<PAGE>
Filed Pursuant to Rule 424(b)(3)
Registration No. 33-55853
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. OFFERS TO +
+BUY THESE SECURITIES MAY NOT BE ACCEPTED WITHOUT THE DELIVERY OF A FINAL +
+PROSPECTUS SUPPLEMENT AND PROSPECTUS. THIS PROSPECTUS SUPPLEMENT AND THE +
+ACCOMPANYING PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE +
+SOLICITATION OF AN OFFER TO BUY NOR SHALL BE THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED SEPTEMBER 11, 1995
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED SEPTEMBER , 1995)
$32,241,212 (APPROXIMATE)
LOGO
SELLER AND SERVICER
CERTIFICATES FOR HOME IMPROVEMENT LOANS
SERIES 1995-E
% PASS-THROUGH RATE
(PRINCIPAL AND INTEREST PAYABLE ON THE 15TH DAY OF EACH MONTH BEGINNING IN
OCTOBER 1995)
------------
The Certificates for Home Improvement Loans, Series 1995-E offered hereby
(the "Certificates") will be issued by, and evidence beneficial ownership
interests in, Home Improvement Loan Trust 1995-E (the "Trust"). The Trust will
be created by Green Tree Financial Corporation (the "Company") pursuant to a
Pooling and Servicing Agreement, dated as of September 1, 1995 (the
"Agreement") between the Company and First Trust National Association, as
Trustee (the "Trustee"). The Trust property will consist primarily of a pool of
home improvement contracts and promissory notes (the "Contracts"), including
the right to receive payments due on the Contracts on and after September 1,
1995 (or the date of origination thereof, if later) (the "Cut-off Date"), and
amounts held for the Trust in the Certificate Account. The Contracts are not
secured by any mortgage or other lien on the related improved real estate.
The Certificateholders will have the benefit of a limited guaranty of the
Company (the "Limited Guaranty") to protect against losses that would otherwise
be borne by the Certificateholders, subject to the limit of the Guaranty Amount
(as described herein). To the extent that funds in the Certificate Account are
insufficient to distribute to the holders of the Certificates the Formula
Distribution Amount (as described herein), the Company will be obligated
(subject to the limit of the Guaranty Amount) to pay the Guaranty Payment (as
described herein). The Guaranty Amount initially equals $3,224,122 and will be
reduced thereafter as described herein. See "Description of the 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 in October 1995. The Company
will act as servicer (in such capacity, the "Servicer") of the Contracts. The
final scheduled Payment Date of the Certificates is in August 2020. See
"Description of the Certificates" herein and in the Prospectus.
(Continued on next page)
------------
PROSPECTIVE INVESTORS SHOULD CONSIDER THE INFORMATION SET FORTH UNDER "RISK
FACTORS" ON PAGE S-8 OF THIS PROSPECTUS SUPPLEMENT AND PAGE 9 OF THE
ACCOMPANYING PROSPECTUS.
------------
THE CERTIFICATES REPRESENT INTERESTS IN THE TRUST AND DO NOT REPRESENT
INTERESTS IN OR OBLIGATIONS OF THE COMPANY, EXCEPT TO THE LIMITED EXTENT
DESCRIBED HEREIN AND IN THE PROSPECTUS. THE CERTIFICATES DO NOT
REPRESENT OBLIGATIONS OF, AND WILL NOT BE INSURED OR GUARANTEED BY,
ANY 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 SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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 Certificate........................... % % %
-----------------------------------------------------------------------------------------
Total..................................... $ $ $
-----------------------------------------------------------------------------------------
</TABLE>
--------------------------------------------------------------------------------
(1) Plus accrued interest from and including September , 1995.
(2) Before deducting expenses, estimated to be $170,000.
The Certificates are offered subject to prior sale, when, as and if issued by
the Trust and accepted by the Underwriter and subject to its right to reject
orders in whole or in part. It is expected that delivery of the Certificates
will be made in book-entry form only through the Same Day Funds Settlement
system of The Depository Trust Company on or about September , 1995 (the
actual such date being hereinafter referred to as the "Closing Date").
------------
MERRILL LYNCH & CO.
------------
The date of the Prospectus Supplement is September , 1995
<PAGE>
(Continued from previous page)
There is currently no secondary market for the Certificates offered hereby,
and there is no assurance that any such market will develop or, if it does
develop, that it will continue. Merrill Lynch, Pierce, Fenner & Smith
Incorporated (the "Underwriter") expects, but is not obligated, to make a
market in the Certificates.
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 December , 1995, 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 Supplement and a Prospectus
when acting as underwriters and with respect to their unsold allotments or
subscriptions. Upon receipt of a request by an investor, or his or her
representative, within the period during which there is a Prospectus delivery
obligation, the Company or the Underwriter will transmit or cause to be
transmitted promptly, without charge, and in addition to any such delivery
requirements, a paper copy of a Prospectus Supplement and a Prospectus, or a
Prospectus Supplement and a Prospectus encoded in an electronic format.
The Certificates offered hereby constitute a separate Series of Certificates
for Home Improvement Loans being offered by the Company from time to time
pursuant to the Prospectus. 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 Agreement, a copy of which is available upon
request made to the Company.
Securities Offered............ Certificates for Home Improvement Loans, Series
1995-E (the "Certificates"). The Certificates
will be issued by, and evidence beneficial
ownership interests in, Home Improvement Loan
Trust 1995-E (the "Trust"), the property of
which consists primarily of the Contracts,
having an aggregate principal balance as of
the Cut-off Date (the "Cut-off Date Pool
Principal Balance") of $32,241,212.43, and all
rights, benefits, obligations and proceeds
arising therefrom or in connection therewith.
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 in October 1995.
Cut-off Date.................. September 1, 1995 (or the date of origination
of the Contract, if later).
Record Date................... The Business Day immediately preceding the
related Payment Date.
Original Series 1995-E
Certificate Principal
Balance...................... $32,241,212 (approximate).
Pass-Through Rate............. % per annum.
Description of Certificates... The Certificates are issued in a single Class
by, and are payable solely from the property
of, the Trust. The undivided percentage
interest of the holder of any Certificate in
the distributions to be made in respect of the
Certificates (the "Percentage Interest") will
be equal to the percentage obtained by
dividing the denomination specified on such
Certificate by the Original Series 1995-E
Certificate Principal Balance.
Distributions................. Holders of the Certificates will be entitled to
receive on each Payment Date, to the extent
that the Amount Available in the Certificate
Account (together with the Guaranty Payment,
as described below) 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 related
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 Trustee for that
purpose in Minneapolis or St. Paul, Minnesota.
The Amount Available for the Trust on each
Payment Date generally includes payments on
the Contracts
S-3
<PAGE>
due during the previous calendar month (the
"Due Period") and received on or prior to the
Determination Date, prepayments and other
unscheduled collections received on the
Contracts during such Due Period, any Advances
(as defined herein) made by the Servicer or
the Trustee with respect to such Due Period
and any amounts paid by the Company to
repurchase a Contract due to a breach of
representation or warranty.
Distributions on the
Certificates
Interest.................. Interest on the Certificates will be payable on
each Payment Date in an amount equal to one
month's interest at the Pass-Through Rate on
the Aggregate Certificate Principal Balance
(as defined below) immediately prior to such
Payment Date; provided that, in the case of
the first Payment Date, such interest will be
payable only for the period from the Closing
Date to but excluding October 16, 1995. The
"Aggregate Certificate Principal Balance" with
respect to any Payment Date will equal the
Original Series 1995-E Certificate Principal
Balance minus all distributions previously
made in respect of principal on the
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 Certificate
Account, together with any Guaranty Payment,
is not sufficient to make a full distribution
of interest to the Certificateholders, the
amount of interest to be distributed in
respect of the Certificates will be allocated
among the outstanding Certificates pro rata in
accordance with their respective entitlements
to interest, and the amount of the shortfall
will be carried forward and added to the
amount such holders will be entitled to
receive on the next Payment Date. Any such
amount so carried forward will bear interest
at the Pass-Through Rate, to the extent
legally permissible. See "Description of the
Certificates."
