<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 4, 1997
REGISTRATION NO. 333-38687-01
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2 TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
GREEN TREE FINANCIAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 41-1807858
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
GREEN TREE LEASE FINANCE II, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MINNESOTA APPLIED FOR
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
GREEN TREE LEASE FINANCE 1997-1, LLC
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE NONE
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
----------------
1100 LANDMARK TOWERS
345 ST. PETER STREET
ST. 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
ST. PAUL, MINNESOTA 55102-1639
(612) 293-3400
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
COPIES TO: COPIES TO:
CHARLES F. SAWYER, ESQ. SIEGFRIED P. KNOPF, ESQ.
DORSEY & WHITNEY LLP BROWN & WOOD LLP
220 SOUTH SIXTH STREET ONE WORLD TRADE CENTER
MINNEAPOLIS, MINNESOTA 55402 NEW YORK, NEW YORK 10048
(612) 343-7986 (212) 839-5300
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
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: [_]
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: [_]
(continued on next page)
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<PAGE>
(continued from previous page)
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
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
TITLE OF EACH CLASS MAXIMUM AGGREGATE AMOUNT OF
OF SECURITIES AMOUNT TO BE AGGREGATE PRICE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED PER UNIT(1) PRICE(1) FEE
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Lease-Backed Notes..... $550,000,000 100% $550,000,000 $162,258.03
Class C Limited
Guaranty.............. (2) (2) (2) (2)
Total................ $550,000,000 100% $550,000,000 $162,258.03(3)
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</TABLE>
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(1) Estimated solely for the purposes of calculating the registration fee
pursuant to Rule 457.
(2) No additional consideration will be received for the Class C Limited
Guaranty; accordingly, no separate filing fee is being paid herewith
pursuant to Rule 457(n).
(3) Of this amount, $303.03 was previously paid with respect to $1,000,000 of
Notes based on the rate in effect on October 24, 1997, and $161,955 is
being paid herewith.
----------------
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.
<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 DECEMBER 4, 1997
PROSPECTUS $
LOGO
GREEN TREE LEASE FINANCE 1997-1, LLC
ISSUER
$ % LEASE-BACKED NOTES, CLASS A-1
$ % LEASE-BACKED NOTES, CLASS A-2
$ % LEASE-BACKED NOTES, CLASS B
$ % LEASE-BACKED NOTES, CLASS C
GREEN TREE VENDOR SERVICES CORPORATION
SERVICER
------------
The Lease-Backed Notes issued by Green Tree Lease Finance 1997-1, LLC (the
"Issuer"), will consist of four classes, designated as the Class A-1 Notes, the
Class A-2 Notes (together, the "Class A Notes"), the Class B Notes and the
Class C Notes (collectively, the "Notes"). The Notes will be issued pursuant to
an indenture (the "Indenture") between the Issuer and , as Trustee. Pursuant
to the Indenture, the Issuer will pledge the Trust Assets to secure the
repayment of the Notes. The Trust Assets will include a pool of equipment
leases (the "Leases") originated or acquired by Green Tree Vendor Services
Corporation ("Vendor Services") and certain rights to the proceeds of
disposition of the equipment underlying the Leases (the "Residual
Realizations").
The Notes will be payable from the Amount Available on each Payment Date
(which will consist primarily of the Scheduled Payments due under the Leases,
certain amounts received upon the prepayment or liquidation of Leases, and
investment earnings on amounts deposited in the Collection Account established
pursuant to the Indenture). To the extent described herein, payments of
interest and principal on the Class B Notes will be subordinated in priority of
payment to interest and principal, respectively, on the Class A Notes, and
payments of interest and principal on the Class C Notes will be subordinated in
priority of payment to interest and principal, respectively, on the Class A
Notes and the Class B Notes. The Notes will have the benefit of limited credit
support from that month's Residual Realizations (subject to the Residual Amount
Cap) and amounts, if any, on deposit in the Residual Account. The Class A Notes
will also have the benefit of limited credit support consisting of the
subordination of the Class B Notes and the Class C Notes. The Class B Notes
will have the benefit of limited credit support consisting of the subordination
of the Class C Notes. See "Description of the Notes." The Class C Notes will
have the benefit of a limited guaranty (the "Class C Limited Guaranty") of
Green Tree Financial Corporation ("Green Tree") to protect against losses that
would otherwise be borne by the Class C Notes. See "Description of the Notes--
Class C Limited Guaranty."
(continued on following page)
------------
FOR A DISCUSSION OF CERTAIN FACTORS RELATING TO THIS OFFERING, SEE "RISK
FACTORS" ON PAGE 15 HEREIN.
------------
THE NOTES WILL NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF GREEN TREE VENDOR
SERVICES CORPORATION, GREEN TREE FINANCIAL CORPORATION (EXCEPT TO THE EXTENT
OF THE CLASS C LIMITED GUARANTY DESCRIBED HEREIN) OR ANY OF THEIR
RESPECTIVE AFFILIATES OTHER THAN GREEN TREE LEASE FINANCE 1997-1, LLC.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECU-
RITIES 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.
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- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Initial Public Underwriting Proceeds to
Offering Price(1) Discount(2) the Issuer(1)(3)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Class A-1 Note............. % % %
- --------------------------------------------------------------------------------
Per Class A-2 Note............. % % %
- --------------------------------------------------------------------------------
Per Class B Note............... % % %
- --------------------------------------------------------------------------------
Per Class C Note............... % % %
- --------------------------------------------------------------------------------
Total.......................... $ $ $
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</TABLE>
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(1) Plus accrued interest, if any, from December , 1997.
(2) Green Tree Financial Corporation has agreed to indemnify the Underwriters
against certain liabilities, including liabilities under the Securities Act
of 1933. See "Underwriting."
(3) Before deducting expenses estimated to be $ .
------------
The Notes are offered subject to receipt and acceptance by the Underwriters,
to prior sale and to the Underwriters' right to reject any order in whole or in
part and to withdraw, cancel or modify any order without notice. It is expected
that delivery of the Notes will be made in book-entry form through the
facilities of The Depository Trust Company on or about December , 1997.
------------
LEHMAN BROTHERS
December , 1997
<PAGE>
(continued from preceding page)
To the extent the Amount Available is sufficient therefor, interest at the
rate per annum noted above for each Class of the Notes (the applicable
"Interest Rate") and principal will be paid to Holders of each class of the
Notes on the 20th day of each month (or, if such day is not a Business Day, on
the next succeeding Business Day), commencing January 20, 1998 (each, a
"Payment Date"). The Stated Maturity Date for the Class A-1 Notes is ,
and the Stated Maturity Date for the Class A-2 Notes, the Class B Notes and
the Class C Notes is , but final payment of any Class of Notes could
occur significantly earlier than the Stated Maturity Date of such Class of
Notes.
The Notes are subject to redemption in whole as described herein under
"Description of the Notes--Optional Purchase of Leases."
There is currently no secondary market for the Notes and there is no
assurance that one will develop. The Underwriters expect, but will not be
obligated, to make a market in the Notes. There is no assurance that any such
market will develop, or if any such market does develop, that such market will
continue. See "Risk Factors."
It is a condition of issuance of the Notes that each of and
(i) rate the Class A-1 Notes " " and " ," respectively, (ii)
rate the Class A-2 Notes in its highest rating category, (iii) rate the Class
B Notes at least " " and " ," respectively and (iv) rate the Class C Notes
at least " " and " ," respectively. See "Ratings of the Notes."
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE NOTES OFFERED
HEREBY. SUCH TRANSACTIONS MAY INCLUDE STABILIZING AND THE PURCHASE OF NOTES TO
COVER SYNDICATE SHORT POSITIONS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
Upon receipt of a request by an investor who has received an electronic
Prospectus from any Underwriter or a request by such investor's representative
within the period during which there is an obligation to deliver a Prospectus,
such Underwriter will promptly deliver, or cause to be delivered, without
charge, to such investor a paper copy of this Prospectus.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed by the Servicer, on behalf of the Issuer, pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), after the date of this Prospectus and prior to
the termination of the offering of the Notes shall be deemed to be
incorporated by reference into this Prospectus. Any statement contained herein
or in a document incorporated or deemed to be incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Prospectus
to the extent that a statement contained herein or in any subsequently filed
document which also is to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
this Prospectus.
Green Tree's Annual Report on Form 10-K for the year ended December 31,
1996, and Quarterly Reports on Form 10-Q for the periods ended March 31, June
30 and September 30, 1997, which have been filed with the Securities and
Exchange Commission (the "Commission"), are hereby incorporated by reference
in this Prospectus.
The Issuer will provide without charge to each person to whom a copy of this
Prospectus is delivered on the written or oral request of such person, a copy
of any or all of the documents incorporated herein by reference, except the
exhibits to such documents. Requests for such copies should be directed to
John Dolphin, Vice
i
<PAGE>
President and Director of Investor Relations, Green Tree Financial
Corporation, 1100 Landmark Towers, 345 St. Peter Street, St. Paul, Minnesota
55102-1639.
AVAILABLE INFORMATION
The Issuer has filed a Registration Statement under the Securities Act of
1933, as amended (the "Securities Act"), with the Commission with respect to
the Notes offered pursuant to this Prospectus. For further information,
reference is made to the Registration Statement and amendments thereof and to
the exhibits thereto, which are available for inspection without charge at the
public reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549; 7 World Trade Center, 13th Floor, New York, New
York 10048; and Northwest Atrium Center, 500 Madison Street, Chicago, Illinois
60661. Copies of the Registration Statement and amendments thereof and
exhibits thereto may be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. The Commission also maintains a World Wide Web site which provides on-
line access to reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission at the
address "http://www.sec.gov."
REPORTS TO NOTEHOLDERS
Unless and until Definitive Notes are issued, monthly unaudited reports
containing information concerning the Issuer and the Notes will be sent on
behalf of the Issuer to Cede & Co. ("Cede"), as nominee of The Depository
Trust Company ("DTC") as registered holder of the Notes pursuant to the
Indenture. See "Description of the Notes--Book-Entry Registration." Such
reports will be made available to DTC and its participants to holders of
interests in the Notes in accordance with the rules, regulations and
procedures creating and affecting DTC. However, such reports will not be sent
directly to each beneficial owner while the Notes are in book-entry form. Upon
the issuance of fully registered, certificated Notes, such reports will be
sent directly to each Noteholder. Such reports will not constitute financial
statements prepared in accordance with generally accepted accounting
principles. The Servicer, on behalf of the Issuer, will file with the
Commission periodic reports concerning the Issuer to the extent required under
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, the Servicer expects that the Issuer's obligation
to file such reports will be terminated following the end of 1998.
ii
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................ i
AVAILABLE INFORMATION...................................................... ii
REPORTS TO NOTEHOLDERS..................................................... ii
SUMMARY.................................................................... 1
RISK FACTORS............................................................... 15
THE ISSUER AND THE SPC..................................................... 20
GREEN TREE VENDOR SERVICES CORPORATION..................................... 21
THE LEASES................................................................. 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION................ 35
MANAGERS OF THE ISSUER..................................................... 35
WEIGHTED AVERAGE LIFE OF THE NOTES......................................... 36
DESCRIPTION OF THE NOTES................................................... 37
DESCRIPTION OF THE CONTRIBUTION AND SERVICING AGREEMENT.................... 50
CERTAIN LEGAL ASPECTS OF THE LEASES........................................ 55
FEDERAL INCOME TAX CONSEQUENCES............................................ 57
ERISA CONSIDERATIONS....................................................... 60
RATINGS OF THE NOTES....................................................... 61
USE OF PROCEEDS............................................................ 61
UNDERWRITING............................................................... 61
LEGAL MATTERS.............................................................. 62
INDEX OF PRINCIPAL TERMS................................................... 63
</TABLE>
iii
<PAGE>
SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus. Certain
capitalized terms used in this Summary are defined elsewhere in this Prospectus
on the pages indicated in the "Index of Principal Terms" on page 63.
Issuer....................... Green Tree Lease Finance 1997-1, LLC, a limited
liability company organized under the laws of
the State of Delaware. Green Tree Lease Finance
II, Inc. (the "SPC"), a wholly owned subsidiary
of Green Tree Vendor Services Corporation, is
the sole member of the Issuer. See "The Issuer
and the SPC."
Servicer..................... Green Tree Vendor Services Corporation ("Vendor
Services"). See "Green Tree Vendor Services
Corporation."
Trustee...................... , in its capacity as trustee under
an Indenture (the "Indenture"), dated as of
December 1, 1997, between the Issuer and the
Trustee.
The Notes....................
Pursuant to the Indenture, the Issuer will issue
four classes of notes (the "Notes"), consisting
of two classes of senior notes, designated as
the Lease-Backed Notes, Class A-1, in the
original principal amount of $ and
the Lease-Backed Notes, Class A-2, in the
original principal amount of $
(together, the "Class A Notes"), and two
classes of subordinated notes, designated as
the Lease-Backed Notes, Class B, in the
original principal amount of $ and
the Lease-Backed Notes, Class C, in the
original principal amount of $ .
Investments in the respective Classes of Notes
will represent substantially different
investment risks due primarily to the relative
priority of payments from the Trust Assets to
which each such Class is entitled. The Class A
Notes will be senior in right of payment of
interest to the Class B Notes and Class C
Notes, and the Class B Notes will be senior in
right of payment of interest to the Class C
Notes, as described under "Interest" and
"Priority of Payments" below. Similarly, the
Class A Notes will be senior in right of
payment of principal to the Class B Notes and
Class C Notes, and the Class B Notes will be
senior in right of payment of principal to the
Class C Notes, to the extent described under
"Principal" below. All principal payable to the
Class A Notes will be allocated to the Class A-
1 Notes until paid in full, and then to the
Class A-2 Notes, as described under "Principal"
below. The Class A-1 Notes will have a Stated
Maturity Date that is significantly earlier
than the other Classes of Notes, as described
under "Stated Maturity Dates" below.
Notwithstanding the relative subordination of
the Class C Notes summarized above, only the
Class C Notes will have the benefit of the
Class C Limited Guaranty, as described under
"Class C Limited Guaranty" below. See
"Description of the Notes."
Interest..................... Interest on the outstanding principal balance of
the Notes of each Class will accrue at the
interest rate for such Class of Notes
1
<PAGE>
specified on the cover page of this Prospectus
(the "Interest Rate" for such Class of Notes)
from and including the Closing Date to but
excluding January 20, 1998 (in the case of the
first interest period), and thereafter for each
successive Payment Date from and including the
most recent prior Payment Date to which
interest has been paid, to but excluding such
Payment Date, calculated (i) in the case of the
Class A-1 Notes, on the basis of actual days
elapsed in a year of 360 days, and (ii) in the
case of the Class A-2, Class B and Class C
Notes, on the basis of a 360-day year comprised
of twelve 30-day months. To the extent the
Amount Available is sufficient therefor, the
amount of interest to be paid on the Notes on
each Payment Date will be equal to the product
of (i) the applicable Interest Rate (calculated
in the manner described above) and (ii) the
Outstanding Principal Amount of such Class of
Notes as of the immediately preceding Payment
Date (after giving effect to reductions in
principal on such immediately preceding Payment
Date) (or, in the case of the first interest
period, interest accrued on the original
principal amount of such Class of Notes from
and including the Closing Date to but excluding
January 20, 1998).
Principal.................... For each Payment Date, each of the Class A
Noteholders, the Class B Noteholders and the
Class C Noteholders will be entitled to receive
payments of principal, to the extent funds are
available therefor, in the priorities set forth
in the Indenture and described herein below and
under "--Priority of Payments" and "Description
of the Notes--Principal." On each Payment Date,
to the extent funds are available therefor, the
principal will be paid to the Noteholders in
the following priority:
(a)(i) to the Class A-1 Noteholders only,
until the Outstanding Principal Amount on the
Class A-1 Notes has been reduced to zero, the
Class A Principal Payment, then (ii) to the
Class A-2 Noteholders, the Class A Principal
Payment,
(b) to the Class B Noteholders, the Class B
Principal Payment,
(c) to the Class C Noteholders, the Class C
Principal Payment,
(d) to the extent that the Class B Floor
exceeds the Class B Target Investor Principal
Amount and the Class C Floor exceeds the Class
C Target Investor Principal Amount, Additional
Principal (defined below) shall be
distributed, sequentially, as an additional
principal payment on the Class A-1 Notes, the
Class A-2 Notes, the Class B Notes and the
Class C Notes until the Outstanding Principal
Amount of each Class has been reduced to zero,
and
(e) to the extent the Class C Floor exceeds
the Class C Target Investor Principal Amount,
but the Class B Floor does not exceed the
Class B Target Investor Principal Amount,
2
<PAGE>
Additional Principal shall be distributed as
an additional principal payment on the Class
A-1 Notes, the Class A-2 Notes and the Class B
Notes, pro rata until the Outstanding
Principal Amount of each such Class has been
reduced to zero.
The "Outstanding Principal Amounts" as of a
Payment Date shall mean the then unpaid
principal amounts of the Class A-1 Notes, the
Class A-2 Notes, the Class B Notes and the
Class C Notes.
The "Class A Principal Payment" shall equal (a)
while the Class A-1 Notes are outstanding, (i)
on all Payment Dates prior to the January 1999
Payment Date, the lesser of (1) the amount
necessary to reduce the Outstanding Principal
Amount on the Class A-1 Notes to zero and (2)
the Monthly Principal Amount, and (ii) on the
January 1999 Payment Date, the entire
Outstanding Principal Amount on the Class A-1
Notes and (b) after the Class A-1 Notes have
been paid in full, the amount necessary to
reduce the aggregate Outstanding Principal
Amount on the Class A-2 Notes to the Class A
Target Investor Principal Amount (as defined
below).
The "Class B Principal Payment" shall equal (a)
while the Class A-1 Notes are outstanding, zero
and (b) after the Outstanding Principal Amount
on the Class A-1 Notes has been reduced to
zero, the amount necessary to reduce the
Outstanding Principal Amount of the Class B
Notes to the greater of the Class B Target
Investor Principal Amount and the Class B
Floor.
The "Class C Principal Payment" shall equal (a)
while the Class A-1 Notes are outstanding, zero
and (b) after the Outstanding Principal Amount
on the Class A-1 Notes has been reduced to
zero, the amount necessary to reduce the
Outstanding Principal Amount of the Class C
Notes to the greater of the Class C Target
Investor Principal Amount and the Class C
Floor.
"Additional Principal" with respect to each
Payment Date is an amount equal to (a) the
Monthly Principal Amount, less (b) the Class A
Principal Payment, the Class B Principal
Payment and the Class C Principal Payment to be
paid on such Payment Date.
The "Class A Target Investor Principal Amount"
with respect to each Payment Date is an amount
equal to the product of (a) the Class A
Percentage and (b) the Lease Pool Principal
Balance as of such Payment Date.
The "Class B Target Investor Principal Amount"
with respect to each Payment Date is an amount
equal to the product of (a) the Class B
Percentage and (b) the Lease Pool Principal
Balance as of such Payment Date.
The "Class C Target Investor Principal Amount"
with respect to each Payment Date is an amount
equal to the product of (a) the Class C
Percentage and (b) the Lease Pool Principal
Balance as of such Payment Date.
3
<PAGE>
The "Class A Percentage" will be %. The "Class
B Percentage" will be %. The "Class C
Percentage" will be %.
The "Class B Floor" with respect to each Payment
Date means (a) % of the Initial Pool Principal
Balance, plus (b) the Cumulative Loss Amount
with respect to such Payment Date, minus (c)
the Outstanding Principal Amount on the Class C
Notes as of the related Determination Date.
The "Class C Floor" with respect to each Payment
Date means (a) % of the Initial Pool Principal
Balance, plus (b) the Cumulative Loss Amount
with respect to such Payment Date; provided
that if the Outstanding Principal Amount on the
Class B Notes is equal to the Class B Floor on
such Payment Date, the Class C Floor will equal
the Outstanding Principal Amount on the Class C
Notes utilized in the calculation of the Class
B Floor for such Payment Date.
The "Monthly Principal Amount" for any Payment
Date will equal the excess, if any, of (i) the
sum of the principal balances of the Notes as
of such Payment Date (determined prior to the
payment of any principal in respect thereof on
such Payment Date), over (ii) the aggregate of
the Principal Balance of each Lease (the "Lease
Pool Principal Balance") as of the last day of
the Collection Period relating to such Payment
Date.
The "Cumulative Loss Amount" with respect to
each Payment Date is an amount equal to the
excess, if any, of
(a) the total of (i) the Outstanding
Principal Amount of the Notes as of the
immediately preceding Payment Date after
giving effect to all payments made on such
Payment Date, minus (ii) the lesser of (A) the
Monthly Principal Amount and (B) Available
Funds remaining after the payment of amounts
owing the Servicer and in respect of interest
on the Notes on such Payment Date, over
(b) the Lease Pool Principal Balance as of
such Payment Date.
The "Principal Balance" of any Lease as of the
last day of any Collection Period is:
(1) in the case of any Lease that does not by
its terms permit prepayment or early
termination, the present value of the unpaid
Scheduled Payments due on such Lease after
such last day of the Collection Period
(excluding all Scheduled Payments due on or
prior to, but not received as of, such last
day, as well as any Scheduled Payments due
after such last day and received on or prior
thereto), after giving effect to any
Prepayments received on or prior to such last
day, discounted monthly (assuming, for
purposes of such calculation, that each
Scheduled Payment is due on the last day of
the applicable Collection Period) at the
4
<PAGE>
rate of % per annum (the "Discount Rate"),
which rate is equal to the weighted average
Interest Rate of the Class A-2, Class B and
Class C Notes on the Closing Date, plus the
Servicing Fee;
(2) in the case of any Lease that permits
prepayment or early termination only upon
payment of a premium that is at least equal to
the present value (calculated in the manner
described in clause (1) above) of the unpaid
Scheduled Payments due on such Lease after the
date of such prepayment, the amount specified
in clause (1) above; and
(3) in the case of any Lease that permits
prepayment or early termination without
payment of a premium at least equal to the
amount specified in clause (2) above, the
lesser of (a) the outstanding principal
balance of such Lease after giving effect to
Scheduled Payments due on or prior to such
last day of the Collection Period, whether or
not received, as well as any Prepayments, and
any Scheduled Payments due after such last
day, received on or prior to such last day,
and (b) the amount specified in clause (1)
above.
The "Initial Pool Principal Balance," which is
the aggregate Principal Balance of the Leases
as of December 1, 1997, calculated at the
Discount Rate, is $ . "Statistical
Discounted Present Value of the Leases" means
an amount equal to the future remaining
scheduled payments (not including delinquent
amounts) from the Leases as of December 1,
1997, discounted at a rate equal to % (the
"Statistical Discount Rate"). The Statistical
Discounted Present Value of the Leases as of
December 1, 1997 is $ .
