extent described in "Description of FHA
Insurance." Approximately 14.97% of the Contracts (by principal balance as of
the Cutoff Date) are not secured by any mortgage or other lien on the related
improved real estate. The Trustee will demand payments from a cash collateral
account (the "Cash Collateral Account") to cover certain delinquencies and
certain losses due to defaults on the Contracts. The initial deposit in the
Cash Collateral Account will equal $ . See "Description of the Cash
Collateral Guaranty."
Principal and interest with respect to the Certificates are distributable on
the fifteenth day of each month or, if such fifteenth day is not a business
day, the first business day thereafter, beginning April 15, 1994. The Initial
Principal Amount of the Certificates represents the aggregate of the principal
payments due on the Contracts on and after the Cutoff Date. The Company will
act as servicer of the Contracts and will have certain other limited
obligations with respect thereto. The final scheduled payment date of the
Certificates is in March 2014. See "Description of the Certificates."
There is currently no secondary market for the Certificates offered hereby,
and there is no assurance that any such market will develop or, if it does
develop, that it will continue. Merrill Lynch, Pierce, Fenner & Smith
Incorporated (the "Underwriter") expects, but is not obligated, to make a
market in the Certificates.
For a discussion of certain factors which should be considered by prospective
purchasers of the Certificates, see "Special Considerations" herein.
----------
THE CERTIFICATES REPRESENT INTERESTS IN THE TRUST AND DO NOT REPRESENT INTERESTS
IN OR OBLIGATIONS OF THE COMPANY, EXCEPT TO THE LIMITED EXTENT DESCRIBED HEREIN.
THE CERTIFICATES DO NOT REPRESENT OBLIGATIONS OF, AND WILL NOT BE INSURED OR
GUARANTEED BY, FHA OR ANY OTHER GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURI-TIES
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.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE
MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
----------
The Certificates are being offered by the Underwriter from time to time in
negotiated transactions or otherwise at varying prices to be determined, in
each case, at the time of sale.
The aggregate proceeds to the Company are expected to be $ , plus accrued
interest thereon, before deducting expenses, payable by the Company, estimated
to be $ .
The Certificates are offered subject to prior sale, when, as and if issued by
the Trust and accepted by the Underwriter and subject to its right to reject
orders in whole or in part. It is expected that delivery of the Certificates
will be made in book-entry form only through the Same Day Funds Settlement
system of The Depository Trust Company on or about , 1994.
----------
MERRILL LYNCH & CO.
----------
THE DATE OF THIS PROSPECTUS IS MARCH , 1994
<PAGE>
Until , 1994, all dealers effecting transactions in the Certificates,
whether or not participating in this distribution, may be required to deliver a
Prospectus. This delivery requirement is in addition to the obligation of
dealers to deliver a Prospectus when acting as underwriters and with respect to
their unsold allotments or subscriptions.
REPORTS TO CERTIFICATEHOLDERS
The Company, as Servicer, will cause to be provided to the holders of the
Certificates (which so long as the Certificates are held in book-entry form
will be DTC) certain monthly and annual reports concerning such Certificates
and the Trust as further described in this Prospectus under "Description of the
Certificates--Reports to Certificateholders."
AVAILABLE INFORMATION
The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Securities and Exchange
Commission (the "Commission"). Information concerning the Company can be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
regional offices of the Commission located at Suite 1400, 500 West Madison
Street, Chicago, Illinois 60661 and Seven World Trade Center, New York, New
York 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 associated rights to purchase
preferred shares are listed on the New York Stock Exchange ("NYSE") and on the
Pacific Stock Exchange ("PSE"). Reports and other information concerning the
Company can be inspected at the offices of the New York Stock Exchange, Inc.,
20 Broad Street, New York, New York and the Pacific Stock Exchange, Inc., 115
Sansome Street, San Francisco, California.
The Company has filed with the Commission on behalf of the Trust a
registration statement (of which this Prospectus forms a part) on Form S-3
(herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"). This Prospectus does not contain all the information set
forth in the Registration Statement pursuant to the rules and regulations of
the Commission. For further information, reference is hereby made to the
Registration Statement.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The 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.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of the offering of the Certificates shall be deemed to be
incorporated by reference into this Prospectus and to be a part thereof from
the respective dates of filing of such documents. Any statement contained
herein or in a document all or any portion of which is incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or
is deemed to be incorporated by reference herein modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to any person to whom this Prospectus
is delivered, upon the written or oral request of such person, a copy of any or
all of the foregoing documents incorporated herein by reference (other than
certain exhibits to such documents). Requests for such copies should be
directed to Drew S. Backstrand, 1100 Landmark Towers, 345 St. Peter Street, St.
Paul, Minnesota 55102-1639, telephone number (612) 293-3400.
2
<PAGE>
SUMMARY OF THE TERMS OF THE CERTIFICATES
This summary is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus. Capitalized terms used
herein and not otherwise defined herein shall have the respective meanings
assigned them elsewhere in this Prospectus.
Securities Offered...... Certificates for Home Improvement Loans. Each
Certificate represents a fractional undivided
interest in Home Improvement Loan Trust 1994-A (the
"Trust"). The Trust property consists primarily of
the pool of Contracts, having an aggregate principal
balance as of the Cutoff Date of $134,096,835.87
(approximate), and all rights, benefits, obligations
and proceeds arising therefrom or in connection
therewith, including rights under applicable FHA
insurance in the case of FHA-insured Contracts, liens
on the related real estate in the case of Secured
Contracts, amounts held for the Trust in the
Collection Account, the right to receive payments
upon demand from the Cash Collateral Account, and the
Limited Guaranty of the Company. The Trust will also
issue a single Subordinated Certificate, representing
the right to receive the Excess Cashflow (as defined
below) each month, to the Cash Collateral Trustee
(described below).
Initial Principal
Amount.................. $134,096,835.87 (approximate), representing the
aggregate principal payments due on the Contracts on
and after the Cutoff Date.
Trustee................. First Trust National Association, St. Paul,
Minnesota.
Seller and Servicer..... Green Tree Financial Corporation.
Payment Date............ The fifteenth day of each month or, if such day is
not a business day, the next succeeding business day,
commencing April 15, 1994.
Record Date............. The Business Day immediately preceding the related
Payment Date.
Pass-Through Rate....... % per annum.
Monthly Interest........ To the extent that funds available in the Collection
Account, including any funds received from the Cash
Collateral Account, are sufficient therefor,
Certificateholders will be entitled to receive
monthly on each Payment Date an amount equal to 30
days' interest accrued at the Pass-Through Rate on
the Principal Balance immediately prior to such
Payment Date, computed on the basis of a 360-day year
of twelve 30-day months. The "Principal Balance" at
any time means the Initial Principal Amount minus all
prior payments of Monthly Principal actually made.
See "Yield and Prepayment Considerations." In the
event the funds available in the Collection Account,
including any funds received from the Cash Collateral
Account, are insufficient to pay Monthly Interest on
any Payment Date, such deficiency will be added to
Monthly Interest distributable on the following
Payment Date and will, to the extent legally
permissible, accrue interest at the Pass-Through
Rate.
Monthly Principal....... To the extent that funds available in the Collection
Account, including any funds received from the Cash
Collateral Account, are sufficient
3
<PAGE>
therefor, Certificateholders will be entitled to
receive monthly on each Payment Date an amount equal
to the sum of (a) the amount of regular principal
payments on Contracts paid or applied during the
prior calendar month (a "Due Period"); (b) the amount
of full Principal Prepayments received and partial
Principal Prepayments applied during the prior Due
Period; (c) the principal portion of all payments
that were Delinquent Payments as of the end of the
prior Due Period; (d) the unpaid principal balance of
all Contracts that became Liquidated Contracts during
the prior Due Period; (e) the principal portion of
the Repurchase Price paid by the Company to
repurchase Contracts for breach of representations
and warranties during the prior Due Period, as
described in this Summary under "Repurchases by the
Company"; (f) the amount of any reduction in the
principal amount deemed owed on any Contract as a
result of the Obligor's bankruptcy; and (g) any
principal amount specified in clauses (a) through (f)
that was not previously distributed because of an
insufficient amount of funds available in the
Collection Account or the Cash Collateral Account.
See "Yield and Prepayment Considerations."
Registration of
Certificates............ The Certificates initially will be represented by one
or more certificates registered in the name of Cede &
Co. ("Cede") as the nominee of The Depository Trust
Company ("DTC"), and will only be available in the
form of book-entries on the records of DTC and
participating members thereof in minimum
denominations of $1,000 and integral multiples
thereof. Certificates will be issued in definitive
form only under the limited circumstances described
herein. All references herein to the rights of
"holders" or "Certificateholders" shall reflect the
rights of beneficial owners as they may indirectly
exercise such rights through DTC and participating
members thereof, except as otherwise specified
herein. See "Description of the Certificates--
Registration of the Certificates."
The Contracts........... 7,346 conventional and 6,081 FHA-insured home
improvement installment sales agreements and
promissory notes, including any and all rights to
receive payments due thereunder on and after the
Cutoff Date. The obligations of the Obligor under
each Contract are either secured by the related real
estate (each a "Secured Contract") or are unsecured
(each an "Unsecured Contract"). By principal balance
as of the Cutoff Date, approximately 85.03% of the
Contracts are Secured Contracts and approximately
14.97% of the Contracts are Unsecured Contracts. All
of the FHA-insured Contracts are Secured Contracts.
The Contracts arise from loans relating to the
improvement of real estate located in 48 states and
the District of Columbia. The contractual percentage
rate of interest on the Contracts as of the Cutoff
Date ranges from 8.49% to 17.99% with a weighted
average of 12.42%. The Contracts had a weighted
average term to scheduled maturity, as of
origination, of 146 months, and a weighted average
term to scheduled maturity, as of the Cutoff Date, of
142 months. The final scheduled payment date on the
Contract with the latest scheduled maturity is in
February 2014. See "The Contracts."
4
<PAGE>
FHA Insurance........... Approximately 40.56% of the Contracts, by principal
balance as of the Cutoff Date, are insured by FHA
against Obligor defaults pursuant to Title I of the
National Housing Act ("FHA Insurance"). Following a
default on an FHA-insured Contract, if a claim is
submitted to FHA, FHA will (subject to certain
conditions, including a limitation on the aggregate
insurance coverage available with respect to all FHA
Title I loans then owned and reported for FHA
Insurance by the Company) pay 90% of the sum of (i)
the unpaid principal, (ii) up to nine months' unpaid
interest on the Contract (computed at 7% per annum)
and (iii) certain liquidation expenses. Any losses on
FHA-insured Contracts not covered by FHA Insurance
will be absorbed to the extent of Excess Cashflow
otherwise payable to the Cash Collateral Account (as
described below) or, if funds in the Collection
Account are not sufficient to pay Monthly Interest
and Monthly Principal, such losses will be covered by
funds available in the Cash Collateral Account, and
then by the Limited Guaranty of the Company (subject
to the limit of the Guaranty Amount), and otherwise
will be borne by Certificateholders. See "Description
of FHA Insurance."
Advances................ The Company, as Servicer, is obligated to make
Advances each month of any scheduled payments on the
Contracts that were due but not received during the
prior Due Period. The Servicer will be entitled to
reimbursement of Advances from payments on the
Contracts and from the Cash Collateral Account. The
Servicer will be obligated to make an Advance only to
the extent that it determines that such Advance will
be recoverable from collections on such Contract. If
the Servicer fails to make any Advance required under
the Agreement, the Trustee will be obligated (subject
to certain conditions) to make such Advance. See
"Description of the Certificates--Advances."
Cash Collateral
Account................. The Trust will have the benefit of the right to
demand payments, under certain circumstances
described below, under a cash collateral guaranty
(the "Cash Collateral Guaranty") issued pursuant to
the cash collateral trust agreement described below.
The Cash Collateral Guaranty will be secured by an
account (the "Cash Collateral Account"), which will
be held in the name of First Bank National
Association, Minneapolis, Minnesota, as cash
collateral trustee (the "Cash Collateral Trustee").
Pursuant to the cash collateral trust agreement (the
"Cash Collateral Trust Agreement") among a financial
institution selected by the Company (the "Cash
Collateral Depositor"), the Cash Collateral Trustee
and the Company, as Seller and Servicer, the Cash
Collateral Account will be funded on the date of the
issuance of the Certificates (the "Closing Date") in
the amount of $ (the "Initial Cash Collateral
Amount") from the proceeds of a loan to be made by
the Cash Collateral Depositor. The Cash Collateral
Guaranty will not be an obligation of the Cash
Collateral Depositor (beyond the amount included in
the Cash Collateral Account), the Cash Collateral
Trustee, the Company, as Seller and Servicer, or the
beneficiary of the Cash Collateral Trust, and will be
secured solely with amounts, if any, on deposit in
the Cash Collateral Account. The Cash Collateral
Account
5
<PAGE>
and any amounts therein will not be property of the
Trust, but will be held in accordance with the Cash
Collateral Trust Agreement for the benefit of the
Trustee and the Cash Collateral Depositor, as secured
parties and as provided in the Cash Collateral Trust
Agreement, and for the benefit of the beneficiary of
the Cash Collateral Trust.
On each Payment Date the Trustee will pay all Excess
Cashflow (as defined below) to the Cash Collateral
Trustee, as the holder of the Subordinated
Certificate. On each Payment Date, the amount
available in the Cash Collateral Account (the
"Available Cash Collateral Amount") will equal the
lesser of (i) the amount on deposit in the Cash
Collateral Account (exclusive of investment earnings)
and (ii) the Requisite Amount.
If the Servicer's monthly report as of any
Determination Date indicates that a Shortfall (the
difference, if any, between (a) the sum of (i) the
Collected Amount in the Collection Account, plus (ii)
any Advances required to be deposited in the
Collection Account by the Servicer, plus (iii) the
aggregate of the Repurchase Prices for Contracts to
be repurchased by the Company for breach of
representations and warranties, and (b) the sum of
(i) the Monthly Interest and Monthly Principal to be
paid to Certificateholders on the related Payment
Date, (ii) the Monthly Servicing Fee to be paid to
the Servicer, (iii) any amounts required to reimburse
the Trustee for FHA Insurance premiums paid by the
Trustee, and (iv) any amounts required to reimburse
the Servicer or the Trustee for Uncollectible
Advances) will occur on the related Payment Date,
then the Trustee shall, on the Business Day preceding
such Payment Date, make a demand under the Cash
Collateral Guaranty in the amount of such Shortfall
(or the Available Cash Collateral Amount, if less)
and deposit the funds received therefrom in the
Collection Account. Demands under the Cash Collateral
Guaranty will be funded solely from amounts, if any,
on deposit in the Cash Collateral Account. If the
Available Cash Collateral Amount is reduced to zero,
any losses on Liquidated Contracts will be absorbed
by the Limited Guaranty of the Company (subject to
the limit of the Guaranty Amount). If the Guaranty
Amount is reduced to zero, Certificateholders will
bear all losses on the Contracts, unless Excess
Cashflow is available on future Payment Dates for
deposit in the Cash Collateral Account.. See "Certain
Legal Aspects of the Contracts; Repurchase
Obligations."
On any Payment Date when the Available Cash
Collateral Amount is less than the Requisite Amount
(as defined below), the Cash Collateral Trustee will
deposit all such Excess Cashflow, or the amount
necessary to cause the amount on deposit in the Cash
Collateral Account to equal the Requisite Amount, if
less, in the Cash Collateral Account. On any Payment
Date when the Available Cash Collateral Amount equals
or exceeds the Requisite Amount, any funds paid to
the Cash Collateral Trustee by the Trustee, and any
funds in the Cash Collateral Account in excess of the
Requisite Amount, will be applied by the Cash
Collateral Trustee (a) first to pay interest and
principal on the loan made to the Cash Collateral
Trust by the Cash Collateral Depositor in
6
<PAGE>
accordance with terms of such loan, and (b)
thereafter will be paid to the beneficiary of the
Cash Collateral Trust. Funds on deposit in the Cash
Collateral Account will be invested in certain
permitted investments. All income on such investments
will be applied as described in the preceding clauses
(a) and (b), and will not be available to cover
Shortfalls. See "Description of the Cash Collateral
Guaranty."
The "Excess Cashflow" on any Payment Date will equal
the excess (if any) of (i) funds in the Collection
Account available for distribution on that Payment
Date over (ii) Monthly Interest and Monthly Principal
paid to Certificateholders on that Payment Date, the
Monthly Servicing Fee to be paid to the Servicer and
certain other items.
Interest and principal on the loan by the Cash
Collateral Depositor to the Cash Collateral Trust
will be payable solely from funds (if any) in the
Cash Collateral Account each month in excess of the
Requisite Amount. In no event will the Company, the
Trust or the Certificateholders be obligated in
respect of any such loan. It is currently expected
that such loan would bear interest at a floating rate
based on the Cash Collateral Depositor's cost of
funds, payable monthly, and that principal on such
loan would be payable commencing in April 1995,
unless such loan is renewed. See "Description of the
Cash Collateral Guaranty."
Requisite Amount........ The Requisite Amount of the Cash Collateral Account
on the initial Payment Date will be $ . On each
Determination Date, the Company will be required to
calculate the amount of its FHA Insurance reserves.
If the Company's FHA Insurance reserves available to
cover FHA Insurance claims on the Contracts are below
$50,000,000 on any Determination Date, or if an Event
of Termination (defined in "Description of the
Certificates--Events of Termination") has occurred
(either such event, a "Trigger"), then (i) the
Requisite Amount will be increased to $ and (ii)
on each Payment Date thereafter the Cash Collateral
Trustee will deposit the entire Excess Cashflow (or
the amount necessary to cause the amount in the Cash
Collateral Account to equal the Requisite Amount) in
the Cash Collateral Account.
On the Payment Dates occurring in April 1997 and in
each April thereafter, the Requisite Amount may be
reduced to % of the Principal Balance as of such
Payment Date, subject to certain conditions described
in "Description of the Cash Collateral Guaranty."
Limited Guaranty........ If the Available Cash Collateral Amount is zero and
the Monthly Report as of any Determination Date
indicates a Shortfall, the Company will pay into the
Collection Account not later than one Business Day
after such Determination Date the lesser of (a) such
Shortfall, or (b) the Guaranty Amount. The Guaranty
Amount on the first Payment Date will equal $544,000.
Thereafter, the Guaranty Amount on each subsequent
Payment Date will equal the lesser of (i) $544,000
minus all Limited Guaranty payments made prior to
such Payment Date or (ii) 1% of the Principal Balance
of all FHA-insured Contracts as of such Payment Date.
See "Description of FHA Insurance."
7
<PAGE>
Repurchases by the
Company................. The Company has agreed to repurchase any Contract
that is materially and adversely affected by a breach
of a representation and warranty with respect to such
Contract made in the Agreement if such breach has not
been cured within 90 days. See "Description of the
Certificates--Conveyance of Contracts."
Repurchase Option....... The Servicer will have the option to repurchase all
of the outstanding Contracts on any Payment Date on
which the Principal Balance is less than 10% of the
Initial Principal Amount of the Certificates. See
"Description of the Certificates--Repurchase Option."
Monthly Servicing Fee... The Servicer will be entitled to monthly compensation
for servicing the Contracts equal to 1/12 of the
product of .75% and the Principal Balance (the
"Monthly Servicing Fee"), payable only after Monthly
Interest and Monthly Principal have been paid to
Certificateholders. See "Description of the
Certificates--Servicing Compensation and Payment of
Expenses," and "Rights upon an Event of Termination."
Tax Status.............. In the opinion of counsel, the Trust will be
classified as a grantor trust for federal income tax
purposes and not as an association which is taxable
as a corporation. Each Certificateholder will be
treated for such purposes as the owner of an
undivided interest in the Contracts. Accordingly,
each such Certificateholder must report on its
federal income tax return its share of the income
from the Contracts and, subject to limitations on
deductions by individuals, estates and trusts, may
deduct its share of the reasonable fees paid by the
Trust, determined in accordance with such
Certificateholder's tax accounting method.
Certificateholders will not be treated as the owners
of the Cash Collateral Account for federal income tax
purposes. See "Certain Federal Income Tax
Consequences."
ERISA Considerations.... The acquisition of Certificates by, on behalf of, or
with assets of, an employee benefit plan subject to
the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), and described in Section
4975(e)(1) of the Code (a "Plan") could result in a
prohibited transaction under ERISA and Section 4975
of the Code, unless such acquisition is subject to a
statutory or administrative exemption. In addition,
if, by virtue of such acquisition, the Trust property
were deemed to be assets of the acquiring Plan, the
Trust or other parties may be considered to be a
fiduciary with respect to any Plan. Therefore, the
acquisition and transfer of the Certificates are
subject to certain restrictions. See "ERISA
Considerations."
Rating.................. It is a condition precedent to the issuance of the
Certificates offered pursuant to this Prospectus that
they be assigned a rating not lower than "A" by
Standard & Poor's Ratings Group, a division of
McGraw-Hill, Inc. ("S&P"). S&P's rating of the
Certificates addresses the likelihood of timely
receipt of Monthly Interest and ultimate receipt of
principal on or before the Payment Date in March
2014. A security rating is not a recommendation to
buy, sell or hold securities and may be subject to
revision or withdrawal at any time by the assigning
rating agency. See "Ratings" herein.
8
<PAGE>
The Company has not requested a rating of the
Certificates from any rating agency other than S&P.
However, there can be no assurance as to whether any
other rating agency will rate the Certificates, or if
one does, what rating would be assigned by such
rating agency.
Legal Investment
Considerations.......... The Certificates will not constitute "mortgage
related securities" for purposes of the Secondary
Mortgage Market Enhancement Act of 1984 ("SMMEA")
because there are a substantial number of Contracts
that are either unsecured or secured by liens on real
estate that are not first liens, as required by
SMMEA. Accordingly, many institutions with legal
authority to invest in "mortgage related securities"
may not be legally authorized to invest in the
Certificates.
Glossary of Terms....... Certain terms defined and used in this Prospectus are
also defined in Article I of the Agreement, a copy of
which is available upon request made to the Company.
9
<PAGE>
SPECIAL CONSIDERATIONS
Prospective Certificateholders should consider, among other things, the
following factors in connection with the purchase of the Certificates:
1. Limitations on Availability of FHA Insurance. Approximately 40.56% of the
Contracts, by principal balance as of the Cutoff Date, are insured by FHA
pursuant to Title I of the National Housing Act ("Title I"). The availability
of FHA Insurance following a default on a Contract is subject to a number of
conditions, including strict compliance by the Company with FHA regulations in
originating and servicing the Contract. Although the Company is an FHA-approved
lender and believes, and represents and warrants in the Agreement, that it has
complied with FHA regulations, such regulations are susceptible to substantial
interpretation. The Company is not required to obtain, and has not obtained,
approval from FHA of its origination and servicing practices. Failure to comply
with FHA regulations may result in a denial of FHA Insurance claims, and there
can be no assurance that FHA's enforcement of its regulations will not become
stricter in the future. From time to time the Company is engaged in disputes
with FHA over the validity of claims submitted and the Company's compliance
with FHA regulations in servicing FHA Title I loans, such as the FHA-insured
Contracts. In addition, any insurance claim paid by FHA will cover only 90% of
the sum of the unpaid principal on the Contract, up to nine months unpaid
interest (computed at 7% per annum) and certain liquidation costs.
The amount of FHA Insurance available to the Trust at any given time is
limited to the balance of a reserve amount determined with respect to all FHA
Title I loans originated and reported for insurance by the Company and not
sold, or sold with recourse, by the Company, including manufactured housing
contracts as well as home improvement loans. Such reserve amount, as of
December 31, 1993, was equal to approximately $134,383,000, but will be reduced
by the amount of all FHA Insurance claims paid and by an annual reduction in
the reserve amount equal to 10% of the reserve amount, and will be increased by
an amount equal to 10% of the unpaid principal balance of FHA Title I loans
subsequently originated and reported for insurance by the Company. Severe
losses on the Company's FHA-insured manufactured housing contracts, or on other
FHA-insured home improvement loans originated by the Company, could reduce or
eliminate the Company's FHA Insurance reserves, in which event FHA Insurance
would not be available to cover losses on FHA-insured Contracts. In the event
the Company were terminated as Servicer due to its bankruptcy or otherwise, it
is anticipated that a proportionate amount of the Company's FHA Insurance
reserves would be transferred to the reserve account of the Trustee or other
successor servicer, but there can be no assurance of the amount, if any, that
would be so transferred. To the extent that losses on FHA-insured Contracts are
not covered by FHA Insurance, such losses will be absorbed to the extent of
Excess Cashflow otherwise payable to the Cash Collateral Account, or, if funds
in the Collection Account are not sufficient to pay Monthly Interest and
Monthly Principal, such losses will be covered by funds available in the Cash
Collateral Account. See "Description of FHA Insurance."
2. Limited Obligations. Payments on the Certificates will be made only from
payments or collections received on the Contracts, Advances by the Servicer,
payments received from the Cash Collateral Account and payments under the
Limited Guaranty. The Certificates will not represent an interest in or
obligation of the Company except to the limited extent described herein. The
Certificates will not be insured or guaranteed by any governmental agency or
instrumentality, the Underwriter or its affiliates, the Servicer or (except as
otherwise specified in this Prospectus) by the Company.
3. Junior Mortgage Liens; Value of Mortgaged Property. Approximately 85.03%
of the Contracts, by principal balance as of the Cutoff Date, are Secured
Contracts. Approximately 89.64% of the Secured Contracts, by principal balance
as of the Cutoff Date, are secured by mortgages or deeds of trust that are
second or third mortgages or deeds of trust which are junior to mortgages or
deeds of trust held by other lenders or institutional investors. The rights of
the Trust (and therefore the Certificateholders), as beneficiary under a
conventional junior deed of trust or as mortgagee under a conventional junior
mortgage, are subordinate to those of the mortgagee or beneficiary under the
senior mortgage or deed of trust, including the prior rights of the senior
mortgagee or beneficiary to cause the property securing the Contract to be sold
upon default of the mortgagor or trustor, thereby extinguishing the junior
mortgagees or junior beneficiary's lien unless the Servicer on behalf of the
Trust asserts its subordinate interest in the property in foreclosure
10
<PAGE>
litigation and, possibly, satisfies the defaulted senior loan or loans. See
"Certain Legal Aspects of the Contracts--Repurchase Obligations."
A substantial portion of the Secured Contracts have loan-to-value ratios of
90% or more, based on the aggregate of the outstanding principal balances of
all senior mortgages or deeds of trust and of the Secured Contract on the one
hand, and the value of the home and an estimate of the value of the financed
improvement, on the other. See "Green Tree Financial Corporation--Contract
Origination." An overall decline in the residential real estate market, the
general condition of a property securing a Contract or other factors could
adversely affect the value of the property securing a conventional (i.e., not
insured by FHA) Contract such that the remaining balance of the conventional
Contract, together with that of any senior liens on the related property, could
equal or exceed the value of the property. While the same economic decline
could effect the value of property securing an FHA-insured Contract, assuming
compliance with other FHA regulations, an FHA claim would still be payable to
the Company, notwithstanding the decline in property value below the aggregate
outstanding principal balances of the Contract and of all senior liens on the
property.
4. Non-recordation of Mortgage Assignments. Because of the expense and
administrative inconvenience involved, the Company has not recorded, and will
not record, the assignment to the Trustee of the mortgage or deed of trust
securing any Secured Contract. In some states, in the absence of such
recordation the assignment to the Trustee of the mortgage or deed of trust
securing a Contract may not be effective against creditors of or purchasers
from the Company or a trustee in bankruptcy of the Company.
5. Unsecured Contracts. Approximately 14.97% of the Contracts, by principal
balance as of the Cutoff Date, are Unsecured Contracts. The obligations of the
Obligor under each such Unsecured Contract are not secured by an interest in
the related real estate or otherwise, and the Trust, as the owner of such
Contracts, is a general unsecured creditor as to such obligations. As a
consequence, in the event of a default under an Unsecured Contract, the Trust
will have recourse only against the Obligors assets generally, along with all
other general unsecured creditors of the Obligor. In a bankruptcy or insolvency
proceeding relating to an Obligor on an Unsecured Contract, the obligations of
the Obligor under such Unsecured Contract may be discharged in their entirety,
notwithstanding the fact that the portion of such Obligors assets made
available to the Trust as a general unsecured creditor to pay amounts due and
owing thereunder are insufficient to pay all such amounts. An Obligor on an
Unsecured Contract may not demonstrate the same degree of concern over
performance of the Obligor's obligations under such Contract as if such
obligations were secured by the real estate owned by such Obligor.
6. Limited Historical Data With Respect to Home Improvement Loans. The
Company began purchasing and servicing FHA-insured home improvement contracts
in April 1989, and conventional home improvement contracts in September 1992,
and thus has limited historical experience with respect to the performance,
including the rate of prepayments of home improvement loans. Accordingly, the
Company's delinquency experience and loan loss and liquidation experience set
forth under "The Contracts" may not be indicative of the performance of the
Contracts held by the Trust.
7. Limited Liquidity. There is currently no market for the Certificates, and
there can be no assurance that a secondary market will develop or, if it does
develop, that it will provide Certificateholders with liquidity of investment
or will continue for the life of the Certificates. The Certificates will not be
listed on any securities exchange. The Certificates are subject to restrictions
on transfer to or for the benefit of employee benefit plans, trusts or accounts
subject to ERISA and described in Section 4975 of the Code, as described under
"ERISA Considerations."
8. Considerations in the Event of Company Insolvency. In the event of the
Company's insolvency, if the transfer of the Contracts from the Company to the
Trust were treated as a pledge to secure borrowings by the Company rather than
a sale, the distribution of proceeds of the Contracts to the Trust might be
subject to the automatic stay provisions of the United States Bankruptcy Code,
which would delay the distribution of such proceeds for an uncertain period of
time. In addition, a bankruptcy trustee would have the power to sell the
Contracts if the proceeds of such sale could satisfy the amount of the debt
deemed owed by the Company, or the bankruptcy trustee could substitute other
collateral in lieu of the Contracts to secure such
11
<PAGE>
debt, or such debt could be subject to adjustment by the bankruptcy trustee if
the Company were to file for reorganization under Chapter 11 of the United
States Bankruptcy Code. See "Description of the Certificates--Conveyance of
Contracts."
In the event of the Company's insolvency, if the Cash Collateral Account were
somehow deemed to be property of the Company's bankruptcy estate, the payment
of funds to the Trust pursuant to the Cash Collateral Guaranty might be subject
to the automatic stay provisions of the United States Bankruptcy Code, or a
bankruptcy trustee might attempt to reduce amounts retained or required to be
deposited into the Cash Collateral Account if those amounts were determined by
the bankruptcy trustee to exceed amounts reasonably necessary or adequate to
cover Shortfalls which might become payable to Certificateholders out of the
Cash Collateral Account.
STRUCTURE OF THE TRANSACTION
On or about , 1994 (the "Closing Date"), the Company will establish the
Trust pursuant to a Pooling and Servicing Agreement to be dated as of March 1,
1994 (the "Agreement"), between the Company, as Seller and Servicer, and the
Trustee.
The Certificates will represent fractional undivided interests in the Trust
("Fractional Interests"), the corpus of which consists of the Contracts,
including all rights to receive payments due on such Contracts on and after
March 1, 1994 (the "Cutoff Date"), all rights under FHA Insurance with respect
to the FHA-insured Contracts, liens on the related real estate (in the case of
Secured Contracts), amounts held for the Trust in the Collection Account (as
defined below), rights to receive payments upon demand from a cash collateral
account (the "Cash Collateral Account") described in "Description of the Cash
Collateral Guaranty," and the Limited Guaranty of the Company described in
"Description of the Limited Guaranty."
Payments and recoveries in respect of principal and interest on the Contracts
will be paid into a separate trust account maintained at an Eligible
Institution (initially First Bank National Association, Minneapolis, Minnesota)
in the name of the Trust (the "Collection Account"), no later than one Business
Day after receipt. Payments deposited in the Collection Account in respect of
each Due Period will be applied on the fifteenth day of the next month (or, if
such day is not a business day, the next succeeding business day) (each a
"Payment Date") to pay Monthly Interest and Monthly Principal (each as defined
below under "Yield and Prepayment Considerations") to Certificateholders as of
the immediately preceding Record Date, to pay certain monthly fees to the
Servicer as compensation for its servicing of the Contracts (the "Monthly
Servicing Fee"), and to pay any remaining amounts in the Collection Account to
the Cash Collateral Trustee for disposition in accordance with the Cash
Collateral Trust Agreement.
The Servicer will be obligated to advance any scheduled payments on the
Contracts that were due but not received during the prior Due Period
("Advances"). The Servicer will be entitled to reimbursement of Advances from
payments on the Contracts and the Cash Collateral Account. The Servicer will
not be required to make any Advance to the extent that it does not expect to
recoup the Advance from subsequent collections on the Contract or from
liquidation proceeds thereof. If the Servicer fails to make any Advance
required under the Agreement, the Trustee is obligated (subject to certain
conditions) to make such Advance.
The Trust will have the benefit of the right to demand payments from the Cash
Collateral Account. Subject to the limit of the amount available in the Cash
Collateral Account, on the Business Day prior to any Payment Date in which a
Shortfall (the difference (if any) between (a) the funds in the Collection
Account available for distribution on such Payment Date (including any
Advances) and (b) the sum of (i) Monthly Principal and Monthly Interest
required to be paid to Certificateholders on such Payment Date, (ii) the
Monthly Servicing Fee to be paid to the Servicer, (iii) any amounts required to
reimburse the Trustee for FHA Insurance premiums paid by the Trustee, and (iv)
any amounts required to reimburse the Servicer or the Trustee for Uncollectible
Advances) occurs the Trustee shall make a demand in the amount of such
Shortfall (or the funds in the Cash Collateral Account, if less) under the Cash
Collateral Guaranty and
12
<PAGE>
deposit the funds received therefrom in the Collection Account. On the Closing
Date the Cash Collateral Depositor will deposit $ in cash in the Cash
Collateral Account. On each Payment Date, the Cash Collateral Trustee will
deposit any funds received by it from the Trustee in the Cash Collateral
Account, unless the amount on deposit in the Cash Collateral Account equals the
Requisite Amount (as defined below under "Description of the Cash Collateral
Account").
Following the transfer of the Contracts from the Company to the Trust, the
obligations of the Company are limited to (a) the obligation of the Servicer to
service the Contracts, (b) certain representations and warranties in the
Agreement, (c) certain indemnities, and (d) the Limited Guaranty. The Company
is obligated under the Agreement to repurchase at the Repurchase Price any
Contract on the first Payment Date which is more than 90 days after the Company
becomes aware, or the Company's receipt of written notice from the Trustee, of
breach of any such representation and warranty in the Agreement that materially
adversely affects the Certificateholders' interest in any Contract if such
breach has not been cured prior to such date. Such repurchase obligation is not
covered by the Cash Collateral Guaranty. The Agreement also provides that the
Company has certain obligations to repurchase Contracts and to indemnify the
Trustee and Certificateholders with respect to certain other matters.
USE OF PROCEEDS
The Company will use the net proceeds received from the sale of the
Certificates for working capital and general corporate purposes, including
building a portfolio of home improvement retail installment contracts and
promissory notes, providing warehouse financing for the purchase of contracts
and other costs of maintaining such contracts until they are pooled and sold to
other investors.
THE CONTRACTS
Each Contract is a home improvement retail installment sales contract
originated by a Company-approved home improvement contractor and purchased by
the Company, or a home improvement promissory note originated by the Company
directly. Each Contract finances improvements to a one- to four-family
residential property, an owner-occupied condominium or town house or a
manufactured home which either qualifies as real estate under state law or is
located in a Company-approved park, and is either secured by such real estate
or is unsecured.
The Company will make certain representations and warranties in the
Agreement, including that (a) each Contract is fully amortizing with a fixed
contractual rate of interest and provides for level payments over the term of
such loan, computed on the simple interest method, (b) each Contract has its
last scheduled payment due no later than February 2014, (c) each FHA-insured
Contract was originated in accordance with applicable FHA regulations and is
insured, without set-off, surcharge or defense, by FHA Insurance, and (d) each
Secured Contract is secured by a first, second, or third priority lien on the
improved real estate. The Contracts were originated or acquired by the Company
in the ordinary course of the Company's business. A detailed listing of the
Contracts is appended to the Agreement. See "Description of the Certificates."
By principal balance as of the Cutoff Date, approximately 85.03% of the
Contracts are Secured Contracts and approximately 14.97% of the Contracts are
Unsecured Contracts. Approximately 40.56% of the Contracts, by principal
balance as of the Cutoff Date, are insured by FHA, to the extent described in
"Description of FHA Insurance." All Contracts have a contractual rate of
interest of at least 8.49% per annum and not more than 17.99% and the weighted
average contractual rate of interest of the Contracts as of the Cutoff Date is
12.42%. The Contracts have remaining maturities of at least 10 months but not
more than 240 months and original maturities of at least 24 months but not more
than 240 months. The Contracts had a weighted average term to scheduled
maturity, as of origination, of 146 months, and a weighted average term to
scheduled maturity, as of the Cutoff Date, of 142 months. The average principal
balance per Contract as of the Cutoff Date was $9,987.10 and the principal
balances on the Contracts as of the Cutoff Date ranged from
13
<PAGE>
$185.19 to $140,402.46.The Contracts arise from loans relating to real property
located in 48 states and the District of Columbia. Approximately 11.41% of the
Contracts, by principal balance as of the Cutoff Date, financed improvements to
real estate located in Florida. Approximately 13.02% of the conventional
Contracts (i.e., not insured by FHA) financed improvements to real estate
located in California. Current loan-to-value ratios with respect to the Secured
Contracts are not available. None of the Contracts provide for recourse to the
originating contractor in the event of a default by the Obligor. The Contracts
constitute substantially all of the home improvement loans owned by the Company
as of the Cutoff Date, meeting the criteria stated under "Description of the
Certificates--Conveyance of Contracts."
The following table sets forth certain statistical information regarding the
FHA-insured Contracts, the conventional Contracts and all Contracts in the
Trust as of the Cutoff Date.
CERTAIN CONTRACT CHARACTERISTICS
<TABLE>
<CAPTION>
CONVENTIONAL
------------------------------
FHA-INSURED SECURED UNSECURED TOTAL POOL
-------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
Principal Balance....... $54,386,169.25 $59,631,880.18 $20,078,786.44 $134,096,835.87
Number of Contracts..... 6,081 3,989 3,357 13,427
Percentage of Principal
Balance................ 40.56% 44.47% 14.97% 100.00%
Weighted Average
Contract Rate.......... 12.95% 11.14% 14.81% 12.42%
--Highest Contract
Rate................. 15.99% 15.50% 17.99% 17.99%
--Lowest Contract
Rate................. 8.99% 8.49% 9.95% 8.49%
Weighted Average Remain-
ing
Term to Scheduled Matu-
rity (Months)......... 132 168 91 142
--Maximum Remaining
Term to Scheduled Ma-
turity............... 239 240 233 240
--Minimum Remaining
Term to Scheduled Ma-
turity............... 16 18 10 10
Weighted Average Origi-
nal Term to Scheduled
Maturity (Months)...... 136 172 95 146
--Maximum Original
Term to Scheduled Ma-
turity............... 240 240 240 240
--Minimum Original
Term to Scheduled Ma-
turity............... 24 24 24 24
Average Principal Bal-
ance................... $ 8,943.62 $ 14,949.08 $ 5,981.17 $ 9,987.10
--Highest Principal
Balance.............. $ 24,908.45 $ 140,402.46 $ 14,942.06 $ 140,402.46
-- Lowest Principal
Balance.............. $ 812.43 $ 1,383.43 $ 185.19 $ 185.19
</TABLE>
Set forth below is a description of certain additional characteristics of the
Contracts.
14
<PAGE>
GEOGRAPHICAL DISTRIBUTION OF IMPROVED REAL ESTATE
<TABLE>
<CAPTION>
% OF CONTRACT
POOL BY
NUMBER OF % OF CONTRACT AGGREGATE PRINCIPAL OUTSTANDING
CONTRACTS POOL BY NUMBER BALANCE PRINCIPAL
AS OF CUT- OF CONTRACTS AS OUTSTANDING AS OF BALANCE AS OF
OFF DATE OF CUT-OFF DATE CUT-OFF DATE CUT-OFF DATE
---------- --------------- ------------------- -------------
<S> <C> <C> <C> <C>
Alabama................. 8 .06% $ 66,209.69 .05%
Arizona................. 325 2.42 4,228,851.78 3.15
Arkansas................ 302 2.25 2,253,789.99 1.68
California.............. 717 5.34 11,637,494.51 8.68
Colorado................ 379 2.82 3,388,628.40 2.53
Connecticut............. 224 1.67 1,990,965.91 1.48
Delaware................ 111 .83 1,045,343.42 .78
District of Columbia.... 22 .16 168,246.95 .13
Florida................. 1,218 9.07 15,302,764.21 11.41
Georgia................. 337 2.51 3,251,594.83 2.43
Idaho................... 41 .31 473,628.91 .35
Illinois................ 445 3.31 4,168,957.37 3.11
Indiana................. 100 .75 805,280.97 .60
Iowa.................... 79 .59 699,629.46 .52
Kansas.................. 151 1.13 1,401,452.44 1.05
Kentucky................ 72 .54 551,076.60 .41
Louisiana............... 108 .80 840,410.97 .63
Maine................... 176 1.31 1,624,378.44 1.21
Maryland................ 234 1.74 2,592,160.40 1.93
Massachusetts........... 298 2.22 2,416,783.49 1.80
Michigan................ 390 2.90 3,217,380.70 2.40
Minnesota............... 194 1.45 1,822,421.27 1.36
Mississippi............. 279 2.08 2,492,866.09 1.86
Missouri................ 212 1.58 1,815,446.70 1.35
Montana................. 50 .37 390,597.93 .29
Nebraska................ 33 .25 286,529.76 .21
Nevada.................. 98 .73 1,467,050.89 1.09
New Hampshire........... 110 .82 1,017,850.06 .76
New Jersey.............. 683 5.09 7,295,581.64 5.44
New Mexico.............. 66 .49 721,511.15 .54
New York................ 640 4.77 6,917,132.93 5.16
North Carolina.......... 687 5.12 5,873,628.66 4.38
North Dakota............ 1 .01 14,474.27 .01
Ohio.................... 525 3.91 4,765,887.87 3.55
Oklahoma................ 203 1.51 1,528,378.33 1.14
Oregon.................. 156 1.16 1,863,857.54 1.39
Pennsylvania............ 1,020 7.60 9,135,641.78 6.81
Rhode Island............ 74 .55 668,812.23 .50
South Carolina.......... 221 1.65 1,698,101.70 1.27
South Dakota............ 10 .07 97,537.62 .07
Tennessee............... 399 2.97 3,359,779.59 2.51
Texas................... 1,100 8.19 10,962,082.97 8.17
Utah.................... 105 .78 1,106,898.03 .83
Vermont................. 50 .37 323,261.34 .24
Virginia................ 85 .63 587,094.67 .44
Washington.............. 411 3.06 3,577,877.93 2.67
West Virginia........... 93 .69 583,144.43 .44
Wisconsin............... 73 .54 614,732.33 .46
Wyoming................. 112 .83 983,626.72 .73
------ ------ --------------- ------
Total................... 13,427 100.00% $134,096,835.87 100.00%
====== ====== =============== ======
</TABLE>
15
<PAGE>
YEARS OF ORIGINATION OF CONTRACTS
<TABLE>
<CAPTION>
% OF CONTRACT POOL BY
AGGREGATE PRINCIPAL OUTSTANDING PRINCIPAL
NUMBER OF CONTRACTS BALANCE OUTSTANDING BALANCE AS OF
YEAR OF ORIGINATION AS OF CUT-OFF DATE AS OF CUT-OFF DATE CUT-OFF DATE
- ------------------- ------------------- ------------------- ---------------------
<S> <C> <C> <C>
1990.................... 1 $ 4,345.23 .00%
1991.................... 0 .00 .00
1992.................... 87 573,082.62 .43
1993.................... 12,691 126,894,011.26 94.63
1994.................... 648 6,625,396.76 4.94
------ --------------- ------
13,427 $134,096,835.87 100.00%
====== =============== ======
</TABLE>
DISTRIBUTION OF ORIGINAL CONTRACT AMOUNTS
<TABLE>
<CAPTION>
% OF CONTRACT POOL BY
AGGREGATE PRINCIPAL OUTSTANDING PRINCIPAL
ORIGINAL CONTRACT NUMBER OF CONTRACTS BALANCE OUTSTANDING BALANCE AS OF
AMOUNT (IN DOLLARS)(1) AS OF CUT-OFF DATE AS OF CUT-OFF DATE CUT-OFF DATE
- ---------------------- ------------------- ------------------- ---------------------
<S> <C> <C> <C>
Less than $10,000....... 7,830 $ 47,550,981.63 35.46%
$ 10,000--$ 19,999.99... 4,769 64,533,289.62 48.12
$ 20,000--$ 29,999.99... 656 15,427,560.03 11.51
$ 30,000--$ 39,999.99... 124 3,939,813.22 2.94
$ 40,000--$ 49,999.99... 26 1,158,820.38 .86
$ 50,000--$ 59,999.99... 11 568,040.03 .42
$ 60,000--$ 69,999.99... 4 247,745.69 .19
$ 70,000--$ 79,999.99... 2 146,467.09 .11
$ 80,000--$ 89,999.99... 3 252,707.00 .19
$ 90,000--$ 99,999.99... 0 .00 .00
$100,000--$109,999.99... 0 .00 .00
$110,000--$119,999.99... 0 .00 .00
$120,000--
$129,999.99(1)......... 0 .00 .00
$130,000--$139,999.99... 1 131,008.72 .10
$140,000--$149,999.99... 1 140,402.46 .10
------ --------------- ------
Total............... 13,427 $134,096,835.87 100.00%
====== =============== ======
</TABLE>
- --------
(1) The largest original contract amount may not exceed $125,000 under the
Company's 75% loan-to-value program, unless a higher amount financed is
approved by senior management.
16
<PAGE>
CONTRACT RATES
<TABLE>
<CAPTION>
% OF CONTRACT POOL BY
AGGREGATE PRINCIPAL OUTSTANDING PRINCIPAL
RANGE OF CONTRACTS BY NUMBER OF CONTRACTS BALANCE OUTSTANDING BALANCE AS OF
CONTRACT RATE AS OF CUT-OFF DATE AS OF CUT-OFF DATE CUT-OFF DATE
- --------------------- ------------------- ------------------- ---------------------
<S> <C> <C> <C>
8.01%-9.00%............. 47 $ 1,744,274.41 1.30%
9.01%-10.00%............ 579 9,431,004.31 7.03
10.01%-11.00%........... 1,667 29,621,408.22 22.09
11.01%-12.00%........... 1,595 16,877,673.44 12.59
12.01%-13.00%........... 4,464 40,221,716.97 30.00
13.01%-14.00%........... 2,691 22,278,902.73 16.61
14.01%-15.00%........... 1,529 8,947,689.05 6.67
15.01%-16.00%........... 737 4,341,844.27 3.24
16.01%-17.00%........... 92 519,468.79 0.39
17.01%-18.00%........... 26 112,853.68 0.08
------ --------------- ------
Total............... 13,427 $134,096,835.87 100.00%
====== =============== ======
</TABLE>
REMAINING MONTHS TO MATURITY
<TABLE>
<CAPTION>
MONTHS REMAINING TO % OF CONTRACT POOL BY
SCHEDULED MATURITY AGGREGATE PRINCIPAL OUTSTANDING PRINCIPAL
AS OF CUT- NUMBER OF CONTRACTS BALANCE OUTSTANDING BALANCE AS OF
OFF DATE AS OF CUT-OFF DATE AS OF CUT-OFF DATE CUT-OFF DATE
- ------------------- ------------------- ------------------- ---------------------
<S> <C> <C> <C>
Less than 31............ 347 $ 1,040,081.70 0.78%
31-60................... 2,536 12,446,424.17 9.28
61-90................... 1,667 11,422,910.35 8.52
91-120.................. 4,232 39,550,984.36 29.49
121-150................. 178 1,879,101.22 1.40
151-180................. 3,895 55,435,559.28 41.34
181-210................. 2 40,534.66 0.03
211-240................. 570 12,281,240.13 9.16
------ --------------- ------
Total............... 13,427 $134,096,835.87 100.00%
====== =============== ======
</TABLE>
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<PAGE>
DELINQUENCY, LOAN DEFAULT AND LOSS INFORMATION
The following tables set forth the delinquency experience and loan default
and loss experience for the past 48 months of the portfolio of FHA-insured and
conventional home improvement loans serviced by the Company.
DELINQUENCY EXPERIENCE
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------
1993 1992 1991 1990
------ ------ ------ ------
<S> <C> <C> <C> <C>
Number of Contracts Outstanding(1)............. 36,828 25,803 21,337 10,267
Period of Delinquency(2):
30-59 Days................................... 279 355 228 87
60-89 Days................................... 88 98 84 29
90 Days or More.............................. 169 207 164 52
------ ------ ------ ------
Total Home Improvement Contracts Delinquent.... 536 660 476 168
====== ====== ====== ======
Delinquencies as a Percent of Contracts Out-
standing...................................... 1.46% 2.56% 2.23% 1.64%
</TABLE>
- --------
(1) Excludes defaulted contracts not yet liquidated.
(2) The period of delinquency is based on the number of days payments are
contractually past due (assuming 30-day months). Consequently, a contract
due on the first day of a month is not 30 days delinquent until the first
day of the next month.
LOAN DEFAULT AND LOSS EXPERIENCE
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
TWELVE MONTHS
ENDED DECEMBER 31,
---------------------------------
1993 1992 1991 1990
------- ------- ------- ------
<S> <C> <C> <C> <C>
Principal Balance of Contracts Serviced(1)... 314,300 207,114 174,146 84,812
Contract Defaults(2)......................... 1.51% 1.86% 1.09% .26%
Net Losses:
Dollars(3)................................. 261 768 305 1
Percentage(4).............................. .08% .37% .18% .00%
</TABLE>
- --------
(1) As of period end. Includes defaulted contracts not yet liquidated.
(2) As a percentage of the total number of contracts being serviced as of
period end.
(3) Does not include any estimated losses for defaulted contracts not yet
liquidated. The calculation of net loss on FHA-insured Contracts includes
unpaid interest to the date of FHA claim submission and all expenses of
liquidation, and reflects proceeds of FHA Insurance claims paid.
(4) As a percentage of the principal amount of contracts being serviced as of
period end.
The Company's management is not aware of any trends or anomalies which have
adversely affected the delinquency, loan default and loss experience of its
portfolio of home improvement contracts.
The data presented in the foregoing tables are for illustrative purposes only
and there is no assurance that the delinquency, loan loss or liquidation
experience of the Contracts will be similar to that set forth above. Moreover,
since the Company began originating and purchasing FHA-insured home improvement
contracts in April 1989, and secured and unsecured conventional home
improvement contracts in September 1992, it is likely that the Company's
portfolio is not yet sufficiently seasoned to show the delinquencies and losses
that would be experienced if such data were collected over a longer period of
time. Because the Company began originating and purchasing conventional home
improvement contracts in September 1992, the data presented in the foregoing
tables do not reflect any significant experience with conventional home
improvement contracts. Moreover, such data have not been presented separately
for conventional home
18
<PAGE>
improvement contracts based upon the Company's determination that such data is
not statistically meaningful.
YIELD AND PREPAYMENT CONSIDERATIONS
The yield on any Certificate will depend on the price paid by the
Certificateholder, the timing of principal payments, and the timing and amount
of any liquidation losses on the Contracts.
The "Initial Principal Amount" of the Certificates ($134,096,835.87) equals
the aggregate of principal payments due on the Contracts as of the Cutoff Date.
The "Monthly Principal" distributable to Certificateholders on any Payment Date
will be, subject to the limit of available funds in the Collection Account
(including funds received from the Cash Collateral Account) after taking into
account the distribution of Monthly Interest, the sum of (a) the amount of
regular principal payments on Contracts paid or applied in respect of the prior
Due Period; (b) the amount of full Principal Prepayments received and partial
Principal Prepayments applied during the prior Due Period; (c) the principal
portion of all payments that were Delinquent Payments as of the end of the
prior Due Period; (d) the unpaid principal balance of all Contracts that became
Liquidated Contracts during the prior Due Period; (e) the principal portion of
the Repurchase Price paid by the Company to repurchase Contracts for breach of
representations and warranties, as described under "Description of the
Certificates--Conveyance of Contracts"; (f) the amount of any reduction in the
principal amount deemed owed on a Contract as a result of the Obligors
bankruptcy; and (g) any principal amount specified in clauses (a) through (f)
that was not previously distributed because of an insufficient amount of funds
available in the Collection Account. A "Liquidated Contract" is a defaulted
Contract as to which the Servicer has received all amounts which the Servicer
reasonably and in good faith expects to recover from or on account of such
Contract, or, in the case of an FHA-insured Contract, either FHA has paid the
claim or the Servicer has determined in good faith that FHA will not pay the
claim. The "Principal Balance" at any time means the Initial Principal Amount
minus all prior payments of Monthly Principal actually made.
Higher than expected "Principal Prepayments" (payments received from
Obligors, other than regular payments of principal, which are applied upon
receipt or, in the case of partial prepayments, upon the next scheduled payment
date for such Contract, to reduce the outstanding principal balance on the
Contracts) will increase the yield on Certificates purchased at a price less
than the undivided ownership interest in the aggregate principal balance of the
Contracts represented by such Certificates and will decrease the yield on
Certificates purchased at a price greater than the undivided ownership interest
in the aggregate principal balance of the Contracts represented by such
Certificates. The Company has no significant experience with respect to the
rate of Principal Prepayments on home improvement contracts. Because the
Contracts have scheduled due dates throughout the calendar month, and because
all Principal Prepayments are passed through to Certificateholders on the
Payment Date following the Due Period in which such Principal Prepayment
occurred, prepayments on the Contracts would affect the amount of funds
available to make distributions on the Certificates on any Payment Date only if
a substantial portion of the Contracts prepaid prior to their respective due
dates in a particular month (thus paying less than 30 days' interest for that
Due Period) while very few Contracts prepaid after their respective due dates
in that month. In addition, liquidations of Defaulted Contracts or the
Servicer's exercise of its option to repurchase the entire remaining pool of
Contracts (see "Description of the Certificates--Repurchase Option") will
affect the timing of principal distributions on the Certificates. Prepayments
on mortgage loans and other consumer installment obligations are commonly
measured relative to a prepayment standard or model. The Constant Prepayment
Rate ("CPR") model assumes that the outstanding principal balance of a pool of
loans prepays at a specified constant annual rate. The Certificates were priced
using a prepayment assumption of % CPR, or an assumption that % of the
outstanding principal balance of the pool of Contracts will be prepaid over the
course of a year. There can be no assurance that the Contracts will prepay at
such rate, and it is unlikely that prepayments or liquidations of the Contracts
will occur at any constant rate.
19
<PAGE>
The amount of "Monthly Interest" passed through to Certificateholders on any
Payment Date will be, subject to the limit of available funds in the Collection
Account (including funds received from the Cash Collateral Account), the
product of the Pass-Through Rate and the Principal Balance immediately
following the preceding Payment Date, based on a 360-day year consisting of 12
months of 30 days each. As required by applicable state laws, interest paid by
Obligors on the Contracts is computed according to the simple interest method.
Principal and interest payable on the Certificates will be computed according
to the actuarial method.
The final scheduled payment date on the Contract with the latest maturity is
in February 2014.
GREEN TREE FINANCIAL CORPORATION
GENERAL
The Company is a Minnesota corporation which, as of December 31, 1993, had
total assets of approximately $1,739,502,000 and stockholders' equity of
approximately $549,429,000. The Company purchases, pools, sells and services
conditional sales contracts for manufactured homes and other consumer
installment sales contracts. The Company is currently the largest servicer of
government-insured manufactured housing contracts, and is one of the largest
servicers of conventional manufactured housing contracts, in the United States.
The Company began financing FHA-insured home improvement loans in April 1989
and conventional home improvement loans in September 1992. Currently, the
Company also purchases, pools and services installment sales contracts for
motorcycles and continues to service recreational vehicle installment sales
contracts previously originated. It also finances certain recreational sports
vehicles manufactured by Polaris Industries, L.P., Limited Partnership, and
horse trailers produced by other manufacturers. The Company's principal
executive offices are located at 1100 Landmark Towers, 345 St. Peter Street,
St. Paul, Minnesota 55102-1639 (telephone (612) 293-3400). The Company's
quarterly and annual reports are available from the Company upon written
request made to the Company.
