<PAGE>
RULE NO. 424(b)(5)
REGISTRATION NO. 33-53449
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED JUNE 7, 1994)
$120,136,336 (APPROXIMATE)
GREEN TREE FINANCIAL CORPORATION, SELLER AND SERVICER
CERTIFICATES FOR HOME IMPROVEMENT LOANS
SERIES 1994-BI
$78,900,000 (APPROXIMATE) 7.15% CLASS A-1
$7,300,000 (APPROXIMATE) 8.55% CLASS B-1
$ 9,700,000 (APPROXIMATE) 8.15% CLASS M-1
$9,055,396 (APPROXIMATE) 8.70% CLASS B-2
SERIES 1994-BII
$15,180,940 (APPROXIMATE) 7.85% CLASS A-2
(PRINCIPAL AND INTEREST PAYABLE ON THE 15TH DAY OF EACH MONTH BEGINNING JULY
15, 1994)
----------
The Certificates for Home Improvement Loans offered hereby (the
"Certificates") will be issued by two separate trusts. The Class A-1, Class M-
1, Class B-1 and Class B-2 Certificates (collectively, the "Series 1994-BI
Certificates") will be issued by, and evidence beneficial ownership interests
in, Home Improvement Loan Trust 1994-BI (the "Series 1994-BI Trust"), and the
Class A-2 Certificates (which Certificates are also referred to herein as the
"Series 1994-BII Certificates") will be issued by, and evidence beneficial
ownership interests in, Home Improvement Loan Trust 1994-BII (the "Series 1994-
BII Trust" and, together with the Series 1994-BI Trust, the "Trusts").
The Series 1994-BI Trust will be created by Green Tree Financial Corporation
(the "Company") pursuant to a Pooling and Servicing Agreement, dated as of June
1, 1994 (the "Series 1994-BI Agreement") between the Company and First Trust
National Association, as Trustee (the "Series 1994-BI Trustee"). The Series
1994-BI Trust property will consist primarily of a pool of home improvement
contracts and promissory notes (the "Series 1994-BI Contracts"), including the
right to receive payments due on the Series 1994-BI Contracts on and after June
1, 1994 (the "Cut-off Date"), liens on the related real estate and amounts held
for the Series 1994-BI Trust in the Series 1994-BI Certificate Account. Each of
the Series 1994-BI Contracts are secured by a first, second or third-priority
lien on the related improved real estate. The rights of the holders of the
Class M-1, Class B-1 and Class B-2 Certificates to receive distributions of
interest and principal on each Payment Date will be subordinated to such rights
of the holders of the Class A-1 Certificates and, in addition, to such rights
of the holders of the Class M-1 Certificates (in the case of the Class B-1 and
Class B-2 Certificates) and of the Class B-1 Certificates (in the case of the
Class B-2 Certificates), all to the extent described herein.
The Series 1994-BII Trust will be created by the Company pursuant to a
Pooling and Servicing Agreement, dated as of June 1, 1994 (the Series "1994-BII
Agreement") between the Company and First Trust National Association, as
Trustee (the "Series 1994-BII Trustee"). The Series 1994-BII Trust property
will consist primarily of a pool of home improvement contracts and promissory
notes (the "Series 1994-BII Contracts"), including the right to receive
payments due on the Series 1994-BII Contracts on and after the Cut-off Date,
and amounts held for the Series 1994-BII Trust in the Series 1994-BII
Certificate Account. The Series 1994-BII Contracts are not secured by any
mortgage or other lien on the related improved real estate.
(Continued on next page)
----------
THE CERTIFICATES REPRESENT INTERESTS IN THE RELATED TRUST AND DO NOT REPRESENT
INTERESTS IN OR OBLIGATIONS OF THE COMPANY, EXCEPT TO THE LIMITED EXTENT DE-
SCRIBED HEREIN AND IN THE PROSPECTUS. THE CERTIFICATES DO NOT REPRESENT OB-
LIGATIONS 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 SUPPLEMENT OR THE PRO-SPECTUS.
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.
----------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO PUBLIC(1) DISCOUNT COMPANY(1)(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Class A-1 Certificate........ 99.9375% .45% 99.4875%
- --------------------------------------------------------------------------------
Per Class M-1 Certificate........ 99.875% .6% 99.275%
- --------------------------------------------------------------------------------
Per Class B-1 Certificate........ 99.921875% .75% 99.171875%
- --------------------------------------------------------------------------------
Per Class B-2 Certificate........ 99.96875% .875% 99.09375%
- --------------------------------------------------------------------------------
Per Class A-2 Certificate........ 99.96875% .65% 99.31875%
- --------------------------------------------------------------------------------
Total............................ $120,061,622 $645,911 $119,415,711
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Plus accrued interest from and including June 30, 1994.
(2) Before deducting expenses, estimated to be $325,000.
The Certificates are offered subject to prior sale, when, as and if issued by
the Trusts 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 June 30, 1994 (the actual
such date being hereinafter referred to as the "Closing Date").
----------
LEHMAN BROTHERS
June 27, 1994
<PAGE>
(Continued from previous page)
The Class B-2 Certificateholders will have the benefit of a limited guaranty
of the Company (the "Class B-2 Limited Guaranty") to protect against losses
that would otherwise be absorbed by the Class B-2 Certificateholders. To the
extent that funds in the Series 1994-BI Certificate Account are insufficient to
distribute to the holders of the Class B-2 Certificates the Class B-2 Formula
Distribution Amount (as described herein), the Company will be obligated to pay
the Class B-2 Guaranty Payment (as described herein). See "Description of the
Class B-2 Limited Guaranty" herein.
The Series 1994-BII Certificateholders will have the benefit of a limited
guaranty of the Company (the "Series 1994-BII Limited Guaranty") to protect
against losses that would otherwise be absorbed by the Series 1994-BII
Certificateholders, subject to the limit of the Series 1994-BII Guaranty Amount
(as described herein). To the extent that funds in the Series 1994-BII
Certificate Account are insufficient to distribute to the holders of the Series
1994-BII Certificates the Series 1994-BII Formula Distribution Amount (as
described herein), the Company will be obligated (subject to the limit of the
Series 1994-BII Guaranty Amount) to pay the Series 1994-BII Guaranty Payment
(as described herein). The Series 1994-BII Guaranty Amount initially equals
$1,518,095 and will be reduced by Net Liquidation Losses (as described herein)
experienced on the Series 1994-BII Contracts. See "Description of the Series
1994-BII Limited Guaranty" herein.
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 July 15, 1994. The Company
will act as servicer (in such capacity, the "Servicer") of the Series 1994-BI
Contracts and the Series 1994-BII Contracts (collectively, the "Contracts").
The final scheduled Payment Date of the Series 1994-BI Certificates is in July
2014, and the final scheduled Payment Date of the Series 1994-BII Certificates
is in July 2009. See "Description of the Certificates" herein and in the
Prospectus.
An election will be made to treat the Series 1994-BI Trust as a real estate
mortgage investment conduit ("REMIC") for federal income tax purposes. As
described more fully herein, the Series 1994-BI Certificates will constitute
"regular interests" in the REMIC and the Class C-1 Certificates, which are not
being offered hereby, will constitute "residual interests" in the REMIC. See
"Certain Federal Income Tax Consequences" herein and in the Prospectus.
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. Lehman Brothers Inc. (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 and in the
Prospectus.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CERTIFICATES
OFFERED HEREBY AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
Until September 25, 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.
This Prospectus Supplement does not contain complete information about the
offering of the Certificates. Additional information is contained in the
Prospectus and purchasers are urged to read both this Prospectus Supplement and
the Prospectus in full. Sales of the Certificates may not be consummated unless
the purchaser has received both this Prospectus Supplement and the Prospectus.
To the extent that any statements in this Prospectus Supplement conflict with
statements contained in the Prospectus, the statements in this Prospectus
Supplement shall control.
S-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 Supplement and in the
accompanying Prospectus. Capitalized terms used herein and not otherwise
defined herein shall have the respective meanings assigned them in the
Prospectus and in Article I of the Series 1994-BI Agreement and the Series
1994-BII Agreement (collectively the "Agreements"), copies of which are
available upon request made to the Company.
Securities Offered...... Certificates for Home Improvement Loans, Series 1994-
BI and Series 1994-BII. The Class A-1, Class M-1,
Class B-1 and Class B-2 Certificates (collectively,
the "Series 1994-BI Certificates") will be issued by,
and evidence beneficial ownership interests in, Home
Improvement Loan Trust 1994-BI (the "Series 1994-BI
Trust"), the property of which consists primarily of
the Series 1994-BI Contracts, having an aggregate
principal balance as of the Cut-off Date of
$104,955,396, and all rights, benefits, obligations
and proceeds arising therefrom or in connection
therewith, including liens on the related improved
real estate, and the Class B-2 Limited Guaranty for
the benefit of the Class B-2 Certificateholders. The
Class A-2 Certificates (which are also referred to
herein as the "Series 1994-BII Certificates") will be
issued by, and evidence beneficial ownership
interests in, Home Improvement Loan Trust 1994-BII
(the "Series 1994-BII Trust" and, together with the
Series 1994-BI Trust, the "Trusts"), the property of
which consists primarily of the Series 1994-BII
Contracts, having an aggregate principal balance as
of the Cut-off Date of $15,180,940, all rights,
benefits, obligations and proceeds arising therefrom
or in connection therewith, and the Series 1994-BII
Limited Guaranty for the benefit of the Series 1994-
BII Certificateholders.
Series 1994-BI Trustee
and Series 1994-BII
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 July 15, 1994.
Cut-off Date............ June 1, 1994.
Record Date............. The Business Day immediately preceding the related
Payment Date.
Original Series 1994-BI
Principal Balance....... $104,955,396 (approximate).
Original Class A-1
Principal Balance...... $78,900,000 (approximate).
Original Class M-1
Principal Balance...... $9,700,000 (approximate).
Original Class B-1
Principal Balance...... $7,300,000 (approximate).
Original Class B-2
Principal Balance...... $9,055,396 (approximate).
Original Series 1994-
BII Principal Balance... $15,180,940 (approximate).
Class A-1 Pass-Through
Rate.................... 7.15% per annum.
Class M-1 Pass-Through
Rate.................... 8.15% per annum.
S-3
<PAGE>
Class B-1 Pass-Through
Rate.................... 8.55% per annum, subject to a maximum rate equal to
the weighted average of the Contract Rates (as
defined herein) on the Series 1994-BI Contracts.
Class B-2 Pass-Through
Rate.................... 8.70% per annum, subject to a maximum rate equal to
the weighted average of the Contract Rates (as
defined herein) on the Series 1994-BI Contracts.
Series 1994-BII Pass-
Through Rate............ 7.85% per annum.
Description of
Certificates............ The Class A-1 Certificates are Senior Certificates
and the Class M-1, Class B-1 and Class B-2
Certificates are Subordinated Certificates, all as
described herein, and are issued by, and payable
solely from the property of, the Series 1994-BI
Trust. The Series 1994-BII Certificates are issued in
a single Class by, and are payable solely from the
property of, the Series 1994-BII Trust. The undivided
percentage interest of the holder of any Certificate
in the distributions to be made to the related Class
(the "Percentage Interest") will be equal to the
percentage obtained from dividing the denomination
specified on such Certificate by the Original Class
A-1 Principal Balance, Original Class M-1 Principal
Balance, Original Class B-1 Principal Balance,
Original Class B-2 Principal Balance or Original
Series 1994-BII Principal Balance, as appropriate.
Distributions........... Holders of the Certificates will be entitled to
receive on each Payment Date, generally to the extent
that the Amount Available in the Certificate Account
for the applicable Trust is sufficient therefor,
distributions allocable to interest and principal, as
described herein. Distributions will be made on each
Payment Date to holders of record of the Certificates
on the preceding Record Date, except that the final
distribution in respect of the Certificates will be
made only upon presentation and surrender of the
Certificates at the office or agency appointed by the
applicable Trustee for that purpose in Minneapolis or
St. Paul, Minnesota. The Amount Available for either
Trust on each Payment Date generally includes
scheduled payments on the related Contracts due
during the previous calendar month (the "Due Period")
and received on or prior to the related Determination
Date, prepayments and other unscheduled collections
received on the related Contracts during such Due
Period, any Advances (as defined herein) made by the
Servicer or the related Trustee with respect to such
Due Period and any amounts paid by the Company to
repurchase a related Contract due to a breach of
representation or warranty.
Distributions on the
Series 1994-BI
Certificates............ The Amount Available in the Series 1994-BI
Certificate Account with respect to any Payment Date
will be applied first to the distribution of interest
on the Series 1994-BI Certificates, and then to the
distribution of principal on the Series 1994-BI
Certificates, in the manner and order of priority
described below.
Interest.............. Interest will be distributable first to the Class A-1
Certificates, then to the Class M-1 Certificates,
then to the Class B-1 Certificates, and then to the
Class B-2 Certificates. Interest on the outstanding
Principal Balance of each Class of Series 1994-BI
Certificates will accrue at the applicable Pass-
Through Rate from the Closing Date or from the most
recent Payment Date on which interest has been paid
to but excluding the following Payment Date. The
"Principal Balance" of any Class with respect to any
Payment Date will equal the Original Principal
Balance of such Class minus all distributions
previously made in respect of principal on such
Class. Accrued interest will be computed on the basis
of a 360-day year of twelve 30-day months.
S-4
<PAGE>
In the event that, on a particular Payment Date, the
Amount Available in the Series 1994-BI Certificate
Account (after payment of interest on each Class of
Series 1994-BI Certificates that is senior to such
Class of Series 1994-BI Certificates), together with
(in the case of the Class B-2 Certificates) any
related Class B-2 Guaranty Payment, is not sufficient
to make a full distribution of interest to the
holders of a Class of Series 1994-BI Certificates,
the amount of the shortfall will be carried forward
and added to the amount such holders will be entitled
to receive on the next Payment Date. Any such amount
so carried forward will bear interest at the
applicable Pass-Through Rate, to the extent legally
permissible. See "Description of the Certificates."
