<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 4, 1996
REGISTRATION NO. 333-
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
GREEN TREE FINANCIAL CORPORATION
(ORIGINATOR OF THE TRUSTS DESCRIBED HEREIN)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
--------------
41-1263905 (I.R.S. EMPLOYER IDENTIFICATION
NO.)
DELAWARE (STATE OR OTHER
JURISDICTION OF INCORPORATION OR
ORGANIZATION)
1100 LANDMARK TOWERS
345 ST. PETER STREET
SAINT PAUL, MINNESOTA 55102-1639
(612) 293-3400
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
--------------
JOEL H. GOTTESMAN, ESQ.
1100 LANDMARK TOWERS
345 ST. PETER STREET
SAINT PAUL, MINNESOTA 55102-1639
(612) 293-3400
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
--------------
COPIES TO:
CHARLES F. SAWYER, ESQ. DORSEY &
WHITNEY LLP 220 SOUTH SIXTH
STREET MINNEAPOLIS, MINNESOTA
55402 (612) 340-2600
CATHY M. KAPLAN, ESQ. BROWN & WOOD LLP ONE
WORLD TRADE CENTER NEW YORK, NEW YORK 10048
(212) 839-5531
--------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after the effective date of this Registration Statement as determined
by market conditions.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(b)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
--------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
AMOUNT MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) PRICE(1) FEE(2)
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<S> <C> <C> <C> <C>
Asset-Backed Securities........................ $1,000,000,000 100% $1,000,000,000 $303,030.30
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Limited Guaranty of Green Tree Financial
Corporation................................... (3) (3) (3) (3)
</TABLE>
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(1) Estimated solely for the purpose of calculating the registration fee.
(2) The amount of Asset-Backed Securities being carried forward from
Registration Statement No. 333-02725 pursuant to Rule 429 is $218,386,964,
and the Registrant previously paid a filing fee with respect to such
securities of $75,305.85 (calculated at the rate of 1/29th of 1% of the
amount of securities being registered, the rate in effect at the time such
Registration Statement was filed).
(3) No additional consideration will be paid for the Limited Guaranty;
accordingly, no additional filing fee is being paid herewith pursuant to
Rule 457(n).
--------------
Pursuant to Rule 429, the Prospectus contained in this Registration
Statement also relates to and constitutes Post-Effective Amendment No. 1 to
Registration Statement No. 333-02725, which was declared effective on May 3,
1996.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED NOVEMBER 4, 1996
PROSPECTUS
GREEN TREE RECREATIONAL, EQUIPMENT & CONSUMER TRUSTS
ASSET-BACKED CERTIFICATES
ASSET-BACKED NOTES
-----------
GREEN TREE FINANCIAL CORPORATION
(SELLER AND SERVICER)
-----------
The Asset-Backed Certificates (the "Certificates") and the Asset-Backed Notes
(the "Notes" and, collectively with the Certificates, the "Securities")
described herein may be sold from time to time in one or more series, in
amounts, at prices and on the terms to be determined at the time of sale and to
be set forth in a supplement to this Prospectus (a "Prospectus Supplement").
Each series of Securities will include either one or more classes of
Certificates or, if Notes are issued as part of a series, one or more classes
of Notes and one or more classes of Certificates, as set forth in the related
Prospectus Supplement.
The Certificates and the Notes, if any, of any series of Securities will be
issued by a trust (a "Trust") to be formed with respect to such series by Green
Tree Financial Corporation ("Green Tree"). The assets of each Trust (the "Trust
Property") will include a pool of retail installment sales contracts and
promissory notes for the purchase of a variety of consumer products
(collectively, the "Products"), retail installment sales contracts and
promissory notes financing home improvements, and closed-end home equity loans,
each as further described herein (such retail installment sales contracts,
promissory notes and home equity loans are referred to herein as the
"Contracts"). The Trust Property will also include certain monies paid or
payable under the Contracts after the Cutoff Date set forth in the related
Prospectus Supplement (the "Cutoff Date"), an assignment of Green Tree's
security interests in the Products financed thereby and the mortgages securing
the home equity loans, and certain other property, as more fully described
herein and in the related Prospectus Supplement. In addition, if so specified
in the related Prospectus Supplement, the Trust Property will include monies on
deposit in one or more trust accounts to be established with an Indenture
Trustee, which may include a Pre-Funding Account which would be used to
purchase additional Contracts (the "Subsequent Contracts") from the Seller from
time to time during the Pre-Funding Period specified in the related Prospectus
Supplement.
Each Trust will be formed pursuant to either (i) a Pooling and Servicing
Agreement (the "Pooling and Servicing Agreement") to be entered into between
Green Tree, as Seller and Servicer, and the Trustee specified in the related
Prospectus Supplement (the "Trustee") or (ii) a Trust Agreement (the "Trust
Agreement") to be entered into among the Seller, the Trust and certain other
parties as specified in the related Prospectus Supplement. If the Trust is
formed pursuant to a Trust Agreement, a Sale and Servicing Agreement (the "Sale
and Servicing Agreement") will be entered into among Green Tree, as Seller and
Servicer and the Trust. The Pooling and Servicing Agreement or the Trust
Agreement and the Sale and Servicing Agreement are collectively referred to
herein as the "Trust Documents." The Notes, if any, of a series will be issued
and secured pursuant to an Indenture (the "Indenture") between the Trust and
the Indenture Trustee specified in the related Prospectus Supplement (the
"Indenture Trustee").
(Continued on next page)
FOR A DISCUSSION OF CERTAIN FACTORS WHICH SHOULD BE CONSIDERED BY PROSPECTIVE
PURCHASERS OF THE SECURITIES, SEE "RISK FACTORS" AT PAGE 12 HEREIN AND IN THE
RELATED PROSPECTUS SUPPLEMENT.
-----------
THE CERTIFICATES REPRESENT INTERESTS IN AND THE NOTES REPRESENT OBLIGATIONS
OF THE RELATED TRUST AND DO NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF GREEN
TREE (EXCEPT TO THE LIMITED EXTENT DESCRIBED HEREIN AND IN THE RELATED
PROSPECTUS SUPPLEMENT) OR ANY AFFILIATE OF GREEN TREE.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
-----------
Retain this Prospectus for future reference. This Prospectus may not be used
to consummate sales of securities offered hereby unless accompanied by a
Prospectus Supplement.
THE DATE OF THIS PROSPECTUS IS .
<PAGE>
(Continued from previous page)
Except as otherwise provided in the related Prospectus Supplement, each
class of Securities of any series will represent the right to receive a
specified amount of payments of principal and interest on the related
Contracts in the manner described herein and in the related Prospectus
Supplement. The right of each class of Securities to receive payments may be
senior or subordinate to the rights of one or more of the other classes of
such series. A series may include two or more classes of Certificates or Notes
which differ as to the timing and priority of payment, interest rate or amount
of distributions in respect of principal or interest or both. A series may
include one or more classes of Certificates or Notes entitled to distributions
in respect of principal, with disproportionate, nominal or no interest
distributions, or to interest distributions, with disproportionate, nominal or
no distributions in respect of principal. Distributions on Certificates of any
series will be subordinated in priority to payments due on the related Notes,
if any, to the extent described herein and in the related Prospectus
Supplement. The Certificates will represent fractional undivided interests in
the related Trust.
Each class of Securities will represent the right to receive distributions
or payments in the amounts, at the rates, and on the dates set forth in the
related Prospectus Supplement. The rate of distributions in respect of
principal on Certificates and payment in respect of principal on Notes, if
any, of any class will depend on the priority of payment of such class and the
rate and timing of payments (including prepayments, liquidations and
repurchases of Contracts) on the related Contracts.
If specified in the related Prospectus Supplement, a financial guaranty
insurance policy, letter of credit, surety bond, Green Tree guaranty, cash
reserve fund, or other form of credit enhancement, or any combination thereof,
may be provided with respect to a Trust or any class of Securities.
Unless otherwise provided in the related Prospectus Supplement, the
Certificates and the Notes, if any, of any series initially will be
represented by certificates and notes registered in the name of Cede & Co.,
the nominee of The Depository Trust Company ("DTC"). The interests of
beneficial owners of the Securities will be represented by book entries on the
records of the participating members of DTC. Definitive Securities will be
available only under limited circumstances.
There currently is no secondary market for the Securities. There can be no
assurance that any such market will develop or, if it does develop, that it
will continue. The Securities will not be listed on any securities exchange.
2
<PAGE>
AVAILABLE INFORMATION
Green Tree, as originator of each Trust, has filed with the Securities and
Exchange Commission (the "Commission") a Registration Statement (together with
all amendments and exhibits thereto, referred to herein as the "Registration
Statement") under the Securities Act of 1933, as amended, with respect to the
Securities offered pursuant to this Prospectus. For further information,
reference is made to the Registration Statement which is available for
inspection without charge at the office of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the regional offices of the Commission at
Seven World Trade Center, Suite 1300, New York, New York 10048 and at
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511, and copies of which may be obtained from the Commission
at prescribed rates. The Commission also maintains a Web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission.
REPORTS TO SECURITYHOLDERS
Unless otherwise provided in the related Prospectus Supplement, unless and
until Definitive Certificates or Definitive Notes are issued, unaudited
monthly and annual reports, containing information concerning each Trust and
prepared by the Servicer, will be sent on behalf of the Trust to the Trustee
for the Certificateholders, the Indenture Trustee for the Noteholders and Cede
& Co., as registered holder of the Certificates and the Notes and the nominee
of DTC. See "Certain Information Regarding the Securities--Statements to
Securityholders" and "--Book-Entry Registration." Certificateholders and
Noteholders are collectively referred to herein as the "Securityholders."
Certificate Owners or Note Owners may receive such reports, upon written
request, together with a certification that they are Certificate Owners or
Note Owners and payment of reproduction and postage expenses associated with
the distribution of such reports, from the Trustee, with respect to
Certificate Owners, or the Indenture Trustee, with respect to Note Owners, at
the addresses specified in the related Prospectus Supplement. Such reports
will not constitute financial statements prepared in accordance with generally
accepted accounting principles. Green Tree does not intend to send any of its
financial reports to Securityholders. The Servicer, on behalf of each Trust,
will file with the Commission periodic reports concerning each Trust to the
extent required under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations of the Commission thereunder.
However, in accordance with the Exchange Act and the rules and regulations of
the Commission thereunder, Green Tree expects that each Trust's obligation to
file such reports will be terminated following the end of the year in which
such Trust is formed.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Green Tree's Annual Report on Form 10-K for the year ended December 31,
1995, and Quarterly Reports on Form 10-Q for the periods ended March 31, 1996
and June 30, 1996, which have been filed with the Commission, are hereby
incorporated by reference in this Prospectus and the related Prospectus
Supplement.
All documents filed by the Servicer on behalf of each Trust pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date
of this Prospectus and prior to the termination of the offering of the related
Securities shall be deemed to be incorporated by reference into this
Prospectus and the related Prospectus Supplement and to be a part hereof and
thereof from the respective dates of filing of such documents. Any statement
contained herein or in a document all or any portion of which is deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus and the related Prospectus Supplement to the
extent that a statement contained herein or in any other subsequently filed
document which also is deemed to be incorporated by reference herein modifies
or supersedes such statement. Any statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
this Prospectus or the related Prospectus Supplement.
Green Tree will provide without charge to any person to whom this Prospectus
is delivered, upon the written or oral request of such person, a copy of any
or all of the foregoing documents incorporated herein by reference (other than
certain exhibits to such documents). Requests for such copies should be
directed to John Dolphin, Vice President and Director of Investor Relations,
Green Tree Financial Corporation, 1100 Landmark Towers, 345 St. Peter Street,
Saint Paul, Minnesota 55102-1639, telephone number (612) 293-3400.
3
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus and by reference to
the information with respect to the Securities contained in the related
Prospectus Supplement to be prepared and delivered in connection with the
offering of each series of Securities. Certain capitalized terms used in this
Prospectus Summary are defined elsewhere in this Prospectus and in the related
Prospectus Supplement.
<TABLE>
<S> <C>
Issuer.............................. With respect to each series of Securities,
a trust (the "Trust") will be formed by
Green Tree pursuant to either a Pooling and
Servicing Agreement between Green Tree, in
its capacity as Seller and as Servicer (in
such capacity referred to herein as the
"Servicer"), and the Trustee specified in
the related Prospectus Supplement (each
such trust, a "grantor trust"), or a Trust
Agreement between the Seller, the Trustee
specified in the related Prospectus
Supplement and certain other parties as
specified in the related Prospectus
Supplement (each such trust, an "owner
trust").
Seller and Servicer................. Green Tree Financial Corporation. See
"Green Tree Financial Corporation."
Trustee............................. The Trustee for a grantor trust or the
Owner Trustee for an owner trust, in each
case as specified in the related Prospectus
Supplement. The Trustee or Owner Trustee
for any Trust will be referred to in this
Prospectus as the "Trustee," although the
Prospectus Supplement relating to an owner
trust that issues Notes will refer to the
Trustee as the "Owner Trustee" in order to
distinguish the Owner Trustee and the
Indenture Trustee for such Series. See
"Description of the Trust Documents--The
Trustee."
Indenture Trustee................... With respect to any Series of Securities
including one or more classes of Notes, the
Indenture Trustee specified in the related
Prospectus Supplement (the "Indenture
Trustee").
The Certificates.................... Each series of Securities will include one
or more classes of Certificates which will
be issued pursuant to the related Trust
Documents.
Unless otherwise specified in the related
Prospectus Supplement, Certificates will be
available for purchase in denominations of
$1,000 and in integral multiples thereof
and will be available in book-entry form
only. Unless otherwise specified in the
related Prospectus Supplement, beneficial
owners of Certificates ("Certificate
Owners") will be able to receive Definitive
Certificates only in the limited
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
circumstances described herein or in the
related Prospectus Supplement. See "Certain
Information Regarding the Securities--Book-
Entry Registration."
Unless otherwise specified in the related
Prospectus Supplement, each class of
Certificates will have a stated Certificate
Balance (as defined in the related
Prospectus Supplement) and will accrue
interest on such Certificate Balance at a
specified rate (with respect to each class
of Certificates, the "Pass-Through Rate").
Each class of Certificates may have a
different Pass-Through Rate, which may be a
fixed, variable or adjustable Pass-Through
Rate, or any combination of the foregoing.
The related Prospectus Supplement will
specify the Pass-Through Rate for each
class of Certificates, or the initial Pass-
Through Rate and the method for determining
subsequent changes to the Pass-Through
Rate.
A series may include two or more classes of
Certificates which differ as to timing of
distributions, sequential order, priority
of payment, seniority, allocation of loss,
Pass-Through Rate or amount of
distributions in respect of principal or
interest, or as to which distributions in
respect of principal or interest on any
class may or may not be made upon the
occurrence of specified events or on the
basis of collections from designated
portions of the Contract Pool. In addition,
a series may include one or more classes of
Certificates ("Stripped Certificates")
entitled to (i) distributions in respect of
principal with disproportionate, nominal or
no interest distributions, or (ii) interest
distributions, with disproportionate,
nominal or no distributions in respect of
principal.
With respect to any series of Securities
including one or more classes of Notes,
distributions in respect of the
Certificates may be subordinated in
priority of payment to payments on the
Notes, to the extent specified in the
related Prospectus Supplement.
If the Seller or Servicer exercises its
option to purchase the Contracts of a Trust
on the terms and conditions described below
under "Description of the Trust Documents--
Termination," Certificate Owners will
receive an amount in respect of the
Certificates as specified in the related
Prospectus Supplement. In addition, if the
related Prospectus Supplement provides that
the property of a Trust will include a Pre-
Funding Account (as such term is defined in
the related Prospectus Supplement, the
"Pre-Funding Account"),
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
Certificate Owners will receive a
distribution in respect of principal on or
immediately following the end of the
funding period specified in the related
Prospectus Supplement (the "Pre-Funding
Period") in an amount and manner specified
in the related Prospectus Supplement.
The Notes........................... With respect to any series of Securities
including one or more classes of Notes,
such Notes will be issued pursuant to an
Indenture.
Unless otherwise specified in the related
Prospectus Supplement, Notes will be
available for purchase in denominations of
$1,000 and integral multiples thereof, and
will be available in book-entry form only.
Unless otherwise specified in the related
Prospectus Supplement, beneficial owners of
Notes ("Note Owners") will be able to
receive Definitive Notes only in the
limited circumstances described herein or
in the related Prospectus Supplement. See
"Certain Information Regarding the
Securities--Book-Entry Registration."
Unless otherwise specified in the related
Prospectus Supplement, each class of Notes
will have a stated principal amount and
will bear interest at a specified rate or
rates (with respect to each class of Notes,
the "Interest Rate"). Each class of Notes
may have a different Interest Rate, which
may be a fixed, variable or adjustable
Interest Rate, or any combination of the
foregoing. The related Prospectus
Supplement will specify the Interest Rate
and the method for determining subsequent
changes to the Interest Rate.
A series may include two or more classes of
Notes which differ as to the timing and
priority of payment, seniority, allocations
of loss, Interest Rate or amount of
payments of principal or interest, or as to
which payments of principal or interest may
or may not be made upon the occurrence of
specified events or on the basis of
collections from designated portions of the
Contract Pool. In addition, a series may
include one or more classes of Notes
("Stripped Notes") entitled to (i)
principal payments with disproportionate,
nominal or no interest payments or (ii)
interest payments with disproportionate,
nominal or no principal payments.
If the Seller or the Servicer exercises its
option to purchase the Contracts of a Trust
on the terms and conditions described below
under "Description of the Trust Documents--
Termination," the outstanding Notes, if
any, of such series will be redeemed as set
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
forth in the related Prospectus Supplement.
In addition, if the related Prospectus
Supplement provides that the property of a
Trust will include a Pre-Funding Account,
the outstanding Notes, if any, of such
series will be subject to partial
redemption on or immediately following the
end of the Pre-Funding Period in an amount
and manner specified in the related
Prospectus Supplement. In the event of such
partial redemption, the Note Owners may be
entitled to receive a prepayment premium
from the Trust, in the amount and to the
extent provided in the related Prospectus
Supplement.
Trust Property...................... Each Certificate will represent a
fractional undivided interest in, and each
Note, if any, will represent an obligation
of, the related Trust. The assets of each
Trust (the "Trust Property") will include,
among other things, a pool (the "Contract
Pool") of retail installment sales
contracts and promissory notes for the
purchase of a variety of consumer products
as further described under "Green Tree
Financial Corporation" herein
(collectively, the "Products"), retail
installment sales contracts and promissory
notes financing home improvements ("Home
Improvement Contracts"), and closed-end
home equity loans ("Home Equity Contracts")
(such retail installment sales contracts,
promissory notes and Home Equity Contracts
are referred to herein as the "Contracts"),
certain monies paid or payable thereunder
on or after the Cutoff Date (as specified
in the related Prospectus Supplement), an
assignment of Green Tree's security
interests in the Products and the mortgages
securing any Home Equity Contracts, an
assignment of the right to receive proceeds
from claims on certain insurance policies
covering the Products, the real estate
securing any Home Equity Contracts, or the
Obligors, the assignment of certain rights
of Green Tree against the Dealers
originating such Contracts, the Collection
Account, including all investments therein,
all income from the investment of funds
therein and all proceeds thereof, certain
other accounts and the proceeds thereof and
certain other rights under the Trust
Documents. In addition, if so specified in
the related Prospectus Supplement, the
Trust Property will include monies on
deposit in a Pre-Funding Account to be
established with the Indenture Trustee or
the Trustee, which will be used to purchase
Subsequent Contracts (as defined below)
from the Seller from time to time during
the Pre-Funding Period specified in the
related Prospectus
</TABLE>
7
<PAGE>
Supplement, as well as any Subsequent
Contracts so purchased. See "The
Trusts."
<TABLE>
<S> <C>
If and to the extent provided in the
related Prospectus Supplement, the related
Trust will be obligated to purchase from
Green Tree (subject to the satisfaction of
certain conditions described in the
applicable Sale and Servicing Agreement),
additional Contracts (the "Subsequent
Contracts") from time to time (as
frequently as daily) during the Pre-Funding
Period specified in the related Prospectus
Supplement having an aggregate principal
balance approximately equal to the amount
on deposit in the Pre-Funding Account (the
"Pre-Funded Amount") on such Closing Date.
Green Tree will be obligated to repurchase
Contracts upon the occurrence of certain
breaches of representations and warranties
(a "Repurchase Event"). See "Description of
the Trust Documents--Sale and Assignment of
the Contracts" and "--Servicing
Procedures."
Enhancement......................... If and to the extent specified in the
related Prospectus Supplement, enhancement
with respect to a Trust or any class of
Securities may include any one or more of
the following: a financial guaranty
insurance policy, letter of credit, Green
Tree guaranty, cash reserve fund,
derivative product, or other form of credit
enhancement, or any combination thereof.
The enhancement with respect to any Trust
or any class of Securities may be
structured to provide protection against
delinquencies and/or losses on the
Contracts, against changes in interest
rates, or other risks, to the extent and
under the conditions specified in the
related Prospectus Supplement. Unless
otherwise specified in the related
Prospectus Supplement, any form of
enhancement will have certain limitations
and exclusions from coverage thereunder,
which will be described in the related
Prospectus Supplement. Further information
regarding any provider of credit
enhancement, including financial
information when material, will be included
in the related Prospectus Supplement. See
"Description of the Trust Documents--
Enhancement."
Servicing........................... The Servicer will be responsible for
managing, administering, servicing and
making collections on the Contracts held by
each Trust. Unless otherwise specified in
the related Prospectus Supplement, with
respect to each series of Securities
compensation to the Servicer will include a
monthly fee (the "Servicing Fee") which
will be payable from the related Trust to
the Servicer on each Distribution
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
Date, in an amount equal to the product of
one-twelfth of .75% per annum multiplied by
the aggregate principal balance of the
Contracts (the "Aggregate Principal
Balance") as of the first day of the prior
calendar month, plus any late fees and
other administrative fees and expenses or
similar charges collected with respect to
the Contracts during such Monthly Period.
See "Description of the Trust Documents--
Servicing Compensation."
Advances............................ Unless otherwise specified in the related
Prospectus Supplement, the Servicer will be
obligated to make Advances each month of
any scheduled payments on the Contracts
that were due but not received during the
prior Due Period. The Servicer will be
entitled to reimbursement of an Advance
from Available Funds in the Collection
Account for the related Trust. The Servicer
will be obligated to make an Advance only
to the extent that it determines that such
Advance will be recoverable from subsequent
funds available therefor in the Collection
Account for the related Trust. See
"Description of the Trust Documents--
Advances."
Contracts........................... The Contracts forming part of the Trust
Property of each Trust were or will have
been originated by
Dealers and sold by the Dealers to Green
Tree in the ordinary course of business.
The Contracts will generally be prepayable
at any time without penalty to the
purchaser of the related Product or other
person or persons who are obligated to make
payments thereunder (each, an "Obligor").
See "The Contracts." Information with
respect to each Contract Pool, including
the proportions of each type of Product
financed, the weighted average annual
percentage rate and the weighted average
remaining maturity, will be set forth in
the related Prospectus Supplement.
Collection Account.................. With respect to each series of Securities,
the Servicer will establish and maintain
one or more separate accounts (the
"Collection Account") in the name of the
Trustee or, in the case of any series
including one or more classes of Notes, in
the name of the Indenture Trustee for the
benefit of the Certificate Owners and the
Note Owners. All payments from Obligors
that are received by the Servicer on behalf
of each Trust will be deposited in the
related Collection Account no later than
one Business Day after receipt thereof.
Unless otherwise specified in the related
Prospectus Supplement, all payments from
Obligors and all proceeds (net of
reasonable expenses of collection)
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with respect to Liquidated Contracts
("Liquidation Proceeds") that are received
by the Servicer will be deposited in the
related Collection Account no later than
one Business Day after receipt thereof.
Unless otherwise specified in the related
Prospectus Supplement, the Servicer will be
permitted to use any alternative remittance
schedule acceptable to the Rating Agencies
(as defined below). See "Description of the
Trust Documents--Collections."
Mandatory Purchase of Certain With respect to each series of Securities,
Contracts......................... Green Tree will make certain
representations and warranties relating to
the Contracts held by the related Trust to
the Trustee for the benefit of the related
Trust and if such series of Securities
includes one or more classes of Notes, the
Trustee will assign its right to enforce
such representations and warranties to the
related Indenture Trustee as collateral for
the Notes. The Trustee and the Indenture
Trustee, if any, will be entitled to
require that Green Tree repurchase any
Contract if the interests of the
Certificate Owners, the Note Owners, if
any, or the related Trust therein are
materially and adversely affected by a
breach of any such representation or
warranty (a "Repurchase
Event"). See "Description of the Trust
Documents--Sale and Assignment of the
Contracts."
Optional Purchase of Contracts..... Unless otherwise specified in the related
Prospectus Supplement, with respect to each
series of Securities, the Seller or the
Servicer may purchase all the
Contracts held by the related Trust on any
Distribution Date following the first
Monthly Period as of which the Aggregate
Principal Balance has declined to 10% or
less (or such other percentage as may be
specified in the related Prospectus
Supplement) of the Cutoff Date Principal
Balance, subject to certain provisions in
the related Trust Documents. See
"Description of the Trust Documents--
Termination."
Tax Status......................... If the Trust is structured as an owner
trust, in the opinion of Counsel to the
Seller, for federal income tax purposes,
the Notes will be characterized as debt and
the Trust will not be characterized as an
association or a publicly traded
partnership taxable as a corporation. Each
Noteholder, by the acceptance of a Note,
will agree to treat the Notes as debt. Each
Certificateholder, by the acceptance of a
Certificate, will agree to treat the Trust
as a partnership in which the
Certificateholders are partners for federal
income tax purposes. Alternative
characterizations of the
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Trust, the Notes and the Certificates are
possible,
but would not result in materially adverse
tax
consequences to Noteholders or
Certificateholders. See "Certain Federal
Income Tax Consequences--Owner Trust
Series" herein.
If the Trust is structured as a grantor
trust, in the opinion of Counsel to the
Seller, for federal income tax purposes,
the Trust will be classified as a grantor
trust and not as an association which is
taxable as a
corporation. Each Certificateholder will be
treated as the owner of an undivided
interest in the Contracts and other Trust
Property. See "Certain Federal Income Tax
Consequences--Grantor Trust Series" herein.
ERISA Considerations ............... Subject to the considerations discussed
under "ERISA Considerations" herein and in
the related Prospectus Supplement, and
unless otherwise specified in the related
Prospectus Supplement, the Notes will be
eligible for purchase by employee benefit
plans. The related Prospectus Supplement
will provide further information with
respect to the eligibility of a class of
Certificates for purchase
by employee benefit plans. See "ERISA
Considerations" herein and in the related
Prospectus Supplement.
Rating.............................. As a condition of issuance, the Securities
of each series offered pursuant to this
Prospectus will be rated in one of the four
highest rating categories by at least one
nationally recognized rating agency (a
"Rating Agency"). There is no assurance
that the rating initially assigned to such
Securities will not be subsequently lowered
or withdrawn by the Rating Agency. In the
event the rating initially assigned to any
Securities is subsequently lowered for any
reason, no person or entity will be
obligated to provide any credit enhancement
in addition to the credit enhancement, if
any, specified in the related Prospectus
Supplement.
Registration of Certificates........ Unless otherwise specified in the related
Prospectus Supplement, the Certificates and
the Notes, if any, of each series will be
registered in the name of Cede & Co., as
the nominee of DTC, and will be available
for purchase only in book-entry form on the
records of DTC and participating members
thereof. Certificates and Notes will be
issued in definitive form only under the
limited circumstances described herein. All
references herein to "Holders" or
"Certificateholders" or "Noteholders" shall
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reflect the rights of beneficial owners of
Certificates (the "Certificate Owners") or
of Notes ("Note Owners"), as the case may
be, as they may indirectly exercise such
rights through DTC and participating
members thereof, except as otherwise
specified herein or in the related
Prospectus Supplement. See "Description of
the Trust Documents--Book-Entry
Registration."
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RISK FACTORS
CERTAIN LEGAL ASPECTS RELATING TO THE OWNERSHIP AND ENFORCEABILITY OF THE
CONTRACTS
With respect to each series of Securities, the transfer of the Contracts
(other than the Home Improvement Contracts and the Home Equity Contracts) to
the related Trust will be subject to the requirements of the Uniform
Commercial Code (the "UCC") as in effect in Minnesota. The Seller will take or
cause to be taken such action as is required to perfect the Trust's rights in
the Contracts.