CONTRACT ORIGINATION
Through its centralized loan processing operations, the Company arranges to
purchase certain contracts from home improvement contractors located throughout
the United States. The Company's business development managers contact home
improvement contractors and explain the Company's available financing plans,
terms, prevailing rates and credit and financing policies. If the contractor
wishes to utilize the Company's available customer financing, the contractor
must make an application for contractor approval. The Company has a contractor
approval process pursuant to which the financial condition, business experience
and qualifications of the contractor are reviewed prior to his or her approval
to sell Contracts to the Company. In addition, the Company has a centralized
compliance group which reviews and updates contractor financial condition and
reviews contractors on an annual basis to determine whether such contractor's
approval will be continued. The Company also reviews monthly contractor trend
reports which show the default and delinquency trends of the particular
contractor with respect to contracts sold to the Company. The Company
occasionally will originate directly a home improvement promissory note
involving a home improvement transaction.
All contracts that the Company originates are written on forms provided by
the Company and are purchased on an individually approved basis in accordance
with the Company's guidelines. The contractor submits the customer's credit
application and construction contract to the Company's office where an analysis
of the creditworthiness of the customer is made. The analysis includes a review
of the customer's paying habits, length and likelihood of continued employment
and certain other procedures, including the percentage of the customer's
monthly payments on long term debts to gross monthly income, which may not
exceed 45%. Senior management may approve deviations from the Company's
guidelines on a case-by-case basis.
20
<PAGE>
The original principal amount of a single-family FHA-insured home improvement
contract currently may not exceed $25,000 without specific FHA approval, with a
maximum term of 20 years. FHA will insure loans of up to $17,500 for
manufactured homes which qualify as real estate under applicable state law and
loans of up to $12,000 per unit or a $48,000 limit for four units of owner-
occupied multiple-family homes. The original principal amount of a conventional
secured home improvement loan may not exceed $30,000 for the Company's secured
"no equity" program, and $100,000 for the Company's secured lien program,
unless a higher amount financed is approved by senior management. The original
principal amount of a conventional unsecured home improvement loan may not
exceed $10,000. The Company requires that any secured home improvement contract
be secured by a recorded lien (which may be a first, second or third lien) on
the improved real estate. Certain other criteria for home improvement contracts
eligible for FHA Insurance are described under the caption "Description of FHA
Insurance." If the Company determines that the application meets the Company's
underwriting guidelines and applicable FHA regulations (for FHA-insured
contracts) and the credit is approved, the Company purchases the contract from
the contractor when the customer verifies satisfactory completion of the work,
or, in the case of staged funding, the Company follows up with the customer for
the completion certificate 60 days after funding.
The Company began financing conventional home improvement loans in September
1992. Conventional home improvement loans are not insured by FHA. Many of the
conventional Contracts in the Trust are either secured 90% loan-to-value
Contracts or secured 80% loan-to-value Contracts. The Company also has a
special secured program for certain types of larger remodeling projects. The
secured lien program generally allows a maximum loan amount of up to $100,000
on an owner-occupied one- to four-family residence, with a first, second or
third lien on the real estate. The value of the home is determined by an
appraisal as described below, with an additional 70% of the loan amount added
to the appraisal to reflect the value of the improvement financed for loans up
to $50,000. For loan amounts of $30,000 and under, a drive-by appraisal by a
state certified and licensed appraiser, tax assessment or Uniform Residential
Appraisal Report ("URAR") is required. For loan amounts over $30,000, a full
URAR is required. Title insurance is required on all loan amounts of $30,000 or
more.
The "no equity" program allows an amount financed from $5,000 to $30,000, or
higher with senior management approval. Eligible property includes an owner-
occupied single family home, with a first or second lien on the real estate,
and only certain types of improvements may be financed.
The unsecured conventional program allows for an amount financed from $2,500
to $10,000. The allowable term of unsecured contracts is 24 to 120 months.
Eligible property includes an owner-occupied single family home, up to a four
unit multiple-family dwelling or owner-occupied condominiums and town houses
and owner-occupied manufactured homes located in Company-approved parks or
attached to the real estate.
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 the material provisions of the
Agreement, reference to which is hereby made for a complete recital of its
terms.
GENERAL
The Certificates will be issued in fully registered, certificated form only
and will represent fractional undivided interests in the Trust. The
Certificates will be issued in denominations of $1,000 and any integral
21
<PAGE>
multiple thereof, except for one Certificate with a denomination representing
the remainder of the Initial Principal Amount. The Certificates (other than the
single Certificate referred to in the preceding sentence) initially will be
represented by one or more certificates registered in the name of Cede as the
nominee of DTC, and will only be available in the form of book-entries on the
records of DTC and participating members thereof. See "Description of
Certificates--Registration of the Certificates." The Trust consists of the
Contracts and the rights, benefits, obligations and proceeds arising therefrom
or in connection therewith, including, with respect to the Secured Contracts,
liens on the related real estate, rights under applicable FHA Insurance for
FHA-insured Contracts, amounts held for the Trust in the Collection Account,
the right to receive payments upon demand from the Cash Collateral Account and
the Limited Guaranty of the Company.
Distributions of Monthly Principal and Monthly Interest on the Certificates
will be made by the Paying Agent on each Payment Date to persons in whose names
the Certificates are registered as of the Business Day immediately preceding
such Payment Date (the "Record Date"). See "Description of Certificates--
Registration of the Certificates." The first Payment Date for the Certificates
will be April 15, 1994. Payments of Monthly Principal and Monthly Interest will
be made by check mailed to such Certificateholder at the address appearing on
the Certificate Register (except that a Certificateholder may request payment
by wire transfer). Final payments of Monthly Principal and Monthly Interest
will be made only upon tender of the Certificates to the Trustee for
cancellation.
CONVEYANCE OF CONTRACTS
On the Closing Date, the Company will establish the Trust and transfer,
assign, set over and otherwise convey to the Trust all right, title and
interest of the Company in the Contracts, including all principal and interest
received on or with respect to the Contracts (other than receipts of principal
and interest due on the Contracts before the Cutoff Date). On behalf of the
Trust, as the issuer of the Certificates offered hereby, the Trustee,
concurrently with such conveyance, will execute and deliver the Certificates to
or upon the order of the Company. The Contracts are described on a list
delivered to the Trustee and certified by a duly authorized officer of the
Company. Such list includes the amount of monthly payments due on each Contract
as of the date of issuance of the Certificates, the Contract Interest Rate on
each Contract and the maturity date of each Contract. Such list will be
attached as an exhibit to the Agreement and will be available for inspection by
any Certificateholder at the principal office of the Company. Prior to the
conveyance of the Contracts to the Trust, the Company's internal audit
department will have completed a review of all the Contract files, confirming
the accuracy of each item on the list of Contracts delivered to the Trustee.
Any Contract discovered not to agree with such list in a manner that is
materially adverse to the interests of the Certificateholders will be
repurchased by the Company, or, if the discrepancy relates to the unpaid
principal balance of a Contract, the Company may deposit cash in the Collection
Account in an amount sufficient to offset such discrepancy.
The Trustee will maintain possession of the Contracts and any other documents
contained in the Contract files. A Uniform Commercial Code financing statement
will be filed in Minnesota, reflecting the conveyance and assignment of the
Contracts to the Trustee, and the Company's accounting records and computer
systems will also reflect such conveyance and assignment.
Dorsey & Whitney, counsel to the Company, will render an opinion to the
Trustee that the transfer of the Contracts from the Company to the Trust would,
in the event the Company became a debtor under the United States Bankruptcy
Code, be treated as a true sale and not as a pledge to secure borrowings. If,
however, the transfer of the Contracts from the Company to the Trust were
treated as a pledge to secure borrowings by the Company, the distribution of
proceeds of the Contracts to the Trust might be subject to the automatic stay
provisions of the United States Bankruptcy Code, which would delay the
distribution of such proceeds for an uncertain period of time. In addition, a
bankruptcy trustee would have the power to sell the Contracts if the proceeds
of such sale could satisfy the amount of the debt deemed owed by the Company,
22
<PAGE>
or the bankruptcy trustee could substitute other collateral in lieu of the
Contracts to secure such debt, or such debt could be subject to adjustment by
the bankruptcy trustee if the Company were to file for reorganization under
Chapter 11 of the United States Bankruptcy Code.
The Company will make certain representations and warranties in the Agreement
with respect to each Contract, including that: (a) as of the Cutoff Date the
most recent scheduled payment was made or was not delinquent more than 59 days;
(b) no provision of a Contract has been waived, altered or modified in any
respect, except by instruments or documents included in the Contract file and
reflected on the list of Contracts delivered to the Trustee; (c) each Contract
is a legal, valid and binding obligation of the Obligor and is enforceable in
accordance with its terms (except as may be limited by laws affecting creditors
rights generally); (d) no Contract is subject to any right of rescission, set-
off, counterclaim or defense; (e) each Contract (if an FHA-insured Contract)
was originated in accordance with applicable FHA regulations and is insured,
without set-off, surcharge or defense, by FHA Insurance; (f) each Contract was
originated by a home improvement contractor in the ordinary course of such
contractors business or was originated by the Company directly; (g) no Contract
was originated in or is subject to the laws of any jurisdiction whose laws
would make the transfer of the Contract or an interest therein pursuant to the
Agreement or the Certificates unlawful; (h) each Contract complies with all
requirements of law; (i) no Contract has been satisfied, subordinated to a
lower lien ranking than its original position (if any) or rescinded; (j) each
Secured Contract creates a valid and perfected lien on the related improved
real estate; (k) all parties to each Contract had full legal capacity to
execute such Contract; (l) no Contract has been sold, conveyed and assigned or
pledged to any other person and the Company has good and marketable title to
each Contract free and clear of any encumbrance, equity, loan, pledge, charge,
claim or security interest, and is the sole owner and has full right to
transfer such Contract to the Trustee; (m) as of the Cutoff Date there was no
default, breach, violation or event permitting acceleration under any Contract
(except for payment delinquencies permitted by clause (a) above), no event that
with notice and the expiration of any grace or cure period would constitute a
default, breach, violation or event permitting acceleration under such
Contract, and the Company has not waived any of the foregoing; (n) each
Contract is a fully-amortizing loan with a fixed rate of interest and provides
for level payments over the term of such Contract; (o) each Secured Contract
contains customary and enforceable provisions such as to render the rights and
remedies of the holder thereof adequate for realization against the collateral;
(p) the description of each Contract set forth in the list delivered to the
Trustee is true and correct; (q) there is only one original of each Contract;
and (r) each Contract was originated or purchased in accordance with the
Company's then-current underwriting guidelines. The Company will also make
certain representations and warranties with respect to the Contracts in the
aggregate, including that (i) the aggregate principal amount payable by the
Obligors as of the Cutoff Date equals the Initial Principal Amount of the
Certificates, and each Contract has a contractual rate of interest of at least
8.49%; (ii) no Contract has a remaining maturity of more than 240 months; (iii)
no more than 5% of the Contracts, by principal balance as of the Cutoff Date,
were secured by properties located in an area with the same zip code; and (iv)
no adverse selection procedures were employed in selecting the Contracts from
the Company's portfolio.
Under the terms of the Agreement, the Company has agreed to repurchase, at
the Repurchase Price, any Contract that is materially and adversely affected by
a breach of a representation and warranty with respect to such Contract made in
the Agreement if such breach has not been cured within 90 days. This repurchase
obligation constitutes the sole remedy available to the Trust and the
Certificateholders for a breach of a representation or warranty under the
Agreement with respect to the Contracts (but not with respect to any other
breach by the Company of its obligations under the Agreement).
The "Repurchase Price" of a Contract at any time means the outstanding
principal amount of such Contract (without giving effect to any Advances made
by the Servicer or the Trustee), plus interest at the Pass-Through Rate on such
Contract from the end of the Due Period with respect to which the Obligor last
made a payment (without giving effect to any Advances made by the Servicer or
the Trustee) through the end of the immediately preceding Due Period.
23
<PAGE>
Pursuant to the Agreement, the Servicer will service and administer the
Contracts conveyed and assigned to the Trustee as more fully set forth below.
PAYMENTS ON CONTRACTS; DISTRIBUTIONS ON CERTIFICATES
The Servicer, on behalf of the Trust, will establish and maintain the
Collection Account at a depository institution (initially First Bank National
Association, Minneapolis, Minnesota) with trust powers organized under the laws
of the United States or any state, the deposits of which are insured to the
full extent permitted by law by the Federal Deposit Insurance Corporation (the
"FDIC "), whose short-term debt (or, in the case of the principal bank in a
bank holding company system, the short-term debt of such bank or the bank
holding company) has a rating of A-1 or higher from S&P, and which is subject
to examination by federal or state authorities (an "Eligible Institution"). The
Servicer may authorize the Trustee to invest the funds in the Collection
Account in Eligible Investments (as defined in the Agreement) that will mature
not later than the business day preceding the applicable monthly Payment Date.
Such Eligible Investments include, among other investments, obligations of the
United States or of any agency thereof backed by the full faith and credit of
the United States, federal funds, certificates of deposit, time deposits and
bankers acceptances sold by eligible commercial banks; any other demand or time
deposit or certificate of deposit fully insured by the FDIC; investments in
certain money-market funds; certain repurchase agreements of United States
government securities with eligible commercial banks; corporate securities
assigned the highest rating by S&P not in excess of 10% of amounts in the
Collection Account at the time of such investment or pledge as security; and
commercial paper assigned a rating of at least A-1 by S&P. Any losses on such
investments will be deducted from other investment earnings or from other funds
in the Collection Account.
All receipts by the Servicer of payments with respect to the Contracts,
including Principal Prepayments and advance payments by Obligors not
constituting Principal Prepayments ("Advance Payments"), shall be paid into the
Collection Account no later than one business day following receipt thereof,
except amounts received as extension fees not allocated to regular installments
due on Contracts, which are retained by the Company as part of its servicing
fees and are not paid into the Collection Account. See "Description of the
Certificates--Servicing Compensation and Payment of Expenses." In addition, all
payments under FHA Insurance received by the Servicer, any Advances by the
Servicer or the Trustee as described under "Description of the Certificates--
Advances," amounts received by the Trustee from the Cash Collateral Account as
described under "Description of the Cash Collateral Guaranty," and amounts paid
by the Company for Contracts repurchased as a result of breach of warranties
under the Agreement as described under "Description of the Certificates--
Conveyance of Contracts," shall be paid into the Collection Account.
On the seventh Business Day of each month (the "Determination Date"), the
Servicer will determine the amount of funds in the Collection Account (other
than amounts attributable to Advance Payments and regular payments received
subsequent to the end of the immediately preceding Due Period) (the "Collected
Amount") and the amount of funds necessary to make all payments to be made on
the next Payment Date from the Collection Account. Not later than one Business
Day after the Determination Date, the Company will deposit in the Collection
Account the Repurchase Price of any Contracts required to be repurchased on
such Payment Date as a result of a breach of representations and warranties.
On each Payment Date the Trustee will withdraw such funds from the Collection
Account as are necessary to make the following payments, in the following order
of priority:
(a) to pay Monthly Interest;
(b) to pay Monthly Principal;
(c) to pay the Monthly Servicing Fee to the Servicer;
(d) to reimburse the Trustee or any successor Servicer for any payments
of FHA Insurance premiums not paid by the Company, as Servicer, and for
which the Trustee or such successor Servicer has not been reimbursed by the
Company;
24
<PAGE>
(e) to reimburse the Servicer or the Trustee, as applicable, for
Uncollectible Advances and prior Advances that have been recovered;
(f) to pay the remainder, if any, of the Available Funds (the "Excess
Cashflow") to the Cash Collateral Trustee, as the holder of the
Subordinated Certificate, for disposition in accordance with the Cash
Collateral Trust Agreement.
ADVANCES
To the extent that collections on a Contract in any Due Period are less than
the scheduled payment due thereon, the Servicer will be obligated to make an
advance of the uncollected portion of such scheduled payment. The Servicer will
be obligated to advance a delinquent payment on a Contract only to the extent
that the Servicer, in its sole discretion, expects to recoup such Advance from
subsequent collections on the Contract or from liquidation proceeds thereof.
The Servicer will deposit any Advances in the Collection Account no later than
one Business Day before the following Payment Date. The Servicer will be
entitled to recoup its advances on a Contract from subsequent payments by or on
behalf of the Obligor and from liquidation proceeds (including FHA Insurance
payments, if applicable, or foreclosure resale proceeds) of the Contract, and
will release its right to reimbursements in conjunction with the purchase of
the Contract by the Company for breach of representations and warranties. If
the Servicer determines in good faith that an amount previously advanced will
not ultimately be recoverable from payments by or on behalf of the Obligor or
from liquidation proceeds (including FHA Insurance payments or foreclosure
resale proceeds) of the Contract (an "Uncollectible Advance"), the Servicer
will be entitled to reimbursement from payments on other Contracts or from the
Cash Collateral Account.
If the Servicer fails to make an Advance required under the Agreement, the
Trustee will be obligated to deposit the amount of such Advance in the
Collection Account on the Payment Date. The Trustee will not, however, be
obligated to deposit any such amount if (i) the Trustee does not expect to
recoup such Advance, or (ii) the Trustee determines that it is not legally able
to make such Advance.
REPORTS TO CERTIFICATEHOLDERS
The Servicer will include with each distribution to a Certificateholder a
statement as of such Payment Date setting forth:
(a) the amount of such distribution which constitutes Monthly Principal,
specifying the amounts constituting scheduled payments by Obligors,
Principal Prepayments on the Contracts, and other payments with respect to
the Contracts;
(b) the amount of such distribution which constitutes Monthly Interest;
(c) the remaining Principal Balance represented by such
Certificateholder's interest;
(d) the Company's FHA Insurance reserve amount;
(e) the Average Sixty-Day Delinquency Ratio, the Cumulative Realized Loss
Ratio, the Requisite Amount, the amount deposited in the Cash Collateral
Account (if any) and the Available Cash Collateral Amount;
(f) the amount of fees payable out of the Trust;
(g) the Pool Factor (a percentage derived from a fraction the numerator
of which is the remaining Principal Balance of the Certificates and the
denominator of which is the Initial Principal Amount of the Certificates)
immediately before and immediately after such Payment Date;
(h) the number and aggregate principal balance of Contracts delinquent
(i) 31-59 days, (ii) 60-89 and (iii) 90 or more days;
(i) the number of Contracts liquidated during the Due Period ending
immediately before such Payment Date;
25
<PAGE>
(j) such customary factual information as is necessary to enable
Certificateholders to prepare their tax returns; and
(k) such other customary factual information available to the Servicer
without unreasonable expense as is necessary to enable Certificateholders
to comply with regulatory requirements.
REPURCHASE OPTION
The Agreement provides that on any Payment Date on which the Principal
Balance is less than 10% of the Initial Principal Amount of the Certificates,
the Servicer will have the option to repurchase, on 20 days prior written
notice to the Trustee, all outstanding Contracts at a price equal to the
principal balance of the Contracts on the prior Payment Date plus accrued
interest thereon, plus the fair market value (as determined by the Servicer) of
any acquired properties. Such price will be paid on the Payment Date to the
Certificateholders of record on the last Business Day of the immediately
preceding Due Period in immediately available funds against the Trustee's
delivery of the Contracts to the Servicer.
COLLECTION AND OTHER SERVICING PROCEDURES
The Servicer will manage, administer, service and make collections on the
Contracts, exercising the degree of skill and care required by FHA and
otherwise consistent with the highest degree of skill and care that the
Servicer exercises with respect to similar contracts (including manufactured
housing contracts) serviced by the Servicer. The Servicer will not be required
to cause to be maintained, or otherwise monitor the maintenance of, hazard
insurance on the improved properties, but is required under FHA regulations to
monitor and ensure the maintenance of flood insurance on properties securing
FHA-insured Contracts located in federally designated special flood hazard
areas. The Company does, however, as a matter of its own policy, monitor proof
of hazard insurance coverage (other than flood insurance) and require that it
be named as an additional loss payee on all first lien secured contracts and
all junior lien secured contracts with amounts financed of over $20,000.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Servicer will receive a Monthly Servicing Fee for each Due Period (paid
on the next succeeding Payment Date) equal to one-twelfth of the product of
.75% and the remaining Principal Balance.
The Monthly Servicing Fee provides compensation for customary third-party
servicing activities to be performed by the Servicer for the Trust, for
additional administrative services performed by the Servicer on behalf of the
Trust and for expenses paid by the Servicer on behalf of the Trust.
Customary servicing activities include collecting and recording payments,
communicating with Obligors, investigating payment delinquencies, providing
billing and tax records to Obligors and maintaining internal records with
respect to each Contract. Administrative services performed by the Servicer on
behalf of the Trust include selecting and packaging the Contracts, calculating
distributions to Certificateholders and providing related data processing and
reporting services for Certificateholders and on behalf of the Trustee.
Expenses incurred in connection with servicing of the Contracts and paid by the
Company from its servicing fees include payment of FHA Insurance premiums,
payment of fees and expenses of accountants, payments of all fees and expenses
incurred in connection with the enforcement of Contracts or (in the case of
Secured Contracts) foreclosure on collateral relating thereto (including
submission of FHA Insurance claims, if applicable), payment of Trustees fees,
and payment of expenses incurred in connection with distributions and reports
to Certificateholders.
EVIDENCE AS TO COMPLIANCE
The Agreement provides for delivery to the Trustee of a monthly report by the
Servicer no later than one Business Day following each Determination Date,
setting forth the information described under
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"--Reports to Certificateholders." Each 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, beginning in 1995, the Servicer will deliver to the
Trustee a report of KPMG Peat Marwick, or another nationally recognized
accounting firm, stating that such firm has examined the Servicer's servicing
records with respect to home improvement contracts serviced by the Servicer and
stating that, on the basis of such examination, such servicing has been
conducted in compliance with the Agreement, except for any exceptions set forth
in such report.
The Agreement provides that the Servicer shall furnish to the Trustee such
reasonably pertinent underlying data as can be generated by the Company's
existing data processing system without undue modification or expense.
The Agreement provides that a Certificateholder holding Certificates
evidencing at least 5% of the interests in the Trust will have the same rights
of inspection as the Trustee and may upon written request to the Servicer
receive copies of all reports provided to the Trustee.
TRANSFERABILITY
The certificates are subject to certain restrictions on transfer to or for
the benefit of employee benefit plans, trusts or accounts subject to ERISA and
described in Section 4975 of the Code. See "ERISA Considerations."
CERTAIN MATTERS RELATING TO THE COMPANY
The Agreement provides that the Company may not resign from its obligations
and duties as Servicer thereunder, except upon a determination that the
Company's performance of such duties is no longer permissible under the
Agreement or applicable law, and prohibits the Company from extending credit to
any Certificateholder for the purchase of a Certificate, purchasing
Certificates in any agency or trustee capacity or lending money to the Trust.
The Company can be removed as Servicer only pursuant to an Event of Termination
as discussed below.
EVENTS OF TERMINATION
An Event of Termination under the Agreement will occur if (a) the Servicer
fails to make any payment or deposit required under the Agreement (including an
Advance) and such failure continues for four business days; (b) the Servicer
fails to observe or perform in any material respect any other covenant or
agreement in the Agreement which continues unremedied for thirty days; (c) the
Servicer conveys, assigns or delegates its duties or rights under the
Agreement, except as specifically permitted under the Agreement, or attempts to
make such a conveyance, assignment or delegation; (d) a court having
jurisdiction in the premises enters a decree or order for relief in respect of
the Servicer in an involuntary case under any applicable bankruptcy, insolvency
or other similar law now or hereafter in effect, or appoints a receiver,
liquidator, assignee, custodian, trustee, or sequestrator (or similar official)
of the Servicer, as the case may be, or enters a decree or order for any
substantial liquidation of its affairs; (e) the Servicer commences a voluntary
case under any applicable bankruptcy, insolvency or similar law, or consents to
the entry of an order for relief in an involuntary case under any such law, or
consents to the appointment of or taking possession by a receiver, liquidator,
assignee, trustee, custodian or its creditors, or fails to, or admits in
writing its inability to, pay its debts as they become due, or takes any
corporate action in furtherance of the foregoing; (f) the Servicer fails to be
an Eligible Servicer; or (g) the Servicer's seller-servicer contract with GNMA
is terminated. The Servicer will be required under the Agreement to give the
Trustee and the Certificateholders notice of an Event of Termination promptly
upon the occurrence of such Event.
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RIGHTS UPON AN EVENT OF TERMINATION
If an Event of Termination has occurred and is continuing, either the Trustee
or holders of Certificates evidencing 25% or more of the Trust may terminate
all of the Servicer's management, administrative, servicing and collection
functions under the Agreement. Upon such termination, the Trustee or its
designee will succeed to all the responsibilities, duties and liabilities of
the Company as Servicer under the Agreement and will be entitled to similar
compensation arrangements; provided, however, that neither the Trustee nor any
successor Servicer will assume any accrued obligation of the Company or any
obligation to repurchase Contracts for breach of representations and
warranties, and the Trustee will not be liable for any acts or omissions of the
Company occurring prior to a transfer of the Company's servicing and related
functions or for any breach by the Company of any of its representations and
warranties contained in the Agreement or any related document or agreement. In
addition, the Trustee will notify FHA of the Company's termination as Servicer
of the Contracts and will request that the portion of the Company's FHA
Insurance reserves allocable to the FHA-insured Contracts be transferred to the
Trustee or a successor Servicer. See "Description of FHA Insurance."
Notwithstanding such termination, the Company shall be entitled to payment of
certain amounts payable to it prior to such termination, for services rendered
prior to such termination. No such termination will affect in any manner the
Company's obligation to repurchase certain Contracts for breaches of warranties
under the Agreement. In the event that the Trustee is unwilling or unable so to
act, it may appoint, or petition a court of competent jurisdiction for the
appointment of, an Eligible Servicer to act as successor to the Company in its
capacity as servicer under the Agreement. The Trustee and such successor may
agree upon the servicing compensation to be paid (after receiving comparable
bids from other Eligible Servicers), which may not be greater than the Monthly
Servicing Fee payable to the Company under the Agreement.
TERMINATION OF THE AGREEMENT
The Agreement will terminate (after distribution of all Monthly Principal and
Monthly Interest then due to Certificateholders) on the earlier of (a) the
Payment Date on which the Principal Balance is reduced to zero; or (b) the
Payment Date on which the Company repurchases the Contracts as described under
"Description of the Certificates--Repurchase Option." However, the Company's
representations, warranties and indemnities will survive any termination of the
Agreement.
AMENDMENT; WAIVER
The Agreement may be amended by agreement of the Trustee and the Company at
any time without the consent of the Certificateholders to cure any ambiguity,
to correct or supplement any provision which may be inconsistent with any other
provision or to add other provisions not inconsistent with the Agreement, upon
receipt of an opinion of counsel to the Company that such amendment will not
adversely affect in any material respect the interests of any
Certificateholder.
The Agreement may also be amended by agreement of the Trustee and the Company
at any time without the consent of the Certificateholders to effect the
transfer of FHA Insurance reserves to another entity in compliance with
revisions to FHA regulations, or to change the provisions of the Agreement
relating to the Cash Collateral Guaranty, provided that prior to any such
amendment S&P shall have confirmed that the rating of the Certificates will not
be lowered or withdrawn following such amendment.
The Agreement may also be amended from time to time by the Trustee and the
Company with the consent of holders of Certificates evidencing 66 2/3% or more
of the Trust, and holders of Certificates representing 66 2/3% of the Trust may
vote to waive any Event of Termination, provided that no such amendment or
waiver shall (a) reduce in any manner the amount of, or delay the timing of,
collections of payments on Contracts or distributions which are required to be
made on any Certificate, or (b) reduce the aggregate amount of Certificates
required for any amendment of the Agreement, without unanimous consent of the
Certificateholders.
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The Trustee is required under the Agreement to furnish Certificateholders
with notice promptly upon execution of any amendment to the Agreement.
INDEMNIFICATION
The Agreement provides that the Company will defend and indemnify the Trust,
the Trustee (including any agent of the Trustee) and the Certificateholders
against any and all costs, expenses, losses, damages, claims and liabilities,
including reasonable fees and expenses of counsel and expenses of litigation
(a) arising out of or resulting from the use or ownership by the Company or any
affiliate thereof of any real estate securing a Contract, (b) for any taxes
which may at any time be asserted with respect to, and as of the date of, the
conveyance of the Contracts to the Trust (but not including any federal, state
or other tax arising out of the creation of the Trust and the issuance of the
Certificates), and (c) with respect to certain other tax matters.
The Agreement also provides that the Company, in connection with its duties
as servicer of the Contracts, will defend and indemnify the Trust, the Trustee
and the Certificateholders (which indemnification will survive any removal of
the Company as servicer of the Contracts) against any and all costs, expenses,
losses, damages, claims and liabilities, including reasonable fees and expenses
of counsel and expenses of litigation, in respect of any action taken by the
Company as Servicer with respect to any Contract.
DUTIES AND IMMUNITIES OF THE TRUSTEE
The Trustee will make no representations as to the validity or sufficiency of
the Agreement, the Certificates or of any Contract, Contract file or related
documents, and will not be accountable for the use or application by the
Company of any funds paid to the Company in consideration of the conveyance of
the Contracts, or deposited into the Collection Account by the Company. If no
Event of Termination has occurred, the Trustee will be required to perform only
those duties specifically required of it under the Agreement. However, upon
receipt of the various certificates, reports or other instruments required to
be furnished to it, the Trustee will be required to examine them to determine
whether they conform as to form to the requirements of the Agreement.
Under the Agreement the Servicer will agree (a) to pay to the Trustee from
time to time reasonable compensation for all services rendered by it thereunder
(which compensation shall not be limited by any provision of law in regard to
the compensation of a trustee of an express trust); (b) to reimburse the
Trustee upon its request for all reasonable expenses, disbursements and
advances incurred or made by the Trustee in accordance with any provision of
the Agreement (including FHA Insurance premiums not paid by the Servicer and
reasonable compensation and the expenses and disbursements of its agents and
counsel), except any such expense, disbursement or advance as may be
attributable to its negligence or bad faith; and (c) to indemnify the Trustee
for, and to hold it harmless against, any loss, liability or expense incurred
without negligence or bad faith on its part, arising out of or in connection
with the acceptance or administration of the Trust and its duties thereunder,
including the costs and expenses of defending itself against any claim or
liability in connection with the exercise or performance of any of its powers
or duties thereunder.
The Trustee is not obligated to expend or risk its own funds or otherwise
incur financial liability in the performance of its duties under the Agreement
if there is a reasonable ground for believing that the repayment of such funds
or adequate indemnity against such risk or liability is not reasonably assured.
The Agreement also provides that the Trustee will maintain at its expense in
Minneapolis or St. Paul, Minnesota, an office or agency where Certificates may
be surrendered for registration of transfer or exchange and where notices and
demands to or upon the Trustee and the certificate registrar and transfer agent
in respect of the Certificates pursuant to the Agreement may be served. On the
date hereof the Trustees office for such purposes is located at 180 East Fifth
Street, St. Paul, Minnesota 55101. The Trustee will promptly give written
notice to the Company and the Certificateholders of any change thereof.
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THE TRUSTEE
First Trust National Association has its corporate trust offices at 180 East
Fifth Street, St. Paul, Minnesota 55101.
The Trustee may resign at any time, in which event the Servicer will be
obligated to appoint a successor Trustee. The Servicer may also remove the
Trustee if the Trustee ceases to be eligible to continue as such under the
Agreement or if the Trustee becomes insolvent. In such circumstances, the
Servicer will also be obligated to appoint a successor Trustee. Any
resignation or removal of the Trustee and appointment of a successor Trustee
will not become effective until acceptance of the appointment by the successor
Trustee. Any successor Trustee must be an FHA Title I approved lender.
REGISTRATION OF THE CERTIFICATES
The Certificates initially will be registered in the name of Cede & Co., the
nominee of DTC. The Certificates may be held by investors only through the
book-entry facilities of DTC in minimum denominations of $1,000 and integral
multiples thereof. DTC is a limited-purpose trust company organized under the
laws of the State of New York, a member of the Federal Reserve System, a
"clearing corporation" within the meaning of the New York Uniform Commercial
Code, and a "clearing agency" registered pursuant to the provisions of Section
17A of the 1934 Act. DTC accepts securities for deposit from its participating
organizations ("Participants") and facilitates the clearance and settlement of
securities transactions between Participants in such securities through
electronic book-entry changes in accounts of Participants, thereby eliminating
the need for physical movement of certificates. Participants include
securities brokers and dealers, banks and trust companies and clearing
corporations and may include certain other organizations. Indirect access to
the DTC system is also available to others such as banks, brokers, dealers and
trust companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly ("indirect participants").
The beneficial owners of Certificates ("Certificate Owners") who are not
Participants but desire to purchase, sell or otherwise transfer ownership of
the Certificates may do so only through Participants (unless and until
Definitive Certificates, as defined below, are issued). In addition,
Certificate Owners will receive all distributions of principal of, and
interest on, the 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 Certificates, except under the
limited circumstances described below.
Unless and until Definitive Certificates (as defined below) are issued, it
is anticipated that the only "Certificateholder" of the Certificates will be
Cede & Co., as nominee of DTC. Certificate Owners will not be recognized by
the Trustee as Certificateholders as that term is used in the Trust Agreement.
Certificate Owners are only permitted to exercise the rights of
Certificateholders indirectly through Participants and DTC.
While Certificates are outstanding (except under the circumstances described
below), under the rules, regulations and procedures creating and affecting DTC
and its operations (the "Rules"), DTC is required to make book-entry transfers
among Participants on whose behalf it acts with respect to the Certificates
and is required to receive and transmit distributions of principal of, and
interest on, the Certificates. Participants with whom Certificate Owners have
accounts with respect to Certificates are similarly required to make book-
entry transfers and receive and transmit such distributions on behalf of their
respective 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.
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 Certificates"), only if (i) DTC or the Company advise the
Trustee in writing that DTC is no longer willing or able to discharge properly
its responsibilities
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as nominee and depository with respect to the 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 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 that, unless and until Definitive Certificates
are issued, DTC will take any action permitted to be taken by a
Certificateholder under the Pooling and Servicing Agreement only at the
direction of one or more Participants to whose DTC accounts the Certificates
are credited. DTC has advised the Company that DTC will take such action with
respect to any fractional interest of the Certificates only at the direction of
and on behalf of such Participants beneficially owning a corresponding
fractional interest of the Certificates. DTC may take actions, at the direction
of the related Participants, with respect to some Certificates which conflict
with actions taken with respect to other Certificates.
Issuance of Certificates in book-entry form rather than as physical
certificates may adversely affect the liquidity of the Certificates in the
secondary market and the ability of Certificate Owners to pledge them. In
addition, since distributions on the Certificates will be made by the Trustee
to DTC and DTC will credit such distributions to the accounts of its
Participants, with the Participants further crediting such distributions to the
accounts of indirect participants or Certificate Owners, Certificate Owners may
experience delays in the receipt of such distributions.
DESCRIPTION OF FHA INSURANCE
Approximately 40.56% of the Contracts, by principal balance as of the Cutoff
Date, are insured by FHA under Title I of the National Housing Act, which
authorizes FHA to insure loans made for the alteration, repair or improvement
of residential single-family and multiple-family real estate and manufactured
homes which qualify as real estate under applicable state law, and loans for
the purchase of a manufactured home.
The insurance available to the Trust is subject to the limit of a reserve
amount equal to 10% of the principal balance of all Title I insured loans
originated or purchased and reported for FHA Insurance by the Company, which
amount will be reduced by all FHA Insurance claims paid to the Company and by
an annual reduction in the reserve amount of 10% of the reserve amount, and
which will be increased by an amount equal to 10% of the lesser of the
principal balance or the purchase price of insured loans subsequently
originated or purchased of record by the Company. The Company's reserve amount
may also be reduced by 10% of the principal balance of any loans reported to
FHA as sold without recourse by the Company. The Company will pay all FHA
Insurance premiums required by FHA Regulations. If the Company fails to pay any
such premium, the Trustee or the successor Servicer (if any) is obligated to
pay such premium and is entitled to be reimbursed by the Company and from
collections on the Contracts.
As of December 31, 1993, the Company's FHA Insurance reserve amount was equal
to approximately $134,383,000. These insurance reserves were available to cover
losses on approximately $1,783,263,000 of FHA-insured manufactured housing
contracts and approximately $237,800,000 of FHA-insured home improvement loans,
including the FHA-insured Contracts owned by the Trust. If an Event of
Termination (as defined under "Description of the Certificates--Events of
Termination") occurs, the Trustee will notify FHA of the Company's termination
as Servicer of the FHA-insured Contracts and will request that the portion of
the Company's FHA Insurance reserves allocable to the FHA-insured Contracts be
transferred to the Trustee or a successor Servicer. Although the Trustee will
request such a transfer of reserves, FHA is not obligated to comply with such a
request, and may determine that it is not in FHAs interest to permit such
transfer of reserves. In addition, FHA has not specified how insurance reserves
might be allocated in such event, and there can be no assurance that any
reserve amount, if transferred to the Trustee or a successor Servicer, would
not be substantially less than 10% of the outstanding principal amount of the
FHA-insured
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Contracts. It is likely that the Trustee or any successor Servicer would be
the lender of record on other FHA Title I loans, so that any reserves that are
so permitted to be transferred would become commingled with reserves available
for other FHA Title I loans. FHA also reserves the right to transfer reserves
with "earmarking" (segregating such reserves so that they will not be
commingled with the reserves of the transferee) if it is in FHA's interest to
do so.
In general, FHA will insure property improvement loans up to $25,000 for a
single-family property, with a maximum term of 20 years. FHA will insure loans
of up to $17,500 for manufactured homes which qualify as real estate under
applicable state law and loans of up to $12,000 per unit for a $48,000 limit
for four units for owner-occupied multiple-family homes. If the loan amount is
$15,000 or more, FHA requires a drive-by appraisal, the current tax assessment
value, or a full Uniform Residential Appraisal Report dated within 12 months
of the closing to verify the property's value. The maximum loan amount on
transactions requiring an appraisal is the amount of equity in the property
shown by the market value determination of the property. The loan proceeds
must be used for the purposes described in the loan application, and those
improvements must substantially protect or improve the basic livability or
utility of the property. The Secretary of HUD from time to time publishes a
list of ineligible items and activities which may not be financed with the
proceeds of an FHA-insured home improvement loan.
Following a default on an FHA-insured Contract the Servicer may, subject to
certain conditions, either commence foreclosure proceedings against the
improved property securing the loan or submit a claim to FHA, but may submit a
claim to FHA after proceeding against the improved property only with the
prior approval of the Secretary of HUD. The availability of FHA Insurance
following a default on an FHA-insured Contract is subject to a number of
conditions, including strict compliance by the Company with FHA regulations in
originating and servicing the Contract. Failure to comply with FHA regulations
may result in a denial of or surcharge on the FHA Insurance claim. Prior to
declaring an FHA-insured Contract in default and submitting a claim to FHA,
the Servicer must take certain steps to attempt to cure the default, including
personal contact with the borrower either by telephone or in a meeting and
providing the borrower with 30 day's written notice prior to declaration of
default. FHA may deny insurance coverage if the borrower's nonpayment is
related to a valid objection to faulty contractor performance. In such event,
the Company will seek to obtain payment by or a judgment against the borrower,
and may resubmit the claim to FHA following such a judgment. As described
under "Green Tree Financial Corporation--Contract Origination," the Company
does not purchase a Contract until the customer verifies satisfactory
completion of the work.
Upon submission of a claim to FHA, the Trust must assign its entire interest
in the Contract to the United States. In general, the claim payment will equal
90% of the sum of (i) the unpaid principal amount of the Contract at the date
of default and uncollected interest computed at the Contract rate earned to
the date of default, (ii) accrued and unpaid interest on the unpaid amount of
the Contract from the date of default to the date of submission of the claim
plus 15 calendar days (but in no event more than nine months) computed at a
rate of 7% per annum, (iii) uncollected court costs, (iv) legal fees, not to
exceed $500, and (v) expenses for recording the assignment of the lien on the
improved property to the United States. Any losses on FHA-insured Contracts
not covered by FHA Insurance will be absorbed to the extent of Excess Cashflow
otherwise payable to the Cash Collateral Account or, if funds in the
Collection Account are not sufficient to pay Monthly Interest and Monthly
Principal, such losses will be covered by funds available in the Cash
Collateral Account, and then by the Limited Guaranty of the Company (subject
to the limit of the Guaranty Amount) and otherwise will be borne by
Certificateholders.
DESCRIPTION OF THE CASH COLLATERAL GUARANTY
On the Closing Date, the Cash Collateral Guaranty will be issued pursuant to
the Cash Collateral Trust Agreement among the Cash Collateral Depositor, the
Cash Collateral Trustee and the Company, as Seller and Servicer. The Cash
Collateral Guaranty will be secured by the Cash Collateral Account, which will
be
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established pursuant to the Cash Collateral Trust Agreement, and the Cash
Collateral Account will be funded on the Closing Date in the amount of $
(the "Initial Cash Collateral Amount") from the proceeds of a loan to be made
by the Cash Collateral Depositor to the Cash Collateral Trust. The Cash
Collateral Guaranty will be strictly an obligation to make payments from
amounts deposited in the Cash Collateral Account in accordance with the terms
of the Agreement and the Cash Collateral Trust Agreement, will be secured
solely with the amounts on deposit in the Cash Collateral Account, if any, and
will not be a personal obligation of the Cash Collateral Trustee. The Cash
Collateral Guaranty will not be an obligation of the Cash Collateral Depositor
(beyond the Initial Cash Collateral Amount), the Cash Collateral Trustee, the
Company, as Seller and Servicer, or the Cash Collateral Beneficiary (as defined
below). The Cash Collateral Account will be maintained with the Cash Collateral
Trustee or its designee at an Eligible Institution (initially First Bank
National Association, Minneapolis, Minnesota). The Cash Collateral Account and
any amount therein is not and will not under any circumstances be deemed to be
property of the Trust, but will be held in accordance with the Cash Collateral
Trust Agreement for the benefit of the Trustee and the Cash Collateral
Depositor, as secured parties and as provided in the Cash Collateral Trust
Agreement, and Green Tree Finance Corp. -- Two, as beneficiary of the Cash
Collateral Trust (the "Cash Collateral Beneficiary"). Any amounts remaining in
the Cash Collateral Trust upon its termination will be paid to the Cash
Collateral Beneficiary.
In the event of the Company's insolvency, if the Cash Collateral Account were
somehow deemed to be property of the Company's bankruptcy estate, payments
under the Cash Collateral Guaranty might be subject to the automatic stay
provisions of the United States Bankruptcy Code or, a bankruptcy trustee might
attempt to reduce amounts retained or required to be deposited by the Trustee
into the Cash Collateral Account if those amounts were determined by the
bankruptcy trustee to exceed amounts reasonably necessary or adequate to cover
Shortfalls which might become payable to Certificateholders out of the Cash
Collateral Account.
On each Payment Date the Cash Collateral Trustee, as the holder of the
Subordinated Certificate, will receive all Excess Cashflow, if any (as
described under "Description of the Certificates--Payments on Contracts;
Distributions on Certificates"). On each Payment Date on which the amount held
in the Cash Collateral Account is less than the Requisite Amount (as defined
below), the Cash Collateral Trustee will deposit all funds paid to it by the
Trustee or the amount necessary to cause the amount on deposit in the Cash
Collateral Account to equal the Requisite Amount, if less, in the Cash
Collateral Account. On any Payment Date when the amount held in the Cash
Collateral Account equals or exceeds the Requisite Amount, any funds paid to
the Cash Collateral Trustee by the Trustee, and any funds in the Cash
Collateral Account in excess of the Requisite Amount, will be applied by the
Trustee (i) first to pay interest and principal on the loan made to the Cash
Collateral Trust by the Cash Collateral Depositor in accordance with the terms
of such loan, and (ii) thereafter will be paid to the Cash Collateral
Beneficiary.
If the Servicer's monthly report as of any Determination Date indicates that
a Shortfall (the difference, if any, between (a) the sum of (i) the Collected
Amount in the Collection Account, plus (ii) any Advances required to be
deposited in the Collection Account by the Servicer, plus (iii) the aggregate
of the Repurchase Prices for Contracts to be repurchased by the Company for
breach of representations and warranties, and (b) the sum of (i) the Monthly
Interest and Monthly Principal to be paid to Certificateholders on the related
Payment Date, (ii) the Monthly Servicing Fee to be paid to the Servicer, (iii)
any amounts required to reimburse the Trustee for FHA Insurance premiums paid
by the Trustee, and (iv) any amounts required to reimburse the Servicer or the
Trustee for Uncollectible Advances) will occur on the related Payment Date,
then the Trustee shall, on the Business Day preceding such Payment Date, make a
demand under the Cash Collateral Guaranty in the amount of such Shortfall (or
the Available Cash Collateral Amount, if less) and deposit such funds in the
Collection Account.
The "Requisite Amount" initially equals $ and may be increased or
decreased from time to time as described below.
On each Determination Date the Servicer will be obligated to determine the
amount of the Company's FHA Insurance reserve. If on any Determination Date the
Company's FHA Insurance reserve amount is
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less than $50,000,000, or if an Event of Termination has occurred (either such
event, a "Trigger"), then (i) the Requisite Amount will be increased to $
and (ii) on each Payment Date thereafter the Trustee will deposit the entire
Excess Cashflow (to the extent necessary to cause the amount in the Cash
Collateral Account to equal the Requisite Amount) into the Cash Collateral
Account.
On the Payment Dates occurring in April 1997 and each April thereafter, the
Requisite Amount may be reduced to % of the Principal Balance as of such
Payment Date, but in no event less than $ , but only if no Trigger has ever
occurred, and only if either (i) the Cumulative Realized Loss Ratio (as defined
below) as of such Payment Date is less than 1.5% and the Average Sixty-Day
Delinquency Ratio (as defined below) as of such Payment Date is less than 3.5%,
or (ii) the Cumulative Realized Loss Ratio as of such Payment Date is less than
4.0% and the Average Sixty-Day Delinquency Ratio as of such Payment Date is
less than 2.5%.
The "Average Sixty-Day Delinquency Ratio" for any Payment Date is the
arithmetic average of the Delinquency Ratios for such Payment Date and for the
two immediately preceding Payment Dates. The "Delinquency Ratio" for any
Payment Date is a percentage, equal to the aggregate outstanding principal
balance of all Contracts that were delinquent 60 days or more as of the end of
the immediately preceding Due Period (including Defaulted Contracts that have
not yet been liquidated, but excluding Contracts that are current with respect
to rescheduled payments following the Obligor's bankruptcy) divided by the
Principal Balance immediately following such Payment Date.
The "Cumulative Realized Loss Ratio" for any Payment Date is a fraction,
expressed as a percentage, the numerator of which is the aggregate Realized
Losses for that Payment Date and all prior Payment Dates, and the denominator
of which is the Initial Principal Amount. The "Realized Losses" for any Payment
Date means the aggregate net liquidation losses for all Contracts that became
Liquidated Contracts during the immediately preceding Due Period.
Interest and principal on the loan by the Cash Collateral Depositor to the
Cash Collateral Trust will be payable solely from funds (if any) in the Cash
Collateral Account each month in excess of the Requisite Amount. In no event
will the Company, the Trust or the Certificateholders be obligated in respect
of any such loan. It is currently expected that such loan would bear interest
at a floating rate based on the Cash Collateral Depositor's cost of funds,
payable monthly, and that principal on such loan would be payable commencing in
April 1995, unless such loan is renewed. It is expected that the Cash
Collateral Depositor will have a security interest in the Cash Collateral
Account, subordinate in all respects to the security interest of the Trustee
securing the right of the Trustee to demand payments under the Cash Collateral
Guaranty.
Funds on deposit in the Cash Collateral Account will be invested in Eligible
Investments (as described herein under "Description of the Certificates--
Payments on Contracts; Distributions on Certificates"). All income on such
investments will be applied to repay the loan made by the Cash Collateral
Depositor or paid to the Cash Collateral Beneficiary, and will not be available
to cover any Shortfalls. Any losses on such investments will be deducted from
other investment earnings or from other funds in the Cash Collateral Account.
All such income or loss will be allocable to the Cash Collateral Beneficiary
for tax purposes.
At any time after the first Payment Date on which the funds in the Cash
Collateral Account equal or exceed the Requisite Amount, the Cash Collateral
Beneficiary may obtain the release to the Cash Collateral Depositor or itself
of all or a portion of the cash on deposit in the Cash Collateral Account, by
delivering to the Cash Collateral Trustee (i) a Letter of Credit that satisfies
the conditions set forth in the Cash Collateral Trust Agreement or (ii) any
other form of credit enhancement that satisfies the conditions set forth in the
Cash Collateral Trust Agreement. The cost of obtaining and maintaining any
initial or replacement Letter of Credit shall be borne solely by the Cash
Collateral Beneficiary. If the Cash Collateral Trustee receives notice that the
institution issuing such Letter of Credit is no longer a Qualified Bank and its
short-term debt is rated below A-1 by Standard & Poor's, the Cash Collateral
Trustee shall immediately notify the Cash Collateral Beneficiary. On the 30th
day following such notice (or the next business day thereafter, if such day is
not a
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Business Day), the Cash Collateral Trustee shall draw under the Letter of
Credit the full amount available under such Letter of Credit and deposit the
proceeds thereof in the Cash Collateral Account, unless prior to such date the
Cash Collateral Beneficiary shall have delivered to the Cash Collateral Trustee
a replacement or confirming Letter of Credit issued by a Qualified Bank.
DESCRIPTION OF THE LIMITED GUARANTY
FHA's regulations provide that, in order for the FHA insurance reserve amount
allocable to the Contracts to remain in the Company's aggregate insurance
reserve amount, the transfer of the Contracts to the Trust must be "with
recourse." Accordingly, the Company will provide a Limited Guaranty to the
Trust. Under the terms of the Limited Guaranty if the amount held in the Cash
Collateral Account equals zero and the Monthly Report as of any Determination
Date indicates a Shortfall, the Company is obligated, subject to the limit of
the Guaranty Amount, to pay into the Collection Account not later than one
Business Day after such Determination Date the lesser of such Shortfall or the
Guaranty Amount. The Guaranty Amount prior to the first Payment Date will equal
$544,000. Thereafter, the Guaranty Amount on each subsequent Payment Date will
equal the lesser of (i) $544,000 minus all Limited Guaranty payments made prior
to such Payment Date or (ii) 1% of the principal balance of the FHA-insured
Contracts as of such Payment Date. The Limited Guaranty will be an unfunded
general obligation of the Company.
CERTAIN LEGAL ASPECTS OF THE CONTRACTS; REPURCHASE OBLIGATIONS
As a result of the Company's conveyance and assignment of the Contracts to
the Trust, the Certificateholders, as the beneficial owners of the Trust, will
succeed collectively to all of the rights thereunder (including the right to
receive payment on the Contracts). Approximately 85.03% of the Contracts by
principal balance as of the Cutoff Date evidence both the obligation of the
Obligor to repay the loan evidenced thereby, and the grant of a lien on the
improved property to secure repayment of such loan (the "Secured Contracts").
The remaining Contracts evidence only the obligation of the Obligor to repay
the loan evidenced thereby (the "Unsecured Contracts"). With respect to the
Secured Contracts, the borrower also executes a separate mortgage, deed of
trust or security deed upon the real estate. Certain aspects of both features
of the Contracts are more fully described below.
The following discussion contains summaries of certain legal aspects of home
improvement contracts which are general in nature. These legal aspects are in
addition to the requirements of FHA regulations described in "Description of
FHA Insurance" with respect to the FHA-insured Contracts. Because such legal
aspects are governed by applicable state law (which laws may differ
substantially), the summaries do not purport to be complete nor to reflect the
laws of any particular state, nor to encompass the laws of all states in which
the real estate securing the Secured Contracts is situated. The summaries are
qualified in their entirety by reference to the applicable federal and state
laws governing the Contracts. Much of the following discussion relates to home
improvement contracts which are secured by a lien on the improved property and,
as a consequence, while of significance to the Secured Contracts, will have
little applicability to the Unsecured Contracts.
MORTGAGES AND DEEDS OF TRUST
The Secured Contracts are secured by either mortgages or deeds of trust,
depending upon the prevailing practice in the state in which the underlying
property is located, and may have first, second or third priority. A mortgage
creates a lien upon the real property described in the mortgage or deed of
trust. There are two parties to a mortgage: the mortgagor, who is the borrower,
and the mortgagee, who is the lender. In a mortgage state, the mortgagor
delivers to the mortgagee a note or retail installment contract evidencing the
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loan and the mortgage. Although a deed of trust is similar to a mortgage, a
deed of trust has three parties: the borrower, or trustor, the lender as
beneficiary, and a third-party grantee called the trustee. Under a deed of
trust, the borrower grants the property, irrevocably until the debt is paid, in
trust, generally with a power of sale, to the trustee to secure repayment of
the loan. The trustees authority under a deed of trust and the mortgagee's
authority under a mortgage are governed by law, the express provisions of the
deed of trust or mortgage, and, in some cases, the directions of the
beneficiary. Some states use a security deed or deed to secure debt which is
similar to a deed of trust except that it has only two parties: a grantor
(similar to a mortgagor) and a grantee (similar to a mortgagee). Mortgages,
deeds of trust and deeds to secure debt are not prior to liens for real estate
taxes and assessments and other charges imposed under governmental police
powers. Priority between mortgages, deeds of trust and deeds to secure debt and
other encumbrances depends on their terms in some cases and generally on the
order of recordation of the mortgage, deed of trust or the deed to secure debt
in the appropriate recording office.
SUBORDINATE MORTGAGES; RIGHTS OF SENIOR MORTGAGEES OR BENEFICIARIES
A substantial number of the mortgages and deeds of trust securing the Secured
Contracts are second or third mortgages or deeds of trust which are junior to
mortgages or deeds of trust held by other lenders or institutional investors.
The rights of the Trust (and therefore the Certificateholders), as beneficiary
under a junior deed of trust or as mortgagee under a junior mortgage, are
subordinate to those of the mortgagee or beneficiary under the senior mortgage
or deed of trust, including the prior rights of the senior mortgagee or
beneficiary to receive hazard insurance and condemnation proceeds and to cause
the property securing the Secured Contract to be sold upon default of the
mortgagor or trustor, thereby extinguishing the junior mortgagee's or junior
beneficiary's lien unless the Servicer on behalf of the Trust asserts its
subordinate interest in the property in foreclosure litigation and, possibly,
satisfies the defaulted senior loan or loans. As discussed more fully below, a
junior mortgagee or beneficiary may satisfy a defaulted senior loan in full, or
in some states may cure such default and bring the senior loan current, in
either event adding the amounts expended to the balance due on the junior loan.
Although the Company generally does not cure defaults under a senior mortgage
or deed of trust, it is the Company's standard practice to protect its interest
by attending any foreclosure sale and bidding for property only if it is in the
Company's best interests to do so.
The standard form of the mortgage or deed of trust used by most institutional
lenders, like that of the Company, confers on the mortgagee or beneficiary the
right both to receive all proceeds collected under any hazard insurance policy
and all awards made in connection with any condemnation proceedings, and to
apply such proceeds and awards to any indebtedness secured by the mortgage or
deed of trust, in such order as the mortgagee or beneficiary may determine.
Thus, in the event improvements on the property are damaged or destroyed by
fire or other casualty, or in the event the property is taken by condemnation,
the mortgagee or beneficiary under the underlying first mortgage or deed of
trust will have the prior right to collect any insurance proceeds payable under
a hazard insurance policy and any award of damages in connection with the
condemnation and to apply the same to the indebtedness secured by the first
mortgage or deed of trust. Proceeds in excess of the amount of first mortgage
indebtedness, in most cases, may be applied to the indebtedness of a junior
mortgage or deed of trust.
The form of mortgage or deed of trust used by institutional lenders may
contain a "future advance" clause, which provides, in essence, that additional
amounts advanced to or on behalf of the mortgagor or trustor by the mortgagee
or beneficiary are to be secured by the mortgage or deed of trust. The priority
of any advance made under the clause depends, in some states, on whether the
advance was an "obligatory" or "optional" advance. If the mortgagee or
beneficiary is obligated to advance the additional amounts, the advance is
entitled to receive the same priority as amounts initially advanced under the
mortgage or deed of trust, notwithstanding the fact that there may be junior
mortgages or deeds of trust and other liens which intervene between the date of
recording of the mortgage or deed of trust and the date of the future advance,
and, in some states, notwithstanding that the senior mortgagee or beneficiary
had actual knowledge of such
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intervening junior mortgages or deeds of trust and other liens at the time of
the advance. Where the mortgagee or beneficiary is not obligated to advance
additional amounts or, in some states, has actual knowledge of the intervening
junior mortgages or deeds of trust and other liens, the advance will be
subordinate to such intervening junior mortgages or deeds of trust and other
liens. Priority of advances under the clause rests, in some states, on state
statutes giving priority to all advances made under the loan agreement to a
"credit limit" amount stated in the recorded mortgage.
