<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1994
-------------
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to _____________
Commission file number 0-11652
-------
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, SAINT PAUL, MINNESOTA 55102-1639
-----------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (612) 293-3400
--------------
- - --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
------- -------
AS OF JUNE 30, 1994, 67,546,092 SHARES OF COMMON STOCK OF GREEN TREE FINANCIAL
CORPORATION WERE OUTSTANDING.
<PAGE>
GREEN TREE FINANCIAL CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 1994
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of
Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
EXHIBIT INDEX 18
Exhibit 3(a). Restated Articles of Incorporation
of Green Tree Financial Corporation
dated May 27, 1992 and Articles of
Amendment to Restated Articles of
Incorporation of Green Tree Financial
Corporation dated May 20, 1994 19
Exhibit 10(i). Amendment to the Master Repurchase
Agreement between Green Tree Finance
Corp. - Four and First Boston Mortgage
Capital Corp. dated March 31, 1994 34
Exhibit 11(a). Computation of Primary Earnings Per
Share 36
Exhibit 11(b). Computation of Fully Diluted Earnings
Per Share 37
Exhibit 12. Computation of Ratio of Earnings to
Fixed Charges 38
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GREEN TREE FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,1994 December 31,1993
-------------- -----------------
(unaudited)
<S> <C> <C>
Assets:
Cash and cash equivalents $ 531,478,000 $ 170,674,000
Cash deposits, restricted 145,158,000 124,817,000
Other investments 20,649,000 19,016,000
Receivables:
Excess servicing rights 417,624,000 843,489,000
Other accounts receivable 55,047,000 58,604,000
Contracts, GNMA certificates
and collateral 403,172,000 495,225,000
Property, furniture and
fixtures 30,890,000 23,275,000
Other assets 4,519,000 4,402,000
-------------- --------------
Total assets $1,608,537,000 $1,739,502,000
============== ==============
Liabilities and Stockholders' Equity:
Notes payable -- $ 206,911,000
Senior notes $ 26,650,000 26,650,000
Senior subordinated notes
due 2002 262,619,000 262,435,000
Senior subordinated
debentures due 1995 19,418,000 19,008,000
Allowance for losses on
contracts sold with
recourse 76,060,000 222,135,000
Accounts payable and
accrued liabilities 179,008,000 103,598,000
Investor payable 166,007,000 139,655,000
Income taxes, principally
deferred 244,240,000 209,681,000
-------------- --------------
Total liabilities 974,002,000 1,190,073,000
Common stock, $.01 par;
authorized 150,000,000
shares,issued and
outstanding 67,546,092
shares (1994) and
67,034,784 shares (1993) 675,000 670,000
Additional paid-in capital 296,158,000 286,396,000
Retained earnings 337,702,000 262,363,000
-------------- --------------
Total stockholders'
equity 634,535,000 549,429,000
-------------- --------------
$1,608,537,000 $1,739,502,000
============== ==============
</TABLE>
See notes to unaudited financial statements.
3
<PAGE>
GREEN TREE FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30
---------------------------
1994 1993
------------ -----------
<S> <C> <C>
Income:
Net gains on contract sales $105,192,000 $ 70,120,000
Provision for losses on
contract sales (33,810,000) (24,108,000)
Interest 24,888,000 24,337,000
Service 9,307,000 7,517,000
Commissions and other 6,712,000 4,747,000
------------ ------------
112,289,000 82,613,000
Expenses:
Interest 9,249,000 12,349,000
Cost of servicing 6,771,000 6,176,000
General and administrative 22,558,000 16,240,000
------------ ------------
38,578,000 34,765,000
------------ ------------
Earnings before income taxes 73,711,000 47,848,000
Income taxes 29,485,000 18,661,000
------------ ------------
Net earnings $ 44,226,000 $ 29,187,000
============ ============
Earnings per common and common
equivalent share $.64 $.46
==== ====
Weighted average common and
common equivalent shares
outstanding 69,359,471 62,835,650
</TABLE>
See notes to unaudited financial statements.
4
<PAGE>
GREEN TREE FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30
---------------------------
1994 1993
------------ -------------
<S> <C> <C>
Income:
Net gains on contract sales $188,761,000 $115,245,000
Provision for losses on
contract sales (58,107,000) (36,552,000)
Interest 54,664,000 46,024,000
Service 18,606,000 14,732,000
Commissions and other 13,163,000 9,809,000
------------ ------------
217,087,000 149,258,000
Expenses:
Interest 22,543,000 23,826,000
Cost of servicing 13,485,000 12,335,000
General and administrative 43,195,000 29,084,000
------------ ------------
79,223,000 65,245,000
------------ ------------
Earnings before income taxes 137,864,000 84,013,000
Income taxes 55,146,000 32,765,000
------------ ------------
Net earnings $ 82,718,000 $ 51,248,000
============ ============
Earnings per common and common
equivalent share $1.19 $.82
===== ====
Weighted average common and
common equivalent shares
outstanding 69,247,405 62,616,774
</TABLE>
See notes to unaudited financial statements.
5
<PAGE>
GREEN TREE FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30
--------------------------------
1994 1993
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Servicing fees and net interest
payments collected $ 40,220,000 $ 117,709,000
Net proceeds from sale of net interest
margin certificates 493,600,000 --
Net principal payments collected 7,785,000 17,333,000
Interest on contracts and
GNMA certificates 33,637,000 17,693,000
Interest on cash and investments 5,228,000 2,611,000
Commissions 9,174,000 6,578,000
Other 524,000 1,484,000
--------------- ---------------
590,168,000 163,408,000
Cash paid to employees and suppliers (61,142,000) (36,085,000)
Defeasance payments -- (16,917,000)
Interest paid on debt (21,260,000) (22,272,000)
Repossession losses net of recoveries (967,000) (22,270,000)
FHA insurance premiums (1,033,000) (9,707,000)
Income taxes paid (19,247,000) (6,311,000)
--------------- ---------------
(103,649,000) (113,562,000)
--------------- ---------------
NET CASH PROVIDED BY OPERATIONS 486,519,000 49,846,000
Purchase of contracts held for sale (1,648,850,000) (1,012,029,000)
Proceeds from sale of contracts
held for sale 1,745,831,000 840,051,000
Principal collections on contracts
held for sale 34,050,000 11,765,000
Floorplan loans disbursed (66,671,000) --
Principal collections on floorplan loans 53,614,000 --
Cash deposits provided (29,483,000) (6,936,000)
Cash deposits returned 9,143,000 3,360,000
--------------- ---------------
NET CASH PROVIDED BY (USED FOR)
OPERATING ACTIVITIES 584,153,000 (113,943,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, furniture
and fixtures (9,949,000) (9,430,000)
Purchase of investment securities (1,633,000) (218,000)
--------------- ---------------
NET CASH USED FOR INVESTING ACTIVITIES (11,582,000) (9,648,000)
</TABLE>
(continued)
6
<PAGE>
GREEN TREE FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30
------------------------------------
1994 1993
----------------- ---------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on credit facilities 879,997,000 897,760,000
Repayments on credit facilities (1,086,908,000) (758,781,000)
Issuance of debt -- 14,650,000
Payment of debt -- (4,037,000)
Common stock issued 2,523,000 1,240,000
Dividends paid (7,379,000) (4,961,000)
--------------- -------------
NET CASH (USED FOR) PROVIDED BY
FINANCING ACTIVITIES (211,767,000) 145,871,000
--------------- -------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 360,804,000 22,280,000
CASH AND CASH EQUIVALENTS BEGINNING
OF PERIOD 170,674,000 133,435,000
--------------- -------------
CASH AND CASH EQUIVALENTS END OF PERIOD $ 531,478,000 $ 155,715,000
=============== =============
RECONCILIATION OF NET EARNINGS
TO NET CASH PROVIDED BY (USED FOR)
OPERATING ACTIVITIES:
Net earnings $ 82,718,000 $ 51,248,000
Provision for income taxes 55,146,000 32,765,000
Depreciation and amortization 4,249,000 2,407,000
Net proceeds from sale of net interest
margin certificates 493,600,000 --
Net contract payments collected,less
excess servicing rights recorded (127,838,000) (16,301,000)
Amortization of deferred service income (2,790,000) (12,111,000)
Amortization of present value discount (15,460,000) (25,643,000)
Net increase in cash deposits (20,341,000) (3,576,000)
Purchase of contracts held for sale, net
of sales and principal collections 131,031,000 (160,213,000)
Floorplan loans disbursed, net of
principal collections (13,057,000) --
Net discount on sale of loans 17,682,000 6,629,000
(Decrease) increase in interest payable (75,000) 594,000
Other (20,712,000) 10,258,000
--------------- -------------
NET CASH PROVIDED BY (USED FOR)
OPERATING ACTIVITIES $ 584,153,000 $(113,943,000)
=============== =============
</TABLE>
See notes to unaudited financial statements.