Unless otherwise provided in the related Prospectus Supplement, Green Tree
will hold the Contract Files, other than the Home Improvement Contract Files
and the Home Equity Contract Files, on behalf of each Trust. The Contract
Files relating to the Home Improvement Contracts (the "Home Improvement
Contract Files") and the Contract Files relating to the Home Equity Contracts
(the "Home Equity Contract Files") will be held by the Trustee or a custodian
on its behalf. To facilitate servicing and save administrative costs, the
documents will not be physically segregated from other similar documents that
are in Green Tree's possession. UCC financing statements will be filed in
Minnesota reflecting the sale and assignment of the Contracts to the Trustee,
and Green Tree's accounting records and computer systems will also reflect
such sale and assignment. In addition, the Contracts will be stamped or
otherwise marked to indicate that such Contracts have been sold to the related
Trust. Despite these precautions, if, through inadvertence or otherwise, any
of the Contracts were sold to another party (or a security interest therein
were granted to another party) that purchased (or took such security interest
in) any of such Contracts in the ordinary course of its business and took
possession of such Contracts, the purchaser (or secured party) would acquire
an interest in the Contracts superior to the interest of the related Trust if
the purchaser (or secured party) acquired (or took a security interest in) the
Contracts for new value and without actual knowledge of such Trust's interest.
Due to the administrative burden and expense, the documents reflecting Green
Tree's security interest in the Products will not be amended to reflect the
assignment of the security interests in the Products by Green Tree to the
Trustee, nor will assignments to the Trustee of the mortgage securing any Home
Equity Contract be recorded. In the absence of such an amendment, the Trustee
may not have a perfected security interest in the Products, and, in the
absence of such recordation of a mortgage assignment, the Trustee may not have
a valid lien on the real estate securing any Home Equity Contracts. Moreover,
statutory liens for repairs or unpaid taxes may have priority even over
perfected security interests in the Products. See "Description of the Trust
Documents--Sale and Assignment of the Contracts" and "Certain Legal Aspects of
the Contracts."
GREEN TREE'S EXPERIENCE WITH THE PRODUCTS
Green Tree began originating and servicing retail installment contracts for
recreational vehicles in 1985 and for motorcycles in 1988 but has less
extensive underwriting and servicing experience with the other types of
products financed by Contracts that will be included in a Trust. Green Tree's
extensive experience in originating and servicing consumer financing contracts
for certain types of products, including manufactured housing, may not be
directly applicable to the servicing of consumer financing contracts secured
by other types of products.
RISKS TO INVESTORS UPON ANY INSOLVENCY OF GREEN TREE
Green Tree intends that any transfer of Contracts to the related Trust will
constitute a sale, rather than a pledge of the Contracts to secure
indebtedness of Green Tree. However, if Green Tree were to become a debtor
under the federal bankruptcy code or similar applicable state laws
(collectively, "Insolvency Laws"), a creditor or trustee in bankruptcy of
Green Tree or Green Tree as debtor-in-possession might argue that such sale of
Contracts by Green Tree was a pledge of the Contracts rather than a sale. This
position, if presented to or accepted by a court, could cause the related
Trust to experience a delay in or reduction of collections on the Contracts.
A case decided by the United States Court of Appeals for the Tenth Circuit,
Octagon Gas Systems, Inc. v. Rimmer, contains language to the effect that
accounts sold by an entity that subsequently became bankrupt remained property
of the debtor's bankruptcy estate. Although the Contracts (other than the Home
Improvement
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Contracts and the Home Equity Contracts) constitute chattel paper rather than
accounts under the UCC, sales of chattel paper, like sales of accounts, are
governed by Article 9 of the UCC. If Green Tree were to become a debtor under
any Insolvency Law and a court were to follow the reasoning of the Tenth
Circuit Court of Appeals and apply such reasoning to chattel paper, a Trust
could experience a delay in or reduction of collections on the Contracts.
SUBORDINATION OF CERTAIN CLASSES OF SECURITIES; LIMITED ASSETS
To the extent specified in the related Prospectus Supplement, distributions
of interest and principal on some or all classes of Securities of a series may
be subordinated in priority of payment to interest and principal due on the
Notes (if any) of such series and/or to distributions of interest and principal
on other classes of Securities of such series. In addition, holders of certain
classes of Securities of any series may have the right to take actions that are
detrimental to the interests of the holders of Securities of certain other
classes of Securities of such series. For example, holders of a class of more
senior Securities may be entitled to instruct the Indenture Trustee or Trustee
to liquidate the Trust Property when it is not in the interest of holders of
more junior classes of Securities of such series to do so. Conversely, certain
actions may require the consent of a majority of Security Owners of all classes
of a series, which may mean that Security Owners of more junior classes can
prevent the Security Owners of more senior classes of such series from taking
action. Moreover, no Trust will have any significant assets or sources of funds
other than the Contracts and, to the extent provided in the related Prospectus
Supplement, a Pre-Funding Account and any credit enhancement specified in the
related Prospectus Supplement. The Notes, if any, of any series will represent
obligations solely of, and the Certificates of such series will represent
interests solely in, the related Trust, and, except as specified in the related
Prospectus Supplement, neither the Notes nor the Certificates of any such
series will be insured or guaranteed by Green Tree, the Servicer, the
applicable Owner Trustee, the applicable Indenture Trustee or any other person
or entity. Consequently, holders of the Securities of any series must rely for
payment upon payments on the related Contracts and, if and to the extent
available, amounts on deposit in the Pre-Funding Account, if any, and any
credit enhancement, if any, as specified in the related Prospectus Supplement.
If specified in the related Prospectus Supplement, credit enhancement for a
class of Securities of a series may cover one or more other classes of
Securities of such series, and accordingly may be exhausted for the benefit of
some classes and thereafter be unavailable for such other classes.
YIELD AND PREPAYMENT CONSIDERATIONS
The weighted average life of the Securities will be reduced by full or
partial prepayments on the Contracts. The Contracts will generally be
prepayable at any time without penalty. Prepayments (or, for this purpose,
equivalent payments to the related Trust) may result from payments by Obligors,
liquidations due to default, the receipt of proceeds from physical damage or
credit insurance, repurchases by Green Tree as a result of certain uncured
breaches of the warranties made by it with respect to the Contracts, purchases
by the Servicer as a result of certain uncured breaches of the covenants with
respect to the Contracts made by it in the related Agreement, or Green Tree or
the Servicer exercising its option to purchase all of the remaining Contracts.
Unless otherwise specified in the related Prospectus Supplement, the amounts
paid to Securityholders in respect of principal on any Distribution Date will
include all prepayments on the Contracts during the corresponding Monthly
Periods. The Certificate Owners and the Note Owners will bear all reinvestment
risk resulting from the timing of payments of principal on the Securities.
LIMITED LIQUIDITY OF THE SECURITIES
There is currently no market for the Securities of any series. Although Green
Tree expects that the underwriters of any particular series will intend to make
a secondary market for such Securities, they will have no obligation to do so.
There can be no assurance that any such market will develop or, if it does
develop, that it will provide Certificate Owners or Note Owners with liquidity
of investment or will continue for the life of the Securities. The Securities
will not be listed on any securities exchange.
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Unless otherwise specified in the related Prospectus Supplement, the
Securities will be issued in book-entry, rather than physical, form and, as a
result, in certain circumstances, the liquidity of the Securities in the
secondary market and the ability of the Certificate Owners and Note Owners to
pledge them may be adversely affected. See "Plan of Distribution" and "Certain
Information Regarding the Securities--Book-Entry Registration."
THE TRUSTS
With respect to each series of Securities, Green Tree will establish a Trust
pursuant to the related Trust Documents. Prior to the sale and assignment of
the related Contracts pursuant to the related Trust Documents, the Trust will
have no assets or obligations. The Trust will not engage in any business
activity other than acquiring and holding the Trust Property, issuing the
Certificates and the Notes, if any, of such series and distributing payments
thereon.
Each Certificate will represent a fractional undivided interest in, and each
Note, if any, will represent an obligation of, the related Trust. The Trust
Property of each Trust will include, among other things, (i) a Contract Pool;
(ii) all monies paid or payable thereon on or after the Cutoff Date (as
specified in the related Prospectus Supplement); (iii) such amounts as from
time to time may be held in the Collection Account (including all investments
in the Collection Account and all income from the investment of funds therein
and all proceeds thereof) and certain other accounts (including the proceeds
thereof); (iv) an assignment of the security interests of Green Tree in the
Products securing the related Contracts and an assignment of the lien on the
real estate securing the Home Equity Contracts; (v) an assignment of the right
to receive proceeds from claims on certain insurance policies covering the
related Products or Obligors; and (vi) certain other rights under the related
Trust Documents. See "The Contracts" and "Description of the Trust Documents--
Collections." The Trust Property will also include, if so specified in the
related Prospectus Supplement, monies on deposit in a Pre-Funding Account to
be established with the Indenture Trustee or the Trustee, which will be used
to purchase Subsequent Contracts from the Seller from time to time (and as
frequently as daily) during the Pre-Funding Period specified in the related
Prospectus Supplement. Any Subsequent Contracts so purchased will be included
in the related Contract Pool forming part of the Trust Property, subject to
the prior rights of the related Indenture Trustee and the Noteholders therein.
In addition, to the extent specified in the related Prospectus Supplement, a
form of credit enhancement may be issued to or held by the Trustee or the
Indenture Trustee for the benefit of holders of one or more classes of
Securities.
The Servicer will service the Contracts held by each Trust and will receive
fees for such services. See "Description of the Trust Documents--Servicing
Compensation." Unless otherwise specified in the related Prospectus
Supplement, Green Tree, on behalf of each Trust, will hold the original
installment sales contract or promissory note as well as copies of documents
and instruments relating to each Contract and evidencing the security interest
in the Product securing each Contract (the "Contract Files"), other than the
Home Improvement Contract Files and the Home Equity Contract Files (which will
be held by the Trustee or a custodian on its behalf). In order to protect the
Trust's ownership interest in the Contracts, Green Tree will file a UCC-1
financing statement in Minnesota to give notice of such Trust's ownership of
the related Contracts and the related Trust Property.
THE TRUSTEE
The Trustee for each Trust will be specified in the related Prospectus
Supplement. The Trustee's liability in connection with the issuance and sale
of the Securities of such series will be limited solely to the express
obligations of such Trustee set forth in the related Trust Documents. A
Trustee may resign at any time, in which event the General Partner (if the
related Trust is structured as an owner trust) or the Servicer or its
successor (if the related Trust is structured as a grantor trust) will be
obligated to appoint a successor trustee. The General Partner (if the related
Trust is structured as an owner trust) or the Servicer (if the related Trust
is structured as a grantor trust) may also remove the Trustee if the Trustee
ceases to be eligible to continue as Trustee under the related Trust Documents
or if the Trustee becomes insolvent. In such circumstances, the General
Partner (if the related Trust is structured as an owner trust) or the Servicer
(if the related Trust is structured as a grantor trust) will be obligated to
appoint a successor trustee. Any resignation or removal of a Trustee and
appointment of a
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successor trustee will be subject to any conditions or approvals specified in
the related Prospectus Supplement and will not become effective until
acceptance of the appointment by the successor trustee.
THE CONTRACTS
Each pool of Contracts with respect to a Trust (a "Contract Pool") will
consist of retail installment sales contracts and promissory notes to finance
the purchase of Products (described below), retail installment sales contracts
and promissory notes financing home improvements ("Home Improvement
Contracts"), and closed-end home equity loans ("Home Equity Contracts") (such
retail installment sales contracts, promissory notes and Home Equity Contracts
are referred to herein as the "Contracts"). Unless otherwise specified in the
related Prospectus Supplement, no more than 50% of any Contract Pool will
consist of Home Equity Contracts. The Contracts will be originated or
purchased by Green Tree on an individual basis in the ordinary course of
business. Except as otherwise specified in the related Prospectus Supplement,
the Contracts will be fully amortizing and will bear interest at a fixed or
variable rate (the "Contract Rate").
The Products financed by the Contracts included in a Contract Pool are
expected to include all the types of consumer products Green Tree is then
financing for retail customers (subject to the availability of such contracts
and subject to any eligibility criteria specified in the Trust Documents).
Currently, Green Tree provides financing for 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); trucks; aircraft; and recreational
vehicles. Any Trust whose Securities are offered pursuant to this Prospectus
will include only Contracts secured by the foregoing types of Products, as
well as Home Improvement Contracts and Home Equity Contracts of the type
described herein. The types of Products securing a Contract Pool and the
relative concentrations of each such type, together with a description of Home
Improvement Contracts and Home Equity Contracts included in the Contract Pool,
will be specified in the related Prospectus Supplement. Because Green Tree has
less extensive experience in underwriting and servicing retail installment
sales contracts for items such as the Products, Green Tree has no basis upon
which to distinguish the expected delinquency, default or prepayment
experience of Contracts secured by different types of Products. Similarly,
Green Tree has limited experience in underwriting and servicing Home
Improvement Contracts and Home Equity Contracts of the type that will be
included in the Contract Pools.
GREEN TREE FINANCIAL CORPORATION
GENERAL
Green Tree is a Delaware corporation that, as of December 31, 1995, had
stockholders' equity of approximately $925,022,000. Through its various
divisions, Green Tree purchases, pools, sells and services retail conditional
sales contracts for manufactured housing and retail installment sales
contracts for home improvements, a variety of consumer products and equipment
finance, and provides credit to manufactured housing dealers for purposes of
purchasing manufactured home inventory from manufacturers. Green Tree conducts
its business throughout the United States through 50 manufactured housing
offices, 80 home improvement locations and three regional wholesale lending
centers, as well as centralized operations in St. Paul, Minnesota and Rapid
City, South Dakota. Its principal executive offices are located at 1100
Landmark Towers, St. Paul, Minnesota 55102-1639 (telephone (612) 293-3400).
Green Tree's Annual Report on Form 10-K for the year ended December 31, 1995,
most recent Proxy Statement and, when available, subsequent quarterly and
annual reports are available from Green Tree upon written request.
PURCHASE OF CONTRACTS (OTHER THAN HOME IMPROVEMENT CONTRACTS AND HOME EQUITY
CONTRACTS)
Green Tree arranges to purchase certain contracts originated by dealers of
Products located throughout the United States ("Dealers"). Green Tree'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 Green Tree's available customer financing, the dealer must
make an application for dealer approval.
All contracts that Green Tree purchases are written on forms provided or
approved by Green Tree and are purchased on an individually approved basis in
accordance with Green Tree's guidelines. The dealer submits the
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customer's credit application and purchase order to Green Tree's office where
an analysis of the creditworthiness of the proposed buyer is made. The
analysis includes a review of the applicant's paying habits, length and
likelihood of continued employment and certain other procedures. Green Tree's
underwriting guidelines for consumer products focus primarily on the obligor's
ability to repay the loan rather than the collateral value of the product
financed. The maximum loan amount for an obligor will depend on a variety of
factors, including the type of product, whether the product is new or used,
the obligor's debt-to-income ratio, and the manufacturer's invoice price of
the product (plus certain dealer-installed accessories, sales taxes, title
fees, registration fees, and certain other items). For products other than
aircraft and trucks, the maximum permissible debt-to-income ratio (based on
the monthly loan payments) is between 55% and 65%, the maximum loan-to-invoice
ratio (for new products) ranges from 100% to 125%, and the maximum loan-to-
sales-price ratio (for used products) is typically 90% (subject to further
limitation based on a standard assumed value for such a used product). Green
Tree's underwriting guidelines for truck loans (other than a small number of
loans made to corporate borrowers to finance the purchase of a fleet of
trucks) emphasize the trucking experience of the obligor and the projected
operating revenues of the truck, rather than the obligor's current income,
because the obligor's income as owner-operator of the truck is generally
expected to be the source of funds to make payments on the contract and
because Green Tree believes that the obligor's past trucking experience is the
best predictor of success as an owner-operator of the truck. A loan for the
purchase of an aircraft is generally subject to limitations of a 45% debt-to-
income ratio and generally will not exceed $1,000,000, although loans of up to
$10,000,000 may be made with senior management approval. Green Tree management
may revise these guidelines from time to time, and the underwriting guidelines
may be exceeded in certain cases with the approval of Green Tree management.
Accordingly, some of the Contracts included in a Trust may not conform in all
respects to the criteria described above. Green Tree will generally finance
premiums for the term of the contract on optional credit life, accident and
health and extended warranty insurance, up to 20% of the sales price of the
Product, and may finance premiums for required physical damage insurance on
the product. If the application meets Green Tree's guidelines and the credit
is approved, Green Tree purchases the contract when the customer accepts
delivery of the Product.
Currently, 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); trucks; aircraft; and recreational vehicles. The Products financed
by Contracts included in any Trust whose Securities are offered pursuant to
this Prospectus will include only the products listed above.
PURCHASE OF HOME IMPROVEMENT CONTRACTS
Through its centralized loan processing operations in St. Paul, Minnesota,
Green Tree arranges to purchase certain contracts from home improvement
contractors located throughout the United States. Green Tree's regional sales
managers contact home improvement contractors and explain Green Tree's
available financing plans, terms, prevailing rates and credit and financing
policies. If the contractor wishes to utilize Green Tree's available customer
financing, the contractor must make an application for contractor approval.
Green Tree 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 Green Tree. In
addition, Green Tree has a centralized compliance group which reviews and
updates contractor financial condition and reviews contractors on an annual
basis to determine whether such contractor's approval will be continued. Green
Tree also reviews monthly contractor trend reports which show the default and
delinquency trends of the particular contractor with respect to contracts sold
to Green Tree. Green Tree occasionally will originate directly a home
improvement promissory note involving a home improvement transaction.
All contracts that Green Tree originates are written on forms provided or
approved by Green Tree and are purchased on an individually approved basis in
accordance with Green Tree's guidelines. The contractor submits the customer's
credit application and construction contract to Green Tree's office where an
analysis of the creditworthiness of the customer is made using a proprietary
credit scoring system that was implemented by
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Green Tree in June 1993. If Green Tree determines that the application meets
Green Tree's underwriting guidelines and the credit is approved, Green Tree
purchases the contracts from the contractor when the customer verifies
satisfactory completion of the work, or, in the case of staged funding, Green
Tree follows up with the customer for the completion certificate 90 days after
funding.
The types of home improvements financed by Green Tree include (i) exterior
renovations, including windows, siding and roofing, (ii) pools and spas, (iii)
kitchen and bath remodeling, and (iv) room additions and garages. Green Tree
may also, under certain limited conditions, extend additional credit beyond
the purchase price of the home improvement for the purpose of debt
consolidation.
Substantially all of Green Tree's home improvement loans are securitized in
pools of home improvement and home equity loans, which are not described in
this Prospectus. The Home Improvement Contracts to be included in the Contract
Pools described in this Prospectus will be those home improvement loans as to
which, in accordance with Green Tree's underwriting guidelines, no mortgage on
the improved real estate was filed to secure the Home Improvement Contract.
PURCHASE OF HOME EQUITY CONTRACTS
Green Tree has originated closed-end home equity loans since January 1996.
As of September 30, 1996, Green Tree had approximately $ aggregate principal
amount of outstanding closed-end home equity loans.
Through a system of regional offices, Green Tree markets its home equity
lending directly to consumers using a variety of marketing techniques. Green
Tree also reviews and re-underwrites loan applications forwarded by
correspondent lenders.
Green Tree's credit approval process analyzes both the equity position of
the requested loan (including both the priority of the lien and the combined
loan-to-value ratio) and the applicant's creditworthiness; to the extent the
requested loan would have a less favorable (or more favorable) equity
position, the creditworthiness of the borrower must be stronger (or may be
weaker). The Home Equity Contracts that Green Tree expects to include in each
Contract Pool will tend to have a less favorable equity position and a more
creditworthy borrower. Currently, loans secured by a first mortgage with an
obligor having a superior credit rating may not exceed $300,000 without senior
management approval, and loans secured by a second mortgage with an obligor
having a superior credit rating may not exceed $250,000 without senior
management approval.
The homes used for collateral to secure the Home Equity Contracts may be
either primary residential (which includes second and vacation homes) or
investor owned one- to four-family homes, condominiums, townhouses or certain
qualified manufactured housing. Generally, each home must have a minimum
appraised value of $25,000. Agricultural, mixed-usage and multifamily
properties are not accepted as collateral.
For all Home Equity Contracts that are first mortgage loans, the applicant
is required to obtain (a) property insurance in an amount sufficient to cover
the Home Equity Contract, and (b) an ALTA title insurance policy or an
attorney's opinion of title.
Prior to funding a Home Equity Contract, the rescission period, to the
extent provided for by the Home Ownership and Equity Protection Act, must have
expired. Such rescission period may not be waived by the applicant except as
permitted by law.
For Green Tree's full documentation program, each mortgage applicant
provides, and Green Tree personnel must verify, personal financial
information. Applicants who are salaried employees must provide current
employment information in addition to two recent years of employment history.
Self-employed applicants must generally be self-employed in the same field for
a minimum of two years, although self-employment for a period of no less than
one year may be considered on a case-by-case basis. The self-employed
applicant must provide signed copies of complete federal income tax returns
for the most recent two years.
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For Green Tree's no-income-qualifier program, proof of at least one year's
history of self-employment plus proof of current self-employed status is
required. The applicant's debt-to-income ratio is calculated based on income as
certified on the application and must be reasonable. No-income-verification
Home Equity Contracts are also available to borrowers other than self-employed
borrowers. The maximum loan amount and maximum loan-to-value ratio for the no-
income qualifier and no-income-verification programs may not exceed $250,000
and 85%, respectively.
Green Tree offers a streamlined underwriting process for applicants who have
existing home equity contracts originated by Green Tree. In connection with
these applications, (i) no appraisal will generally be required, although a
Green Tree employee will visit the property to confirm that there has been no
decline in the quality of the property or the neighboring area; and (ii) no
verification of employment or income will generally be required, provided that
the applicant had sufficient verified income (plus reasonable income growth) at
the time of origination of the original home equity contract and that the
applicant claims to be employed by the same employer. In each case, the
underwriter has the discretion to obtain a new appraisal, verification of
employment and verification of income. For such Home Equity Contracts that are
first mortgage loans, Green Tree will conduct a title search and verify
property insurance coverage.
Substantially all Green Tree's Home Equity Contracts are securitized in pools
of home improvement and home equity loans, which are not described in this
Prospectus. The Home Equity Contracts to be included in the Contract Pools
described in this Prospectus generally are those Home Equity Contracts which,
for one or more reasons, Green Tree is not willing to represent to be
"qualified mortgages" that may be included in a "real estate mortgage
investment conduit" (as defined in the Internal Revenue Code of 1986, as
amended).
LOSS AND DELINQUENCY INFORMATION
Each Prospectus Supplement will include Green Tree's loss and delinquency
experience with respect to its entire servicing portfolio of consumer product
contracts and its portfolio of Home Improvement Contracts and Home Equity
Contracts. However, there can be no assurance that such experience will be
indicative of the performance of the Contracts included in a particular
Contract Pool.
RATIO OF EARNINGS TO FIXED CHARGES FOR THE COMPANY
Set forth below are the Company's ratios of earnings to fixed charges for the
past five years. For the purposes of compiling these ratios, earnings consist
of earnings before income taxes plus fixed charges. Fixed charges consist of
interest expense and the interest portion of rent expense.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------ --------------
1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- --------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges...... 2.83 3.55 4.81 7.98 7.90 8.67
</TABLE>
YIELD AND PREPAYMENT CONSIDERATIONS
Unless otherwise specified in the related Prospectus Supplement, many of the
Contracts will be simple interest retail installment sales contracts and
promissory notes. Payments on simple interest obligations are applied first to
interest accrued through the payment date, and the remainder is applied to
reduce the unpaid principal balance. Accordingly, if an Obligor pays an
installment before its due date, the portion of the payment allocable to
interest for the period will be less than if the payment had been made on the
due date, the portion of the payment applied to reduce the principal balance
will be correspondingly greater, and the principal balance will be amortized
more rapidly than scheduled. Conversely, if an Obligor pays an installment
after its due date, the portion of the payment allocable to interest will be
greater than if the payment had been made on the due date, the portion of the
payment applied to reduce the principal balance will be correspondingly less,
and the principal balance will be amortized slower than scheduled, in which
case a larger portion of the principal balance
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may be due on the final scheduled payment date. Any interest shortfalls
resulting from early payment or prepayment of a Contract will be funded by
collections on other Contracts or, to the extent collections are insufficient,
by payments under the applicable form of credit enhancement, if any, described
in the related Prospectus Supplement.
The Contracts will be prepayable, without premium or penalty, by Obligors at
any time. Prepayments (or, for this purpose, equivalent payments to a Trust)
also may result from liquidations due to default, receipt of proceeds from
insurance policies, repurchases by Green Tree due to breach of a representation
or warranty, or as a result of Green Tree or the Servicer exercising its option
to purchase the Contract Pool. See "Description of the Trust Documents." The
rate of prepayments on the Contracts may be influenced by a variety of
economic, social and other factors. No assurance can be given that prepayments
on the Contracts will conform to any estimated or actual historical experience,
and no prediction can be made as to the actual prepayment rates which will be
experienced on the Contracts. Certificateholders and Noteholders will bear all
reinvestment risk resulting from the timing of payments of principal on the
Certificates or the Notes, as the case may be.
POOL FACTOR
The "Certificate Pool Factor" for each class of Certificates will be an
eight-digit decimal which the Servicer will compute indicating the Certificate
Balance with respect to such Certificates as of each Distribution Date (after
giving effect to all distributions of principal made on such Distribution
Date), as a fraction of the Original Principal Balance of such Certificates.
The "Note Pool Factor" for each class of Notes, if any, will be an eight-digit
decimal which the Servicer will compute indicating the remaining outstanding
principal balance with respect to such Notes as of each Distribution Date
(after giving effect to all distributions of principal on such Distribution
Date) as a fraction of the initial outstanding principal balance of such class
of Notes. Each Certificate Pool Factor and each Note Pool Factor will initially
be 1.00000000; thereafter, the Certificate Pool Factor and the Note Pool Factor
will decline to reflect reductions in the Certificate Balance of the applicable
class of Certificates or reductions in the outstanding principal balance of the
applicable class of Notes, as the case may be. The amount of a
Certificateholder's pro rata share of the Certificate Balance for the related
class of Certificates can be determined by multiplying the original
denomination of the Certificateholder's Certificate by the then applicable
Certificate Pool Factor. The amount of a Noteholder's pro rata share of the
aggregate outstanding principal balance of the applicable class of Notes can be
determined by multiplying the original denomination of such Noteholder's Note
by the then applicable Note Pool Factor.
With respect to each Trust and pursuant to the related Trust Documents, on
each Distribution Date or Payment Date, as the case may be, the related
Certificateholders and Noteholders will receive periodic reports from the
Trustee stating the Certificate Pool Factor or the Note Pool Factor, as the
case may be, and containing various other items of information. Unless and
until Definitive Certificates or Definitive Notes are issued, such reports will
be sent on behalf of the Trust to the Trustee and the Indenture Trustee (if
any) and Cede & Co., as registered holder of the Certificates and the Notes and
the nominee of DTC. Certificate Owners and Note Owners may receive such
reports, upon written request, together with a certification that they are
Certificate Owners or Note Owners and payment of any expenses associated with
the distribution of such reports, from the Trustee and the Indenture Trustee
(if any) at the addresses specified in the related Prospectus Supplement. See
"Certain Information Regarding the Securities--Statements to Securityholders."
USE OF PROCEEDS
Unless otherwise specified in the related Prospectus Supplement, the net
proceeds to be received by the Trust from the sale of each series of Securities
will be used to pay to Green Tree the purchase price for the Contracts and to
make the deposit of the Pre-Funded Amount into the Pre-Funding Account, if any,
to repay warehouse lenders and/or to provide for other forms of credit
enhancement specified in the related Prospectus Supplement. The net proceeds to
be received by Green Tree will be used to pay its warehouse loans, and any
additional proceeds will be added to Green Tree's general funds and used for
its general corporate purposes.
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THE CERTIFICATES
GENERAL
With respect to each Trust, one or more classes of Certificates of a given
series will be issued pursuant to Trust Documents to be entered into between
Green Tree, as Seller and as Servicer, and the Trustee, forms of which have
been filed as exhibits to the Registration Statement of which this Prospectus
forms a part. The following summary does not purport to be complete and is
subject to, and is qualified in its entirety by reference to, all of the
material provisions of the Trust Documents. Where particular provisions of or
terms used in the Trust Documents are referred to, the actual provisions
(including definitions of terms) are incorporated by reference as part of this
summary.
Unless otherwise specified in the related Prospectus Supplement, each class
of Certificates will initially be represented by a single Certificate
registered in the name of the nominee of DTC (together with any successor
depository selected by the Seller, the "Depository"). See "Certain Information
Regarding the Securities--Book-Entry Registration." Unless otherwise specified
in the related Prospectus Supplement, the Certificates evidencing interests in
a Trust will be available for purchase in denominations of $1,000 initial
principal amount and integral multiples thereof, except that one Certificate
evidencing an interest in such Trust may be issued in a denomination that is
less than $1,000 initial principal amount. Certificates may be transferred or
exchanged without the payment of any service charge other than any tax or
governmental charge payable in connection with such transfer or exchange.