Another provision typically found in the form of the mortgage or deed of
trust used by most institutional lenders obligates the mortgagor or trustor to
pay before delinquency all taxes and assessments on the property and, when due,
all encumbrances, charges and liens on the property which appear prior to the
mortgage or deed of trust, to provide and maintain fire insurance on the
property, to maintain and repair the property and not to commit or permit any
waste thereof, and to appear in and defend any action or proceeding purporting
to affect the property or the rights of the mortgagee or beneficiary under the
mortgage or deed of trust. Upon a failure of the mortgagor or trustor to
perform any of these obligations, the mortgagee or beneficiary is given the
right under the mortgage or deed of trust to perform the obligation itself, at
its election, with the mortgagor or trustor agreeing to reimburse the mortgagee
or beneficiary for any sums expended by the mortgagee or beneficiary on behalf
of the mortgagor or trustor. All sums so expended by a senior mortgagee or
beneficiary become part of the indebtedness secured by the senior mortgage or
deed of trust.
FORECLOSURE
Foreclosure is a legal procedure that allows the mortgagor to recover its
mortgage debt by enforcing its rights and available remedies under the
mortgage, deed of trust, or security deed. Foreclosure of a mortgage is
generally accomplished by judicial action. Generally, the action is initiated
by the service of legal pleadings upon all parties having an interest of record
in the real property. Delays in completion of the foreclosure occasionally may
result from difficulties in locating necessary parties defendant. When the
mortgagees right to foreclosure is contested, the legal proceedings necessary
to resolve the issue can be time-consuming. After the completion of a judicial
foreclosure proceeding, the court may issue a judgment of foreclosure and
appoint a referee or other officer to conduct the sale of the property. In some
states, mortgages may also be foreclosed by advertisement, pursuant to a power
of sale provided in the mortgage. Foreclosure of a mortgage by advertisement is
essentially similar to foreclosure of a deed of trust by non-judicial power of
sale.
Foreclosure of a deed of trust or a deed to secure debt is generally
accomplished by a non-judicial trustees sale under a specific provision in the
deed of trust that authorizes the trustee to sell the property to a third party
upon any default by the borrower under the terms of the note, deed of trust, or
deed to secure debt. In certain states, such foreclosure also may be
accomplished by judicial action in the manner provided for foreclosure of
mortgages. In some states the trustee must record a notice of default and send
a copy to the borrower trustor and to any person who has recorded a request for
a copy of a notice of default and notice of sale. In addition, the trustee must
provide notice in some states to any other individual having an interest of
record in the real property, including any junior lienholders. If the deed of
trust is not reinstated within any applicable cure period, a notice of sale
must be posted in a public place and, in most states, published for a specified
period of time in one or more newspapers. In addition, some state laws require
that a copy of the notice of sale be posted on the property and sent to all
parties having an interest of record in the property.
In some states, the borrower trustor has the right to reinstate the loan at
any time following default until shortly before the trustees sale. In general,
the borrower, or any other person having a junior encumbrance on the real
estate, may, during a reinstatement period, cure the default by paying the
entire amount in arrears plus the costs and expenses incurred in enforcing the
obligation. Certain state laws control the amount of foreclosure expenses and
costs, including attorneys fees, which may be recovered by a lender.
In the case of foreclosure under either a mortgage or a deed of trust, the
sale by the referee or other designated officer, or by the trustee, is a public
sale. However, because of the difficulty a potential buyer at the sale would
have in determining the exact status of title and because the physical
condition of the property
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may have deteriorated during the foreclosure proceedings, it is not common for
a third party to purchase the property at the foreclosure sale. In some states,
potential buyers may further be unwilling to purchase a property at a
foreclosure sale as a result of the 1980 decision of the United States Court of
Appeals for the Fifth Circuit in Durrett v. Washington National Insurance
Company. The court in Durrett held that even a non-collusive, regularly
conducted foreclosure sale was a fraudulent transfer under section 67d of the
former Bankruptcy Act (section 548 of the current United States Bankruptcy
Code) and, therefore, could be rescinded in favor of the bankrupts estate, if
(i) the foreclosure sale was held while the debtor was insolvent and not more
than one year prior to the filing of the bankruptcy petition, and (ii) the
price paid for the foreclosed property did not represent "fair consideration"
("reasonably equivalent value" under the United States Bankruptcy Code).
Therefore, the lender generally purchases the property from the trustee or
referee for an amount equal to the unpaid principal amount of the note, accrued
and unpaid interest and the expenses of foreclosure. Thereafter, subject to the
right of the borrower in some states to remain in possession during the
redemption period, the lender will assume the burdens of ownership, including
obtaining hazard insurance and making such repairs at its own expense as are
necessary to render the property suitable for sale. The lender commonly will
obtain the services of a real estate broker and pay the broker a 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 lenders
investment in the property.
A second or third mortgagee (junior mortgagee) may not foreclose on the
property securing a second or first mortgage (senior mortgages) unless it
forecloses subject to the senior mortgages, in which case it must either pay
the entire amount due on the senior mortgages or make payments on the senior
mortgages in the event the mortgagor is in default thereunder, in either event
adding the amounts expended to the balance due on the junior loan, and may be
subrogated to the rights of the senior mortgagees. In addition, in the event
that the foreclosure by a junior mortgagee triggers the enforcement of a "due-
on-sale" clause in a senior mortgage, the junior mortgagee may be required to
pay the full amount of the senior mortgages to the senior mortgagees.
Accordingly, with respect to those Contracts which are second or third mortgage
loans, if the lender purchases the property, the lenders title will be subject
to all senior liens and claims and certain governmental liens.
The proceeds received by the referee or trustee from the sale are applied
first to the costs, fees, and expenses of sale and then in satisfaction of the
indebtedness secured by the mortgage or deed of trust under which the sale was
conducted. Any remaining proceeds are generally payable to the holders of
junior mortgages or deeds of trust and other liens and claims in order of their
priority, whether or not the borrower is in default. Any additional proceeds
are generally payable to the mortgagor or trustor. The payment of the proceeds
to the holders of junior mortgages may occur in the foreclosure action of the
senior mortgagee or may require the institution of separate legal proceeding.
Some states impose prohibitions or limitations on remedies available to the
mortgagee, including the right to recover the debt from the mortgagor. See "--
Anti-Deficiency Legislation and Other Limitations on Lenders" herein.
In certain jurisdictions, real property transfer or recording taxes or fees
may be imposed on the Trust with respect to its acquisition (by foreclosure or
otherwise) and disposition of real property securing a Contract, and any such
taxes or fees imposed may reduce liquidation proceeds with respect to such
property, as well as distributions payable to the Certificateholders.
SECOND OR THIRD MORTGAGES
The Secured Contracts may be secured by second or third mortgages or deeds of
trust, which are junior to first or second mortgages or deeds of trust held by
other lenders. The rights of the Certificateholders as the holders of a junior
deed of trust, junior mortgage, or junior security deed are subordinate in lien
and in payment to those of the holder of the senior mortgage, deed of trust, or
security deed including the prior rights of the senior mortgagee or beneficiary
to receive and apply hazard insurance and condemnation
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proceeds and, upon default of the mortgagor, to cause a foreclosure on the
property. Upon completion of the foreclosure proceedings by the holder of the
senior mortgage or the sale pursuant to the senior deed of trust, the junior
mortgagees or junior beneficiary's lien will be extinguished unless the junior
lienholder satisfies the defaulted senior loan or asserts its subordinate
interest in a property in foreclosure proceedings. Such extinguishment will
eliminate access to the collateral for the Secured Contract. See "--
Foreclosure" herein.
Furthermore, the terms of the junior mortgage, deed of trust, or security
deed are subordinate to the terms of the first mortgage, deed of trust, or
security deed. In the event of a conflict between the terms of the first
mortgage, deed of trust, or security deed and the junior mortgage, deed of
trust, or security deed, the terms of the first mortgage, deed of trust, or
security deed will govern generally. Upon a failure of the mortgagor or trustor
to perform any of its obligations, the senior mortgagee or beneficiary, subject
to the terms of the senior mortgage or deed of trust, may have the right to
perform the obligation itself. Generally, all sums so expended by the mortgagee
or beneficiary become part of the indebtedness secured by the mortgage or deed
of trust. To the extent a first mortgagee expends such sums, such sums will
generally have priority over all sums due under a junior mortgage, deed of
trust or security deed.
RIGHTS OF REDEMPTION
In some states, after sale pursuant to a deed of trust or foreclosure of a
mortgage, the borrower and certain foreclosed junior lienors are given a
statutory period in which to redeem the property from the foreclosure sale. In
certain other states, this right of redemption applies only to sale following
judicial foreclosure, and not to sale pursuant to a non-judicial power of sale.
In most states where the right of redemption is available, statutory redemption
may occur upon payment of the foreclosure purchase price, accrued interest and
taxes. In some states, the right to redeem is an equitable right. The effect of
a right of redemption is to diminish the ability of the lender to sell the
foreclosed property. The exercise of a right of redemption would defeat the
title of any purchaser at a foreclosure sale, or of any purchaser from the
lender subsequent to judicial foreclosure or sale under a deed of trust.
Consequently, the practical effect of the redemption right is to force the
lender to maintain the property and pay the expenses of ownership until the
redemption period has run.
ANTI-DEFICIENCY LEGISLATION AND OTHER LIMITATIONS ON LENDERS
Certain states have imposed statutory restrictions that limit the remedies of
a beneficiary under a deed of trust or a mortgagee under a mortgage. In some
states, statutes limit the right of the beneficiary or mortgagee to obtain a
deficiency judgment against the borrower following foreclosure or sale under a
deed of trust. A deficiency judgment is a personal judgment against the
borrower equal in most cases to the difference between the amount due to the
lender and the net amount realized upon the foreclosure sale.
Some state statutes may require the beneficiary or mortgagee to exhaust the
security afforded under a deed of trust or mortgage by foreclosure in an
attempt to satisfy the full debt before bringing a personal action against the
borrower. In certain other states, the lender has the option of bringing a
personal action against the borrower on the debt without first exhausting such
security; however, in some of these states, the lender, following judgment on
such personal action, may be deemed to have elected a remedy and may be
precluded from exercising remedies with respect to the security. Consequently,
the practical effect of the election requirement, when applicable, is that
lenders will usually proceed first against the security rather than bringing a
personal action against the borrower.
Other statutory provisions may limit any deficiency judgment against the
former borrower following a foreclosure sale to the excess of the outstanding
debt over the fair market value of the property at the time of such sale. The
purpose of these statutes is to prevent a beneficiary or a mortgagee from
obtaining a large deficiency judgment against the former borrower as a result
of low or no bids at the foreclosure sale.
In some states, exceptions to the anti-deficiency statutes are provided for
in certain instances where the value of the lender's security has been impaired
by acts or omissions of the borrower, for example, in the event of waste of the
property.
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In addition to anti-deficiency and related legislation, numerous other
federal and state statutory provisions, including the federal bankruptcy laws,
the federal Soldiers' and Sailors' Civil Relief Act of 1940 and state laws
affording relief to debtors, may interfere with or affect the ability of a
secured mortgage lender to realize upon its security. For example, in a Chapter
13 proceeding, the holder may not be able to obtain a lift of the automatic
stay to foreclose if the borrower has equity and the home is necessary to the
bankruptcy reorganization. A bankruptcy court may also grant the debtor a
reasonable time to cure a payment default, and in the case of a mortgage loan
not secured by the debtor's principal residence, may also reduce the monthly
payments due under such mortgage loan, change the rate of interest and alter
the mortgage loan repayment schedule.
The Internal Revenue Code of 1986, as amended, provides priority to certain
federal tax liens over the lien of the mortgage or deed of trust. The laws of
some states provide priority to certain state tax liens over the lien of the
mortgage or deed of trust. Numerous federal and some state consumer protection
laws impose substantive requirements upon mortgage lenders in connection with
the origination, servicing and the enforcement of mortgage loans. These laws
include the federal Truth in Lending Act, Real Estate Settlement Procedures
Act, Equal Credit Opportunity Act, Fair Credit Billing Act, Fair Credit
Reporting Act, state licensing requirements, and related statutes and
regulations. These federal laws and state laws impose specific statutory
liabilities upon lenders who originate or service mortgage loans and who fail
to comply with the provisions of the law. In some cases, this liability may
affect assignees of the mortgage loans.
The so-called "Holder-in-Due-Course" rule of the Federal Trade Commission is
intended to defeat the ability of the transferor of a consumer credit contract
which is the seller of goods which gave rise to the transaction (and certain
related lenders and assignees) to transfer such contract free of notice of
claims by the debtor thereunder. The effect of this rule is to subject the
assignee of a Contract to all claims and defenses which the debtor could assert
against the home improvement contractor. Liability under this rule is limited
to amounts paid under a Contract; however, the Obligor also may be able to
assert the rule to set off remaining amounts due as a defense against a claim
brought by the Trust against such Obligor.
The obligations of the Obligor under each Unsecured Contract are not secured
by an interest in the related real estate or otherwise, and the Trust, as the
owner of each Unsecured Contract, is a general unsecured creditor as to such
obligations. As a consequence, in the event of a default under an Unsecured
Contract, the Trust will have recourse only against the Obligor's assets
generally, along with all other general unsecured creditors of the Obligor. In
a bankruptcy or insolvency proceeding relating to an Obligor on an Unsecured
Contract, the obligations of the Obligor under such Unsecured Contract may be
discharged in their entirety, notwithstanding the fact that the portion of such
Obligor's assets made available to the Trust as a general unsecured creditor to
pay amounts due and owing thereunder are insufficient to pay all such amounts.
ENFORCEABILITY OF CERTAIN PROVISIONS
The standard forms of note, mortgage and deed of trust generally contain
provisions obligating the borrower to pay a late charge if payments are not
timely made. In addition to limitations imposed by FHA regulations with respect
to FHA-insured Contracts, in certain states there are or may be specific
limitations upon late charges which a lender may collect from a borrower for
delinquent payments. Under the Agreement, late charges (to the extent permitted
by law and not waived by the Company) will be retained by the Company as
additional servicing compensation.
Courts have imposed general equitable principles upon foreclosure. These
equitable principles are generally designed to relieve the borrower from the
legal effect of defaults under the loan documents. Examples of judicial
remedies that may be fashioned include judicial requirements that the lender
undertake affirmative actions to determine the causes for the borrower's
default and the likelihood that the borrower will be able to reinstate the
loan. In some cases, courts have required lenders to reinstate loans or recast
payment schedules to accommodate borrowers who are suffering from temporary
financial disability. In some
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cases, courts have limited the right of lenders to foreclose if the default
under the mortgage instrument is not monetary, such as the borrower failing to
adequately maintain the property or the borrower executing a junior mortgage or
deed of trust affecting the property. In other cases, some courts have been
faced with the issue whether federal or state constitutional provisions
reflecting due process concerns for adequate notice require that borrowers
under mortgages or the deeds of trust receive notices in addition to
statutorily-prescribed minimum requirements. For the most part, these cases
have upheld the notice provisions as being reasonable or have found that the
sale by a trustee under a deed of trust or under a mortgage having a power of
sale does not involve sufficient state action to afford constitutional
protection to the borrower.
It is the Company's practice with some of the Contracts to defer the first
payment thereon for up to 90 days, and to charge the home improvement
contractor points to cover the lost interest due to collecting only 30 days
interest on the first payment on these deferred payment contracts.
"DUE-ON-SALE" CLAUSES
All of the Secured Contract documents contain due-on-sale clauses. These
clauses permit the Servicer to accelerate the maturity of the loan on notice,
which is usually thirty days, if the borrower sells, transfers or conveys the
property. In recent years, court decisions and legislative actions placed
substantial restrictions on the right of lenders to enforce such clauses in
many states. However, effective October 15, 1982, Congress enacted the Garn-St
Germain Depository Institutions Act of 1982 (the "Act"), which, after a 3-year
grace period, preempts state laws which prohibit the enforcement of due-on-sale
clauses by providing, among other matters, that "due-on-sale" clauses in
certain loans (including the Secured Contracts) made after the effective date
of the Act are enforceable within certain limitations as set forth in the Act
and the regulations promulgated thereunder.
By virtue of the Act, the Servicer generally may be permitted to accelerate
any Secured Contract which contains a "due-on-sale" clause upon transfer of an
interest in the mortgaged property. This ability to accelerate will not apply
to certain types of transfers, including (i) the granting of a leasehold
interest which has a term of three years or less and which does not contain an
option to purchase, (ii) a transfer to a relative resulting from the death of a
mortgagor or trustor, or a transfer where the spouse or child(ren) becomes an
owner of the mortgaged property in each case where the transferee(s) will
occupy the mortgaged property, (iii) a transfer resulting from a decree of
dissolution of marriage, legal separation agreement or from an incidental
property settlement agreement by which the spouse becomes an owner of the
mortgaged property, (iv) the creation of a lien or other encumbrance
subordinate to the lenders security instrument which does not relate to a
transfer of rights of occupancy in the mortgaged property (provided that such
lien or encumbrance is not created pursuant to a contract for deed), (v) a
transfer by devise, descent or operation of law on the death of a joint tenant
or tenant by the entirety, and (vi) other transfers as set forth in the Act and
the regulations thereunder. As a result, a lesser number of Secured Contracts
which contain "due-on-sale" clauses may extend to full maturity than earlier
experience would indicate with respect to single-family mortgage loans. The
extent of the effect of the Act on the average lives and delinquency rates of
the Secured Contracts, however, cannot be predicted.
The inability to enforce a due-on-sale clause may result in Secured Contracts
bearing an interest rate below the current market rate being assumed by a new
home buyer rather than being paid off, which may have an impact upon the
average life of the Secured Contracts and the number of Secured Contracts which
may be outstanding until maturity.
Although Title V of the Depository Institutions Deregulation and Monetary
Control Act of 1980, as amended ("Title V"), provides that, subject to certain
conditions, state usury limitations shall not apply to FHA-insured loans and to
first mortgage secured conventional contracts if the contract is defined as a
"federally related mortgage loan," a number of states have adopted legislation
overriding Title V's exemptions, as permitted by Title V. The Company has
represented and warranted in the Agreement that all Contracts comply with any
applicable usury limitations.
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<PAGE>
ENVIRONMENTAL LEGISLATION
Certain states impose a statutory lien for associated costs on property that
is the subject of a cleanup action by the state on account of hazardous wastes
or hazardous substances released or disposed of on the property. Such a lien
will generally have priority over all subsequent liens on the property and, in
certain of these states, will have priority over prior recorded liens,
including the lien of a mortgage. In addition, under federal environmental
legislation and possibly under state law in a number of states, a secured party
which takes a deed in lieu of foreclosure or acquires a mortgaged property at a
foreclosure sale may be liable for the costs of cleaning up a contaminated
site. Although such costs could be substantial, it is unclear whether they
would be imposed on a lender secured by residential property (such as the
Trust). In the event that title to a property securing a Secured Contract was
acquired by the Trust and cleanup costs were incurred in respect of the
mortgaged property, the holders of the Certificates might incur a loss if such
costs were required to be paid by the Trust.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT
Application of the Soldiers' and Sailors' Civil Relief Act of 1940, as
amended (the "Relief Act"), would adversely affect, for an indeterminate period
of time, the ability of the Servicer to collect full amounts of interest on
certain of the Contracts. Any shortfall in interest collections resulting from
the application of the Relief Act or similar legislation, which would not be
recoverable from the related Contracts, would result in a reduction of the
amounts distributable to the Certificateholders. In addition, the Relief Act
imposes limitations that would impair the ability of the Servicer to foreclose
on an affected mortgage, deed of trust or security deed during the mortgagor's
period of active duty status, and, under certain circumstances, during an
additional three month period thereafter. Thus, in the event that the Relief
Act or similar legislation applies to any Contract which goes into default,
there may be delays in payment on the Certificates in connection therewith. Any
other interest shortfalls, deferrals or forgiveness of payments on the
Contracts resulting from similar legislation or regulations may result in
delays in payments or losses to Certificateholders.
REPURCHASE OBLIGATIONS
Under the Agreement, the Company will represent and warrant that each FHA-
insured Contract was originated in compliance with FHA regulations and is
covered by FHA Insurance. In the event FHA were to deny insurance coverage on
an FHA-insured Contract due to a violation of FHA regulations in originating or
servicing such Contracts, such violation would constitute a breach of a
representation and warranty under the Agreement and would create an obligation
of the Company to repurchase such Contract unless the breach is cured. See
"Description of the Certificates--Conveyance of Contracts."
In addition, the Company will also represent and warrant under the Agreement
that each Contract complies with all requirements of law. Accordingly, if any
Obligor has a claim against the Trust for violation of any law and such claim
materially adversely affects the Trust's interest in a Contract, such violation
would constitute a breach of a representation and warranty under the Agreement
and would create an obligation to repurchase such Contract unless the breach is
cured. See "Description of the Certificates--Conveyance of Contracts."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of the anticipated federal income tax
consequences of the purchase, ownership and disposition of the Certificates,
based upon laws, regulations, rulings and decisions now in effect, all of which
are subject to change or possibly differing interpretations. The discussion
below does not purport to deal with federal income tax consequences applicable
to all categories of investors, some of which may be subject to special rules
or elections. Investors should consult their own tax advisors in determining
42
<PAGE>
the federal, state, local and any other tax consequences to them of the
purchase, ownership and disposition of the Certificates.
TAX STATUS OF THE TRUST
Dorsey & Whitney, counsel to the Company, have advised the Company that, in
their opinion, the Trust will be classified as a grantor trust for federal
income tax purposes and not as an association which is taxable as a
corporation. The Trust will be classified as a trust despite the fact that the
Cash Collateral Beneficiary will be considered to retain an interest in a
second class of beneficial interest in the Trust. While Treasury Regulations
Section 301.7701-4(c) generally provides that an investment trust with more
than one class of ownership interest will be classified as an association
taxable as a corporation or a partnership, that regulation would treat the
Trust as a grantor trust because there will be no power under the Agreement to
vary the investment of the Certificateholders, the purpose of the Trust will be
to facilitate direct investment in the Contracts, and the existence of multiple
classes of ownership interests in the Trust will be incidental to that purpose.
CHARACTERIZATION OF INVESTMENTS IN CERTIFICATES
Certificates held by financial institutions, thrift institutions taxed as
domestic building and loan associations and real estate investment trusts will
not represent in their entirety interests in "qualifying real property loans,"
"loans secured by an interest in real property" or "real estate assets" for
purposes of Sections 593(d), 7701(a)(19)(C) or 856(c)(5) of the Code,
respectively. Furthermore, interest paid with respect to Certificates held by a
real estate investment trust will not be considered in its entirety to be
"interest on obligations secured by mortgages on real property or on interests
in real property" for purposes of Section 856(c)(3) of the Code.
TAX TREATMENT OF CERTIFICATEHOLDERS
Because the Trust will be classified as a grantor trust, each
Certificateholder will be treated for federal income tax purposes as the owner
of an undivided interest in the Contracts and other Trust property.
Accordingly, subject to the discussion below of certain limitations on
deductions and the "stripped bond" rules of the Code, each Certificateholder
must report on its federal income tax return its pro rata share of the entire
income from the Contracts and other Trust property, and may deduct its pro rata
share of the fees paid by the Trust, at the same time as such items would be
reported under the Certificateholders tax accounting method if it held directly
a pro rata interest in the assets of the Trust and received and paid directly
the amounts received and paid by the Trust. Although it is not entirely clear,
it appears that in transactions in which multiple classes of certificates are
issued, including interests in the Trust, fees paid by the Trust should be
allocated among the classes of interests therein using a method that recognizes
that each such class of interests benefits from the related services. In the
absence of statutory or administrative clarification as to the method to be
used, it is intended that information returns and reports both to
Certificateholders and the Internal Revenue Service will be based on a method
which allocates such fees, and other expenses if any, among classes of
interests in the Trust with respect to each period based on the distribution of
interest made to each such class during that period.
Section 67(a) of the Code limits the deductibility of expenses incurred for
the production of income by individuals, estates and trusts under Section 212
of the Code. Such expenses will be deductible only to the extent that, in the
aggregate and combined with certain other itemized deductions, they exceed 2%
of adjusted gross income. In addition, Section 68 of the Code provides that the
amount of itemized deductions (including those provided for in Section 212 of
the Code) otherwise allowable for the taxable year for an individual whose
adjusted gross income exceeds a threshold amount specified in the Code
($111,800 in 1994, in the case of a joint return) will be reduced by the lesser
of (i) 3% of the excess of adjusted gross income over the specified threshold
amount or (ii) 80% of the amount of itemized deductions otherwise allowable for
such taxable year. Further, Certificateholders (other than corporations)
subject to the alternative
43
<PAGE>
minimum tax may not deduct miscellaneous itemized deductions in determining
such holders' alternative minimum taxable income. These limitations will apply
to deductions derived either directly or indirectly through certain pass-
through entities (including grantor trusts such as the Trust) and may have the
effect of limiting the extent to which Servicing Fees can be deducted by
Certificateholders which are individuals, trusts or estates. To the extent that
a Certificateholder is not permitted to deduct the portion of Servicing Fees
allocable to a Certificate, the taxable income of the Certificateholder
attributable to that Certificate will exceed the net cash distributions related
to such income. These provisions of the Code will not affect the deductibility
of Servicing Fees allocable to a Certificate held by a corporation.
A purchaser of a Certificate will be treated as purchasing an interest in
each Contract in the Trust at a price determined by allocating the purchase
price paid for the Certificate among all Contracts in proportion to their fair
market values at the time of purchase of the Certificate. To the extent that
the portion of the purchase price of a Certificate allocated to a Contract is
greater than or less than the portion of the principal balance of the Contract
allocable to the Certificate, that interest in the Contract will be deemed to
have been acquired with premium or discount, respectively.
AMORTIZABLE PREMIUM
With respect to premium, under the rules of Section 171 of the Code, a
Certificateholder who holds a Certificate as a capital asset may elect to
deduct any "amortizable bond premium" attributable to a taxable year. The
amount of amortizable bond premium, if any, attributable to a taxable year will
be computed under a constant yield method. Generally, a Certificateholder
electing under Section 171 to deduct amortizable bond premium in respect of the
Contracts must use the constant yield method in respect of all obligations to
which the special rules of Section 171 may apply. Under the Code, amortizable
bond premium in respect of a Contract will be treated as an offset to interest
income in respect of such Contract and, accordingly, a Certificateholder's
deduction for amortizable bond premium in respect of a Contract will be limited
in each taxable year to the amount of interest income derived by that
Certificateholder in respect of that Contract for that taxable year.
Amortizable bond premium in respect of a Contract will not be treated as a
separate item of interest deduction subject to the tax rules and limitations
governing interest deductions. Absent such an election to deduct currently any
premium, the premium will be deductible as a short-term or long-term capital
loss only upon a disposition of the Certificate or payment of the underlying
Contract (assuming the Certificate is a capital asset); provided, however, that
such premium may be deductible as an ordinary loss upon a retirement of a
Certificate or payment of the underlying Contract.
STRIPPED BOND CERTIFICATES
The Cash Collateral Beneficiary will be treated as having retained an
ownership interest in the Trust represented by a portion of the interest
payments to be made pursuant to the Contracts. In such event, the Contracts are
expected to be treated as "stripped bonds" within the meaning of Section 1286
of the Code, and Certificates that represent an interest in "stripped bonds"
purchased at a discount ("Stripped Bond Certificates") are expected to be
subject to the original issue discount rules of the Code.
Original issue discount generally must be included in ordinary gross income
as it accrues in accordance with the constant yield method that takes into
account the compounding of interest, regardless of the overall method of
accounting of a Certificateholder. Such accrual of income may accrue in advance
of the receipt of cash attributable to such income. Accordingly, if
Certificates are determined to be issued with original issue discount, the
amount of original issue discount required to be included in a
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 certain Treasury Regulations promulgated thereunder. In particular,
Section 1272(a)(6) of the Code requires (i) the use of a reasonable prepayment
assumption in accruing original issue discount and (ii) adjustments in the
accrual of original issue discount when prepayments do not conform to the
prepayment assumption. It is unclear whether the foregoing is applicable to the
Certificates, or whether use of a prepayment assumption may be required or
permitted in the absence of applicable regulations. It is
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<PAGE>
also uncertain, if a prepayment assumption is used, whether the assumed
prepayment rate is to be determined based on conditions at the time of the
first sale of Certificates or, with respect to any subsequent holder, at the
time of purchase of a Certificate by the holder. In the case of a Certificate
acquired at a price equal to the principal amount of the Contracts allocable to
such Certificate, the use of a prepayment assumption is not expected to have
any significant effect on the yield used in calculating accruals of interest
income in accordance with the original issue discount provisions of the Code.
It is expected that information returns and reports to the Internal Revenue
Service and Certificateholders will be based on a prepayment assumption as
disclosed herein and on a constant yield computed using the initial offering
price to the public at which a substantial amount of Certificates are sold.
Certificateholders are advised to consult their tax advisors concerning the
application of the original issue discount rules to Stripped Bond Certificates.
GAIN OR LOSS ON DISPOSITION
If a Certificate is sold, gain or loss will be recognized equal to the
difference between the amount realized on the sale and the Certificateholders
adjusted tax basis in the Certificate. Such tax basis will equal the
Certificateholders cost for the Certificate, increased by any discount
previously included in income, and decreased by any deduction previously
allowed for premium and by the amount of principal payments previously received
on the Certificate. Any such gain or loss will be capital gain or loss if the
Certificate was held as a capital asset, except that gain may be treated in
whole or in part as ordinary interest income under the market discount or
original issue discount rules of the Code. Under the Code, long-term capital
gains (gains on capital assets held for more than one year) are currently taxed
at a rate which for some taxpayers is less than the rates applicable to
ordinary income.
Gain or loss from the sale of a Certificate may be partially or wholly
ordinary and not capital in certain circumstances. Gain attributable to accrued
and unrecognized market discount will be treated as ordinary income, as will
gain or loss recognized by banks and other financial institutions subject to
Section 582(c) of the Code. Furthermore, a portion of any gain that might
otherwise be capital gain may be treated as ordinary income to the extent that
the Certificate is held as part of a "conversion transaction" within the
meaning of Section 1258 of the Code. A conversation transaction generally is
one in which the taxpayer has taken two or more positions in Certificates or
similar property that reduce or eliminate market risk, if substantially all of
the taxpayers return is attributable to the time value of the taxpayers net
investment in such transaction. The amount of gain realized in a conversion
transaction that is recharacterized as ordinary income generally will not
exceed the amount of interest that would have accrued on the taxpayers net
investment at 120% of the appropriate "applicable federal rate" (which rate is
computed and published monthly by the Internal Revenue Service) at the time the
taxpayer enters into the conversion transaction, subject to appropriate
reduction for prior inclusion of interest and other ordinary income items from
the transaction. Finally, a taxpayer may elect to have net capital gain taxed
at ordinary income rates rather than capital gains rates in order to include
such net capital gain in total net investment income for that taxable year, for
purposes of the net investment income limitation on the deduction of interest
on indebtedness incurred to purchase or carry property held for investment.
TAX TREATMENT OF CERTAIN FOREIGN INVESTORS
Generally, interest paid to a Certificateholder who is a nonresident alien
individual or a foreign corporation and who does not hold a Certificate in
connection with a United States trade or business will be treated as "portfolio
interest" and therefore will be exempt from the 30% withholding tax. Such a
Certificateholder will be entitled to receive interest payments on Certificates
free of United States federal income tax, provided that such Certificateholder
periodically provides the Trustee (or other person who would otherwise be
required to withhold tax) with a statement certifying under penalty of perjury
that such Certificateholder is not a United States person and providing the
name and address of such Certificateholder.
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TAX ADMINISTRATION AND REPORTING
The Trustee will furnish to each Certificateholder with each distribution a
statement setting forth the amount of such distribution allocable to principal
and to interest. In addition, the Trustee will furnish, within a reasonable
time after the end of each calendar year, to each Certificateholder who was a
Certificateholder at any time during such year, information regarding the
amount of servicing compensation received by the Servicer and such other
factual information as the Seller deems necessary to enable Certificateholders
to prepare their tax returns. Reports will be made annually to the Internal
Revenue Service and to holders of record that are not excepted from the
reporting requirements regarding information as may be required with respect to
interest and original issue discount, if any, with respect to the Certificates.
Because the rules for accruing discount and amortizing premium with respect to
the Certificates are uncertain in various respects, there is no assurance that
the Internal Revenue Service will agree with such information reports.
Moreover, such information reports, even if otherwise accepted as accurate by
the Internal Revenue Service, will in any event be accurate only as to the
initial Certificateholders who bought their Certificates at the initial
offering price used in preparing such reports.
BACKUP WITHHOLDING
Under certain circumstances, a Certificateholder may be subject to "backup
withholding" at a 31% rate. Backup withholding may apply to a Certificateholder
who is a United States person if the holder, among other circumstances, fails
to furnish his Social Security number or other taxpayer identification number
to the Trustee. Backup withholding may apply, under certain circumstances, to a
Certificateholder who is a foreign person if the Certificateholder fails to
provide the Trustee or the Certificateholders securities broker with the
statement necessary to establish the exemption from federal income and
withholding tax on interest on the Certificate. Backup withholding, however,
does not apply to payments on a Certificate made to certain exempt recipients,
such as corporations and tax-exempt organizations, and to certain foreign
persons. Certificateholders should consult their tax advisors for additional
information concerning the potential application of backup withholding to
payments received by them with respect to a Certificate.
OTHER TAX CONSEQUENCES
No advice has been given as to local income, franchise, personal property or
other taxation in any state or locality, or as to the tax effect of ownership
of Certificates in any state or locality. Certificateholders are advised to
consult their own tax advisors with respect to any state or local income,
franchise, personal property or other tax consequences arising out of their
ownership of Certificates.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
imposes certain fiduciary and prohibited transaction restrictions on employee
pension and welfare benefit plans subject to ERISA ("ERISA Plans"). Section
4975 of the Code imposes similar prohibited transaction restrictions on tax-
qualified retirement plans described in Section 401(a) of the Code ("Qualified
Retirement Plans") and on Individual Retirement Accounts ("IRAs") described in
Section 408 of the Code (collectively, "Tax-Favored Plans").
Certain employee benefit plans, such as governmental plans (as defined in
Section 3(32) of ERISA), are not subject to the ERISA requirements discussed
herein. Accordingly, assets of such plans may be invested in Certificates
without regard to the ERISA considerations described below, subject to the
provisions of applicable federal and state law. Any such plan that is a
Qualified Retirement Plan and exempt from taxation under Sections 401(a) and
501(a) of the Code, however, is subject to the prohibited transaction rules set
forth in Section 503 of the Code.
In addition to imposing general fiduciary requirements, including those of
investment prudence and diversification and the requirement that a Plan's
investment be made in accordance with the documents governing the Plan, Section
406 of ERISA and Section 4975 of the Code prohibited a broad range of
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transactions involving "plan assets" of ERISA Plans and Tax-Favored Plans
(collectively, "Plans") and persons ("Parties in Interest" under ERISA or
"Disqualified Persons" under the Code) who have certain specified relationships
to the Plans, unless a statutory or administrative exemption is available.
Certain Parties in Interest (or Disqualified Persons) that participate in a
prohibited transaction may be subject to a penalty (or an excise tax) imposed
pursuant to Section 502(i) of ERISA or Section 4975 of the Code, unless a
statutory or administrative exemption is available.
PLAN ASSET REGULATIONS
An investment of Plan Assets (as defined below) in Certificates may cause the
underlying assets included in the Trust to be deemed "plan assets" of such
Plan. The U.S. Department of Labor (the "DOL") has promulgated regulations at
29 C.F.R. section 2510.3-101 (the "DOL Regulations") concerning whether or not
a Plan's assets would be deemed to include an interest in the underlying assets
of an entity (such as the Trust), for purposes of applying the general
fiduciary responsibility provisions of ERISA and the prohibited transaction
provisions of ERISA and the Code, when a Plan acquires an "equity interest"
(such as a Certificate) in such entity. Because of the factual nature of
certain of the rules set forth in the DOL Regulations, Plan Assets either may
be deemed to include an interest in the assets of the Trust or may be deemed
merely to include its interest in the Certificates. Therefore, neither Plans
nor such entities should acquire or hold Certificates in reliance upon the
availability of any exception under the DOL Regulations. For purposes of this
Section "ERISA Considerations," the term "Plan Assets" or assets of a Plan has
the meaning specified in the DOL Regulations and includes an undivided interest
in the underlying assets of certain entities in which a Plan invests. The
prohibited transaction provisions of Section 406 of ERISA and Section 4975 of
the Code may apply to the Trust and cause the Company, the Trust, the Trustee,
any successor, or certain affiliates thereof, to be considered or become
Parties in Interest or Disqualified Persons with respect to an investing Plan
(or of a Plan holding an interest in such an entity). If so, the acquisition or
holding of Certificates by or on behalf of the investing Plan could also give
rise to a prohibited transaction under ERISA and the Code, unless some
statutory or administrative exemption is available. Certificates acquired by a
Plan would be assets of that Plan. Under the DOL Regulations, the Trust,
including the assets held in the Trust, may also be deemed to be assets of each
Plan that acquires Certificates. Special caution should be exercised before
Plan Assets are used to acquire a Certificate in such circumstances, especially
if, with respect to such assets, the Company, the Trust, the Trustee, any
successor or an affiliate thereof either (i) has investment discretion with
respect to the investment of Plan assets; or (ii) has authority or
responsibility to give (or regularly gives) investment advice with respect to
Plan assets for a fee pursuant to an agreement or understanding that such
advice will serve as a primary basis for investment decisions with respect to
such assets.
Any person who has discretionary authority or control respecting the
management or disposition of Plan Assets and any person who provides investment
advice with respect to such assets for a fee (in the manner described above),
is a fiduciary of the investing Plan. If the assets of the Trust were to
constitute Plan Assets then any party exercising management or discretionary
control regarding those assets may be deemed to be a Plan "fiduciary," and thus
subject to the fiduciary requirements of ERISA and the prohibited transaction
provisions of ERISA and Section 4975 of the Code with respect to any investing
Plan. In addition, if the assets of the Trust were to constitute Plan Assets,
then the acquisition or holding of Certificates by, on behalf of or with Plan
Assets, as well as the operation of the Trust, may constitute or involve a
prohibited transaction under ERISA and the Code.
No purchases of Certificates by, on behalf of or with Plan Assets of any Plan
will be registered unless the transferee, at its expense, delivers to the
Trustee, the Servicer and the Company an opinion of counsel (satisfactory to
the Trustee, the Servicer and the Company) that the purchase and holding of a
Certificate by, on behalf of, or with Plan Assets of such Plan is permissible
under applicable law, 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 Trust, the Company or the
Servicer to any obligation or
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liability in addition to those undertaken in the Agreement. Unless such opinion
is delivered, each person acquiring a Certificate will be deemed to represent
to the Trustee, the Company and the Servicer that such person is neither a
Plan, nor acting on behalf of a Plan, nor purchasing with Plan Assets of any
Plan.
CONSULTATION WITH COUNSEL
Any fiduciary or other Plan investor that purposes to acquire or hold
Certificates on behalf of or with Plan Assets of any Plan should consult with
its counsel with respect to the potential applicability of the fiduciary
responsibility provisions of ERISA and the prohibited transaction provisions of
ERISA and the Code to the proposed investment and the availability of any
prohibited transaction exemption.
RATINGS
It is a condition precedent to the issuance of any Certificates offered
hereby that they be rated not lower than "A" by Standard & Poor's Ratings
Group, a division of McGraw-Hill, Inc. ("S&P"). S&P's rating of the
Certificates addresses the likelihood of timely receipt of Monthly Interest and
ultimate receipt of principal on or before the Payment Date in March 2014.
S&P's ratings take into consideration the credit quality of the pool of
contracts, including any credit support providers, structural and legal aspects
associated with the certificates and the extent to which the payment stream of
the pool of contracts is adequate to make payments required under the
certificates. S&P's rating on the Certificates does not, however, constitute a
statement regarding frequency of prepayments on the Contracts, nor does it
address the possibility that investors may suffer a lower than anticipated
yield.
The Depositor has not requested a rating of the Certificates from any rating
agency other than S&P. However, there can be no assurance as to whether any
other rating agency will rate the Certificates, or if one does, what rating
would be assigned by such rating agency. A security is not a recommendation to
buy, sell or hold securities and may be subject to revision or withdrawal at
any time by the assigning rating agency.
UNDERWRITING
The Underwriter has agreed, subject to the terms and conditions of the
Underwriting Agreement, to purchase from the Company the principal amount of
the Certificates.
In the Underwriting Agreement, the Underwriter has agreed, subject to the
terms and conditions set forth therein, to purchase all of the Certificates
offered hereby if any Certificates are purchased. In the event of a default by
Merrill Lynch, the Underwriting Agreement provides that, in certain
circumstances, the Underwriting Agreement may be terminated.
The Underwriting Agreement provides that the Company will indemnify the
Underwriter against certain liabilities, including liabilities under the
Securities Act of 1933, or contribute to payments the Underwriter may be
required to make in respect thereof.
The Company has agreed that for a period of 30 days from the date of this
Prospectus it will not offer or sell publicly any other home improvement loan
contract pass-through certificates without the consent of the Underwriter.
LEGAL MATTERS
Certain legal matters relating to the issuance of the Certificates will be
passed upon for the Company and the Trust by Dorsey & Whitney (a partnership
including professional associations), Minneapolis, Minnesota, and for the
Underwriter by Thacher Proffitt & Wood, New York, New York. The material
federal income tax consequences of the Certificates will be passed upon for the
Company by Dorsey & Whitney.
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NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CON-
NECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHO-
RIZED BY THE COMPANY OR THE UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE CERTIFICATES IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN AFFAIRS OF
THE TRUST SINCE THE DATE HEREOF.
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TABLE OF CONTENTS
PROSPECTUS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Reports to Certificateholders.............................................. 2
Available Information...................................................... 2
Incorporation of Certain Documents by Reference............................ 2
Summary of the Terms of the Certificates................................... 3
Special Considerations..................................................... 10
Structure of the Transaction............................................... 12
Use of Proceeds............................................................ 13
The Contracts.............................................................. 13
Yield and Prepayment Considerations........................................ 19
Green Tree Financial Corporation........................................... 20
Description of the Certificates............................................ 22
Description of FHA Insurance............................................... 31
Description of the Cash Collateral Guaranty................................ 33
Description of the Limited Guaranty........................................ 33
Certain Legal Aspects of the Contracts; Repurchase Obligations............. 35
Certain Federal Income Tax Consequences.................................... 42
ERISA Considerations....................................................... 46
Underwriting............................................................... 48
Ratings.................................................................... 48
Legal Matters.............................................................. 48
Index of Principal Terms...................................................
</TABLE>
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$134,096,835.87(APPROXIMATE)
[LOGO OF GREEN TREE APPEARS HERE]
SELLER AND SERVICER
CERTIFICATES FOR HOME IMPROVEMENT LOANS
HOME IMPROVEMENT LOAN TRUST 1994-A
% PASS-THROUGH RATE
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PROSPECTUS
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MERRILL LYNCH & CO.
MARCH , 1994
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<PAGE>
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
SEC registration fee............................................. $46,240.29
Blue Sky fees and expenses....................................... 1,000.00
Accountant's fee and expenses.................................... 15,000.00
Attorney's fees and expenses..................................... 50,000.00
Trustee's fees and expenses...................................... 10,000.00
Printing and engraving expenses.................................. 25,000.00
Rating Agency fee................................................ 40,000.00
Miscellaneous.................................................... 2,759.71
-----------
Total........................................................ $190,000.00
===========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 302A.521 of the Minnesota Statutes requires the Company to indemnify
a person made or threatened to be made a party to a proceeding by reason of the
former or present official capacity of the person with respect to the Company,
against judgments, penalties, fines, including reasonable expenses, if such
person (1) has not been indemnified by another organization or employee benefit
plan for the same judgments, penalties, fines, including without limitations,
excise taxes assessed against the person with respect to an employee benefit
plan, settlements, and reasonable expenses, including attorney's fees and
disbursements, incurred by the person in connection with the proceeding with
respect to the same acts or omissions; (2) acted in good faith; (3) received no
improper personal benefit, and statutory procedure has been followed in the
case of any conflict of interest by a director; (4) in the case of a criminal
proceeding, had no reasonable cause to believe the conduct was unlawful; and
(5) in the case of acts or omissions occurring in the person's performance in
the official capacity of director or, for a person not a director, in the
official capacity of officer, committee member, employee or agent, reasonably
believed that the conduct was in the best interests of the Company, or, in the
case of performance by a director, officer, employee or agent of the Company as
a director, officer, partner, trustee, employee or agent of another
organization or employee benefit plan, reasonably believed that the conduct was
not opposed to be best interests of the Company, unless otherwise limited by
the Articles of Incorporation or Bylaws of the Company. In addition, Section
302A.521, subd. 3, requires payment by the Company, upon written request, of
reasonable expenses in advance of final disposition in certain instances, upon
receipt of a written undertaking by the person to repay all amounts so paid if
it is ultimately determined that the person is not entitled to indemnification,
unless otherwise limited by the Articles of Incorporation or Bylaws of the
Company. A decision as to required indemnification is made by a disinterested
majority of the Board of Directors present at a meeting at which a
disinterested quorum is present, or by a designated committee of the Board, by
special legal counsel, by the shareholders, or by a court.
The Company's Articles of Incorporation provide that a director is not liable
to the Company or its shareholders for monetary damages for a breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Company or its shareholders; (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of the law; (iii) under Sections 302A.559 or 80A.23 of the
Minnesota Statutes; (iv) for any transaction from which the director derived an
improper personal benefit; or (v) for any act or omission occurring prior to
the date such indemnification provision became effective.
The Company maintains a director's and officer's insurance policy.
II-1
<PAGE>
Pursuant to the form of Underwriting Agreement, a copy of which is included
as Exhibit I.I hereto, the Underwriter will agree, subject to certain
conditions, to indemnify the Company, its directors, certain of its officers
and persons who control the Company within the meaning of the Securities Act of
1933, as amended (the "Securities Act"), against certain liabilities.
ITEM 16. EXHIBITS
Exhibits:
<TABLE>
<C> <S>
1.1 Proposed form of Underwriting Agreement
4.1 Form of Pooling and Servicing Agreement
4.2 Form of Cash Collateral Trust Agreement
5.1 Opinion and consent of Dorsey & Whitney as to legality
8.1 Opinion of Dorsey & Whitney as to tax matters
23.1 Consent of Dorsey & Whitney (included as part of Exhibit 5.1)
23.2 Consent of KPMG Peat Marwick
*24.1 Power of attorney from officers and directors of the Registrant signed
by an attorney-in-fact
</TABLE>
- --------
*Previously filed
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against liabilities (other than the payment by the registrant
of expenses incurred or paid by a director, officer or controlling person of
the registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as a part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act
of 1934) that is incorporated by reference in the registration statement shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-2
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS AMENDMENT NO. 2 TO
THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, IN THE CITY OF SAINT PAUL, STATE OF MINNESOTA, ON
MARCH 28, 1994.
Green Tree Financial Corporation
By /s/ John W. Brink
---------------------------------------
JOHN W. BRINK
Executive Vice President, Treasurer and
Chief Financial Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS AMENDMENT NO. 1 TO
THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATE INDICATED.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
* Chairman of the March 28, 1994
- ------------------------------------- Board, President
LAWRENCE M. COSS and Chief
Executive Officer
(Principal
Executive Officer)
and Director
/s/ John W. Brink Executive Vice March 28, 1994
- ------------------------------------- President,
JOHN W. BRINK Treasurer and Chief
Financial Officer
(Principal
Financial Officer)
* Vice President and March 28, 1994
- ------------------------------------- Controller
ROBLEY D. EVANS (Principal
Accounting Officer)
* Director March 28, 1994
- -------------------------------------
RICHARD G. EVANS
* Director March 28, 1994
- -------------------------------------
C. THOMAS MAY, JR.
* Director March 28, 1994
- -------------------------------------
W. MAX MCGEE
* Director March 28, 1994
- -------------------------------------
ROBERT S. NICKOLOFF
Director March , 1994
- -------------------------------------
ROBERT D. POTTS
* Director March 28, 1994
- -------------------------------------
KENNETH S. ROBERTS
*By /s/ John W. Brink Attorney-in-fact March 28, 1994
----------------------------------
JOHN W. BRINK
</TABLE>
II-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DOCUMENT DESCRIPTION NUMBER
------- -------------------- ----------
<C> <S> <C>
1.1 Proposed form of Underwriting Agreement
4.1 Form of Pooling and Servicing Agreement
4.2 Form of Cash Collateral Trust Agreement
5.1 Opinion and consent of Dorsey & Whitney as to legality
8.1 Opinion of Dorsey & Whitney as to tax matters
23.1 Consent of Dorsey & Whitney (included as part of
Exhibit 5.1)
23.2 Consent of KPMG Peat Marwick
*24.1 Power of attorney from officers and directors of the
Registrant signed by an
attorney-in-fact
</TABLE>
- --------
*Previously filed
<PAGE>
Exhibit 1.1 (1)
GREEN TREE FINANCIAL CORPORATION, SELLER AND SERVICER
HOME IMPROVEMENT LOAN TRUST 1994-A
CERTIFICATES FOR HOME IMPROVEMENT LOANS
UNDERWRITING AGREEMENT
----------------------
March __, 1994
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
North Tower
World Financial Center
New York, New York 10281
Dear Sirs:
Introductory. Green Tree Financial Corporation, a Minnesota corporation
------------
(the "Company"), has duly authorized the creation of Home Improvement Loan Trust
1994-A (the "Trust") pursuant to a Pooling and Servicing Agreement, dated as of
March 1, 1994 (the "Pooling and Servicing Agreement"), between the Company, as
seller and servicer, and First Trust National Association, as trustee (the
"Trustee"), and has duly authorized the issuance and sale of $_____________
(approximate) aggregate principal amount of Certificates for Home Improvement
Loans (the "Certificates") to be underwritten pursuant to this Agreement by
Merrill Lynch, Pierce, Fenner & Smith Incorporated (hereinafter "you" or the
"Underwriter").
The Certificates, in the aggregate, will represent the entire undivided
interest in the Trust. The Trust property will consist primarily of a pool of
conventional and Federal Housing Administration ("FHA") - insured home
improvement retail installment contracts and promissory notes (the "Contracts"),
including all rights to receive payments due on such Contracts on and after
March 1, 1994 (the "Cut-off Date"), liens on certain of the related real estate,
all rights under the related FHA insurance with respect to the Contracts that
are insured by the FHA, amounts held for the Trust in the Collection Account,
the right to demand payments from the Cash Collateral Account and rights under
the Limited Guaranty.
In addition, the Company, as seller and servicer, The Daiwa Bank,
Limited, as cash collateral depositor (the "Cash Collateral Depositor"), and
First Bank National Association as cash collateral trustee (the "Cash
Collateral Trustee") shall enter into a trust agreement, dated as of March 1,
1994 (the "Cash Collateral Trust Agreement"), pursuant to which the cash
collateral trust 1994-A (the "Cash Collateral Trust 1994-A") shall be formed.
The Company, as seller and servicer, the Cash Collateral Trustee on behalf of
the Cash Collateral Trust 1994-A and the Cash Collateral Depositor will enter
into a loan agreement (the "Loan Agreement") pursuant to which the Cash
Collateral Depositor will deposit $___________ (the "Initial Cash Collateral
Amount") into an account (the "Cash Collateral Account") which account shall
be held by the Cash Collateral Trustee on behalf of the Cash Collateral Trust
1994-A. The Cash Collateral Trustee shall cause the Cash Collateral Trust 1994-
A to issue a guaranty in favor of the Trustee for the benefit of the
Certificateholders (the "Cash Collateral Guaranty").
<PAGE>
-2-
The Certificates are more fully described in a Registration Statement which
the Company has furnished to you. Capitalized terms used but not defined herein
shall have the meanings given to them in the Pooling and Servicing Agreement.
SECTION 1. Representations and Warranties. The Company represents and
------------------------------
warrants to you as of the date hereof as follows:
(1) The Company has filed with the Securities and Exchange Commission
(the "Commission") a registration statement on Form S-3 (No. 33-52177, the
"Registration Statement"), relating to the Certificates, and has filed, and
proposes to file, such amendments thereto as may have been required to the
date hereof pursuant to the Securities Act of 1933 (the "1933 Act") and the
rules of the Commission thereunder (the "Regulations"). Such Registration
Statement, as amended at the time when it becomes effective under the 1933
Act (the "Effective Date"), and the prospectus relating to the sale of
Certificates by the Company constituting a part thereof, as from time to
time each is amended or supplemented pursuant to the 1933 Act or otherwise,
are referred to herein as the "Registration Statement" and the
"Prospectus", respectively. The Company will next file with the Commission
either (i) prior to effectiveness of such Registration Statement, a
further amendment thereto (including the form of final prospectus) or (ii)
after effectiveness of such Registration Statement, a final prospectus in
accordance with Rules 430A and 424(b)(1) or (4). In the case of clause
(ii) above, the Company has included in such Registration Statement, as
amended at the Effective Date, all information (other than that information
omitted pursuant to Rule 430A (the "Rule 430A Information")) required by
the 1933 Act and the Regulations to be included in the Prospectus with
respect to the Certificates and the offering thereof. As filed, such
amendment and form of final prospectus, or such final prospectus, as the
case may be, shall include all Rule 430A Information together with all
other such required information with respect to the Certificates and the
offering thereof and, except to the extent you shall agree in writing to a
modification, shall be in all substantive respects in the form furnished to
you prior to the date hereof or, to the extent not completed at the date
hereof, shall contain only such specific additional information and other
changes (beyond that contained in the latest preliminary Prospectus) as the
Company has advised you, prior to the date hereof, will be included or made
therein.
(2) On the Effective Date, the Registration Statement did or will,
and when the Prospectus is first filed (if required) in accordance with
Rule 424(b) and on the Closing Date (as defined below), the Prospectus (and
any supplements thereto) will, comply in all material respects with the
requirements of the 1933 Act and the Regulations. The Registration
Statement on the Effective Date did not or will not contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading. On the
Effective Date, the Prospectus, if not
<PAGE>
-3-
filed pursuant to Rule 424(b), did not or will not, and on the date of any
filing pursuant to Rule 424(b) and on the Closing Date (as defined below),
the Prospectus (together with any supplement thereto) will not, contain any
untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided,
however, that the representations and warranties in this subsection shall
not apply to statements in, or omissions from, the Registration Statement
or the Prospectus made in reliance upon and in conformity with information
furnished to the Company in writing by you expressly for use in the
Registration Statement or Prospectus. The conditions to the use by the
Company of a Registration Statement on Form S-3 under the 1933 Act, as set
forth in the General Instructions to Form S-3, have been satisfied with
respect to the Registration Statement, as applicable, and the Prospectus.
There are no contracts or documents of the Company which are required to be
filed as exhibits to the Registration Statement pursuant to the 1933 Act or
the Regulations which have not been so filed.
(3) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Minnesota
with corporate power and authority to own, lease and operate its properties
and conduct its business as described in the Prospectus and as described
in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993 and Form 10-Q for quarter ended December 31, 1993, filed
with the Securities and Exchange Commission pursuant to Section 13 of the
Securities Exchange Act of 1934, and to enter into and perform its
obligations under this Agreement and the Pooling and Servicing Agreement;
and the Company is duly qualified as a foreign corporation to transact
business and is in good standing in each jurisdiction in which the
ownership or lease of its properties or the conduct of its business
requires such qualification. The Company has conducted and is conducting
its origination and servicing of home improvement retail installment
contracts so as to comply in all respects with all applicable statutes and
regulations, including, without limitation, applicable FHA regulations,
usury, consumer loan, truth-in-lending and equal credit opportunity laws,
and there is no charge, investigation, action, suit or proceeding involving
the Company before or by any court pending or threatened that would
adversely affect the performance by the Company of this Agreement or the
Pooling and Servicing Agreement or the consummation of the transactions
contemplated hereunder or thereunder.
(4) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Minnesota
with full corporate power and authority to own its properties and conduct
its business, as currently conducted by it and as described in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1993 and Form 10-Q for quarter ended December 31, 1993, filed with the
Securities and Exchange Commission pursuant to Section 13 of the Securities
Exchange Act of 1934. The Company has full corporate power and authority
<PAGE>
-4-
to enter into and perform its obligations under this Agreement, the Pooling
and Servicing Agreement and the Certificates. The Company is duly
qualified to do business as a foreign corporation and is in good standing
in each jurisdiction in which the character of the business transacted by
it requires such qualification and in which the failure to so qualify would
have a material adverse effect on the business, properties, assets or
condition (financial or other) of the Company and its subsidiaries,
considered as a whole, the enforceability of the Contracts or the
performance of the Company's obligations under the Pooling and Servicing
Agreement.