Principal................. On each Payment Date, the Certificateholders
will be entitled to receive as distributions
of principal, to the extent of the Amount
Available in the Certificate Account after
payment of all interest payable on the
Certificates, an amount equal to the sum (such
sum being hereinafter referred to as the
"Monthly Principal") of (a) the amount of
regular principal payments on Contracts paid
or applied during the prior Due Period; (b)
the amount of Principal Prepayments received
on Contracts during the prior Due Period; (c)
the principal portion of all payments on
Contracts that were Delinquent Payments as of
the end of the prior Due Period; (d) the
unpaid principal balance of all Contracts that
became Liquidated Contracts with respect to
the prior Due Period; (e) the principal
portion of the Repurchase Price paid by the
Company to repurchase Contracts for breach of
S-4
<PAGE>
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 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 Certificate Account
and the Company either was not obligated to or
failed to pay such amount under the Limited
Guaranty.
Limited Guaranty.............. In order to mitigate the effect of liquidation
losses and delinquencies on the Contracts, the
Certificateholders are entitled to receive on
each Payment Date (subject to the limit of the
Guaranty Amount) the amount equal to the
Guaranty Payment, if any, under the Limited
Guaranty of the Company. The Guaranty Payment
for any Payment Date will equal the amount, if
any, by which the Formula Distribution Amount
(equal to one month's interest at the Pass-
Through Rate on the Aggregate Certificate
Principal Balance plus the Monthly Principal
for such Payment Date) exceeds the Amount
Available in the Certificate Account for such
Payment Date.
The "Guaranty Amount" initially equals
$3,224,122. Thereafter, on any Payment Date,
the Guaranty Amount will equal the lesser of
(i) $3,224,122 minus all Guaranty Payments
previously made by the Company, or (ii) the
Aggregate Certificate Principal Balance on
such Payment Date.
The 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
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.
Contracts..................... The Contracts consist of 5,475 conventional and
142 FHA-insured home improvement contracts and
promissory notes (the "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 Contract
are
S-5
<PAGE>
unsecured and such Contracts constitute
"Unsecured Contracts" as described in the
Prospectus. The Contracts arise from loans
relating to the improvement of real estate
located in 48 states and the District of
Columbia. The contractual annual percentage
rate of interest (the "Contract Rate") on the
Contracts as of the Cut-off Date ranges from
10.25% to 17.99% with a weighted average of
14.54%. The Contracts had a weighted average
term to scheduled maturity, as of origination,
of 90 months, and a weighted average term to
scheduled maturity, as of the Cut-off Date, of
88 months. The final scheduled payment date on
the Contract with the latest scheduled
maturity is in July 2020. See "The Contracts"
herein.
FHA Insurance................. Approximately 1.83% of the 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.
Advances...................... The Servicer is obligated to make Advances each
month of any scheduled payments on the
Contracts that were due but not received
during the prior Due Period. The Servicer will
be entitled to reimbursement of an Advance
from subsequent funds available therefor in
the Certificate Account. The Servicer will be
obligated to make an Advance only to the
extent that it determines that such Advance
will be recoverable from subsequent funds
available therefor in the Certificate Account.
If the Servicer fails to make any Advance
required under the Agreement, the Trustee will
be obligated (subject to certain conditions)
to make such Advance. See "Description of the
Certificates--Advances" herein and in the
Prospectus.
Repurchases by the Company.... The Company has agreed to repurchase any
Contract in which the Trust's or the
Certificateholders' interest 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. 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 on any
Payment Date on which the Pool Scheduled
Principal Balance is less than 10% of the Cut-
off Date Pool Principal Balance. 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 equal
to 1/12 of the product of .75% and the Pool
Scheduled Principal Balance (the "Monthly
Servicing Fee"). See "Description of the
Certificates--Servicing Compensation and
Payment of Expenses" and "Rights upon an Event
of Termination" herein.
S-6
<PAGE>
Tax Status.................... In the opinion of counsel to the Company, the
Trust will be classified as a grantor trust
for federal income tax purposes and not as an
association which is taxable as a corporation.
Each Certificateholder will be treated for
such purposes as the owner of an undivided
interest in the Contracts. Accordingly, each
such Certificateholder must report on its
federal income tax return its share of the
income from the Contracts and, subject to
limitations on deductions by individuals,
estates and trusts, may deduct its share of
the reasonable fees paid by the Trust,
determined in accordance with such
Certificateholder's tax accounting method. See
"Certain Federal Income Tax Consequences"
herein and in the Prospectus.
ERISA Considerations.......... No transfer of any Certificates will be
permitted to be made to any employee benefit
plan subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or
to the Internal Revenue Code of 1986, as
amended (the "Code"), unless the opinion of
counsel described under "ERISA Considerations"
herein and in the Prospectus 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 Certificates be
assigned a rating not lower than "A3" by
Moody's Investors Service Inc. ("Moody's").
Moody's rating of the Certificates addresses
the likelihood of the receipt by
Certificateholders of all distributions to
which such Certificateholders are entitled.
The rating of the Certificates is based in
part on an assessment of the Company's ability
to make payments under the Limited Guaranty.
Any reduction in Moody's rating of the
Company's debt securities may result in a
similar reduction in the rating of the
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 agencies other
than Moody's. 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 The Certificates will not constitute "mortgage
Considerations............... related securities" for purposes of the
Secondary Mortgage Market Enhancement Act of
1984 ("SMMEA") because the Contracts are not
secured by liens on real estate, 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. Investors should
consult with their own legal advisors in
determining whether and to what extent the
Certificates constitute legal investments for
them.
S-7
<PAGE>
RISK FACTORS
Prospective Certificateholders should consider, in addition to the factors
described under "Risk Factors" 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 Contracts" herein may not be indicative of the performance of the
Contracts.
Delinquency and Loan Default Rates on Unsecured Home Improvement Loans. Based
on the Company's experience to date, home improvement loans that are not
secured by any lien on the improved real estate have experienced, and are
expected to continue to experience, a higher rate of delinquency and loan
default as compared with the Company's servicing portfolio of FHA-insured and
other secured home improvement loans. Based on the Company's experience to
date, contract defaults on unsecured home improvement contracts typically
result in chargeoffs that equal or exceed 100% of the outstanding principal
balance of the contract.
STRUCTURE OF THE TRANSACTION
On or about September , 1995 (the "Closing Date"), the Company will
establish the Trust pursuant to a Pooling and Servicing Agreement to be dated
as of September 1, 1995 (the "Agreement"), between the Company, as Seller and
Servicer, and the Trustee.
The Certificates will be issued by the Trust, the corpus of which will
consist primarily of the Contracts, including all rights to receive payments
due on the Contracts on and after September 1, 1995 (or the date of
origination thereof, if later) (the "Cut-off Date"), all rights under FHA
Insurance with respect to the FHA-insured Contracts, amounts held for the Trust
in the Certificate Account (as defined below), and the Limited Guaranty of the
Company described in "Description of the Limited Guaranty" herein.
Payments and recoveries in respect of principal and interest on the Contracts
will be paid into a separate trust account maintained at an Eligible
Institution (initially First Bank National Association, Minneapolis, Minnesota)
in the name of the Trust (the "Certificate Account"), no later than one
Business Day after receipt. Payments deposited in the 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 Certificateholders as
of the immediately preceding Record Date as described under "Description of the
Certificates--Distributions on the Certificates" herein, and 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
Certificate Account to the Company as compensation for providing the 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 an Advance from
payments on or liquidation proceeds of the related Contract and then from other
funds in the 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
Trustee is obligated (subject to certain conditions) to make such Advance.
