<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 1-08916
GREEN TREE FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 41-1807858
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1100 Landmark Towers
345 St. Peter Street, Saint Paul, Minnesota 55102-1639
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (612) 293-3400
---------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
(NAME OF EACH EXCHANGE
(TITLE OF EACH CLASS) ON WHICH REGISTERED)
--------------------- ----------------------
<S> <C>
Common Stock, $.01 par value New York Stock Exchange,
Pacific Stock Exchange
10 1/4% Senior Subordinated Notes due
June 1, 2002 New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
Indicate by a check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ( X)
As of February 29, 1996, the aggregate market value of voting stock held by
nonaffiliates of registrant was approximately $4,109,591,000.
As of February 29, 1996, the shares outstanding of the issuer's class of
Common Stock were as follows:
Common Stock 135,611,266
---------------------------
DOCUMENTS INCORPORATED BY REFERENCE:
Part of 10-K
Document Where Incorporated
-------- ------------------
Proxy Statement for the 1996 Annual Meeting of Stockholders III
<PAGE>
PART I
------
ITEM 1. BUSINESS.
------------------
General
-------
Green Tree Financial Corporation ("Green Tree" or "the Company") is a
diversified financial services company that originates conditional sales
contracts for manufactured homes, home improvements, consumer products and
equipment financing, and provides commercial financing to manufacturers and
dealers. The Company's insurance agencies also market physical damage and
term mortgage life insurance relating to the customers' contracts it
services. Green Tree is the largest servicer of manufactured housing
government insured or guaranteed contracts, and conventional manufactured
housing contracts in the United States. Through its principal offices in
Saint Paul, Minnesota and service centers throughout the United States,
Green Tree serves all 50 states.
The Company finances both new and previously owned manufactured homes, and
originates conventional contracts as well as contracts insured by the
Department of Housing and Urban Development's Federal Housing
Administration ("FHA") and contracts partially guaranteed by the Department
of Veterans' Affairs ("VA"). The Company's home improvement loans are
financed either on a conventional basis or insured through the FHA Title I
program. Consumer and equipment finance products are financed using
installment sales contracts. The Company provides financing for the
purchase of motorcycles, marine products, pianos and organs, horse
trailers, sport vehicles, small aircraft, tractor/trailers and recreational
vehicles.
Green Tree also provides inventory financing to dealers, manufacturers and
distributors of various consumer and commercial products, and in 1996 began
providing home equity and revolving credit financing.
Green Tree pools and securitizes substantially all of the contracts it
originates, retaining the servicing on the contracts. Conventional
manufactured housing contracts are pooled and such pools are structured
into asset-backed securities which are sold in the public securities
markets. Substantially all FHA and VA manufactured housing contracts are
converted into pass-through certificates ("GNMA certificates") guaranteed
by the Government National Mortgage Association ("GNMA"), a wholly owned
corporate instrumentality of the United States within the Department of
Housing and Urban Development. The GNMA certificates, which are secured by
the FHA and VA contracts, are then sold in the secondary market. The
Company also pools FHA-insured and conventional home improvement contracts,
and consumer and equipment finance installment sales contracts, for sale in
the secondary market. In servicing the contracts, the Company collects
payments from the
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borrower and remits principal and interest payments to the holder of the
contract or investor certificate secured by the contracts.
The Company was originally incorporated as Green Tree Acceptance, Inc.
under the laws of the State of Minnesota in 1975. In 1992, the Company
changed its name to Green Tree Financial Corporation and in 1995
reincorporated as Green Tree Financial Corporation under the laws of the
State of Delaware. The Company's principal executive offices are located
at 1100 Landmark Towers, 345 St. Peter Street, Saint Paul, Minnesota 55102-
1639, and its telephone number is (612) 293-3400. Unless the context
otherwise requires, "Green Tree" or the "Company" means Green Tree
Financial Corporation and its subsidiaries.
Purchase and Origination of Contracts
Conditional sales contracts are the typical means of financing the purchase
of manufactured homes ("MH"), consumer products ("CP")and equipment finance
products("EF") and can also be used to finance home improvements ("HI") to
existing owner-occupied one- to- four family homes. A "contract" or
"conditional sales contract" refers to an agreement evidencing a monetary
obligation and providing security for the obligation. MH contracts grant
the owner of the contract a security interest in the related manufactured
home (and any other personal property described therein), and CP and EF
contracts grant a security interest in the related consumer or equipment
finance product. For secured HI contracts, a mortgage or deed of trust on
the home to which the improvements relate serves as security for the
payment obligation under the contract. Green Tree also offers unsecured HI
contracts on certain loans of $15,000 or less.
All contracts that the Company originates directly or indirectly are
written on forms provided or approved by the Company and are originated on
an individually approved basis in accordance with Company underwriting
guidelines.
Manufactured Housing
"Manufactured housing" or a "manufactured home" is a structure,
transportable in one or more sections, which is designed to be a dwelling
with or without a permanent foundation. Since most manufactured homes are
never moved once the home has reached the homesite, the wheels and axles
are removable and have not been designed for continuous use. Manufactured
housing does not include either modular housing (which typically involves
more sections, greater assembly and a separate means of transporting the
sections) or recreational vehicles ("RV's") (which are either self-
propelled vehicles or units towed by passenger vehicles).
Conditional sales contracts for manufactured home purchases may be financed
on a conventional basis, insured by the FHA or partially guaranteed by the
VA. With respect to manufactured housing, the
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relative volume of conventional, FHA and VA contracts originated by the
Company depends on customer and dealer preferences as well as prevailing
market conditions. Over the last five years, the percentage of FHA and VA
contracts in the Company's manufactured home contract portfolio has ranged
from 15% to 39%, and at December 31, 1995, such contracts constituted 15%
of the Company's portfolio (of which approximately 95% were FHA contracts).
The Company has developed more cost effective conventional manufactured
housing lending programs and as a result, FHA and VA contracts represented
less than 1% of the Company's manufactured housing originations during
1995. MH contracts are generally subject to minimum down payments of
approximately 5% of the amount financed. The Company offers manufactured
housing contract terms up to 30 years.
Through its regional service centers, the Company arranges to purchase MH
contracts from MH dealers located throughout the United States. The
Company's regional service center personnel contact dealers located in
their region and explain the Company's available financing plans, terms,
prevailing rates, and credit and financing policies. If the dealer wishes
to utilize the Company's available customer financing, the dealer must make
an application for dealer approval. Upon satisfactory results of the
Company's investigation of the dealer's creditworthiness and general
business reputation, the Company and the dealer execute a dealer agreement.
The Company also originates manufactured housing installment loan
agreements directly with customers. For the year ended December 31, 1995,
the Company's manufactured housing contract originations consisted of 83%
purchased from dealers, and 17% directly originated by the Company.
The dealer or the customer submits the customer's credit application and
purchase order to a central or regional service center where Company
personnel make an analysis of the creditworthiness of the proposed buyer.
If the application meets the Company's guidelines and credit is approved,
the Company generally purchases the contract after the manufactured home is
delivered and set up and the customer has moved in.
For manufactured housing contracts, the Company uses a proprietary
automated credit scoring system. It is a statistically based scoring
system which quantifies information using variables obtained from
customers' credit applications and credit reports. As of December 31,
1995, this credit scoring system has been used in making credit
determinations on over two million applications. The Company believes the
use of this proprietary credit scoring system has contributed to the
reduction in the number of repossessions incurred as a percentage of the
Company's servicing portfolio.
In 1995, new manufactured housing shipments rose to approximately 340,000
units, a 12% increase over 1994. The Company continues to benefit from
this increase and believes that it is maintaining its
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market share of contracts for financing new manufactured homes.
Competition to finance manufactured home purchases continues to be strong,
and there can be no assurance that such competition will not intensify in
the future. Significant decreases in consumer demand for manufactured
housing, or significant increases in competition, could have an adverse
effect on the Company's financial position and results of operations.
Home Improvement
The types of home improvements financed by the Company include exterior
renovations, including windows, siding and roofing; pools and spas; kitchen
and bath remodeling; and room additions and garages. The Company may also,
under certain limited conditions, extend additional credit beyond the
purchase price of the home improvement for the purpose of debt
consolidation.
Through its centralized loan processing operations in Saint Paul,
Minnesota, the Company arranges to purchase certain contracts from HI
contractors located throughout the United States. The Company's business
development managers contact HI contractors and explain the Company's
available financing plans, terms, prevailing rates and credit and financing
policies. If the contractor wishes to utilize the Company's available
customer financing, the contractor must make an application for contractor
approval. The Company has a contractor approval process pursuant to which
the financial condition, business experience and qualifications of the
contractor are reviewed prior to his or her approval to sell contracts to
the Company. The Company occasionally will originate directly a home
improvement promissory note involving a home improvement transaction.
The level of growth in the Company's HI contract originations during the
year ended December 31, 1995 results from significantly expanding the
number of relationships with contractors, remodelers and dealers throughout
the United States. This has provided the Company with an established and
growing network through which to market its financing.
The Company finances both conventional HI contracts and HI contracts
insured through the FHA Title I program. Such contracts are generally
secured by first, second or, to a lesser extent, third mortgages on the
improved real estate. The Company has also implemented an unsecured
conventional HI lending program for certain customers which generally
allows for loan amounts ranging from $2,500 to $15,000. Unsecured loans
account for less than 20% of the home improvement portfolio.
The contractor submits the customer's credit application and construction
contract to the Company's office where an analysis of the creditworthiness
of the customer is made using a proprietary credit scoring system that was
implemented by the Company in June
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<PAGE>
1993. If it is determined that the application meets the Company's
underwriting guidelines and applicable FHA regulations (for FHA-insured
contracts) and the credit is approved, the Company generally purchases the
contract from the contractor when the customer verifies satisfactory
completion of the work.
Consumer and Equipment Finance
Green Tree's consumer finance and equipment finance divisions finance the
purchase of motorcycles; marine products (including boats, boat trailers
and outboard motors); pianos and organs; horse trailers; sport vehicles
(including snowmobiles, personal watercraft and all-terrain vehicles);
tractor/trailers; personal aircraft; and recreational vehicles.
The Company arranges to purchase certain contracts originated by dealers
throughout the United States. The Company's personnel contact dealers and
explain Green Tree's available financing plans, terms, prevailing rates and
credit and financing policies. If the dealer wishes to utilize the
Company's available customer financing, the dealer must make an application
for approval.
The dealer submits the customer's credit application and purchase order to
the Company's central service center where an analysis of the
creditworthiness of the proposed buyer is made. If the application meets
the Company's guidelines and credit is approved, the Company purchases the
contract when the customer accepts delivery of the product.
-5-
<PAGE>
The volume of contracts originated by the Company during the past five
years and certain other information for each of those years, are indicated
below:
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------------------------------
1995 1994 1993 1992(a) 1991(b)
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
COST OF CONTRACTS
(IN THOUSANDS):
MH-Conventional $4,140,994 $3,134,231 $2,196,655 $ 942,874 $ 432,060
MH-FHA/VA 18,842 67,260 252,466 265,992 507,879
HI 626,986 465,523 169,443 75,287 112,135
CP and other 471,153 96,172 47,442 34,911 22,340
---------- ---------- ---------- ---------- ----------
Total $5,257,975 $3,763,186 $2,666,006 $1,319,064 $1,074,414
========== ========== ========== ========== ==========
NUMBER OF CONTRACTS:
MH-Conventional 132,673 115,082 87,327 43,162 23,126
MH-FHA/VA 725 2,660 9,607 10,322 20,716
HI 49,135 39,375 16,926 8,384 12,975
CP and other 38,828 11,333 6,161 4,235 2,924
---------- ---------- ---------- ---------- ----------
Total 221,361 168,450 120,021 66,103 59,741
========== ========== ========== ========== ==========
WEIGHTED AVERAGE
INTEREST RATES:
MH-Conventional 10.7% 11.0% 10.2% 11.7% 13.5%
MH-FHA/VA 10.4 10.5 9.7 10.7 12.1
HI 12.5 12.1 12.6 13.9 15.3
CP and other 11.8 11.7 13.2 14.7 16.3
---- ---- ---- ---- ----
Weighted average
interest rate 11.0% 11.2% 10.3% 11.7% 13.1%
==== ==== ==== ==== ====
</TABLE>
- ----------------
(a) Does not include $552,936,000 of conventional contracts purchased
from the Resolution Trust Corporation ("RTC").
(b) Does not include $66,980,000 of conventional contracts purchased
from other originators.
The Company believes that, in addition to an individual analysis of each
contract, it is important to achieve a geographic dispersion of contracts
in order to reduce the impact of regional economic conditions on the
overall performance of the Company's portfolio. Accordingly, the Company
seeks to maintain a portfolio of contracts dispersed throughout the United
States. At December 31, 1995, no state accounted for more than 10% of all
contracts serviced by the Company.
The Company originates contracts through over 3,000 approved manufactured
housing dealers, approximately 5,700 home improvement contractors and over
3,000 consumer product dealers. In 1995, no single MH dealer accounted for
more than one percent of the total number of MH contracts originated by the
Company. Likewise, no single contractor or dealer accounted for more than
two percent of the total number of HI or CP contracts originated by the
Company.
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<PAGE>
Commercial Finance Division
Green Tree's Commercial Finance Division extends credit through its three
regional lending centers under revolving credit agreements with dealers,
manufacturers and distributors of various consumer and commercial products.
"Floorplan Receivables" represent the financing of product inventory for
retail dealers of a variety of consumer products. The products securing
the Floorplan Receivables currently include manufactured housing,
recreational vehicles and marine products. "Asset-Based Receivables"
represent the financing of production and inventory by manufacturers, such
revolving credit arrangements being secured by finished goods inventory,
accounts receivable rising from the sale of such inventory, certain work-
in-process, raw materials and component parts, as well as other assets of
the borrower.
The Company will provide financing for products for a particular dealer,
manufacturer or distributor ("Dealer"), in most instances, only if the
Company has also entered into a floorplanning agreement with the
manufacturer, distributor or other vendor of such product. A Dealer
requesting the establishment of a credit line with Green Tree is required
to submit an application and financial information.
Advances made for the purchase of inventory are most commonly arranged in
the following manner: the Dealer will contact the manufacturer and place a
purchase order for a shipment of inventory. If the manufacturer has been
advised that Green Tree is the Dealer's inventory financing source, the
manufacturer will contact Green Tree to obtain an approval number with
respect to such purchase order. Upon such request, the Company will
determine whether (i) the manufacturer is in compliance with its floorplan
agreement, (ii) the Dealer is in compliance with its program with Green
Tree and (iii) such purchase order is within the Dealer's credit limit. If
all of such requirements are met, the Company will issue an approval number
to the manufacturer. The manufacturer will then ship the inventory and
directly submit its invoice for such purchase order to Green Tree for
payment. Interest or finance charges normally begin to accrue on the
Dealer's accounts as of the invoice date. The proceeds of the loan being
made by the Company to the Dealer are paid directly to the manufacturer in
satisfaction of the invoice price and are often funded a number of days
subsequent to the invoice date depending upon the Company's arrangements
with the manufacturer. Inventory inspections are performed to physically
verify the collateral used to secure a Dealer's loan, check the condition
of the inventory, account for any missing inventory and collect any funds
due. Approximately two-thirds of Green Tree's MH dealers are participants
in this program.
Asset-Based Receivables arise from asset-based revolving credit facilities
provided to certain manufacturers and distributors.
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<PAGE>
These facilities typically involve a revolving line of credit, for a
contractually committed period of time, pursuant to which the borrower may draw
the lesser of the maximum amount of such line of credit or a specifically
negotiated loan availability amount, subject to the availability of adequate
collateral. The loan availability amount is determined by multiplying an agreed
upon advance rate against the value of certain types of assets. In these
facilities, Green Tree will most typically lend against finished inventory and
eligible accounts receivable arising from the sale of such inventory which are
free and clear of other liens and otherwise in compliance with specified
standards.
Pooling, Disposition and Related Sales Structures of Contracts, Net Interest
Margin Certificates and Floorplan Receivables
The Company pools contracts for sale to investors, generally on a monthly basis.
It is the Company's policy to sell substantially all of the contracts it
originates or purchases. Conventional manufactured housing contracts are
generally sold through asset-backed securities. FHA-insured and VA-guaranteed
manufactured housing contracts are converted into GNMA certificates. The GNMA
certificates, which are secured by the FHA and VA contracts, are then sold in
the secondary market. The GNMA certificates provide for payment by the Company
to registered holders of the certificates of monthly principal and interest, as
well as the "pass-through" of any principal prepayments on the contracts. The
Company also pools FHA-insured and conventional home improvement contracts for
sale in the secondary market. Consumer product and equipment finance contracts
have also been pooled for sale to investors through both public and private
transactions. During 1994 and 1995, the Company also securitized a significant
portion of its excess servicing rights receivable in the form of securitized Net
Interest Margin Certificates ("NIM Certificates"), and in 1995 securitized a
significant portion of its then outstanding floorplan receivables through a
Master Trust structure.
Principal and interest payments made by borrowers on the manufactured housing
contracts securing each GNMA certificate are the source of funds for payments
due on the GNMA certificates. The Company is required to advance its own funds
in order to make timely payment of all amounts due on the GNMA certificates if,
due to defaults or delinquencies on contracts, the payments received by the
Company on the contracts securing such certificates are less than the amounts
due on the certificates. If the Company was unable to make payments on the GNMA
certificates as they became due, it would promptly notify GNMA and request GNMA
to make such payments and, upon such notification and request, GNMA would make
such payments directly to the registered holders of the certificates and would
seek reimbursement from the Company, FHA or the VA as appropriate. The GNMA
certificates are secured by manufactured housing contracts which are either FHA-
insured or VA-guaranteed. For FHA manufactured housing contracts, the maximum
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amount of insurance benefits paid by FHA is equal to approximately 90% of the
net unpaid principal and uncollected interest earned to the date of default on
the contract, subject to certain adjustments, less the greater of the actual net
sales price or FHA appraisal of the home. The amounts reimbursable by FHA are
further limited to an aggregate amount representing reserves FHA has
established. These reserves, which approximated $106 million at December 31,
1995, are based on the Company's origination and loss experience. The Company is
required to make scheduled premium payments to maintain the benefit of the
reserve. If losses on FHA-insured contracts exceed the established reserve, the
Company would not be reimbursed by FHA but would still be required to make
payments on the GNMA certificates. For VA manufactured housing contracts, the
maximum guarantee that may be issued is the lesser of: (1) the lesser of $20,000
or 40% of the principal amount of the contract, or (2) the maximum amount of
guarantee entitlement available to the veteran (which may range from $20,000 to
zero).
Conventional manufactured housing, home improvement, consumer and equipment
finance contracts are pooled and sold by the Company through securitized asset
sales which have been either single class or senior/subordinated pass-through
structures. Under certain securitized sales structures, corporate guarantees,
bank letters of credit, surety bonds, cash deposits or other equivalent
collateral have been provided by the Company as credit enhancements. Certain
senior/subordinated structures, such as those used during 1990, 1991 and 1992,
retain a portion of the Company's excess servicing spread as additional credit
enhancement or for accelerated principal repayments to subordinated
certificateholders. The Company analyzes the cash flows unique to each
transaction, as well as the marketability and earnings potential of such
transactions when choosing the appropriate structure for each securitized loan
sale. The structure of each securitized sale depends, to a great extent, on
conditions of the fixed income markets at the time of sale as well as cost
considerations and availability and effectiveness of the various enhancement
methods. Customer principal and interest payments are deposited in separate bank
accounts as received by the Company and are held for monthly distribution to the
certificateholders.
During 1994 and 1995 Green Tree sold a substantial portion of its excess
servicing rights receivable, representing net cash flows retained from the
securitization of its manufactured housing contracts, in the form of securitized
NIM Certificates through public offerings. A subordinated interest in those
certificates was retained by the Company. As a result of these transactions,
certain net cash flows that formerly were retained by Green Tree are now passed
through to investors with the exception of a 50 basis point servicing fee which
Green Tree retains out of available monthly net cash flows. Payments on the
subordinated interests retained do not commence until the senior
certificateholders have been paid all principal and interest due them under the
terms of
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<PAGE>
the transaction. Interest will continue to accrue to the balance of such
subordinated certificates until payments commence.
In initially valuing its excess servicing rights receivable, the Company
establishes an allowance for expected losses under the recourse provisions with
investors/owners and calculates that allowance on the basis of historical
experience and management's best estimate of future credit losses likely to be
incurred. If there is a default under a contract and liquidation of the
underlying collateral on loans not sold as part of the NIM Certificate sales,
any net losses are charged against the reserves that have been established.
Losses in excess of those projected in the valuation of the NIM Certificates
have the effect of reducing the value of the subordinate interest retained by
Green Tree. The dollar amount of potential contractual recourse to the Company
exceeds both the amount of projected losses factored into the subordinated
certificate valuation and the amount established by the Company as an "allowance
for losses on contracts sold with recourse."
During 1995 the Company formed a revolving Master Trust vehicle for purposes of
selling its commercial finance receivables, and in December 1995 issued its
first series of certificates through this trust totaling approximately $428
million. This first series of certificates has a two year life with an option to
extend the term to three years at the Company's discretion, and was structured
as a LIBOR-based floater backed by eligible commercial finance receivables, such
receivables having been removed from the Company's balance sheet upon sale.
Estimated losses relating to the Company's commercial finance receivables are
recorded at the time the loans are made. Commercial finance receivables are
shown net of the related allowance for losses and net of amounts securitized and
sold on the balance sheet.
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<PAGE>
Information on the Company's securitized asset sales is as follows:
<TABLE>
<CAPTION>
Year ended December 31
----------------------------------------------
1995 1994 1993 1992 1991
------ ------ ------ ----------- ---------
<S> <C> <C> <C> <C> <C>
(dollars in millions)
Contracts sold(a):
MH-Conventional $4,008 $3,180 $2,090 $1,447(b) $ 486(c)
MH-GNMA 12 46 213 269 500
HI 579 544 43 72 112
CP(d) -- -- -- 84 41
------ ------ ------ ------ ------
4,599 3,770 2,346 1,872 1,139
====== ====== ====== ====== ======
NIM Certificates 308 600 -- -- --
Floorplan
Receivables
Master Trust 428 -- -- -- --
------ ------ ------ ------ ------
Total $5,335 $4,370 $2,346 $1,872 $1,139
====== ====== ====== ====== ======
</TABLE>
(a) "Contracts sold" represents the face amount of the contracts sold
but not necessarily settled during the same year.
(b) Includes $533 million of contracts purchased from the RTC.
(c) Includes $52 million of contracts purchased from other originators,
but does not include $88 million of contracts sold pursuant to a
joint venture agreement with Merrill Lynch Mortgage Capital, Inc.
(d) Approximately $431 million of consumer products contracts were
securitized and sold in January 1996.
<TABLE>
<CAPTION>
Year ended December 31
-----------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Weighted average yield to
investors on contracts
sold:
MH-Conventional 7.3% 8.1% 6.5% 7.7% 8.7%
MH-GNMA 7.5 8.0 6.4 7.4 8.5
HI 7.0 8.0 6.4 7.3 8.7
CP -- -- -- 6.4 7.6
---- ---- ---- ---- ----
Weighted average yield 7.2% 8.1% 6.5% 7.6% 8.6%
==== ==== ==== ==== ====
</TABLE>
Servicing
The Company services all of the contracts and commercial finance
receivables that it originates or purchases from other originators,
collecting loan payments, taxes and insurance payments, where applicable,
and other payments from borrowers and remitting principal and interest
payments to the holders of the asset-backed securities or of the GNMA
certificates.
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The following table shows the composition of the Company's servicing portfolio
at December 31 for the years indicated on contracts it originated, excluding
commercial finance receivables.
<TABLE>
<CAPTION>
December 31
------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Unpaid principal
amount of
contracts being
serviced(in
millions) $ 13,145 $ 9,441 $ 6,922 $ 5,278 $ 4,754
Average unpaid
principal
balance $ 20,430 $ 19,042 $ 17,864 $ 16,638 $ 16,394
Number of
contracts
serviced 643,405 495,809 387,509 317,251 289,960
</TABLE>
During 1990 and 1991, the Company acquired servicing on manufactured housing
contracts originated by other lenders. The Company has not since acquired
servicing on manufactured housing contracts originated by other lenders, and
does not expect to acquire such servicing in the near future. The Company has no
loss risk on these contracts and charges a service fee based on principal
outstanding. The following table shows the composition of this servicing
portfolio at December 31 for the years indicated.
<TABLE>
<CAPTION>
December 31
-------------------------------------------
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Unpaid principal
amount of
contracts being
serviced(in
millions) $ 169 $ 212 $ 272 $ 345 $ 518
Average unpaid
principal
balance $12,564 $13,515 $14,425 $14,977 $15,897
Number of
contracts
serviced 13,440 15,710 18,884 23,064 32,576
</TABLE>
As of December 31, 1995 and 1994 the Company serviced $574,100,000 and
$167,723,000, respectively, of commercial finance receivables. The Company
currently has financing arrangements with approximately 2,000 dealers.
Delinquency and Loss Experience
A contract is considered delinquent by the Company if any payment of $25 or more
is past due 30 days or more. Contracts for which the obligor is in bankruptcy
are considered delinquent regardless of whether or not the borrower is current
under a plan of bankruptcy. Delinquent contracts are subject to acceleration,
and repossession
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<PAGE>
or foreclosure of the underlying collateral. Losses associated with such actions
are charged against applicable reserves upon disposition of the collateral.
The following table provides certain information with respect to the delinquency
and loss experience of contracts the Company originated, excluding commercial
finance receivables.
<TABLE>
<CAPTION>
At or for the year ended
December 31
----------------------------------------------------------------
1995 1994 1993 1992 1991
------------ ------------ ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Number of contracts delinquent(a) 1.92% 1.49% 1.55% 1.86% 2.20%
Repossessed contracts sold (b) 1.51 1.55 1.87 2.53 2.42
Annual net repossession losses(c) .60 .63 .85 1.16 .93
Repossession inventory(d) .51 .43 .51 .58 .88
</TABLE>
(a) As a percentage of the total number of contracts serviced at period end
(other than contracts already in repossession).
(b) As a percentage of the average number of contracts serviced
during the period.
(c) As a percentage of the average principal amount of contracts serviced
during the period. Annual net repossession losses represent the loss
amount at the time the repossession is sold, and has not been reduced
for amounts subsequently recovered from either customers or investors.
(d) As a percentage of the total number of contracts serviced at period
end.
Commercial finance receivables due and unpaid aged over 60 days as of December
31, 1995 totaled .18%.
Insurance
Through certain subsidiaries, the Company markets physical damage insurance on
manufactured homes, certain consumer products and dealer lots which
collateralize contracts and receivables serviced by the Company, and markets
term mortgage life insurance to its MH and HI customers. In addition, the
Company owns Green Tree Life Insurance Company, a life and disability
reinsurance company which functions as a reinsurer for policies written by
selected other insurers covering individuals whose contracts are serviced by the
Company.
The following table provides certain information with respect to net written
premiums (gross premiums on new or renewal policies issued less cancellations of
previous policies) on policies written by the Company. The Company acts as an
agent with respect to the
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<PAGE>
sale of such policies and, in some cases, the Company also acts as reinsurer of
such policies.
<TABLE>
<CAPTION>
Year ended December 31
-------------------------------------------
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
(in thousands)
Net written premiums:
Physical damage $82,438 $63,979 $48,172 $35,500 $31,400
Term mortgage life 10,154 7,240 5,683 5,303 4,510
------- ------- ------- ------- -------
Total $92,592 $71,219 $53,855 $40,803 $35,910
======= ======= ======= ======= =======
</TABLE>
Regulation
The Company's operations are subject to supervision by various state authorities
(typically state mortgage lending, financial institutions, consumer credit and
insurance authorities) that generally require that the Company be licensed to
conduct its business. In many states, issuance of licenses is dependent upon a
finding of public convenience, and of financial responsibility, character and
fitness of the applicant. The Company is generally subject to state regulations,
examinations and reporting requirements, and licenses are revocable for cause.
Contracts insured under the FHA Title I manufactured home and home improvement
lending programs are subject to compliance with detailed federal regulations
governing originations, servicing, and loss claim payments by the FHA to cover a
portion of losses due to default and repossessions or foreclosures. Other
governmental programs such as VA also contain similar detailed regulations
governing loan origination and servicing responsibilities.
The Federal Consumer Credit Protection Act ("FCCPA") requires, among other
things, a written disclosure showing the cost of credit to debtors when consumer
credit contracts are executed. The Federal Equal Credit Opportunity Act requires
certain disclosures to applicants for credit concerning information that is used
as a basis for denial of credit and prohibits discrimination against applicants
with respect to any aspect of a credit transaction on the basis of sex, race,
color, religion, national origin, age, marital status, derivation of income from
a public assistance program, or the good faith exercise of a right under the
FCCPA, of which it is a part. By virtue of a Federal Trade Commission rule,
consumer credit contracts must contain a provision that the holder of the
contract is subject to all claims and defenses which the debtor could assert
against the seller, but the debtor's recovery under such provisions cannot
exceed the amount paid under the contract.
The Company is also required to comply with other federal disclosure laws for
certain of its lending programs. The home equity lending program, the
combination land-and-home program, the land-in-lieu program and the home
improvement lending program are
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<PAGE>
subject to the Federal Real Estate Settlement and Procedures Act. In addition,
the Company is subject to the reporting requirements of the Home Mortgage
Disclosure Act for its manufactured home, purchase money mortgage and home
improvement lending products.
The construction of manufactured housing is subject to compliance with
governmental regulation. Changes in such regulations may occur from time to time
and such changes may affect the cost of manufactured housing. The Company cannot
predict whether any regulatory changes will occur or what impact such future
changes would have on the manufactured housing industry.
The Company is subject to state usury laws. Generally, state law has been
preempted by federal law with respect to certain manufactured home, mortgage
lending and home improvement products, although certain states have enacted
legislation superseding federal law. To be eligible for the federal preemption,
the Company's contract form must comply with certain consumer protection
provisions. The Company offers its products within the limitations set by the
state usury laws and federal preemption of these laws.
The regulatory procedures discussed above are subject to changes by the
regulatory authorities. There are no assurances that future regulatory changes
will not occur. These regulatory changes could place additional burdens on the
Company's programs.
Competition and Other Factors
The Company is affected by consumer demand for manufactured housing, home
improvements, consumer products and its insurance products, as well as
commercial demand for floorplan and asset-backed lending. Consumer and
commercial demand, in turn, are partially influenced by regional trends,
economic conditions and personal preferences. The Company competes primarily
with banks, finance companies, savings and loan associations, and credit unions.
Prevailing interest rates are typically affected by economic conditions. Changes
in rates, however, generally do not inhibit the Company's ability to compete,
although from time to time in particular geographic areas, local competition may
choose to offer more favorable rates. The Company competes by offering superior
service, prompt credit review, and a variety of financing programs.
The Company's business is generally subject to seasonal trends, reflecting the
general pattern of sales of manufactured housing and site-built homes. Sales
typically peak during the spring and summer seasons and decline to lower levels
from mid-November through January.
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<PAGE>
Employees
As of December 31, 1995, the Company had 2,503 full-time and 308 part-time
employees, and considers its employee relations to be satisfactory. None of the
employees are represented by a union.
ITEM 2. PROPERTIES.
At December 31, 1995, the Company operated 50 manufactured housing regional
service centers and three commercial finance business centers located in 35
states. Such offices are leased, typically for a term of three to five years,
and range in size from 1,700 to 22,000 square feet. The Company also operates a
central servicing center in Rapid City, South Dakota. The lease on this facility
is for a term of five years with an option to purchase and consists of 100,000
square feet. The Company's home improvement and consumer products divisions
lease their main office in Saint Paul, Minnesota. The lease is for a term of
five years and consists of 122,000 square feet. (See Note I of Notes to
Consolidated Financial Statements for annual rental obligations.) The Company
owns the building which houses its equipment finance and insurance divisions and
its corporate offices.
ITEM 3. LEGAL PROCEEDINGS.
The nature of the Company's business is such that it is routinely a party or
subject to items of pending or threatened litigation. Although the ultimate
outcome of certain of these matters cannot be predicted, management believes,
based upon information currently available and the advice of counsel, that the
resolution of these routine legal matters will not result in any material
adverse effect on its consolidated financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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<PAGE>
PART II
-------
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Company's Common Stock is traded on the New York and Pacific Stock Exchanges
under the symbol "GNT." The following table sets forth, for the periods
indicated, the range of the high and low sale prices.
1994 High Low
---- --------- ----------
First quarter $14-1/2 $10-27/32
Second quarter 15-1/4 10-3/4
Third quarter 17-7/16 12-3/8
Fourth quarter 15-5/16 12-1/8
1995 High Low
---- --------- ----------
First quarter 20-1/2 14-3/8
Second quarter 23-5/16 18-3/4
Third quarter 31-7/16 21-11/16
Fourth quarter 32-3/8 25
The above stock prices, as well as all other share and per share amounts
referenced in this Annual Report on Form 10-K, have been restated to reflect the
two-for-one stock splits effected in the form of stock dividends in June 1994
and October 1995.
On February 29, 1996, the Company had approximately 755 stockholders of record
of its Common Stock including the nominee of The Depository Trust Company which
held approximately 130,478,302 shares of Common Stock.
The Company has paid cash dividends since December 1986. The 1995 quarterly
dividend rate for the first three quarters was $0.047 per share. In September
1995, the Board of Directors approved an increase in the quarterly dividend rate
to $0.0625 per share effective December 1995. The payment of future dividends
will depend on the Company's financial condition, prospects and such other
factors as the Board of Directors may deem relevant. Under a letter of credit
agreement, the Company is subject to restrictions limiting the payment of
dividends and Common Stock repurchases. At December 31, 1995, such payments were
limited to $25,046,000, which represents 50% of consolidated net earnings for
the most recently concluded four fiscal quarter periods less dividends paid,
repurchases of Common Stock and the retirement of Subordinated Indebtedness.
-17-
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
Year ended December 31
--------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
(dollars in thousands except per-share data)
Income $ 711,320 $ 497,427 $ 366,680 $ 246,615 $214,765
Earnings before
income taxes 409,628 302,131 200,537 118,806 92,176
Earnings before
extraordinary
loss(a) 253,969 181,279 116,423 72,472 56,688
Net earnings 253,969 181,279 116,423 55,015 56,688
Earnings per common
share:
Before
extraordinary
loss (a) 1.81 1.31 .90 .61 .50
Net earnings 1.81 1.31 .90 .45 .50
Cash dividends per
common share .20 .12 .09 .08 .08
At year-end:
Excess servicing
rights
receivable $ 764,617 $ 533,182 $ 843,489 $ 640,647 $513,881
Total assets 2,383,546 1,771,839 1,739,502 1,167,055 969,161
Total debt 383,546 309,319 515,004 376,043 361,410
Allowance for
losses on
contracts sold
with recourse 163,337 84,016 222,135 189,669 134,681
Stockholders'
equity 925,022 725,891 549,429 298,834 237,544
</TABLE>
(a) Before extraordinary loss relating to the debt exchange in 1992.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS.
Introduction
Green Tree Financial Corporation is a diversified financial services company
that originates conditional sales contracts for manufactured homes ("MH"), home
improvements ("HI"), consumer products ("CP")and equipment financing ("EF"), and
provides commercial financing to manufacturers and dealers. The Company's
insurance agencies market physical damage and term mortgage life insurance
relating to the customers' contracts it services. Green Tree also acts as
servicer for manufactured housing contracts originated by other lenders.
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<PAGE>
The Company records "net gains on contract sales" at the time of sale of its
contracts and defers service income, recognizing it as servicing is performed.
Income from commercial financing is recognized as realized. Net gains on
contract sales are an amount equal to the present value of the expected excess
servicing rights receivable to be collected during the term of the contracts,
plus or minus any premiums or discounts realized on the sale of the contracts
and less any selling expenses. "Excess servicing rights receivable" represents
cash expected to be received by the Company over the life of the contracts. The
subordinated certificates retained by the Company from the securitized Net
Interest Margin Certificate ("NIM Certificate") sales are shown net of projected
losses and are included in excess servicing rights receivable. Excess servicing
rights receivable, excluding the subordinated certificates, is calculated by
aggregating the contractual payments to be received pursuant to the contracts
and subtracting: (i) the estimated amount to be remitted to the investors/owners
of the contracts, (ii) the estimated amount that will not be collected as a
result of prepayments, (iii) the estimated amount to be remitted for FHA
insurance and other credit enhancement fees and (iv) the estimated amount that
represents deferred service income. Deferred service income represents the
amount that will be earned by the Company for servicing the contracts.
Concurrently with recognizing such gains, the Company also records the present
value of excess servicing rights as an asset on the Company's balance sheet.
Excess servicing rights receivable is calculated using prepayment, default, and
interest rate assumptions which the Company believes market participants would
use for similar instruments,such assumptions being consistent, given portfolio
composition, with those used in the public sales of the NIM Certificates. Excess
servicing rights receivable has not been reduced for potential losses under
recourse provisions of the sales. Such rights are subordinated to the rights of
investors/owners of the contracts. The Company believes that the excess
servicing rights receivable recognized at the time of sale does not exceed the
amount that would be received if it were sold in the marketplace.
In initially valuing its excess servicing rights receivable, the Company
establishes an allowance for expected losses under the recourse provisions with
investors/owners of contracts or investor certificates and calculates that
allowance on the basis of historical experience and management's best estimate
of future credit losses likely to be incurred. The amount of this provision is
reviewed quarterly and adjustments are made if actual experience or other
factors indicate management's estimate of losses should be revised. While the
Company retains a substantial amount of risk of default on the loan portfolios
that it sells, such risk has been substantially reduced through the sales of the
NIM Certificates. The Company believes that its allowance for losses on
contracts sold with recourse is adequate and consistent with current economic
conditions as well as historical default and loss experiences of the Company's
entire loan portfolio. The allowance for losses on
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<PAGE>
contracts sold with recourse is shown separately as a liability. The allowance
has been discounted using an interest rate equivalent to the risk-free market
rate for securities with a duration consistent with the estimated timing of
losses. The outstanding security balances of contracts at December 31, 1995 were
$1,290,750,000 of GNMA certificates and $10,941,384,000 related to securitized
transactions, including whole loan sales.
The Company records the amount to be remitted to the investors/owners of the
contracts or investor certificates for the activity related to the current
month, payable the next month, as "investor payable" and it is shown separately
as a liability on the Company's balance sheet.
The Company has provided the investors/owners of pools of contracts with a
variety of additional forms of credit enhancements on its securitized sales.
These credit enhancements have included corporate guarantees, letters of credit
and surety bonds that provide limited recourse to the Company, and letters of
credit that, if drawn, are entitled to reimbursement only from the future excess
cash flows of the underlying transactions. Furthermore, certain securitized
sales structures use cash reserve funds and certain cash flows from the
underlying pool of contracts as additional credit enhancement.