Principal............. Each Class of Series 1994-BI Certificates will be
entitled to receive on each Payment Date as
distributions of principal, in the order of priority
set forth below and to the extent of the Amount
Available in the Series 1994-BI Certificate Account
after payment of all interest then distributable on
the Series 1994-BI Certificates, an amount equal to
the sum (such sum being hereinafter referred to as
the "Series 1994-BI Monthly Principal") of (a) the
amount of regular principal payments on Series 1994-
BI Contracts paid or applied during the prior Due
Period; (b) the amount of then distributable
Principal Prepayments received on Series 1994-BI
Contracts during the prior Due Period; (c) the
principal portion of all payments on Series 1994-BI
Contracts that were Delinquent Payments with respect
to the prior Due Period; (d) the unpaid principal
balance of all Series 1994-BI Contracts that became
Liquidated Contracts during the prior Due Period; (e)
the principal portion of the Repurchase Price paid by
the Company to repurchase Series 1994-BI Contracts
for breach of representations and warranties with
respect to 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 Series 1994-BI Contract as a
result of the Obligor's bankruptcy and (g) any
principal amount described in clauses (a) through (f)
above that was not previously distributed because of
an insufficient amount of funds available in the
Series 1994-BI Certificate Account to the extent that
either (i) such Payment Date occurs after the Class
B-2 Principal Balance has been reduced to zero, or
(ii) such principal amount was not covered by a Class
B-2 Guaranty Payment and corresponding reduction in
the Class B-2 Principal Balance.
The Series 1994-BI Monthly Principal will be
distributed, to the extent of the Amount Available in
the Series 1994-BI Certificate Account after payment
of interest on each Class of Series 1994-BI
Certificates, first, to the Class A-1
Certificateholders until the Class A-1 Principal
Balance is reduced to zero, then to the Class M-1
Certificateholders until the Class M-1 Principal
Balance is reduced to zero, then to the Class B-1
Certificateholders until the Class B-1 Principal
Balance is reduced to zero, and then to the Class B-2
Certificateholders until the Class B-2 Principal
Balance is reduced to zero.
S-5
<PAGE>
Subordination of Class
M-1, B-1 and B-2
Certificates............ The rights of the Class M-1, Class B-1 and Class B-2
Certificateholders to receive distributions on each
Payment Date will be subordinated, to the extent
described herein, to such rights of the Class A-1
Certificateholders; the rights of the Class B-1 and
Class B-2 Certificateholders will be similarly
subordinated to the rights of the Class M-1
Certificateholders; and the rights of the Class B-2
Certificateholders will be similarly subordinated to
the rights of the Class B-1 Certificateholders. This
subordination is intended to enhance the likelihood
of regular receipt by the holders of the more senior
Classes of Series 1994-BI Certificates of the full
amount of their scheduled monthly payments of
interest and principal and to afford such holders
protection against losses on Liquidated Contracts.
The Class A-1 Certificateholders will be entitled to
receive on any Payment Date the amount of interest
due on such Certificates, including any interest due
on a prior Payment Date but not received, prior to
any distribution being made on the remaining Classes
of Series 1994-BI Certificates. Thereafter, any
remaining Amount Available in the Series 1994-BI
Certificate Account will be applied to the payment of
interest due on the other Classes of Series 1994-BI
Certificates in the following order of priority:
first to the Class M-1 Certificates, then to the
Class B-1 Certificates and, finally, to the Class B-2
Certificates.
After payment of all interest due on the Series 1994-
BI Certificates, the Class A-1 Certificateholders
will be entitled to receive 100% of the Series 1994-
BI Monthly Principal until the Class A-1 Principal
Balance is reduced to zero, then the Class M-1
Certificateholders will be entitled to receive 100%
of the Series 1994-BI Monthly Principal until the
Class M-1 Principal Balance is reduced to zero, then
the Class B-1 Certificateholders will be entitled to
receive 100% of the Series 1994-BI Monthly Principal
until the Class B-1 Principal Balance is reduced to
zero, and then the Class B-2 Certificateholders will
be entitled to receive 100% of the Series 1994-BI
Monthly Principal until the Class B-2 Principal
Balance is reduced to zero. See "Description of the
Certificates--Subordination of the Class M-1, B-1 and
B-2 Certificates."
Class B-2 Limited
Guaranty................ In order to mitigate the effect of the subordination
of the Class B-2 Certificates and liquidation losses
and delinquencies on the Series 1994-BI Contracts,
the Class B-2 Certificateholders are entitled to
receive on each Payment Date the amount equal to the
Class B-2 Guaranty Payment, if any, under the Class
B-2 Limited Guaranty of the Company. The Class B-2
Guaranty Payment for any Payment Date will equal the
amount, if any, by which (a) the sum of (i) the Class
B-2 Formula Distribution Amount (which will be equal
to one month's interest on the Class B-2 Principal
Balance plus (if the Class B-1 Principal Balance has
then been reduced to zero) the Series 1994-BI Monthly
Principal for such Payment Date), and (ii) the Class
B-2 Principal Deficiency Amount (as described
herein), if any, exceeds (b) the Class B-2
Distribution Amount for such Payment Date.
S-6
<PAGE>
The Class B-2 Limited Guaranty will be an unsecured
general obligation of the Company and will not be
supported by any letter of credit or other credit
enhancement arrangement.
Distributions on the
Series 1994-BII
Certificates
Interest.............. Interest on the outstanding Series 1994-BII Principal
Balance will accrue at the Series 1994-BII Pass-
Through Rate from the Closing Date or from the most
recent Payment Date on which interest has been
distributed to but excluding the following Payment
Date. The "Series 1994-BII Principal Balance" with
respect to any Payment Date will equal the Original
Series 1994-BII Principal Balance minus all
distributions previously made in respect of principal
on the Series 1994-BII Certificates. Accrued interest
will be computed on the basis of a 360-day year of
twelve 30-day months.
In the event that, on a particular Payment Date, the
Amount Available in the Series 1994-BII Certificate
Account, together with any related Series 1994-BII
Guaranty Payment, is not sufficient to make a full
distribution of interest to the Series 1994-BII
Certificateholders, the amount of the shortfall will
be carried forward and added to the amount such
holders will be entitled to receive on the next
Payment Date. Any such amount so carried forward will
bear interest at the Series 1994-BII Pass-Through
Rate, to the extent legally permissible. See
"Description of the Certificates."
Principal............. On each Payment Date, Series 1994-BII
Certificateholders will be entitled to receive as
distributions of principal, to the extent of the
Amount Available in the Series 1994-BII Certificate
Account after payment of all interest payable on the
Series 1994-BII Certificates, an amount equal to the
sum (such sum being hereinafter referred to as the
"Series 1994-BII Monthly Principal") of (a) the
amount of regular principal payments on Series 1994-
BII Contracts paid or applied during the prior Due
Period; (b) the amount of Principal Prepayments
received on Series 1994-BII Contracts during the
prior Due Period; (c) the principal portion of all
payments on Series 1994-BII Contracts that were
Delinquent Payments as of the end of the prior Due
Period; (d) the unpaid principal balance of all
Series 1994-BII Contracts that became Liquidated
Contracts with respect to the prior Due Period; (e)
the principal portion of the Repurchase Price paid by
the Company to repurchase Series 1994-BII Contracts
for breach of representations and warranties with
respect to 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 Series 1994-BII Contract as a
result of the Obligor's bankruptcy; and (g) any
principal amount described in clauses (a) through (f)
above that was not previously distributed because of
an insufficient amount of funds available in the
Series 1994-BII Certificate Account and the Company
either was not obligated to or failed to pay such
amount under the Series 1994-BII Limited Guaranty.
S-7
<PAGE>
Series 1994-BII Limited
Guaranty................ In order to mitigate the effect of liquidation losses
and delinquencies on the Series 1994-BII Contracts,
the Series 1994-BII Certificateholders are entitled
to receive on each Payment Date (subject to the limit
of the Series 1994-BII Guaranty Amount) the amount
equal to the Series 1994-BII Guaranty Payment, if
any, under the Series 1994-BII Limited Guaranty of
the Company. The Series 1994-BII Guaranty Payment for
any Payment Date will equal the amount, if any, by
which the Series 1994-BII Formula Distribution Amount
(equal to one month's interest on the Series 1994-BII
Principal Balance plus the Series 1994-BII Monthly
Principal for such Payment Date) exceeds the Amount
Available in the Series 1994-BII Certificate Account
for such Payment Date.
The "Series 1994-BII Guaranty Amount" initially
equals $1,518,095. Thereafter, on any Payment Date,
the Series 1994-BII Guaranty Amount will equal
$1,518,095 minus all Net Liquidation Losses (as
defined herein) realized on the Series 1994-BII
Contracts since the Cut-off Date.
The Series 1994-BII Limited Guaranty will be an
unsecured general obligation of the Company and will
not be supported by any letter of credit or other
credit enhancement arrangement.
Registration of
Certificates............ The Certificates initially will each 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, except for one Series 1994-
BII Certificate in an amount less than $1.00 which
will be issued in definitive form. Certificates will
otherwise 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" herein.
Series 1994-BI
Contracts............... The Series 1994-BI Contracts consist of 7,154
conventional and 1,008 FHA-insured home improvement
contracts and promissory notes (the "Series 1994-BI
Contracts"), including any and all rights to receive
payments due thereunder on and after the Cut-off
Date. The obligations of the Obligor under each
Series 1994-BI Contract are secured by the related
real estate and such Contracts constitute "Secured
Contracts" as described in the Prospectus. The Series
1994-BI Contracts arise from loans relating to the
improvement of real estate located in 46 states and
the District of Columbia. The contractual annual
percentage rate of interest on the Series 1994-BI
Contracts as of the Cut-off Date ranges from 8.24% to
16.00% with a weighted average of 11.32%. The Series
1994-BI Contracts had a weighted average term to
scheduled maturity, as of origination, of 165 months,
and a weighted average term to scheduled maturity, as
of the Cut-off Date, of 165 months. The final
scheduled payment date on the Series 1994-BI Contract
with the latest scheduled maturity is in June 2014.
See "The Contracts--Series 1994-BI Contracts."
S-8
<PAGE>
FHA Insurance........... Approximately 6.84% of the Series 1994-BI Contracts,
by principal balance as of the Cut-off Date, are
insured by FHA against Obligor defaults pursuant to
Title I of the National Housing Act ("FHA
Insurance"). See "Description of FHA Insurance" in
the Prospectus.
Series 1994-BII
Contracts............... The Series 1994-BII Contracts consist of 2,519
conventional home improvement contracts and
promissory notes (the "Series 1994-BII Contracts"),
including any and all rights to receive payments due
thereunder on and after the Cut-off Date. The
obligations of the Obligor under each Series 1994-BII
Contract are unsecured and such Contracts constitute
"Unsecured Contracts" as described in the Prospectus.
The Series 1994-BII Contracts arise from loans
relating to the improvement of real estate located in
44 states and the District of Columbia. The
contractual annual percentage rate of interest on the
Series 1994-BII Contracts as of the Cut-off Date
ranges from 9.81% to 17.99% with a weighted average
of 14.60%. The Series 1994-BII Contracts had a
weighted average term to scheduled maturity, as of
origination, of 93 months, and a weighted average
term to scheduled maturity, as of the Cut-off Date,
of 92 months. The final scheduled payment date on the
Series 1994-BII Contract with the latest scheduled
maturity is in June 2009. See "The Contracts--Series
1994-BII Contracts."
Advances................ The Company, as Servicer under each Agreement, 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 in the
related Trust. 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 an Agreement, the related
Trustee will be obligated (subject to certain
conditions) to make such Advance. See "Description of
the Certificates--Advances" herein and in the
Prospectus.
Repurchases by the
Company................. The Company has agreed to repurchase any Contract in
which the related Trust's or the related
Certificateholders' interest is materially and
adversely affected by a breach of a representation
and warranty with respect to such Contract made in
the related Agreement if such breach has not been
cured within 90 days of the day it was or should have
been discovered by the Servicer or the Trustee. See
"Description of the Certificates--Conveyance of
Contracts" herein and in the Prospectus.
Repurchase Option....... The Servicer will have the option to repurchase all
of the outstanding Contracts in a Trust on any
Payment Date on which the Pool Scheduled Principal
Balance of such Trust is less than 10% of the
aggregate principal balance of such Contracts as of
the Cut-off Date. See "Description of the
Certificates--Repurchase Option" herein and in the
Prospectus.
Monthly Servicing Fee... The Servicer will be entitled to monthly compensation
for servicing the Contracts in each Trust equal to
1/12 of the product of .75% and the
S-9
<PAGE>
Pool Scheduled Principal Balance of such Trust (the
"Monthly Servicing Fee"), payable only after all
interest and principal then due has been paid to
Certificateholders. See "Description of the
Certificates--Servicing Compensation and Payment of
Expenses" and "Rights upon an Event of Termination"
herein.
Tax Status.............. In the opinion of counsel to the Company, for federal
income tax purposes, the Series 1994-BI Trust will be
treated as a real estate mortgage investment conduit
("REMIC"). The Class A-1, Class M-1, Class B-1 and
Class B-2 Certificates will constitute "regular
interests" in such REMIC and generally will be
treated as debt instruments of the Series 1994-BI
Trust for federal income tax purposes with payment
terms equivalent to the terms of such Certificates.
The Class C-1 Certificates, which are not being
offered hereby, will constitute "residual interests"
in the REMIC. The holders of Series 1994-BI
Certificates will be required to include in income
interest on such Certificates (including any original
issue discount) in accordance with the accrual method
of accounting. See "Certain Federal Income Tax
Consequences" herein and in the Prospectus.
In the opinion of counsel, the Series 1994-BII 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 Series 1994-BII
Certificateholder will be treated for such purposes
as the owner of an undivided interest in the Series
1994-BII Contracts. Accordingly, each such Series
1994-BII Certificateholder must report on its federal
income tax return its share of the income from the
Series 1994-BII Contracts and, subject to limitations
on deductions by individuals, estates and trusts, may
deduct its share of the reasonable fees paid by the
Series 1994-BII Trust, determined in accordance with
such Certificateholder's tax accounting method. See
"Certain Federal Income Tax Consequences" herein and
in the Prospectus.
ERISA Considerations.... Subject to the conditions described herein, the Class
A-1 Certificates may be purchased by employee benefit
plans that are subject to the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"). No
transfer of any other Certificates will be permitted
to be made to any employee benefit plan subject to
ERISA or to the Internal Revenue Code of 1986, as
amended (the "Code"), unless the opinion of counsel
described under "ERISA Considerations" is delivered
to the Trustee. See "ERISA Considerations" herein and
in the Prospectus.