The Principal Balance of any Lease which became
a Liquidated Lease during a given Collection
Period or which Vendor Services was obligated
to purchase as of the end of a given Collection
Period due to a breach of representations and
warranties, will, for purposes of computing the
Monthly Principal Amount, be deemed to be zero
on and after the last day of such Collection
Period.
A "Liquidated Lease" is any Lease (a) which the
Servicer has charged off as uncollectible in
accordance with its credit and collection
policies and procedures (which shall be no
later than the date as of which the Servicer
has repossessed and disposed of the related
Equipment, or otherwise collected all proceeds
which, in the Servicer's reasonable judgment,
can be collected under such Lease), or (b) as
to which 10% or more of a Scheduled Payment is
delinquent 180 days or more. See "Description
of the Notes--Principal."
The "Collection Period" for any Payment Date
will be the calendar month preceding the month
in which such Payment Date occurs.
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Stated Maturity Dates........ If and to the extent not previously paid, the
outstanding principal balance of each Class of
Notes will be payable on the Stated Maturity
Date of such Class of Notes. The Class A-1
Stated Maturity Date will be , and
the Class A-2 Stated Maturity Date, the Class B
Stated Maturity Date and the Class C Stated
Maturity Date will be .
Denominations................ The Notes will be available for purchase in
denominations of $10,000 and integral multiples
thereof.
Closing Date................. On or about December , 1997.
Payment Dates and Record Interest and principal on the Notes will be paid
Dates....................... on the 20th day of each month (or, if such 20th
day is not a Business Day, the next succeeding
Business Day), commencing in January 1998, to
Holders of record on the Business Day
immediately preceding such Payment Date (so
long as the Notes are held in book-entry form),
or to Holders of record on the last day of the
preceding calendar month (if Definitive Notes
have been issued).
Subordination................ The likelihood of payment of interest on each
Class of Notes will be enhanced by the
application of the Amount Available to the
payment of such interest prior to the payment
of principal on any of the Notes, as well as by
the preferential right of the Holders of Class
A and Class B Notes to receive such interest
(1) in the case of the Class A Notes, prior to
the payment of any interest on the Class B
Notes or the Class C Notes, and (2) in the case
of the Class B Notes, prior to the payment of
any interest on the Class C Notes. Likewise,
the likelihood of payment of principal due on a
Payment Date on each Class of Class A and Class
B Notes will be enhanced by the preferential
right of the Holders of Notes of each such
Class to receive such principal, to the extent
of the Amount Available after payment of
interest on the Notes as aforesaid, (i) in the
case of the Class A Notes, prior to the payment
of any principal due on such Payment Date on
the Class B Notes or Class C Notes, and (ii) in
the case of the Class B Notes, prior to the
payment of any principal due on such Payment
Date on the Class C Notes. See "Description of
the Notes."
Ratings...................... It is a condition of issuance of the Notes that
each of (" ") and
(" ") (together, the "Rating Agencies") (i)
rate the Class A-1 Notes " " and " ,"
respectively, (ii) rate the Class A-2 Notes in
its highest rating category, (iii) rate the
Class B Notes at least " " and " ,"
respectively, and (iv) rate the Class C Notes
at least " " and " ." The rating of each
Class of Notes addresses the likelihood of the
timely receipt of interest and payment of
principal on such Class of Notes on or before
the Stated Maturity Date for such Class of
Notes. A rating is not a recommendation to buy,
sell or hold securities and may be subject to
revision or withdrawal at any time by the
assigning
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Rating Agency. The ratings of the Notes do not
address the likelihood of payment of principal
on any Class of Notes prior to the Stated
Maturity Date thereof. See "Ratings of the
Notes."
Trust Assets................. The Trust Assets will consist of:
(i)a pool of equipment lease contracts (each,
a "Lease") with various lessees, borrowers or
other obligors thereunder (each, an "Obligor"),
including all monies at any time paid or
payable thereon or in respect thereof from and
after December 1, 1997 (or, in the case of
Additional Leases and Substitute Leases, the
date of transfer to the Issuer) (the "Cut-Off
Date") in the form of (1) Scheduled Payments
(including all Scheduled Payments due prior to,
but not received as of, the Cut-Off Date, but
excluding any Scheduled Payments due on or
after, but received prior to, the Cut-Off
Date), (2) Prepayments and (3) Liquidation
Proceeds (including all net proceeds from the
disposition of the related Equipment);
(ii) certain rights to Residual Realizations
and amounts, if any, on deposit in the Residual
Account (described below);
(iii) amounts on deposit in (and Eligible
Investments allocated to) certain accounts
established pursuant to the Indenture and the
Contribution and Servicing Agreement, including
the Collection Account; and
(iv) certain other property and assets as
herein described.
On the Closing Date, Vendor Services will
contribute to the SPC all of its right, title
and interest in the Leases and the related
Equipment, pursuant to the Transfer Agreement
between Vendor Services and the SPC. The SPC
will immediately contribute the Leases to the
Issuer and convey to the Issuer rights to the
Residual Realizations, to the extent necessary
to make interest and principal payments on the
Notes on each Payment Date and subject to the
Residual Amount Cap (described below). The
Trust Assets will secure payment of the Notes.
See "Source of Payment and Security" below and
"The Issuer and the SPC."
Source of Payment and Principal of and interest on the Notes will be
Security.................... paid on each Payment Date solely from, and
secured by, the "Amount Available" for such
Payment Date, which is equal to the sum of
those Pledged Revenues on deposit in the
Collection Account as of the last Business Day
preceding the related Determination Date (the
"Deposit Date") which were received by the
Servicer during the related Collection Period
or which represent amounts paid by Vendor
Services to repurchase Leases as of the end of
such Collection Period (the "Available Pledged
Revenues"), plus Servicer Advances made by the
Servicer, plus Residual Realizations for the
related Collection Period.
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<PAGE>
"Pledged Revenues" will consist of:
(i) "Scheduled Payments" on the Leases (which
will consist of all required payments under the
Leases other than those portions of such
payments which (A) under the Leases, are to be
applied by the Servicer to the payment of
insurance charges, maintenance, taxes and other
similar obligations or (B) under the
Contribution and Servicing Agreement, are to be
retained by the Servicer in payment of
Administrative Fees) or are late payments as to
which Servicer Advances were made on a Payment
Date received on or after the Cut-Off Date and
due during the term of the Leases, without
giving effect to end-of-term extensions or
renewals thereof (including all Scheduled
Payments due prior to, but not received as of,
the Cut-Off Date, but excluding any Scheduled
Payments due on or after, but received prior
to, the Cut-Off Date);
(ii) any voluntary prepayments ("Prepayments")
of Scheduled Payments received on or after the
Cut-Off Date under the Leases (unless Vendor
Services has substituted an Additional Lease
therefor);
(iii) any amounts paid by Vendor Services to
repurchase Leases due to a breach of
representations and warranties with respect
thereto, as described under "Mandatory
Repurchase or Substitution of Certain Leases"
below;
(iv) any amounts paid by the SPC to purchase
the Leases as described under "Optional
Purchase of Leases" below;
(v) all net proceeds derived from the
liquidation of the Leases and the related
Equipment, as described under "Liquidated
Leases" below (unless Vendor Services has
substituted a Substitute Lease therefor); and
(vi) any earnings on the investment of amounts
credited to the Collection Account.
Servicer Advances............ Prior to any Payment Date, the Servicer may, but
will not be required to, advance to the Trustee
an amount sufficient to cover delinquencies in
Scheduled Payments on the Leases with respect
to the prior Collection Period (a "Servicer
Advance"). The Servicer will be reimbursed for
Servicer Advances from late payments on the
delinquent Leases with respect to which such
advances were made and, if the Servicer later
determines that such Servicer Advance will not
be reimbursed from the recovery on the
delinquent Lease (a "Nonrecoverable Servicer
Advance"), from the Amount Available on the
next Payment Date.
Residual Realizations........ Cash flows realized from the sale or re-lease of
the Equipment following the scheduled
expiration dates or voluntary early termination
of the Leases, other than Equipment subject to
Liquidated Leases (the "Residual
Realizations"), will provide additional credit
support to the Notes. During each Collection
8
<PAGE>
Period, the Residual Realizations will be
deposited in the Residual Account. As provided
in the Indenture, funds on deposit in the
Residual Account will be available to cover
shortfalls in the Available Pledged Revenues to
pay interest and principal payments then due on
the Notes. If, however, the aggregate amount of
Residual Realizations applied to cover
shortfalls in the Available Pledged Revenues on
all Payment Dates reaches $ (the
"Residual Amount Cap"), Residual Realizations
will thereafter not be available to cover
shortfalls in the Available Pledged Revenues.
As of the Cut-Off Date, the aggregate residual
value of the Equipment recorded on the
accounting books of Vendor Services (the "Book
Value") of the Leases was $ . Actual
Residual Realizations may be more or less than
the Book Value. On each Payment Date, amounts
on deposit in the Residual Account representing
Residual Realizations from the prior Collection
Period, not applied to pay interest and
principal then due on the Notes, will be
released to the SPC. Under certain limited
circumstances more fully described in the
Indenture (a "Residual Event"), the Residual
Realizations not distributed to Noteholders
will be retained in the Residual Account and
will be available to cover shortfalls in the
amount available to pay the amounts owing the
Servicer and to make interest and principal
payments on the Notes on subsequent Payment
Dates. Following the termination of a Residual
Event, amounts on deposit in the Residual
Account will be released to the SPC.
The Leases...................
The aggregate of the Leases held by the Issuer
as part of the Trust Assets, as of any
particular date, is referred to as the "Lease
Pool," and the Lease Pool, as of the Cut-Off
Date, is referred to as the "Cut-Off Date
Pool." As of the Cut-Off Date, the Cut-Off Date
Pool had the following characteristics (unless
otherwise noted, percentages are by Statistical
Pool Principal Balance and all dollar amounts
are calculated using the Statistical Discount
Rate). "Statistical Discounted Present Value of
the Leases" means an amount equal to the future
remaining scheduled payments (not including
delinquent amounts) from the Leases as of the
Cut-Off Date, discounted at a rate equal to
% (the "Statistical Discount Rate"). The
Statistical Discounted Present Value of the
Leases as of the Cut-Off Date is $
and will not vary materially from the Initial
Pool Principal Balance.
The following are the characteristics of the
Cut-Off Date Pool as of December 1, 1997, based
on the Statistical Discounted Present Value of
the Leases.
(i) There were Leases.
(ii) The average Principal Balance was
approximately $ .
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<PAGE>
(iii) Approximately % of such Leases
related to office equipment; approximately %
of such Leases related to commercial laundry
equipment; approximately % of such Leases
related to automotive diagnostic equipment; and
approximately % of such Leases related to
health-care related equipment.
(iv) The Obligors on approximately % of the
Leases were located in California;
approximately % were located in New York;
approximately % were located in New Jersey;
approximately % were located in Florida;
approximately % were located in Texas;
approximately % were located in Illinois;
and no other state represented more than %
of the Leases.
(v) Approximately % of the Leases had been
originated by Vendor Services, with the
remaining % of the Leases having been
originated by third parties and purchased by
Vendor Services.
(vi) The remaining term of the Leases ranged
from month to months.
(vii) The weighted average remaining term of
the Leases was approximately months and the
weighted average age of the Leases was
approximately months. See "The Lease--
Certain Statistics Relating to the Cut-Off Date
Pool."
Vendor Services will make certain
representations and warranties regarding each
Lease in connection with its contribution of
the Leases to SPC, and will be obligated to
repurchase (or substitute another lease for)
any Lease in the event of a breach of any such
representation or warranty that materially and
adversely affects the value of such Lease. See
"Mandatory Repurchase or Substitution of
Certain Leases" below.
Lease Prepayments............ Vendor Services will represent and warrant that
none of the Leases permit the Obligor
thereunder to prepay the amounts due under such
Lease or otherwise terminate the Lease prior to
its scheduled expiration date (except for a de
minimis number of Leases which allow for a
prepayment or early termination upon payment of
an amount which is not less than the Required
Payoff Amount). Nevertheless, under the
Contribution and Servicing Agreement, the
Servicer will be permitted to allow Prepayments
of any of the Leases, but only if the amount
paid by or on behalf of the Obligor (or, in the
case of a partial Prepayment, the sum of such
amount and the remaining Principal Balance of
the Lease after application of such amount) is
at least equal to the Required Payoff Amount
for such Lease.
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<PAGE>
The "Required Payoff Amount," with respect to
any Collection Period for any Lease, is equal
to the sum of:
(i) the Scheduled Payment due in such
Collection Period, together with any Scheduled
Payments due in prior Collection Periods and
not yet received, plus
(ii) the Principal Balance of such Lease as of
the last day of such Collection Period (after
taking into account the Scheduled Payment due
in such Collection Period).
Liquidated Leases............ Liquidation Proceeds (which will consist
generally of all amounts received by the
Servicer in connection with the liquidation of
a Liquidated Lease and disposition of the
related Equipment, net of any related out-of-
pocket liquidation expenses) will be deposited
in the Collection Account and constitute
Pledged Revenues to be applied to the payment
of interest and principal on the Notes in
accordance with the priorities described under
"Priority of Payments" below.
Servicing....................
The Servicer will be responsible for managing,
administering, servicing and making collections
on the Leases. Compensation to the Servicer
will include a monthly fee (the "Servicing
Fee"), which will be payable to the Servicer
from the Amount Available on each Payment Date
(payable in accordance with the priorities
described under "Priority of Payments" below),
in an amount equal to the product of one-
twelfth of .75% per annum multiplied by the
aggregate of the Principal Balance of each
Lease (the "Lease Pool Principal Balance")
determined as of the last day of the second
preceding Collection Period (or, in the case of
the Servicing Fee with respect to the
Collection Period commencing on the Cut-Off
Date, the Lease Pool Principal Balance as of
the Cut-Off Date), plus any late fees, late
payment interest, documentation fees, insurance
administration charges and other administrative
charges and a portion of any extension fees
(collectively, the "Administrative Fees")
collected with respect to the Leases during the
related Collection Period and any investment
earnings on collections prior to deposit
thereof in the Collection Account. The Servicer
may be terminated as Servicer under certain
circumstances, in which event a successor
Servicer would be appointed to service the
Leases. See "Description of the Contribution
and Servicing Agreement--Servicing--Events of
Termination."
Mandatory Repurchase or
Substitution of Certain
Leases......................
Vendor Services will make certain
representations and warranties with respect to
each Lease and the related Equipment, as more
fully described in "The Leases--Representations
and Warranties Made by Vendor Services." The
Trustee will be entitled to require Vendor
Services to purchase any Lease and the related
Equipment, at a price equal to (i) the Required
Payoff Amount, plus (ii) if applicable, the
Book Value of the related Equipment, if the
value of the Lease is materially and adversely
11
<PAGE>
affected by a breach of any such representation
or warranty which is not cured within a
specified period.
Vendor Services will have the option to
substitute one or more Leases having similar
characteristics (each, a "Substitute Lease")
for (a) Liquidated Leases, (b) Leases subject
to repurchase as a result of a breach of
representation and warranty ("Warranty Leases")
and (c) Leases following a material
modification or adjustment to the terms of such
Lease (each, an "Adjusted Lease"). The
aggregate Principal Balance of the Liquidated
Leases, Warranty Leases or Adjusted Leases for
which Vendor Services may substitute Substitute
Leases is limited to an amount not in excess of
10% of the Initial Pool Principal Balance.
In the event of the early termination of a Lease
which has been prepaid in full or in part, the
Issuer will have the option to reinvest the
proceeds of such Lease in one or more Leases
having similar characteristics for such
terminated Lease (each, an "Additional Lease").
Servicing and Collection The Trustee will establish and maintain a
Accounts.................... Servicing Account, into which the Servicer will
deposit, no later than the second Business Day
after receipt thereof, all Scheduled Payments,
Prepayments, Liquidation Proceeds and other
amounts received by the Servicer in respect of
the Leases on and after the Cut-Off Date. The
Trustee will also establish and maintain (i)
the Collection Account, into which those
amounts deposited in the Servicing Account and
constituting Pledged Revenues will be
transferred within three Business Days
following the deposit thereof in the Servicing
Account, and (ii) the Residual Account, into
which those amounts deposited in the Servicing
Account and constituting Residual Realizations
will be transferred within three Business Days
following the deposit thereof in the Servicing
Account. The Servicer will be permitted to use
any alternative remittance schedule which is
acceptable to the Rating Agencies if the effect
thereof will not result in a qualification,
reduction or withdrawal of any of the ratings
then applicable to the Notes. See "Description
of the Contribution and Servicing Agreement--
Collections on Leases."
Class C Limited Guaranty.....
In order to mitigate the effect of the
subordination of the Class C Notes and
liquidation losses on the Leases, Green Tree
Financial Corporation will provide a limited
guaranty of the Class C Notes (the "Class C
Limited Guaranty") against losses that would
otherwise be borne by the Class C Notes. On
each Payment Date, Green Tree Financial
Corporation will be obligated to make a payment
(the "Class C Guaranty Payment") equal to the
amount, if any by which interest and principal
then due on the Class C Notes exceeds the
Amount Available less amounts due in respect of
interest and principal on the Class A and Class
B Notes on such Payment Date.
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<PAGE>
Priority of Payments.........
On each Payment Date, the Trustee will be
required to make the following payments, first,
from the Available Pledged Revenues plus any
Servicer Advances and second, from amounts
permitted to be withdrawn from the Residual
Account as described under "Residual
Realizations" above, in the following order of
priority (except as otherwise described under
"Description of the Notes--Events of Default;
Rights Upon Event of Default"):
(i) the Servicing Fee (if Vendor Services or
an affiliate is no longer the Servicer);
(ii) to reimburse the Servicer for
unreimbursed Nonrecoverable Servicer Advances
made with respect to a prior Payment Date;
(iii) interest on the Notes in the following
order of priority:
(a) interest on the Class A Notes,
(b) interest on the Class B Notes, and
(c) interest on the Class C Notes;
(iv) an amount equal to the Monthly Principal
Amount as of such Payment Date, to the Class A,
Class B and Class C Notes in the amount and
order of priority described under "Principal"
above;
(v) for so long as Vendor Services or an
affiliate is the Servicer, the Servicing Fee;
and
(vi) the remainder, if any, to the SPC.
Optional Purchase of Leases.. The SPC may purchase all of the Leases on any
Payment Date following the date on which the
unpaid principal balance of the Notes is less
than 10% of the Initial Pool Principal Balance,
subject to certain provisions as described
herein under "Description of the Notes--
Optional Purchase of Leases." The purchase
price to be paid in connection with such
purchase shall be at least equal to the unpaid
principal balance of the Notes as of such
Payment Date plus interest to be paid on the
Notes on such Payment Date. The proceeds of
such purchase shall be applied on such Payment
Date to the payment of the remaining principal
balance of the Notes, together with accrued
interest thereon.
Tax Status................... In the opinion of counsel to the Issuer, the
Notes will be characterized as indebtedness and
the Issuer will not be characterized as an
"association" or "publicly traded partnership"
taxable as a corporation for federal income tax
purposes. Each Noteholder, by its acceptance of
a Note, will agree to treat the Notes as
indebtedness for federal, state and local
income tax purposes. Prospective investors are
advised to consult their own tax advisors
regarding the federal income tax
13
<PAGE>
consequences of the purchase, ownership and
disposition of Notes, and the tax consequences
arising under the laws of any state or other
taxing jurisdiction. See "Federal Income Tax
Consequences."
ERISA Considerations......... If the Notes are considered to be indebtedness
without substantial equity features under a
regulation issued by the United States
Department of Labor, the acquisition or holding
of Notes by or on behalf of a Benefit Plan will
not cause the assets of the Issuer to become
plan assets, thereby generally preventing the
application of certain prohibited transaction
rules of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and
the Internal Revenue Code of 1986, as amended
(the "Code"), that otherwise could possibly be
applicable. Although there can be no assurances
in this regard, it appears that the Notes
should be treated as indebtedness without
substantial equity features for purposes of
such regulation. As a result, subject to the
considerations described in "ERISA
Considerations" herein, the Notes are eligible
for purchase with plan assets of any Benefit
Plan. However, a fiduciary or other person
contemplating purchasing the Notes on behalf of
or with plan assets of any Benefit Plan should
carefully review with its legal advisors
whether the purchase or holding of the Notes
could give rise to a transaction prohibited or
not otherwise permissible under ERISA or
Section 4975 of the Code. See "ERISA
Considerations."
Registration, Clearance and
Settlement of Notes.........
Each of the Notes will be registered in the name
of Cede & Co., as the nominee of The Depository
Trust Company ("DTC"), and will be available
for purchase only in book-entry form on the
records of DTC and participating members
thereof. Notes will be issued in definitive
form only under the limited circumstances
described under "Description of the Notes--
Definitive Notes." All references herein to
"Holders" or "Noteholders" shall reflect the
rights of beneficial owners of Notes (the "Note
Owners"), as they may indirectly exercise such
rights through DTC and participating members
thereof, except as otherwise specified herein.
See "Description of the Notes--Book-Entry
Registration."
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<PAGE>
RISK FACTORS
Prospective Noteholders should consider the following factors in connection
with the purchase of the Notes:
RISKS RESULTING FROM LIMITED ASSETS OF THE ISSUER
The Issuer will have no assets other than the Leases (including the
Liquidation Proceeds derived from the liquidation of defaulted Leases),
certain rights to Residual Realizations on the Equipment, amounts on deposit
from time to time in the Collection Account, the Residual Account and the
accounts established pursuant to the Contribution and Servicing Agreement, and
the Class C Limited Guaranty. The Notes will represent obligations solely of
the Issuer, and none of the Notes will be insured or guaranteed, directly or
indirectly, by Vendor Services, the SPC, or the Trustee (or any affiliate of
any of them) or any other person or entity, except for the Class C Limited
Guaranty provided by Green Tree for the benefit of the Class C Notes. As a
result, the Noteholders (and particularly, if Green Tree were to fail to
perform under the Class C Limited Guaranty, the Class C Noteholders) may be
subject to delays in payment and may incur losses on their investment as a
result of defaults or delinquencies on the Leases and because of depreciation
in the value of the related Equipment or other inability to realize on the
Equipment. See "--Certain Legal Aspects of the Leases" below.
RISKS OF LOSSES TO HOLDERS OF THE CLASS B NOTES AND CLASS C NOTES RESULTING
FROM SUBORDINATION
Payments of interest and principal on the Class B Notes will be subordinated
in priority of payment to interest and principal, respectively, on the Class A
Notes. Similarly, payments of interest and principal on the Class C Notes will
be subordinated in priority of payment to interest and principal,
respectively, on the Class A Notes and the Class B Notes. In addition,
payments of principal on the Notes will be subordinated in priority of payment
to payments of interest on the Notes to the extent described herein under
"Description of the Notes--Distributions" and "--Subordination of Class B
Notes and Class C Notes."