The carrying value of the subordinated interest in the NIM Certificates retained
by the Company is determined using prepayment and default assumptions consistent
with those used in determining the value of excess servicing rights receivable,
giving consideration to differences in the composition of the contracts
underlying those anticipated cash flows. The subordinated certificates are shown
net of the effect of projected losses.
Payments on the subordinated certificates will not be made until such time as
the senior certificateholders have been paid all principal and interest due them
under the terms of the transactions. As such, interest on the subordinated
certificates will continue to accrue to the outstanding balance until payments
commence. Green Tree collects a monthly servicing fee equal to 50 basis points
on an annualized basis on the underlying contract balance to the extent that
adequate funds are available based on cash flows provided by each underlying
securitized sale.
The Company's expectations used in calculating its excess servicing rights
receivable and allowance for losses on contracts sold with recourse, as well as
the value of the subordinated interest in the NIM Certificates, are subject to
volatility that could materially affect operating results. Prepayments resulting
from obligor mobility, general and regional economic conditions, and prevailing
interest rates, as well as actual losses incurred, may vary from the performance
the Company projects. The Company recognizes the impact of adverse prepayment
and loss experience by recording a
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<PAGE>
charge to current earnings. The Company reflects favorable portfolio experience
prospectively as realized.
Results of operations
The following table shows, for the periods indicated, the percentage
relationships to income of certain income and expense items and the percentage
changes in such items from period to period.
<TABLE>
<CAPTION>
Period-to-period
As a percentage of increase (decrease)
income for the year -------------------
ended December 31 1994 1993
--------------------- to to
1995 1994 1993 1995 1994
----- ----- ----- ---- ----
<S> <C> <C> <C> <C> <C>
Income:
Net gains on contract
sales 94.4% 91.4% 76.1% 47.7% 63.0%
Provision for losses
on contract sales (31.4) (27.0) (21.0) 65.9 74.3
Interest 24.8 22.4 30.7 58.0 (1.0)
Service 7.5 8.1 8.5 33.7 28.3
Commissions and other 4.7 5.1 5.7 29.3 21.7
---------------------
Total income 100.0% 100.0% 100.0%
=====================
Expenses:
Interest 8.1% 8.4% 14.0% 37.7 (18.6)
Cost of servicing 5.5 6.2 7.1 26.9 18.3
General and
administrative 28.8 24.7 24.2 67.1 38.1
Earnings before
income taxes 57.6 60.7 54.7 35.6 50.7
Net earnings 35.7 36.4 31.8 40.1 55.7
</TABLE>
Net gains on contract sales increased 47.7% and 63.0% for the years ended
December 31, 1995 and 1994, respectively, as a result of increased dollar volume
of contracts sold, longer average terms and in 1995, higher interest rate
spreads on contracts sold. During 1995 and 1994, total contract sales increased
$829,317,000 or 22.0% and $1,423,930,000, or 60.7%, respectively. In 1994, the
increase in net gains on contract sales was partially offset by decreased
interest rate spreads on contracts sold. The Company's net gains on contract
sales in 1993 reflect higher interest rate spreads on contracts sold but were
reduced by an increase in prepayment reserves as a result of higher than
previously projected prepayment activity.
Prevailing interest rates are typically affected by economic conditions. Changes
in interest rates generally do not inhibit the Company's ability to compete,
although from time to time, in particular geographic areas, local competition
may be able to offer more favorable rates. Because of the size of the excess
servicing spread (which enables the Company to absorb changes in interest
-21-
<PAGE>
rates) and the relatively short period of time between origination and sale of
contracts, the Company's ability to sell contracts is generally not affected by
gradual changes in interest rates, although the amount of earnings may be
affected. Average excess servicing spreads were 3.8%, 3.1% and 3.8% for 1995,
1994 and 1993, respectively. Excess servicing spreads decreased during 1994 as
the rates on the Company's sales of securitized loans increased faster than the
rates on the contracts originated by the Company.
The increase in the provision for losses on contract sales of 65.9% in 1995
reflects the growth in total contract sales and the Company's increased
provision for losses on contract sales as a percentage of contracts sold. This
increased percentage is a result of increasing average contract terms and the
changing mix of originations to a higher percentage of conventional contracts
and to loans which have a lower down payment. The 74.3% increase in the
provision for losses on contract sales during 1994 also reflects the Company's
higher dollar volume of contracts sold during the year as well as the changing
mix of originations to a significantly lower percentage of FHA and VA contracts.
The Company feels that its credit underwriting standards and servicing
procedures have served to stabilize its loss experience. A very important factor
in the reduction of the Company's credit risk is the geographic dispersion of
the portfolio. At December 31, 1995, no state accounted for more than 10% of all
contracts serviced by the Company. The Company continually monitors its
dispersion of contracts as economic downturns are often more severely felt in
certain geographic areas than others.
During 1994 and 1995 the Company sold a substantial portion of its excess
servicing rights receivable, representing net cash flows retained from the
securitization of its manufactured housing contracts, in the form of securitized
NIM Certificates through public offerings. Green Tree Securitized Net Interest
Margin Trusts 1994-A, 1994-B and 1995-A, sold certificates representing
approximately 72% to 78% of the estimated present value of future excess
servicing cash flows derived from the Company's sales of certain manufactured
housing contracts between 1978 and 1995. The estimated present value of these
future excess servicing cash flows was previously recorded on the Company's
balance sheet as part of "Excess servicing rights receivable", "Contracts, GNMA
certificates and collateral" and "Allowance for losses on contracts sold with
recourse". The remaining interests retained by the Company, representing
subordinated certificates, continue to be recorded as part of excess servicing
rights receivable and are shown net of projected losses.
The manufactured housing market experienced a 12% increase in new home shipments
during 1995 compared to 1994. The Company continues to benefit from this
increase as its dollar volume of MH contract originations rose 29.9% during 1995
over 1994 to $4,159,836,000, and believes that it is maintaining its market
share of contracts
-22-
<PAGE>
for financing new manufactured homes. The Company's dollar volume of new
manufactured housing contract originations rose 31.4% during 1995 over 1994. The
dollar volume of previously owned MH contract originations also rose 43.7% year
over year. Although small compared to total volume, the dollar volume of
refinanced contracts decreased in 1995 compared to 1994. In addition to the
increase in the number of new MH contracts originated by the Company, the
average contract size has also increased due to a shift in the Company's
manufactured home financing to more land-and-home contracts, price increases by
the MH manufacturers, and new federal wind and thermal standards enacted in mid-
to-late 1994.
The dollar volume of home improvement, consumer and equipment finance contract
originations rose 95.5% during 1995 over 1994 to $1,098,139,000. The level of
growth in these divisions results from significantly expanding the number of
relationships with contractors, remodelers and dealers throughout the United
States. This has provided the Company with an established and growing network
through which to market its financing.
Interest income is realized from contract inventory, commercial finance
receivables, cash deposits, short-term investments, as well as amortization of
the present value discount relating to excess servicing rights receivable.
Interest income grew 58.0% during 1995 over 1994 primarily from increased
earnings on the Company's commercial finance receivables. Amortization of the
present value discount during 1995 increased in comparison to 1994 due to the
growth of the Company's average excess servicing rights receivable. Contracts
held for sale during the year was higher on average than during 1994 due to
higher production levels, resulting in an increase in interest income. Interest
income decreased 1.0% for the year ended December 31, 1994 compared to 1993.
Interest income relating to the amortization of the present value discount
during 1994 decreased compared to 1993 as a result of the NIM Certificate sales,
offset partially by interest accrued on the subordinated certificates. Earnings
on short-term investment activity relating to the cash generated by the NIM
Certificate sales and an increase in average contracts held for sale due to
substantially higher production levels during 1994 also partially offset that
decrease. Contributing to the growth in interest income during 1993 was interest
earned on the increased dollar amount of contracts held for sale and increased
amortization of the present value discount on the Company's excess servicing
rights receivable.
The increase in service income of 33.7% during 1995 and 28.3% during 1994
resulted from the 38.2% and 35.2% growth in the Company's average originated
servicing portfolio during 1995 and 1994, respectively, but was offset by the
decline in servicing income on contracts originated by others. The average
unpaid principal balance of contracts being serviced for others during 1995 and
1994 decreased 21.0% and 22.1%, respectively. The Company expects this decline
in outside servicing to continue in the future while overall servicing income
should increase as its portfolio grows.
-23-
<PAGE>
Commissions and other income, which includes commissions earned on new insurance
policies written and renewals on existing policies, as well as other income from
late fees, grew during 1995, 1994 and 1993 primarily as a result of the increase
in net written insurance premiums as the Company's contract originations and
servicing portfolio continue to grow.
Interest expense increased 37.7% during 1995 as a result of the Company
maintaining a significantly higher level of borrowings to fund its loan
originations and commercial finance portfolio during 1995 compared to 1994.
Interest expense decreased 18.6% during 1994 compared to 1993. The Company
maintained a lower level of borrowings to fund its loan originations during
1994, as compared with 1993, as a result of converting a substantial portion of
its excess servicing rights receivable to cash through the NIM Certificate
sales, as well as completing more frequent contract sales in 1994. This
decreased level of borrowings is offset slightly by higher average interest
rates throughout much of 1994. The Company's interest expense increased in 1993
as a result of the higher amount of average outstanding borrowings supporting
the Company's increased contract inventory levels. The increase was, however,
partially offset by lower average interest rates.
Green Tree's dollar amount of cost of servicing has increased over the past
three years as its total average servicing portfolio during the years ended
December 31, 1995, 1994 and 1993 grew 36.5%, 32.4% and 17.1%, respectively. The
Company's cost of servicing as a percentage of contracts serviced has decreased
over each of the past three years.
General and administrative expenses rose 67.1% and 38.1% during 1995 and 1994,
respectively. The primary reason for these increases in both 1995 and 1994
relates to the compensation of the chief executive officer pursuant to the terms
of an employment agreement, the majority of such expense being paid in stock. As
a percentage of contract originations, however, general and administrative
expenses have remained relatively constant over the past three years.
During the third quarter of 1993, the Company took a one-time charge to earnings
of $4,685,000 as a result of the August 1993 enactment of the new federal
corporate income tax rate. The charge reflects the increase in the federal
corporate income tax rate on the Company's deferred tax liability and increased
the Company's effective tax rate during that year to 41.9%. The Company's
effective tax rate during 1995 and 1994 was 38% and 40%, respectively.
The Company is affected by consumer demand for manufactured housing, home
improvements, consumer products and its insurance products, as well as
commercial demand for floorplan and asset-backed lending. Consumer and
commercial demand, in turn, are partially influenced by regional trends,
economic conditions and personal preferences. The Company can make no prediction
about any particular geographic area in which it does business. These
-24-
<PAGE>
regional effects, however, are mitigated by the national geographic dispersion
of its servicing portfolio.
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," (FAS 123) was issued in October 1995 and requires that the impact
of the fair value of employee stock-based compensation plans on net income and
earnings per share be disclosed on a pro forma basis in a footnote to the
consolidated financial statements for awards granted after December 15, 1994, if
the accounting for such awards continues to be in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB
25). Alternatively, FAS 123 permits a company to record the fair value of
employee stock-based compensation plans as a component of compensation expense
in the statement of income as of the date of grant of awards related to such
plans. Adoption of FAS 123 is required for fiscal years beginning after December
15, 1995. In adopting FAS 123, the Company plans to disclose the impact on net
income and earnings per share on a pro forma basis in a footnote to the
consolidated financial statements.
Inflation has not had a material effect on the Company's income or earnings over
the past three fiscal years.
Capital resources and liquidity
The Company's business requires continued access to the capital markets for the
purchase, warehousing and sale of contracts. To satisfy these needs, the Company
employs a variety of capital resources.
Historically, the most important liquidity source for the Company has been its
ability to sell contracts in the secondary markets through loan securitizations
and sales of GNMA certificates. Under certain securitized sales structures,
corporate guarantees, bank letters of credit, surety bonds, cash deposits or
other equivalent collateral have been provided by the Company as credit
enhancements. Certain senior/subordinated structures, such as those used during
1990, 1991 and 1992, retain a portion of the Company's excess servicing spread
as additional credit enhancement or for accelerated principal repayments to
subordinated certificateholders. The Company analyzes the cash flows unique to
each transaction, as well as the marketability and earnings potential of such
transactions when choosing the appropriate structure for each securitized loan
sale. The structure of each securitized sale depends, to a great extent, on
conditions of the fixed income markets at the time of sale as well as cost
considerations and availability and effectiveness of the various enhancement
methods. During 1995, the Company used a senior/subordinated structure for each
of its ten conventional manufactured home loan sales and enhanced a portion of
the subordinated certificates sold with a corporate guarantee. The
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<PAGE>
Company's expertise and increased loan origination volume have allowed it to
have multiple conventional manufactured home loan sales in a quarter which
serves to reduce interest rate risk by shortening the holding period of the
contracts. The Company's public home improvement sales in the first and third
quarters of 1995 were each comprised of two trusts. The first trust, which
included secured home improvement contracts, employed a senior/subordinated
structure with a limited corporate guarantee and the second trust, which
included unsecured home improvement contracts, was a single class pass-through
with a limited corporate guarantee. The Company's public home improvement sales
in the second and fourth quarters of 1995 each employed a senior/subordinated
structure with a limited corporate guarantee.
Another liquidity source for the Company is its ability to sell portions of its
excess servicing rights receivable in the form of securitized NIM Certificates.
During 1994 the Company sold $600,400,000 of NIM Certificates and in August 1995
the Company completed another sale of $308,000,000 of NIM Certificates. These
certificates represent approximately 72% to 78% of the estimated present value
of future excess servicing cash flows derived from the Company's sales of
certain manufactured housing contracts between 1978 and 1995. Net proceeds to
the Company from these sales were used to reduce short-term borrowings
supporting ongoing loan originations. The combined interest rate on the NIM
Certificates sold and the market rate (based on market comparisons at the time
of sale of the NIM Certificates) on the subordinated certificates retained by
the Company was less than the discount rates the Company used to initially
record the excess servicing rights receivable. Based on these market rates, the
present value of the future excess servicing cash flows which exceeded the
carrying value has been included in the Company's reserves related to its excess
servicing rights receivables.
Servicing fees and net interest payments collected, which has been the Company's
principal source of cash, increased during the year ended December 31, 1995 and
decreased during 1994 as a result of the timing and size of the NIM Certificate
sales, the proceeds of which are shown separately on the Company's statements of
cash flows. Net interest payments collected on the transactions underlying the
NIM Certificates, after certain deductions, are remitted directly to the senior
certificateholders. Payments on the subordinated certificates will not commence
until the senior certificateholders have been paid in full. For the year ended
December 31, 1995 and 1994, servicing fees and net interest payments collected
consist only of servicing fees collected on the NIM Certificates, plus servicing
fees and net interest payments on all existing HI and CP securitizations, and
all MH securitizations and GNMA pools in which the Company has not yet sold a
portion of the related excess servicing rights. The increase in servicing fees
and net interest payments collected during 1993 is a result of the increased
amount of servicing spread collected due to the growth of the Company's
servicing portfolio.
-26-
<PAGE>
Net principal payments collected have been positive in each of the last three
years as a result of an increase in the contract principal payments collected by
the Company as of the end of each year but not yet remitted to the
investors/owners of the contracts. These increases are a result of customer
payoffs and the growth of the Company's servicing portfolio.
Interest on contracts and GNMA certificates during 1994 includes interest the
Company received on the NIM Certificates for the period they were held by the
Company.
Interest on cash, commercial finance receivables and investments grew
significantly during 1995 primarily as a result of the increase in commercial
finance receivables outstanding. During the first quarter of 1994, the Company
began floorplan lending to provide financing to manufactured housing dealers for
purposes of financing new manufactured home inventory. The Company merged this
floorplan lending into its new commercial finance division in 1995 and sold a
substantial portion of its portfolio in December 1995. This division provides
inventory and asset-based financing for manufacturers and dealers in a variety
of industries, including primarily manufactured housing and other products for
which the Company is already providing retail financing. Average net commercial
finance receivables outstanding for 1995 were $357 million compared to $35
million in 1994.
Defeasance structures were used on the Company's securitized sales in the fourth
quarter of 1990 and continued through the second quarter of 1992. The cash flows
used to make these defeasance payments were sold as part of the NIM Certificate
sale.
Repossession losses net of recoveries decreased significantly in both 1995 and
1994 compared to 1993 as a result of the sale of the NIM Certificates.
Repossession losses on contracts whose net cash flows were sold as part of these
transactions (with the exception of the first five securitized sales completed
by Green Tree in 1987 through the first quarter of 1988 as such losses were
excluded from the 1994-A NIM Certificate sale) are not borne by the Company but,
instead, reduce the amount of cash available to pay the senior
certificateholders. To the extent that such losses should exceed projected
levels, the impact would first be borne by Green Tree through charges to the
valuation of its subordinated certificates, and thereafter by the holders of the
certificates, not through charges to the allowance for losses on contracts sold.
In the future, repossession losses net of recoveries will continue to include
activity relating to all future securitizations and GNMA pools in which the
Company does not sell or has not yet sold a portion of the related excess
servicing rights, as well as losses on the first five MH securitizations.
FHA insurance premiums paid also decreased significantly in 1995 and 1994
compared to 1993, as such payments which relate to
-27-
<PAGE>
contracts in the NIM Certificate sales are made through cash flows on those
transactions.
During 1995, the Company repurchased 2,051,000 shares of its common stock for
$53,913,000. These shares are currently held as treasury shares. Dividends paid
by the Company increased 75.4% in 1995 compared to 1994 as the Company's 1995
quarterly average dividend rate increased 73.3% over the 1994 rate.
Net cash from operating activities decreased in 1995 compared to 1994 as a
result of the increased volume of contract purchases in 1995 as the Company
prepared for its consumer product loan securitization in the first quarter of
1996. Net cash provided by operating activities during 1994 increased
significantly over 1993, primarily as a result of the sale of NIM Certificates.
Proceeds from the sale of contracts was greater than the purchase of contracts
held for sale in 1994 as the Company, in that year, began public securitization
of its HI loans primarily originated in the third and fourth quarters of 1993 in
1994. Net cash from operating activities was negative in 1993 due largely to the
increase in dollar volume of contracts held for sale. This increase in contract
inventory was a result of the Company's decision not to securitize any CP loans,
or any HI loans after the second quarter, as well as increases in MH production.
To a lesser extent, 1995, 1994 and 1993 cash flows from operating activities
were also reduced by income taxes paid. The Company expects it will use its
remaining net operating loss carryforward during 1996, and accordingly will be
paying additional taxes on its taxable income thereafter.
Net cash used for investing activities included, in 1995, leasehold improvements
on its Rapid City servicing center and the purchase and upgrade of computer
equipment as a result of the Company's growth; in 1994, the renovation of
certain floors in its corporate office building and the buyout and upgrade of
the Company's mainframe computer; and in 1993, the purchase of certain floors of
the building where the Company's corporate offices are located.
The Company used cash from financing activities in 1995 as a result of the
common stock repurchases, a 73.3% increase in the common stock dividend rate and
the retirement of its senior subordinated debentures in June 1995. The Company
also used cash from financing activities during 1994 as it repaid all of its
borrowings on credit facilities and increased its common stock dividend rate
33.3% in May 1994. Net cash provided by financing activities was positive in
1993 as borrowings on credit facilities and proceeds from the issuance of common
stock and debt exceeded debt repayments and dividends.
The Company has a $15,000,000 unsecured bank credit agreement for general
operating purposes. In addition, the Company currently has $1.3 billion in
master repurchase agreements with various
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<PAGE>
investment banking firms for the purpose of financing its contract and
commercial finance loan production. At December 31, 1995, the Company had
$3,350,000 of borrowings outstanding under these agreements and had
$1,221,150,000 available, subject to the availability of eligible collateral.
The master repurchase agreements all provide for annual terms that are extended
each quarter by mutual agreement of the parties for an additional annual term
based upon receipt of updated quarterly financial information from the Company.
The Company believes that these agreements will continue to be renewed.
During April 1995, the Company began borrowing under its commercial paper
program through which it is authorized to issue up to $500,000,000 in notes of
varying terms (not to exceed 270 days) to meet its liquidity needs. This program
is backed by the bank and master repurchase agreements referred to above. As of
December 31, 1995, the Company had issued and outstanding $90,500,000 in notes
under this program. Commercial paper is expected to be an ongoing source of
liquidity for purposes of meeting the Company's funding needs between sales of
its contract and commercial loan production.
In September 1993, the Company completed a 10,000,000 share common stock
offering, and sold an additional 1,500,000 shares to cover over-allotments. The
net proceeds of approximately $138,000,000 were used to finance the Company's
continued growth in its manufactured home, home improvement and consumer
products contract inventory, to temporarily reduce notes payable under the
Company's borrowing agreements, and for other general corporate purposes.
-29-
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
GREEN TREE FINANCIAL CORPORATION AND SUBSIDIARIES
FINANCIAL STATEMENTS FURNISHED PURSUANT
TO THE REQUIREMENTS OF FORM 10-K
AND
INDEPENDENT AUDITORS' REPORT
-------------------------------------
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
--------------------------------------------
-30-
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Green Tree Financial Corporation
Saint Paul, Minnesota:
We have audited the accompanying consolidated balance sheets of Green Tree
Financial Corporation and subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1995 and
the financial statement schedule listed in the Index at Item 14(a)(2). These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Green Tree Financial
Corporation and subsidiaries as of December 31, 1995 and 1994, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1995 in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
Minneapolis, Minnesota
January 30, 1996
-31-
<PAGE>
GREEN TREE FINANCIAL CORPORATION AND SUBSIDIARIES
-------------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
<TABLE>
<CAPTION>
December 31
-------------------------------
1995 1994
--------------- --------------
<S> <C> <C>
ASSETS:
Cash and cash equivalents (Note A) $ 295,767,000 $ 455,956,000
Cash deposits, restricted (Note F) 159,311,000 146,057,000
Other investments (Note A) 19,880,000 20,920,000
Receivables:
Excess servicing rights
(Notes A and B) 764,617,000 533,182,000
Commercial finance (net of allowance
of $1,071,000 and $1,216,000,
respectively) 141,793,000 166,507,000
Other accounts receivable 52,546,000 34,841,000
Contracts, GNMA certificates and
collateral(Notes C, E and F) 884,303,000 372,776,000
Property, furniture and fixtures
(Note D) 57,104,000 36,555,000
Other assets (including deferred
debt expense of $2,065,000 and
$2,427,000, respectively) 8,225,000 5,045,000
-------------- --------------
Total assets $2,383,546,000 $1,771,839,000
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Notes payable (Note E) $ 93,662,000 $ --
Senior notes (Note E) 26,650,000 26,650,000
Senior subordinated notes due 2002
(Note E) 263,234,000 262,814,000
Senior subordinated debentures due
1995 (Note E) -- 19,855,000
Allowance for losses on contracts
sold with recourse (Notes A and F) 163,337,000 84,016,000
Accounts payable and accrued
liabilities 266,131,000 183,749,000
Investor payable 238,448,000 169,269,000
Income taxes, principally deferred
(Note K) 407,062,000 299,595,000
-------------- --------------
Total liabilities 1,458,524,000 1,045,948,000
Commitments and contingencies (Notes F and I)
Stockholders' equity (Notes E and G):
Common stock, $.01 par; authorized
150,000,000 shares, issued
137,534,266 shares (1995) and
135,294,384 shares (1994) 1,375,000 1,352,000
Additional paid-in capital 323,564,000 296,732,000
Retained earnings 653,996,000 427,807,000
-------------- --------------
978,935,000 725,891,000
Less treasury stock, 2,051,000 shares
at cost (53,913,000) --
-------------- --------------
Total stockholders' equity 925,022,000 725,891,000
-------------- --------------
$2,383,546,000 $1,771,839,000
============== ==============
</TABLE>
See notes to consolidated financial statements.
-32-
<PAGE>
GREEN TREE FINANCIAL CORPORATION AND SUBSIDIARIES
--------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
<TABLE>
<CAPTION>
Year ended December 31
---------------------------------------------
1995 1994 1993
-------------- ------------- ------------
<S> <C> <C> <C>
INCOME:
Net gains on contract
sales $ 671,741,000 $ 454,831,000 $279,061,000
Provision for losses on
contract sales (223,039,000) (134,416,000) (77,135,000)
Interest 175,990,000 111,376,000 112,495,000
Service 53,572,000 40,077,000 31,249,000
Commissions and other 33,056,000 25,559,000 21,010,000
------------- ------------- ------------
711,320,000 497,427,000 366,680,000
EXPENSES:
Interest 57,313,000 41,619,000 51,155,000
Cost of servicing 39,168,000 30,857,000 26,078,000
General and administrative 205,211,000 122,820,000 88,910,000
------------- ------------- ------------
301,692,000 195,296,000 166,143,000
------------- ------------- ------------
EARNINGS BEFORE INCOME TAXES 409,628,000 302,131,000 200,537,000
INCOME TAXES (Note K) 155,659,000 120,852,000 84,114,000
------------- ------------- ------------
NET EARNINGS $ 253,969,000 $ 181,279,000 $116,423,000
============= ============= ============
EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE $1.81 $1.31 $.90
===== ===== ====
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES
OUTSTANDING 140,089,656 138,668,338 128,749,636
</TABLE>
See notes to consolidated financial statements.
-33-
<PAGE>
GREEN TREE FINANCIAL CORPORATION AND SUBSIDIARIES
-------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
-----------------------------------------------
<TABLE>
<CAPTION>
Additional Total
Common paid-in Treasury Retained stockholders'
stock capital stock earnings equity
---------- ------------ ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
BALANCES, December 31, 1992 $1,216,000 $141,088,000 $ -- $156,530,000 $298,834,000
Common stock issuance 124,000 144,638,000 -- -- 144,762,000
Dividends on common stock -- -- -- (10,590,000) (10,590,000)
Net earnings -- -- -- 116,423,000 116,423,000
---------- ------------ ------------ ------------ ------------
BALANCES, December 31, 1993 1,340,000 285,726,000 -- 262,363,000 549,429,000
Common stock issuance 12,000 11,006,000 -- -- 11,018,000
Dividends on common stock -- -- -- (15,835,000) (15,835,000)
Net earnings -- -- -- 181,279,000 181,279,000
---------- ------------ ------------ ------------ ------------
BALANCES, December 31, 1994 1,352,000 296,732,000 -- 427,807,000 725,891,000
Common stock issuance 23,000 26,832,000 -- -- 26,855,000
Cost of treasury stock
acquired -- -- (53,913,000) -- (53,913,000)
Dividends on common stock -- -- -- (27,780,000) (27,780,000)
Net earnings -- -- -- 253,969,000 253,969,000
---------- ------------ ------------ ------------ ------------
BALANCES, December 31, 1995 $1,375,000 $323,564,000 $(53,913,000) $653,996,000 $925,022,000
========== ============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
-34-
<PAGE>
GREEN TREE FINANCIAL CORPORATION AND SUBSIDIARIES
-------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
<TABLE>
<CAPTION>
Year ended December 31
---------------------------------------------------
1995 1994 1993
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Servicing fees and net
interest payments collected $ 165,886,000 $ 93,119,000 $ 249,884,000
Net proceeds from sale of net
interest margin certificates 302,312,000 583,800,000 --
Net principal payments collected 40,571,000 693,000 28,316,000
Interest on contracts and GNMA
certificates 70,169,000 61,007,000 52,016,000
Interest on cash, commercial
finance receivables and investments 55,328,000 15,002,000 5,517,000
Commissions 18,616,000 16,609,000 13,665,000
Other 2,558,000 2,491,000 2,092,000
------------- ------------- -------------
655,440,000 772,721,000 351,490,000
------------- ------------- -------------
Cash paid to employees and suppliers (171,935,000) (136,796,000) (87,864,000)
Defeasance payments -- -- (32,177,000)
Interest paid on debt (55,214,000) (38,604,000) (48,472,000)
Repossession losses net of recoveries (6,351,000) (1,538,000) (46,325,000)
FHA insurance premiums (2,074,000) (2,181,000) (19,681,000)
Income taxes paid (37,496,000) (28,385,000) (17,800,000)
------------- ------------- -------------
(273,070,000) (207,504,000) (252,319,000)
------------- ------------- -------------
NET CASH PROVIDED BY OPERATIONS 382,370,000 565,217,000 99,171,000
Purchase of contracts held for sale (5,210,560,000) (3,718,545,000) (2,665,594,000)
Proceeds from sale of contracts
held for sale 4,562,468,000 3,764,569,000 2,319,268,000
Principal collections on contracts
held for sale 120,989,000 71,382,000 40,789,000
Commercial finance loans disbursed (1,579,568,000) (368,873,000) --
Principal collections on commercial
finance loans 1,187,431,000 233,771,000 --
Proceeds from sale of commercial
finance loans 426,304,000 -- --
Cash deposits provided as credit
enhancements (18,956,000) (36,176,000) (12,133,000)
Cash deposits returned 5,702,000 14,936,000 4,384,000
------------- ------------- -------------
NET CASH (USED FOR) PROVIDED BY
OPERATING ACTIVITIES (123,820,000) 526,281,000 (214,115,000)
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, furniture and
fixtures (31,478,000) (18,911,000) (11,658,000)
Net sales (purchases) of investment
securities 1,040,000 (1,904,000) (5,512,000)
------------- ------------- -------------
NET CASH USED FOR INVESTING ACTIVITIES (30,438,000) (20,815,000) (17,170,000)
------------- ------------- -------------
</TABLE>
(continued)
-35-
<PAGE>
GREEN TREE FINANCIAL CORPORATION AND SUBSIDIARIES
-------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(continued)
<TABLE>
<CAPTION>
Year ended December 31
----------------------------------------------------
1995 1994 1993
---------------- ---------------- ----------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on credit
facilities 4,633,237,000 1,418,011,000 2,379,552,000
Repayments on credit
facilities (4,539,575,000) (1,624,922,000) (2,252,079,000)
Common stock issued 2,346,000 2,562,000 141,028,000
Common stock repurchased (53,913,000) -- --
Dividends paid (27,780,000) (15,835,000) (10,590,000)
Proceeds from debt issuance -- -- 14,650,000
Payments of debt (20,246,000) -- (4,037,000)
--------------- --------------- ---------------
NET CASH (USED FOR) PROVIDED
BY FINANCING ACTIVITIES (5,931,000) (220,184,000) 268,524,000
--------------- --------------- ---------------
NET (DECREASE) INCREASE IN
CASH AND CASH EQUIVALENTS (160,189,000) 285,282,000 37,239,000
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 455,956,000 170,674,000 133,435,000
--------------- --------------- ---------------
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 295,767,000 $ 455,956,000 $ 170,674,000
=============== =============== ===============
RECONCILIATION OF NET EARNINGS TO
NET CASH (USED FOR) PROVIDED BY
OPERATING ACTIVITIES:
Net earnings $ 253,969,000 $ 181,279,000 $ 116,423,000
Deferred taxes 109,686,000 90,572,000 63,743,000
Depreciation and
amortization 13,518,000 9,762,000 5,291,000
Net proceeds from sale of
net interest margin
certificates 302,312,000 583,800,000 --
Net contract payments
collected, less excess
servicing rights recorded (331,882,000) (302,610,000) (58,844,000)
Amortization of deferred
service income (14,689,000) (6,599,000) (26,318,000)
Net amortization of present
value discount (51,267,000) (33,316,000) (54,793,000)
Net increase in cash
deposits (13,254,000) (21,240,000) (7,749,000)
Purchase of contracts held
for sale, net of sales
and principal collections (527,103,000) 117,406,000 (305,537,000)
Commercial finance loans
disbursed, net of sales
and principal collections 34,167,000 (135,102,000) --
Net discount on sale of
loans 38,852,000 36,816,000 16,496,000
Other 61,871,000 5,513,000 37,173,000
--------------- --------------- ---------------
NET CASH (USED FOR) PROVIDED
BY OPERATING ACTIVITIES $ (123,820,000) $ 526,281,000 $ (214,115,000)
=============== =============== ===============
</TABLE>
See notes to consolidated financial statements.
-36-
<PAGE>
GREEN TREE FINANCIAL CORPORATION AND SUBSIDIARIES
-------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
--------------------------------------------
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All material intercompany profits, transactions
and balances have been eliminated.
Securitized asset sales
The Company originates directly, or indirectly through dealers, conditional
sales contracts which are typically sold at or near par to investors. The
Company retains the servicing rights and participation in certain cash flows
from the loans. The present value of expected cash flows from this participation
which exceeds normal servicing fees is recorded at the time of sale as "excess
servicing rights receivable." The excess servicing rights receivable is
calculated using prepayment, default and interest rate assumptions which the
Company believes market participants would use for similar instruments, such
assumptions being consistent, given portfolio composition, with those used in
the public sales of the NIM Certificates. The excess servicing rights receivable
has not been reduced for potential losses under recourse provisions of the
sales. The allowance for losses on contracts sold with recourse is shown
separately as a liability on the Company's balance sheet. For contracts sold
prior to October 1, 1992, the allowance is shown on a nondiscounted basis. For
contracts sold after September 30, 1992, the allowance has been discounted using
an interest rate equivalent to the risk-free market rate for securities with a
duration consistent with the estimated timing of losses based on guidance issued
by the Financial Accounting Standards Board's Emerging Issues Task Force
("EITF") in "EITF Issue 92-2."
In determining expected cash flows, management considers economic conditions at
the date of sale. In subsequent periods, these estimates are revised as
necessary for any reductions in expected future cash flows arising from adverse
prepayment and loss experience by recording a charge to current earnings.
Favorable experience is recognized prospectively as realized.
During 1995 and 1994, the Company sold portions of its excess servicing rights
receivable to investors in the form of securitized NIM Certificates. The
subordinated certificates retained by the
-37-
<PAGE>
Company are included in excess servicing rights receivable at a value which is
net of expected losses. No gain or loss was recorded as a result of these
transactions, such certificates being valued in the market place using
prepayment, default and interest rate assumptions generally consistent with
those recorded by the Company.
Interest payments received on the contracts, less interest payments paid to
investors (including payments on the NIM Certificates), are reported on the
consolidated statements of cash flows as "servicing fees and net interest
payments collected." Principal payments received on the contracts, less non-
defeasance principal payments paid to investors, are reported as "net principal
payments collected" on the consolidated statements of cash flows. Interest
income and service income are recognized by systematically amortizing the
present value discount and deferred service income, respectively.
The Company defers service income at an annual rate of 0.44% and discounts cash
flows on its sales at the rate it believes a purchaser would require as a rate
of return. The cash flows were discounted to present value using discount rates
which averaged approximately 9.4% in 1995, 9.5% in 1994 and 9.3% in 1993. The
Company has developed its assumptions based on experience with its own
portfolio, available market data (including market estimates utilized in the
sales of the NIM Certificates) and ongoing consultation with its investment
bankers. The Company believes that the assumptions used in estimating cash flows
are similar to those which would be used by an outside investor.
The Company's commercial finance receivables represent revolving credit
arrangements with dealers for which a loss reserve is established at the time of
origination. During 1995 a portion of these receivables was sold in the form of
a revolving Master Trust. The portion of the loss reserve relating to the
balances sold was reclassified as a liability, and no gain or loss was recorded
at the time of sale. The Company's policy is to record income on these
receivables only as realized.
Depreciation
Property, furniture and fixtures are carried at cost and are depreciated over
their estimated useful lives on a straight-line basis.
Deferred debt expenses
Expenses associated with the issuance of long-term debt are amortized on a
straight-line basis over the term of the debt. Amortization was $362,000 in
1995, $390,000 in 1994 and $389,000 in 1993.
-38-
<PAGE>
Earnings per common and common equivalent share
Earnings per common and common equivalent share are computed by dividing net
earnings by the weighted average number of shares of Common Stock and Common
Stock equivalents outstanding during each year. Common Stock equivalents consist
of the dilutive effect of Common Stock which may be issued upon exercise of
stock options. All share and per-share amounts have been restated to reflect the
two-for-one stock splits the Company effected in June 1994 and October 1995.
Earnings per share and fully diluted earnings per share are substantially the
same.
Cash and cash equivalents
For purposes of the statements of cash flows, the Company considers all highly
liquid temporary investments purchased with a maturity of three months or less
to be cash equivalents. These temporary investments include United States
Treasury Funds, A1/P1 commercial paper or bank money market accounts. At
December 31, 1995 and 1994, cash of approximately $239,617,000 and $164,901,000,
respectively, was held in trust for subsequent payment to investors. In
addition, cash of approximately $2,809,000 and $3,377,000 was restricted and
held by the Company's subsidiaries pursuant to master repurchase agreements and
government requirements at December 31, 1995 and 1994, respectively.
Other investments
Other investments consist of highly liquid investments with original maturities
of more than three months. Other investments are held in United States Treasury
Bills, United States Government and Agency Bonds, corporate bonds and
certificates of deposit, and are stated at cost plus accrued interest, which
approximates market value. At December 31, 1995 and 1994, investments of
approximately $18,880,000 and $19,916,000, respectively, were held in trust for
policy and claim reserves for the Company's insurance subsidiaries. In addition,
investments of approximately $1,000,000 and $1,004,000 were restricted and held
by the Company's subsidiaries pursuant to a master repurchase agreement at
December 31, 1995 and 1994, respectively.
Allowance for losses
Recourse of investors against the Company is governed by the agreements between
the investor and the Company (Note F). The allowance for losses on contracts
sold with recourse represents the Company's best estimate of future credit
losses likely to be incurred over the entire life of the contracts, pursuant to
recourse provided to investors. Amounts representing losses on the contracts
underlying the NIM Certificates are reflected in the carrying value of the
subordinated certificates.
-39-
<PAGE>
B. RECEIVABLES
Excess Servicing Rights Receivable
Excess servicing rights receivable consists of net excess cash expected to be
collected over the life of the contracts sold. During 1995 and 1994, portions of
these net cash flows were sold to investors through securitized NIM Certificate
sales in which the Company retained a subordinated interest. As of December 31
excess servicing rights receivable consisted of:
<TABLE>
<CAPTION>
Excess
Servicing
Gross NIM Rights
Cash Flows Certificates Receivable
------------ ------------- -----------
<S> <C> <C> <C>
(in thousands)
1995
- ----
Gross cash flows receivable
on contracts sold $ 4,706,540 $(3,299,121) $1,407,419
Less:
Prepayment reserve (1,918,532) 1,243,757 (674,775)
FHA insurance and
other fees (52,369) 41,269 (11,100)
Deferred service income (337,184) 244,732 (92,452)
Discount to present
value (769,214) 586,082 (183,132)
Subordinated interest in
NIM Certificates -- 318,657 318,657
----------- ----------- ----------
$ 1,629,241 $ (864,624) $ 764,617
=========== =========== ==========
1994
- ----
Gross cash flows receivable
on contracts sold $ 3,034,775 $(2,192,553) $ 842,222
Less:
Prepayment reserve (1,053,682) 729,186 (324,496)
FHA insurance and
other fees (66,269) 53,902 (12,367)
Deferred service income (236,007) 167,089 (68,918)
Discount to present value (543,573) 422,778 (120,795)
Subordinated interest in
NIM Certificates -- 217,536 217,536
----------- ----------- ----------
$ 1,135,244 $ (602,062) $ 533,182
=========== =========== ==========
</TABLE>
During 1995 and 1994 the Company completed three sales of a substantial portion
of its excess servicing rights receivable in the form of securitized NIM
Certificates. Green Tree Securitized Net Interest Margin Trusts 1994-A, 1994-B
and 1995-A, sold certificates representing approximately 72% to 78% of the
estimated present value of future excess servicing cash flows derived from the
Company's sales of certain manufactured housing contracts between 1978 and 1995.