(5) The Company is not in violation of its certificate of
incorporation or by-laws or in default in the performance or observance of
any material obligation, agreement, covenant or condition contained in any
contract, indenture, mortgage, loan agreement, note, lease or other
instrument to which it is a party or by which it or its properties may be
bound, which default might result in any material adverse change in the
financial condition, earnings, affairs or business of the Company or which
might materially and adversely affect the properties or assets thereof.
(6) The execution and delivery by the Company of this Agreement and
the Pooling and Servicing Agreement are within the corporate power of the
Company and have been duly authorized by all necessary corporate action on
the part of the Company; and neither the issuance and sale of the
Certificates to you, nor the execution and delivery by the Company of this
Agreement and the Pooling and Servicing Agreement, nor the consummation by
the Company of the transactions herein or therein contemplated, nor
compliance by the Company with the provisions hereof or thereof, will
materially conflict with or result in a material breach of, or constitute a
material default under, any of the provisions of any law, governmental
rule, regulation, judgment, decree or order binding on the Company or its
properties or the certificate of incorporation or by-laws of the Company,
or any of the provisions of any indenture, mortgage, contract or other
instrument to which the Company is a party or by which it is bound or
result in the creation or imposition of any lien, charge or encumbrance
upon any of its property pursuant to the terms of any such indenture,
mortgage, contract or other instrument.
(7) This Agreement has been duly authorized, executed and delivered
by the Company, and constitutes a legal, valid and binding instrument
enforceable against the Company in accordance with its terms, subject (i)
to applicable bankruptcy, reorganization, insolvency, moratorium or other
similar laws affecting creditors' rights generally, (ii) as to
enforceability, to general principles of equity (regardless of whether
enforcement is sought in a proceeding in equity or at law) and (iii) as to
enforceability with respect to rights of indemnity thereunder, to
limitations of public policy under applicable securities laws.
<PAGE>
-5-
(8) The Pooling and Servicing Agreement, when executed and delivered
as contemplated hereby and thereby, will have been duly authorized,
executed and delivered by the Company, and will constitute when so executed
and delivered, a legal, valid and binding instrument enforceable against
the Company in accordance with its terms, subject (i) to applicable
bankruptcy, reorganization, insolvency, moratorium or other similar laws
affecting creditors' rights generally and (ii) as to enforceability, to
general principles of equity (regardless of whether enforcement is sought
in a proceeding in equity or at law). The descriptions of the Pooling and
Servicing Agreement in the Registration Statement, as amended at the time
when it becomes effective, and in the Prospectus conform in all material
respects with the terms thereof. As of the Closing Date, the Pooling and
Servicing Agreement will conform in all material respects to the
description thereof contained in the Registration Statement and the
Prospectus.
(9) As of the Closing Date (as defined below), the Certificates will
have been duly and validly authorized by the Company, and, when executed
and authenticated as specified in the Pooling and Servicing Agreement, will
be validly issued and outstanding and will be entitled to the benefits of
the Pooling and Servicing Agreement. The descriptions of the Certificates
in the Registration Statement and the Prospectus, conform or will conform
as of such dates in all material respects with the terms thereof, and the
Certificates will be duly and validly authorized and, when duly and validly
executed by the Trustee in accordance with the Pooling and Servicing
Agreement and delivered to you as provided herein, will be validly issued
and outstanding and entitled to the benefits of the Pooling and Servicing
Agreement.
(10) No filing or registration with, notice to, or consent, approval,
authorization or order of, any court or governmental authority or agency is
required for the consum-mation by the Company of the transactions
contemplated by this Agreement or the Pooling and Servicing Agreement,
except such as may be required under the 1933 Act, the Regulations, or
state securities or Blue Sky laws.
(11) The Company possesses all material licenses, certificates,
authorizations or permits issued by the appropriate state, federal or
foreign regulatory agencies or bodies necessary to conduct the business now
operated by it and as described in the Prospectus and the Company has
received no notice of proceedings relating to the revocation or
modification of any such license, certificate, authority or permit which,
singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would materially and adversely affect the conduct of the
business, operations, financial condition or income of the Company.
(12) As of the Closing Date (as defined below), the Contracts
constituting a portion of the Trust will have been duly and validly
assigned to the Trustee in accordance with the Pooling and Servicing
Agreement; and when such assignment is effected, a duly
<PAGE>
-6-
and validly perfected transfer of all such Contracts subject to no prior
lien, mortgage, security interest, pledge, charge or other encumbrance
created by the Company will have occurred.
(13) As of the Closing Date, each of the Contracts will meet the
eligibility criteria described in the Prospectus.
(14) The Company shall provide you with (a) all monthly statements
provided the Trustee relating to the Contracts, (b) all servicing reports
relating to the Contracts, (c) all documents required to be distributed to
holders of the Certificates, and (d) the Annual Report of Accountants
required by Section 6.04 of the Pooling and Servicing Agreement.
(15) Neither the Company nor the Trust will be subject to
registration as an "investment company" under the Investment Company Act of
1940, as amended (the "1940 Act").
(16) The Certificates, the Pooling and Servicing Agreement, the Cash
Collateral Account and any standard hazard insurance policies, Limited
Guaranty conform in all material respects to the descriptions thereof
contained in the Prospectus.
(17) At the Closing Date, the Certificates shall have received the
certificate rating or ratings specified in the Prospectus.
(18) At the Closing Date, each of the representations and warranties
of the Company set forth in the Pooling and Servicing Agreement will be
true and correct.
(19) Any taxes, fees and other governmental charges in connection
with the execution, delivery and issuance of this Agreement, the Pooling
and Servicing Agreement and the Certificates have been or will be paid at
or prior to the Closing Date.
(20) As of the Closing Date, the Limited Guaranty will have been
duly and validly authorized, executed and delivered by, and will constitute
a legal, valid and binding obligation of, the provider of such Limited
Guaranty, subject to applicable bankruptcy, reorganization, insolvency,
moratorium or other similar laws affecting creditors' rights generally and
as to enforceability, to general principles of equity (regardless of
whether enforcement is sought in a proceeding in equity or at law).
<PAGE>
-7-
Any certificate signed by an officer of the Company and delivered to you
or your counsel in connection with an offering of Certificates shall be
deemed, and shall state that it is, a representation and warranty as to the
matters covered thereby to you.
The Company believes that it is justified in relying on any of the
representations, opinions and certificates relied upon by the Company or
furnished to you or your counsel as described above.
SECTION 2. Purchase and Sale. On the basis of the representations,
-----------------
warranties and agreements herein contained, but subject to the terms and
conditions herein set forth, the Company agrees to sell to you, and you agree to
purchase from the Company in immediately available funds, on the Closing Date
(as defined below) and at such price as shall be mutually agreed upon by the
Company and you as specified in a confirmation letter substantially in the form
of Exhibit A hereto, $_____________ aggregate principal amount of the
Certificates.
Payment of the purchase price for, and delivery of, the Certificates shall
be made at the office of Dorsey & Whitney, 220 South Sixth Street, Minneapolis,
Minnesota 55402, or at such other place as shall be agreed upon by you and the
Company, at such time or date as shall be agreed upon by you and the Company
(such time and date being referred to as the "Closing Date"). Payment shall be
made to the Company, at the option of the Company, either (a) by certified or
official bank check or checks in New York Clearing House or similar next day
funds payable to the order of the Company, or (b) in immediately available
Federal funds wired to such bank as may be designated by the Company; provided,
however, that if payment is made in immediately available Federal funds, the
Company shall simultaneously reimburse you for the cost to you of such funds,
based on your cost of borrowing such funds for one day at your most favorable
commercial paper rate on the Closing Date. Such Certificates shall be in such
denominations and registered in such names as you may request in writing at
least two business days prior to the Closing Date. Such Certificates, which may
be in temporary form, will be made available for examination and packaging by
you no later than 12:00 noon on the first business day prior to the applicable
Closing Date.
SECTION 3. Covenants of the Company. The Company covenants with you as
------------------------
follows:
(a) The Company will prepare a Prospectus setting forth the principal
amount of Certificates covered thereby, the price at which the Certificates
are to be purchased by
<PAGE>
-8-
you from the Trust, either the initial public offering price or prices or
the method by which the price or prices by which the Certificates are to be
sold will be determined, the selling concession(s) and reallowance(s), if
any, any delayed delivery arrangements, and such other information as you
and the Company deem appropriate in connection with the offering of the
Certificates. The Company will promptly transmit copies of the Prospectus
to the Commission for filing pursuant to Rule 424 under the 1933 Act and
will furnish to you as many copies of the Prospectus as you shall
reasonably request.
(b) If at any time when the Prospectus is required by the 1933 Act to
be delivered in connection with sales of the Certificates by you, any event
shall occur or condition exist as a result of which it is necessary, in the
opinion of your counsel, counsel for the Company, or otherwise, to further
amend or supplement the Prospectus in order that the Prospectus will not
include an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the light of
circumstances existing at the time it is delivered to a purchaser, not
misleading or if it shall be necessary, in the opinion of any such counsel
or otherwise, at any such time to amend or supplement the Registration
Statement or the Prospectus in order to comply with the requirements of the
1933 Act or the Regulations thereunder, the Company will promptly prepare
and file with the Commission such amendment or supplement as may be
necessary to correct such untrue statement or omission or to make the
Registration Statement comply with such requirements, and within two
business days will furnish to you as many copies of the Prospectus, as so
amended or supplemented, as you shall reasonably request.
(c) The Company will give you reasonable notice of its intention to
file any amendment to the Registration Statement or any amendment or
supplement to the Prospectus, whether pursuant to the 1933 Act or
otherwise, will furnish you with copies of any such amendment or supplement
or other documents proposed to be filed a reasonable time in advance of
filing, and will not file any such amendment or supplement or other
documents in a form to which you or your counsel shall object.
(d) The Company will notify you immediately, and confirm the notice
in writing, (i) of the effectiveness of any amendment to the Registration
Statement, (ii) of the mailing or the delivery to the Commission for filing
of any supplement to the Prospectus or any document, other than quarterly
and annual reports to be filed pursuant to the Securities Exchange Act of
1934, as amended (the "1934 Act"), (iii) of the receipt of any comments
from the Commission with respect to the Registration Statement, the
Prospectus or any Prospectus Supplement, (iv) of any request by the
Commission for any amendment to the Registration Statement or any amendment
or supplement to the Prospectus or for additional information, and (v) of
the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or the initiation of any
proceedings for that purpose. The Company will make every reasonable
effort
<PAGE>
-9-
to prevent the issuance of any such stop order and, if any such stop order
is issued, to obtain the lifting thereof at the earliest possible moment.
(e) The Company will deliver to you as many signed and as many
conformed copies of the Registration Statement (as ordinarily filed) and of
each amendment thereto (including exhibits filed therewith or incorporated
by reference therein and documents incorporated by reference in the
Prospectus) as you may reasonably request.
(f) The Company will endeavor, in cooperation with you, to qualify
the Certificates for offering and sale under the applicable securities laws
of such states and other jurisdictions of the United States as you may
designate, and will maintain or cause to be maintained such qualifications
in effect for as long as may be required for the distribution of the
Certificates. The Company will file or cause the filing of such statements
and reports as may be required by the laws of each jurisdiction in which
the Certificates have been qualified as above provided.
(g) The Company will not, without your prior consent, publicly offer
or sell any other pass-through certificates for a period of 30 days from
the Closing Date.
(h) On or before the Closing Date, the Company shall mark the
computer records relating to the Contracts to show the Trust's ownership of
the Contracts, and from and after the Closing Date the Company shall not
take any action inconsistent with the Trust's ownership of such Contracts
except as permitted by the Pooling and Servicing Agreement in connection
with servicing the Contracts.
(i) The Company agrees that any person designated by you may consult
with the proper officials of the Company (including, without limitation,
officials in charge of servicing the Contracts) at such times and as often
as you may reasonably request regarding the information required to be
furnished pursuant to Section 6.01 of the Pooling and Servicing Agreement
or regarding the performance of the Company's covenants and agreements
contained in this Agreement or the Pooling and Servicing Agreement.
(j) The Company shall furnish or make available to you or your
counsel such additional documents and information regarding the Company and
its affairs as you may from time to time reasonably request, including any
and all documentation reasonably requested in connection with your due
diligence efforts regarding information in the Registration Statement and
the Prospectus and in order to evidence the accuracy or completeness of any
of the conditions contained in this Agreement; and all actions taken by the
Company to authorize the sale of the Certificates shall be reasonably
satisfactory in form and substance to you.
<PAGE>
-10-
SECTION 4. Conditions of Underwriter's Obligations. Your obligations to
---------------------------------------
purchase and pay for the Certificates shall be subject to the accuracy on the
Closing Date of the representations and warranties on the part of the Company
herein, to the accuracy on the Closing Date of the statements of officers of the
Company made pursuant to the provisions hereof, to the performance on or prior
to the Closing Date by the Company of its obligations hereunder and to the
following additional conditions precedent:
(a) On the Closing Date (i) no stop order suspending the
effectiveness of the Registration Statement shall have been issued or
proceedings therefor initiated or threatened by the Commission, (ii) the
Certificates shall have received the rating or ratings specified in the
Prospectus, (iii) the Certificates shall not have received, on or prior
to the Closing Date, a rating assigned by a nationally recognized
statistical rating agency other than Standard & Poor's Ratings Group, a
division of McGraw Hill, Inc. ("S&P"), that is lower than the rating
assigned to the Certificates by S&P, and (iv) there shall not have come
to your attention any facts that would cause you to believe that the
Prospectus contained an untrue statement of a material fact or omitted to
state a material fact necessary in order to make the statements therein,
in light of the circumstances existing at such time, not misleading.
(b) On or prior to the Closing Date, you shall have received a copy
of a letter, dated the Closing Date and addressed to you, from KPMG Peat
Marwick, certified public accountants, substantially in the form heretofore
approved by you and your counsel.
(c) You shall have received one or more opinion letters, dated the
Closing Date, addressed to you and satisfactory in form and substance to
you, of Dorsey & Whitney, counsel for the Company, in substantially the
forms of Exhibit D to the Pooling & Servicing Agreement and Exhibit B
hereto.
(d) You shall have received a certificate, dated the Closing Date, of
the President or any Vice President of the Company, in which such officer
to the best of his knowledge after reasonable investigation, shall state
that (i) the representations and warranties of the Company in this
Agreement are true and correct on and as of the Closing Date, as though
such representations and warranties had been made on and as of such date,
(ii) the Company has complied with all agreements and satisfied all
conditions on its part to be performed or satisfied hereunder and under the
Pooling and Servicing Agreement at or prior to the Closing Date, (iii) the
representations and warranties of the Company, as Seller and Servicer, in
the Pooling and Servicing Agreement are true and correct as of the date of
the Pooling and Servicing Agreement and as of the Closing Date, as though
such representations and warranties had been made on and as of such dates,
(iv) subsequent to the date of the initial filing of the Registration
Statement, there has been no material adverse change in the financial
position or results of operations of the Company's business except as
contemplated by the Registration Statement or as described in such
certificate, and (v) nothing has come to such officer's attention that
would lead such officer to believe that the Registration Statement, at the
time it became effective, or the Prospectus, as of the Closing Date and as
of the date of any filing pursuant to Rule 424(b), or any amendment or
supplement thereto, contained
<PAGE>
-11-
an untrue statement of a material fact or omitted to state any material
fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, (vi) no stop
order suspending the effectiveness of the Registration Statement has been
issued, and no proceedings for that purpose have been instituted and are
pending or, to his or her knowledge, have been threatened as of the
Closing Date; (vii) each person who, as an officer or representative of
the Company, signed this Agreement, the Pooling and Servicing Agreement
or any other document delivered on or prior to the date hereof in
connection with the transactions described herein and therein was, at the
respective times of such signing and delivery, and is now, duly elected
or appointed, qualified and acting as such officer or representative,
and the signatures of such persons appearing on such documents are their
genuine signatures; (viii) the Company has not beenand will not be a party
to any fraud or illegality affecting this Agreement or the Pooling and
Servicing Agreement; and (ix) no proceedings looking toward merger,
liquidation, dissolution or bankruptcy of the Company are pending or
contemplated.
The Company shall attach to such certificate a true and correct copy of
its articles of incorporation and by-laws and a Certificate of Good Standing
for the Company issued by the Office of the Secretary of the State of
Minnesota, with confirmation of such good standing dated the Closing Date, all
of which are in full force and effect on the date of such certificate, and a
certified true copy of the resolution of its Board of Directors with respect
to the transactions contemplated in this Agreement.
(e) The Underwriter shall have received from the Trustee a
certificate, signed by the President, a senior vice president or a vice
president of the Trustee, dated the Closing Date, to the effect that each
person who, as an officer or representative of the Trustee, signed the
Pooling and Servicing Agreement or any other document delivered on or
prior to the Closing Date in connection with the transactions described
in the Pooling and Servicing Agreement was, at the respective times of
such signing and delivery, and is now, duly elected or appointed,
qualified and acting as such officer or representative, and the
signatures of such person appearing on such documents are their genuine
signatures.
(f) You shall have received an opinion of counsel to the Trustee,
dated the Closing Date, addressed to you and satisfactory in form and
substance to you and your counsel, to the effect that:
(1) The Trustee is a national banking association with trust
powers duly organized, validly existing and in good standing under the
laws of the United States of America.
(2) The Pooling and Servicing Agreement has been duly and
validly authorized, executed and delivered by the Trustee and,
assuming the binding obligations of the Company thereunder,
constitutes the valid, legal and binding agreement of the Trustee
enforceable against the Trustee in accordance with its terms, except
as enforceability may be limited by bankruptcy, insolvency,
reorganization or other similar laws affecting the enforcement of
creditors' rights in general and by general principles of equity
regardless of whether such enforcement is considered in a proceeding
in equity or at law.
(3) The Trustee has full power and authority to execute and
deliver the Pooling and Servicing Agreement and to perform its
obligations thereunder.
(4) To the best of such counsel's knowledge, there are no
actions, proceedings or investigations pending or threatened against
or affecting the Trustee before or by any court, arbitrator,
administrative agency or other governmental authority which, if
adversely decided, would materially and adversely affect the ability
of the Trustee to carry out the transactions contemplated in the
Pooling and Servicing Agreement.
(5) No consent, approval or authorization of, or registration,
declaration or filing with, any court or governmental agency or body
of the jurisdiction of incorporation of the Trustee is required for
the execution, delivery or performance by the Trustee of the Pooling
and Servicing Agreement.
(6) The Certificates have been duly executed, authenticated
and delivered by the Trustee in the manner contemplated in the
Pooling and Servicing Agreement.
In rendering such opinion, such counsel may rely, as to matters of fact, to
the extent deemed proper and stated therein, on certificates of responsible
officers of the Trustee or public officials.
<PAGE>
-12-
(g) The favorable opinion or opinions, dated as of the Closing Date,
of your counsel with respect to the issue and sale of the Certificates, the
Registration Statement, this Agreement, the Prospectus and other related
matters as you may require.
(h) You shall have received an opinion of counsel to the Cash
Collateral Depositor, dated the Closing Date and satisfactory in form and
substance to Underwriter, substantially to the effect that;
(a) The Cash Collateral Depositor is a corporation duly
incorporated and is validly existing and in good standing under the
laws of its jurisdiction of organization, and has the power and
authority (corporate and other) to enter into the Cash Collateral
Trust Agreement and the Loan Agreement and perform its obligations
thereunder;
(b) The execution, delivery and performance by the Cash
Collateral Depositor of the Cash Collateral Trust Agreement and the
Loan Agreement have been duly authorized by all necessary corporate
action on the part of the Cash Collateral Depositor;
(c) The execution, delivery and performance by the Cash
Collateral Depositor of the Cash Collateral Trust Agreement and the
Loan Agreement does not require the consent or approval of, the
giving of notice to, the registration with, or the taking of any
other action in respect of any national, state or other governmental
agency or authority which has not previously been effected;
(d) Each of the Cash Collateral Trust Agreement and the Loan
Agreement has been duly authorized, executed and delivered by the
Cash Collateral Depositor and, assuming due authorization, execution
and delivery thereof by the Trustee, the Cash Collateral Trustee and
the Company, constitutes the legal, valid and binding agreement of
the Cash Collateral Depositor, enforceable against the Cash
Collateral Depositor in accordance with its terms except (1) the
enforceability thereof may be subject to bankruptcy, insolvency,
reorganization, moratorium, conservatorship, receivership or other
similar laws now or hereafter in effect relating to creditors'
rights generally and (2) except as enforcement thereof may be
subject to general principles of equity (regardless of whether
enforcement is considered in a proceeding in equity or at law) as
well as concepts of reasonableness, good faith and fair dealing. The
obligations of the Cash Collateral Depositor under the Loan
Agreement will rank equally with general deposits and all other
unsecured indebtedness outstanding on the Closing Date or thereafter
which are not contractually subordinated to the payment of such
obligation;
(i) You shall have received an opinion of counsel to the Cash
Collateral Trustee, dated the Closing Date and satisfactory in form and
substance to the Underwriter, substantially to the effect that:
(a) The Cash Collateral Trustee has been duly incorporated and
is validly existing as a banking corporation in good standing under
the laws of the United States of America;
(b) The Cash Collateral Trustee has full corporate trust power
and authority to enter into and perform its obligations under the
Loan Agreement, the Cash Collateral Trust Agreement and the Cash
Collateral Guaranty;
(c) Each of the Loan Agreement, the Cash Collateral Trust
Agreement and the Cash Collateral Guaranty has been duly authorized,
executed and delivered by the Cash Collateral Trustee and
constitutes a valid and legally binding agreement of the Cash
Collateral Trustee, enforceable against the Cash Collateral Trustee
in accordance with its terms, subject, as to enforcement of
remedies, (a) to applicable bankruptcy, insolvency, reorganization,
and other similar laws affecting the rights of creditors generally,
and (b) to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law);
(d) The Cash Collateral Trustee has duly caused the Cash
Collateral Trust to issue the Cash Collateral Guaranty in accordance
with the terms of the Cash Collateral Trust Agreement;
(e) No consent, approval or authorization of, or registration,
declaration or filing with, or giving of notice to or the taking of
any other act with respect to any court or governmental authority,
agency or body of the United States of America or of any state
governing the trust powers of the Cash Collateral Trustee is
required under the existing laws or regulation for the consummation
on the part of the Cash Collateral Trustee of any of the
transactions contemplated in the Loan Agreement, the Cash Collateral
Trust Agreement or the Cash Collateral Guaranty, except such as have
been obtained; and
(f) The execution and delivery of the Loan Agreement, the Cash
Collateral Trust Agreement and the Cash Collateral Guaranty, and the
performance by the Cash Collateral Trustee of the respective terms
thereof do not conflict with or result in a violation of (1) any
laws or regulations of the United States of America or of any state
governing the trust powers of the Cash Collateral Trustee, (2) the
Articles of Incorporation or By-Laws of the Cash Collateral Trustee
or (3) any material agreement, instrument, order, writ, judgment or
decree known to such counsel to which the Cash Collateral Trustee is
a party or is subject.
In rendering such opinions, counsel to the Cash Collateral Trustee may
rely on the opinion of the office of the general counsel to the Cash
Collateral Trustee.
(j) On the Closing Date you shall have received, addressed to you,
any additional opinions delivered by counsel pursuant to the request of the
Rating Agency or Rating Agencies rating the Certificates.
(k) On the Closing Date, your counsel shall have been furnished with
such documents and opinions as they reasonably may require for the purpose
of enabling them to pass upon the issuance and sale of the Certificates as
herein contemplated and related proceedings or in order to evidence the
accuracy and completeness of any of the representations and warranties, or
the fulfillment of any of the conditions, herein contained; and all
proceedings taken by the Company in connection with the issuance and sale
of the Certificates as herein contemplated shall be satisfactory in form
and substance to you and your counsel.
(l) You shall have received a copy of a file-stamped copy of the
UCC-1 financing statement with respect to the property of the Trust.
(m) All documents incident hereto and to the Pooling and Servicing
Agreement shall be reasonably satisfactory in form and substance to you and
your counsel, and the Company shall furnish you and your counsel with such
opinions, certificates, letters and documents as you or your counsel shall
reasonably request.
If any condition specified in this Section shall not have been fulfilled
when and as required to be fulfilled, this Agreement may be terminated by you by
notice to the Company at any time at or prior to the Closing Date, and such
termination shall be without liability of any party to the other party except as
provided in Section 5.
SECTION 5. Payment of Expenses. The Company will pay all expenses
-------------------
incident to the performance of its obligations under this Agreement, including
without limitation those related to (i) the filing of the Registration Statement
and all amendments thereto, (ii) the printing and delivery to you, in such
quantities as you may reasonably request, of copies of this Agreement, (iii) the
preparation, issuance and delivery of the Certificates to you, (iv) the fees and
disbursements of the Company's counsel and accountants, (v) the qualification of
the Certificates under securities and Blue Sky laws and the determination of the
eligibility of the Certificates for investment in accordance with the provisions
of Section 3(f) herein, including filing fees, and the fees and disbursements of
your counsel in connection therewith and in connection with the preparation of
any Blue Sky survey and legal investment survey, (vi) the printing and delivery
to you, in such quantities as you may reasonably request, hereinafter stated, of
copies of the Registration Statement and Prospectus and all amendments and
supplements thereto, and of any
<PAGE>
-13-
Blue Sky survey and legal investment survey, (vii) the printing and delivery to
you, in such quantities as you may reasonably request, of copies of the Pooling
and Servicing Agreement, (viii) the fees charged by investment rating agencies
for rating the Certificates, (ix) the fees and expenses incurred in connection
with the listing of the Certificates on any national securities ex-change, (x)
the fees and expenses incurred with respect to the National Association of
Securities Dealers, Inc., including the fees and disbursements of your counsel
in connection therewith and (xi) the fees and expenses of the Trustee and its
counsel.
If this Agreement is terminated by you in accordance with the provisions of
Section 4 or Section 9(i) hereof, the Company shall reimburse you for all
reasonable out-of-pocket expenses, including the reasonable fees and
disbursements of your counsel.
SECTION 6. Indemnification. (a) The Company agrees to indemnify and hold
---------------
harmless the Underwriter and each controlling person thereof within the meaning
of Section 15 of the 1933 Act or Section 20 of the Securities Act of 1934 (the
"1934 Act") as follows:
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement
or alleged untrue statement of a material fact contained in the
Registration Statement (or any amendment thereto), or the omission or
alleged omission therefrom of a material fact required to be stated
therein or necessary to make the statements therein not misleading or
arising out of any untrue statement or alleged untrue statement of a
material fact contained in the Prospectus (or any amendment or
supplement thereto) or the omission or alleged omission therefrom of a
material fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading,
unless such untrue statement or omission or alleged untrue statement
or omission was made in reliance upon and in conformity with written
information furnished to the Company by you expressly for use in the
Registration Statement (or any amendment thereto) or the Prospectus
(or any amendment or supplement thereto);
(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount
paid in settlement of any litigation, or investigation or proceeding
by any governmental agency or body, commenced or threatened, or of any
claim whatsoever based upon any such untrue statement or omission, if
such settlement is effected with the written consent of the Company;
and
(iii) against any and all expense whatsoever (including the fees
and disbursements of counsel chosen by you), reasonably incurred in
investigating, preparing or defending against any litigation, or
investigation or proceeding by any governmental agency or body,
commenced or threatened, or any claim
<PAGE>
-14-
whatsoever based upon any such untrue statement or omission, to the
extent that any such expense is not paid under (i) or (ii) above.
This indemnity agreement will be in addition to any liability which the
Company may otherwise have. Insofar as this indemnity may permit
indemnification for liabilities under the 1933 Act of any person who is a
partner of the Underwriter entitled to indemnity hereby or who controls the
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act and who, at the date of this Agreement, is a director, officer or
controlling person of the Company, such indemnity agreement is subject to the
undertaking of the Company in the Registration Statement.
(b) You agree to indemnify and hold harmless the Company, each of the
Company's directors, each of the Company's officers who signed the
Registration Statement, and each person, if any, who controls the Company
within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934
Act against any and all loss, liability, claim, damage and expense
described in the indemnity contained in subsection (a) of this Section, as
incurred, but only with respect to untrue statements or omissions, or
alleged untrue statements or omissions, made in the Registration Statement
(or any amendment thereto) or the Prospectus (or any amendment or
supplement thereto) in reliance upon and in conformity with written
information furnished to the Company by you expressly for use in the
Registration Statement (or any amendment thereto) or the Prospectus (or any
amendment or supplement thereto). This indemnity agreement will be in
addition to any liability which you may otherwise have.
(c) Each indemnified party shall give prompt notice to each
indemnifying party of any action commenced against it with respect to which
indemnity may be sought hereunder but failure to so notify an indemnifying
party shall not relieve it from any liability which it may have otherwise
than on account of this indemnity agreement. An indemnifying party may
participate at its own expense in the defense of such action. In no event
shall the indemnifying parties be liable for the fees and expenses of more
than one counsel for all indemnified parties in connection with any one
action or separate but similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances.
SECTION 7. Contribution. In order to provide for just and equitable
------------
contribution in circumstances in which the indemnity agreement provided for in
Section 6 hereof is for any reason held to be unenforceable by the indemnified
parties although applicable in accordance with its terms, the Company on the one
hand, and you, on the other, shall contribute to the aggregate losses,
liabilities, claims, damages and expenses of the nature contemplated by said
indemnity agreement incurred by the Company and you in such proportions that you
are responsible for that portion determined by multiplying the total amount
of such losses, claims, damages and liabilities, including legal and other
expenses, by a fraction, the numerator of which is (x) the excess of the
aggregate public offering price of the Certificates (as expressed as a
percentage of the initial aggregate principal amount of such Certificates)
over the aggregate purchase price of the Certificates (as expressed as a
percentage of the initial aggregate principal amount of such Certificates) and
the denominator of which is (v) the aggregate public offering price of the
Certificates (as expressed as a percentage of the initial aggregate principal
amount of such Certificates)
<PAGE>
-15-
and the Company shall be responsible for the balance; provided, however, that
no person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. For purposes
of this Section, each person, if any, who controls you within the meaning of
Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same
rights to contribution as you and each director of the Company, each officer
of the Company who signed the Registration Statement, and each person, if any,
who controls the Company within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act shall have the same rights to contribution as the
Company.
SECTION 8. Representations, Warranties, Indemnities and Agreements to
---------------------------------------------------------------
Survive Delivery.
----------------
All representations, warranties, indemnities and agreements contained in this
Agreement, or contained in certificates of officers of the Company submitted
pursuant hereto, shall remain operative and in full force and effect,
regardless of any termination of this Agreement, or any investigation made by
or on behalf of the Underwriter or any controlling person thereof, or by or on
behalf of the Company and shall survive delivery of any Certificates to the
Underwriter.
SECTION 9. Termination of Agreement. This Agreement may be terminated for
------------------------
any reason at any time by either the Company or you upon the giving of thirty
days' written notice of such termination to the other party hereto. You may
also terminate this Agreement, immediately upon notice to the Company, at any
time at or prior to the Closing Date (i) if there has been, since the date of
this Agreement or since the respective dates as of which information is given in
the Registration Statement or Prospectus any change, or any development
involving a prospective change in, or affecting, the condition, financial or
otherwise, earnings, affairs or business of the Company whether or not arising
in the ordinary course of business, which in your judgment would materially
impair the market for, or the investment quality of, the Certificates, or (ii)
if there has occurred any outbreak of hostilities or other calamity or crisis
the effect of which on the financial markets of the United States is such as to
make it, in your judgment, impracticable to market the Certificates or enforce
contracts for the sale of the Certificates, or (iii) if trading generally on
either the New York Stock Exchange or the American Stock Exchange has been
suspended, or minimum or maximum prices for securities have been required, by
either of said exchanges or by order of the Commission or any other governmental
authority, or if a banking moratorium has been declared by either Federal,
Minnesota or New York authorities. In the event of any such termination, the
covenant set forth in Section 3(c), the provisions of Section 5, the indemnity
agreement set forth in Section 6, the contribution provisions set forth in
Section 7 and the provisions of Sections 8 and 11 shall remain in effect.
SECTION 10. Notices. All notices and other communications hereunder shall
-------
be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to you shall be
directed to you at the address set forth on the first page hereof,
attention:_______________. Notices to the Company shall be directed to Green
Tree Financial Corporation, 1100 Landmark Towers, 345 St. Peter Street, Saint
Paul, Minnesota 55102-1639, attention of the Secretary, with a copy to the
Treasurer.
<PAGE>
-16-
SECTION 11. Parties. This Agreement shall inure to the benefit of and be
-------
binding upon you and the Company, and you and their respective successors.
Nothing expressed or mentioned in this Agreement is intended or shall be
construed to give any person, firm or corporation, other than the parties hereto
and their respective successors and the controlling persons and officers and
directors referred to in Sections 6 and 7 and their heirs and legal
representatives any legal or equitable right, remedy or claim under or with
respect to this Agreement or any provision herein contained. This Agreement and
all conditions and provisions hereof are intended to be for the sole and
exclusive benefit of the parties and their respective successors and said
controlling persons and officers and directors and their heirs and legal
representatives (to the extent of their rights as specified herein and therein)
and for the benefit of no other person, firm or corporation. No purchaser of
Certificates from you shall be deemed to be a successor by reason merely of such
purchase.
SECTION 12. Governing Law and Time. This Agreement shall be governed by
----------------------
the laws of the State of New York. Specified times of day refer to New York
City time.
SECTION 13. Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall constitute an original of any party whose signature appears
on it, and all of which shall together constitute a single instrument.
<PAGE>
-17-
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to us a counterpart hereof, whereupon this instrument
along with all counterparts will become a binding agreement between you and the
Company in accordance with its terms.
Very truly yours,
GREEN TREE FINANCIAL CORPORATION
By:__________________________
Name:________________________
Title:_______________________
CONFIRMED AND ACCEPTED, as of
the date first above written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By:____________________________
Name:__________________________
Title:_________________________
<PAGE>
EXHIBIT A
(FORM OF CONFIRMATION LETTER)
MERRILL LYNCH, PIERCE, FENNER
& SMITH INCORPORATED
North Tower
World Financial Center
New York, New York 10281
March __, 1994
Green Tree Financial Corporation
1100 Landmark Towers
345 St. Peter Street
St. Paul, Minnesota 55102
Attention: Chief Financial Officer
Dear Sirs:
Reference is made to that certain Underwriting Agreement, dated March
__, 1994, between you and the undersigned with respect to Home Improvement Loan
Trust 1994-A (the "Underwriting Agreement"). Capitalized terms used and not
otherwise defined herein shall have the meanings ascribed thereto in the
Underwriting Agreement.
Pursuant to Section 2 of the Underwriting Agreement, you and the
undersigned hereby confirm the following terms with respect to our purchase of
Certificates:
Closing Date: March __, 1994
------------
Aggregate Principal Balance of Certificates: $_____________
-------------------------------------------
Certificate Pass-Through Rate: __%
-----------------------------
Purchase Price: ____% X $_____________
--------------
= $_______________
Accrued Interest: $ X Pass-Through Rate X [number of days]
---------------- -----------------------------------------------------
360
= $_____________.
Total Purchase Price
<PAGE>
-2-
Plus Accrued Interest: $____________.
---------------------
[The undersigned represents to you that it has commitments from
institutional investors to purchase the Certificates at a price that would not
result in more than a de minimis amount of original issue discount, as that term
-- -------
is defined in the Internal Revenue Code of 1986, as amended.]
Kindly acknowledge your agreement to the foregoing by signing and
returning the enclosed extra copy of this letter.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER
& SMITH INCORPORATED
By:__________________________
Printed Name:________________
Its:_________________________
Accepted and agreed to this
____ day of March, 1994.
GREEN TREE FINANCIAL CORPORATION
By:_____________________________
Printed Name:___________________
Its:____________________________
<PAGE>
EXHIBIT B
(1) Although we cannot guarantee the accuracy or completeness of the
statements contained in the Registration Statement and the Prospectus, on the
basis of conferences at which the Registration Statement and the Prospectus
were discussed and revised, our examination of the documents referred to in
the Registration Statement and the Prospectus, and our investigation forming
the basis for the opinions being delivered to you on the date hereof, nothing
has come to our attention that causes us to believe that, on the Effective
Date, the Registration Statement, at the time it became effective, contained
any untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading. On
the Effective Date, the Prospectus, if not filed pursuant to Rule 424(b), did
not or will not, and on the date of any filing pursuant to Rule 424(b) and on
the Closing Date (as defined below), the Prospectus (together with any
supplement thereto) will not, contain any untrue statement of a material fact
or omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
(2) The Registration Statement and any amendments thereto have become
effective under the 1933 Act and, to the best knowledge of such counsel, no
stop order suspending the effectiveness of the Registration Statement, as
amended, has been issued and no proceedings for that purpose have been
instituted or threatened by the Commission;
(3) The Registration Statement and the Prospectus, and each amendment
thereof and supplement thereto, as of their respective effective or issue
dates, complied as to form in all material respects with the requirements of
the 1933 Act and the rules and regulations of the Commission thereunder;
(4) To the best knowledge of such counsel, there are no material contracts,
indentures or documents of a character required to be described in the
Registration Statement, as amended, or Prospectus or to be filed as exhibits
to the Registration Statement, as amended, other than those described therein
or filed or incorporated by reference as exhibits thereto;
(5) The Certificates and the Pooling and Servicing Agreement conform in all
material respects to the descriptions set forth in the Prospectus under the
captions "Description of Certificates" and "The Pooling Agreement"; and
(6) The statements in the Prospectus under the captions "Certain Legal
Aspects of the Contracts; Repurchase Obligations," "Certain Federal Income Tax
Consequences" and "ERISA Considerations", to the extent that they constitute
matters of federal law or legal conclusions, are correct in all material
respects.
In rendering such opinion, such counsel may rely as to matters of fact, to
the extent such counsel deems proper, on certificates of responsible officers of
the Trustee, the Company and public officials.
<PAGE>
Draft of 3/23/94
----------------
Exhibit 4.1
================================================================================
Certificates for Home Improvement Loans
____ % Pass-Through Rate
POOLING AND SERVICING AGREEMENT
between
GREEN TREE FINANCIAL CORPORATION
Seller and Servicer
and
FIRST TRUST NATIONAL ASSOCIATION
not in its individual capacity but solely as Trustee of
HOME IMPROVEMENT LOAN TRUST 1994-A
Dated as of March 1, 1994
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION> Page
----
ARTICLE I
Definitions
<S> <C> <C>
Section 1.01. General................................................. 1-1
Section 1.02. Specific Terms.......................................... 1-1
<CAPTION>
ARTICLE II
Establishment of Trust; Transfer of Contracts
<S> <C> <C>
Section 2.01. Closing................................................. 2-1
Section 2.02. Conditions to the Closing............................... 2-1
Section 2.03. Acceptance by Trustee................................... 2-2
<CAPTION>
ARTICLE III
Representations and Warranties
<S> <C> <C>
Section 3.01. Representations and Warranties Regarding the
Company............................................. 3-1
Section 3.02. Representations and Warranties Regarding Each
Contract............................................ 3-2
Section 3.03. Representations and Warranties Regarding the
Contracts in the Aggregate.......................... 3-5
Section 3.04. Representations and Warranties Regarding the
Contract Files...................................... 3-6
Section 3.05. Repurchases of Contracts for Breach of
Representations and Warranties...................... 3-6
Section 3.06. No Repurchase Under Certain Circumstances............... 3-7
<CAPTION>
ARTICLE IV
Perfection of Transfer and Protection of Security Interests
<S> <C> <C>
Section 4.01. Transfer of Contracts................................... 4-1
Section 4.02. Costs and Expenses...................................... 4-1
<CAPTION>
ARTICLE V
Servicing of Contracts
<S> <C> <C>
Section 5.01. Responsibility for Contract Administration.............. 5-1
Section 5.02. Standard of Care........................................ 5-1
Section 5.03. Records................................................. 5-1
Section 5.04. Inspection.............................................. 5-1
Section 5.05. Collection Account...................................... 5-2
Section 5.06. Enforcement............................................. 5-4
Section 5.07. Trustee to Cooperate.................................... 5-5
Section 5.08. Costs and Expenses...................................... 5-6
Section 5.09. Maintenance of Insurance................................ 5-6
Section 5.10. Merger or Consolidation of Servicer..................... 5-6
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ARTICLE VI
Reports and Tax Matters
<S> <C> <C>
Section 6.01. Monthly Reports......................................... 6-1
Section 6.02. Officer's Certificate................................... 6-3
Section 6.03. Other Data.............................................. 6-3
Section 6.04. Annual Report of Accountants............................ 6-3
Section 6.05. Statements to Certificateholders and Subordinated
Certificateholder................................... 6-3
Section 6.06. Payment of Taxes........................................ 6-5
<CAPTION>
ARTICLE VII
Service Transfer
<S> <C> <C>
Section 7.01. Events of Termination................................... 7-1
Section 7.02. Transfer................................................ 7-2
Section 7.03. Trustee to Act; Appointment of Successor................ 7-2
Section 7.04. Notification to Certificateholders and Subordinated
Certificateholder................................... 7-3
Section 7.05. Effect of Transfer...................................... 7-3
Section 7.06. Transfer of Collection Account.......................... 7-4
<CAPTION>
ARTICLE VIII
Payments
<S> <C> <C>
Section 8.01. Monthly Payments........................................ 8-1
Section 8.02. Advances................................................ 8-1
Section 8.03. Cash Collateral Account Coverage of Shortfalls.......... 8-2
Section 8.04. Letter of Credit and Other Credit Enhancement........... 8-2
Section 8.05. Limited Guaranty........................................ 8-4
Section 8.06. Payments................................................ 8-4
Section 8.07. Reassignment of Repurchased Contacts.................... 8-5
Section 8.08. Company's Repurchase Option............................. 8-5
<CAPTION>
ARTICLE IX
The Certificates
<S> <C> <C>
Section 9.01. The Certificates and the Subordinated Certificate....... 9-1
Section 9.02. Registration of Transfer and Exchange of Certificates
and the Subordinated Certificate.................... 9-1
Section 9.03. No Charge; Disposition of Void Certificates
and Subordinated Certificate........................ 9-4
Section 9.04. Mutilated, Destroyed, Lost or Stolen Certificates
and Subordinated Certificate........................ 9-5
Section 9.05. Persons Deemed Owners................................... 9-5
Section 9.06. Access to List of Certificateholders' Names
and Addresses....................................... 9-5
Section 9.07. Authenticating Agents................................... 9-6
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ARTICLE X
Indemnities
<S> <C> <C>
Section 10.01. Real Estate............................................. 10-1
Section 10.02. Liabilities to Obligors................................. 10-1
Section 10.03. Tax Indemnification..................................... 10-1
Section 10.04. Servicer's Indemnities.................................. 10-1
Section 10.05. Operation of Indemnities................................ 10-2
<CAPTION>
ARTICLE XI
The Trustee
<S> <C> <C>
Section 11.01. Duties of Trustee....................................... 11-1
Section 11.02. Certain Matters Affecting the Trustee................... 11-2
Section 11.03. Trustee Not Liable for Certificates or Contracts........ 11-3
Section 11.04. Trustee May Own Certificates............................ 11-3
Section 11.05. Rights of Certificateholders to Direct Trustee and to
Waive Events of Termination......................... 11-3
Section 11.06. The Servicer to Pay Trustee's Fees and Expenses......... 11-4
Section 11.07. Eligibility Requirements for Trustee.................... 11-5
Section 11.08. Resignation or Removal of Trustee....................... 11-5
Section 11.09. Successor Trustee....................................... 11-6
Section 11.10. Merger or Consolidation of Trustee...................... 11-6
Section 11.11. Tax Returns............................................. 11-7
Section 11.12. Obligor Claims.......................................... 11-7
Section 11.13. Appointment of Co-Trustee or Separate Trustee........... 11-8
Section 11.14. Certain Matters Relating to FHA Insurance............... 11-9
Section 11.15. The Trustee and First Bank System....................... 11-9
Section 11.16. Trustee Advances........................................ 11-9
<CAPTION>
ARTICLE XII
Miscellaneous
<S> <C> <C>
Section 12.01. Servicer Not to Resign.................................. 12-1
Section 12.02. Company Not to Engage in Certain Transactions with
Respect to the Trust................................ 12-1
Section 12.03. Maintenance of Office or Agency......................... 12-1
Section 12.04. Termination............................................. 12-1
Section 12.05. Acts of Certificateholders and Subordinated
Certificateholder................................... 12-3
Section 12.06. Calculations............................................ 12-4
Section 12.07. Assignment or Delegation by Company..................... 12-4
Section 12.08. Amendment............................................... 12-4
Section 12.09. Notices................................................. 12-6
Section 12.10. Merger and Integration.................................. 12-7
Section 12.11. Headings................................................ 12-7
Section 12.12. Governing Law........................................... 12-7
Testimonium.............................................................. 12-8
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
Exhibit A. Certificate for Home Improvement Loans.................. A-1
Exhibit B. Form of Assignment...................................... B-1
Exhibit C. Certificate of Officer.................................. C-1
Exhibit D. Form of Opinion of Counsel for the Company.............. D-1
Exhibit E. Omitted................................................. E-1
Exhibit F. Form of Trustee's Acknowledgement....................... F-1
Exhibit G. Certificate of Servicing Officer........................ G-1
Exhibit H. Subordinated Certificate for Home Improvement Loans..... H-1
Exhibit I. Certificate Regarding Repurchased Contracts............. I-1
Exhibit J. Form of Investment Letter............................... J-1
Exhibit K. List of Contracts....................................... K-1
Exhibit L. List of FHA-Insured Contracts........................... L-1
Exhibit M. List of Secured Contracts............................... M-1
Exhibit N. Monthly Report.......................................... N-1
</TABLE>
<PAGE>
AGREEMENT, dated as of March 1, 1994, between Green Tree Financial
Corporation, a corporation organized and existing under the laws of the State of
Minnesota, as Seller and Servicer (the "Company"), and First Trust National
Association, a national banking association organized and existing under the
laws of the United States, not in its individual capacity but solely as Trustee
(the "Trustee") of Home Improvement Loan Trust 1994-A (the "Trust").
WHEREAS, in the regular course of its business, the Company originates
and services home improvement retail installment contracts and promissory notes,
which installment contracts and notes provide for installment payments by or on
behalf of the purchaser of the home improvements and, in the case of "Secured
Contracts," as hereinafter defined, grant mortgages or deeds of trust on the
real estate that is the subject of a home improvement;
WHEREAS, the Company and the Trustee have agreed to establish the
Trust;
WHEREAS, the Company and the Trustee wish to set forth the terms and
conditions pursuant to which the Trust, the "Certificateholders" and the
"Subordinated Certificateholder," as hereinafter defined, will acquire the
"Contracts," as hereinafter defined, and the Company will manage and service the
Contracts;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth, the Company and the Trustee agree as provided
herein:
-i-
<PAGE>
ARTICLE I
DEFINITIONS
-----------
SECTION 1.01. General.
-------
For the purpose of this Agreement, except as otherwise expressly
provided or unless the context otherwise requires, the terms defined in this
Article include the plural as well as the singular, the words "herein," "hereof"
and "hereunder" and other words of similar import refer to this Agreement as a
whole and not to any particular article, section or other subdivision, and
Section references refer to Sections of the Agreement.
SECTION 1.02. Specific Terms.
--------------
"Advance" means, with respect to any Payment Date, the amounts, if
-------
any, deposited by the Servicer or the Trustee, as applicable, in the Collection
Account for such Payment Date pursuant to Section 8.02.
"Advance Payment" means any payment by an Obligor in advance of the
---------------
Due Period in which it would be due under such Contract and which payment is not
a Principal Prepayment.
"Affiliate" of any specified Person means any other Person controlling
---------
or controlled by or under common control with such specified Person. For the
purposes of this definition, "control" when used with respect to any specified
Person means the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise; and the terms "controlling" or "controlled" have meanings
correlative to the foregoing.
"Agreement" means this Pooling and Servicing Agreement.
---------
"Applicants" has the meaning assigned in Section 9.06.
----------
"Authenticating Agent" means any authenticating agent appointed
--------------------
pursuant to Section 9.07.
"Available Cash Collateral Amount" means, with respect to any Payment
--------------------------------
Date, the lesser of (1) the amount on deposit in the Cash Collateral Account
(exclusive of earnings and income from the investment of funds therein) as of
such date and (2) the Requisite Amount as of such date.
"Available Funds" has the meaning assigned in Section 8.06(a).
---------------
"Book-Entry Certificate" means any Certificate registered in the name
----------------------
of the Depository or its nominee ownership of which is reflected on the books of
the Depository or on the books of a person maintaining an account with such
1-1
<PAGE>
Depository (directly or as an indirect participant in accordance with the rules
of such Depository).
"Business Day" means any day other than (a) a Saturday or a Sunday, or
------------
(b) another day on which banking institutions in the city in which the Person
taking action hereunder are authorized or obligated by law, executive order, or
governmental decree to be closed.
"Cash Collateral Account" means the account established pursuant to
-----------------------
the Cash Collateral Trust Agreement; provided that, upon the replacement of the
--------
Cash Collateral Account with a Letter of Credit or other form of credit
enhancement in accordance with Section 8.04, "Cash Collateral Account" shall
-----------------------
mean such Letter of Credit or other form of credit enhancement.
"Cash Collateral Guaranty" means the guaranty provided by the Cash
------------------------
Collateral Trustee in accordance with the Cash Collateral Trust Agreement.
"Cash Collateral Trust Agreement" means the Cash Collateral Trust
-------------------------------
Agreement, dated as of March 1, 1994, by and among ___________________________,
as depositor, the Company, as Seller and Servicer, and the Cash Collateral
Trustee.
"Cash Collateral Trustee" means First Bank National Association,
-----------------------
Minneapolis, Minnesota, in its capacity as trustee under the Cash Collateral
Trust Agreement, and any successors and assigns in such capacity.
"Certificate" means a Certificate for Home Improvement Loans
-----------
evidencing a Fractional Interest executed and delivered by the Trustee
substantially in the form of Exhibit A, but does not include the Subordinated
Certificate.
"Certificate Owner" means the person who is the beneficial owner of
-----------------
a Book-Entry Certificate.
"Certificate Register" means the register maintained pursuant to
--------------------
Section 9.02.
"Certificate Registrar" or "Registrar" means the registrar appointed
--------------------- ---------
pursuant to Section 9.02.
"Certificateholder" means the person in whose name a Certificate is
-----------------
registered on the Certificate Register, except that, solely for the purposes of
giving any consent, waiver, request or demand pursuant to this Agreement, any
Certificate registered in the name of the Company or any Affiliate shall be
deemed not to be outstanding and the Fractional Interest evidenced thereby shall
not be taken into account in determining whether the requisite Fractional
Interest necessary to effect any such consent, request, waiver or demand has
been obtained; provided, however, that, solely for the purpose of determining
-------- -------
whether the Trustee is entitled to rely upon any such consent, waiver, request
or demand, only Certificates which the Trustee knows to be so owned shall be so
disregarded.
1-2
<PAGE>
"Closing Date" means __________, 1994.
------------
"Code" means the Internal Revenue Code of 1986, as amended.
----
"Collected Amount" means, with respect to any Determination Date, the
----------------
amount of funds in the Collection Account as of such Determination Date
including all interest earned on such funds but excluding (i) amounts
constituting Advance Payments with respect to the immediately preceding Due
Period, (ii) amounts received after the end of such immediately preceding Due
Period, (iii) any Advances that will be deposited in the Collection Account by
the Servicer or the Trustee, as applicable and (iv) amounts required to be
deposited by the Company following such Determination Date pursuant to Section
3.05.
"Collection Account" means a trust account created and maintained
------------------
pursuant to Section 5.05 in the name of the Trust in an Eligible Institution.
"Computer Tape" means the computer tape generated by the Company which
-------------
provides information relating to the Contracts and which was used by the Company
in selecting the Contracts, and includes the master file and the history file.
"Contracts" means the home improvement retail installment contracts
---------
and promissory notes described in the List of Contracts and constituting part of
the corpus of the Trust, which Contracts are to be assigned and conveyed by the
Company to the Trust, and includes, without limitation, all related mortgages
and deeds of trust and any and all rights to receive payments which are due
pursuant thereto on or after the Cutoff Date, but excluding any rights to
receive payments which are due pursuant thereto prior to the Cutoff Date.
"Contract File" means, as to each Contract, (a) the original copy of
-------------
the Contract which is comprised of the related retail installment contract
and/or promissory note, (b) with respect to a Secured Contract, the original or
a copy of the mortgage or deed of trust or similar evidence of a lien on the
related improved property and evidence of due recording of such mortgage or deed
of trust, if available, (c) an original or a copy of a truth-in-lending
disclosure form (either included as part of the contract or note or as a
separate document), (d) with respect to a Secured Contract, if such Contract was
originated by a contractor rather than the Company, the original or a copy of an
assignment of the mortgage or deed of trust by the contractor to the Company and
(e) a sale control document.
"Contract Interest Rate" means, as to any Contract, the annual rate
----------------------
of interest specified in the Contract.
"Corporate Trust Office" means the office of the Trustee at which at
----------------------
any particular time its corporate trust business shall be principally
administered, which office at the date of the execution of this Agreement is
located at the address set forth in Section 12.09.
1-3
<PAGE>
"Counsel for the Company" means Dorsey & Whitney or other legal
-----------------------
counsel for the Company.
"Cumulative Delinquency Amount" for any Payment Date equals the
-----------------------------
arithmetic average of the Delinquency Amounts for such Payment Date and for the
two immediately preceding Payment Dates.
"Custodian" means at any time an Eligible Institution, or a financial
---------
institution organized under the laws of the United States or any State, which is
subject to supervision and examination by Federal or State authorities and whose
commercial paper, or unsecured long-term debt (or, in the case of a member of a
bank holding company system, the commercial paper or unsecured long-term debt of
such bank holding company) has been rated A-1 by Standard & Poor's in the case
of commercial paper, or BBB or higher by Standard & Poor's in the case of
unsecured long-term debt, as is acting at such time as Custodian of the Contract
Files pursuant to Section 4.01.
"Cutoff Date" means March 1, 1994.
-----------
"Defaulted Contract" means a Contract with respect to which the
------------------
Servicer commenced foreclosure procedures, made a sale of such Contract to a
third party for foreclosure or enforcement, or, in the case of an FHA-Insured
Contract, submitted a claim to FHA, or as to which there was a Delinquent
Payment 180 or more days past due.
"Delinquency Amount" for any Payment Date is a percentage, equal to
------------------
the aggregate outstanding principal balance of all Contracts that were
delinquent 60 days or more as of the end of the immediately preceding Due Period
(including defaulted Contracts that have not yet been liquidated, but excluding
Contracts that are current with respect to rescheduled payments following the
Obligor's bankruptcy) divided by the Principal Balance immediately following
such Payment Date.
"Delinquent Payment" means, as to any Contract, with respect to any
------------------
Due Period, any payment or portion of a payment that was originally scheduled to
be made during such Due Period under such Contract (after giving effect to any
reduction in the principal amount deemed owed on such Contract by the Obligor,
as described in Section 6.01(a)(iii)) and was not received or applied during
such Due Period and deposited in the Collection Account, whether or not any
payment extension has been granted by the Servicer; provided, however, that with
respect to any Liquidated Contract, the payment scheduled to be made in the Due
Period in which such Contract became a Liquidated Contract shall not be deemed a
Delinquent Payment.
"Depository" means the initial Depository, The Depository Trust
----------
Company, the nominee of which is CEDE & CO., as the registered Holder of _______
Certificates evidencing in the aggregate $____________________ in initial
aggregate principal balance of the Certificates, and any permitted successor
depository. The Depository shall at all
1-4
<PAGE>
times be a "clearing corporation" as defined in Section 8-102(3) of the
Uniform Commercial Code of the State of New York.
"Depository Participant" means a broker, dealer, bank or other
----------------------
financial institution or other Person for whom from time to time a Depository
effects book-entry transfers and pledges of securities deposited with the
Depository.
"Determination Date" means the seventh Business Day following a Due
------------------
Period during the term of this Agreement.
"Disqualified Organization" has the meaning assigned in Section
-------------------------
9.02(b)(4).
"Due Period" means a calendar month during the term of this Agreement.
----------
"Electronic Ledger" means the electronic master record of conditional
-----------------
sales contracts of the Company.
"Eligible Institution" means any depository institution (which may be
--------------------
the Trustee or an Affiliate of the Trustee) organized under the laws of the
United States or any State, the deposits of which are insured to the full extent
permitted by law by the Federal Deposit Insurance Corporation, which is subject
to supervision and examination by Federal or State authorities and whose short-
term debt (or, in the case of the principal bank in a bank holding company
system, the short-term debt of such bank or the bank holding company) has been
rated A-1 by Standard & Poor's.