Following the transfer of the Contracts from the Company to the Trust, the
obligations of the Company are limited to (a) its obligations as Servicer to
service the Contracts, (b) certain representations and warranties in the
Agreement as described under "Description of the Certificates--Conveyance of
Contracts" herein, (c) certain indemnities, and (d) the Limited Guaranty. The
Company is obligated under the Agreement to repurchase at the Repurchase Price
(as defined herein) any Contract on the first Payment Date which is more than
90 days after the Company becomes aware, or the Company receives written notice
from the Trustee, of any breach of any such representation and warranty in the
Agreement that materially adversely affects the Certificateholders' interest in
such Contract if such breach has not been cured prior to such date. The
Agreement also provides that the Company has certain obligations to repurchase
Contracts and to indemnify the Trustee and Certificateholders with respect to
certain other matters.
S-8
<PAGE>
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 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 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. The Contracts
are not secured by any mortgage or other lien on or security interest in the
related improved real estate or any other real or personal property.
The Company will make certain representations and warranties in the
Agreement, including that (a) each Contract is fully amortizing with a fixed
contractual rate of interest and provides for level payments over the term of
such loan, computed on the simple interest method, (b) each Contract has its
last scheduled payment due no later than July 2020 and (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. The Contracts
were originated or acquired by the Company in the ordinary course of the
Company's business. A detailed listing of the Contracts is appended to the
Agreement. See "Description of the Certificates" herein and in the Prospectus.
Each of the Contracts has a Contract Rate of at least 10.25% per annum and not
more than 17.99% and the weighted average of the Contract Rates of the
Contracts as of the Cut-off Date is 14.54%. As of the Cut-off Date, the
Contracts had remaining maturities of at least 16 months but not more than 299
months and original maturities of at least 24 months but not more than 300
months. The Contracts had a weighted average term to scheduled maturity, as of
origination, of 90 months, and a weighted average term to scheduled maturity,
as of the Cut-off Date, of 88 months. The average principal balance per
Contract as of the Cut-off Date was $5,739.93 and the principal balances on the
Contracts as of the Cut-off Date ranged from $1,022.03 to $19,948.25. The
Contracts arise from loans relating to real property located in 48 states and
the District of Columbia. By principal balance as of the Cut-off Date,
approximately 12.52% of the Contracts financed improvements to real estate
located in Massachusetts and 10.59% in California. No other state represented
10% or more of the Cut-off Date Pool Principal Balance. None of the Contracts
provide for recourse to the originating contractor in the event of a default by
the Obligor.
S-9
<PAGE>
Set forth below is a description of certain additional characteristics of the
Contracts.
GEOGRAPHICAL DISTRIBUTION OF IMPROVED REAL ESTATE
<TABLE>
<CAPTION>
% OF
CONTRACT POOL BY
% OF CONTRACT POOL BY AGGREGATE PRINCIPAL OUTSTANDING
NUMBER OF NUMBER OF 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>
Alabama................. 15 .27% $ 91,042.01 .28%
Arizona................. 211 3.76 1,034,497.82 3.21
Arkansas................ 29 .52 156,302.61 .48
California.............. 660 11.75 3,414,969.97 10.59
Colorado................ 92 1.64 434,633.15 1.35
Connecticut............. 184 3.28 1,145,654.55 3.55
Delaware................ 16 .28 70,938.31 .22
District of Columbia.... 16 .28 121,469.88 .38
Florida................. 220 3.92 1,032,900.41 3.20
Georgia................. 98 1.74 580,396.71 1.80
Idaho................... 16 .28 83,846.18 .26
Illinois................ 130 2.31 692,895.23 2.15
Indiana................. 70 1.25 410,991.54 1.27
Iowa.................... 54 .96 269,252.48 .84
Kansas.................. 35 .62 202,883.03 .63
Kentucky................ 37 .66 207,632.16 .64
Louisiana............... 24 .43 125,098.39 .39
Maine................... 90 1.60 472,407.06 1.47
Maryland................ 135 2.40 825,891.82 2.56
Massachusetts........... 441 7.85 4,035,528.63 12.52
Michigan................ 207 3.69 1,121,123.78 3.48
Minnesota............... 74 1.32 389,377.84 1.21
Mississippi............. 29 .52 165,061.28 .51
Missouri................ 160 2.85 865,755.12 2.69
Montana................. 66 1.18 324,414.36 1.01
Nebraska................ 44 .78 180,140.21 .56
Nevada.................. 87 1.55 467,315.39 1.45
New Hampshire........... 84 1.50 514,327.87 1.60
New Jersey.............. 164 2.92 994,297.22 3.08
New Mexico.............. 61 1.09 344,057.05 1.07
New York................ 277 4.93 1,841,111.62 5.71
North Carolina.......... 147 2.62 919,551.64 2.85
North Dakota............ 8 .14 41,822.00 .13
Ohio.................... 127 2.26 745,186.55 2.31
Oklahoma................ 121 2.15 575,523.92 1.79
Oregon.................. 85 1.51 342,624.10 1.06
Pennsylvania............ 241 4.29 1,309,885.48 4.06
Rhode Island............ 41 .73 262,442.91 .81
South Carolina.......... 42 .75 251,996.24 .78
South Dakota............ 8 .14 53,330.92 .17
Tennessee............... 126 2.24 584,070.07 1.81
Texas................... 382 6.80 2,164,647.33 6.71
Utah.................... 35 .62 172,636.54 .54
Vermont................. 83 1.48 457,660.25 1.42
Virginia................ 129 2.30 708,993.04 2.20
Washington.............. 109 1.94 497,234.90 1.54
West Virginia........... 30 .53 149,611.58 .46
Wisconsin............... 57 1.01 274,846.91 .85
Wyoming................. 20 .36 112,934.37 .35
----- ------ -------------- ------
Total............... 5,617 100.00% $32,241,212.43 100.00%
===== ====== ============== ======
</TABLE>
S-10
<PAGE>
YEARS OF ORIGINATION OF CONTRACTS
<TABLE>
<CAPTION>
% OF
CONTRACT POOL BY
AGGREGATE PRINCIPAL OUTSTANDING PRINCIPAL
NUMBER OF CONTRACTS BALANCE OUTSTANDING BALANCE AS OF
YEAR OF ORIGINATION AS OF CUT-OFF DATE AS OF CUT-OFF DATE CUT-OFF DATE
------------------- ------------------- ------------------- ---------------------
<S> <C> <C> <C>
1994.................... 273 $ 1,329,911.08 4.12%
1995.................... 5,344 30,911,301.35 95.88
----- -------------- ------
Total............... 5,617 $32,241,212.43 100.00%
===== ============== ======
</TABLE>
DISTRIBUTION OF ORIGINAL CONTRACT AMOUNTS
<TABLE>
<CAPTION>
% OF
CONTRACT POOL BY
AGGREGATE PRINCIPAL OUTSTANDING PRINCIPAL
ORIGINAL CONTRACT NUMBER OF CONTRACTS BALANCE OUTSTANDING BALANCE AS OF
AMOUNT (IN DOLLARS) AS OF CUT-OFF DATE AS OF CUT-OFF DATE CUT-OFF DATE
------------------- ------------------- ------------------- ----------------------
<S> <C> <C> <C>
Less than $10,000....... 5,030 $25,105,208.30 77.87%
$10,000--$19,999........ 582 7,036,375.85 21.82
$20,000--$29,999........ 5 99,628.28 .31
----- -------------- ------
Total............... 5,617 $32,241,212.43 100.00%
===== ============== ======
</TABLE>
CONTRACT RATES
<TABLE>
<CAPTION>
% OF
CONTRACT POOL BY
AGGREGATE PRINCIPAL OUTSTANDING PRINCIPAL
RANGE OF CONTRACTS NUMBER OF CONTRACTS BALANCE OUTSTANDING BALANCE AS OF
BY CONTRACT RATE AS OF CUT-OFF DATE AS OF CUT-OFF DATE CUT-OFF DATE
------------------ ------------------- ------------------- ----------------------
<S> <C> <C> <C>
10.00001%-11.00000%..... 2 $ 12,649.79 .04%
11.00001%-12.00000%..... 6 40,251.71 .12
12.00001%-13.00000%..... 1,859 8,970,957.00 27.82
13.00001%-14.00000%..... 184 1,694,549.97 5.26
14.00001%-15.00000%..... 912 7,155,541.68 22.19
15.00001%-16.00000%..... 2,340 12,635,621.84 39.20
16.00001%-17.00000%..... 302 1,690,877.63 5.24
Over 17.00000%.......... 12 40,762.81 .13
----- -------------- ------
Total............... 5,617 $32,241,212.43 100.00%
===== ============== ======
</TABLE>
REMAINING MONTHS TO MATURITY
<TABLE>
<CAPTION>
% OF
CONTRACT POOL BY
MONTHS REMAINING TO AGGREGATE PRINCIPAL OUTSTANDING PRINCIPAL