7
<PAGE>
GREEN TREE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED FINANCIAL STATEMENTS
A. Basis of Presentation
The interim financial statements have been prepared by Green Tree Financial
Corporation (the "Company"), without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission applicable to quarterly
reports on Form 10-Q. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations, although management believes that the disclosures are
adequate to make the information presented not misleading. It is suggested
that these financial statements be read in conjunction with the consolidated
financial statements and related notes and schedules included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1993.
Certain reclassifications have been made to the June 30, 1993 financial
statements to conform to the classifications used in the June 30, 1994
financial statements. These reclassifications had no effect on net earnings
or stockholders' equity as previously reported. All share and per share
amounts have been restated to reflect the two-for-one stock split in the form
of a stock dividend the Company effected on June 30, 1994.
In the opinion of management, the information furnished reflects all
adjustments which are of a normal recurring nature and are necessary for a
fair presentation of the Company's financial position as of June 30, 1994, the
results of its operations for the three and six-month periods ended June 30,
1994 and 1993, and its cash flows for the six-month periods ended June 30,
1994 and 1993.
B. Excess Servicing Rights Receivable
Excess servicing rights receivable consists of:
<TABLE>
<CAPTION>
June 30,1994 December 31,1993
-------------- -----------------
(unaudited)
<S> <C> <C>
Gross cash flows receivable
on contracts sold $ 593,986,000 $2,307,735,000
Less:
Prepayment reserve (179,662,000) (761,732,000)
FHA insurance premiums
and other fees (11,700,000) (83,706,000)
Deferred service income (59,149,000) (161,407,000)
Discount to present value (92,872,000) (457,401,000)
Subordinated certificates 167,021,000 --
------------- --------------
$ 417,624,000 $ 843,489,000
============= ==============
</TABLE>
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company originates conditional sales contracts for manufactured homes
("MH"), home improvements ("HI") and special products ("SP"). The Company
also markets physical damage and term life insurance relating to the
customers' contracts it services, and acts as servicer on manufactured housing
contracts originated by other lenders.
The Company records "net gains on contract sales" at the time of sale of its
contracts and defers service income, recognizing it as servicing is performed.
The Company's net gains on contract sales are an amount equal to the present
value of the expected excess servicing rights receivable to be collected
during the term of the contracts, plus or minus any premiums or discounts
realized on the sale of the contracts and less any selling expenses. "Excess
servicing rights receivable" represents cash expected to be received by the
Company over the life of the contracts less portions of future cash flows from
certain pools which have been sold by the Company in the form of net interest
margin certificates (the "certificates"). The subordinated certificates
retained by the Company from these sales are included in excess servicing
rights receivable. Excess servicing rights receivable, excluding the
subordinated certificates, is calculated by aggregating the contractual
payments to be received pursuant to the contracts and subtracting: (i) the
estimated amount to be remitted to the investors/owners of the contracts, (ii)
the estimated amount that will not be collected as a result of prepayments,
(iii) the estimated amount to be remitted for FHA insurance and other credit
enhancement fees and (iv) the estimated amount that represents deferred
service income. Deferred service income represents the amount that will be
earned by the Company for servicing the contracts. Concurrently with
recognizing such gains, the Company also records the present value of excess
servicing rights as an asset on the Company's balance sheet. The excess
servicing rights receivable is calculated using prepayment, default, and
interest rate assumptions that the Company believes market participants would
use for similar instruments. The excess servicing rights receivable has not
been reduced for expected losses under recourse provisions of the sales, but
such rights are subordinated to the rights of investors/owners of the
contracts. The Company believes that the excess servicing rights receivable
recognized at the time of sale does not exceed the amount that would be
received if it were sold in the marketplace. The Company records the amount
to be remitted to the investors/owners of the contracts or investor
certificates for the activity related to the current month, payable the next
month, as "investor payable" and it is shown separately as a liability on the
Company's balance sheet.
The Company establishes an allowance for expected losses under the recourse
provisions with investors/owners of contracts or investor certificates and
calculates that allowance on the basis of historical experience and
management's best estimate of future credit losses likely to be incurred. The
amount of this provision is reviewed quarterly and adjustments are made if
actual experience or other factors indicate management's estimate of losses
should be revised. The Company retains a substantial amount of risk of
9
<PAGE>
default on the loan portfolios that it sells. The Company has provided the
investors/owners of pools of contracts with a variety of additional forms of
credit enhancements. These credit enhancements have included letters of
credit, corporate guarantees and surety bonds that provide limited recourse to
the Company, and letters of credit that if drawn, are entitled to
reimbursement only from the future excess cash flows of the underlying
transactions. Furthermore, certain securitized sales structures use cash
reserve funds and certain cash flows from the underlying pool of contracts as
the credit enhancement. The Company believes that its allowance for losses on
contracts sold with recourse is adequate and consistent with current economic
conditions as well as historical default and loss experiences of the Company's
entire loan portfolio. The allowance for losses on contracts sold with
recourse is shown separately as a liability.
The Company's expectations used in calculating its excess servicing rights
receivable and allowance for losses on contracts sold with recourse are
subject to volatility that could materially affect operating results.
Prepayments resulting from obligor mobility, general and regional economic
conditions and prevailing interest rates, as well as actual losses incurred,
may vary from the performance the Company projects. The Company recognizes
the impact of adverse prepayment and loss experience by recording a charge to
earnings immediately. The Company reflects favorable portfolio experience
prospectively as realized.
Results of Operations:
The following tables show, for the periods indicated, the percentage change in
income, expenses and earnings for the Company's three and six-month periods
ended June 30, 1994 as compared to the same periods of 1993.
<TABLE>
<CAPTION>
Three-month Six-month
period-to-period period-to-period
increase (decrease) increase (decrease)
June 30, June 30,
1993 to 1994 1993 to 1994
------------------- -------------------
<S> <C> <C>
Income:
Net gains on contract
sales 50.0% 63.8%
Provision for losses on
contract sales 40.2 59.0
Interest 2.3 18.8
Service 23.8 26.3
Commissions and other 41.4 34.2
Expenses:
Interest (25.1) (5.4)
Cost of servicing 9.6 9.3
General and administrative 38.9 48.5
Earnings before income taxes 54.1 64.1
Net earnings 51.5 61.4
</TABLE>
10
<PAGE>
Net gains on contract sales increased 50.0% and 63.8% for the three and six-
month periods ended June 30, 1994, respectively, over the same periods in 1993
as the dollar volume of contracts originated and sold rose. For the quarter
ended June 30, 1994, total contract sales increased $466,278,000 or 84.8% and
for the six-month period ended June 30, 1994, total contract sales increased
$872,018,000 or 101.2%. Also contributing to the increase in net gains on
contract sales during the quarter and six-month period ended June 30, 1994 was
an increase in the percentage of conventional contracts versus GNMA
certificates sold and an increase in the average contract term due to a shift
in the Company's MH financing to more expensive multi-section homes and land-
and-home contracts. The effect of these increases in net gains on contract
sales was partially offset by decreased interest rate spreads on contracts
sold.
The increases in the provision for losses on contract sales of 40.2% and 59.0%
for the three and six-month periods ended June 30, 1994, respectively, also
reflect the higher dollar volume of contracts sold. These increases in the
provision were offset in part by the change in the first and second quarter
sales mix to a higher dollar volume of HI contracts sold and the improvement
in the Company's loan performance.