The only protection afforded the Class C Noteholders against delinquencies
and defaults on the Leases and resulting losses of principal will be any
Residual Realizations each month, and the amounts, if any, on deposit in the
Residual Account, in each case to the extent not used to make payments of
interest and principal on the Class A and Class B Notes, and the Class C
Limited Guaranty. With respect to the Class C Notes, sufficiently high
delinquencies and liquidation losses on the Leases will have the effect of
reducing, and could eliminate, the protection against loss afforded by the
Residual Realizations and the amounts, if any, on deposit in the Residual
Account, and Class C Noteholders would thereafter be dependent on payments
made by Green Tree under the Class C Limited Guaranty for a return on their
investment. As a result, if Green Tree were to fail to perform under the Class
C Limited Guaranty, the Class C Noteholders would bear directly the risk of
losses on the remaining Trust Assets, and the Class C Noteholders could incur
losses on their investment as a result.
Further, delinquencies and defaults on the Leases could eliminate the
protection afforded the Class B Noteholders by the subordination of the Class
C Notes, and the Class B Noteholders could incur losses on their investment as
a result. In addition, delinquencies and defaults on the Leases could
eliminate the protection offered to the Class A Noteholders by the
subordination of the Class B Notes and the Class C Notes, and the Class A
Noteholders could also incur losses on their investment as a result.
RISKS RELATED TO BANKRUPTCY OF GREEN TREE OR VENDOR SERVICES
Risks Relating to Characterization of the Transfer of the Leases and
Equipment as a Borrowing by Vendor Services. Dorsey & Whitney LLP, counsel to
the Issuer, will deliver a legal opinion to the effect that, subject to the
qualifications and limitations expressed therein, the transfer of the Leases
and the Equipment from Vendor Services to the SPC constitutes a sale or
absolute assignment, rather than a pledge to secure indebtedness of Vendor
Services; and that in the event that Vendor Services were to become a debtor
under the federal bankruptcy code, a creditor or trustee in bankruptcy would
be unable to successfully challenge the transfer of the
15
<PAGE>
Leases and the Equipment to the SPC and the Leases, payments thereunder and
the Equipment would not be property of the bankruptcy estate. However, if
Vendor Services 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 Vendor Services, or Vendor Services as debtor-in-
possession, might argue that such transfer of the Leases and the Equipment
from Vendor Services to the SPC was (or should be recharacterized as) a pledge
of such assets rather than a sale or absolute assignment. If this position
were accepted by a court, any Leases considered to be "true" leases under the
applicable Insolvency Laws (as described under "The Leases-- Description of
the Leases"), and any other Lease considered to be executory under such
Insolvency Laws, could be rejected by such trustee in bankruptcy or by Vendor
Services as debtor-in-possession, which would result in the termination of
Scheduled Payments under any such Leases and reductions in distributions to
Noteholders, and Noteholders could incur a loss on their investment as a
result. To reduce the likelihood of such rejection, UCC financing statements
perfecting a security interest for the benefit of the SPC in the Equipment,
and assignments of such perfected security interest to the Issuer and the
Trustee, will be filed against Vendor Services in those states where Equipment
subject to Leases constituting at least 75% of the Initial Pool Principal
Balance and at least 75% of the aggregate Book Value as of December 1, 1997 is
located. Even if such Leases were not so rejected in the event of an
insolvency of Vendor Services, the Issuer and the Trustee could experience a
delay in or reduction of collections on all of the Leases, and Noteholders
could incur a loss on their investment as a result.
A case decided by the United States Court of Appeals for the Tenth Circuit
contains language to the effect that accounts sold by an entity that
subsequently became bankrupt remained property of the debtor's bankruptcy
estate because the sale of accounts is treated as a "security interest" that
must be perfected under the Uniform Commercial Code ("UCC"). Although the
Leases constitute chattel paper or general intangibles rather than accounts
under the UCC, sales of chattel paper, like sales of accounts, must be
perfected under Article 9 of the UCC. If Vendor Services 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,
the Issuer (and thus the Trustee) could experience a delay in or reduction of
collections on the Leases, and Noteholders could incur a loss on their
investment as a result.
Risks Relating to Substantive Consolidation of Vendor Services and the
SPC. Dorsey & Whitney LLP will deliver a legal opinion to the effect that,
subject to the qualifications and limitations expressed therein, if Vendor
Services were to become a debtor in a bankruptcy case, a bankruptcy court
would not order that the assets and liabilities of the SPC be consolidated
with those of Vendor Services. The SPC has taken steps in structuring the
transactions described herein that are intended to prevent the voluntary or
involuntary application for relief by or on behalf of Vendor Services under
any Insolvency Law from resulting in the consolidation of the assets and
liabilities of the SPC with those of Vendor Services. Such steps include the
maintenance of separate books and records and the insistence on arm's-length
terms in all agreements with Vendor Services and affiliates thereof.
Nevertheless, there can be no assurance that, in the event of a bankruptcy or
insolvency of Vendor Services, a court would not order that the Issuer's or
the SPC's assets and liabilities be consolidated with those of Vendor
Services. Any such order would adversely affect the Issuer's ability to
receive payments on the Leases, and Noteholders could incur a loss on their
investment as a result.
Risks Related to Fraudulent Transfer Laws. Under federal or state fraudulent
transfer laws, a court could, among other things, subordinate the rights of
the Noteholders in the Leases and Equipment to the rights of creditors of
Vendor Services, if a court were to find, among other things, that Vendor
Services received less than reasonably equivalent value or fair consideration
for the Leases and the Equipment and, at the time of any transfers, was
insolvent or rendered insolvent as a result of such transfer, and Noteholders
could incur a loss on their investment as a result.
Risks Relating to Commingling of Trust Assets by Vendor Services as
Servicer. While Vendor Services is the Servicer, cash collections held by
Vendor Services will be commingled and used for the benefit of the Servicer
prior to the date on which such collections are required to be deposited in a
Collection Account as described under "Description of the Contribution and
Servicing Agreement--Collections on Leases" and, in the event of the
insolvency or receivership of the Servicer or, in certain circumstances, the
lapse of certain time
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periods, the Issuer may not have a perfected ownership or security interest in
such collections, and Noteholders could incur a loss on their investment as a
result.
Risks Relating to Reliance on Representations and Warranties by Vendor
Services. Vendor Services will make certain representations and warranties
regarding the Leases, the Equipment and certain other matters (see "The
Leases--Representations and Warranties Made by Vendor Services"). In the event
that any such representation or warranty with regard to a specific Lease is
breached, is not cured within a specified period of time, and the value of
such Lease is materially and adversely affected by such breach, Vendor
Services will be required to purchase the Lease from the Issuer at a price
equal to the Required Payoff Amount of such Lease and, if there is a Book
Value of the related Equipment, will be required to purchase the related
Equipment from the SPC at a price equal to the Book Value thereof (or, subject
to certain conditions, deliver a Substitute Lease therefor). In the event of a
bankruptcy or insolvency of Vendor Services, the Trustee's right to compel a
purchase would be impaired and would have to be satisfied out of the available
assets, if any, of Vendor Services's bankruptcy estate, and Noteholders could
incur a loss on their investment as a result.
Risks Relating to Insolvency of the SPC or the Issuer. If the SPC or the
Issuer were to become insolvent under any Insolvency Law, delays in the amount
of distributions to Noteholders would be likely and Noteholders could incur a
loss on their investment as a result. The SPC and the Issuer have each taken
certain steps to minimize the likelihood that it will become bankrupt or
otherwise insolvent. The SPC is prohibited by its organizational documents and
the Transfer Agreement from engaging in activities (including the incurrence
or guaranty of debt) other than those permitted by the Transfer Agreement. See
"The Issuer and the SPC." Its Articles of Incorporation also contain
restrictions on the SPC's ability to commence a voluntary case or proceeding
under any Insolvency Law without the affirmative vote of all its directors,
including its independent directors. The Issuer is subject to similar
constraints under the Contribution and Servicing Agreement and its LLC
Agreement, including the requirement that an affirmative vote of all of the
SPC's directors, including the independent directors, occur before the Issuer
may commence any such insolvency proceeding. The Trustee, on behalf of the
Noteholders, will covenant not to subject the SPC or the Issuer to bankruptcy
proceedings until the Notes have been paid in full and one year and one day
has elapsed. Vendor Services believes that such actions substantially mitigate
the risk of an involuntary bankruptcy petition being filed against either the
SPC or the Issuer.
Risk Relating to Insolvency of a Financial Intermediary. As described under
"Green Tree Vendor Services Corporation--Equipment Lease Business," Vendor
Services from time to time acquires leases from financial intermediaries.
Similar to the risks described above related to any insolvency of Vendor
Services, in the event that a financial intermediary were to become insolvent,
the sale of the related Leases from such financial intermediary to Vendor
Services could be characterized as a fraudulent transfer or as a pledge to
secure indebtedness rather than a sale. In such event, the Issuer and the
Trustee could experience a delay in or reduction of collections on such
Leases, and Noteholders could incur a loss on their investment as a result. No
more than 5.2% of the Initial Pool Principal Balance was acquired from any one
financial intermediary.
PREPAYMENT AND EARLY TERMINATION OF LEASES AND RELATED REINVESTMENT RISKS
The weighted average life of the Notes may be reduced by prepayments and
early terminations of the Leases. Prepayments and early terminations may
result from payments by Obligors, certain amounts received as a result of
default or early termination of a Lease, the receipt of proceeds from the
physical damage to the Equipment to the extent described herein under "The
Leases," purchases by Vendor Services of Leases as a result of certain uncured
breaches of the representations and warranties made by it with respect thereto
(see "The Leases-- Representations and Warranties Made by Vendor Services") or
the SPC exercising its option to purchase all of the remaining Leases (see
"Description of the Notes--Optional Purchase of Leases"). Most of the Leases
do not permit a prepayment or early termination thereof. Nevertheless, Vendor
Services historically has permitted lessees to terminate leases early, either
in connection with the execution of a new lease of replacement equipment or
upon payment of a negotiated prepayment premium, or both. The Contribution and
Servicing Agreement will permit the Servicer to allow a voluntary prepayment
of a Lease by an Obligor at any
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time so long as the amount paid by or on behalf of the Obligor (or, in the
case of a partial prepayment, the sum of such amount and the remaining
Principal Balance of the Lease after application of such amount) is at least
equal to the Required Payoff Amount for such Lease. The amounts so received in
respect of such prepayments are to be added to the Amount Available and
applied in the priority described in "Description of the Notes--
Distributions." The rate of prepayments and early terminations on the Leases
(including those due to Obligors seeking early termination and those due to
defaults) may be influenced by a wide variety of economic and other factors,
including, among others, changes in the reimbursement policies of governmental
or third party payors, obsolescence of the Equipment, changes in interest
rates, changes in the local, regional or national economies or changes in
federal income tax laws. Therefore, no assurance can be given as to the rate
of prepayments or as to whether there will be a substantial amount of
prepayments, nor can any assurance be given as to the level or timing of any
prepayments that do occur. As the rate of payment of principal of the Notes
will depend (in the absence of Additional Leases or Substitute Leases, as
described below) on the rate of payment (including prepayments) on the Leases,
the rate at which such principal will be paid cannot be predicted and the
final payment of a Class of Notes could occur significantly earlier than the
Stated Maturity Date of such Class of Notes. There can be no assurance that
Noteholders will be able to reinvest principal paid on any Class of Notes at
an interest rate equal to the Interest Rate for such Class of Notes, and
Noteholders will bear all reinvestment risk resulting from the timing of
payments of principal on the Notes. See "Weighted Average Life of the Notes."
RISKS RELATING TO ADDITIONAL LEASES AND SUBSTITUTE LEASES
As described herein, pursuant to the Contribution and Servicing Agreement,
Vendor Services may, but is not obligated to, designate one or more leases in
its portfolio to be an Additional Lease as a replacement for any partially or
fully prepaid lease or upgraded lease, in which event the scheduled payments
from such Additional Lease will replace (in whole or in part) the remaining
scheduled payments on a prepaid Lease. In the event (and only to the extent)
that Vendor Services makes such a designation, the amount, or portion thereof,
received by the Issuer with respect to a Prepayment will be allocated directly
to Vendor Services and the payments with respect to the related Notes will be
dependent upon the scheduled payments received on such Additional Leases. In
addition, pursuant to the Contribution and Servicing Agreement, Vendor
Services may, but is not obligated to, substitute one or more leases as
Substitute Leases in exchange for Liquidated Leases. Accordingly, payments of
principal of and interest on the Notes may be dependent, in part, upon
payments received on such Substitute Leases. Although the Contribution and
Servicing Agreement specifies various criteria that must be satisfied by any
Additional Lease or Substitute Lease, there can be no assurance that the
delinquency and default experience of the Issuer with respect to such
Additional Leases or Substitute Leases will be comparable to that of the
Leases so replaced. The Servicer's monthly report to Noteholders will disclose
all Substitute Leases and Additional Leases delivered to the Issuer during the
related monthly period, and Vendor Services will make representations and
warranties regarding any Additional Leases or Substitute Leases described
under "The Leases--Representations and Warranties Made by Vendor Services,"
but the characteristics of such Additional Leases or Substitute Leases will
not be verified by independent accountants or any other third party.
RISKS RELATING TO RELIANCE ON RESIDUAL REALIZATIONS
The aggregate amount of Residual Realizations available to Noteholders will
not exceed the Residual Amount Cap. The availability of Residual Realizations
will depend on various factors, including the timing of Lease Terminations and
the future value of Equipment, which in each case is inherently uncertain. The
Servicer will be obligated to use its best efforts to sell or re-lease any
Equipment upon the termination of the Lease to which such Equipment is subject
(whether as a result of early termination or upon scheduled expiration of the
Lease), in a timely manner and in a manner so as to maximize, to the extent
possible under then prevailing market conditions, the net proceeds from such
Equipment. However, because, among other things, the market value of equipment
generally declines with age and may be subject to sudden, significant declines
in value due to technological obsolescence, there can be no assurance as to
the amount the Servicer will be able to realize on any such Equipment at such
time. Other factors that may also affect the amount of the Residual
Realization will include whether the Equipment is returned to the Servicer
upon termination or expiration of such Lease and whether there has been damage
to or loss of any item of Equipment.
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Moreover, unless a Residual Event has occurred, any month's Residual
Realizations not used to pay interest or principal on the related Payment Date
will be released to the SPC and will not thereafter be available to make
payments on the Notes. Accordingly, there can be no assurance that Residual
Realizations will be available on a Payment Date when the Available Pledged
Revenues are insufficient to pay interest and principal on the Notes.
ENFORCEABILITY OF THE LEASES
The transfer of the Leases by Vendor Services to the SPC, and by the SPC to
the Issuer, the perfection of the interest of the Issuer in the Leases and the
right to receive payments thereon, and the Issuer's and the Trustee's interest
in such Leases and in the Equipment are subject to the requirements of the UCC
as in effect in Minnesota and, with respect to certain of the Equipment, in the
various states in which the Equipment subject to the applicable Lease is
located from time to time. Vendor Services will take or cause to be taken such
actions as are required to perfect the transfer to the SPC and thence to the
Issuer of Vendor Services's rights in the Leases and the right to receive
payments thereunder and to perfect the security interest of the Trustee in the
Issuer's rights in the Leases and the right to receive payments thereunder.
Risks Relating to Decision Not to File Certain UCC Financing Statements. It
has been the general policy of Vendor Services, depending on the dollar amount
of the particular Lease, not to file or (in certain cases) not to obtain or
file UCC financing statements with respect to the Equipment relating to certain
Leases. See "Green Tree Vendor Services Corporation--Documentation." With
respect to any such Leases that were deemed to be loans or leases intended for
security (as described under "The Leases-- Description of the Leases"), a
purchaser from the applicable Obligor of the related Equipment would acquire
such Equipment free and clear of the interest of Vendor Services in such
Equipment, and a creditor of the Obligor which has taken a security interest in
such Equipment and filed a UCC financing statement with respect thereto or a
trustee in the bankruptcy of such Obligor would have priority over the interest
of Vendor Services in such Equipment. Any such purchaser, creditor or trustee
would have an interest superior to the interest of the Issuer in such
Equipment, which interest is derived from the transfer and conveyance of a
security interest in the Equipment by Vendor Services to the SPC, and by the
SPC to the Issuer. All of the Leases prohibit the Obligor from selling or
pledging the related Equipment to third parties.
Due to the administrative burden and expense, no assignments of the UCC
financing statements evidencing the security interest of Vendor Services in the
Equipment (to the extent that such financing statements have been filed against
the Obligor, as discussed above) will be filed to reflect the SPC's, the
Issuer's or the Trustee's interests therein. While failure to file such
assignments does not affect the Issuer's interest in the Leases or perfection
of the Trustee's interest in such Leases (including Vendor Services's security
interest in the related Equipment), it does expose the Issuer (and thus
Noteholders) to the risk that Vendor Services could release its security
interest in the Equipment of record, and it could complicate the Issuer's
enforcement, as assignee, of Vendor Services's security interest in the
Equipment. While these risks should not affect the perfection or priority of
the interest of the Trustee in the Leases or rights to payment thereunder, they
may adversely affect the right of the Trustee to receive proceeds of
disposition of the Equipment subject to a Liquidated Lease. Additionally,
statutory liens for repairs or unpaid taxes and other liens arising by
operation of law may have priority even over prior perfected security interests
in the Equipment assigned to the Trustee.
Risks Relating to Servicer's Retention of Lease Documents; Risk of Sale to
Third Party. The Servicer will hold the Leases and certain related documents on
behalf of the Issuer and the Trustee. To facilitate servicing and save
administrative costs, the documents will not be physically segregated from
other similar documents that are in the Servicer's possession. UCC financing
statements will be filed in the appropriate jurisdictions reflecting (i) the
sale and assignment of the Leases and Vendor Services' interests in the
Equipment to the SPC, (ii) the transfer and assignment of the Leases and rights
to Residual Realizations by the SPC to the Issuer, and (iii) the pledge of the
Leases and the Residual Realizations by the Issuer to the Trustee, and the
Servicer's accounting records and computer systems will also reflect such
transfers. The Leases will not, however, be stamped or otherwise marked to
reflect that such Leases have been sold to the SPC, transferred to the Issuer
or pledged to the Trustee. If, through inadvertence or otherwise, any of the
Leases were sold to another party (or a security interest therein were granted
to another party) that purchased (or took a security interest in) any of such
Leases in the ordinary course of business and took possession of such Leases,
the purchaser (or secured party) would
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acquire an interest in the Leases superior to the interest of the Issuer and
the Trustee if the purchaser (or secured party) acquired (or took a security
interest in) such Leases for new value and without actual knowledge of the
Issuer's or the Trustee's interest. Such superior interest may include an
ownership interest, which would cut off all rights of the Issuer to such Leases
and payments thereunder, or a security interest, which would be senior to the
security interest held by the Issuer; in either case, Noteholders could incur a
loss on their investment as a result.
LIMITED LIQUIDITY OF THE NOTES
There is currently no market for the Notes. The Underwriters expect, but will
not be obligated, to make a market for the Notes. There can be no assurance
that a secondary market for the Notes will develop or, if it does develop, that
it will provide the Holders of such Notes with liquidity of investment or will
continue for the life of such Notes. As a result, inverstors must be prepared
to bear the risk of holding the Notes for as long as the Notes are outstanding.
EFFECT OF BOOK-ENTRY REGISTRATION
The Notes will be issued in book-entry, rather than physical, form and, as a
result, in certain circumstances, the liquidity of the Notes in the secondary
market and the ability of the Noteholders to pledge them may be adversely
affected. See "Underwriting" and "Description of the Notes--Book-Entry
Registration." The Notes will be registered in the name of a nominee of DTC and
will not be registered in the names of the beneficial owners or their nominees.
As a result, unless and until Definitive Notes are issued in the limited
circumstances described under "Description of the Notes--Definitive Notes,"
beneficial owners will not be recognized by the Trustee as Noteholders, as that
term is used in the Indenture. Hence, until such time, beneficial owners will
only be able to exercise the rights of Noteholders indirectly through DTC and
its participating organizations. In addition, the laws of some states require
that certain purchasers of securities take physical delivery of such securities
in certificated form. Such limits and such laws may impair the ability to
transfer beneficial interests in the Notes.
THE ISSUER AND THE SPC
The Issuer is a limited liability company organized under the laws of the
State of Delaware. Green Tree Lease Finance II, Inc. ("SPC") is the sole and
managing member of the Issuer. The SPC is wholly owned by Vendor Services.
The Issuer has been formed solely for the purposes of the transactions
described in this Prospectus. Under its LLC Agreement and the Indenture, the
Issuer is not permitted to engage in any activity other than (i) acquiring the
Leases and rights to the Residual Realizations from the SPC, (ii) pledging the
Pledged Revenues and its rights to the Residual Realizations to the Trustee,
(iii) executing and performing its obligations under the Contribution and
Servicing Agreement and the Indenture, and (iv) engaging in other transactions,
including entering into agreements, that are necessary, suitable or convenient
to accomplish the foregoing or are incidental thereto or connected therewith.
The Issuer is prohibited from incurring any debt, issuing any obligations,
incurring any liabilities, except in connection with the issuance of the Notes
or voting to file for bankruptcy without the affirmative vote of all of the
SPC's directors, including the independent directors.
The SPC, as sole and managing member of the Issuer, does not intend to engage
in any business or activities other than (i) becoming a member or shareholder
of, making capital contributions to, and acting as the managing member of, the
Issuer and other similar special purpose entities; (ii) acquiring, owning,
leasing, transferring, receiving, pledging the Leases and related Equipment,
other similar leases and related equipment, and related activities set forth in
the SPC's Articles of Incorporation; and (iii) engaging in any lawful act or
activity and exercising any powers permitted to corporations organized under
the Minnesota Business Corporation Act that are incidental to and necessary or
convenient for the accomplishment of the above mentioned business and
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purposes, all as more specifically set forth in its Articles of Incorporation,
provided that none of the actions referenced in clauses (ii) and (iii) with
respect to such other leases and equipment and related activities above, shall
result in a downgrade of a rating issued by a Rating Agency with respect to the
Notes. The SPC is not liable, responsible or obligated, directly or indirectly,
for payment of any principal, interest or any other amount in respect of any of
the Notes.
On the Closing Date, Vendor Services will contribute the Leases and the
Equipment to the SPC pursuant to the Transfer Agreement. Immediately
thereafter, the SPC will, pursuant to the Contribution and Servicing Agreement,
contribute to the Issuer all of the Leases and certain rights to the Residual
Realizations, and Vendor Services will agree to service the Leases on behalf of
the Issuer. The Issuer will pledge the Trust Assets to the Trustee and issue
the Notes pursuant to the Indenture.