SCHEDULED MATURITY NUMBER OF CONTRACTS BALANCE OUTSTANDING BALANCE AS OF
AS OF CUT-OFF DATE AS OF CUT-OFF DATE AS OF CUT-OFF DATE CUT-OFF DATE
------------------- -------------------- ------------------- ----------------------
<S> <C> <C> <C>
Less than 31............ 242 $ 744,872.19 2.31%
31-60................... 2,634 11,387,407.58 35.32
61-90................... 699 3,746,424.12 11.62
91-120.................. 1,969 15,452,660.06 47.94
121-150................. 2 23,670.28 0.07
151-180................. 59 710,644.69 2.20
181-210................. 0 .00 0.00
211-240................. 9 132,538.16 0.41
241-270................. 0 .00 0.00
271-300................. 3 42,995.35 0.13
----- -------------- ------
Total............... 5,617 $32,241,212.43 100.00%
===== ============== ======
</TABLE>
S-11
<PAGE>
DELINQUENCY, LOAN DEFAULT AND LOSS INFORMATION
The following tables set forth the delinquency experience and loan default
and loss experience for the 66-month period ended June 30, 1995 of the
portfolio of FHA-insured and conventional home improvement loans serviced by
the Company. The data presented in the following tables do not distinguish
between unsecured home improvement contracts (which are of the type included
in the Contract Pool) and FHA-insured and other secured home improvement
contracts because of the Company's limited experience with respect to the
delinquency, loan default and loss experience of unsecured home improvement
contracts.
The Company serviced no unsecured home improvement loans during the years
ended December 31, 1990 and 1991, while the percentage of such contracts
serviced by the Company was approximately .65% as of December 31, 1992,
approximately 6.09% as of December 31, 1993 and approximately 8.76% as of
December 31, 1994. Because such a large number of the unsecured home
improvement contracts in the Company's servicing portfolio were recently
originated, available data with respect to such contracts would not provide
meaningful information with respect to the delinquency, loan default and loss
experience that may be experienced by the Contract Pool. However, based on the
Company's experience to date, home improvement loans that are not secured by
any lien on the improved real estate have experienced, and are expected to
continue to experience, a higher rate of delinquency and loan default as
compared with the Company's servicing portfolio of FHA-insured and other
secured home improvement loans. Based on the Company's experience to date,
contract defaults on unsecured home improvement contracts typically result in
chargeoffs that equal or exceed 100% of the outstanding principal balance of
the contract.
For these reasons, the data set forth below may not be indicative of the
delinquency, default and loss experience to be expected from the Contracts.
DELINQUENCY EXPERIENCE
<TABLE>
<CAPTION>
AT AT DECEMBER 31,
JUNE 30, --------------------------------------
1995 1994 1993 1992 1991 1990
-------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Number of Contracts Outstand-
ing(1)....................... 84,512 67,062 36,828 25,803 21,337 10,267
Period of Delinquency(2)
30-59 Days.................. 529 344 279 355 228 87
60-89 Days.................. 180 123 88 98 84 29
90 Days or More............. 212 166 169 207 164 52
------ ------ ------ ------ ------ ------
Total Home Improvement Con-
tracts Delinquent............ 921 633 536 660 476 168
Delinquencies as a Percent of
Contracts Outstanding........ 1.09% .94% 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 that payments are
contractually past due (assuming 30-day months). Consequently, a contract
due on the first day of a month is not 30 days delinquent until the first
day of the next month.
LOAN DEFAULT EXPERIENCE(1)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS TWELVE MONTHS
ENDED ENDED DECEMBER 31,
JUNE 30, ------------------------------------------
1995 1994 1993 1992 1991 1990
---------- ------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Principal Balance of
Contracts Serviced(2).. 900,862 676,670 314,300 207,114 174,146 84,812
Contract Defaults(3).... .93% .94% 1.51% 1.86% 1.09% .26%
</TABLE>
--------
(1) The loan default experience in this table describes the frequency of loan
defaults, not the severity of loss upon default. Based on the Company's
experience to date, home improvement loans that are not secured by any
lien on the improved real estate have experienced, and are expected to
continue to experience, a higher rate of delinquency and loan default as
compared with the Company's servicing portfolio of FHA-insured and other
secured home improvement loans. Based on the Company's experience to date,
contract defaults on unsecured home improvement contracts typically result
in chargeoffs that equal or exceed 100% of the outstanding principal
balance of the contract.
(2) As of period end. Includes defaulted contracts not yet liquidated.
(3) As a percentage of the total number of contracts being serviced as of
period end (annualized for period ending June 30, 1995). The Company
considers a contract defaulted when the Company has submitted a claim to
FHA (in the case of FHA-insured contracts), the Company has commenced
foreclosure or enforcement proceedings, or the contract is 180 days
delinquent.
S-12
<PAGE>
The Company's management is not aware of any trends or anomalies which have
adversely affected the delinquency, loan default and loss experience of its
portfolio of home improvement contracts.
The data presented in the foregoing tables are for illustrative purposes only
and there is no assurance that the delinquency, loan loss or liquidation
experience of the Contracts will be similar to that set forth above. Moreover,
since the Company began originating and purchasing FHA-insured home improvement
contracts in April 1989, and secured and unsecured conventional home
improvement contracts in September 1992, it is likely that the Company's
portfolio is not yet sufficiently seasoned to show the delinquencies and losses
that would be experienced if such data were collected over a longer period of
time. Because the Company began originating and purchasing conventional home
improvement contracts in September 1992, the data presented in the foregoing
tables do not reflect significant experience with conventional home improvement
contracts.
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 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 % 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 are entitled on any
Payment Date will be the product of the Pass-Through Rate and the Aggregate
Certificate Principal Balance 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 Certificate Account are
sufficient therefor, in the priority described under "Description of the
Certificates--Distributions on the 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 Contract with the latest maturity is
in July 2020.
S-13
<PAGE>
WEIGHTED AVERAGE LIFE OF THE CERTIFICATES
The following information is given solely to illustrate the effect of
prepayments of the Contracts on the weighted average life of the 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 the 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, " % CPR" assumes the Contracts will prepay at a
CPR of %, 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.
The percentages and weighted average lives in the following table 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) the Servicer
exercises its option to repurchase the Contracts, as described under
"Description of the Certificates--Repurchase Option"; (iii) the Contracts
will, as of the Cut-off Date, be grouped into four pools having the additional
characteristics set forth below under "Assumed Contract Characteristics"; (iv)
the Certificates have an Original Series 1995-E Certificate Principal Balance
of $32,241,212 and a Pass-Through Rate of %; (v) no interest shortfalls
will arise in connection with prepayments 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 in
October 1995; and (viii) the Certificates are issued in September , 1995. No
representation is made that the Contracts will not experience delinquencies or
losses.