The remaining interests in the Net Interest
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<PAGE>
Margin Trusts were retained by the Company as subordinated interests.
This subordinated interest will continue to accrue interest as no payments of
principal or interest will be made until the senior certificateholders have been
paid in full. The carrying value is analyzed quarterly to determine the impact,
if any, of adverse prepayment or loss experience. However, the carrying value
will continue to reflect the discount rates utilized at the time of sale.
The carrying value of excess servicing rights receivable is analyzed quarterly
to determine the impact of prepayments, if any.
During the years ended December 31, 1995, 1994 and 1993, the Company sold
$12,236,000, $45,668,000 and $213,368,000, respectively, of GNMA guaranteed
certificates secured by FHA-insured and VA-guaranteed contracts. At December 31,
1995 and 1994, the outstanding principal balance on GNMA certificates issued by
the Company was $1,290,750,000 and $1,520,307,000, respectively.
During the years ended December 31, 1995, 1994 and 1993, the Company sold
$4,586,851,000, $3,724,102,000 and $2,132,472,000, respectively, of contracts in
various securitized transactions, and during 1995 and 1994, the Company sold
$308,000,000 and $600,400,000 of NIM Certificates, respectively. At December 31,
1995 and 1994, the outstanding principal balance on all conventional securitized
and private investor sales was $10,941,384,000 and $7,534,340,000, respectively.
Commercial Finance Receivables
The Company's commercial finance receivables represent revolving credit
arrangements with dealers for which a loss reserve is established at the time of
origination. As of December 31, 1995 and 1994 the outstanding principal balance
on commercial finance receivables serviced by the Company was $574,100,000 and
$167,723,000, respectively. During 1995 the Company sold $427,800,000 of these
receivables in the form of a revolving Master Trust.
C. CONTRACTS, GNMA CERTIFICATES AND COLLATERAL
Contracts, GNMA certificates and collateral consist of:
<TABLE>
<CAPTION>
December 31
--------------------------
1995 1994
------------ ------------
<S> <C> <C>
Contracts held for sale $844,573,000 $341,370,000
Other contracts held 17,095,000 12,418,000
Collateral in process
of liquidation 12,418,000 8,681,000
Contracts held as collateral 10,217,000 10,307,000
------------ ------------
$884,303,000 $372,776,000
============ ============
</TABLE>
-41-
<PAGE>
Collateral in process of liquidation includes collateral related only to
contracts which have not been included in the MH securitizations and GNMA pools
underlying the NIM Certificate sales. Gross collateral in process of liquidation
was $89,007,000 and $53,193,000 as of December 31, 1995 and 1994, respectively.
The aggregate method is used in determining the lower of cost or market value of
contracts held for sale and contracts held as collateral. See fair value
disclosure of financial instruments in Note H.
Potential losses on the liquidation of the collateral are included in
determining the allowance for losses on contracts sold with recourse (Notes F
and H).
Included in other accounts receivable as of December 31, 1994 was approximately
$1,284,000 of GNMA certificates which were sold during 1994 for settlement in
January 1995. These GNMA certificates along with contracts held for sale are
used in full or in part as collateral on the Company's master repurchase
agreements (Note E).
D. PROPERTY, FURNITURE AND FIXTURES
Property, furniture and fixtures consist of:
<TABLE>
<CAPTION>
December 31
Estimated ----------------------------
useful life 1995 1994
----------- ------------- -------------
<S> <C> <C> <C>
Cost:
Building 35 years $ 21,453,000 $ 20,530,000
Furniture and equipment 3-7 years 54,086,000 30,042,000
Leasehold improvements 3-10 years 6,391,000 266,000
Land and improvements 1,724,000 1,796,000
------------ ------------
83,654,000 52,634,000
Less accumulated depreciation (26,550,000) (16,079,000)
------------ ------------
$ 57,104,000 $ 36,555,000
============ ============
</TABLE>
Depreciation expense for 1995, 1994 and 1993 was $10,956,000, $5,656,000 and
$2,482,000, respectively.
E. DEBT
The Company has a $15,000,000 unsecured bank credit agreement for general
operating purposes. The agreement provides for interest at variable rates and
certain fee provisions, the costs of which are included in interest expense. The
credit agreement contains certain restrictive covenants which include
maintaining minimum net worth (as defined in the agreement) and a debt to net
worth ratio not to exceed 5 to 1. In addition, the Company currently has $1.3
billion in master repurchase agreements with various investment banking firms
for the purpose of financing its contract and commercial finance loan
production. At December 31, 1995, the
-42-
<PAGE>
Company had $3,350,000 of borrowings outstanding under these agreements and had
$1,221,150,000 available, subject to the availability of eligible collateral.
The master repurchase agreements all provide for annual terms that are extended
each quarter by mutual agreement of the parties for an additional annual term
based upon receipt of updated quarterly financial information from the Company.
The Company believes that, if it so desires, these agreements will continue to
be renewed.
During April 1995, the Company began borrowing under its commercial paper
program through which it is authorized to issue up to $500,000,000 in notes of
varying terms (not to exceed 270 days) to meet its liquidity needs. This program
is backed by the bank and master repurchase agreements referred to above. As of
December 31, 1995, the Company had issued and outstanding $90,500,000 in notes
under this program.
The notes payable outstanding at December 31, 1995 bear interest at a weighted
average rate of 6.15%.
Debt is as follows:
<TABLE>
<CAPTION>
December 31
--------------------------
1995 1994
------------ ------------
<S> <C> <C>
Notes payable $ 93,662,000 $ --
Senior notes 26,650,000 26,650,000
Senior subordinated notes, 10-1/4%,
due 2002 (see below), less
unamortized original issue
discount of $4,020,000 and
$4,440,000, respectively 263,234,000 262,814,000
Senior subordinated debentures,
8-1/4%, due 1995, less unamortized
original issue
discount of $391,000 in 1994 -- 19,855,000
------------ ------------
$383,546,000 $309,319,000
============ ============
</TABLE>
The Company has on file a shelf registration to issue up to $250 million of
senior notes with maturities in excess of nine months. The notes may bear
interest at fixed or floating rates. The senior notes outstanding at December
31, 1995 and 1994 bear interest at a weighted average rate of 7.27% and have
maturities ranging from 1998 to 2003. Interest on these notes is payable semi-
annually.
The 10-1/4% Senior Subordinated Notes due June 1, 2002 (the "Notes") were issued
in connection with a debt exchange in April 1992. The effective interest rate on
the Notes is 10.8%. The Company must maintain a net worth of $80,000,000 or will
be required, through the operation of a sinking fund, to redeem $25,000,000 on
such contingent sinking fund payment date. Interest is payable semi-annually.
-43-
<PAGE>
At December 31, 1995, aggregate maturities of debt for the following five years
are $23,000,000, payable as follows: $8,000,000 in 1998, $12,000,000 in 1999 and
$3,000,000 in 2000.
F. ALLOWANCE FOR LOSSES ON CONTRACTS SOLD WITH RECOURSE
The Company sells GNMA guaranteed certificates which are secured by FHA-insured
and VA-guaranteed contracts. The majority of credit losses incurred on these
contracts are covered by FHA insurance or VA guarantees with the remainder borne
by the Company.
In initially valuing its excess servicing rights receivable, the Company
establishes an allowance for expected losses under the recourse provisions with
investors/owners of contracts or investor certificates and calculates that
allowance on the basis of historical experience and management's best estimate
of future credit losses likely to be incurred. The amount of this provision is
reviewed quarterly and adjustments are made if actual experience or other
factors indicate management's estimate of losses should be revised. While the
Company retains a substantial amount of risk of default on the loan portfolios
that it sells, such risk has been substantially reduced through the sales of the
NIM Certificates.
The Company has provided the investors/owners of pools of contracts with a
variety of additional forms of credit enhancements on its securitized sales.
These credit enhancements have included corporate guarantees, letters of credit
and surety bonds that provide limited recourse to the Company, and letters of
credit that, if drawn, are entitled to reimbursement only from the future excess
cash flows of the underlying transactions. Furthermore, certain securitized
sales structures use cash reserve funds and certain cash flows from the
underlying pool of contracts as the credit enhancement. At December 31, 1995 and
1994, the Company had bank letters of credit and surety bonds outstanding of
$156,617,000 and $174,910,000, respectively. Cash deposits held in interest
bearing accounts totaled $159,311,000 and $146,057,000, and contracts pledged
aggregated $10,217,000 and $10,307,000 at December 31, 1995 and 1994,
respectively, and are maintained as part of credit enhancement features under
certain sales structures.
Allowances are provided for the Company's best estimate of future credit losses
likely to be incurred over the entire life of the contracts. Estimated losses
are based on an analysis of the underlying loans and do not reflect the maximum
recourse provided to investors. The following table presents an analysis of the
allowance for losses on contracts sold with recourse for 1995, 1994 and 1993.
-44-
<PAGE>
<TABLE>
<CAPTION>
Gross NIM Net
Allowance Certificates Allowance
------------- -------------- --------------
1995
- ----
<S> <C> <C> <C>
Allowance at
beginning of year $320,299,000 $(236,283,000) $ 84,016,000
Sale of NIM
Certificates -- (143,364,000) (143,364,000)
Provision for losses 223,039,000 -- 223,039,000
Losses net of
recoveries (62,179,000) 55,828,000 (6,351,000)
Amortization of present
value discount on loss
reserve 16,332,000 (10,335,000) 5,997,000
------------ ------------- -------------
Allowance at end
of year $497,491,000 $(334,154,000) $ 163,337,000
============ ============= =============
1994
- ----
Allowance at
beginning of year $222,135,000 $ -- $ 222,135,000
Sale of NIM
Certificates -- (273,093,000) (273,093,000)
Provision for losses 134,416,000 -- 134,416,000
Losses net of
recoveries (45,406,000) 43,868,000 (1,538,000)
Amortization of
present value
discount on loss
reserve 9,154,000 (7,058,000) 2,096,000
------------ ------------- -------------
Allowance at end
of year $320,299,000 $(236,283,000) $ 84,016,000
============ ============= =============
1993
- ----
Allowance at
beginning of year $189,669,000 -- $ 189,669,000
Provision for losses 77,135,000 -- 77,135,000
Losses net of
recoveries (46,325,000) -- (46,325,000)
Amortization of
present value
discount on loss
reserve 1,656,000 -- 1,656,000
------------ ------------- -------------
Allowance at end
of year $222,135,000 -- $ 222,135,000
============ ============= =============
</TABLE>
G. STOCKHOLDERS' EQUITY
Common Stock
In May 1994 and September 1995, the Board of Directors declared two-for-one
stock splits, in the form of stock dividends, payable on June 30, 1994 and
October 15, 1995 to stockholders of record as of June 15, 1994 and September 30,
1995, respectively. All references in the consolidated financial statements and
notes with regard to number of shares, stock options and related prices, and
per-share amounts have been restated to give retroactive effect to the stock
splits.
-45-
<PAGE>
In February 1995, the Company's Board of Directors approved and authorized the
repurchase of up to 7,000,000 shares of the Company's Common Stock from time to
time in the open market or in private transactions.
In September 1993, the Company completed a 10,000,000 share Common Stock
offering, and sold an additional 1,500,000 shares to cover over-allotments. The
net proceeds of approximately $138,000,000 were used to finance the Company's
continued growth in its manufactured home, home improvement and consumer
products contract inventory, to temporarily reduce certain borrowings under the
Company's bank warehousing agreement and master repurchase agreements and for
other general corporate purposes.
Preferred Stock
The Company's authorized shares of capital stock include 15,000,000 shares of
stock designated as Preferred Stock. The Company had previously designated a
series of Junior Preferred Stock in connection with its Stockholders Rights Plan
(the "Plan"). As of October 31, 1995 the term of the Plan expired and the
Company determined not to extend the term of the Plan. At December 31, 1995
there were no shares of Preferred Stock outstanding.
Rights
In October 1985, the Company issued one Preferred Stock purchase right for each
share of Common Stock and amended the rights in August 1990 in connection with
the Plan. As of October 31, 1995 the rights expired as the term of the Plan
expired.
Stock option and stock bonus plans
In 1988, the Company's stockholders approved two stock option plans: an employee
stock option plan and an outside director plan. In 1992, the Board of Directors
approved a supplemental stock option plan for its outside directors and in 1995,
the Company's stockholders approved an Employee Stock Incentive Plan.
-46-
<PAGE>
A summary of the stock option plans is as follows:
<TABLE>
<CAPTION>
Number of Option price
shares per share
----------- -------------
<S> <C> <C>
Outstanding at December 31, 1992 6,432,000 $ .81- 6.00
Granted 388,000 5.97- 13.50
Exercised (616,472) 1.61- 4.58
Expired (359,992) 4.58
----------
Outstanding at December 31, 1993 5,843,536 .81- 13.50
Granted 168,000 11.16- 15.19
Exercised (699,740) 1.61- 8.44
Expired (165,328) 4.58- 13.50
----------
Outstanding at December 31, 1994 5,146,468 .81- 15.19
Granted 3,015,000 13.19- 30.50
Exercised (1,794,936) .81- 4.58
Expired (110,000) 24.00
----------
Outstanding at December 31, 1995 6,256,532 $ 1.25- 30.50
==========
</TABLE>
Of the 6,256,532 options outstanding at December 31, 1995, 6,096,532 options
related to the employee stock option plans, and 160,000 options related to the
outside director plans. The director options and 2,575,532 shares of certain
employee options were exercisable as of December 31, 1995. Options for 4,271,040
shares were available for future grant under these plans. The option price per
share represents the market value of the Company's stock on the date of grant
except for certain options granted in 1993 and 1995. The option price per share
on 340,000 options granted in 1993 represents 50% of the market value of the
Company's stock on the date of grant. The option price per share on 370,000
options granted in 1995 represents approximately 79% of the market value of the
Company's stock on the date of grant.
In 1988, the Company's stockholders approved a key executive stock bonus plan.
Shares issued under this plan are pursuant to an employment agreement and the
stock is valued at $2.96875 per share which represents the closing market price
of the stock on the date of the employment agreement. Total shares issued under
this plan during 1995, 1994 and 1993 were 1,349,216, 886,428 and 481,240,
respectively. As of December 31, 1995 there were 19,470,164 shares available for
future issuance under this plan. This plan terminates December 31, 1998.
The Company's Board of Directors has reserved 12,406,252 shares for future
issuance under all plans as of December 31, 1995.
Dividends
During 1995, 1994 and 1993 the Company declared and paid dividends of $.20, $.12
and $.08 per share, respectively, on its Common Stock.
-47-
<PAGE>
Under a letter of credit agreement, the Company is subject to restrictions
limiting the payment of dividends and common stock repurchases. At December 31,
1995, such payments were limited to $25,046,000, which represents 50% of
consolidated net earnings for the most recently concluded four fiscal quarter
period less dividends paid, repurchases of Common Stock and the retirement of
Subordinated Indebtedness.
H. FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments," requires that the Company disclose the
estimated fair values of its financial instruments. Fair value estimates,
methods and assumptions are set forth below for the Company's financial
instruments.
Cash and cash equivalents, cash deposits and other investments
The carrying amount of cash and cash equivalents, cash deposits and other
investments approximates fair value because they generally mature in 90 days or
less and do not present unanticipated credit concerns.
Excess servicing rights receivable
Excess servicing rights receivable is calculated using prepayment, default and
interest rate assumptions that the Company believes market participants would
use for similar instruments at the time of sale. Projected performance is
monitored on an ongoing basis. The initially established discount rate is fixed
for the life of the transaction. As such, the fair value of excess servicing
rights receivable primarily includes consideration of a current discount rate to
be applied to the financial instrument as a whole.
The Company has consulted with investment bankers and obtained an estimate of a
market discount rate. Utilizing this market discount rate, and such other
assumptions as the Company believes market participants would use for similar
instruments, the Company has estimated the fair value of its excess servicing
rights receivable, excluding its subordinated interest in the NIM Certificates,
to approximate its carrying value, shown net of the related allowance for losses
which is disclosed separately as a liability on the balance sheet.
The carrying value of excess servicing relating to the subordinated interest
retained in the NIM Certificates sold during 1994 and 1995 is calculated using
prepayment and default assumptions which the Company believes market
participants would use currently, but using the interest rate determined at the
time of sale. For purposes of computing fair value, the Company consulted with
its investment bankers and obtained an estimate of a market interest rate as of
December 31, 1995. Using that rate, fair value exceeds carrying value
-48-
<PAGE>
for this component of excess servicing rights receivable by $56,600,000.
Contracts held for sale and as collateral
Contracts held for sale and as collateral are generally recent originations
which will be sold during the following quarter. The Company does not charge
origination fees or points and, as such, its contracts have origination rates
generally in excess of rates on the securities into which they will be pooled.
Since these contracts have not been converted into securitized pools, the
Company estimates the fair value to be the carrying amount plus the cost of
origination.
Commercial finance receivable
Commercial finance receivable consists entirely of loans which reprice monthly,
typically in accordance with the prime lending rate offered by banks. Given this
repricing structure, the Company estimates the fair value of these receivables
to approximate their carrying value.
Collateral in process of liquidation
Collateral in the process of liquidation is valued on an individual unit basis
after inspection of such collateral. Shown net of the related allowance for
losses on contracts sold with recourse, fair value approximates carrying value.
Other contracts held
Pursuant to investor sale agreements, certain contracts are repurchased by the
Company as a result of delinquency before they are repossessed, and are included
in other contracts held. The loss has been estimated on an aggregate basis, and
is included on the balance sheet in allowance for losses on contracts sold with
recourse.
Notes payable
Notes payable consists of amounts payable under the Company's commercial paper
program, bank line or repurchase agreements and, given its short-term nature, is
at a rate which approximates market. As such, fair value approximates the
carrying amount.
Senior notes
The fair value of the Company's senior notes is estimated based on their quoted
market price or on the current rates offered to the Company for debt of a
similar maturity.
Senior subordinated notes and debentures
The Company's senior subordinated notes and debentures are valued at quoted
market prices.
-49-
<PAGE>
The carrying amounts and estimated fair values of the Company's financial assets
and liabilities are as follows:
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1994
-------------------- --------------------
Estimated Estimated
Carrying fair Carrying fair
amount value amount value
-------- --------- -------- ----------
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents,
cash deposits and other
investments $474,958 $474,958 $622,933 $622,933
Excess servicing rights
receivable (net of
allowance for losses) 602,728 659,328 449,990 430,168
Contracts held for sale
and as collateral 854,790 880,434 351,677 360,469
Commercial finance
receivable 141,793 141,793 166,507 166,507
Collateral in process
of liquidation 10,970 10,970 7,857 7,857
Other contracts held 17,095 11,945 12,418 8,287
Financial liabilities:
Notes payable 93,662 93,662 -- --
Senior notes 26,650 27,580 26,650 25,058
Senior subordinated notes
due 2002 263,234 317,198 262,814 288,298
Senior subordinated
debentures due 1995 -- -- 19,855 20,290
</TABLE>
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. The estimates
do not reflect any premium or discount that could result from offering for sale
at one time the Company's entire holdings of a particular financial instrument.
Fair value estimates are based on judgments regarding future loss and prepayment
experience, current economic conditions, specific risk characteristics and other
factors. Changes in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on- and off-balance sheet financial
instruments without attempting to estimate the value of anticipated future
business and the value of assets and liabilities that are not considered
financial instruments. For example, the Company has a regional branch network
with significant dealer relationships and proprietary credit scoring systems,
which contribute to the Company's ongoing profitability and neither of which is
considered a financial instrument.
-50-
<PAGE>
I. COMMITMENTS AND CONTINGENCIES
Lease commitments
At December 31, 1995, aggregate minimum rental commitments under
noncancelable leases having terms of more than one year were $18,087,000,
payable $5,853,000 (1996), $5,498,000 (1997), $4,021,000 (1998), $1,765,000
(1999) and $950,000 (2000). Total rental expense for the years ended
December 31, 1995, 1994 and 1993 was $6,101,000, $5,065,000 and $4,449,000,
respectively. These leases are for office facilities and equipment, and
many contain either clauses for cost of living increases and/or options to
renew or terminate the lease.
Litigation
The nature of the Company's business is such that it is routinely a party
or subject to items of pending or threatened litigation. Although the
ultimate outcome of certain of these matters cannot be predicted,
management believes, based upon information currently available and the
advice of counsel, that the resolution of these routine legal matters will
not result in any material adverse effect on its consolidated financial
condition.
J. BENEFIT PLANS
The Company has a qualified noncontributory defined benefit pension plan
covering substantially all of its employees over 21 years of age. The
plan's benefits are based on years of service and the employee's
compensation. The plan is funded annually based on the maximum amount that
can be deducted for federal income tax purposes. The assets of the plan
are primarily invested in common stock, corporate bonds and cash
equivalents. As of December 31, 1995 and 1994, net assets available for
plan benefits were $7,790,000 and $5,873,000, and the accumulated benefit
obligation was $6,393,000 and $3,934,000, respectively. As of December 31,
1995 and 1994, the projected benefit obligation of the plan was $12,466,000
and $7,460,000, respectively. In addition, the Company maintains a
nonqualified pension plan for certain key employees as designated by the
Board of Directors. This plan is not currently funded and the projected
benefit obligation at December 31, 1995 and 1994 was $13,023,000 and
$9,711,000, respectively. Total pension expense for the plans in 1995,
1994 and 1993 was $3,091,000, $3,585,000 and $2,340,000, respectively.
The Company also has a 401(k) Retirement Savings Plan available to all
eligible employees. To be eligible for the plan, the employee must be at
least 21 years of age and have completed one year of employment at Green
Tree during which the employee worked at least 1,000 hours. Eligible
employees may contribute to the plan up to 10% of their earnings with a
maximum of $9,240 for 1995 based on the Internal Revenue Service annual
contribution limit. The
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<PAGE>
Company will match 50% of the employee contributions for an amount up to 6% of
each employee's earnings. Contributions are invested at the direction of the
employee in one or more funds. Company contributions vest after three years.
Company contributions to the plan were $859,000, $713,000 and $575,000 in 1995,
1994 and 1993, respectively.
K. INCOME TAXES
Income taxes consist of the following:
<TABLE>
<CAPTION>
Year ended December 31
---------------------------------------
1995 1994 1993
------------ ------------ -----------
<S> <C> <C> <C>
Current:
Federal $ 43,883,000 $ 27,077,000 $17,253,000
State 2,090,000 3,203,000 3,118,000
------------ ------------ -----------
45,973,000 30,280,000 20,371,000
Deferred:
Federal 92,870,000 76,100,000 53,826,000
State 16,816,000 14,472,000 9,917,000
------------ ------------ -----------
109,686,000 90,572,000 63,743,000
------------ ------------ -----------
$155,659,000 $120,852,000 $84,114,000
============ ============ ===========
</TABLE>
Deferred income taxes are provided for temporary differences between pretax
income for financial reporting purposes and taxable income. The tax effects of
temporary differences that give rise to significant portions of the deferred tax
assets and deferred tax liabilities at December 31, 1995 and 1994 are presented
below.
<TABLE>
<CAPTION>
December 31
--------------------------
1995 1994
------------ ------------
<S> <C> <C>
Deferred tax liabilities:
Excess servicing rights $402,461,000 $307,080,000
Other 22,933,000 15,320,000
------------ ------------
Gross deferred tax liabilities 425,394,000 322,400,000
------------ ------------
Deferred tax assets:
Net operating loss carryforward 12,960,000 19,551,000
Other 6,703,000 6,773,000
------------ ------------
Gross deferred tax assets 19,663,000 26,324,000
Valuation allowance -- --
------------ ------------
Gross deferred tax assets, net
of valuation 19,663,000 26,324,000
------------ ------------
Net deferred tax liability $405,731,000 $296,076,000
============ ============
</TABLE>
At December 31, 1995, the Company has net operating loss carryforwards for
federal income tax purposes of approximately $37,000,000 which are available to
offset future federal taxable income and expire no earlier than 2003. No
valuation allowance was required as of December 31, 1995 or 1994 since it is
likely that
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<PAGE>
the deferred tax asset will be realized against future taxable income.
A reconciliation of the statutory federal income tax rate to the Company's
effective tax rate is as follows:
<TABLE>
<CAPTION>
Year ended December 31
-------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Statutory rate 35.0% 35.0% 35.0%
State tax, net of federal benefit 3.0 3.8 4.2
Adjustments to deferred tax assets
and liabilities for enacted
changes in tax laws and rates -- -- 1.9
Other -- 1.2 .8
---- ---- ----
38.0% 40.0% 41.9%
==== ==== ====
</TABLE>
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<PAGE>
QUARTERLY RESULTS OF OPERATIONS (unaudited)
-------------------------------------------
<TABLE>
<CAPTION>
(Dollars in thousands
except per-share amounts) First Second Third Fourth
quarter quarter quarter quarter
-------- -------- -------- --------
<S> <C> <C> <C> <C>
1995:
Income $128,199 $153,274 $174,374 $255,473
Net earnings 50,729 61,712 72,037 69,491
Net earnings per share .36 .44 .51 .50
1994:
Income $104,798 $112,289 $126,049 $154,291
Net earnings 38,492 44,226 52,066 46,495
Net earnings per share .28 .32 .37 .34
1993:
Income $ 66,645 $ 82,613 $ 98,925 $118,497
Net earnings 22,061 29,187 32,320 32,855
Net earnings per share .18 .23 .26 .24
</TABLE>
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURES.
- ---------------------------------------------------------------
None.
-54-
<PAGE>
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
- -------------------------------------------------------------
Pursuant to General Instruction G(3), reference is made to the information
contained in the Company's definitive proxy statement for its 1996 Annual
Meeting of Stockholders which will be filed with the Securities and Exchange
Commission on or before May 1, 1996.
ITEM 11. EXECUTIVE COMPENSATION.
- ---------------------------------
Pursuant to General Instruction G(3), reference is made to the information
contained in the Company's definitive proxy statement for its 1996 Annual
Meeting of Stockholders which will be filed with the Securities and Exchange
Commission on or before May 1, 1996.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
- ------------------------------------------------------------------------
Pursuant to General Instruction G(3), reference is made to the information
contained in the Company's definitive proxy statement for its 1996 Annual
Meeting of Stockholders which will be filed with the Securities and Exchange
Commission on or before May 1, 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
- ---------------------------------------------------------
Reference is made to Note I of Notes to Consolidated Financial Statements
contained in Item 8 hereof.
-55-
<PAGE>
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K.
(a)(l) Financial statements
The following consolidated financial statements of Green
Tree Financial Corporation and subsidiaries are included
in Part II, Item 8 of this report:
Page(s)
-------
Independent Auditors' Report 31
Consolidated Balance Sheets - December 31,
1995 and 1994 32
Consolidated Statements of Operations - years
ended December 31, 1995, 1994 and 1993 33
Consolidated Statements of Stockholders' Equity -
years ended December 31, 1995, 1994 and 1993 34
Consolidated Statements of Cash Flows - years
ended December 31, 1995, 1994 and 1993 35-36
Notes to Consolidated Financial Statements 37-53
(2) Financial statement schedules
The following consolidated financial statement
schedule of Green Tree Financial Corporation and
subsidiaries are included in Part IV of this report:
Schedule II - Valuation and qualifying accounts 61
Schedules other than those listed above are omitted because of the
absence of the conditions under which they are required or because
the information required is included in the consolidated financial
statements or notes thereto.
(3) Exhibits
Exhibit
No.
-------
3(a) Certificate of Incorporation of Green Tree Financial
Corporation (incorporated by reference to the Company's
Registration Statement on Form S-1; File No. 33-60869).
3(b) Certificate of Merger of Incorporation of Green Tree
Financial Corporation, as filed with the Delaware Secretary
of State on June 30, 1995 (incorporated by reference to the
Company's
-56-
<PAGE>
Registration Statement on Form S-1; File No. 33-60869.)
3(c) Bylaws of Green Tree Financial Corporation (incorporated by
reference to Company's Registration Statement on Form S-1;
File No. 33-60869).
4(a) Indenture dated as of March 15, 1992 relating to
$287,500,000 of 10 1/4% Senior Subordinated Notes due June
1, 2002 (incorporated by reference to the Company's
Registration Statement on Form S-4; File No. 33-42249).
4(b) Indenture dated as of September 1, 1992 relating to
$250,000,000 of Medium-Term Notes, Series A, Due Nine Months
or More From Date of Issue (incorporated by reference to the
Company's Registration Statement on Form S-3; File No. 33-
51804).
10(a) Company's Key Executive Bonus Program (incorporated by
reference to the Company's Registration Statement on Form
S-l; File No. 2-82880).
10(b) Employment Agreement, dated April 20, 1991 between the
Company and Lawrence M. Coss (incorporated by reference to
the Company's Registration Statement on Form S-4; File No.
33-42249).
10(c) Green Tree Financial Corporation 1987 Stock Option Plan
(incorporated by reference to the Company's Registration
Statement on Form S-4; File No. 33-42249).
10(d) Green Tree Financial Corporation Key Executive Stock Bonus
Plan (incorporated by reference to the Company's Registration
Statement on Form S-4; File No. 33-42249).
10(e) Master Repurchase Agreement dated as of August 1, 1990
between Green Tree Finance Corp.-Three and Merrill Lynch
Mortgage Capital Inc. (incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1990; File No. 0-11652); as amended by Amendment
to the Master Repurchase Agreement dated May 10, 1993
(incorporated by reference to the Company's Quarterly Report
on Form 10-Q for the quarterly period ended March 31, 1994;
File No. 0-11652); as amended by Amendment to the Master
Repurchase
-57-
<PAGE>
Agreement dated August 8, 1995 (incorporated by reference
to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1995; File No. 0-11652).
10(f) Credit Agreement dated as of May 22, 1995 between Green
Tree Financial Corporation and First Bank National
Association (incorporated by reference to the Company's
Quarterly Report on Form 10-Q for the quarterly period
ended September 30, 1995; File No. 0-11652).
10(g) Master Repurchase Agreement dated as of May 17, 1991
between Green Tree Finance Corp.-Four and First Boston
Mortgage Capital Corp. (incorporated by reference to the
Company's Registration Statement on Form S-4; File No. 33-
42249); as amended by Amendment to the Master Repurchase
Agreement dated March 31, 1994 (incorporated by reference
to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1994; File No. 0-11652).
10(h) Insurance and Indemnity Agreement dated as of February 13,
1992 among Green Tree Financial Corporation, MaHCS Guaranty
Corporation and Financial Security Assurance Inc.
(incorporated by reference to the Company's Annual Report
on Form 10-K for the year ended December 31, 1991; File No.
0-11652); as amended by Amended and Restated Insurance and
Indemnity Agreement dated March 11, 1994 (incorporated by
reference to the Company's Quarterly Report on Form 10-Q
for the quarterly period ended March 31, 1994; File No. 0-
11652).
10(i) Master Repurchase Agreement dated as of October 15, 1992
between Green Tree Finance Corp.-Five and Lehman Commercial
Paper, Inc. (incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended December 31,
1992; File No. 0-11652); as amended by Amendment to the
Master Repurchase Agreement dated June 30, 1995
(incorporated by reference to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended June 30,
1995; File No. 0-11652).
10(j) 401(k) Plan Trust Agreement effective as of October 1, 1992
(incorporated by reference to the Company's Annual Report
on Form 10-K for the year ended December 31, 1992; File No.
0-11652).
-58-
<PAGE>
10(k) Green Tree Financial Corporation 1992 Supplemental Stock
Option Plan (incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended December 31,
1993; File No. 0-11652).
10(l) Master Repurchase Agreement dated as of September 1, 1995
between Merrill Lynch Mortgage Capital, Inc. and Green Tree
Financial Corporation (filed herewith).
10(m) Master Repurchase Agreement dated as of November 9, 1995
between Salomon Brothers Holding Company and Green Tree
Financial Corporation (filed herewith).
10(n) Green Tree Financial Corporation 1995 Employee Stock
Incentive Plan (filed herewith).
11(a) Computation of Primary Earnings Per Share (filed herewith).
11(b) Computation of Fully Diluted Earnings Per Share (filed
herewith).
12 Computation of Ratio of Earnings to Fixed Charges (filed
herewith).
21 Subsidiaries of the Registrant (filed herewith).
23 Consent of KPMG Peat Marwick LLP (filed herewith).
24 Powers of Attorney (filed herewith).
27 Financial Data Schedule (filed herewith).
PURSUANT TO ITEM 601(b)(4) OF REGULATION S-K, THERE HAS BEEN EXCLUDED FROM THE
EXHIBITS FILED PURSUANT TO THIS REPORT, INSTRUMENTS DEFINING THE RIGHTS OF
HOLDERS OF LONG-TERM DEBT OF THE COMPANY WHERE THE TOTAL AMOUNT OF THE
SECURITIES AUTHORIZED UNDER SUCH INSTRUMENTS DOES NOT EXCEED TEN PERCENT OF THE
TOTAL ASSETS OF THE COMPANY. THE COMPANY HEREBY AGREES TO FURNISH A COPY OF ANY
SUCH INSTRUMENTS TO THE COMMISSION UPON REQUEST.
(b) Reports on Form 8-K
None.
-59-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Green Tree Financial Corporation has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
GREEN TREE FINANCIAL CORPORATION
By: /s/Lawrence M. Coss By: /s/Robley D. Evans
-------------------------- ----------------------------
Lawrence M. Coss Robley D. Evans
Chairman and Chief Vice President and
Executive Officer Controller (principal
(principal executive financial and principal
officer) accounting officer)
Dated: March 25, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated:
/s/Lawrence M. Coss
- ---------------------------------
Lawrence M. Coss, Director March 25, 1996
/s/Richard G. Evans
- ---------------------------------
Richard G. Evans, Director March 25, 1996
/s/Robert D. Potts
- ---------------------------------
Robert D. Potts, Director March 25, 1996
By: /s/Joel H. Gottesman
-------------------------
Joel H. Gottesman
Attorney-in-Fact
W. Max McGee, Director ) Dated: March 25, 1996
)
Tania A. Modic, Director )
)
Robert S. Nickoloff, Director )
-60-
<PAGE>
GREEN TREE FINANCIAL CORPORATION AND SUBSIDIARIES
-------------------------------------------------
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
-----------------------------------------------
<TABLE>
<CAPTION>
Additions-
Balance at reductions Balance
beginning to income at end
Description of period recognized Deductions of period
- ---------------------------- ---------- ---------- ------------- ---------
(dollar in thousands)
Valuation and qualifying
accounts which are deducted
from the assets
to which they apply:
- ----------------------------
<S> <C> <C> <C> <C>
Deferred service income:
Year ended December 31, 1995 $ 68,918 $146,237 $111,731(a) $ 92,452
10,972(b)
Year ended December 31, 1994 161,407 124,015 212,243(a) 68,918
4,261(b)
Year ended December 31, 1993 119,487 68,238 26,318(b) 161,407
</TABLE>
<TABLE>
<CAPTION>
Reserves which support balance
sheet caption reserves:
- ------------------------------
<S> <C> <C> <C> <C>
Allowance for losses on
contracts sold with recourse:
Year ended December 31, 1995 84,016 223,039 143,364(a) 163,337
5,997(b) 6,351(c)
Year ended December 31, 1994 222,135 134,416 273,093(a) 84,016
2,096(b) 1,538(c)
Year ended December 31, 1993 189,669 77,135 46,325(c) 222,135
1,656(b)
</TABLE>
Notes:
(a) Reduced as a result of the NIM Certificate sales.
(b) Amortization and discount.
(c) Amounts charged off.
-61-
<PAGE>
GREEN TREE FINANCIAL CORPORATION
Securities and Exchange Commission
Form 10-K
(For the Fiscal Year Ended December 31, 1995)
EXHIBIT INDEX
Exhibit No. Exhibit Page No.
- ----------- ------- --------
10(l) Master Repurchase Agreement dated
as of September 1, 1995 between
Merrill Lynch Mortgage Capital, Inc.
and Green Tree Financial Corporation 63
10(m) Master Repurchase Agreement dated
as of November 9, 1995 between
Salomon Brothers Holding Company
and Green Tree Financial Corporation 103
10(n) Green Tree Financial Corporation
1995 Employee Stock Incentive Plan 169
11(a) Computation of Primary Earnings
Per Share 181
11(b) Computation of Fully Diluted
Earnings Per Share 182
12 Computation of Ratio of Earnings
to Fixed Charges 183
21 Subsidiaries of Registrant 184
23 Consent of KPMG Peat Marwick LLP 186
24 Powers of Attorney 187
27 Financial Data Schedule 188
-62-
<PAGE>
Exhibit 10(l).
--------------
ANNEX II
Names and Addresses for Communications Between Parties
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
Merrill Lynch World Headquarters
World Financial Center, North Tower
New York, New York 10281-1306
Attention: Louis V. Molinari
Director
Telephone No.: (212) 449-5333
Facsimile No.: (212) 449-6673
GREEN TREE FINANCIAL CORPORATION
1100 Landmark Towers
345 St. Peter Street
St. Paul, Minnesota 55102
Attention: Chief Financial Officer
Telephone No.: (612) 293-3400
Facsimile No.: (612) 293-5746
<PAGE>
ANNEX I
(continued)
SUPPLEMENTAL TERMS TO MASTER REPURCHASE AGREEMENT,
DATED AS OF SEPTEMBER 1, 1995, BETWEEN
MERRILL LYNCH MORTGAGE CAPITAL INC. AND
GREEN TREE FINANCIAL CORPORATION
1. APPLICABILITY. These Additional Supplemental Terms (the "Additional
Supplemental Terms") to Master Repurchase Agreement (the "Repurchase
Agreement") modify the terms and conditions of the Repurchase
Agreement and the terms under which the parties hereto may, from time
to time, enter into Transactions (the Repurchase Agreement, together
with the Annexes thereto, the "Agreement"). The Agreement shall be
read, taken and construed as one and the same instrument. Capitalized
terms used in these Additional Supplemental Terms and not otherwise
defined herein shall have the meanings set forth in the Repurchase
Agreement.