In March 1994, the Company sold through a public transaction approximately
$508,000,000 of securitized net interest margin certificates. The
certificates represent 78% of the estimated present value of the future excess
servicing cash flows from certain pools of manufactured housing contracts sold
by the Company between 1978 and 1993. The estimated present value of these
future excess servicing cash flows were recorded on the Company's December 31,
1993 balance sheet as part of "Excess servicing rights receivable,"
"Contracts, GNMA certificates and collateral" and "Allowance for losses on
contracts sold with recourse." The remaining 22%, which represents the
subordinated certificates, is held by the Company and recorded as part of
excess servicing rights receivable.
The following table sets forth the Company's contract originations and sales
for the three and six-month periods ended June 30, 1994 and 1993. Dollar
amounts are in thousands.
<TABLE>
<CAPTION>
Three-month Six-month
period ended period ended
June 30, June 30,
1994 1993 1994 1993
------------ ------------ ---------- ----------
<S> <C> <C> <C> <C>
Originations:
MH - Conventional $ 856,378 $544,256 $1,450,894 $ 822,877
MH - FHA/VA 21,584 84,071 51,840 133,319
HI 125,653 39,525 185,380 57,662
SP 22,876 14,217 40,950 22,902
---------- -------- ---------- ----------
Total $1,026,491 $682,069 $1,729,064 $1,036,760
========== ======== ========== ==========
Sales:
MH - Conventional $ 892,742 $450,603 $1,454,356 $ 701,004
MH - GNMA 3,491 71,071 24,778 117,499
HI 120,136 28,417 254,233 42,846
---------- -------- ---------- ----------
Total $1,016,369 $550,091 $1,733,367 $ 861,349
========== ======== ========== ==========
</TABLE>
11
<PAGE>
The manufactured housing market experienced an increase in new home
shipments during the first six months of 1994 compared to 1993. The Company
has benefited from the increase in the industry's shipments and has increased
its market share of contracts for new manufactured homes. The Company's
dollar volume of manufactured housing contract originations rose 39.7% and
57.2% during the three and six-month periods ended June 30, 1994,
respectively, over the same periods of 1993. This increase in dollar volume
is due to the growth in the number of contracts originated by the Company, an
increase in the average contract size due to a shift in the Company's MH
financing to more expense multi-section homes and land-and-home contracts, and
price increases by the MH manufacturers.
The Company's home improvement contract originations rose 217.9% and 221.5%
during the three and six-month periods ended June 30, 1994, respectively. The
Company's home improvement division has significantly increased its number of
established relationships with contractors, remodelers and dealers nationwide
through expanded servicing and marketing capabilities. This has given the
Company a growing network through which to market its HI financing, resulting
in increased contract originations.
Interest income is realized from contracts held for sale, cash deposits and
short-term investments, and amortization of the present value discount
established for the excess servicing rights receivable. Interest income grew
2.3% and 18.8% during the three and six-month periods ended June 30, 1994,
respectively, compared to the same periods in 1993 due primarily to interest
earned on the increased dollar amount of contracts held for sale during the
first six months of 1994 compared to the same period in 1993. Interest income
from the amortization of present value discount decreased during the quarter
and six-month period ended June 30, 1994 compared to the same periods in 1993
due to the sale of the net interest margin certificates in March 1994.
The increase in service income of 23.8% and 26.3% during the three and six-
month periods ended June 30, 1994, respectively, resulted from the 34.0%
growth in the Company's average originated servicing portfolio but was offset
by the decline in servicing revenue on contracts originated by others. The
average unpaid principal balance of contracts being serviced for others during
the first six months of 1994 decreased 22.2% compared to the same period in
1993. The Company expects this decline in outside servicing to continue
during 1994.
Commissions and other income, which represents commissions earned on new
insurance policies written and renewals on existing policies, as well as other
income from late fees, increased 41.4% and 34.2% during the three and six-
month periods ended June 30, 1994, respectively. This increase is primarily
due to an increase in net written insurance premiums.
Interest expense decreased 25.1% and 5.4% during the three and six-month
periods ended June 30, 1994 as a result of the lower amount of average
outstanding borrowings.
Cost of servicing increased 9.6% and 9.3% during the quarter and six-month
period ended June 30, 1994 while the Company's total average servicing
portfolio during the first six months of 1994 grew
12
<PAGE>
30.9% compared to the same period last year. The Company's cost of servicing
as a percentage of contracts serviced decreased during the first six months of
1994, compared to the same period in 1993.
General and administrative expenses rose 38.9% and 48.5% during the three and
six-month periods ended June 30, 1994, respectively, however, as a percentage
of revenue, these expenses have remained consistent with the comparative
periods in 1993. The dollar growth is due primarily to an increase in
personnel and other origination costs related to the significant growth in the
number of contracts the Company originated during the first six months of
1994.
The Company is affected by consumer demand for manufactured housing, home
improvements, special products and insurance products. Consumer demand, in
turn, is partially influenced by regional trends, economic conditions and
personal preferences. The Company can make no prediction about any particular
geographic area in which it does business. These regional effects, however,
are mitigated by the national geographic dispersion of the Company's
servicing portfolio.
Capital Resources and Liquidity:
The Company's business requires continued access to the capital markets for
the purchase, warehousing and sale of contracts. To satisfy these needs, the
Company employs a variety of capital resources.
Historically, the most important liquidity source for the Company has been its
ability to sell contracts in the secondary markets through loan
securitizations and sales of GNMA certificates. Under certain securitized
sales structures, bank letters of credit, surety bonds, cash deposits or other
equivalent collateral are provided by the Company as credit enhancements.
Certain senior/subordinated structures retain a portion of the Company's
excess servicing spread as additional credit enhancement or for accelerated
principal repayments to subordinated certificateholders. The Company analyzes
the cash flows unique to each transaction, as well as the marketability and
earnings potential of such transactions when choosing the appropriate
structure for each securitized loan sale. In addition, the structure of each
securitized sale depends, to a great extent, on conditions of fixed income
markets at the time of sale, as well as cost considerations, availability and
effectiveness of the various enhancement methods. During the second quarter
of 1994, the Company used a senior/subordinated structure for each of its
three conventional manufactured home loan sales. For each of the MH loan
sales, the Company enhanced a portion of the subordinated piece with a
corporate guarantee. This is the first quarter in which the Company has had
more than one securitized conventional MH loan sale. The Company's production
has reached a volume where multiple conventional MH loan sales in a quarter
are more feasible economically and they serve to reduce interest rate risk by
shortening the holding period of the contracts. The Company's public home
improvement loan sale in the second quarter of 1994 was comprised of two
trusts. The first employed a senior/subordinated structure with a corporate
guarantee and the second was a single class pass-through with a corporate
guarantee.
13
<PAGE>
During March 1994, the Company added another liquidity source as it completed
its first public sale of a significant portion of its excess servicing rights
receivable. Net proceeds to the Company from the sale were approximately
$494,000,000 and were used to pay down notes payable, with the remainder
invested in marketable short-term securities.
Servicing fees and net interest payments collected, which has been the
Company's principal source of cash, decreased during the six-month period
ended June 30, 1994 as a result of the sale of the net interest margin
certificates, the proceeds of which are shown separately on the Company's
statement of cash flows. For the six months ended June 30, 1994, servicing
fees and net interest payments collected consist of servicing fees collected
only from the net interest margin certificates, plus servicing fees and net
interest payments on all existing HI and SP securitizations, the first and
second quarter 1994 MH securitizations and all of the GNMA pools since the
beginning of 1994. Going forward, servicing fees and net interest payments
collected will also include servicing fees on all future securitizations and
GNMA pools in which the Company does not sell a portion of the related excess
servicing rights. Likewise, repossession losses net of recoveries for the six
months ended June 30, 1994 consist of losses on existing HI and SP
securitizations and the first and second quarter 1994 MH securitizations and
GNMA pools, and losses on the first five MH securitizations (1987 through the
first quarter of 1988), as such losses have been excluded from the net
interest margin certificate sale.