The Trust Assets will consist of:
(1) a pool of equipment lease contracts (each, a "Lease") with various
lessees, borrowers or other obligors thereunder (each, an "Obligor"),
including all monies at any time paid or payable thereon or in respect
thereof from and after December 1, 1997 or, in the case of Additional
Leases and Substitute Leases, the date of transfer to the Issuer) (the
"Cut-Off Date") (in the form of (i) Scheduled Payments (including all
Scheduled Payments due prior to, but not received as of, the Cut-Off Date,
but excluding any Scheduled Payments due on or after, but received prior
to, the Cut-Off Date), (ii) Prepayments, and (iii) Liquidation Proceeds
(including all net proceeds from the disposition of the related Equipment)
received with respect to defaulted Leases;
(2) certain rights to Residual Realizations and amounts, if any, on
deposit in the Residual Account, to the extent necessary to make payments
of interest and principal then due on the Notes (subject to the Residual
Amount Cap);
(3) amounts on deposit in (and Eligible Investments allocated to) certain
accounts established pursuant to the Indenture and the Contribution and
Servicing Agreement, including the Collection Account;
(4) the Class C Limited Guaranty; and
(5) the Issuer's rights under the Contribution and Servicing Agreement
and the SPC's rights under the Transfer Agreement.
GREEN TREE VENDOR SERVICES CORPORATION
GENERAL
The Leases comprising the Trust Assets have been originated by Green Tree
Vendor Services Corporation ("Vendor Services"), a Delaware corporation, or, in
some cases, purchased from third parties by Vendor Services. Vendor Services is
a leading independent provider of vendor/manufacturer-oriented equipment
finance programs, with headquarters in Bloomington, Minnesota, additional
operations in Paramus, New Jersey, and twelve regional sales offices located
throughout the United States. Vendor Services, a wholly-owned subsidiary of
Green Tree Financial Corporation, was acquired from FINOVA Corporation in
November 1996. Vendor Services' original predecessor, TriContinental Leasing
Corporation, was established in 1968, although its equipment leasing business
has undergone several restructurings and changes of ownership since that time.
Vendor Services offers "small-ticket" equipment leasing programs, for assets
with a purchase price generally less than $100,000, to manufacturers, dealers
and distributors, and to a select group of financial intermediaries nationwide,
facilitating the sale of their products to end-user customers.
EQUIPMENT LEASE BUSINESS
Market Position
Vendor Services establishes customized financing programs for the end-user
customers of equipment vendors and select financial intermediaries that focus
on end-user customers who meet Vendor Services's general
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customer profiles. The equipment vendor segment has been the primary focus of
Vendor Services's activities. In total, as of December 1996, Vendor Services
had in its portfolio a total of 57,000 individual end-user customers with
active accounts. Vendor Services attempts to maintain geographical diversity
and a broad cross-section of commercial account types in its lease portfolio.
Equipment Vendors
The primary sales focus of Vendor Services is on providing point-of-sale
financing for the customers of equipment vendors, including equipment
manufacturers, dealers and distributors that sell their products regionally or
nationally. While Vendor Services primarily finances office equipment such as
copy machines, fax machines, personal computers and related peripherals,
office furniture and telephone systems, its vendor base also consists of
sellers of commercial laundry equipment, automotive diagnostic equipment and
health-care related products.
Financial Intermediaries
With respect to financial intermediaries, Vendor Services focuses its
activities on those that have industry recognition, proven track records in
generating new business through end-user contracts or through low-end
equipment dealers and a customer base consistent with Vendor Services's
general customer profiles. Each lease acquired from financial intermediaries
is individually approved by Vendor Services using Vendor Services' own credit
underwriting criteria.
CREDIT UNDERWRITING STANDARDS
Vendor Services has established policies, controls, systems and procedures
designed to manage and limit credit risk. These policies, controls, systems
and procedures are subject to periodic review by management.
Vendor Services seeks to minimize credit risk through diversification of the
portfolio by customer, industry segment, equipment type, geography and
transaction maturity. Vendor Services's financing activities are spread across
a wide range of equipment types, including general equipment, office
equipment, information technology and light commercial equipment, with end-
users located throughout the United States.
Underwriting procedures are divided into three main categories: Equipment
Dealers and Manufacturers, Intermediaries and Lessees. Listed below is an
overview of each underwriting process.
Equipment Dealers and Manufacturers
Vendor Services requires that all leased equipment be sold by authorized
sellers that have sufficient experience with each brand they sell. Credit
requirements vary depending on the degree to which Vendor Services relies on
the dealer or manufacturer to support and service the equipment.
Financial Intermediaries
Financial intermediaries are required to have well-established histories and
conform to Vendor Services's approved equipment Dealer/Manufacturers business
line. Although standard industry representations and warranties are required,
Vendor Services's credit decision will not depend on an financial
intermediary's ability to honor these obligations.
Lessees
Vendor Services's underwriting standards are intended to evaluate a
prospective customer's credit standing and repayment ability. Credit decisions
are based on the credit characteristics of the applicant, loss experience
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with comparable customers, the amount, terms and conditions of the proposed
transaction and the type of equipment to be leased or financed. Vendor Services
uses a proprietary automated credit scoring system, which is a statistically
based scoring system that quantifies information obtained from customers'
credit applications and credit reports.
DOCUMENTATION
Prior to funding a leasing and financing transaction, a complete
documentation package must be completed. Generally, such a package includes a
credit application, signed lease/installment sale or financing agreement,
vendor invoice, initial lease/advance payment, proof of insurance (where
relevant), delivery and acceptance acknowledgments and appropriate UCC
financing statements. UCC filings are generally required if the underlying
equipment cost is over $25,000.
COLLECTIONS
Invoices are generated 21 days prior to the due date with a 10-day grace
period before late charges accrue. Identified payments are electronically
posted according to an established hierarchy.
The collection processes begin after 15 days with an automatic late notice.
Collection calls are placed between 15 and 30 days after the due date. A
contract is classified as delinquent when it reaches 31 days past due.
Automated "work to be done screens" are updated daily, allowing individual
collectors to customize their follow-up procedures. Management approval is
required for contract rewrites or extensions.
CHARGE-OFF POLICY
Vendor Services works closely with vendors to manage delinquencies by
maintaining and closely monitoring non-accrual and write-off policies. Vendor
Services requires that accounts 90-plus days past due (or less, if in the
judgment of the collection manager the account is impaired) are deemed "non-
earning" and are placed on non-accrual status. Non-accrual accounts are
assigned to the legal administration department. This department is responsible
for ensuring collection costs are reasonable in relation to exposure and
ability to collect from a lessee or guarantor, and for negotiating and
processing settlements and write-offs within authorized levels. A write-off is
recommended by the legal administration department if it has been determined
that the lease is uncollectible even through litigation. A legal administrator
may refer a delinquent account to a pre-approved collection agency or to an
attorney, based upon dollar amount and the likelihood of collection.
Before an account is written-off or settled, its disposition must be approved
at a level of management commensurate with the size of the account. Similarly,
re-writes and extensions must be approved at a level of management commensurate
with the size of the account.
PORTFOLIO MONITORING
Portfolio Performance Tracking
Vendor Services uses a number of tools to monitor portfolio performance.
Monthly vendor performance reports are prepared for all active accounts,
indicating the dollar amount of delinquent accounts, the percentage of accounts
delinquent, the dollar amount of accounts on non-accrual status, the percentage
of accounts on non-accrual status and the dollar amount of any accounts written
off. Accounts that fall outside standard Vendor Services guidelines are subject
to further analysis.
Each vendor relationship with a portfolio balance in excess of $1,000,000 is
given an annual in-depth review covering portfolio performance, an analysis of
management, the quality of the business sent to Vendor Services and the
financial condition of the vendor. Any vendors whose portfolio performance
falls outside the standard guidelines are assigned to a more senior analyst or
manager for further review.
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Ongoing Credit Review
In addition to the initial credit review, Vendor Services conducts ongoing
credit review procedures to identify at an early stage those customers who may
be experiencing financial difficulty. These customers are monitored by credit
personnel, who periodically summarize for the Credit Committee the possible
remedial actions, what portion, if any, of total credit exposures should be
written off, and whether a specific allocation of Vendor Services's loss
reserves is appropriate.
In establishing allowances for credit losses, Vendor Services' management
reviews, among other things, the maturity of Vendor Services' portfolio, the
status of all non-performing leases and receivables, prior collection
experience and Vendor Services' overall exposure and changes in credit risk.
THE LEASES
DESCRIPTION OF THE LEASES
General
Substantially all of the Leases are commercial rather than consumer leases.
The following description of the Leases generally describes the material terms
of the Leases to be included in the Lease Pool, although an immaterial number
of Leases may differ in one or more provisions from the following description.
Vendor Services offers a variety of lease plans based on (i) the type of
equipment sold by the vendor, (ii) the average transaction size, (iii) the
vendor's monthly lease volume, (iv) the general credit characteristics of the
vendor's end-user customers and (v) the end-of-lease purchase option.
The Leases include both true leases and leases intended for security. Under a
true lease the lessor bears the risk of ownership and takes any federal tax
benefits associated with the lease, and no title is conferred upon the lessee.
The lessee under a true lease has the right to the temporary use of equipment
for a term shorter than the economic life of such equipment in exchange for
payments at scheduled intervals during the lease term and the lessor retains a
significant "residual" economic interest in the leased equipment. End of lease
options for true leases include purchase of the equipment at fair market value
or renewal of the lease at fair market value. Under leases intended for
security, the lessor in effect finances the "purchase" of the leased assets by
the lessee and retains a security interest in the leased assets. The lessee
retains the leased property for substantially all its economic life and the
lessor retains no significant residual interest. These leases are considered
conditional sales type leases for federal tax purposes, and, accordingly, the
lessor may not claim any federal tax benefits of ownership of the leased
equipment. End of lease options for such leases depend on the terms of the
related Lease, although generally these terms provide for purchase of the
Equipment at a prestated price. The inclusion of true leases in the Lease Pool
will have no income tax impact on Noteholders since the Notes are treated as
debt for income tax purposes. See "Federal Income Tax Consequences." However,
true leases are treated differently under the Bankruptcy Code from leases
intended for security. See "Risk Factors--Bankruptcy and Insolvency Risks" and
"Certain Legal Aspects of the Leases--Insolvency Matters" for a discussion of
these differences.
Lease Forms
The Leases are generally in one of two forms: (a) a master lease agreement
containing all of the general terms and conditions of the lease transaction or
transactions, with schedules setting forth the specific terms of each lease
transaction with that particular Obligor (a "Master Form Lease") or (b) a
specific lease agreement form containing all of the terms and conditions of the
lease transaction (a "Specific Lease Form"). In certain cases, the Lease may be
written on another form which was created by Vendor Services, by a customer or
by a financial intermediary.
24
<PAGE>
Payments
Generally, the Leases require that the Obligor make periodic payments on a
monthly basis. An immaterial number of Leases provide for quarterly, semi-
annual, annual, or variable payments. The payments under all of the Leases are
required to be made in United States dollars and are fixed and specified
payments, rather than payments which are tied to a formula or are otherwise at
a floating rate. Payments under the Leases are ordinarily payable in advance,
although a small percentage provide for payments in arrears. Many Leases also
require security deposits which are held until all contractual obligations are
met.
Expenses Relating to Equipment
The Leases require the Obligors to assume the responsibility for payment of
all expenses of the related Equipment including (without limitation) any
expenses in connection with the maintenance and repair of the related
Equipment, the payment of any and all premiums for casualty and liability
insurance and the payment of all taxes relating to the Equipment.
Insurance; Repair and Replacement
The Leases (except for a small number of Leases which, in relation to the
Initial Pool Principal Balance, is not material) require the Obligors to
maintain liability insurance which must name the lessor as additional insured.
Leases require Obligors to procure property insurance against the loss, theft
or destruction of, or damage to, the Equipment for its full replacement value,
naming the lessor (or lender) as loss payee. This requirement is, from time to
time, waived by the originator for a small number of transactions and, for some
Leases, the Obligor is permitted to self-insure the Equipment under the
Obligor's already existing self-insurance program.
For transactions involving Equipment with a cost of $200,000 or less, the
Obligor is generally provided with written information concerning its property
insurance obligations under the Lease and the originator's own property
insurance coverage that will be provided at the expense of the Obligor if the
Obligor does not provide the originator with satisfactory evidence of its own
insurance coverage. The Obligor is given a specified time period in which to
provide such evidence. Proper evidence of coverage is verified independently
and tracked by a third party tracking company and licensed broker. If the
originator provides the insurance coverage, the Obligor is charged a monthly
fee covering the insurance charges and other related administrative charges.
The Obligor has the ability to "opt out" of the program by providing evidence
of its own coverage, at which time such monthly charges cease.
For transactions involving Equipment with a cost of more than $200,000,
insurance coverage generally is verified and traced by the respective
originator, and the failure to maintain such insurance constitutes an event of
default under the applicable Lease. Generally, either pursuant to the Specific
Lease Form or the Master Form Lease, the Obligor also agrees to indemnify the
originator for all liability and expenses arising from the use, condition or
ownership of the Equipment.
Under each Lease, if the Equipment is damaged or destroyed, the Obligor is
required (i) to repair such Equipment, (ii) to make a termination payment to
the lessor in an amount not less than the Required Payoff Amount, or (iii) in
some cases, to replace such damaged or destroyed Equipment with other equipment
of comparable use and value. Under the Contribution and Service Agreement, the
Servicer is permitted (in the case of the destruction of the Equipment related
to a particular Lease) either to allow the Lessee to replace such Equipment
(provided that the replacement equipment is, in the judgment of the Servicer,
of comparable use and at least equivalent value to the value of the Equipment
which was destroyed) or to accept the termination payment referred to above.
25
<PAGE>
Assignment of Leases
The Leases permit the assignment thereof by the lessor or secured party
without the consent of the Obligor, except for a small number of Leases which
require notification of the assignment to, or the consent of, the Obligor.
The Leases do not permit the assignment thereof (or the Equipment related
thereto) by the Obligor without the prior consent of the lessor or secured
party, other than Leases which (i) may permit assignments to a parent,
subsidiary or affiliate, (ii) permit the assignment to a third party, provided
the Obligor remains liable under the Lease or (iii) permit assignment to a
third party with a credit standing (determined by Vendor Services in accordance
with its underwriting policy and practice at the time for an equivalent
contract type, term and amount) equal to or better than the original Obligor.
Under the Contribution and Servicing Agreement, the Servicer may permit an
assignment of a particular Lease from an Obligor to a third party only if the
Servicer (utilizing the current underwriting criteria for its contract
origination activities generally) determines that such third party is of
sufficient credit quality that the Servicer would permit such third party to
become an Obligor with respect to a Lease originated by the Servicer generally.
Hell-or-High-Water Leases
The Leases are "hell-or-high-water" contracts which require any payments
thereunder to be made regardless of the condition or suitability of the related
Equipment and notwithstanding any defense, set-off or counterclaim that the
Obligor may have against the lessor.
Events of Default and Remedies
Events of default under the Leases generally include the failure to pay all
amounts required by the Lease when due, the failure of the Obligor to perform
its agreements and covenants under the applicable Lease, material
misrepresentations made by the Obligor, the bankruptcy or insolvency of the
Obligor or the appointment of a receiver for the Obligor and, in some cases,
default by the Obligor under other contracts or agreements. Some of these
default provisions are subject to notice provisions and cure periods. Remedies
available to the lessor or secured party upon the occurrence of an event of
default by the Obligor include the right to cancel or terminate the Lease, to
recover possession of the related Equipment, and to receive an amount intended
to make the lessor or secured party (as the case may be) whole plus costs and
expenses (including legal fees) incurred by the lessor or secured party as a
result of such default. Notwithstanding such events of default and remedies,
under the Contribution and Servicing Agreement, the Servicer is permitted to
take such actions, with respect to delinquent and defaulted Leases, as a
reasonably prudent creditor would do under similar circumstances. See
"Description of the Contribution and Servicing Agreement--Servicing." Vendor
Services may occasionally provide payment extensions (generally of three months
or less, although longer extensions are occasionally granted) to customers
experiencing delays in payment due to cash flow shortages or other reasons.
However, it is not intended that extensions be used to provide a temporary
solution for a delinquent account. Rather, extensions are intended to be used
when, in the judgment of the relevant credit authority, it will permit the
permanent resolution of the delinquency.
Prepayments and Early Termination
None of the Leases permit the prepayment or early termination of the Lease
(except for a de minimis number of Leases which allow for a prepayment or early
termination upon payment of an amount which is not less than the Required
Payoff Amount). Nevertheless, the Servicer is permitted under the Contribution
and Servicing Agreement to accept prepayments of any of the Leases, but only if
the amount paid by or on behalf of the Obligor (or, in the case of a partial
prepayment, the sum of such amount and the remaining Principal Balance of the
Lease after application of such amount) is at least equal to the Required
Payoff Amount for such Lease.
26
<PAGE>
Disclaimer of Warranties
The Leases contain provisions whereby the lessor (or Vendor Services, as
assignee of the lessor) disclaims all warranties with respect to the Equipment
and, in the majority of cases, the lessor assigns the manufacturer's
warranties to the Obligor for the term of the Lease. Under the Leases, the
Obligor "accepts" the Equipment under the applicable Lease following delivery
and an opportunity to inspect the related Equipment.
REPRESENTATIONS AND WARRANTIES MADE BY VENDOR SERVICES
Under the Transfer Agreement, Vendor Services will make the following
representations and warranties regarding each Lease (and the related
Equipment) as of December 1, 1997, and regarding each Substitute Lease as of
the date of its substitution or Additional Lease as of the date of its
addition:
(A) Each Lease (i) constitutes a valid, binding and enforceable payment
obligation of the Obligor in accordance with its terms (except as may be
limited by applicable bankruptcy, insolvency or other similar laws
affecting the enforceability of creditors' rights generally and the
availability of equitable remedies), (ii) has been duly and properly sold,
assigned and conveyed by Vendor Services under the Transfer Agreement to
the SPC and has been duly and properly transferred and conveyed by the SPC
to the Issuer pursuant to the Contribution and Servicing Agreement, (iii)
was originated by Vendor Services in the ordinary course of its business,
or (in the case of any Lease purchased by Vendor Services) was acquired by
Vendor Services for proper consideration and was validly assigned to Vendor
Services by the originator of such Lease, and (iv) contains customary and
enforceable provisions adequate to enable realization against the Obligor
and/or the related Equipment (although no representation or warranty is
made with respect to the perfection or priority of any security interest in
such related Equipment);
(B) No selection procedures adverse to the Noteholders were utilized in
selecting the Leases from those leases owned by Vendor Services on the Cut-
Off Date;
(C) All requirements of applicable Federal, state and local laws, and
regulations thereunder, in respect of all of the Leases, have been complied
with in all material respects;
(D) There is no known default, breach, violation or event permitting
cancellation or termination of the Lease by the lessor under the terms of
any Lease (other than Scheduled Payment delinquencies (in excess of 10% of
the Scheduled Payment due) of not more than 59 days), and (except for
payment extensions and waivers of Administrative Fees in accordance with
Vendor Services's servicing and collection policies and procedures) there
has been no waiver of any of the foregoing; and as of the Cut-Off Date, no
related Equipment had been repossessed;
(E) Immediately prior to the sale, assignment and conveyance of each
Lease by Vendor Services to the SPC, Vendor Services had good title to such
Lease and Vendor Services's interest in the related Equipment (subject to
the terms of such Lease) and was the sole owner thereof, free of any Lien;
and immediately prior to the transfer and conveyance of the Leases by the
SPC to the Issuer, the SPC had good title to such Leases and such interest
in the related Equipment and was the sole owner thereof, free of any Lien
(other than the rights of the Obligor under the related Lease);
(F) No person has a participation in or other right to receive Scheduled
Payments under any Lease, and neither the SPC nor Vendor Services has taken
any action to convey any right to any person that would result in such
person having a right to Scheduled Payments received with respect to any
Lease;
(G) Each Lease was originated by Vendor Services or acquired by Vendor
Services and was sold and assigned by Vendor Services to the SPC without
any fraud or misrepresentation on the part of Vendor Services;
(H) Each Obligor (i) is located in the United States, and (ii) is not (a)
the United States of America or any State or local government or any
agency, department, subdivision or instrumentality thereof (except for
Leases representing no more than 3% of the Initial Pool Principal Balance)
or (b) Vendor Services or any affiliate thereof;
27
<PAGE>
(I) The sale, transfer and assignment of such Lease and Vendor Services'
interest in the related Equipment to the SPC under the Transfer Agreement,
and the transfer and conveyance of such Lease from, and the grant of rights
to the related Residual Realizations by, the SPC to the Issuer under the
Contribution and Servicing Agreement, are not unlawful, void or voidable
under the laws of the jurisdiction applicable to such Lease;
(J) All filings and other actions required to be made, taken or performed
by any person in any jurisdiction to give the Issuer a first priority
perfected lien or ownership interest in the Leases and a first priority
perfected security interest in Vendor Services's interest in the Equipment
have been made, taken or performed;
(K) There exists a Lease File pertaining to each Lease, and such Lease
File contains the Lease or a facsimile copy thereof;
(L) There is only one original executed copy of each Lease or, if there
are multiple originals, all such originals are in the possession of Vendor
Services or the signed original in the possession of Vendor Services is
noted thereon as being the only copy that constitutes chattel paper;
(M) The Leases constitute chattel paper within the meaning of the UCC as
in effect in the States of Minnesota and Delaware (other than those Leases
in which the lessor is financing exclusively the Obligor's software license
or maintenance contract for Equipment, which Leases, in proportion to the
Initial Pool Principal Balance, are not material);
(N) Each Lease was entered into by an Obligor who, at the Cut-Off Date,
had not been identified on the records of Vendor Services as being the
subject of a current bankruptcy proceeding;
(O) The computer tape containing information with respect to the Leases
that was made available by Vendor Services to the Trustee on the Closing
Date and was used to select the Leases was complete and accurate in all
material respects as of the applicable Cut-Off Date and includes a
description of the same Leases that are described in the Schedule of Leases
to the Contribution and Servicing Agreement;
(P) By the Closing Date, the portions of the electronic master record of
Vendor Services relating to the Leases will have been clearly and
unambiguously marked to show that the Leases constitute part of the Trust
Assets and are owned by the Issuer in accordance with the terms of the
Contribution and Servicing Agreement;
(Q) No Lease has a Scheduled Payment delinquency (in excess of 10% of the
Scheduled Payment due) of more than 59 days past due as of the Cut-Off
Date;
(R) Each Lease may be sold, assigned and transferred by Vendor Services
to the SPC, and may be assigned and transferred by the SPC to the Issuer,
without the consent of, or prior approval from, or any notification to, the
applicable Obligor, other than (i) certain Leases (which, in proportion to
the aggregate of all of the Leases, are not material) that require
notification of the assignment to the Obligor, which notification will be
given by the Servicer not later than 10 days following the Closing Date,
and (ii) Leases (which, in proportion to the aggregate of all of the
Leases, are not material) that require the consent of the Obligor, which
consent will be obtained by the Servicer not later than 10 days following
the Closing Date;
(S) Each Lease prohibits the sale, assignment or transfer of the
Obligor's interest therein, the assumption of the Lease by another person
in a manner that would release the Obligor thereof from the Obligor's
obligation, or any sale, assignment or transfer of the related Equipment,
without the prior consent of the lessor, other than Leases which may (i)
permit assignment to a subsidiary, corporate parent or other affiliate,
(ii) permit the assignment to a third party, provided the Obligor remains
liable under the Lease, or (iii) permit assignment to a third party with a
credit standing (determined by Vendor Services in accordance with its
underwriting policy and practice at the time for an equivalent contract
type, term and amount) equal to or better than the original Obligor;
(T) The Obligor under each Lease is required to make payments thereunder
(i) in United States dollars, and (ii) in fixed amounts and on fixed and
predetermined dates;
28
<PAGE>
(U) Each Lease requires the Obligor to assume responsibility for payment
of all expenses in connection with the maintenance and repair of the
related Equipment, the payment of all premiums for insurance of such
Equipment and the payment of all taxes (including sales and property taxes)
relating to such Equipment;
(V) Each Lease requires the Obligor thereunder to make all Scheduled
Payments thereon under all circumstances and regardless of the condition or
suitability of the related Equipment and notwithstanding any defense, set-
off or counterclaim that the Obligor may have against the manufacturer,
lessor or lender (as the case may be);
(W) Under each Lease, if the Equipment is damaged or destroyed, the
Obligor is required either (i) to repair such Equipment, (ii) to make a
termination payment to the lessor in an amount not less than the Required
Payoff Amount, or (iii) in some cases, to replace such damaged or destroyed
Equipment with other equipment of comparable use and value;
(X) None of the Leases permit the Obligor to terminate the Lease prior to
the latest Stated Maturity Date or to otherwise prepay the amounts due and
payable thereunder, except for a de minimis number of Leases which allow
for an early termination or prepayment upon payment of an amount which is
not less than the Required Payoff Amount;
(Y) It is not a precondition to the valid transfer or assignment of
Vendor Services' interest in any of the Equipment related to any Lease that
title to such Equipment be transferred on the records of any governmental
or quasi-governmental agency, body or authority;
(Z) The information with respect to the Leases listed on the Schedule of
Leases attached to the Contribution and Servicing Agreement is true,
correct and complete in all material respects;
(AA) No provisions of any Lease have been waived, altered or modified in
any material respect, except as indicated in the Lease File;
(BB) No Lease is a "consumer lease" as defined in Article 2A of the
Uniform Commercial Code, except for a de minimis number of Leases; and
(CC) To the best of Vendor Services's knowledge, each Obligor has
accepted the related Equipment and has had reasonable opportunity to
inspect and test such Equipment.