2. ADDITIONAL DEFINITIONS.
(a) "Advance" shall refer to the amounts in respect of interest and
principal owed to Seller by a Dealer under the related Contract
in repayment of funds lent by Seller to such Dealer for the
financing of a specific manufactured home or other asset
acceptable to Buyer in its sole discretion.
(b) "Buyer" shall refer to Merrill Lynch Mortgage Capital Inc.
(c) "Collateral Security" shall mean (i) Seller's purchase money
security interest in Products, (ii) Seller's security interest in
all other manufactured home inventory of the related Dealer,
(iii) Seller's rights, remedies, powers and privileges under the
Contracts, including any personal guaranty of the principal owner
of the related Dealer, (iv) Seller's rights, remedies, powers and
privileges under certain Floorplan Agreements and all rights to
receive payments which are due under the related Manufacturer's
repurchase obligation and all other proceeds thereof but only to
the extent of the Products financed under the Contracts, (v)
insurance proceeds under insurance policies covering the Dealer's
inventory, (vi) such other financing interests and assets as
shall be acceptable to
I-1
<PAGE>
Buyer in its sole discretion and (vii) all proceeds of the
foregoing.
(d) "Contracts" means certain floorplan financing and security
agreements and all addenda thereto, as amended or supplemented
from time to time between Seller and Dealers under which Seller
grants the related Dealer a loan in order to finance Products
purchased by such Dealer from a Manufacturer, all invoices
relating to Products financed thereunder, all rights to receive
payments which are due pursuant thereto and all other proceeds of
the foregoing (including any recourse rights against third
persons) from and after the related Purchase Date, and all other
proceeds thereof but excluding any rights to receive payments or
proceeds thereof which are due prior to the related Purchase
Date.
(e) "Custodial Agreement" shall refer to the Tri-Party Custodial
Agreement, by and among Seller, Buyer and First Bank National
Association, as Custodian, providing for the custody of ownership
records relating to Securities.
(f) "Custodial Confirmation Statement" shall refer to the
confirmation statement issued by the Custodian that evidences
receipt and confirms ownership of the Contracts indicated
thereon.
(g) "Custodian" shall refer to First Bank National Association in its
capacity as custodian.
(h) "Dealer" shall mean a Person engaged generally in the business of
purchasing consumer or commercial Products from a manufacturer or
distributor thereof and holding such Products for sale in the
ordinary course of business.
(i) "Event of Termination" shall refer to any of the events listed in
Paragraph 10 of these Additional Supplemental Terms.
(j) "Floorplan Agreement" shall mean an agreement, entered into by
Seller and a Manufacturer, as amended or modified from time to
time, pursuant to which such Manufacturer agrees, among other
matters, to repurchase from Seller Products sold by such
Manufacturer to any of its Dealers and financed by Seller under a
Contract if Seller acquires possession of such Products because
of a default by such Dealer under such Contract, voluntary
surrender or other circumstances.
I-2
<PAGE>
(k) "List Number" shall have the meaning set forth in Paragraph 3 of
these Additional Supplemental Terms.
(l) "List of Contracts" shall have the meaning set forth in Paragraph
3 of these Additional Supplemental Terms.
(m) "Manufacturer" shall mean a person engaged generally in the
business of manufacturing or distributing Products for sale to
Dealers in the ordinary course of business.
(n) "Person" shall mean any legal person, including any individual,
corporation, partnership, association, joint-stock company,
trust, unincorporated organization, governmental entity or other
entity of similar nature.
(o) "Pre-Sold Program" shall mean Seller's floor plan financing
designed for Dealers with customers who have been specifically
approved by Seller as purchasers of specific manufactured
housing.
(p) "Products" shall mean the commercial and consumer goods
consisting of manufactured homes and other assets, as shall be
acceptable to Buyer in its sole discretion, financed by Seller
for Dealers pursuant to a Contract.
(q) "Records" shall mean, with respect to any Contract, all
documents, books, records and other information (including,
without limitation, computer programs, tapes, discs, punch cards,
data processing software and related property and rights)
relating to such Contract and the related Dealer.
(r) "Securities" shall be deemed to include Contracts and the
Collateral Security; provided, however, that such Contracts and
Collateral Security shall not be deemed to be securities for the
purposes of any securities or blue sky laws.
(s) "Seller" shall refer to Green Tree Financial Corporation.
(t) "Stock Program" shall mean Seller's floor plan financing designed
for Dealers who want to keep an inventory of manufactured
housing.
I-3
<PAGE>
(u) "Transaction" shall, in addition to the definition set forth in
the Repurchase Agreement, refer to substitutions pursuant to
Paragraph 9 of the Repurchase Agreement.
3. CONFIRMATIONS. Each Confirmation shall be prepared and delivered by
Buyer and shall be binding upon the parties hereto unless written
notice of objection is given by the objecting party to the other party
within two (2) business days after the objecting party's receipt of
such Confirmation. The Purchased Securities shall be identified in a
detailed listing (which listing shall include at least the following
information for each Contract as of such date: (1) the name of the
Dealer, (2) the outstanding amount of each Advance thereunder, (3) the
date of each such Advance, (4) the respective Manufacturer of the
Product securing each such Advance, (5) Seller's account number for
such Product (sufficient for specific identification), (6) the
respective serial number (or portion thereof sufficient for specific
identification) of each such Product and (7) whether such Advance is
made pursuant to the Pre-Sold Program or the Stock Program) to be
provided by Seller to Buyer on or prior to the related Purchase Date
(a "List of Contracts") and shall be identified in the related
Confirmation by reference to such list. Each List of Contracts bears
a number (a "List Number") unique to such list.
4. MARGIN MAINTENANCE. Paragraph 4(b) of the Repurchase Agreement is
hereby modified to provide that if the notice to be given by Buyer to
Seller under such section is given at or prior to 10:00 a.m. New York
City time, Seller shall transfer the Additional Purchased Securities
to Buyer prior to the close of business in New York City on the date
of such notice, and if such notice is given after 10:00 a.m. New York
City time, Seller shall transfer the Additional Purchased Securities
prior to the close of business in New York City on the business day
following the date of such notice.
5. PAYMENTS. So long as no Event of Default shall have occurred and be
continuing, Seller shall be entitled to all payments payable to the
payee under the Contracts and the Collateral Security. Upon the
occurrence of an Event of Default, payment of such amounts shall be
made to the Custodian and shall be distributed by the Custodian under
the Custodial Agreement.
6. MARKET VALUE DETERMINATION. Notwithstanding the definition set forth
in Paragraph 2(h) of the
I-4
<PAGE>
Repurchase Agreement, the "Market Value" of the Contracts shall be the
value of such Contracts, as determined as of any date of determination
solely by Buyer in its good faith business judgement; provided,
however, that:
(a) a value of zero shall be assigned to (i) that portion of any
Contract attributable to an Advance that has been delinquent
in any payments due for thirty (30) days or more, (ii) any
Contract for which more than five percent (5%) of the
Advances are delinquent for thirty (30) days or more, (iii)
that portion of any Contract attributable to an Advance that
has been, in whole or in part, outstanding for more than one
(1) year or (iv) any Contract that is otherwise in default
with respect to any other provision thereof; and
(b) in no event shall the Market Value of a Contract exceed the
outstanding principal amount of Advances thereunder.
7. SECURITY INTEREST.
(a) In the event, for any reason, any Transaction is construed by any
court as a secured loan rather than a purchase and sale, the
parties intend that Seller shall have granted to Buyer, through
the Custodian as agent and bailee for Buyer, a perfected first
priority security interest in all of the Purchased Securities.
(b) Seller shall pay all fees and expenses associated with perfection
of any security interests including, without limitation, the cost
of filing financing statements and continuation statements under
the Uniform Commercial Code.
(c) In the event that Buyer elects to engage in repurchase
transactions with third parties with respect to the Purchased
Securities or otherwise elects to pledge or hypothecate the
Purchased Securities to third parties, Seller shall, at the
request of Buyer and at the expense of Seller, provide Buyer's
counterparty in such transaction with an opinion of counsel to
the effect that such counterparty has a perfected first priority
security interest in such Purchased Securities.
I-5
<PAGE>
8. REPRESENTATIONS, WARRANTIES AND COVENANTS.
(a) Each party represents and warrants, and shall on and as of the
Purchase Date of any Transaction be deemed to represent and
warrant, as follows:
(i) The execution, delivery and performance of the Agreement and
the performance of each Transaction do not and will not
result in or require the creation of any lien, security
interest or other charge or encumbrance (other than pursuant
hereto) upon or with respect to any of its properties; and
(ii) The Agreement is, and each Transaction when entered into
under the Agreement will be, a legal, valid and binding
obligation of it enforceable against it in accordance with
the terms of the Agreement.
(b) Seller represents and warrants to Buyer, and shall on and as of
the Purchase Date of any Transaction be deemed to represent and
warrant, as follows:
(i) The documents disclosed by Seller to Buyer pursuant to these
Supplemental Terms are either original documents or genuine
and true copies thereof;
(ii) Seller is a separate and independent corporate entity from
the Custodian, Seller does not own a controlling interest in
the Custodian either directly or through affiliates and no
director or officer of Seller is also a director or officer
of the Custodian;
(iii) The Purchase Price for any Purchased Securities will not be
used either directly or indirectly to acquire any security,
as that term is defined in Regulation T of the Regulations
of the Board of Governors of the Federal Reserve System, and
Seller has not taken any action that might cause any
Transaction to violate any regulation of the Federal Reserve
Board;
(iv) Each Contract conforms to the current standards of
securitization in publicly registered asset-backed offerings
applicable to contracts and loans similar in nature to the
Contracts; all Contracts, individually
I-6
<PAGE>
and in the aggregate, will substantially comply with each
related representation or warranty customarily required
under the current standards of securitization in publicly
registered, highly rated asset-backed offerings applicable
to contracts and loans similar in nature to the Contracts;
(v) Each Contract and Floorplan Agreement was entered into by
Seller (or entered into by an affiliate of Seller and
assigned to Seller) in its ordinary course of business and
the rights thereunder have not been purchased by Seller in
any bulk transfer;
(vi) The Products relating to each Contract and Floorplan
Agreement were underwritten in accordance with the written
underwriting standards of Seller previously furnished by
Seller to Buyer, and no material change to such underwriting
standards has occurred since the date of the last written
revision to such standards that was furnished to Buyer by
Seller or on behalf of Seller;
(vii) Since the date of the most recent financial statement of
Seller, delivered by it pursuant to Paragraph 12 of these
Additional Supplemental Terms, there has been no material
adverse change in the financial condition or results of
operations of Seller;
(viii) Seller shall be at the time it delivers any Purchased
Securities for any Transaction, and shall continue to be,
through the Purchase Date relating to each such Transaction,
the legal and beneficial owner of such Purchased Securities
and all rights relating thereto, free of any lien, security
interest, option or encumbrance except for the security
interest created by or pursuant to the Agreement;
(ix) Seller has due authority to execute the UCC-1 financing
statements and continuation statements relating to each
Contract and related Collateral Security in favor of the
Custodian;
(x) The Contracts constitute either "chattel paper" or "general
intangibles" as defined in the Uniform Commercial Code;
I-7
<PAGE>
(xi) Seller has a "purchase money security interest" (as defined
in the Uniform Commercial Code) in the Products subject to
each Contract and has effectively assigned such interest to
Buyer;
(xii) Buyer has the right to enforce the obligations of each
Manufacturer under the related Floorplan Agreement and each
Dealer under the related personal guaranty, if any;
(xiii) Unless otherwise disclosed to Buyer by Seller in writing, no
Contract for any single Dealer exceeds five million dollars
($5,000,000) and no Floorplan Agreement for any single
Manufacturer (as measured by the related Contracts) exceeds
fifty million dollars ($50,000,000);
(xiv) Seller has advised each Manufacturer in writing that it has
transferred its rights under the related Floorplan Agreement
to the Custodian as agent and bailee for certain lenders
identified in the books and records of the Custodian, and
the Manufacturer has acknowledged such assignment;
(xv) Each Product can be specifically identified in Seller's
records by reference to the corresponding account number of
Seller set forth on the List of Contracts; and
(xvi) Seller is permitted by the terms of each Contract to assign
its right, title and interest thereunder to Buyer as
contemplated hereby without the consent or acknowledgment of
the related Dealer or any other person or entity.
(c) Seller covenants with Buyer as follows:
(i) Seller shall file a master UCC-1 financing statement in
favor of the Custodian under the Custodial Agreement
relating to the Contracts and the Collateral Security and
any payments or proceeds arising therefrom;
(ii) Seller shall file such continuation statements as may be
necessary in order to insure that the interest of the
Custodian under the financing statement referred to in
clause (i) above does not lapse;
I-8
<PAGE>
(iii) Seller shall, at the request of Buyer, obtain the
acknowledgment of each Dealer to the assignment of the
personal guaranty, if any, by Seller to the Custodian as
agent and bailee for Buyer;
(iv) Seller shall, at the request of Buyer, file financing
statements on Form UCC-3 in favor of the Custodian as
Buyer's agent and bailee under the Custodial Agreement
assigning Seller's perfected security interest in all other
manufactured home inventory of each Dealer;
(v) Seller, upon the request of Buyer, shall deliver to Buyer an
undated letter to Seller's archivist authorizing and
directing such archivist to make available to Buyer and its
agents all printouts and all computer software pertaining to
the Securities;
(vi) Upon an event of default under the related Dealer
Agreements, Seller shall enforce any rights it has received
pursuant to an assignment of personal guarantees for the
benefit of the Buyer; and
(vii) At any time upon the instructions of Buyer and in any event
immediately upon the occurrence of an Event of Default on
the part of Seller under the Agreement, Seller shall deliver
to the Custodian as agent and bailee for Buyer the following
documents:
(1) the original of each Contract (including the invoices
relating to the Products financed thereunder) and an
original executed assignment thereof in favor of the
Custodian as agent and bailee for Buyer acknowledged by
the related Dealer;
(2) the original of each Floorplan Agreement, together with
an executed assignment thereof in favor of the
Custodian as agent and bailee for Buyer acknowledged by
the related Manufacturer;
(3) the original of each insurance policy covering the
Dealers' inventory, together with a power of attorney
naming
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the Custodian as attorney-in-fact and authorizing the
Custodian to direct the related insurance company to
change the name of the insured under the policy to that
of the Custodian as agent and bailee for Buyer;
(4) the original guaranties, if any, relating to each
Dealer's Contract together with an executed assignment
thereof in favor of the Custodian as agent and bailee
for Buyer acknowledged by the related Dealer; and
(5) an original financing statement on Form UCC-3 relating
to all Dealers whose Contracts are subject to this
Agreement, executed by Seller and assigning Seller's
security interest in all inventory of such Dealer to
the Custodian as agent and bailee for Buyer.
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<PAGE>
9. EVENTS OF DEFAULT.
(a) The term "Event of Default" shall, in addition to the definition
set forth in the Repurchase Agreement, include the following
events:
(i) Any governmental or self-regulatory authority shall take
possession of Buyer, Seller or their property or appoint any
receiver, conservator or other official, or such party shall
take any action to authorize any of the actions set forth in
this clause (i).
(ii) Buyer or Seller shall have reasonably determined that the
other party is or will be unable to meet its commitments
under the Agreement, shall have notified such other party of
such determination and such other party shall not have
responded with appropriate information to the contrary to
the satisfaction of the notifying party within twenty-four
(24) hours.
(iii) The Agreement shall for any reason cease to create a valid,
first priority security interest in any of the Purchased
Securities purported to be covered thereby.
(iv) A final judgment by any competent court in the United States
of America for the payment or money in an amount of at least
$100,000 is rendered against the defaulting party, and the
same remains undischarged for a period of sixty (60) days
during which execution of such judgment is not effectively
stayed.
(v) Any representation or warranty made by Seller in the
Agreement or the Custodial Agreement shall have been
incorrect or untrue when made or repeated or when deemed to
have been made or repeated.
(vi) Seller shall breach any covenant set forth in the Agreement
or the Custodial Agreement and such breach is continuing.
(vii) Any event of default or any event which with notice, the
passage of time or both shall constitute an event of default
shall occur and be continuing under any repurchase or other
financing agreement for borrowed funds or indenture for
borrowed funds by which
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<PAGE>
Seller is bound or affected shall occur and be continuing.
(b) Upon the occurrence and during the continuance of an Event of
Default by Seller:
(i) All rights of Seller to receive payments which it would
otherwise be authorized to receive pursuant to Paragraph 5
of these Additional Supplemental Terms shall cease, and all
such rights shall thereupon become vested in Buyer, which
shall thereupon have the sole right to receive such payments
and apply them to the aggregate unpaid Repurchase Prices
owed by Seller.
(ii) All payments which are received by Seller contrary to the
provisions of the preceding clause (i) shall be received in
trust for the benefit of Buyer and shall be segregated from
other funds of Seller and shall be promptly remitted to
Buyer.
(c) The parties hereby agree that sales of Purchased Securities under
Paragraph 11(d)(i) of the Repurchase Agreement shall be deemed to
include and permit sales of Purchased Securities pursuant to a
securities offering.
10. EVENTS OF TERMINATION.
(a) At the option of Buyer, exercised by written notice to Seller,
the Repurchase Date for each Transaction under the Agreement
shall be deemed to immediately occur in the event that:
(i) In the judgment of Buyer a material adverse change shall
have occurred in the financial condition or results of
operations of Seller;
(ii) Seller shall be in default with respect to any normal and
customary covenants under any debt contract or agreement,
any servicing agreement or any lease to which it is a party,
which default could materially adversely affect the
financial condition of Seller (which covenants include, but
are not limited to, an Act of Insolvency of Seller or the
failure of Seller to make required payments under such
contract or agreement as they become due);
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<PAGE>
(iii) Buyer shall be unable to finance Transactions through the
repo market with its traditional counterparties in the
ordinary course of business for a period of thirty (30)
consecutive days;
(iv) Seller shall fail to promptly notify Buyer of (i) the
acceleration of any debt obligation or the termination of
any credit facility of Seller; (ii) the amount and maturity
of any such debt assumed after the date hereof; (iii) any
adverse developments with respect to pending or future
litigation involving Seller; and (iv) any other developments
which might materially and adversely affect the financial
condition of Seller or the interests of Buyer under the
Agreement; or
(v) Seller shall have failed to comply in any material respect
with its obligations under the Custodial Agreement.
(b) The events specified in Paragraph 10(a) of these Supplemental
Terms which may, at the option of Buyer, cause an acceleration of
the Repurchase Date for a Transaction shall be in addition to any
other rights of Buyer to cause such an acceleration under the
Agreement.
11. TERM OF AGREEMENT. Notwithstanding any provision of Paragraph 15 of
the Repurchase Agreement, the Agreement and all Transactions
outstanding hereunder shall terminate automatically without any
requirement for notice on the date occurring on the earlier of (i)
eleven (11) months and twenty-nine (29) days from the date first set
forth on the first page of the Agreement and (ii) the written
agreement of Buyer and Seller; provided, however, that the Agreement
and any Transaction outstanding hereunder may be extended by mutual
agreement of the parties; and provided further, however, that no such
party shall be obligated to agree to such an extension. It is further
understood and agreed that if, notwithstanding the foregoing, any
Transaction shall remain outstanding subsequent to the termination of
this Agreement, this Agreement shall nevertheless survive to govern
the termination of such outstanding Transaction.
12. FINANCIAL STATEMENTS. As of the date hereof, the parties hereto have
each provided the other with such party's audited year-end financial
statements and such party's most recent publicly available interim
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financial statements. Seller shall provide Buyer within one hundred
twenty (120) days after the end of Seller's fiscal year with an
audited year-end consolidated financial statement for such fiscal
year, together with the report of independent certified accountants
and within forty-five (45) days after the end of each of the first
three fiscal quarters in each fiscal year unaudited consolidated
statements of financial condition and consolidated statement of income
of Seller and such other additional publicly available interim
financial statements upon the other's reasonable request. Each
delivery of Purchased Securities by Seller to Buyer hereunder will
constitute a representation by Seller that there has been no material
adverse change in Seller's financial condition not disclosed to Buyer
since the date of Seller's most recent financial statement. Seller
shall provide Buyer, from time to time at Seller's expense, with such
information of a financial or operational nature respecting Seller as
Buyer may reasonably request promptly upon receipt of such request.
13. MINIMUM AND MAXIMUM TRANSACTION AMOUNTS; MARGIN.
(a) The minimum amount of any Transaction under this Agreement shall
have an aggregate Purchase Price of $1,000,000;
(b) The aggregate outstanding Repurchase Price for the Purchased
Securities subject to the Agreement, together with any amounts
owed to Buyer by Seller or any of its affiliates under any
repurchase arrangement, at any one time shall not exceed
$500,000,000; and
(c) The percentage used to determine Buyer's Margin Amount shall be
as mutually agreed upon by Buyer and Seller but in no event less
than 111%.
14. REPURCHASE PRICE; PRICE DIFFERENTIAL. The Repurchase Price as of any
date shall include that portion of the Price Differential that has
accrued but has not been paid. The Price Differential shall accrue,
be calculated and be compounded on a daily basis for each Transaction
(such calculation to be made on the basis of a 360-day year and the
actual number of days elapsed). The Price Differential shall be
payable weekly in arrears to Buyer with respect to each Transaction on
the earlier of Friday of each week (or the next preceding business day
in the event Friday is not a business day) or the termination date for
the related Transaction. The Price Differential for any
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Transaction shall be equal to the product of (i) the Repurchase Price
(as increased by the accrued and unpaid Price Differential) and (ii) a
per annum percentage, expressed as a specified number of basis points
in excess of the overnight rate on Federal funds (as reported on page
5 of Telerate) existing at the opening of business on the date of
calculation, as Buyer and Seller shall mutually agree on the Purchase
Date for such Transaction. Payment of the Price Differential to Buyer
shall be made by wire transfer in immediately available funds.
15. ADDITIONAL INFORMATION.
(a) At any reasonable time, Seller shall permit Buyer, its agents or
attorneys, to inspect and copy any and all documents and data in
their possession pertaining to each Contract and the related
Collateral Security, or any other Security, that is the subject
of such Transaction. Such inspection shall occur upon the
request of Buyer at a mutually agreeable location during regular
business hours and on a date not more than one (1) business day
after the date of such request. Seller shall, at Seller's
expense, deliver to Buyer photocopies of any Contract, Floorplan
Agreement or related document that Buyer may request.
(b) Seller shall provide Buyer with copies of all filings made by or
on behalf of Seller or any entity that controls Seller, with the
Securities and Exchange Commission pursuant to the Securities Act
of 1933, as amended, and the Securities Exchange Act of 1934, as
amended, promptly upon making such filings; provided, however,
that Seller shall not be required to provide Buyer with Current
Reports on Form 8-K filed with the Securities and Exchange
Commission in connection with asset-backed transactions for which
Seller or any of its subsidiaries acts as depositor.
16. TRANSACTIONS OPTIONAL; REPURCHASE DATE. Notwithstanding any other
provision of the Agreement or the Custodial Agreement to the contrary,
the initiation of each Transaction is subject to the approval of Buyer
in its sole discretion. Buyer may, in its sole discretion, reject any
Security from inclusion in a Transaction hereunder for any reason.
Unless mutually agreed to the contrary by Buyer and Seller, each
Repurchase Date shall occur on the business day following the related
Purchase Date.
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<PAGE>
17. OPINIONS OF COUNSEL. Seller shall, on the date of the first
Transaction hereunder and, upon the request of Buyer, on the date of
any subsequent Transaction, cause to be delivered to Buyer, with
reliance thereon permitted as to any person or entity that purchases
the Securities from Buyer in a repurchase transaction, a favorable
opinion or opinions of counsel with respect to the matters set forth
in Exhibit A hereto, in form and substance satisfactory to Buyer and
its counsel.
18. ADDITIONAL CONDITIONS. Prior to entering into the initial Transaction
under this Agreement, Seller shall cause each of the following
conditions to occur:
(a) A Custodial Agreement relating to the Contracts and the
Collateral Security, in form and substance satisfactory to Buyer,
shall have been executed and delivered by the parties thereto;
and
(b) Seller shall have disclosed information satisfactory to Buyer
with respect to the scheduled maturities and termination
provisions of all outstanding credit facilities and debt of
Seller.
19. SERVICING ARRANGEMENTS.
(a) The parties hereto agree and acknowledge that, notwithstanding
the purchase and sale of the Contracts and Collateral Security
contemplated hereby, Seller shall continue to service the
Contracts and Collateral Security for the benefit of Buyer and,
if Buyer shall exercise its rights to sell the Contracts and
Collateral Security pursuant to this Agreement prior to the
related Repurchase Date, Buyer's assigns; provided, however, that
the obligation of Seller to service Contracts and Collateral
Security for the benefit of Buyer as aforesaid shall cease upon
the payment to Buyer of the Repurchase Price therefor.
(b) Seller shall service the Contracts and the Collateral Security
and shall enforce its rights and the rights of the beneficial
owner thereunder in accordance with the standards of a prudent
lender in the manufactured housing industry.
(c) Payments received by Seller with respect to Contracts and
Collateral Security will initially be deposited into a segregated
account (denominated as being exclusively for the benefit of
Buyer and other Persons with interests in other
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<PAGE>
floorplan financing and security agreements and related documents
that such Persons are financing for Seller or its affiliates) and
may be withdrawn by Seller on the following business day,
provided that (i) the aggregate Purchase Price under the
Agreement does not exceed 90% of the aggregate of all outstanding
Advances under the Contracts and (ii) no Event of Default has
occurred and is continuing.
(d) Seller shall, on a daily basis, reconcile all payments on
Contracts and Collateral Security allocated to the principal
amount of an Advance thereunder and calculate the aggregate
Advances outstanding under each Contract and for all Contracts.
(e) Seller shall, not less frequently than weekly, report to Buyer
the aggregate results since the last report of the
reconciliations referred to in subparagraph (d) above and shall
advise Buyer telephonically and in writing at any time that the
aggregate Repurchase Price under the Agreement exceeds 90% of the
aggregate of outstanding Advances under the Contracts. All such
reports shall be in a form acceptable to Buyer and shall contain
such other servicing data as Buyer may reasonably request.
(f) Buyer may, in its sole discretion if an Event of Default shall
have occurred and be continuing, without payment of any
termination fee or any other amount to Seller, (i) sell its right
to the Contracts and the Collateral Security on a servicing
released basis or (ii) terminate Seller as servicer of the
Contracts and the Collateral Security with or without cause.
20. NEW YORK JURISDICTION; WAIVER OF JURY TRIAL. Buyer and Seller hereby
agree to submit to the courts of the State of New York in any action
or proceeding arising out of this Agreement. Buyer and Seller each
hereby waives the right of trial by jury in any litigation arising
hereunder.
21. BINDING TERMS. All of the covenants, stipulations, promises and
agreements in the Agreement shall bind the successors and assigns of
the parties hereto, whether expressed or not.
22. NOTICES AND OTHER COMMUNICATIONS. Any provision of Paragraph 13 of
the Repurchase Agreement to the
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<PAGE>
contrary notwithstanding, any notice required or permitted by the
Agreement shall be in writing (including telegraphic, facsimile or
telex communication) and shall be effective and deemed delivered only
when received by the party to which it is sent; provided, however,
that a facsimile transmission shall be deemed to be received when
transmitted so long as the transmitting machine has provided an
electronic confirmation of such transmission. Any such notice shall
be sent to a party at the address or facsimile transmission number set
forth in Annex II attached hereto.
23. INCORPORATION OF TERMS. The Repurchase Agreement as supplemented
hereby shall be read, taken and construed as one and the same
instrument.
24. CONTROLLING AGREEMENT. This Agreement shall supersede all other
master repurchase agreements between the parties relating to the
subject matter hereof.
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<PAGE>
EXHIBIT A
OPINION OF COUNSEL TO SELLER
1. Seller is a corporation duly organized, validly existing and in good
standing under the laws of Delaware and has corporate power and authority to
enter into and perform its obligations under the Agreement and the Custodial
Agreement. Seller is duly qualified to do business as a foreign corporation and
is in good standing in each jurisdiction in which the character of the business
transacted by it requires such qualification and in which the failure so to
qualify would have a material adverse effect on the business, properties, assets
or condition (financial or other) of Seller and its subsidiaries, considered as
a whole.
2. The Agreement and the Custodial Agreement have each been duly
authorized, executed and delivered by Seller, and each constitutes a valid and
legally binding obligation of Seller enforceable against Seller in accordance
with its terms, subject, as to enforcement, to bankruptcy, insolvency,
reorganization and other laws of general applicability relating to or affecting
creditors' rights generally and to general equity principles.
3. No consent, approval, authorization or order of any state or federal
court or government agency or body is required to be obtained by Seller for the
consummation of the transactions contemplated by the Agreement or the Custodial
Agreement.
4. The consummation of any of the transactions contemplated by the
Agreement and the Custodial Agreement will not conflict with, result in a breach
of, or constitute a default under the articles of incorporation or bylaws of
Seller or the terms of any indenture or other agreement or instrument known to
such counsel to which Seller is party or bound, or any order known to such
counsel to be applicable to Seller or any regulations applicable to Seller, of
any state or federal court, regulatory body, administrative agency, governmental
body or arbitrator having jurisdiction over Seller.
5. There is no pending or threatened action, suit or proceeding before
any court or governmental agency, authority or body or any arbitrator involving
Seller or relating to the transactions contemplated by the Master Repurchase
Agreement or the Custodial Agreement which, if adversely determined, would have
a material adverse effect on Buyer.
6. The transfer from time to time of the Contracts and the Collateral
Security by Seller in accordance with the Agreement and the Custodial Agreement
would not be voidable as a fraudulent transfer under the United States
Bankruptcy Code (Title 11 U.S.C.) or Minnesota law.
<PAGE>
7. Upon delivery of a List of Contracts as required by the Agreement, the
conveyance from time to time of Contracts described on the related list and the
associated Collateral Security by Seller to Buyer under the terms of the
Agreement will create a "security interest", as such term is defined in Minn.
Stat. Section 336.1-201(37), in favor of Buyer in such Contracts and the
associated Collateral Security and a "purchase money security interest", as such
term is defined in Minn. Stat. Section 336.9-107, in the Products financed under
the Contract, which security interest will be valid and enforceable in
accordance with the terms of the Agreement, subject to bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors' rights
generally applicable to Seller and to general principles of equity (regardless
of whether considered in a proceeding in equity or at law). Subject to the
filing of financing statements and continuation statements, such security
interest in the Contracts will upon delivery of the applicable List of Contracts
be perfected and, assuming, based on the representation of Seller in the
Agreement, that Seller had good and marketable title to the Contracts free and
clear of all liens prior to the transfer to Buyer, Buyer's security interest
will be a first priority security interest.
8. Seller is duly registered as a finance company in each state in which
Contracts or Floorplan Agreements were originated, to the extent such
registration is required by applicable law.
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<PAGE>
[EXECUTION COPY]
================================================================================
TRI-PARTY CUSTODIAL AGREEMENT
by and among
MERRILL LYNCH MORTGAGE CAPITAL INC.
Buyer
GREEN TREE FINANCIAL CORPORATION
Seller
and
FIRST TRUST NATIONAL ASSOCIATION,
Custodian
Dated as of September 1, 1995
================================================================================
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<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
DEFINITIONS
Section 1.1. General.................................................... 1
Section 1.2. Certain Defined Terms...................................... 2
Section 1.3. Incorporation of Certain Definitions....................... 3
Section 1.4. Reference to Time.......................................... 4
ARTICLE II
CUSTODIAL ARRANGEMENT
Section 2.1. Documents Maintained by Seller............................. 4
Section 2.2. List of Contracts.......................................... 4
ARTICLE III
CUSTODIAL DUTIES
Section 3.1. Transfer of Contracts; Delivery of Documents............... 4
Section 3.2. Custodial Confirmation Statement........................... 5
Section 3.3. Custodial Register......................................... 5
Section 3.4. Additional Documents Delivered to Custodian................ 5
ARTICLE IV
OWNERSHIP AND TRANSFER OF CONTRACTS
Section 4.1. The Custodial Confirmation Statements...................... 6
Section 4.2. Automatic Roll of Transactions............................. 7
Section 4.3. No Service Charge for Sale or Transfer of
Contracts................................................ 7
Section 4.4. Repurchase Date............................................ 7
Section 4.5. Persons Deemed Owners...................................... 7
Section 4.6. Unilateral Transfer of Contracts Owned by
Seller................................................... 8
Section 4.7. Transfers to Third Parties................................. 8
<PAGE>
ARTICLE V
CUSTODIAN
Section 5.1. Representations, Warranties and Covenants of
Custodian............................................... 8
Section 5.2. Custodian of Documents.................................... 9
Section 5.3. Charges and Expenses...................................... 9
Section 5.4. No Adverse Interests...................................... 10
Section 5.5. Inspections............................................... 10
Section 5.6. Insurance................................................. 10
Section 5.7. Limitation of Liability................................... 10
Section 5.8. Indemnification........................................... 11
ARTICLE VI
MISCELLANEOUS PROVISIONS
Section 6.1. Amendment................................................ 11
Section 6.2. Governing Law and Jurisdiction; Waivers of
Jury Trial............................................. 11
Section 6.3. Notices.................................................. 11
Section 6.4. Severability of Provisions............................... 12
Section 6.5. No Partnership........................................... 12
Section 6.6. Counterparts............................................. 12
Section 6.7. Assignment............................................... 12
Section 6.8. Headings................................................. 13
EXHIBIT A Custodial Confirmation Statement......................... A-1
EXHIBIT B Form of Transfer Instructions............................ B-1
A-ii
<PAGE>
TRI-PARTY CUSTODIAL AGREEMENT
-----------------------------
This Tri-Party Custodial Agreement (the "Agreement"), dated as of
September 1, 1995, is by and among Merrill Lynch Mortgage Capital Inc., a
Delaware Corporation ("Buyer"), Green Tree Financial Corporation, a Minnesota
corporation ("Seller"), and First Trust National Association, a federally
chartered association ("Custodian").
Recitals
--------
Seller, in the ordinary course of its business, originates Contracts
and obtains the Collateral Security relating thereto.
Pursuant to the Repurchase Agreement, Seller may from time to time
enter into Transactions, evidenced by confirmations, to transfer and sell
certain Securities to Buyer against transfer of funds from Buyer to Seller.
Seller and Buyer desire to provide for the custody and management of
the Contracts and the Collateral Security which may become subject to a
Transaction.
In connection with the foregoing, Seller and Buyer desire to engage
Custodian to act as agent and bailee of Contracts for the benefit of Seller,
Buyer and subsequent purchasers of Contracts from Buyer, as their interests may
appear.
Seller, or any permitted successor thereto, will act as servicer with
respect to the Contracts and the Collateral Security.
Custodian is willing and able to perform the duties and obligations of
an agent and bailee as set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth, Buyer, Seller and Custodian agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1. General. For the purpose of this Agreement, except as
otherwise expressly provided or unless the context otherwise requires, the terms
defined in this Article include the plural as well as the singular, the words
"herein," "hereof" and "hereunder" and other words of similar import refer to
this Agreement as a whole and not to any particular Article,
A-1
<PAGE>
Section or other subdivision, and Section references refer to Sections of this
Agreement.
Section 1.2. Certain Defined Terms. Whenever used in this Agreement,
unless the context otherwise requires, the following words shall have the
meanings set forth below:
"Agreement": This Tri-Party Custodial Agreement, including all
exhibits hereto, and all amendments hereof and supplements hereto.
"Business Day": Any day other than (i) a Saturday or a Sunday or (ii)
another day on which banking institutions in the States of Minnesota or New York
are authorized or obligated by law, executive order, or governmental decree to
be closed.
"Buyer": Merrill Lynch Mortgage Capital Inc., and any successor
thereto.
"Collateral Security": (i) Seller's purchase money security interest
in manufactured homes financed under Seller's Stock Program and Pre-Sold
Program, (ii) Seller's security interest in all other manufactured home
inventory of the related Dealer, (iii) Seller's rights, remedies, powers and
privileges under the Contracts, including any personal guaranty of the principal
owner of the related Dealer, (iv) Seller's rights, remedies, powers and
privileges under certain Floorplan Agreements and all rights to receive payments
which are due under the related Manufacturer's repurchase obligation and all
other proceeds thereof but only to the extent of the inventory underlying the
Floorplan Agreements, (v) insurance proceeds under insurance policies covering
the Dealer's inventory and (vi) all proceeds of the foregoing.
"Computer Tape": A computer tape (or other reporting format as may be
mutually acceptable to the parties) generated by the Seller which provides
information relating to the Contracts.
"Contracts": Certain floor plan financing and security agreements as
amended or supplemented from time to time between Seller and Dealers under which
Seller grants the related Dealer a loan in order to finance Products purchased
by such Dealer from a Manufacturer, all rights to receive payments which are due
pursuant thereto and all other proceeds thereof (including any recourse rights
against third persons) from and after the related Purchase Date, and all other
proceeds thereof but excluding any rights to receive payments or proceeds
thereof which are due prior to the related Purchase Date.
"Custodial Confirmation Statement": A confirmation statement issued
by Custodian substantially in the form attached hereto as Exhibit A.
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<PAGE>
"Custodial Register": The register maintained by Custodian pursuant
to Section 3.3, which reflects as to each Contract the Owner thereof.
"Custodian": First Trust National Association, acting in its
custodial capacity under this Agreement, and any successor thereto.
"List Number": As defined in the Repurchase Agreement.
"List of Contracts": As defined in the Repurchase Agreement.
"Owner": With respect to any Contract and the related Collateral
Security, the Person reflected in the Custodial Register as being the owner
thereof.
"Person": Any individual, corporation, partnership, joint venture,
association, joint stock company, trust (including any beneficiary thereof),
unincorporated organization or government or any agency or political subdivision
thereof.
"Purchase Date": The date on which Securities are transferred by
Seller to Buyer.
"Repurchase Agreement": The Master Repurchase Agreement, dated as of
September 1, 1995, between Buyer and Seller, including all amendments and
supplements thereto.
"Repurchase Date": With respect to any Transaction, the date on which
the Contracts and the related Collateral Security are to be repurchased pursuant
to the Repurchase Agreement.
"Seller": Green Tree Financial Corporation, and any successor
thereto.
"Transaction": As defined in the Repurchase Agreement.
"Transfer Instruction": With respect to each Transaction,
notification, substantially in the form of Exhibit B hereto, of a Transaction
provided by the Owner of the related Contracts to Custodian. Transfer
Instructions may be provided by the Owner of the related Contracts in writing or
by telephone and shall be communicated to Custodian prior to 10:00 a.m. on the
Purchase Date or Repurchase Date, as applicable.