Rating.................. It is a condition precedent to the issuance of the
Certificates that the Class A-1 Certificate be
assigned a rating not lower than "AA" by Standard &
Poor's Ratings Group, a division of McGraw-Hill, Inc.
("S&P"), the Class M-1 Certificates be assigned a
rating not lower than "A" by S&P, the Class B-1
Certificates be assigned a rating not lower than
"BBB" by S&P, the Class B-2 Certificates be assigned
a rating not lower than "BBB" by S&P, and the Series
1994-BII Certificates be assigned a rating not lower
than "BBB" by S&P. S&P's rating of the
S-10
<PAGE>
Certificates addresses the likelihood of timely
receipt of interest and ultimate receipt of principal
on or before the Payment Date in July 2014 (with
respect to the Series 1994-BI Certificates) or the
Payment Date in July 2009 (with respect to the Series
1994-BII Certificates). The rating of the Class B-2
and Series 1994-BII Certificates is based in part on
an assessment of the Company's ability to make
payments under the Class B-2 Limited Guaranty and the
Series 1994-BII Limited Guaranty, respectively. Any
reduction in S&P's rating of the Company's debt
securities may result in a similar reduction in the
rating of the Class B-2 and Series 1994-BII
Certificates. A security rating is not a
recommendation to buy, sell or hold securities and
may be subject to revision or withdrawal at any time
by the assigning rating agency. See "Ratings" in the
Prospectus.
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 (in the case of the Series
1994-BII Contracts) or secured by liens on real
estate that are not first liens (in the case of the
Series 1994-BI Contracts), 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.
S-11
<PAGE>
SPECIAL CONSIDERATIONS
Prospective Certificateholders should consider, in addition to the factors
described under "Special Considerations" in the Prospectus, the following
factors in connection with the purchase of the Certificates:
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 Contract Pool" herein may not be indicative of the performance of the
Contracts held by the Trusts.
Recent Developments. On March 21, 1994, the United States Court of Appeals
for the 11th Circuit ruled in the case of Martha Rodash vs. AIB Mortgage
Company ("Rodash") that the Federal Truth-In-Lending Act requires lenders to
disclose the collection of Florida intangible tax from borrowers as part of the
prepaid finance charge. A request for rehearing en banc has been denied by the
court.
The consequences of a material error in the disclosure of the finance charge
under the Truth-In-Lending Act is to subject the loan to rescission by the
borrower for three years from the date of the loan. The Company has followed
the practice of Florida lenders generally to treat the Florida intangible tax
as an item which is not part of the finance charge. The decision in Rodash may
also apply to the similar intangible tax imposed by the State of Georgia.
Approximately 11.75% and 2.50% of the Series 1994-BI Contracts, and 4.56% and
1.61% of the Series 1994-BII Contracts, by principal balance as of the Cut-off
Date, were originated in Florida and Georgia, respectively, under such practice
and so may be subject to rescission. The Company represents in each Agreement
that all applicable laws, including the Truth-In-Lending Act, have been
complied with in connection with the origination of the related Contracts. To
the extent it is finally determined that the Company's practice did not comply
with the Truth-In-Lending Act and a borrower elects to rescind any Contract
(which would require a repayment by the borrower of the principal balance of
the Contract, less credit for interest paid, closing costs and prepaid finance
charges), and such rescission materially adversely affects the interests of the
Certificateholders, the Company will be required to repurchase such Contract at
a price equal to the principal amount thereof plus accrued interest thereon.
STRUCTURE OF THE TRANSACTION
On or about June 30, 1994 (the "Closing Date"), the Company will establish
the Series 1994-BI Trust pursuant to a Pooling and Servicing Agreement to be
dated as of June 1, 1994 (the "Series 1994-BI Agreement"), between the Company,
as Seller and Servicer, and the Series 1994-BI Trustee, and will establish the
Series 1994-BII Trust pursuant to a Pooling and Servicing Agreement to be dated
as of June 1, 1994 (the "Series 1994-BII Agreement"), between the Company, as
Seller and Servicer, and the Series 1994-BII Trustee.
The Class A-1, Class M-1, Class B-1 and Class B-2 Certificates will be issued
by the Series 1994-BI Trust, the corpus of which consists primarily of the
Series 1994-BI Contracts, including all rights to receive payments due on such
Contracts on and after June 1, 1994 (the "Cut-off Date"), all rights under FHA
Insurance with respect to the FHA-insured Contracts, liens on the related real
estate, amounts held for the Series 1994-BI Trust in the Series 1994-BI
Certificate Account (as defined below), and the Class B-2 Limited Guaranty of
the Company for the benefit of the Class B-2 Certificates, as described in
"Description of the Class B-2 Limited Guaranty" herein.
The Series 1994-BII Certificates will be issued by the Series 1994-BII Trust,
the corpus of which consists primarily of the Series 1994-BII Contracts,
including all rights to receive payments due on the Series 1994-BII Contracts
on and after the Cut-off Date, amounts held for the Series 1994-BII Trust in
the Series 1994-BII Certificate Account (as defined below), and the Series
1994-BII Limited Guaranty of the Company described in "Description of the
Series 1994-BII Limited Guaranty" herein.
Payments and recoveries in respect of principal and interest on the Series
1994-BI Contracts will be paid into a separate trust account maintained at an
Eligible Institution (initially First Bank National Association,
S-12
<PAGE>
Minneapolis, Minnesota) in the name of the Series 1994-BI Trust (the "Series
1994-BI Certificate Account"), no later than one Business Day after receipt.
Payments and recoveries in respect of principal and interest on the Series
1994-BII 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 Series 1994-BII Trust (the "Series 1994-BII
Certificate Account"), no later than one Business Day after receipt. Payments
deposited in each Certificate 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
make the distributions to the related Certificateholders as of the immediately
preceding Record Date as described under "Description of the Certificates--
Distributions on the Series 1994-BI Certificates" and "--Distributions on the
Series 1994-BII Certificates," 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 related Certificate Account to the
Company as compensation for providing the related Limited Guaranty (the
"Guaranty Fee").
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 related Contracts and then from other funds in the related
Certificate 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 related
Trustee is obligated (subject to certain conditions) to make such Advance.
Following the transfer of the Contracts from the Company to the Trusts, the
obligations of the Company are limited to (a) its obligations as Servicer to
service the Contracts, (b) certain representations and warranties in the
Agreements as described under "Description of the Certificates--Conveyance of
Contracts" herein, (c) certain indemnities, and (d) the Class B-2 Limited
Guaranty and the Series 1994-BII Limited Guaranty. The Company is obligated
under each 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 any breach of
any such representation and warranty in the Agreement that materially
adversely affects the related Certificateholders' interest in any Contract if
such breach has not been cured prior to such date. The Agreements also provide
that the Company has certain obligations to repurchase Contracts and to
indemnify the related Trustee and related 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
(in the case of the Series 1994-BI Contracts) or is unsecured (in the case of
the Series 1994-BII Contracts).
SERIES 1994-BI CONTRACTS
The Company will make certain representations and warranties in the Series
1994-BI Agreement, including that (a) each Series 1994-BI Contract is fully
amortizing with a fixed contractual rate of interest
S-13
<PAGE>
and provides for level payments over the term of such loan, computed on the
simple interest method, (b) each Series 1994-BI Contract has its last scheduled
payment due no later than June 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 Series
1994-BI Contract is secured by a first, second, or third priority lien on the
improved real estate. The Series 1994-BI Contracts were originated or acquired
by the Company in the ordinary course of the Company's business. A detailed
listing of the Series 1994-BI Contracts is appended to the Series 1994-BI
Agreement. See "Description of the Certificates" herein and in the Prospectus.
Approximately 6.84% of the Series 1994-BI Contracts, by principal balance as of
the Cut-off Date, are insured by FHA, to the extent described in "Description
of FHA Insurance" in the Prospectus. Series 1994-BI Contracts have a
contractual rate of interest of at least 8.24% per annum and not more than
16.00% and the weighted average contractual rate of interest of the Series
1994-BI Contracts as of the Cut-off Date is 11.32%. The Series 1994-BI
Contracts have remaining maturities of at least 21 months but not more than 240
months and original maturities of at least 24 months but not more than 240
months. The Series 1994-BI Contracts had a weighted average term to scheduled
maturity, as of origination, of 165 months, and a weighted average term to
scheduled maturity, as of the Cut-off Date, of 165 months. The average
principal balance per Series 1994-BI Contract as of the Cut-off Date was
$12,859.03 and the principal balances on the Series 1994-BI Contracts as of the
Cut-off Date ranged from $1,558.72 to $85,169.23. The Series 1994-BI Contracts
arise from loans relating to real property located in 46 states and the
District of Columbia. Approximately 18.5% of the Contracts, by principal
balance as of the Cut-off Date, financed improvements to real estate located in
California, and approximately 11.75% of the Contracts financed to real estate
located in Florida. Current loan-to-value ratios with respect to the Series
1994-BI Contracts are not available. None of the Series 1994-BI Contracts
provide for recourse to the originating contractor in the event of a default by
the Obligor.
The following table sets forth certain statistical information regarding the
FHA-insured Series 1994-BI Contracts, the conventional Series 1994-BI Contracts
and all Series 1994-BI Contracts in the Series 1994-BI Trust as of the Cut-off
Date.
CERTAIN SERIES 1994-BI CONTRACT CHARACTERISTICS
<TABLE>
<CAPTION>
FHA-INSURED CONVENTIONAL TOTAL POOL
------------- -------------- ---------------
<S> <C> <C> <C>
Principal Balance.............. $7,182,328.36 $97,773,067.98 $104,955,396.34
Number of Contracts............ 1,008 7,154 8,162
Percentage of Principal Bal-
ance.......................... 6.84% 93.16% 100.00%
Weighted Average
Contract Rate................. 12.00% 11.27% 11.32%
--Highest Contract Rate...... 13.99% 16.00% 16.00%
--Lowest Contract Rate....... 9.99% 8.24% 8.24%
Weighted Average Remaining
Term to Scheduled Maturity
(Months)..................... 123 168 165
--Maximum Remaining Term to
Scheduled
Maturity.................... 240 240 240
--Minimum Remaining Term to
Scheduled
Maturity.................... 21 21 21
Weighted Average Original Term
to Scheduled Maturity
(Months)...................... 124 168 165
--Maximum Original Term to
Scheduled
Maturity.................... 240 240 240
--Minimum Original Term to
Scheduled
Maturity.................... 24 24 24
Average Principal Balance...... $ 7,125.33 $ 13,666.91 $ 12,859.03
--Highest Principal Balance.. $ 25,000.00 $ 85,169.23 $ 85,169.23
-- Lowest Principal Balance.. $ 1,558.72 $ 2,283.32 $ 1,558.72
</TABLE>
S-14
<PAGE>
Set forth below is a description of certain additional characteristics of the
Series 1994-BI Contracts.