Net principal payments collected have been positive in each of the six-month
periods ended June 30, 1994 and 1993 as a result of an increase in the
contract principal payments collected by the Company as of the end of each
period but not yet remitted to the investors/owners of the contracts. These
increases are a result of customer payoffs and the growth of the Company's
servicing portfolio.
Interest on contracts and GNMA certificates during the first six months of
1994 includes interest the Company received on the net interest margin
certificates for the period they were held by the Company.
Defeasance structures were used on the Company's securitized sales in the
fourth quarter of 1990 through the second quarter of 1992. The cash flows
used to make these defeasance payments were sold as part of the net interest
margin certificate sale and the Company has no further obligation to make
these defeasance payments. Going forward, defeasance payments will include
only those payments made for future securitized sales which use a defeasance
structure in which the Company does not sell the related excess servicing
rights.
The Company has a $60,000,000 bank warehousing credit agreement for the
purpose of financing its manufactured home, home improvement and motorcycle
contract production under which $60,000,000 was available, subject to the
availability of appropriate collateral, at June 30, 1994. This agreement
expires November 30, 1994. In addition, the Company currently has
$950,000,000 in master repurchase agreements with various investment banking
firms for the purpose of financing its contract production. At June 30, 1994,
the
14
<PAGE>
Company had $950,000,000 available under these master repurchase agreements,
subject to the availability of appropriate collateral. These agreements
expire during 1994 and 1995. The Company believes, based on discussions with
the lenders, that these agreements will be renewed.
15
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Part II, Item 8, Note I (Litigation), of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1993,
which is updated as follows: On July 27, 1994, the Federal
District Court granted final approval to the settlement of the
Shareholder Class Action suit. No class members objected to the
final settlement of the case.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Green Tree's Annual Meeting of Shareholders was held May 18, 1994.
At the meeting, the shareholders elected three directors of the
Company, increased the Company's number of total authorized
shares of stock to 165 million, 150 million of which is authorized
for common stock, and ratified the selection of KPMG Peat Marwick
as independent auditors of the Company for the fiscal year ending
December 31, 1994.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. (a) EXHIBITS
3(a). Restated Articles of Incorporation
of Green Tree Financial Corporation dated
May 27, 1992 and Articles of Amendment to
Restated Articles of Incorporation of Green
Tree Financial Corporation dated May 20, 1994.
10(i). Amendment to the Master Repurchase
Agreement between Green Tree Finance
Corp.-Four and First Boston Mortgage
Capital Corp. dated March 31, 1994.
11(a). Computation of Primary Earnings Per Share.
11(b). Computation of Fully Diluted Earnings Per Share.
12. Computation of Ratio of Earnings to Fixed
Charges.
(b) REPORTS ON FORM 8-K
None.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
GREEN TREE FINANCIAL CORPORATION
DATE: August 11, 1994 /s/John W. Brink
------------------------------
John W. Brink
Executive Vice President,
Treasurer and Chief Financial
Officer
DATE: August 11, 1994 /s/Drew S. Backstrand
------------------------------
Drew S. Backstrand
Vice President and General
Counsel
17
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Page
- - ------ ------- ----
<S> <C> <C>
3(a). Restated Articles of Incorporation
of Green Tree Financial Corporation
dated May 27, 1992 and Articles of
Amendment to Restated Articles of
Incorporation of Green Tree Financial
Corporation dated May 20, 1994 19
10(i). Amendment to the Master Repurchase
Agreement between Green Tree Finance
Corp.-Four and First Boston Mortgage
Capital Corp. dated March 31, 1994 34
11(a). Computation of Primary Earnings Per Share 36
11(b). Computation of Fully Diluted Earnings Per
Share 37
12. Computation of Ratio of Earnings to
Fixed Charges 38
</TABLE>
18
<PAGE>
Exhibit 3(a).
RESTATED
ARTICLES OF INCORPORATION
OF
GREEN TREE FINANCIAL CORPORATION
ARTICLE 1. NAME
---------- ----
The name of the Corporation is "Green Tree Financial Corporation."
ARTICLE 2. REGISTERED OFFICE
---------- -----------------
The address of the registered office of the Corporation in Minnesota
is 1100 Landmark Towers, 345 St. Peter Street, Saint Paul, Minnesota 55102-
1639.
ARTICLE 3. AUTHORIZED SHARES
---------- -----------------
The aggregate number of shares which this Corporation shall have
authority to issue is 65,000,000 shares, divided into 50,000,000 common shares
with a par value of $0.01 per share, which shall be known as "Common Stock"
and 15,000,000 preferred shares with a par value of $0.01 per share, which
shall be known as "Preferred Stock".
A. Common Stock. The holders of the Common Stock shall be entitled
to receive, when and as declared by the Board of Directors, out of earnings or
surplus legally available therefore, dividends payable either in cash, in
property, or in shares of the capital stock of the Corporation. Each holder
of record of the Common Stock shall have one vote for each share of Common
Stock standing in such holder's name on the books of the Corporation and
entitled to vote. The Common Stock shall have no special powers, preferences,
or rights, or qualifications, limitations, or restrictions thereof.
B. Preferred Stock. Shares of Preferred Stock may be issued from
time to time in one or more series as the Board of Directors may determine, as
hereinafter provided. The Board of Directors is hereby authorized, by
resolution or resolutions, to provide from time to time, out of the unissued
shares of Preferred Stock not then allocated to any series of Preferred Stock,
for series of the Preferred Stock. Before any shares of any such series of
Preferred Stock are issued, the Board of Directors shall fix and determine,
and is hereby expressly empowered to fix and determine, by resolution or
resolutions, the designations, powers, preferences, and relative
participating, optional, and other special rights, and the qualifications,
limitations, and restrictions thereof, of the shares of such series including,
without limiting the generality of the foregoing, any of the following
provisions with respect to which the Board of Directors shall determine to
make affirmative provision:
19
<PAGE>
1. The designation and name of such series and the number of shares that
shall constitute such series;
2. The annual dividend rate or rates payable on shares of such series,
the date or dates from which such dividends shall commence to accrue, and
the dividend payment dates for such dividends;
3. Whether dividends on such series are to be cumulative or
noncumulative, and the participating or other special rights, if any, with
respect to the payment of dividends;
4. Whether such series shall be subject to redemption and, if so, the
manner of redemption, the redemption price or prices and the terms and
conditions on which shares of such series may be redeemed;
5. Whether such series shall have a sinking fund or other retirement
provisions for the redemption or purchase of shares of such series, and, if
so, the terms and amount of such sinking fund or other retirement
provisions and the extent to which the charges therefore are to have
priority over the payment of dividends on or the making of sinking fund or
other like retirement provisions for shares of any other series or over the
payment of dividends on the Common Stock;
6. The amounts payable on shares of such series on voluntary or
involuntary dissolution, liquidation, or winding up of the affairs of the
Corporation and the extent to which such payment shall have priority over
the payment of any amount on voluntary or involuntary dissolution,
liquidation, or winding up of affairs of the Corporation on shares of any
other series or on the Common Stock;
7. The terms and conditions, if any, on which shares of such series may
be converted into, or exchanged for, shares of any other series or of
Common Stock;
8. The extent of the voting powers, if any, of the shares of such
series;
9. The stated value, if any, for the shares of such series, the
consideration for which shares of such series may be issued and the amount
of such consideration that shall be credited to the capital account; and
10. Any other preferences and relative, participating, optional, or
other special rights, and qualifications, limitations, or restrictions
thereof, of the shares of such series.
The Board of Directors is expressly authorized to vary the provisions
relating to the foregoing matters between the various series of Preferred
Stock.
20
<PAGE>
All shares of Preferred Stock of any one series shall be identical in
all respects with all other shares of such series, except that shares of any
one series issued at different times may differ as to the dates from which
dividends thereon shall be payable, and if cumulative, shall cumulate.