Section 1.3. Incorporation of Certain Definitions. All capitalized
terms used herein and not otherwise defined shall have the meanings assigned in
the Repurchase Agreement unless the context clearly indicates otherwise.
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<PAGE>
Section 1.4. Reference to Time. All references to time herein shall
be deemed to refer to New York City time unless otherwise provided.
ARTICLE II
CUSTODIAL ARRANGEMENT
Section 2.1. Documents Maintained by Seller. Prior to the occurrence
of an Event of Default under the Repurchase Agreement or the receipt of delivery
instructions from Buyer, Seller shall retain possession of all documents and
files relating to the Contracts and the Collateral Security. All documents held
by Seller shall be held by it as agent of Custodian for the benefit of the Owner
of the related Contracts and the Collateral Security as indicated on the
Custodial Register.
Section 2.2. List of Contracts. Custodian shall maintain the most
recent version of the List of Contracts, as such list may be amended from time
to time. Custodian shall receive a printed copy of the amended List of
Contracts with each revised copy of the Computer Tape. If a Computer Tape
received by Custodian is not accompanied by such amended List of Contracts,
Custodian shall immediately produce such a printed list from the related
Computer Tape. The List of Contracts in the custody of Custodian shall be the
definitive List of Contracts for all purposes under this Agreement.
ARTICLE III
CUSTODIAL DUTIES
Section 3.1. Transfer of Contracts; Delivery of Documents. Prior to
a Contract becoming subject to this Agreement, and thereby becoming eligible for
inclusion in a Transaction, Seller shall deliver, or cause to be delivered, to
Custodian the following documents:
(i) A List of Contracts, with the List Number set forth thereon,
containing such Contract.
(ii) A financing statement on Form UCC-1 listing Custodian as the
secured party with respect to Contracts and the related Collateral
Security set forth on the List of Contracts maintained by Custodian
and stamped to indicating filing with the Office of the Secretary of
State of the State of Minnesota.
Seller shall file or cause to be filed all amendments to such
financing statements and all continuation statements as may be necessary to
perfect, and to maintain the perfection of,
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the interests of Custodian in the Contracts, the related Collateral Security and
collateral related thereto; provided, however, that if Seller shall fail to file
or cause to be filed such amendments and continuation statements, Custodian
shall make such filings. All financing statements, amendments and continuation
statements shall be filed at the expense of Seller.
All documents relating to the Contracts and the Collateral Security
are referred to herein as the "Custodian's Contract File".
Section 3.2. Custodial Confirmation Statement. Upon delivery to
Custodian of the documents specified in Section 3.1, Custodian shall review the
same. Upon receipt of Transfer Instructions given by Seller in order to
consummate a Transaction, Custodian shall, with respect to the Contracts to be
transferred to Buyer in connection with such Transaction, number, execute and
deliver to Buyer (with a copy to Seller, which shall be clearly marked as a copy
and non-transferable) one or more certifications (each, a "Custodial
Confirmation Statement") in the form attached hereto as Exhibit A.
Each Custodial Confirmation Statement shall be delivered in accordance
with Section 4.1(d) hereof. Upon the repurchase of Contracts by Seller pursuant
to the Repurchase Agreement and the written acknowledgement of such repurchase
by Buyer, the applicable Custodial Confirmation Statement issued in connection
with such repurchased Contracts will be deemed cancelled without any requiring
for delivery thereof of Custodian.
Section 3.3. Custodial Register. Custodian shall cause to be kept at
its Corporate Trust Office a register (the "Custodial Register") in which,
subject to such reasonable regulations as it may prescribe, Custodian shall
reflect the ownership of Contracts as herein provided. The Custodial Register
shall be deemed to contain proprietary information and only Custodian and Buyer
shall have access to such information.
Section 3.4. Additional Documents Delivered to Custodian.
(a) At any time upon the instructions of Buyer and in any event upon
the occurrence of an Event of Default on the part of Seller under the Repurchase
Agreement, Seller is obligated to deliver the following additional documents to
Custodian to hold as agent and bailee for the Owner of the related Contract:
(i) the original Contracts and the original assignments thereof in
favor of the Custodian as agent and bailee for the Owner acknowledged
by the related Dealer;
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(ii) the original Floorplan Agreements, together with assignments
thereof in favor of the Custodian as agent and bailee for the Owner
acknowledged by the related Manufacturer;
(iii) the original insurance policies covering the Dealers'
inventory, together with assignments thereof in favor of the Custodian
as agent and bailee for the Owner acknowledged by the related Dealer;
(iv) the original guaranty of each Dealer, if any, together with as
assignment thereof in favor of the Custodian as agent and bailee for
the Owner acknowledged by the related Dealer; and
(v) an original financing statement on Form UCC-3 relating to each
Dealer executed by Seller assigning its security interest in all
manufactured home inventory of such Dealer to the Custodian as agent
and bailee for the Owner.
(b) Custodian shall confirm to Buyer in writing its receipt of the
documents delivered to it pursuant to subsection (a) above and shall hold such
documents as agent and bailee for the benefit of the Owner of the related
Contract.
ARTICLE IV
OWNERSHIP AND TRANSFER OF CONTRACTS
Section 4.1. The Custodial Confirmation Statements.
(a) Each Custodial Confirmation Statement issued by Custodian pursuant
to the terms of this Agreement shall confirm an Owner's ownership interest in
the Contracts specified in such Custodial Confirmation Statement. Each
Custodial Confirmation Statement shall be executed by manual signature on behalf
of Custodian by an authorized officer of Custodian.
(b) Custodian shall issue a new Custodian Confirmation Statement (i)
to Seller upon Seller's deposit of Contracts with Custodian, (ii) to the
transferee and transferor upon receipt of Transfer Instructions and (iii) to
Buyer not less frequently than weekly. All Custodial Confirmation Statements
shall be dated as of the date on which they are issued by Custodian.
(c) Each Custodial Confirmation Statement to an Owner shall have
attached thereto a schedule listing all Contracts currently owned by such Owner,
regardless of whether such Contracts were acquired by such Owner in more than
one Transaction, along with the most recent amount of outstanding
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advances made by such Owner under each such Contract as provided to Custodian on
the most recent Computer Tape.
(d) Custodian shall (i) deliver each Custodial Confirmation Statement,
without a schedule of related Contracts attached, by facsimile transmission on
the date such Custodial Confirmation Statement is required to be issued and (ii)
send the executed original, with the schedule of related Contracts attached as
required pursuant to subsection (c) above, as soon thereafter as practicable,
but in any event not later than the next Business Day, by first class mail,
postage prepaid; provided, however, that with respect to the first Transaction
entered into under this Agreement, Custodian shall deliver each Custodial
Confirmation Statement with the schedule of related Contracts attached by
facsimile transmission on the Purchase Date relating to such Transaction and
shall send the executed original, with such schedule attached, by overnight
courier so that the addressee thereof receives such executed original with such
schedule attached not later than the next Business Day.
(e) Any provision hereof to the contrary notwithstanding, a facsimile
transmission of an executed Custodial Confirmation Statement shall be sufficient
to establish the ownership interest of the addressee in the Contracts to which
such Custodial Confirmation Statement relates.
Section 4.2. Automatic Roll of Transactions. Buyer and Seller agree
that if Custodian has not received notification of a repurchase in Transfer
Instructions from Buyer or Seller before 10:00 a.m. on a Repurchase Date, Buyer
and Seller shall automatically enter into a new Transaction with a Repurchase
Date of the next Business Day without providing any instructions to Custodian.
Section 4.3. No Service Charge for Sale or Transfer of Contracts. No
service charge shall be made for any sale or transfer of Contracts, but
Custodian may require payment of a sum sufficient to cover any tax or
governmental charge that may be imposed in connection with any sale or transfer
of Contracts.
Section 4.4. Repurchase Date. The Repurchase Date may be established
or modified by Buyer or Seller in Transfer Instructions provided to Custodian by
telephone or in writing. Custodian shall send written confirmation of such new
Repurchase Date to Buyer and Seller on the date Custodian receives such Transfer
Instructions.
Section 4.5. Persons Deemed Owners. Custodian shall treat as the
Owner of any Contract for all purposes whatsoever the person indicated as the
Owner thereof on the Custodial Register, and Custodian shall not be affected by
notice to the contrary.
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Section 4.6. Unilateral Transfer of Contracts Owned by Seller.
Custodian shall, with respect to any Contracts of which Seller is the Owner,
follow the instructions of Seller regarding the release and transfer of such
Contracts from this Agreement and shall do such other acts and execute such
other documents as may be deemed reasonably necessary by Seller to effect such
release and transfer. Such release and transfer shall be effected by Custodian
solely on the instructions of Seller and without any instructions or other
communication from any other party. All costs, fees and expenses relating to
such release and transfer shall be borne by Seller.
Section 4.7. Transfers to Third Parties. Buyer and Seller agree and
advise Custodian that, notwithstanding any provision of this Agreement to the
contrary, Buyer may engage in repurchase transactions with the Contracts and
related Collateral Security owned by it and may otherwise pledge, hypothecate or
otherwise transfer such Contracts and related Collateral Security, provided that
no such transaction shall relieve Buyer of its obligations under this Agreement
or the Repurchase Agreement.
ARTICLE V
CUSTODIAN
Section 5.1. Representations, Warranties and Covenants of Custodian.
With respect to each Custodial Confirmation Statement, Custodian hereby
represents and warrants to, and covenants with the party indicated thereon as
the Owner of the related Contracts, that as of the date such Custodial
Confirmation Statement is provided:
(a) Custodian is duly organized, validly existing and in good standing
under the laws of the United States;
(b) Neither the execution and delivery of this Agreement or any
continuation statement, the filing of a financing statement indicating that
Custodian is the secured party with respect to certain Contracts and Collateral
Security, the issuance of the Custodial Confirmation Statements, the
consummation of the transactions contemplated hereby or thereby, nor the
fulfillment of or compliance with the terms and conditions of this Agreement
will conflict with or result in a breach of any of the terms, conditions or
provisions of Custodian's charter or by-laws or any legal restriction or any
agreement or instrument to which Custodian is now a party or by which it is
bound, or constitute a default or result in an acceleration under any of the
foregoing, or result in the violation of any law, rule, regulation, order,
judgment or decree to which Custodian or its property is subject;
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(c) Custodian does not believe, nor does it have any reason or cause
to believe, that it cannot perform each and every covenant contained in this
Agreement;
(d) To Custodian's knowledge after due inquiry, there is no litigation
pending or threatened, which if determined adversely to Custodian, would
adversely affect the execution, delivery or enforceability of this Agreement, or
any of the duties or obligations of Custodian hereunder, or which would have a
material adverse effect on the financial condition of Custodian;
(e) No consent, approval, authorization or order of any court or
governmental agency or body is required for the execution, delivery and
performance by Custodian of or compliance by Custodian with this Agreement or
the consummation of the transactions contemplated hereby;
(f) Custodian is a separate and independent entity from Seller
and each Dealer, neither Seller nor any Dealer owns a controlling interest in
Custodian either directly or through affiliates and no director or officer of
Custodian is also a director or officer of Seller or any Dealer;
(g) Custodian shall monitor the financing statements filed with
respect to the Contracts naming it as the secured party and shall cause Seller
to file or, if Seller shall fail to file in a timely manner, shall itself file
such amendments and continuation statements with respect thereto necessary in
order to maintain the perfected security interest of Custodian in the Contracts
and Collateral Security.
Section 5.2. Custodian of Documents. Custodian, either directly or
by acting through an agent (which agent, except as contemplated by Section 2.1
hereof, shall not be Seller or any Dealer), shall hold all documents relating to
any Contract or related Collateral Security that comes into its possession for
the exclusive use and benefit of the Owner of such Contract and related
Collateral Security and shall make disposition thereof only in accordance with
the instructions furnished by such Owner. Custodian shall segregate and
maintain continuous custody of all such documents received by it in secure
facilities in accordance with customary standards for such custody and shall not
release such documents or transfer such documents to any other party, including
any sub-custodian, without the express written consent of the related Owner.
Section 5.3. Charges and Expenses. Seller will pay all fees of
Custodian in connection with the performance of its duties hereunder in
accordance with written agreements to be entered into from time to time between
Custodian and Seller, including fees and expenses of counsel incurred by
Custodian in
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the performance of its duties hereunder; provided, however, that (i) Custodian
shall in no event acquire any lien upon any Contract or related Collateral
Security deposited under this Agreement, or any claim against Buyer or any
Owner, by reason of the failure of Seller to pay any of such charges or expenses
and (ii) in the event Seller fails to pay the fees and expenses of Custodian as
set forth in such written agreements, Custodian shall have no obligation to take
actions or incur costs in connection with this Agreement unless Buyer, an Owner
or another Person has made adequate provision for payment of Custodian's fees
and expenses.
Section 5.4. No Adverse Interests. Custodian covenants and warrants
to Buyer, Seller and each Owner, that: (i) as of the related date on which
Custodian receives evidence of the perfection of its interest in the related
Contracts and Collateral Security, it holds no adverse interest, by way of
security or otherwise, in any Contract or Collateral Security; and (ii) the
execution of this Agreement and the creation of the custodial relationship
hereunder does not create any interest, by way of security or otherwise of
Custodian in or to any Contract or Collateral Security, other than Custodian's
rights as custodian hereunder.
Section 5.5. Inspections. Upon reasonable prior written notice to
Custodian, any Owner and such Owner's agents, accountants, attorneys and
auditors will be permitted during normal business hours to examine Custodian's
documents, records and other papers in possession of or under the control of
Custodian relating to the Contracts owned by such Owner.
Section 5.6. Insurance. Custodian shall, at its own expense,
maintain at all times during the existence of this Agreement and keep in full
force and effect, (1) fidelity insurance, (2) theft of documents insurance, (3)
forgery insurance subject to deductibles, all as is customary for amounts and
with insurance companies reasonably acceptable to Buyer and Seller. A
certificate of the respective insurer as to each such policy or a blanket policy
for such coverage shall be furnished to any Owner, upon request, containing the
insurer's statement or endorsement that such insurance shall not terminate prior
to receipt by such party, by registered mail, of ten (10) Business Days advance
notice thereof.
Section 5.7. Limitation of Liability. Custodian assumes no
obligation, and shall be subject to no liability, under this Agreement to
Owners, except that Custodian agrees to use its best judgment and good faith in
the performance of such obligations and duties as are specifically set forth
herein. Custodian shall not be liable for any action or non-action by it in
reliance on advice of counsel believed by it in good faith to be competent to
give such advice. Custodian may rely and shall
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be protected in acting upon any written notice, order, request, direction or
other document believed by it to be genuine and to have been signed or presented
by the proper party or parties.
Section 5.8. Indemnification. Seller agrees to indemnify Custodian
against, and to hold it harmless from, any liabilities, and any related out-of-
pocket expenses, which it may incur in connection with this Agreement or the
Custodial Confirmation Statements, other than any liabilities and expenses
arising out of Custodian's gross negligence or bad faith. Custodian agrees to
indemnify each of Buyer, Seller and any Owner against out-of-pocket expenses
which it may incur in connection with this Agreement and which is directly and
proximately caused by Custodian's gross negligence or willful misconduct.
ARTICLE VI
MISCELLANEOUS PROVISIONS
Section 6.1. Amendment. This Agreement may be amended from time to
time by Custodian, Buyer and Seller by written agreement signed by such parties.
Section 6.2. Governing Law and Jurisdiction; Waivers of Jury Trial.
This Agreement shall be construed in accordance with the laws of the State of
New York governing agreements made and to be performed therein, and the
obligations, rights and remedies of the parties hereunder shall be determined in
accordance with such laws. The parties hereto agree to submit to personal
jurisdiction in the State of New York in any action or proceeding arising out of
this Agreement. The parties hereto each hereby waive the right to trial by jury
in any litigation arising hereunder.
Section 6.3. Notices. All demands, notices and communications
hereunder, except as otherwise provided herein, shall be in writing and shall be
deemed to have been duly given if personally delivered at or mailed by
registered mail, postage prepaid, or sent by facsimile transmission (with verbal
confirmation of receipt and a copy by registered mail), to:
(a) in the case of Custodian:
First Trust National Association
Mezzanine Level
SPFTMZ04
180 East 5th Street
St. Paul, Minnesota 55101
Attention: Document Collateral Services
Telephone: (612) 244-0163
Telecopy: (612) 244-0010
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(b) in the case of Buyer:
Merrill Lynch Mortgage Capital Inc.
World Financial Center
North Tower, 8th Floor
New York, New York 10281
Attention: Louis V. Molinari
Telephone: (212) 449-5333
Telecopy: (212) 449-6673
(c) in the case of Seller:
Green Tree Financial Corporation
1800 Landmark Towers
345 St. Peter Street
St. Paul, Minnesota 55102
Attention: Vice President and Treasurer
Telephone: (612) 293-3400
Telecopy: (612) 293-5746
Section 6.4. Severability of Provisions. If any one or more of the
covenants, agreements, provisions or terms of this Agreement shall be for any
reason whatsoever held invalid, then such covenants, agreements, provisions or
terms shall be deemed severable from the remaining covenants, agreements,
provisions or terms of this Agreement and shall in no way affect the validity or
enforceability of the other provisions of this Agreement.
Section 6.5. No Partnership. Nothing herein contained shall be
deemed or construed to create a co-partnership or joint venture between the
parties hereto.
Section 6.6. Counterparts. This Agreement may be executed
simultaneously in any number of counterparts, each of which counterparts shall
be deemed to be an original, and such counterparts shall together constitute but
one and the same instrument.
Section 6.7. Assignment. Except as expressly provided herein, no
party hereto shall sell, pledge, assign or otherwise transfer this Agreement
without the prior written consent of the other parties hereto.
Section 6.8. Headings. Section headings are for reference purposes
only and shall not be construed as a part of this Agreement.
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IN WITNESS WHEREOF, Buyer, Seller and Custodian have caused their
names to be signed hereto by their respective officers thereunto duly
authorized, all as of the day and year first above written.
MERRILL LYNCH MORTGAGE CAPITAL INC.,
as Buyer
By:
-------------------------------
Name:
Title:
GREEN TREE FINANCIAL CORPORATION,
as Seller
By:
-------------------------------
Name:
Title:
FIRST TRUST NATIONAL ASSOCIATION,
as Custodian
By:
-------------------------------
Name:
Title:
By:
-------------------------------
Name:
Title:
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EXHIBIT A
---------
CUSTODIAL CONFIRMATION STATEMENT
[Date]
[ADDRESSEE]
Re: Confirmation of Ownership Interest in
Contracts under Repurchase Agreement
------------------------------------
Gentlemen:
First Trust National Association, in its capacity as custodian (the
"Custodian") under a Tri-Party Custodial Agreement (the "Agreement"), by and
among Merrill Lynch Mortgage Capital Inc. ("Buyer"), Green Tree Financial
Corporation ("Seller") and Custodian, is pleased to confirm your ownership
interest, under the terms and conditions of the Agreement, of the Contracts (as
defined in the Agreement) and the payments due thereunder listed on the schedule
bearing List Number ____ attached hereto, which Contracts, based on such
schedule, evidence aggregate advances thereunder equal to $_________ as of the
date hereof. In accordance with the provisions of Section 3.2 of the above-
referenced Custodial Agreement, the undersigned, as Custodian, hereby certifies
that it has received all of the items listed in Section 3.1 of the Custodial
Agreement with respect to each Contract and the Collateral Security identified
on the List of Contracts attached to the Transfer Instructions dated __________.
Any exceptions or deficiencies in a Custodian's Contract File are set forth in
an exception report attached hereto and made a part hereof. Capitalized terms
used herein without definition shall have the meanings ascribed to them in the
Agreement.
Custodian shall act as agent and bailee exclusively for you with
respect to each such Contract until your interest therein is extinguished as
provided under the Agreement.
Custodian further certifies that as to each Contract, Custodian holds
the Contract without written notice (a) of any adverse claims, liens or
encumbrances, (b) that any Contract was overdue or has been dishonored, (c) of
evidence on the face of any Contract or other document relating thereto in
Custodian's possession of any security interest therein, or (d) of any defense
against or claim to the Contract by any other party.
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Custodian makes no representations or warranties as to the validity,
legality, sufficiency, enforceability, genuineness or prior recorded status of
any of the documents contained in each Custodian's Contract File or the
collectability, insurability, effectiveness or suitability of any Contract.
FIRST TRUST NATIONAL ASSOCIATION,
as Custodian
By:
---------------------------
Name:
Title:
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EXHIBIT B
---------
Form of Transfer Instructions
-----------------------------
[Date]
First Trust National Association
First Trust Center
P.O. Box 64111
St. Paul, MN 55164-0111
Gentlemen:
Reference is made to the Tri-Party Custodial Agreement dated as of
September 1, 1995 (the "Custodial Agreement") among Green Tree Financial
Corporation ("Seller"), First Trust National Association, as Custodian, and
Merrill Lynch Mortgage Capital Inc. ("Buyer") to the Master Repurchase Agreement
dated as of September 1, 1995 between Buyer and Seller. Capitalized terms used
and not otherwise defined herein shall have the meanings assigned in the
Custodial Agreement.
The undersigned, as the Owner of the Contracts and related Collateral
Security listed on Schedule I hereto, hereby instructs you to transfer all of
the undersigned's right, title and interest in and to such Contracts and
Collateral Security, by annotation on your books and records, to the following
person:
__________________________________
__________________________________
__________________________________
__________________________________
[NAME OF OWNER]
By: _____________________________
Name: ___________________________
Title: __________________________
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<PAGE>
Exhibit 10(m).
--------------
ANNEX I
SUPPLEMENTAL TERMS TO MASTER REPURCHASE AGREEMENT,
DATED AS OF NOVEMBER 9, 1995, BETWEEN
SALOMON BROTHERS HOLDING COMPANY INC AND
GREEN TREE FINANCIAL CORPORATION
1. APPLICABILITY. These Supplemental Terms (the "Supplemental Terms") to
Master Repurchase Agreement (the "Master Repurchase Agreement", and
collectively with these Supplemental Terms, the "Agreement") modify the
terms and conditions under which the parties hereto, from time to time,
enter into Transactions.
2. ADDITIONAL DEFINITIONS.
(a) Capitalized terms used herein and not otherwise defined shall have the
meanings set forth in the Master Repurchase Agreement.
(b) "Buyer" shall refer to Salomon Brothers Holding Company Inc.
(c) "Consumer Products" refers to consumer goods consisting of personal
watercraft, motorcycles, all terrain vehicles, boats, outboard motors,
boat trailers, horse trailers, pianos and organs, recreational
vehicles and any other asset as shall be acceptable to Buyer in its
sole discretion, financed by Seller pursuant to a Retail Installment
Contract.
(d) "Custodial Agreement" shall refer to a custodial agreement, among the
parties having ownership interests in the related Securities and the
party named as custodian therein, providing for the maintenance of
ownership records relating to the Securities.
(e) "FHA" shall refer to the Federal Housing Administration of HUD.
(f) "FHA/VA MH Contracts" shall refer to MH Contracts that are insured by
the FHA or guaranteed by the Department of Veterans Affairs.
(g) "Home Improvement Loans" means (i) first, second and third-lien home
improvement retail installment contracts and promissory notes, whether
conventional or insured by the Federal Housing Administration, and
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including without limitation, all rights to receive payments which are
due pursuant thereto and all other proceeds thereof (including any
recourse rights against third persons) from and after the related
Purchase Date, but excluding any rights to receive payments which are
due prior to the related Purchase Date, and (ii) Unsecured Home
Improvement Loans.
(h) "HUD" shall refer to the Department of Housing and Urban Development.
(i) "Market Value" shall, in addition to the definition set forth in the
Master Repurchase Agreement, provide that:
(i) the Market Value of any Security shall be determined solely by
Buyer;
(ii) the Market Value of a Security shall be determined by valuing
such Security net of any applicable servicing fee;
(iii) that a value of zero shall be assigned to any Security which has
been delinquent for thirty (30) days or more; and
(iv) in no event shall the Market Value of a Security exceed the
outstanding principal amount thereof.
(j) "MH Contract" refers to a manufactured housing conditional sales
contract, the ownership of which is evidenced by a Trust Receipt
issued pursuant to a Custodial Agreement.
(k) "Owner" shall have the meaning set forth in the Custodial Agreement.
(l) "Retail Installment Contract" refers to any retail installment
contract between Seller and a third party obligor pursuant to which
Seller finances a Consumer Product, all rights to receive payments
which are due pursuant thereto, and any "purchase money security
interest" (as defined in the Uniform Commercial Code) created in favor
of Seller in the Consumer Product financed thereunder.
(m) "Securities" shall refer to MH Contracts, Home Improvement Loans and
Retail Installment Contracts; provided, however, that such MH
Contracts, Home Improvement Loans and Retail Installment Contracts
shall not be deemed to be securities for any federal securities law or
state blue sky law purposes.
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(n) "Seller" shall refer to Green Tree Financial Corporation.
(o) "Step-Rate" shall refer to the rate of interest on a MH Contract which
increases one year after origination to a rate that is specified on
the date of origination.
(p) "Title I Loan" shall refer to a Home Improvement Loan insured under
the FHA's Title I Program.
(q) "Transaction" shall, in addition to the definition set forth in the
Master Repurchase Agreement, refer to deliveries of Securities or cash
pursuant to Paragraph 4(a) of the Master Repurchase Agreement and
substitutions pursuant to Paragraph 9 of the Master Repurchase
Agreement.
(r) "Trust Receipt" shall refer to the trust receipt issued by the party
named as custodian in the Custodial Agreement that evidences ownership
of the Securities indicated thereon.
(s) "Unsecured Home Improvement Loans" shall refer to Home Improvement
Loans that are not secured by mortgaged property.
3. CONFIRMATIONS. Each Confirmation shall be binding upon the parties hereto
unless written notice of objection is given by the objecting party to the
other party within two (2) business days after the objecting party's
receipt of such Confirmation. In the case of Transactions involving MH
Contracts, Home Improvement Loans or Retail Installment Contracts, the
Purchased Securities shall be identified on a detailed listing to be
provided by Seller to Buyer (a "List of MH Contracts" for MH Contracts, a
"List of Home Improvement Loans" for Home Improvement Loans and a "List of
Retail Installment Contracts" for Retail Installment Contracts) and may be
identified in the related Confirmation by reference to such lists.
4. INCOME PAYMENTS. So long as no Event of Default shall have occurred and be
continuing, Seller shall be entitled to all payments of principal and
interest and principal prepayments payable to the holder of the Purchased
Securities.
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5. SECURITY INTEREST.
(a) In the event, for any reason, any Transaction is construed by any
court as a secured loan rather than a purchase and sale, the parties
intend that Buyer shall have a perfected first priority security
interest in all of the Purchased Securities.
(b) Seller shall pay all fees and expenses associated with perfecting such
security interest including, without limitation, the cost of filing
financing statements under the Uniform Commercial Code.
(c) In the event that Buyer elects to engage in repurchase transactions
with the Purchased Securities or otherwise elects to pledge or
hypothecate the Purchased Securities, Seller shall, at the request of
Buyer and at the expense of Seller, provide Buyer's counterparty in
such repurchase transaction with an opinion of counsel to the effect
that such counterparty has either an ownership interest or a perfected
first priority security interest in such Purchased Securities.
6. REPRESENTATIONS.
(a) Each party represents and warrants, and shall on and as of the
Purchase Date of any Transaction be deemed to represent and warrant,
as follows:
(i) the execution, delivery and performance of the Agreement and the
performance of each Transaction do not and will not result in or
require the creation of any lien, security interest or other
charge or encumbrance (other than pursuant hereto) upon or with
respect to any of its properties; and
(ii) the Agreement is, and each Transaction when entered into under
the Agreement will be, a legal, valid and binding obligation of
it enforceable against it in accordance with the terms of the
Agreement.
(b) Seller represents and warrants to Buyer, and shall on and as of the
Purchase Date of any Transaction be deemed to represent and warrant,
as follows:
(i) the documents disclosed by Seller to Buyer pursuant to these
Supplemental Terms are either original documents or genuine and
true copies thereof;
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(ii) Seller is a separate and independent corporate entity from the
custodian named in the Custodial Agreement, Seller does not own a
controlling interest in such custodian either directly or through
affiliates and no director or officer of Seller is also a
director or officer of such custodian;
(iii) Seller shall be at the time it delivers any Purchased Securities
for any Transaction, and shall continue to be, through the
Purchase Date relating to each such Transaction, the legal and
beneficial owner of such Purchased Securities free and clear of
any lien, security interest, option or encumbrance except for the
security interest created by the Agreement;
(iv) each MH Contract and Home Improvement Loan conforms, and through
the Repurchase Date of the related Transaction shall continue to
conform, to the securitization requirements of the most recent
related pass-through transaction underwritten or placed on behalf
of Seller or any affiliate thereof (which transaction has
received an investment grade rating by Standard & Poor's Ratings
Group, a division of McGraw-Hill, Inc. or Moody's Investors
Service, Inc.) and otherwise conforms, and through the Repurchase
Date of the related Transaction shall continue to conform, to the
current standards of institutional securitization applicable to
contracts and loans similar in nature to the MH Contracts and the
Home Improvement Loans; all MH Contracts and Home Improvement
Loans, individually and in the aggregate, substantially comply,
and through the Repurchase Date of the related Transaction shall
continue to substantially comply, with each related
representation and warranty made in the most recent related pass-
through transaction underwritten or placed on behalf of Seller or
an affiliate thereof and will otherwise substantially comply, and
through the Repurchase Date of the related Transaction shall
continue to substantially comply, with each related
representation or warranty customarily required under the current
standards of institutional securitization applicable to contracts
and loans similar in nature to the MH Contracts and the Home
Improvement Loans;
(v) each Retail Installment Contract conforms to the current
standards of securitization in publicly
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<PAGE>
registered asset-backed offerings applicable to contracts similar
in nature to the Retail Installment Contracts; all Retail
Installment Contracts, individually and in the aggregate, will
substantially comply with each related representation or warranty
customarily required under the current standards of
securitization in publicly registered, highly rated asset-backed
offerings applicable to contracts similar to the Retail
Installment Contracts;
(vi) each MH Contract is, and through the Repurchase Date of the
related Transaction will continue to be, secured by a
manufactured housing unit that satisfies the conditions for
backing a "mortgage related security" as described in Section
3(a)(41) of the Securities Exchange Act of 1934, as amended;
(vii) each MH Contract, Home Improvement Loan and Retail Installment
Contract was originated by Seller directly or through its
correspondent network in its ordinary course of business and has
not been purchased in any bulk transaction, unless otherwise
expressly approved by Buyer in writing;
(viii) each MH Contract, Home Improvement Loan and Retail Installment
Contract was underwritten in accordance with the written
underwriting standards of Seller furnished by Seller to Buyer,
and no material change to such underwriting standards has
occurred since the date of the last written revision to such
standards was furnished to Buyer by Seller; and
(ix) since the date of the most recent financial statement of Seller,
delivered by it pursuant to Paragraph 9 hereof, there has been no
material adverse change in the financial condition or results or
operations of Seller.
(c) Seller makes the representations and warranties to Buyer concerning
the MH Contracts, and shall as of the Purchase Date of any Transaction
be deemed to make such representations and warranties, as are set
forth at Exhibit A-1 hereto, with respect to those MH Contracts
relating to manufactured housing that is not considered to be real
property under applicable state law, and Exhibit A-2 hereto, with
respect to those MH Contracts relating to manufactured housing that is
considered to be real property under applicable state law. Seller
further represents and warrants to Buyer that the
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<PAGE>
Exhibit A-1 and A-2 representations and warranties, as applicable,
shall continue to be true for all MH Contracts through the Repurchase
Date of the related Transaction.
(d) Seller makes the representations and warranties to Buyer concerning
the Home Improvement Loans, and shall as of the Purchase Date of any
Transaction be deemed to make such representations and warranties, as
are set forth at Exhibit B hereto. Seller further represents and
warrants to Buyer that the Exhibit B representations and warranties
shall continue to be true for all Home Improvement Loans through the
Repurchase Date of the related Transactions.
(e) Seller makes the representations and warranties to Buyer concerning
the Retail Installment Contracts, and shall as of the Purchase Date of
any Transaction be deemed to make such representations and warranties,
as are set forth at Exhibit C hereto. Seller further represents and
warrants to Buyer that the Exhibit C representations and warranties
shall continue to be true for all Retail Installment Contracts through
the Repurchase Date of the related Transactions.
7. EVENTS OF DEFAULT.
(a) The term "Event of Default" shall, in addition to the definition set
forth in the Master Repurchase Agreement, include the following
events:
(i) any governmental or self-regulatory authority shall take
possession of Buyer or Seller or its property or appoint any
receiver, conservator or other official, or such party shall take
any action to authorize any of the actions set forth in this
clause (i);
(ii) Buyer shall have reasonably determined that Seller is or will be
unable to meet its commitments under the Agreement, shall have
notified Seller of such determination and Seller shall not have
responded with appropriate information to the contrary to the
satisfaction of Buyer within twenty-four (24) hours;
(iii) the Agreement shall for any reason cease to create either an
ownership interest (which ownership interest shall be confirmed
upon request of Buyer in an opinion of counsel provided by
Seller) or a valid, first priority security interest in any of
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the Purchased Securities purported to be covered thereby;
(iv) a final judgment by any competent court in the United States of
America for the payment of money in an amount of at least
$1,000,000 is rendered against the defaulting party, and the same
remains undischarged for a period of 60 days during which
execution of such judgment is not effectively stayed;
(v) any representation or warranty made by Seller in the Agreement or
the Custodial Agreement shall have been incorrect or untrue when
made or repeated or when deemed to have been made or repeated or,
in the case of continuing representations, shall be untrue in any
material respect during the term of any Transaction under the
Agreement; or
(vi) HUD or the Federal Housing Administration shall have withdrawn or
adversely modified its approval of Seller to act as an FHA-
approved mortgagee and servicer (including an FHA-approved
mortgagee and servicer under Title I).
(b) Upon the occurrence and during the continuance of an Event of Default
by Seller:
(i) all rights of Seller to receive payments which it would otherwise
be authorized to receive pursuant to Paragraph 4 of these
Supplemental Terms shall cease, and all such rights shall
thereupon become vested in Buyer, which shall thereupon have the
sole right to receive such payments and apply them to the
aggregate unpaid Repurchase Prices owed by Seller; and
(ii) all payments which are received by Seller contrary to the
provisions of the preceding clause (i) shall be received in trust
for the benefit of Buyer and shall be segregated from other funds
of Seller.
(c) Any sale of Purchased Securities under Paragraph 11 of the Master
Repurchase Agreement shall be conducted in a commercially reasonable
manner.
8. ADDITIONAL EVENTS OF TERMINATION.
(a) At the option of Buyer, exercised by written notice to Seller, the
Repurchase Date for each Transaction under
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<PAGE>
the Agreement shall be deemed to immediately occur in the event that:
(i) Salomon Brothers Inc is not selected to be, or has resigned as,
the lead manager or a co-manager for the securitization of any of
the MH Contracts;
(ii) in the judgment of Buyer a material adverse change shall have
occurred in the business, operations, properties, prospects or
condition (financial or otherwise) of Seller;
(iii) Buyer shall request written assurances as to the financial well-
being of Seller and such assurances shall not have been provided
within twenty-four (24) hours of such request; or
(iv) Seller shall be in default with respect to any normal and
customary covenants under any contract or agreement to which it
is a party (which covenants include, but are not limited to, an
Act of Insolvency of Seller or the failure of Seller to make
required payments under such contract or agreement as they become
due).
(b) The events specified in Paragraph 8(a) of these Supplemental Terms
which may, at the option of Buyer, cause an acceleration of the
Repurchase Date for each Transaction shall be in addition to any other
rights of Buyer to cause such an acceleration under the Agreement.
9. FINANCIAL STATEMENTS. As of the date hereof, the parties hereto shall each
provide the other with its audited year-end financial statements and its
most recent publicly available interim financial statement. The parties
hereto shall from time to time each provide the other with audited year-end
financial statements and additional publicly available interim financial
statements upon the other's reasonable request. Each delivery of Purchased
Securities by Seller to Buyer hereunder will constitute a representation by
Seller that there has been no material adverse change in Seller's financial
condition not disclosed to Buyer since the date of Seller's most recent
financial statement delivered to Buyer. Seller shall provide Buyer, from
time to time at Seller's expense, with such information of a financial or
operational nature as Buyer may reasonably request promptly upon receipt of
such request.
10. USE OF PROCEEDS. Seller represents, warrants and covenants that none of
the Purchase Price for any Purchased Securities will be used either
directly or indirectly to acquire any
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security, as that term is defined in Regulation G or Regulation T of the
Board of Governors of the Federal Reserve System, and that Seller has not
taken any action that might cause any Transaction to violate any regulation
of the Federal Reserve Board.
11. MINIMUM AND MAXIMUM TRANSACTION AMOUNTS; MARGIN. The parties hereto agree
and acknowledge that Transactions hereunder will be entered into by Buyer
in its sole discretion and that Buyer is under no obligation to enter into
any Transaction with Seller. With respect to any Transaction and without
limiting the discretion of Buyer referred to in the foregoing sentence and
in Paragraph 16 of these Supplemental Terms:
(a) the minimum amount of any Transaction under this Agreement shall have
a Purchase Price of $5,000,000;
(b) the aggregate outstanding Purchase Price for Purchased Securities that
are Home Improvement Loans shall not exceed $100,000,000 at any one
time;
(c) the aggregate outstanding Purchase Price for Purchased Securities that
are Unsecured Home Improvement Loans and Consumer Products shall not
exceed $50,000,000 at any one time;
(d) the aggregate outstanding Purchase Price for all Purchased Securities
shall not exceed $300,000,000 at any one time; and
(e) the percentage used to determine Buyer's Margin Amount shall be as
mutually agreed upon by Buyer and Seller but in no event less than (i)
110% in the case of Transactions involving Home Improvement Loans
(other than Unsecured Home Improvement Loans) and MH Contracts and
(ii) 120% in the case of Transactions involving Unsecured Home
Improvement Loans and Consumer Products.
12. REPURCHASE PRICE; PRICE DIFFERENTIAL. The Repurchase Price as of any date
shall include that portion of the Price Differential that has accrued but
has not been paid. The Price Differential shall accrue and be calculated
on a daily basis for each MH Contract, Home Improvement Loan and Retail
Installment Contract (such calculation to be made on the basis of a 360-day
year and the actual number of days elapsed). The Price Differential shall
be payable weekly in arrears to Buyer with respect to each MH Contract,
Home Improvement Loan and Retail Installment Contract on the earlier of
Friday of each week or the termination date for the related Transaction.
The Price Differential for any MH
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Contract, Home Improvement Loan and Retail Installment Contract shall be
equal to the product of (i) the Purchase Price and (ii) a per annum
percentage 50 basis points (or such other number of basis points as Buyer
and Seller may mutually agree) in excess of the prevailing overnight rate
on Federal funds (as reported on Page 5 of Telerate) existing at the
opening of business on the date of calculation. Payment of the Price
Differential to Buyer shall be made by wire transfer in immediately
available funds.