GEOGRAPHICAL DISTRIBUTION OF IMPROVED REAL ESTATE
<TABLE>
<CAPTION>
% OF SERIES 1994-BI
% OF SERIES 1994-BI CONTRACT
NUMBER OF CONTRACT POOL BY
SERIES 1994-BI POOL BY NUMBER AGGREGATE PRINCIPAL OUTSTANDING
CONTRACTS OF SERIES 1994-BI BALANCE PRINCIPAL
AS OF CONTRACTS AS OUTSTANDING AS OF BALANCE AS OF
CUT-OFF DATE OF CUT-OFF DATE CUT-OFF DATE CUT-OFF DATE
-------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Alabama................. 8 .10% $ 77,716.37 .07%
Arizona................. 239 2.93 3,468,501.46 3.30
Arkansas................ 170 2.08 1,405,286.04 1.34
California.............. 1,021 12.51 19,416,300.16 18.50
Colorado................ 350 4.29 3,346,685.48 3.19
Connecticut............. 87 1.07 1,051,558.95 1.00
Delaware................ 60 .74 701,994.67 .67
District of Columbia.... 9 .11 96,787.53 .09
Florida................. 843 10.33 12,333,531.93 11.75
Georgia................. 211 2.59 2,621,038.78 2.50
Idaho................... 22 .27 251,915.91 .24
Illinois................ 194 2.38 1,980,756.41 1.89
Indiana................. 59 .72 626,168.26 .60
Iowa.................... 56 .69 572,789.64 .55
Kansas.................. 102 1.25 1,019,698.28 .97
Kentucky................ 34 .42 390,816.63 .37
Louisiana............... 31 .38 414,534.47 .39
Maine................... 55 .67 586,840.17 .56
Maryland................ 156 1.91 2,333,313.42 2.22
Michigan................ 135 1.65 1,558,459.92 1.48
Minnesota............... 91 1.11 1,054,861.74 1.01
Mississippi............. 80 .98 837,674.11 .80
Missouri................ 100 1.23 1,044,274.70 .99
Montana................. 26 .32 273,091.91 .26
Nebraska................ 34 .42 367,037.40 .35
Nevada.................. 156 1.91 2,666,356.45 2.54
New Hampshire........... 35 .43 484,723.13 .46
New Jersey.............. 499 6.11 6,305,928.82 6.01
New Mexico.............. 51 .62 890,326.12 .85
New York................ 459 5.62 5,568,637.35 5.31
North Carolina.......... 296 3.63 3,266,703.40 3.11
Ohio.................... 247 3.03 2,597,784.28 2.48
Oklahoma................ 132 1.62 1,114,264.93 1.06
Oregon.................. 98 1.20 1,265,343.16 1.21
Pennsylvania............ 433 5.30 4,502,703.92 4.29
Rhode Island............ 30 .37 396,057.07 .38
South Carolina.......... 124 1.52 1,477,392.61 1.41
South Dakota............ 6 .07 57,087.43 .05
Tennessee............... 213 2.61 2,216,077.98 2.11
Texas................... 682 8.36 8,289,368.61 7.90
Utah.................... 64 .78 754,745.78 .72
Vermont................. 11 .13 138,490.27 .13
Virginia................ 107 1.31 1,511,106.44 1.44
Washington.............. 227 2.78 2,492,079.48 2.37
West Virginia........... 46 .56 449,393.70 .43
Wisconsin............... 28 .34 269,040.57 .26
Wyoming................. 45 .55 410,150.50 .39
----- ------ --------------- ------
Total................... 8,162 100.00% $104,955,396.34 100.00%
===== ====== =============== ======
</TABLE>
S-15
<PAGE>
YEARS OF ORIGINATION OF SERIES 1994-BI CONTRACTS
<TABLE>
<CAPTION>
% OF SERIES 1994-BI
NUMBER OF SERIES CONTRACT POOL BY
1994-BI CONTRACTS AGGREGATE PRINCIPAL OUTSTANDING PRINCIPAL
AS OF CUT- BALANCE OUTSTANDING BALANCE AS OF
YEAR OF ORIGINATION OFF DATE AS OF CUT-OFF DATE CUT-OFF DATE
- ------------------- ----------------- ------------------- ---------------------
<S> <C> <C> <C>
1993............... 286 $ 3,523,738.84 3.36%
1994............... 7,876 101,431,657.50 96.64
----- --------------- ------
Total.......... 8,162 $104,955,396.34 100.00%
===== =============== ======
</TABLE>
DISTRIBUTION OF ORIGINAL SERIES 1994-BI CONTRACT AMOUNTS
<TABLE>
<CAPTION>
% OF SERIES 1994-BI
NUMBER OF SERIES CONTRACT POOL BY
1994-BI CONTRACTS AGGREGATE PRINCIPAL OUTSTANDING PRINCIPAL
ORIGINAL CONTRACT AS OF CUT- BALANCE OUTSTANDING BALANCE AS OF
AMOUNT (IN DOLLARS)(1) OFF DATE AS OF CUT-OFF DATE CUT-OFF DATE
- ---------------------- ----------------- ------------------- ---------------------
<S> <C> <C> <C>
Less than $10,000....... 3,097 $ 21,060,255.93 20.07%
$ 10,000--$ 19,999.99... 3,979 55,634,351.43 53.01
$ 20,000--$ 29,999.99... 840 19,734,026.43 18.80
$ 30,000--$ 39,999.99... 199 6,206,418.12 5.91
$ 40,000--$ 49,999.99... 30 1,304,066.25 1.24
$ 50,000--$ 59,999.99... 11 585,895.64 .56
$ 60,000--$ 69,999.99... 2 132,254.72 .13
$ 70,000--$ 79,999.99... 3 212,958.59 .20
$ 80,000--$ 89,999.99... 1 85,169.23 .08
----- --------------- ------
Total............... 8,162 $104,955,396.34 100.00%
===== =============== ======
</TABLE>
SERIES 1994-BI CONTRACT RATES
<TABLE>
<CAPTION>
% OF SERIES 1994-BI
NUMBER OF CONTRACT POOL BY
SERIES 1994-BI AGGREGATE PRINCIPAL OUTSTANDING PRINCIPAL
RANGE OF CONTRACTS BY CONTRACTS AS OF BALANCE OUTSTANDING BALANCE AS OF
CONTRACT RATE CUT-OFF DATE AS OF CUT-OFF DATE CUT-OFF DATE
- --------------------- --------------- ------------------- ---------------------
<S> <C> <C> <C>
8.01%-9.00%.......... 71 $ 2,618,126.38 2.50%
9.01%-10.00%......... 744 10,069,304.73 9.60
10.01%-11.00%........ 2,458 43,590,146.80 41.53
11.01%-12.00%........ 4,384 43,234,022.72 41.19
12.01%-13.00%........ 368 4,128,017.51 3.93
13.01%-14.00%........ 113 1,092,033.13 1.04
14.01%-15.00%........ 17 158,398.27 .15
15.01%-16.00%........ 7 65,346.80 .06
----- --------------- ------
Total............ 8,162 $104,955,396.34 100.00%
===== =============== ======
</TABLE>
S-16
<PAGE>
SERIES 1994-BI CONTRACTS--REMAINING MONTHS TO MATURITY
<TABLE>
<CAPTION>
% OF SERIES 1994-BI
MONTHS REMAINING TO NUMBER OF CONTRACT POOL BY
SCHEDULED MATURITY SERIES 1994-BI AGGREGATE PRINCIPAL OUTSTANDING PRINCIPAL
AS OF CUT- CONTRACTS AS OF BALANCE OUTSTANDING BALANCE AS OF
OFF DATE CUT-OFF DATE AS OF CUT-OFF DATE CUT-OFF DATE
- ------------------- --------------- ------------------- ---------------------
<S> <C> <C> <C>
Less than 31............ 40 $ 136,984.65 0.13%
31-60................... 867 5,424,153.85 5.17
61-90................... 631 4,854,674.62 4.63
91-120.................. 2,417 25,759,231.95 24.54
121-150................. 102 1,072,590.55 1.02
151-180................. 3,131 46,499,181.77 44.30
181-210................. 4 68,870.96 0.07
211-240................. 970 21,139,707.99 20.14
----- --------------- ------
Total............... 8,162 $104,955,396.34 100.00%
===== =============== ======
</TABLE>
SERIES 1994-BII CONTRACTS
The Company will make certain representations and warranties in the Series
1994-BII Agreement, including that (a) each Series 1994-BII 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,
and (b) each Series 1994-BII Contract has its last scheduled payment due no
later than June 2009. The Series 1994-BII Contracts were originated or acquired
by the Company in the ordinary course of the Company's business. A detailed
listing of the Series 1994-BII Contracts is appended to the Series 1994-BII
Agreement. See "Description of the Certificates" herein and in the Prospectus.
Series 1994-BII Contracts have a contractual rate of interest of at least 9.81%
per annum and not more than 17.99% and the weighted average contractual rate of
interest of the Series 1994-BII Contracts as of the Cut-off Date is 14.60%. The
Series 1994-BII Contracts have remaining maturities of at least 21 months but
not more than 180 months and original maturities of at least 24 months but not
more than 180 months. The Contracts had a weighted average term to scheduled
maturity, as of origination, of 93 months, and a weighted average term to
scheduled maturity, as of the Cut-off Date, of 92 months. The average principal
balance per Series 1994-BII Contract as of the Cut-off Date was $6,026.57 and
the principal balances on the Series 1994-BII Contracts as of the Cut-off Date
ranged from $3.39 to $15,000.00. The Series 1994-BII Contracts arise from loans
relating to real property located in 44 states and the District of Columbia.
Approximately 11.04% of the Contracts, by principal balance as of the Cut-off
Date, financed improvements to real estate located in Massachusetts, and
approximately 9.06% of the Contracts financed to real estate located in North
Carolina. None of the Series 1994-BII Contracts provide for recourse to the
originating contractor in the event of a default by the Obligor.
S-17
<PAGE>
The following table sets forth certain statistical information regarding the
Series 1994-BII Contracts as of the Cut-off Date.
CERTAIN SERIES 1994-BII CONTRACT CHARACTERISTICS
<TABLE>
<S> <C>
Principal Balance............................................... $15,180,940.54
Number of Contracts............................................. 2,519
Weighted Average
Contract Rate.................................................. 14.60%
--Highest Contract Rate....................................... 17.99%
--Lowest Contract Rate........................................ 9.81%
Weighted Average Remaining
Term to Scheduled Maturity (Months)............................ 92
--Maximum Remaining Term to Scheduled Maturity................ 180
--Minimum Remaining Term to Scheduled Maturity................ 21
Weighted Average Original Term to Scheduled Maturity (Months)... 93
--Maximum Original Term to Scheduled Maturity................. 180
--Minimum Original Term to Scheduled Maturity................. 24
Average Principal Balance....................................... $ 6,026.57
--Highest Principal Balance................................... $ 15,000.00
-- Lowest Principal Balance................................... $ 3.39
</TABLE>
S-18
<PAGE>
Set forth below is a description of certain additional characteristics of the
Series 1994-BII Contracts.
GEOGRAPHICAL DISTRIBUTION OF IMPROVED REAL ESTATE
<TABLE>
<CAPTION>
% OF SERIES 1994-BII
% OF SERIES 1994-BII CONTRACT
CONTRACT POOL BY
NUMBER OF POOL BY NUMBER AGGREGATE PRINCIPAL OUTSTANDING
SERIES 1994-BII OF SERIES 1994-II BALANCE PRINCIPAL
CONTRACTS AS OF CONTRACTS AS OUTSTANDING AS OF BALANCE AS OF
CUT-OFF DATE OF CUT-OFF DATE CUT-OFF DATE CUT-OFF DATE
--------------- -------------------- ------------------- --------------------
<S> <C> <C> <C> <C>
Arizona................. 20 .79% $ 92,309.66 .61%
California.............. 67 2.66 381,595.43 2.51
Colorado................ 24 .95 129,472.48 .85
Connecticut............. 50 1.98 314,003.12 2.07
Delaware................ 9 .36 51,694.99 .34
District of Columbia.... 1 .04 8,776.96 .06
Florida................. 130 5.16 692,880.88 4.56
Georgia................. 46 1.83 244,386.26 1.61
Idaho................... 4 .16 22,840.64 .15
Illinois................ 60 2.38 358,493.06 2.36
Indiana................. 30 1.19 176,873.47 1.17
Iowa.................... 20 .79 132,358.42 .87
Kansas.................. 13 .52 88,380.01 .58
Kentucky................ 30 1.19 185,326.38 1.22
Louisiana............... 19 .75 108,686.43 .72
Maine................... 20 .79 105,730.80 .70
Maryland................ 61 2.42 295,066.29 1.94
Massachusetts........... 184 7.30 1,676,395.06 11.04
Michigan................ 173 6.87 957,465.80 6.31
Minnesota............... 101 4.01 462,775.67 3.05
Mississippi............. 33 1.31 172,609.61 1.14
Missouri................ 45 1.79 279,618.12 1.84
Nebraska................ 10 .40 61,776.11 .41
Nevada.................. 10 .40 45,962.33 .30
New Hampshire........... 9 .36 59,315.08 .39
New Jersey.............. 69 2.74 468,155.45 3.08
New Mexico.............. 25 .99 140,207.53 .92
New York................ 147 5.84 860,855.26 5.67
North Carolina.......... 220 8.73 1,374,872.60 9.06
Ohio.................... 65 2.58 329,108.12 2.17
Oklahoma................ 29 1.15 188,953.53 1.25
Oregon.................. 12 .48 82,255.17 .54
Pennsylvania............ 164 6.51 1,028,792.50 6.78
Rhode Island............ 10 .40 72,067.52 .47
South Carolina.......... 73 2.90 404,982.19 2.67
South Dakota............ 4 .16 25,496.00 .17
Tennessee............... 79 3.14 434,928.00 2.86
Texas................... 205 8.14 1,154,711.31 7.61
Utah.................... 5 .20 22,374.69 .15
Vermont................. 18 .71 88,518.65 .58
Virginia................ 107 4.25 766,964.10 5.05
Washington.............. 81 3.21 442,680.78 2.92
West Virginia........... 22 .87 104,909.05 .69
Wisconsin............... 11 .44 50,513.70 .33
Wyoming................. 4 .16 34,801.33 .23
----- ------ -------------- ------
Total................... 2,519 100.00% $15,180,940.54 100.00%
===== ====== ============== ======
</TABLE>
S-19
<PAGE>
YEARS OF ORIGINATION OF SERIES 1994-BII CONTRACTS
<TABLE>
<CAPTION>
% OF SERIES 1994-BII
CONTRACT POOL BY
NUMBER OF SERIES 1994-BII AGGREGATE PRINCIPAL OUTSTANDING PRINCIPAL
CONTRACTS AS OF BALANCE OUTSTANDING BALANCE AS OF
YEAR OF ORIGINATION CUT-OFF DATE AS OF CUT-OFF DATE CUT-OFF DATE
- ------------------- ------------------------- ------------------- ---------------------
<S> <C> <C> <C>
1992.................... 1 $ 7,867.49 .05%
1993.................... 220 1,319,097.84 8.69
1994.................... 2,298 13,853,975.21 91.26
----- -------------- ------
Total............... 2,519 $15,180,940.54 100.00%
===== ============== ======
</TABLE>
DISTRIBUTION OF ORIGINAL SERIES 1994-BII CONTRACT AMOUNTS
<TABLE>
<CAPTION>
% OF SERIES 1994-BII
CONTRACT POOL BY
NUMBER OF SERIES 1994-BII AGGREGATE PRINCIPAL OUTSTANDING PRINCIPAL
ORIGINAL CONTRACT CONTRACTS AS OF BALANCE OUTSTANDING BALANCE AS OF
AMOUNT (IN DOLLARS)(1) CUT-OFF DATE AS OF CUT-OFF DATE CUT-OFF DATE
- ---------------------- ------------------------- ------------------- ---------------------
<S> <C> <C> <C>
Less than $10,000....... 2,318 $12,945,163.02 85.27%
$ 10,000--$ 19,999.99... 201 2,235,777.52 14.73
----- -------------- ------
Total............... 2,519 $15,180,940.54 100.00%
===== ============== ======
</TABLE>
SERIES 1994-BII CONTRACT RATES
<TABLE>
<CAPTION>
% OF SERIES 1994-BII
CONTRACT POOL BY
NUMBER OF SERIES 1994-BII AGGREGATE PRINCIPAL OUTSTANDING PRINCIPAL
RANGE OF CONTRACTS BY CONTRACTS AS OF BALANCE OUTSTANDING BALANCE AS OF
CONTRACT RATE CUT-OFF DATE AS OF CUT-OFF DATE CUT-OFF DATE
- --------------------- ------------------------- ------------------- ---------------------
<S> <C> <C> <C>
9.01%-10.00%............ 4 $ 22,685.92 0.15%
10.01%-11.00%........... 0 0.00 0.00
11.01%-12.00%........... 19 131,205.45 0.86
12.01%-13.00%........... 123 645,319.76 4.25
13.01%-14.00%........... 718 4,585,614.89 30.21
14.01%-15.00%........... 1,401 8,295,907.03 54.65
15.01%-16.00%........... 193 1,138,552.34 7.50
16.01%-17.00%........... 59 348,005.15 2.29
17.01%-18.00%........... 2 13,650.00 0.09
----- -------------- ------
Total............... 2,519 $15,180,940.54 100.00%
===== ============== ======
</TABLE>
S-20
<PAGE>
REMAINING MONTHS TO MATURITY
SERIES 1994-BII CONTRACTS
<TABLE>
<CAPTION>
% OF SERIES 1994-BII
MONTHS REMAINING TO NUMBER OF SERIES CONTRACT POOL BY
SCHEDULED MATURITY 1994-BII AGGREGATE PRINCIPAL OUTSTANDING PRINCIPAL
AS OF CUT- CONTRACTS AS OF BALANCE OUTSTANDING BALANCE AS OF
OFF DATE CUT-OFF DATE AS OF CUT-OFF DATE CUT-OFF DATE
- ------------------- ---------------- ------------------- ---------------------
<S> <C> <C> <C>
Less than 31............ 75 $ 251,728.30 1.66%
31-60................... 961 4,188,983.73 27.60
61-90................... 479 2,734,517.71 18.01
91-120.................. 976 7,748,115.61 51.04
121-150................. 3 24,715.05 .16
151-180................. 25 232,880.14 1.53
----- -------------- ------
Total............... 2,519 $15,180,940.54 100.00%
===== ============== ======
</TABLE>
The Series 1994-BI Contracts and the Series 1994-BII Contracts constitute
substantially all of the home improvement contracts owned by the Company as of
the Cut-off Date meeting the criteria stated under "Description of the
Certificates--Conveyance of Contracts."