Shares of any series of Preferred Stock that shall be issued and
thereafter acquired by the Corporation through purchase, redemption (whether
through the operation of a sinking fund or otherwise), conversion, exchange,
or otherwise, shall, upon appropriate filing and recording to the extent
required by law, have the status of authorized and unissued shares of
Preferred Stock and may be reissued as part of such series or as part of any
other series of Preferred Stock. Unless otherwise provided in the resolution
or resolutions of the Board of Directors providing for the issuance thereof,
the number of authorized shares of stock of any series of Preferred Stock may
be increased or decreased (but not below the number of shares thereof then
outstanding) by resolution or resolutions of the Board of Directors and
appropriate filing and recording to the extent required by law. In case the
number of shares of any such series of Preferred Stock shall be decreased, the
shares representing such decrease shall, unless otherwise provided in the
resolution or resolutions of the Board of Directors providing for the issuance
thereof, resume the status of authorized but unissued shares of Preferred
Stock, undesignated as to series.
ARTICLE 4. NO CUMULATIVE VOTING
---------- --------------------
There shall be no cumulative voting by the shareholders of the
Corporation.
ARTICLE 5. NO PREEMPTIVE RIGHTS
---------- --------------------
The shareholders of the Corporation shall not have preemptive rights
to subscribe for or acquire securities or rights to purchase securities of any
kind, class or series of the Corporation.
ARTICLE 6. WRITTEN ACTION BY DIRECTORS
---------- ---------------------------
Any action required or permitted to be taken at a meeting of the Board
of Directors may be taken by written action signed by the number of Directors
that would be required to take the same action at a meeting of the Board at
which all Directors were present.
ARTICLE 7. SHAREHOLDER VOTING REQUIREMENTS
---------- -------------------------------
Except as provided elsewhere in these Restated Articles of
Incorporation, any agreement for consolidation or merger with one or more
foreign or domestic corporations, amendment of these Restated Articles of
Incorporation or dissolution of this Corporation may be authorized by the
affirmative vote of the holders of a majority of the voting power of all
shares entitled to vote.
21
<PAGE>
ARTICLE 8. CERTAIN BUSINESS COMBINATIONS
---------- -----------------------------
A. In addition to any affirmative vote required by law or these
Restated Articles of Incorporation, and except as otherwise expressly provided
in paragraph B of this Article 8,
1. any merger or consolidation of the Corporation or any Subsidiary
(as hereinafter defined) with (a) an Interested Shareholder (as hereinafter
defined) or (b) any other corporation (whether or not itself an Interested
Shareholder) which is, or after such merger or consolidation would be, an
Affiliate or Associate (as such terms are hereinafter defined) of an
Interested Shareholder, or
2. any sale, lease, exchange, mortgage, pledge, grant of a security
interest, transfer, or other disposition (in one transaction or a series of
transactions), other than in the ordinary course of business, to or with
(a) an Interested Shareholder or (b) any other person (whether or not
itself an Interested Shareholder) which is, or after such sale, lease,
exchange, mortgage, pledge, grant of a security interest, transfer, or
other disposition would be, an Affiliate or Associate of an Interested
Shareholder, directly or indirectly, of all or any Substantial Part (as
hereinafter defined) of the assets of the Corporation (including, without
limitation, any voting securities of a Subsidiary) or any Subsidiary, or
both, or
3. the issuance or transfer by the Corporation or any Subsidiary (in
one transaction or a series of transactions) of any securities (except
pursuant to stock dividends, stock splits, or similar transactions which
would not have the effect of increasing the proportionate voting power of
an Interested Shareholder) of the Corporation or any Subsidiary, or both,
to (a) an Interested Shareholder or (b) any other person (whether or not
itself an Interested Shareholder) which is, or after such issuance or
transfer would be, an Affiliate or Associate of an Interested Shareholder,
or
4. the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation proposed by or on behalf of an Interested
Shareholder or any Affiliate or Associate of an Interested Shareholder, or
5. any reclassification of securities (including any reverse stock
split), or recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any of its Subsidiaries or any other
transaction (whether or not with or into or otherwise involving an
Interested Shareholder) which has the effect, directly or indirectly, of
increasing the proportionate share of the outstanding shares of any class
of equity or convertible securities of the Corporation or any Subsidiary
directly or indirectly beneficially owned by (a) an Interested Shareholder
or (b) any other person (whether or not itself an Interested Shareholder)
which is, or after
22
<PAGE>
such reclassification, recapitalization, merger, or consolidation, or other
transaction would be, an Affiliate or Associate of an Interested
Shareholder,
shall not be consummated unless such consummation shall have been approved by
the affirmative vote of the holders of at least 80% of the combined voting
power of the then outstanding shares of Voting Stock (as hereinafter defined),
voting together as a single class. Such affirmative vote shall be required
notwithstanding the fact that no vote may be required, or that a lesser
percentage may be specified, by law, in these Restated Articles of
Incorporation, in any agreement with any national securities exchange, or
otherwise.
B. The provisions of paragraph (A) of this Article 8 shall not be
applicable to any particular Business Combination (as hereinafter defined) and
such Business Combination shall require only such affirmative vote as is
required by law and any other provision of these Restated Articles of
Incorporation, if the Business Combination shall have been approved by a
majority of the Continuing Directors (as hereinafter defined) or all of the
following conditions shall have been met:
1. The transaction constituting the Business Combination shall provide
for a consideration to be received by all holders of Common Stock in
exchange for all their shares of Common Stock and the aggregate amount of
the cash and the Fair Market Value (as hereinafter defined) as of the date
of the consummation of the Business Combination of consideration other than
cash to be received per share by holders of Common Stock in such Business
Combination shall be at least equal to the higher of the following:
(a) (if applicable) the highest per share price (including any
brokerage commissions, transfer taxes and soliciting dealers' fees)
paid in order to acquire any shares of Common Stock beneficially owned
by an Interested Shareholder (i) within the two-year period
immediately prior to the Announcement Date (as hereinafter defined),
(ii) within the two-year period immediately prior to the Determination
Date (as hereinafter defined), or (iii) in the transaction in which it
became an Interested Shareholder, whichever is highest; or
(b) the Fair Market Value per share of Common Stock on the
Announcement Date or on the Determination Date, whichever is higher;
2. If the transaction constituting the Business Combination shall
provide for a consideration to be received by holders of any class or
series of outstanding Voting Stock other than Common Stock, the aggregate
amount of the cash and the Fair Market Value as of the date of the
consummation of the Business Combination of consideration other than cash
to be received per share by holders of
23
<PAGE>
shares of such class or series of Voting Stock shall be at least equal to
the highest of the following (it being intended that the requirements of
this subparagraph 2 shall be required to be met with respect to every class
and series of outstanding Voting Stock, whether or not an Interested
Shareholder has previously acquired any shares of a particular class of
Voting Stock):
(a) (if applicable) the highest per share price (including any
brokerage commissions, transfer taxes, and soliciting dealers' fees)
paid in order to acquire any shares of such class or series of Voting
Stock beneficially owned by an Interested Shareholder (i) within the
two-year period immediately prior to the Announcement Date, (ii) within
the two-year period immediately prior to the Determination Date, or
(iii) in the transaction in which it became an Interested Shareholder,
whichever is highest; or
(b) the Fair Market Value per share of such class or series of Voting
Stock on the Announcement Date or the Determination Date, whichever is
higher; or
(c) (if applicable) the highest preferential amount per share to
which the holders of shares of such class or series of Voting Stock are
entitled in the event of any voluntary or involuntary liquidation,
dissolution, or winding up of the Corporation;
3. The consideration to be received by holders of a particular class or
series of outstanding Voting Stock (including Common Stock) shall be in
cash or in the same form as was previously paid in order to acquire shares
of such class or series of Voting Stock which are beneficially owned by an
Interested Shareholder and, if an Interested Shareholder beneficially owns
shares of any class or series of Voting Stock which were acquired with
varying forms of consideration, the form of consideration for such class or
series of Voting Stock shall be either cash or the form used to acquire the
largest number of shares of such class or series of Voting Stock
beneficially owned by it. The price determined in accordance with
subparagraphs 1 and 2 of this paragraph shall be subject to appropriate
adjustment in the event of any recapitalization, stock dividend, stock
split, combination of shares, or similar event;
4. After an Interested Shareholder has become an Interested Shareholder
and prior to the consummation of such Business Combination:
(a) except as approved by a majority of the Continuing Directors,
there shall have been no failure to declare and pay at the regular date
therefor the full amount of any dividends (whether
24
<PAGE>
or not cumulative) payable on any outstanding preferred stock;
(b) there shall have been (i) no reduction in the annual rate of
dividends paid on the Common Stock (except as necessary to reflect any
subdivision of the Common Stock) other than as approved by a majority
of the Continuing Directors and (ii) an increase in such annual rate of
dividends as necessary to prevent any such reduction in the event of
any reclassification (including any reverse stock split),
recapitalization, reorganization, or any similar transaction which has
the effect of reducing the number of outstanding shares of the Common
Stock, unless the failure so to increase such annual rate is approved
by a majority of the Continuing Directors; and
(c) such Interested Shareholder shall not have become the beneficial
owner of any additional shares of Voting Stock except as part of the
transaction in which it became an Interested Shareholder;
5. After an Interested Shareholder has become an Interested Shareholder,
such Interested Shareholder shall not have received the benefit, directly
or indirectly (except proportionately as a shareholder), of any loans,
advances, guarantees, pledges, or other financial assistance or any tax
credits or other tax advantages provided by the Corporation, whether in
anticipation of or in connection with such Business Combination or
otherwise; and
6. A proxy or information statement describing the proposed Business
Combination and complying with the requirements of the Securities Exchange
Act of 1934 and the rules and regulations thereunder (or any subsequent
provisions replacing such Act, rules or regulations) shall be mailed to the
shareholders of the Corporation, no later than the earlier of (a) 30 days
prior to any vote on the proposed Business Combination or (b) if no vote on
such Business Combination is required, 60 days prior to the consummation of
such Business Combination (whether or not such proxy or information
statement is required to be mailed pursuant to such Act or subsequent
provisions). Such proxy statement shall contain at the front thereof, in a
prominent place, any recommendations as to the advisability (or
inadvisability) of the Business Combination which the Continuing Directors,
or any of them, may have furnished in writing and, if deemed advisable by a
majority of the Continuing Directors, an opinion of a reputable investment
banking firm as to the fairness (or lack of fairness) of the terms of such
Business Combination, from the point of view of the holders of Voting Stock
other than an Interested Shareholder (such investment banking firm to be
selected by a majority of the Continuing Directors, to be
25
<PAGE>
furnished with all information it reasonable requests and to be paid a
reasonable fee for its services upon receipt by the Corporation of such
opinion).