(DD) The Obligor has made at least one payment under the Lease.
The above-described representations and warranties of Vendor Services will
survive the transfer and assignment of the related Leases and other Trust
Assets to the Issuer.
In the event of a breach of any such representation or warranty with respect
to a Lease that materially and adversely affects the value of such Lease (any
such breach being a "Repurchase Event"), Vendor Services, unless it cures the
breach by the end of the second Collection Period after the date on which
Vendor Services becomes aware of or receives written notice from the Trustee or
the Servicer of such breach, will be obligated to repurchase (or substitute
another lease for) the Lease and, in the case of a Lease, the related
Equipment. Any such purchase shall be made on the Deposit Date immediately
following the end of such second Collection Period at a price equal to the
Required Payoff Amount applicable to such Lease plus, if applicable, the Book
Value of the related Equipment. This purchase or substitution obligation may be
enforced by the Trustee on behalf of the holders of the Notes, and will
constitute the sole remedy available to the Noteholders against Vendor Services
for any such uncured breach, except that pursuant to the Transfer Agreement,
Vendor Services will indemnify the Trustee, the Issuer and the Noteholders
against losses, damages, liabilities and claims which may be asserted against
any of them as a result of third-party claims arising out of the facts giving
rise to such breach.
Upon the purchase or substitution by Vendor Services of a Lease (and, in the
case of a Lease, any related Equipment), such Lease and related Equipment will
be released to Vendor Services.
29
<PAGE>
CERTAIN STATISTICS RELATING TO THE CUT-OFF DATE POOL
General
Vendor Services has prepared certain statistics relating to the Pool as of
the Cut-Off Date (the "Cut-Off Date Pool"). All calculations of the Principal
Balances of the Leases set forth herein are made using the Statistical
Discount Rate of %. The Initial Pool Principal Balance using the Discount
Rate, which will be the weighted average of the Interest Rates of the Class A-
2, Class B and Class C Notes on the Closing Date, plus the Servicing Fee. The
Initial Pool Principal Balance will not vary materially from Statistical Pool
Principal Balance (which is calculated using the Statistical Discount Rate).
The Statistical Pool Principal Balance is an amount equal to $ (which
amount is based upon the aggregate of the Principal Balance of each Lease (the
"Lease Pool Principal Balance") determined as of the Cut-Off Date, but also
includes an amount in respect of Scheduled Payments on the Leases due prior
to, but not received as of, the Cut-Off Date). The total number of Leases in
the Cut-Off Date Pool is . The average Principal Balance of the Leases, as
of the Cut-Off Date, was approximately $ . Within the Cut-Off Date Pool, %
of the Leases (by Statistical Pool Principal Balance) were originated by
Vendor Services and % of such Leases (by Statistical Pool Principal Balance)
were purchased by Vendor Services from unrelated third parties.
COMPOSITION OF THE CUT-OFF DATE POOL
<TABLE>
<CAPTION>
STATISTICAL WEIGHTED AVERAGE
NUMBER POOL PRINCIPAL ORIGINAL TERM WEIGHTED AVERAGE AVERAGE PRINCIPAL
OF LEASES BALANCE (RANGE) REMAINING TERM (RANGE) BALANCE (RANGE)
- --------- -------------- ------------------------ ---------------------- -----------------
<S> <C> <C> <C> <C>
months months
( months to months) ( month to months) ( to )
</TABLE>
30
<PAGE>
Geographical Diversity
The following table shows the geographical diversity of the Cut-Off Date
Pool, by indicating the number of Leases, the aggregate Principal Balance of
such Leases and the percentage (by number of Leases and by aggregate Principal
Balance) of such Leases relative to all of the Leases in the Cut-Off Date Pool
by reference to the State in which the Obligors on such Leases are located:
<TABLE>
<CAPTION>
AGGREGATE
% OF TOTAL NUMBER STATISTICAL % OF STATISTICAL POOL
STATE NUMBER OF LEASES OF LEASES PRINCIPAL BALANCE PRINCIPAL BALANCE
- ----- ---------------- ----------------- ----------------- ---------------------
<S> <C> <C> <C> <C>
Alabama.................
Alaska..................
Arizona.................
Arkansas................
California..............
Colorado................
Connecticut.............
Delaware................
District of Columbia....
Florida.................
Georgia.................
Hawaii..................
Idaho...................
Illinois................
Indiana.................
Iowa....................
Kansas..................
Kentucky................
Louisiana...............
Maine...................
Maryland................
Massachusetts...........
Michigan................
Minnesota...............
Mississippi.............
Missouri................
Montana.................
Nebraska................
Nevada..................
New Hampshire...........
New Jersey..............
Mew Mexico..............
New York................
North Carolina..........
North Dakota............
Ohio....................
Oklahoma................
Oregon..................
Pennsylvania............
Rhode Island............
South Carolina..........
South Dakota............
Tennessee...............
Texas...................
Utah....................
Vermont.................
Virginia................
Washington..............
West Virginia...........
Wisconsin...............
Wyoming.................
Total..................
</TABLE>
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<PAGE>
Adverse economic conditions in states where a substantial number of Obligors
are located, such as California and New York, may adversely affect such
Obligors' ability to make payments on the related Leases, and the Noteholders
could suffer a loss on their investment as a result.
Payment Status
The following table shows the payment status of the Cut-Off Date Pool, by
indicating the number of Leases, the aggregate Principal Balance of such Leases
and the percentage (by number of Leases and by aggregate Principal Balance) of
such Leases relative to all of the Leases in the Cut-Off Date Pool by reference
to whether such Leases were current as of the Cut-Off Date or were 30-59 days
delinquent:
<TABLE>
<CAPTION>
% OF TOTAL AGGREGATE % OF STATISTICAL
NUMBER OF STATISTICAL POOL PRINCIPAL
PAYMENT STATUS NUMBER OF LEASES LEASES PRINCIPAL BALANCE BALANCE
- -------------- ---------------- ---------- ----------------- ----------------
<S> <C> <C> <C> <C>
Current.................
30-59 Days Delinquent...
Total.................
</TABLE>
Leases by Equipment Type
The following table shows the type of Equipment securing or otherwise related
to the Leases, by the number of Leases, the aggregate Principal Balance of such
Leases, and the percentage (by number of Leases and by aggregate Principal
Balance) of such Leases relative to all of the Leases:
<TABLE>
<CAPTION>
% OF TOTAL AGGREGATE % OF STATISTICAL
NUMBER OF STATISTICAL POOL PRINCIPAL
TYPE OF EQUIPMENT NUMBER OF LEASES LEASES PRINCIPAL BALANCE BALANCE
- ----------------- ---------------- ---------- ----------------- ----------------
<S> <C> <C> <C> <C>
Telecommunications......
Manufacturing and Con-
struction..............
Computers and Point-of-
Sale...................
General Office..........
Medical.................
Printing................
Other...................
Total.................
</TABLE>
Principal Balances
The following table shows the distribution of the Cut-Off Date Pool by
Principal Balance by indicating the number of Leases which have a Principal
Balance within a defined range and the aggregate Principal Balance of such
Leases, and the percentage (by number of Leases and by aggregate Principal
Balance) of such Leases relative to all of the Leases:
<TABLE>
<CAPTION>
% OF TOTAL AGGREGATE % OF STATISTICAL
NUMBER STATISTICAL POOL PRINCIPAL
PRINCIPAL BALANCE NUMBER OF LEASES OF LEASES PRINCIPAL BALANCE BALANCE
- ----------------- ---------------- ---------- ----------------- ----------------
<S> <C> <C> <C> <C>
$ 0 to
$ 5,000.00..........
$ 5,000.01 to
$ 25,000.00..........
$ 25,000.01 to
$ 50,000.00..........
$ 50,000.01 to
$ 100,000.00..........
$ 100,000.01 to
$ 500,000.00..........
$ 500,000.01 to
$1,000,000.00..........
Over $1,000,000.00......
Total.................
</TABLE>
32
<PAGE>
Remaining Terms of Leases
The following table shows the remaining term of the Leases from the Cut-Off
Date to the scheduled expiration date of such Leases, by indicating the number
of Leases, the aggregate Principal Balance of such Leases, and the percentage
(by number of Leases and by aggregate Principal Balance) of such Leases
relative to all of the Leases:
<TABLE>
<CAPTION>
% OF TOTAL AGGREGATE % OF STATISTICAL
NUMBER OF STATISTICAL POOL PRINCIPAL
REMAINING TERMS OF LEASES NUMBER OF LEASES LEASES PRINCIPAL BALANCE BALANCE
- ------------------------- ---------------- ---------- ----------------- ----------------
<S> <C> <C> <C> <C>
One Month to 12 Months...
13 Months to 24 Months...
25 Months to 36 Months...
37 Months to 48 Months...
49 Months to 60 Months...
Over 60 Months...........
Total..................
</TABLE>
Types of Obligor
The Leases with a single Obligor (or group of affiliated Obligors) having the
largest aggregate Principal Balance as of the Cut-Off Date represented no more
than % of the Statistical Pool Principal Balance. The following table shows
the types of Obligor on Leases within the Cut-Off Date Pool, by the number of
Leases, the aggregate Principal Balance of such Leases, and the percentage (by
number of Leases and by aggregate Principal Balance) of such Leases relative to
all of the Leases:
<TABLE>
<CAPTION>
% OF TOTAL AGGREGATE % OF STATISTICAL
NUMBER OF STATISTICAL POOL PRINCIPAL
TYPE OF OBLIGOR NUMBER OF LEASES LEASES PRINCIPAL BALANCE BALANCE
- --------------- ---------------- ---------- ----------------- ----------------
<S> <C> <C> <C> <C>
Service Organizations...
Manufacturing and Con-
struction..............
Retail and Wholesale
Trade..................
Other...................
Financial Services......
Professionals...........
Printing and Copy Cen-
ters...................
Medical.................
Total.................
</TABLE>
CERTAIN STATISTICS RELATING TO DELINQUENCIES AND DEFAULTS
Delinquencies
The following table sets forth statistics relating to delinquencies on leases
within Vendor Services' owned and managed portfolio of receivables similar to
the Leases as of December 31, 1996 and as of October 31, 1997. Vendor Services
was acquired by Green Tree Financial Corporation in November 1996, and current
management, accordingly, cannot certify delinquency and default experience for
prior periods. However, current management does not believe that Vendor
Services' delinquency and default experience in prior periods was substantially
different from the experience presented here. For these purposes, a
"Delinquency" means that the obligor on the lease has failed to make a required
Scheduled Payment in an amount equal to at least 90% of the required Scheduled
Payment within 30 days of the due date. For these purposes, any payment made by
the obligor on a lease subsequent to the required payment date is applied to
the earliest payment which was unpaid. The following table is based, where
indicated, on the gross receivable balance of the leases, as it appears on the
accounting records of Vendor Services as of the date set forth below and not
solely the overdue payments.
33
<PAGE>
<TABLE>
<CAPTION>
GROSS PERCENTAGE OF GROSS RECEIVABLE BALANCE OF
RECEIVABLE LEASES WHICH WERE DELINQUENT
BALANCE OF ------------------------------------------
LEASES 31 TO 60 61 TO 90 91 TO 120 OVER 120
DATE OF CALCULATION (IN THOUSANDS) DAYS DAYS DAYS DAYS TOTAL
- ------------------- -------------- -------- -------- --------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
12/31/96.............
10/31/97.............
</TABLE>
Non-Accruals
The following table sets forth statistics relating to Non-Accruals on Leases
within Vendor Services' owned and managed portfolio of receivables similar to
the Leases as of, and for the 12-month period ending, December 31, 1996 and as
of, and for the ten-month period ending, October 31, 1997. Vendor Services was
acquired by Green Tree Financial Corporation in November 1996, and current
management, accordingly, cannot certify non-accrual experience for prior
periods. However, current management does not believe that Vendor Services'
non-accrual experience in prior periods was substantially different from the
experience presented here. For these purposes, a "Non-Accrual" means that, as
of the date indicated, the obligor on the relevant lease had failed to make
payments in an amount at least equal to 90% of the required Scheduled Payment
for at least 90 days beyond the date required (or less, if in the judgment of
the collection manager the account is impaired), or commenced a bankruptcy or
insolvency proceeding. The following table is based, where indicated, on the
net investment of the leases (gross of any allowance for losses) as it appears
on the records of Vendor Services as of the date specified below:
<TABLE>
<CAPTION>
AGGREGATE NET PERCENTAGE OF
INVESTMENT OF AGGREGATE NET INVESTMENT
LEASES OF LEASES WHICH WERE
DATE OF CALCULATION (IN THOUSANDS) ON NON-ACCRUAL
------------------- ------------- ------------------------
<S> <C> <C> <C>
12/31/96.......................
10/31/97.......................
</TABLE>
Losses and Recoveries
The following table sets forth statistics relating to gross losses and losses
net of recoveries on defaulted leases within Vendor Services' owned and managed
portfolio of receivables similar to the Leases during the 12-month period
ending December 31, 1996 and during the six-month period ending June 30, 1997.
Vendor Services was acquired by Green Tree Financial Corporation in November
1996, and current management, accordingly, cannot certify loss and recovery
experience for prior periods. However, current management does not believe that
Vendor Services' loss and recovery experience in prior periods was
substantially different from the experience presented here. For these purposes,
"gross losses" means total losses before recoveries measured against the net
investment of the leases (gross of any allowance for losses), and "losses net
of recoveries" means losses after recoveries measured against the net
investment of the leases (gross of any allowance for losses).
<TABLE>
<CAPTION>
AGGREGATE NET GROSS LOSSES AS A NET LOSSES AS A
INVESTMENT OF LEASES PERCENTAGE OF NET PERCENTAGE OF NET
DATE OF CALCULATION (IN THOUSANDS) INVESTMENT INVESTMENT
------------------- -------------------- ----------------- -----------------
<S> <C> <C> <C>
12/31/96................
10/31/97................
</TABLE>
Vendor Services' delinquency, non-accrual and net loss experience has
historically been affected by prevailing economic conditions, particularly in
industries and geographic regions where it has customer concentrations.
It has been Vendor Services' experience that, unlike consumer receivables,
collections from the obligors constitute a significant portion of recoveries on
defaulted equipment lease receivables, in addition to the proceeds from
liquidation of the related equipment. The resale value of individual items of
Equipment, which would be collected by the Servicer in the event of a default
under the related Lease, will vary substantially, depending on
34
<PAGE>
such factors as the expected remaining useful life of the Equipment at the
time of the default and the obsolescence of the Equipment, it is possible that
the resale values for some Equipment would be negligible or insufficient to
justify repossession and resale.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
As of the date of this Prospectus, the Issuer has had no operating history.
The net proceeds of the sale of the Notes will be employed to purchase the
Leases. See "Use of Proceeds." The Issuer is prohibited by its LLC Agreement
from engaging in business other than (i) acquiring the Leases and rights to
the Residual Realizations from the SPC, (ii) pledging the Pledged Revenues and
its rights to the Residual Realizations to the Trustee, (iii) executing and
performing its obligations under the Contribution and Servicing Agreement and
the Indenture, and (iv) engaging in other transactions, including entering
into agreements, that are necessary, suitable or convenient to accomplish the
foregoing or are incidental thereto or connected therewith.
MANAGERS OF THE ISSUER
The following table sets forth the executive officers and directors of the
Issuer and their ages and positions as of the date of this Prospectus. Because
the Issuer is organized as a special purpose company and will be largely
passive, it is expected that the officers and directors in such capacity will
participate in the management of the Company to a limited extent. Most of the
actions related to maintaining and servicing the assets will be performed by
the Servicer.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------------------------------------
<S> <C> <C>
Joel H. Gottesman............... 48 Manager and Chair of Board of Managers
Edward L. Finn.................. 53 Manager
Robert D. Potts................. 55 Manager
</TABLE>
Joel H. Gottesman was named to the Board of Managers of the Issuer in
October 1997. Mr. Gottesman has been Senior Vice President and General Counsel
of Green Tree Financial Services since September 1995, and Secretary since May
1996. From 1983 to 1995, Mr. Gottesman was an attorney at Briggs & Morgan,
Professional Association.
Edward L. Finn was named to the Board of Managers of the Issuer in October
1997. Mr. Finn has served as Executive Vice President and Chief Financial
Officer of Green Tree Financial Corporation since July 1996. From 1970 to
1996, Mr. Finn held various positions at Ernst & Young LLP, an accounting
firm, including Managing Partner of the Minneapolis office.
Robert D. Potts was named to the Board of Managers of the Issuer in October
1997. Mr. Potts has served as President and Chief Operating Officer of Green
Tree Financial Corporation since April 1994, as Executive Vice President and
Chief Operating Officer from December 1993 to April 1994 and as Executive Vice
President, Administration from October 1993 to November 1993. Mr. Potts was
Managing Partner at Deloitte & Touche and its predecessor, Touche Ross & Co.,
Minneapolis, Minnesota, from 1988 to 1993.
None of the above-listed managers of the Issuer will be compensated directly
by the Issuer nor with any funds or assets of the Issuer nor will any such
managers receive compensation in the capacities in which they act for the
Issuer.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to managers, officers and controlling persons of the Issuer
pursuant to its LLC Agreement, or otherwise, the Issuer has been advised that
in the opinion of the Commission such indemnification is against public policy
as expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilties
35
<PAGE>
(other than the payment by the Issuer of expenses incurred or paid by a
manager, officer or controlling person of the Issuer in the successful defense
of any action, suit or proceeding) is asserted by such manager, officer or
controlling person in connection with the Notes, the Issuer will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate juridisction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
WEIGHTED AVERAGE LIFE OF THE NOTES
THE FOLLOWING INFORMATION IS GIVEN SOLELY TO ILLUSTRATE THE EFFECT OF
PREPAYMENTS ON THE LEASES ON THE WEIGHTED AVERAGE LIFE OF THE NOTES UNDER THE
ASSUMPTIONS STATED BELOW AND IS NOT A PREDICTION OF THE PREPAYMENT RATE THAT
MIGHT ACTUALLY BE EXPERIENCED BY THE LEASES.
Weighted average life refers to the average amount of time from the date of
issuance of a security until each dollar of principal of such security will be
repaid to the investor. The weighted average life of the Notes will be
primarily a function of the rate at which payments are made on the Leases.
Payments on the Leases may be in the form of Scheduled Payments or prepayments
(including, for this purpose, liquidations due to default).
The Constant Prepayment Rate prepayment model ("CPR") represents an assumed
constant rate of prepayment of Leases outstanding as of the beginning of each
month expressed as a per annum percentage. There can be no assurance that
Leases will experience prepayments at a constant prepayment rate or otherwise
in the manner assumed by the prepayment model. See "Risk Factors--Yield and
Prepayment Considerations."
The weighted average lives in the following table were determined assuming
that (i) Scheduled Payments on the Leases are received in a timely manner and
prepayments are made at the percentages of CPR set forth in the table; (ii)
the SPC does not exercise its right to purchase the Leases described under
"Description of the Notes--Optional Purchase of the Leases"; (iii) the Initial
Pool Principal Balance is $ and the Leases have the characteristics
described under "The Leases"; (iv) payments are made on the Notes on the 20th
day of each month commencing in January 1998; and (v) the Notes are issued on
December , 1997. No representation is made that these assumptions will be
correct, including the assumption that the Leases will not experience
delinquencies or losses. The % CPR column assumes that Vendor Services does
not substitute any Additional Leases in exchange for prepaid Leases or
Substitute Leases in exchange for Liquidated Leases.
In making an investment decision with respect to the Notes, investors should
consider a variety of possible prepayment scenarios, including the limited
scenarios described in the table below.
WEIGHTED AVERAGE LIFE OF THE NOTES AT THE RESPECTIVE CPRS SET FORTH BELOW:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
LIFE (YEARS)
-----------------
% CPR % CPR % CPR
----- ----- -----
<S> <C> <C> <C>
Class A-1 Notes...............................................
Class A-2 Notes...............................................
Class B Notes.................................................
Class C Notes.................................................
</TABLE>
36
<PAGE>
DESCRIPTION OF THE NOTES
GENERAL
The Notes will be issued pursuant to the terms of the Indenture. The
following summary describes certain terms of the Notes and the Indenture. A
copy of the form of the Indenture has been filed with the Commission as an
Exhibit to the Registration Statement of which this Prospectus is a part.
, a headquartered in , will be the
Trustee.