ASSUMED CONTRACT CHARACTERISTICS
<TABLE>
<CAPTION>
WEIGHTED AVERAGE WEIGHTED AVERAGE
CUT-OFF DATE REMAINING TERM ORIGINAL TERM
POOL PRINCIPAL WEIGHTED AVERAGE TO MATURITY TO MATURITY
POOL BALANCE CONTRACT RATE (MONTHS) (MONTHS)
---- --------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
1........... $ %
2...........
3...........
4...........
Total...
</TABLE>
It is not likely that the Contracts will prepay at any constant percentage
of the CPR to maturity or that all of the 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.
S-14
<PAGE>
Based on the foregoing assumptions, the following table indicates the
projected weighted average life of the Certificates and sets forth the
percentages of the Original Series 1995-E Certificate Principal Balance that
would be outstanding after each of the dates shown, at the indicated
percentages of the CPR.
PERCENTAGE OF THE ORIGINAL SERIES 1995-E CERTIFICATE PRINCIPAL BALANCE AT
THERESPECTIVE PERCENTAGES OF THE CPR SET FORTH BELOW:
<TABLE>
<CAPTION>
DATE % % % % %
---- --- --- --- --- ---
<S> <C> <C> <C> <C> <C>
Initial Percentage..................................... 100% 100% 100% 100% 100%
September 15, 1996.....................................
September 15, 1997.....................................
September 15, 1998.....................................
September 15, 1999.....................................
September 15, 2000.....................................
September 15, 2001.....................................
September 15, 2002.....................................
September 15, 2003.....................................
September 15, 2004.....................................
September 15, 2005.....................................
Weighted Average Life (1) (years)......................
</TABLE>
--------
(1) The weighted average life of a 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
Certificate to the stated Payment Date, (ii) adding the results, and (iii)
dividing the sum by the initial principal balance of such 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, 1994, had
total assets of approximately $1,771,839,000 and stockholders' equity of
approximately $725,891,000. 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. The Company also
purchases, pools and services installment sales contracts for various consumer
products. 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 in the
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 Certificates will be issued pursuant to the Agreement between the
Company, as Seller and Servicer, and the Trustee. A copy of the execution form
of the Agreement will be filed in a Current Report on Form 8-K with the
Securities and Exchange Commission after the initial issuance of the
Certificates. The following summary describes the material provisions of the
Agreement, reference to which is hereby made for a complete recital of its
terms.
S-15
<PAGE>
GENERAL
The Certificates will be issued in fully registered, certificated form only
in denominations of $1,000, except for one Certificate with a denomination of
less than $1.00. The Certificates (other than the single Certificate referred
to in the preceding sentence) initially will be represented by one or more
certificates registered in the name of Cede as the nominee of DTC, and will
only be available in the form of book-entries on the records of DTC and
participating members thereof. See "Description of the Certificates--
Registration of the Certificates" herein. The Trust consists primarily of the
Contracts and the rights, benefits, obligations and proceeds arising therefrom
or in connection therewith, amounts held in the Certificate Account and the
Limited Guaranty of the Company.
Distributions on the Certificates will be made by the Paying Agent (which
shall initially be the 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 in October 1995. 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 the Trust may request payment by wire transfer). Final payments
will be made only upon tender of the Certificates to the Trustee for
cancellation.
CONVEYANCE OF CONTRACTS
On the Closing Date, the Company will establish the Trust and transfer,
assign, set over and otherwise convey to the Trust all right, title and
interest of the Company in the Contracts, including all principal and interest
received on or with respect to such Contracts (other than receipts of principal
and interest due on such Contracts before the Cut-off Date). On behalf of the
Trust, as the issuer of the Certificates offered hereby, the Trustee,
concurrently with such conveyance, will execute and deliver the Certificates to
or upon the order of the Company. The Contracts are described on a list
delivered to the Trustee and certified by a duly authorized officer of the
Company. Such list includes the amount of monthly payments due on each Contract
as of the date of issuance of the Certificates, the Contract Rate on each
Contract and the maturity date of each Contract. The list will be attached as
an exhibit to the Agreement and will be available for inspection by any
Certificateholder at the principal office of the Company. Prior to the
conveyance of the Contracts to the Trust, the Company's internal audit
department will have completed a review of all the Contract files, confirming
the accuracy of each item on the list of Contracts delivered to the Trustee.
Any Contract discovered not to agree with such list in a manner that is
materially adverse to the interests of the Certificateholders will be
repurchased by the Company, or, if the discrepancy relates to the unpaid
principal balance of a Contract, the Company may deposit cash in the
Certificate Account in an amount sufficient to offset such discrepancy.
The Trustee will maintain possession of the Contracts and any other documents
contained in the Contract files. Uniform Commercial Code financing statements
will be filed in Minnesota, reflecting the conveyance and assignment of the
Contracts to the Trustee, and the Company's accounting records and computer
systems will also reflect such conveyance and assignment.
Briggs and Morgan, Professional Association, counsel to the Company, will
render an opinion to the Trustee that the transfer of the Contracts from the
Company to the Trust would, in the event the Company became a debtor under the
United States Bankruptcy Code, be treated as a true sale and not as a pledge to
secure borrowings. If, however, the transfer of the Contracts from the Company
to the Trust were treated as a pledge to secure borrowings by the Company, the
distribution of proceeds of the Contracts to the Trust might be subject to the
automatic stay provisions of the United States Bankruptcy Code, which would
delay the distribution of such proceeds for an uncertain period of time. In
addition, a bankruptcy trustee would have the power to sell the Contracts if
the proceeds of such sale could satisfy the amount of the debt deemed owed by
the Company, or the bankruptcy trustee could substitute other collateral in
lieu of the Contracts to secure such debt, or such debt could be subject to
adjustment by the bankruptcy trustee if the Company were to file for
reorganization under Chapter 11 of the United States Bankruptcy Code.
S-16
<PAGE>
The Company will make certain representations and warranties in the Agreement
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 or
rescinded; (j) all parties to each Contract had full legal capacity to execute
such Contract; (k) 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; (l) 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; (m) each
Contract is a fully-amortizing loan with a fixed rate of interest and provides
for level monthly payments over the term of such Contract; (n) the description
of each Contract set forth in the list delivered to the Trustee is true and
correct; (o) there is only one original of each Contract; and (p) each Contract
was originated or purchased in accordance with the Company's then-current
underwriting guidelines.
The Company will also make certain representations and warranties with
respect to the Contracts in the aggregate, including that (i) the Cut-off Date
Pool Principal Balance equals at least the Original Series 1995-E Certificate
Principal Balance, and each Contract has a contractual rate of interest of at
least 10.25%; (ii) no Contract had a remaining term to maturity at origination
of more than 300 months; (iii) no more than 5% of the 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 Agreement, the Company has agreed to repurchase, at
the Repurchase Price, any Contract that is materially and adversely affected by
a breach of a representation and warranty with respect to such Contract made in
the Agreement if such breach has not been cured within 90 days 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 Trust and
the Certificateholders for a breach of a representation or warranty under the
Agreement with respect to the Contracts (but not with respect to any other
breach by the Company of its obligations under the Agreement).
The "Repurchase Price", with respect to any Contract to be so repurchased or
with respect to a Liquidated Contract, means the outstanding principal balance
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 date of such repurchase or liquidation.
Pursuant to the Agreement, the Servicer will service and administer the
Contracts conveyed and assigned to the Trustee as more fully set forth below.