DELINQUENCY, LOAN DEFAULT AND LOSS INFORMATION
The following tables set forth the delinquency experience and loan default
and loss experience for the past 51 months of the portfolio of FHA-insured and
conventional home improvement loans serviced by the Company.
DELINQUENCY EXPERIENCE
<TABLE>
<CAPTION>
AT AT DECEMBER 31,
MARCH 31, ------------------------------
1994 1993 1992 1991 1990
--------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Number of Contracts Outstanding(1)... 40,529 36,828 25,803 21,337 10,267
Period of Delinquency(2).............
30-59 Days......................... 243 279 355 228 87
60-89 Days......................... 98 88 98 84 29
90 Days or More.................... 172 169 207 164 52
------ ------ ------ ------ ------
Total Home Improvement Contracts De-
linquent............................ 513 536 660 476 168
Delinquencies as a Percent of Con-
tracts Outstanding.................. 1.27% 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.
S-21
<PAGE>
LOAN DEFAULT AND LOSS EXPERIENCE
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
TWELVE MONTHS
THREE MONTHS ENDED DECEMBER 31,
ENDED ---------------------------------
MARCH 31, 1994 1993 1992 1991 1990
-------------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Principal Balance of
Contracts Serviced(1)....... 352,248 314,300 207,114 174,146 84,812
Contract Defaults(2)......... .35% 1.51% 1.86% 1.09% .26%
Net Losses:
Dollars(3)................. 232 261 768 305 1
Percentage(4).............. .07% .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 Series 1994-BI or the Series 1994-BII 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 improvement
contracts or unsecured home 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.
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
S-22
<PAGE>
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" herein) 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 each month at a specified constant annual rate. The Certificates were
priced using a prepayment assumption of 16% CPR. 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.
The amount of interest to which the Certificateholders of any Class are
entitled on any Payment Date will be the product of the related Pass-Through
Rate and the Principal Balance of such Class immediately following the
preceding Payment Date, based on a 360-day year consisting of 12 months of 30
days each. Certificateholders will receive payments in respect of principal on
each Payment Date to the extent that funds available in the related Certificate
Account are sufficient therefor, in the priority described under "Description
of the Certificates--Distributions on the Series 1994-BI Certificates" and "--
Distributions on the Series 1994-BII Certificates." 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 Series 1994-BI Contract with the
latest maturity is in July 2014, and the final scheduled payment date on the
Series 1994-BII Contract with the latest maturity is in July 2009.
WEIGHTED AVERAGE LIFE OF THE CERTIFICATES
The following information is given solely to illustrate the effect of
prepayments of the related Contracts on the weighted average life of each Class
of Certificates under the stated assumptions and is not a prediction of the
prepayment rate that might actually be experienced by the Contracts.
Weighted average life refers to the average amount of time from the date of
issuance of a security until each dollar of principal of such security will be
repaid to the investor. The weighted average life of the Certificates will be
influenced by the rate at which principal on the Contracts is paid. Principal
payments on Contracts may be in the form of scheduled amortization or
prepayments (for this purpose, the term "prepayment" includes repayments and
liquidations due to default or other dispositions of Contracts). Prepayments on
Contracts may be measured by a prepayment standard or model. The model used in
this Prospectus Supplement, the Constant Prepayment Rate model, is described
above.
As used in the following tables, "0% CPR" assumes that none of the Contracts
are prepaid before maturity, "16% CPR" assumes the Contracts will prepay at a
CPR of 16%, and so forth.
There is no assurance, however, that prepayment of the Contracts will conform
to any level of the CPR, and no representation is made that the Contracts will
prepay at the prepayment rates shown or any other prepayment rate. The rate of
principal payments on pools of home improvement contracts is influenced by a
variety of economic, geographic, social and other factors, including the level
of interest rates and the rate at which homeowners sell their homes or default
on their contracts. Other factors affecting prepayment of contracts include
changes in obligors' housing needs, job transfers, unemployment and obligors'
net equity in their homes. In the case of home improvement contracts secured by
real estate, in general, if prevailing interest rates fall significantly below
the interest rates on such home improvement contracts, the home improvement
contracts are likely to be subject to higher prepayment rates than if
prevailing interest rates remained at or above the rates borne by such home
improvement contracts. Conversely, if prevailing interest rates rise above the
interest rates on such home improvement contracts, the rate of prepayment would
be expected to decrease. In the case of home improvement contracts, however,
because the outstanding principal balances are, in general, much smaller than
mortgage loan balances and the original term to maturity of each
S-23
<PAGE>
such contract is generally shorter, the reduction or increase in the size of
the monthly payment on a contract arising from a change in the interest rate
thereon is generally much smaller. Consequently, changes in prevailing interest
rates may not have a similar effect, or may have a similar effect but to a
smaller degree, on the prepayment rates on home improvement contracts.
The percentages and weighted average lives in the following tables were
determined assuming that: (i) scheduled interest and principal payments on the
Contracts are received in a timely manner and prepayments are made at the
indicated percentages of the CPR set forth in the table; (ii) either the
Company or the Servicer exercises its right of optional termination described
above; (iii) the Original Series 1994-BI Principal Balance is $104,955,396, the
Original Series 1994-BII Principal of Balance is $15,180,940, and the Contracts
have the characteristics described under "The Contracts"; (iv) the Class A-1
Certificates have an Original Class A-1 Principal Balance of $78,900,000 and
have a Class A-1 Pass-Through Rate of 7.15%, the Class M-1 Certificates have an
Original Class M-1 Principal Balance of $9,700,000 and have a Class M-1 Pass-
Through Rate of 8.15%, the Class B-1 Certificates have an Original Class B-1
Principal Balance of $7,300,000 and have a Class B-1 Pass-Through Rate of
8.55%, the Class B-2 Certificates have an Original Class B-2 Principal Balance
of $9,055,396 and have a Class B-2 Pass-Through Rate of 8.70%, and the Series
1994-BII Certificates have an Original Series 1994-BII Principal Balance of
$15,180,940 and have a Series 1994-BII Pass-Through Rate of 7.85%; (v) no
interest shortfalls will arise in connection with prepayment in full of the
Contracts; (vi) no delinquencies or losses are experienced on the Contracts;
(vii) distributions are made on the Certificates on the 15th day of each month,
commencing July 15, 1994; and (viii) the Certificates are issued on June 30,
1994. No representation is made that the Contracts will not experience
delinquencies or losses.
It is not likely that Contracts will prepay at any constant percentage of the
CPR to maturity or that all Contracts will prepay at the same rate.
Investors are urged to make their investment decisions on a basis that
includes their determination as to anticipated prepayment rates under a variety
of the assumptions discussed herein.
Based on the foregoing assumptions, the following tables indicate the
projected weighted average life of the Class A-1 Certificates, the Class M-1
Certificates, the Class B-1 Certificates, the Class B-2 Certificates and the
Series 1994-BII Certificates and set forth the percentages of the Original
Class A-1 Principal Balance, the Original Class M-1 Principal Balance, the
Original Class B-1 Principal Balance, the Original Class B-2 Principal Balance,
and the Original Series 1994-BII Principal Balance that would be outstanding
after each of the dates shown, at the indicated percentages of the CPR.
S-24
<PAGE>
PERCENTAGE OF THE ORIGINAL PRINCIPAL BALANCE OF THE CLASS A-1
CERTIFICATES AT THE RESPECTIVE PERCENTAGES OF THE
CPR SET FORTH BELOW:
<TABLE>
<CAPTION>
DATE 12% 14% 16% 18% 20%
- ---- --- --- --- --- ---
<S> <C> <C> <C> <C> <C>
Initial Percentage..................................... 100% 100% 100% 100% 100%
June 15, 1995.......................................... 80 78 75 73 70
June 15, 1996.......................................... 63 59 54 50 46
June 15, 1997.......................................... 48 42 37 32 28
June 15, 1998.......................................... 34 29 23 18 13
June 15, 1999.......................................... 23 17 11 6 2
June 15, 2000.......................................... 13 7 2 0 0
June 15, 2001.......................................... 4 0 0 0 0
June 15, 2002.......................................... 0 0 0 0 0
June 15, 2003.......................................... 0 0 0 0 0
June 15, 2004.......................................... 0 0 0 0 0
June 15, 2005.......................................... 0 0 0 0 0
Weighted Average Life (1) (years)...................... 3.1 2.8 2.5 2.3 2.1
</TABLE>
- --------
(1) The weighted average life of a Class A-1 Certificate is determined by (i)
multiplying the amount of cash distributions in reduction of the principal
balance of such Certificate by the number of years from the date of
issuance of such Class A-1 Certificate to the stated Payment Date, (ii)
adding the results, and (iii) dividing the sum by the initial principal
balance of such Class A-1 Certificate.
PERCENTAGE OF THE ORIGINAL PRINCIPAL BALANCE OF THE CLASS M-1
CERTIFICATES AT THE RESPECTIVE PERCENTAGES OF THE
CPR SET FORTH BELOW:
<TABLE>
<CAPTION>
DATE 12% 14% 16% 18% 20%
- ---- --- --- --- --- ---
<S> <C> <C> <C> <C> <C>
Initial Percentage..................................... 100% 100% 100% 100% 100%
June 15, 1995.......................................... 100 100 100 100 100
June 15, 1996.......................................... 100 100 100 100 100
June 15, 1997.......................................... 100 100 100 100 100
June 15, 1998.......................................... 100 100 100 100 100
June 15, 1999.......................................... 100 100 100 100 100
June 15, 2000.......................................... 100 100 100 75 41
June 15, 2001.......................................... 100 86 47 14 0
June 15, 2002.......................................... 67 27 0 0 0
June 15, 2003.......................................... 12 0 0 0 0
June 15, 2004.......................................... 0 0 0 0 0
June 15, 2005.......................................... 0 0 0 0 0
Weighted Average Life (1) (years)...................... 8.3 7.6 7.0 6.4 5.9
</TABLE>
- --------
(1) The weighted average life of a Class M-1 Certificate is determined by (i)
multiplying the amount of cash distributions in reduction of the principal
balance of such Certificate by the number of years from the date of
issuance of such Class M-1 Certificate to the stated Payment Date, (ii)
adding the results, and (iii) dividing the sum by the initial principal
balance of such Class M-1 Certificate.
S-25
<PAGE>
PERCENTAGE OF THE ORIGINAL PRINCIPAL BALANCE OF THE CLASS B-1
CERTIFICATES AT THE RESPECTIVE PERCENTAGES OF THE
CPR SET FORTH BELOW:
<TABLE>
<CAPTION>
DATE 12% 14% 16% 18% 20%
- ---- ---- --- --- --- ---
<S> <C> <C> <C> <C> <C>
Initial Percentage.................................... 100% 100% 100% 100% 100%
June 15, 1995......................................... 100 100 100 100 100
June 15, 1996......................................... 100 100 100 100 100
June 15, 1997......................................... 100 100 100 100 100
June 15, 1998......................................... 100 100 100 100 100
June 15, 1999......................................... 100 100 100 100 100
June 15, 2000......................................... 100 100 100 100 100
June 15, 2001......................................... 100 100 100 100 80
June 15, 2002......................................... 100 100 92 54 22
June 15, 2003......................................... 100 71 33 0 0
June 15, 2004......................................... 51 0 0 0 0
June 15, 2005......................................... 0 0 0 0 0
Weighted Average Life (1) (years)..................... 10.0 9.3 8.7 8.1 7.5
</TABLE>
- --------
(1) The weighted average life of a Class B-1 Certificate is determined by (i)
multiplying the amount of cash distributions in reduction of the principal
balance of such Certificate by the number of years from the date of
issuance of such Class B-1 Certificate to the stated Payment Date, (ii)
adding the results, and (iii) dividing the sum by the initial principal
balance of such Class B-1 Certificate.
PERCENTAGE OF THE ORIGINAL PRINCIPAL BALANCE OF THE CLASS B-2
CERTIFICATES AT THE RESPECTIVE PERCENTAGES OF THE
CPR SET FORTH BELOW:
<TABLE>
<CAPTION>
DATE 12% 14% 16% 18% 20%
- ---- ---- ---- --- --- ---
<S> <C> <C> <C> <C> <C>
Initial Percentage................................... 100% 100% 100% 100% 100%
June 15, 1995........................................ 100 100 100 100 100
June 15, 1996........................................ 100 100 100 100 100
June 15, 1997........................................ 100 100 100 100 100
June 15, 1998........................................ 100 100 100 100 100
June 15, 1999........................................ 100 100 100 100 100
June 15, 2000........................................ 100 100 100 100 100
June 15, 2001........................................ 100 100 100 100 100
June 15, 2002........................................ 100 100 100 100 100
June 15, 2003........................................ 100 100 100 0 0
June 15, 2004........................................ 100 0 0 0 0
June 15, 2005........................................ 0 0 0 0 0
Weighted Average Life (1) (years).................... 10.6 10.0 9.4 8.7 8.1
</TABLE>
- --------
(1) The weighted average life of a Class B-2 Certificate is determined by (i)
multiplying the amount of cash distributions in reduction of the principal
balance of such Certificate by the number of years from the date of
issuance of such Class B-2 Certificate to the stated Payment Date, (ii)
adding the results, and (iii) dividing the sum by the initial principal
balance of such Class B-2 Certificate.