Unless otherwise specified in the related Prospectus Supplement, the Trustee
will initially be designated as the registrar for the Certificates.
DISTRIBUTIONS OF INTEREST AND PRINCIPAL
The timing and priority of distributions, seniority, allocations of loss,
Pass-Through Rate and amount of or method of determining distributions with
respect to principal and interest (or, where applicable, with respect to
principal only or interest only) on the Certificates of any series will be
described in the related Prospectus Supplement. Distributions of interest on
the Certificates will be made on the dates specified in the related Prospectus
Supplement (each, a "Distribution Date") and, unless otherwise specified in the
related Prospectus Supplement, will be made prior to distributions with respect
to principal. A series may include one or more classes of Stripped Certificates
entitled to (i) distributions in respect of principal with disproportionate,
nominal or no interest distribution, or (ii) interest distributions, with
disproportionate, nominal or no distributions in respect of principal. Each
class of Certificates may have a different Pass-Through Rate, which may be a
fixed, variable or adjustable Pass-Through Rate (and which may be zero for
certain classes of Stripped Certificates), or any combination of the foregoing.
The related Prospectus Supplement will specify the Pass-Through Rate for each
class of Certificate, or the initial Pass-Through Rate and the method for
determining the Pass-Through Rate. Unless otherwise specified in the related
Prospectus Supplement, interest on the Certificates will be calculated on the
basis of a 360-day year consisting of twelve 30-day months. Unless otherwise
specified in the related Prospectus Supplement, distributions in respect of the
Certificates will be subordinate to payments in respect of the Notes, if any,
as more fully described in the related Prospectus Supplement. Distributions in
respect of principal of any class of Certificates will be made on a pro rata
basis among all of the Certificateholders of such class.
In the case of a series of Certificates which includes two or more classes of
Certificates, the timing, sequential order, priority of payment or amount of
distributions in respect of principal, and any schedule or formula or other
provisions applicable to the determination thereof, of each such class shall be
as set forth in the related Prospectus Supplement.
THE NOTES
GENERAL
A series of Securities may include one or more classes of Notes issued
pursuant to the terms of an Indenture, a form of which has been filed as an
exhibit to the Registration Statement of which this Prospectus forms a part.
Unless otherwise specified in the related Prospectus Supplement, no Notes will
be issued as a part of any series. The following summary does not purport to be
complete and is subject to, and is qualified in its entirety by
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reference to, all of the provisions of the Notes and the Indenture, and the
following summary will be supplemented in whole or in part by the related
Prospectus Supplement. Where particular provisions of or terms used in the
Indenture are referred to, the actual provisions (including definition of
terms) are incorporated by reference as part of this summary.
Unless otherwise specified in the related Prospectus Supplement, each class
of Notes will initially be represented by a single Note registered in the name
of the nominee of the Depository. See "Certain Information Regarding the
Securities--Book-Entry Registration." Unless otherwise specified in the related
Prospectus Supplement, Notes will be available for purchase in denominations of
$1,000 and integral multiples thereof. Notes may be transferred or exchanged
without the payment of any service charge other than any tax or governmental
charge payable in connection with such transfer or exchange. Unless otherwise
provided in the related Prospectus Supplement, the Indenture Trustee will
initially be designated as the registrar for the Notes.
PRINCIPAL AND INTEREST ON THE NOTES
The timing and priority of payment, seniority, allocations of loss, Interest
Rate and amount of or method of determining payments of principal and interest
on the Notes will be described in the related Prospectus Supplement. The right
of holders of any class of Notes to receive payments of principal and interest
may be senior or subordinate to the rights of holders of any class or classes
of Notes of such series, or any class of Certificates, as described in the
related Prospectus Supplement. Unless otherwise provided in the related
Prospectus Supplement, payments of interest on the Notes will be made prior to
payments of principal thereon. A series may include one or more classes of
Stripped Notes entitled to (i) principal payments with disproportionate,
nominal or no interest payment, or (ii) interest payments with
disproportionate, nominal or no principal payments. Each class of Notes may
have a different Interest Rate, which may be a fixed, variable or adjustable
Interest Rate (and which may be zero for certain classes of Stripped Notes), or
any combination of the foregoing. The related Prospectus Supplement will
specify the Interest Rate for each class of Notes, or the initial Interest Rate
and the method for determining the Interest Rate. One or more classes of Notes
of a series may be redeemable under the circumstances specified in the related
Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, payments in
respect of interest to Noteholders of all classes within a series will have the
same priority. Under certain circumstances, the amount available for such
payments could be less than the amount of interest payable on the Notes on any
of the dates specified for payments in the related Prospectus Supplement (each,
a "Payment Date"), in which case each class of Noteholders will receive their
ratable share (based upon the aggregate amount of interest due to such class of
Noteholders) of the aggregate amount available to be distributed in respect of
interest on the Notes.
In the case of a series of Securities which includes two or more classes of
Notes, the sequential order and priority of payment in respect of principal and
interest, and any schedule or formula or other provisions applicable to the
determination thereof, of each such class will be set forth in the related
Prospectus Supplement. Unless otherwise specified in the related Prospectus
Supplement, payments in respect of principal and interest of any class of Notes
will be made on a pro rata basis among all of the Notes of such class.
THE INDENTURE
A form of Indenture has been filed as an exhibit to the Registration
Statement of which this Prospectus forms a part. Green Tree will provide a copy
of the applicable Indenture (without exhibits) upon request to a holder of
Notes issued thereunder.
Modification of Indenture Without Noteholder Consent. Each Trust and related
Indenture Trustee (on behalf of such Trust) may, without consent of the related
Noteholders, enter into one or more supplemental indentures for any of the
following purposes: (i) to correct or amplify the description of the collateral
or add additional collateral; (ii) to provide for the assumption of the Note
and the Indenture obligations by a permitted successor to the Trust; (iii) to
add additional covenants for the benefit of the related Noteholders; (iv) to
convey,
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transfer, assign, mortgage or pledge any property to or with the Indenture
Trustee; (v) to cure any ambiguity or correct or supplement any provision in
the Indenture or in any supplemental indenture; (vi) to provide for the
acceptance of the appointment of a successor Indenture Trustee or to add to or
change any of the provisions of the Indenture or any supplemental indenture
which may be inconsistent with any other provision of the Indenture as shall be
necessary and permitted to facilitate the administration by more than one
trustee; (vii) to modify, eliminate or add to the provisions of the Indenture
in order to comply with the Trust Indenture Act of 1939, as amended; and (viii)
to add any provisions to, change in any manner, or eliminate any of the
provisions of, the Indenture or modify in any manner the rights of Noteholders
under such Indenture; provided that any action specified in this clause (viii)
shall not, as evidenced by an opinion of counsel, adversely affect in any
material respect the interests of any related Noteholder unless Noteholder
consent is otherwise obtained as described below.
Modifications of Indenture With Noteholder Consent. With respect to each
Trust, with the consent of the holders representing a majority of the principal
balance of the outstanding related Notes (a "Note Majority"), the Owner Trustee
and the Indenture Trustee may execute a supplemental indenture to add
provisions, to change in any manner or eliminate any provisions of, the related
Indenture, or modify in any manner the rights of the related Noteholders.
Without the consent of the holder of each outstanding related Note affected
thereby, however, no supplemental indenture may: (i) change the due date of any
installment of principal of or interest on any Note or reduce the principal
amount thereof, the interest rate specified thereon or the redemption price
with respect thereto or change the manner of calculating any such payment, any
place of payment where, or the coin or currency in which any Note or any
interest thereon is payable; (ii) impair the right to institute suit for the
enforcement of certain provisions of the Indenture regarding payment; (iii)
reduce the percentage of the aggregate amount of the outstanding Notes the
consent of the holders of which is required for any such supplemental indenture
or the consent of the holders of which is required for any waiver of compliance
with certain provisions of the Indenture or of certain defaults thereunder and
their consequences as provided for in the Indenture; (iv) modify or alter the
provisions of the Indenture regarding the voting of Notes held by the related
Trust, any other obligor on the Notes, the Seller or an affiliate of any of
them; (v) reduce the percentage of the aggregate outstanding amount of the
Notes the consent of the holders of which is required to direct the Indenture
Trustee to sell or liquidate the Contracts if the proceeds of such sale would
be insufficient to pay the principal amount and accrued but unpaid interest on
the outstanding Notes; (vi) decrease the percentage of the aggregate principal
amount of the Notes required to amend the sections of the Indenture which
specify the applicable percentage of aggregate principal amount of the Notes
necessary to amend the Indenture or certain other related agreements; or (vii)
permit the creation of any lien ranking prior to or on a parity with the lien
of the Indenture with respect to any of the collateral for the Notes or, except
as otherwise permitted or contemplated in the Indenture, terminate the lien of
the Indenture on any such collateral or deprive the holder of any Note of the
security afforded by the lien of the Indenture.
Events of Default; Rights Upon Event of Default. With respect to each Trust,
unless otherwise specified in the related Prospectus Supplement, "Events of
Default" under the Indenture will consist of: (i) a default for five days or
more in the payment of any interest on any Note; (ii) a default in the payment
of the principal of or any installment of the principal of any Note when the
same becomes due and payable; (iii) a default in the observance or performance
in any material respect of any covenant or agreement of the Trust made in the
Indenture, or any representation or warranty made by the Trust in the Indenture
or in any certificate delivered pursuant thereto or in connection therewith
having been incorrect as of the time made, and the continuation of any such
default or the failure to cure such breach of a representation or warranty for
a period of 30 days after notice thereof is given to the Trust by the Indenture
Trustee or to the Trust and the Indenture Trustee by the holders of at least
25% in principal amount of the Notes then outstanding; or (iv) certain events
of bankruptcy, insolvency, receivership or liquidation of the Trust. However,
the amount of principal due and payable on any class of Notes on any Payment
Date (prior to the Final Scheduled Payment Date, if any, for such class) will
generally be determined by amounts available to be deposited in the Note
Distribution Account for such Payment Date.
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Therefore, unless otherwise specified in the related Prospectus Supplement, the
failure to pay principal on a class of Notes generally will not result in the
occurrence of an Event of Default unless such class of Notes has a Final
Scheduled Payment Date, and then not until such Final Scheduled Payment Date
for such class of Notes.
Unless otherwise specified in the related Prospectus Supplement, if an Event
of Default should occur and be continuing with respect to the Notes of any
series, the related Indenture Trustee or a Note Majority may declare the
principal of the Notes to be immediately due and payable. Such declaration may,
under certain circumstances, be rescinded by a Note Majority.
Unless otherwise specified in the related Prospectus Supplement, if the Notes
of any series have been declared due and payable following an Event of Default
with respect thereto, the related Indenture Trustee may institute proceedings
to collect amounts due or foreclose on Trust Property, exercise remedies as a
secured party, sell the related Contracts or elect to have the Trust maintain
possession of such Contracts and continue to apply collections on such
Contracts as if there had been no declaration of acceleration. Unless otherwise
specified in the related Prospectus Supplement, the Indenture Trustee, however,
will be prohibited from selling the related Contracts following an Event of
Default, unless (i) the holders of all the outstanding related Notes consent to
such sale; (ii) the proceeds of such sale are sufficient to pay in full the
principal of and the accrued interest on such outstanding Notes at the date of
such sale; or (iii) the Indenture Trustee determines that the proceeds of the
Contracts would not be sufficient on an ongoing basis to make all payments on
the Notes as such payments would have become due if such obligations had not
been declared due and payable, and the Indenture Trustee obtains the consent of
the holders of 66 2/3% of the aggregate outstanding amount of the Notes. Unless
otherwise specified in the related Prospectus Supplement, following a
declaration upon an Event of Default that the Notes are immediately due and
payable, (i) Note Owners will be entitled to ratable repayment of principal on
the basis of their respective unpaid principal balances and (ii) repayment in
full of the accrued interest on and unpaid principal balances of the Notes will
be made prior to any further payment of interest or principal on the
Certificates.
Subject to the provisions of the Indenture relating to the duties of the
Indenture Trustee, if an Event of Default occurs and is continuing with respect
to a series of Notes, the Indenture Trustee will be under no obligation to
exercise any of the rights or powers under the Indenture at the request or
direction of any of the holders of such Notes, if the Indenture Trustee
reasonably believes it will not be adequately indemnified against the costs,
expenses and liabilities which might be incurred by it in complying with such
request. Subject to the provisions for indemnification and certain limitations
contained in the Indenture, a Note Majority in a series will have the right to
direct the time, method and place of conducting any proceeding or any remedy
available to the Indenture Trustee, and a Note Majority may, in certain cases,
waive any default with respect thereto, except a default in the payment of
principal or interest or a default in respect of a covenant or provision of the
Indenture that cannot be modified without the waiver or consent of all of the
holders of such outstanding Notes.
No holder of a Note of any series will have the right to institute any
proceeding with respect to the related Indenture, unless (i) such holder
previously has given to the Indenture Trustee written notice of a continuing
Event of Default, (ii) the holders of not less than 25% in principal amount of
the outstanding Notes of such series have made written request of the Indenture
Trustee to institute such proceeding in its own name as Indenture Trustee,
(iii) such holder or holders have offered the Indenture Trustee reasonable
indemnity, (iv) the Indenture Trustee has for 60 days failed to institute such
proceeding, and (v) no direction inconsistent with such written request has
been given to the Indenture Trustee during such 60-day period by the holders of
a majority in principal amount of such outstanding Notes.
If an Event of Default occurs and is continuing and if it is known to the
Indenture Trustee, the Indenture Trustee will mail to each Noteholder notice of
the Event of Default within 90 days after it occurs. Except in the case of a
failure to pay principal of or interest on any Note, the Indenture Trustee may
withhold the notice if and so long as it determines in good faith that
withholding the notice is in the interests of the Noteholders.
In addition, each Indenture Trustee and the related Noteholders, by accepting
the related Notes, will covenant that they will not at any time institute
against the Seller or the related Trust any bankruptcy, reorganization or other
proceeding under any federal or state bankruptcy or similar law.
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Neither the Indenture Trustee nor the Trustee in its individual capacity, nor
any holder of a Certificate including, without limitation, the Seller, nor any
of their respective owners, beneficiaries, agents, officers, directors,
employees, affiliates, successors or assigns will, in the absence of an express
agreement to the contrary, be personally liable for the payment of the related
Notes or for any agreement or covenant of the related Trust contained in the
Indenture.
Certain Covenants. Each Indenture will provide that the related Trust may not
consolidate with or merge into any other entity, unless (i) the entity formed
by or surviving such consolidation or merger is organized under the laws of the
United States or any state, (ii) such entity expressly assumes the Trust's
obligation to make due and punctual payments upon the Notes and the performance
or observance of every agreement and covenant of the Trust under the Indenture,
(iii) no Event of Default shall have occurred and be continuing immediately
after such merger or consolidation, (iv) the Trustee has been advised that the
then current rating of the related Notes or Certificates then in effect would
not be reduced or withdrawn by the Rating Agencies as a result of such merger
or consolidation, (v) the Trustee has received an opinion of counsel to the
effect that such consolidation or merger would have no material adverse tax
consequence to the Trust or to any related Note Owner or Certificate Owner.
Each Trust will not, among other things, (i) except as expressly permitted by
the Indenture, the Trust Documents or certain related documents for such Trust
(collectively, the "Related Documents"), sell, transfer, exchange or otherwise
dispose of any of the assets of the Trust, (ii) claim any credit on or make any
deduction from the principal and interest payable in respect of the related
Notes (other than amounts withheld under the Code or applicable state law) or
assert any claim against any present or former holder of such Notes because of
the payment of taxes levied or assessed upon the Trust, (iii) dissolve or
liquidate in whole or in part, (iv) permit the validity or effectiveness of the
related Indenture to be impaired or permit any person to be released from any
covenants or obligations with respect to the related Notes under such Indenture
except as may be expressly permitted thereby, or (v) except as expressly
permitted by the Related Documents, permit any lien, charge, excise, claim,
security interest, mortgage or other encumbrance to be created on or extend to
or otherwise arise upon or burden the assets of the Trust or any part thereof,
or any interest therein or proceeds thereof.
No Trust may engage in any activity other than as specified under the section
of the related Prospectus Supplement entitled "The Trust." No Trust will incur,
assume or guarantee any indebtedness other than indebtedness incurred pursuant
to the related Notes and the related Indenture or otherwise in accordance with
the Related Documents.
Annual Compliance Statement. Each Trust will be required to file annually
with the related Indenture Trustee a written statement as to the fulfillment of
its obligations under the Indenture.
Indenture Trustee's Annual Report. The Indenture Trustee will be required to
mail each year to all related Noteholders a brief report relating to its
eligibility and qualification to continue as Indenture Trustee under the
related Indenture, any amounts advanced by it under the Indenture, the amount,
interest rate and maturity date of certain indebtedness owing by the Trust to
the Indenture Trustee in its individual capacity, the property and funds
physically held by the Indenture Trustee as such and any action taken by it
that materially affects the Notes and that has not been previously reported.
Note Owners may receive such reports upon written request, together with a
certification that they are Note Owners and payment of reproduction and postage
expenses associated with the distribution of such reports, from the Indenture
Trustee at the address specified in the related Prospectus Supplement.
Satisfaction and Discharge of Indenture. The Indenture will be discharged
with respect to the collateral securing the related Notes upon the delivery to
the related Indenture Trustee for cancellation of all such Notes or, with
certain limitations, upon deposit with the Indenture Trustee of funds
sufficient for the payment in full of all of such Notes.
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THE INDENTURE TRUSTEE
The Indenture Trustee for a series of Notes will be specified in the related
Prospectus Supplement. The Indenture Trustee may resign at any time, in which
event the Seller will be obligated to appoint a successor trustee. Green Tree
may also remove the Indenture Trustee if the Indenture Trustee ceases to be
eligible to continue as such under the Indenture or if the Indenture Trustee
becomes insolvent. In such circumstances, Green Tree will be obligated to
appoint a successor trustee. Any resignation or removal of the Indenture
Trustee and appointment of a successor trustee will be subject to any
conditions or approvals, if any, specified in the related Prospectus Supplement
and will not become effective until acceptance of the appointment by a
successor trustee.
CERTAIN INFORMATION REGARDING THE SECURITIES
BOOK-ENTRY REGISTRATION
Unless otherwise provided in the related Prospectus Supplement, the
Securities of each series will be registered in the name of Cede & Co., the
nominee of DTC. DTC is a limited-purpose trust company organized under the laws
of the State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Exchange Act. DTC accepts securities for deposit from its participating
organizations ("Participants") and facilitates the clearance and settlement of
securities transactions between Participants in such securities through
electronic book-entry changes in accounts of Participants, thereby eliminating
the need for physical movement of certificates. Participants include securities
brokers and dealers, banks and trust companies and clearing corporations and
may include certain other organizations. Indirect access to the DTC system is
also available to others such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a Participant,
either directly or indirectly ("indirect participants").
Certificate Owners and Note Owners who are not Participants but desire to
purchase, sell or otherwise transfer ownership of Securities may do so only
through Participants (unless and until Definitive Certificates or Definitive
Notes, each as defined below, are issued). In addition, Certificate Owners and
Note Owners will receive all distributions of principal of, and interest on,
the Securities from the Trustee or the Indenture Trustee, as applicable,
through DTC and Participants. Certificate Owners and Note Owners will not
receive or be entitled to receive certificates representing their respective
interests in the Securities, except under the limited circumstances described
below and such other circumstances, if any, as may be specified in the related
Prospectus Supplement.
Unless and until Definitive Securities are issued, it is anticipated that the
only Certificateholder of the Certificates and the only Noteholder of the
Notes, if any, will be Cede & Co., as nominee of DTC. Certificate Owners and
Note Owners will not be recognized by the Trustee as Certificateholders or by
the Indenture Trustee as Noteholders as those terms are used in the related
Trust Documents or Indenture. Certificate Owners and Note Owners will be
permitted to exercise the rights of Certificateholders or Noteholders, as the
case may be, only indirectly through Participants and DTC.
With respect to any series of Securities, while the Securities are
outstanding (except under the circumstances described below), under the rules,
regulations and procedures creating and affecting DTC and its operations (the
"Rules"), DTC is required to make book-entry transfers among Participants on
whose behalf it acts with respect to the Securities and is required to receive
and transmit distributions of principal of, and interest on, the Securities.
Participants with whom Certificate Owners or Note Owners have accounts with
respect to Securities are similarly required to make book-entry transfers and
receive and transmit such distributions on behalf of their respective
Certificate Owners and Note Owners. Accordingly, although Certificate Owners
and Note Owners will not possess Securities, the Rules provide a mechanism by
which Certificate Owners and Note Owners will receive distributions and will be
able to transfer their interests.
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With respect to any series of Securities, unless otherwise specified in the
related Prospectus Supplement, Certificates and Notes (if any) will be issued
in registered form to Certificate Owners and Note Owners, or their nominees,
rather than to DTC (such Certificates and Notes being referred to herein as
"Definitive Certificates" and "Definitive Notes," respectively), only if (i)
DTC, the Seller or the Servicer advises the Trustee or the Indenture Trustee,
as the case may be, in writing that DTC is no longer willing or able to
discharge properly its responsibilities as nominee and depository with respect
to the Certificates or the Notes, and the Seller, the Servicer, the Trustee or
the Indenture Trustee, as the case may be, is unable to locate a qualified
successor, (ii) the Seller or the Administrator (if any) at its sole option has
advised the Trustee or the Indenture Trustee, as the case may be, in writing
that it elects to terminate the book-entry system through DTC and (iii) after
the occurrence of a Servicer Termination Event, the holders representing a
majority of the Certificate Balance (a "Certificate Majority") or a Note
Majority advises the Trustee or the Indenture Trustee, as the case may be,
through DTC, that continuation of a book-entry system is no longer in their
best interests. Upon issuance of Definitive Certificates or Definitive Notes to
Certificate Owners or Note Owners, such Certificates or Notes will be
transferable directly (and not exclusively on a book-entry basis) and
registered holders will deal directly with the Trustee or the Indenture
Trustee, as the case may be, with respect to transfers, notices and
distributions.
DTC has advised the Seller that, unless and until Definitive Certificates or
Definitive Notes are issued, DTC will take any action permitted to be taken by
a Certificateholder or a Noteholder under the related Trust Documents or
Indenture only at the direction of one or more Participants to whose DTC
accounts the Certificates or Notes are credited. DTC has advised the Seller
that DTC will take such action with respect to any fractional interest of the
Certificates or the Notes only at the direction of and on behalf of such
Participants beneficially owning a corresponding fractional interest of the
Certificates or the Notes. DTC may take actions, at the direction of the
related Participants, with respect to some Certificates or Notes which conflict
with actions taken with respect to other Certificates or Notes.
Issuance of Certificates and Notes in book-entry form rather than as physical
certificates or notes may adversely affect the liquidity of Certificates or
Notes in the secondary market and the ability of the Certificate Owners or Note
Owners to pledge them. In addition, since distributions on the Certificates and
the Notes will be made by the Trustee or the Indenture Trustee to DTC and DTC
will credit such distributions to the accounts of its Participants, with the
Participants further crediting such distributions to the accounts of indirect
participants or Certificate Owners or Note Owners, Certificate Owners and Note
Owners may experience delays in the receipt of such distributions.
STATEMENTS TO SECURITYHOLDERS
On or prior to each Distribution Date, the Servicer will prepare and provide
to the Trustee a statement to be delivered to the related Certificateholders on
such Distribution Date. On or prior to each Distribution Date, the Servicer
will prepare and provide to the Indenture Trustee a statement to be delivered
to the related Noteholders on such Distribution Date. Such statements will be
based on the information in the related Servicer's Certificate setting forth
certain information required under the Trust Documents (the "Servicer's
Certificate"). Unless otherwise specified in the related Prospectus Supplement,
each such statement to be delivered to Certificateholders will include the
following information as to the Certificates with respect to such Distribution
Date or the period since the previous Distribution Date, as applicable, and
each such statement to be delivered to Noteholders will include the following
information as to the Notes with respect to such Distribution Date or the
period since the previous Distribution Date, as applicable:
(i) the amount of the distribution allocable to interest on or with
respect to each class of Securities;
(ii) the amount of the distribution allocable to principal on or with
respect to each class of Securities;
(iii) the Certificate Balance and the Certificate Pool Factor for each
class of Certificates and the aggregate outstanding principal balance and
the Note Pool Factor for each class of Notes, after giving effect to all
payments reported under (ii) above on such date;
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(iv) the amount of the Servicing Fee paid to the Servicer with respect to
the related Monthly Period or Periods, as the case may be;
(v) the Pass-Through Rate or Interest Rate for the next period for any
class of Certificates or Notes with variable or adjustable rates;
(vi) the amount of Advances made by the Servicer with respect to such
Distribution Date, and the amount paid to the Servicer on such Distribution
Date as reimbursement of Advances made on previous Distribution Dates;
(vii) the amount, if any, distributed to Certificateholders and
Noteholders applicable to payments under the related form of credit
enhancement, if any; and
(viii) such other information as may be specified in the related
Prospectus Supplement.
Each amount set forth pursuant to subclauses (i), (ii), (iv) and (vi) with
respect to Certificates or Notes will be expressed as a dollar amount per
$1,000 of the initial Certificate Balance or the initial principal balance of
the Notes, as applicable.
Unless and until Definitive Certificates or Definitive Notes are issued, such
reports with respect to a series of Securities will be sent on behalf of the
related Trust to the Trustee, the Indenture Trustee and Cede & Co., as
registered holder of the Certificates and the Notes and the nominee of DTC.
Certificate Owners and Note Owners may receive copies of such reports upon
written request, together with a certification that they are Certificate Owners
or Note Owners, as the case may be, and payment of reproduction and postage
expenses associated with the distribution of such reports, from the Trustee or
the Indenture Trustee, as applicable. See "Reports to Securityholders" and "--
Book-Entry Registration" above.
Within the prescribed period of time for tax reporting purposes after the end
of each calendar year during the term of a Trust, the Trustee and the Indenture
Trustee, as applicable, will mail to each holder of a class of Securities who
at any time during such calendar year has been a Securityholder, and received
any payment thereon, a statement containing certain information for the
purposes of such Securityholder's preparation of federal income tax returns.
DTC will convey such information to its Participants, who in turn will convey
such information to their related indirect participants in accordance with
arrangements among DTC and such participants. Certificate Owners and Note
Owners may receive such reports upon written request, together with a
certification that they are Certificate Owners or Note Owners and payment of
reproduction and postage expenses associated with the distribution of such
information, from the Trustee, with respect to Certificate Owners, or from the
Indenture Trustee, with respect to Note Owners, at the addresses specified in
the related Prospectus Supplement. See "Certain Federal Income Tax
Consequences."
LISTS OF SECURITYHOLDERS
Unless otherwise provided in the related Prospectus Supplement, with respect
to each series of Certificates, at such time, if any, as Definitive
Certificates have been issued, the Trustee will, upon written request by three
or more Certificateholders or one or more holders of Certificates evidencing
not less than 25% of the Certificate Balance, within five Business Days after
provision to the Trustee of a statement of the applicants' desire to
communicate with other Certificateholders about their rights under the related
Trust Documents or the Certificates and a copy of the communication that the
applicants propose to transmit, afford such Certificateholders access during
business hours to the current list of Certificateholders for purposes of
communicating with other Certificateholders with respect to their rights under
the Trust Documents. Unless otherwise specified in the related Prospectus
Supplement, the Trust Documents will not provide for holding any annual or
other meetings of Certificateholders.
Unless otherwise provided in the related Prospectus Supplement, with respect
to each series of Notes, if any, at such time, if any, as Definitive Notes have
been issued, the Indenture Trustee will, upon written request by three or more
Noteholders or one or more holders of Notes evidencing not less than 25% of the
aggregate principal balance of the related Notes, within five Business Days
after provision to the Indenture Trustee of a
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statement of the applicants' desire to communicate with other Noteholders about
their rights under the related Indenture or the Notes and a copy of the
communication that the applicants propose to transmit, afford such Noteholders
access during business hours to the current list of Noteholders for purposes of
communicating with other Noteholders with respect to their rights under the
Indenture. Unless otherwise specified in the related Prospectus Supplement, the
Indenture will not provide for holding any annual or other meetings of
Noteholders.
DESCRIPTION OF THE TRUST DOCUMENTS
Except as otherwise specified in the related Prospectus Supplement, the
following summary describes certain terms of either (i) the Pooling and
Servicing Agreements or (ii) the Sale and Servicing Agreements and the Trust
Agreements (in either case collectively referred to as the "Trust Documents")
pursuant to which Green Tree will sell and assign such Contracts to a Trust and
the Servicer will agree to service such Contracts on behalf of the Trust, and
pursuant to which such Trust will be created and Certificates will be issued.