"Eligible Investments" has the meaning assigned in Section 5.05(b).
--------------------
"Eligible Servicer" means the Trustee or a Person qualified to act as
-----------------
servicer of the Contracts under applicable Federal and State laws and
regulations, which is a Title I approved lender under FHA regulations and which
services not less than $100,000,000 in outstanding principal amount of FHA-
insured home improvement installment contracts and promissory notes and
manufactured housing conditional sales contracts and installment loan
agreements.
"ERISA" means the Employee Retirement Income Security Act of 1974,
-----
as amended.
"Errors and Omissions Protection Policy" means the employee errors and
--------------------------------------
omissions policy maintained by the Servicer or any similar replacement policy
covering errors and omissions by the Servicer's employees, and meeting the
requirements of Section 5.09, all as such policy relates to Contracts comprising
a portion of the corpus of the Trust.
"Event of Termination" has the meaning assigned in Section 7.01.
--------------------
"Excess Cashflow" means, with respect to any Payment Date, the amount,
---------------
if any, by which (i) the Available Funds exceeds (ii) the sum of the amounts
specified in Section 8.06(b)(1)-(5).
1-5
<PAGE>
"Fidelity Bond" means the fidelity bond maintained by the Servicer
--------------
or any similar replacement bond, meeting the requirements of Section 5.09, as
such bond relates to Contracts comprising a portion of the corpus of the Trust.
"Final Payment Date" means the Payment Date on which the final
------------------
distribution in respect of Certificates will be made pursuant to Section 12.04.
"FHA Insurance" means the credit insurance provided by the Federal
-------------
Housing Administration pursuant to Title I of the National Housing Act, as
evidenced by the Company's Contract of Insurance.
"FHA Regulations" means the regulations promulgated by HUD relating to
---------------
Title I home improvement loans, currently found at 24 C.F.R. (S)201.
"FHA-Insured Contracts" means those Contracts covered by FHA
---------------------
Insurance, a list of which is attached to this Agreement as Exhibit L.
"Fractional Interest" means an undivided interest in the Trust and, as
-------------------
to a particular Certificateholder, means the undivided interest in the Trust
owned by that Certificateholder, the amount of such interest to equal, in the
case of the Certificates, a fraction (which may be expressed as a percentage
rounded to eight decimal places) the numerator of which is the denomination of
the Certificate and the denominator of which is the Initial Principal Amount.
The aggregate of all Fractional Interests for the Certificates shall equal 1 or
100%.
"GNMA" means the Government National Mortgage Association.
----
"Guaranty Amount" has the meaning assigned in Section 8.05(b).
---------------
"HUD" means the United States Department of Housing and Urban
---
Development.
"Independent" means, when used with respect to any specified Person,
-----------
Dorsey & Whitney or any Person who (i) is in fact independent of the Company and
the Servicer, (ii) does not have any direct financial interest or any material
indirect financial interest in the Company or the Servicer or in an Affiliate of
either, and (iii) is not connected with the Company or the Servicer as an
officer, employee, promoter, underwriter, trustee, partner, director or person
performing similar functions. Whenever it is provided herein that any
Independent Person's opinion or certificate shall be furnished to the Trustee,
such opinion or certificate shall state that the signatory has read this
definition and is Independent within the meaning set forth herein.
"Initial Principal Amount" means $____________, which is the aggregate
------------------------
unpaid principal balance of the Contracts as of the Cutoff Date.
1-6
<PAGE>
"Letter of Credit" means any irrevocable letter of credit, or any
----------------
replacement Letter of Credit, obtained in accordance with Section 8.04. A
Letter of Credit may be supported by a confirming bank in order to achieve the
requisite credit rating to be attributed to such Letter of Credit, in which case
the term Letter of Credit means such Letter of Credit together with such
confirmation.
"Limited Guaranty" means the limited guaranty of the Company
----------------
provided pursuant to Section 8.05.
"Liquidated Contract" means with respect to any Due Period, either
-------------------
(1) a Defaulted Contract as to which (a) the Servicer has
received from the Obligor, or a third party purchaser of the
Contract, all amounts which the Servicer reasonably and in good
faith expects to recover from or on account of such Contract, or (b)
in the case of an FHA-Insured Contract, either (i) FHA has paid the
claim or (ii) the Servicer has determined in good faith that FHA
will not pay the claim, or
(2) a Contract (a) upon which all or a portion of the first
payment of interest due by the Obligor was added to principal, and
(b) on which the Obligor failed to pay the full amount of principal
due on the Contract, as computed by the Servicer;
provided, however, that any Contract which the Company is obligated to
repurchase pursuant to Section 3.05(a), and did so repurchase, shall be deemed
not to be a Liquidated Contract; and provided further, that with respect to Due
Periods beginning on or after _________, ______, a Liquidated Contract also
means any Contract as to which the Servicer has commenced foreclosure
proceedings, made a sale of the Contract to a third party for foreclosure or
enforcement, or, in the case of an FHA-Insured Contract, submitted a claim to
FHA.
"List of Contracts" means the list identifying each Contract
-----------------
constituting part of the corpus of the Trust, which list (a) identifies each
Contract and (b) sets forth as to each Contract (i) the unpaid principal balance
as of the Cutoff Date, (ii) the amount of monthly payments due from the Obligor,
(iii) the Contract Interest Rate and (iv) the maturity date, and which is
attached to this Agreement as Exhibit K.
"Monthly Interest" means, as of any Payment Date, one-twelfth of the
----------------
product of the Pass-Through Rate times the Principal Balance immediately
following the preceding Payment Date, plus any Unpaid Interest Shortfall.
"Monthly Principal" means, as of any Payment Date, the amount
-----------------
determined pursuant to Section 6.01(a).
"Monthly Report" has the meaning assigned in Section 6.01.
--------------
"Monthly Servicing Fee" means, as of any Payment Date, one-twelfth of
---------------------
the product of .75% and the remaining Principal Balance.
1-7
<PAGE>
"Net Liquidation Loss" means, as to a Liquidated Contract, the
--------------------
difference between (a) the Repurchase Price of such Contract, and (b) the
proceeds received as of the last day of the Due Period in which such Contract
became a Liquidated Contract, from the Obligor, from a third party purchaser of
the Contract, under FHA Insurance, under insurance other than FHA Insurance, or
otherwise, net of liquidation expenses, and reimbursements of Advances, where
such difference is a positive number.
"Net Liquidation Proceeds" means, as to a Liquidated Contract, the
------------------------
proceeds, or, for Contracts which become Liquidated Contracts pursuant to the
last proviso in the definition of "Liquidated Contract," the estimated proceeds,
received as of the last day of the Due Period in which such Contract became a
Liquidated Contract, from the Obligor, from a third party purchaser of the
Contract, under FHA Insurance, under insurance other than FHA insurance, or
otherwise, net of liquidation expenses.
"Obligor" means the purchaser of the financed home improvements or
-------
other person who owes payments under a Contract.
"Officer's Certificate" means a certificate signed by the Chairman of
---------------------
the Board, President or any Vice President of the Company and delivered to the
Trustee.
"Opinion of Counsel" means a written opinion of counsel, who may,
------------------
except as expressly provided herein, be salaried counsel for the Company,
acceptable to the Trustee and the Company.
"Original Principal" means, with respect to any Contract, the
------------------
scheduled principal balance thereof as of the Cutoff Date.
"Pass-Through Rate" means _____% per annum.
-----------------
"Paying Agent" has the meaning assigned in Section 8.01(b).
------------
"Payment Date" means the fifteenth day of each calendar month during
------------
the term of this Agreement, or if such day is not a Business Day, the next
succeeding Business Day, commencing April 15, 1994.
"Person" means any individual, corporation, partnership, joint
------
venture, association, joint stock company, trust (including any beneficiary
thereof), unincorporated organization or government or any agency or political
subdivision thereof.
"Plan" has the meaning assigned in Section 9.02(b)(3).
----
"Pool Factor" means, at any time, the percentage derived from a
-----------
fraction, the numerator of which is the Principal Balance at such time and the
denominator of which is the Initial Principal Amount.
1-8
<PAGE>
"Principal Balance" means at any time the Initial Principal Amount
-----------------
minus all payments of Monthly Principal made to the Certificateholders since the
Closing Date.
"Principal Prepayment" means a payment or other recovery of principal
--------------------
on a Contract which is received in advance of its scheduled due date and applied
upon receipt (or, in the case of a partial prepayment, upon the next scheduled
payment date on such Contract) to reduce the outstanding principal amount due on
such Contract prior to the date or dates on which such principal amount is due.
"Qualified Bank" means any depository institution whose unsecured
--------------
long-term debt (or in the case of the principal bank in a bank holding company
system the unsecured long-term debt of such bank holding company) is rated A or
higher by Standard & Poor's.
"Record Date" means the last Business Day of any calendar month.
-----------
"Repurchase Price" means, with respect to a Contract to be repurchased
----------------
pursuant to Section 3.05 or which becomes a Liquidated Contract, an amount equal
to (a) the remaining principal amount outstanding on such Contract (without
giving effect to any Advances paid by the Servicer or the Trustee, as
applicable, with respect to such Contract pursuant to Section 8.02), plus (b)
interest at the Pass-Through Rate on such Contract from the end of the Due
Period with respect to which the Obligor last made a payment (without giving
effect to any Advances paid by the Servicer or the Trustee, as applicable, with
respect to such Contract pursuant to Section 8.02) through the end of the
immediately preceding Due Period.
"Requisite Amount" equals $________, which amount is subject to
----------------
adjustment in accordance with the provisions of the Cash Collateral Trust
Agreement.
"Responsible Officer" means, with respect to the Trustee, the chairman
-------------------
and any vice chairman of the board of directors, the president, the chairman and
vice chairman of any executive committee of the board of directors, every vice
president, assistant vice president, the secretary, every assistant secretary,
cashier or any assistant cashier, controller or assistant controller, the
treasurer, every assistant treasurer, every trust officer, assistant trust
officer and every other officer or assistant officer of the Trustee customarily
performing functions similar to those performed by persons who at the time shall
be such officers, respectively, or to whom a corporate trust matter is referred
because of knowledge of, familiarity with, and authority to act with respect to
a particular matter.
"Secured Contracts" means those Contracts secured by related real
-----------------
estate, a list of which is attached to this Agreement as Exhibit M.
"Service Transfer" has the meaning assigned in Section 7.02.
----------------
1-9
<PAGE>
"Servicer" means the Company until any Service Transfer hereunder and
--------
thereafter means the new servicer appointed pursuant to Article VII.
"Servicing Officer" means any officer of the Servicer involved in, or
-----------------
responsible for, the administration and servicing of Contracts whose name
appears on a list of servicing officers appearing in an Officer's Certificate
furnished to the Trustee by the Company, as the same may be amended from time to
time.
"Shortfall" has the meaning assigned in Section 8.03.
---------
"Standard & Poor's" means Standard & Poor's Corporation or any
-----------------
successor thereto.
"Subordinated Certificate" means the certificate for Home Improvement
------------------------
Loans executed and delivered by the Trustee substantially in the form of
Exhibit H.
"Subordinated Certificateholder" means the person in whose name the
------------------------------
Subordinated Certificate is registered on the Certificate Register, which shall
be the Cash Collateral Trustee.
"Trust" means the trust created by this Agreement, the corpus of which
-----
consists of all the rights, benefits, and obligations arising from and in
connection with each Contract, all rights under FHA Insurance applicable to any
FHA-Insured Contract, all rights under any hazard, flood or other individual
insurance policy on the real estate securing a Secured Contract for the benefit
of the creditor of such Secured Contract, rights under the Errors and Omissions
Protection Policy, rights to certain payments under the Cash Collateral
Guaranty, the Limited Guaranty and the remittances, deposits and payments made
into the Collection Account and amounts in the Collection Account (including all
proceeds of investments thereof).
"Trustee Advance" has the meaning assigned in Section 11.16.
---------------
"Uncollectible Advance" means, with respect to any Determination Date,
---------------------
the amount, if any, advanced by the Servicer or the Trustee, as applicable
pursuant to Section 8.02, which the Servicer or the Trustee, as applicable, has
now determined in good faith will not be ultimately recoverable by the Servicer
or the Trustee, as applicable, from FHA Insurance (in the case of an FHA-Insured
Contract), the Obligor or out of Net Liquidation Proceeds. The determination by
the Servicer that it has made an Uncollectible Advance shall be evidenced by an
Officer's Certificate delivered to the Trustee.
"Unpaid Interest Shortfall" means, with respect to any Payment Date,
-------------------------
the amount, if any, by which the Monthly Interest for the immediately preceding
Payment Date exceeded the amount distributed to Certificateholders on such
preceding Payment Date pursuant to Section 8.06(b), plus accrued interest (to
the extent payment thereof is legally permissible) thereon at the Pass-Through
Rate.
1-10
<PAGE>
"Unpaid Principal" means, with respect to any Contract, the Original
----------------
Principal minus the principal amount of all previous payments with respect to
such Contract.
1-11
<PAGE>
ARTICLE II
ESTABLISHMENT OF TRUST; TRANSFER OF CONTRACTS
---------------------------------------------
SECTION 2.01. Closing.
-------
a. There is hereby created, by the Company as settlor, a separate
trust which shall be known as Home Improvement Loan Trust 1994-A. By the
execution and delivery of this Agreement. The Trust shall be administered
pursuant to the provisions of this Agreement for the benefit of the
Certificateholders and the Subordinated Certificateholder.
b. The Company hereby transfers, assigns, sets over and otherwise
conveys to the Trustee on behalf of the Trust, by execution of an assignment
substantially in the form of Exhibit B hereto, (i) all the right, title and
interest of the Company in and to the Contracts, including all interest and
principal received by the Company on or with respect to the Contracts (other
than principal and interest due on the Contracts before the Cutoff Date), (ii)
all rights under FHA Insurance as such insurance relates to the Contracts,
(iii) all rights under hazard insurance on the properties described in the
Contracts and, as to Contracts pertaining to properties located in special
flood areas designated by HUD, all rights under flood insurance policies as
such insurance relates to the Contracts, (iv) all rights under the Errors and
Omissions Protection Policy and the Fidelity Bond as such policy and bond
relate to the Contracts, (v) all documents contained in the Contract Files,
(vi) the Cash Collateral Guaranty and rights to certain payments from the Cash
Collateral Account, and (vii) all proceeds and products of the foregoing.
Although the Company and the Trustee agree that such transfer is intended to
be a sale, rather than a pledge, of all of the Company's right, title and
interest to such items, in the event such transfer is deemed to be a pledge to
secure indebtedness, the Company shall be deemed to have granted to the
Trustee a perfected first priority security interest in such items.
SECTION 2.02. Conditions to the Closing.
-------------------------
On or before the Closing Date, the Company shall deliver or cause to be
delivered the following documents to the Trustee:
a. The List of Contracts, certified by the Chairman of the Board,
President or any Vice President of the Company.
b. A certificate of an officer of the Company substantially in the
form of Exhibit C hereto.
c. An Opinion of Counsel for the Company substantially in the form
of Exhibit D hereto.
d. A letter from KPMG Peat Marwick, or another nationally recognized
accounting firm, stating that such firm has reviewed the Contracts
2-1
<PAGE>
on a statistical sampling basis and, based on such sampling, concluding
that the Contracts conform in all material respects to the List of
Contracts, to a confidence level of [97.5]%, with an error rate of
[1.8]%, specifying those Contracts which do not so conform.
e. Copies of resolutions of the board of directors of the Company
or of the executive committee of the board of directors of the Company
approving the execution, delivery and performance of this Agreement and
the transactions contemplated hereunder, certified in each case by the
secretary or an assistant secretary of the Company.
f. Officially certified recent evidence of due incorporation and
good standing of the Company under the laws of the State of Minnesota.
g. An Officer's Certificate listing the Servicer's Servicing
Officers.
h. Evidence of continued coverage of the Company under the Errors
and Omissions Protection Policy.
i. Evidence of deposit in the Collection Account of all funds
received with respect to the Contracts from the Cutoff Date to the
Closing Date, other than amounts due before the Cutoff Date, together
with an Officer's Certificate to the effect that such amount is correct.
j. An Officer's Certificate confirming that the Company's internal
audit department has reviewed the original or a copy of each Contract and
each Contract File, that each Contract and Contract File conforms in all
material respects with the List of Contracts and that each Contract File
is complete.
k. Executed copies of the Cash Collateral Trust Agreement and the
Cash Collateral Guaranty, together with evidence of the establishment of
the Cash Collateral Account with an initial deposit by _____________ of
$__________.
l. Assignments in recordable form to the Trustee of the mortgages
and deeds of trust relating to the Secured Contracts.
SECTION 2.03. Acceptance by Trustee.
---------------------
a. On the Closing Date, if the conditions set forth in Section 2.02 have
been satisfied, the Trustee shall deliver a certificate to the Company
substantially in the form of Exhibit F hereto acknowledging conveyance of the
Contracts and Contract Files to the Trustee and declaring that the Trustee,
directly or through a custodian, will hold all Contracts that have been
delivered in trust, upon the trusts herein set forth, for the use and benefit of
all Certificateholders and the Subordinated Certificateholder, and shall issue,
to or upon the order of the
2-2
<PAGE>
Company, the Certificates and the Subordinated Certificate representing
ownership of a beneficial interest in 100% of the Trust.
b. If, in its review of the Contract Files as described in Exhibit F,
the Trustee or a custodian discovers a breach of the representations or
warranties set forth in Sections 2.02(k), 3.02, 3.03 or 3.04, the Company shall
cure such breach or repurchase such Contract pursuant to Section 3.05.
2-3
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES
------------------------------
The Company makes the following representations and warranties, effective
as of the Closing Date, on which the Trustee will rely in accepting the
Contracts in trust and issuing the Certificates on behalf of the Trust. The
repurchase obligation of the Company set forth in Section 3.05 constitutes the
sole remedy available to the Trust, Certificateholders or the Subordinated
Certificateholder for a breach of a representation or warranty of the Company
set forth in Section 2.02(k), 3.02, 3.03 or 3.04 of this Agreement.
SECTION 3.01. Representations and Warranties Regarding the Company.
----------------------------------------------------
The Company represents and warrants to the Certificateholders that:
a. Organization and Good Standing. The Company is a corporation duly
------------------------------
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization and has the corporate power to own its
assets and to transact the business in which it is currently engaged. The
Company is duly qualified to do business as a foreign corporation and is
in good standing in each jurisdiction in which the character of the
business transacted by it or properties owned or leased by it requires
such qualification and in which the failure so to qualify would have a
material adverse effect on the business, properties, assets, or condition
(financial or other) of the Company.
b. Authorization; Binding Obligations. The Company has the power and
----------------------------------
authority to make, execute, deliver and perform this Agreement and all of
the transactions contemplated under this Agreement, and to create the
Trust and cause it to make, execute, deliver and perform its obligations
under this Agreement and has taken all necessary corporate action to
authorize the execution, delivery and performance of this Agreement and
to cause the Trust to be created. When executed and delivered, this
Agreement will constitute the legal, valid and binding obligation of the
Company enforceable in accordance with its terms, except as enforcement
of such terms may be limited by bankruptcy, insolvency or similar laws
affecting the enforcement of creditors' rights generally and by the
availability of equitable remedies.
c. No Consent Required. The Company is not required to obtain the
-------------------
consent of any other party or any consent, license, approval or
authorization from, or registration or declaration with, any governmental
authority, bureau or agency in connection with the execution, delivery,
performance, validity or enforceability of this Agreement.
d. No Violations. The execution, delivery and performance of this
-------------
Agreement by the Company will not violate any provision of any existing
law or regulation or any order or decree of any court or the Articles of
3-1
<PAGE>
Incorporation or Bylaws of the Company, or constitute a material breach
of any mortgage, indenture, contract or other agreement to which the
Company is a party or by which the Company may be bound.
e. Litigation. No litigation or administrative proceeding of or
----------
before any court, tribunal or governmental body is currently pending, or
to the knowledge of the Company threatened, against the Company or any of
its properties or with respect to this Agreement, the Certificates or the
Subordinated Certificate which, if adversely determined, would in the
opinion of the Company have a material adverse effect on the transactions
contemplated by this Agreement.
SECTION 3.02. Representations and Warranties Regarding Each Contract.
------------------------------------------------------
The Company represents and warrants to the Certificateholders as to each
Contract:
a. List of Contracts. The information set forth in the List of
-----------------
Contracts is true and correct as of its date.
b. Payments. As of the Cutoff Date, the most recent scheduled
--------
payment was made by or on behalf of the Obligor or was not delinquent for
more than 59 days.
c. Costs Paid and No Waivers. The terms of the Contract have not
-------------------------
been waived, altered or modified in any respect, except by instruments or
documents identified in the Contract File. All costs, fees and expenses
incurred in making, closing and perfecting the lien of the Contract have
been paid. If the Contract is a Secured Contract, the subject real
property has not been released from the lien of such Secured Contract.
d. Binding Obligation. The Contract is the legal, valid and binding
------------------
obligation of the Obligor thereunder and is enforceable in accordance
with its terms, except as such enforceability may be limited by laws
affecting the enforcement of creditors' rights generally.
e. No Defenses. The Contract is not subject to any right of
-----------
rescission, setoff, counterclaim or defense, including the defense of
usury, and the operation of any of the terms of the Contract or the
exercise of any right thereunder will not render the Contract
unenforceable in whole or in part or subject to any right of rescission,
setoff, counterclaim or defense, including the defense of usury, and no
such right of rescission, setoff, counterclaim or defense has been
asserted with respect thereto.
f. Insurance Coverage. The Company has been named as an additional
------------------
insured party under any hazard insurance on the property described in the
Contract. If the property described in the Contract is located in a
special flood area designated by HUD, the property is covered by a flood
3-2
<PAGE>
insurance policy of the nature and, if such Contract is an FHA-Insured
Contract, in the amount required by the FHA Regulations.
g. FHA Insurance. If the Contract is an FHA-Insured Contract, such
-------------
Contract was originated in compliance with FHA Regulations and is insured,
without set-off, surcharge or defense, by FHA Insurance. Following the
assignment of such FHA-Insured Contract to the Trustee, the Trustee on
behalf of the Trust will be entitled to the full benefits of the FHA
Insurance.
h. Lawful Assignment. The Contract was not originated in and is not
-----------------
subject to the laws of any jurisdiction whose laws would make the
transfer of the Contract under this Agreement or pursuant to transfers of
Certificates unlawful or render the Contract unenforceable. The Company
has duly executed a valid blanket assignment of the Contracts transferred
to the Trust, and has transferred all its right, title and interest in
such Contracts, including all rights the Company may have against the
originating contractor-seller with respect to Contracts originated by a
contractor-seller rather than the Company, to the Trust. The blanket
assignment, any and all documents executed by the Company pursuant to
Section 2.01(b) hereof, and this Agreement each constitute the legal,
valid and binding obligation of the Company enforceable in accordance
with their respective terms.
i. Compliance with Law. At the date of origination of the Contract,
-------------------
all requirements of any federal and state laws, rules and regulations
applicable to the Contract, including, without limitation, usury and
truth in lending laws and (if such Contract is an FHA-Insured Contract)
the FHA Regulations have been complied with, and the Company shall for at
least the period of this Agreement, maintain in its possession, available
for the Trustee's inspection, and shall deliver to the Trustee upon
demand, evidence of compliance with all such requirements.
j. Contract in Force. The Contract has not been satisfied or
-----------------
subordinated in whole or in part or rescinded, and, if such Contract is a
Secured Contract, the real estate securing such Contract has not been
released from the lien of such Contract in whole or in part.
k. Valid Lien. The Contract has been duly executed and delivered by
----------
the Obligor, and, if such Contract is a Secured Contract, the lien
created thereby has been duly recorded, or has been delivered to the
appropriate governmental authority for recording and will be duly
recorded within 180 days, and constitutes a valid and perfected lien on
the real estate described in such Contract.
l. Capacity of Parties. The signature(s) of the Obligor(s) on the
-------------------
Contract are genuine and all parties to the Contract had full legal
capacity to execute the Contract.
3-3
<PAGE>
m. Good Title. The Company is the sole owner of the Contract and, if
----------
such Contract is an FHA-Insured Contract, because the Trustee is a lender
approved by HUD to originate and purchase Title I loans under a valid
Title I contract of insurance, has the authority to sell, transfer and
assign such Contract to the Trust under the terms of this Agreement.
There has been no assignment, sale or hypothecation of the Contract by
the Company except the usual past hypothecation of the Contract in
connection with the Company's normal banking transactions in the conduct
of its business, which hypothecation terminates upon sale of the Contract
to the Trust. The Company has good and marketable title to the Contract,
free and clear of any encumbrance, equity, loan, pledge, charge, claim,
lien or encumbrance of any type and has full right to transfer the
Contract to the Trust.
n. No Defaults. As of the Cutoff Date, there was no default, breach,
-----------
violation or event permitting acceleration existing under the Contract
and no event which, with notice and the expiration of any grace or cure
period, would constitute such a default, breach, violation or event
permitting acceleration under such Contract (except payment delinquencies
permitted by clause (b) above). The Company has not waived any such
default, breach, violation or event permitting acceleration except
payment delinquencies permitted by clause (b) above.
o. Equal Installments. The Contract has a fixed Contract Interest
------------------
Rate and provides for level monthly payments which fully amortize the
loan over its term.
p. Enforceability. If the Contract is a Secured Contract, such
--------------
Contract contains customary and enforceable provisions so as to render
the rights and remedies of the holder thereof adequate for the
realization against the collateral of the benefits of the lien provided
thereby.
q. One Original. There is only one original executed Contract, which
------------
Contract has been delivered to the Trustee or its custodian on or before
the Closing Date.
r. Genuine Documents. All documents submitted are genuine, and all
-----------------
other representations as to each Contract, including the List of
Contracts delivered to the Trustee, are true and correct. Any copies of
documents provided by the Company are accurate and complete (except that,
with respect to each Contract that was originated by a contractor-seller
rather than the Company, the Company makes such representation and
warranty only to the best of the Company's knowledge).
s. Origination. The Contract was originated by a home improvement
-----------
contractor in the ordinary course of such contractor's business or was
originated by the Company directly.
3-4
<PAGE>
t. Underwriting Guidelines. Each Contract was originated or
-----------------------
purchased in accordance with the Company's then-current underwriting
guidelines.
SECTION 3.03. Representations and Warranties Regarding the Contracts in
---------------------------------------------------------
the Aggregate.
- -------------
The Company represents and warrants to the Certificateholders that:
a. Amounts. The aggregate principal amounts payable by Obligors
-------
under the Contracts as of the Cutoff Date equal the Principal Balance on
the Closing Date, and each Contract has a Contract Interest Rate greater
than the Pass-Through Rate.
b. Characteristics. The Contracts have the following
---------------
characteristics: (i) ______ of the Contracts are Secured Contracts;
(ii) no Contract has a remaining maturity of more than 240 months; and
(iii) the final scheduled payment date on the Contract with the latest
maturity is in ________, 2014. No Contract was originated before ________,
199__. No Contract has a Contract Interest Rate less than ____%.
c. Geographic Concentrations. _____% of the Contracts by principal
------------------------- -----
balance as of the Cutoff Date are secured by property located in (or, in
the case of Contracts that are not Secured Contracts, otherwise relate to
improvements to property located in) __________, ____% in __________,
____ % in _________, ____% in __________, ____% in ___________, ____%
in ________, and ____% in ________. No other state represents more than
5% of the aggregate principal balance of the Contracts as of the Cutoff
Date. No more than 1% of the Contracts by remaining principal balance
are secured by property located in (or, in the case of Contracts that are
not Secured Contracts, otherwise relate to improvements to property located
in) an area with the same zip code.
d. Marking Records. By the Closing Date, the Company has caused the
---------------
portions of the Electronic Ledger relating to the Contracts to be clearly
and unambiguously marked to indicate that such Contracts constitute part
of the Trust and are owned by the Trust in accordance with the terms of
the trust created hereunder .
e. No Adverse Selection. No adverse selection procedures have been
--------------------
employed in selecting the Contracts.
SECTION 3.04. Representations and Warranties Regarding the Contract Files.
-----------------------------------------------------------
The Company represents and warrants that:
3-5
<PAGE>
a. Possession. Immediately prior to the Closing Date, the Company
----------
will have possession of each original Contract and the related Contract
File, and there are and there will be no custodial agreements in effect
materially and adversely affecting the rights of the Company to make, or
cause to be made, any delivery required hereunder.
b. Bulk Transfer Laws. The transfer, assignment and conveyance of
------------------
the Contracts and the Contract Files by the Company pursuant to this
Agreement is not subject to the bulk transfer or any similar statutory
provisions in effect in any applicable jurisdiction.
SECTION 3.05. Repurchases of Contracts for Breach of Representations and
----------------------------------------------------------
Warranties.
- ----------
a. The Company shall repurchase a Contract, at its Repurchase Price,
not later than 90 days after the day on which the Company, the Servicer
or the Trustee first discovers or should have discovered a breach of a
representation or warranty of the Company set forth in Sections 2.02(k),
3.02, 3.03 or 3.04 of this Agreement that materially adversely affects
the Trust's or the Certificateholders' interest in such Contract and
which breach has not been cured; provided, however, that (i) in the event
-------- -------
that a party other than the-Company first becomes aware of such breach,
such discovering party shall notify the Company in writing within 5
Business Days of the date of such discovery and (ii) with respect to any
Contract incorrectly described on the List of Contracts with respect to
unpaid principal balance, which the Company would otherwise be required
to repurchase pursuant to this Section, the Company may, in lieu of
repurchasing such Contract, deposit in the Collection Account within 90
days from the date of such discovery cash in an amount sufficient to cure
such deficiency or discrepancy. Any such cash so deposited shall be
distributed to Certificateholders on the immediately following Payment
Date as a collection of principal or interest on such Contract, according
to the nature of the deficiency or discrepancy. Notwithstanding any other
provision of this Agreement, the obligation of the Company under this
Section shall not terminate upon a Service Transfer pursuant to Article
VII.
b. The Company shall defend and indemnify the Trustee, the
Certificateholders, and the Subordinated Certificateholder against all
costs, expenses, losses, damages, claims and liabilities, including
reasonable fees and expenses of counsel, which may be asserted against or
incurred by any of them as a result of any third-party action arising out
of any breach of any such representation and warranty.
3-6
<PAGE>
ARTICLE IV
PERFECTION OF TRANSFER AND PROTECTION OF SECURITY INTERESTS
-----------------------------------------------------------
SECTION 4.01. Transfer of Contracts.
---------------------
On or prior to the Closing Date, the Company shall deliver the Contract
Files to the Trustee. The Trustee shall maintain the Contract Files at its
office or with a duly appointed Custodian. The Trustee may release a Contract
File to the Servicer pursuant to Section 5.07. The Company has filed a form
UCC-1 financing statement regarding the sale of the Contracts to the Trustee,
and shall file continuation statements in respect of such UCC-1 financing
statement as if such financing statement were necessary to perfect such sale.
The Company shall take any other actions necessary to maintain the perfection
of the sale of the Contracts to the Trustee.
SECTION 4.02. Costs and Expenses.
------------------
The Servicer agrees to pay all reasonable costs and disbursements in
connection with the perfection and the maintenance of perfection, as against all
third parties, of the Certificateholders' right, title and interest in and to
the Contracts (including, without limitation, the mortgage or deed of trust on
the related real estate granted thereby).
4-1
<PAGE>
ARTICLE V
SERVICING OF CONTRACTS
----------------------
SECTION 5.01. Responsibility for Contract Administration.
------------------------------------------
The Servicer will have the sole obligation to manage, administer, service
and make collections on the Contracts and perform or cause to be performed all
contractual and customary undertakings of the holder of the Contracts to the
Obligor. The Trustee, at the request of a Servicing Officer, shall furnish the
Servicer with any powers of attorney or other documents necessary or
appropriate to enable the Servicer to carry out its servicing and
administrative duties hereunder. The Company is hereby appointed the Servicer
until such time as any Service Transfer shall be effected under Article VII.
SECTION 5.02. Standard of Care.
----------------
In managing, administering, servicing and making collections on the
Contracts pursuant to this Agreement, the Servicer will exercise that degree of
skill and care required by FHA (in the case of FHA-Insured Contracts) and
otherwise consistent with the highest degree of skill and care that the Servicer
exercises with respect to similar contracts serviced by the Servicer; provided,
--------
however, that such degree of skill and care shall be at least as favorable as
- -------
the degree of skill and care generally applied by servicers of home improvement
retail installment contracts and promissory notes for institutional investors.
SECTION 5.03. Records.
-------
The Servicer shall, during the period it is servicer hereunder, maintain
such books of account and other records as will enable the Trustee to
determine the status of each Contract.
SECTION 5.04. Inspection.
----------
a. At all times during the term hereof, the Servicer shall afford the
Trustee and its authorized agents reasonable access during normal business hours
to the Servicer's records, which have not previously been provided to the Trust,
relating to the Contracts and will cause its personnel to assist in any
examination of such records by the Trustee. The examination referred to in this
Section will be conducted in a manner which does not unreasonably interfere with
the Servicer's normal operations or customer or employee relations. Without
otherwise limiting the scope of the examination the Trustee may make, the
Trustee may, using generally accepted audit procedures, verify the status of
each Contract and review the Electronic Ledger and records relating thereto for
conformity to Monthly Reports prepared pursuant to Article VI and compliance
with the standards represented to exist as to each Contract in this Agreement.
5-1
<PAGE>
b. At all times during the term hereof, the Servicer shall keep
available a copy of the List of Contracts at its principal executive office
for inspection by Certificateholders.
c. A Certificateholder holding Certificates representing in the
aggregate at least 5% of the Fractional Interest in the Trust shall have the
rights of inspection afforded to the Trustee pursuant to this Section 5.04.
SECTION 5.05. Collection Account.
------------------
a. On or before the Closing Date, the Company shall establish the
Collection Account on behalf of the Trust with an Eligible Institution. The
Servicer shall pay into the Collection Account as promptly as practicable (not
later than the next Business Day) following receipt thereof all amounts received
with respect to the Contracts, including all proceeds of FHA Insurance claims
received by the Servicer, other than extension fees and assumption fees, which
fees shall be retained by the Servicer as compensation for servicing the
Contracts. The Trustee shall pay into the Collection Account as promptly as
practicable all proceeds of FHA Insurance claims with respect to FHA-Insured
Contracts received by the Trustee. All amounts paid into the Collection Account
under this Agreement shall be held in trust for the Trustee, the
Certificateholders and the Subordinated Certificateholder until payment of any
such amounts is authorized under this Agreement. Only the Trustee may withdraw
funds from the Collection Account.
b. If the Servicer so directs, the Eligible Institution maintaining
the Collection Account shall, in the name of the Trustee in its capacity as
such, invest the amounts in the Collection Account in Eligible Investments that
mature not later than one Business Day prior to the next succeeding Payment
Date. Once such funds are invested, such Eligible Institution shall not change
the investment of such funds. All income and gain from such investments shall
be added to the Collection Account and distributed on such Payment Date pursuant
to Section 8.06(b). Losses, if any, realized on amounts in the Collection
Account invested pursuant to this paragraph shall first be credited against
undistributed investment earnings on amounts in the Collection Account invested
pursuant to this paragraph, and shall thereafter be deemed to reduce the amount
on deposit in the Collection Account and otherwise available for distribution to
Certificateholders and the Subordinated Certificateholder pursuant to Section
8.01. The Company and the Trustee shall in no way be liable for losses on
amounts invested in accordance with the provisions hereof. Funds in the
Collection Account not so invested must be insured to the extent permitted by
law by the Federal Deposit Insurance Corporation. "Eligible Investments" are
--------------------
any of the following:
(i) direct obligations of, and obligations fully guaranteed by, the
United States of America, the Federal Home Loan Mortgage Corporation, the
Federal National Mortgage Association, or any agency or instrumentality
of the United States of America the obligations of which are backed by
the full faith and credit of the United States of America;
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(ii) (A) demand and time deposits in, certificates of deposit of,
bankers' acceptances issued by, or federal funds sold by any depository
institution or trust company (including the Trustee or any Affiliate of
the Trustee, acting in its commercial capacity) incorporated under the
laws of the United States of America or any state thereof and subject to
supervision and examination by federal and/or state authorities, so long
as, at the time of such investment or contractual commitment providing
for such investment, the commercial paper or other short-term debt
obligations of such depository institution or trust company (or, in the
case of a depository institution which is the principal subsidiary of a
holding company, the commercial paper or other short-term debt
obligations of such holding company) are rated at least A-1 by Standard &
Poor's and (B) any other demand or time deposit or certificate of deposit
which is fully insured by the Federal Deposit Insurance Corporation;
(iii) shares of an investment company registered under the Investment
Company Act of 1940, whose shares are registered under the Securities Act
of 1933 and have the highest credit rating then available from Standard &
Poor's, and whose only investments are in securities described in clauses
(i) and (ii) above;
(iv) repurchase obligations with respect to (A) any security
described in clause (i) above or (B) any other security issued or
guaranteed by an agency or instrumentality of the United States of
America, in either case entered into with a depository institution or
trust company (acting as principal) described in clause (ii)(A) above;
(v) securities bearing interest or sold at a discount issued by any
corporation incorporated under the laws of the United States of America
or any State thereof which have a credit rating of at least A from
Standard & Poor's at the time of such investment; provided, however, that
-------- -------
securities issued by any particular corporation will not be Eligible
Investments to the extent that investment therein will cause the then
outstanding principal amount of securities issued by such corporation and
held as part of the corpus of the Trust to exceed 10% of amounts held in
the Collection Account; and
(vi) commercial paper having a rating of at least A-1 from Standard &
Poor's at the time of such investment or pledge as security.
The Trustee may trade with itself or an Affiliate in the purchase or
sale of such Eligible Investments.
SECTION 5.06. Enforcement.
-----------
a. The Servicer shall, consistent with customary servicing
procedures, act with respect to the Contracts in such manner as will maximize
the receipt of principal and interest on such Contracts and liquidation proceeds
with respect to Liquidated Contracts. The Company shall pay all FHA Insurance
premiums
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required by FHA Regulations in respect of FHA-Insured Contracts; if the
Company is no longer the Servicer and fails to pay such FHA Insurance premiums,
the successor Servicer shall pay such premiums and shall be entitled to
reimbursement therefor in accordance with Section 8.06. The Servicer shall
comply with FHA Regulations in servicing FHA-Insured Contracts so that the
related FHA Insurance remains in full force and effect, except for good-faith
disputes relating to FHA Regulations or such FHA Insurance.
b. In accordance with the standard of care specified in Paragraph 5.02,
the Servicer may, in its own name, if possible, or as agent for the Trust,
commence procedures for the foreclosure of any subject real estate, may submit a
claim to FHA in lieu of commencing foreclosure procedures, or may take such
other steps that in the Servicer's reasonable judgment will maximize liquidation
proceeds with respect to the Contract, including, for example, the sale of the
Contract to a third party for foreclosure or enforcement and, in the case of any
default on a related prior mortgage loan, the advancing of funds to correct such
default and the advancing of funds to pay off a related prior mortgage loan,
which advances are liquidation expenses that will be reimbursed to the Servicer
out of related liquidation proceeds before the related Net Liquidation Proceeds
are paid to Certificateholders and the Subordinated Certificateholder. The
Servicer shall also deposit in the Collection Account any Net Liquidation
Proceeds received in connection with any Contract which became a Liquidated
Contract in a prior Due Period.
c. The Servicer may sue to enforce or collect upon Contracts, in its
own name, if possible, or as agent for the Trust. If the Servicer elects to
commence a legal proceeding to enforce a Contract, the act of commencement shall
be deemed to be an automatic assignment of the Contract to the Servicer for
purposes of collection only. If, however, in any enforcement suit or legal
proceeding it is held that the Servicer may not enforce a Contract on the ground
that it is not a real party in interest or a holder entitled to enforce the
Contract, the Trustee on behalf of the Trust shall, at the Servicer's expense,
take such steps as the Servicer deems necessary to enforce the Contract,
including bringing suit in its name or the names of the Certificateholders and
the Subordinated Certificateholder.
d. The Servicer may grant to the Obligor on any Contract any rebate,
refund or adjustment out of the Collection Account that the Servicer in good
faith believes is required because of prepayment in full of the Contract. The
Servicer will not permit any rescission or cancellation of any Contract.
e. The Servicer may enforce any due-on-sale clause in a Contract if
such enforcement is called for under its then current servicing policies for
obligations similar to the Contracts, provided that such enforcement is
permitted by applicable law and will not adversely affect any applicable
insurance policy. If an assumption of a Contract is permitted by the Servicer,
upon conveyance of the related property the Servicer shall use its best efforts
to obtain an assumption agreement in connection therewith.
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f. If, following the termination of the Trust pursuant to Section 12.04,
HUD demands reimbursement of an FHA Insurance claim paid on an FHA-
Insured Contract prior to the termination of the Trust, the Servicer agrees that
it will not seek to recover any such amount from the Trustee or the
Certificateholders.
g. Any provision of this Agreement to the contrary notwithstanding,
the Servicer shall not agree to the modification or waiver of any provision of a
Contract at a time when such Contract is not in default or such default is not
reasonably foreseeable, if such modification or waiver would be treated as a
taxable exchange under Section 1001 of the Code.
SECTION 5.07. Trustee to Cooperate.
--------------------
a. Upon payment in full on any Contract, the Servicer will notify the
Trustee and the Company (if the Company is not the Servicer) on the next
succeeding Payment Date by certification of a Servicing Officer (which
certification shall include a statement to the effect that all amounts received
in connection with such payments which are required to be deposited in the
Collection Account pursuant to Section 5.05 have been so deposited) and shall
request delivery of the Contract and Contract File to the Servicer. Upon
receipt of such delivery and request, the Trustee shall promptly release or
cause to be released such Contract and Contract File to the Servicer. Upon
receipt of such Contract and Contract File, each of the Company (if different
from the Servicer) and the Servicer is authorized to execute an instrument in
satisfaction of such Contract and to do such other acts and execute such other
documents as the Servicer deems necessary to discharge the Obligor thereunder
and eliminate any lien on the related real estate. The Servicer shall determine
when a Contract has been paid in full; to the extent that insufficient payments
are received on a Contract credited by the Servicer as prepaid or paid in full
and satisfied, the shortfall shall be paid by the Servicer out of its own funds.
b. If the Servicer elects to submit a claim to FHA under the FHA
Insurance in respect of an FHA-Insured Contract and payment is received from
FHA, the Servicer shall notify the Trustee and the Company (if the Company is
not the Servicer) on the next succeeding Payment Date by certification of a
Servicing Officer (which certification shall include a statement to the effect
that all amounts received in connection with such payments which are required to
be deposited in the Collection Account pursuant to Section 5.05 have been so
deposited) and shall request delivery of the Contract and Contract File to the
Servicer. Upon receipt of such delivery and request, the Trustee shall promptly
release or cause to be released such Contract and Contract File to the Servicer.
c. From time to time as appropriate for servicing, foreclosing, and making
a claim for FHA Insurance coverage in connection with an FHA-Insured Contract,
the Trustee shall, upon written request of a Servicing Officer and delivery to
the Trustee of a receipt signed by such Servicing Officer, cause the original
Contract and the related Contract File to be released to the Servicer and
shall execute such documents as the Servicer shall deem necessary to the
prosecution of any such proceedings. Upon request of a Servicing Officer, the
Trustee shall perform such
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other acts as reasonably requested by the Servicer and otherwise cooperate
with the Servicer in enforcement of the Certificateholders' rights and
remedies with respect to Contracts.
d. The Servicer's receipt of a Contract and/or Contract File shall
obligate the Servicer to return the original Contract and the related Contract
File to the Trustee when its need by the Servicer has ceased unless the Contract
shall be liquidated or repurchased as described in Section 3.05 or 8.07.
SECTION 5.08. Costs and Expenses.
------------------
Except as provided in Section 8.06(b) for the reimbursement of Advances,
all costs and expenses incurred by the Servicer in carrying out its duties
hereunder (including payment of FHA Insurance premiums, payment of the
Trustee's fees pursuant to Section 11.06, fees and expenses of accountants and
payments of all fees and expenses incurred in connection with the enforcement
of Contracts (including enforcement of Contracts and foreclosures upon real
estate securing any such Contracts) and all other fees and expenses not
expressly stated hereunder to be for the account of the Trust) shall be paid
by the Servicer and the Servicer shall not be entitled to reimbursement
hereunder, except that the Servicer shall be reimbursed out of the liquidation
proceeds of a Liquidated Contract (including FHA Insurance proceeds) for
customary out-of-pocket liquidation expenses incurred by it. The Servicer
shall not incur such liquidation expenses unless it determines in its good
faith business judgment that incurring such expenses will increase the Net
Liquidation Proceeds on the related Contract. The Servicer's out-of-pocket
liquidation expenses in connection with the submission of a claim to FHA
currently do not exceed $100 per Contract.
SECTION 5.09. Maintenance of Insurance.
------------------------
The Servicer shall at all times keep in force a policy or policies of
insurance covering errors and omissions for failure to maintain insurance as
required by this Agreement, and a fidelity bond. Such policy or policies and
such fidelity bond shall be in such form and amount as is generally customary
among persons who service a portfolio of home improvements loans having an
aggregate principal amount of $10,000,000 or more, and which are generally
regarded as servicers acceptable to institutional investors. The Servicer shall
cause to be maintained with respect to any real property securing an FHA-Insured
Contract such hazard insurance and flood insurance as may be required by the FHA
Regulations, it being understood that at the Closing Date hazard insurance was
not required to be maintained under the FHA Regulations.
SECTION 5.10 Merger or Consolidation of Servicer.
-----------------------------------
Any Person into which the Servicer may be merged or converted or with which
it may be consolidated, or any Person resulting from any merger, conversion or
consolidation to which the Servicer shall be a party shall be the successor of
the Servicer hereunder, provided such Person shall be an Eligible Servicer,
without the
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execution or filing of any paper or any further act on the part of any of the
parties hereto, anything herein to the contrary notwithstanding. The Servicer
shall promptly notify Standard & Poor's in the event it is a party to any
merger, conversion or consolidation.
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ARTICLE VI
REPORTS AND TAX MATTERS
-----------------------
SECTION 6.01. Monthly Reports.
---------------
No later than one Business Day following each Determination Date, the
Servicer shall deliver to the Trustee and Standard & Poor's a "Monthly Report,"
--------------
substantially in the form of Exhibit N hereto, which report shall include the
following information with respect to the immediately following Payment Date:
a. The amount of "Monthly Principal" distributed on such Payment
-----------------
Date pursuant to Section 8.01, which shall be:
(i) The amount of regular principal payments on Contracts paid
or applied during the prior Due Period (other than the amount
attributable to principal of any payment received during such Due
Period and due in a previous Due Period, if such payment was
previously advanced as a Delinquent Payment pursuant to Section
8.02); plus
(ii) The amount of Principal Prepayments received during the
prior Due Period; plus
(iii) The amount of any Delinquent Payments that is
attributable to principal on the related Contracts, whether or not
such Delinquent Payments will be advanced pursuant to Section 8.02;
plus
(iv) The aggregate remaining principal balance of all Contracts
that became Liquidated Contracts during the prior Due Period; plus
(v) The aggregate Repurchase Price paid by the Company for any
Contracts repurchased during the prior Due Period as described in
Section 3.05(a) that is attributable to the principal amount
outstanding on such Contracts; plus
(vi) The amount of any reduction in the principal amount deemed
owed by the Obligor as a result of the Obligor's bankruptcy; plus
(vii) The aggregate principal amount specified in clauses (i)
through (vi) above, for all prior Payment Dates that was not
previously distributed because of an insufficient amount available
in the Collection Account (after taking into account amounts
deposited therein from the Cash Collateral Guaranty and the Limited
Guaranty).
b. the amount of Monthly Interest paid on such Payment Date;
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c. the remaining Principal Balance after giving effect to the
payment of Monthly Principal on such Payment Date (on which Monthly
Interest will be calculated on the next succeeding Payment Date);
d. the total amount of Advances to be made by the Servicer;
e. the total amount of Advances made by the Servicer on prior
Payment Dates for which the Servicer is now entitled to reimbursement due
to recoveries on the related Contracts;
f. the total amount of Advances made by the Servicer on prior
Payment Dates that the Servicer has now determined are Uncollectible
Advances;
g. the Collected Amount for the prior Due Period and the Shortfall
(if any) for such Payment Date;
h. the amounts of fees paid to the Servicer by the Trust on such
Payment Date, separately identifying the Monthly Servicing Fee paid during
the prior Due Period;
i. the Pool Factor immediately before and immediately after such
Payment Date;
j. the number of Contracts with Delinquent Payments, identifying
such Contracts and the amount of such Delinquent Payments, and the number
of and aggregate unpaid principal balance of Contracts with payments
delinquent 31-59, 60-89 and 90+ days, respectively;
k. the number of Liquidated Contracts, identifying such Contracts
and the Net Liquidation Loss on such Contracts; and
l. the Cumulative Delinquency Amount, the Requisite Amount, the
amount to be deposited in the Cash Collateral Account on such Payment
Date (if any) and the Available Cash Collateral Amount immediately
following such Payment Date.
m. the aggregate number and principal amount of FHA-Insured
Contracts on which either (i) the Servicer has submitted a claim for FHA
Insurance, HUD rejected such claim and the Servicer has determined not to
resubmit such claim, or (ii) the Servicer has determined not to submit a
claim for FHA Insurance because such claim would not be paid by HUD; and
n. the amount in the Company's FHA Insurance reserve available to
pay FHA Insurance claims on the Contracts.
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SECTION 6.02. Officer's Certificate.
---------------------
Each Monthly Report pursuant to Section 6.01 shall be accompanied by a
certificate of a Servicing Officer substantially in the form of Exhibit G,
certifying the accuracy of the Monthly Report and that no Event of Termination
or event that with notice or lapse of time or both would become an Event of
Termination has occurred, or if such event has occurred and is continuing,
specifying the event and its status.
SECTION 6.03. Other Data.
----------
In addition, the Company and (if different from the Company) the Servicer
shall, on request of the Trustee or Standard & Poor's, furnish the Trustee
and/or Standard & Poor's such underlying data as may be reasonably requested.
SECTION 6.04. Annual Report of Accountants.
----------------------------
On or before May 1 of each year, commencing May 1, 1995, the Servicer at
its expense shall cause a firm of independent public accountants which is a
member of the American Institute of Certified Public Accountants to furnish a
statement to the Trustee and Standard & Poor's to the effect that such firm has
examined certain documents and records relating to the servicing of the home
improvement retail installment contracts and promissory notes under pooling and
servicing agreements substantially similar one to another (such statement to
have attached thereto a schedule setting forth the pooling and servicing
agreements covered thereby, including this Agreement) and that, on the basis of
such examination, conducted substantially in compliance with generally accepted
auditing standards, (i) such servicing has been conducted in compliance with
such pooling and servicing agreements, and (ii) the Servicer's payment of FHA
Insurance premiums and submission of FHA Insurance claims has been conducted in
compliance with FHA Regulations, except for such significant exceptions or
errors in records that, in the opinion of such firm, generally accepted auditing
standards requires it to report.
SECTION 6.05. Statements to Certificateholders and the Subordinated
-----------------------------------------------------
Certificateholder.
- -----------------
a. Concurrently with each distribution to Certificateholders pursuant to
Article VIII, the Trustee, in its capacity as Certificate Registrar and Paying
Agent, shall cause to be mailed to Standard & Poor's and to each
Certificateholder and the Subordinated Certificateholder at the address
appearing on the Certificate Register a statement as of the related Payment Date
prepared by the Servicer setting forth:
(i) the amount of the aggregate distribution to the
Certificateholders which constitutes Monthly Principal, specifying the
amounts attributable to scheduled payments by Obligors, to Principal
Prepayments by Obligors, and to other payments with respect to principal;
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(ii) the amount of the aggregate distribution to the
Certificateholders which constitutes Monthly Interest;
(iii) the remaining Principal Balance;
(iv) the Company's FHA Insurance reserve amount (as of the most
recent date available);
(v) the Cumulative Delinquency Amount, the Requisite Amount, the
amount deposited in the Cash Collateral Account on such Payment Date (if
any) and the Available Cash Collateral Amount immediately following such
Payment Date;
(vi) the amount of fees payable out of the Trust;
(vii) the Pool Factor immediately before and immediately after such
Payment Date;
(viii) the number and aggregate principal balance of Contracts
delinquent 31-59, 60-89 and 90+ days, respectively;
(ix) the number of Contracts that became Liquidated Contracts during
the immediately preceding Due Period;
(x) such other customary factual information as is available to
the Company or the Servicer (if different from the Company) to enable
Certificateholders to prepare their tax returns, including information
required with respect to computing the accrual of market discount; and
(xi) such other customary factual information as is available to the
Company or the Servicer (if different from the Company) as the Servicer
can reasonably obtain from its existing data base to enable
Certificateholders to comply with regulatory requirements.
b. Within 75 days after the end of each calendar year, the Certificate
Registrar shall mail to each Certificateholder of record at any time during such
year a report prepared by the Servicer as to the aggregate amounts of interest
accrued and principal paid to such Certificateholder, and any additional
information reported pursuant to subsections (a)(x) and (a)(xi) of this Section
6.05, attributable to such Certificateholder.
c. A Certificateholder holding Certificates representing in the aggregate
at least 5% of the Fractional Interest in the Trust shall, upon written request
to the Trustee, be entitled to receive copies of all reports provided to the
Trustee.
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SECTION 6.06. Payment of Taxes.
----------------
The Servicer shall be responsible for and agrees to prepare, make and file
all federal, state, local or other tax returns, information statements and other
returns and documents of every kind and nature whatsoever required to be made or
filed by or on behalf of the Trust pursuant to the Code and other applicable tax
laws and regulations. Each such return, statement and document shall, to the
extent required by the Code or other applicable law and at the request of the
Servicer, be signed on behalf of the Trust by the Trustee. The Trustee shall
have no responsibility whatsoever for the accuracy or completeness of any such
return, statement or document. The Servicer agrees to indemnify the Trustee and
hold it harmless for, from, against and in respect to any and all liability,
loss, damage and expense which may be incurred by the Trustee based upon or as a
result of the Trustee's execution of any and all such tax returns, statements
and documents.
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ARTICLE VII
SERVICE TRANSFER
----------------
SECTION 7.01. Events of Termination.
---------------------
"Event of Termination" means the occurrence of any of the following:
--------------------
a. Any failure by the Servicer to make any payment or deposit
required to be made hereunder (including an Advance) and the continuance
of such failure for a period of four Business Days;
b. Failure on the Servicer's part to observe or perform in any
material respect any covenant or agreement in this Agreement (other than
a covenant or agreement which is elsewhere in this Section specifically
dealt with) which continues unremedied for 30 days;
c. Any assignment by the Servicer of its duties or rights hereunder
except as specifically permitted hereunder, or any attempt to make such
an assignment;
d. A court having jurisdiction in the premises shall have entered a
decree or order for relief in respect of the Servicer in an involuntary
case under any applicable bankruptcy, insolvency or other similar law now
or hereafter in effect, or appointing a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or similar official) of the Servicer,
as the case may be, or for any substantial liquidation of its affairs;
e. The Servicer shall have commenced a voluntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter
in effect, or shall have consented to the entry of an order for relief in
an involuntary case under any such law, or shall have consented to the
appointment of or taking possession by a receiver, liquidator, assignee,
trustee, custodian or sequestrator (or other similar official) of the
Servicer or for any substantial part of its property, or shall have made
any general assignment for the benefit of its creditors, or shall have
failed to, or admitted in writing its inability to, pay its debts as they
become due, or shall have taken any corporate action in furtherance of
the foregoing;
f. The failure of the Servicer to be an Eligible Servicer; or
g. If the Company is the Servicer, the Company's servicing rights
under its master seller-servicer agreement with GNMA are terminated by
GNMA.
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SECTION 7.02. Transfer.