C. For the purposes of this Article 8:
1. "Business Combination" shall mean any transaction which is referred
to in any one or more of subparagraphs 1 through 5 of paragraph (A) of this
Article 8.
2. "Voting Stock" shall mean stock of all classes and series of the
Corporation entitled to vote generally in the election of directors.
3. "Person" shall mean any individual, firm, trust, partnership,
association, corporation, or other entity.
4. "Interested Shareholder" shall mean any person (other than the
Corporation or any Subsidiary) who or which:
(a) is the beneficial owner, directly or indirectly, of more than 10%
of the combined voting power of the then outstanding Voting Stock; or
(b) is an Affiliate or Associate of the Corporation and at any time
within the two-year period immediately prior to the date in question
was the beneficial owner, directly or indirectly, of more than 10% of
the combined voting power of the then outstanding Voting Stock; or
(c) is an assignee of or has otherwise succeeded to the beneficial
ownership of any shares of Voting Stock which were at any time within
the two-year period immediately prior to the date in question
beneficially owned by an Interested
Shareholder, unless such assignment or succession shall have occurred
pursuant to a Public Transaction (as hereinafter defined) or any series
of Public Transactions.
For the purposes of determining whether a person is an Interested
Shareholder, the number of shares of Voting Stock deemed to be outstanding
shall include shares deemed owned through application of subparagraph 6 below
but shall not include any other shares of Voting Stock which may be issuable
pursuant to any agreement, arrangement or understanding, or upon exercise of
conversion rights, warrants or options, or otherwise.
5. "Public Transaction" shall mean any (a) purchase of shares offered
pursuant to an effective registration statement under the Securities Act of
1933 or (b) open-market purchase of shares on a national securities
exchange or in the over-the-counter market if, in either
26
<PAGE>
such case, the price and other terms of sale are not negotiated by the
purchaser and the seller of the beneficial interest in the shares.
6. A person shall be a "beneficial owner" of any Voting Stock:
(a) which such person or any of its Affiliates or Associates
beneficially owns, directly or indirectly; or
(b) which such person or any of its Affiliates or Associates has (i)
the right to acquire (whether such right is exercisable immediately or
only after the passage of time) pursuant to any agreement, arrangement,
or understanding or upon the exercise of conversion rights, exchange
rights, warrants, or options, or otherwise or (ii) the right to vote or
to direct the voting thereof pursuant to any agreement, arrangement or
understanding; or
(c) which is beneficially owned, directly or indirectly, by any other
person with which such person or any of its Affiliates or Associates
has any agreement, arrangement, or understanding for the purpose of
acquiring, holding, voting or disposing of any shares of Voting Stock.
7. "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations
under the Securities Exchange Act of 1934, as in effect on January 1, 1985.
8. "Subsidiary" shall mean any corporation of which a majority of any
class of equity security (as defined in Rule 3a11-1 of the General Rules
and Regulations under the Securities Exchange Act of 1934, as in effect on
January 1, 1985) is owned, directly or indirectly, by the Corporation;
provided, however, that, for purposes of the definition of Interested
Shareholder set forth in subparagraph 4, the term "Subsidiary" shall mean
only a corporation of which a majority of each class of equity security is
owned, directly or indirectly, by the Corporation.
9. "Continuing Director" shall mean (A) any member of the Board of
Directors of the Corporation who (1) is not an Affiliate or Associate of,
and not a nominee of, an Interested Shareholder, and (2) was a member of
the board prior to the time that any Interested Shareholder became an
Interested Shareholder, and (B) any successor of any such member who is not
an Affiliate or an Associate of, and not a nominee of, such Interested
Shareholder and is recommended to succeed any such member by a majority of
all such members then on the Board of Directors.
27
<PAGE>
10. "Announcement Date" shall mean the date of the first public
announcement of the proposed Business Combination.
11. "Determination Date" shall mean the date on which an Interested
Shareholder became an Interested Shareholder.
12. "Fair Market Value" shall mean: (a) in the case of stock, the
highest closing sale price during the 30-day period immediately preceding
the date in question of a share of such stock on the Composite Tape for New
York Stock Exchange-Listed Stocks, or, if such stock is not quoted on the
Composite Tape, on the New York Stock Exchange, or, if such stock is not
listed on such Exchange, on the principal United States securities exchange
registered under the Securities Exchange Act of 1934 on which such stock is
listed, or, if such stock is not listed on any such exchange, the highest
closing bid quotation or last reported sale price, whichever is applicable,
with respect to a share of such stock during the 30-day period preceding
the date in question on the National Association of Securities Dealers,
Inc. Automated Quotations System or any system then in use, or if no such
quotations are available, the fair market value on the date in question of
a share of such stock as determined by a majority of the Continuing
Directors in good faith; and (b) in the case of property other than cash
or stock, the fair market value of such property on the date in question as
determined by a majority of the Continuing Directors in good faith.
13. "Substantial Part" shall mean more than 30 percent of the fair
market value of the total assets of the Corporation as of the end of its
most recent fiscal year ending prior to the time the determination is being
made.
D. A majority of the Continuing Directors shall have the power and
duty to determine for the purposes of this Article 8, on the basis of
information known to them after reasonable inquiry, all facts necessary to
determine compliance with this Article 8, including, without limitation, (1)
whether a person is an Interested Shareholder, (2) the number of shares of
Voting Stock beneficially owned by any person, (3) whether a person is an
Affiliate or Associate of another, (4) whether the assets which are the
subject of any Business Combination constitute a Substantial Part of the
assets of the Corporation or the Subsidiary, or both, (5) whether the
requirements of paragraph (B) of this Article 8 have been met, and (6) such
other matters with respect to which a determination is required under this
Article 8. The good faith determination of a majority of the Continuing
Directors on such matters shall be conclusive and binding for all purposes of
this Article 8.
E. Nothing contained in this Article 8 shall be construed to relieve
an Interested Shareholder from any fiduciary obligation imposed by law.