Forms of the Trust Documents have been filed as exhibits to the Registration
Statement of which this Prospectus forms a part. Green Tree will provide a copy
of such agreements (without exhibits) upon request to a holder of Securities
described therein. This summary does not purport to be complete and is subject
to, and qualified in its entirety by reference to, all of the provisions of the
Trust Documents. Where particular provisions or terms used in the Trust
Documents are referred to, the actual provisions (including definitions of
terms) are incorporated by reference as part of such summary.
SALE AND ASSIGNMENT OF THE CONTRACTS
On the Closing Date, Green Tree will sell and assign to the Trust, without
recourse, Green Tree's entire interest in the related Contracts and the
proceeds thereof, including its security interests in the related Products and
the mortgages securing any Home Equity Contracts. Each Contract transferred by
Green Tree to the Trust will be identified in a schedule appearing as an
exhibit to the related Trust Documents (the "Schedule of Contracts").
Concurrently with such sale and assignment, the Trustee will execute and
deliver the related certificates representing the Certificates to or upon the
order of the Seller, and the Trustee will execute and the Indenture Trustee
will authenticate and deliver the Notes, if any, to or upon the order of the
Seller.
Except as otherwise specified in the related Prospectus Supplement, Green
Tree will make certain warranties in the Trust Documents with respect to each
Contract as of the Closing Date, including that: (a) as of the Cutoff Date, the
most recent scheduled payment was made or was not delinquent more than 59 days;
(b) no provision of a Contract has been waived, altered or modified in any
respect, except by instruments or documents contained in the Contract file; (c)
each Contract is a legal, valid and binding obligation of the Obligor and is
enforceable in accordance with its terms (except as may be limited by laws
affecting creditors' rights generally); (d) no Contract is subject to any right
of rescission, set-off, counterclaim or defense; (e) for Contracts (other than
Home Improvement Contracts and Home Equity Contracts) with an original balance
greater than $7,500, the related Product is covered by insurance naming Green
Tree as an additional insured party; (f) each Contract has been originated by a
dealer (or home equity lender) or Green Tree in the ordinary course of such
dealer's, home equity lender's, or Green Tree's business and, if originated by
a dealer or home equity lender, was purchased by Green Tree in the ordinary
course of business; (g) no Contract was originated in or is subject to the laws
of any jurisdiction whose laws would make the transfer of the Contract or an
interest therein to the Trustee pursuant to the Trust Documents or pursuant to
the Notes or Certificates unlawful; (h) each Contract complies with all
requirements of law; (i) no Contract has been satisfied, subordinated to a
lower lien ranking than its original position in whole or in part or rescinded
and the Product or real estate securing the Contract has not been released from
the lien of the Contract in whole or in part; (j) each Contract (other than a
Home Improvement Contract or a Home Equity Contract) creates a valid and
enforceable first priority security interest in favor of Green Tree in the
Product covered thereby and such security interest has been assigned by Green
Tree to the Trustee, and each Home Equity Contract creates a valid and
perfected lien on the related real estate; (k) all parties to each Contract had
capacity to execute such Contract; (l) no Contract has been sold, assigned or
pledged to any other person
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and prior to the transfer of the Contracts by Green Tree to the Trustee, Green
Tree had good and marketable title to each Contract free and clear of any
encumbrance, equity, loan, pledge, charge, claim or security interest, and was
the sole owner and had full right to transfer such Contract to the Trustee;
(m) as of the Cutoff Date, there was no default, breach, violation or event
permitting acceleration under any Contract (except for payment delinquencies
permitted by clause (a) above), no event which with notice and the expiration
of any grace or cure period would constitute a default, breach, violation or
event permitting acceleration under such Contract, and Green Tree has not
waived any of the foregoing; (n) as of the Closing Date there were, to the
best of Green Tree's knowledge, no liens or claims which have been filed for
work, labor or materials affecting the Product securing a Contract, which are
or may be liens prior or equal to the lien of the Contract; (o) each Contract
is a fully-amortizing loan and provides for level payments over the term of
such Contract; (p) each Contract contains customary and enforceable provisions
such as to render the rights and remedies of the Holder thereof adequate for
realization against the collateral of the benefits of the security; (q) the
description of each Contract set forth in the list delivered to the Trustee is
true and correct; and (r) there is only one original of each Contract (other
than the copy in the possession of the Obligor).
The warranties of Green Tree will be made as of the execution and delivery
of the related Trust Documents and will survive the sale, transfer and
assignment of the related Contracts and other Trust Property to the Trust but
will speak only as of the date made.
Green Tree will be obligated to repurchase for the Repurchase Price (as
defined below) any Contract on the first business day after the first
Determination Date which is more than 90 days after Green Tree becomes aware,
or should have become aware, or Green Tree's receipt of written notice from
the Trustee or the Servicer, of a breach of any representation or warranty of
Green Tree in the Trust Documents that materially adversely affects the
Trust's interest in any Contract if such breach has not been cured. The
Repurchase Price for any Contract will be the remaining principal amount
outstanding on such Contract on the date of repurchase plus accrued and unpaid
interest thereon at its Contract Rate to the date of such repurchase. This
repurchase obligation constitutes the sole remedy available to the Trust and
the Securityholders for a breach of a warranty under the Trust Documents with
respect to the Contracts (but not with respect to any other breach by Green
Tree of its obligations under the Trust Documents).
Upon the purchase by Green Tree of a Contract due to a breach of a
representation or warranty, the Trustee will convey such Contract and the
related Trust Property to Green Tree.
CUSTODY OF CONTRACT FILES
Unless otherwise specified in the related Prospectus Supplement, Green Tree
initially will be appointed to act as custodian for the Contract Files of each
Trust (other than the Home Improvement Contract Files and the Home Equity
Contract Files). Prior to the appointment of any custodian other than Green
Tree, the Trust and such institution specified in the related Prospectus
Supplement shall enter into a custodian agreement pursuant to which such
institution will agree to hold the Contract Files on behalf of the related
Trust. Any such custodian agreement may be terminated by the Trust on 30 days'
notice to such institution. The Home Improvement Contract Files and Home
Equity Contract Files will be held by the Trustee or a custodian on its
behalf.
To facilitate servicing and save administrative costs, the documents will
not be physically segregated from other similar documents that are in Green
Tree's possession. UCC financing statements will be filed in Minnesota
reflecting the sale and assignment of the Contracts to the Trustee, and Green
Tree's accounting records and computer systems will also reflect such sale and
assignment. In addition, the Contracts that are in Green Tree's possession
will be stamped or otherwise marked to indicate that such Contracts have been
sold to the related Trust. Despite these precautions, if, through inadvertence
or otherwise, any of the Contracts were sold to another party (or a security
interest therein were granted to another party) that purchased (or took such
security interest in) any of such Contracts in the ordinary course of its
business and took possession of such Contracts, the purchaser (or secured
party) would acquire an interest in the Contracts superior to the interest of
the related Trust if the purchaser (or secured party) acquired (or took a
security interest in) the Contracts for new value and without actual knowledge
of such Trust's interest. See "Certain Legal Aspects of the Contracts--Rights
in the Contracts."
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COLLECTIONS
With respect to each Trust, the Servicer will establish one or more
Collection Accounts in the name of the Trustee or, in the case of any series
including one or more classes of Notes, in the name of the Indenture Trustee
for the benefit of the related Securityholders. If so specified in the related
Prospectus Supplement, the Trustee will establish and maintain for each series
an account, in the name of the Trustee on behalf of the related
Certificateholders, in which amounts released from the Collection Account and
any Pre-Funding Account and any amounts received from any source of credit
enhancement for distribution to such Certificateholders will be deposited and
from which all distributions to such Certificateholders will be made (the
"Certificate Distribution Account"). With respect to any series including one
or more classes of Notes, the Indenture Trustee will establish and maintain for
each series an account, in the name of the Indenture Trustee on behalf of the
related Noteholders, in which amounts released from the Collection Account and
any Pre-Funding Account and any amounts received from any source of credit
enhancement for payment to such Noteholders will be deposited and from which
all distributions to such Noteholders will be made (the "Note Distribution
Account"). The Collection Account, the Certificate Distribution Account (if
any), and the Note Distribution Account (if any), are referred to herein
collectively as the "Designated Accounts." Any other accounts to be established
with respect to a Trust will be described in the related Prospectus Supplement.
Each Designated Account will be an Eligible Account maintained with the
Trustee, the Indenture Trustee and/or other depository institutions. "Eligible
Account" means any account which is (i) an account maintained with an Eligible
Institution (as defined below); (ii) an account or accounts the deposits in
which are fully insured by either the Bank Insurance Fund or the Savings
Association Insurance Fund of the FDIC; (iii) a "segregated trust account"
maintained with the corporate trust department of a federal or state chartered
depository institution or trust company with trust powers and acting in its
fiduciary capacity for the benefit of the Trustee, which depository institution
or trust company has capital and surplus (or, if such depository institution or
trust company is a subsidiary of a bank holding company system, the capital and
surplus of the bank holding company) of not less than $50,000,000 and the
securities of such depository institution (or, if such depository institution
is a subsidiary of a bank holding company system and such depository
institution's securities are not rated, the securities of the bank holding
company) has a credit rating from each rating agency rating such series of
Notes and/or Certificates (a "Rating Agency") in one of its generic credit
rating categories which signifies investment grade; or (iv) an account that
will not cause any Rating Agency to downgrade or withdraw its then-current
rating assigned to the Certificates, as confirmed in writing by each Rating
Agency. "Eligible Institution" means any depository institution organized under
the laws of the United States or any state, the deposits of which are insured
to the full extent permitted by law by the Bank Insurance Fund (currently
administered by the Federal Deposit Insurance Corporation), whose short-term
deposits have been rated in one of the two highest rating categories or such
other rating category as will not adversely affect the ratings assigned to the
Notes and/or Certificates of such series. On the Closing Date specified in the
related Prospectus Supplement, the Servicer will cause to be deposited in the
Collection Account all payments on the Contracts received by the Servicer after
the Cutoff Date and on or prior to the second Business Day preceding the
Closing Date.
The Servicer will deposit all payments on the Contracts held by any Trust
received directly by the Servicer from Obligors and all proceeds of Contracts
collected directly by the Servicer during each Monthly Period into the
Collection Account no later than one Business Day after receipt.
Notwithstanding the foregoing and unless otherwise provided in the related
Prospectus Supplement, the Servicer may utilize an alternative remittance
schedule, if the Servicer provides to the Trustee and the Indenture Trustee
written confirmation from each Rating Agency that such alternative remittance
schedule will not result in the downgrading or withdrawal by such Rating Agency
of the rating(s) then assigned to the Securities. Green Tree will also deposit
into the Collection Account on or before the Deposit Date the Purchase Amount
of each Contract to be purchased by it for breach of a representation or
warranty.
For any series of Securities, funds in the Designated Accounts and any other
accounts identified in the related Prospectus Supplement will be invested, as
provided in the related Trust Documents, at the direction of the Servicer in
United States government securities and certain other high-quality investments
meeting the
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criteria specified in the related Trust Documents ("Eligible Investments").
Eligible Investments shall mature no later than the Business Day preceding the
applicable Distribution Date for the Monthly Period to which such amounts
relate. Investments in Eligible Investments will be made in the name of the
Trustee or the Indenture Trustee, as the case may be, and such investments will
not be sold or disposed of prior to their maturity.
Unless otherwise specified in the related Prospectus Supplement, collections
or recoveries on a Contract (other than late fees or certain other similar fees
or charges) received during a Monthly Period and Purchase Amounts deposited
with the Trustee prior to a Distribution Date will be applied first to any
outstanding Monthly Advances made by the Servicer with respect to such
Contract, and then to interest and principal on the Contract in accordance with
the terms of the Contract.
SERVICING PROCEDURES
The Servicer will make reasonable efforts, consistent with the customary
servicing procedures employed by the Servicer with respect to Contracts owned
or serviced by it, to collect all payments due with respect to the Contracts
held by any Trust and, in a manner consistent with the Trust Documents, will
follow its customary collection procedures with respect to secured consumer
loans that it services for itself and others.
Under the Trust Documents, the Servicer will be required to use its best
efforts to repossess or otherwise comparably convert the ownership of any
Product securing a Contract, or to begin foreclosure proceedings under a Home
Equity Contract, with respect to which the Servicer has determined that
payments thereunder are not likely to be resumed as soon as practicable after
default on such Contract. The Servicer is authorized to follow such of its
normal collection practices and procedures as it deems necessary or advisable
to realize upon any Contract. The Servicer may repossess and sell the Product
securing such Contract at judicial sale, or take any other action permitted by
applicable law. See "Certain Legal Aspects of the Contracts." The Servicer will
be entitled to recover all reasonable expenses incurred by it in connection
therewith. The proceeds of such realization (net of such expenses) will be
deposited in the Collection Account at the time and in the manner described
above under "--Collections."
The Trust Documents will provide that the Servicer will indemnify and defend
the Trustee, the Indenture Trustee, the Trust and the Securityholders against,
among other things, any and all costs, expenses, losses, damages, claims and
liabilities, including reasonable fees and expenses of counsel and expenses of
litigation, or in respect of any action taken or failed to be taken by the
Servicer with respect to any portion of the Trust Property in violation of the
provisions of the Trust Documents. The Servicer's obligations to indemnify the
Trustee, the Indenture Trustee, the Trust and the Securityholders for the
Servicer's actions or omissions will survive the removal of the Servicer but
will not apply to any action or omission of a successor Servicer.
SERVICING COMPENSATION
Unless otherwise specified in the related Prospectus Supplement, with respect
to each series of Securities, the Servicer will be entitled to receive the
Servicing Fee for each Monthly Period in an amount equal to the product of one-
twelfth of the Servicing Rate and the Aggregate Principal Balance as of the
first day of such Monthly Period. The Servicer also will be entitled to collect
and retain any late fees or other administrative fees or similar charges
allowed by the terms of the Contracts or applicable law. Unless otherwise
provided in the related Prospectus Supplement, the "Servicing Rate" will equal
.75% per annum calculated on the basis of a 360-day year consisting of twelve
30-day months. As long as Green Tree is the Servicer, the Servicing Fee and any
additional servicing compensation will be paid out of collections on or with
respect to the Contracts after the required distributions to Noteholders and
Certificateholders. If Green Tree is no longer the Servicer, the Servicing Fee
and any additional servicing compensation will be paid out of collections on or
with respect to the Contracts prior to distributions to Certificateholders and
Noteholders. Unless otherwise specified in the related Prospectus Supplement, a
"Monthly Period" with respect to any Distribution Date is the calendar month
immediately preceding the month in which the Distribution Date occurs.
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Green Tree, as Servicer, will be required to pay all expenses incurred by it
in connection with its servicing activities (including fees, expenses and
disbursements of the Trustee, the Indenture Trustee, the Custodian and
independent accountants, taxes imposed on the Servicer and expenses incurred in
connection with distributions and reports to Certificateholders and
Noteholders), except certain expenses incurred in connection with realizing
upon the Contracts.
DISTRIBUTIONS
With respect to each Trust, beginning on the Distribution Date specified in
the related Prospectus Supplement, distributions of principal and interest (or,
where applicable, of principal or interest only) on each class of Securities
entitled thereto will be made by the Trustee or the Indenture Trustee, as
applicable, to the Certificateholders and the Noteholders. The timing,
calculation, allocation, order, source, priorities of and requirements for all
distributions to each class of Certificateholders and all payments to each
class of Noteholders will be set forth in the related Prospectus Supplement.
Except as otherwise specified in the related Prospectus Supplement, on the
third Business Day prior to each Distribution Date (the "Determination Date"),
the Servicer will determine the Amount Available and the amounts to be
distributed on the Notes and Certificates for such Distribution Date. Except as
otherwise specified in the related Prospectus Supplement, the "Amount
Available" for any Distribution Date will be equal to (i) the funds on deposit
in the Collection Account at the close of business on the last day of the
related Monthly Period, plus (ii) any Advances to be made by the Servicer with
respect to delinquent payments, plus (iii) any Repurchase Amounts to be
deposited by Green Tree with respect to Contracts to be repurchased due to a
breach of a representation or warranty, minus (iv) any amounts paid by Obligors
in the related Monthly Period, but to be applied in respect of a regular
monthly payment due in a subsequent Monthly Period (an "Advance Payment"),
minus (v) any amounts incorrectly deposited in the Collection Account.
Except as otherwise specified in the related Prospectus Supplement, on each
Distribution Date, prior to making distributions in respect of the Notes and
Certificates, the Amount Available will be applied, first, if Green Tree is no
longer the Servicer, to pay the servicing fee to the successor Servicer, and
second, to reimburse the Servicer (including Green Tree) for any Advances made
with respect to a prior Monthly Period and subsequently recovered and for any
Advances previously made that the Servicer has determined are Uncollectible
Advances.
ENHANCEMENT
The amounts and types of enhancement arrangements and the provider thereof,
if applicable, with respect to each class of Securities will be set forth in
the related Prospectus Supplement. If and to the extent provided in the related
Prospectus Supplement, enhancement may be in the form of a financial guaranty
insurance policy, letter of credit, Green Tree guaranty, cash reserve fund,
derivative product, or other form of enhancement, or any combination thereof,
as may be described in the related Prospectus Supplement. If specified in the
applicable Prospectus Supplement, enhancement for a class of Securities of a
Series may cover one or more other classes of Securities in such Series, and
accordingly may be exhausted for the benefit of a particular class and
thereafter be unavailable to such other classes. Further information regarding
any provider of enhancement, including financial information when material,
will be included in the related Prospectus Supplement.
The presence of enhancement may be intended to enhance the likelihood of
receipt by the Certificateholders and the Noteholders of the full amount of
principal and interest due thereon and to decrease the likelihood that the
Certificateholders and the Noteholders will experience losses, or may be
structured to provide protection against changes in interest rates or against
other risks, to the extent and under the conditions specified in the related
Prospectus Supplement. Unless otherwise specified in the related Prospectus
Supplement, the enhancement for a class of Securities will not provide
protection against all risks of loss and will not guarantee repayment of the
entire principal and interest thereon. If losses occur which exceed the amount
covered by any enhancement or which are not covered by any enhancement,
Securityholders will bear their allocable share of deficiencies. In addition,
if a form of enhancement covers more than one class of Securities of a Series,
Securityholders of any such class will be subject to the risk that such
enhancement will be exhausted by the claims of Securityholders of other
classes.
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ADVANCES
Unless otherwise specified in the related Prospectus Supplement, the Servicer
will be obligated to make Advances each month of any scheduled payments on the
Contracts included in a Trust that were due but not received during the prior
Monthly Period. The Servicer will be entitled to reimbursement of an Advance
from Available Funds in the Collection Account for the related Trust (i) when
the delinquent payment is recovered by the Trust, or (ii) when the Servicer has
determined that such Advance has become an Uncollectible Advance. The Servicer
will be obligated to make an Advance only to the extent that it determines that
such Advance will be recoverable from subsequent funds available therefor in
the Collection Account for the related Trust.
EVIDENCE AS TO COMPLIANCE
On or before May 1 of each year the Servicer will deliver to each Trustee and
each Indenture Trustee a report of a nationally recognized accounting firm
stating that such firm has examined certain documents and records relating to
the servicing of secured consumer contracts serviced by the Servicer under
pooling and servicing agreements or sale and servicing agreements similar to
the Trust Documents and stating that, on the basis of such procedures, such
servicing has been conducted in compliance with the applicable Trust Documents,
except for any exceptions set forth in such report. A copy of such statement
may be obtained by any Certificate Owner or Note Owner upon compliance with the
requirements described above. See "Certain Information Regarding the
Securities--Statements to Securityholders" above.
CERTAIN MATTERS REGARDING THE SERVICER
Unless otherwise provided in the related Prospectus Supplement, Green Tree's
appointment as Servicer under the related Trust Documents will continue until
such time as it resigns or is terminated as Servicer, or until such time, if
any, as a Servicer Termination Event shall have occurred under the related
Trust Documents. The related Trust Documents will provide that the Servicer may
not resign from its obligations and duties as Servicer thereunder, except upon
a determination (as evidenced by an opinion of independent counsel, delivered
and acceptable to the Trustee and the Indenture Trustee), that by reason of a
change in legal requirements its performance of such duties would cause it to
be in violation of such legal requirements in a manner which would result in a
material adverse effect on the Servicer. No such resignation will become
effective until a successor Servicer has assumed the servicing obligations and
duties under the related Trust Documents.
Unless otherwise provided in the related Prospectus Supplement, any
corporation or other entity into which the Servicer may be merged or
consolidated, resulting from any merger or consolidation to which the Servicer
is a party, which acquires by conveyance, transfer or lease substantially all
of the assets of the Servicer or succeeds to all or substantially all the
business of the Servicer, where the Servicer is not the surviving entity, which
corporation or other entity assumes every obligation of the Servicer under each
Trust Document, will be the successor to the Servicer under the related Trust
Documents; provided, however, that (i) such entity is an Eligible Servicer, and
(ii) immediately after giving effect to such transaction, no Servicer
Termination Event and no event which, after notice or lapse of time, or both,
would become a Servicer Termination Event shall have occurred and be
continuing.
INDEMNIFICATION AND LIMITS ON LIABILITY
Unless otherwise specified in the related Prospectus Supplement, the Trust
Documents will provide that the Servicer will be liable only to the extent of
the obligations specifically undertaken by it under the Trust Documents and
will have no other obligations or liabilities thereunder. The Trust Documents
will further provide that neither the Servicer nor any of its directors,
officers, employees and agents will have any liability to the Trust, the
Certificateholders or the Noteholders, except as provided in the Trust
Documents, for any action taken or for refraining from taking any action
pursuant to the Trust Documents, other than any liability that would otherwise
be imposed by reason of the Servicer's breach of the Trust Documents or willful
misfeasance, bad faith or negligence (including errors in judgment) in the
performance of its duties, or by reason of reckless disregard of obligations
and duties under the Trust Documents or any violation of law.
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The Servicer may, with the prior consent of the Trustee and the Indenture
Trustee, if any, delegate duties under the related Trust Documents to any of
its affiliates. In addition, the Servicer may at any time perform the specific
duty of repossessing Products through subcontractors who are in the business of
servicing consumer receivables. The Servicer may also perform other specific
duties through subcontractors; provided, however, that no such delegation of
such duties by the Servicer shall relieve the Servicer of its responsibility
with respect thereto.
SERVICER TERMINATION EVENTS
Except as otherwise specified in the related Prospectus Supplement, Servicer
Termination Events under the Trust Documents will include (i) any failure by
the Servicer to deliver to the Indenture Trustee for distribution to the
Noteholders or to the Trustee for distribution to the Certificateholders any
required payment which continues unremedied for 5 days (or such other period
specified in the related Prospectus Supplement) after the giving of written
notice; (ii) any failure by the Servicer duly to observe or perform in any
material respect any other of its covenants or agreements in the Trust
Documents that materially and adversely affects the interests of
Securityholders, which, in either case, continues unremedied for 30 days after
the giving of written notice of such failure of breach; (iii) any assignment or
delegation by the Servicer of its duties or rights under the Trust Documents,
except as specifically permitted under the Trust Documents, or any attempt to
make such an assignment or delegation; (iv) certain events of insolvency,
readjustment of debt, marshalling of assets and liabilities or similar
proceedings regarding the Servicer; and (v) the Servicer is no longer an
eligible Servicer (as defined in the Trust Documents). Notice as used herein
shall mean notice to the Servicer by the Trustee or Green Tree, or to Green
Tree, the Servicer, if any, and the Trustee by the holders of Securities
representing interests aggregating not less than 25% of the outstanding
principal balance of the Securities issued by such Trust.
Unless otherwise specified in the related Prospectus Supplement, if a
Servicer Termination Event occurs and is continuing, the Trustee, the Indenture
Trustee (if any), or the holders of at least 25% in aggregate principal balance
of the outstanding Securities issued by such Trust, by notice then given in
writing to the Servicer (and to the Trustee and the Indenture Trustee if given
by the Securityholders) may terminate all of the rights and obligations of the
Servicer under the Trust Documents. Immediately upon the giving of such notice,
and, in the case of a successor Servicer other than the Trustee, the acceptance
by such successor Servicer of its appointment, all authority of the Servicer
will pass to the Trustee or other successor Servicer. The Trustee, the
Indenture Trustee and the successor Servicer may set off and deduct any amounts
owed by the Servicer from any amounts payable to the outgoing Servicer.
On and after the time the Servicer receives a notice of termination, the
Trustee or other successor Servicer specified in the related Prospectus
Supplement (the "Backup Servicer") will be the successor in all respects to the
Servicer and will be subject to all the responsibilities, restrictions, duties
and liabilities of the Servicer under the related Trust Documents; provided,
however, that the successor Servicer shall have no liability with respect to
any obligation which was required to be performed by the prior Servicer prior
to the date that the successor Servicer becomes the Servicer or any claim of a
third party (including a Securityholder) based on any alleged action or
inaction of the prior Servicer. Notwithstanding such termination, the Servicer
shall be entitled to payment of certain amounts payable to it prior to such
termination, for services rendered prior to such termination. No such
termination will affect in any manner Green Tree's obligation to repurchase
certain Contracts for breaches of representations or warranties under the Trust
Documents. In the event that the Trustee would be obligated to succeed the
Servicer but is unwilling or unable so to act, it may appoint, or petition to a
court of competent jurisdiction for the appointment of a Servicer. Pending such
appointment, the Trustee is obligated to act in such capacity. The Trustee and
such successor may agree upon the servicing compensation to be paid, which in
no event may be greater than the compensation to the Servicer under the Trust
Documents.
Upon any termination of, or appointment of a successor to, the Servicer, the
Trustee and the Indenture Trustee (if any) will each give prompt written notice
thereof to Certificateholders and Noteholders, respectively, at their
respective addresses appearing in the Certificate Register or the Note Register
and to each Rating Agency.
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AMENDMENT
Unless otherwise provided in the related Prospectus Supplement, the Trust
Documents may be amended by the Seller, the Servicer, the Trustee and the
Indenture Trustee, if any, but without the consent of any of the
Securityholders, to cure any ambiguity or to correct or supplement any
provision therein, provided that such action will not, in the opinion of
counsel (which may be internal counsel to Green Tree or the Servicer)
reasonably satisfactory to the Trustee and the Indenture Trustee, materially
and adversely affect the interests of the Securityholders. The Trust Documents
may also be amended by Green Tree, the Servicer and the Trustee and the
Indenture Trustee (if any), and a Certificate Majority and a Note Majority (if
applicable), for the purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions of the Trust Documents or of
modifying, in any manner, the rights of the Certificateholders or the
Noteholders. No such amendment may (i) increase or reduce in any manner the
amount of, or accelerate or delay the timing of, collections of payments on the
related Contracts or distributions that are required to be made on any related
Certificate or Note or the related Pass-Through Rate or Interest Rate or (ii)
reduce the percentage of the Certificate Balance evidenced by Certificates or
of the aggregate principal amount of Notes then outstanding required to consent
to any such amendment, without the consent of the holders of all Certificates
or all Notes, as the case may be, then outstanding.
TERMINATION
The obligations created by the Trust Documents will terminate upon the date
calculated as specified in the Trust Documents, generally upon (i) the later of
the final payment or other liquidation of the last Contract subject thereto and
the disposition of all property acquired upon repossession of any Product and
(ii) the payment to the Securityholders of all amounts held by the Servicer or
the Trustee and required to be paid to the Securityholders pursuant to the
Trust Documents.
Unless otherwise provided in the related Prospectus Supplement, with respect
to each series of Securities, in order to avoid excessive administrative
expense, Green Tree and the Servicer each will be permitted, at its option, to
purchase from the Trust, on any Distribution Date immediately following any
Monthly Period as of the last day of which the Aggregate Principal Balance is
equal to or less than 10% (or such other percentage as may be specified in the
related Prospectus Supplement) of the Cutoff Date Principal Balance, all
remaining Contracts in the related Trust and the other remaining Trust Property
at a price equal to the aggregate of the Purchase Amounts therefor and the
appraised value of any other remaining Trust Property. The exercise of this
right will effect an early retirement of the related Certificates and Notes.
If a General Partner is named in the related Prospectus Supplement, unless
otherwise specified in the related Prospectus Supplement, the Trust Agreement
will provide that, in the event that the General Partner becomes insolvent,
withdraws or is expelled as a General Partner or is terminated or dissolved,
the Trust will terminate in 90 days and effect redemption of the Notes (if any)
and prepayment of the Certificates following the winding-up of the affairs of
the related Trust, unless within such 90 days the remaining General Partner, if
any, and holders of a majority of the Certificates of such series agree in
writing to the continuation of the business of the Trust and to the appointment
of a successor to the former General Partner, and the Owner Trustee is able to
obtain an opinion of counsel to the effect that the Trust will not thereafter
be an association (or publicly traded partnership) taxable as a corporation for
federal income tax purposes.