S-26
<PAGE>
PERCENTAGE OF THE ORIGINAL PRINCIPAL BALANCE OF THE SERIES 1994-BII
CERTIFICATES AT THE RESPECTIVE PERCENTAGES OF THE
CPR SET FORTH BELOW:
<TABLE>
<CAPTION>
DATE 12% 14% 16% 18% 20%
- ---- --- --- --- --- ---
<S> <C> <C> <C> <C> <C>
Initial Percentage..................................... 100% 100% 100% 100% 100%
June 15, 1995.......................................... 81 79 78 76 74
June 15, 1996.......................................... 65 62 59 56 53
June 15, 1997.......................................... 50 47 43 40 38
June 15, 1998.......................................... 37 34 31 28 25
June 15, 1999.......................................... 25 22 20 18 16
June 15, 2000.......................................... 15 13 11 10 0
June 15, 2001.......................................... 0 0 0 0 0
June 15, 2002.......................................... 0 0 0 0 0
June 15, 2003.......................................... 0 0 0 0 0
June 15, 2004.......................................... 0 0 0 0 0
June 15, 2005.......................................... 0 0 0 0 0
Weighted Average Life (1) (years)...................... 3.2 3.0 2.9 2.7 2.6
</TABLE>
- --------
(1) The weighted average life of a Series 1994-BII Certificate is determined by
(i) multiplying the amount of cash distributions in reduction of the
principal balance of such Certificate by the number of years from the date
of issuance of such Series 1994-BII Certificate to the stated Payment Date,
(ii) adding the results, and (iii) dividing the sum by the initial
principal balance of such Series 1994-BII Certificate.
GREEN TREE FINANCIAL CORPORATION
GENERAL
The following information supplements, and to the extent inconsistent
therewith supersedes, the information in the Prospectus under the heading
"Green Tree Financial Corporation."
The Company is a Minnesota corporation which, as of December 31, 1993, had
total assets of approximately $1,739,582,000 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 and horse trailers. 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, which are incorporated by reference in this Prospectus Supplement and
Prospectus, are available from the Company upon written request made to the
Company.
DESCRIPTION OF THE CERTIFICATES
The following information supplements, and to the extent inconsistent
therewith supersedes, the information in the Prospectus under "Description of
the Certificates."
The Series 1994-BI Certificates will be issued pursuant to the Series 1994-BI
Agreement between the Company, as Seller and Servicer, and the Series 1994-BI
Trustee. The Series 1994-BII Certificates will be issued pursuant to the Series
1994-BII Agreement between the Company, as Seller and Servicer, and the
S-27
<PAGE>
Series 1994-BII Trustee. A copy of the execution form of each 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 each 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
in denominations of $1,000, except for one Series 1994-BII Certificate with a
denomination of less than $1.00. The Certificates (other than the single Series
1994-BII Certificate referred to in the preceding sentence) initially will be
represented by 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 the Certificates--
Registration of the Certificates" herein. The Series 1994-BI Trust consists
primarily of the Series 1994-BI Contracts and the rights, benefits, obligations
and proceeds arising therefrom or in connection therewith, including liens on
the related real estate, rights under applicable FHA Insurance for FHA-insured
Contracts, amounts held in the Series 1994-BI Certificate Account and the Class
B-2 Limited Guaranty of the Company for the benefit of the Class B-2
Certificateholders. The Series 1994-BII Trust consists primarily of the Series
1994-BII Contracts and the rights, benefits, obligations and proceeds arising
therefrom or in connection therewith, amounts held in the Series 1994-BII
Certificate Account and the Series 1994-BII Limited Guaranty of the Company.
Distributions on the Certificates will be made by the related Paying Agent
(which shall initially be the related Trustee) 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 the Certificates--Registration of the Certificates" herein. The first
Payment Date for the Certificates will be July 15, 1994. Payments will be made
by check mailed to such Certificateholder at the address appearing on the
Certificate Register (except that a Certificateholder who holds an aggregate
Percentage Interest of at least 5% of a Class of Certificates may request
payment by wire transfer). Final payments will be made only upon tender of the
Certificates to the related Trustee for cancellation.
CONVEYANCE OF CONTRACTS
On the Closing Date, the Company will establish the Series 1994-BI Trust and
the Series 1994-BII Trust and transfer, assign, set over and otherwise convey
to the applicable Trust all right, title and interest of the Company in the
related Contracts, including all principal and interest received on or with
respect to such Contracts (other than receipts of principal and interest due on
such Contracts before the Cut-off Date). On behalf of the Trusts, as the
issuers of the Certificates offered hereby, the applicable Trustee,
concurrently with such conveyance, will execute and deliver the Certificates to
or upon the order of the Company. The Contracts are described on lists
delivered to the Trustees and certified by a duly authorized officer of the
Company. Such lists include the amount of monthly payments due on each Contract
as of the date of issuance of the Certificates, the Contract Rate on each
Contract and the maturity date of each Contract. The appropriate list will be
attached as an exhibit to the related 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 applicable 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 related 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
related Certificate Account in an amount sufficient to offset such discrepancy.
The Trustees will maintain possession of the Contracts and any other
documents contained in the Contract files. Uniform Commercial Code financing
statements will be filed in Minnesota, reflecting the conveyance and assignment
of the Contracts to the related Trustee, and the Company's accounting records
and computer systems will also reflect such conveyance and assignment.
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Dorsey & Whitney, counsel to the Company, will render an opinion to each
Trustee that the transfer of the Contracts from the Company to the applicable
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
applicable Trust were treated as a pledge to secure borrowings by the Company,
the distribution of proceeds of the Contracts to the related 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
related 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 such 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
Agreements with respect to each Contract, including that: (a) as of the Cut-off
Date the most recent scheduled payment was made or was not delinquent more than
59 days; (b) no provision of a Contract has been waived, altered or modified in
any respect, except by instruments or documents included in the Contract file
and reflected on the list of Contracts delivered to the Trustee; (c) each
Contract is a legal, valid and binding obligation of the Obligor and is
enforceable in accordance with its terms (except as may be limited by laws
affecting creditors' rights generally); (d) no Contract is subject to any right
of rescission, set-off, counterclaim or defense; (e) each Contract (if an FHA-
insured Contract) was originated in accordance with applicable FHA regulations
and is insured, without set-off, surcharge or defense, by FHA Insurance; (f)
each Contract was originated by a home improvement contractor in the ordinary
course of such contractor's business or was originated by the Company directly;
(g) no Contract was originated in or is subject to the laws of any jurisdiction
whose laws would make the transfer of the Contract or an interest therein
pursuant to the Agreement or the Certificates unlawful; (h) each Contract
complies with all requirements of law; (i) no Contract has been satisfied,
subordinated to a lower lien ranking than its original position (if any) or
rescinded; (j) in the case of the Series 1994-BI Contracts, each 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 Cut-off 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) in the case of the Series 1994-BI Contracts, each
Contract contains customary and enforceable provisions such as to render the
rights and remedies of the holder thereof adequate for realization against the
collateral; (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 Series 1994-BI Contracts in the aggregate, including that (i)
the aggregate principal amount payable by the Obligors as of the Cut-off Date
equals the Original Series 1994-BI Principal Balance, and each Contract has a
contractual rate of interest of at least 8.24%; (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 Cut-off 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.
The Company will also make certain representations and warranties with
respect to the Series 1994-BII Contracts in the aggregate, including that (i)
the aggregate principal amount payable by the Obligors as of
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the Cut-off Date equals the Original Series 1994-BII Principal Balance, and
each Contract has a contractual rate of interest of at least 9.81%; (ii) no
Contract has a remaining maturity of more than 92 months; (iii) no more than 5%
of the Series 1994-BII Contracts, by principal balance as of the Cut-off Date,
related to 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 Agreements, 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 of the day it
was or should have been discovered by the Servicer or the Trustee. This
repurchase obligation constitutes the sole remedy available to the Trusts and
the Certificateholders for a breach of a representation or warranty under the
Agreements with respect to the Contracts (but not with respect to any other
breach by the Company of its obligations under the Agreements).
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.
Pursuant to each of the Agreements, the Servicer will service and administer
the related Contracts conveyed and assigned to the related Trustee as more
fully set forth below.
PAYMENTS ON CONTRACTS
The Servicer, on behalf of each Trust, will establish and maintain a
Certificate 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 related Trustee to invest the funds in the related
Certificate Account in Eligible Investments (as defined in the related
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 related Certificate 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 related Certificate 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
related Certificate 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 related Certificate Account. See
"Description of the Certificates--Servicing Compensation and Payment of
Expenses" herein. 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," and amounts paid by the Company
for
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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 related Certificate Account.
On the seventh Business Day of each month (the "Determination Date"), the
Servicer will determine the Amount Available in each Certificate Account and
the amount of funds necessary to make all payments to be made on the next
Payment Date from such Certificate Account. Not later than one Business Day
after the Determination Date, the Company will deposit in the related
Certificate 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.
DISTRIBUTIONS
Holders of the Certificates will be entitled to receive on each Payment
Date, generally to the extent that the Amount Available in the Certificate
Account for the applicable Trust is sufficient therefor, distributions
allocable to interest and principal, as described herein. Distributions will
be made on each Payment Date to holders of record of the Certificates on the
preceding Record Date, except that the final distribution in respect of the
Certificates will be made only upon presentation and surrender of the
Certificates at the office or agency appointed by the applicable Trustee for
that purpose in Minneapolis or St. Paul, Minnesota. The Amount Available for
either Trust on each Payment Date generally includes scheduled payments on the
related Contracts due during the previous calendar month (the "Due Period")
and received on or prior to the related Determination Date, prepayments and
other unscheduled collections received on the related Contracts during such
Due Period, any Advances (as defined herein) made by the Servicer or the
related Trustee with respect to such Due Period and any amounts paid by the
Company to repurchase a related Contract due to a breach of representation or
warranty.
DISTRIBUTIONS ON THE SERIES 1994-BI CERTIFICATES
The Amount Available in the Series 1994-BI Certificate Account with respect
to any Payment Date will be applied first to the payment of interest on the
Series 1994-BI Certificates, and then to the payment of principal on the
Series 1994-BI Certificates, in the manner and order of priority described
below.
Interest. Interest will be payable first to the Class A-1 Certificates, then
to the Class M-1 Certificates, then to the Class B-1 Certificates, and then to
the Class B-2 Certificates. Interest on the outstanding Principal Balance of
each Class of Series 1994-BI Certificates will accrue at the applicable Pass-
Through Rate from the Closing Date or from the most recent Payment Date on
which interest has been paid to but excluding the following Payment Date. The
"Principal Balance" of any Class with respect to any Payment Date will equal
the Original Principal Balance of such Class minus all distributions
previously made in respect of principal on such Class. Accrued interest will
be computed on the basis of a 360-day year of twelve 30-day months.
In the event that, on a particular Payment Date, the Amount Available in the
Series 1994-BI Certificate Account (after payment of interest on each Class of
Series 1994-BI Certificates that is senior to such Class of Series 1994-BI
Certificates), together with (in the case of the Class B-2 Certificates) any
related Class B-2 Guaranty Payment, is not sufficient to make a full
distribution of interest to the holders of a Class of Series 1994-BI
Certificates, the amount of the shortfall will be carried forward and added to
the amount such holders will be entitled to receive on the next Payment Date.
Any such amount so carried forward will bear interest at the applicable Pass-
Through Rate, to the extent legally permissible.
With respect to the Class B-1 and Class B-2 Certificates, the Pass-Through
Rate applicable to such Classes is subject to a maximum rate equal to the
weighted average of the Contract Rates of the Series 1994-BI Contracts. In all
but the most unusual prepayment scenarios, it is anticipated that the Class B-
1 Pass-Through Rate will be 8.55% and the Class B-2 Pass-Through Rate 8.70%.
In the unlikely event that a large number of
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Series 1994-BI Contracts having Contract Rates equal to or higher than such
rates (which Contracts represent approximately 99.94% of the Original Series
1994-BI Principal Balance) were to prepay while the Series 1994-BI Contracts
having Contract Rates lower than such rates did not prepay, then the Class B-1
Pass-Through Rate or the Class B-2 Pass-Through Rate, as the case may be, would
be equal to the weighted average of the Contract Rates on each remaining Series
1994-BI Contract.
Principal. Each Class of Series 1994-BI Certificates will be entitled to
receive on each Payment Date as payments of principal, in the order of priority
set forth below and to the extent of the Amount Available in the Series 1994-BI
Certificate Account after payment of all interest then distributable on the
Series 1994-BI Certificates, an amount equal to the sum (such sum being
hereinafter referred to as the "Series 1994-BI Monthly Principal") of (a) the
amount of regular principal payments on Series 1994-BI Contracts paid or
applied during the prior Due Period; (b) the amount of Principal Prepayments
received on Series 1994-BI Contracts during the prior Due Period; (c) the
principal portion of all payments on Series 1994-BI Contracts that were
Delinquent Payments with respect to the prior Due Period; (d) the unpaid
principal balance of all Series 1994-BI Contracts that became Liquidated
Contracts during the prior Due Period; (e) the principal portion of the
Repurchase Price paid by the Company to repurchase Series 1994-BI Contracts for
breach of representations and warranties during the prior Due Period, as
described below under "Repurchases by the Company"; (f) the amount of any
reduction in the principal amount deemed owed on any Series 1994-BI Contract as
a result of the Obligor's bankruptcy; and (g) any principal amount described in
clauses (a) through (f) above that was not previously distributed because of an
insufficient amount of funds available in the Series 1994-BI Certificate
Account to the extent that either (i) such Payment Date occurs after the Class
B-2 Principal Balance has been reduced to zero, or (ii) such principal amount
was not covered by a Class B-2 Guaranty Payment and corresponding reduction in
the Class B-2 Principal Balance.
The Scheduled Principal Balance of a Contract for any month is its principal
balance as specified in its amortization schedule, after giving effect to any
previous Partial Principal Prepayments and to the scheduled payment due on its
scheduled payment date (the "Due Date") in that month, but without giving
effect to any adjustments due to bankruptcy or similar proceedings. The Pool
Scheduled Principal Balance, with respect to either Trust and any Payment Date,
is the aggregate of the Scheduled Principal Balances of the Contracts in such
Trust outstanding at the end of the prior calendar month.