--------
a. If an Event of Termination has occurred and is continuing, either the
Trustee or Certificateholders with aggregate Fractional Interests representing
25% or more of the Trust, by notice in writing to the Servicer (and to the
Trustee if given by the Certificateholders) may terminate all (but not less than
all) of the Servicer's management, administrative, servicing and collection
functions (such termination being herein called a "Service Transfer"). On
----------------
receipt of such notice (or, if later, on a date designated therein), all
authority and power of the Servicer under this Agreement, whether with respect
to the Contracts, the Contract Files or otherwise (except with respect to the
Collection Account, the transfer of which shall be governed by Section 7.06),
shall pass to and be vested in the Trustee pursuant to and under this Section
7.02; and, without limitation, the Trustee is authorized and empowered to
execute and deliver on behalf of the Servicer, as attorney-in-fact or otherwise,
any and all documents and other instruments, and to do any and all acts or
things necessary or appropriate to effect the purposes of such notice of
termination. The Trustee shall cause all assignments of mortgages or deeds of
trust securing Secured Contracts to be duly recorded. If the Servicer was the
lender of record for purposes of the FHA Insurance relating to FHA-Insured
Contracts, the Trustee shall notify HUD of such termination and shall request
that HUD transfer the FHA Insurance reserves allocable to such Contracts to the
successor Servicer; provided, however, that if the Trustee is the successor
Servicer, the Trustee shall request such transfer of reserves if and to the
extent it is legally able to do so, and the Trustee shall use its best efforts
to obtain any approvals that may be required for the Trustee to receive such
transfer of reserves. Each of the Company and the Servicer agrees to cooperate
with the Trustee in effecting the termination of the responsibilities and rights
of the Servicer hereunder, including, without limitation, the transfer to the
Trustee for administration by it of all cash amounts which shall at the time be
held by the Servicer for deposit, or have been deposited by the Servicer, in the
Collection Account, or for its own account in connection with its services
hereafter or thereafter received with respect to the Contracts, and the transfer
of all rights under FHA Insurance relating to FHA-Insured Contracts. The
Servicer shall transfer to the new servicer (i) the Servicer's records relating
to the Contracts in such electronic form as the new servicer may reasonably
request and (ii) any Contract Files in the Servicer's possession.
SECTION 7.03. Trustee to Act; Appointment of Successor.
----------------------------------------
On and after the time the Servicer receives a notice of termination
pursuant to Section 7.02, the Trustee shall be the successor in all respects to
the Servicer in its capacity as servicer under this Agreement and the
transactions set forth or provided for herein and shall be subject to all the
responsibilities, duties and liabilities relating thereto placed on the Servicer
by the terms and provisions hereof, and the Servicer shall be relieved of such
responsibilities, duties and liabilities arising after such Service Transfer;
provided, however, that (i) the Trustee will not assume any obligations of the
- -------- -------
Company pursuant to Section 3.05, and (ii) the Trustee shall not be liable for
any acts or omissions of the Servicer occurring prior to such Service Transfer
or for any breach by the Servicer of any of its obligations contained herein
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or in any related document or agreement. As compensation therefor, the Trustee
shall be entitled to receive reasonable compensation out of the Monthly
Servicing Fee. Notwithstanding the above, the Trustee may, if it shall be
unwilling so to act, or shall, if it is legally unable so to act, appoint, or
petition a court of competent jurisdiction to appoint, an Eligible Servicer as
the successor to the Servicer hereunder in the assumption of all or any part of
the responsibilities, duties or liabilities of the Servicer hereunder. Pending
appointment of a successor to the Servicer hereunder, unless the Trustee is
prohibited by law from so acting, the Trustee shall act in such capacity as
hereinabove provided. In connection with such appointment and assumption, the
Trustee may make such arrangements for the compensation of such successor out of
payments on Contracts as it and such successor shall agree; provided, however,
-------- -------
that no such monthly compensation shall, without the written consent of 100% of
the Certificateholders, exceed 1/12 of .75% of the Principal Balance. The
Trustee and such successor shall take such action, consistent with this
Agreement, as shall be necessary to effectuate any such succession.
SECTION 7.04. Notification to Certificateholders and the Subordinated
-------------------------------------------------------
Certificateholder.
- -----------------
a. Promptly following the occurrence of any Event of Termination, the
Servicer shall give written notice thereof to the Trustee, to Standard & Poor's,
to the Certificateholders and to the Subordinated Certificateholder at their
respective addresses appearing on the Certificate Register.
b. Within 10 days following any termination or appointment of a successor
to the Servicer pursuant to this Article VII, the Trustee shall give written
notice thereof to Standard & Poor's and to Certificateholders and the
Subordinated Certificateholder at their respective addresses appearing on the
Certificate Register.
SECTION 7.05. Effect of Transfer.
------------------
a. After the Service Transfer, the Trustee or new Servicer may notify
Obligors to make payments directly to the new Servicer that are due under the
Contracts after the effective date of the Service Transfer.
b. After the Service Transfer, the replaced Servicer shall have no further
obligations with respect to the management, administration, servicing or
collection of the Contracts and the new Servicer shall have all of such
obligations, except that the replaced Servicer will transmit or cause to be
------
transmitted directly to the new Servicer for its own account, promptly on
receipt and in the same form in which received, any amounts (properly endorsed
where required for the new Servicer to collect them) received as payments upon
or otherwise in connection with the Contracts.
c. A Service Transfer shall not affect the rights and duties of the
parties hereunder (including but not limited to the indemnities of the Servicer
and the Company pursuant to Article X and Sections 3.05, 11.06 and 11.12(f))
other than
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those relating to the management, administration, servicing or collection of
the Contracts.
SECTION 7.06. Transfer of Collection Account.
------------------------------
Notwithstanding the provisions of Section 7.02, if the Collection
Account shall be maintained with the Servicer and an Event of Termination shall
occur and be continuing, the Servicer shall, after five days' written notice
from the Trustee, or in any event within ten days after the occurrence of the
Event of Termination, establish a new account or accounts in trust for the
Certificateholders and the Subordinated Certificateholder conforming with the
requirements of this Agreement at the trust department of the Trustee or with an
Eligible Institution other than the Servicer and promptly transfer all funds in
the Collection Account to such new account, which shall thereafter be deemed the
Collection Account for the purposes hereof.
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ARTICLE VIII
PAYMENTS
--------
SECTION 8.01. Monthly Payments.
----------------
a. Subject to the terms of this Article VIII, each holder of a
Certificate as of a Record Date shall be paid on the next succeeding Payment
Date by check mailed to such Certificateholder at the address for such
Certificateholder appearing on the Certificate Register (or, if such
Certificateholder holds Certificates with an aggregate initial Principal Balance
of at least $1,000,000 and so requests, by wire transfer pursuant to
instructions delivered to the Trustee at least 10 days prior to such Payment
Date), the sum equal to such Certificateholder's Fractional Interest of Monthly
Interest and Monthly Principal. The Subordinated Certificateholder shall be
paid, not later than 2:00 P.M., New York City time, on each Payment Date, by
wire transfer pursuant to instructions delivered to the Trustee at least 10 days
prior to such Payment Date, an amount equal to the difference between (i)
Available Funds and (ii) the sum of the amounts specified in Section 8.06(b)(1)
- - (5). Final payment of any Certificate or the Subordinated Certificate shall
be made only upon presentation of such Certificate or the Subordinated
Certificate at the office or agency of the Paying Agent.
b. Each distribution with respect to a Book-Entry Certificate shall
be paid to the Depository, which shall credit the amount of such distribution to
the accounts of its Depository Participants in accordance with its normal
procedures. Each Depository Participant shall 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 shall 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 the Depository and the Depository Participants in accordance with
the provisions of the Book-Entry Certificates. Neither the Trustee, the
Certificate Registrar nor the Company shall have any responsibility therefor
except as otherwise provided by applicable law. To the extent applicable and
not contrary to the rules of the Depository, the Trustee shall comply with the
provisions of the form of the Certificates as set forth in Exhibit A hereto.
c. The Trustee shall appoint an Eligible Institution to be the paying
agent (the "Paying Agent") and cause it to make the payments to the
------------
Certificateholders required hereunder. The Trustee initially appoints its
corporate trust operations department, with an office at 180 East 5th Street,
Third Floor, St. Paul, Minnesota 55101, Attention: Corporate Trust Operations,
as such Paying Agent. The Trustee shall require the Paying Agent (if other than
the Trustee) to agree in writing that all amounts held by the Paying Agent for
payment hereunder will be held in trust for the benefit of the
Certificateholders and that it will notify the Trustee of any failure by the
Servicer to make funds available to the Paying Agent for the payment of amounts
due on the Certificates.
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<PAGE>
SECTION 8.02. Advances.
--------
a. Not later than one Business Day following the Determination Date,
the Servicer shall advance all Delinquent Payments for the immediately preceding
Due Period by depositing the aggregate amount of such Delinquent Payments in the
Collection Account; provided, however, that the Servicer shall be obligated to
advance Delinquent Payments only to the extent that the Servicer, in its sole
discretion, expects to be able to recover such advances from subsequent
collections, including Net Liquidation Proceeds, or (in the case of FHA-Insured
Contracts) from FHA Insurance, on the related Contracts. If the Servicer fails
to advance all Delinquent Payments required under this Section 8.02, the Trustee
shall be obligated to advance such Delinquent Payments pursuant to Section
11.16.
b. The Servicer shall be entitled to reimbursement of an Advance from
subsequent collections on the related Contract, including Net Liquidation
Proceeds and (in the case of FHA-Insured Contracts) proceeds of FHA Insurance,
in accordance with Section 8.06(b). If the Servicer determines in good faith
that any Advance has become an Uncollectible Advance, the Servicer will be
entitled to reimbursement of such Uncollectible Advance from the Collected
Amount and from the Cash Collateral Guaranty in accordance with Sections 8.03
and 8.06(b).
SECTION 8.03. Cash Collateral Guaranty Coverage of Shortfalls.
-----------------------------------------------
If the Monthly Report as of any Determination Date indicates that (a)
the sum of (i) the Collected Amount plus (ii) any Advances that will be
deposited in the Collection Account by the Servicer or the Trustee, as
applicable, plus (iii) the aggregate of the Repurchase Prices for Contracts to
be repurchased by the Company in respect of such Determination Date pursuant to
Section 3.05, is less than (b) the aggregate amount payable on the immediately
following Payment Date pursuant to Section 8.06(b)(1)-(5) (such difference being
hereinafter referred to as a "Shortfall"), then the Trustee shall, on the
---------
Business Day preceding such Payment Date, make a demand under the Cash
Collateral Guaranty in the full amount of such Shortfall. The Trustee will pay
into the Collection Account the full amount received pursuant to such demand,
which will be an amount equal to the lesser of the Shortfall and the Available
Cash Collateral Amount.
SECTION 8.04. Letter of Credit and Other Credit Enhancement.
---------------------------------------------
a. At any time after the first Payment Date on which the funds in the
Cash Collateral Account equal or exceed the Requisite Amount, the Subordinate
Certificateholder may obtain the release of all or a portion of the cash on
deposit in the Cash Collateral Account, by delivering to the Cash Collateral
Trustee (a) a Letter of Credit that satisfies the conditions set forth in the
Cash Collateral Trust Agreement or (ii) any other form of credit enhancement
that satisfies the conditions set forth in the Cash Collateral Trust Agreement.
b. The cost of obtaining and maintaining any initial or replacement
Letter of Credit shall be borne solely by the Subordinate Certificateholder.
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c. Any initial or replacement Letter of Credit or other form of
credit enhancement delivered to the Trustee shall satisfy the conditions set
forth in the Cash Collateral Trust Agreement.
SECTION 8.05. Limited Guaranty.
----------------
a. If the Monthly Report as of any Determination Date indicates a
Shortfall and the Available Cash Collateral Amount equals zero (or an amount
less than the amount of such Shortfall), then, if the Company is the Servicer,
the Company shall pay into the Collection Account not later than one Business
Day after such Determination Date the lesser of (a) such Shortfall (or the
amount by which the Shortfall exceeds the Available Cash Collateral Amount), or
(b) the Guaranty Amount. If the Company is not the Servicer, the Servicer shall
deliver to the Company, no later than one Business Day after such Determination
Date, a written demand that the Company pay under the Limited Guaranty the
amount specified in the preceding sentence; upon receipt of such demand, the
Company shall pay such amount into the Collection Account not later than two
Business Days before the related Payment Date. Notwithstanding any other
provision of this Agreement, the obligation of the Company under this Section
shall not terminate upon a Service Transfer pursuant to Article VII.
b. On any Payment Date the Company shall be obligated pursuant to the
Limited Guaranty only up to the Guaranty Amount. The "Guaranty Amount" shall
---------------
equal:
(i) $____________________ prior to the first Payment Date under this
Agreement.
(ii) Thereafter, on any Payment Date, the lesser of (A)
$____________________ minus all payments made prior to such Payment Date
pursuant to Section 8.05(a) or (B) 1% of the aggregate principal balance
of FHA-Insured Contracts immediately prior to such Payment Date.
SECTION 8.06. Payments.
--------
a. On each Determination Date the Servicer shall determine the
following amount of funds (the "Available Funds"): (i) the Collected Amount as
---------------
of such Determination Date; plus (ii) an amount equal to the sum of (1) the
aggregate amount of Advances that will be deposited in the Collection Account by
the Servicer or the Trustee, as applicable, pursuant to Section 8.02 or 11.16,
(2) the amount to be deposited by the Trustee in the Collection Account pursuant
to a demand under the Cash Collateral Guaranty in accordance with Section 8.03,
(3) the amount to be deposited by the Company in the Collection Account pursuant
to the Limited Guaranty in accordance with Section 8.05, and (4) the aggregate
of the Repurchase Prices for Contracts to be repurchased by the Company in
respect of such Determination Date pursuant to Section 3.05.
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<PAGE>
b. On each Payment Date the Trustee shall apply the Available Funds
(as determined on the immediately preceding Determination Date) in the
Collection Account to make payment in the following order of priority:
1. to pay Monthly Interest to the Certificateholders;
2. to pay Monthly Principal to the Certificateholders;
3. to pay the Monthly Servicing Fee and any compensation owed to
the Servicer pursuant to Section 7.03;
4. to reimburse the Trustee or any successor Servicer for any
payments of FHA Insurance premiums in respect of FHA-Insured Contracts
not paid by the Company and for which the Trustee or such successor
Servicer has not been reimbursed by the Company;
5. to reimburse the Servicer or the Trustee, as applicable, for prior
Advances that have been recovered and for any Uncollectible Advances; and
6. to pay the remainder, if any, of the Available Funds to the
Subordinated Certificateholder for disposition in accordance with the Cash
Collateral Trust Agreement.
c. If the Trustee shall not have received the applicable Monthly
Report by any Payment Date, the Trustee shall distribute all funds then in the
Collection Account to Certificateholders as Monthly Interest and then Monthly
Principal, to the extent of such funds, on such Payment Date.
SECTION 8.07. Reassignment of Repurchased Contracts.
-------------------------------------
Upon receipt by the Trust by deposit in the Collection Account of the
Repurchase Price under Section 3.05, and upon receipt of a certificate of a
Servicing Officer in the form attached hereto as Exhibit I, the Trustee shall
convey and assign to the Company all of the Certificateholders' and the
Subordinated Certificateholder's right, title and interest in the repurchased
Contract without recourse, representation or warranty, except as to the absence
of liens, charges or encumbrances created by or arising as a result of actions
of the Trustee. Upon such deposit of the Repurchase Price, the Servicer shall
be deemed to have released any claims to such Contract as a result of Advances
with respect to such Contract.
SECTION 8.08. Company's Repurchase Option.
---------------------------
a. The Trust created hereby and the respective obligations and
responsibilities of the Company, the Servicer and the Trustee created hereby
(other than the responsibility of the Trustee to make any final distributions to
Certificateholders as set forth below) shall terminate upon the earlier of (1)
the later of the final payment or other liquidation of the last Contract
remaining in the Trust or the Termination of the Trust pursuant to Section
12.04, or (2) the purchase by the
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<PAGE>
Company of all of the Contracts and all property acquired in respect of any
Contract remaining in the Trust at a price equal to the greatest of:
A. the sum of (x) 100% of the principal balance of each Contract
(other than any Contract as to which title to the underlying property has
been acquired and whose fair market value is included pursuant to clause
(y) below), together with accrued and unpaid interest on each such
Contract at the Pass-Through Rate, plus (y) the fair market value of such
acquired property (as determined by the Company as of the close of
business on the third Business Day next preceding the date upon which
notice of any such termination is furnished to Certificateholders
pursuant to Section 12.04),
B. the aggregate fair market value (as determined by the Company as
of the close of business on such third Business Day) of all of the assets
of the Trust, and
C. the remaining Principal Balance as of the close of business on
such third Business Day;
b. The purchase by the Company of all of the Contracts pursuant to
Section 8.08(a)(2) above shall be at the option of the Company, but shall be
conditioned upon (1) the Principal Balance, at the time of any such purchase,
aggregating less than 10% of the Initial Principal Balance, and (2) the Company
having provided the Trustee and the Depository (if any) with at least 30 days'
written notice. If such option is exercised, the Company shall provide to the
Trustee the certification required by Section 12.04, and the Trustee shall
promptly sign such certification and release to the Company the Contract Files
pertaining to the Contracts being repurchased.
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<PAGE>
ARTICLE IX
THE CERTIFICATES AND THE SUBORDINATED CERTIFICATE
-------------------------------------------------
SECTION 9.01. The Certificates and the Subordinated Certificate.
-------------------------------------------------
The Certificates and the Subordinated Certificate shall be
substantially in the forms set forth in Exhibits A and H, respectively, and
shall, on original issue, be executed by manual or facsimile signature of the
Company by any one of its President, Vice Presidents, Secretary, Treasurer or
other authorized officers and authenticated by the Trustee to or upon the order
of the Company upon receipt. The Certificates shall be evidenced by (i) one or
more Certificates representing $____________________ initial aggregate principal
balance, beneficial ownership of such Certificates to be held through Book-Entry
Certificates in minimum dollar denominations of $1,000 and integral dollar
multiples of $1,000 in excess thereof, and (ii) a single Certificate
representing $____________________ in initial principal balance. The
Subordinated Certificate shall be issuable in the form of a single certificate.
The Certificates and the Subordinated Certificate shall be authenticated
by manual signature on behalf of the Trustee by a duly authorized Responsible
Officer or authorized signatory. Certificates or the Subordinated Certificate
bearing the signatures of individuals who were at any time the proper officers
of the Trustee shall bind the Trustee, notwithstanding that such individuals
or any of them have ceased to hold such offices prior to the authentication
and delivery of such Certificate or the Subordinated Certificate or did not
hold such offices at the date of such Certificates or the Subordinated
Certificate. No Certificate or Subordinated Certificate shall be entitled to
any benefit under this Agreement, or be valid for any purpose, unless such
Certificate or Subordinated Certificate has been authenticated by manual
signature in accordance with this Section, and such signature upon any
Certificate or the Subordinated Certificate shall be conclusive evidence, and
the only evidence, that such Certificate or the Subordinated Certificate has
been duly authenticated and delivered hereunder. All Certificates and the
Subordinated Certificate shall be dated the date of their authentication,
except for those Certificates and the Subordinated Certificate authenticated
on the Closing Date, which shall be dated the Closing Date.
SECTION 9.02. Registration of Transfer and Exchange of Certificates and
---------------------------------------------------------
the Subordinated Certificate.
- ----------------------------
a. The Trustee shall keep at the office or agency to be maintained in
accordance with Section 12.02 a "Certificate Register" in which the Trustee
--------------------
shall provide for the registration of Certificates and the Subordinated
Certificate and of transfers and exchanges of Certificates and the Subordinated
Certificate as herein provided. The Trustee initially appoints itself to be the
"Certificate Registrar" and transfer agent for the purpose of registering
---------------------
Certificates and the Subordinated Certificate and transfers and exchanges of
Certificates and the Subordinated Certificate as provided herein. The Trustee
will give prompt written notice to
9-1
<PAGE>
Certificateholders, the Subordinated Certificateholder and the Servicer of any
change in the Certificate Registrar.
b. (1) Subject to clause (2) below, no transfer of the Subordinated
Certificate shall be made by the Subordinated Certificateholder or any
other Person unless such transfer is exempt from the registration
requirements of the Securities Act of 1933 (the "Act"), as amended, and
any applicable state securities laws or is made in accordance with the
Act and laws. In the event that any such transfer is to be made, (A) the
Company may require a written Opinion of Counsel acceptable to and in
form and substance satisfactory to the Company that such transfer may be
made pursuant to an exemption, describing the applicable exemption and
the basis therefor, from the Act and laws or is being made pursuant to
the Act and laws, which Opinion of Counsel shall not be an expense of the
Trustee or the Company, and (B) the Trustee shall require the transferee
to execute an investment letter substantially in the form of Exhibit J
attached hereto, which investment letter shall not be an expense of the
Trustee or the Company. Any transfer, sale or other disposition not in
compliance with the provisions of this Section 9.02(b) shall be deemed to
be void and of no legal force or effect whatsoever and such transferee
shall be deemed to not be the Subordinated Certificateholder for any
purpose hereunder, including, but not limited to, the receipt of
distributions on the Subordinated Certificate, and shall be deemed to
have no interest whatsoever in the Subordinated Certificate. The
Subordinated Certificateholder desiring to effect such transfer shall,
and does hereby agree to, indemnify the Trustee, the Company, and the
Certificate Registrar against any liability that may result if the
transfer is not so exempt or is not made in accordance with such federal
and state laws. Notwithstanding the foregoing, no transfer of the
Subordinated Certificate shall be made except to a successor Cash
Collateral Trustee.
(2) No transfer of a Certificate or the Subordinated Certificate or
any interest therein shall be made to any employee benefit plan, trust or
account that is subject to ERISA, or that is described in Section
4975(e)(1) of the Code (each, a "Plan"), unless the prospective
----
transferee of a Certificate or the Subordinated Certificate or any
interest therein provides the Servicer and the Trustee with a
certification of facts and, at its own expense, an Opinion of Counsel
which establish to the satisfaction of the Servicer and the Trustee that
such transfer will not result in a violation of Section 406 of ERISA or
Section 4975 of the Code or cause the Servicer, the Company or the
Trustee to be deemed a fiduciary of such Plan or result in the imposition
of an excise tax under Section 4975 of the Code.
c. At the option of a Certificateholder, Certificates may be exchanged
for other Certificates of authorized denominations of a like aggregate
original denomination, upon surrender of such Certificates to be exchanged at
such office. Whenever any Certificates are so surrendered for exchange, the
Trustee shall execute and deliver the Certificates which the Certificateholder
making the exchange is entitled to receive. Every Certificate presented or
surrendered for
9-2
<PAGE>
transfer or exchange shall be duly endorsed by, or shall be accompanied by a
written instrument of transfer in form satisfactory to the Trustee and the
Certificate Registrar duly executed by, the holder thereof or his or her
attorney duly authorized in writing.
d. Except as provided in paragraph (e) below the Book-Entry Certificates
shall at all times remain registered in the name of the Depository or its
nominee and at all times: (i) registration of the Certificates may not be
transferred by the Trustee except to another Depository; (ii) the Depository
shall maintain book-entry records with respect to the Certificate Owners and
with respect to ownership and transfers of such Certificates; (iii) ownership
and transfers of registration of the Certificates on the books of the
Depository shall be governed by applicable rules established by the
Depository; (iv) the Depository may collect its usual and customary fees,
charges and expenses from its Depository Participants; (v) the Trustee shall
deal with the Depository, Depository Participants and indirect participating
firms as representatives of the Certificate Owners of the Certificates for
purposes of exercising the rights of Holders under this Agreement, and
requests and directions for and votes of such representatives shall not be
deemed to be inconsistent if they are made with respect to different
Certificate Owners; and (vi) the Trustee may rely and shall be fully protected
in relying upon information furnished by the Depository with respect to its
Depository Participants and furnished by the Depository Participants with
respect to indirect participating firms and persons shown on the books of such
indirect participating firms as direct or indirect Certificate Owners.
All transfers by Certificate Owners of Book-Entry Certificates shall be
made in accordance with the procedures established by the Depository
Participant or brokerage firm representing such Certificateholder. Each
Depository Participant shall only transfer Book-Entry Certificates of
Certificate Owners it represents or of brokerage firms for which it acts as
agent in accordance with the Depository's normal procedures.
e. If (x)(i) the Company or the Depository advises the Trustee in
writing that the Depository is no longer willing or able properly to discharge
its responsibilities as Depository, and (ii) the Trustee or the Company is
unable to locate a qualified successor, or (y) the Company at its sole option
advises the Trustee in writing that it elects to terminate the book-entry
system through the Depository, the Trustee shall notify all Certificate
Owners, through the Depository, of the occurrence of any such event and of the
availability of definitive, fully registered Certificates (the "Definitive
Certificates") to Certificate Owners requesting the same. Upon surrender to
the Trustee of the Certificates by the Depository, accompanied by registration
instructions from the Depository for registration, the Trustee shall issue the
Definitive Certificates. Neither the Company nor the Trustee shall be liable
for any delay in delivery of such instructions and may conclusively rely on,
and shall be protected in relying on, such instructions. Upon the issuance of
Definitive Certificates all references herein to obligations imposed upon or
to be performed by the Depository shall be deemed to be imposed upon and
performed by the Trustee, to the extent applicable with respect to such
Definitive Certificates and the Trustee
9-3
<PAGE>
shall recognize the Holders of the Definitive Certificates as
Certificateholders hereunder.
f. On or prior to the Closing Date, there shall be delivered to the
Depository __________Certificate(s), in registered form registered in the name
of the Depository's nominee, Cede & Co., the total face amount of which
represents ____________________. Each such Certificate registered in the name
of the Depository's nominee shall bear the following legend:
"Unless this Certificate is presented by an authorized representative
of The Depository Trust Company, a New York corporation ("DTC"), to the Trustee
or its agent for registration of transfer, exchange or payment, and any
certificate issued is registered in the name of Cede & Co. or in such other name
as requested by an authorized representative of DTC (and any payment is made to
Cede & Co. or to such other entity as is requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner
hereof, Cede & Co., has an interest herein."
SECTION 9.03. No Charge; Disposition of Void Certificates or Subordinated
-----------------------------------------------------------
Certificate.
- -----------
No service charge shall be made to a Certificateholder or the
Subordinated Certificateholder for any transfer or exchange of Certificates or
the Subordinated Certificate, but the Certificate Registrar may require payment
of a sum sufficient to cover any tax or other governmental charge that may be
imposed in connection with any transfer or exchange of Certificates or the
Subordinated Certificate. All Certificates or the Subordinated Certificate
surrendered for transfer and exchange shall be disposed of in a manner approved
by the Trustee.
SECTION 9.04. Mutilated, Destroyed, Lost or Stolen Certificates or
----------------------------------------------------
Subordinated Certificate.
- ------------------------
If (a) any mutilated Certificate or Subordinated Certificate is
surrendered to the Certificate Registrar, or the Certificate Registrar receives
evidence to its satisfaction of the destruction, loss or theft of any
Certificate or Subordinated Certificate, and (b) there is delivered to the
Certificate Registrar and the Trustee such security or indemnity as may be
required by each to save it harmless, then in the absence of notice to the
Certificate Registrar or the Trustee that such Certificate or Subordinated
Certificate has been acquired by a bona fide purchaser, the Trustee shall
execute and deliver, in exchange for or in lieu of any such mutilated,
destroyed, lost or stolen Certificate or Subordinated Certificate, a new
Certificate or Subordinated Certificate of like tenor and original denomination.
Upon the issuance of any new Certificate or Subordinated Certificate under this
Section 9.04, the Trustee may require the payment of a sum sufficient to cover
any tax or other governmental charge that may be imposed in relation thereto and
any other expenses connected therewith. Any duplicate Certificate or
Subordinated Certificate issued pursuant to this Section 9.04 shall constitute
complete and indefeasible
9-4
<PAGE>
evidence of ownership of the Percentage Interest, as if originally issued,
whether or not the mutilated, destroyed, lost or stolen Certificate or
Subordinated Certificate shall be found at any time.
SECTION 9.05. Persons Deemed Owners.
---------------------
Prior to due presentation of a Certificate or the Subordinated
Certificate for registration of transfer, the Servicer, the Company, the
Trustee, the Paying Agent and the Certificate Registrar may treat the person
in whose name any Certificate or the Subordinated Certificate is registered as
the owner of such Certificate or Subordinated Certificate for the purpose of
receiving remittances pursuant to Section 8.01 and for all other purposes
whatsoever, and none of the Servicer, the Company, the Trustee, the
Certificate Registrar, the Paying Agent or any agent of the Servicer, the
Company, the Trustee, the Paying Agent or the Certificate Registrar shall be
affected by notice to the contrary.
SECTION 9.06. Access to List of Certificateholders' Names and Addresses.
---------------------------------------------------------
The Certificate Registrar will furnish to the Trustee and the Servicer,
within five days after receipt by the Certificate Registrar of a request
therefor from the Trustee in writing, a list, in such form as the Trustee may
reasonably require, of the names and addresses of the Certificateholders as of
the most recent Record Date. If Holders of Certificates evidencing, as to any
Class, Percentage Interests representing 25% or more (hereinafter referred to
as "Applicants") apply in writing to the Trustee, and such application states
----------
that the Applicants desire to communicate with other Certificateholders with
respect to their rights under this Agreement or under the Certificates and is
accompanied by a copy of the communication which such Applicants propose to
transmit, then the Trustee shall, within five Business Days after the receipt
of such application, afford such Applicants access during normal business
hours to the most recent list of Certificateholders held by the Trustee. If
such list is as of a date more than 90 days prior to the date of receipt of
such Applicants' request, the Trustee shall promptly request from the
Certificate Registrar a current list as provided above, and shall afford such
Applicants access to such list promptly upon receipt. Every Certificateholder,
by receiving and holding a Certificate, agrees with the Certificate Registrar
and the Trustee that none of the Company, the Certificate Registrar or the
Trustee shall be held accountable by reason of the disclosure of any such
information as to the names and addresses of the Certificateholders hereunder,
regardless of the source from which such information was derived.
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<PAGE>
SECTION 9.07. Authenticating Agents.
---------------------
The Trustee may appoint one or more Authenticating Agents with power to
act on its behalf and subject to its direction in the execution and delivery
of the Certificates or the Subordinated Certificate. For all purposes of this
Agreement, the execution and delivery of Certificates or the Subordinated
Certificate by the Authenticating Agent pursuant to this Section shall be
deemed to be the execution and delivery of Certificates or the Subordinated
Certificate "by the Trustee."
9-6
<PAGE>
ARTICLE X
INDEMNITIES
-----------
SECTION 10.01. Real Estate.
-----------
The Company will defend and indemnify the Trust, the Trustee (including
the Custodian and any other agents of the Trustee) and the Certificateholders
and the Subordinated Certificateholder against any and all costs, expenses,
losses, damages, claims and liabilities, including reasonable fees and
expenses of counsel and expenses of litigation arising out of or resulting
from the use or ownership of any real estate related to a Contract by the
Company or the Servicer or any Affiliate of either. Notwithstanding any other
provision of this Agreement, the obligation of the Company under this Section
shall not terminate upon a Service Transfer pursuant to Article VII, except
that the obligation of the Company under this Section shall not relate to the
actions of any subsequent Servicer after a Service Transfer.
SECTION 10.02. Liabilities to Obligors.
-----------------------
No obligation or liability to any Obligor under any of the Contracts
is intended to be assumed by the Trust, the Certificateholders or the
Subordinated Certificateholder under or as a result of this Agreement and the
transactions contemplated hereby and, to the maximum extent permitted and valid
under mandatory provisions of law, the Trust, the Certificateholders and the
Subordinated Certificateholder expressly disclaim such assumption.
SECTION 10.03. Tax Indemnification.
-------------------
The Company agrees to pay, and to indemnify, defend and hold harmless
the Trust, the Trustee (including the Custodian and any other agents of the
Trustee), the Certificateholders and the Subordinated Certificateholder from,
any taxes which may at any time be asserted with respect to, and as of the date
of, the transfer of the Contracts to the Trust, including, without limitation,
any sales, gross receipts, general corporation, personal property, privilege or
license taxes (but not including any federal, state or other taxes arising out
of the creation of the Trust and the issuance of the Certificates and the
Subordinated Certificate) and costs, expenses and reasonable counsel fees in
defending against the same, whether arising by reason of the acts to be
performed by the Company, the Servicer or the Trustee under this Agreement or
imposed against the Trust, a Certificateholder, the Subordinated
Certificateholder or otherwise.
SECTION 10.04. Servicer's Indemnities.
----------------------
The Servicer shall defend and indemnify the Trust, the Trustee (including
the Custodian and any other agents of the Trustee), the Certificateholders and
the Subordinated Certificateholder against any and all costs, expenses,
losses, damages, claims and liabilities, including any failure to comply with
FHA Regulations in
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<PAGE>
enforcing an FHA-Insured Contract, including reasonable fees and expenses of
counsel and expenses of litigation, in respect of any action taken or omitted
to be taken by the Servicer with respect to any Contract. This indemnity shall
survive any Service Transfer (but the original Servicer's obligations under
this Section 10.04 shall not relate to any actions of any subsequent Servicer
after a Service Transfer) and any payment of the amount owing under, or any
repurchase by the Company of, any such Contract.
SECTION 10.05. Operation of Indemnities.
------------------------
Indemnification under this Article shall include, without limitation,
reasonable fees and expenses of counsel and expenses of litigation. If the
Company or the Servicer has made any indemnity payments to the Trustee pursuant
to this Article and the Trustee thereafter collects any of such amounts from
others, the Trust will repay such amounts collected to the Company or the
Servicer, as the case may be, without interest.
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<PAGE>
ARTICLE XI
THE TRUSTEE
-----------
SECTION 11.01. Duties of Trustee.
-----------------
The Trustee, prior to the occurrence of an Event of Termination and after
the curing of all Events of Termination which may have occurred, undertakes to
perform such duties and only such duties as are specifically set forth in this
Agreement. If an Event of Termination has occurred (which has not been cured),
the Trustee shall exercise such of the rights and powers vested in it by this
Agreement, and use the same degree of care and skill in their exercise, as a
prudent man would exercise or use under the circumstances in the conduct of
his own affairs.
The Trustee, upon receipt of all resolutions, certificates, statements,
opinions, reports, documents, orders or other instruments furnished to the
Trustee which are specifically required to be furnished pursuant to any
provision of this Agreement, shall examine them to determine whether they
conform as to form to the requirements of this Agreement.
Subject to Section 11.03, no provision of this Agreement shall be
construed to relieve the Trustee from liability for its own negligent action,
its own negligent failure to act or its own misconduct; provided, however, that:
-------- -------
a. Prior to the occurrence of an Event of Termination, and after the
curing of all such Events of Termination which may have occurred, the duties and
obligations of the Trustee shall be determined solely by the express provisions
of this Agreement, the Trustee shall not be liable except for the performance of
such duties and obligations as are specifically set forth in this Agreement, no
implied covenants or obligations shall be read into this Agreement against the
Trustee and, in the absence of bad faith on the part of the Trustee, the Trustee
may conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon any certificates or opinions furnished to
the Trustee and conforming to the requirements of this Agreement;
b. The Trustee shall not be liable for an error of judgment made in good
faith by a Responsible Officer of the Trustee, unless it shall be proved that
the Trustee was negligent in ascertaining the pertinent facts;
c. The Trustee shall not be personally liable with respect to any
action taken, suffered or omitted to be taken by it in good faith in accordance
with the direction of the Certificateholders with aggregate Fractional Interests
representing 25% or more of the Trust relating to the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or exercising
any trust or power conferred upon the Trustee, under this Agreement;
11-1
<PAGE>
d. The Trustee shall not be charged with knowledge of any event referred
to in Section 7.01 unless a Responsible Officer of the Trustee at the
Corporate Trust Office obtains actual knowledge of such event or the Trustee
receives written notice of such event from the Servicer or the
Certificateholders with aggregate Fractional Interests representing 25% or
more of the Trust; and
e. The Trustee may rely and shall be protected in acting or refraining
from taking any action in reliance on the advice of the Servicer in all
matters with respect to FHA Insurance. The Trustee shall not be liable for any
actions taken by the Servicer with respect to FHA Insurance, including but not
limited to the maintenance of such insurance and the submission of claims to
FHA.
None of the provisions contained in this Agreement shall in any event
require the Trustee to perform, or be responsible for the manner of performance
of, any of the obligations of the Company or the Servicer under this Agreement,
except during such time, if any, as the Trustee shall be the successor to, and
be vested with the rights, duties, powers and privileges of, the Servicer in
accordance with the terms of this Agreement. The Trustee shall not be required
to expend or risk its own funds or otherwise incur financial liability in the
performance of any of its duties hereunder, or in the exercise of any of its
rights or powers, if there is reasonable ground for believing that the repayment
of such funds or adequate indemnity against such risk or liability is not
reasonably assured to it.
SECTION 11.02. Certain Matters Affecting the Trustee.
-------------------------------------
Except as otherwise provided in Section 11.01:
a. The Trustee may rely and shall be protected in acting or refraining
from acting upon any resolution, Officer's Certificate, certificate of a
Servicing Officer, certificate of auditors or any other certificate,
statement, instrument, opinion, report, notice, request, consent, order,
appraisal, bond or other paper or document believed by it to be genuine and to
have been signed or presented by the proper party or parties;
b. The Trustee may consult with counsel and any opinion of any counsel
for the Company or the Servicer shall be full and complete authorization and
protection in respect of any action taken or suffered or omitted by it
hereunder in good faith and in accordance with such Opinion of Counsel;
c. The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Agreement, or to institute, conduct or
defend any litigation hereunder or in relation hereto, at the request, order
or direction of any of the Certificateholders, pursuant to the provisions of
this Agreement, unless such Certificateholders shall have offered to the
Trustee reasonable security or indemnity against the costs, expenses and
liabilities which may be incurred therein or thereby; provided, however, that
-------- -------
nothing contained herein shall relieve the Trustee of the obligations, upon
the occurrence of an Event of Termination (which has not been cured), to
exercise such of the rights and powers vested in it by this Agreement, and
11-2
<PAGE>
to use the same degree of care and skill in their exercise as a prudent man
would exercise or use under the circumstances in the conduct of his own
affairs;
d. Prior to the occurrence of an Event of Termination and after the
curing of all Events of Termination which may have occurred, the Trustee shall
not be bound to make any investigation into the facts or matters stated in any
resolution, certificate, statement, instrument, opinion, report, notice,
request, consent, order, approval, bond or other paper or document, unless
requested in writing so to do by Certificateholders with aggregate Fractional
Interests representing 25% or more of the Trust; provided, however, that if the
-------- -------
payment within a reasonable time to the Trustee of the costs, expenses or
liabilities likely to be incurred by it in the making of such investigation is,
in the opinion of the Trustee, not reasonably assured to the Trustee by the
security afforded to it by the terms of this Agreement, the Trustee may require
reasonable indemnity against such cost, expense or liability as a condition to
so proceeding. The reasonable expense of every such examination shall be paid
by the Servicer or, if paid by the Trustee, shall be reimbursed by the Servicer
upon demand; and
e. The Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys or a custodian and shall not be liable for any acts or omissions of
such agents, attorneys or custodians if appointed by it with due care hereunder.
SECTION 11.03. Trustee Not Liable for Certificates, the Subordinated
-----------------------------------------------------
Certificate or Contracts.
- ------------------------
The Trustee assumes no responsibility for the correctness of the recitals
contained herein, in the Certificates or in the Subordinated Certificate
(other than the Trustee's execution thereof). The Trustee makes no
representations as to the validity or sufficiency of this Agreement, of the
Certificates or of the Subordinated Certificate (other than its execution
thereof) or of any Contract, Contract File or related document. The Trustee
shall not be accountable for the use or application by the Servicer or the
Company of funds paid to the Company in consideration of conveyance of the
Contracts to the Trust by the Company or deposited in or withdrawn from the
Collection Account by the Servicer.
SECTION 11.04. Trustee May Own Certificates.
----------------------------
The Trustee in its individual or other capacity may become the owner
or pledgee of Certificates representing less than all the beneficial interest in
the Trust with the same rights as it would have if it were not Trustee.
SECTION 11.05. Rights of Certificateholders to Direct Trustee and to Waive
------------------------------- ---------------------------
Events of Termination.
- ---------------------
Certificateholders with aggregate Fractional Interests representing
25% or more of the Trust shall have the right to direct the time, method and
place of
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conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred on the Trustee; provided, however, that,
-------- -------
subject to Section 11.01, the Trustee shall have the right to decline to follow
any such direction if the Trustee being advised by counsel determines that the
action so directed may not lawfully be taken, or if the Trustee in good faith
shall, by a Responsible Officer or Officers of the Trustee, determine that the
proceedings so directed would be illegal or involve it in personal liability or
be unduly prejudicial to the rights of Certificateholders not parties to such
direction; and provided further that nothing in this Agreement shall impair the
-------- -------
right of the Trustee to take any action deemed proper by the Trustee and which
is not inconsistent with such direction by the Certificateholders.
Certificateholders with aggregate Fractional Interests representing 51% or more
of the Trust may on behalf of Certificateholders waive any past Event of
Termination hereunder and its consequences, except a default in respect of a
------
covenant or provision hereof which under Section 12.08 cannot be modified or
amended without the consent of all Certificateholders, and upon any such waiver,
such Event of Termination shall cease to exist and shall be deemed to have been
cured for every purpose of this Agreement; but no such waiver shall extend to
any subsequent or other Event of Termination or impair any right consequent
thereon.
SECTION 11.06. The Servicer to Pay Trustee's Fees and Expenses.
-----------------------------------------------
The Servicer agrees:
a. to pay to the Trustee 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);
b. except as otherwise expressly provided herein, to reimburse the
Trustee, to the extent requested by the Trustee, for all reasonable
expenses, disbursements and advances incurred or made by the Trustee in
accordance with any provision of this 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 its negligence or bad faith; and
c. to indemnify the Trustee for, and to hold it harmless against,
any loss, liability or expense incurred without negligence or bad faith
on its part, arising out of or in connection with the acceptance or
administration of this trust and its duties hereunder, including the
costs and expenses of defending itself against any claim or liability in
connection with the exercise or performance of any of its powers or
duties hereunder.
The covenants in this Section 11.06 shall be for the benefit of the
Trustee in its capacities as Trustee, Paying Agent and Certificate Registrar
hereunder, and shall survive the termination of this Agreement.
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SECTION 11.07. Eligibility Requirements for Trustee.
------------------------------------
The Trustee hereunder shall at all times be a financial institution
organized and doing business under the laws of the United States of America or
any State, authorized under such laws to exercise corporate trust powers and a
Title I approved lender pursuant to FHA Regulations, whose long-term debt (or,
in the case of First Trust National Association, its parent company) is rated
BBB or higher by Standard & Poor's, and shall have a combined capital and
surplus of at least $50,000,000 or shall be a member of a bank holding system
the aggregate combined capital and surplus of which is $50,000,000, provided
--------
that the Trustee's separate capital and surplus shall at all times be at least
the amount required by Section 310(a)(2) of the Trust Indenture Act of 1939, as
amended. If such Person publishes reports of condition at least annually,
pursuant to law or to the requirements of a supervising or examining authority,
then for the purposes of this Section 11.07, the combined capital and surplus of
such Person shall be deemed to be its combined capital and surplus as set forth
in its most recent report of condition so published. In case at any time the
Trustee shall cease to be eligible in accordance with the provisions of this
Section 11.07, the Trustee shall resign immediately in the manner and with the
effect specified in Section 11.08.
SECTION 11.08. Resignation or Removal of Trustee.
---------------------------------
The Trustee may at any time resign and be discharged from the trusts
hereby created by giving written notice thereof to the Servicer and the Company.
Upon receiving such notice of resignation, the Company shall promptly appoint a
successor Trustee by written instrument, in duplicate, one copy of which
instrument shall be delivered to each of the Servicer and the Company and one
copy to the successor Trustee. If no successor Trustee shall have been so
appointed and shall have accepted appointment within 30 days after the giving of
such notice of resignation, the resigning Trustee may petition any court of
competent jurisdiction for the appointment of a successor Trustee.
If at any time the Trustee shall cease to be eligible in accordance
with the provisions of Section 11.07 and shall fail to resign after written
request therefor by the Company, or if at any time the Trustee shall be legally
unable to act, or shall be adjudged a bankrupt or insolvent, or a receiver of
the Trustee or of its property shall be appointed, or any public officer shall
take charge or control of the Trustee or of its property or affairs for the
purpose of rehabilitation, conservation or liquidation, then the Company may
remove the Trustee. If the Company shall have removed the Trustee under the
authority of the immediately preceding sentence, the Company shall promptly
appoint a successor Trustee by written instrument, in duplicate, one copy of
which instrument shall be delivered to the Trustee so removed and one copy to
the successor trustee.
Any resignation or removal of the Trustee and appointment of a successor
Trustee pursuant to any of the provisions of this Section 11.08 shall not
become effective until acceptance of appointment by the successor Trustee as
provided in Section 11.09.
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SECTION 11.09. Successor Trustee.
-----------------
Any successor Trustee appointed as provided in Section 11.08 shall
execute, acknowledge and deliver to the Servicer, the Company and to its
predecessor Trustee an instrument accepting such appointment hereunder, and
thereupon the resignation or removal of the predecessor Trustee shall become
effective and such successor trustee, without any further act, deed or
conveyance, shall become fully vested with all the rights, powers, duties and
obligations of its predecessor hereunder, with like effect as if originally
named as Trustee. The predecessor Trustee shall deliver or cause to be
delivered to the successor Trustee the Contracts and the Contract Files and
any related documents and statements held by it hereunder; and, if the
Contracts are then held by a custodian pursuant to a custodial agreement, the
predecessor Trustee and the custodian shall amend such custodial agreement to
make the successor Trustee the successor to the predecessor Trustee
thereunder; and the Servicer, the Company and the predecessor Trustee shall
execute and deliver such instruments and do such other things as may
reasonably be required for fully and certainly vesting and confirming in the
successor Trustee all such rights, powers, duties and obligations. If the
predecessor Trustee is then the lender of record for purposes of FHA Insurance
(due to an Event of Termination), the predecessor Trustee shall submit a
report to FHA describing the transfer of the FHA-Insured Contracts without
recourse, in such form as is then required under FHA Regulations to cause HUD
to transfer to the successor Trustee the FHA insurance reserves applicable to
the FHA-Insured Contracts.
No successor Trustee shall accept appointment as provided in this Section
11.09 unless at the time of such acceptance such successor Trustee shall be
eligible under the provisions of Section 11.07.
Upon acceptance of appointment by a successor Trustee as provided in this
Section 11.09, the Servicer shall cause notice of the succession of such
Trustee hereunder to be mailed to Standard & Poor's and to each
Certificateholder and the Subordinated Certificateholder at their addresses as
shown in the Certificate Register. If the Servicer fails to mail such notice
within ten days after acceptance of appointment by the successor Trustee, the
successor Trustee shall cause such notice to be mailed at the expense of the
Servicer.
SECTION 11.10. Merger or Consolidation of Trustee.
----------------------------------
Any Person into which the Trustee may be merged or converted or with
which it may be consolidated, or any Person resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any Person
succeeding to the corporate trust business of the Trustee, shall be the
successor of the Trustee hereunder, provided such Person shall be eligible under
the provisions of Section 11.07, without the execution or filing of any paper or
any further act on the part of any of the parties hereto, anything herein to the
contrary notwithstanding. The Trustee shall promptly notify Standard & Poor's
in the event it is a party to any merger, conversion or consolidation.
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<PAGE>
SECTION 11.11. Tax Returns.
-----------
Upon the Servicer's request, the Trustee will furnish the Servicer
with all such information as the Servicer may reasonably require in connection
with preparing all tax returns of the Trust and the Trustee shall execute such
returns.
SECTION 11.12. Obligor Claims.
--------------
In connection with any offset defenses, or affirmative claims for
recovery, asserted in legal actions brought by Obligors under one or more
Contracts based upon provisions therein complying with, or upon other rights
or remedies arising from, any legal requirements applicable to the Contracts,
including, without limitation, the Federal Trade Commission's Trade Regulation
Rule Concerning Preservation of Consumers' Claims and Defenses (16 C.F.R. (S)
433) as amended from time to time:
a. The Trustee is not, and shall not be deemed to be, either in any
individual capacity, as trustee hereunder or otherwise, a creditor, or a
joint venturer with or an Affiliate of, or acting in concert or
cooperation with, any seller of home improvements, in the arrangement,
origination or making of Contracts. The Trustee is the holder of the
Contracts only as trustee on behalf of the Certificateholders, and not as
a principal or in any individual or personal capacity;
b. The Trustee shall not be personally liable for or obligated to
pay Obligors any affirmative claims asserted thereby, or responsible to
Certificateholders for any offset defense amounts applied against
Contract payments, pursuant to such legal actions;
c. The Trustee will pay, solely from available Trust monies,
affirmative claims for recovery by Obligors only pursuant to final judicial
orders or judgments, or judicially approved settlement agreements,
resulting from such legal actions;
d. The Trustee will comply with judicial orders and judgments which
require its actions or cooperation in connection with Obligors' legal
actions to recover affirmative claims against Certificateholders and the
Subordinated Certificateholder.
e. The Trustee will cooperate with and assist Certificateholders
and the Subordinated Certificateholder in their defense of legal actions
by Obligors to recover affirmative claims if such cooperation and
assistance is not contrary to the interests of the Trustee as a party to
such legal actions and if the Trustee is satisfactorily indemnified for
all liability, costs and expenses arising therefrom; and
11-7
<PAGE>
f. The Company hereby agrees to indemnify, hold harmless and defend
the Trustee, Certificateholders and the Subordinated Certificateholder
from and against any and all liability, loss, costs and expenses of the
Trustee, Certificateholders and the Subordinated Certificateholder
resulting from any affirmative claims for recovery asserted or collected
by Obligors under the Contracts. Notwithstanding any other provision of
this Agreement, the obligation of the Company under this Section 11.12(f)
shall not terminate upon a Service Transfer pursuant to Article VII.
SECTION 11.13. Appointment of Co-Trustee or Separate Trustee.
---------------------------------------------
Notwithstanding any other provisions hereof, at any time, for the purpose
of meeting any legal requirements of any jurisdiction having authority over
the Trust, the Contracts or the Obligors, the Company and Trustee acting
jointly shall have the power and shall execute and deliver all instruments to
appoint one or more Persons approved by the Trustee to act as co-trustee or co-
trustees, jointly with the Trustee, or separate trustee or separate trustees,
of all or any part of the Trust, and to vest in such Person or Persons, in
such capacity, such title to the Trust, or any part thereof, and, subject to
the other provisions of this Section 11.13, such powers, duties, obligations,
rights and trusts as the Company and the Trustee may consider necessary or
desirable. If the Company shall not have joined in such appointment within 15
days after the receipt by it of a request to do so, or in case an Event of
Termination shall have occurred and be continuing, the Trustee alone shall
have the power to make such appointment. No co-trustee or separate trustee
hereunder shall be required to meet the terms of eligibility as a successor
trustee under Section 11.07 hereunder and no notice to Certificateholders of
the appointment of co-trustee(s) or separate trustee(s) shall be required
under Section 11.09 hereof.
In the case of any appointment of a co-trustee or separate trustee
pursuant to this Section 11.13 all rights, powers, duties and obligations
conferred or imposed upon the Trustee shall be conferred or imposed upon and
exercised or performed by the Trustee and such co-trustee or separate trustee
jointly, except to the extent that under any law of any jurisdiction in which
any particular act or acts are to be performed (whether as Trustee hereunder or
as successor to the Servicer hereunder), the Trustee shall be incompetent or
unqualified to perform such act or acts, in which event such rights, powers,
duties and obligations (including the holding of title to the Trust or any
portion thereof in any such jurisdiction) shall be exercised and performed by
such co-trustee or separate trustee at the direction of the Trustee.
Any notice, request or other writing given to the Trustee shall be deemed
to have been given to each of the then co-trustees and separate trustees, as
effectively as if given to each of them. Every instrument appointing any co-
trustee or separate trustee shall refer to this Agreement and the conditions
of this Article XI. Each co-trustee and separate trustee, upon its acceptance
of the trusts conferred, shall be vested with the estates or property
specified in its instrument of appointment, either jointly with the Trustee or
separately, as may be provided therein, subject to all the provisions of this
Agreement, specifically including every provision of this
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Agreement relating to the conduct of, affecting the liability of, or affording
protection to, the Trustee. Every such instrument shall be filed with the
Trustee.
Any co-trustee or separate trustee may, at any time, constitute the
Trustee, its agent or attorney-in-fact, with full power and authority, to the
extent not prohibited by law, to do any lawful act under or in respect of this
Agreement on its behalf and in its name. If any co-trustee or separate trustee
shall die, become incapable of acting, resign or be removed, all of its estates,
properties, rights, remedies and trusts shall vest in and be exercised by the
Trustee, to the extent permitted by law, without the appointment of a new or
successor trustee.
SECTION 11.14. Certain Matters Relating to FHA Insurance.
-----------------------------------------
a. In the event the Company and the successor Servicer, if any, shall
fail to pay all FHA Insurance premiums in respect to FHA-Insured Contracts
required by FHA Regulations, the Trustee shall pay such FHA Insurance premiums
and shall be entitled to reimbursement for such amounts pursuant to Section
8.06.
b. If, following the termination of the Trust pursuant to Section 12.04,
HUD demands reimbursement from the Trustee of an FHA Insurance claim paid on
an FHA-Insured Contract prior to the termination of the Trust, the Trustee
agrees that it will not seek to recover any such amount from any Person other
than the Company or successor Servicer.
SECTION 11.15. Trustee and First Bank System, Inc.
----------------------------------
In the event the Trustee ceases to be a direct, wholly owned subsidiary
of First Bank System, Inc., the Trustee shall promptly notify Standard &
Poor's.
SECTION 11.16 Trustee Advances.
----------------
a. If the Servicer fails to deposit into the Collection Account
Advances as required by Section 8.02, then the Trustee shall, subject to the
provisions of paragraph (b) below, from its own funds, deposit into the
Collection Account the amount not so deposited by the Servicer on or before the
Business Day preceding the related Payment Date (a "Trustee Advance").
---------------
b. The Trustee shall not be required to make any Trustee Advance (i)
if and to the extent that it determines in good faith that the funds, if
advanced, would not be recoverable by it from subsequent collections, including
Net Liquidation Proceeds, or (in the case of FHA-Insured Contracts) from FHA
Insurance, or (ii) if the Trustee is prohibited by law from making any such
Trustee Advance, as evidenced by an Opinion of Counsel.
c. The Trustee shall be entitled to reimbursement of a Trustee Advance
from subsequent collections on the related Contract, including Net Liquidation
Proceeds and (in the case of FHA-Insured Contracts) proceeds of FHA Insurance,
in accordance with Section 8.06(b). If the Trustee determines in good faith
that any
11-9
<PAGE>
Trustee Advance has become an Uncollectible Advance, the Trustee will be
entitled to reimbursement of such Uncollectible Advance from the Collected
Amount and from the Cash Collateral Guaranty in accordance with Sections 8.03
and 8.06(b).
11-10
<PAGE>
ARTICLE XII
MISCELLANEOUS
-------------
SECTION 12.01. Servicer Not to Resign.
----------------------
The Servicer shall not resign from the obligations and duties hereby
imposed on it except upon determination that the performance of its duties
hereunder is no longer permissible under applicable law. Any such determination
permitting the resignation of the Servicer shall be evidenced by an Opinion of
Counsel for the Servicer to such effect delivered to the Trustee. No such
resignation shall become effective until the Trustee or a successor servicer
shall have assumed the responsibilities and obligations of the Servicer in
accordance with Section 7.03.
SECTION 12.02. Company Not to Engage in Certain Transactions with Respect
----------------------------------------------------------
to the Trust.
- ------------
The Company shall not:
a. Provide credit to any Certificateholder for the purpose of
enabling such Certificateholder to purchase Certificates;
b. Purchase any Certificates in an agency or trustee capacity; or
c. Loan any money to the Trust.
SECTION 12.03. Maintenance of Office or Agency.
-------------------------------
The Trustee will maintain in Minneapolis or St. Paul, Minnesota, an office
or agency where Certificates or the Subordinated Certificate may be surrendered
for registration of transfer or exchange and where notices and demands to or
upon the Trustee in respect of the Certificates, the Subordinated Certificate
and this Agreement may be served. On the date hereof the Trustee's office for
such purposes is located at 180 East 5th Street, Third Floor, St. Paul,
Minnesota 55101. The Trustee will give prompt written notice to
Certificateholders and the Subordinated Certificateholder of any change in the
location of the Certificate Register or any such office or agency.
SECTION 12.04. Termination.