Pursuant to the Indenture, the Issuer will issue four classes of notes (the
"Notes"), consisting of two classes of senior notes, designated as the %
Lease-Backed Notes, Class A-1, in the original principal amount of $ ,
and the % Lease-Backed Notes, Class A-2, in the original principal amount
of $ (together, the "Class A Notes") and two classes of subordinated
notes, designated as the % Lease-Backed Notes, Class B, in the original
principal amount of $ and the % Lease-Backed Notes, Class C,
in the original principal amount of $ .
Payments on the Notes will be made by the Trustee on each Payment Date to
persons in whose names the Notes are registered as of the related Record Date
(the "Holders" or "Noteholders"). The Payment Date for the Notes will be the
20th day of each month (or if such 20th day is not a Business Day, the next
succeeding Business Day), commencing in January 1998. The Record Date for any
Payment Date will be the Business Day immediately preceding the Payment Date
(so long as the Notes are held in the book-entry form), or the last day of the
prior calendar month (if Definitive Notes have been issued).
A "Business Day" is any day (other than a Saturday, Sunday or legal holiday)
on which commercial banks in New York City, or any other location of a
successor Servicer or Trustee, are open for regular business.
Each Class of Notes initially will be represented by one or more
certificates (the "Book-Entry Certificates") registered in the name of the
nominee of DTC (together with any successor depository selected by the
Trustee, the "Depository"), except as set forth below. Beneficial interests in
each Class of Notes will be available for purchase in minimum denominations of
$10,000 and integral multiples thereof in book-entry form only. The Issuer has
been informed by DTC that DTC's nominee will be Cede & Co. Accordingly, Cede &
Co. is expected to be the Holder of record of the Notes. Unless and until
Definitive Notes are issued under the limited circumstances described herein,
no Note Owner acquiring an interest in any Class of Notes will be entitled to
receive a certificate representing such Note Owner's interest in such Notes.
Until such time, all references herein to actions by Noteholders of any Class
of Notes will refer to actions taken by the Depository upon instructions from
its participating organizations and all references herein to distributions,
notices, reports and statements to Noteholders of any Class of Notes will
refer to distributions, notices, reports and statements to the Depository or
its nominee, as the registered Holder of the Notes of such Class, for
distribution to Note Owners of such Class in accordance with the Depository's
procedures. See "--Book-Entry Registration" and "--Definitive Notes."
Subject to applicable laws with respect to escheat of funds, any money held
by the Trustee or any paying agent in trust under the Indenture for the
payment of any amount due with respect to any Note and remaining unclaimed for
two years after such amount has become due and payable shall be discharged
from such trust and, upon request of the Issuer, shall be deposited by the
Trustee in the Collection Account; and the Holder of such Note shall
thereafter, as an unsecured general creditor, look only to the Issuer for
payment thereof, and all liability of the Trustee or such paying agent with
respect to such money shall thereupon cease.
DISTRIBUTIONS
Principal of and interest on the Notes will be paid on each Payment Date,
solely from, and secured by, the Amount Available for such Payment Date, which
is equal to the sum of those Pledged Revenues on deposit in the Collection
Account as of the last Business Day preceding the related Determination Date
(the "Deposit Date") which were received by the Servicer during the related
Collection Period or which represent amounts paid by Vendor Services to
repurchase Leases as of the end of such Collection Period (the "Available
Pledged
37
<PAGE>
Revenues") plus any Servicer Advances, plus amounts permitted to be withdrawn
therefor from the Residual Account, as described under "--Residual
Realizations" below.
"Pledged Revenues" will consist of (i) "Scheduled Payments" on the Leases
(which will consist of all required payments under the Leases other than those
portions of such payments which, under the Leases, are to be (A) applied by
the Servicer to the payment of insurance charges, maintenance, taxes and other
similar obligations, or (B) under the Contribution and Servicing Agreement,
are to be retained by the Servicer in payment of Administrative Fees or are
late payments as to which Servicer Advances were made on a Payment Date)
received on or after the Cut-Off Date and due during the term of the Leases,
without giving effect to end-of-term extensions or renewals thereof (including
all Scheduled Payments due prior to, but not received as of, the Cut-Off Date,
but excluding any Scheduled Payments due on or after, but received prior to,
the Cut-Off Date); (ii) any voluntary prepayments ("Prepayments") of Scheduled
Payments received on or after the Cut-Off Date under the Leases (unless Vendor
Services has substituted an Additional Lease therefor); (iii) any amounts paid
by Vendor Services to purchase Leases due to a breach of representations and
warranties with respect thereto, as described under "The Leases--
Representations and Warranties Made by Vendor Services"; (iv) any amounts paid
by the SPC to purchase the Leases as described under "Optional Purchase of
Leases"; (v) Liquidation Proceeds derived from the liquidation of the Leases
and the disposition of the related Equipment, as described under "--Liquidated
Leases" below (unless Vendor Services has substituted a Substitute Lease
therefor); and (vi) any earnings on the investment of amounts credited to the
Collection Account.
On each Payment Date, the Trustee will be required to make the following
payments, first, from Available Pledged Revenues plus any Servicer Advances,
and second, from amounts permitted to be withdrawn from the Residual Account
as described under "--Residual Realizations" below, in the following order of
priority (except as otherwise described under "--Events of Default; Rights
Upon Event of Default" below):
(i) the Servicing Fee if Vendor Services or an affiliate is no longer the
Servicer;
(ii) to reimburse the Servicer for unreimbursed Nonrecoverable Servicer
Advances made with respect to a prior Payment Date;
(iii) interest on the Notes in the following order of priority:
(a) interest on the Class A Notes,
(b) interest on the Class B Notes, and
(c) interest on the Class C Notes;
(iv) an amount equal to the Monthly Principal Amount as of such Payment
Date, in respect of principal on the Notes in the amounts and in the
priority described under "--Principal" below;
(v) for so long as Vendor Services or an affiliate is the Servicer, the
Servicing Fee; and
(vi) the remainder, if any, to the Issuer.
CLASS A INTEREST
Interest will be paid to the Holders of each Class of the Class A Notes on
each Payment Date, to the extent the Amount Available (after taking into
account any prior applications described under "--Distributions" above) is
sufficient therefor, at the Interest Rate for such Class on the then
outstanding Principal Balance of such Class. Interest on the Class A-1 Notes
will be calculated on the basis of actual days elapsed in a year of 360 days,
and interest on the Class A-2 Notes will be calculated on the basis of a 360-
day year consisting of twelve 30-day months. Such interest so payable on such
Payment Date will be equal to the product of (i) the Interest Rate for such
Class (calculated in the manner described above) and (ii) the Outstanding
Principal Amount of such Class as of the immediately preceding Payment Date
(after giving effect to reductions in the Outstanding Principal Amount of such
Class on such immediately preceding Payment Date). Interest on each Class of
the Class A Notes will accrue from and including the Closing Date to but
excluding January 20, 1998 (in the case of the first
38
<PAGE>
interest period), and thereafter for each successive Payment Date from and
including the most recent prior Payment Date to which interest has been paid,
to but excluding such Payment Date.
In the event that, on a given Payment Date, the Amount Available is not
sufficient to make a full payment of interest to the Holders of Class A Notes,
the amount of interest to be paid on the Class A Notes will be allocated among
the Notes of each Class of Class A Notes pro rata in accordance with their
respective entitlements to interest (and within each such Class pro rata among
the holders of such Class), and the amount of such shortfall will be carried
forward and, together with interest thereon at the applicable Interest Rate,
added to the amount of interest such Holders will be entitled to receive on the
next Payment Date.
CLASS B INTEREST
Interest will be paid to the Holders of the Class B Notes on each Payment
Date, to the extent the remaining Amount Available (after taking into account
any prior applications described under "--Distributions" above) is sufficient
therefor, at the Interest Rate on the Outstanding Principal Amount of the Class
B Notes, and will be calculated on the basis of a 360-day year consisting of
twelve 30-day months. Such interest so paid on such Payment Date will be equal
to one-twelfth of the product of (i) the Class B Interest Rate and (ii) the
Outstanding Principal Amount of the Class B Notes as of the immediately
preceding Payment Date (after giving effect to reductions in the Outstanding
Principal Amount of the Class B Notes on such immediately preceding Payment
Date). Interest on the Class B Notes will accrue from and including the Closing
Date to but excluding January 20, 1998 (in the case of the first interest
period), and thereafter for each successive Payment Date from and including the
most recent prior Payment Date to which interest has been paid, to but
excluding such Payment Date.
In the event that, on a given Payment Date, the Amount Available, after
payment of interest on the Class A Notes, is not sufficient to make a full
payment of interest to the Holders of Class B Notes, the amount of interest to
be paid on the Class B Notes will be allocated among the Class B Notes pro
rata, and the amount of such shortfall will be carried forward and, together
with interest thereon at the Class B Interest Rate, added to the amount of
interest such Holders will be entitled to receive on the next Payment Date.
CLASS C INTEREST
Interest will be paid to the Holders of the Class C Notes on each Payment
Date, to the extent the remaining Amount Available (after taking into account
any prior applications described under "--Distributions" above) is sufficient
therefor, at the Class C Interest Rate on the Outstanding Principal Amount of
the Class C Notes, and will be calculated on the basis of a 360-day year
consisting of twelve 30-day months. Such interest so paid on such Payment Date
will be equal to one-twelfth of the product of (i) the Class C Interest Rate
and (ii) the C Outstanding Principal Amount of the Class C Notes as of the
immediately preceding Payment Date (after giving effect to reductions in the
Outstanding Principal Amount of the Class C Notes on such immediately preceding
Payment Date). Interest on the Class C Notes will accrue from and including the
Closing Date to but excluding January 20, 1998 (in the case of the first
interest period), and thereafter for each successive Payment Date from and
including the most recent prior Payment Date to which interest has been paid,
to but excluding such Payment Date.
In the event that, on a given Payment Date, the Amount Available, after
payment of interest on the Class A Notes and the Class B Notes, is not
sufficient to make a full payment of interest to the Holders of Class C Notes,
Green Tree will be obligated to pay such deficiency under the Class C Limited
Guaranty. If for any reason Green Tree fails to pay such amount, the amount of
interest to be paid on the Class C Notes will be allocated among the Class C
Notes pro rata, and the amount of such shortfall will be carried forward and,
together with interest thereon at the Class C Interest Rate, added to the
amount of interest such Holders will be entitled to receive on the next Payment
Date.
39
<PAGE>
PRINCIPAL
For each Payment Date, each of the Class A Noteholders, the Class B
Noteholders and the Class C Noteholders will be entitled to receive payments
of principal, to the extent funds are available therefor, in the priorities
set forth in the Indenture and described herein below and under "--Priority of
Payments." On each Payment Date, to the extent funds are available therefor,
principal will be paid to the Noteholders in the following priority:
(a) (i) to the Class A-1 Noteholders only, until the Outstanding
Principal Amount on the Class A-1 Notes has been reduced to zero, the Class
A Principal Payment, then (ii) to the Class A-2 Noteholders, the Class A
Principal Payment,
(b) to the Class B Noteholders, the Class B Principal Payment,
(c) to the Class C Noteholders, the Class C Principal Payment,
(d) to the extent that the Class B Floor exceeds the Class B Target
Investor Principal Amount and the Class C Floor exceeds the Class C Target
Investor Principal Amount, Additional Principal (defined below) shall be
distributed, sequentially, as an additional principal payment on the Class
A-1 Notes, the Class A-2 Notes, the Class B Notes and the Class C Notes
until the Outstanding Principal Amount of each Class has been reduced to
zero, and
(e) to the extent the Class C Floor exceeds the Class C Target Investor
Principal Amount, but the Class B Floor does not exceed the Class B Target
Investor Principal Amount, Additional Principal shall be distributed as an
additional principal payment on the Class A-1 Notes, the Class A-2 Notes
and the Class B Notes, pro rata until the Outstanding Principal Amount of
each such Class has been reduced to zero.
The "Outstanding Principal Amounts" as of a Payment Date shall mean the then
unpaid principal amounts of the Class A-1 Notes, the Class A-2 Notes, the
Class B Notes and the Class C Notes.
The "Class A Principal Payment" shall equal (a) while the Class A-1 Notes
are outstanding, (i) on all Payment Dates prior to the January 1999 Payment
Date, the lesser of (1) the amount necessary to reduce the Outstanding
Principal Amount on the Class A-1 Notes to zero and (2) the Monthly Principal
Amount, and (ii) on the January 1999 Payment Date, the entire Outstanding
Principal Amount on the Class A-1 Notes and (b) after the Class A-1 Notes have
been paid in full, the amount necessary to reduce the aggregate Outstanding
Principal Amount on the Class A-2 Notes to the Class A Target Investor
Principal Amount (as defined below).
The "Class B Principal Payment" shall equal (a) while the Class A-1 Notes
are outstanding, zero and (b) after the Outstanding Principal Amount on the
Class A-1 Notes has been reduced to zero, the amount necessary to reduce the
Outstanding Principal Amount of the Class B Notes to the greater of the Class
B Target Investor Principal Amount and the Class B Floor.
The "Class C Principal Payment" shall equal (a) while the Class A-1 Notes
are outstanding, zero and (b) after the Outstanding Principal Amount on the
Class A-1 Notes has been reduced to zero, the amount necessary to reduce the
Outstanding Principal Amount of the Class C Notes to the greater of the Class
C Target Investor Principal Amount and the Class C Floor.
"Additional Principal" with respect to each Payment Date is an amount equal
to (a) the Monthly Principal Amount, less (b) the Class A Principal Payment,
the Class B Principal Payment and the Class C Principal Payment to be paid on
such Payment Date.
The "Class A Target Investor Principal Amount" with respect to each Payment
Date is an amount equal to the product of (a) the Class A Percentage and (b)
the Lease Pool Principal Balance as of such Payment Date.
The "Class B Target Investor Principal Amount" with respect to each Payment
Date is an amount equal to the product of (a) the Class B Percentage and (b)
the Lease Pool Principal Balance as of such Payment Date.
40
<PAGE>
The "Class C Target Investor Principal Amount" with respect to each Payment
Date is an amount equal to the product of (a) the Class C Percentage and (b)
the Lease Pool Principal Balance as of such Payment Date.
The "Class A Percentage" will be %. The "Class B Percentage" will be
%. The "Class C Percentage" will be %.
The "Class B Floor" with respect to each Payment Date means (a) % of the
Initial Pool Principal Balance, plus (b) the Cumulative Loss Amount with
respect to such Payment Date, minus (c) the Outstanding Principal Amount on the
Class C Notes as of the related Determination Date.
The "Class C Floor" with respect to each Payment Date means (a) % of the
Initial Pool Principal Balance, plus (b) the Cumulative Loss Amount with
respect to such Payment Date; provided that if the Outstanding Principal Amount
on the Class B Notes is equal to the Class B Floor on such Payment Date, the
Class C Floor will equal the Outstanding Principal Amount on the Class C Notes
utilized in the calculation of the Class B Floor for such Payment Date.
The "Monthly Principal Amount" for any Payment Date will equal the excess, if
any, of (i) the sum of the principal balances of the Notes as of such Payment
Date (determined prior to the payment of any principal in respect thereof on
such Payment Date), over (ii) the aggregate of the Principal Balance of each
Lease (the "Lease Pool Principal Balance") as of the last day of the Collection
Period relating to such Payment Date.
The "Cumulative Loss Amount" with respect to each Payment Date is an amount
equal to the excess, if any, of
(a) the total of (i) the Outstanding Principal Amount of the Notes as of
the immediately preceding Payment Date after giving effect to all payments
made on such Payment Date, minus (ii) the lesser of (A) the Monthly
Principal Amount and (B) Available Funds remaining after the payment of
amounts owing the Servicer and in respect of interest on the Notes on such
Payment Date, over
(b) the Lease Pool Principal Balance as of such Payment Date.
The "Principal Balance" of any Lease as of the last day of any Collection
Period is:
(1) in the case of any Lease that does not by its terms permit prepayment
or early termination, the present value of the unpaid Scheduled Payments
due on such Lease after such last day of the Collection Period (excluding
all Scheduled Payments due on or prior to, but not received as of, such
last day, as well as any Scheduled Payments due after such last day and
received on or prior thereto), after giving effect to any Prepayments
received on or prior to such last day, discounted monthly (assuming, for
purposes of such calculation, that each Scheduled Payment is due on the
last day of the applicable Collection Period) at the rate of % per annum
(the "Discount Rate"), which rate is equal to the weighted average Interest
Rate of the Class A-1, Class A-2, Class B and Class C Notes on the Closing
Date, plus the Servicing Fee;
(2) in the case of any Lease that permits prepayment or early termination
only upon payment of a premium that is at least equal to the present value
(calculated in the manner described in clause (1) above) of the unpaid
Scheduled Payments due on such Lease after the date of such prepayment, the
amount specified in clause (1) above; and
(3) in the case of any Lease that permits prepayment or early termination
without payment of a premium at least equal to the amount specified in
clause (2) above, the lesser of (a) the outstanding principal balance of
such Lease after giving effect to Scheduled Payments due on or prior to
such last day of the Collection Period, whether or not received, as well as
any Prepayments, and any Scheduled Payments due after such last day,
received on or prior to such last day, and (b) the amount specified in
clause (1) above.
The "Initial Pool Principal Balance," which is the aggregate Principal
Balance of the Leases as of the Cut-Off Date, calculated at the Discount Rate,
is $ . The aggregate of the initial principal balances of the Notes
will be equal to or less than the Initial Pool Principal Balance.
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The Principal Balance of any Lease which became a Liquidated Lease during a
given Collection Period or which Vendor Services was obligated to purchase as
of the end of a given Collection Period due to a breach of representations and
warranties, will, for purposes of computing the Monthly Principal Amount, be
deemed to be zero on and after the last day of such Collection Period.
A "Liquidated Lease" is any Lease (a) which the Servicer has charged off as
uncollectible in accordance with its credit and collection policies and
procedures (which shall be no later than the date as of which the Servicer has
repossessed and disposed of the related Equipment, or otherwise collected all
proceeds which, in the Servicer's reasonable judgment, can be collected under
such Lease), or (b) as to which 10% or more of a Scheduled Payment is
delinquent 180 days or more.
The "Collection Period" for any Payment Date will be the calendar month
preceding the month in which such Payment Date occurs.
SERVICER ADVANCES
Prior to any Payment Date, the Servicer may, but will not be required to,
advance to the Trustee an amount sufficient to cover delinquencies in Scheduled
Payments on the Leases with respect to the prior Collection Period (a "Servicer
Advance"). The Servicer will be reimbursed for Servicer Advances from late
payments on the delinquent Leases with respect to which such advances were made
and, if the Servicer later determines that such Servicer Advance will not be
reimbursed from the recovery on the delinquent Lease (a "Nonrecoverable
Servicer Advance"), from the Amount Available on the next Payment Date.
RESIDUAL REALIZATIONS
Cash flows realized from the sale or re-lease of the Equipment following the
scheduled expiration dates or voluntary early termination of the Leases, other
than Equipment subject to Liquidated Leases (the "Residual Realizations"), will
provide additional credit support for the Notes. The Residual Realizations will
be deposited in the Residual Account. As provided in the Indenture, funds on
deposit in the Residual Account will be available to cover shortfalls in the
Available Pledged Revenues to pay interest and principal payments then due on
the Notes. If, however, the aggregate amount of Residual Realizations applied
to cover shortfalls in the Available Pledged Revenues on all Payment Dates
reaches $ (the "Residual Amount Cap"), Residual Realizations will
thereafter not be available to cover shortfalls in the Available Pledged
Revenues. As of the Cut-Off Date, the aggregate residual value of the Equipment
recorded on the accounting books of Vendor Services (the "Book Value") of the
Leases was $ . Actual Residual Realizations may be more or less than
Book Value. On each Payment Date, amounts on deposit in the Residual Account
representing Residual Realizations from the prior Collection Period not applied
to pay interest and principal then due on the Notes, will be released to the
SPC. Under certain limited circumstances more fully described in the Indenture
(a "Residual Event"), the Residual Realizations not distributed to Noteholders
will be retained in the Residual Account and will be available to cover
shortfalls in the amount available to pay the amounts owing the Servicer and to
make interest and principal payments on the Notes on subsequent Payment Dates.
Following the termination of a Residual Event, amounts on deposit in the
Residual Account will be released to the SPC.
SUBORDINATION OF CLASS B NOTES AND CLASS C NOTES
The likelihood of payment of interest on each Class of Notes will be enhanced
by the application of the Amount Available to the payment of such interest
prior to the payment of principal on any of the Notes, as well as by the
preferential right of the Holders of Class A and Class B Notes to receive such
interest (1) in the case of the Class A Notes, prior to the payment of any
interest on the Class B Notes or the Class C Notes, and (2) in the case of the
Class B Notes, prior to the payment of any interest on the Class C Notes.
Likewise, the likelihood of payment of principal on Class A and Class B Notes
will be enhanced by the preferential right of the Holders of Notes of each such
Class to receive such principal, to the extent of the Amount Available, after
payment of interest on the Notes as aforesaid, (i) in the case of the Class A
Notes, prior to the payment of any principal on
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the Class B Notes or the Class C Notes and (ii) in the case of the Class B
Notes, prior to the payment of any principal on the Class C Notes.
CLASS C LIMITED GUARANTY
In order to mitigate the effect of the subordination of the Class C Notes
and liquidation losses on the Leases, Green Tree Financial Corporation will
provide a guaranty (the "Class C Limited Guaranty") against losses that would
otherwise be borne by the Class C Notes. On each Payment Date, Green Tree
Financial Corporation will be obligated to make a payment (the "Class C
Guaranty Payment") equal to the amount, if any by which interest and principal
then due on the Class C Notes exceeds the Amount Available less amounts due in
respect of interest and principal on the Class A and Class B Notes on such
Payment Date.
Green Tree Financial Corporation ("Green Tree") is a Delaware corporation
which, as of December 31, 1996, had stockholders' equity of approximately
$1,245,454,000. The Company's principal executive offices are located at 1100
Landmark Towers, 345 St. Peter Street, St. Paul, Minnesota 55102-1639
(telephone (612) 293-3400). The Company's Annual Report on Form 10-K for the
year ended December 31, 1996, most recent Proxy Statement and, when available,
subsequent quarterly and annual reports are available from the Company upon
written request.
Set forth below are the Company's ratios of earnings to fixed charges for
the past five years, and for the nine months ended September 30, 1997. For the
purposes of compiling these ratios, earnings consist of earnings before income
taxes plus fixed charges. Fixed charges consist of interest and the interest
portion of rent expense.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------ -------------
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- -------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges....... 3.55 4.81 7.98 7.90 7.83 5.48
</TABLE>
LIQUIDATED LEASES
Liquidation Proceeds (which will consist generally of all amounts received
by the Servicer in connection with the liquidation of a Liquidated Lease and
disposition of the related Equipment, net of any related out-of-pocket
liquidation expenses) will be deposited in the Collection Account and
constitute Pledged Revenues to be applied to the payment of interest and
principal on the Notes in accordance with the priorities described under "--
Distributions" above.