The Series 1994-BI Monthly Principal will be distributed, to the extent of
the Amount Available in the Series 1994-BI Certificate Account after payment of
interest on each Class of Series 1994-BI Certificates, first, to the Class A-1
Certificateholders until the Class A-1 Principal Balance is reduced to zero,
then to the Class M-1 Certificateholders until the Class M-1 Principal Balance
is reduced to zero, then to the Class B-1 Certificateholders until the Class B-
1 Principal Balance is reduced to zero, and then to the Class B-2
Certificateholders until the Class B-2 Principal Balance is reduced to zero.
On each Payment Date the Trustee will withdraw the Amount Available from the
Series 1994-BI Certificate Account and make the following payments, in the
following order of priority:
(i) to pay interest on the Series 1994-BI Certificates;
(ii) to pay principal on the Series 1994-BI Certificates;
(iii) to pay the Monthly Servicing Fee to the Servicer;
(iv) to reimburse the Series 1994-BI Trustee or any successor Servicer
for any payments of FHA Insurance premiums not paid by the Company, as
Servicer, and for which the Series 1994-BI Trustee or such successor
Servicer has not been reimbursed by the Company;
(v) to reimburse the Servicer or the Series 1994-BI Trustee, as
applicable, for Uncollectible Advances and prior Advances that have been
recovered;
(vi) to pay the related Guaranty Fee to the Company; and
(vii) to pay any remaining amounts to the holder of the Class C-I
Certificates.
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SUBORDINATION OF THE CLASS M-1, B-1 AND B-2 CERTIFICATES
The rights of the Class M-1, Class B-1 and Class B-2 Certificateholders to
receive distributions on each Payment Date will be subordinated to such rights
of the Class A-1 Certificateholders; the rights of the Class B-1 and Class B-2
Certificateholders will be similarly subordinated to the rights of the Class M-
1 Certificateholders; and the rights of the Class B-2 Certificateholders will
be similarly subordinated to the rights of the Class B-1 Certificateholders.
This subordination is intended to enhance the likelihood of regular receipt by
the Certificateholders of the more senior Classes of the full amount of their
scheduled monthly payments of interest and principal and to afford such holders
protection against losses on Liquidated Contracts.
The Class A-1 Certificateholders will be entitled to receive on any Payment
Date the amount of interest due on such Certificates, including any interest
due on a prior Payment Date but not received, prior to any distribution being
made on the remaining Classes of Series 1994-BI Certificates. Thereafter, any
remaining Amount Available in the Series 1994-BI Certificate Account will be
applied to the payment of interest due on the other classes of Series 1994-BI
Certificates in the following order of priority: first to the Class M-1
Certificates, then to the Class B-1 Certificates and, finally, to the Class B-2
Certificates.
After payment of all interest due on the Series 1994-BI Certificates, the
Class A-1 Certificateholders will be entitled to receive 100% of the Series
1994-BI Monthly Principal until the Class A-1 Principal Balance is reduced to
zero, and then the Class M-1 Certificateholders will be entitled to receive
100% of the Series 1994-BI Monthly Principal until the Class M-1 Principal
Balance is reduced to zero, the Class B-1 Certificateholders will be entitled
to receive 100% of the Series 1994-BI Monthly Principal until the Class B-1
Principal Balance is reduced to zero, and then the Class B-2 Certificateholders
will be entitled to receive 100% of the Series 1994-BI Monthly Principal until
the Class B-2 Principal Balance is reduced to zero.
DISTRIBUTIONS ON THE SERIES 1994-BII CERTIFICATES
Interest. Interest on the outstanding Series 1994-BII Principal Balance will
accrue at the Series 1994-BII Pass-Through Rate from the Closing Date or from
the most recent Payment Date on which interest has been paid to but excluding
the following Payment Date. The "Series 1994-BII Principal Balance" with
respect to any Payment Date will equal the Original Series 1994-BII Principal
Balance minus all distributions previously made in respect of principal on the
Series 1994-BII Certificates. Accrued interest will be computed on the basis of
a 360-day year of twelve 30-day months.
In the event that, on a particular Payment Date, the Amount Available in the
Series 1994-BII Certificate Account, together with any related Series 1994-BII
Guaranty Payment, is not sufficient to make a full distribution of interest to
the Series 1994-BII Certificateholders, the amount of the shortfall will be
carried forward and added to the amount such holders will be entitled to
receive on the next Payment Date. Any such amount so carried forward will bear
interest at the Series 1994-BII Pass-Through Rate, to the extent legally
permissible.
Principal. On each Payment Date, Series 1994-BII Certificateholders will be
entitled to receive as distributions of principal, to the extent of the Amount
Available in the Series 1994-BII Certificate Account after payment of all
interest payable on the Series 1994-BII Certificates, an amount equal to the
sum (such sum being hereinafter referred to as the "Series 1994-BII Monthly
Principal") of (a) the amount of regular principal payments on Series 1994-BII
Contracts paid or applied during the prior Due Period; (b) the amount of
Principal Prepayments received on Series 1994-BII Contracts during the prior
Due Period; (c) the principal portion of all payments on Series 1994-BII
Contracts that were Delinquent Payments with respect to the prior Due Period;
(d) the unpaid principal balance of all Series 1994-BII Contracts that became
Liquidated Contracts during the prior Due Period; (e) the principal portion of
the Repurchase Price paid by the Company to repurchase Series 1994-BII
Contracts for breach of representations and warranties during the prior Due
Period, as described below under "Repurchases by the Company"; (f) the amount
of any reduction in the principal amount deemed owed on any Series 1994-BII
Contract as a result of the Obligor's bankruptcy;
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and (g) any principal amount described in clauses (a) through (f) above that
was not previously distributed because of an insufficient amount funds
available in the Series 1994-BII Certificate Account and the Company either was
not obligated to or failed to pay such amount under the Series 1994-BII Limited
Guaranty.
On each Payment Date the Trustee will withdraw the Amount Available from the
Series 1994-BII Certificate Account and make the following payments, in the
following order of priority:
(i) to pay interest on the Series 1994-BII Certificates;
(ii) to pay principal on the Series 1994-BII Certificates;
(iii) to pay the Monthly Servicing Fee to the Servicer;
(iv) to reimburse the Servicer or the Series 1994-BII Trustee, as
applicable, for Uncollectible Advances and prior Advances that have been
recovered; and
(v) to pay the remainder, if any, to the Company as the related Guaranty
Fee.
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 related Certificate 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 in
the related Trust.
If the Servicer fails to make an Advance required under an Agreement, the
Trustee will be obligated to deposit the amount of such Advance in the related
Certificate 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 from subsequent collections on the Contract or from
liquidation proceeds thereof, 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, with respect to the
appropriate Series of Certificates and Trust:
(a) the amount of interest being paid to each Class of
Certificateholders;
(b) the amount of Monthly Principal, specifying the amounts constituting
scheduled payments by Obligors, Principal Prepayments on the Contracts, and
other payments with respect to the Contracts;
(c) the amount of principal being distributed to each Class of
Certificateholders;
(d) the amount of interest being distributed to each Class of
Certificateholders;
(e) the Principal Balance of each Class;
(f) the amount of fees payable out of the Trust;
(g) the related 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 Original Principal Balance of such
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;
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(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
Each Agreement provides that on any Payment Date on which the Pool Scheduled
Principal Balance is less than 10% of the Original Principal Balance of such
Certificates, the Servicer will have the option to repurchase, on 20 days'
prior written notice to the Trustee, all outstanding Contracts in such Trust 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 related 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 of the related Contracts.
The Monthly Servicing Fee provides compensation for customary third-party
servicing activities to be performed by the Servicer for the related Trust, for
additional administrative services performed by the Servicer on behalf of the
related Trust and for expenses paid by the Servicer on behalf of the related
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 each Trust include selecting and packaging the related Contracts,
calculating distributions to Certificateholders and providing related data
processing and reporting services for Certificateholders and on behalf of the
related 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 Trustee's fees, and payment of expenses incurred in connection with
distributions and reports to Certificateholders.
EVIDENCE AS TO COMPLIANCE
Each 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 "--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 related 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
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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 related Agreement,
except for any exceptions set forth in such report.
Each 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.
Each Agreement provides that a Certificateholder holding Certificates
evidencing at least 5% of the interests in the related 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" herein and in
the Prospectus.
CERTAIN MATTERS RELATING TO THE COMPANY
Each 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 related
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 each of the Agreements 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 each Agreement to give
the Trustee and the related Certificateholders notice of an Event of
Termination promptly upon the occurrence of such Event.
RIGHTS UPON AN EVENT OF TERMINATION
If an Event of Termination has occurred and is continuing, either the Trustee
or holders of Certificates evidencing 25% or more of the related 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
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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 related Agreement or any related document or agreement. In addition, 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. See "Description of FHA Insurance" in the
Prospectus. 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 either 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 related
Agreement.
TERMINATION OF THE AGREEMENT
Each 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 aggregate Principal Balance of the related
Certificates is reduced to zero; or (b) the Payment Date on which the Company
repurchases the related Contracts as described under "Description of the
Certificates--Repurchase Option." However, the Company's representations,
warranties and indemnities will survive any termination of either Agreement.
AMENDMENT; WAIVER
Each 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.
Each 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, 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.
Each 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 related Trust, and holders of Certificates representing 66 2/3% of the
related Trust may vote to waive any Event of Termination, provided that no such
amendment or waiver shall (a) reduce in any manner the amount of, or delay the
timing of, collections of payments on Contracts or distributions which are
required to be made on any Certificate, or (b) reduce the aggregate amount of
Certificates required for any amendment of the Agreement, without unanimous
consent of the Certificateholders.
The Trustee is required under each Agreement to furnish Certificateholders
with notice promptly upon execution of any amendment to the Agreement.
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INDEMNIFICATION
Each Agreement provides that the Company will defend and indemnify the
related 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.
Each Agreement also provides that the Company, in connection with its duties
as servicer of the related Contracts, will defend and indemnify the related
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
either 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 applicable Certificate 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 applicable
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 related Agreement.
Under each 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 related 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 either
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.
Each Agreement also provides that the Trustee will maintain at its expense in
Minneapolis or St. Paul, Minnesota, an office or agency where Certificates may
be surrendered for registration of transfer or exchange and where notices and
demands to or upon the Trustee and the certificate registrar and transfer agent
in respect of the Certificates pursuant to the Agreement may be served. On the
date hereof the Trustee's office for such purposes is located at 180 East Fifth
Street, St. Paul, Minnesota 55101. The Trustee will promptly give written
notice to the Company and the Certificateholders of any change thereof.
THE TRUSTEE
First Trust National Association has its corporate trust offices at 180 East
Fifth Street, St. Paul, Minnesota 55101.
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The Trustee may resign from its duties under either (or both) or the
Agreements 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 related 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. 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 each 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 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,
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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 related 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 THE CLASS B-2 LIMITED GUARANTY
In order to mitigate the effect of the subordination of the Class B-2
Certificates and liquidation losses and delinquencies on the Series 1994-BI
Contracts, the Company will provide a guaranty (the "Class B-2 Limited
Guaranty") against losses that would otherwise be absorbed by the Class B-2
Certificates. On each Payment Date, the Company will be obligated to remit to
the Series 1994-BI trustee for deposit in the Series 1994-BI Certificate
Account a "Class B-2 Guaranty Payment" equal to the amount, if any, by which
(a) the sum of (i) the Class B-2 Formula Distribution Amount for that Payment
Date (equal to one month's interest on the Class B-2 Principal Balance plus (if
the Class B-1 Principal Balance has been reduced to zero) the Series 1994-BI
Monthly Principal for such Payment Date) and (ii) the Class B-2 Principal
Deficiency Amount, if any, for that Payment Date, exceeds (b) the Class B-2
Distribution Amount for such Payment Date. The Class B-2 Principal Deficiency
Amount for any Payment Date equals the amount, if any, by which the sum of the
Class A-1 Principal Balance, Class M-1 Principal Balance, Class B-1 Principal
Balance and the Class B-2 Principal Balance (after giving effect to all
distributions in respect of principal on such Payment Date) exceeds the Pool
Scheduled Principal Balance for such Payment Date. The Class B-2 Principal
Deficiency Amount is, in substance, the amount of principal delinquencies and
losses experienced on the Series 1994-BI Contracts during the related Due
Period that was not absorbed by the Guaranty Fee or the Monthly Servicing Fee.
The Class B-2 Limited Guaranty will be an unsecured general obligation of the
Company and will not be supported by any letter of credit or other credit
enhancement arrangement. The Class B-2 Limited Guaranty will not benefit in any
way, or result in any payment to, the Class A-1, Class M-1 or Class B-2
Certificateholders or the Series 1994-BII Certificateholders.
As compensation for providing the Class B-2 Limited Guaranty, the Company
will be entitled to receive a Guaranty Fee on each Payment Date equal to the
Amount Available in the Series 1994-BII Certificate Account less the Class A-1
Distribution Amount, the Class M-1 Distribution Amount, the Class B-2
Distribution Amount, the Class B-2 Distribution Amount, the Monthly Servicing
Fee under the Series 1994-BI Agreement and certain amounts required to
reimburse the Series 1994-BI Trustee or the Servicer, as described under
"Description of the Certificates--Distributions on the Series 1994-BI
Certificates."
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DESCRIPTION OF THE SERIES 1994-BII LIMITED GUARANTY
In order to mitigate the effect of liquidation losses and delinquencies on
the Series 1994-BII Contracts, the Series 1994-BII Certificateholders are
entitled to receive on each Payment Date (subject to the limit of the Series
1994-BII Guaranty Amount) the amount equal to the Series 1994-BII Guaranty
Payment, if any, under the Series 1994-BII Limited Guaranty of the Company. The
Series 1994-BII Guaranty Payment for any Payment Date will equal the amount, if
any, by which the Series 1994-BII Formula Distribution Amount (equal to one
month's interest on the Series 1994-BII Principal Balance plus the Series 1994-
BII Monthly Principal for such Payment Date) exceeds the Amount Available in
the Series 1994-BII Certificate Account for such Payment Date.
The "Series 1994-BII Guaranty Amount" initially equals $1,518,095.