Unless otherwise specified in the related Prospectus Supplement, with respect
to each series of Securities, the Trustee will give written notice of the final
distribution with respect to the Certificates to each Certificateholder of
record and the Indenture Trustee will give written notice of the final payment
with respect to the Notes (if any), to each Noteholder of record. The final
distribution to any Certificateholder and the final payment to any Noteholder
will be made only upon surrender and cancellation of such holder's Certificate
or Note at the office or agency of the Trustee, with respect to Certificates,
or of the Indenture Trustee, with respect to Notes, specified in the notice of
termination. Any funds remaining in the Trust, after the Trustee or the
Indenture Trustee has taken certain measures to locate a Certificateholder or
Noteholder, as the case may be, and such measures have failed, will be
distributed to The United Way, and the Certificateholders and Noteholders, by
acceptance of their Certificates and Notes, will waive any rights with respect
to such funds.
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THE TRUSTEE
The Trustee or Owner Trustee, as applicable, for each Trust will be specified
in the related Prospectus Supplement. The Trustee, in its individual capacity
or otherwise, and any of its affiliates may hold Certificates or Notes in their
own names or as pledgee. In addition, for the purpose of meeting the legal
requirements of certain jurisdictions, the Trustee, with the consent of the
Servicer, shall have the power to appoint co-trustees or separate trustees of
all or any part of the related Trust. In the event of such appointment, all
rights, powers, duties and obligations conferred or imposed upon the Trustee by
the related Trust Documents will be conferred or imposed upon the Trustee and
such separate trustee or co-trustee jointly, or, in any jurisdiction where the
Trustee is incompetent or unqualified to perform certain acts, singly upon such
separate trustee or co-trustee who shall exercise and perform such rights,
powers, duties and obligations solely at the direction of the Trustee.
The Trustee of any Trust may resign at any time, in which event the General
Partner, if any, specified in the related Prospectus Supplement or, if no such
General Partner is specified, the Servicer or its successor will be obligated
to appoint a successor trustee. The General Partner, if any, specified in the
related Prospectus Supplement (or, if no such General Partner is specified, the
Servicer) may also remove the Trustee, if the Trustee ceases to be eligible to
serve, becomes legally unable to act, is adjudged insolvent or is placed in
receivership or similar proceedings. In such circumstances, the General
Partner, if any, specified in the related Prospectus Supplement or, if no such
General Partner is specified, the Servicer will be obligated to appoint a
successor trustee. Any resignation or removal of the Trustee and appointment of
a successor trustee will not become effective until acceptance of the
appointment by the successor trustee.
DUTIES OF THE TRUSTEE
The Trustee will make no representation as to the validity or sufficiency of
any Trust Document, the Certificates or the Notes (other than its execution of
the Certificates and the Notes), the Contracts or any related documents, and
will not be accountable for the use or application by the Servicer of any funds
paid to the Servicer in respect of the Certificates, the Notes or the Contracts
prior to deposit in the related Collection Account.
The Trustee will be required to perform only those duties specifically
required of it under the Trust Documents. Generally, those duties will be
limited to the receipt of the various certificates, reports or other
instruments required to be furnished by the Servicer to the Trustee under the
Trust Documents, in which case it will only be required to examine such
certificates, reports or instruments to determine whether they conform
substantially to the requirements of the Trust Documents.
The Trustee will be under no obligation to exercise any of the rights or
powers vested in it by the Trust Documents or to institute, conduct, or defend
any litigation thereunder or in relation thereto at the request, order or
direction of any of the Certificateholders or Noteholders, unless such
Certificateholders or Noteholders have offered the Trustee reasonable security
or indemnity against the costs, expenses and liabilities which may be incurred
therein or thereby. No Certificateholder nor any Noteholder will have any right
under the Trust Documents to institute any proceeding with respect to such
Trust Documents, unless such holder has given the Trustee written notice of
default and unless the holders of Certificates evidencing not less than 25% of
the Certificate Balance or the holders of Notes evidencing not less than 25% of
the aggregate principal balance of the Notes then outstanding, as the case may
be, have made written request to the Trustee to institute such proceeding in
its own name as Trustee thereunder and have offered to the Trustee reasonable
indemnity, and the Trustee for 30 days after the receipt of such notice,
request and offer to indemnify has neglected or refused to institute any such
proceedings.
ADMINISTRATOR
If an Administrator is specified in the related Prospectus Supplement, such
Administrator will enter into an agreement (the "Administration Agreement")
pursuant to which such Administrator will agree, to the extent provided in such
Administration Agreement, to provide the notices and to perform other
administrative obligations required by the related Indenture and the Trust
Agreement.
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CERTAIN LEGAL ASPECTS OF THE CONTRACTS
(OTHER THAN HOME EQUITY CONTRACTS)
RIGHTS IN THE CONTRACTS
The Contracts (other than the Home Improvement Contracts and the Home Equity
Contracts) are "chattel paper" as defined in the UCC as in effect in the State
of Minnesota. Pursuant to the UCC, an ownership interest in chattel paper may
be perfected by possession or by filing a UCC-1 financing statement in the
state where the seller's principal executive office is located. Accordingly,
financing statements covering the Contracts will be filed by Green Tree in
Minnesota.
The Servicer will be obligated from time to time to take such actions as are
necessary to continue the perfection of each Trust's interest in the related
Contracts and the proceeds thereof. Green Tree will warrant in the Trust
Documents with respect to the Contracts held by the related Trust and the
Trustee will pledge the right to enforce such warranty to the Indenture Trustee
as collateral for the Notes, if any, that, as of the Closing Date, such
Contracts have not been sold, pledged or assigned by Green Tree to any other
person, and that it has good and indefeasible title thereto and is the sole
owner thereof free of any Liens and that, immediately upon the transfer of the
Contracts to such Trust pursuant to the related Trust Document, the Trust will
have good and indefeasible title to and will be the sole owner of the
Contracts, free of any Liens. In the event of an uncured breach of any of such
warranties in the Trust Documents that materially and adversely affects the
related Trust's, Certificateholders' or Noteholders' interest in any Contract
(a "Repurchase Event"), Green Tree will be obligated to repurchase such
Contract.
Unless otherwise provided in the related Prospectus Supplement, Green Tree
will hold the Contract Files on behalf of each Trust. To facilitate servicing
and save administrative costs, the documents will not be physically segregated
from other similar documents that are in Green Tree's possession. UCC financing
statements will be filed in Minnesota reflecting the sale and assignment of the
Contracts to the Trustee, and Green Tree's accounting records and computer
systems will also reflect such sale and assignment. In addition, the Contracts
will be stamped or otherwise marked to indicate that such Contracts have been
sold to the related Trust. Despite these precautions, if, through inadvertence
or otherwise, any of the Contracts were sold to another party (or a security
interest therein were granted to another party) that purchased (or took such
security interest in) any of such Contracts in the ordinary course of its
business and took possession of such Contracts, the purchaser (or secured
party) would acquire an interest in the Contracts superior to the interest of
the related Trust if the purchaser (or secured party) acquired (or took a
security interest in) the Contracts for new value and without actual knowledge
of such Trust's interest. See "Description of the Trust Documents--Custody of
Contract Files."
SECURITY INTERESTS IN THE PRODUCTS (OTHER THAN AIRCRAFT)
Security interests in some Products must be perfected by notation of the
secured party's lien on the certificate of title or by actual possession of the
certificate of title, depending on the law of the state wherein the purchaser
resides. Security interests in certain other Products must be perfected by the
filing of a UCC financing statement, naming the Obligor as debtor and Green
Tree as secured party. Purchase money security interests in Products that are
"consumer goods" (as defined in the UCC) are deemed perfected under some
states' laws when the contract is executed and Green Tree has advanced the
purchase price of the goods. The practice of Green Tree is to take such action
as is required to perfect its security interest under the laws of the state in
which the Product is located. In the event of clerical errors, administrative
delays or otherwise, such actions may not have been taken with respect to a
Product and such security interest may be subordinate to the interests of,
among others, subsequent purchasers of the Products, holders of perfected
security interests in the Product, and the trustee in bankruptcy of the
Obligor. Likewise, where Green Tree did not file a UCC financing statement
because its security interest was perfected as a purchase money security
interest in "consumer goods," (i) such security interest may be deemed not to
be perfected if the Product were ultimately determined not to be "consumer
goods," and (ii) a subsequent purchaser of the Product may acquire the Product
free of Green Tree's security interest. Such events would, however, give rise
to a Repurchase Event and obligate Green Tree to repurchase the affected
Contract if the interests of the related Certificateholders, Noteholders or
Trust were materially and adversely affected.
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Pursuant to the related Trust Document, Green Tree will assign the security
interests in the Products to the Owner Trustee on behalf of the related Trust.
However, because of the administrative burden and expense that would be
entailed in doing so, none of Green Tree, the Seller, the Trustee or the
Servicer will be required, except to the extent provided below, to amend the
certificates of title or UCC financing statements to identify the Trustee as
the new secured party and, accordingly, Green Tree will continue to be named as
the secured party on the certificates of title or UCC financing statements
relating to the Products. The Servicer will be required to note the interest of
the related Trust on the certificates of title for the Products or to amend the
UCC financing statements only upon a Servicer Termination Event. In most
states, an assignment such as that under the related Trust Documents should be
an effective transfer of a security interest without amendment of any lien
noted on the related certificate of title or financing statement, and the
assignee should succeed to the assignor's status as the secured party. In the
absence of fraud or forgery by the Obligor or administrative error by state
recording officials, the notation of the lien of Green Tree on the certificate
of title or the UCC financing statement should be sufficient to protect the
related Trust against the rights of subsequent purchasers of a Product or
subsequent lenders who take a security interest in the related Product.
However, in the absence of such an amendment, the security interest of the
related Trust in the related Products might be defeated by, among others, the
trustee in bankruptcy of Green Tree or the Obligor. However, such failure would
give rise to a Repurchase Event and obligate Green Tree to repurchase the
affected Contract if the interests of the related Certificateholders,
Noteholders or Trust were materially and adversely affected.
In most states, a perfected security interest in a Product subject to
certificate of title or a financing statement continues for four months after
the Product is moved to a different state and thereafter until the owner re-
registers the Product in the new state, but in no event beyond the surrender of
the certificate of title. A majority of states require surrender of a
certificate of title to re-register a Product. Accordingly, the secured party
must surrender possession if it holds the certificate of title to such Product.
In the case of Products registered in states which provide for notation of a
lien but not possession of the certificate of title by the holder of the
security interest in the related Product, the secured party should receive
notice of surrender if the security interest in the Product is noted on the
certificate of title. Accordingly, the secured party should have the
opportunity to re-perfect its security interest in the Product in the state of
relocation. In states that do not require a certificate of title for
registration of a Product, re-registration could defeat perfection.
In the ordinary course of servicing its secured consumer contract portfolio,
it is the practice of Green Tree to effect such re-perfection upon receipt of
notice of re-registration or information from the Obligor as to relocation.
Similarly, when an Obligor sells a Product subject to a certificate of title,
Green Tree must surrender possession of the certificate of title or receive
notice as a result of its lien noted thereon and accordingly should have an
opportunity to require satisfaction of the related Contract before release of
the lien.
Under the laws of most states, liens for repairs performed on a Product and
liens for unpaid taxes take priority over even a perfected security interest in
a Product. Green Tree in the related Trust Document will represent that,
immediately prior to the sale, assignment and transfer thereof to the related
Trust, each Contract held by such Trust was secured by a valid, subsisting and
enforceable first priority perfected security interest in favor of Green Tree,
as secured party. However, liens for taxes, judicial liens or liens arising by
operation of law could arise at any time during the term of a Contract. In
addition, the laws of certain states and federal law permit the confiscation of
motor vehicles and certain other consumer products by governmental authorities
under certain circumstances if used in unlawful activities, which may result in
the loss of a secured party's perfected security interest in the confiscated
product. No notice will be given to the Owner Trustee, Indenture Trustee,
Certificateholders or Noteholders in the event such a lien or confiscation
arises, and if such lien arises or confiscation occurs after the date of
issuance of any series of Certificates and Notes, neither Green Tree nor the
Servicer will be required to repurchase or purchase the related Contract.
SECURITY INTERESTS IN AIRCRAFT
In order for a valid security interest in a United States-registered aircraft
to be perfected against third parties, including a trustee in bankruptcy of the
borrower, it must be perfected in accordance with the Federal Aviation
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Act. The UCC has been preempted by the Federal Aviation Act with respect to the
method and location of filing against goods such as aircraft, engines,
propellers, appliances and certain spare parts to the extent that it is
possible to record against them at the Federal Aviation Administration ("FAA")
Aircraft Registry located in Oklahoma City, Oklahoma (the "Registry").
Security interests perfected by filing with the Registry may nevertheless be
subject to (1) purchase money security interests which may be filed up to ten
days (21 days in some states) after a debtor receives possession and which will
then have, in most states, priority in the aircraft (unless it is property held
as inventory) over a conflicting security interest in the same aircraft and (2)
the rights of buyers in the ordinary course of business from persons in the
business of selling goods of that kind.
Exceptions also include possessory mechanic's and storage liens, which may or
may not need to be filed and which usually have priority over a mortgage,
whether or not such liens are incurred before or after the mortgage is
recorded. Non-possessory mechanic's liens, which exist under many state laws,
probably do not take priority over mortgages previously filed with the
Registry. If provided for by state law, a non-possessory mechanic's lien on an
aircraft may be filed at the Registry.
Federal tax liens are filed according to Federal law in the appropriate
location in each state and cannot be filed at the Registry. When so filed,
Federal tax liens can have priority over subsequent FAA recorded mortgages in
aircraft with many exceptions, including the exception of a purchase money
security interest. It is an open issue whether unrecorded liens arising out of
FAA penalties have priority over filed security interests in a registered
aircraft.
The principal effect of recordation is that each mortgage or other conveyance
that is filed with the Registry for recordation affecting the applicable
aircraft, engine, propeller, appliance or spare parts (so long as they are
maintained at any designated locations) is valid and perfected from the time of
filing as to all persons with whatever priority is given by state law. If not
filed for recordation, such a mortgage or other conveyance will not be valid
against third persons except persons having actual notice thereof. The date of
filing for recordation at the Registry is the date of perfection of the
mortgage or other conveyance, even though recordation by the Registry may not
occur for several weeks or months after delivery to the Registry. The case law
is not clear as to the effect of a rejection of the documents when they are
examined by the Registry several weeks after filing. The usual practice is to
retain expert FAA counsel to ensure, among other things, that the documents are
in due form for recording, that the record is free and clear of liens and that
the documents are filed correctly. Title companies are also available to check
the FAA records and file documents.
If the aircraft is not registered with the Registry, under the UCC, the
perfection and effect of perfection of the mortgage or any security interest in
other collateral would be governed by the law (including the conflict of laws
rules) of the jurisdiction in which the debtor is located.
REPOSSESSION
In the event of default by an Obligor, the owner of a retail installment
sales contract or installment loan has all the remedies of a secured party
under the UCC, except where specifically limited by other state laws. The
remedies of a secured party under the UCC include the right to repossession by
self-help means, unless such means would constitute a breach of the peace.
Self-help repossession is the method employed by Green Tree in most cases and
is accomplished simply by taking possession of the Product. In the event of
default by the Obligor, some jurisdictions require that the Obligor be notified
of the default and be given a time period within which the Obligor may cure the
default prior to repossession. In cases where the Obligor objects or raises a
defense to repossession, or if otherwise required by applicable state law, a
court order must be obtained from the appropriate state court, and the Product
must then be repossessed in accordance with that order. If a breach of the
peace cannot be avoided, judicial action is required. A secured party may be
held responsible for damages caused by a wrongful repossession of a Product,
including a wrongful repossession conducted by an agent of the secured party.
In many states, a Product may be repossessed without notice to the Obligor, but
only if the repossession can be accomplished without a breach of the peace.
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NOTICE OF SALE; REDEMPTION RIGHTS
The UCC and various other state laws require a secured party who has
repossessed the collateral securing an obligation to provide an obligor with
reasonable notice of the date, time and place of any public sale and/or the
date after which any private sale of the collateral may be held. The obligor
has the right to redeem the collateral prior to actual sale by paying the
secured party the entire unpaid time balance of the obligation (less any
unaccrued finance charges) plus accrued default charges, reasonable expenses
for repossessing, holding and preparing the collateral for disposition and
arranging for its sale, plus, to the extent provided in the financing
documents, reasonable attorneys' fees, or in some states, by payment of
delinquent installments or the unpaid principal balance of the related
obligation.
DEFICIENCY JUDGMENTS AND EXCESS PROCEEDS
The proceeds of resale of Products generally will be applied first to the
expenses of repossession and resale and then to the satisfaction of the related
Contract. While some states impose prohibitions or limitations on deficiency
judgments if the net proceeds from resale do not cover the full amount of the
indebtedness, a deficiency judgment can be sought in other states that do not
prohibit or limit such judgments, subject to satisfaction of statutory
procedural requirements by the holder of the obligation. However, any
deficiency judgment would be a personal judgment against the Obligor for the
shortfall, and a defaulting Obligor can be expected to have very little capital
or sources of income available following repossession. Therefore, in many
cases, it may not be useful to seek a deficiency judgment or, if one is
obtained, it may be settled at a significant discount or not paid at all. Green
Tree generally seeks to recover any deficiency existing after repossession and
sale of a Product.
Occasionally, after resale of a repossessed Products, and payment of all
expenses and indebtedness, there is a surplus of funds. In that case, the law
of most states requires the secured party to remit the surplus to any holder of
another lien with respect to the Product, if proper notification of demand for
proceeds is received prior to distribution, or, if no such lienholder exists,
to remit the surplus to the former owner of the Product.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT
The Relief Act imposes certain limitations upon the actions of creditors with
respect to persons serving in the Armed Forces of the United States and, to a
more limited extent, their dependents and guarantors and sureties of debt
incurred by such persons. An obligation incurred by a person prior to entering
military service cannot bear interest at a rate in excess of 6% during the
person's term of military service, unless the obligee petitions a court which
determines that the person's military service does not impair his or her
ability to pay interest at a higher rate. Further, a secured party may not
repossess during a person's military service a Product subject to an
installment sales contract or a promissory note entered into prior to the
person's entering military service, for a loan default which occurred prior to
or during such service, without court action. The Relief Act imposes penalties
for knowingly repossessing property in contravention of its provisions.
Additionally, dependents of military personnel are entitled to the protection
of the Relief Act, upon application to a court, if such court determines the
obligation of such dependent has been materially impaired by reason of the
military service. To the extent an obligation is unenforceable against the
person in military service or a dependent, any guarantor or surety of such
obligation will not be liable for performance.
CONSUMER PROTECTION LAWS
Numerous Federal and state consumer protection laws and related regulations
impose substantive and disclosure requirements upon lenders and servicers
involved in consumer finance. Some of the Federal laws and regulations include
the Truth-in-Lending Act, the Equal Credit Opportunity Act, the Federal Trade
Commission Act, the Fair Credit Reporting Act, the Fair Debt Collection
Practices Act, the Magnuson-Moss Warranty Act, and the Federal Reserve Board's
Regulations B and Z.
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In addition to Federal law, state consumer protection statutes regulate,
among other things, the terms and conditions of retail installment contracts
and promissory notes pursuant to which purchasers finance the acquisition of
consumer products. These laws place finance charge ceilings on the amount that
a creditor may charge in connection with financing the purchase of a consumer
product. These laws also impose other restrictions on consumer transactions and
require contract disclosures in addition to those required under federal law.
These requirements impose specific statutory liabilities upon creditors who
fail to comply. In some cases, this liability could affect the ability of an
assignee, such as the related Trust, to enforce consumer finance contracts such
as the Contracts. The "Credit Practices" Rule of the Federal Trade Commission
(the "FTC") imposes additional restrictions on contract provisions and credit
practices.
The FTC's so-called holder-in-due-course rule has the effect of subjecting
persons that finance consumer credit transactions (and certain related lenders
and their assignees) to all claims and defenses which the purchaser could
assert against the seller of the goods and services. An assignee's affirmative
liability to pay money to such aggrieved purchaser in the event of a successful
claim is limited to amounts paid by the purchaser under the consumer credit
contract. However, the assignee's ability to collect any balance remaining due
thereunder is subject to these claims and defenses. Accordingly, each Trust, as
assignee of the related Contracts, will be subject to claims or defenses, if
any, that the purchaser of the related Product may assert against the seller of
such Product.
Courts have applied general equitable principles to secured parties pursuing
repossession or litigation involving deficiency balances. These equitable
principles may have the effect of relieving an Obligor from some or all of the
legal consequences of a default.
Green Tree will warrant in the related Trust Document that as of the date of
origination each Contract held by the related Trust complied with all
requirements of applicable law in all material respects. Accordingly, if such
Trust's interest in a Contract were materially and adversely affected by a
violation of any such law, such violation would constitute a Repurchase Event
and would obligate Green Tree to repurchase the Contract unless the breach were
cured. See "Description of the Trust Documents--Sale and Assignment of the
Contracts."
OTHER LIMITATIONS
In addition to the laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including Federal bankruptcy laws and
related state laws, may interfere with or affect the ability of a lender to
realize upon collateral or enforce a deficiency judgment. For example, in a
proceeding under Chapter 13 of the U.S. Bankruptcy Code of 1978, as amended, a
court may prevent a lender from repossessing collateral, and, as part of the
rehabilitation plan, reduce the amount of the secured indebtedness to the
market value of the collateral at the time of bankruptcy (as determined by the
court), leaving the party providing financing as a general unsecured creditor
for the remainder of the indebtedness. A bankruptcy court may also reduce the
monthly payments due under a contract, change the rate of interest and time of
repayment of the indebtedness or substitute collateral securing such
indebtedness.
CERTAIN LEGAL ASPECTS OF THE HOME EQUITY CONTRACTS
MORTGAGES AND DEEDS OF TRUST
The Home Equity Contracts will be secured by either mortgages, deeds of
trust, security deeds or deeds to secure debt depending upon the prevailing
practice in the state in which the underlying property is located, and may have
first, second or third priority. In some states, a mortgage creates a lien upon
the real property encumbered by the mortgage or deed of trust. In other states,
the mortgage conveys legal title to the property to the mortgagee subject to a
condition subsequent, i.e., the payment of the indebtedness secured thereby.
There are two parties to a mortgage: the mortgagor, who is the borrower, and
the mortgagee, who is the lender. In a mortgage state, the mortgagor delivers
to the mortgagee a note or retail installment contract evidencing the loan and
the mortgage. Although a deed of trust is similar to a mortgage, a deed of
trust has three parties: the
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borrower, or trustor, the lender as beneficiary, and a third-party grantee
called the trustee. Under a deed of trust, the borrower grants the property,
irrevocably until the debt is paid, in trust, generally with a power of sale,
to the trustee to secure repayment of the loan. The trustee's authority under a
deed of trust and the mortgagee's authority under a mortgage are governed by
applicable state law, the express provisions of the deed of trust or mortgage,
and, in some cases with respect to deeds of trust, the directions of the
beneficiary. Some states use a security deed or deed to secure debt which is
similar to a deed of trust except that it has only two parties: a grantor
(similar to a mortgagor) and a grantee (similar to a mortgagee). Mortgages,
deeds of trust and deeds to secure debt are not prior to liens for real estate
taxes and assessments and other charges imposed under governmental police
powers. Priority between mortgages, deeds of trust and deeds to secure debt and
other encumbrances depends on their terms, the knowledge of the parties to such
instrument in some cases and generally on the order of recordation of the
mortgage, deed of trust or the deed to secure debt in the appropriate recording
office.
SUBORDINATE MORTGAGES; RIGHTS OF SENIOR MORTGAGEES OR BENEFICIARIES
A substantial number of the mortgages, security deeds, deeds to secure debt
and deeds of trust securing the Home Equity Contracts in any Contract Pool are
expected to be second or third mortgages or deeds of trust which are junior to
mortgages or deeds of trust held by other lenders or institutional investors.
The rights of the related Trust (and therefore the Securityholders), as
beneficiary under a junior deed of trust or as mortgagee under a junior
mortgage, are subordinate to those of the mortgagee or beneficiary under the
senior mortgage or deed of trust, including the prior rights of the senior
mortgagee or beneficiary to receive hazard insurance and condemnation proceeds
and to cause the property securing the Home Equity Contract to be sold upon
default of the mortgagor or trustor under the senior mortgage or deed of trust,
thereby extinguishing the junior mortgagee's or junior beneficiary's lien
unless the Servicer on behalf of the Trust asserts its subordinate interest in
the property in foreclosure litigation and, possibly, satisfies the defaulted
senior loan or loans. As discussed more fully below, a junior mortgagee or
beneficiary may satisfy a defaulted senior loan in full, or in some states may
cure such default and bring the senior loan current, in either event usually
adding the amounts expended to the balance due on the junior loan. Although
Green Tree generally does not cure defaults under a senior mortgage or deed of
trust, it is Green Tree's standard practice to protect its interest by
attending any foreclosure sale and bidding for property only if it is in Green
Tree's best interests to do so.
The standard form of the mortgage or deed of trust used by most institutional
lenders, like that of Green Tree, confers on the mortgagee or beneficiary the
right both to receive all proceeds collected under any hazard insurance policy
and all awards made in connection with any condemnation proceedings, and to
apply such proceeds and awards to any indebtedness secured by the mortgage or
deed of trust, in such order as the mortgagee or beneficiary may determine.
Thus, in the event improvements on the property are damaged or destroyed by
fire or other casualty, or in the event the property is taken by condemnation,
the mortgagee or beneficiary under the underlying first mortgage or deed of
trust will have the prior right to collect any insurance proceeds payable under
a hazard insurance policy and any award of damages in connection with the
condemnation and to apply the same to the indebtedness secured by the first
mortgage or deed of trust. Proceeds in excess of the amount of first mortgage
indebtedness, in most cases, may be applied to the indebtedness of a junior
mortgage or deed of trust.
The form of mortgage or deed of trust used by institutional lenders may
contain a "future advance" clause, which provides, in essence, that additional
amounts advanced to or on behalf of the mortgagor or trustor by the mortgagee
or beneficiary are to be secured by the mortgage or deed of trust. The priority
of any advance made under the clause depends, in some states, on whether the
advance was an "obligatory" or "optional" advance. If the mortgagee or
beneficiary is obligated to advance the additional amounts, the advance is
entitled to receive the same priority as amounts initially advanced under the
mortgage or deed of trust, notwithstanding the fact that there may be junior
mortgages or deeds of trust and other liens which intervene between the date of
recording of the mortgage or deed of trust and the date of the future advance,
and, in some states, notwithstanding that the senior mortgagee or beneficiary
had actual knowledge of such intervening junior mortgages or deeds of trust and
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other liens at the time of the advance. Where the mortgagee or beneficiary is
not obligated to advance additional amounts or, in some states, has actual
knowledge of the intervening junior mortgages or deeds of trust and other
liens, the advance will be subordinate to such intervening junior mortgages or
deeds of trust and other liens. Priority of advances under the clause rests, in
some states, on state statutes giving priority to all advances made under the
loan agreement to a "credit limit" amount stated in the recorded mortgage.
Another provision typically found in the form of the mortgage or deed of
trust used by most institutional lenders obligates the mortgagor or trustor to
pay before delinquency all taxes and assessments on the property and, when due,
all encumbrances, charges and liens on the property which appear prior to the
mortgage or deed of trust, to provide and maintain fire insurance on the
property, to maintain and repair the property and not to commit or permit any
waste thereof, and to appear in and defend any action or proceeding purporting
to affect the property or the rights of the mortgagee or beneficiary under the
mortgage or deed of trust. Upon a failure of the mortgagor or trustor to
perform any of these obligations, the mortgagee or beneficiary is given the
right under the mortgage or deed of trust to perform the obligation itself, at
its election, with the mortgagor or trustor agreeing to reimburse the mortgagee
or beneficiary for any sums expended by the mortgagee or beneficiary on behalf
of the mortgagor or trustor. All sums so expended by a senior mortgagee or
beneficiary generally become part of the indebtedness secured by the senior
mortgage or deed of trust.
SUBORDINATE FINANCING
Where the borrower encumbers the mortgaged property with one or more junior
liens, the senior lender is subjected to additional risk. First, the borrower
may have difficulty servicing and repaying multiple loans. Second, acts of the
senior lender which prejudice the junior lender or impair the junior lender's
security may
create a superior equity in favor of the junior lender. For example, if the
borrower and the senior lender agree to an increase in the principal amount of
or the interest rate payable on the senior loan, the senior lender may lose its
priority to the extent any existing junior lender is harmed or the borrower is
additionally burdened. Third, if the borrower defaults on the senior loan
and/or any junior loan or loans, the existence of junior loans and actions
taken by junior lenders can impair the security available to the senior lender
and can interfere with or delay the taking of action by the senior lender. The
bankruptcy of a junior lender may operate to stay foreclosure or similar
proceedings by the senior lender.