PAYMENTS ON CONTRACTS
The Servicer, on behalf of the Trust, will establish and maintain a
Certificate Account in an "Eligible Account" (as defined below) 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 Corpora-
S-17
<PAGE>
tion (the "FDIC"), whose short-term deposits have been rated P-1 by Moody's or
whose unsecured long-term debt has been rated in one of the two highest rating
categories by Moody's, and which is subject to supervision and examination by
federal or state authorities (an "Eligible Institution"). "Eligible Account"
means, at any time, an account which is any of the following: (i) an account
maintained with an Eligible Institution; (ii) an account or accounts the
deposits in which are fully insured by either the Bank Insurance Fund or the
Savings Association Insurance Fund of the FDIC; (iii) a segregated trust
account maintained with the corporate trust department of a federal or state
chartered depository institution or trust company with trust powers and acting
in its fiduciary capacity for the benefit of the Trustee, which depository
institution or trust company has capital and surplus of not less than
$50,000,000; or (iv) an account that will not cause Moody's to downgrade or
withdraw its then-current rating assigned to the Certificates, as evidenced in
writing by Moody's. The Servicer may authorize the Trustee to invest the funds
in the Certificate Account in Eligible Investments (as defined in the
Agreement) that will mature not later than the business day preceding the
applicable monthly 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; securities bearing interest or sold at a discount issued by a
corporation which has a credit rating of at least "Aa2" from Moody's not in
excess of 10% of amounts in the Certificate Account at the time of such
investment; and commercial paper assigned a rating of at least P-1 by Moody's.
Any losses on such investments will be deducted from other investment earnings
or from other funds in the 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
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 Servicer as part of its servicing
fees and are not paid into the 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 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 Certificate Account.
On the seventh Business Day of each month (the "Determination Date"), the
Servicer will determine the Amount Available in the Certificate Account and the
amount of funds necessary to make all payments to be made on the next Payment
Date from the Certificate Account. Not later than one Business Day after the
Determination Date, the Company will deposit in the 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 the Payment Date,
to the extent that the Amount Available (together with any Guaranty Payment, as
described below) in the Certificate Account 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 related 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 Trustee for that
purpose in Minneapolis or St. Paul, Minnesota. The Amount Available on each
Payment Date generally includes scheduled payments on the 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 Contracts during such Due Period, any Advances (as defined
herein) made by the Servicer or the Trustee with respect to such Due Period and
any amounts paid by the Company to repurchase a Contract due to a breach of
representation or warranty.
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DISTRIBUTIONS ON THE CERTIFICATES
Interest. Interest on the Certificates will be payable on each Payment Date
in an amount (such amount being hereinafter referred to as the "Monthly
Interest") equal to one month's interest at the Pass-Through Rate on the
Aggregate Certificate Principal Balance immediately prior to such Payment Date;
provided that, in the case of the first Payment Date, such interest will be
payable only for the period from the Closing Date to but excluding October 16,
1995. The "Aggregate Certificate Principal Balance" with respect to any Payment
Date will equal the Original Series 1995-E Certificate Principal Balance minus
all distributions previously made in respect of principal on the 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
Certificate Account, together with any Guaranty Payment, is not sufficient to
make a full distribution of interest to the Certificateholders, the amount of
interest to be distributed in respect of the Certificates will be allocated
among the outstanding Certificates pro rata in accordance with their respective
entitlements to interest, and the amount of the shortfall will be carried
forward and added to the amount such holders will be entitled to receive on the
next Payment Date. Any such amount so carried forward will bear interest at the
Pass-Through Rate, to the extent legally permissible.
Principal. On each Payment Date, the Certificateholders will be entitled to
receive as distributions of principal, to the extent of the Amount Available in
the Certificate Account after payment of all interest payable on the
Certificates, an amount equal to the sum (such sum being hereinafter referred
to as the "Monthly Principal") of (a) the amount of regular principal payments
on the Contracts paid or applied during the prior Due Period; (b) the amount of
Principal Prepayments received on the Contracts during the prior Due Period;
(c) the principal portion of all payments on Contracts that were Delinquent
Payments with respect to the prior Due Period; (d) the unpaid principal balance
of all Contracts that became Liquidated Contracts during the prior Due Period;
(e) the principal portion of the Repurchase Price paid by the Company to
repurchase Contracts for breach of representations and warranties during the
prior Due Period, as described below under "Repurchases by the Company"; (f)
the amount of any reduction in the principal amount deemed owed on any Contract
as a result of the Obligor's bankruptcy; and (g) any principal amount described
in clauses (a) through (f) above that was not previously distributed because of
an insufficient amount of funds available in the Certificate Account and the
Company either was not obligated to or failed to pay such amount under the
Limited Guaranty.
On each Payment Date the Trustee will withdraw the Amount Available from the
Certificate Account and make the following payments, in the following order of
priority:
(i) if the Company is no longer the Servicer, to pay the Monthly
Servicing Fee to the successor Servicer;
(ii) to pay interest on the Certificates;
(iii) to pay principal on the Certificates;
(iv) if the Company is the Servicer, to pay the Monthly Servicing Fee to
the Servicer;
(v) to reimburse the Servicer or the Trustee, as applicable, for any
unreimbursed Advances made in respect of current or prior Payment Dates;
and
(vi) to pay the remainder, if any, of the Amount Available to the Company
as the fee for providing the Limited Guaranty.
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 funds available therefor in the Certificate Account.
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If the Servicer fails to make an Advance required under the Agreement, the
Trustee will be obligated to deposit the amount of such Advance in the
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 funds available therefor in the Certificate
Account, 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
Certificates and Trust:
(a) the amount of interest being paid to 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 Certificateholders;
(d) the Aggregate Certificate Principal Balance;
(e) the amount of fees paid out of the Trust;
(f) the Pool Factor (a percentage derived from a fraction the numerator
of which is the remaining Aggregate Certificate Principal Balance and the
denominator of which is the Original Series 1995-E Certificate Principal
Balance) immediately before and immediately after such Payment Date;
(g) the amount of any Guaranty Payment being distributed on such Payment
Date;
(h) the remaining Guaranty Amount (after giving effect to the
distribution on such Payment Date);
(i) the number and aggregate principal balance of Contracts delinquent
(i) 31-59 days, (ii) 60-89 and (iii) 90 or more days;
(j) the number of Contracts liquidated during the Due Period ending
immediately before such Payment Date;
(k) such customary factual information as is necessary to enable
Certificateholders to prepare their tax returns; and
(l) such other customary factual information available to the Servicer
without unreasonable expense as is necessary to enable Certificateholders
to comply with regulatory requirements.
REPURCHASE OPTION
The Agreement provides that at any time that the Pool Scheduled Principal
Balance is less than 10% of the Cut-off Date Pool Principal Balance, the
Servicer will have the option to repurchase, on 30 days' prior written notice
to the Trustee, all outstanding Contracts at a price sufficient to pay the
Aggregate Certificate Principal Balance plus the Monthly Interest due on all
Certificates on the Payment Date occurring in the month following the date of
repurchase. Such price will be distributed on such Payment Date.
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 any Payment
Date is the aggregate of the Scheduled Principal Balances of the Contracts
outstanding at the end of the prior calendar month.
COLLECTION AND OTHER SERVICING PROCEDURES
The Servicer will manage, administer, service and make collections on the
Contracts, exercising the degree of skill and care consistent with the highest
degree of skill and care that the Servicer exercises with
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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.
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 Pool Scheduled Principal Balance of the Contracts.
The Monthly Servicing Fee provides compensation for customary third-party
servicing activities to be performed by the Servicer for the Trust, for
additional administrative services performed by the Servicer on behalf of the
Trust and for expenses paid by the Servicer on behalf of the Trust.