-----------
a. This Agreement shall terminate (after distribution of all Monthly
Principal and Monthly Interest due to Certificateholders pursuant to Sections
8.01 and 8.06) on the earlier of (a) the Payment Date on which the Principal
Balance is reduced to zero; or (b) the Payment Date on which the Company
repurchases the Contracts pursuant to Section 8.08; provided, that in no event
--------
shall the trust created hereby continue beyond the expiration of 21 years from
the death of the last survivor of the descendants of Joseph P. Kennedy, the late
Ambassador of the United States to the Court of St. James, living on the date
hereof, and provided,
--------
12-1
<PAGE>
further, that the Servicer's and the Company's representations and warranties
- -------
and indemnities by the Company and the Servicer shall survive termination.
b. Notice of any termination, specifying the Final Payment Date (which
shall be a date that would otherwise be a Payment Date) upon which all
Certificateholders or the Subordinated Certificateholder may surrender their
Certificates or the Subordinated Certificate to the Company for payment of the
final distribution and cancellation, shall be given promptly by the Trustee
(upon direction by the Company ten days prior to the date such notice is to be
mailed) by letter to Standard & Poor's and to Certificateholders and the
Subordinated Certificateholder mailed no later than the fifth Business Day of
the month of the Final Payment Date specifying (1) the Final Payment Date upon
which final payment on the Certificates and the Subordinated Certificate will be
made upon presentation and surrender of Certificates and the Subordinated
Certificate at the office or agency of the Company therein designated; (2) the
amount of any such final payment; and (3) that the Record Date otherwise
applicable to such Payment Date is not applicable, payments being made only upon
presentation and surrender of the Certificates and the Subordinated Certificate
at the office or agency of the Company therein specified. The Trustee shall
give such notice to the Certificate Registrar at the time such notice is given
to the Certificateholders and the Subordinated Certificateholder. In the event
such notice is given in connection with the Company's election to purchase the
Contracts, the Company shall deposit in the Certificate Account on the Final
Payment Date in immediately available funds an amount equal to the above-
described purchase price and upon such deposit Certificateholders and the
Subordinated Certificateholder will be entitled to the amount of such purchase
price but not amounts in excess thereof, all as provided herein. Upon
certification to the Trustee by a Servicing Officer, following such final
deposit the Trustee shall promptly release to the Company the Contract Files for
the remaining Contracts, and the Trustee shall execute all assignments,
endorsements and other instruments necessary to effectuate such transfer.
c. Upon presentation and surrender of the Certificates, the Trustee shall
cause to be distributed to Certificateholders and the Subordinated
Certificateholder on the Final Payment Date in proportion to their respective
Percentage Interests, (1) as to the Certificates, to the extent of Available
Funds, an amount equal to Monthly Interest and Monthly Principal and (2) as to
the Subordinated Certificates, the amount which remains on deposit in the
Collection Account (other than amounts retained to meet claims) after
application pursuant to the preceding clause (1). The distribution on the Final
Payment Date pursuant to this Section 12.04 shall be in lieu of the distribution
otherwise required to be made on such Payment Date in respect of the
Certificates and the Subordinated Certificate.
d. In the event that all of the Certificateholders and the Subordinated
Certificateholder do not surrender their Certificates and the Subordinated
Certificate for cancellation within three months after the time specified in the
above-mentioned written notice, the Company shall give a second written notice
to the remaining Certificateholders and the Subordinated Certificateholder to
surrender their Certificates and the Subordinated Certificate for cancellation
and
12-2
<PAGE>
receive the final distribution with respect thereto. If within three months
after the second notice all the Certificates and the Subordinated Certificate
shall not have been surrendered for cancellation, the Company shall transfer to
itself all amounts remaining on deposit in the Collection Account, to hold in
trust for Certificateholders and the Subordinated Certificateholder who have not
surrendered their Certificates and the Subordinated Certificate for
cancellation, together with the final record list of Certificateholders and the
Subordinated Certificateholder, and the Company shall take appropriate steps, or
may appoint an agent to take appropriate steps, to contact the remaining
Certificateholders concerning surrender of their Certificates and the
Subordinated Certificate, and the cost thereof shall be paid out of the funds
and other assets which remain in trust hereunder.
SECTION 12.05. Acts of Certificateholders and the Subordinated
-----------------------------------------------
Certificateholder.
- -----------------
a. Except as otherwise specifically provided herein, whenever
Certificateholder approval, authorization, direction, notice, consent, waiver,
or other action is required hereunder, such approval, authorization, direction,
notice, consent, waiver or other action shall be deemed to have been given or
taken on behalf of, and shall be binding upon, all Certificateholders if agreed
to by Certificateholders with aggregate Fractional Interests representing 51% or
more of the Trust.
b. Any request, demand, authorization, direction, notice, consent, waiver
or other action provided by this Agreement to be given or taken by
Certificateholders or the Subordinated Certificateholder may be embodied in and
evidenced by one or more instruments of substantially similar tenor signed by
such Certificateholders or the Subordinated Certificateholder in person or by
agent duly appointed in writing; and except as herein otherwise expressly
provided, such action shall become effective when such instrument or instruments
are delivered to the Trustee and, where required, to the Servicer. Proof of
execution of any such instrument or of a writing appointing any such agent shall
be sufficient for any purpose of this Agreement and (subject to Section 11.01)
conclusive in favor of the Trustee, the Servicer and the Company if made in the
manner provided in this Section.
c. The fact and date of the execution by any Certificateholder or the
Subordinated Certificateholder of any such instrument or writing may be proved
in any reasonable manner which the Trustee deems sufficient.
d. The ownership of Certificates and the Subordinated Certificate shall
be proved by the Certificate Register.
e. Any request, demand, authorization, direction, notice, consent, waiver
or other act by a Certificateholder or the Subordinated Certificateholder shall
bind every holder of every Certificate or the Subordinated Certificate issued
upon the registration of transfer thereof or in exchange therefor or in lieu
thereof, in respect
12-3
<PAGE>
of anything done, or omitted to be done by the Trustee, the Servicer or the
Company in reliance thereon, whether or not notation of such action is made
upon such Security.
f. The Trustee may require such additional proof of any matter referred
to in this Section as it shall deem necessary.
SECTION 12.06. Calculations.
------------
Except as otherwise provided in this Agreement, all interest rate and basis
point calculations under this Agreement will be made on the basis of a 360-day
year and twelve 30-day months and will be carried out to at least three decimal
places.
SECTION 12.07. Assignment or Delegation by Company.
-----------------------------------
Except as specifically authorized hereunder, and except for its obligations
as Servicer which are dealt with under Article V and Article VII, the Company
may not convey and assign or delegate any of its rights or obligations hereunder
absent the prior written consent of Certificateholders with aggregate Fractional
Interests representing 66-2/3% or more of the Trust, and any attempt to do so
without such consent shall be void.
SECTION 12.08. Amendment.
---------
a. This Agreement may be amended from time to time by the Company, the
Servicer and the Trustee, without the consent of any of the Certificateholders
or the Subordinated Certificateholder, to correct manifest error, to cure any
ambiguity, to correct or supplement any provisions herein or therein which may
be inconsistent with any other provisions herein or therein, as the case may be;
provided, however, that such action shall not, as evidenced by an Opinion of
- -------- -------
Counsel for the Company, adversely affect in any material respect the interests
of any Certificateholder.
b. This Agreement may also be amended by agreement of the Trustee and the
Company at any time without the consent of the Certificateholders or the
Subordinated Certificateholder to effect the transfer of FHA Insurance reserves
to another entity in compliance with revisions to FHA Regulations, or to change
the provisions of this Agreement relating to the Cash Collateral Guaranty,
provided that prior to any such amendment Standard & Poor's has confirmed in
writing that the rating of the Certificates will not be lowered following such
amendment.
c. This Agreement may also be amended from time to time by the Servicer,
the Company and the Trustee, with the consent of Certificateholders with
aggregate Fractional Interests representing 66-2/3% or more of the Trust, for
the purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions of this Agreement or of modifying in any manner the rights
of the Certificateholders and any Event of Termination may be waived by
Certificateholders with aggregate Fractional Interests representing 100% of the
Trust;
12-4
<PAGE>
provided, however, that no such amendment or waiver shall (a) reduce in
- --------- -------
any manner the amount of, or delay the timing of, collections of payments on the
Contracts or distributions which are required to be made on any Certificate, or
(b) reduce the aforesaid percentage required to consent to any such amendment,
without the consent of the holders of all Certificates then outstanding. This
Agreement may not be amended without the consent of the Subordinated
Certificateholder, for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Agreement which would
modify in any manner the rights of the Subordinated Certificateholder.
d. Promptly after the execution of any amendment or consent pursuant to
this Section 12.08, the Trustee shall furnish written notification of the
substance of such amendment to Standard & Poor's and each Certificateholder and
the Subordinated Certificateholder.
e. It shall not be necessary for the consent of Certificateholders under
this Section 12.08 to approve the particular form of any proposed amendment, but
it shall be sufficient if such consent shall approve the substance thereof. The
manner of obtaining such consents and of evidencing the authorization of the
execution thereof by Certificateholders shall be subject to such reasonable
requirements as the Trustee may prescribe.
f. The Trustee may, but shall not be obligated to, enter into any such
amendment which affects the Trustee's own rights, duties or immunities under
this Agreement or otherwise.
g. In connection with any amendment pursuant to this Section, the Trustee
shall be entitled to receive an Opinion of Counsel to the Servicer to the effect
that such amendment is authorized or permitted by the Agreement.
h. Upon the execution of any amendment or consent pursuant to this
Section 12.08, this Agreement shall be modified in accordance therewith, and
such amendment or consent shall form a part of this Agreement for all purposes,
and every Certificateholder or the Subordinated Certificateholder hereunder
shall be bound thereby.
SECTION 12.09. Notices.
-------
All communications and notices pursuant hereto to the Servicer, the
Company, and the Trustee shall be in writing and delivered or mailed to it at
the appropriate following address:
If to the Company or the Servicer:
Green Tree Financial Corporation
1100 Landmark Towers
345 St. Peter Street
St. Paul, Minnesota 55102-1639
12-5
<PAGE>
Attention: Chief Financial Officer
Telecopier Number: 612/293-5746
If to the Trustee:
First Trust National Association
Corporate Trust Department
180 East 5th Street,
Second Floor
St. Paul, Minnesota 55101
Attention: Barbara K. Armstrong
Telecopier Number: (612) 343-1388
If to Standard & Poor's:
Standard & Poor's Corporation
25 Broadway
New York, NY 10004
Attention: Mortgage Surveillance Department
Telecopier Number: (212) 208-1582
or at such other address as the party may designate by notice to the other
parties hereto, which notice shall be effective when received.
All communications and notices pursuant hereto to a Certificateholder shall
be in writing and delivered or mailed at the address shown in the Certificate
Register.
SECTION 12.10. Merger and Integration.
----------------------
Except as specifically stated otherwise herein, this Agreement sets forth
the entire understanding of the parties relating to the subject matter hereof,
and all prior understandings, written or oral, are superseded by this Agreement.
This Agreement may not be modified, amended, waived or supplemented except as
provided herein.
SECTION 12.11. Headings.
--------
The headings herein are for purposes of reference only and shall not
otherwise affect the meaning or interpretation of any provision hereof.
SECTION 12.12. Governing Law.
-------------
This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of Minnesota.
12-6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized this _____ day
of __________________________, 1994.
GREEN TREE FINANCIAL CORPORATION
By
----------------------------------
Attest: John W. Brink
Senior Vice President
- ------------------------
Richard G. Evans
Secretary
FIRST TRUST NATIONAL ASSOCIATION,
not in its individual capacity
but solely as Trustee
By
----------------------------------
Attest: ---------------------
Its
------------------
- ----------------------------------
---------------------
Its
------------------
12-7
<PAGE>
EXHIBIT A
------- -
Final Scheduled Payment Date
___________, 20_____
FORM OF CERTIFICATE
-------------------
[Unless this Certificate is presented by an authorized representative of
The Depository Trust Company, a New York corporation ("DTC") to the Trustee or
its agent for registration of transfer, exchange or payment, and any certificate
issued is registered in the name of Cede & Co. or in such other name as
requested by an authorized representative of DTC (and any payment is made to
Cede & Co. or to such other entity as is requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL in as much as the registered owner
hereof, Cede & Co., has an interest herein.]
CERTIFICATE FOR HOME IMPROVEMENT LOANS
Home Improvement Loan Trust 1994-A
Initial Principal Amount of the Trust: $______________
% Pass-Through Rate
--
THIS CERTIFICATE DOES NOT REPRESENT AN OBLIGATION OF OR AN INTEREST IN
GREEN TREE FINANCIAL CORPORATION OR ANY AFFILIATE THEREOF, EXCEPT TO THE EXTENT
SET FORTH IN THE AGREEMENT.
THE PRINCIPAL REPRESENTED BY THIS CERTIFICATE IS PAYABLE IN INSTALLMENTS,
AS DESCRIBED HEREIN AND IN THE AGREEMENT. ACCORDINGLY, THE UNPAID PRINCIPAL
AMOUNT OF THE TRUST MAY BE LESS THAN THAT SET FORTH ABOVE. ANYONE ACQUIRING
THIS CERTIFICATE MAY ASCERTAIN THE CURRENT UNPAID PRINCIPAL AMOUNT REPRESENTED
BY THIS CERTIFICATE BY INQUIRY OF THE TRUSTEE.
No. __________ $____________________
This certifies that _______________________________ is the registered
owner of the undivided Fractional Interest represented by the original
principal amount set forth above in Home Improvement Loan Trust 1994-A (the
"Trust"), which includes among its assets a pool of home improvement
installment sales contracts and promissory notes (including, without
limitation, all related mortgages and deeds of trust and any and all rights to
receive payments which are due pursuant thereto on or after
____________________ 1, 1994), the Cash Collateral Guaranty and the Limited
Guaranty. The Trust has been created pursuant to a Pooling and Servicing
Agreement (the "Agreement"), dated as of _____________________ 1, 1994,
between Green Tree Financial
A-1
<PAGE>
Corporation, as Seller and Servicer (the "Company"), and First Trust National
Association, as Trustee of the Trust (the "Trustee"). This Certificate is one
of the Certificates described in the Agreement and is issued pursuant and
subject to the Agreement. By acceptance of this Certificate the holder assents
to and becomes bound by the Agreement. To the extent not defined herein, all
capitalized terms have the meanings assigned to such terms in the Agreement.
The Agreement contemplates, subject to its terms, payment on the fifteenth
day (or if such day is not a Business Day, the next succeeding Business Day)
(the "Payment Date") of each calendar month commencing ____________________ 15,
1994, so long as the Agreement has not been terminated, by check (or, if such
Certificateholder holds Certificates with an aggregate Initial Principal Balance
of at least $1,000,000 and so desires, by wire transfer pursuant to instructions
delivered to the Trustee at least 10 days prior to such Payment Date) from funds
drawn from the Collection Account to the registered Certificateholder at the
address appearing on the Certificate Register as of the last Business Day of the
immediately preceding calendar month, an amount equal to the Certificateholder's
Fractional Interest of Monthly Principal and Monthly Interest. The final
scheduled Payment Date of this Certificate is __________ 15, 2014 or the next
succeeding Business Day if such __________ 15 is not a Business Day.
The Certificateholder, by its acceptance of this Certificate, agrees that
it will look solely to the funds in the Collection Account, the Cash Collateral
Guaranty and the Limited Guaranty of the Company, to the extent available for
distribution to the Certificateholder as provided in the Agreement for payment
hereunder and that the Trustee in its individual capacity is not personally
liable to the Certificateholder for any amounts payable under this Certificate
or the Agreement or, except as expressly provided in the Agreement, subject to
any liability under the Agreement. By acceptance of this Certificate, the
Certificateholder agrees to disclosure of his, her or its name and address to
other Certificateholders under the conditions specified in the Agreement.
Except as otherwise provided in the Agreement, no transfer of this
Certificate or any interest herein shall be made to any employee benefit plan,
trust or account that is subject to the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), or that is described in Section 4975(e)(1) of the
Code (each, a "Plan"), unless the prospective transferee of this Certificate or
interest herein provides the Servicer and the Trustee with a certification of
facts and, at its own expense, an Opinion of Counsel which establish to the
satisfaction of the Servicer and the Trustee that such transfer will not result
in a violation of Section 406 of ERISA or Section 4975 of the Code or cause the
Servicer, the Company or the Trustee to be deemed a fiduciary of such Plan or
result in the imposition of an excise tax under Section 4975 of the Code.
This Certificate does not purport to summarize the Agreement and reference
is made to the Agreement for information with respect to the interests, rights,
benefits, obligations, proceeds and duties evidenced hereby and the rights,
duties and immunities of the Trustee. Copies of the Agreement and all
amendments
A-2
<PAGE>
thereto will be provided to any Certificateholder free of charge upon a
written request to the Trustee.
As provided in the Agreement and subject to the limitations set forth
therein, the transfer of this Certificate is registrable in the Certificate
Register of the Certificate Registrar upon surrender of this Certificate for
registration of transfer at the office or agency maintained by the Trustee in
Minneapolis or St. Paul, Minnesota, accompanied by a written instrument of
transfer in form satisfactory to the Trustee and the Certificate Registrar duly
executed by the holder thereof or his or her attorney duly authorized in
writing, and thereupon one or more new Certificates evidencing the same
aggregate Fractional Interest will be issued to the designated transferee or
transferees.
The Company, the Servicer, the Trustee, the Paying Agent and the
Certificate Registrar and any agent of the Company, the Servicer, the Trustee,
the Paying Agent or the Certificate Registrar may treat the person in whose name
this Certificate is registered as the owner hereof for all purposes, and neither
the Company, the Servicer, the Trustee, the Paying Agent, the Certificate
Registrar nor any such agent shall be affected by any notice to the contrary.
A-3
<PAGE>
IN WITNESS WHEREOF, Home Improvement Loan Trust 1994-A has caused this
Certificate to be duly executed by the manual signature of a duly authorized
officer of the Trustee.
HOME IMPROVEMENT LOAN TRUST 1994-A
Dated: By FIRST TRUST NATIONAL ASSOCIATION
By
---------------------------------
Authorized Officer
A-4
<PAGE>
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ____________________________________________________________ the within
Certificate for Home Improvement Loans, Home Improvement Loan Trust 1994-A, and
does hereby irrevocably constitute and appoint Attorney to transfer the said
certificate on the Certificate Register maintained by the Trustee, with full
power of substitution in the premises.
Dated: By
----------------------------------
Signature
A-5
<PAGE>
EXHIBIT B
------- -
FORM OF ASSIGNMENT
In accordance with the Pooling and Servicing Agreement (the
"Agreement") dated as of ____________________ 1, 1994, between the undersigned
and First Trust National Association, as Trustee (the "Trustee"), the
undersigned does hereby transfer, convey and assign, set over and otherwise
convey, without recourse, to Home Improvement Loan Trust 1994-A, created by the
Agreement, to be held in trust as provided in the Agreement, (i) all right,
title and interest in the home improvement retail installment contracts and
installment notes (including, without limitation, all related mortgages and
deeds of trust and any and all rights to receive payments which are due pursuant
thereto on or after ____________________ 1, 1994 but excluding any rights to
receive payments which were due pursuant thereto prior to ___________________ 1,
1994) identified in the List of Contracts delivered pursuant to Section 2.02(a)
of the Agreement, (ii) all rights under FHA Insurance as such insurance relates
to the Contracts, (iii) all rights under hazard insurance on the properties
described in the Contracts and, as to Contracts pertaining to properties located
in special flood areas designated by HUD, all rights under flood insurance
policies as such insurance relates to the Contracts, (iv) all rights under the
Errors and Omissions Protection Policy (as defined in Section 1.02 of the
Agreement), (v) all documents contained in the Contract Files (as defined in
Section 1.02 of the Agreement), (vi) the Cash Collateral Guaranty and rights to
certain payments out of the Cash Collateral Account, and (vii) all proceeds and
products of the foregoing.
This Assignment is made pursuant to and upon the representation and
warranties on the part of the undersigned contained in Article III of the
Agreement and no others.
IN WITNESS WHEREOF,
the undersigned has caused this Assignment to be duly executed this _____ day of
____________________, 1994.
GREEN TREE FINANCIAL CORPORATION
[Seal] By
-------------------------------------
[Name]
[Title]
B-1
<PAGE>
EXHIBIT C
------- -
GREEN TREE FINANCIAL CORPORATION
CERTIFICATE OF OFFICER
The undersigned certifies that he is a [title] of Green Tree Financial
Corporation, a Minnesota corporation (the "Company"), and that as such he is
duly authorized to execute and deliver this certificate on behalf of the Company
in connection with the Pooling and Servicing Agreement dated as of
____________________ 1, 1994 (the "Agreement") between the Company and First
Trust National Association, as Trustee (all capitalized terms used herein
without definition having the respective meanings specified in the Agreement),
and further certifies that:
(i) attached hereto as Exhibit I is a true and correct copy of the
Articles of Incorporation of the Company, together with all amendments
thereto as in effect on the date hereof;
(ii) attached hereto as Exhibit II is a true and correct copy of the
Bylaws of the Company, as amended, as in effect on the date hereof;
(iii) the representations and warranties of the Company contained in
Sections 3.01 and 3.04 of the Agreement are true and correct on and as of
the date hereof and, to the best of his knowledge, the representations
and warranties of the Company contained in Sections 3.02 and 3.03 of the
Agreement are true and correct on and as of the date hereof;
(iv) no event with respect to the Company has occurred and is
continuing which would constitute an Event of Termination or an event
that with notice or lapse of time or both would become an Event of
Termination under the Agreement; and
(v) each of the agreements and conditions of the Company to be
performed on or before the date hereof pursuant to the Agreement have been
performed in all material respects.
IN WITNESS WHEREOF, I have affixed hereunto my signature this _____ day
of ____________________, 1994.
--------------------------------------------
[Name]
[Title]
C-1
<PAGE>
EXHIBIT D
------- -
FORM OF OPINION OF COUNSEL FOR THE COMPANY
The opinion of Dorsey & Whitney shall be to the effect that (capitalized
terms have the meanings set forth in the Pooling and Servicing Agreement):
1. Green Tree is a corporation duly incorporated, validly existing and
in good standing under the laws of the State of Minnesota, with corporate
power to execute, deliver and perform its obligations under the Pooling and
Servicing Agreement, the Purchase Agreement, the Certificates and the
Subordinated Certificate. Green Tree is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction in which the
performance of its duties under the Pooling and Servicing Agreement, the
Purchase Agreement, the Certificates and the Subordinated Certificate would
require such qualification.
2. The Pooling and Servicing Agreement and the Purchase Agreement have
been duly authorized by all requisite corporate action, duly executed and
delivered by Green Tree, and constitute the valid and binding obligations of
Green Tree enforceable in accordance with their terms. The Certificates have
been duly authorized by all requisite corporate action and, when duly and
validly executed by the Trustee in accordance with the Pooling and Servicing
Agreement, will be validly issued and outstanding and entitled to the benefits
of the Pooling and Servicing Agreement. Merrill Lynch is now the registered
owner of the Certificates and, assuming that Merrill Lynch purchased the
Certificates for value in good faith and without notice of any adverse claim,
Merrill Lynch has acquired all the rights of Green Tree in the Certificates
free of any adverse claim.
3. No consent, approval, authorization or order of any state or federal
court or governmental agency or body is required to be obtained by Green Tree
for the consummation of the transactions contemplated by the Pooling and
Servicing Agreement or the Purchase Agreement, except such as may be required
under blue sky laws under any jurisdiction in connection with the offering of
the Certificates by Merrill Lynch pursuant to the Purchase Agreement. In
delivering the foregoing opinion, we have assumed that Merrill Lynch has
complied and will continue to comply with the provisions of the Purchase
Agreement regarding the manner of offering of the Certificates.
4. The Pooling and Servicing Agreement is not required to be qualified
under the Trust Indenture Act of 1939, as now in effect, and the Trust is not
required to be registered as an investment company under the Investment
Company Act of 1940.
5. Neither the transfer of the Contracts to the Trustee and the right
to demand payments under the Cash Collateral Guaranty by the Trustee acting on
behalf of the Trust, nor the assignment of Green Tree's lien on related real
estate
D-1
<PAGE>
which is the subject of a home improvement loan, nor the issuance or sale
of the Certificates and the Subordinated Certificate, nor the execution and
delivery of the Pooling and Servicing Agreement or the Purchase Agreement, nor
the consummation of any other of the transactions contemplated in the Pooling
and Servicing Agreement or the Purchase Agreement, or the consummation of any
other of the transactions contemplated in the Pooling and Servicing Agreement or
the Purchase Agreement, nor the fulfillment of the terms of the Certificates,
the Subordinated Certificate, the Pooling and Servicing Agreement or the
Purchase Agreement by Green Tree will conflict with, or result in a breach,
violation or acceleration of, or constitute a default under, any term or
provision of the Restated Articles of Incorporation or Bylaws of Green Tree or
of any indenture or other agreement or instrument known to us to which Green
Tree is a party or by which it is bound, or result in a violation of, or
contravene the terms of any statute, order or regulation, applicable to Green
Tree, of any court, regulatory body, administrative agency or governmental body
having jurisdiction over it.
6. There are no actions or proceedings pending or, to the best of our
knowledge, actions, proceedings or investigations pending or overtly threatened
against Green Tree before any court, administrative agency or other tribunal (A)
asserting the invalidity of the Purchase Agreement, the Pooling and Servicing
Agreement, the Certificates, the Subordinated Certificate, the hazard or flood
insurance policies applicable to any Contracts or the Errors and Omissions
Protection Policy, (B) seeking to prevent the issuance of the Certificates or
the Subordinated Certificate or the consummation of any of the transactions
contemplated by the Purchase Agreement or the Pooling and Servicing Agreement,
(C) which is likely materially and adversely to affect the performance by Green
Tree of its obligations under, or the validity or enforceability of, the
Purchase Agreement, the Pooling and Servicing Agreement, the Certificates or the
Subordinated Certificate [(except that we express no opinion regarding the
possible effect on the financial condition of Green Tree of the shareholder
lawsuit described in Note I to the consolidated financial statements contained
in the Green Tree Annual Report on Form 10-K for the fiscal year ended December
31, 1992),] or (D) seeking adversely to affect the federal income tax attributes
of the Certificates or the Subordinated Certificate described in the Prospectus
under the heading "Certain Federal Income Tax Consequences."
7. Green Tree is duly registered as a finance company in each state
in which Contracts were originated, to the extent such registration is required
by applicable law.
8. The transfer of the Contracts to the Trust in accordance with
Section 2.01 of the Pooling and Servicing Agreement and the deposit by the Cash
Collateral Depositor in the Cash Collateral Account would not be avoidable as a
preferential transfer under Section 547 of the United States Bankruptcy Code (11
U.S.C. (S) 547), as in effect on the date hereof, in the event that Green Tree
became a debtor under the United States Bankruptcy Code.
D-2
<PAGE>
9. Pursuant to the Pooling and Servicing Agreement Green Tree has
transferred to the Trustee acting on behalf of the Trust all of Green Tree's
right, title and interest in the Contracts and the Cash Collateral Account, free
and clear of any and all other assignments, encumbrances, options, rights,
claims, liens or security interests (except tax or possessory liens) that may
affect the right of the Trustee in and to such Contracts and the Cash Collateral
Account, and has delivered the Contract Files to the trustee or its custodian.
No filing or other action, other than the filing of a financing statement on
Form UCC-1 with the Secretary of State of the State of Minnesota identifying the
Contracts and the Cash Collateral Account as collateral and naming Green Tree as
debtor and the Trust as secured party, and the filing of continuation statements
as required by Section 4.02 of the Pooling and Servicing Agreement, is necessary
to perfect as against third parties the assignment of the Contracts and the Cash
Collateral Account by Green Tree to the Trust. We have separately provided you
with our opinion concerning whether such assignment could be recharacterized as
a pledge rather than a sale in the event Green Tree became a debtor under the
United States Bankruptcy Code. However, in the event such assignment were
characterized as a pledge securing a loan from the Certificateholders to Green
Tree, it is our opinion that the Trustee would be deemed to have a valid and
perfected security interest in the Contracts and the proceeds thereof (including
the Excess Cashflow) and in the Cash Collateral Account, which security interest
would be prior to any other security interest that may be perfected under the
Uniform Commercial Code as in effect in the State of Minnesota and over any
"lien creditor" (as defined in Minn. Stat. (S)336.9-301(3)) who becomes such
after the Closing Date, except that a subsequent purchaser of any Contract who
gives new value and takes possession thereof in the ordinary course of his
business would have priority over the Trustee's security interest in such
Contract, if such purchaser acts without knowledge that such Contract was
subject to a security interest. We have assumed for the purposes of this
opinion that during the term of the Pooling and Servicing Agreement the Trustee,
or its custodian, shall maintain possession of the Contract Files for the
purpose of perfecting the assignment to the Trustee of the Contracts. We
express no opinion with respect to the enforceability of any individual Contract
or the existence of any claims, rights or other matters in favor of any Obligor
or the owner of any financed home improvement.
10. The transfer of the Contracts and the proceeds thereof by Green Tree
to the Trustee and the deposit by the Cash Collateral Depositor in the Cash
Collateral Account on the date hereof pursuant to the Pooling and Servicing
Agreement would not be avoidable as fraudulent transfers under the Uniform
Fraudulent Transfer Act as in effect in Minnesota on the date hereof (Minn.
Stat. (S)(S) 513.41 through 513.51), nor, should Green Tree become a debtor
under the United States Bankruptcy Code, as fraudulent transfers under Section
548 of the United States Bankruptcy Code (11 U.S.C. (S) 548) as in effect on the
date hereof.
D-3
<PAGE>
EXHIBIT E
------- -
OMITTED
-------
E-1
<PAGE>
EXHIBIT F
------- -
FORM OF TRUSTEE'S ACKNOWLEDGMENT
First Trust National Association, a national banking association
organized under the laws of the United States, acting as trustee (the "Trustee")
of Home Improvement Loan Trust 1994-A (the "Trust") created pursuant to the
Pooling and Servicing Agreement dated as of ________________ 1, 1994 between
Green Tree Financial Corporation and the Trustee (the "Agreement") (all
capitalized terms used herein without definition having the respective meanings
specified in the Agreement) acknowledges, pursuant to Section 2.03 of the
Agreement, that the Trustee has received (by conveyance in the form of Exhibit B
to the Agreement) the following: (i) all right, title and interest in the home
improvement retail installment contracts and promissory notes (including,
without limitation, all mortgages and deeds of trust and any and all rights to
receive payments which are due pursuant thereto on or after ____________________
1, 1994 but excluding any rights to receive payments which were due pursuant
thereto prior to ____________________ 1, 1994) identified in the List of
Contracts delivered pursuant to Section 2.02 of the Agreement, (ii) all rights
under FHA Insurance as such insurance relates to the Contracts, (iii) all rights
under hazard, flood or other individual insurance on the properties described in
the Contracts, (iv) all rights under the Errors and Omissions Protection Policy,
as such policy relates to the Contracts, (v) all documents contained in the
Contract Files (as defined in Section 1.02 of the Agreement), (vi) the Cash
Collateral Guaranty and rights to receive certain payments out of the Cash
Collateral Account and (vii) all proceeds and products of the foregoing; and
declares that, directly or through a Custodian, it will hold all Contract Files
that have been delivered in trust, upon the trusts set forth in the Agreement
for the use and benefit of all Certificateholders. The Trustee acknowledges
that it has conducted a cursory review of the Contract Files and hereby confirms
that except as noted on the document exception listing attached hereto, each
Contract File contained (a) an original retail installment contract or
promissory note, (b) with respect to each Secured Contract, an original or a
copy of the mortgage or deed of trust or similar evidence of a lien on the
related improved real estate, (c) an original or a copy of a truth-in-lending
disclosure form (either included as part of the contract or note or as a
separate document), (d) in the case of Contracts originated by a contractor, an
original or a copy of an assignment of the mortgage or deed of trust by the
contractor to Green Tree, and (e) a sale control document. The Trustee has not
otherwise reviewed the Contracts and Contract Files for compliance with the
terms of the Pooling and Servicing Agreement.
F-1
<PAGE>
IN WITNESS WHEREOF, First Trust National Association, as Trustee, has
caused this acknowledgment to be executed by its duly authorized officer and its
corporate seal affixed hereto as of this _____ day of ____________________,
1994.
FIRST TRUST NATIONAL ASSOCIATION,
as Trustee
[Seal] By
-------------------------------
[Name]
[Title]
F-2
<PAGE>
EXHIBIT G
------- -
GREEN TREE FINANCIAL CORPORATION
CERTIFICATE OF SERVICING OFFICER
The undersigned certifies that he is a [title] of Green Tree Financial
-----
Corporation, a Minnesota corporation (the "Company"), and that as such he is
duly authorized to execute and deliver this certificate on behalf of the Company
pursuant to Section 6.02 of the Pooling and Servicing Agreement (the
"Agreement") dated as of ____________________ 1, 1994 between the Company and
First Trust National Association, as Trustee of Home Improvement Loan Trust
1994-A (all capitalized terms used herein without definition having the
respective meanings specified in the Agreement), and further certifies that:
1. The Monthly Report for the period from _________________________
to _________________________ attached to this certificate is complete and
accurate in accordance with the requirements of Sections 6.01 and 6.02 of the
Agreement; and
2. As of the date hereof, no Event of Termination or event that with
notice or lapse of time or both would become an Event of Termination has
occurred.
IN WITNESS WHEREOF, I have affixed hereunto my signature this _____
day of _______________________, 19_____.
GREEN TREE FINANCIAL CORPORATION
By
------------------------------
[Name]
[Title]
G-1
<PAGE>
EXHIBIT H
------- -
Final Scheduled Payment Date
___________ 15, 2014
SUBORDINATED CERTIFICATE
------------------------
CERTIFICATE FOR HOME IMPROVEMENT LOANS
--------------------------------------
Home Improvement Loan Trust 1994-A
Initial Principal Amount of the Trust: $________________________
THIS CERTIFICATE HAS NOT BEEN REGISTERED OR QUALIFIED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAW OF ANY STATE IN
RELIANCE UPON EXEMPTIONS THEREFROM. ANY RESALE OR OTHER TRANSFER OF THIS
CERTIFICATE, OR ANY INTEREST HEREIN, MUST BE MADE PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT OR AN APPLICABLE EXEMPTION UNDER SUCH ACT AND APPLICABLE
STATE SECURITIES LAWS, AND ONLY IN ACCORDANCE WITH THE PROVISIONS OF SECTION
9.02 OF THE POOLING AND SERVICING AGREEMENT REFERRED TO HEREIN.
NEITHER THIS CERTIFICATE NOR ANY INTEREST HEREIN MAY BE TRANSFERRED,
SOLD OR OTHERWISE DISPOSED OF TO AN ENTITY (A "PROHIBITED TRANSFEREE") OF THE
TYPE DESCRIBED IN SECTION 9.02(b)( ) OF THE POOLING AND SERVICING AGREEMENT.
-
THERE SHALL BE NO REGISTRATION OF ANY TRANSFER, SALE OR OTHER DISPOSITION OF
THIS CERTIFICATE UNLESS, PRIOR THERETO, THE PROPOSED TRANSFEREE SHALL HAVE
CERTIFIED IN WRITING TO THE TRUSTEE THAT SUCH TRANSFEREE IS NOT A PROHIBITED
TRANSFEREE. NOTWITHSTANDING ANY TRANSFER, SALE OR OTHER DISPOSITION OF THIS
CERTIFICATE, OR ANY INTEREST HEREIN (WHETHER REGISTERED OR NOT), TO A PROHIBITED
TRANSFEREE, SUCH TRANSFER, SALE OR OTHER DISPOSITION, AS WELL AS ANY
REGISTRATION THEREOF, SHALL BE DEEMED TO BE VOID AND OF NO LEGAL FORCE OR EFFECT
WHATSOEVER AND, PURSUANT TO THE TERMS OF THE POOLING AND SERVICING AGREEMENT,
SUCH PROHIBITED TRANSFEREE SHALL BE DEEMED TO NOT BE A CERTIFICATEHOLDER FOR ANY
PURPOSE, INCLUDING, BUT NOT LIMITED TO, THE RECEIPT OF DISTRIBUTIONS HEREON, AND
SHALL BE DEEMED TO HAVE NO INTEREST WHATSOEVER IN THIS CERTIFICATE. THE HOLDER
OF THIS CERTIFICATE, BY HIS ACCEPTANCE HEREOF, SHALL BE DEEMED TO HAVE CONSENTED
TO THE FOREGOING AND TO ANY AMENDMENT OF THE POOLING AND SERVICING AGREEMENT FOR
THE PURPOSE OF IMPLEMENTING ANY PROVISION PERMITTED BY LAW THAT WOULD ENABLE THE
REMIC TO AVOID THE IMPOSITION OF ALL OR A PORTION OF ANY TAX.
H-1
<PAGE>
SUBORDINATED CERTIFICATE FOR
HOME IMPROVEMENT LOANS
No. 1
This certifies that __________________________________________ is the
registered owner of the Subordinated Interest represented by this Certificate,
and entitled to certain distributions out of Home Improvement Loan Trust 1994-A
(the "Trust"), which includes among its assets a pool of home improvement
installment sales contracts and promissory notes (including, without limitation,
all related mortgages and deeds of trust and any and all rights to receive
payments which are due pursuant thereto on or after ____________________ 1,
1994) (the "Contracts"), the Cash Collateral Guaranty and the Limited Guaranty.
The Trust has been created pursuant to a Pooling and Servicing Agreement (the
"Agreement"), dated as of ____________________ 1, 1994, between Green Tree
Financial Corporation, as Seller and Servicer (the "Company"), and First Trust
National Association, as Trustee of the Trust (the "Trustee"). This
Subordinated Certificate is the Subordinated Certificate described in the
Agreement and is issued pursuant and subject to the Agreement. By acceptance of
this Subordinated Certificate the holder assents to and becomes bound by the
Agreement. To the extent not defined herein, all capitalized terms have the
meanings assigned to such terms in the Agreement.
The Agreement contemplates, subject to its terms, payment on the
fifteenth day (or if such day is not a Business Day, the next succeeding
Business Day) (the "Payment Date") of each calendar month commencing
____________________ 15, 1994, so long as the Agreement has not been terminated,
by check from funds drawn from the Collection Account to the registered
Subordinated Certificateholder at the address appearing on the Certificate
Register as of the last Business Day of the immediately preceding calendar month
(each such month during the term of this Agreement constituting a "Due Period"),
an amount equal to the difference between (A) Available Funds, and (B) the sum
of (i) Monthly Interest, (ii) Monthly Principal, (iii) the Monthly Servicing
Fee, (iv) amounts to reimburse the Trustee or any successor Servicer for any
payments of FHA Insurance premiums not paid by the Company and for which the
Trustee or such successor Servicer has not been reimbursed by the Company, and
(v) amounts to reimburse the Servicer or the Trustee, as applicable, for
Uncollectible Advances and for Delinquent Payments that were subject to an
Advance on a prior Payment Date and were recovered during the Due Period. The
final scheduled Payment Date of this Subordinated Certificate is
____________________ 15, 20_____ or the next succeeding Business Day if such
____________________ 15 is not a Business Day.
The Subordinated Certificateholder, by its acceptance of this
Subordinated Certificate, agrees that it will look solely to the funds in the
Collection Account to the extent available for distribution to the Subordinated
Certificateholder as
H-2
<PAGE>
provided in the Agreement for payment hereunder and that the Trustee in its
individual capacity is not personally liable to the Subordinated
Certificateholder for any amounts payable under this Subordinated Certificate
or the Agreement or, except as expressly provided in the Agreement, subject to
any liability under the Agreement. By acceptance of this Subordinated
Certificate, the Subordinated Certificateholder agrees to disclosure of his,
her, or its name and address to other Certificateholders under the conditions
specified in the Agreement.
This Subordinated Certificate does not purport to summarize the
Agreement and reference is made to the Agreement for information with respect to
the interests, rights, benefits, obligations, proceeds and duties evidenced
hereby and the rights, duties and immunities of the Trustee. Copies of the
Agreement and all amendments thereto will be provided to the Subordinated
Certificateholder free of charge upon a written request to the Trustee.
As provided in the Agreement and subject to the limitations set forth
therein, the transfer of this Subordinated Certificate is registrable in the
Certificate Register of the Certificate Registrar upon surrender of this
Subordinated Certificate for registration of transfer at the office or agency
maintained by the Trustee in Minneapolis or St. Paul, Minnesota, accompanied by
a written instrument of transfer in form satisfactory to the Trustee and the
Certificate Registrar duly executed by the holder thereof or his or her attorney
duly authorized in writing, and thereupon a new Subordinated Certificate
evidencing the same aggregate amount of this Subordinated Certificate will be
issued to the designated transferee or transferees. Notwithstanding the
foregoing, this Subordinated Certificate may only be transferred to a successor
Cash Collateral Trustee.
The Company, the Servicer, the Trustee, the Paying Agent and the
Certificate Registrar and any agent of the Company, the Servicer, the Trustee,
the Paying Agent or the Certificate Registrar may treat the person in whose name
this Subordinated Certificate is registered as the owner hereof for all
purposes, and neither the Company, the Servicer, the Trustee, the Paying Agent,
the Certificate Registrar nor any such agent shall be affected by any notice to
the contrary.
H-3
<PAGE>
IN WITNESS WHEREOF, Home Improvement Loan Trust 1994-A has caused this
Certificate to be duly executed by the manual signature of a duly authorized
officer of the Trustee.
HOME IMPROVEMENT LOAN TRUST 1994-A
Dated: By FIRST TRUST NATIONAL ASSOCIATION
By
----------------------------------
Authorized Officer
H-4
<PAGE>
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ____________________________________________________________ the within
Certificate for Home Improvement Loans, Home Improvement Loan Trust 1994-A,
and does hereby irrevocably constitute and appoint Attorney to transfer the
said certificate on the Certificate Register maintained by the Trustee, with
full power of substitution in the premises.
------------------------------------------
Signature
H-5
<PAGE>
EXHIBIT I
------- -
GREEN TREE FINANCIAL CORPORATION
CERTIFICATE REGARDING REPURCHASED CONTRACTS
The undersigned certifies that he is a [title] of Green Tree Financial
-----
Corporation, a Minnesota corporation (the "Company"), and that as such he is
duly authorized to execute and deliver this certificate on behalf of the Company
pursuant to Sections 3.05 and 8.07 of the Pooling and Servicing Agreement (the
"Agreement") dated as of ____________________ 1, 1994 between the Company and
First Trust National Association, as Trustee of Home Improvement Loan Trust
1994-A (all capitalized terms used herein without definition having the
respective meanings specified in the Agreement), and further certifies that:
1. The Contracts on the attached schedule are to be repurchased by
the Company on the date hereof pursuant to Section 3.05 of the Agreement.
2. Upon deposit of the Repurchase Price for such Contracts, such
Contracts may, pursuant to Section 8.07 of the Agreement, be assigned by the
Trustee to the Company.
IN WITNESS WHEREOF, I have affixed hereunto my signature this _____
day of _________________, 19____.
GREEN TREE FINANCIAL CORPORATION
By
------------------------------
[Name]
[Title]
I-1
<PAGE>
EXHIBIT J
------- -
REPRESENTATION LETTER
---------------------
(Non-Rule 144A)
First Trust National Association
Attn: Corporate Trust Operations
180 East Fifth Street
St. Paul, Minnesota 55101
Green Tree Financial Corporation
1100 Landmark Towers
345 St. Peter Street
St. Paul, Minnesota 55102-1639
Merrill Lynch, Pierce, Fenner &
Smith Incorporated
North Tower
World Financial Center
New York, New York 10281
RE: Home Improvement Loan Trust 1994-A
___% Pass-Through Rate Subordinate Certificates
The undersigned purchaser (the "Purchaser") understands that the purchase
of the above-referenced certificates (the "Certificates") may be made only by
institutions which are "Accredited Investors" under Regulation D, as
promulgated under the Securities Act of 1933, as amended (the "1933 Act"),
which includes banks, savings and loan associations, registered brokers and
dealers, insurance companies, investment companies, and organizations
described in Section 501(c)(3) of the Internal Revenue Code, corporations,
business trusts and partnerships, not formed for the specific purpose of
acquiring the Certificates offered, with total assets in excess of $5,000,000.
The undersigned represents on behalf of the Purchaser that the Purchaser is an
"Accredited Investor" within the meaning of such definition. The Purchaser is
urged to review carefully the responses, representations and warranties it is
making herein.
Representations and Warranties
- ------------------------------
The Purchaser makes the following representations and warranties in order
to permit First Trust National Association (the "Trustee"), Green Tree
Financial Corporation (the "Company"), and Merrill Lynch, Pierce, Fenner &
Smith Incorporated to determine its suitability as a purchaser of Certificates
and to determine that the exemption from registration relied upon by Green
Tree Financial Corporation under Section 4(2) of the 1933 Act is available to
it.
1. The Purchaser understands that the Certificates have not been and
will not be registered under the 1933 Act and may be resold (which resale is not
currently contemplated) only if registered pursuant to the provisions of the
1933 Act or if an exemption from registration is available, that Green Tree
Financial Corporation is not required to register the Certificates and that any
transfer must comply with Section 9.02 of the Pooling and Servicing Agreement
relating to the Certificates.
J-1
<PAGE>
2. The Purchaser will comply with all applicable federal and state
securities laws in connection with any subsequent resale of the Certificates.
3. The Purchaser is a sophisticated institutional investor and has
knowledge and experience in financial and business matters and is capable of
evaluating the merits and risks of its investment in the Certificates and is
able to bear the economic risk of such investment. The Purchaser has reviewed
the Prospectus (the "Prospectus") dated ____________, 1994, with respect to the
Certificates, and has been given such information concerning the Certificates,
the underlying installment sale contracts and Green Tree Financial Corporation
as it has requested.
4. The Purchaser is acquiring the Certificates as principal for its
own account (or for the account of one or more other institutional investors for
which it is acting as duly authorized fiduciary or agent) for the purpose of
investment and not with a view to or for sale in connection with any
distribution thereof, subject nevertheless to any requirement of law that the
disposition of the Purchaser's property shall at all times be and remain within
its control.
5. The Purchaser does not qualify as (i) an employee benefit plan (a
"Plan") as defined in section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), whether or not it is subject to the
provisions of Title I of ERISA, (ii) a plan described in section 4975(e)(1) of
the Internal Revenue Code of 1986 (also a "Plan"), or (iii) an entity whose
underlying assets are deemed to be assets of a Plan by reason of such Plan's
investment in the entity (as determined under Department of Labor Regulations,
29 C.F.R. (S)2510.3-101(1990)).
6. The Purchaser understands that such Certificate will bear a legend
substantially as set forth in the form of Certificate included in the Pooling
and Servicing Agreement.
7. The Purchaser, as holder of the Subordinated Certificate,
acknowledges (i) it may incur tax liabilities in excess of any cash flows
generated by the interest and (ii) it intends to pay the taxes associated with
holding the Subordinated Certificate as they become due.
8. The Purchaser agrees that it will obtain from any purchaser of the
Certificates from it the same representations, warranties and agreements
contained in the foregoing paragraphs 1 through 7 and in this paragraph 8.
J-2
<PAGE>
The representations and warranties contained herein shall be binding
upon the heirs, executors, administrators and other successors of the
undersigned. If there is more than one signatory hereto, the obligations,
representations, warranties and agreements of the undersigned are made jointly
and severally.
Executed at _____________________________________________________,
_________________________, this __________ day of _________________, 1993.
-----------------------------------------
Purchaser's Name (Print)
By
---------------------------------------
Signature
Its
--------------------------------------
-----------------------------------------
Address of Purchaser
-----------------------------------------
Purchaser's Taxpayer
Identification Number
J-3
<PAGE>
EXHIBIT K
------- -
LIST OF CONTRACTS
[To Be Supplied]
K-1
<PAGE>
EXHIBIT L
------- -
LIST OF FHA-INSURED CONTRACTS
[To Be Supplied]
L-1
<PAGE>
EXHIBIT M
------- -
LIST OF SECURED CONTRACTS
[To Be Supplied]
M-1
<PAGE>
EXHIBIT N
------- -
HOME IMPROVEMENT LOAN
CERTIFICATES for HOME IMPROVEMENT CONTRACTS __________%
GREEN TREE TRUST
1994-A Distribution Date: ___________
MONTHLY REPORT
Trust Account _____________
-------/------/------
<TABLE>
<S> <C> <C>
A. Monthly Principal
(1) Regular Principal Payments $___________
(2) Principal Prepayments $___________
(3) Delinquent Payments
Advanced $___________
(4) FHA Claims $___________
(5) Net Losses $___________
(6) Contracts Repurchased due to
Breach of Representations
and Warranties (see
attached) $___________
(7) Bankruptcy Write-down $___________
(8) Delinquent Payments Recovered $___________
Total Principal $___________
B. Monthly Interest $___________
C. Remaining Principal Balance $___________
D. Collected Amount $___________
E. Monthly Servicing Fee $___________
F. Advances Reimbursed
(1) Prior Advances that have been
recovered $___________
(2) Uncollectible Advances $___________
G. Excess Cashflow $___________
H. Shortfall $___________
</TABLE>
N-1
<PAGE>
HOME IMPROVEMENT LOAN
CERTIFICATES for HOME IMPROVEMENT CONTRACTS __________%
GREEN TREE TRUST
1994-A Distribution Date: ___________
MONTHLY REPORT
Trust Account _____________
-------/------/------
<TABLE>
<S> <C> <C>
I. Subordinated Certificateholder Payment $___________
J. Pool Factor
Previous Month Pool Factor
Current Month Pool Factor
K. Aggregate Scheduled Balances and
Number of Delinquent Contracts
(1) 31-59 $___________ $___________
(2) 60-89 $___________ $___________
(3) 90 days or more $___________ $___________
L. Liquidated Contracts $___________
M. Number of Loans Remaining
N. Number and Principal Balance of Contracts
with FHA claims finally rejected, or no
FHA claim was submitted because FHA
Insurance was unavailable $___________
</TABLE>
N-2
<PAGE>
HOME IMPROVEMENT LOAN
CERTIFICATES for HOME IMPROVEMENT CONTRACTS __________%
GREEN TREE TRUST
1994-A Distribution Date: ___________
MONTHLY REPORT
Trust Account _____________
-------/------/------
LIMITED GUARANTY INFORMATION
----------------------------
Perform following Limited Guaranty calculations only if the Available Cash
Collateral Amount (before deposits on current Payment Date) equals zero and a
Shortfall exists.
<TABLE>
<CAPTION>
<S> <C> <C>
(1) Calculation of Limited Guaranty Amount
(a) $________ $________
(b) All Limited Guaranty
payments made prior
to current Payment Date $________
(c) (a) - (b) $________
(d) 1% of principal balance of
FHA-Insured Contracts at current
Payment Date $________
(e) lesser of (c) or (d) $________
(2) Limited Guaranty to be paid
(a) Shortfall $________
(b) Guaranty Amount (from line (1)(e)) $________
(c) lesser of (a) or (b) $________
</TABLE>
Please contact the Bondholder Relations Department of First Trust National
Association at (612) 223-7900 with any questions regarding this Statement or
your Distribution.
N-3
<PAGE>
Exhibit 4.2
CASH COLLATERAL TRUST AGREEMENT
-------------------------------
THE CASH COLLATERAL TRUST AGREEMENT, dated as of March 1, 1994
("Agreement"), is entered into among [Daiwa Securities America Inc.], as cash
collateral depositor ("the Cash Collateral Depositor"), First Bank National
-------------------------
Association, as cash collateral trustee (the "Cash Collateral Trustee"), and
-----------------------
Green Tree Financial Corporation, as seller (in such capacity, the "Seller")
and servicer (in such capacity, the "Servicer") with reference to the following
--------
facts:
A. Green Tree Financial Corporation, as Seller and Servicer, and First
Trust National Association, as trustee (in such capacity the "Trustee"), have
-------
concurrently with the execution of this Agreement entered into a Pooling and
Servicing Agreement, dated as of March 1, 1994 (the "Pooling and Servicing
---------------------
Agreement"), pursuant to which the trust established pursuant to the Pooling and
- ---------
Servicing Agreement (the "Trust") will issue $__________ initial principal
amount of __% Certificates for Home Improvement Loan Trust 1994-A (the
"Certificates").
------------
B. The Cash Collateral Depositor has concurrently, with the execution of
this Agreement, entered into a Loan Agreement with the Seller and Servicer, and
the Cash Collateral Trustee, pursuant to which the Cash Collateral Depositor has
agreed to make a loan to the Cash Collateral Trust in an amount equal to the
Initial Cash Collateral Amount.
C. The Pooling and Servicing Agreement provides that on each Demand Date,
the Trustee shall make a demand for payment on the Cash Collateral Guaranty in
an amount equal to the Demand Amount, if any, for the related Payment Date and
for deposit of such amount into the Collection Account.
D. For good and valid consideration, the sufficiency of which is hereby
acknowledged, the parties hereto desire to enter into this Agreement to create
the Cash Collateral Trust, to provide for the delivery, custody, investment and
disposition of amounts from time to time held in the Cash Collateral Account and
to issue the Cash Collateral Guaranty for the benefit of the Trust.
E. The parties hereto intend that the Trustee shall have a first priority
perfected security interest in the amounts on deposit from time to time in the
Cash Collateral Account, and that the Cash Collateral Depositor shall have a
second priority perfected security interest in such amounts subordinate, as
provided herein, to the security interest of the Trustee.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein, the parties hereto agree as follows:
<PAGE>
1. Definitions.
-----------
Capitalized terms used but not defined in this Agreement shall have the
meanings given to such terms in the Pooling and Servicing Agreement.
"Available Cash Collateral Amount" means, with respect to any Payment Date,
--------------------------------
the lesser of (1) the amount on deposit in the Cash Collateral Account
(exclusive of earnings and income from the investment of funds therein) as of
such date and (2) the Requisite Amount as of such date.
"Average Sixty-Day Delinquency Ratio" means, with respect to any Payment
-----------------------------------
Date, the arithmetic average of the Delinquency Ratios for such Payment Date and
for the two immediately preceding Payment Dates.
"Bailee" means a "bailee" as described in Section 9-305 of the UCC.
------
"Cash Collateral Account" means the deposit or trust account established by
-----------------------
the Cash Collateral Trustee pursuant to Section 4 hereof and maintained pursuant
to this Agreement.
"Cash Collateral Account Surplus" means, as of any Payment Date, the
-------------------------------
amount, if any, by which (1) the amount then on deposit in the Cash Collateral
Account, excluding all income from the investment of funds therein as set forth
in Section 2 hereof, and after taking into account any deposits pursuant to
Section 4(c)(i) hereof on such Payment Date and any payments pursuant to Section
4(c)(ii) hereof on such Payment Date, exceeds (2) the Requisite Amount as
determined for such Payment Date.
"Cash Collateral Beneficiary" means Green Tree Finance Corp. - Two.
---------------------------
"Cash Collateral Depositor" means [Daiwa Securities America Inc.], its
-------------------------
successors in interest or any successors thereto or permitted assigns thereof
appointed pursuant to the Loan Agreement.
"Cash Collateral Guaranty" means the Cash Collateral Guaranty issued to the
------------------------
Trustee pursuant to the terms hereof, a form of which is attached as Exhibit A
hereto.
"Cash Collateral Trust 1994-A" or "Cash Collateral Trust" means the trust
---------------------------- ---------------------
created pursuant to Section 2 hereof.
-2-
<PAGE>
"Cash Collateral Trustee" means First Bank National Association, in its
-----------------------
capacity as Cash Collateral Trustee under this Agreement, its successors in
interest or any successors thereto appointed pursuant to this Agreement.
"Certificated Securities" means "certificated securities" as defined in
-----------------------
Section 8-102(1)(a) of the UCC which are in the continuous possession in the
State of New York of the Financial Intermediary.
"Clearing Corporation" means The Depository Trust Company.
--------------------
"Clearing Corporation Securities" means "certificated securities" as
-------------------------------
defined in Section 8-102(1)(a) of the New York UCC which are in the continuous
possession in the State of New York of the Clearing Corporation or a Custodian
Bank and are in bearer form or indorsed in blank by an appropriate person or
registered in the name of the Clearing Corporation or a Custodian Bank or a
nominee of either of them.
"Closing Date" means __________, 1994.
------------
"Current Realized Loss Ratio" means, with respect to any Payment Date, a
---------------------------
fraction, expressed as a percentage, the numerator of which is the aggregate
Realized Losses for such Payment Date and each of the two immediately preceding
Payment Dates, and the denominator of which is the arithmetic average of the
Principal Balance as of the third preceding Payment Date and the Principal
Balance as of such Payment Date.
"Custodian Bank" means a "custodian bank" as defined in Section 8-102(4) of
--------------
the UCC.
"Delinquency Ratio" means, with respect to any Payment Date, a percentage
-----------------
equal to (1) the aggregate outstanding principal balance of all Contracts that
were delinquent 60 days or more as of the end of the immediately preceding Due
Period (including defaulted Contracts that have not yet been liquidated, but
excluding Contracts that are current with respect to rescheduled payments
following the Obligor's bankruptcy) divided by (2) the Principal Balance
immediately following such Payment Date.
"Demand Amount" shall be the amount that the Trustee is required to demand
-------------
as payment under the Cash Collateral Guaranty pursuant to Section 8.03 of the
Pooling and Servicing Agreement, but in no event in an amount greater than the
Available Cash Collateral Amount with respect to such Payment Date.