FORECLOSURE
Foreclosure is a legal procedure that allows the mortgagor to recover its
mortgage debt by enforcing its rights and available remedies under the
mortgage, deed of trust, deed to secure debt or security deed. Foreclosure of a
mortgage is generally accomplished by judicial action. A foreclosure action is
regulated by statutes and rules and subject throughout to the court's equitable
powers. Generally, a mortgagor is bound by the terms of the mortgage note and
the mortgage as made and cannot be relieved from its own default. However,
since a foreclosure action is equitable in nature and is addressed to a court
of equity, the court may relieve a mortgagor of a default and deny the
mortgagee foreclosure on proof that the mortgagor's default was neither willful
nor in bad faith and that the mortgagee's action was such as to establish a
waiver, or fraud, bad faith, oppressive or unconscionable conduct as to warrant
a court of equity to refuse affirmative relief to the mortgagee. Under certain
circumstances a court of equity may relieve the mortgagor from an entirely
technical default where such default was not willful. Generally, the action is
initiated by the service of legal pleadings upon all parties having an interest
of record in the real property. Delays in completion of the foreclosure
occasionally may result from difficulties in locating necessary parties
defendant. When the mortgagee's right to foreclosure is contested, the legal
proceedings necessary to resolve the issue can be time-consuming. After the
completion of a judicial foreclosure proceeding, the court may issue a judgment
of foreclosure and appoint a referee or other officer to conduct the sale of
the property. In some states, mortgages may also be foreclosed by
advertisement, pursuant to a power of sale provided in the mortgage.
Foreclosure of a mortgage by advertisement is essentially similar to
foreclosure of a deed of trust by non-judicial power of sale.
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Foreclosure of a deed of trust or a deed to secure debt is generally
accomplished by a non-judicial trustee's sale under a specific provision in the
deed of trust, security deed or deed to secure debt that authorizes the trustee
to sell the property upon any default by the borrower under the terms of the
note, deed of trust, security deed or deed to secure debt. In certain states,
such foreclosure also may be accomplished by judicial action in the manner
provided for foreclosure of mortgages. In some states, prior to a sale, the
trustee must record a notice of default and send a copy to the borrower trustor
and to any person who has recorded a request for a copy of a notice of default
and notice of sale. In addition, prior to such sale, the trustee must provide
notice in some states to any other individual having an interest of record in
the real property, including any junior lienholders. Certain states require
that a notice of sale be posted in a public place and, in most states,
published for a specified period of time in one or more newspapers in a
specified manner prior to the date of trustee's sale. In addition, some state
laws require that a copy of the notice of sale be posted on the property and
sent to all parties having an interest of record in the property.
In some states, the borrower trustor has the right to reinstate the loan at
any time following default until shortly before the trustee's sale. In general,
the borrower, or any other person having a junior encumbrance on the real
estate, may, during a reinstatement period, cure the default by paying the
entire amount in arrears plus the costs and expenses incurred in enforcing the
obligation. Certain state laws control the amount of foreclosure expenses and
costs, including attorney's fees, which may be recovered by a lender.
In the case of foreclosure under either a mortgage or a deed of trust, the
sale by the referee or other designated officer, or by the trustee, is
generally a public sale. However, because of the difficulty a potential third
party buyer at the sale might have in determining the exact status of title and
because the physical condition of the property may have deteriorated during the
foreclosure proceedings, it is not common for a third party to
purchase the property at the foreclosure sale. In some states, there is a
statutory minimum purchase price which the lender may offer for the property.
Thereafter, subject to the right of the borrower in some states to remain in
possession during the redemption period, the lender will assume the burdens of
ownership, including obtaining hazard insurance, paying taxes and making such
repairs at its own expense as are necessary to render the property suitable for
sale. The lender commonly will obtain the services of a real estate broker and
pay the broker a commission in connection with the sale of the property.
Depending upon market conditions, the ultimate proceeds of the sale of the
property may not equal the lender's investment in the property. Any loss
resulting from such sale may be reduced by the receipt of mortgage insurance
proceeds, if any.
A second or third mortgagee (junior mortgagee) may not foreclose on the
property securing a second or first mortgage (senior mortgages) unless it
forecloses subject to the senior mortgages, in which case it must either pay
the entire amount due on the senior mortgages prior to or at the time of the
foreclosure sale or make payments on the senior mortgages in the event the
mortgagor is in default thereunder, in either event adding the amounts expended
to the balance due on the junior loan, and may be subrogated to the rights of
the senior mortgagees. In addition, in the event that the foreclosure by a
junior mortgagee triggers the enforcement of a "due-on-sale" clause in a senior
mortgage, the junior mortgagee may be required to pay the full amount of the
senior mortgages to the senior mortgagees. Accordingly, with respect to those
Home Equity Contracts which are second or third mortgage loans, if the lender
purchases the property, the lender's title will be subject to all senior liens
and claims and certain governmental liens.
The proceeds received by the referee or trustee from the sale are applied
first to the costs, fees, and expenses of sale and then in satisfaction of the
indebtedness secured by the mortgage or deed of trust under which the sale was
conducted. Any remaining proceeds are generally payable to the holders of
junior mortgages or deeds of trust and other liens and claims in order of their
priority, whether or not the borrower is in default. Any additional proceeds
are generally payable to the mortgagor or trustor. The payment of the proceeds
to the holders of junior mortgages may occur in the foreclosure action of the
senior mortgagee or may require the institution of separate legal proceeding.
Some states impose prohibitions or limitations on remedies available to the
mortgagee, including the right to recover the debt from the mortgagor. See "--
Anti-Deficiency Legislation and Other Limitations on Lenders" herein.
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In certain jurisdictions, real property transfer or recording taxes or fees
may be imposed on the related Trust with respect to its acquisition (by
foreclosure or otherwise) and disposition of real property securing a Home
Equity Contract, and any such taxes or fees imposed may reduce liquidation
proceeds with respect to such property, as well as distributions payable to the
Securityholders.
SECOND OR THIRD MORTGAGES
The Home Equity Contracts may be secured by second or third mortgages or
deeds of trust, which are junior to first or second mortgages or deeds of trust
held by other lenders. The rights of the Trust as the holder of a junior deed
of trust, junior mortgage, or junior security deed are subordinate in lien and
in payment to those of the holder of the senior mortgage, deed of trust, or
security deed including the prior rights of the senior mortgagee or beneficiary
to receive and apply hazard insurance and condemnation proceeds and, upon
default of the mortgagor under the senior mortgage or deed of trust, to cause a
foreclosure on the property. Upon completion of the foreclosure proceedings by
the holder of the senior mortgage or the sale pursuant to the senior deed of
trust, the junior mortgagee's or junior beneficiary's lien will be extinguished
unless the junior lienholder satisfies the defaulted senior loan or asserts its
subordinate interest in a property in foreclosure proceedings. Such
extinguishment will eliminate access to the collateral for the Home Equity
Contract. See "--Foreclosure" herein.
Furthermore, the terms of the junior mortgage, deed of trust, deed to secure
debt or security deed are subordinate to the terms of the senior mortgage, deed
of trust, deed to secure debt or security deed. In the event
of a conflict between the terms of the senior mortgage, deed of trust, deed to
secure debt or security deed and the junior mortgage, deed of trust, deed to
secure debt or security deed, the terms of the senior mortgage, deed of trust,
deed to secure debt or security deed will govern generally. Upon a failure of
the mortgagor or trustor to perform any of its obligations, the senior
mortgagee or beneficiary, subject to the terms of the senior mortgage, deed of
trust, deed to secure debt or security deed may have the right to perform the
obligation itself. Generally, all sums so expended by the mortgagee or
beneficiary become part of the indebtedness secured by the mortgage, deed of
trust, deed to secure debt or security deed. To the extent a first mortgagee
expends such sums, such sums will generally have priority over all sums due
under a junior mortgage, deed of trust, deed to secure debt or security deed.
RIGHTS OF REDEMPTION
The purposes of a foreclosure action are to enable the mortgagee to realize
upon its security and to bar the mortgagor, and all persons who have an
interest in the property which is subordinate to the foreclosing mortgagee,
from their "equity of redemption." The doctrine of equity of redemption
provides that, until the property covered by a mortgage has been sold in
accordance with a properly conducted foreclosure and foreclosure sale, those
having an interest which is subordinate to that of the foreclosing mortgagee
have an equity of redemption and may redeem the property by paying the entire
debt with interest. In addition, in some states, when a foreclosure action has
been commenced, the redeeming party must pay certain costs of such action.
Those having an equity of redemption must generally be made parties and duly
summoned to the foreclosure action in order for their equity of redemption to
be barred.
In some states, after sale pursuant to a deed of trust or foreclosure of a
mortgage, the borrower and certain foreclosed junior lienors are given a
statutory period in which to redeem the property from the foreclosure sale. In
certain other states, this right of redemption applies only to sale following
judicial foreclosure, and not to sale pursuant to a non-judicial power of sale.
In most states where the right of redemption is available, statutory redemption
may occur upon payment of the foreclosure purchase price, accrued interest and
expenses of foreclosure. In other states, redemption may be authorized if the
former borrower pays only a portion of the sums due. In some states, the right
to redeem is an equitable right. The equity of redemption, which is a non-
statutory right that must be exercised prior to foreclosure sale, should be
distinguished from statutory rights of redemption. The effect of a right of
redemption is to diminish the ability of the lender to sell the foreclosed
property. The
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exercise of a right of redemption would defeat the title of any purchaser at a
foreclosure sale, or of any purchaser from the lender subsequent to judicial
foreclosure or sale under a deed of trust. Consequently, the practical effect
of the redemption right is to force the lender to maintain the property and pay
the expenses of ownership until the redemption period has run. In some states,
there is no right to redeem property after a trustee's sale under a deed of
trust.
ANTI-DEFICIENCY LEGISLATION AND OTHER LIMITATIONS ON LENDERS
Certain states have imposed statutory restrictions that limit the remedies of
a beneficiary under a deed of trust or a mortgagee under a mortgage. In some
states, statutes limit the right of the beneficiary or mortgagee to obtain a
deficiency judgment against the borrower following foreclosure or sale under a
deed of trust. A deficiency judgment is a personal judgment against the
borrower equal in most cases to the difference between the amount due to the
lender and the net amount realized upon the public sale.
Some state statutes may require the beneficiary or mortgagee to exhaust the
security afforded under a deed of trust or mortgage by foreclosure in an
attempt to satisfy the full debt before bringing a personal action against the
borrower. In certain other states, the lender has the option of bringing a
personal action against the borrower on the debt without first exhausting such
security; however, in some of these states, the lender, following judgment on
such personal action, may be deemed to have elected a remedy and may be
precluded from exercising remedies with respect to the security. Consequently,
the practical effect of the election requirement, when applicable, is that
lenders will usually proceed first against the security rather than bringing a
personal action against the borrower.
Other statutory provisions may limit any deficiency judgment against the
borrower following a foreclosure sale to the excess of the outstanding debt
over the fair market value of the property at the time of such sale. The
purpose of these statutes is to prevent a beneficiary or a mortgagee from
obtaining a large deficiency judgment against the former borrower as a result
of low or no bids at the foreclosure sale.
In some states, exceptions to the anti-deficiency statutes are provided for
in certain instances where the value of the lender's security has been impaired
by acts or omissions of the borrower, for example, in the event of waste of the
property.
In addition to anti-deficiency and related legislation, numerous other
federal and state statutory provisions, including the federal bankruptcy laws,
the federal Soldiers' and Sailors' Civil Relief Act of 1940 and state laws
affording relief to debtors, may interfere with or affect the ability of a
secured mortgage lender to realize upon its security and/or enforce a
deficiency judgment. For example, in a Chapter 13 proceeding, the holder may
not be able to obtain a lift of the automatic stay to foreclose if the borrower
has equity and the home is necessary to the bankruptcy reorganization.
Generally, with respect to the federal bankruptcy law, the filing of a petition
acts as a stay against virtually all actions against the debtor, including the
enforcement of remedies of collection of a debt and, often, no interest or
principal payments are made during bankruptcy proceedings. A bankruptcy court
may also grant the debtor a reasonable time to cure a payment default with
respect to a mortgage loan on a debtor's residence by paying arrearages and
reinstate the original mortgage loan payment schedule even though the lender
accelerated the mortgage loan and final judgment of foreclosure had been
entered in state court (provided no sale of the property had yet occurred)
prior to the filing of the debtor's Chapter 13 petition. Some courts with
federal bankruptcy jurisdiction have approved plans, based on the particular
facts of the reorganization case, that effected the curing of a mortgage loan
default by paying arrearages over a number of years. In the case of a mortgage
loan not secured by the debtor's principal residence, courts with federal
bankruptcy jurisdiction may also reduce the monthly payments due under such
mortgage loan, change the rate of interest and alter the mortgage loan
repayment schedule.
The Internal Revenue Code and the Bankruptcy Code provide priority to certain
tax liens over the lien of the mortgage or deed of trust. The laws of some
states provide priority to certain state tax liens over the lien of the
mortgage or deed of trust. Numerous federal and some state consumer protection
laws impose substantive
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requirements upon mortgage lenders in connection with the origination,
servicing and the enforcement of mortgage loans. These laws include the federal
Truth in Lending Act, Real Estate Settlement Procedures Act, Equal Credit
Opportunity Act, Fair Credit Billing Act, Fair Credit Reporting Act, state
licensing requirements, and related statutes and regulations. These federal
laws and state laws impose specific statutory liabilities upon lenders who
originate or service mortgage loans and who fail to comply with the provisions
of the law. In some cases, this liability may affect assignees of the mortgage
loans.
CONSUMER PROTECTION LAWS WITH RESPECT TO CONTRACTS
Numerous Federal and state consumer protection laws impose substantial
requirements upon creditors involved in consumer finance. These laws include
the Federal Truth-in-Lending Act, Regulation "Z", the Equal Credit Opportunity
Act, Regulation "B", the Fair Credit Reporting Act, and related statutes. The
Home Ownership and Equity Protection Act of 1994 (the "Home Protection Act"),
which became effective on October 1, 1995, adds provisions to Regulation Z
which impose additional disclosure and other requirements on creditors involved
in non-purchase money mortgage loans with high interest rates or high up-front
fees and charges. It is possible that some Home Equity Contracts included in a
Contract Pool may be subject to such provisions. The Home Protection Act
applies to mortgage loans originated on or after the effective date of such
regulations. These laws can impose specific statutory liabilities upon
creditors who fail to comply with their provisions and may affect the
enforceability of the contract.
Courts have imposed general equitable principles upon repossession and
litigation involving deficiency balances. These equitable principles are
generally designed to relieve a consumer from the legal consequences of a
default.
In several cases, consumers have asserted that the remedies provided secured
parties under the UCC and related laws violate the due process protections
provided under the 14th Amendment to the Constitution of the United States. For
the most part, courts have upheld the notice provisions of the UCC and related
laws as reasonable or have found that the repossession and resale by the
creditor does not involve sufficient state action to afford constitutional
protection to consumers.
The so-called "Holder-in-Due-Course" rule of the Federal Trade Commission is
intended to defeat the ability of the transferor of a consumer credit contract
which is the seller of goods which gave rise to the transaction (and certain
related lenders and assignees) to transfer such contract free of notice of
claims by the debtor thereunder. The effect of this rule is to subject the
assignee of such a contract to all claims and defenses which the debtor could
assert against the seller of goods, such as a home improvement contractor.
Liability under this rule is limited to amounts paid under the Contract;
however, the Obligor also may be able to assert the rule to set off remaining
amounts due as a defense against a claim brought by the Trust against such
Obligor. The Home Protection Act provides that assignees of certain high-
interest, non-purchase money mortgage loans (which may include some Home Equity
Contracts) are subject to all claims and defenses that the debtor could assert
against the original creditor, unless the assignee demonstrates that a
reasonable person in the exercise of ordinary due diligence could not have
determined that the mortgage loan was subject to the provisions of the Home
Protection Act.
ENFORCEABILITY OF CERTAIN PROVISIONS
The standard forms of note, mortgage and deed of trust generally contain
provisions obligating the borrower to pay a late charge if payments are not
timely made. In certain states there are or may be specific limitations upon
late charges which a lender may collect from a borrower for delinquent
payments. Under the related Trust Document, late charges (to the extent
permitted by law and not waived by Green Tree) will be retained by Green Tree
as additional servicing compensation.
The standard forms of note, mortgage and deed of trust also include a debt-
acceleration clause, which permits the lender to accelerate the debt upon a
monetary default of the borrower, after the applicable cure period.
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Courts will generally enforce clauses providing for acceleration in the event
of a material payment default. However, courts, exercising equity jurisdiction,
may refuse to allow a lender to foreclose a mortgage or deed of trust when an
acceleration of the indebtedness would be inequitable or unjust and the
circumstances would render the acceleration unconscionable.
Courts have imposed general equitable principles upon foreclosure. These
equitable principles are generally designed to relieve the borrower from the
legal effect of defaults under the loan documents. Examples of judicial
remedies that may be fashioned include judicial requirements that the lender
undertake affirmative actions to determine the causes for the borrower's
default and the likelihood that the borrower will be able to reinstate the
loan. In some cases, courts have required lenders to reinstate loans or recast
payment schedules to accommodate borrowers who are suffering from temporary
financial disability. In some cases, courts have limited the right of lenders
to foreclose if the default under the mortgage instrument is not monetary, such
as the borrower failing to adequately maintain the property or the borrower
executing a junior mortgage or deed of trust affecting the property. In other
cases, some courts have been faced with the issue whether federal or state
constitutional provisions reflecting due process concerns for adequate notice
require that borrowers under mortgages or the deeds of trust receive notices in
addition to statutorily-prescribed minimum requirements. For the most part,
these cases have upheld the notice provisions as being reasonable or have found
that the sale by a trustee under a deed of trust or under a mortgage having a
power of sale does not involve sufficient state action to afford constitutional
protection to the borrower.
"DUE-ON-SALE" CLAUSES
All of the Home Equity Contract documents will contain due-on-sale clauses
unless the Prospectus Supplement indicates otherwise. These clauses permit the
Servicer to accelerate the maturity of the loan on
notice, which is usually 30 days, if the borrower sells, transfers or conveys
the property without the prior consent of the mortgagee. In recent years, court
decisions and legislative actions placed substantial restrictions on the right
of lenders to enforce such clauses in many states. However, effective October
15, 1982, Congress enacted the Garn-St Germain Depository Institutions Act of
1982 (the "Garn-St. Germain Act"), which, after a three-year grace period,
preempts state laws which prohibit the enforcement of due-on-sale clauses by
providing, among other matters, that "due-on-sale" clauses in certain loans
(including the Home Equity Contracts) made after the effective date of the
Garn-St. Germain Act are enforceable within certain limitations as set forth in
the Garn-St. Germain Act and the regulations promulgated thereunder.
By virtue of the Garn-St. Germain Act, the Servicer generally may be
permitted to accelerate any Home Equity Contract which contains a "due-on-sale"
clause upon transfer of an interest in the mortgaged property. This ability to
accelerate will not apply to certain types of transfers, including (i) the
granting of a leasehold interest which has a term of three years or less and
which does not contain an option to purchase, (ii) a transfer to a relative
resulting from the death of a mortgagor or trustor, or a transfer where the
spouse or child(ren) becomes an owner of the mortgaged property in each case
where the transferee(s) will occupy the mortgaged property, (iii) a transfer
resulting from a decree of dissolution of marriage, legal separation agreement
or from an incidental property settlement agreement by which the spouse becomes
an owner of the mortgaged property, (iv) the creation of a lien or other
encumbrance subordinate to the lender's security instrument which does not
relate to a transfer of rights of occupancy in the mortgaged property (provided
that such lien or encumbrance is not created pursuant to a contract for deed),
(v) a transfer by devise, descent or operation of law on the death of a joint
tenant or tenant by the entirety, and (vi) other transfers as set forth in the
Garn-St. Germain Act and the regulations thereunder. As a result, a lesser
number Home Equity Contracts which contain "due-on-sale" clauses may extend to
full maturity than earlier experience would indicate with respect to single-
family mortgage loans. The extent of the effect of the Garn-St. Germain Act on
the average lives and delinquency rates of the Home Equity Contracts, however,
cannot be predicted.
The inability to enforce a due-on-sale clause may result in Home Equity
Contracts bearing an interest rate below the current market rate being assumed
by a new home buyer rather than being paid off, which may have an impact upon
the average life of the Home Equity Contracts and the number of Home Equity
Contracts which may be outstanding until maturity.
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Although Title V of the Depository Institutions Deregulation and Monetary
Control Act of 1980, as amended ("Title V"), provides that, subject to certain
conditions, state usury limitations shall not apply to FHA-insured loans and to
first mortgage secured conventional contracts if the contract is defined as a
"federally related mortgage loan," a number of states have adopted legislation
overriding Title V's exemptions, as permitted by Title V. Green Tree will
represent and warrant in each Trust Document that all Home Equity Contracts
comply with any applicable usury limitations.
ENVIRONMENTAL LEGISLATION
Under the federal Comprehensive Environmental Response, Compensation and
Liability Act, as amended ("CERCLA"), and under state law in certain states, a
secured party which takes a deed-in-lieu of foreclosure, purchases a mortgaged
property at a foreclosure sale, or operates a mortgaged property may become
liable in certain circumstances for the costs of cleaning up hazardous
substances regardless of whether they have contaminated the property. CERCLA
imposes strict, as well as joint and several, liability on several classes of
potentially responsible parties, including current owners and operators of the
property who did not cause or contribute to the contamination. Furthermore,
liability under CERCLA is not limited to the original or unamortized principal
balance of a loan or to the value of the property securing a loan. Lenders may
be held liable under CERCLA as owners or operators unless they qualify for the
secured creditor exemption to CERCLA. This exemption exempts from the
definition of owners and operators those who, without participating in the
management of a facility, hold indicia of ownership primarily to protect a
security interest in the facility. What constitutes sufficient participation in
the management of a property securing a loan or the business of a borrower
to render the exemption unavailable to a lender has been a matter of
interpretation by the courts. CERCLA has been interpreted to impose liability
on a secured party, even absent foreclosure, where the party participated in
the financial management of the borrower's business to a degree indicating a
capacity to influence waste disposal decisions. However, court interpretations
of the secured creditor exemption have been inconsistent. In addition, when
lenders foreclose and thereupon become owners of collateral property, courts
are inconsistent as to whether such ownership renders the secured creditor
exemption unavailable. Other federal and state laws in certain circumstances
may impose liability on a secured party which takes a deed-in-lieu of
foreclosure, purchases a mortgaged property at a foreclosure sale, or operates
a mortgaged property on which contaminants other than CERCLA hazardous
substances are present, including petroleum, agricultural chemicals, hazardous
wastes, asbestos, radon, and lead-based paint. Such cleanup costs may be
substantial. It is possible that such cleanup costs could become a liability of
a Trust Fund and reduce the amounts otherwise distributable to the holders of
the related Series of Certificates in certain circumstances if such cleanup
costs were incurred. Moreover, certain states by statute impose a lien for any
cleanup costs incurred by such state on the property that is the subject of
such cleanup costs (an "environmental lien"). All subsequent liens on such
property generally are subordinated to such an environmental lien and, in some
states, even prior recorded liens are subordinated to environmental liens. In
the latter states, the security interest of the Trustee in a related parcel of
real property that is subject to such an environmental lien could be adversely
affected.
Traditionally, many residential mortgage lenders have not taken steps to
evaluate whether contaminants are present with respect to any mortgaged
property prior to the origination of the mortgage loan or prior to foreclosure
or accepting a deed-in-lieu of foreclosure. Accordingly, Green Tree has not
made and will not make such evaluations prior to the origination of the Home
Equity Contracts. Neither Green Tree nor any replacement Servicer will be
required by any Trust Document to undertake any such evaluations prior to
foreclosure or accepting a deed-in-lieu of foreclosure. Green Tree does not
make any representations or warranties or assume any liability with respect to
the absence or effect of contaminants on any related real property or any
casualty resulting from the presence or effect of contaminants. However, Green
Tree will not foreclose on related real property or accept a deed-in-lieu of
foreclosure if it knows or reasonably believes that there are material
contaminated conditions on such property. A failure so to foreclose may reduce
the amounts otherwise available to Securityholders of the related Trust.
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SOLDIERS' AND SAILORS' CIVIL RELIEF ACT
Application of the Soldiers' and Sailors' Civil Relief Act of 1940, as
amended (the "Relief Act"), would adversely affect, for an indeterminate period
of time, the ability of the Servicer to collect full amounts of interest on
certain of the Home Equity Contracts. Any shortfall in interest collections
resulting from the application of the Relief Act or similar legislation, which
would not be recoverable from the related Home Equity Contracts, would result
in a reduction of the amounts distributable to the Securityholders. In
addition, the Relief Act imposes limitations that would impair the ability of
the Servicer to foreclose on an affected mortgage, deed of trust, deed to
secured debt or security deed during the mortgagor's period of active duty
status, and, under certain circumstances, during an additional three-month
period thereafter. Thus, in the event that the Relief Act or similar
legislation applies to any Home Equity Contract which goes into default, there
may be delays in payment on the Securities in connection therewith. Any other
interest shortfalls, deferrals or forgiveness of payments on the Home Equity
Contracts resulting from similar legislation or regulations may result in
delays in payments or losses to Securityholders.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of the material federal income tax
consequences relating to the purchase, ownership, and disposition of the
Securities. The discussion is based upon the current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), the Treasury regulations
promulgated thereunder and judicial or ruling authority, all of which are
subject to change, which change may be retroactive. The discussion does not
deal with federal income tax consequences applicable to all categories of
investors, some of which may be subject to special rules. Investors are
encouraged to consult their own tax advisors with respect to the federal,
state, local, and any other tax consequences of the purchase, ownership, and
disposition of the Securities.
Dorsey & Whitney LLP, counsel to the Seller, has delivered an opinion
regarding certain federal income tax matters discussed below. Counsel to the
Seller identified in the related Prospectus Supplement ("Counsel") will deliver
an opinion regarding tax matters applicable to each Series of Securities. Such
an opinion, however, is not binding on the Internal Revenue Service (the
"Service") or the courts. The opinion of Counsel will specifically address only
those issues specifically identified below as being covered by such opinion;
however, the opinion of Counsel also will state that the additional discussion
set forth below accurately sets forth Counsel's advice with respect to material
tax issues. No ruling on any of the issues discussed below will be sought from
the Service.
Many aspects of the federal tax treatment of the purchase, ownership and
disposition of the Securities of any series will depend upon whether the Trust
created with respect to such series is structured as an owner trust (treated as
a partnership for federal income tax purposes) or as a grantor trust. The
Prospectus Supplement for each series of Securities will indicate whether the
Trust created for such series will be treated as a partnership or as a grantor
trust. The following discussion deals first with series with respect to which
the Trust has been structured as an owner trust (treated as a partnership), and
then with series with respect to which the Trust has been structured as a
grantor trust.
OWNER TRUST SERIES
TAX STATUS OF THE TRUST
With respect to each series of Securities which includes both Notes and
Certificates, Counsel will deliver its opinion that the Trust will not be an
association or publicly traded partnership taxable as a corporation for federal
income tax purposes. As a result, in the opinion of Counsel, the Trust itself
will not be subject to federal income tax but, instead, each Certificateholder
will be required to take into account its distributive share of items of income
and deduction (including deductions for distributions of interest to the
Noteholders) of the Trust as though such items had been realized directly by
the Certificateholder. This opinion will be based on the
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assumption that the terms of the Trust Agreement and related documents will be
complied with, and on counsel's conclusions that (1) the Trust will not have
certain characteristics necessary for a business trust to be classified as an
association taxable as a corporation and (2) the nature of the income of the
Trust will exempt it from the rule that certain publicly traded partnerships
are taxable as corporations. There are, however, no cases or Service rulings on
transactions involving a trust issuing both debt and equity interests with
terms similar to those of the Notes and the Certificates. As a result, the
Service may disagree with all or a part of this discussion.
If the Trust were taxable as a corporation for federal income tax purposes,
the Trust would be subject to corporate income tax on its taxable income. The
Trust's taxable income would include all its income on the Contracts, possibly
reduced by its interest expense on the Notes. Any such corporate income tax
could materially reduce cash available to make payments on the Notes and
distributions on the Certificates.
TAX CONSEQUENCES TO NOTEHOLDERS
Treatment of the Notes as Indebtedness. The Owner Trustee, on behalf of the
Trust, will agree, and the Noteholders will agree by their purchase of Notes,
to treat the Notes as debt for federal income tax purposes. Counsel will
deliver its opinion that the Notes will be classified as debt for federal
income tax purposes. The discussion below assumes this characterization of the
Notes is correct.