Customary servicing activities include collecting and recording payments,
communicating with Obligors, investigating payment delinquencies, providing
billing and tax records to Obligors and maintaining internal records with
respect to each Contract. Administrative services performed by the Servicer on
behalf of the Trust include selecting and packaging the Contracts, calculating
distributions to Certificateholders and providing related data processing and
reporting services for Certificateholders and on behalf of the Trustee.
Expenses incurred in connection with servicing of the Contracts and paid by the
Servicer from its servicing fees include payment of fees and expenses of
accountants, payments of all fees and expenses incurred in connection with the
enforcement of Contracts (including submission of FHA Insurance claims, if
applicable), payment of Trustee's fees, and payment of expenses incurred in
connection with distributions and reports to Certificateholders.
EVIDENCE AS TO COMPLIANCE
The Agreement provides for delivery to the Trustee of a monthly report by the
Servicer no later than one Business Day following the Determination Date,
setting forth the information described under "Description of the
Certificates--Reports to Certificateholders." Each report to the Trustee will
be accompanied by a statement from an appropriate officer of the Servicer
certifying the accuracy of such report and stating that the Servicer has not
defaulted in the performance of its obligations under the Agreement. On or
before May 1 of each year, beginning in 1996, the Servicer will deliver to the
Trustee a report of KPMG Peat Marwick LLP, or another nationally recognized
accounting firm, stating that such firm has examined certain documents and
records relating to the servicing of home improvement contracts serviced by the
Servicer and stating that, on the basis of such examination, such servicing has
been conducted in compliance with the Agreement, except for any exceptions set
forth in such report.
The Agreement provides that the Servicer shall furnish to the Trustee such
reasonably pertinent underlying data as can be generated by the Servicer's
existing data processing system without undue modification or expense.
The Agreement provides that a Certificateholder holding Certificates
representing at least 5% of the interests in the Trust will have the same
rights of inspection as the Trustee and may upon written request to the
Servicer receive copies of all reports provided to the Trustee.
TRANSFERABILITY
The Certificates are subject to certain restrictions on transfer to or for
the benefit of employee benefit plans, trusts or accounts subject to ERISA and
described in Section 4975 of the Code. See "ERISA Considerations" herein and in
the Prospectus.
CERTAIN MATTERS RELATING TO THE COMPANY
The Agreement provides that the Company may not resign from its obligations
and duties as Servicer thereunder, except upon a determination that the
Company's performance of such duties is no longer permissible under the
Agreement or applicable law, and prohibits the Company from extending credit to
any
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Certificateholder for the purchase of a Certificate, purchasing Certificates in
any agency or trustee capacity or lending money to the Trust. The Company can
be removed as Servicer only pursuant to an Event of Termination as discussed
below.
EVENTS OF TERMINATION
An Event of Termination under the Agreement will occur if (a) the Servicer
fails to make any payment or deposit required under the Agreement (including an
Advance) and such failure continues for four Business Days; (b) the Servicer
fails to observe or perform in any material respect any other covenant or
agreement in the Agreement which continues unremedied for thirty days; (c) the
Servicer conveys, assigns or delegates its duties or rights under the
Agreement, except as specifically permitted under the Agreement, or attempts to
make such a conveyance, assignment or delegation; (d) a court having
jurisdiction in the premises enters a decree or order for relief in respect of
the Servicer in an involuntary case under any applicable bankruptcy, insolvency
or other similar law now or hereafter in effect, or appoints a receiver,
liquidator, assignee, custodian, trustee, or sequestrator (or similar official)
of the Servicer, as the case may be, or enters a decree or order for any
substantial liquidation of its affairs; (e) the Servicer commences a voluntary
case under any applicable bankruptcy, insolvency or similar law, or consents to
the entry of an order for relief in an involuntary case under any such law, or
consents to the appointment of or taking possession by a receiver, liquidator,
assignee, trustee, custodian or its creditors, or fails to, or admits in
writing its inability to, pay its debts as they become due, or takes any
corporate action in furtherance of the foregoing; (f) the Servicer fails to be
an Eligible Servicer; or (g) the Servicer's seller-servicer contract with GNMA
is terminated. The Servicer will be required under the Agreement to give the
Trustee and the Certificateholders notice of an Event of Termination promptly
upon the occurrence of such Event.
RIGHTS UPON AN EVENT OF TERMINATION
If an Event of Termination has occurred and is continuing, either the Trustee
or holders of Certificates representing 25% or more of the Trust may terminate
all of the Servicer's management, administrative, servicing and collection
functions under the Agreement. Upon such termination, the Trustee or its
designee will succeed to all the responsibilities, duties and liabilities of
the Company as Servicer under the Agreement and will be entitled to similar
compensation arrangements; provided, however, that neither the Trustee nor any
successor Servicer will assume any accrued obligation of the prior servicer or
any obligation of the Company to repurchase Contracts for breach of
representations and warranties, and the Trustee will not be liable for any acts
or omissions of the Servicer occurring prior to a transfer of the Servicer's
servicing and related functions or for any breach by the Servicer of any of its
representations and warranties contained in the Agreement or any related
document or agreement. In addition, the Trustee will notify FHA of the
Servicer's termination as Servicer of the FHA-insured Contracts and will
request that the portion of the Servicer'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 Servicer shall be entitled to payment of certain amounts
payable to it prior to such termination, for services rendered prior to such
termination. No such termination of the Company as Servicer 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
Servicer under the Agreement. The Trustee and such successor may agree upon the
servicing compensation to be paid (after receiving comparable bids from other
Eligible Servicers), which may not be greater than the Monthly Servicing Fee
payable to the Company under the Agreement.
TERMINATION OF THE AGREEMENT
The Agreement will terminate (after distribution of all principal and
interest then due to Certificateholders) on the earlier of (a) the Payment Date
on which the Aggregate Certificate Principal Balance is reduced to zero; or (b)
the Payment Date occurring in the month following the Servicer's repurchase of
the Contracts as described under "Description of the Certificates--Repurchase
Option." However, the Company's representations, warranties and indemnities
will survive any termination of the Agreement.
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AMENDMENT; WAIVER
The Agreement may be amended by agreement of the Trustee, the Servicer 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 Servicer that such
amendment will not adversely affect in any material respect the interests of
any Certificateholder.
The Agreement may also be amended by agreement of the Trustee, the Servicer
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
Moody's shall have confirmed that the ratings of the Certificates will not be
lowered or withdrawn following such amendment.
The Agreement may also be amended from time to time by the Trustee, the
Servicer and the Company with the consent of holders of Certificates
representing 66 2/3% or more of the Trust, the Servicer and holders of
Certificates representing 51% or more of the Trust may vote to waive any Event
of Termination, provided that no such amendment or waiver shall (a) reduce in
any manner the amount of, or delay the timing of, collections of payments on
Contracts or distributions which are required to be made on any Certificate, or
(b) reduce the aggregate amount of Certificates required for any amendment of
the Agreement, without unanimous consent of the Certificateholders.
The Trustee is required under the Agreement to furnish Certificateholders
with notice promptly upon execution of any amendment to the Agreement.
INDEMNIFICATION
The Agreement provides that the Company will defend and indemnify the Trust,
the Trustee (including any agent of the Trustee) and the Certificateholders
against any and all costs, expenses, losses, damages, claims and liabilities,
including reasonable fees and expenses of counsel and expenses of litigation
(a) 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 (b) with respect to certain other tax
matters.
The Agreement also provides that the Servicer will defend and indemnify the
Trust, the Trustee and the Certificateholders (which indemnification will
survive any removal of the Servicer) against any and all costs, expenses,
losses, damages, claims and liabilities, including reasonable fees and expenses
of counsel and expenses of litigation, in respect of any action taken by the
Company as Servicer with respect to any Contract.