13. ADDITIONAL INFORMATION.
(a) At any reasonable time, Seller shall permit Buyer, its agents or
attorneys, to inspect and copy any and all documents and data in their
possession pertaining to each Purchased Security that is the subject
of such Transaction. Such inspection shall occur upon the request of
Buyer at a mutually agreeable location during regular business hours
and on a date not more than two (2) business days after the date of
such request.
(b) Seller agrees to provide Buyer from time to time with such information
concerning Seller of a financial or operational nature as Buyer may
request.
(c) Seller shall provide Buyer with copies of all filings made by or on
behalf of Seller or its affiliates with the Securities and Exchange
Commission pursuant to the Securities Exchange Act of 1934, as
amended, promptly upon making such filings.
14. BUYER MAY REJECT SECURITIES. Buyer may, in its sole discretion, refuse to
purchase any Security offered for sale by Seller under the Agreement or
offered as Additional Purchased Securities pursuant to Paragraph 4(a) or
for substitution pursuant to Paragraph 9 of the Master Repurchase Agreement
or may require an immediate repurchase of any such Security in the manner
provided in the Custodial Agreement. Seller shall have no right to object
to such repurchase.
15. MARGIN MAINTENANCE.
(a) Paragraph 4(a) of the Master Repurchase Agreement is hereby modified
to provide that if the notice to be given by Buyer to Seller under
such paragraph is given at or prior to 10:00 a.m. New York City time,
Seller shall transfer the Additional Purchased Securities or cash to
Buyer prior to the close of business in New York City on the date of
such notice, and if such
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notice is given after 10:00 a.m. New York City time, Seller shall
transfer the Additional Purchased Securities or cash prior to the
close of business in New York City on the business day following the
date of such notice.
(b) Additional Purchased Securities that are MH Contracts, Home
Improvement Loans and Retail Installment Contracts that are
transferred by Seller to Buyer pursuant to Paragraph 4(a) of the
Master Repurchase Agreement shall be transferred to the Custodian for
the benefit of Buyer pursuant to the provisions of the Custodial
Agreement. Any cash transferred by Seller to Buyer shall be sent via
wire transfer in immediately available funds to the account designated
by Buyer.
(c) Paragraph 4 of the Master Repurchase Agreement is hereby amended by
adding the following at the end thereof:
"(e) In the case of any Transactions that have a term greater
than one business day, any cash paid by either party in respect
of a margin payment or reduction made pursuant to paragraph 4(a)
or (b) shall be deemed to neither increase or decrease the
Purchase Price for purposes of calculating the Price
Differential."
16. TRANSACTIONS OPTIONAL; NO COMMITMENT. Notwithstanding any other provision
of the Agreement or the Custodial Agreement to the contrary, Buyer shall be
under no obligation to enter into Transactions with Seller and the
initiation of each Transaction is subject to the approval of Buyer in its
sole discretion.
17. ADDITIONAL CONDITIONS. Prior to entering into the initial Transaction
under this Agreement, Seller shall cause each of the following conditions
to occur:
(a) A Custodial Agreement relating to the MH Contracts, the Home
Improvement Loans and the Retail Installment Contracts, in form and
substance satisfactory to Buyer, shall have been executed and
delivered by the parties thereto;
(b) Seller shall have disclosed information satisfactory to Buyer with
respect to the scheduled maturities and termination provisions of all
outstanding credit facilities and debt of Seller; and
(c) Seller shall, on the Purchase Date of the first Transaction hereunder
and, upon the request of Buyer,
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on the Purchase Date of any subsequent Transaction, cause to be
delivered to Buyer, with reliance thereon permitted as to any person
or entity that purchases the Securities from Buyer in a repurchase
transaction, an opinion of counsel, in form and substance satisfactory
to Buyer and its counsel, concerning (i) the authorization and
authority of Seller to enter into the Agreement and the Custodial
Agreement and Transactions thereunder, (ii) the ownership interest or
perfected security interest of Buyer or its agent in the Purchased
Securities and (iii) such other matters as Buyer may reasonably
require.
18. SERVICING ARRANGEMENTS.
(a) The parties hereto agree and acknowledge that, notwithstanding the
purchase and sale of the MH Contracts, the Home Improvement Loans and
the Retail Installment Contracts contemplated hereby, Seller shall
continue to service the MH Contracts, the Home Improvement Loans and
the Retail Installment Contracts for the benefit of Buyer and, if
Buyer shall exercise its rights to sell the MH Contracts, the Home
Improvement Loans and the Retail Installment Contracts pursuant to
this Agreement prior to the related Repurchase Date, Buyer's assigns;
provided, however, that the obligation of Seller to service the MH
Contracts, the Home Improvement Loans and the Retail Installment
Contracts for the benefit of Buyer as aforesaid shall cease upon the
payment to Buyer of the Repurchase Price therefor.
(b) Seller shall service the MH Contracts, the Home Improvement Loans and
the Retail Installment Contracts and shall enforce its rights and the
rights of the beneficial owner thereunder in accordance with the
standards of a prudent lender in the manufactured housing industry,
the home improvement loan industry and the consumer finance industry,
as applicable.
(c) Seller shall service all FHA/VA MH Contracts and all FHA/VA Home
Improvement Loans in a manner such that such insurance or guarantee
will not be impaired and will remain in full force and effect.
(d) Buyer may, in its sole discretion if an Event of Default shall have
occurred and be continuing, without payment of any termination fee or
any other amount to Seller, (i) sell its right to the MH Contracts,
the Home Improvement Loans and the Retail Installment Contracts on a
servicing released basis or (ii) terminate Seller as servicer of the
MH Contracts, the
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Home Improvement Loans and the Retail Installment Contracts with or
without cause.
19. TRANSFERS TO THIRD PARTIES. Buyer and Seller agree that, notwithstanding
any provision of the Agreement or the Custodial Agreement to the contrary,
Buyer may engage in repurchase transactions with the Purchased Securities
and may otherwise pledge or hypothecate the Purchased Securities, provided
that no such transaction shall relieve Buyer of its obligations under the
Agreement.
20. SINGLE AGREEMENT. Paragraph 12 of the Master Repurchase Agreement is
amended by adding at the end thereof the following:
"Each party to the Agreement agrees that, upon an Act of Insolvency by
a party hereto (such party being herein referred to as "Party A") or
any of its affiliates or the default by Party A or any of its
affiliates under any transaction with the other party hereto or any of
such other party's affiliates (such other party or any of its
affiliates, a "Non-Defaulting Party"), each Non-Defaulting Party may:
(a) liquidate any transaction between Party A and any Non-Defaulting
Party, (b) reduce any amounts due and owing to Party A under this or
any other transactions between Party A and any Non-Defaulting Party by
setting off against such amounts any amounts due and owing to a Non-
Defaulting Party by Party A or any of Party A's affiliates, and (c)
treat all security for any transactions between Party A and any Non-
Defaulting Party as security for all transactions between Party A or
any of Party A's affiliates and any Non-Defaulting Party.
21. NEW YORK JURISDICTION; WAIVER OF JURY TRIAL. Buyer and Seller hereby agree
to submit to the courts of the State of New York in any action or
proceeding arising out of this Agreement. Buyer and Seller each hereby
waives the right of trial by jury in any litigation arising hereunder.
22. BINDING TERMS. All of the covenants, stipulations, promises and agreements
in the Agreement shall bind the successors and assigns of the parties
hereto, whether expressed or not.
23. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which counterparts shall be deemed to be an original,
and such counterparts shall constitute but one and the same instrument.
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24. INCORPORATION OF TERMS. The Master Repurchase Agreement as supplemented
hereby shall be read, taken and construed as one and the same instrument.
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EXHIBIT A-1
-----------
Representations with respect to MH Contracts
(not relating to real property)
--------------------------------------------
A. Payments. The scheduled payment of principal and interest for the
next Due Date was made by or on behalf of the obligor (without any advance from
Seller or any Person acting at the request of Seller) or was not delinquent for
more than 30 days.
B. No Waivers. The terms of the MH Contract have not been waived,
altered or modified in any respect, except by instruments or documents
identified in the MH Contract file.
C. Binding Obligation. The MH Contract is the legal, valid and binding
obligation of the obligor thereunder and is enforceable in accordance with its
terms, except as such enforceability may be limited by laws affecting the
enforcement of creditors' rights general.
D. No Defenses. The MH Contract is not subject to any right of
rescission, setoff, counterclaim or defense, including the defense of usury, and
the operation of any of the terms of the MH Contract or the exercise of any
right thereunder will not render the MH Contract unenforceable in whole or in
part or subject to any right of rescission, setoff, counterclaim or defense,
including the defense of usury, and no such right of rescission, setoff,
counterclaim or defense has been asserted with respect thereto.
E. Insurance. Seller or its agent has monitored the existence of a
hazard insurance policy with respect to the manufactured home securing a MH
Contract and if the Seller has determined that no such policy exists, Seller has
arranged for such insurance and has billed the related obligor through its loan
account
F. Origination. The MH Contract was originated by a manufactured housing
dealer or Seller in the regular course of its business and, if originated by a
manufactured housing dealer, was purchased by Seller in the regular course of
its business.
G. Lawful Assignment. The MH Contract was not originated in and is not
subject to the laws of any jurisdiction whose laws would make the transfer of
the MH Contract to the Custodian or the ownership of the MH Contracts by the
Owner unlawful.
A-1-1
<PAGE>
H. Compliance with Law. All requirements of any federal, state or local
law, including, without limitation, usury, truth in lending and equal credit
opportunity laws, applicable to the MH Contract have been complied with and such
compliance is not affected by the holding of the MH Contracts by the Custodian
or the Owner's ownership of the MH Contracts, and Seller shall maintain in its
possession, available for the Buyer's inspection, and shall deliver to the Buyer
upon demand, evidence of compliance with all such requirements.
I. MH Contract in Force. The MH Contract has not been satisfied or
subordinated in whole or in part or rescinded, and the manufactured home
securing the MH Contract has not been released from the lien of the MH Contract
in whole or in part.
J. Valid Security Interest. The MH Contract creates a valid and
enforceable perfected first priority security interest in favor of Seller in the
manufactured home covered thereby as security for payment of the outstanding
principal balance of such MH Contract and all other obligations of the obligor
under such MH Contract; such security interest has been assigned by Seller to
the Custodian, and the Custodian has and will, on behalf of the Owners of the MH
Contracts, have a valid and perfected and enforceable first priority security
interest in such manufactured home.
K. Capacity of Parties. All parties to the MH Contract had capacity to
execute the MH Contract.
L. Good Title. In the case of a MH Contract purchased from a
manufactured housing dealer, Seller purchased the MH Contract for fair value and
took possession thereof in the ordinary course of its business, without
knowledge that the MH Contract was subject to a security interest. Seller has
not sold, assigned or pledged the MH Contract to any Person other than the
Custodian.
M. No Defaults. There was no default, breach, violation or event
permitting acceleration existing under the MH Contract and no event which, with
notice and the expiration of any grace or cure period, would constitute such a
default, breach, violation or event permitting acceleration under such MH
Contract. Seller has not waived any such default, breach, violation or event
permitting acceleration.
N. No Liens. There are, to the best of Seller's knowledge, no liens or
claims which have been filed for work, labor or materials affecting the
manufactured home securing the MH Contract which are or may be liens prior to,
or equal or coordinate with, the lien of the MH Contract.
A-1-2
<PAGE>
O. Equal Installments. The MH Contract has either a fixed rate or a
Step-Rate and provides for level monthly payments which fully amortize the
loan over its term.
P. Enforceability. The MH Contract contains customary and enforceable
provisions such as to render the rights and remedies of the holder thereof
adequate for the realization against the collateral of the benefits of the
security.
Q. One Original. There is only one original executed MH Contract, which
is held by Seller.
R. Loan-to-Value Ratio. At the time of its origination each MH Contract
had a Loan-to-Value Ratio not greater than 95%; if the related manufactured home
was new at the time such MH Contract was originated, the original principal
balance of such MH Contract was not in excess of that permitted by Seller's
underwriting guidelines in effect at the time the MH Contract was originated.
S. Primary Resident. At the time of origination of the MH Contract the
obligor was the primary resident of the related manufactured home or the primary
resident was the child of the obligor.
T. Not Real Estate. The related manufactured home is not considered or
classified as part of the real estate on which it is located under the laws of
the jurisdiction in which it is located and such manufactured home is, to the
best of Seller's knowledge, free of damage and in good repair.
U. Notation of Security Interest. If the related manufactured home is
located in a state in which notation of a security interest on the title
document is required or permitted to perfect such security interest, the title
document shows, or if a new or replacement title document with respect to such
manufactured home is being applied for such title document will be issued within
180 days and will show, Seller as the holder of a first priority security
interest in such manufactured home. If the related manufactured home is located
in a state in which the filing of a financing statement under the UCC is
required to perfect a security interest in manufactured housing, such filings or
recordings have been duly made and show Seller as secured party. In either
case, the Custodian has the same rights as the secured party of record would
have (if such secured party were still the owner of the MH Contract) against all
Persons claiming an interest in such manufactured home.
V. Qualified Mortgage for REMIC. Each MH Contract is a "qualified
mortgage" under Section 860G(a)(3) of the Code, and the related manufactured
home is "manufactured housing" within the meaning of Section 25(e)(10) of the
Code.
A-1-3
<PAGE>
W. FHA/VA MH Contracts. If the MH Contract is a FHA/VA MH Contract, the
MH Contract has been serviced in accordance with the FHA/VA regulations, the
insurance or guarantee of the MH Contract under FHA/VA regulations and related
laws is in full force and effect, and no event has occurred which, with or
without notice or lapse of time or both, would impair such insurance or
guarantee.
X. No Adverse Selection. Except for the effect of the representations
and warranties made hereunder, no adverse selection procedures have been
employed in selecting the MH Contracts.
A-1-4
<PAGE>
EXHIBIT A-2
-----------
Representations with respect to MH Contracts
(relating to real property)
--------------------------------------------
A. Payments. The scheduled payment of principal and interest for the
next Due Date was made by or on behalf of the obligor (without any advance from
Seller or any Person acting at the request of Seller) or was not delinquent for
more than 30 days.
B. No Waivers. The terms of the MH Contract have not been waived,
altered or modified in any respect, except by instruments or documents
identified in the MH Contract file.
C. Binding Obligation. The MH Contract is the legal, valid and binding
obligation of the obligor thereunder and is enforceable in accordance with its
terms, except as such enforceability may be limited by laws affecting the
enforcement of creditors' rights general.
D. No Defenses. The MH Contract is not subject to any right of
rescission, setoff, counterclaim or defense, including the defense of usury, and
the operation of any of the terms of the MH Contract or the exercise of any
right thereunder will not render the MH Contract unenforceable in whole or in
part or subject to any right of rescission, setoff, counterclaim or defense,
including the defense of usury, and no such right of rescission, setoff,
counterclaim or defense has been asserted with respect thereto.
E. Insurance. Seller or its agent has monitored the existence of a
hazard insurance policy with respect to the manufactured home securing a MH
Contract and if the Seller has determined that no such policy exists, Seller has
arranged for such insurance and has billed the related obligor through its loan
account
F. Origination. The MH Contract was originated by a manufactured housing
dealer or Seller in the regular course of its business and, if originated by a
manufactured housing dealer, was purchased by Seller in the regular course of
its business.
G. Lawful Assignment. The MH Contract was not originated in and is not
subject to the laws of any jurisdiction whose laws would make the transfer of
the MH Contract to the Custodian or the ownership of the MH Contracts by the
Owner unlawful.
A-2-1
<PAGE>
H. Compliance with Law. All requirements of any federal, state or local
law, including, without limitation, usury, truth in lending and equal credit
opportunity laws, applicable to the MH Contract have been complied with and such
compliance is not affected by the holding of the MH Contracts by the Custodian
or the Owner's ownership of the MH Contracts, and Seller shall maintain in its
possession, available for the Buyer's inspection, and shall deliver to the Buyer
upon demand, evidence of compliance with all such requirements.
I. MH Contract in Force. The MH Contract has not been satisfied or
subordinated in whole or in part or rescinded, and the manufactured home
securing the MH Contract has not been released from the lien of the MH Contract
in whole or in part.
J. Interest in Real Property. Each mortgage is a valid first lien in
favor of Seller on real property securing the amount owed by the obligor under
the related MH Contract subject only to (a) the lien of current real property
taxes and assessments, (b) covenants, conditions and restrictions, rights of
way, easements and other matters of public record as of the date of recording of
such mortgage, such exceptions appearing of record being acceptable to mortgage
lending institutions generally in the area wherein the property subject to the
mortgage is located or specifically reflected in the appraisal obtained in
connection with the origination of the related MH Contract obtained by Seller
and (c) other matters to which like properties are commonly subject which do not
materially interfere with the benefits of the security intended to be provided
by such Mortgage. Seller has assigned all of its right, title and interest in
such MH Contract and related mortgage, including the security interest in the
manufactured home covered thereby, to the Custodian. The Custodian has and will
have a valid and perfected and enforceable first priority security interest in
such MH Contract. The MH Contract creates a valid and enforceable perfected
first priority security interest in favor of Seller in the manufactured home
covered thereby as security for payment of the outstanding principal balance of
such MH Contract and all other obligations of the obligor under such MH
Contract; such security interest has been assigned by Seller to the Custodian,
and the Custodian has and will, on behalf of the Owners of the MH Contracts,
have a valid and perfected and enforceable first priority security interest in
such manufactured home.
K. Capacity of Parties. All parties to the MH Contract had capacity to
execute the MH Contract.
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L. Good Title. In the case of a MH Contract purchased from a
manufactured housing dealer, Seller purchased the MH Contract for fair value and
took possession thereof in the ordinary course of its business, without
knowledge that the MH Contract was subject to a security interest. Seller has
not sold, assigned or pledged the MH Contract to any Person other than the
Custodian.
M. No Defaults. There was no default, breach, violation or event
permitting acceleration existing under the MH Contract and no event which, with
notice and the expiration of any grace or cure period, would constitute such a
default, breach, violation or event permitting acceleration under such MH
Contract. Seller has not waived any such default, breach, violation or event
permitting acceleration.
N. No Liens. There are, to the best of Seller's knowledge, no liens or
claims which have been filed for work, labor or materials affecting the
manufactured home securing the MH Contract which are or may be liens prior to,
or equal or coordinate with, the lien of the MH Contract.
O. Equal Installments. The MH Contract has either a fixed rate or a
Step-Rate and provides for level monthly payments which fully amortize the loan
over its term.
P. Enforceability. The MH Contract contains customary and enforceable
provisions such as to render the rights and remedies of the holder thereof
adequate for the realization against the collateral of the benefits of the
security.
Q. One Original. There is only one original executed MH Contract, which
is held by Seller.
R. Loan-to-Value Ratio. At the time of its origination each MH Contract
had a Loan-to-Value Ratio not greater than 95%; if the related manufactured home
was new at the time such MH Contract was originated, the original principal
balance of such MH Contract was not in excess of that permitted by Seller's
underwriting guidelines in effect at the time the MH Contract was originated.
S. Primary Resident. At the time of origination of the MH Contract the
obligor was the primary resident of the related manufactured home or the primary
resident was the child of the obligor.
T. Good Repair. The related manufactured home is, to the best of
Seller's knowledge, free of damage and in good repair.
U. Qualified Mortgage for REMIC. Each MH Contract is a "qualified
mortgage" under Section 860G(a)(3) of the Code, and
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<PAGE>
the related manufactured home is "manufactured housing" within the meaning of
Section 25(e)(10) of the Code.
V. FHA/VA MH Contracts. If the MH Contract is a FHA/VA MH Contract, the
MH Contract has been serviced in accordance with the FHA/VA regulations, the
insurance or guarantee of the MH Contract under FHA/VA regulations and related
laws is in full force and effect, and no event has occurred which, with or
without notice or lapse of time or both, would impair such insurance or
guarantee.
W. No Adverse Selection. Except for the effect of the representations
and warranties made hereunder, no adverse selection procedures have been
employed in selecting the MH Contracts.
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<PAGE>
EXHIBIT B
---------
Representations with respect
to Home Improvement Loans
----------------------------
A. Payments. The scheduled payment of principal and interest due under
the Home Improvement Loan with respect to the prior Due Date was made on or
before such Due Date by or on behalf of the obligor (without any advance from
Seller or any Person acting at the request of Seller) or was not delinquent for
more than 30 days after such Due Date.
B. No Waivers. The terms of the Home Improvement Loan have not been
waived, altered or modified in any respect, except by instruments or documents
identified in the Home Improvement Loan File. All costs, fees and expenses
incurred in making, closing and perfecting the lien and/or security interest, as
applicable, of the Home Improvement Loan have been paid.
C. Binding Obligation. The Home Improvement Loan is the legal, valid and
binding obligation of the obligor thereunder and is enforceable in accordance
with its terms, except as such enforceability may be limited by laws affecting
the enforcement of creditors' rights generally. In the case of Home Improvement
Loans other than Unsecured Home Improvement Loans, Seller has delivered, or
caused to be delivered, to the Custodian the original Mortgage, with evidence of
recording thereon, or if the original Mortgage has not yet been returned from
the recording office, a true copy of the Mortgage which has been delivered for
recording in the appropriate recording office of the jurisdiction in which the
Real Property is located.
D. No Defenses. The Home Improvement Loan is not subject to any right of
rescission, set off, counterclaim or defense, including the defense of usury,
and the operation of any of the terms of the Home Improvement Loan or the
exercise of any right thereunder will not render the Home Improvement Loan
unenforceable in whole or in part or subject to any right of rescission, set
off, counterclaim or defense, including the defense of usury, and no such right
of rescission, set off, counterclaim or defense has been asserted with respect
thereto.
E. Insurance. In the case of Home Improvement Loans other than Unsecured
Home Improvement Loans, all improvements on the related real property are
covered by a hazard insurance policy. All premiums due on such insurance have
been paid in full.
Each Title I Loan was originated in compliance with FHA regulations and is
insured, without set-off, surcharge or defense, by FHA insurance. Seller has,
in conformity with FHA
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regulations, filed all reports necessary for the Title I Loan to be registered
for FHA insurance. Following assignment of the Title I Loan to Custodian, on
behalf of the Owners, Custodian will be entitled to the full benefits of the FHA
insurance.
F. Origination. The Home Improvement Loan was originated by a home
improvement contractor or Seller in the regular course of its business and, if
originated by a home improvement contractor, was purchased by Seller in the
regular course of its business.
G. Lawful Assignment. The Home Improvement Loan was not originated in
and is not subject to the laws of any jurisdiction whose laws would make the
transfer of the Home Improvement Loan to Custodian or the ownership of the Home
Improvement Loans by the Owner thereof unlawful or make the Home Improvement
Loan unenforceable.
H. Compliance with Law. All requirements of any federal, state or local
law, including, without limitation, usury, truth in lending and equal credit
opportunity laws and the FHA regulations, applicable to the Home Improvement
Loan have been complied with and such compliance is not affected by the holding
of the Home Improvement Loans by Custodian or the Owners' ownership of the Home
Improvement Loans, and Seller shall for at least the period of this Agreement,
maintain in its possession, available for Custodian's inspection, and shall
deliver to Custodian upon demand, evidence of compliance with all such
requirements.
I. Home Improvement Loan in Force. The Home Improvement Loan has not
been satisfied or subordinated (except for such subordination as may be allowed
under FHA regulations) in whole or in part or rescinded, and, in the case of
Home Improvement Loans other than Unsecured Home Improvement Loans, the real
property securing the Home Improvement Loan, as applicable, has not been
released from the lien of the Home Improvement Loan in whole or in part.
J. Valid Lien. The Home Improvement Loan has been duly executed and
delivered by the obligor and either the related Mortgage is a valid and
subsisting first, second or third lien on the property therein described or the
Home Improvement Loan is an unsecured borrowing of the obligor; any related
Mortgage has been assigned by Seller to Custodian, and Custodian has and will
have, on behalf of the Owners of the Home Improvement Loans, a valid and
subsisting lien on the property therein described. Seller has full right to sell
and assign the Home Improvement Loans to Custodian.
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<PAGE>
K. Capacity of Parties. All parties to the Home Improvement Loan had
capacity to execute the Home Improvement Loan.
L. Good Title. Prior to transfer to Custodian, Seller is the sole owner
of the Home Improvement Loan and has the authority to sell, transfer and assign
the Home Improvement Loan. Seller has not sold, assigned or pledged the Home
Improvement Loan to any Person other than the Custodian.
M. No Defaults. There was no default, breach, violation or event
permitting acceleration existing under the Home Improvement Loan and no event
which, with notice and the expiration of any grace or cure period, would
constitute such a default, breach, violation or event permitting acceleration
under such Home Improvement Loan. Seller has not waived any such default,
breach, violation or event permitting acceleration.
N. No Liens. In the case of Home Improvement Loans other than Unsecured
Home Improvement Loans, there are, to the best of Seller's knowledge, no liens
or claims which have been filed for work, labor or materials affecting the real
property securing the Home Improvement Loan which are or may be liens prior to,
or equal or coordinate with, the lien of the Home Improvement Loan.
O. Equal Installments. The Home Improvement Loan has a fixed rate and
provides for level monthly payments which fully amortize the loan over its term.
P. Enforceability. The Home Improvement Loan contains customary and
enforceable provisions such as to render the rights and remedies of the holder
thereof adequate for the realization against the collateral of the benefits of
the security provided thereby.
Q. One Original. There is only one original executed Home Improvement
Loan contract and note, each of which has been delivered to the Custodian.
R. Primary Resident. At the time of origination of the Home Improvement
Loan, the obligor was the primary resident of the related real property.
S. Qualified Mortgage for REMIC. Each Home Improvement Loan that is
secured by a Mortgage on the property described therein is a "qualified
mortgage" under Section 860G(a)(3) of the Code.
T. Proceedings. There is no proceeding pending or, to Seller's knowledge,
threatened for the total or partial condemnation of collateral securing a Home
Improvement Loan.
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U. Marking Records. Seller has caused the portions of the Electronic
Ledger relating to the Mortgage Loans to be clearly and unambiguously marked to
indicate that such Home Improvement Loans are owned by Custodian in accordance
with the terms of the related Custodial Agreement.
V. No Adverse Selection. Except for the effect of the representations
and warranties made hereunder, no adverse selection procedures have been
employed in selecting the Home Improvement Loans.
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<PAGE>
EXHIBIT C
---------
Representations with respect to Retail Installment Contracts
A. Payments. The scheduled payment of principal and interest for the
next Due Date was made by or on behalf of the obligor (without any advance from
Seller or any Person acting at the request of Seller) or was not delinquent for
more than 30 days.
B. No Waivers. The terms of the Retail Installment Contract have not
been waived, altered or modified in any respect, except by instruments or
documents identified in the Retail Installment Contract file.
C. Binding Obligation. The Retail Installment Contract is the legal,
valid and binding obligation of the obligor thereunder and is enforceable in
accordance with its terms, except as such enforceability may be limited by laws
affecting the enforcement of creditors' rights general.
D. No Defenses. The Retail Installment Contract is not subject to any
right of rescission, setoff, counterclaim or defense, including the defense of
usury, and the operation of any of the terms of the Retail Installment Contract
or the exercise of any right thereunder will not render the Retail Installment
Contract unenforceable in whole or in part or subject to any right of
rescission, setoff, counterclaim or defense, including the defense of usury, and
no such right of rescission, setoff, counterclaim or defense has been asserted
with respect thereto.
E. Origination. The Retail Installment Contract was originated by a
dealer or Seller in the regular course of its business and, if originated by a
dealer, was purchased by Seller in the regular course of its business.
F. Lawful Assignment. The Retail Installment Contract was not originated
in and is not subject to the laws of any jurisdiction whose laws would make the
transfer of the Retail Installment Contract to the Custodian or the ownership of
the Retail Installment Contracts by the Owner unlawful.
G. Compliance with Law. All requirements of any federal, state or local
law, including, without limitation, usury, truth in lending and equal credit
opportunity laws, applicable to the Retail Installment Contract have been
complied with and such compliance is not affected by the holding of the Retail
Installment Contracts by the Custodian or the Owner's ownership of the Retail
Installment Contracts, and Seller shall maintain in
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its possession, available for the Buyer's inspection, and shall deliver to the
Buyer upon demand, evidence of compliance with all such requirements.
H. Contract in Force. The Retail Installment Contract has not been
satisfied or subordinated in whole or in part or rescinded, and the Seller's
lien on the related Consumer Product has not been released in whole or in part.
I. Purchase Money Security Interest. The Retail Installment Contract
creates a "purchase money security interest" (as defined in the Uniform
Commercial Code) in favor of Seller in the Consumer Product covered thereby as
security for payment of the outstanding principal balance of such Retail
Installment Contract and all other obligations of the obligor under such Retail
Installment Contract; such security interest has been assigned by Seller to the
Custodian, and the Custodian has and will have a valid purchase money security
interest in such Consumer Product.
J. Valid Lien. Seller has a valid and subsisting lien on each Consumer
Product evidence of which is in the related Retail Installment Contract file.
K. Capacity of Parties. All parties to the Retail Installment Contract
had capacity to execute the Retail Installment Contract.
L. Good Title. Prior to the transfer to the Custodian, Seller is the
owner of the Retail Installment Contract and has the authority to sell, transfer
and assign the Retail Installment. Seller has not sold, assigned or pledged the
Retail Installment Contract to any Person other than the Custodian.
M. No Defaults. There was no default, breach, violation or event
permitting acceleration existing under the Retail Installment Contract and no
event which, with notice and the expiration of any grace or cure period, would
constitute such a default, breach, violation or event permitting acceleration
under such Retail Installment Contract. Seller has not waived any such default,
breach, violation or event permitting acceleration.
N. No Liens. There are, to the best of Seller's knowledge, no liens or
claims which have been filed for work, labor or materials affecting the Consumer
Product which are or may be liens prior to, or equal or coordinate with, the
lien of the Retail Installment Contract.
O. Equal Installments. The Retail Installment Contract has a fixed rate
and provides for level monthly payments which fully amortize the loan over its
term.
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<PAGE>
P. Enforceability. The Retail Installment Contract contains customary
and enforceable provisions such as to render the rights and remedies of the
holder thereof adequate for the realization against the collateral of the
benefits of the security.
Q. One Original. There is only one original executed the Retail
Installment Contract, which is held by Seller.
R. No Adverse Selection. Except for the effect of the representations
and warranties made hereunder, no adverse selection procedures have been
employed in selecting the Retail Installment Contracts.
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<PAGE>
[EXECUTION COPY]
REVERSE REPURCHASE
TRI-PARTY CUSTODIAL AGREEMENT
by and among
____________________________
SALOMON BROTHERS HOLDING COMPANY INC,
Buyer
GREEN TREE FINANCIAL CORPORATION
Seller
FIRST BANK NATIONAL ASSOCIATION,
Custodian
____________________________
Dated as of November 9, 1995
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<PAGE>
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
<TABLE>
<CAPTION>
<C> <S> <C>
Section 1.01. Certain Defined Terms.................. 2
Section 1.02. Reference to Time...................... 5
ARTICLE II
SERVICING ARRANGEMENT
Section 2.01 Documents Maintained by the Seller..... 5
Section 2.02. List of MH Contracts, List of Home
Improvement Loans and List of Retail
Installment Contracts................... 5
Section 2.03. Release of Home Improvement Loan Files
for Servicing........................... 6
ARTICLE III
CUSTODIAL ARRANGEMENT
Section 3.01. General Provisions...................... 6
Section 3.02. Custodial Accounts...................... 7
Section 3.03. Assignment of MH Contracts to the
Custodian; UCC Filings.................. 7
Section 3.04. Assignment of Retail Installment
Contracts to the Custodian; UCC Filings. 8
Section 3.05. Transfer of Home Improvement Loans;
Delivery of Documents................... 8
Section 3.06. Issuance and Transfer of Trust Receipts. 9
Section 3.07. Trust Receipt Register.................. 10
Section 3.08.[RESERVED]................................ 10
ARTICLE IV
OWNERSHIP AND TRANSFER OF ASSETS
Section 4.01. The Trust Receipts...................... 10
Section 4.02. [RESERVED].............................. 11
Section 4.03. Repurchase Date......................... 11
Section 4.04. [RESERVED].............................. 11
Section 4.05. Voluntary Transfer of Assets............ 11
Section 4.06. Voluntary Repurchase of Assets.......... 12
Section 4.07. [RESERVED].............................. 13
Section 4.08. Payment of Price Differential........... 13
Section 4.09. Objections of Buyer or Seller........... 14
Section 4.10. No Service Charge for Sale or Transfer
of Assets............................... 14
</TABLE>
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<TABLE>
<C> <C> <C>
Section 4.11. [RESERVED].............................. 14
Section 4.12. Simultaneous Transfers.................. 14
Section 4.13. Buyer May Reject Assets................. 14
Section 4.14. Persons Deemed Owners................... 14
Section 4.15. Unilateral Transfer of Assets Owned by
Seller.................................. 14
Section 4.16. Unilateral Transfer of Assets Owned by a
Person Other Than Seller................ 14
Section 4.17. Modification of the Repurchase Date..... 15
Section 4.18. Transfers to Third Parties.............. 15
ARTICLE V
THE CUSTODIAN
Section 5.01. Representations and Warranties of the
Custodian.............................. 15
Section 5.02. Custodian of Documents................. 17
Section 5.03. Charges and Expenses................... 17
Section 5.04. No Adverse Interests................... 17
Section 5.05. Inspections............................ 18
Section 5.06. Insurance.............................. 18
Section 5.07. Limitation of Liability................ 18
Section 5.08. Indemnification........................ 18
ARTICLE VI
MISCELLANEOUS PROVISIONS
Section 6.01. Amendment.............................. 19
Section 6.02. Governing Law.......................... 19
Section 6.03. New York Jurisdiction; Waiver of Jury
Trial.................................. 19
Section 6.04. Notices................................ 19
Section 6.05. Severability of Provisions............. 20
Section 6.06. No Partnership......................... 20
Section 6.07. Counterparts........................... 20
Section 6.08. Assignment............................. 20
Section 6.09. Headings............................... 21
APPENDIX
Exhibit A. Form of Trust Receipt........................ A-1
Exhibit B. Form of Assignment for MH Contracts.......... B-1
Exhibit C. Form of Assignment for Home Improvement
Loans........................................ C-1
Exhibit D. Form of Assignment For Retail Installment
Contracts.................................... D-1
</TABLE>
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<PAGE>
THIS AGREEMENT, made as of the date appearing on the cover page hereof by and
among Salomon Brothers Holding Company Inc, a Delaware corporation, as Buyer,
Green Tree Financial Corporation, a Delaware corporation, as Seller, and First
Bank National Association, a federally chartered association, as Custodian:
WITNESSETH:
Seller in the ordinary course of its business originates MH Contracts, Home
Improvement Loans and Retail Installment Contracts, and sells MH Contracts, Home
Improvement Loans and Retail Installment Contracts on the secondary market;
Seller desires to obtain financing secured by an ownership interest in such
MH Contracts, Home Improvement Loans and Retail Installment Contracts;
In order to facilitate such transactions, Seller and Buyer desire to engage
the Custodian to act as custodian of the MH Contracts, the Home Improvement
Loans and the Retail Installment Contracts for the benefit of Buyer and Seller
and their permitted assigns as their interests may appear;
The ownership by any party of any MH Contract, Home Improvement Loan or
Retail Installment Contract shall be confirmed by delivery to Buyer of a Trust
Receipt issued by the Custodian substantially in the form set forth at Exhibit A
hereto, with appropriate insertions, as provided therein;
Seller acts as servicer with respect to the MH Contracts, the Home
Improvement Loans and the Retail Installment Contracts; and
Seller intends to enter into Transactions from time to time with Buyer
pursuant to the Master Repurchase Agreement between Buyer and Seller, each such
Transaction providing for the sale and repurchase of certain MH Contracts, Home
Improvement Loans or Retail Installment Contracts;
NOW, THEREFORE:
In consideration of the premises and the mutual agreements hereinafter set
forth, Buyer, Seller and the Custodian agree as follows:
<PAGE>
ARTICLE I
DEFINITIONS
SECTION 1.01. CERTAIN DEFINED TERMS. Whenever used in this Agreement,
unless the context otherwise requires, the following words shall have the
meanings set forth below:
"Agreement" shall mean this Reverse Repurchase Tri-Party Custodial
Agreement.
"Assets" means MH Contracts, Home Improvement Loans and Retail Installment
Contracts, as applicable.
"Business Day" means any day other than (a) a Saturday or a Sunday or (b)
another day on which banking institutions in the States of Minnesota, Wisconsin
or New York are authorized or obligated by law, executive order, or governmental
decree to be closed.
"Buyer" means Salomon Brothers Holding Company Inc, and any successor
thereto.
"Collateral Balance" means, as to any Transaction, the related aggregate
Outstanding Principal Amount of MH Contracts, Home Improvement Loans or Retail
Installment Contracts, as the case may be, specified by Buyer in the Transfer
Instructions.
"Computer Tape" means a computer tape generated by Seller which provides
information relating to the MH Contracts, the Home Improvement Loans and the
Retail Installment Contracts.
"Consumer Products" refers to consumer goods consisting of personal
watercraft, motorcycles, all terrain vehicles, boats, outboard motors, boat
trailers, horse trailers, pianos and organs, recreational vehicles and any other
asset as shall be acceptable to Buyer in its sole discretion, financed by Seller
pursuant to a Retail Installment Contract.
"Custodial Account" means an account as defined in and established pursuant
to Section 3.02.
"Custodian" means First Bank National Association, acting in its custodial
capacity, and any successor thereto.
"Defaulted Asset" means, with respect to any monthly payment period, an MH
Contract, Home Improvement Loan or Retail Installment Contract in respect of
which payments exceeding $25
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in the aggregate were delinquent 120 days or more as of the last day of such
monthly payment period.
"Home Improvement Loans": First, second and third-lien home improvement
retail installment contracts and promissory notes, whether conventional or
subject to FHA insurance, including without limitation, all related Mortgages
and, in each case, all rights to receive payments which are due pursuant thereto
from and after the date on which the Home Improvement Loan is initially posted
to the related Computer Tape, but excluding any rights to receive payments which
are due pursuant thereto prior to such date. The term Home Improvement Loans
shall include Unsecured Home Improvement Loans.
"List of Home Improvement Loans" means the list, as amended from time to
time, identifying each Home Improvement Loan deposited hereunder, which list (a)
identifies each Home Improvement Loan and (b) sets forth as to each Home
Improvement Loan (i) the outstanding principal balance, (ii) the amount of
monthly payment due from the obligor, (iii) the rate, (iv) the maturity date and
(v) the last date on which a payment on the Home Improvement Loan was made.