Thereafter, on any Payment Date, the Series 1994-BII Guaranty Amount will equal
$1,518,095 minus all Net Liquidation Losses realized on the Series 1994-BII
Contracts since the Cut-off Date. "Net Liquidation Loss" means, as to a
Liquidated Series 1994-BII Contract, the amount, if any, by which (a) the
outstanding principal balance of such Liquidated Series 1994-BII Contract plus
accrued and unpaid interest thereon to the date on which such Liquidated Series
1994-BII Contract became a Liquidated Contract exceeds (b) the Net Liquidation
Proceeds for such Liquidated Series 1994-BII Contract. "Net Liquidation
Proceeds" means, as to a Liquidated Series 1994-BII Contract, all proceeds
received on or prior to the last day of the Due Period in which such Series
1994-BII Contract became a Liquidated Contract, net of expenses.
The Series 1994-BII Limited Guaranty will be an unsecured general obligation
of the Company and will not be supported by any letter of credit or other
credit enhancement arrangement. The Series 1994-BII Limited Guaranty will not
benefit in any way, or result in any payment to, the Series 1994-BI
Certificateholders.
As compensation for providing the Series 1994-BII Limited Guaranty, the
Company will be entitled to receive a Guaranty Fee on each Payment Date equal
to the Amount Available in the Series 1994-BII Certificate Account less the
amounts distributed to the Series 1994-BII Certificateholders, the Monthly
Servicing Fee under the Series 1994-BII Agreement and certain amounts required
to reimburse the Series 1994-BII Trustee or the Servicer, as described under
"Description of the Certificates--Distributions on the Series 1994-BII
Certificates."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
SERIES 1994-BI CERTIFICATES
With respect to the Series 1994-BI Certificates, Dorsey & Whitney, counsel to
the Company, will deliver its opinion that, assuming ongoing compliance with
the terms of the Series 1994-BI Agreement, upon the issuance of the Series
1994-BI Certificates, the Series 1994-BI Trust will qualify as a REMIC for
federal income tax purposes. The Class A-1, Class M-1, Class B-1 and Class B-2
Certificates will constitute "regular interests" in the REMIC. The Class C
Certificate, which is not being offered hereunder, will constitute the sole
Class of "residual interests" in the REMIC.
It is not anticipated that any of the Series 1994-BI Certificates will be
issued with original issue discount for federal income tax purposes. The
prepayment assumption that will be used to determine the rate of accrual of
market discount and premium, if any, will be based on the assumption that the
Series 1994-BI Contracts will prepay at a rate equal to 16% CPR.
Series 1994-BI Certificates held by financial institutions, thrift
institutions taxed as domestic building and loan associations and real estate
investment trusts will represent interest in "qualifying real property loans,"
"loans secured by an interest in real property" and "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 Series 1994-BI
Certificates held by a real estate investment trust will be considered 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.
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For further information regarding federal income tax consequences of
investing in the Series 1994-BI Certificates, see "Certain Federal Income Tax
Consequences--REMIC Series" in the Prospectus.
SERIES 1994-BII CERTIFICATES
With respect to the Series 1994-BII Certificates, Dorsey & Whitney, counsel
to the Company, will deliver its opinion that, assuming ongoing compliance
with the terms of the Series 1994-BII Agreement, the Series 1994-BII 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 Company does not
intend to treat the Series 1994-BII Certificates as Stripped Certificates for
federal income tax reporting purposes. If, however, any fees paid to the
Company are deemed to exceed a reasonable amount, the Series 1994-BII
Certificates may be required to be so treated.
Series 1994-BII Certificates held by financial institutions, thrift
institutions taxed as domestic building and loan associations and real estate
investment trusts will not represent 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 Series 1994-BII
Certificates held by a real estate investment trust will not be considered 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.
For purposes of the exemption from United States withholding tax described
in the Prospectus, potential foreign investors are advised that all of the
Series 1994-BII Contracts were originated after July 18, 1984.
For further information regarding federal income tax consequences of
investing in the Series 1994-BII Certificates, see "Certain Federal Income Tax
Consequences--Non-REMIC Series" in the Prospectus.
ERISA CONSIDERATIONS
The following information supplements, and to the extent inconsistent
therewith supersedes, the information in the Prospectus under "ERISA
Considerations."
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
imposes certain restrictions on employee benefit plans that are subject to
ERISA ("Plans") and on persons who are fiduciaries with respect to such Plans.
Employee benefit plans that are governmental plans (as defined in section
3(32) of ERISA) and certain church plans (as defined in Section 3(33) of
ERISA) are not subject to ERISA requirements. Accordingly, assets of such
plans may be invested in the Class A-1 Certificates without regard to the
ERISA restrictions described above, subject to applicable provisions of other
federal and state laws. However, any such governmental or church plan which is
qualified under section 401(a) of the Code and exempt from taxation under
section 501(a) of the Code is subject to the prohibited transaction rules set
forth in section 503 of the Code.
The U.S. Department of Labor ("DOL") has granted an administrative exemption
to Lehman Brothers Inc. (Prohibited Transaction Exemption 91-14; Exemption
Application No. D-7958, 56 Fed. Reg. 7413 (1991)) (the "Exemption") from
certain of the prohibited transaction rules of ERISA and the Code with respect
to the initial purchase, the holding and the subsequent resale by Plans of
certificates representing interests in asset-backed pass-through trusts that
consist of certain receivables, loans and other obligations that meet the
conditions and requirements of the Exemption. The receivables covered by the
Exemption include home improvement contracts such as the Series 1994-BI
Contracts. The Exemption will apply to the acquisition, holding, and resale of
the Class A-1 Certificates by a Plan, provided that specified conditions
(certain of which are described below) are met.
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Among the conditions which must be satisfied for the Exemption to apply to
the Class A-1 Certificates are the following:
(1) The acquisition of the Class A-1 Certificates by a Plan is on terms
(including the price for the Class A-1 Certificates) that are at least as
favorable to the Plan as they would be in an arm's-length transaction with
an unrelated party;
(2) The rights and interests evidenced by the Class A-1 Certificates
acquired by the Plan are not subordinated to the rights and interests
evidenced by other certificates of the 1994-BI Trust;
(3) The Class A-1 Certificates acquired by the Plan have received a
rating at the time of such acquisition that is in one of the three highest
generic rating categories from either S&P, Moody's, Duff & Phelps Credit
Rating Co. or Fitch Investors Service, Inc.;
(4) The Trustee is not an affiliate of any member of the Restricted Group
(as defined below);
(5) The sum of all payments made to the Underwriters in connection with
the distribution of the Class A-1 Certificates represents not more than
reasonable compensation for underwriting the Class A-1 Certificates. The
sum of all payments made to and retained by the Company pursuant to the
sale of the Contracts to the Trust 1994-BI represents not more than the
fair market value of such Contracts. The sum of all payments made to and
retained by the Servicer represents not more than reasonable compensation
for the Servicer's services under the Series 1994-BI Agreement and
reimbursement of the Servicer's reasonable expenses in connection
therewith; and
(6) The Plan investing in the Class A-1 Certificates is an "accredited
investor" as defined in Rule 501(a)(1) of Regulation D of the Securities
and Exchange Commission under the Securities Act of 1933.
Moreover, the Exemption would provide relief from certain self-
dealing/conflict of interest prohibited transactions only if, among other
requirements, (i) in the case of the acquisition of Class A-1 Certificates in
connection with the initial issuance, at least fifty (50) percent of the Class
A-1 Certificates are acquired by persons independent of the Restricted Group
(as defined below), (ii) the Plan's investment in Class A-1 Certificates does
not exceed twenty-five (25) percent of all of the Class A-1 Certificates
outstanding at the time of the acquisition and (iii) immediately after the
acquisition, no more than twenty-five (25) percent of the assets of the Plan
are invested in certificates representing an interest in one or more trusts
containing assets sold or serviced by the same entity. The Exemption does not
apply to Plans sponsored by the Company, the Underwriter, the Trustee, the
Servicer, any obligor with respect to Contracts included in the Series 1994-BI
Trust constituting more than five (5) percent of the aggregate unamortized
principal balance of the assets in the Series 1994-BI Trust or any affiliate of
such parties (the "Restricted Group").
The Company believes that the Exemption will apply to the acquisition and
holding of Class A-1 Certificates sold by the Underwriters and by Plans and
that all conditions of the Exemption other than those within the control of the
investors have been met. In addition, as of the date hereof, no obligor with
respect to Contracts included in the Series 1994-BI Trust constitutes more than
five (5) percent of the aggregate unamortized principal balance of the assets
of the Series 1994-BI Trust. Any Plan fiduciary who proposes to cause a Plan to
purchase Class A-1 Certificates should consult with its own counsel with
respect to the potential consequences under ERISA and the Code of the Plan's
acquisition and ownership of the Class A-1 Certificates. Assets of a Plan or
individual retirement account should not be invested in the Class A-1
Certificates unless it is clear that the assets of the Series 1994-BI Trust
will not be plan assets or unless it is clear that the Exemption or a
prohibited transaction class exemption will apply and exempt all potential
prohibited transactions. See "ERISA Considerations" in the Prospectus.
No transfer of any other Class of Certificates will be permitted to be made
to a Plan unless such Plan, at its expense, delivers to the Trustee and the
Company an opinion of counsel (in form satisfactory to the Trustee and the
Company) to the effect that the purchase or holding of any other Class of
Certificates by such Plan
S-43
<PAGE>
will not result in the assets of the related Trust being deemed to be "plan
assets" and subject to the prohibited transaction provisions of ERISA and the
Code and will not subject the Trustee, the Company or the Servicer to any
obligation or liability in addition to those undertaken in the respective
Agreement. Unless such opinion is delivered, each person acquiring such a
Certificate will be deemed to represent to the Trustee, the Company and the
Servicer that such person is neither a Plan, nor acting on behalf of a Plan,
subject to ERISA or to Section 4975 of the Code.
UNDERWRITING
The Underwriter has agreed, subject to the terms and conditions of separate
Underwriting Agreements, to purchase the Series 1994-BI Certificates and the
Series 1994-BII Certificates, respectively, at the respective prices set forth
on the cover page of this Prospectus Supplement.
In each Underwriting Agreement, the Underwriter has agreed, subject to the
terms and conditions set forth therein, to purchase all of the applicable
Certificates offered hereby if any such Certificates are purchased. In the
event of a default by the Underwriter, each Underwriting Agreement provides
that, in certain circumstances, the Underwriting Agreement may be terminated.
The Underwriter proposes to offer the Certificates in part directly to
purchasers at the initial public offering price set forth on the cover page of
this Prospectus Supplement and in part to certain securities dealers at such
price less concessions not to exceed .30% of the Original Class A-1 Principal
Balance, .40% of the Original Class M-1 Principal Balance, .45% of the Original
Class B-1 Principal Balance, .45% of the Original Class B-2 Principal Balance
or .40% of the Original Series 1994-BII Principal Balance, as applicable. The
Underwriter may allow, and such dealers may reallow, concessions not to exceed
.15% of Original Class A-1 Principal Balance, .225% of the Original Class M-1
Principal Balance, .30% of the Original Class B-1 Principal Balance, .30% of
the Original Class B-2 Principal Balance or .25% of the Original Series 1994-
BII Principal Balance, as applicable, to certain brokers and dealers. After the
Certificates are released for sale to the public, the offering price and other
selling terms may be varied by the Underwriter.
Each 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 Supplement it will not offer or sell publicly any other home
improvement 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 Trusts 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.
S-44
<PAGE>
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No dealer, salesperson or other individual has been authorized to give any
information or make any representations not contained in this Prospectus Sup-
plement and the Prospectus in connection with the offering covered by this
Prospectus Supplement. If given or made, such information or representations
must not be relied upon as having been authorized by the Company or the Under-
writer. This Prospectus Supplement and the Prospectus do not constitute an of-
fer to sell, or a solicitation of an offer to buy, the Certificates in any ju-
risdiction where, or to any person to whom, it is unlawful to make such offer
or solicitation. Neither the delivery of this Prospectus Supplement and the
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 Supplement and the Prospectus or in affairs of the Trusts
since the date hereof.
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TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Summary of the Terms of the Certificates................................... S-3
Special Considerations..................................................... S-12
Structure of the Transaction............................................... S-12
Use of Proceeds............................................................ S-13
The Contracts.............................................................. S-13
Yield and Prepayment Considerations........................................ S-22
Green Tree Financial Corporation........................................... S-27
Description of the Certificates............................................ S-27
Description of the Class B-2 Limited Guaranty.............................. S-40
Description of the Series 1994-BII Limited Guaranty........................ S-41
Certain Federal Income Tax Consequences.................................... S-41
ERISA Considerations....................................................... S-42
Underwriting............................................................... S-44
Legal Matters.............................................................. S-44
<CAPTION>
PROSPECTUS
<S> <C>
Reports to Certificateholders.............................................. 2
Available Information...................................................... 2
Additional Information..................................................... 2
Incorporation of Certain Documents by Reference............................ 2
Summary of Terms........................................................... 4
Special Considerations..................................................... 9
The Trust Fund............................................................. 10
Use of Proceeds............................................................ 12
Green Tree Financial Corporation........................................... 12
Yield Considerations....................................................... 14
Maturity and Prepayment Considerations..................................... 14
Description of the Certificates............................................ 15
Description of FHA Insurance............................................... 27
Certain Legal Aspects of the Contracts; Repurchase Obligations............. 28
ERISA Considerations....................................................... 37
Certain Federal Income Tax Consequences.................................... 39
Legal Investment Considerations............................................ 56
Ratings.................................................................... 56
Underwriting............................................................... 57
Legal Matters.............................................................. 58
Experts.................................................................... 58
</TABLE>
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$120,136,336 (APPROXIMATE)
[LOGO OF GREEN TREE APPEARS HERE]
SELLER AND SERVICER
CERTIFICATES FOR HOME IMPROVEMENT LOANS
SERIES 1994-BI
$78,900,000 (APPROXIMATE) 7.15% CLASS A-1
$ 9,700,000 (APPROXIMATE) 8.15% CLASS M-1
$ 7,300,000 (APPROXIMATE) 8.55% CLASS B-1
$ 9,055,396 (APPROXIMATE) 8.70% CLASS B-2
SERIES 1994-BII
$15,180,940 (APPROXIMATE) 7.85% CLASS A-2
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PROSPECTUS SUPPLEMENT
June 27, 1994
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LEHMAN BROTHERS
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