OPTIONAL PURCHASE OF LEASES
The SPC may purchase all of the Leases on any Payment Date following the
date on which the unpaid principal balance of the Notes is less than 10% of
the Initial Pool Principal Balance. The purchase price to be paid in
connection with such purchase shall be at least equal to the unpaid principal
balance of the Notes as of such Payment Date plus interest to be paid on the
Notes on such Payment Date. The proceeds of such purchase shall be applied on
such Payment Date to the payment of the remaining principal balance of the
Notes, together with accrued interest thereon.
TRUST ACCOUNTS
The Trustee will establish and maintain under the Indenture segregated trust
accounts (which need not be deposit accounts, but which shall constitute
"Eligible Accounts"), consisting of the "Collection Account," the "Servicing
Account," the "Residual Account" and the "Note Distribution Account"
(collectively, the "Trust Accounts"). An "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"
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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 bank
holding company has capital and surplus) of not less than $50,000,000 and the
securities of such depository institution or trust company (or, if such
depository institution or trust company is a subsidiary of a bank holding
company system and such depository institution's or trust company's securities
are not rated, the securities of the bank holding company) have a credit rating
from each of the Rating Agencies (if rated by such Rating Agency) which
signifies "investment grade"; or (iv) an account that will not cause any Rating
Agency to reduce, qualify or withdraw its then-current rating assigned to the
Notes, as confirmed in writing by such 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 or unsecured long-term debt
have a credit rating from each of the Rating Agencies (if rated by such Rating
Agency), and which is subject to supervision and examination by federal or
state authorities.
The Servicer, as agent for the Trustee, may designate, or otherwise arrange
for the purchase by the Trustee of, investments to be made with funds in the
Trust Accounts, which investments shall be Eligible Investments (as defined in
the Indenture) that will mature not later than the business day preceding the
applicable monthly Payment Date. "Eligible Investments" include, among other
investments, obligations of the United States or of any agency thereof backed
by the full faith and credit of the United States; federal funds, certificates
of deposit, time deposits and bankers' acceptances sold by eligible financial
institutions; certain repurchase agreements with eligible institutions and
other investments which would not result in the reduction, qualification or
withdrawal of any rating of the Notes by any Rating Agency.
REPORTS TO NOTEHOLDERS
The Servicer will furnish to the Trustee, and the Trustee will include with
each distribution to a Noteholder, a statement in respect of the related
Payment Date setting forth, among other things:
(i) the amount of interest paid on each Class of Class A Notes, including
any unpaid interest from the prior Payment Date, and any remaining unpaid
interest on each Class of Class A Notes;
(ii) the amount of interest paid on the Class B Notes, including any
unpaid interest from the prior Payment Date, and any remaining unpaid
interest on the Class B Notes;
(iii) the amount of interest paid on the Class C Notes, including any
unpaid interest from the prior Payment Date, and any remaining unpaid
interest on the Class C Notes;
(iv) the amount of principal paid on each Class of Class A Notes;
(v) the amount of principal paid on the Class B Notes;
(vi) an amount of principal paid on the Class C Notes; and
(vii) the Principal Deficiency Amount, if any, for such Payment Date.
The Notes will be registered in the name of a nominee of DTC and will not be
registered in the names of the beneficial owners or their nominees. As a
result, unless and until Definitive Notes are issued in the limited
circumstances described under "--Definitive Notes" below, beneficial owners
will not be recognized by the Trustee as Noteholders, as that term is used in
the Indenture. Hence, until such time, beneficial owners will receive reports
and other information provided for under the Indenture only if, when and to the
extent provided by DTC and its participating organizations.
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BOOK-ENTRY REGISTRATION
Each Class of Notes will initially be represented by one or more Book-Entry
Certificates registered in the name of the nominee of DTC. The Issuer has been
informed by DTC that DTC's nominee will be Cede & Co. Noteholders may hold
their Notes through DTC, if they are participants of DTC ("Participants"), or
indirectly through organizations that are Participants.
DTC is a New York-chartered limited-purpose trust company, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the UCC
in effect in the State of New York, and a "clearing agency" registered pursuant
to the provisions of Section 17A of the Exchange Act. DTC holds securities for
its Participants ("DTC Participants") and facilitates the clearance and
settlement among Participants of securities transactions, such as transfers and
pledges, in deposited securities through electronic book-entry changes in
Participants' accounts, thereby eliminating the need for physical movement of
securities. Participants include securities brokers and dealers, banks, trust
companies, clearing corporations, and certain other organizations. Indirect
access to the DTC system is also available to others such as securities brokers
and dealers, banks, and trust companies that clear through or maintain a
custodial relationship with a Participant, either directly or indirectly
("Indirect Participants"). Transfers between DTC Participants will occur in
accordance with DTC rules.
Note Owners that are not Participants or Indirect Participants but desire to
purchase, sell or otherwise transfer ownership of, or other interests in, Notes
may do so only through Participants and Indirect Participants. Note Owners will
receive all distributions from the Trustee through Participants and Indirect
Participants. Note Owners may experience some delay in their receipt of
payments, since such payments will be forwarded by the Trustee to DTC's
nominee. DTC will forward such payments to its Participants, which thereafter
will forward them to indirect Participants or Note Owners. Note Owners will not
be recognized by the Trustee as Noteholders and Note Owners will be permitted
to exercise the rights of Noteholders only indirectly through DTC and its
Participants.
Under the rules, regulations and procedures creating and affecting DTC and
its operations (the "Rules"), DTC is required to make book-entry transfers of
Notes among Participants on whose behalf it acts with respect to the Notes and
to receive and transmit distributions of amounts payable on the Notes.
Participants and Indirect Participants with which Note Owners have accounts
similarly are required to make book-entry transfers and receive and transmit
such payments on behalf of their respective Note Owners. Accordingly, although
Note Owners will not possess Notes, the Rules provide a mechanism by which
Participants will receive payments and will be able to transfer their
interests.
Because DTC can act only on behalf of Participants, who in turn act on behalf
of Indirect Participants and certain banks, the ability of a Note Owner to
pledge Notes to persons or entities that do not participate in the DTC system,
or to otherwise act with respect to such Notes, may be limited due to the lack
of a physical certificate for such Notes.
DTC has advised the Issuer that it will take any action permitted to be taken
by a Noteholder under the Indenture, only at the direction of one or more
Participants to whose accounts with DTC the Notes are credited. DTC may take
conflicting actions with respect to other undivided interests to the extent
that such actions are taken on behalf of Participants whose holdings include
such undivided interests.
Except as required by law, Vendor Services, the SPC, the Issuer, and the
Trustee will not have any liability for any aspect of the records relating to
or payments made on account of beneficial ownership interest of the Notes held
by DTC's nominee, or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests.
DTC may discontinue providing its services as securities depository with
respect to the Notes at any time by giving reasonable notice to the Trustee.
Under such circumstances, in the event that a successor securities depository
is not obtained, Definitive Notes are required to be printed and delivered. See
"--Definitive Notes."
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The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Issuer believes to be reliable, but the
Issuer takes no responsibility for the accuracy or completeness thereof.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of Notes among participants of DTC, DTC is under no obligation to
perform or continue to perform such procedures and such procedures may be
discontinued at any time.
DEFINITIVE NOTES
The Notes of each Class will be issued in registered, certificated form to
the Note Owners of such Class or their nominees ("Definitive Notes"), rather
than to the Depository or its nominee, only if (i) the Depository advises the
Trustee in writing that it is no longer willing or able to discharge properly
its responsibilities as Depository with respect to the Notes of such Class, and
the Trustee is unable to locate a qualified successor, or (ii) an Event of
Default has occurred, and Note Owners representing not less than 50% of the
principal balance of such Class advise the Trustee and the Depository through
Participants in writing that the continuation of a book-entry system through
the Depository is no longer in the best interest of the Note Owners of such
Class.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Depository is required to notify all Participants of
the availability through the Depository of Definitive Notes. Upon surrender by
the Depository of the definitive certificate representing the Notes of the
affected Class and instructions for registration, the Trustee will issue the
Notes of such Class as Definitive Notes, and thereafter the Trustee will
recognize the Note Owners of such Definitive Notes as Noteholders under the
Indenture.
Distributions of principal and interest on the Notes will be made by the
Trustee directly to Noteholders in accordance with the procedures set forth
herein and in the Indenture. Interest payments and any principal payments on
each Payment Date will be made to Noteholders in whose names the Definitive
Notes were registered at the close of business on the related Record Date.
Distributions will be made by check mailed to the address of such Noteholder as
it appears on the register maintained by the Trustee. The final payment on any
Note, however, will be made only upon presentation and surrender of such Note
at the office or agency specified in the notice of final distribution to
Noteholders. The Trustee will provide such notice to registered Noteholders
mailed not later than the fifth day of the month of such final distributions.
Definitive Notes will be transferable and exchangeable at the offices of the
transfer agent and registrar, which initially will be the Trustee (in such
capacity, the "Transfer Agent and Registrar"). No service charge will be
imposed for any registration of transfer or exchange, but the Transfer Agent
and Registrar may require payment of a sum sufficient to cover any tax or other
governmental charge imposed in connection therewith. The Transfer Agent and
Registrar will not be required to register the transfer or exchange of
Definitive Notes for the period from the Record Date preceding the due date for
any payment to the Payment Date with respect to such Definitive Notes.
MODIFICATION OF INDENTURE WITHOUT NOTEHOLDER CONSENT
The Issuer and the Trustee may, without consent of the 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 Notes and the Indenture
obligations by a permitted successor to the Issuer (as described under "--
Certain Covenants"); (iii) to add additional covenants for the benefit of the
Noteholders, or to surrender any rights or power conferred upon the Issuer;
(iv) to convey, transfer, assign, mortgage or pledge any property to or with
the Trustee; (v) to cure any ambiguity or correct or supplement any provision
in the Indenture or in any supplemental indenture which may be inconsistent
with any other provision of the Indenture; (vi) to provide for the acceptance
of the appointment of a successor Trustee or to add to or change any of the
provisions of the Indenture or in any supplemental indenture as shall be
necessary and permitted to facilitate the administration by more than one
trustee; (vii) to modify, eliminate or add to the
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provisions of the Indenture in order to comply with the Trust Indenture Act of
1939, as amended; (viii) to avoid a reduction, qualification or withdrawal of
any rating of the Notes; or (ix) to add any provisions to, or change in any
manner or eliminate any of the provisions of, the Indenture or to modify in any
manner the rights of the Holders of the Notes under the Indenture, provided
that such action shall not (a) result in a reduction, qualification or
withdrawal of the then-current ratings of the Notes, or (b) as evidenced by an
opinion of counsel, adversely affect in any material respect the interests of
any Noteholder.
MODIFICATION OF INDENTURE WITH NOTEHOLDER CONSENT
With the consent of the Holders representing a majority of the principal
balance of each Class of the Notes then outstanding (a "Note Majority"), the
Issuer and the Trustee may execute a supplemental indenture to add provisions
to change in any manner or eliminate any provisions of, the Indenture, or
modify in any manner the rights of the Noteholders.
Without the consent of the Holder of each outstanding Note affected thereby,
however, no supplemental indenture may: (i) change the date, timing or method
of determination 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 or 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 each Class of the Notes then
outstanding the consent of the Holders of which is required for any such
supplemental indenture or for any waiver of compliance with certain provisions
of the Indenture or of certain defaults thereunder and their consequences; (iv)
modify or alter the provisions of the Indenture regarding the voting of Notes
held by the Issuer, any other obligor on the Notes, the Issuer or an affiliate
of any of them; (v) reduce the percentage of the Notes the consent of the
Holders of which is required to direct the Trustee to sell or liquidate the
Trust Assets if the proceeds of such sale would be insufficient to pay the
principal amount and accrued but unpaid interest on the outstanding Notes; (vi)
reduce the percentage of each Class of the Notes then outstanding required to
amend the sections of the Indenture which specify the applicable percentage of
each Class of the Notes then outstanding necessary to amend the Indenture or
certain other related agreements; (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; or (viii) result in a reduction, qualification or withdrawal of the
rating of any Class of Notes by a Rating Agency, as confirmed in writing by
each Rating Agency.
EVENTS OF DEFAULT; RIGHTS UPON EVENT OF DEFAULT
"Events of Default" under the Indenture will consist of: (i) a default for
five calendar days or more in the payment of interest due on any Note; (ii)
failure to pay the unpaid principal amount of any Class of Notes on the Stated
Maturity Date or any redemption date for such Class; (iii) a default in the
observance or performance in any material respect of any covenant or agreement
of the Issuer made in the Indenture, or any representation or warranty made by
the Issuer 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 calendar days after notice
thereof is given to the Issuer by the Trustee or to the Issuer and the 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 Issuer.
If an Event of Default should occur and be continuing with respect to the
Notes, the 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.
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If the Notes have been declared due and payable following an Event of
Default, the Trustee may institute proceedings to collect amounts due or
foreclose on Pledged Revenues, exercise remedies as a secured party, sell the
related Pledged Revenues or elect to have the Issuer maintain possession of the
Pledged Revenues and continue to apply collections on the Pledged Revenues as
if there had been no declaration of acceleration. The Trustee, however, will be
prohibited from selling the Pledged Revenues following an Event of Default,
unless (i) the Holders of all the outstanding Notes consent to such sale; (ii)
the proceeds of such sale distributable to Holders of the Notes are sufficient
to pay in full the principal of and the accrued interest on all the outstanding
Notes at the date of such sale; or (iii) the Trustee determines that the
Pledged Revenues 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 Trustee obtains the
consent of the Holders of 66 2/3% of the aggregate outstanding amount of the
Notes. Following a declaration upon an Event of Default that the Notes are
immediately due and payable, any proceeds of liquidation of the Pledged
Revenues, will be applied in the following order of priority: (i) to the
reimbursement of the Trustee for its expenses; (ii) to the payment of interest
and then principal on the Class A Notes; (iii) to the payment of interest and
then principal on the Class B Notes; (iv) to the payment of interest and then
principal on the Class C Notes; and (v) the remainder, if any, to the Issuer.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, if an Event of Default occurs and is continuing, the 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 the Notes, if the 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 will have the right to direct the
time, method and place of conducting any proceeding or any remedy available to
the 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 will have the right to institute any proceeding with
respect to the Indenture, unless (i) such Holder previously has given to the
Trustee written notice of a continuing Event of Default, (ii) the Holders of
not less than 25% in principal amount of the outstanding Notes have made
written request of the Trustee to institute such proceeding in its own name as
Trustee, (iii) such Holder or Holders have offered the Trustee reasonable
indemnity, (iv) the Trustee has for 60 days failed to institute such
proceeding, and (v) no direction inconsistent with such written request has
been given to the 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
Trustee, the 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 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, the Trustee and the Noteholders, by accepting the Notes, will
covenant that they will not at any time institute against the Issuer any
bankruptcy, reorganization or other proceeding under any federal or state
bankruptcy or similar law.
Neither the Trustee nor the Issuer in its individual capacity, nor any Holder
of a Note including, without limitation, the SPC, 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 Notes or for any
agreement or covenant of the Issuer contained in the Indenture.
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CERTAIN COVENANTS
The Indenture will provide that the Issuer 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 Issuer's obligation to make due
and punctual payments upon the Notes and the performance or observance of every
agreement and covenant of the Issuer under the Indenture, (iii) no Event of
Default shall have occurred and be continuing immediately after such merger or
consolidation, (iv) the Issuer has been advised that the rating of the Notes
then in effect would not be reduced or withdrawn by the Rating Agencies as a
result of such merger or consolidation, (v) the Issuer has received an opinion
of counsel to the effect that such consolidation or merger would have no
material adverse tax consequence to the Issuer or to any Noteholder, and (vi)
the Issuer or the Person (if other than the Issuer) formed by or surviving such
consolidation or merger has a net worth, immediately after such consolidation
or merger, that is (a) greater than zero and (b) not less than the net worth of
the Issuer immediately prior to giving effect to such consolidation or merger.
The Issuer will not, among other things, (i) except as expressly permitted by
the Indenture, sell, transfer, exchange or otherwise dispose of any of the
Trust Assets, (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 Issuer, (iii) dissolve or liquidate in whole or in
part, (iv) permit the validity or effectiveness of the Indenture to be impaired
or permit any person to be released from any covenants or obligations with
respect to the Notes under the indenture except as may be expressly permitted
thereby, or (v) except as expressly permitted by the Indenture or the
Contribution and Servicing Agreement, 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 Issuer or any part thereof,
or any interest therein or proceeds thereof.
The Issuer may not engage in any activity other than as specified under "The
SPC and the Issuer." The Issuer will not incur, assume or guarantee any
indebtedness other than indebtedness incurred pursuant to the Notes and the
Indenture or otherwise in accordance with the Indenture and the Contribution
and Servicing Agreement.
ANNUAL COMPLIANCE STATEMENT
The Issuer will be required to file annually with the Trustee a written
statement as to the fulfillment of its obligations under the Indenture.
TRUSTEE'S ANNUAL REPORT
The Trustee will be required to mail each year to all Noteholders a brief
report relating to its eligibility and qualification to continue as 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 Issuer to the Trustee in its individual capacity, the property and funds
physically held by the Trustee as such and any action taken by it that
materially affects the Notes and that has not been previously reported.
SATISFACTION AND DISCHARGE OF INDENTURE
The Indenture will be discharged with respect to the collateral securing the
Notes upon the delivery to the related Trustee for cancellation of all such
Notes or, with certain limitations, upon deposit with the Trustee of funds
sufficient for the payment in full of all of such Notes.
THE TRUSTEE
will be the Trustee. The Trustee may resign at any time, in which event
the Issuer will be obligated to appoint a successor trustee. The Issuer may
also remove the Trustee if the Trustee ceases to be
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eligible to continue as such under the Indenture, if the Trustee becomes
insolvent or if the rating assigned to the long-term unsecured debt
obligations of the Trustee (or the holding company thereof) by the Rating
Agencies shall be lowered below the rating of "BBB", "Baa3" or equivalent
rating or be withdrawn by any Rating Agency. In such circumstances, the Issuer
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 a successor trustee.
DESCRIPTION OF THE CONTRIBUTION AND SERVICING AGREEMENT
TRANSFER AND ASSIGNMENT OF LEASES AND EQUIPMENT
On the Closing Date, Vendor Services will transfer to the SPC pursuant to
the Transfer Agreement all of its right, title and interest in the Leases and
the related Equipment, including all security interests created thereby and
therein, the right to receive all Scheduled Payments and Prepayments received
on the Leases on or after the Cut-Off Date (including all Scheduled Payments
due prior to, but not received as of, the Cut-Off Date, but excluding any
Scheduled Payments due on or after, but received prior to, the Cut-Off Date),
all rights under insurance policies maintained on the Equipment pursuant to
the Leases, all documents contained in the Lease Files and all proceeds
derived from any of the foregoing. Pursuant to the Contribution and Servicing
Agreement, on the Closing Date, the SPC will transfer all of its rights in the
Leases and certain rights to Residual Realizations, together with all its
rights under the Transfer Agreement, to the Issuer.
The Contribution and Servicing Agreement will designate the Servicer as
custodian to maintain possession, as the Issuer's agent, of the Leases and all
documents related thereto. To facilitate servicing and save administrative
costs, the documents will not be physically segregated from other similar
documents that are in the Servicer's possession. UCC financing statements will
be filed on the Closing Date in the applicable jurisdictions reflecting the
transfer of the Leases by Vendor Services to the SPC, by the SPC to the
Issuer, and the pledge of the Leases by the Issuer to the Trustee, and Vendor
Services's accounting records and computer systems will also reflect such
assignments and pledge. The Leases will not, however, be stamped or otherwise
physically marked to reflect their assignment to the Issuer. If, through
fraud, negligence or otherwise, a subsequent purchaser were able to take
physical possession of the Leases without knowledge of the assignment, the
Issuer's interest in the Leases could be defeated. See "Risk Factors--Certain
Legal Aspects of the Leases" and "Certain Legal Aspects of the Leases."
COLLECTIONS ON LEASES
The Trustee will establish and maintain a Servicing Account, into which the
Servicer will deposit, no later than the second Business Day after receipt
thereof, all Scheduled Payments, Prepayments, Liquidation Proceeds, Residual
Realizations and other amounts received by the Servicer in respect of the
Leases on and after the Cut-Off Date. The Servicer will thereafter transfer to
the Collection Account, no later than the third Business Day after deposit
thereof in the Servicing Account, the following amounts:
(i) all Scheduled Payments made by or on behalf of Obligors under the
Leases;
(ii) all Prepayments (to the extent that Vendor Services has not
delivered Additional Leases);
(iii) all amounts constituting Liquidation Proceeds on Liquidated Leases
(to the extent Vendor Services has not delivered Substitute Leases);
(iv) any and all payments made by Vendor Services pursuant to the
Transfer Agreement in connection with the purchase of any Leases as a
result of a breach of a representation or warranty with respect thereto, as
described under "The Leases--Representations and Warranties Made by Vendor
Services"; and
(v) the amount paid by the SPC to purchase the Leases, as described under
"Description of the Notes--Optional Purchase of Leases."
The Servicer will transfer all Residual Realizations from the Servicing
Account to the Residual Account no later than the third Business Day after
deposit thereof in the Servicing Account.
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So long as no Event of Termination shall have occurred and be continuing with
respect to the Servicer, the Servicer may make the remittances to be made by it
to the Collection Account net of amounts (which amounts may be netted prior to
any such remittance for a Collection Period) otherwise to be distributed to it
in payment of its Servicing Fee.
The Servicer will be entitled to withdraw from the Collection Account any
amounts deposited therein in error or required to be repaid to an Obligor,
based on the Servicer's good-faith determination that such amount was deposited
in error or must be returned to the Obligor.
Under the Contribution and Servicing Agreement, the Servicer is required to
establish in its own name one or more "Insurance, Maintenance and Tax
Accounts," into which are to be deposited any payments made by or on behalf of
Obligors which constitute (a) insurance charges paid by an Obligor to the
lessor or secured party under a Lease (unless such payments are made directly
by the Obligor to the applicable insurance company, or Vendor Services has
previously paid such charges), (b) any insurance payments or recoveries paid by
an insurance company or comparable third party and related to the damage to, or
destruction of, the Equipment related to such Lease (unless paid directly by
such insurance company or comparable third party directly to the Obligor), (c)
any payments made by or on behalf of Obligors which constitute amounts paid by
an Obligor to the lessor or secured party under a Lease in respect of the
maintenance of the related Equipment, and (d) taxes paid by the Obligor and
related to the applicable Lease or the Equipment related thereto (unless such
payment is made directly by the Obligor to the applicable taxing authority or
authorities, or Vendor Services has previously paid such taxes). The Servicer
may withdraw amounts from the Insurance, Maintenance and Tax Accounts, when and
if appropriate, to pay when due (or may pay from its own funds and thereafter
reimburse itself from amounts in the Insurance, Maintenance and Tax Accounts)
(1) all insurance charges in the amounts received under clause (a) above, (2)
any amounts payable under any applicable maintenance contract or otherwise with
respect to the maintenance of the related Equipment in the amounts received
under clause (c) above, and (3) all taxes in the amounts received under clause
(d) above. Amounts on deposit in the Insurance, Maintenance and Tax Accounts
which represent amounts received by the Servicer pursuant to clause (b) above
shall be applied by the Servicer as follows: if equipment is purchased to
replace the Equipment that was damaged or destroyed, and such replacement
equipment is (in the reasonable opinion of the Servicer) of comparable use and
equivalent value to the Equipment that was damaged or destroyed, or if the
Equipment is to be repaired, the Servicer shall release such amount so received
from the insurance company or comparable third party in payment or
reimbursement for such replacement equipment or such repair; and if this
replacement option is not exercised and the Equipment is not to be repaired,
then the Servicer shall treat such amount as Liquidation Proceeds and transfer
that portion thereof which would be allocable to the Notes (as described in
"Description of the Notes--Liquidated Leases") from the Insurance, Maintenance
and Tax Accounts to the Collection Account.