"List of MH Contracts" means the list, as amended from time to time,
identifying each MH Contract deposited hereunder, which list (a) identifies each
MH Contract and (b) sets forth as to each MH Contract (i) the outstanding
principal balance, (ii) the amount of monthly payment due from the obligor,
(iii) the rate, (iv) the maturity date and (v) the last date on which a payment
on the MH Contract was made.
"List of Retail Installment Contracts" means the list, as amended from time
to time, identifying each Retail Installment Contract deposited hereunder, which
list (a) identifies each Retail Installment Contract and (b) sets forth as to
each Retail Installment Contract (i) the outstanding principal balance, (ii) the
amount of monthly payment due from the obligor, (iii) the rate, (iv) the
maturity date and (v) the last date on which a payment on the Retail Installment
Contract was made.
"MH Contracts" means the manufactured housing installment sales contracts
and installment loan agreements subject to this Agreement.
"Margin Percentage" means the percentage defined in Section 3.08.
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"Master Repurchase Agreement" means the master repurchase agreement between
Buyer and Seller relating to the MH Contracts, the Home Improvement Loans and
the Retail Installment Contracts.
"Outstanding Principal Amount" means, as to any MH Contract, Home
Improvement Loan and Retail Installment Contract, the outstanding principal
amount thereof as reflected on the most recent Computer Tape received by the
Custodian; provided, however, that any Defaulted Asset and any Rejected Asset
shall be assigned an Outstanding Principal Amount of zero.
"Owner" means, with respect to any Asset, the Person reflected in the Trust
Receipt Register as being the owner thereof and the holder of the related Trust
Receipt.
"Person" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust (including any beneficiary thereof),
unincorporated organization or government or any agency or political subdivision
thereof.
"Price Differential" means, with respect to any Transaction, the aggregate
amount obtained by daily application of the Pricing Rate for such Transaction to
the Purchase Price for such Transaction on a 360 day per year basis for the
actual number of days during the period commencing on (and including) the date
such Transaction is entered into and ending on (but excluding) the date of
determination.
"Price Differential Payment Date" means the Business Day of each week on
which the aggregate amount of the accrued and unpaid Price Differential is to be
transferred to Buyer's Custodial Account pursuant to Section 4.08, which, unless
Buyer and Seller otherwise notify the Custodian in writing, shall be the last
Business Day of each week.
"Pricing Rate" means, with respect to any Transaction, the rate provided to
the Custodian by Buyer in the Transfer Instructions.
"Purchase Price" means, with respect to any Transaction, the price to be
paid or deemed to be paid by Buyer for the MH Contracts, the Home Improvement
Loans or the Retail Installment Contracts.
"Rejected Asset" means any MH Contract, Home Improvement Loan or Retail
Installment Contract that Buyer has rejected pursuant to Section 4.13.
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<PAGE>
"Repurchase Date" means, for any Transaction, the date on which the related
Assets are to be repurchased pursuant to the Master Repurchase Agreement.
"Repurchase Price" means, with respect to any Transaction on any date, the
price to be paid by Seller to repurchase the related Assets as if such date were
the Repurchase Date for such Transaction, which Repurchase Price shall be
provided to the Custodian by Buyer.
"Retail Installment Contract" refers to any retail installment contract
between Seller and a third party obligor pursuant to which Seller finances a
Consumer Product, all rights to receive payments which are due pursuant thereto,
and any "purchase money security interest" (as defined in the Uniform Commercial
Code) created in favor of Seller in the Consumer Product financed thereunder.
"Seller" means Green Tree Financial Corporation, and any successor thereto.
"Transaction" means a reverse repurchase arrangement under the Master
Repurchase Agreement.
"Transfer Instructions" means, with respect to a Transaction pursuant to
Section 4.05, the Collateral Balance, the Purchase Price and the Pricing Rate as
provided to the Custodian by Buyer.
"Trust Receipt" means a receipt issued by the Custodian substantially in
the form attached hereto as Exhibit A.
"Trust Receipt Register" means the register maintained by the Custodian
reflecting as to each MH Contract, Home Improvement Loan and Retail Installment
Contract the Owner thereof.
"Unsecured Home Improvement Loans" shall refer to Home Improvement Loans
that are not secured by mortgaged property.
SECTION 1.02. REFERENCE TO TIME. All references to time herein shall be
deemed to refer to New York City time unless otherwise provided.
ARTICLE II
SERVICING ARRANGEMENT
SECTION 2.01. DOCUMENTS MAINTAINED BY THE SELLER. The Seller shall retain
possession of all documents and files relating to the MH Contracts and all
documents and files relating
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<PAGE>
to the Home Improvement Loans and Retail Installment Contracts, (other than as
set forth in Section 3.05 hereof). All documents so held by Seller shall be
held by it as agent of the Custodian for the benefit of the Owner of the related
MH Contracts as indicated on the Trust Receipt Register maintained by the
Custodian pursuant to Section 3.07.
SECTION 2.02. LIST OF MH CONTRACTS, LIST OF HOME IMPROVEMENT LOANS AND
LIST OF RETAIL INSTALLMENT CONTRACTS. The Custodian shall maintain the most
recent version of the List of MH Contracts, the List of Home Improvement Loans
and the List of Retail Installment Contracts as such list may be amended from
time to time. The Custodian shall receive a printed copy of the amended List of
MH Contracts, amended List of Home Improvement Loans and amended List of Retail
Installment Contracts with each revised copy of the applicable Computer Tape.
If a Computer Tape received by the Custodian is not accompanied by such amended
lists, the Custodian shall immediately produce such printed lists from the
related Computer Tape. The most recently amended List of MH Contracts, List of
Home Improvement Loans and List of Retail Installment Contracts received by the
Custodian shall be the definitive List of MH Contracts, List of Home Improvement
Loans and List of Retail Installment Contracts for all purposes under this
Agreement.
SECTION 2.03. RELEASE OF HOME IMPROVEMENT LOAN FILES FOR SERVICING. From
time to time, after delivery of any portion of the Home Improvement Loan File to
Custodian, as appropriate for servicing and repossession in connection with any
Home Improvement Loan, Custodian shall, upon written request of a servicing
officer of Seller and delivery to Custodian of a receipt signed by such
servicing officer, cause the original Home Improvement Loan and the related Home
Improvement Loan File to be released to Seller and shall execute such documents
as Seller shall deem necessary to the prosecution of any such proceedings.
Custodian shall stamp the face of any such Home Improvement Loan to be released
to Seller with a notation that the Home Improvement Loan has been assigned to
Custodian. Such receipt shall obligate Seller to return the original Home
Improvement Loan and the related Home Improvement Loan File to Custodian when
its need by Seller has ceased unless the Home Improvement Loan shall be
liquidated or repurchased by Seller pursuant to the Master Purchase Agreement.
Upon request of a servicing officer, Custodian shall perform such other acts as
reasonably requested by Seller and otherwise cooperate with Seller in the
enforcement of the Owners' rights and remedies with respect to Home Improvement
Loans. Notwithstanding the foregoing, the Custodian shall not release any
portion of a Home Improvement Loan File to Seller if such release would result
in Seller having in its custody documents relating to more than 1% of the
aggregate
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number of Home Improvement Loan Files held by the Custodian hereunder.
ARTICLE III
CUSTODIAL ARRANGEMENT
SECTION 3.01. GENERAL PROVISIONS. In accordance with the provisions of
this Agreement, the Custodian shall issue Trust Receipts with respect to Assets
held by it hereunder indicating that the Custodian holds such Assets as
custodian and bailee for the Owner named in such Trust Receipt. The ownership
of Assets may be transferred from time to time in the manner provided herein.
Each Trust Receipt shall serve as confirmation of the ownership (subject to the
Seller's right to service the Assets) of the MH Contracts, Home Improvement
Loans and Retail Installment Contracts, as applicable, assigned to the Custodian
listed on the schedule attached to such Trust Receipt. Each particular
Transaction shall relate exclusively to either MH Contracts, Home Improvement
Loans or Retail Installment Contracts. No Person shall own a fractional
ownership interest in any MH Contract, Home Improvement Loan or Retail
Installment Contract. No Transaction shall be entered into with respect to a
group of MH Contracts, a group of Home Improvement Loans or a group of Retail
Installment Contracts having an aggregate Outstanding Principal Balance on the
date of commencement of such Transaction of less than $5,000,000.
SECTION 3.02. CUSTODIAL ACCOUNTS. The Custodian shall establish separate
custody accounts for Buyer and Seller (in each case, a "Custodial Account") for
purposes of holding cash and Assets owned by the related party. Buyer and
Seller may direct the Custodian in writing respecting the transfer, disbursement
and/or reinvestment of any cash on deposit in such Party's Custodial Account.
SECTION 3.03. ASSIGNMENT OF MH CONTRACTS TO THE CUSTODIAN; UCC FILINGS.
(a) Seller may, from time to time, assign MH Contracts to the Custodian for
credit to Seller's Custodial Account by executing and delivering an assignment
in the form attached hereto as Exhibit B. Such MH Contracts shall, upon
assignment, be subject to this Agreement. On the Business Day prior to the date
of each such assignment Seller shall provide to the Custodian a schedule of the
related MH Contracts with information indicated thereon corresponding to the
information set forth in the List of MH Contracts. On or before the Business
Day preceding the initial assignment of MH Contracts by Seller to Buyer
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hereunder, Seller shall provide to the Custodian evidence of the filing of a
financing statement under the Uniform Commercial Code with the Secretary of
State of the State of Minnesota reflecting the Custodian as the secured party
with respect to all MH Contracts that are or may become subject to this
Agreement. The Custodian shall, upon request of Buyer, provide to Buyer the
schedule and the evidence referred to in both of the preceding sentences.
(b) Seller shall file or cause to be filed all amendments to such financing
statement and all continuation statements as may be necessary to perfect the
interest of the Custodian in the MH Contracts; provided, however, that if Seller
shall fail to file or cause to be filed such amendments and continuation
statements, the Custodian shall make such filings. All financing statements,
amendments thereto and continuation statements shall be filed at the expense of
Seller.
(c) All documents held by the Custodian with respect to an MH Contract,
including those delivered to the Custodian pursuant to Section 3.03, are
referred to herein as the "Custodian's Manufactured Housing Contract File".
SECTION 3.04. ASSIGNMENT OF RETAIL INSTALLMENT CONTRACTS TO THE CUSTODIAN;
UCC FILINGS.
(a) Seller may, from time to time, assign Retail Installment Contracts to
the Custodian for credit to Seller's Custodial Account by executing and
delivering an assignment in the form attached hereto as Exhibit D. Such Retail
Installment Contracts shall, upon assignment, be subject to this Agreement. On
the Business Day prior to the date of each such assignment Seller shall provide
to the Custodian a schedule of the related Retail Installment Contracts with
information indicated thereto corresponding to the information set forth in the
List of Retail Installment Contracts. On or before the Business Day preceding
the initial assignment of Contracts by Seller to Buyer hereunder, Seller shall
provide to the Custodian evidence of the filing of a financing statement under
the Uniform Commercial Code with the Secretary of State of the State of
Minnesota reflecting the Custodian as the secured party with respect to all
Retail Installment Contracts that are or may become subject to this Agreement.
The Custodian shall, upon request of Buyer, provide to Buyer the schedule and
the evidence referred to in both of the preceding sentences.
(b) Seller shall file or cause to be filed all amendments to such financing
statement and all continuation statements as may be necessary to perfect the
interest of the Custodian in the Retail Installment Contracts; provided,
however, that if Seller
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shall fail to file or cause to be filed such amendments and continuation
statements, the Custodian shall make such filings. All financing statements,
amendments thereto and continuation statements shall be filed at the expense of
Seller.
(c) All documents held by the Custodian with respect to a Retail
Installment Contract are referred to herein as the "Custodian's Retail
Installment Contract File".
SECTION 3.05. TRANSFER OF HOME IMPROVEMENT LOANS; DELIVERY OF DOCUMENTS.
Prior to a Home Improvement Loan becoming subject to this Agreement, and thereby
becoming eligible for inclusion in a Transaction, Seller shall deliver, or cause
to be delivered, to Custodian the following documents:
(i) The List of Home Improvement Loans, as amended.
(ii) An Assignment executed by Seller substantially in the form of
Exhibit C hereto.
(iii) The original contract and note relating to the Home Improvement
Loan.
(iv) The original Mortgage, in the case of Home Improvement Loans
other than Unsecured Home Improvement Loans, with evidence of recording
thereon, or, if the original Mortgage has not yet been returned from the
recording office, a copy of the original Mortgage, certified as true and
complete by such recording office, which copy shall be replaced by the
original Mortgage as soon as practicable after the original Mortgage is
returned from the recording office.
(v) The assignment of each Mortgage, in the case of Home Improvement
Loans other than Unsecured Home Improvement Loans,, assigned in blank,
which assignment shall be in form and substance acceptable for recording.
In the event that the Home Improvement Loan was acquired by Seller in a
merger, the assignment must be by "[Seller], successor by merger to name of
predecessor]"; and in the event that the Home Improvement Loan was acquired
or originated by Seller while doing business under another name, the
assignment must be by "[Seller], formerly known as [previous name]".
Seller shall file or cause to be filed all amendments to the financing
statement, all assignments of mortgage and all continuation statements as may be
necessary to perfect the interests of Custodian in the Home Improvement Loans
and the collateral related thereto; provided, however, that if Seller shall fail
to file or cause to be filed such amendments, assignments of
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mortgage and continuation statements, Custodian shall make such filings. All
financing statements, assignments of mortgage, amendments and continuation
statements shall be filed at the expense of Seller.
All documents held by the Custodian with respect to a Home Improvement
Loan, including those delivered to the Custodian pursuant to Section 3.05, are
referred to herein as the "Custodian's Home Improvement Loan File".
SECTION 3.06. ISSUANCE AND TRANSFER OF TRUST RECEIPTS.
(a) Upon assignment of Assets to the Custodian as described in Sections
3.03, 3.04 and 3.05 hereof and upon notice to the Custodian by Seller that
Seller has assigned a pool of Assets to Buyer in a Transaction under the Master
Repurchase Agreement, the Custodian shall issue a Trust Receipt relating to such
Transaction to Buyer with respect to such pool of Assets.
(b) Each Trust Receipt may be assigned by endorsement by the registered
holder thereof on the assignment form set forth thereon.
(c) Upon presentation to the Custodian of a Trust Receipt endorsed as
aforesaid, the Custodian shall issue a new Trust Receipt with respect to the
Assets being assigned in the name of the assignee and a new Trust Receipt with
respect to the Assets being retained in the name of the assignor.
SECTION 3.07. TRUST RECEIPT REGISTER. The Custodian shall cause to be
kept at its Corporate Trust Office the Trust Receipt Register in which, subject
to such reasonable regulations as it may prescribe, the Custodian shall reflect
the ownership of Assets as confirmed by Trust Receipts as herein provided. The
Trust Receipt Register shall not contain any information concerning the amount
of cash on deposit in any Custodial Account. The Trust Receipt Register shall
be deemed to contain proprietary information and only the Custodian and Buyer
shall have access to such information.
Section 3.08. [RESERVED]
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ARTICLE IV
OWNERSHIP AND TRANSFER OF ASSETS
SECTION 4.01. THE TRUST RECEIPTS.
(a) The Trust Receipts shall confirm an Owner's ownership interest in the
related Assets and shall be executed by manual signature on behalf of the
Custodian by an authorized officer of the Custodian.
(b) Each Trust Receipt shall be deemed to include the Custodian's
certification that the Custodian has reviewed the documents constituting the
related Custodian's Manufactured Housing Contract Files, Custodian's Home
Improvement Loan Files or Custodian's Retail Installment Contract Files, as
applicable, and such documents (i) appear regular on their face, (ii) are in the
possession and control of the Custodian and (iii) in the case of Home
Improvement Loans, concern the related Home Improvement Loans described in such
Home Improvement Loan Files.
(c) All Trust Receipts shall be dated as of the date the related
Transaction is entered into.
(d) Each Trust Receipt shall have attached thereto a schedule listing all
MH Contracts, Home Improvement Loans and Retail Installment Contracts, as
applicable, relating to such Trust Receipt.
(e) A separate Trust Receipt shall be issued for each Transaction and each
Trust Receipt shall relate to only one variety of Assets (i.e., MH Contracts,
Home Improvement Loans or Retail Installment Contracts).
(f) The schedule of related Assets attached to a Trust Receipt shall
contain so much of the List of MH Contracts, List of Home Improvement Loans or
List of Retail Installment Contracts, as applicable, as pertains to each Asset
listed on such schedule.
(g) All Trust Receipts delivered by the Custodian hereunder shall be
executed originals with the schedule of Assets referred to therein attached
thereto.
SECTION 4.02. [RESERVED]
SECTION 4.03. REPURCHASE DATE. The Repurchase Date for each Transaction
shall, unless otherwise agreed to by Buyer and Seller as contemplated by Section
4.17, be the first Business Day following the date on which the Transaction is
entered into.
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SECTION 4.04. [RESERVED]
SECTION 4.05. VOLUNTARY TRANSFER OF ASSETS.
(a) On any Business Day that Buyer and Seller enter into a Transaction
under the Master Repurchase Agreement, Buyer shall telephonically advise the
Custodian of the Transfer Instructions. Transfer Instructions shall be
communicated to the Custodian prior to 10:00 a.m. on the date the Transaction is
entered into.
(b) In the case of any Transaction:
(i) The Custodian shall, immediately upon receiving such Transfer
Instructions:
(1) Determine whether related Assets having an aggregate
Outstanding Principal Amount at least equal to the
Collateral Balance are on deposit in Seller's Custodial
Account;
(2) Promptly advise Buyer and Seller by telephone or by
facsimile transmission if it determines that the Assets
referred to in (1) above are not so deposited and take no
further action under this Section 4.05 until it determines
that such Assets are so deposited;
(3) Upon determining that the Collateral Balance is on deposit
in Seller's Custodial Account, the Custodian shall take the
actions contemplated by clauses (ii) through (v) of this
subsection (b);
(ii) [RESERVED]
(iii) The Custodian shall determine that Buyer has deposited in
immediately available funds into its Custodial Account, prior to
6:00 p.m. on the date the Transaction is entered into, the
Purchase Price for the related Assets;
(iv) The Custodian shall, by annotation of the Trust Receipt Register
and issuance of a Trust Receipt, transfer from the Custodial
Account of Seller to the Custodial Account of Buyer the Assets
subject to the Transaction; and
(v) The Custodian shall, simultaneously with the transfer of Assets
described in (b)(iv) above,
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transfer from the Custodial Account of Buyer to the Custodial
Account of Seller cash in immediately available funds in an
amount equal to the Purchase Price indicated on the Transfer
Instructions.
(c) Any provision of this Agreement to the contrary notwithstanding, any
proposed Transaction between Buyer and Seller shall not be entered into and the
Custodian is not authorized to transfer any funds from Buyer's Custodial Account
as contemplated by Section 4.05(b)(v), until Buyer has received at its offices
in New York, New York, a Trust Receipt bearing the original signature of an
authorized officer of the Custodian with the schedule of Assets referred to
therein attached thereto.
SECTION 4.06. VOLUNTARY REPURCHASE OF ASSETS. The repurchase of Assets in
connection with any Transaction, other than a repurchase pursuant to Section
4.07, shall occur in the following manner:
(a) On the Repurchase Date Buyer shall telephonically advise the Custodian
of the Repurchase Price to be paid by Seller or the aggregate Outstanding
Principal Amount of MH Contracts, Home Improvement Loans or Retail Installment
Contracts, as applicable, to be repurchased by Seller. Seller shall, with the
approval of Buyer communicated telephonically to the Custodian, provide the
Custodian with a list of the Assets to be repurchased. Such list shall be
delivered in writing to the Custodian and Buyer not later than 10:00 a.m. on the
Repurchase Date, shall contain so much of the List of MH Contracts, List of Home
Improvement Loans or List of Retail Installment Contracts, as applicable, as
pertains to each listed Asset and shall be accompanied by a current Computer
Tape.
(b) Upon being advised of the Repurchase Price pursuant to subsection (a),
the Custodian shall:
(i) Immediately telephonically relay such Repurchase Price to the
Seller;
(ii) Determine whether such Repurchase Price is on deposit in
immediately available funds in Seller's Custodial Account; and
(iii) Determine whether the listed Assets are on deposit in Buyer's
Custodial Account.
(c) If the Custodian determines that funds in an amount equal to the
Repurchase Price are on deposit in Seller's Custodial Account and that the
Assets referred to above in clause
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(b)(iii) are credited to Buyer's Custodial Account, it shall transfer an amount
equal to such Repurchase Price to Buyer's Custodial Account and shall credit to
Seller's Custodial Account the Assets set forth on the list provided to the
Custodian pursuant to Section 4.06(a).
(d) If the Custodian determines that funds in an amount equal to such
Repurchase Price and/or the required Assets are not so deposited and credited,
it shall immediately notify Buyer and Seller of such circumstance by telephone
or facsimile transmission and the Custodian shall not be required to take the
actions described in clause (c) above until such time as it shall determine that
such funds and such Assets are so deposited and credited.
(e) Repurchase Instructions shall be communicated to the Custodian prior to
10:00 a.m. on the Repurchase Date.
SECTION 4.07.[RESERVED]
SECTION 4.08. PAYMENT OF PRICE DIFFERENTIAL. On each Price Differential
Payment Date the Custodian shall telephonically contact Buyer to confirm the
aggregate amount of the unpaid Price Differential from all Transactions and
shall, on such date, transfer such amount from Seller's Custodial Account to
Buyer's Custodial Account. In the event that cash in such amount is not
available for transfer from Seller's Custodial Account the Custodian shall
immediately notify Buyer and Seller of such circumstance by telephone or
telecopy and shall effect such transfer when cash in such amount becomes so
available. The Custodian shall send written confirmation of such transfer to
Buyer and Seller on such date.
SECTION 4.09. OBJECTIONS OF BUYER OR SELLER. In the event that either
Buyer or Seller shall object to any of the information provided by any Person
with respect to a Transaction, the Custodian shall immediately notify the non-
objecting party. Buyer and Seller shall mutually instruct the Custodian as to
how such objection is to be resolved.
SECTION 4.10. NO SERVICE CHARGE FOR SALE OR TRANSFER OF ASSETS. No
service charge shall be made for any sale or transfer of Assets or the issuance
of Trust Receipts, but the Custodian may require payment of a sum sufficient to
cover any tax or governmental charge that may be imposed in connection with any
sale or transfer of Assets or the issuance of Trust Receipts.
SECTION 4.11.[RESERVED]
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SECTION 4.12. SIMULTANEOUS TRANSFERS. The payment of cash for MH
Contracts, Home Improvement Loans or Retail Installment Contracts and the
related transfer of Assets pursuant to any provision of this Agreement shall be
deemed to occur simultaneously.
SECTION 4.13. BUYER MAY REJECT ASSETS. Buyer may, in its sole discretion,
refuse to purchase any Asset offered for sale by Seller under, or offered as
additional Assets pursuant to Paragraph 4(a) or for substitution pursuant to
Paragraph 9 of, the Master Repurchase Agreement or may, by notice to the
Custodian, require an immediate repurchase of any such Asset in the manner
provided by Section 4.06. Seller shall have no right to object to such
repurchase.
SECTION 4.14. PERSONS DEEMED OWNERS. The Custodian shall treat as the
Owner of any Asset for all purposes whatsoever the person indicated as the Owner
thereof on the Trust Receipt Register, and the Custodian shall not be affected
by notice to the contrary.
SECTION 4.15. UNILATERAL TRANSFER OF ASSETS OWNED BY SELLER. The
Custodian shall, with respect to any Assets of which Seller is the Owner, follow
the instructions of Seller regarding the release and transfer of such Assets
from this Agreement and shall do such other acts and execute such other
documents as may be deemed reasonably necessary by Seller to effect such release
and transfer. Such release and transfer shall be effected by the Custodian
solely on the instructions of Seller and without any instructions or other
communication from any other party. All costs, fees and expenses relating to
such release and transfer shall be borne by Seller.
SECTION 4.16. UNILATERAL TRANSFER OF ASSETS OWNED BY A PERSON OTHER THAN
SELLER. The Custodian shall, with respect to Assets of which the Owner is a
Person other than Seller:
(i) Upon the Custodian receiving written certification from Buyer that an
event of default under the Master Repurchase Agreement has occurred and is
continuing (a "Repurchase Agreement Default"), follow the instructions of the
non-defaulting party including instructions regarding the release of the related
Assets from this Agreement and the transfer of such Assets and shall do such
other acts and execute such other documents as may be deemed reasonably
necessary by such non-defaulting party to comply with such instructions.
(ii) Upon receipt by the Custodian of a written certification of Buyer of a
breach of a representation or warranty by the Custodian under this Agreement,
follow the
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instructions of the Owner regarding the release from this Agreement and the
transfer of such Assets and shall do such other acts and execute such other
documents as may be deemed reasonably necessary to comply with such
instructions.
(iii) Upon the Custodian receiving written certification from the
registered holder of a Trust Receipt other than Buyer that an event of default
under a repurchase agreement between such Owner and Buyer has occurred and is
continuing, follow the instructions of the registered holder including
instructions regarding the release of the related Assets from this Agreement and
the transfer of such Assets and shall do such other acts and execute such other
documents as may be deemed reasonably necessary by such registered holder to
comply with such instructions.
SECTION 4.17. MODIFICATION OF THE REPURCHASE DATE. The Repurchase Date in
any Transfer Instructions may be modified by telephonic notice of the new
Repurchase Date to the Custodian from Buyer and Seller. The Custodian shall
send written confirmation of such new Repurchase Date to Buyer and Seller by
facsimile transmission on the date of such notice.
SECTION 4.18. TRANSFERS TO THIRD PARTIES. Buyer and Seller agree and
advise the Custodian that, notwithstanding any provision of this Agreement to
the contrary, Buyer may engage in repurchase transactions with the Assets owned
by it and may otherwise pledge or hypothecate such Assets, provided that no such
transaction shall relieve Buyer of its obligations under this Agreement or the
Master Repurchase Agreement.
ARTICLE V
THE CUSTODIAN
SECTION 5.01. REPRESENTATIONS AND WARRANTIES OF THE CUSTODIAN. With
respect to each Trust Receipt, the Custodian hereby represents and warrants to,
and covenants with the party indicated thereon as the Owner of the related
Assets, that as of the date such Trust Receipt is provided:
(a) The Custodian is duly organized, validly existing and in good standing
under the laws of the United States;
(b) The Custodian has the full power and authority to hold each Asset
(whether acting alone or through an agent) and to execute, deliver and perform,
and to enter into and consummate all transactions contemplated by this
Agreement, has duly authorized the execution, delivery and performance of this
Agreement, has duly executed and delivered this Agreement and
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this Agreement constitutes a legal, valid and binding obligation of the
Custodian, enforceable against it in accordance with its terms, except as
enforcement of such terms may be limited by bankruptcy, insolvency or similar
laws affecting the enforcement of creditors' rights generally and by the
availability of equitable remedies;
(c) Neither the execution and delivery of this Agreement, the filing of a
financing statement indicating that the Custodian is the secured party with
respect to certain Assets, the issuance of the Trust Receipts, the consummation
of the transactions contemplated hereby or thereby, nor the fulfillment of or
compliance with the terms and conditions of this Agreement will conflict with or
result in a breach of any of the terms, conditions or provisions of the
Custodian's charter or by-laws or any legal restriction or any agreement or
instrument to which the Custodian is now a party or by which it is bound, or
constitute a default or result in an acceleration under any of the foregoing, or
result in the violation of any law, rule, regulation, order, judgment or decree
to which the Custodian or its property is subject;
(d) The Custodian does not believe, nor does it have any reason or cause to
believe, that it cannot perform each and every covenant contained in this
Agreement;
(e) To the Custodian's knowledge after due inquiry, there is no litigation
pending or threatened, which if determined adversely to the Custodian, would
adversely affect the execution, delivery or enforceability of this Agreement, or
any of the duties or obligations of the Custodian thereunder, or which would
have a material adverse effect on the financial condition of the Custodian;
(f) No consent, approval, authorization or order of any court or
governmental agency or body is required for the execution, delivery and
performance by the Custodian of or compliance by the Custodian with this
Agreement or the consummation of the transactions contemplated hereby;
(g) The Custodian is a separate and independent entity from Seller, the
Custodian does not own a controlling interest in Seller either directly or
through affiliates and no director or officer of the Custodian is also a
director or officer of Seller;
(h) The Custodian shall maintain Custodial Accounts for Buyer and Seller as
custody accounts for the purpose of holding funds on deposit therein and
reflecting Assets owned by the related party. The Custodian shall administer
such accounts in the same manner it administers similar accounts established for
the same purpose; and
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(i) The Custodian shall monitor the financing statements filed with respect
to the Assets naming it as the secured party and shall cause Seller to file or,
if Seller shall fail to file in a timely manner, shall itself file such
amendments and continuation statements with respect thereto necessary in order
to maintain the perfected security interest of the Custodian in the Assets.
SECTION 5.02. CUSTODIAN OF DOCUMENTS. The Custodian, either directly or
by acting through an agent, shall hold all documents relating to any Asset that
comes into its possession for the exclusive use and benefit of the Owner of such
Asset and shall make disposition thereof only in accordance with the
instructions furnished by such Owner. The Custodian shall segregate and
maintain continuous custody of all such documents received by it in secure
facilities in accordance with customary standards for such custody and shall not
release such documents or transfer such documents to any other party, including
any subcustodian, without the express written consent of the related Owner.
SECTION 5.03. CHARGES AND EXPENSES. Seller will pay all fees of the
Custodian in connection with the performance of its duties hereunder in
accordance with written agreements to be entered into from time to time between
the Custodian and Seller, including fees and expenses of counsel incurred by the
Custodian in the performance of its duties hereunder; provided, however, that
the Custodian shall in no event acquire any lien upon any Asset deposited under
this Agreement, or any claim against Buyer or any Owner, by reason of the
failure of Seller to pay any of such charges or expenses.
SECTION 5.04. NO ADVERSE INTERESTS. The Custodian covenants and warrants
to Buyer, Seller and each Owner, that: (i) as of the related date on which the
Custodian receives evidence of the perfection of its interest in the related
Assets, it holds no adverse interest, by way of security or otherwise, in any
Asset; and (ii) the execution of this Agreement and the creation of the
custodial relationship hereunder does not create any interest, by way of
security or otherwise of the Custodian in or to any Asset, other than the
Custodian's rights as custodian hereunder.
SECTION 5.05. INSPECTIONS. Upon reasonable prior written notice to the
Custodian and except as otherwise provided in Section 5.02(a), any Owner and
such Owner's agents, accountants, attorneys and auditors will be permitted
during normal business hours to examine the Custodian's documents, records and
other papers in possession of or under the control of the Custodian relating to
the Assets owned by such Owner.
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SECTION 5.06. INSURANCE. The Custodian shall, at its own expense,
maintain at all times during the existence of this Agreement and keep in full
force and effect, (1) fidelity insurance, (2) theft of documents insurance, (3)
forgery insurance subject to deductibles, all as is customary for amounts and
with insurance companies reasonably acceptable to Buyer and Seller. A
certificate of the respective insurer as to each such policy or a blanket policy
for such coverage shall be furnished to any Owner, upon request, containing the
insurer's statement or endorsement that such insurance shall not terminate prior
to receipt by such party, by registered mail, of ten (10) days' advance notice
thereof.
SECTION 5.07. LIMITATION OF LIABILITY. The Custodian shall be subject to
no liability under this Agreement to Owners except for liabilities arising from
the Custodian's negligence or willful misconduct in connection with its
performance of such obligations and duties as are specifically set forth herein.
The Custodian shall not be liable for any action or non-action by it in reliance
on advice of counsel believed by it in good faith to be competent to give such
advice. The Custodian may rely and shall be protected in acting upon any
written notice, order, request, direction or other document reasonably believed
by it to be genuine and to have been signed or presented by the proper party or
parties.
SECTION 5.08. INDEMNIFICATION. Seller agrees to indemnify the Custodian
against, and to hold it harmless from, any liabilities, and any related out-of-
pocket expenses, which it may incur in connection with this Agreement or the
Trust Receipts, other than any liabilities and expenses arising out of the
Custodian's negligence or bad faith. The Custodian agrees to indemnify Buyer,
Seller and any Owner against out-of-pocket expenses which it may incur in
connection with this Agreement and which is directly and proximately caused by
the Custodian's negligence or willful misconduct.
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ARTICLE VI
MISCELLANEOUS PROVISIONS
SECTION 6.01. AMENDMENT. This Agreement may be amended from time to time
by the Custodian, Buyer and Seller by written agreement signed by such Parties.
SECTION 6.02. GOVERNING LAW. This Agreement shall be construed in
accordance with the laws of the State of New York governing agreements made and
to be performed therein, and the obligations, rights and remedies of the parties
hereunder shall be determined in accordance with such laws.
SECTION 6.03. NEW YORK JURISDICTION; WAIVER OF JURY TRIAL. The Custodian,
Buyer and Seller hereby agree to submit to the courts of the State of New York
in any action or proceeding arising out of this Agreement. The Custodian, Buyer
and Seller each hereby waives the right of trial by jury in any litigation
arising hereunder.
SECTION 6.04. NOTICES. All demands, notices and communications hereunder,
except as otherwise provided herein, shall be in writing and shall be deemed to
have been duly given if personally delivered at or mailed by registered mail,
postage prepaid, or sent by facsimile transmission, to:
(a) in the case of the Custodian:
First Bank National Association
c/o First Trust National Association
180 East Fifth Street
2nd Floor
St. Paul, Minnesota 55101
Attention: Structured Finance
Telephone: (612) 244-5007
Telecopy: (612) 244-0089
with a copy to:
First Trust National Association
180 East Fifth Street
St. Paul, Minnesota 55101
Attention: Specialized Finance Services
Telephone: (612) 244-1196
Telecopy: (612) 244-1145
C-20
<PAGE>
(b) in the case of Buyer:
Contract Issues:
---------------
Salomon Brothers Holding Company Inc
Seven World Trade Center
New York, New York 10048
Attention: Barrie Ringelheim, 42nd Floor
Telephone: (212) 783-4410
Operations Issues:
-----------------
Salomon Brothers Holding Company Inc
c/o Salomon Brothers Inc
8800 Hidden River Parkway
Tampa, Florida 33637
Attention: John Sorbo
Telephone: (813) 558-7000
(c) in the case of Seller:
Green Tree Financial Corporation
1100 Landmark Towers
345 St. Peter Street
St. Paul, Minnesota 55102
Attention: Chief Financial Officer
Telephone: (612) 293-3420
Telecopy: (612) 293-5746
SECTION 6.05. SEVERABILITY OF PROVISIONS. If any one or more of the
covenants, agreements, provisions or terms of this Agreement shall be for any
reason whatsoever held invalid, then such covenants, agreements, provisions or
terms shall be deemed severable from the remaining covenants, agreements,
provisions or terms of this Agreement and shall in no way affect the validity or
enforceability of the other provisions of this Agreement.
SECTION 6.06. NO PARTNERSHIP. Nothing herein contained shall be deemed or
construed to create a co-partnership or joint venture between the parties
hereto.
SECTION 6.07. COUNTERPARTS. This Agreement may be executed simultaneously
in any number of counterparts, each of which counterparts shall be deemed to be
an original, and such counterparts shall constitute but one and the same
instrument.
C-21
<PAGE>
SECTION 6.08. ASSIGNMENT. No party hereto shall sell, pledge, assign or
otherwise transfer this Agreement without the prior written consent of the other
parties hereto.
SECTION 6.09. HEADINGS. Section headings are for reference purposes only
and shall not be construed as a part of this Agreement.
IN WITNESS WHEREOF, Buyer, Seller and Custodian have caused their names to
be signed hereto by their respective officers thereunto duly authorized, all as
of the day and year first above written.
SALOMON BROTHERS HOLDING COMPANY INC,
as Buyer
By: _______________________________
Name: _____________________________
Title: ____________________________
GREEN TREE FINANCIAL CORPORATION,
as Seller
By: _______________________________
Name: _____________________________
Title: ____________________________
FIRST BANK NATIONAL ASSOCIATION,
as Custodian
By: _______________________________
Name: _____________________________
Title: ____________________________
C-22
<PAGE>
EXHIBIT A
FORM OF TRUST RECEIPT
<PAGE>
THIS TRUST RECEIPT IS
NOT A NEGOTIABLE
INSTRUMENT.
TRUST RECEIPT/1/ [Date]
[ADDRESSEE]
Re: Ownership Interest in Manufactured
Housing Conditional Sales MH Contracts,
Home Improvement Loans or Retail Installment
Contracts under the Master Repurchase Agreement
-----------------------------------------------
Gentlemen:
First Bank National Association, in its capacity as custodian (the
"Custodian") under a Tri-Party Custodial Agreement (the "Agreement"), by and
among Salomon Brothers Holding Company Inc ("Buyer"), Green Tree Financial
Corporation and the Custodian, hereby confirms your ownership interest, under
the terms and conditions of the Agreement, of the manufactured housing
conditional sales contracts (the "MH Contracts"), the home improvement loans
(the "Home Improvement Loans") or retail installment contracts ("Retail
Installment Contracts"), as applicable, listed on the schedule attached hereto.
The Custodian shall act as custodian and bailee exclusively for you and your
assigns with respect to each such MH Contract, Home Improvement Loan or Retail
Installment Contracts, as applicable ("Assets").
This Trust Receipt may be assigned, in whole only, by endorsement by the
registered holder on the assignment form set forth below. Upon presentation of
this Trust Receipt to the Custodian endorsed as aforesaid, the Custodian shall
issue a new Trust Receipt with respect to the Assets in the name of the
assignee.
Capitalized terms used and not otherwise defined herein shall have the
meanings assigned in the Agreement.
Upon the Custodian receiving written certification from the registered
holder of this Trust Receipt, if such holder is other than Buyer, that an event
of default under a repurchase agreement
- ---------------------
/1/ A separate Trust Receipt shall be issued for each Transaction and each
Trust Receipt shall relate to only one variety of Assets.
A-1
<PAGE>
between the holder and Buyer has occurred and is continuing, the Custodian shall
follow the instructions of the registered holder including instructions
regarding the release of the related Assets from the Agreement and the transfer
of such Assets and shall do such other acts and execute such other documents as
may be deemed reasonably necessary by the registered holder to comply with such
instructions.
FIRST BANK NATIONAL ASSOCIATION,
as Custodian
By: ______________________________
Name: ____________________________
Title: ___________________________
A-2
<PAGE>
ASSIGNMENT
----------
FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and
transfer(s) unto -------------------------------------------------------
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
(Please print or typewrite name and address including postal zip code of
assignee)
the beneficial interest evidenced by the within Trust Receipt and hereby
authorizes the transfer of registration of such interest to assignee on the
Trust Receipt Register of the Custodian.