28
<PAGE>
F. Notwithstanding any other provisions of these Restated Articles of
Incorporation or the Bylaws of the Corporation or the fact that a lesser
percentage may be specified by law, these Restated Articles of Incorporation
or the Bylaws of the Corporation, the affirmative vote of the holders of at
least 80% of the combined voting power of the then outstanding Voting Stock,
voting as a single class, shall be required to amend, alter, adopt any
provision inconsistent with or repeal this Article 8.
ARTICLE 9. PURCHASES OF STOCK OF THE CORPORATION
---------- -------------------------------------
A. Except as otherwise expressly provided in this Article 9, the
Corporation may not purchase any shares of Common Stock at a per-share price
in excess of the Fair Market Price (as hereinafter defined) as of the time of
such purchase from a person known by the Corporation to be a Substantial
Shareholder (as hereinafter defined), unless such purchase has been approved
by the affirmative vote of the holders of at least two-thirds of the shares of
Common Stock voted thereon held by Disinterested Shareholders (as hereinafter
defined). Such affirmative vote shall be required notwithstanding the fact
that no vote may be required or that a lesser percentage may be specified by
law, in these Restated Articles of Incorporation or in any agreement with any
national securities exchange or otherwise.
B. The provisions of this Article 9 shall not apply to (1) any
purchase pursuant to an offer to purchase which is made on the same terms and
conditions to the holders of all of the outstanding shares of Common Stock,
(2) any open market purchase that constitutes a Public Transaction (as
hereinafter defined), or (3) any purchases pursuant to the Agreement dated May
16, 1985 between the Corporation, Midwest Federal Savings and Loan Association
of Minneapolis and GT Holdings, Inc.
C. For the purposes of this Article 9:
1. The terms "Person", "Public Transaction", "beneficial owner",
"Affiliate", and "Associate" shall have the meanings given to them in
Article 8 of these Restated Articles of Incorporation.
2. "Substantial Shareholder" shall mean any person (other than any
employee benefit plan or trust of the Corporation or any similar entity)
who or which is the beneficial owner of shares of Common Stock constituting
more than 10% of the combined voting power of the then outstanding Common
Stock, and who or which acquired beneficial ownership of any such shares
within the two-year period immediately prior to the date on which the
Corporation purchases any such shares.
For the purposes of determining whether a person is a Substantial
Shareholder, the number of shares of Common Stock deemed to be outstanding
shall include shares deemed owned through application of subparagraph 5
below but shall not include any other shares of Common Stock which may be
29
<PAGE>
issuable pursuant to any agreement, arrangement or understanding, or upon
exercise of conversion rights, warrants or options, or otherwise.
3. "Disinterested Shareholders" shall mean those holders of Common Stock
who are not Substantial Shareholders.
4. "Fair Market Price" shall mean the highest closing sale price on the
Composite Tape for New York Stock Exchange-Listed Stocks during the 30-day
period immediately preceding the date in question of a share of Common
Stock or, if such stock is not quoted on the Composite Tape, on the New
York Stock Exchange or, if such stock is not listed on such Exchange, on
the principal United States securities exchange registered under the
Securities Exchange Act of 1934 on which such stock is listed, or, if such
stock is not listed on any such exchange, the highest closing bid quotation
or last reported sale price, whichever is applicable, with respect to a
share of such stock during the 30-day period preceding the date in question
on the National Association of Securities Dealers, Inc. Automated
Quotations System or any system then in use, or, if no such quotations are
available, the fair market value on the date in question of a share of such
stock as determined by a majority of the Board of Directors in good faith.
5. A person shall be a "beneficial owner" of any Voting Stock:
(a) which such person or any of its Affiliates of Associates
beneficially owns, directly or indirectly; or
(b) which such person or any of its Affiliates of Associates has (i)
the right to acquire (whether such right is exercisable immediately or
only after the passage of time) pursuant to any agreement, arrangement,
or understanding or upon the exercise of conversion rights, exchange
rights, warrants, or options, or otherwise or (ii) the right to vote
or to direct the voting thereof pursuant to any agreement,
arrangement or understanding; or
(c) which is beneficially owned, directly or indirectly, by any other
person with which such person or any of its Affiliates or Associates
has any agreement, arrangement, or understanding for the purpose of
acquiring, holding, voting or disposing of any shares of Voting Stock.
D. A majority of the Board of Directors shall have the power and duty
to determine for the purposes of this Article 9, on the basis of information
known to them after reasonable inquiry, all facts necessary to determine
compliance with this Article 9, including without limitation (1) whether a
person is a Substantial Shareholder, (2) the number of shares of Common Stock
30
<PAGE>
beneficially owned by any person, (3) whether a person is an Affiliate or
Associate of another, (4) whether a price is in excess of the Fair Market
Price, (5) whether a purchase constitutes a Public Transaction and (6) such
other matters with respect to which a determination is required under this
Article 9. The good faith determination of a majority of the Board of
Directors on such matters shall be conclusive and binding for all purposes of
this Article 9.
E. Nothing contained in this Article 9 shall be construed to relieve
a Substantial Shareholder from any fiduciary obligation imposed by law.
F. Notwithstanding any other provisions of these Restated Articles of
Incorporation or the Bylaws of the Corporation or the fact that a lesser
percentage may be specified by law, these Restated Articles of Incorporation
or the Bylaws of the Corporation, the affirmative vote of the holders of at
least 80% of the combined voting powers of the then outstanding voting stock,
voting as a single class, shall be required to amend, alter, adopt any
provision inconsistent with, or repeal this Article 9.
ARTICLE 10. BYLAWS
----------- ------
The Board of Directors shall have the power, to the extent permitted
by law, to adopt, amend or repeal the Bylaws of this Corporation, subject to
the power of the shareholders to adopt, amend, or repeal such bylaws. Bylaws
fixing the number of directors or their classifications, qualifications, or
terms of office, or prescribing procedures for removing directors or filling
vacancies in the Board may be adopted, amended or repealed only by (i) the
Board of Directors, to the extent permitted by law, or (ii) the affirmative
vote of the holders of 80% of the combined voting power of the then
outstanding voting stock of this Corporation, voting as a single class, or
such lesser percentage of the outstanding voting stock as may from time to
time be provided in such Bylaws.
Notwithstanding any other provisions of these Restated Articles of
Incorporation or the Bylaws of the Corporation or the fact that a lesser
percentage may be specified by law, these Restated Articles of Incorporation
or the Bylaws of the Corporation, the affirmative vote of the holders of at
least 80% of the combined voting power of the then outstanding voting stock,
voting as a single class, shall be required to amend, alter, adopt any
provision inconsistent with or repeal this Article 10.
ARTICLE 11. LIMITATION OF DIRECTORS' LIABILITY
----------- ----------------------------------
A Director of this Corporation shall not be personally liable to the
Corporation or its shareholders for monetary damages for breach of fiduciary
duty as a Director, except for liability (i) for any breach of the Director's
duty of loyalty to the Corporation or its shareholders; (ii) for acts or
omissions
31
<PAGE>
not in good faith or which involve intentional misconduct or a knowing
violation of the law; (iii) under Sections 302A.559 or 80A.23 of the
Minnesota Statutes; (iv) for any transaction from which the Director derived
an improper personal benefit; or (v) for any act or omission occurring prior
to the date when this Article 11 became effective.
Any repeal or modification of the foregoing provisions of this Article
11 by the shareholders of the Corporation shall not adversely affect any right
or protection of a Director of the Corporation existing at the time of such
repeal or modification.
* * * *
The resolution adopted by the Board of Directors on October 9, 1985
establishing the Series A Junior Participating Preferred Stock, in connection
with the Company's Shareholder Right Plan, also continue in effect as part of
the Restated Articles.