DUTIES AND IMMUNITIES OF THE TRUSTEE
The Trustee will make no representations as to the validity or sufficiency of
the Agreement, the Certificates or 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 Certificate Account by the Servicer. If no
Event of Termination has occurred, the Trustee will be required to perform only
those duties specifically required of it under the Agreement. However, upon
receipt of the various certificates, reports or other instruments required to
be furnished to it, the Trustee will be required to examine them to determine
whether they conform as to form to the requirements of the Agreement.
Under the Agreement the Servicer will agree (a) to pay to the Trustee from
time to time reasonable compensation for all services rendered by it thereunder
(which compensation shall not be limited by any provision of law in regard to
the compensation of a trustee of an express trust); (b) to reimburse the
Trustee upon its request for all reasonable expenses, disbursements and
advances incurred or made by the Trustee in accordance with any provision of
the Agreement (including FHA Insurance premiums not paid by the
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Servicer and reasonable compensation and the expenses and disbursements of its
agents and counsel), except any such expense, disbursement or advance as may be
attributable to its negligence or bad faith; and (c) to indemnify the Trustee
for, and to hold it harmless against, any loss, liability or expense incurred
without negligence or bad faith on its part, arising out of or in connection
with the acceptance or administration of the Trust and its duties thereunder,
including the costs and expenses of defending itself against any claim or
liability in connection with the exercise or performance of any of its powers
or duties thereunder.
The Trustee is not obligated to expend or risk its own funds or otherwise
incur financial liability in the performance of its duties under the Agreement
if there is a reasonable ground for believing that the repayment of such funds
or adequate indemnity against such risk or liability is not reasonably assured.
The Agreement also provides that the Trustee will maintain at its expense in
Minneapolis or St. Paul, Minnesota, an office or agency where Certificates may
be surrendered for registration of transfer or exchange and where notices and
demands to or upon the Trustee and the certificate registrar and transfer agent
in respect of the Certificates pursuant to the Agreement may be served. On the
date hereof the 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, the Servicer and the Certificateholders of any change
thereof.
THE TRUSTEE
First Trust National Association has its corporate trust offices at 180 East
Fifth Street, St. Paul, Minnesota 55101.
The Trustee may resign from its duties under the Agreement at any time, in
which event the Servicer will be obligated to appoint a successor Trustee. The
Servicer may also remove the Trustee if the Trustee ceases to be eligible to
continue as such under the Agreement or if the Trustee becomes insolvent. In
such circumstances, the Servicer will also be obligated to appoint a successor
Trustee. Any resignation or removal of the Trustee and appointment of a
successor Trustee will not become effective until acceptance of the appointment
by the successor Trustee. Any successor Trustee must be an FHA Title I approved
lender.
REGISTRATION OF THE CERTIFICATES
The Certificates (except for one Certificate with an initial principal
balance of less than $1.00) 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 Exchange 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
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recognized by the Trustee as Certificateholders as that term is used in the
Agreement. Certificate Owners are only permitted to exercise the rights of
Certificateholders indirectly through Participants and DTC.
While 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, 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 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 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 LIMITED GUARANTY
In order to mitigate the effect of liquidation losses and delinquencies on
the Contracts, the Certificateholders are entitled to receive on each Payment
Date (subject to the limit of the Guaranty Amount) the amount equal to the
Guaranty Payment, if any, under the Limited Guaranty of the Company. The
Guaranty Payment for any Payment Date will equal the amount, if any, by which
the Formula Distribution Amount (equal to one month's interest at the Pass-
Through Rate on the Aggregate Certificate Principal Balance plus the Monthly
Principal for such Payment Date) exceeds the Amount Available in the
Certificate Account for such Payment Date.
The "Guaranty Amount" initially equals $3,224,122. Thereafter, on any Payment
Date, the Guaranty Amount will equal the lesser of (i) $3,224,122 minus all
Guaranty Payments previously made by the Company, or (ii) the Aggregate
Certificate Principal Balance as of such Payment Date.
The 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.
As compensation for providing the Limited Guaranty, the Company will be
entitled to receive a Guaranty Fee on each Payment Date equal to the Amount
Available in the Certificate Account less the amounts distributed to the
Certificateholders, the Monthly Servicing Fee and certain amounts required to
reimburse the Trustee or the Servicer, as described under "Description of the
Certificates--Distributions on the Certificates."
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Briggs and Morgan, Professional Association, counsel to the Company, will
deliver its opinion that, assuming ongoing compliance with the terms of the
Agreement, the Trust will be classified as a grantor trust for federal income
tax purposes and not as an association which is taxable as a corporation. The
Company does not intend to treat the 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 Certificates may be
required to be so treated.
The 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 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
Contracts were originated after July 18, 1984.
For further information regarding federal income tax consequences of
investing in the Certificates, see "Certain Federal Income Tax Consequences--
Non-REMIC Series" in the Prospectus.
ERISA CONSIDERATIONS
No transfer of any Certificates will be permitted to be made to any employee
benefit plan subject to the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), or Section 4975 of the Code (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 Certificates by such Plan will not result in the
assets of the Trust being deemed to be "plan assets" and subject to the
prohibited transaction provisions of ERISA and the Code and will not subject
the Trustee, the Company or the Servicer to any obligation or liability in
addition to those undertaken in the Agreement. Unless such opinion is
delivered, each person acquiring a Certificate will be deemed to represent to
the Trustee, the Company and the Servicer that such person is neither a Plan,
nor acting on behalf of a Plan, subject to ERISA or to Section 4975 of the
Code.
UNDERWRITING
The Underwriter has agreed, subject to the terms and conditions of the
Underwriting Agreement, to purchase the Certificates at the price set forth on
the cover page of this Prospectus Supplement.
In the Underwriting Agreement, the Underwriter has agreed, subject to the
terms and conditions set forth therein, to purchase all of the Certificates
offered hereby if any such Certificates are purchased. In the event of a
default by the Underwriter, the Underwriting Agreement provides that, in
certain circumstances, the Underwriting Agreement may be terminated.
The Underwriter proposes to offer the Certificates in part directly to
purchasers at the initial public offering price set forth on the cover page of
this Prospectus Supplement and in part to certain securities dealers at such
price less concessions not to exceed % of the Original Series 1995-E
Certificate Principal Balance. The Underwriter may allow, and such dealers may
reallow, concessions not to exceed % of the Original Series 1995-E
Certificate Principal Balance 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.
S-26
<PAGE>
The Underwriting Agreement provides that the Company will indemnify the
Underwriter against certain liabilities, including liabilities under the
Securities Act of 1933, as amended, 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 Trust by Briggs and Morgan, Professional
Association, St. Paul and 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 Briggs
and Morgan, Professional Association.
S-27
<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 THE AFFAIRS OF THE TRUST
SINCE THE DATE HEREOF.
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TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary of the Terms of the Certificates................................... S-3
Risk Factors............................................................... S-8
Structure of the Transaction............................................... S-8
Use of Proceeds............................................................ S-9
The Contracts.............................................................. S-9
Yield and Prepayment Considerations........................................ S-13
Green Tree Financial Corporation........................................... S-15
Description of the Certificates............................................ S-15
Description of the Limited Guaranty........................................ S-25
Certain Federal Income Tax Consequences.................................... S-26
ERISA Considerations....................................................... S-26
Underwriting............................................................... S-26
Legal Matters.............................................................. S-27
PROSPECTUS
Reports to Certificateholders.............................................. 2
Available Information...................................................... 2
Additional Information..................................................... 2
Incorporation of Certain Documents by Reference............................ 2
Summary of Terms........................................................... 4
Risk Factors............................................................... 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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$32,241,212 (APPROXIMATE)
LOGO
SELLER AND SERVICER
CERTIFICATES FOR HOME IMPROVEMENT LOANS
SERIES 1995-E
% PASS-THROUGH RATE
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PROSPECTUS SUPPLEMENT
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MERRILL LYNCH & CO.
SEPTEMBER , 1995
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