Interest Income on the Notes. Interest on the Notes will be taxable as
ordinary interest income when received by Noteholders utilizing the cash-basis
method of accounting and when accrued by Noteholders utilizing the accrual
method of accounting. Under the applicable regulations, the Notes would be
considered issued with original issue discount ("OID") if the "stated
redemption price at maturity" of a Note (generally equal to its principal
amount as of the date of issuance plus all interest other than "qualified
stated interest" payable prior to or at maturity) exceeds the original issue
price (in this case, the initial offering price at which a substantial amount
of the Notes are sold to the public). Any OID would be considered de minimis
under the OID regulations if it does not exceed 1/4% of the stated redemption
price at maturity of a Note multiplied by the number of full years until its
maturity date. It is anticipated that the Notes will not be considered issued
with more than de minimis OID. Under the OID regulations, an owner of a Note
issued with a de minimis amount of OID must include such OID in income, on a
pro rata basis, as principal payments are made on the Note.
While it is not anticipated that the Notes will be issued with more than de
minimis OID, it is possible that they will be so issued or will be deemed to be
issued with OID. This deemed OID could arise, for example, if interest payments
on the Notes are not deemed to be "qualified stated interest" because the Notes
do not provide for default remedies ordinarily available to holders of debt
instruments or because no penalties are imposed as a result of any failure to
make interest payments on the Notes. Based upon existing authority, however,
the Trust will treat interest payments on the Notes as qualified stated
interest under the OID regulations. If the Notes are issued or are deemed to be
issued with OID, all or a portion of the taxable income to be recognized with
respect to the Notes would be includible in the income of Noteholders as OID.
Any amount treated as OID would not, however, be includible again when the
amount is actually received. If the yield on a class of Notes were not
materially different from its coupon, this treatment would have no significant
effect on Noteholders using the accrual method of accounting. However, cash
method Noteholders may be required to report income with respect to the Notes
in advance of the receipt of cash attributable to such income.
A Noteholder must include OID in income as interest over the term of the
Notes under a constant yield method. In general, OID must be included in income
in advance of the receipt of cash representing that income. Each Noteholder is
encouraged to consult its own tax advisor regarding the impact of the OID rules
if the Notes are issued with OID.
Market Discount. The Notes, whether or not issued with original issue
discount, will be subject to the "market discount rules" of Section 1276 of the
Code. In general, these rules provide that if a Noteholder purchases the Note
at a market discount (i.e., a discount from its original issue price plus any
accrued original issue discount) that exceeds a de minimis amount specified in
the Code, and thereafter recognizes gain upon a
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disposition, the lesser of (i) such gain or (ii) the accrued market discount
will be taxed as ordinary interest income. Market discount also will be
recognized and taxable as ordinary interest income as payments of principal are
received on the Notes to the extent that the amount of such payments does not
exceed the accrued market discount. Generally, the accrued market discount will
be the total market discount on the Note multiplied by a fraction, the
numerator of which is the number of days the Noteholder held the Note and the
denominator of which is the number of days after the date the Noteholder
acquired the Note until and including its maturity date. The Noteholder may
elect, however, to determine accrued market discount under the constant-yield
method, which election shall not be revoked without the consent of the Service.
Limitations imposed by the Code which are intended to match deductions with
the taxation of income may defer deductions for interest on indebtedness
incurred or continued, or short-sale expenses incurred, to purchase or carry a
Note with accrued market discount. A Noteholder may elect to include market
discount in gross income as it accrues and, if such Noteholder makes such an
election, is exempt from this rule. The adjusted basis of a Note subject to
such election will be increased to reflect market discount included in gross
income, thereby reducing any gain or increasing any loss on a sale or taxable
disposition. Any such election to include market discount in gross income as it
accrues shall apply to all debt instruments held by the Noteholder at the
beginning of the first taxable year to which the election applies or thereafter
acquired and is irrevocable without the consent of the Service.
Amortizable Bond Premium. In general, if a Noteholder purchases a Note at a
premium (i.e., an amount in excess of the amount payable upon the maturity
thereof), such Noteholder will be considered to have purchased such Note with
"amortizable bond premium" equal to the amount of such excess. Such Noteholder
may elect to deduct the amortizable bond premium as it accrues under a
constant-yield method over the remaining term of the Note. Such Noteholder's
tax basis in the Note will be reduced by the amount of the amortizable bond
premium deducted. Amortizable bond premium with respect to a Note will be
treated as an offset to interest income on such Note, and a Noteholder's
deduction for amortizable bond premium with respect to a Note will be limited
in each year to the amount of interest income derived with respect to such Note
for such year. Any election to deduct amortizable bond premium shall apply to
all debt instruments (other than instruments the interest on which is
excludible from gross income) held by the Noteholder at the beginning of the
first taxable year to which the election applies or thereafter acquired and is
irrevocable without the consent of the Service. Bond premium on a Note held by
a Noteholder who does not elect to deduct the premium will decrease the gain or
increase the loss otherwise recognized on the disposition of the Note.
Disposition of Notes. If a Noteholder sells a Note, the Noteholder will
recognize gain or loss in an amount equal to the difference between the amount
realized on the sale and the Noteholder's adjusted tax basis in the Note. The
adjusted tax basis of a Note to a particular Noteholder generally will equal
the Noteholder's cost for the Note, increased by any market discount, OID and
gain previously included by such Noteholder in income with respect to the Note
and decreased by principal payments previously received by such Noteholder and
the amount of bond premium previously amortized with respect to the Note. Any
such gain or loss will be capital gain or loss if the Note was held as a
capital asset, except for gain representing accrued interest and accrued market
discount not previously included in income, and will be long-term capital gain
or loss if the Note was held for more than one year. Capital losses generally
may be used only to offset capital gains.
Foreign Holders. Generally, interest paid to a Noteholder who is a
nonresident alien individual or a foreign corporation and who does not hold the
Note in connection with a United States trade or business will be treated as
"portfolio interest" and therefore will be exempt from the 30% withholding tax.
Such a Noteholder will be entitled to receive interest payments on the Notes
free of United States federal income tax provided that such Noteholder
periodically provides the Indenture Trustee (or other person who would
otherwise be required to withhold tax) with a statement certifying under
penalty of perjury that such Noteholder is not a United States person and
providing the name and address of such Noteholder and will not be subject to
federal income tax on gain from the disposition of a Note unless the Noteholder
is an individual who is present in the United States for 183 days or more
during the taxable year in which the disposition takes place and certain other
requirements are met.
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Tax Administration and Reporting. The Indenture Trustee will furnish to each
Noteholder with each distribution a statement setting forth the amount of such
distribution allocable to principal and to interest. Reports will be made
annually to the Service and to holders of record that are not excepted from the
reporting requirements regarding such information as may be required with
respect to interest and original issue discount, if any, with respect to the
Notes.
Backup Withholding. Under certain circumstances, a Noteholder may be subject
to "backup withholding" at a 31% rate. Backup withholding may apply to a
Noteholder who is a United States person if the holder, among other
circumstances, fails to furnish his Social Security number or other taxpayer
identification number to the Indenture Trustee. Backup withholding may apply,
under certain circumstances, to a Noteholder who is a foreign person if the
Noteholder fails to provide the Indenture Trustee or the Noteholder's
securities broker with the statement necessary to establish the exemption from
federal income and withholding tax on interest on the Note. Backup withholding,
however, does not apply to payments on a Note made to certain exempt
recipients, such as corporations and tax-exempt organizations, and to certain
foreign persons. Noteholders should consult their tax advisors for additional
information concerning the potential application of backup withholding to
payments received by them with respect to a Note.
Possible Alternative Treatment of the Notes. If, contrary to the opinion of
Counsel, the Service successfully asserted that the Notes did not represent
debt for federal income tax purposes, the Notes might be treated as equity
interests in the Trust. If so treated, the Trust might be taxable as a
corporation with the adverse consequences described above (and the taxable
corporation would not be able to reduce its taxable income by deductions for
interest expense on Notes recharacterized as equity). Alternatively, and most
likely in the view of Counsel, the Trust might be treated as a publicly traded
partnership that would not be taxable as a corporation because it would meet
certain qualifying income tests. Nonetheless, treatment of the Notes as equity
interests in such a partnership could have adverse tax consequences to certain
holders. For example, income to foreign holders generally would be subject to
federal tax and federal tax return filing and withholding requirements, and
individual holders might be subject to certain limitations on their ability to
deduct their share of Trust expenses.
TAX CONSEQUENCES TO CERTIFICATEHOLDERS
Treatment of the Trust as a Partnership. The Seller, the General Partner and
the Owner Trustee will agree, and the Certificateholders will agree by their
purchase of Certificates, to treat the Trust as a partnership for purposes of
federal and state income tax, franchise tax and any other tax measured in whole
or in part by income, with the assets of the partnership being the assets held
by the Trust, the partners of the partnership being the Certificateholders and
the General Partner, and the Notes being debt of the partnership. The proper
characterization of the arrangement involving the Trust, the Certificates, the
Notes, the General Partner, the Seller and the Servicer, however, is not
certain because there is no authority on transactions closely comparable to
that contemplated herein.
A variety of alternative characterizations are possible. For example, because
the Certificates have certain features characteristic of debt, the Certificates
might be considered debt of the Trust. Any such characterization would not
result in materially adverse tax consequences to Certificateholders as compared
to the consequences from treatment of the Certificates as equity in a
partnership, described below. The following discussion assumes that the
Certificates represent equity interests in a partnership.
Partnership Taxation. As a partnership, the Trust will not be subject to
federal income tax. Rather, each Certificateholder will be required to
separately take into account such holder's allocated share of income, gains,
losses, deductions and credits of the Trust. The Trust's income will consist
primarily of interest and finance charges earned on the Contracts (including
appropriate adjustments for market discount, OID and bond premium) and any gain
upon collection or disposition of the Contracts. The Trust's deductions will
consist primarily of interest accruing with respect to the Notes, servicing and
other fees, and losses or deductions upon collection or disposition of the
Contracts.
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The tax items of a partnership are allocable to the partners in accordance
with the Code, Treasury regulations and the partnership agreement (here, the
Trust Agreement and related documents). The Trust Agreement will provide, in
general, that the Certificateholders will be allocated taxable income of the
Trust for each month equal to the sum of (i) the interest that accrues on the
Certificates in accordance with their terms for such month, including interest
accruing at the Pass-Through Rate for such month and interest on amounts
previously due on the Certificates but not yet distributed; (ii) any Trust
income attributable to discount on the Contracts that corresponds to any excess
of the principal amount of the Certificates over their initial issue price;
(iii) Prepayment Premium payable to the Certificateholders for such month; and
(iv) any other amounts of income payable to the Certificateholders for such
month. Although it is not anticipated that the Certificates will be issued at a
price which exceeds their principal amount, such allocations of Trust income to
the Certificateholders will be reduced by any amortization by the Trust of
premium on Contracts that corresponds to any such excess of the issue price of
Certificates over their principal amount. All remaining taxable income of the
Trust will be allocated to the General Partner. Based on the economic
arrangement of the parties, this approach for allocating Trust income should be
permissible under applicable Treasury regulations, although no assurance can be
given that the Service would not require a greater amount of income to be
allocated to Certificateholders. Moreover, even under the foregoing method of
allocation, Certificateholders may be allocated income equal to the entire
Pass-Through Rate plus the other items described above even though the Trust
might not have sufficient cash to make current cash distributions of such
amount. Thus, cash basis holders will in effect be required to report income
from the Certificates on the accrual basis, and Certificateholders may become
liable for taxes on Trust income even if they have not received cash from the
Trust to pay such taxes. In addition, because tax allocations and tax reporting
will be done on a uniform basis for all Certificateholders but
Certificateholders may be purchasing Certificates at different times and at
different prices, Certificateholders may be required to report on their tax
returns taxable income that is greater or less than the amount reported to them
by the Trust.
A Certificateholder's share of expenses of the Trust (including fees to the
Servicer but not interest expense) will be miscellaneous itemized deductions.
An individual, an estate, or a trust that holds a Certificate either directly
or through a pass-through entity will be allowed to deduct such expenses under
Section 212 of the Code only to the extent that, in the aggregate and combined
with certain other itemized deductions, they exceed 2% of the adjusted gross
income of the Certificateholder. In addition, Section 68 of the Code provides
that the amount of itemized deductions (including those provided for in Section
212 of the Code) otherwise allowable for the taxable year for an individual
whose adjusted gross income exceeds a threshold amount determined under the
Code ($117,950 in 1996, in the case of a joint return) will be reduced by the
lesser of (i) 3% of the excess of adjusted gross income over the specified
threshold amount or (ii) 80% of the amount of itemized deductions otherwise
allowable for such taxable year. To the extent that a Certificateholder is not
permitted to deduct servicing fees allocable to a Certificate, the taxable
income of the Certificateholder attributable to that Certificate will exceed
the net cash distributions related to such income. Certificateholders may
deduct any loss on disposition of the Contracts to the extent permitted under
the Code.
Discount and Premium. It is believed that the Contracts were not issued with
OID, and, therefore, the Trust should not have OID income. The purchase price
paid by the Trust for the Contracts may exceed the remaining principal balance
of the Contracts at the time of purchase. If the Trust is deemed to acquire the
Contracts at such a premium or at a market discount, the Trust will elect to
offset any such premium against interest income on the Contracts or to include
any such discount in income currently as it accrues over the life of the
Contracts. The Trust will make this premium or market discount calculation on
an aggregate basis but may be required to recompute it on a Contract-by-
Contract basis. As indicated above, a portion of such premium deduction or
market discount income may be allocated to Certificateholders.
Distributions to Certificateholders. Certificateholders generally will not
recognize gain or loss with respect to distributions from the Trust. A
Certificateholder will recognize gain, however, to the extent that any money
distributed exceeds the Certificateholder's adjusted basis in its Certificates
(as described below under "Disposition of Certificates") immediately before the
distribution. A Certificateholder will recognize loss upon termination of the
Trust or termination of the Certificateholder's interest in the Trust if the
Trust only distributes
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money to the Certificateholder and the amount distributed is less than the
Certificateholder's adjusted basis in the Certificates. Any such gain or loss
generally will be capital gain or loss if the Certificates are held as capital
assets and will be long-term gain or loss if the holding period of the
Certificates is more than one year.
Section 708 Termination. Under Section 708 of the Code, the Trust will be
deemed to terminate for federal income tax purposes if 50% or more of the
capital and profits interests in the Trust are sold or exchanged within a 12-
month period. If such a termination occurs, the Trust will be considered to
distribute its assets to the partners, who would then be treated as
recontributing those assets to the Trust, as a new partnership. Such deemed
distribution and recontribution should not result in material adverse tax
consequences to Certificateholders (although it may accelerate the recognition
of income from the Trust for Certificateholders whose taxable year is different
than that of the Trust). Because the Trust may not have the necessary data, the
Trust will not comply with certain technical requirements that may apply when
such a constructive termination occurs. As a result, the Trust may be subject
to certain tax penalties and may incur additional expenses if it is required to
comply with those requirements.
Disposition of Certificates. If a Certificateholder sells a Certificate, the
Certificateholder generally will recognize capital gain or loss in an amount
equal to the difference between the amount realized on the sale and the
seller's tax basis in the Certificate. A Certificateholder's tax basis in a
Certificate generally will equal the Certificateholder's cost increased by the
Certificateholder's share of Trust income and decreased by any distributions
received with respect to such Certificate. In addition, both the tax basis in
the Certificate and the amount realized on a sale of a Certificate would
include the Certificateholder's share of the Notes and other liabilities of the
Trust. A Certificateholder acquiring Certificates at different prices may be
required to maintain a single aggregate adjusted tax basis in such
Certificates, and, upon sale or other disposition of some of the Certificates,
allocate a portion of such aggregate tax basis to the Certificates sold (rather
than maintain a separate tax basis in each Certificate for purposes of
computing gain or loss on a sale of that Certificate).
Any gain on the sale of a Certificate attributable to the Certificateholder's
share of unrecognized accrued market discount on the Contracts would generally
be treated as ordinary income to the Certificateholder and would give rise to
special tax reporting requirements. The Trust does not expect to have any other
assets that would give rise to such special reporting requirements. Thus, to
avoid those special reporting requirements, the Trust will elect to include
market discount in income as it accrues.
If a Certificateholder is required to recognize an aggregate amount of income
(not including income attributable to disallowed itemized deductions described
above) over the life of the Certificates that exceeds the aggregate cash
distributions with respect thereto, such excess generally will give rise to a
capital loss upon the retirement of the Certificates.
Allocations Between Transferors and Transferees. In general, the Trust's
taxable income and losses will be determined monthly, and the tax items for a
particular calendar month will be apportioned among the Certificateholders in
proportion to the principal amount of Certificates owned by them as of the
close of the related Record Date. As a result, a Certificateholder purchasing a
Certificate may be allocated tax items (which will affect the
Certificateholder's tax liability and tax basis) attributable to periods before
the Certificateholder actually owns the Certificate. The use of such a
convention may not be permitted by existing regulations. If a monthly
convention is not permitted (or only applies to transfers of less than all of
the Certificateholder's interest), taxable income or losses of the Trust may be
reallocated among the Certificateholders. The General Partner is authorized to
revise the Trust's method of allocation between transferors and transferees to
conform to a method permitted by future regulations.
Section 754 Election. In the event that a Certificateholder sells a
Certificate at a profit or loss, the purchasing Certificateholder will have a
higher or lower basis in the Certificate than the selling Certificateholder
had. The tax basis of the Trust's assets will not be adjusted to reflect that
higher or lower basis unless the Trust files an election under Section 754 of
the Code. In order to avoid the administrative complexities that would be
involved in keeping accurate accounting records, as well as potentially onerous
information reporting requirements, the
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<PAGE>
Trust will not make such election. As a result, Certificateholders may be
allocated a greater or lesser amount of Trust income than would be appropriate
based on their own purchase price for Certificates.
Administrative Matters. Pursuant to an administration agreement (the
"Administration Agreement"), the Trustee will monitor the performance of the
following responsibilities of the Trust by other service providers. The Trust
is required to keep or have kept complete and accurate books of the Trust. Such
books will be maintained for financial reporting and tax purposes on an accrual
basis and the fiscal year of the Trust will be the calendar year. The Trust
will file a partnership information return (IRS Form 1065) with the Service for
each taxable year of the Trust and will report each Certificateholder's
allocable share of items of Trust income and expense to Certificateholders and
the Service on Schedule K-1. The Trust will provide the Schedule K-1
information to nominees that fail to provide the Trust with certain required
information statements relating to identification of beneficial owners of
Certificates and such nominees will be required to forward such information to
such beneficial owners. Generally, Certificateholders must file tax returns
that are consistent with the information return filed by the Trust or be
subject to penalties unless the Certificateholder notifies the Service of all
such inconsistencies.
Green Tree or a subsidiary identified in the related Prospectus Supplement
will be designated as the tax matters partner in the Trust Agreement and, as
such, will be responsible for representing the Certificateholders in any
dispute with the Service. The Code provides for administrative examination of a
partnership as if the partnership were a separate and distinct taxpayer.
Generally, the statute of limitations for partnership items does not expire
before three years after the date on which the partnership information return
is filed. Any adverse determination following an audit of the return of the
Trust by the appropriate taxing authorities could result in an adjustment of
the returns of the Certificateholders, and, under certain circumstances, a
Certificateholder may be precluded from separately litigating a proposed
adjustment to the items of the Trust. An adjustment could also result in an
audit of a Certificateholder's returns and adjustments of items not related to
the income and losses of the Trust.
Tax Consequences to Foreign Certificateholders. It is not clear whether the
Trust will be considered to be engaged in a trade or business in the United
States for purposes of federal withholding taxes with respect to non-U.S.
persons because there is no clear authority dealing with that issue under facts
substantially similar to those described herein. Although it is not expected
that the Trust will be engaged in a trade or business in the United States for
such purposes, the Trust will withhold as if it were so engaged in order to
protect the Trust from possible adverse consequences of a failure to withhold.
It is expected that the Trust will withhold on the portion of its taxable
income that is allocable to foreign Certificateholders pursuant to Section 1446
of the Code, as if such income were effectively connected to a U.S. trade or
business, at a rate of 35% for foreign holders that are taxable as corporations
and 39.6% for all other foreign Certificateholders. Subsequent adoption of
Treasury regulations or the issuance of other administrative pronouncements may
require the Trust to change its withholding procedures. In determining a
Certificateholder's nonforeign status, the Trust may rely on Form W-8, Form W-9
or the Certificateholder's certification of nonforeign status signed under
penalties of perjury.
Each foreign Certificateholder might be required to file a U.S. individual or
corporate income tax return (including, in the case of a corporation, the
branch profits tax) on its share of the Trust's income. Each foreign
Certificateholder must obtain a taxpayer identification number from the Service
and submit that number to the Trust on Form W-8 in order to assure appropriate
crediting of the taxes withheld. A foreign Certificateholder generally will be
entitled to file with the Service a claim for refund with respect to taxes
withheld by the Trust, taking the position that no taxes are due because the
Trust is not engaged in a U.S. trade or business. However, the Service may
assert that additional taxes are due, and no assurance can be given as to the
appropriate amount of tax liability.
Backup Withholding. Under certain circumstances, a Certificateholder may be
subject to "backup withholding" at a 31% rate. See the discussion above under
"Tax Consequences to Noteholders--Backup Withholding."
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Proposed Tax Legislation. Legislation previously introduced in Congress would
apply special rules to "large partnerships," defined as partnerships with at
least 250 partners during a taxable year (counting towards such total each
owner during the year of a partnership interest that is transferred during the
year). Under the legislation, certain computations are made at the partnership
level rather than the partner level. In particular, taxable income is
calculated at the partnership level and is calculated generally in the same
manner as for an individual, except that 70% of miscellaneous itemized
deductions (such as expenses for the production of nonbusiness income) are
disallowed. As a result, all partners in a large partnership (including
corporations) might have a portion of their share of partnership deductions
disallowed. Moreover, large partnerships would become subject to new audit
procedures; among other things, an adjustment to taxable income of the
partnership for a prior year would flow through to current partners in the year
the audit was settled, and the partnership itself (rather than the partners)
would be subject to any applicable interest or penalties. Under the previous
proposal, these rules would apply to partnership taxable years ending on or
after December 31, 1994. No prediction can be made whether such legislation
will be enacted, the form in which it might be enacted, or the ultimate
effective date of such legislation.
GRANTOR TRUST SERIES
TAX STATUS OF THE TRUST
With respect to each series of Securities which includes only Certificates,
unless otherwise specified in the related Prospectus Supplement, Counsel will
deliver its opinion that the Trust will be classified as a grantor trust for
federal income tax purposes and not as an association which is taxable as a
corporation. The Trust will be classified as a trust regardless of whether the
Seller is considered to retain an interest in the Contracts, as discussed
below. While such a retained interest might be viewed as a second class of
beneficial interest in the Trust and Treasury Regulations Section 301.7701-4(c)
generally provides that an investment trust with more than one class of
ownership interest will be classified as an association taxable as a
corporation or a partnership, that regulation would treat the Trust as a
grantor trust because there will be no power under the Pooling and Servicing
Agreement to vary the investment of the Certificateholders, the purpose of the
Trust will be to facilitate direct investment in the Contracts, and the
existence of multiple classes of ownership interests in the Trust will be
incidental to that purpose.
TAX CONSEQUENCES TO CERTIFICATEHOLDERS
Because the Trust will be classified as a grantor trust, each
Certificateholder (including any holder of a subordinated Certificate) will, in
the opinion of Counsel, be treated for federal income tax purposes as the owner
of an undivided interest in the Contracts and other Trust Property.
Accordingly, subject to the discussion below of certain limitations on
deductions and the "stripped bond" rules of the Code, each Certificateholder
must report on its federal income tax return its pro rata share of the entire
income from the Contracts and other Trust Property, and may deduct its pro rata
share of the fees paid by the Trust, at the same time as such items would be
reported under the Certificateholder's tax accounting method if it held
directly a pro rata interest in the assets of the Trust and received and paid
directly the amounts received and paid by the Trust. A Certificateholder's
share of expenses of the Trust will be miscellaneous itemized deductions
subject to certain limits on deductibility. See the discussion above under
"OWNER TRUST SERIES--Tax Consequences to Certificateholders--Partnership
Taxation."
A purchaser of a Certificate will be treated as purchasing an interest in
each Contract in the Trust at a price determined by allocating the purchase
price paid for the Certificate among all Contracts in proportion to their fair
market values at the time of purchase of the Certificate. To the extent that
the portion of the purchase price of a Certificate allocated to a Contract is
greater than or less than the portion of the principal balance of the Contract
allocable to the Certificate, that interest in the Contract will be deemed to
have been acquired with premium or discount, respectively. See the discussions
above under "OWNER TRUST SERIES--Tax Consequences to Noteholders--Market
Discount" and "--Amortizable Bond Premium."
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The treatment of any discount will depend on whether the discount represents
original issue discount or market discount. It is not anticipated that the
Contracts will have original issue discount, unless they are subject to the
"stripped bond" rules of the Code described below. If the Contracts are subject
to the stripped bond rules of the Code, the market discount rules discussed
above may not apply.
Subordinated Certificates. If the subordinated Certificateholders receive
distributions of less than their share of the Trust's receipts of principal or
interest (the "Shortfall Amount") because of the subordination of the
subordinated Certificates, holders of subordinated Certificates would probably
be treated for federal income tax purposes as if they had (i) received as
distributions their full share of such receipts, (ii) paid over to the senior
Certificateholders an amount equal to such Shortfall Amount, and (iii) retained
the right to reimbursement of such amounts to the extent available from future
collections on the Contracts.
Under this analysis, (a) subordinated Certificateholders would be required to
accrue as current income any interest or OID income of the Trust that was a
component of the Shortfall Amount, even though such amount was in fact paid to
the senior Certificateholders, (b) a loss would only be allowed to the
subordinated Certificateholders when their right to receive reimbursement of
such Shortfall Amount became worthless (i.e., when it becomes clear that amount
will not be available from any source to reimburse such loss), and (c)
reimbursement of such Shortfall Amount prior to such a claim of worthlessness
would not be taxable income to subordinated Certificateholders because such
amount was previously included in income. Those results should not
significantly affect the inclusion of income for subordinated
Certificateholders on the accrual method of accounting, but could accelerate
inclusion of income to subordinated Certificateholders on the cash method of
accounting by, in effect, placing them on the accrual method. Moreover, the
character and timing of loss deductions is unclear.
Under current Service interpretations of applicable Treasury Regulations, the
Seller would be able to sell or otherwise dispose of any subordinated
Certificates. Accordingly, the Seller may offer subordinated Certificates for
sale to investors.
Stripped Certificates. Certain classes of Certificates may be subject to the
stripped bond rules of Section 1286 of the Code and for purposes of this
discussion will be referred to as "Stripped Certificates." In general, a
Stripped Certificate will be subject to the stripped bond rules where there has
been a separation of ownership of the right to receive some or all of the
principal payments on a Contract from ownership of the right to receive some or
all of the related interest payments. Certificates will constitute Stripped
Certificates and will be subject to these rules under various circumstances,
including the following: (i) if any servicing compensation is deemed to exceed
a reasonable amount; (ii) if two or more classes of Certificates are issued
representing the right to non-pro rata percentages of the interest or principal
payments on the Contracts; or (iii) if Certificates are issued which represent
the right to interest only payments or principal only payments.
Although not entirely clear, each Stripped Certificate should be considered
to be a single debt instrument issued on the day it is purchased for purposes
of calculating any original issue discount. Original issue discount with
respect to a Stripped Certificate, if any, must be included in ordinary gross
income for federal income tax purposes as it accrues in accordance with the
constant-yield method that takes into account the compounding of interest and
such accrual of income may be in advance of the receipt of any cash
attributable to such income. See "OWNER TRUST SERIES--Tax Consequences to
Noteholders--Interest Income on the Notes" above. For purposes of applying the
original issue discount provisions of the Code, the issue price of a Stripped
Certificate will be the purchase price paid by the holder thereof and the
stated redemption price at maturity may include the aggregate amount of all
payments to be made with respect to the Stripped Certificate whether or not
denominated as interest. The amount of original issue discount with respect to
a Stripped Certificate may be treated as zero under the original issue discount
de minimis rules described above. Under rules similar to those provided in Rev.
Proc. 91-49, applicable only to mortgages secured by real property, a
Certificateholder may be required to account for any discount on a Stripped
Certificate as market discount rather than original issue discount if either
(i) the amount of original issue discount with respect to the Certificate was
treated as zero under the original issue discount de minimis rule when the
Certificate was stripped or (ii) no more than 100 basis points (including any
amount of servicing in excess of reasonable servicing) is stripped off of the
Contracts.
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When an investor purchases more than one class of Stripped Certificates, it
is currently unclear whether for federal income tax purposes such classes of
Stripped Certificates should be treated separately or aggregated for purposes
of applying the original issue discount rules described above.