32
<PAGE>
ARTICLES OF AMENDMENT TO
RESTATED ARTICLES OF INCORPORATION
OF
GREEN TREE FINANCIAL CORPORATION
The undersigned, Robert D. Potts and Richard G. Evans, the President
and Chief Operating Officer and the Secretary, respectively, of Green Tree
Financial Corporation (the "Corporation"), a corporation organized under and
subject to the provisions of the Minnesota Business Corporation Act, Minnesota
Statutes Chapter 302A, do hereby certify that the following Resolution was
duly approved at a meeting of the shareholders of the Corporation which was
held on May 18, 1994, and that such Resolution has not been subsequently
modified or rescinded:
RESOLVED, that the Restated Articles of Incorporation of the
Corporation shall be amended by restating the first paragraph of "Article 3.
Authorized Shares" as follows:
The aggregate number of shares which this Corporation shall have
authority to issue is 165,000,000 shares, divided into 150,000,000
common shares with a par value of $0.01 per share, which shall be known
as "Common Stock" and 15,000,000 preferred shares with a par value of
$0.01 per share, which shall be known as "Preferred Stock".
The Amendment to Restated Articles of Incorporation stated above has been
adopted pursuant to Chapter 302A of the Minnesota Statutes. The remainder of
the existing Article 3 in the Restated Articles of Incorporation of Green Tree
Financial Corporation is unchanged.
IN WITNESS WHEREOF, we have subscribed our names as President and
Chief Operating Officer and Secretary, respectively, of Green Tree Financial
Corporation, this 20th day of May, 1994.
By: ___________________________
Robert D. Potts
President and Chief
Operating Officer
By: ___________________________
Richard G. Evans
Secretary
33
<PAGE>
Exhibit 10(i).
GREEN TREE FINANCE CORP.--FOUR
March 31, 1994
CS First Boston Mortgage Capital Corp.
Park Avenue Plaza
New York, New York 10055
Dear Sirs:
This Letter Agreement confirms our agreement to extend the Master
Repurchase Agreement (the "Repurchase Agreement") dated as of May 17, 1991
entered into between CS First Boston Mortgage Capital Corp. ("FBMCC") and
Green Tree Finance Corp.--Four ("GTFC"), as amended by a letter agreement
dated May 4, 1992. Reference is made to the Repurchase Agreement, the
Servicing Agreement for Manufactured Housing Contracts, the Servicing
Agreement for FHA Title I Home Improvement Loans, the Custodial Agreement for
Manufactured Housing Contracts and the Custodial Agreement for FHA Title I
Home Improvement Loans, each dated as of May 17, 1991, and all other
Agreements (collectively, the "Agreements") entered into concurrently
therewith which evidence the intent of GTFC and FBMCC to enter into certain
repurchase transactions.
1. We agree to extend the Repurchase Agreement to March 31, 1995 and to
amend Section 10 of the Supplemental Terms to the Repurchase Agreement to read
in its entirety as follows:
"10. Term of Agreement. The last sentence of Section 15 of the
Repurchase Agreement is hereby deleted. Subject to earlier termination as
set forth below, the Agreement shall remain in effect for a period of one
year and this Agreement and all Transactions outstanding hereunder shall
terminate automatically without any requirement for notice on March 30,
1995; provided, however, that the Agreement and any Transaction
outstanding hereunder may be extended by mutual agreement in writing of
FBMCC, GTFC and Green Tree from time to time no later than the March 31,
June 30, September 30 and December 31 occurring in each calendar year,
and each such extension shall extend the term of this Agreement and any
Transaction outstanding hereunder to the March 30, June 29, September 29
or December 30, as applicable, of the following calendar year; and
provided further, however, that no such party shall be obligated to agree
to such an extension. It is further understood and agreed that if,
notwithstanding the foregoing, any Transaction shall remain outstanding
subsequent to the termination of this Agreement, this Agreement shall
nevertheless survive to govern the termination of such outstanding
Transaction."
34
<PAGE>
2. We agree to amend Section 12(c) of the Supplemental Terms to the
Repurchase Agreement to read in its entirety as follows:
"(c) The aggregate outstanding Repurchase Price for the Purchased
Securities subject to the Agreement at any one time shall not exceed
$200,000,000; and"
3. Green Tree Financial Corporation hereby agrees that its Limited
Guaranty, dated May 17, 1991, shall be deemed amended from time to time to
acknowledge the amendments to the Repurchase Agreement effected by this Letter
Agreement and to acknowledge subsequent extensions of the Repurchase Agreement
as contemplated by this Letter Agreement.
Except as amended hereby, the Repurchase Agreement shall remain in
full force and effect and the parties hereto hereby restate and reaffirm all
of the terms and provisions of the Repurchase Agreement. Capitalized terms
used herein and not described herein will have the meanings described in the
Agreements. GTFC hereby agrees that all representations and warranties made
in the Agreements are true and correct as of the date hereof.
IN WITNESS WHEREOF, the parties hereto, by their duly authorized
officers, have executed this Amendment as of the date and year first above
written.
Sincerely,
GREEN TREE FINANCE CORP.-FOUR
By: _______________________
John W. Brink
Vice President
GREEN TREE FINANCIAL CORPORATION
By: _______________________
John W. Brink
Executive Vice President,
Treasurer and Chief Financial
Officer
AGREED AND ACCEPTED
as of the date first above written
CS FIRST BOSTON MORTGAGE
CAPITAL CORP.
By: _______________________
Name: _______________________
Title: _______________________
35
<PAGE>
Exhibit 11.(a)
GREEN TREE FINANCIAL CORPORATION AND SUBSIDIARIES
-------------------------------------------------
COMPUTATION OF PRIMARY EARNINGS PER SHARE
-----------------------------------------
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30
------------------------
1994 1993
----------- -----------
<S> <C> <C>
Net earnings $82,718,000 $51,248,000
=========== ===========
Weighted average number of
common and common equivalent
shares outstanding:
Weighted average common
shares outstanding 67,317,267 60,992,166
Dilutive effect of stock
options after application
of treasury-stock method 1,930,138 1,624,608
----------- -----------
69,247,405 62,616,774
=========== ===========
Earnings per share $ 1.19 $ .82
=========== ===========
Three Months Ended June 30
--------------------------
1994 1993
----------- -----------
Net earnings $44,226,000 $29,187,000
=========== ===========
Weighted average number of
common and common equivalent
shares outstanding:
Weighted average common
shares outstanding 67,434,077 61,089,024
Dilutive effect of stock
options after application
of treasury-stock method 1,925,394 1,746,626
----------- -----------
69,359,471 62,835,650
=========== ===========
Earnings per share $ .64 $ .46
=========== ===========
</TABLE>
36
<PAGE>
Exhibit 11.(b)
GREEN TREE FINANCIAL CORPORATION AND SUBSIDIARIES
COMPUTATION OF FULLY DILUTED EARNINGS PER SHARE
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30
------------------------
1994 1993
----------- -----------
<S> <C> <C>
Net earnings $82,718,000 $51,248,000
=========== ===========
Weighted average number of
common and common equivalent
shares outstanding:
Weighted average common
shares outstanding 67,317,267 60,992,166
Dilutive effect of stock
options after application
of treasury-stock method 1,930,138 1,804,868
----------- -----------
69,247,405 62,797,034
=========== ===========
Earnings per share $ 1.19 $ .82
=========== ===========
Three Months Ended June 30
--------------------------
1994 1993
----------- -----------
Net earnings $44,226,000 $29,187,000
=========== ===========
Weighted average number of
common and common equivalent
shares outstanding:
Weighted average common
shares outstanding 67,434,077 61,089,024
Dilutive effect of stock
options after application
of treasury-stock method 1,957,967 1,914,138
----------- -----------
69,392,044 63,003,162
=========== ===========
Earnings per share $ .64 $ .46
=========== ===========
</TABLE>
37
<PAGE>
Exhibit 12.
GREEN TREE FINANCIAL CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Six months
ended
June 30, 1994
--------------
(unaudited)
<S> <C>
Earnings:
Earnings before income taxes $137,864,000
Fixed charges:
Interest 22,543,000
One-third rent 844,000
------------
23,387,000
------------
$161,251,000
============
Fixed charges:
Interest $ 22,543,000
One-third rent 844,000
------------
$ 23,387,000
============
Ratio of earnings to
fixed charges (1) 6.89
====
</TABLE>
(1) For purposes of computing the ratio, earnings consist of
earnings before income taxes plus fixed charges.
38