"Demand Date" means, with respect to any Payment Date, the Business Day
-----------
immediately preceding such Payment Date.
-3-
<PAGE>
"Eligible Investments" has the meaning set forth in the Pooling and
--------------------
Servicing Agreement.
"Federal Book-Entry Securities" means securities issued by the U.S.
-----------------------------
Treasury, FNMA or by FHLMC which are maintained in book-entry form on the
records of the Federal Reserve Bank of New York.
"Financial Intermediary" means an entity acting in the capacity of a
----------------------
"financial intermediary" as defined in Section 8-313(4) of the UCC.
"Financial Intermediary Securities Account" means a cash collateral account
-----------------------------------------
which is a securities account maintained by the Financial Intermediary in the
name of First Trust National Association, as Trustee of Home Improvement Loan
Trust 1994-A, and [Daiwa Securities America Inc.].
"Initial Cash Collateral Amount" means $__________.
------------------------------
"Instruments" means "instruments" as defined in Section 9-105(1)(i) of the
-----------
New York UCC (but not including any instruments constituting "Certificated
Securities" as defined in Section 8-102(1)(a) of the New York UCC ).
"Letter of Credit" means any irrevocable letter of credit, or any
----------------
replacement Letter of Credit, obtained in accordance with Section 6 hereof. A
Letter of Credit may be supported by a confirming bank in order to achieve the
requisite credit rating to be attributed to such Letter of Credit, in which case
the term "Letter of Credit" means such Letter of Credit together with such
----------------
confirmation.
"Loan Agreement" means the Loan Agreement, dated as of March 1, 1994,
--------------
entered into concurrently with the execution of this Agreement among Green Tree
Financial Corporation, as Seller and Servicer, the Cash Collateral Trustee and
the Cash Collateral Depositor, pursuant to which the Cash Collateral Depositor
has agreed to make a loan to the Cash Collateral Trustee on behalf of the Cash
Collateral Trust in an amount equal to the Initial Cash Collateral Amount.
"Qualified Bank" means any depository institution whose unsecured long-term
--------------
debt (or in the case of the principal bank in a bank holding company system the
unsecured long-term debt of such bank holding company) is rated A or higher by
Standard & Poor's.
"Realized Losses" means, with respect to any Payment Date, the aggregate
---------------
Net Liquidation Losses for all Contracts that became Liquidated Contracts during
the immediately preceding Due Period.
"Requisite Amount" means (1) with respect to the first Payment Date and,
----------------
subject to the following sentence, each Payment Date thereafter occurring prior
-4-
<PAGE>
to April, 1997, $________________, and (2) with respect to each Payment Date
thereafter, subject to the following sentence and provided that no Trigger has
occurred, the Average Sixty-Day Delinquency Ratio as of such Payment Date does
not exceed _____% and the Current Realized Loss Ratio as of such Payment Date
does not exceed _____%, an amount equal to __% of the Principal Balance as of
such Payment Date, but in no event less than $_________________.
Notwithstanding the foregoing, if a Trigger has occurred, the "Requisite
---------
Amount" with respect to each Payment Date after the occurrence of such Trigger
- ------
shall be an amount equal to $_________________.
"Secured Parties" means the Trustee, as first priority secured party with a
---------------
first priority security interest, and the Cash Collateral Depositor, as second
priority secured party with a second priority security interest.
"Transfer" or "Transferred", when used with respect to Eligible
-------- -----------
Investments, means:
(i) with respect to each Clearing Corporation Security, transfer to the
Secured Parties will occur upon the latest of: (w) the making by the Clearing
Corporation of appropriate entries on its books reducing the appropriate
securities account of the transferor and increasing the appropriate securities
account of the Financial Intermediary by the amount of such Clearing Corporation
Security, (x) the sending of a confirmation to the Secured Parties by the
Financial Intermediary of the purchase by the Secured Parties of such Clearing
Corporation Security and (y) the identification by book-entry to the Financial
Intermediary Securities Account by the Financial Intermediary of the Clearing
Corporation Securities as belonging to the Secured Parties;
(ii) with respect to each Certificated Security, transfer to the Secured
Parties will occur upon the latest of (x) the sending of a confirmation by the
Financial Intermediary of the purchase by the Secured Parties of such
Certificated Security, and (y) the identification by book-entry to the Financial
Intermediary Securities Account by the Financial Intermediary of such
Certificated Security as belonging to the Secured Parties;
(iii) with respect to each Federal Book-Entry Security, transfer to the
Secured Parties will occur upon the latest of (x) the making by the Federal
Reserve Bank of New York of appropriate entries transferring the Federal Book-
Entry Security on its books and records to the book-entry account of the
Financial Intermediary at the Federal Reserve Bank of New York, and the issuance
of a deposit advice or other written confirmation of such book-entry
registration, (y) the sending of a confirmation by the Financial Intermediary or
its agent of the purchase by the Secured Parties of such Federal Book-Entry
Security, and (z) the identification by book-entry to the Financial Intermediary
-5-
<PAGE>
Securities Account by the Financial Intermediary of such Federal Book-Entry
Security as belonging to the Secured Parties;
(iv) with respect to Instruments in the possession of the Bailee, in the
State of New York, the sending of notice to the Bailee by the Cash Collateral
Trustee of the security interest of the Secured Parties; and
(v) with respect to any other Eligible Investment, by any method creating
a perfected security interest in favor of the Secured Parties.
"Trigger" means either of the following events: (1) the Monthly Report as
-------
of any Determination Date indicates that the Company's FHA Insurance reserve
amount available to cover FHA Insurance claims on the Contracts is less than
$50,000,000, or (2) the occurrence of an Event of Termination.
2. Establishment and Grant of the Cash Collateral Trust. The parties
-----------------------------------------------------
hereby establish with the Cash Collateral Trustee the Cash Collateral Trust
1994-A. On the Closing Date, the Cash Collateral Trustee shall deposit in the
Cash Collateral Account the Initial Cash Collateral Amount from the proceeds of
the loan to be made on the Closing Date by the Cash Collateral Depositor under
the Loan Agreement (subject to the terms and conditions specified in the Loan
Agreement). The Cash Collateral Trustee agrees that it holds all amounts on
deposit in the Cash Collateral Account, including the Initial Cash Collateral
Amount and all other amounts deposited from time to time in the Cash Collateral
Account and all the proceeds of the foregoing, in trust for the benefit of the
Trustee, as the senior secured party, the Cash Collateral Depositor, as the
subordinate secured party, and the Cash Collateral Beneficiary. The Cash
Collateral Trustee has, pursuant to the terms of Section 5 hereof, granted to
the Trustee, as the senior secured party hereunder, and the Cash Collateral
Depositor, as the subordinate secured party hereunder, a security interest in
the Cash Collateral Account, the Initial Cash Collateral Amount and all other
amounts deposited from time to time in the Cash Collateral Account and all the
proceeds of the foregoing, but excluding, however, from such grant to the
Trustee all income and earnings from the investment of funds in the Cash
Collateral Account (including accrued discount realized on liquidation of any
Eligible Investment purchased at a discount), all as provided in Section 4(d)
hereof. All such amounts shall be held and disposed of by the Cash Collateral
Trustee as provided in this Agreement. Neither the Cash Collateral Trust, the
Cash Collateral Account nor any amounts on deposit therein, nor any income
earned with respect thereto, shall under any circumstances be deemed to be part
of or otherwise included in the Trust.
Amounts withdrawn from the Cash Collateral Account and paid to the Trustee
pursuant to Section 4(c)(ii) hereof shall be deemed released from the Cash
Collateral Trust, and neither the Trustee, the Servicer and Seller, the
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<PAGE>
Certificateholders, the Cash Collateral Depositor nor the Cash Collateral
Beneficiary shall thereafter be required to refund or reimburse the Cash
Collateral Trust for any such withdrawn amounts; provided, however, that the
-------- -------
foregoing is not intended to and shall not relieve any such person of any duty,
obligation or liability it may have pursuant to the Pooling and Servicing
Agreement (including, but not limited to, Section 8.01(a) thereof), the Loan
Agreement or this Agreement.
3. Cash Collateral Guaranty.
------------------------
The Cash Collateral Trust shall, on the Closing Date, issue in favor of the
Trustee, upon the terms and subject to the conditions hereunder, the Cash
Collateral Guaranty. The Cash Collateral Guaranty shall be dated its date of
issuance and shall be for a term expiring on _____, 199_ (or such time as the
Cash Collateral Guaranty shall earlier terminate by its terms).
The Cash Collateral Trustee, acting solely on behalf of the Cash Collateral
Trust, shall be required to make payments under the Cash Collateral Guaranty
only to the extent that funds are available in the Cash Collateral Account as
provided herein. The Cash Collateral Guaranty shall not be an obligation of the
Cash Collateral Depositor, the Trustee, the Seller, the Servicer, the Cash
Collateral Trustee, the Cash Collateral Beneficiary or First Bank National
Association personally.
4. Cash Collateral Account.
-----------------------
(a) Establishment of the Cash Collateral Account. The Cash
------------------------------------ -------
Collateral Trustee shall establish, in the name of the Cash Collateral Trustee,
on behalf of the Cash Collateral Trust and subject to the security interests of
the Trustee, as the senior secured party as its interest appears herein, and the
Cash Collateral Depositor, as the subordinate secured party as its interest
appears herein, a Cash Collateral Account which shall be either a segregated
trust account established in the trust department of an Eligible Institution or
a separately identifiable deposit account established in the deposit taking
department of an Eligible Institution and, in either case, such account shall be
entitled "Cash Collateral Account of First Bank National Association, as Cash
Collateral Trustee, subject to a first security interest of First Trust National
Association, as Trustee of Home Improvement Loan Trust 1994-A, and a second
security interest of [Daiwa Securities America Inc.]." Subject to the terms
hereof, the Cash Collateral Trustee shall possess all right, title and interest
in and to all funds deposited from time to time in the Cash Collateral Account.
However, notwithstanding the foregoing, the Cash Collateral Trustee shall not
withdraw any funds from, or otherwise deal with or exercise control over any
funds on deposit in, the Cash Collateral Account except as provided in this
Agreement. The interest of the Cash Collateral Depositor in the Cash Collateral
Account shall be subordinated to the interest of the Trustee, on behalf of the
Certificateholders, as provided herein. The interest of the Cash Collateral
Beneficiary in the Cash
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<PAGE>
Collateral Account shall be subordinate to the interest of the Trustee, on
behalf of the Certificateholders, and the Cash Collateral Depositor, as provided
herein. [For so long as any of the time deposits, promissory notes,
certificates of deposit, commercial paper of, or other investments in, the Cash
Collateral Depositor qualify as Eligible Investments and until all obligations
owing to the Cash Collateral Depositor pursuant to the Loan Agreement shall have
been finally paid and satisfied, the Cash Collateral Trustee hereby agrees to
invest funds in the Cash Collateral Account in the aforementioned Eligible
Investments in accordance with the written instructions of the Cash Collateral
Depositor.]
(b) Maintenance of the Cash Collateral Account. If at any time the
---------------------------------- -------
Cash Collateral Account ceases to be held at an Eligible Institution, the Cash
Collateral Trustee, upon written notice from the Trustee, shall, within 10
Business Days (or such longer period, not to exceed 30 calendar days, as to
which the Rating Agencies may consent) after receipt of such notice, establish a
new Cash Collateral Account meeting the conditions specified in Section 4(a)
above, and shall transfer any cash and/or investments in the Cash Collateral
Account to such new Cash Collateral Account. The Cash Collateral Trustee shall
consult with the Cash Collateral Depositor prior to transferring the Cash
Collateral Account pursuant to this Section 4(b).
(c) Deposits to and Withdrawals from the Cash Collateral Account.
------------------------------------ -----------------------
(i) As provided in Section 2 hereof, the Cash Collateral Trustee
shall, on the Closing Date, deposit or cause to be deposited in the Cash
Collateral Account the Initial Cash Collateral Amount from the proceeds of the
loan to be made on the Closing Date by the Cash Collateral Depositor under the
Loan Agreement. The Cash Collateral Trustee shall deposit into the Cash
Collateral Account all payments that are made by the Trustee or any Paying Agent
pursuant to Section 8.01(a) of the Pooling and Servicing Agreement not later
than 2:00 p.m., New York City time, on each Payment Date. The Trustee shall
make or cause to be made to the Cash Collateral Trustee, in its capacity as
Subordinated Certificateholder, all payments required to be made to the
Subordinated Certificateholder under Section 8.01(a) of the Pooling and
Servicing Agreement, and shall designate or cause to be designated such payments
as being for deposit in the Cash Collateral Account.
(ii) If the Cash Collateral Trustee shall receive a demand for payment on
the Cash Collateral Guaranty from the Trustee with respect to any Payment Date
on or before 1:00 p.m., New York City time, on the related Demand Date, the Cash
Collateral Trustee shall withdraw or cause to be withdrawn from the Cash
Collateral Account and transfer or cause to be transferred to the Trustee, for
deposit in the Collection Account, no later than 10:00 a.m., New York City time,
on such Payment Date, the lesser of the
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<PAGE>
amount of the demand and the Available Cash Collateral Amount (which shall be
the Demand Amount with respect to such Payment Date).
(iii) Not later than 2:00 p.m., New York City time, on each Payment Date,
the Cash Collateral Trustee shall withdraw or cause to be withdrawn from the
Cash Collateral Account and transfer to or cause to be transferred to the Cash
Collateral Depositor the Cash Collateral Account Surplus, if any, to the extent
any amounts are payable to the Cash Collateral Depositor on such Payment Date
pursuant to Section __ of the Loan Agreement, and the lien of the Trustee on
such amounts so transferred shall be automatically released. The Cash
Collateral Depositor shall furnish the Cash Collateral Trustee and the Seller
and Servicer with written notice, at least _____ Business Day[s] prior to each
Payment Date, of the amounts so payable to the Cash Collateral Depositor on such
Payment Date, separately identifying each such amount.
(iv) Not later than 2:00 p.m., New York City time, on each Payment Date,
the Cash Collateral Trustee shall withdraw or cause to be withdrawn from the
Cash Collateral Account and transfer to or cause to be transferred to the Cash
Collateral Beneficiary the remaining Cash Collateral Account Surplus, if any,
after all required transfers to the Trustee pursuant to Section 4(c)(ii) hereof
and the Cash Collateral Depositor pursuant to Section 4(c)(iii) hereof have been
made, and the lien of the Trustee and the Cash Collateral Depositor on such
amounts so transferred shall be automatically released.
(d) Investment of Funds on Deposit in the Cash Collateral Account.
-------------------------------------------------------------
Funds on deposit in the Cash Collateral Account shall be invested by the Person
with whom the Cash Collateral Account is established in the name of the Trustee,
as the senior secured party, the Cash Collateral Depositor, as the subordinate
secured party, and the Cash Collateral Beneficiary, in Eligible Investments.
Subject to the following provisions of this Section 4(d), any such investments
shall be made at the written direction of the Cash Collateral Depositor until
all obligations owing to the Cash Collateral Depositor pursuant to the Loan
Agreement shall have been finally paid and satisfied, and thereafter shall be
made at the written direction of the Cash Collateral Beneficiary. Funds on
deposit in the Cash Collateral Account on the Closing Date and thereafter shall
be so invested in such Eligible Investments that will mature so that such funds
and the proceeds thereof will be available for withdrawal on or prior to the
following Payment Date. The proceeds of any such Eligible Investments shall be
so invested in such investments that will mature so that such funds will be
available for withdrawal on or prior to the Payment Date immediately following
the date of such investment. Any written directions referred to in the second
sentence of this Section 4(d) shall specify the particular investment to be made
and shall certify that such investment is an Eligible Investment and is
permitted to be made under this Agreement and the Loan Agreement. Investments
may be made on any date (provided such investments satisfy the maturity
requirements set forth above), only after giving effect to deposits to and
withdrawals
-9-
<PAGE>
from the Cash Collateral Account on such date. Not later than 2:00 p.m., New
York City time, on each Payment Date, all interest and earnings (net of losses
and investment expenses, if any) accrued since the previous Payment Date (or
since the Closing Date in the case of the first Payment Date) on funds on
deposit in the Cash Collateral Account shall be withdrawn by the Cash Collateral
Trustee and shall be transferred to (i) the Cash Collateral Depositor, to the
extent any amounts are payable to the Cash Collateral Depositor on such Payment
Date pursuant to Section __ of the Loan Agreement, and (ii) thereafter, to the
Cash Collateral Beneficiary, and the Trustee and, in the case of any such
amounts so transferred to the Cash Collateral Beneficiary, the Cash Collateral
Depositor shall have no lien on any amounts so transferred. For purposes of
determining the Available Cash Collateral Amount hereunder, all such investment
earnings shall be deemed not to be available or on deposit in the Cash
Collateral Account. Realized losses, if any, on amounts invested in Eligible
Investments shall be charged against undistributed investment earnings on
amounts invested pursuant to this Section 4(d).
The Cash Collateral Depositor shall provide to the Cash Collateral
Trustee, on the date hereof and from time to time, an incumbency certificate or
the equivalent with respect to each officer of the Cash Collateral Depositor
that is authorized to provide instructions relating to investment of funds on
deposit in the Cash Collateral Account. At such time as the Cash Collateral
Beneficiary is entitled to direct the investment of funds on deposit in the Cash
Collateral Account, the Cash Collateral Beneficiary shall provide to the Cash
Collateral Trustee, from time to time, an incumbency certificate or the
equivalent with respect to each officer of the Cash Collateral Beneficiary that
is authorized to provide instructions relating to such investment.
5. Security Interest. In order to secure the right of the Trustee
-----------------
to receive payments on the Cash Collateral Guaranty and, on a subordinate basis,
in order to secure the right of the Cash Collateral Depositor to receive
payments from the Cash Collateral Account as provided herein, the Cash
Collateral Trustee hereby grants a security interest of first priority in favor
of the Trustee, and a security interest of second priority in favor of the Cash
Collateral Depositor, in the Cash Collateral Account, the Initial Cash
Collateral Amount and all other amounts deposited from time to time in the Cash
Collateral Account and all the proceeds of the foregoing, including, but not by
way of limitation, all proceeds of the conversion thereof, voluntary or
involuntary, into cash or other liquid property, all cash proceeds, accounts,
accounts receivable, notes, drafts, acceptances, chattel paper, checks, deposit
accounts, insurance proceeds, condemnation awards, rights to payment of any and
every kind, and other forms of obligations and receivables, instruments and
other property which at any time constitute all or part or are included in the
proceeds of any of the foregoing; provided that the Trustee shall have no lien
--------
or security interest in any interest and earnings on funds deposited in the Cash
Collateral Account. The Cash Collateral Trustee shall, at the expense of the
Servicer, take such action as is requested in writing by the Trustee or the Cash
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<PAGE>
Collateral Depositor to maintain such security interest as a perfected security
interest until termination of the Cash Collateral Trust pursuant to Section 7
hereof; provided, however, the Cash Collateral Trustee shall not be required to
-------- -------
prepare and file any financing statement or continuation statement or any tax
returns for the Trust created hereby. The Cash Collateral Depositor hereby
subordinates its security interest to that of the Trustee as provided herein.
To the extent perfection of Eligible Investments in the Cash Collateral Account
requires possession, (a) if amounts on deposit in the Cash Collateral Account or
Eligible Investments in which such amounts are invested are maintained with the
Cash Collateral Depositor, the Cash Collateral Depositor hereby agrees to
maintain such possession as collateral agent on behalf of the Trustee, as the
senior secured party, and on behalf of itself, as the subordinate secured party,
and (b) if amounts on deposit in the Cash Collateral Account or Eligible
Investments in which such amounts are invested are maintained by the Cash
Collateral Trustee or another Person, the Cash Collateral Trustee shall cause
such possession to be maintained in a segregated trust account established in
the trust department of an Eligible Institution or a separately identifiable
deposit account established in the deposit taking department of an Eligible
Institution. For purposes of the preceding sentence, the Cash Collateral
Trustee hereby appoints the Cash Collateral Depositor as its agent to maintain
possession of any amounts or Eligible Investments held by the Cash Collateral
Depositor. The Eligible Institution referred to in clause (b) of the second
preceding sentence will act as the collateral agent on behalf of the Trustee, as
the senior secured party, and the Cash Collateral Depositor, as the subordinate
secured party. The Financial Intermediary shall at all times possess any
Eligible Investment which is an Instrument and the Secured Parties shall cause
the Financial Intermediary who holds such Instrument to be notified of their
respective security interests. In the case of other Eligible Investments, such
Eligible Investments shall be maintained by the Cash Collateral Trustee or the
Cash Collateral Depositor, as the case may be, in such manner as may be
necessary to maintain the first priority perfected security interest in favor of
the Trustee, as the senior secured party, and the Cash Collateral Depositor, as
the subordinated secured party; provided, however, that the Cash Collateral
-------- -------
Trustee shall require that all Eligible Investments in the Cash Collateral
Account be duly and properly Transferred to the Secured Parties; provided,
--------
further, that with respect to any Eligible Investments which are not
- -------
certificates of deposit, other Instruments, Clearing Corporation Securities,
Certificated Securities or Federal Book-Entry Securities, the Cash Collateral
Trustee may rely on the written instructions of the Servicer as to the method by
which the security interests of the Trustee and the Cash Collateral Depositor
may be perfected, and the Servicer shall provide such instructions upon written
request from the Trustee or the Cash Collateral Trustee. Subject to the
provisions of the Loan Agreement, the Cash Collateral Depositor agrees not to
exercise any rights as the subordinated secured party on behalf of itself unless
and until the Certificates are paid in full, it being understood that this shall
not limit the right of the Cash Collateral Depositor to receive payments in
respect of the Cash Collateral Account Surplus, if any, and interest and
earnings on amounts on deposit in the Cash Collateral Account.
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<PAGE>
All amounts or property credited to the Cash Collateral Account shall
be subject to the liens of the Trustee and the Cash Collateral Depositor herein
described until released or withdrawn from the Cash Collateral Account.
7. Termination of Cash Collateral Trust; Release of Funds. Upon the
------------------------------------------------------
earlier to occur of (i) __________, 199_ (or, if such day is not a Business Day,
the immediately succeeding Business Day) and (ii) the Business Day immediately
succeeding the date on which the Cash Collateral Trustee receives written notice
from the Trustee that the Trust has been terminated, the Cash Collateral
Trustee, after the payment of all amounts payable from the Cash Collateral
Account as provided herein, shall, not later than 12:00 noon, New York City
time, withdraw from the Cash Collateral Account all amounts on deposit in the
Cash Collateral Account and pay such amounts to (i) the Cash Collateral
Depositor, to the extent any amounts are payable to the Cash Collateral
Depositor pursuant to Section __ of the Loan Agreement, and (ii) thereafter, to
the Cash Collateral Beneficiary. Upon such payment, the Cash Collateral Trust
shall terminate. The Servicer hereby agrees to promptly notify the Cash
Collateral Trustee as to the termination of the Trust.
8. Letter of Credit and Other Credit Enhancement.
---------------------------------------------
(a) At any time after the first Payment Date on which the funds in
the Cash Collateral Account equal or exceed the Requisite Amount, the Cash
Collateral Beneficiary may obtain the release of all or a portion of the cash on
deposit in the Cash Collateral Account, by delivering to the Cash Collateral
Trustee (i) a Letter of Credit that satisfies the conditions set forth in
Section 8(c) hereof or (ii) any other form of credit enhancement that satisfies
the conditions of Section 8(d) hereof. Section 8(b) hereof shall be operative
only after a Letter of Credit that satisfies the conditions of Section 8(c)
hereof has been delivered to the Cash Collateral Trustee. Any such cash so
released from the Cash Collateral Account will be paid to (i) the Cash
Collateral Depositor, to the extent any amounts are payable to the Cash
Collateral Depositor pursuant to Section __ of the Loan Agreement, and (ii)
thereafter, to the Cash Collateral Beneficiary. Upon the issuance of any such
Letter of Credit or other form of credit enhancement, the provisions of this
Agreement relating to the deposit and disposition of moneys hereunder shall be
amended accordingly.
(b) If the expiration date of a Letter of Credit is to occur before
the termination of the Trust pursuant to Section 12.04 of the Pooling and
Servicing Agreement, and, on or before the tenth Business Day prior to such
expiration, the Cash Collateral Beneficiary shall not have delivered to the Cash
Collateral Trustee a replacement Letter of Credit that satisfies the conditions
set forth in Section 8(c) hereof, the Cash Collateral Trustee shall, prior to
11:00 A.M., New York City time, on the fifth Business Day prior to such
expiration date, draw under such Letter of Credit the amount (the "Final Draw
----------
Amount") available thereunder, and deposit
- ------
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<PAGE>
the Final Draw Amount in the Cash Collateral Account. If, on or before such
fifth Business Day, the Cash Collateral Beneficiary obtains on behalf of and
delivers to the Cash Collateral Trustee a replacement Letter of Credit that
satisfies the conditions of Section 8(c) hereof, then the Cash Collateral
Trustee shall replace the related Letter of Credit with such replacement Letter
of Credit.
The Cash Collateral Trustee shall, when required pursuant to the terms
of a Letter of Credit, deliver the existing Letter of Credit to the related
issuing bank upon extension of the expiration date thereof in accordance with
its terms in exchange for the extended or amended Letter of Credit.
(c) Any initial or replacement Letter of Credit delivered to the Cash
Collateral Trustee shall satisfy the following conditions:
(i) it shall be issued by a Qualified Bank or confirmed by a Qualified
Bank;
(ii) it and the related agreement that provides for the issuance of such
Letter of Credit shall be in such form and substance as is acceptable to the
Cash Collateral Trustee and the Trustee, and shall require the Qualified Bank to
give the Cash Collateral Trustee and the Cash Collateral Beneficiary prompt
notice if at any time it shall fail to be a Qualified Bank and its short-term
debt is rated below A-1 by Standard & Poor's;
(iii) it shall be accompanied by an unqualified Opinion of Counsel or
Opinions of Counsel stating that the Letter of Credit is enforceable; and
(iv) Standard & Poor's shall have advised the Trustee in writing that the
release of such cash from the Cash Collateral Account and the delivery of such
Letter of Credit shall not cause the rating on the Certificates to be lowered or
withdrawn.
The cost of obtaining and maintaining any initial or replacement
Letter of Credit shall be borne solely by payments to be made to the Cash
Collateral Trustee by the Trustee or any Paying Agent pursuant to Section
8.01(a) of the Pooling and Servicing Agreement. If the Cash Collateral Trustee
receives notice that the institution issuing such Letter of Credit is no longer
a Qualified Bank and that its short-term debt is rated below A-1 by Standard &
Poor's, the Cash Collateral Trustee shall immediately notify the Trustee. On
the 30th day following such notice (or the next Business Day thereafter, if such
day is not a Business Day), the Cash Collateral Trustee shall draw under the
Letter of Credit the full amount available under such Letter of Credit and
deposit the proceeds thereof in the Cash Collateral Account, unless prior to
such date the Cash Collateral Beneficiary shall have delivered to the Cash
Collateral Trustee a replacement or confirming Letter of Credit issued by a
Qualified Bank.
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<PAGE>
(d) Any other form of credit enhancement delivered to the Cash
Collateral Trustee shall satisfy the following conditions:
(i) it and the related agreement that provides for the alternate form of
credit enhancement shall be in such form and substance as is acceptable to the
Cash Collateral Trustee and the Trustee;
(ii) it shall be accompanied by an unqualified Opinion of Counsel or
Opinions of Counsel stating that such alternate form of credit enhancement is
enforceable; and
(iii) Standard & Poor's shall have advised the Trustee in writing that the
release of such cash from the Cash Collateral Account and delivery of such
alternate form of credit enhancement shall not cause the rating on the
Certificates to be lowered or withdrawn.
The cost of obtaining and maintaining any such alternate form of
credit enhancement shall be borne solely by payments to be made to the Cash
Collateral Trustee by the Trustee or any Paying Agent pursuant to Section
8.01(a) of the Pooling and Servicing Agreement.
8. Liability of the Cash Collateral Trustee.
----------------------------------------
(a) The Cash Collateral Trustee shall have no duty or responsibility
except those expressly set forth in this Agreement. Nothing in this Agreement,
express or implied, is intended to or shall be so construed as to impose upon
the Cash Collateral Trustee any obligations in respect of this Agreement except
as expressly set forth herein. Neither the Cash Collateral Trustee nor any of
the directors, officers, employees, attorneys or agents of the Cash Collateral
Trustee shall be under any liability to the Cash Collateral Trust, the Trust,
the Trustee, the Cash Collateral Depositor, the Cash Collateral Beneficiary or
any Certificateholder for any action taken or for refraining from the taking of
any action in good faith pursuant to this Agreement, or for errors in judgment
made in good faith; provided, however, that this provision shall not protect the
-------- -------
Cash Collateral Trustee or any such person against any liability which would
otherwise be imposed by reason of its negligent action, its own negligent
failure to act, or its own bad faith or willful misconduct. Subject to the
foregoing sentence, the Cash Collateral Trustee shall not be liable for losses
on investments in Eligible Investments of amounts in the Cash Collateral
Account.
(b) The Cash Collateral Trustee and any director, officer, employee
or agent of the Cash Collateral Trustee may request and rely upon and shall be
protected in acting upon any resolution, certificate of auditors or any other
certificate, statement, instrument, opinion, report, notice, request, consent,
order, appraisal,
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<PAGE>
bond, or other paper or document reasonably believed by it to be genuine and to
have been signed or presented by the proper party or parties.
(c) The Cash Collateral Trustee shall not be liable for any error of
judgment made in good faith; provided, however, that the foregoing provisions of
-------- -------
this subparagraph (c) shall not excuse the Cash Collateral Trustee from
liability for its own negligence or willful misconduct.
(d) The Cash Collateral Trustee may consult with counsel and any
advice or opinion of counsel delivered to it shall be full and complete
authorization and protection in respect of any action taken, suffered or omitted
by it hereunder in good faith and in accordance with such advice or opinion of
counsel.
(e) The Cash Collateral Trustee shall be under no obligation to
exercise any of its rights or powers vested in it by this Agreement, or to
institute, conduct or defend any litigation hereunder or in relation hereto, at
the request, order or direction of any Certificateholders, the Cash Collateral
Depositor or the Cash Collateral Beneficiary, pursuant to the provisions of this
Agreement or otherwise, unless such Certificateholders, the Cash Collateral
Depositor or the Cash Collateral Beneficiary, as the case may be, shall have
offered to the Cash Collateral Trustee reasonable security or indemnity against
the costs, expenses and liabilities (including, without limitation, attorneys'
fees) which might be incurred therein or thereby.
(f) The Cash Collateral Trustee shall not be liable for any action
taken, suffered or omitted by it in good faith and believed by it to be
authorized or within the discretion or rights or power conferred upon it by this
Agreement.
(g) None of the provisions contained in this Agreement shall require
the Cash Collateral Trustee to expend or risk its own funds or otherwise incur
personal financial liability in the performance of any of its duties or in the
exercise of any of its rights or powers.
(h) The Cash Collateral Trustee may perform its powers and duties
hereunder or under the Loan Agreement or the Cash Collateral Guaranty by or
through such attorneys and agents as it shall appoint. The Cash Collateral
Trustee shall not be answerable for the negligence or misconduct of any attorney
or agent appointed by it with reasonable care.
(i) The Cash Collateral Trustee, in its individual capacity, may own,
hold and dispose of Certificates. The Cash Collateral Trustee may lend money
to, and otherwise engage in its normal banking business with, the Servicer, the
Cash Collateral Depositor, the Cash Collateral Beneficiary and any affiliates
thereof.
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<PAGE>
(j) Except as expressly provided herein, the Cash Collateral Trustee
does not assume any responsibility for the accuracy of the statements herein and
makes no representations as to the validity or sufficiency of this Agreement,
the Loan Agreement, the Cash Collateral Guaranty, the Pooling and Servicing
Agreement or any related document. The Cash Collateral Trustee shall at no time
have any responsibility or liability for the existence or validity of any
Contract; the acts or omissions of the Servicer; or the preparation and filing
of any financing statement or continuation statement or of any tax returns for
the trust created hereby.
(k) If the Cash Collateral Trustee is not holding the Cash Collateral
Account, the Cash Collateral Trustee shall not be responsible or liable for any
losses incurred in the Cash Collateral Account.
Whether expressly so provided herein or in the Loan Agreement or the
Cash Collateral Guaranty, every provision of this Agreement, the Loan Agreement
and the Cash Collateral Guaranty relating to the conduct or affecting the
liability of, or affording protection to, the Cash Collateral Trustee shall be
subject to the provisions of this Section 8.
9. Resignation of Cash Collateral Trustee. The Cash Collateral
--------------------------------------
Trustee may at any time resign and be discharged from the trusts hereby created
by giving written notice of resignation to the Cash Collateral Depositor, the
Trustee, the Servicer and the Cash Collateral Beneficiary. Upon receiving such
notice of resignation, the Cash Collateral Depositor or (if all obligations
owing to the Cash Collateral Depositor pursuant to the Loan Agreement shall have
been finally paid and satisfied) the Trustee shall promptly appoint a successor
trustee (which satisfies the eligibility requirements set forth in Section 11.07
of the Pooling and Servicing Agreement and is reasonably acceptable to the
Trustee) by written instrument, in duplicate, one copy of which instrument shall
be delivered to the resigning Cash Collateral Trustee and one copy to the
successor trustee. If no successor trustee shall have been so appointed and
have accepted appointment within 30 days after the giving of such notice of
resignation, the resigning Cash Collateral Trustee may petition any court of
competent jurisdiction for the appointment of a successor Cash Collateral
Trustee. Any successor Cash Collateral Trustee shall, at the time of its
appointment, agree to assume the rights, duties and responsibilities of the Cash
Collateral Trustee under the Loan Agreement and the Cash Collateral Guaranty.
Any resignation of the Cash Collateral Trustee and appointment of a
successor Cash Collateral Trustee pursuant to the provisions of this Agreement
shall not become effective until acceptance of appointment by the successor Cash
Collateral Trustee. The Servicer shall notify Standard & Poor's of any such
resignation.
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<PAGE>
10. Amendment of the Pooling and Servicing Agreement. The Seller and
------------------------------------------------
the Servicer agree not to consent to any amendment to the Pooling and Servicing
Agreement that would materially adversely affect the interests of the Cash
Collateral Trust, the Cash Collateral Depositor or the Cash Collateral
Beneficiary without the consent of the Cash Collateral Trustee, the Cash
Collateral Depositor or the Cash Collateral Beneficiary, as the case may be.
11. Further Assurances. From time to time, whenever deemed
------------------
reasonably appropriate by the Cash Collateral Depositor or the Cash Collateral
Trustee, the Servicer shall prepare, and upon the execution by the Cash
Collateral Trustee or the Cash Collateral Depositor, as the case may be, shall
file, any and all such further and other instruments and assurances, and make
such filings with governmental authorities, as may be reasonably necessary or
proper to carry out the intention of or to facilitate the performance of the
terms of this Agreement or to protect and preserve the rights and remedies
hereunder of the parties hereto.
12. Notices. All notices and other communications provided for
-------
hereunder shall be in writing and shall be (i) mailed by first-class mail,
registered or certified, return receipt requested, or express mail, postage
prepaid, or sent by telecopy or other similar form of rapid transmission or (ii)
personally delivered to an officer of the receiving party. All such
communication shall be mailed, sent or delivered, if to the Cash Collateral
Trustee, addressed to:
First Bank National Association
_______________________________
_______________________________
_______________________________
or, if to Green Tree Financial Corporation, as Servicer or Seller, addressed to:
Green Tree Financial Corporation
1100 Landmark Towers
345 St. Peter Street
St. Paul, Minnesota 55102-1639
Attention: Drew S. Backstrand, Esq.
or, if to the Cash Collateral Depositor, addressed to:
[Daiwa Securities America Inc.]
_______________________________
_______________________________
_______________________________
Any notice or other communication delivered pursuant to the terms
hereof shall be effective upon receipt.
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<PAGE>
13. Indemnity of Cash Collateral Trustee. The Cash Collateral
------------------------------------
Trustee and its officers, directors, agents and employees shall be indemnified
by the Seller and held harmless against any loss, liability, or expense
(including reasonable attorneys' fees and expenses and expenses of litigation)
arising out of or incurred in connection with the acceptance or performance of
the trusts and duties contained in this Agreement to the extent such loss,
liability or expense shall not have been incurred by reason of the Cash
Collateral Trustee's wilful misfeasance, bad faith or negligence. The
provisions of this Section 13 survive the termination of this Agreement and the
resignation or removal of the Cash Collateral Trustee.
14. Governing Law. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE
-------------
WITH THE LAWS OF THE STATE OF __________, AND THE OBLIGATIONS, RIGHTS AND
REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH
LAWS, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS.
15. Severability of Provisions. If any one or more of the covenants,
--------------------------
agreements, provisions or terms of this Agreement shall be for any reason
whatsoever held invalid, then such covenants, agreements, provisions or terms
shall be deemed severable from the remaining covenants, agreements, provisions
or terms of this Agreement and shall in no way affect the validity or
enforceability of the other provisions of this Agreement.
16. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.
17. Cash Collateral Trustee's Fees and Expenses. All fees and
-------------------------------------------
expenses of the Cash Collateral Trustee hereunder (including all out-of-pocket
expenses incurred or to be incurred by the Cash Collateral Trustee in the
administration of the trust created hereby, including the fees and expenses of
its legal counsel) shall be payable by the Servicer in the same manner as
Trustee's fees are paid as set forth in Section 11.06 of the Pooling and
Servicing Agreement.
18. Tax Returns. The Cash Collateral Beneficiary shall report all
-----------
amounts transferred to the Cash Collateral Trustee, in its capacity as
Subordinated Certificateholder, pursuant to Section 8.01(a) of the Pooling and
Servicing Agreement, and all income earned thereon, as its income for federal
income tax purposes. The Servicer shall prepare or shall cause to be prepared
tax returns, if any, required to be filed by the Cash Collateral Trust and shall
remit such returns to the Cash Collateral Trustee for signature at least five
days before such returns are due to be filed. The Cash Collateral Trustee, upon
request, will furnish the Servicer with all such information known to the Cash
Collateral Trustee as may be reasonably
-18-
<PAGE>
required in connection with the preparation of all tax returns of the Cash
Collateral Trust, and shall, upon request, execute such returns.
IN WITNESS WHEREOF, the parties hereto have executed this Cash
Collateral Trust Agreement by their respective officers thereunto duly
authorized, all as of the day and year first above written.
[DAIWA SECURITIES AMERICA INC.]
as Cash Collateral Depositor
By:____________________________
Name:
Title:
By:____________________________
Name:
Title:
FIRST BANK NATIONAL ASSOCIATION
as Cash Collateral Trustee
By:____________________________
Name:
Title:
GREEN TREE FINANCIAL CORPORATION
as Seller and Servicer
By:_____________________________
Name:
Title:
-19-
<PAGE>
Exhibit A
---------
Cash Collateral Trust 1994-A
CASH COLLATERAL GUARANTY
____________, 1994
First Trust National Association,
as Trustee
________________________________
________________________________
Ladies and Gentlemen:
The undersigned, the Cash Collateral Trust 1994-A (the "Cash
Collateral Trust"), hereby guarantees payments of amounts due on the Contracts
to the extent specified in Section 8.03 of the Pooling and Servicing Agreement,
dated as of ______ 1, 1994 (the "Pooling and Servicing Agreement"), between
Green Tree Financial Corporation, as Seller and Servicer, and First Trust
National Association, as trustee (the "Trustee"), and the undersigned hereby
irrevocably authorizes you, as Trustee under the Pooling and Servicing
Agreement, to demand from time to time pursuant to and as provided in the
Pooling and Servicing Agreement, in reliance upon a Monthly Report of the
Servicer, from and after the date hereof to 3:00 p.m., New York City time, on
________, _______ (or such time as this Cash Collateral Guaranty shall earlier
terminate by its terms), a maximum aggregate amount up to but not exceeding the
Available Cash Collateral Amount (as defined below) on the date of any demand,
available against the following document (a "Demand Certificate") delivered to
or presented by facsimile transmission or tested telex in the manner set forth
below:
A Demand Certificate in the form attached as Exhibit A hereto signed
by one who states therein that he is your duly authorized officer and dated
the date such Demand Certificate is presented hereunder, with all blanks
appropriately filled in.
Only one demand may be made hereunder with respect to any Payment
Date; provided, however, that the foregoing shall not be deemed to preclude you
-------- -------
from making a second demand with respect to any Payment Date to correct any
error in any prior demand with respect to such Payment Date.
A-1
<PAGE>
Demands made hereunder may be made by either: (i) delivery of original
documentation to us at __________, ________, __________, ________ (Attention:
_____________), or (ii) presentation of facsimile documentation (fax no. (___)
__________); or to us at such other offices or number as we shall designate in
writing from time to time. A copy of such Demand Certificate shall
contemporaneously be sent to the Cash Collateral Depositor. Such facsimile
documentation shall be followed by original documentation as soon as reasonably
practicable.
For purposes of this Cash Collateral Guaranty, "Available Cash
Collateral Amount" means:
1. U.S. $__________ on the first Payment Date, and
2. with respect to any Payment Date thereafter, the Available Cash
Collateral Amount shall equal the lesser of:
(A) the amount on deposit in the Cash Collateral Account (exclusive
of earnings and income from the investment of funds therein) as of such
date; and
(B) the Requisite Amount as of such date.
For purposes of this Cash Collateral Guaranty, "Payment Date" means
the 15th day of each calendar month, or if the 15th day shall not be a Business
Day, the next succeeding Business Day, commencing on _____ 15, 1994.
Capitalized terms used herein without definition shall have the
meaning set forth in the Cash Collateral Trust Agreement, dated as of ______ 1,
1994 (the "Cash Collateral Trust Agreement"), among [Daiwa Securities America
Inc.], as cash collateral depositor, the Cash Collateral Trustee, and Green Tree
Financial Corporation, as seller and servicer (the "Servicer").
This Cash Collateral Guaranty sets forth in full the terms of our
undertaking, and except as specifically set forth herein such undertaking shall
not in any way be modified or amended by reference to any other document
whatsoever.
This Cash Collateral Guaranty is neither transferable nor assignable
except to a successor Trustee, in whole but not in part, in its capacity as
successor trustee under the Pooling and Servicing Agreement. Such transfer and
assignment shall be effective upon receipt by us of a copy of the instrument
effecting such transfer and assignment signed by the transferor and by the
transferee in the form of Exhibit B hereto (which shall be conclusive evidence
of such transfer and assignment), and, in such case, the transferee instead of
the transferor shall, without the necessity of further action, be entitled to
all the benefits of and rights under this
A-2
<PAGE>
Cash Collateral Guaranty in the transferor's place, provided that, in such case,
the certificate presented hereunder shall be a certificate of the transferee and
shall be signed by one who states therein that he is a duly authorized officer
of the transferee. A copy of each such transfer and assignment shall be sent to
the Cash Collateral Depositor.
The duties and obligations of the Cash Collateral Trustee under this
Cash Collateral Guaranty shall continue only so long as it is acting on behalf
of the Cash Collateral Trust under the Cash Collateral Trust Agreement, and such
duties and obligations shall terminate upon the resignation or removal of the
Cash Collateral Trustee under the Cash Collateral Trust Agreement and shall be
vested in the successor Cash Collateral Trustee appointed under the Cash
Collateral Trust Agreement.
THIS CASH COLLATERAL GUARANTY SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF __________, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAWS.
Communications with respect to this Cash Collateral Guaranty shall be
addressed to us at _________, ________, ________, _________, as Cash Collateral
Trustee (Attention: ___________), or such other address as shall be designated
in writing by us to you specifically referring to this Cash Collateral Guaranty.
Our obligations under this Cash Collateral Guaranty are irrevocable,
absolute and unconditional (to the extent of the Available Cash Collateral
Amount and except as expressly provided herein), and neither the failure of you
or any successor Trustee, in its capacity as successor trustee under the Pooling
and Servicing Agreement, or the Servicer or any successor Servicer under the
Pooling and Servicing Agreement, to perform any covenant or obligation in our
favor (or otherwise), nor the commencement of any bankruptcy, debtor or other
insolvency proceeding by or against you or any successor Trustee, in its
capacity as successor trustee under the Pooling and Servicing Agreement, or the
Servicer or any successor Servicer under the Pooling and Servicing Agreement,
shall in any way affect or limit our unconditional obligations under this Cash
Collateral Guaranty. None of the Cash Collateral Trustee, the Cash Collateral
Depositor, the Seller, the Servicer or the Cash Collateral Beneficiary shall
have any personal liability to pay amounts demanded hereunder, such amounts
demanded to be paid solely from funds available in the Cash Collateral Account.
We agree to pay the amount demanded by any Demand Certificate, if
presented as required by and otherwise in compliance with all the terms of this
Cash Collateral Guaranty, such payment to be made in immediately available funds
prior to 10:00 a.m., New York City time, on the related Payment Date, which is
on the Business Day immediately succeeding the Business Day on which such Demand
A-3
<PAGE>
Certificate was presented or was deemed presented as provided in the following
sentence. If a Demand Certificate is presented as required by and otherwise in
compliance with all the terms of this Cash Collateral Guaranty on a day other
than a Business Day or is presented after 1:00 p.m., New York City time, on a
Business Day, such Demand Certificate shall be deemed to have been presented on
the next succeeding Business Day for all purposes hereof. Upon the earlier of
(i) the receipt by us of written notice in the form attached as Exhibit C hereto
stating that the Cash Collateral Trust Agreement has been terminated pursuant to
its terms (which notice shall be conclusive evidence thereof), signed by you or
a successor Trustee, in its capacity as successor trustee under the Pooling and
Servicing Agreement, as appropriate, and (ii) 3:00 p.m., New York City time, on
_______, ___________, or, if such day is not a Business Day, the next succeeding
Business Day, this Cash Collateral Guaranty shall automatically terminate.
It is expressly understood and agreed by the Trustee that this Cash
Collateral Guaranty is executed by First Bank National Association not in its
corporate and individual capacity but solely as Cash Collateral Trustee under
the Cash Collateral Trust Agreement in the exercise of the power and authority
conferred and vested in it as such Cash Collateral Trustee. It is further
understood and agreed that First Bank National Association, except in its
capacity as Cash Collateral Trustee, shall not be personally liable for any
breach of any representation, warranty or covenant of the Cash Collateral
Trustee contained herein and nothing herein contained shall be construed as
creating any liability on First Bank National Association except in its capacity
as Cash Collateral Trustee in its corporate and individual capacity to make any
payment or to perform any covenant, agreement or undertaking contained herein,
all such liability being expressly waived by the Trustee, and that the Trustee
shall look solely to the properties and assets of the Cash Collateral Trust for
the payment or other satisfaction of this Cash Collateral Guaranty.
Very truly yours,
CASH COLLATERAL TRUST 1994-A
By: FIRST BANK NATIONAL ASSOCIATION
Not in its individual capacity but
solely as Cash Collateral Trustee
acting on behalf of the Cash
Collateral Trust 1994-A
By:___________________________
Name:
Title:
A-4
<PAGE>
Exhibit A
to Cash Collateral Guaranty
FORM OF DEMAND CERTIFICATE
CASH COLLATERAL TRUST 1994-A
The undersigned individual, a duly authorized officer of First Trust
National Association, as Trustee (the "Beneficiary"), HEREBY CERTIFIES on behalf
of the Beneficiary, with respect to: (i) the Cash Collateral Guaranty, dated
_________, 1994 (the "Cash Collateral Guaranty"), issued by Cash Collateral
Trust 1994-A in favor of the Beneficiary; and (ii) the Cash Collateral Trust
Agreement (as defined in the Cash Collateral Guaranty), as follows:
1. The Beneficiary is the Trustee under the Pooling and Servicing
Agreement.
2. The Beneficiary is entitled to make a demand under the Cash
Collateral Guaranty pursuant to Section 8.03 of the Pooling and Servicing
Agreement.
3. The Available Cash Collateral Amount (as defined in the Cash
Collateral Guaranty) for the Payment Date (as defined in the Cash Collateral
Guaranty) next succeeding the date of this certificate is $________ . The
amount demanded by this certificate does not exceed the Available Cash
Collateral Amount for the Payment Date next succeeding the date of this
certificate. This certificate relates to the __________ Payment Date.
4. The Beneficiary demands payment of $__________ , which is the
amount it is entitled to demand pursuant to Section 8.03 of the Pooling and
Servicing Agreement.
5. The amount demanded is to be paid in immediately available funds
by no later than 10:00 a.m., New York City time, on the Payment Date, which is
the Business Day immediately succeeding the Business Day that this certificate
was presented (the related Demand Date) or was deemed presented as required by
and otherwise in compliance with all the terms of the Cash Collateral Guaranty,
to _____________, Account No. _________________________.
A-1
<PAGE>
IN WITNESS WHEREOF, this certificate has been executed this _______
day of __________, 19_____
FIRST TRUST NATIONAL ASSOCIATION
as Trustee
By:______________________________________
[Name and title of Authorized Officer]
cc: Cash Collateral Depositor
A-2
<PAGE>
Exhibit B
to Cash Collateral Guaranty
First Trust National Association
________________________________
________________________________
Ladies and Gentlemen:
Reference is made to the Cash Collateral Guaranty, dated ___________,
1994, which has been issued by the Cash Collateral Trust 1994-A in favor of
First Trust National Association, as Trustee.
The undersigned [Name of Transferor] (the "Transferor") has
transferred and assigned (and hereby confirms to you said transfer and
assignment) all its rights in and under said Cash Collateral Guaranty to [Name
of Transferee] (the "Transferee") in accordance with the terms thereof and
confirms that [Name of Transferor] no longer has any rights under or interest in
said Cash Collateral Guaranty.
The Transferor and the Transferee have indicated on the face of said
Cash Collateral Guaranty that it has been transferred and assigned to the
Transferee.
The Transferee hereby certifies that it is a duly authorized
transferee under the terms of said Cash Collateral Guaranty and is accordingly
entitled, upon presentation of the document called for therein, to receive
payment thereunder.
Capitalized terms used herein and not otherwise defined shall have the
meanings assigned to such terms in the Cash Collateral Trust Agreement, dated as
of __________ 1, 1994, among [Daiwa Securities America Inc.], in its capacity as
cash collateral depositor, First Bank National Association, in its capacity as
trustee of Cash Collateral Trust 1994-A, and Green Tree Financial Corporation,
as Seller and Servicer.
B-1
<PAGE>
______________________________
[Name of Transferor]
By:___________________________
[Name and Title of
Authorized Officer of
Transferor]
______________________________
[Name of Transferee]
By:___________________________
[Name and Title of
Authorized Officer of
Transferor]
cc: Cash Collateral Depositor
B-2
<PAGE>
Exhibit C
to Cash Collateral Guaranty
First Trust National Association
________________________________
________________________________
Ladies and Gentlemen:
Reference is made to the Cash Collateral Guaranty, dated __________,
1994, which has been issued by the Cash Collateral Trust 1994-A in favor of
First Trust National Association, as Trustee.
The undersigned hereby certifies and confirms that the Cash Collateral
Trust Agreement (as defined in the Cash Collateral Guaranty) has been terminated
pursuant to its terms, and, accordingly, said Cash Collateral Guaranty is hereby
terminated in accordance with its terms.
Capitalized terms used herein and not otherwise defined shall have the
meanings assigned to such terms in the Cash Collateral Trust Agreement, dated as
of _________ 1, 1994, among [Daiwa Securities America Inc.], as cash collateral
depositor, and First Bank National Association, in its capacity as trustee of
Cash Collateral Trust 1994-A.
[Name of Beneficiary or
Transferee]
By:
____________________________________
Authorized Officer
cc: Cash Collateral Depositor
C-1
<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-3
File No. 33-52177
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-3 (the "Registration Statement") filed by the
Company with the Securities and Exchange Commission on February 7, 1994, as
amended by Amendment No. 1 thereto filed on March 16, 1994 and Amendment No. 2
thereto filed on March 28, 1994, relating to the registration by the Company
of $134,096,835.87 of Certificates for Home Improvement Loans (the
"Certificates") to be issued by Home Improvement Loan Trust 1994-A, and a
Limited Guaranty relating to the Certificates to be provided by the Company.
The Certificates and the Limited Guaranty are to be issued under a Pooling and
Servicing Agreement (the "Pooling and Servicing Agreement") substantially in
the form filed as an exhibit to the Registration Statement, between the
Company, as seller, servicer and limited guarantor, and First Trust National
Association, as trustee (the "Trustee").
We have examined the resolution of the Executive Committee of the Board of
Directors of the Company adopted by written action dated as of March 28, 1994,
the Registration Statement, and such other documents, and have reviewed such
questions of law, as we have considered necessary and appropriate for the
purposes of this opinion. Based on the foregoing, we are of the opinion that:
1. The Pooling and Servicing Agreement has been duly authorized by the
Company and, when it has been duly executed and delivered by the Company and the
Trustee, will constitute the valid and binding obligation of the Company.
2. The Certificates, when duly executed and delivered in accordance with
the terms of the Pooling and Servicing Agreement, will be legally and validly
issued, and the holders of such Certificates will be entitled to the benefits of
the Pooling and Servicing Agreement, including the Limited Guaranty of the
Company.
<PAGE>
Green Tree Financial Corporation
March 28, 1994
Page 2
The opinions set forth above are subject to the following qualifications
and exceptions:
(a) Our opinion in paragraph 1 above is subject to the effect of any
applicable bankruptcy, insolvency, reorganization, moratorium or other
similar law of general application affecting creditors' rights.
(b) Our opinion in paragraph 1 above is subject to the effect of general
principles of equity, including (without limitation) concepts of
materiality, reasonableness, good faith and fair dealing, and other similar
doctrines affecting the enforceability of agreements generally (regardless
of whether considered in a proceeding in equity or at law).
(c) Minnesota Statutes (S) 290.371, Subd. 4, provides that any corporation
required to file a Notice of Business Activities Report does not have a
cause of action upon which it may bring suit under Minnesota law unless the
corporation has filed a Notice of Business Activities Report and provides
that the use of the courts of the State of Minnesota for all contracts
executed and all causes of action that arose before the end of any period
for which a corporation failed to file a required report is precluded.
Insofar as our opinion may relate to the valid, binding and enforceable
character of any agreement under Minnesota law or in a Minnesota court, we
have assumed that any party seeking to enforce such agreement has at all
times been, and will continue at all times to be, exempt from the
requirement of filing a Notice of Business Activities Report or, if not
exempt, has duly filed, and will continue to duly file, all Notice of
Business Activities Reports.
Our opinions expressed above are limited to the laws of the State of
Minnesota.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement, and to the reference to our firm under the heading
"Legal Matters" in the Prospectus comprising part of the Registration Statement.
Dated: March 28, 1994
Very truly yours,
<PAGE>
EXHIBIT 8.1
-----------
Green Tree Financial Corporation
1100 Landmark Towers
345 St. Peter Street
St. Paul, Minnesota 55102-1639
Re: Registration Statement on Form S-3
File No. 33-52177
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-3 (the "Registration Statement") filed by the
Company with the Securities and Exchange Commission on February 7, 1994, as
amended by Amendment No. 1 thereto filed on March 16, 1994 and Amendment No. 2
thereto filed on March 28, 1994, relating to the registration by the Company
of $134,096,835.87 of Certificates for Home Improvement Loans (the
"Certificates") to be issued by Home Improvement Loan Trust 1994-A, and a
Limited Guaranty relating to the Certificates to be provided by the Company.
The Certificates and the Limited Guaranty are to be issued under a Pooling and
Servicing Agreement (the "Pooling and Servicing Agreement") substantially in
the form filed as an exhibit to the Registration Statement, between the
Company, as seller, servicer and limited guarantor, and First Trust National
Association, as trustee (the "Trustee").
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, the Pooling and Servicing Agreement, and the related documents and
agreements contemplated by the Pooling and Servicing Agreement.
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 Pooling and Servicing
Agreement and the assumptions that the Company and the Trustee will at all times
comply with the requirements of the Pooling and Servicing Agreement. Based upon
the foregoing, as of the date hereof it is our opinion that:
<PAGE>
Green Tree Financial Corporation
March 28, 1994
Page 2
1. The pool of home improvement retail installment sales contracts (the
"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 Contracts
and pursuant to which the Certificates will be issued to certificateholders, all
as described in the Registration Statement, 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 Internal Revenue Code of 1986, as amended (the
"Code"), but rather will be classified as a grantor trust under Subpart E, Part
I of Subchapter J of the Code.
2. 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 and will be considered the equitable owner of a pro
rata undivided interest in each of the Contracts included in the Trust.
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 Registration Statement, 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: March 28, 1994
Very truly yours,
<PAGE>
Exhibit 23.2
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.
KPMG Peat Marwick
Minneapolis, Minnesota
March 28, 1994