It is possible that the Service may take a contrary position with respect to
some or all of the foregoing tax consequences. For example, a holder of a
Stripped Certificate may be treated as the owner of (i) as many stripped bonds
or stripped coupons as there are scheduled payments of principal and/or
interest on each Contract or (ii) a separate installment obligation for each
Contract representing the Stripped Certificate's pro rata share of principal
and/or interest payments to be made with respect thereto. In addition, if a
Trust issues more than one class of Certificates with different Pass-Through
Rates, a holder of such a Certificate may be treated as the owner of a stripped
bond with a rate equal to the lowest such Pass-Through Rate and a stripped
coupon representing the excess, if any, of the Pass-Through Rate on such
Certificate over the lowest Pass-Through Rate. As a result of these possible
alternative characterizations, investors should consult their own tax advisors
regarding the proper treatment of Stripped Certificates for federal income tax
purposes.
The Servicing Fee to be received by the Servicer and the fee for the
enhancement, if any, provided with respect to a series of Certificates may be
questioned by the Service with respect to certain Certificates or Contracts as
exceeding a reasonable fee for the services being performed in exchange
therefor, and a portion of such servicing compensation could be recharacterized
as an ownership interest retained by the Servicer or other party in a portion
of the interest payments to be made pursuant to the Contracts. In this event, a
Certificate might be treated as a Stripped Certificate subject to the stripped
bond rules of Section 1286 of the Code and the original issue discount
provisions rather than to the market discount and premium rules.
Disposition of Certificates. If a Certificate is sold, gain or loss will be
recognized equal to the difference between the amount realized on the sale and
the Certificateholder's adjusted tax basis in the Certificate. See the
discussion above under "OWNER TRUST SERIES--Tax Consequences to Noteholders--
Disposition of Notes."
Foreign Holders. Generally, interest paid to a Certificateholder who is a
nonresident alien individual or a foreign corporation and who does not hold the
Certificates in connection with a United States trade or business will be
treated as "portfolio interest." See the discussion above under "OWNER TRUST
SERIES--Tax Consequences to Noteholders--Foreign Holders."
TAX ADMINISTRATION AND REPORTING
The Trustee will furnish to each Certificateholder with each distribution a
statement setting forth the amount of such distribution allocable to principal
and to interest. In addition, the Trustee will furnish, within a reasonable
time after the end of each calendar year, to each Certificateholder who was a
Certificateholder at any time during such year, information regarding the
amount of servicing compensation received by the Servicer and such other
factual information as the Seller deems necessary to enable Certificateholders
to prepare their tax returns. Reports will be made annually to the Internal
Revenue Service and to holders of record that are not excepted from the
reporting requirements regarding information as may be required with respect to
interest and original issue discount, if any, with respect to the Certificates.
BACKUP WITHHOLDING
Under certain circumstances, a Certificateholder may be subject to "backup
withholding" at a 31% rate. See the discussion above under "OWNER TRUST
SERIES--Tax Consequences to Noteholders--Backup Withholding."
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ERISA CONSIDERATIONS
Section 406 of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and Section 4975 of the Code prohibit a pension, profit
sharing or other employee benefit plan from engaging in certain transactions
involving "plan assets" with persons that are "parties in interest" under ERISA
or "disqualified persons" under the Code with respect to the plan. ERISA also
imposes certain duties and certain prohibitions on persons who are fiduciaries
of plans subject to ERISA. Under ERISA, generally any person who exercises any
authority or control with respect to the management or disposition of the
assets of a plan is considered to be a fiduciary of such plan. A violation of
these "prohibited transaction" rules may generate excise tax and other
liabilities under ERISA and the Code for such persons.
Certain transactions involving the related Trust might be deemed to
constitute prohibited transactions under ERISA and the Code with respect to a
Benefit Plan that purchased Securities if assets of the related Trust were
deemed to be assets of the Benefit Plan. Under a regulation issued by the
United States Department of Labor (the "Plan Assets Regulation"), the assets of
a Trust would be treated as plan assets of a Benefit Plan for the purposes of
ERISA and the Code only if the Benefit Plan acquired an "equity interest" in
the Trust and none of the exceptions contained in the Plan Assets Regulation
was applicable. An equity interest is defined under the Plan Assets Regulation
as an interest other than an instrument which is treated as indebtedness under
applicable local law and which has no substantial equity features. The likely
treatment of Notes and Certificates will be discussed in the related Prospectus
Supplement.
Employee benefit plans that are governmental plans (as defined in Section
3(32) of ERISA) and certain church plans (as defined in Section 3(33) of ERISA)
are not subject to ERISA requirements.
A plan fiduciary considering the purchase of Securities should consult its
tax and/or legal advisors regarding whether the assets of the Trust would be
considered plan assets, the possibility of exemptive relief from the prohibited
transaction rules and other issues and their potential consequences.
PLAN OF DISTRIBUTION
On the terms and conditions set forth in an underwriting agreement (the
"Underwriting Agreement") with respect to each Trust, the Seller will agree to
sell to each of the underwriters named therein and in the related Prospectus
Supplement, and each of such underwriters will severally agree to purchase from
the Seller, the principal amount of each class of Securities of the related
series set forth therein and in the related Prospectus Supplement.
In each Underwriting Agreement, the several underwriters will agree, subject
to the terms and conditions set forth therein, to purchase all the Securities
described therein which are offered hereby and by the related Prospectus
Supplement if any of such Securities are purchased. In the event of a default
by any such underwriter, each Underwriting Agreement will provide that, in
certain circumstances, purchase commitments of the nondefaulting underwriters
may be increased, or the Underwriting Agreement may be terminated.
Each Prospectus Supplement will either (i) set forth the price at which each
class of Securities being offered thereby will be offered to the public and any
concessions that may be offered to certain dealers participating in the
offering of such Securities or (ii) specify that the related Securities are to
be resold by the underwriters in negotiated transactions at varying prices to
be determined at the time of such sale. After the initial public offering of
any Securities, the public offering price and such concessions may be changed.
Each Underwriting Agreement will provide that Green Tree will indemnify the
underwriters against certain liabilities, including liabilities under the
Securities Act.
The Indenture Trustee, if any, may, from time to time, invest the funds in
the Designated Accounts in Eligible Investments acquired from the underwriters.
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Under each Underwriting Agreement, the closing of the sale of any class of
Securities subject thereto will be conditioned on the closing of the sale of
all other such classes.
The place and time of delivery for the Securities in respect of which this
Prospectus is delivered will be set forth in the related Prospectus Supplement.
LEGAL MATTERS
Certain matters with respect to the validity of the Certificates and the
Notes will be passed upon for the Seller by the counsel for the Seller
identified in the applicable Prospectus Supplement. The validity of the
Certificates and the Notes will be passed upon for the underwriters named in
the related Prospectus Supplement by Brown & Wood LLP, New York, New York.
EXPERTS
The consolidated financial statements of the Company as of December 31, 1995
and 1994 and for each of the three years in the period ended December 31, 1995
incorporated by reference herein have been audited by KPMG Peat Marwick LLP,
independent accountants, as stated in their opinion given upon their authority
as experts in accounting and auditing.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses to be incurred in connection
with the offering of the Asset-Backed Certificates and the Asset-Backed Notes,
other than underwriting discounts and commissions, described in this
Registration Statement:
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee........... $ 303,030.30
Printing and Engraving........................................ 200,000.00
Legal Fees and Expenses....................................... 150,000.00
Blue Sky Filing and Counsel Fees.............................. 15,000.00
Accounting Fees and Expenses.................................. 60,000.00
Trustee Fees and Expenses..................................... 66,000.00
Rating Agencies' Fees......................................... 225,000.00
Miscellaneous Expenses........................................ 5,969.70
-------------
Total..................................................... $1,025,000.00
=============
</TABLE>
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* All fees and expenses, other than the Securities and Exchange Commission
Registration Fee, are estimated.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Green Tree Financial Corporation is incorporated under the laws of Delaware.
Section 145 of the Delaware General Corporation Law provides that a Delaware
corporation may indemnify any persons, including officers and directors, who
are, or are threatened to be made, parties to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of such corporation,
by reason of the fact that such person was an officer, director, employee or
agent of such corporation, or is or was serving at the request of such
corporation as a director, officer, employee or agent of another corporation
or enterprise). The indemnity may include expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceedings,
provided such person acted in good faith and in a manner he reasonably
believed to be in or not opposed to the corporation's best interests and, for
criminal proceedings, had no reasonable cause to believe that his conduct was
illegal. A Delaware corporation may identify officers and directors in an
action by or in the right of the corporation under the same conditions, except
that no indemnification is permitted without judicial approval if the officer
or director is adjudged to be liable to the corporation. Where an officer or
director is successful on the merits or otherwise in the defense of any action
referred to above, the corporation must indemnify him against the expenses
which such officer or director actually and reasonably incurred.
The Certificate of Incorporation and Bylaws of Green Tree Financial
Corporation provide, in effect, that, subject to certain limited exceptions,
such corporation will indemnify its officers and directors to the extent
permitted by the Delaware General Corporation Law.
ITEM 16. EXHIBITS.
The Exhibits filed as part of this Registration Statement are:
<TABLE>
<C> <S>
1.1 --Form of Underwriting Agreement (for Grantor Trusts) (incorporated by
reference to Exhibit 1.1 to the Registrant's Registration Statement
No. 33-63575).
1.2 --Form of Underwriting Agreement (for Owner Trusts) (incorporated by
reference to Exhibit 1.2 to the Registrant's Registration Statement
No. 33-63575).
3.1 --Certificate of Incorporation of Green Tree (incorporated by reference
to Exhibit 3.1 to the Registrant's Registration Statement No. 33-
60869).
</TABLE>
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<PAGE>
<TABLE>
<C> <S>
3.2 --By-Laws of Green Tree (incorporated by reference to Exhibit 3.2 to
the Registrant's Registration Statement No. 33-60869).
4.1 --Form of Pooling and Servicing Agreement between Green Tree, as Seller
and as Servicer, and the Owner Trustee (for Grantor Trusts)
(incorporated by reference to Exhibit 4.1 to the Registrant's
Registration Statement No. 33-63575).
4.2 --Form of Sale and Servicing Agreement relating to Owner Trusts
(incorporated by reference to Exhibit 4.2 to the Registrant's
Registration Statement No. 33-63575).
4.3 --Form of Trust Agreement relating to Owner Trusts (incorporated by
reference to Exhibit 4.3 to the Registrant's Registration Statement
No. 33-63575).
4.4 --Form of Indenture between the Trust and the Indenture Trustee,
including form of Note (incorporated by reference to Exhibit 4.4 to
the Registrant's Registration Statement No. 33-63575).
5.1 --Opinion and consent of Dorsey & Whitney LLP with respect to legality.
8.1 --Opinion and consent of Dorsey & Whitney LLP with respect to tax
matters.
*23.1 --Consent of KPMG Peat Marwick LLP.
23.2 --Consent of Dorsey & Whitney LLP (included as part of Exhibit 5.1).
23.3 --Consent of Dorsey & Whitney LLP (included as part of Exhibit 8.1).
*25.1 --Form of T-1 Statement of Eligibility under the Trust Indenture Act of
1939 of the Indenture Trustee.
99.1 --Form of Prospectus Supplement for Grantor Trusts (incorporated by
reference to Exhibit 99.1 to Registrant's Registration Statement No.
333-02725).
99.2 --Form of Prospectus Supplement for Owner Trusts (incorporated by
reference to Exhibit 99.2 to the Registrant's Registration Statement
No. 33-63575).
</TABLE>
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*To be filed by amendment.
ITEM 17. UNDERTAKINGS.
The undersigned registrant on behalf of the Trust hereby undertakes that,
for purposes of determining any liability under the Securities Act of 1933,
each filing of the Owner Trust's annual report pursuant to section 13(a) or
section 15(d) of the Securities Exchange Act of 1934 that is incorporated by
reference in the registration statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that, in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
The undersigned registrant hereby undertakes:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
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<PAGE>
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change to such information in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective Registration Statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change in the information set forth in the registration
statement;
Provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if
the information required to be included in a post-effective amendment
by those paragraphs is contained in periodic reports filed by the
registrant pursuant to section 13 or section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned registrant hereby undertakes to file an application for the
purpose of determining the eligibility of the trustee to act under subsection
(a) of section 310 of the Trust Indenture Act in accordance with the rules and
regulations prescribed by the Commission under section 305(b)(2) of the Trust
Indenture Act.
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<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF SAINT PAUL, STATE OF MINNESOTA, ON THE 30TH DAY OF
OCTOBER, 1996.
Green Tree Financial Corporation
/s/ Scott T. Young
By __________________________________
SCOTT T. YOUNG
Vice President and Controller
POWER OF ATTORNEY
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATE INDICATED. EACH PERSON WHOSE SIGNATURE TO THIS REGISTRATION STATEMENT
APEARS BELOW HEREBY CONSTITUTES AND APPOINTS JOEL H. GOTTESMAN AND SCOTT T.
YOUNG AND EACH OF THEM, AS HIS TRUE AND LAWFUL ATTORNEY-IN-FACT AND AGENT, WITH
FULL POWER OF SUBSTITUTION, TO SIGN ON HIS BEHALF INDIVIDUALLY AND IN THE
CAPACITY STATED BELOW AND TO PERFORM ANY ACTS NECESSARY TO BE DONE IN ORDER TO
FILE ALL AMENDMENTS AND POST-EFFECTIVE AMENDMENTS TO THIS REGISTRATION
STATEMENT, AND ANY AND ALL INSTRUMENTS OR DOCUMENTS FILED AS PART OF OR IN
CONNECTION WITH THIS REGISTRATION STATEMENT OR THE AMENDMENTS THERETO AND EACH
OF THE UNDERSIGNED DOES HEREBY RATIFY AND CONFORM ALL THAT SAID ATTORNEY-IN-
FACT AND AGENT, OR HIS SUBSTITUTES, SHALL DO OR CAUSE TO BE DONE BY VIRTUE
HEREOF.
SIGNATURE TITLE DATE
/s/ Lawrence M. Coss Chairman of the October 30,
- ------------------------------------- Board and Chief 1996
LAWRENCE M. COSS Executive Officer
(Principal
Executive Officer
and Director)
/s/ Edward L. Finn Executive Vice October 30,
- ------------------------------------- President and Chief 1996
EDWARD L. FINN Financial Officer
(Principal
Financial Officer
and Principal
Accounting Officer)
/s/ Scott T. Young Vice President and October 30,
- ------------------------------------- Controller 1996
SCOTT T. YOUNG
/s/ Richard G. Evans Director October 30,
- ------------------------------------- 1996
RICHARD G. EVANS
/s/ W. Max McGee Director October 30,
- ------------------------------------- 1996
W. MAX MCGEE
/s/ Robert S. Nickoloff Director October 30,
- ------------------------------------- 1996
ROBERT S. NICKOLOFF
/s/ Robert D. Potts Director October 30,
- ------------------------------------- 1996
ROBERT D. POTTS
II-4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
1.1 --Form of Underwriting Agreement (for Grantor Trusts)
(incorporated by reference to Exhibit 1.1 to the Registrant's
Registration Statement No. 33-63575).
1.2 --Form of Underwriting Agreement (for Owner Trusts)
(incorporated by reference to Exhibit 1.2 to the Registrant's
Registration Statement No. 33-63575).
3.1 --Certificate of Incorporation of Green Tree (incorporated by
reference to Exhibit 3.1 to the Registrant's Registration
Statement No. 33-60869).
3.2 --By-Laws of Green Tree (incorporated by reference to Exhibit
3.2 to the Registrant's Registration Statement No. 33-60869).
4.1 --Form of Pooling and Servicing Agreement between Green Tree, as
Seller and as Servicer, and the Owner Trustee (for Grantor
Trusts) (incorporated by reference to Exhibit 4.1 to the
Registrant's Registration Statement No. 33-63575).
4.2 --Form of Sale and Servicing Agreement relating to Owner Trusts
(incorporated by reference to Exhibit 4.2 to the Registrant's
Registration Statement No. 33-63575).
4.3 --Form of Trust Agreement relating to Owner Trusts (incorporated
by reference to Exhibit 4.3 to the Registrant's Registration
Statement No. 33-63575).
4.4 --Form of Indenture between the Trust and the Indenture Trustee,
including form of Note (incorporated by reference to Exhibit
4.4 to the Registrant's Registration Statement No. 33-63575).
5.1 --Opinion and consent of Dorsey & Whitney LLP with respect to
legality.
8.1 --Opinion and consent of Dorsey & Whitney LLP with respect to
tax matters.
*23.1 --Consent of KPMG Peat Marwick LLP.
23.2 --Consent of Dorsey & Whitney LLP (included as part of Exhibit
5.1).
23.3 --Consent of Dorsey & Whitney LLP (included as part of Exhibit
8.1).
*25.1 --Form of T-1 Statement of Eligibility under the Trust Indenture
Act of 1939 of the Indenture Trustee.
99.1 --Form of Prospectus Supplement for Grantor Trusts (incorporated
by reference to Exhibit 99.1 to the Registrant's Registration
Statement No. 333-02725).
99.2 --Form of Prospectus Supplement for Owner Trusts (incorporated
by reference to Exhibit 99.2 to the Registrant's Registration
Statement No. 33-63575).
</TABLE>
- --------
*To be filed by amendment.
<PAGE>
EXHIBIT 5.1
-----------
Green Tree Financial Corporation
1100 Landmark Towers
345 St. Peter Street
St. Paul, Minnesota 55102-1639
Re: Registration Statement on Form S-3
Ladies and Gentlemen:
We have acted as counsel to Green Tree Financial Corporation, a
Delaware corporation (the "Company"), in connection with the preparation of a
Registration Statement on Form S-3 filed by the Company with the Securities and
Exchange Commission (the "Commission") on November 4, 1996, (the "Registration
Statement"), relating to the registration by the Company of $1,000,000,000 of
Asset-Backed Securities (the "Securities") to be issued by Green Tree
Recreational, Consumer & Equipment Trusts to be formed by the Company from time
to time. The Securities are proposed to be issued from time to time in series
under either
(i) with respect to Securities issued by a Trust characterized for tax
purposes as a grantor trust, a separate Pooling and Servicing Agreement in
substantially the form filed as Exhibit 4.1 to the Registration Statement
(each such agreement, a "Pooling and Servicing Agreement"), between the
Company, as seller and servicer, and a bank or trust company, as trustee
(the "Trustee"); or
(ii) with respect to Securities issued by a Trust characterized as an
owner trust treated as a partnership for tax purposes, a combination of (a)
a separate Trust Agreement in substantially the form filed as Exhibit 4.3
to the Registration Statement (each such Agreement, a "Trust Agreement"),
(b) a separate Sale and Servicing Agreement in substantially the form filed
as Exhibit 4.2 to the Registration Statement (each such Agreement, a "Sale
and Servicing Agreement"), and, if such Trust issues Notes, a separate
Indenture in substantially the form filed as Exhibit 4.4 to the
Registration Statement (each such Indenture, an "Indenture").
<PAGE>
Green Tree Financial Corporation
November 4, 1996
Page 2
The Company may provide a Limited Guaranty (the "Limited Guaranty") with
respect to one or more classes of any series of Securities.
We have examined the Registration Statement, the forms of such
agreements filed as exhibits thereto, and such other documents, and have
reviewed such questions of law, as we have considered necessary and appropriate
for the purposes of this opinion. Based on the foregoing, we are of the opinion
that:
1. Each Pooling and Servicing Agreement, when it has been duly
authorized by the Board of Directors of the Company and duly executed and
delivered by the Company and the Trustee, will constitute the valid and binding
obligation of the Company and the Limited Guaranty of the Company, if any,
provided for therein will constitute the valid and binding obligation of the
Company.
2. Each series of Certificates issued pursuant to a Pooling and
Servicing Agreement, when duly executed and delivered in accordance with the
terms of such Pooling and Servicing Agreement, will be legally and validly
issued, and the holders of such Certificates will be entitled to the benefits of
such Pooling and Servicing Agreement.
3. Each Sale and Servicing Agreement, when it has been duly
authorized by the Board of Directors of the Company and duly executed and
delivered by the Company and the Trustee, will constitute the valid and binding
obligation of the Company and the Limited Guaranty of the Company, if any,
provided for therein will constitute the valid and binding obligation of the
Company. Each Trust Agreement, when it has been duly authorized by the Board of
Directors of the Company and duly executed and delivered by the Company and the
Trustee, will constitute the valid and binding obligation of the Company. Each
Indenture, when it has been duly authorized by the Trust and the applicable
Indenture Trustee, will constitute the valid and binding obligation of such
Trust.
4. Each series of Certificates issued pursuant to a Trust Agreement,
when duly executed and delivered in accordance with the terms of such Trust
Agreement, will be legally and validly issued, fully paid and non-assessable,
and the holders of such Certificates will be entitled to the benefits of such
Trust Agreement and the related Sale and Servicing Agreement.
<PAGE>
Green Tree Financial Corporation
November 4, 1996
Page 3
5. Each Series of Notes issued by a Trust, when duly authorized and
executed by such Trust and duly authenticated by the Indenture Trustee pursuant
to the terms of the related Indenture, will be legally and validly issued and
will constitute the valid and binding obligations of such Trust.
The opinions set forth above are subject to the following
qualifications and exceptions:
(a) In rendering the opinions set forth above, we have assumed that,
at the time of the execution of the applicable Agreements and the execution
and delivery of the related series of Securities, there will not have
occurred any change in the law affecting the authorization, execution,
delivery, validity or enforceability of the Securities or any Limited
Guaranty, the Registration Statement will have been declared effective by
the Commission and will continue to be effective, the Securities and the
Limited Guaranty will be issued and sold as described in the Registration
Statement, none of the particular terms of a series of Securities will
violate any applicable law and neither the issuance and sale thereof nor
the compliance by the Company with the terms thereof will result in a
violation of any agreement or instrument then binding upon the Company or
any order of any court or governmental body having jurisdiction over the
Company.
(b) Our opinions in paragraphs 1, 3 and 5 above are subject to the
effect of any applicable bankruptcy, insolvency, reorganization, moratorium
or other similar law of general application affecting creditors' rights.
(c) Our opinion in paragraphs 1, 3 and 5 above are subject to the
effect of general principles of equity, including (without limitation)
concepts of materiality, reasonableness, good faith and fair dealing, and
other similar doctrines affecting the enforceability of agreements
generally (regardless of whether considered in a proceeding in equity or at
law).
(d) Minnesota Statutes (S) 290.371, Subd. 4, provides that any
corporation required to file a Notice of Business Activities Report does
not have a cause of action upon which it may bring suit under Minnesota law
unless the corporation has filed a Notice of Business Activities Report and
provides that the use of the courts of the State of Minnesota for all
contracts executed and all causes of action that arose before the end of
any period for which a corporation failed to file a required report is
precluded. Insofar as our opinion may relate to the valid, binding and
enforceable character of any
<PAGE>
Green Tree Financial Corporation
November 4, 1996
Page 4
agreement under Minnesota law or in a Minnesota court, we have assumed that
any party seeking to enforce such agreement has at all times been, and will
continue at all times to be, exempt from the requirement of filing a Notice
of Business Activities Report or, if not exempt, has duly filed, and will
continue to duly file, all Notice of Business Activities Reports.
Our opinions expressed above are limited to the laws of the State of
Minnesota and the Delaware General Corporation Law.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement, and to the reference to our firm under the heading
"Legal Matters" in the Prospectus comprising part of the Registration Statement.
Dated: November 4, 1996
Very truly yours,
/s/ DORSEY & WHITNEY LLP
CFS
<PAGE>
EXHIBIT 8.1
-----------
Green Tree Financial Corporation
1100 Landmark Towers
345 St. Peter Street
St. Paul, MN 55102-1639
Re: Federal Income Tax Consequences of Recreational,
Equipment & Consumer Trust Certificates
Ladies and Gentlemen:
We have acted as counsel to Green Tree Finhancial Corporation, a
Delaware corporation (the "Company"), in connection with the preparation of a
Registration Statement on Form S-3 filed by the Company with the Securities and
Exchange Commission (the "Commission") on November 4, 1996, (the "Registration
Statement"), relating to the registration by the Company of $1,000,000,000 of
Asset-Backed Securities (the "Securities") to be issued by Green Tree
Recreational, Equipment & Consumer Trusts to be formed by the Company from time
to time. The Securities are proposed to be issued from time to time in series
under either:
(i) with respect to Securities issued by a Trust characterized for tax
purposes as a grantor trust, a separate Pooling and Servicing Agreement in
substantially the form filed as Exhibit 4.1 to the Registration Statement
(each such agreement, a "Pooling and Servicing Agreement"), between the
Company, as seller and servicer, and a bank or trust company, as trustee
(the "Trustee"); or
(ii) with respect to Securities issued by a Trust characterized as an
owner trust treated as a partnership for tax purposes, a combination of (a)
a separate Trust Agreement in substantially the form filed as Exhibit 4.3
to the Registration Statement (each such Agreement, a "Trust Agreement"),
(b) a separate Sale and Servicing Agreement in substantially the form filed
as Exhibit 4.2 to the Registration Statement (each such Agreement, a "Sale
and Servicing Agreement"), and, if such Trust issues Notes, a separate
Indenture in substantially the form filed as Exhibit 4.4 to the
Registration Statement (each such Indenture, an "Indenture").
<PAGE>
Green Tree Financial Corporation
November 4, 1996
Page 2
The Certificates are described in the prospectus constituting Part I
of the Registration Statement (the "Prospectus"). Each series of Certificates
will be more particularly described in a supplement to the Prospectus (each, a
"Supplement").
You have requested our opinion with respect to certain federal income
tax consequences of the purchase, ownership and disposition of the Certificates.
For purposes of rendering our opinion we have examined the Registration
Statement. Each Supplement and Pooling and Servicing Agreement or Trust
Agreement pertaining to a specific series is to be completed subsequent to the
date of this opinion. Accordingly, we have not examined any Supplement or
Pooling and Servicing Agreement or Trust Agreement relating to any specific
series to be issued, and our opinion does not address the contents of any such
Supplement or Agreement except as and to the extent that the provisions of same
may be described in the Prospectus. We understand that each Supplement will
contain a discussion of any material federal income tax consequences pertaining
to the series to be offered thereunder which are not addressed in the
Prospectus.
As set forth in the Prospectus, for federal income tax purposes each
series of Certificates will be issued as either a grantor trust ("Grantor
Trust") or an owner trust treated as a partnership ("Owner Trust"). Each
series' status as a Grantor Trust or an Owner Trust is to be set forth in the
Supplement related thereto.
Our opinion is based upon existing law and currently applicable
Treasury Department regulations, current published administrative positions of
the Internal Revenue Service contained in revenue rulings and revenue
procedures, and judicial decisions, all of which are subject to change, either
prospectively or retroactively, and to possibly differing interpretations. Our
opinion is also based on the representations and warranties set forth in the
applicable Pooling and Servicing Agreement or Trust Agreement and the
assumptions that the Company and the Trustee will at all times comply with the
requirements of the applicable Agreement. Based upon the foregoing, as of the
date hereof it is our opinion that:
(1) With respect to each Grantor Trust series of Certificates, each
pool of contracts and the arrangement to be administered by the Company
under which the Trustee will hold and the Company will be obligated to
service the contracts and pursuant to which Certificates will be issued to
certificateholders, all as described in the Prospectus, will not be
classified as an association taxable as a corporation, but rather will be
classified as a grantor trust under Subpart E, Part I of Subchapter J of
the Internal Revenue Code of 1986, as amended. Each
<PAGE>
Green Tree Financial Corporation
November 4, 1996
Page 3
holder of a Certificate will be treated as the owner of an undivided
interest in the contracts and other property of the Trust.
(2) With respect to each Owner Trust series of Certificates, each pool
of contracts and the arrangement to be administered by the Company under
which the Trustee will hold and the Company will be obligated to service
the contracts and pursuant to which Certificates will be issued to
certificateholders, all as described in the Prospectus, will not be
characterized as an association or a publicly-traded partnership taxable as
a corporation. As a result, the Trust itself will not be subject to
federal income tax but, instead, each holder of a Certificate will be
required to take into account its distributive share of items of income and
deduction of the Trust as though such items had been realized directly by
such holder. If such Trust issues Notes pursuant to an Indenture as
described in the Prospectus, the Notes will be classified as debt for
federal income tax purposes.
We consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name under the heading "Certain
Federal Income Tax Consequences" in the Prospectus, and we hereby confirm that,
insofar as they constitute statements of law or legal conclusions as to the
likely outcome of material issues under the federal income tax laws, the
discussion under such heading accurately sets forth our advice.
Dated: November 4, 1996
Very truly yours,
/s/ DORSEY & WHITNEY LLP
CFS