I (We) further direct the Custodian to issue a new Trust Receipt relating
to the same Assets as the within Trust Receipt to the above named assignee and
deliver such Trust Receipt to the following address:
- ----------------------------------------------------------------------------- .
- ----------------------------------------------------------------------------- .
Dated:
______________________________
Signature by or on behalf of
assignor
A-3
<PAGE>
Following is the identifying information for the Assets referred to in this
Trust Receipt:
A-4
<PAGE>
Exhibit B
---------
FORM OF ASSIGNMENT
FOR MH Contracts
<PAGE>
ASSIGNMENT
The undersigned hereby certifies that he is the ________________________ of
Green Tree Financial Corporation, a Delaware corporation ("Seller"), and that as
such he is duly authorized to execute and deliver this Assignment pursuant to
the Tri-Party Custodial Agreement dated as of __________ __, 1995 (the
"Custodial Agreement") by and among Salomon Brothers Holding Company Inc, Seller
and First Bank National Association, as Custodian (the "Custodian").
Seller does hereby assign to the Custodian under the terms of the Custodial
Agreement to be held on behalf of Seller and its transferees, as their interests
may appear, (i) all Seller's right, title and interest in and to the
manufactured housing installment sales contracts described on the List of MH
Contracts attached hereto (the "MH Contracts") and the proceeds thereof
(including, without limitation, all security interests created thereby and any
and all rights to receive payments which are due pursuant thereto from and after
the date specified on such List of MH Contracts), (ii) all rights under any
hazard insurance policy relating to a manufactured home securing an MH Contract
for benefit of the creditor of such MH Contract and all rights under any blanket
hazard insurance policy and the proceeds from the MH Contract holders' errors
and omissions protection policy to the extent they relate to such manufactured
homes, (iii) all rights under any FHA/VA regulation related to any FHA/VA
Contract, (iv) all documents contained in the MH Contract Files and (v) all
proceeds in any way derived from the foregoing.
The undersigned on behalf of Seller hereby certifies that the MH Contracts
and such List of MH Contracts are the MH Contracts and List of MH Contracts
referred to in the UCC-1 financing statement filed by Seller on __________ __,
1995 (file number _________________).
GREEN TREE FINANCIAL CORPORATION
By
---------------------------------
Its
------------------------
B-1
<PAGE>
Exhibit C
---------
FORM OF ASSIGNMENT FOR
HOME IMPROVEMENT LOANS
<PAGE>
ASSIGNMENT
The undersigned hereby certifies that the undersigned is the
_________________ of Green Tree Financial Corporation, a Delaware corporation
("Seller"), and that as such the undersigned is duly authorized to execute and
deliver this Assignment pursuant to the Tri-Party Custodial Agreement dated as
of __________ __, 1995 (the "Custodial Agreement"), by and among Salomon
Brothers Holding Company Inc, Seller and First Bank National Association, as
Custodian (the "Custodian").
Seller does hereby assign to Custodian under the terms of the
Custodial Agreement to be held on behalf of Seller and its transferees, as their
interests may appear, (i) all Seller's right, title and interest in and to the
Home Improvement Loans described on the List of Home Improvement Loans attached
hereto and the proceeds thereof (including, without limitation, all liens
created thereby and any and all rights to receive payments, including principal
and interest, which are due pursuant thereto from and after the date specified
on such List of Home Improvement Loans and all recourse rights against third
persons), (ii) all rights under any FHA insurance and any hazard insurance
policy relating to real property securing a Home Improvement Loan for benefit of
the creditor of such Home Improvement Loan and all rights under any blanket
hazard insurance policy and the proceeds from the Home Improvement Loan holders'
errors and omissions protection policy to the extent they relate to such real
property, (iii) all rights under any FHA regulation related to any Title I Loan,
(iv) all documents contained in the Home Improvement Loan Files and (v) all
proceeds in any way derived from the foregoing.
Dated: _______________, 19__
Green Tree Financial Corporation
By:_______________________________
Name:
Title:
C-1
<PAGE>
Exhibit D
---------
FORM OF ASSIGNMENT FOR
RETAIL INSTALMENT CONTRACTS
<PAGE>
ASSIGNMENT
The undersigned hereby certifies that he is the ________________________ of
Green Tree Financial Corporation, a Delaware corporation ("Seller"), and that as
such he is duly authorized to execute and deliver this Assignment pursuant to
the Tri-Party Custodial Agreement dated as of __________ __, 1995 (the
"Custodial Agreement") by and among Salomon Brothers Holding Company Inc, Seller
and First Bank National Association, as Custodian (the "Custodian").
Seller does hereby assign to the Custodian under the terms of the Custodial
Agreement to be held on behalf of Seller and its transferees, as their interests
may appear, (i) all Seller's right, title and interest in and to the retail
installment contracts described on the List of Retail Installment Contracts
attached hereto (the "Retail Installments Contracts") and the proceeds thereof
(including, without limitation, all security interests created thereby and any
and all rights to receive payments which are due pursuant thereto from and after
the date specified on such List of Retail Installments Contracts), (ii) all
documents contained in the Retail Installment Contract Files and (iii) all
proceeds in any way derived from the foregoing.
The undersigned on behalf of Seller hereby certifies that the Retail
Installment Contracts and such List of Retail Installments Contracts are the
Retail Installments Contracts and List of Retail Installments Contracts referred
to in the UCC-1 financing statement filed by Seller on __________ __, 1995 (file
number _________________).
GREEN TREE FINANCIAL CORPORATION
By
---------------------------------------
Its
------------------------------
D-1
<PAGE>
Exhibit 10(n).
--------------
GREEN TREE FINANCIAL CORPORATION
1995 EMPLOYEE STOCK INCENTIVE PLAN
SECTION 1. PURPOSE; EFFECT ON PRIOR PLANS.
(a) Purpose. The purpose of the Green Tree Financial Corporation Stock
Incentive Plan (the "Plan") is to aid in attracting and retaining management
personnel capable of assuring the future success of Green Tree Financial
Corporation (the "Company"), to offer such personnel incentives to put forth
maximum efforts for the success of the Company's business and to afford such
personnel an opportunity to acquire a proprietary interest in the Company.
(b) Effect on Prior Plans. From and after the effective date of the Plan,
no stock options, restricted stock awards, stock appreciation rights or other
stock-based awards shall be granted under the following plans of the Company
(collectively, the "Prior Plans"): The 1987 Employee Stock Option Plan and the
1987 Supplemental Stock Option Plan. All outstanding stock options, restricted
stock awards, stock appreciation awards or other stock-based awards previously
granted under the Prior Plans shall remain outstanding in accordance with the
terms thereof.
SECTION 2. DEFINITIONS.
As used in the Plan, the following terms shall have the meanings set forth
below:
(a) "Affiliate" shall mean (i) any entity that, directly or indirectly
through one or more intermediaries, is controlled by the Company and (ii) any
entity in which the Company has a significant equity interest, as determined by
the Committee.
(b) "Award" shall mean any Option, Stock Appreciation Right, Restricted
Stock, Restricted Stock Unit, Performance Award, or other Stock-Based Award
granted under the Plan.
(c) "Award Agreement" shall mean any written agreement, contract or other
instrument or document evidencing any Award granted under the Plan.
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and any regulations promulgated thereunder.
(e) "Committee" shall mean a committee of the Board of Directors of the
Company designated by such Board to administer the Plan and composed of not
fewer than such number of directors as shall be required to permit the Plan to
satisfy the requirements of Rule 16b-3, each of whom is a "disinterested
-1-
<PAGE>
person" within the meaning of Rule 16b-3. At all times after the 1995 annual
meeting of the shareholders of the Company, each member of the Committee shall
be an "outside director" within the meaning of Section 162(m) of the Code.
(f) "Eligible Person" shall mean any full or part-time employee, officer,
consultants or independent contractors providing services to the Company or any
Affiliate who the Committee determines to be an Eligible Person.
(g) "Fair Market Value" shall mean, with respect to any property
(including, without limitation, any Shares or other securities), the fair market
value of such property determined by such methods or procedures as shall be
established from time to time by the Committee. Notwithstanding the foregoing,
for purposes of the Plan, the Fair Market Value of Shares on a given date shall
be the closing price of the Shares as reported on the New York Stock Exchange on
such date, if the Shares are then quoted on the New York Stock Exchange.
(h) "Incentive Stock Option" shall mean an option granted under Section
6(a) of the Plan that is intended to meet the requirements of Section 422 of the
Code or any successor provision.
(i) "Non-Qualified Stock Option" shall mean an option granted under Section
6(a) of the Plan that is not intended to be an Incentive Stock Option.
(j) "Option" shall mean an Incentive Stock Option or a Non-Qualified Stock
Option.
(k) "Other Stock-Based Award" shall mean any right granted under Section
6(f) of the Plan.
(l) "Participant" shall mean an Eligible Person designated to be granted an
Award under the Plan.
(m) "Performance Award" shall mean any right granted under Section 6(d) of
the Plan.
(n) "Person" shall mean any individual, corporation, partnership,
association or trust.
(o) "Reload Option" shall mean any option granted under Section 6(a)(iv) of
the Plan.
(p) "Restricted Stock" shall mean any Share granted under Section 6(c) of
the Plan.
(q) "Restricted Stock Unit" shall mean any unit granted under Section 6(c)
of the Plan evidencing the right to receive a Share (or a cash payment equal to
the Fair Market Value of a Share) at some future date.
-2-
<PAGE>
(r) "Rule 16b-3" shall mean Rule 16b-3 promulgated by the Securities and
Exchange Commission under the Securities Exchange Act of 1934.
(s) "Shares" shall mean shares of the Company's common stock, $.01 par
value, or such other securities or property as may become subject to Awards
pursuant to an adjustment made under Section 4(c) of the Plan.
(t) "Stock Appreciation Right" shall mean any right granted under Section
6(b) of the Plan.
SECTION 3. ADMINISTRATION.
(a) Power and Authority of the Committee. The Plan shall be administered
by the Committee. Subject to the terms of the Plan and applicable law, the
Committee shall have full power and authority to: (i) designate Participants;
(ii) determine the type or types of Awards to be granted to each Participant
under the Plan; (iii) determine the number of Shares to be covered by (or with
respect to which payments, rights or other matters are to be calculated in
connection with) each Award; (iv) determine the terms and conditions of any
Award or Award Agreement; (v) amend the terms and conditions of any Award or
Award Agreement and accelerate the exercisability of Options or the lapse of
restrictions relating to Restricted Stock or Restricted Stock Units; (vi)
determine whether, to what extent and under what circumstances Awards may be
exercised in cash, Shares, other securities, other Awards or other property, or
canceled, forfeited or suspended; (vii) determine whether, to what extent and
under what circumstances cash, Shares, other securities, other Awards, other
property and other amounts payable with respect to an Award under the Plan shall
be deferred either automatically or at the election of the holder thereof or the
Committee; (viii) interpret and administer the Plan and any instrument or
agreement relating to, or Award made under, the Plan; (ix) establish, amend,
suspend or waive such rules and regulations and appoint such agents as it shall
deem appropriate for the proper administration of the Plan; and (x) make any
other determination and take any other action that the Committee deems necessary
or desirable for the administration of the Plan. Unless otherwise expressly
provided in the Plan, all designations, determinations, interpretations and
other decisions under or with respect to the Plan or any Award shall be within
the sole discretion of the Committee, may be made at any time and shall be
final, conclusive and binding upon any Participant, any holder or beneficiary of
any Award and any employee of the Company or any Affiliate.
(b) Meetings of the Committee. The Committee shall select one of its
members as its chairman and shall hold its meetings at such times and places as
the Committee may determine. A majority of the Committee's members shall
constitute a quorum. All determinations of the Committee shall be made by not
less than a
-3-
<PAGE>
majority of its members. Any decision or determination reduced to writing and
signed by all of the members of the Committee shall be fully effective as if it
had been made by a majority vote at a meeting duly called and held. The
Committee may appoint a secretary and may make such rules and regulations for
the conduct of its business as it shall deem advisable.
SECTION 4. SHARES AVAILABLE FOR AWARDS.
(a) Shares Available. The number of shares available for granting awards
under the Plan is 3,382,360. If any Shares covered by an Award or to which an
Award relates are not purchased or are forfeited, or if an Award otherwise
terminates without delivery of any Shares, then the number of Shares counted
against the aggregate number of Shares available under the Plan with respect to
such Award, to the extent of any such forfeiture or termination, shall again be
available for granting Awards under the Plan.
(b) Accounting for Awards. For purposes of this Section 4, if an Award
entitles the holder thereof to receive or purchase Shares, the number of Shares
covered by such Award or to which such Award relates shall be counted on the
date of grant of such Award against the aggregate number of Shares available for
granting Awards under the Plan.
(c) Adjustments. In the event that the Committee shall determine that any
dividend or other distribution (whether in the form of cash, Shares, other
securities or other property), recapitalization, stock split, reverse stock
split, reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase or exchange of Shares or other securities of the Company, issuance of
warrants or other rights to purchase Shares or other securities of the Company
or other similar corporate transaction or event affects the Shares such that an
adjustment is determined by the Committee to be appropriate in order to prevent
dilution or enlargement of the benefits or potential benefits intended to be
made available under the Plan, then the Committee shall, in such manner as it
may deem equitable, adjust any or all of (i) the number and type of Shares (or
other securities or other property) which thereafter may be made the subject of
Awards, (ii) the number and type of Shares (or other securities or other
property) subject to outstanding Awards and (iii) the purchase or exercise price
with respect to any Award; provided, however, that the number of Shares covered
by any Award or to which such Award relates shall always be a whole number.
(d) Incentive Stock Options. Notwithstanding the foregoing, the number of
Shares available for granting Incentive Stock Options under the Plan shall not
exceed 3,000,000, subject to
-4-
<PAGE>
adjustment as provided in Section 4(c) and Section 422 or 424 of the Code or any
successor provisions.
(e) Award Limitations Under the Plan. No Eligible Person may be granted
any Award or Awards, the value of which Awards are based solely on an increase
in the value of the Shares after the date of grant of such Awards, for more than
150,000 Shares, in the aggregate, in any one calendar year period beginning with
the period commencing February 3, 1995 and ending February 3, 2005. The
foregoing limitation specifically includes the grant of any "performance-based"
Awards within the meaning of Section 162(m) of the Code.
SECTION 5. ELIGIBILITY.
Any Eligible Person, including any Eligible Person who is an officer or
director of the Company or any Affiliate, shall be eligible to be designated a
Participant; provided, however, that an Incentive Stock Option may only be
granted to full or part-time employees (which term as used herein includes,
without limitation, officers and directors who are also employees) and an
Incentive Stock Option shall not be granted to an employee of an Affiliate
unless such Affiliate is also a "subsidiary corporation" of the Company within
the meaning of Section 424(f) of the Code or any successor provision.
SECTION 6. AWARDS.
(a) Options. The Committee is hereby authorized to grant Options to
Participants with the following terms and conditions and with such additional
terms and conditions not inconsistent with the provisions of the Plan as the
Committee shall determine:
(i) Exercise Price. The purchase price per Share purchasable under an
Option shall be determined by the Committee; provided, however, that such
purchase price shall not be less than 50% of the Fair Market Value of a Share on
the date of grant of such Option.
(ii) Option Term. The term of each Option shall be fixed by the Committee.
(iii) Time and Method of Exercise. The Committee shall determine the time
or times at which an Option may be exercised in whole or in part and the method
or methods by which, and the form or forms (including, without limitation, cash,
Shares, other securities, other Awards or other property, or any combination
thereof, having a Fair Market Value on the exercise date equal to the relevant
exercise price) in which, payment of the exercise price with respect thereto may
be made or deemed to have been made.
(iv) Reload Options. The Committee may grant Reload
-5-
<PAGE>
Options, separately or together with another Option, pursuant to which, subject
to the terms and conditions established by the Committee and any requirements of
Rule 16b-3 or any other applicable law, the Participant would be granted a new
Option when the payment of the exercise price of a previously granted option is
made by the delivery of shares of the Company's Common Stock owned by the
Participant pursuant to Section 6(a)(iii) hereof or the relevant provisions of
another plan of the Company, and/or when shares of the Company's Common Stock
are tendered or forfeited as payment of the amount to be withheld under
applicable income tax laws in connection with the exercise of an option, which
new Option would be an option to purchase the number of Shares not exceeding the
sum of (A) the number of shares of the Company's Common Stock provided as
consideration upon the exercise of the previously granted option to which the
Reload Option relates and (B) the number of shares of the Company's Common Stock
tendered or forfeited as payment of the amount to be withheld under applicable
income tax laws in connection with the exercise of the option to which the
Reload Option relates. The Reload Option shall have a per share exercise price
equal to the Fair Market Value as of the date of grant of the new Option.
(b) Stock Appreciation Rights. The Committee is hereby authorized to grant
Stock Appreciation Rights to Participants subject to the terms of the Plan and
any applicable Award Agreement. A Stock Appreciation Right granted under the
Plan shall confer on the holder thereof a right to receive upon exercise thereof
the excess of (i) the Fair Market Value of one Share on the date of exercise
(or, if the Committee shall so determine, at any time during a specified period
before or after the date of exercise) over (ii) the grant price of the Stock
Appreciation Right as specified by the Committee, which price shall not be less
than 100% of the Fair Market Value of one Share on the date of grant of the
Stock Appreciation Right. The Committee shall determine the grant price, term,
methods of exercise, dates of exercise, methods of settlement and any other
terms and conditions of any Stock Appreciation Right, subject to the terms of
the Plan and any applicable Award Agreement. The Committee may impose such
conditions or restrictions on the exercise of any Stock Appreciation Right as it
may deem appropriate.
(c) Restricted Stock and Restricted Stock Units. The Committee is hereby
authorized to grant Awards of Restricted Stock and Restricted Stock Units to
Participants with the following terms and conditions and with such additional
terms and conditions not inconsistent with the provisions of the Plan as the
Committee shall determine:
(i) Restrictions. Shares of Restricted Stock and Restricted
-6-
<PAGE>
Stock Units shall be subject to such restrictions as the Committee may impose
(including, without limitation, any limitation on the right to vote a Share of
Restricted Stock or the right to receive any dividend or other right or property
with respect thereto), which restrictions may lapse separately or in combination
at such time or times, in such installments or otherwise as the Committee may
deem appropriate.
(ii) Stock Certificates. Any Restricted Stock granted under the Plan shall
be evidenced by issuance of a stock certificate or certificates, which
certificate or certificates shall be held by the Company. Such certificate or
certificates shall be registered in the name of the Participant and shall bear
an appropriate legend referring to the terms, conditions and restrictions
applicable to such Restricted Stock. In the case of Restricted Stock Units, no
Shares shall be issued at the time such Awards are granted.
(iii) Forfeiture; Delivery of Shares. Except as otherwise determined by
the Committee, upon termination of employment (as determined under criteria
established by the Committee) during the applicable restriction period, all
Shares of Restricted Stock and all Restricted Stock Units at such time subject
to restriction shall be forfeited and reacquired by the Company; provided,
however, that the Committee may, when it finds that a waiver would be in the
best interest of the Company, waive in whole or in part any or all remaining
restrictions with respect to Shares of Restricted Stock or Restricted Stock
Units. Shares representing Restricted Stock that is no longer subject to
restrictions shall be delivered to the holder thereof promptly after the
applicable restrictions lapse or are waived. Upon the lapse or waiver of
restrictions and the restricted period relating to Restricted Stock Units
evidencing the right to receive Shares, such Shares shall be issued and
delivered to the holders of the Restricted Stock Units.
(d) Performance Awards. The Committee is hereby authorized to grant
Performance Awards to Participants subject to the terms of the Plan and any
applicable Award Agreement. A Performance Award granted under the Plan (i) may
be denominated or payable in cash, Shares (including, without limitation,
Restricted Stock), other securities, other Awards or other property and (ii)
shall confer on the holder thereof the right to receive payments, in whole or in
part, upon the achievement of such performance goals during such performance
periods as the Committee shall establish. Subject to the terms of the Plan and
any applicable Award Agreement, the performance goals to be achieved during any
performance period, the length of any performance period, the amount of any
Performance Award granted and the amount of any payment or transfer to be made
pursuant to any Performance Award shall be determined by the Committee.
-7-
<PAGE>
(e) Other Stock-Based Awards. The Committee is hereby authorized to grant
to Participants such other Awards that are denominated or payable in, valued in
whole or in part by reference to, or otherwise based on or related to, Shares
(including, without limitation, securities convertible into Shares), as are
deemed by the Committee to be consistent with the purpose of the Plan; provided,
however, that such grants must comply with Rule 16b-3 and applicable law.
Subject to the terms of the Plan and any applicable Award Agreement, the
Committee shall determine the terms and conditions of such Awards. Shares of
other securities delivered pursuant to a purchase right granted under this
Section 6(f) shall be purchased for such consideration, which may be paid by
such method or methods and in such form or forms (including without limitation,
cash, Shares, other securities, other Awards or other property or any
combination thereof), as the Committee shall determine, the value of which
consideration, as established by the Committee, shall not be less than 100% of
the Fair Market Value of such Shares or other securities as of the date such
purchase right is granted.
(f) General.
(i) No Cash Consideration for Awards. Awards shall be granted for no cash
consideration or for such minimal cash consideration as may be required by
applicable law.
(ii) Awards May Be Granted Separately or Together. Awards may, in the
discretion of the Committee, be granted either alone or in addition to, in
tandem with or in substitution for any other Award or any award granted under
any plan of the Company or any Affiliate other than the Plan. Awards granted in
addition to or in tandem with other Awards or in addition to or in tandem with
awards granted under any such other plan of the Company or any Affiliate may be
granted either at the same time as or at a different time from the grant of such
other Awards or awards.
(iii) Forms of Payment under Awards. Subject to the terms of the Plan and
of any applicable Award Agreement, payments or transfers to be made by the
Company or an Affiliate upon the grant, exercise or payment of an Award may be
made in such form or forms as the Committee shall determine (including, without
limitation, cash, Shares, other securities, other Awards or other property or
any combination thereof), and may be made in a single payment or transfer, in
installments or on a deferred basis, in each case in accordance with rules and
procedures established by the Committee. Such rules and procedures may include,
without limitation, provisions for the payment or crediting of reasonable
interest on installment or deferred payments or the grant or crediting of
Dividend Equivalents with respect to installment or deferred payments.
-8-
<PAGE>
(iv) Limits on Transfer of Awards. No Award and no right under any such
Award shall be transferable by a Participant otherwise than by will or by the
laws of descent and distribution; provided, however, that, if so determined by
the Committee, a Participant may, in the manner established by the Committee,
designate a beneficiary or beneficiaries to exercise the rights of the
Participant and receive any property distributable with respect to any Award
upon the death of the Participant. Each Award or right under any Award shall be
exercisable during the Participant's lifetime only by the Participant or, if
permissible under applicable law, by the Participant's guardian or legal
representative. No Award or right under any such Award may be pledged,
alienated, attached or otherwise encumbered, and any purported pledge,
alienation, attachment or encumbrance thereof shall be void and unenforceable
against the Company or any Affiliate.
(v) Term of Awards. The term of each Award shall be for such period as may
be determined by the Committee.
(vi) Restrictions; Securities Exchange Listing. All certificates for
Shares or other securities delivered under the Plan pursuant to any Award or the
exercise thereof shall be subject to such stop transfer orders and other
restrictions as the Committee may deem advisable under the Plan or the rules,
regulations and other requirements of the Securities and Exchange Commission and
any applicable federal or state securities laws, and the Committee may cause a
legend or legends to be placed on any such certificates to make appropriate
reference to such restrictions. If the Shares or other securities are traded on
a securities exchange, the Company shall not be required to deliver any Shares
or other securities covered by an Award unless and until such Shares or other
securities have been admitted for trading on such securities exchange.
SECTION 7. AMENDMENT AND TERMINATION; ADJUSTMENTS.
Except to the extent prohibited by applicable law and unless otherwise
expressly provided in an Award Agreement or in the Plan:
(a) Amendments to the Plan. The Board of Directors of the Company may
amend, alter, suspend, discontinue or terminate the Plan; provided, however,
that, notwithstanding any other provision of the Plan or any Award Agreement,
without the approval of the stockholders of the Company, no such amendment,
alteration, suspension, discontinuation or termination shall be made that,
absent such approval:
(i) would cause Rule 16b-3 to become unavailable with respect to the Plan;
-9-
<PAGE>
(ii) would violate the rules or regulations of the New York Stock Exchange,
any other securities exchange or the National Association of Securities Dealers,
Inc. that are applicable to the Company; or
(iii) would cause the Company to be unable, under the Code, to grant
Incentive Stock Options under the Plan.
(b) Amendments to Awards. The Committee may waive any conditions of or
rights of the Company under any outstanding Award, prospectively or
retroactively. The Committee may not amend, alter, suspend, discontinue or
terminate any outstanding Award, prospectively or retroactively, without the
consent of the Participant or holder or beneficiary thereof, except as otherwise
herein provided.
(c) Correction of Defects, Omissions and Inconsistencies. The Committee
may correct any defect, supply any omission or reconcile any inconsistency in
the Plan or any Award in the manner and to the extent it shall deem desirable to
carry the Plan into effect.
SECTION 8. INCOME TAX WITHHOLDING, TAX BONUSES.
(a) Withholding. In order to comply with all applicable federal or state
income tax laws or regulations, the Company may take such action as it deems
appropriate to ensure that all applicable federal or state payroll, withholding,
income or other taxes, which are the sole and absolute responsibility of a
Participant, are withheld or collected from such Participant. In order to
assist a Participant in paying all federal and state taxes to be withheld or
collected upon exercise or receipt of (or the lapse of restrictions relating to)
an Award, the Committee, in its discretion and subject to such additional terms
and conditions as it may adopt, may permit the Participant to satisfy such tax
obligation by (i) electing to have the Company withhold a portion of the Shares
otherwise to be delivered upon exercise or receipt of (or the lapse of
restrictions relating to) such Award with a Fair Market Value equal to the
amount of such taxes or (ii) delivering to the Company Shares other than Shares
issuable upon exercise or receipt of (or the lapse of restrictions relating to)
such Award with a Fair Market Value equal to the amount of such taxes. The
election, if any, must be made on or before the date that the amount of tax to
be withheld is determined.
(b) Tax Bonuses. The Committee, in its discretion, shall have the
authority, at the time of grant of any Award under this Plan or at any time
thereafter, to approve cash bonuses to designated Participants to be paid upon
their exercise or receipt
-10-
<PAGE>
of (or the lapse of restrictions relating to) Awards in order to provide funds
to pay all or a portion of federal and state taxes due as a result of such
exercise or receipt (or the lapse of such restrictions). The Committee shall
have full authority in its discretion to determine the amount of any such tax
bonus.
SECTION 9. GENERAL PROVISIONS.
(a) No Rights to Awards. No Eligible Person, Participant or other Person
shall have any claim to be granted any Award under the Plan, and there is no
obligation for uniformity of treatment of Eligible Persons, Participants or
holders or beneficiaries of Awards under the Plan. The terms and conditions of
Awards need not be the same with respect to different Participants.
(b) Delegation. The Committee may delegate to one or more
officers of the Company or any Affiliate or a committee of such officers the
authority, subject to such terms and limitations as the Committee shall
determine, to grant Awards to Eligible Persons who are not officers or directors
of the Company for purposes of Section 16 of the Securities Exchange Act of
1934, as amended.
(c) Award Agreements. No Participant will have rights under an Award
granted to such Participant unless and until an Award Agreement shall have been
duly executed on behalf of the Company.
(d) No Limit on Other Compensation Arrangements. Nothing contained in the
Plan shall prevent the Company or any Affiliate from adopting or continuing in
effect other or additional compensation arrangements, and such arrangements may
be either generally applicable or applicable only in specific cases.
(e) No Right to Employment. The grant of an Award shall not be construed
as giving a Participant the right to be retained in the employ of the Company or
any Affiliate. In addition, the Company or an Affiliate may at any time dismiss
a Participant from employment, free from any liability or any claim under the
Plan, unless otherwise expressly provided in the Plan or in any Award Agreement.
(f) Governing Law. The validity, construction and effect of the Plan and
any rules and regulations relating to the Plan shall be determined in accordance
with the laws of the State of Minnesota.
(g) Severability. If any provision of the Plan or any Award is or becomes
or is deemed to be invalid, illegal or unenforceable in any jurisdiction or
would disqualify the Plan or any Award under any law deemed applicable by the
Committee, such provision shall be construed or deemed amended to conform to
-11-
<PAGE>
applicable laws, or if it cannot be so construed or deemed amended without, in
the determination of the Committee, materially altering the purpose or intent of
the Plan or the Award, such provision shall be stricken as to such jurisdiction
or Award, and the remainder of the Plan or any such Award shall remain in full
force and effect.
(h) No Trust or Fund Created. Neither the Plan nor any Award shall create
or be construed to create a trust or separate fund of any kind or a fiduciary
relationship between the Company or any Affiliate and a Participant or any other
Person. To the extent that any Person acquires a right to receive payments from
the Company or any Affiliate pursuant to an Award, such right shall be no
greater than the right of any unsecured general creditor of the Company or any
Affiliate.
(i) No Fractional Shares. No fractional Shares shall be issued or
delivered pursuant to the Plan or any Award, and the Committee shall determine
whether cash shall be paid in lieu of any fractional Shares or whether such
fractional Shares or any rights thereto shall be canceled, terminated or
otherwise eliminated.
(j) Headings. Headings are given to the Sections and subsections of the
Plan solely as a convenience to facilitate reference. Such headings shall not
be deemed in any way material or relevant to the construction or interpretation
of the Plan or any provision thereof.
SECTION 10. EFFECTIVE DATE OF THE PLAN.
The Plan shall be effective as of February 3, 1995, subject to approval by
the shareholders of the Company within one year thereafter.
SECTION 11. TERM OF THE PLAN.
Unless the Plan shall have been discontinued or terminated as provided in
Section 7(a), the Plan shall terminate on February 3, 2005. No Award shall be
granted after the termination of the Plan. However, unless otherwise expressly
provided in the Plan or in an applicable Award Agreement, any Award theretofore
granted may extend beyond the termination of the Plan, and the authority of the
Committee provided for hereunder with respect to the Plan and any Awards, and
the authority of the Board of Directors of the Company to amend the Plan, shall
extend beyond the termination of the Plan.
-12-
<PAGE>
Exhibit 11.(a)
--------------
GREEN TREE FINANCIAL CORPORATION AND SUBSIDIARIES
-------------------------------------------------
COMPUTATION OF PRIMARY EARNINGS PER SHARE
-----------------------------------------
<TABLE>
<CAPTION>
Year ended December 31
----------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Net Earnings $253,969,000 $181,279,000 $116,423,000
============ ============ ============
Weighted average number of
common and common equivalent
shares outstanding:
Weighted average common
shares outstanding 136,644,397 134,941,996 125,190,304
Dilutive effect of stock
options after application
of treasury-stock method 3,445,259 3,726,342 3,559,332
------------ ------------ ------------
140,089,656 138,668,338 128,749,636
------------ ------------ ------------
Earnings per share:
Net earnings $ 1.81 $ 1.31 $ .90
============ ============ ============
</TABLE>
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<PAGE>
Exhibit 11.(b)
--------------
GREEN TREE FINANCIAL CORPORATION AND SUBSIDIARIES
-------------------------------------------------
COMPUTATION OF FULLY DILUTED EARNINGS PER SHARE
-----------------------------------------------
<TABLE>
<CAPTION>
Year ended December 31
----------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Net earnings $253,969,000 $181,279,000 $116,423,000
============ ============ ============
Weighted average number of
common and common equivalent
shares outstanding:
Weighted average common
shares outstanding 136,644,397 134,941,996 125,190,304
Dilutive effect of stock
options after application
of treasury-stock method
assuming full dilution 3,465,972 3,905,550 3,775,024
------------ ------------ ------------
140,110,369 138,847,546 128,965,328
------------ ------------ ------------
Earnings per share: $ 1.81 $ 1.31 $ .90
============ ============ ============
</TABLE>
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<PAGE>
Exhibit 12.
-----------
GREEN TREE FINANCIAL CORPORATION AND SUBSIDIARIES
-------------------------------------------------
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
-------------------------------------------------
<TABLE>
<CAPTION>
Year ended December 31
--------------------------------------------------------------------
1995 1994 1993 1992 1991
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Earnings:
Earnings before
income taxes $409,628,000 $302,131,000 $200,537,000 $118,806,000 $ 92,176,000
Fixed charges:
Interest 57,313,000 41,619,000 51,155,000 44,868,000 48,957,000
One-third rent 2,034,000 1,688,000 1,483,000 1,652,000 1,467,000
------------ ------------ ------------ ------------ ------------
59,347,000 43,307,000 52,638,000 46,520,000 50,424,000
------------ ------------ ------------ ------------ ------------
$468,975,000 $345,438,000 $253,175,000 $165,326,000 $142,600,000
============ ============ ============ ============ ============
Fixed charges:
Interest $ 57,313,000 $ 41,619,000 $ 51,155,000 $ 44,868,000 $ 48,957,000
One-third rent 2,034,000 1,688,000 1,483,000 1,652,000 1,467,000
------------ ------------ ------------ ------------ ------------
$ 59,347,000 $ 43,307,000 $ 52,638,000 $ 46,520,000 $ 50,424,000
============ ============ ============ ============ ============
Ratio of earnings
to fixed charges (1) 7.90 7.98 4.81 3.55 2.83
==== ==== ==== ==== ====
</TABLE>
(1) For purposes of computing the ratios, earnings consist of earnings before
income taxes plus fixed charges.
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<PAGE>
Exhibit 21.
-----------
GREEN TREE FINANCIAL CORPORATION
SUBSIDIARIES
The following is a list of the Company's subsidiaries which are all owned
100% by Green Tree Financial Corporation who is the ultimate or immediate
parent:
STATE OF
NAME OF SUBSIDIARY INCORPORATION
------------------ -------------
Green Tree Financial Servicing Corporation Delaware
Green Tree Financial Corp.- Alabama Delaware
Green Tree Financial Corp.- Texas Delaware
Green Tree Credit Corp. New York
Green Tree Consumer Discount Company Pennsylvania
Piper Financial Services, Inc. Minnesota
Green Tree Retail Services Bank South Dakota
Consolidated Acceptance Corporation Nevada
Rice Park Properties Corporation Minnesota
Woodgate Consolidated Incorporated Texas
Woodgate Utilities Incorporated Texas
Green Tree Finance Corp.-One Minnesota
Green Tree Finance Corp.-Two Minnesota
Green Tree Finance Corp.-Three Minnesota
Green Tree Finance Corp.-Four Minnesota
Green Tree Finance Corp.-Five Minnesota
Green Tree Manufactured Housing Net
Interest Margin Finance Corp. I Delaware
Green Tree Manufactured Housing Net
Interest Margin Finance Corp. II Delaware
Green Tree Floorplan Funding Corp. Delaware
Green Tree Guaranty Corporation Minnesota
Green Tree Vehicles Guaranty Corporation Minnesota
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<PAGE>
STATE OF
NAME OF SUBSIDIARY INCORPORATION
------------------ -------------
MaHCS Guaranty Corporation Delaware
Green Tree RECS Guaranty Corporation Minnesota
Green Tree Life Insurance Company Arizona
Consolidated Casualty Insurance Company Arizona
Green Tree Agency, Inc. Minnesota
Green Tree Agency of Alabama, Inc. Alabama
Green Tree Agency of Nevada, Inc. Nevada
GTA Agency, Inc. New York
Crum-Reed General Agency, Inc. Texas
-185-
<PAGE>
Exhibit 23.
-----------
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
---------------------------------------------------
The Board of Directors
Green Tree Financial Corporation:
We consent to incorporation by reference of our report dated January 30,
1996, relating to the consolidated balance sheets of Green Tree Financial
Corporation and subsidiaries as of December 31, 1995 and 1994 and the
related consolidated statements of operations, stockholders' equity and
cash flows for each of the years in the three-year period ended December
31, 1995, which report appears in the December 31, 1995 Form 10-K of Green
Tree Financial Corporation, in the following Registration Statements of
Green Tree Financial Corporation; No. 2-88293 on Form S-8, No. 33-26498 on
Form S-8/S-3, No. 33-60541 on Form S-8/S-3, No. 33-51804 on Form S-3, No.
33-55855 on Form S-3, No. 33-64185 on Form S-3, No. 33-55853 on Form S-3,
No. 33-64183 on Form S-3 and No. 33-63575 on Form S-3.
Minneapolis, Minnesota
March 22, 1996
-186-
<PAGE>
Exhibit 24.
-----------
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Lawrence M. Coss and Joel H.
Gottesman, and each or either one of them, his true and lawful attorney(s)-
in-fact and agent(s), with full power of substitution and resubstitution
for him and in his name, place, and stead, in any and all capacities, to
sign the 1995 Annual Report on Form 10-K of Green Tree Financial
Corporation, and any and all amendments thereto, and to file the same, with
all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney(s)-in-fact
and agent(s), and each of them, full power and authority to do and perform
each and every act and thing requisite or necessary to be done in and about
the premises, as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said attorney(s)-in-
fact and agent(s), or either of them, or his or their substitutes, may
lawfully do or cause to be done by virtue hereof.
SIGNATURE DATE
--------- ----
/s/W. Max McGee March 11, 1996
-------------------------
W. Max McGee
/s/Tania A. Modic March 13, 1996
------------------------
Tania A. Modic
/s/Robert S. Nickoloff March 15, 1996
-------------------------
Robert S. Nickoloff
-187-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
the financial statements of Green Tree Financial Corporation and Subsidiaries
for the year ended December 31, 1995 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 455,078,000
<SECURITIES> 19,880,000
<RECEIVABLES> 198,846,000
<ALLOWANCES> 4,507,000
<INVENTORY> 884,303,000
<CURRENT-ASSETS> 0
<PP&E> 83,654,000
<DEPRECIATION> 26,550,000
<TOTAL-ASSETS> 2,383,546,000
<CURRENT-LIABILITIES> 0
<BONDS> 289,884,000
<COMMON> 1,375,000
0
0
<OTHER-SE> 923,647,000
<TOTAL-LIABILITY-AND-EQUITY> 2,383,546,000
<SALES> 671,741,000
<TOTAL-REVENUES> 711,320,000
<CGS> 0
<TOTAL-COSTS> 244,379,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 223,039,000
<INTEREST-EXPENSE> 57,313,000
<INCOME-PRETAX> 409,628,000
<INCOME-TAX> 155,659,000
<INCOME-CONTINUING> 253,969,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 253,969,000
<EPS-PRIMARY> 1.81
<EPS-DILUTED> 1.81
</TABLE>