On or before the first Business Day preceding each Payment Date (the
"Determination Date"), the Servicer is required to determine the amount of
Available Pledged Revenues for such Payment Date, the amount of interest
payable on the Notes on such Payment Date, the Monthly Principal Amount for
such Payment Date, the Principal Deficiency Amount (if any) for such Payment
Date, and the amount, if any, by which such Available Pledged Revenues plus any
Servicer Advances with respect to such Payment Date, when applied in accordance
with the priorities described under "Description of the Notes--Distributions,"
are insufficient to pay the interest and principal payable on the Notes on such
Payment Date (a "Payment Shortfall"). If there is a Payment Shortfall for such
Payment Date, amounts on deposit in the Residual Account (subject to the
Residual Amount Cap) will be applied to the payment of interest and principal
on the Notes to the extent necessary to cure such Payment Shortfall. The
Servicer shall further give notice to the Trustee of (1) any remaining Payment
Shortfall (after giving effect to the previous application of funds in the
Residual Account as aforesaid), (2) the Principal Deficiency Amount (if any),
and (3) if such Payment Date is the Stated Maturity Date for any Class of
Notes, the remaining unpaid principal balance of such Class of Notes (after
giving effect to previous application of funds in the Residual Account as
aforesaid).
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SERVICING
Pursuant to the Contribution and Servicing Agreement, Vendor Services will be
engaged to act as Servicer on behalf of the Issuer. The Servicer is generally
obligated under the Contribution and Servicing Agreement to service the Leases
in accordance with customary and usual procedures of institutions which service
equipment Leases, installment sale contracts, promissory notes, loan and
security agreements and other similar types of receivables comparable to the
Leases and, to the extent more exacting, the degree of skill and attention that
the Servicer exercises from time to time with respect to all comparable such
contracts that it services for itself or others. In performing such duties, so
long as Vendor Services is the Servicer, it shall comply in all material
respects with its credit and collection policies and procedures in effect from
time to time (which credit and collection policies currently in effect are
described under "Green Tree Vendor Services Corporation"). The Servicer may
delegate certain of its servicing responsibilities with respect to the Leases
to third parties, provided that the Servicer will remain obligated to the
Issuer for the proper performance of all such servicing responsibilities.
The Servicer will use its best efforts to sell or re-lease any Equipment upon
the termination of the Lease to which such Equipment is subject (whether as a
result of early termination following an Obligor default or upon scheduled
expiration of the Lease), in a timely manner and in a manner so as to maximize,
to the extent possible under then prevailing market conditions, the net
proceeds from such Equipment. The Servicer may, in its discretion, choose to
dispose of Equipment through a new lease or in some other manner which provides
for payment for the Equipment over time. In any such event, the Servicer will
be required to pay from its own funds an amount which, in its reasonable
judgment, is equal to the fair market value of such Equipment (less any related
out-of-pocket liquidation expenses), and the Servicer will be entitled to all
payments received thereafter in respect of such Equipment. Any such amounts so
paid by the Servicer will be deemed to constitute additional Liquidation
Proceeds or Residual Realization, depending on the reason for the disposition
of the Equipment, with respect to the related Lease and Equipment.
Under the Contribution and Servicing Agreement, the Servicer is responsible
for, among other things: reviewing and certifying that the Lease Files are
complete; monitoring and tracking any property and sales taxes to be paid by
Obligors; billing, collection and recording of payments from Obligors;
communicating with and providing billing records to Obligors; deposit of funds
into the Collection Account; receiving payments as the Issuer's agent on the
insurance policies maintained by the Obligors and communicating with insurers
with respect thereto; issuance of reports to the Trustee specified in the
Indenture and in the Contribution and Servicing Agreement; repossession and
remarketing of Equipment following Obligor defaults or upon scheduled
termination or early termination of Leases; and paying the fees and ordinary
expenses of the Trustee.
The Servicer shall, to the extent the proceeds of such liquidation are
sufficient therefor, be entitled to recover all reasonable out-of-pocket
expenses incurred by it in the course of liquidating a Lease and disposing of
the related Equipment, which amounts may be retained by the Servicer from such
proceeds to the extent of such expenses. The Servicer is entitled under the
Contribution and Servicing Agreement to retain, from liquidation proceeds, a
reserve for out-of-pocket liquidation expenses in an amount equal to such
expenses, in addition to those previously incurred, as it reasonably estimates
will be incurred. Upon completion of such liquidation, the remainder of any
such reserve, after reimbursement to the Servicer of all out-of-pocket
liquidation expenses, shall constitute Liquidation Proceeds and be deposited in
the Collection Account.
Under the Contribution and Servicing Agreement, the Servicer, subject to
certain limitations, is permitted to grant payment extensions on a Lease in
accordance with its credit and collection policies and procedures if the
Servicer believes in good faith that such extension is necessary to avoid a
termination and liquidation of such Lease and will maximize the amount to be
received by the Issuer with respect to such Lease. Under the Contribution and
Servicing Agreement, the Servicer, subject to certain limitations, is permitted
to grant modifications or amendments to a Lease in accordance with its credit
and collection policies and procedures.
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Prepayments. The Servicer may in its discretion allow a Prepayment of any
Lease, but only if the amount paid by or on behalf of the Obligor (or, in the
case of a partial Prepayment, the sum of such amount and the remaining
Principal Balance of the Lease after application of such amount) is at least
equal to the Required Payoff Amount of such Lease. To the extent any Prepayment
exceeds the Required Payoff Amount of a Lease, such excess will be paid to the
Issuer.
In the event of the early termination of a Lease which has been prepaid in
full or in part, the Issuer will have the option to reinvest the proceeds of
such Lease in one or more Leases having similar characteristics for such
terminated Lease (each, an "Additional Lease").
Evidence as to Compliance. On or before March 31 of each year, the Servicer
must deliver to the Trustee a report of a nationally recognized accounting firm
stating that such firm has examined certain documents and records relating to
the servicing of equipment leases and loans serviced by the Servicer and
stating that, on the basis of such procedures, such servicing has been
conducted in compliance with the Contribution and Servicing Agreement, except
for any exceptions set forth in such report.
Certain Matters Regarding the Servicer. The Servicer may not resign from its
obligations under the Contribution and Servicing Agreement except upon a
determination that its duties thereunder are no longer permissible under
applicable law. No such resignation will become effective until a successor
servicer has assumed the Servicer's obligations and duties under the
Contribution and Servicing Agreement. The Servicer can be removed as Servicer
only upon the occurrence of an Event of Termination as discussed below.
The Servicer must keep in place throughout the term of the Contribution and
Servicing Agreement (i) a policy or policies of insurance covering errors and
omissions by the Servicer, and (ii) a fidelity bond. Such policy or policies
and such fidelity bond shall be in such form and amount as is generally
customary among persons that service a portfolio of equipment leases having an
unpaid balance of at least $100 million and which are generally regarded as
servicers acceptable to institutional investors.
Servicing Compensation and Payment of Expenses. Compensation to the Servicer
will include a monthly fee (the "Servicing Fee"), which will be payable to the
Servicer from the Amount Available on each Payment Date, in an amount equal to
the product of one-twelfth of % per annum multiplied by the Lease Pool
Principal Balance as of the last day of the second preceding Collection Period
(or, in the case of the Servicing Fee with respect to the Collection Period
commencing on the Cut-Off Date, the Initial Pool Principal Balance), plus any
late fees, late payment interest, documentation fees, insurance administration
charges and other administrative fees and charges and a portion of any
extension fees (collectively, the "Administrative Fees") collected with respect
to the Leases during the prior Collection Period and any investment earnings on
collections prior to deposit thereof in the Collection Account. The Servicer is
authorized under the Contribution and Servicing Agreement, in its discretion,
to waive any Administrative Fees or extension fees that may be collected in the
ordinary course of servicing any Lease.
Events of Termination. An Event of Termination under the Contribution and
Servicing Agreement will occur if (a) the Servicer fails to make any payment or
deposit required under the Contribution and Servicing Agreement and such
failure continues for five business days after notice from the Trustee or after
discovery by the Servicer; (b) the Servicer fails to deliver to the Trustee and
the Issuer the Servicer's Certificate by the third Business Day prior to the
related Payment Date; (c) the Servicer fails to observe or perform in any
material respect any other covenants or agreements of the Servicer set forth in
the Contribution and Servicing Agreement (and, if Vendor Services is the
Servicer, the Transfer Agreement), and such failure (i) materially and
adversely affects the rights of the Issuer or Noteholders, and (ii) continues
unremedied for 30 days after written notice thereof has been given to the
Servicer by the Issuer, the Trustee or any Noteholder; (d) certain events of
bankruptcy or insolvency occur with respect to the Servicer; or (e) any
representation, warranty or statement of the Servicer made in the Contribution
and Servicing Agreement or any certificate, report or other writing delivered
pursuant thereto proves to be incorrect in any material respect, and such
incorrectness (i) has a material adverse effect on the Issuer or Noteholders,
and (ii) continues uncured for 30 days after written notice thereof
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has been given to the Servicer by the Issuer, the Trustee or any Noteholder.
The Servicer is required under the Contribution and Servicing Agreement to give
the Trustee, the Issuer and each Rating Agency notice of an Event of
Termination promptly after having obtained knowledge of such event.
Federal bankruptcy laws limit the termination of contracts solely by reason
of the fact that the party obligated to provide such performance is subject to
federal bankruptcy proceedings. In such a circumstance, the Trustee may be
unable to terminate the Servicer unless it could demonstrate that independent
grounds (whether or not arising from the same facts causing the Servicer to be
subject to bankruptcy proceedings) exist to declare an Event of Termination and
the court supervising the bankruptcy proceeding determines that such grounds
warrant termination of the Servicer.
Rights upon Event of Termination. So long as an Event of Termination remains
unremedied, the Trustee may, and at the written direction of a Note Majority
shall, terminate all of the rights and obligations of the Servicer under the
Contribution and Servicing Agreement in and to the Leases, whereupon a
successor servicer (which, unless and until the Trustee appoints a new
servicer, will be the Trustee) will succeed to all the responsibilities, duties
and liabilities of the Servicer under the Contribution and Servicing Agreement
and will be entitled to similar compensation arrangements; provided, however,
that any successor servicer be liable for any acts or omissions of the prior
Servicer occurring prior to a transfer of the Servicer's servicing and related
functions or for any breach by such Servicer of any of its obligations
contained in the Contribution and Servicing Agreement.
A Note Majority may waive any default by the Servicer in the performance of
its obligations under the Contribution and Servicing Agreement and its
consequences. Upon any such waiver of a past default, such default shall cease
to exist, and any Event of Termination arising therefrom shall be deemed to
have been remedied. No such waiver shall extend to any subsequent or other
default or impair any right consequent thereon.
AMENDMENT
The Contribution and Servicing Agreement may be amended by the parties
thereto (i) to cure any ambiguity, (ii) to correct or supplement any provision
therein that may be inconsistent with any other provision therein, or (iii) to
make any other provisions with respect to matters or questions arising under
the Contribution and Servicing Agreement that are not inconsistent with the
provisions thereof, provided that such action will not adversely affect in any
material respect the interests of the Noteholders. The Contribution and
Servicing Agreement may also be amended by the parties thereto with the consent
of a Note Majority for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of the Contribution and
Servicing Agreement or of modifying in any manner the rights of the
Noteholders; provided, however, that no such amendment (a) that reduces in any
manner the amount of, or accelerates or delays the timing of, any payment
received on or with respect to Leases that are required to be distributed on
any Note or that reduces the aforesaid percentage required to consent to any
such amendment or any waiver under the Contribution and Servicing Agreement,
may be effective without the consent of the Holder of each such Note, or (b)
will be effective unless each Rating Agency confirms that such amendment will
not result in a reduction, qualification or withdrawal of the ratings on the
Notes.
TERMINATION OF THE CONTRIBUTION AND SERVICING AGREEMENT
The obligations created by the Contribution and Servicing Agreement will
terminate (after distribution of all interest and principal then due to
Noteholders) on the earlier of (i) the Payment Date next succeeding the later
of the final payment or other liquidation of the last Lease or the disposition
of all Equipment acquired upon termination of any Lease; or (b) the Payment
Date on which the SPC repurchases the Leases as described under "Description of
the Notes--Optional Purchase of Leases." However, Vendor Services's
representations, warranties and indemnities will survive any termination of the
Contribution and Servicing Agreement.
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CERTAIN LEGAL ASPECTS OF THE LEASES
ENFORCEMENT OF SECURITY INTERESTS IN THE EQUIPMENT
Due to the administrative burden and expense, no assignments of the UCC
financing statements evidencing the security interest of Vendor Services in the
Equipment (to the extent that such financing statements have been filed against
the Obligor, as discussed under "Green Tree Vendor Services Corporation--
Documentation") will be filed to reflect the SPC's, the Issuer's or the
Trustee's interests therein. While failure to file such assignments does not
affect the Issuer's interest in the Leases (including Vendor Services's
interest in the related Equipment), it does expose the Issuer and the
Noteholders to the risk that Vendor Services could release its security
interest in the Equipment of record, and it could complicate the Issuer's
enforcement, as assignee, of Vendor Services's security interest in the
Equipment. While these risks should not affect the perfection or priority of
the interest of the Trustee in the Leases or rights to payment thereunder, they
may adversely affect the right of the Trustee to receive proceeds of
disposition of the Equipment subject to a Liquidated Lease, which are to be
allocated to the payment of the Notes as described under "Description of the
Notes--Liquidated Leases." Additionally, statutory liens for repairs or unpaid
taxes and other liens arising by operation of law may have priority even over
prior perfected security interests assigned to the Trustee in the Equipment.
In the event of a default by the Obligor under a Lease intended for security,
the Servicer on behalf of the Issuer may take action to enforce Vendor
Services' interest in the related Equipment by repossession and resale or re-
lease of the Equipment. Under the UCC in most states, a creditor can, without
prior notice to the debtor, repossess assets securing a defaulted contract by
the Obligor's voluntary surrender, or by "self-help" repossession that does not
involve a breach of the peace and by judicial process. In the event of
bankruptcy or insolvency of the Obligor these remedies may require the
permission of a bankruptcy court or may otherwise not be immediately available.
See "--Insolvency Matters" below.
In the event of a default by the Obligor under a Lease intended for security,
some jurisdictions require that the Obligor be notified of the default and be
given a time period within which it may cure the default prior to repossession.
Generally, this right of reinstatement may be exercised on a limited number of
occasions in any one-year period.
The UCC and other state laws place restrictions on repossession sales,
including requirements that the secured party provide the debtor 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 and that any
such sale be conducted in a commercially reasonable manner.
Under most state laws, an Obligor under a Lease intended for security has the
right to redeem collateral for its obligations prior to actual sale by paying
the lessor or secured party the unpaid balance of the obligation plus
reasonable expenses for repossessing, holding and preparing the collateral for
disposition and arranging for its sale, plus, to the extent provided for in the
written agreement of the parties, reasonable attorneys' fees.
In addition, because the market value of equipment of the type subject to the
Leases generally declines with age, due to obsolescence, the net disposition
proceeds of Equipment at any time during the term of the Leases may not equal
or exceed the Principal Balance on the related Lease. Because of this, and
because other creditors may in certain cases have rights in the related
Equipment superior to those of the Issuer, the Servicer may not be able to
recover the entire amount due on a defaulted Lease in the event that the
Servicer elects to repossess and dispose of such Equipment at any time.
Under the UCC and laws applicable in most states, a creditor is entitled to
obtain a deficiency judgment from an Obligor under a Lease intended for
security for any deficiency on repossession and resale of the asset securing
the unpaid balance of such Obligor's Lease. However, some states impose
prohibitions or limitations on deficiency judgments. In most jurisdictions, the
courts, in interpreting the UCC, would impose upon a creditor an obligation to
repossess the equipment in a commercially reasonable manner and to "mitigate
damages" in the event of an Obligor's failure to cure a default. The creditor
would be required to exercise reasonable
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judgment and follow acceptable commercial practice in seizing, selling or re-
leasing the equipment and to offset the net proceeds of such disposition
against its claim. In addition, an Obligor may successfully invoke an election
of remedies defense to a deficiency claim in the event that the Servicer's
repossession and sale of the Equipment is found to be a retention discharging
the Obligor from all further obligations under the UCC. If a deficiency
judgment were granted, the judgment would be a personal judgment against the
Obligor for the shortfall, but a defaulting Obligor may have limited assets 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.
Many states have adopted a version of Article 2A of the UCC ("Article 2A").
Article 2A purports to codify many provisions of existing common law. Although
there is little precedental authority regarding how Article 2A will be
interpreted, it may, among other things, limit enforceability of any
"unconscionable" provision in a Lease, provide an Obligor with remedies
including the right to cancel the Lease for any lessor breach or default, and
may add to or modify the terms of "consumer leases" and leases where the
Obligor is a "merchant lessee." However, each Lease contains an acknowledgement
by the Obligor that the Equipment was acquired for business purposes, and
Vendor Services will represent in the Contribution and Servicing Agreement that
no Lease (other than a de minimis number of Leases) is a "consumer lease" under
Article 2A. Article 2A, moreover, recognizes typical commercial lease "hell or
high water" rental payment clauses and validates reasonable liquidated damages
provisions in the event of lessor or Obligor defaults. Article 2A also
recognizes the concept of freedom of contract and permits the parties in a
commercial context a wide latitude to vary provisions of the law.
INSOLVENCY MATTERS
Certain statutory provisions, including federal and state bankruptcy and
insolvency laws, may also limit the ability of the Servicer to repossess and
resell or re-lease Equipment or obtain a deficiency judgment. In the event of
the bankruptcy or reorganization of an Obligor, various provisions of the
Bankruptcy Code of 1978 (the "Bankruptcy Code") and related laws may interfere
with or eliminate the ability of the Servicer to enforce the Issuer's rights
under the Leases. For example, although the bankruptcy or reorganization of an
Obligor would constitute an event of default under such Lease, the Bankruptcy
Code provides generally that rights and obligations under an unexpired lease or
an executory contract may not be terminated or modified solely because of a
provision in the lease or executory contract conditioned upon the commencement
of a case under the Bankruptcy Code. If bankruptcy proceedings were instituted
in respect of an Obligor under such a Lease, the Issuer could be prevented from
continuing to collect payments due from or on behalf of such Obligor or
exercising any remedies assigned to the Issuer without the approval of the
bankruptcy court, and, with respect to a Lease intended as security, the
bankruptcy court could permit the Obligor, as owner of the Equipment, to use or
dispose of the Equipment and provide the Issuer with a lien on substitute
collateral, so long as the court held that such substitute collateral
constituted "adequate protection" within the meaning of the Bankruptcy Code.
In the case of a Lease that is deemed not to be intended as security, the
Bankruptcy Code grants to the bankruptcy trustee or the debtor-in-possession a
right to elect to assume or reject any executory contract or unexpired lease.
Any such rejection by the lessee would result in the return of the leased
equipment to the lessor. Any rejection of such a lease or contract constitutes
a breach of such lease or contract, entitling the non-breaching party to a
claim for breach of contract, which claim would be payable only from the assets
of the debtor's bankruptcy estate. The net proceeds from any resulting judgment
would be deposited into the Collection Account by the Servicer. See
"Description of the Notes--Liquidated Leases."
In the event that, as a result of the bankruptcy or reorganization of an
Obligor, the related Lease becomes a defaulted Lease without breach of any
representation or warranty of Vendor Services, no recourse would be available
against Vendor Services and the Noteholders could suffer a loss with respect to
such Lease.
These UCC and bankruptcy provisions, in addition to the possible decrease in
the value of a repossessed item of Equipment, may limit the amount realized on
the sale of Equipment securing the Leases to less than the amount due
thereunder.
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FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a summary of certain United States federal income
tax considerations relevant to the purchase, ownership and disposition of the
Notes by the holders thereof. Dorsey & Whitney LLP, counsel to the Issuer
("Counsel"), will deliver their opinion regarding the treatment of the Notes
and the treatment of the Issuer, as discussed below. The opinion of Counsel
addresses only those issues specifically identified below as being covered by
such opinion; however, the opinion of Counsel also states that the additional
discussion set forth below accurately sets forth Counsel's advice with respect
to material tax issues. The opinion of Counsel is not binding on the Internal
Revenue Service (the "IRS"). There can be no assurance that the IRS will take a
similar view of such issues, and no assurance can be given that the opinion of
Counsel would be sustained if challenged by the IRS. No ruling on any of the
issues discussed below will be sought from the IRS.
This summary does not purport to be a complete analysis of all the potential
federal income tax consequences relating to the purchase, ownership and
disposition of the Notes. Moreover, the discussion does not address all aspects
of taxation that may be relevant to particular purchasers in light of their
individual circumstances (including the effect of any foreign, state or local
tax laws) or to certain types of purchasers (including dealers in securities,
insurance companies, financial institutions and tax-exempt entities) subject to
special treatment under United States federal income tax laws. The discussion
below assumes that the Notes are held as capital assets.
The discussion of the United States federal income tax consequences set forth
below is based upon currently existing provisions of the Internal Revenue Code
of 1986, as amended (the "Code"), judicial decisions and administrative
interpretations, all of which are subject to change, which changes may be
retroactive. Because individual circumstances may differ, each prospective
purchaser of the Notes is strongly urged to consult its own tax advisor with
respect to its particular tax situation and the tax effects of any state,
local, foreign, or other tax laws and possible changes in the tax laws.
As used herein, the term "United States Holder" means a beneficial owner of a
Note who or which is for United States federal income tax purposes either (i) a
citizen or resident of the United States, (ii) a corporation, partnership or
other entity created or organized in or under the laws of the United States or
of any political subdivision thereof, (iii) an estate the income of which is
subject to United States federal income taxation regardless of its source or
(iv) a trust, (A) for taxable years beginning after December 31, 1996 (or after
August 20, 1996, if the trustee has made an applicable election), with respect
to which a court within the United States is able to exercise primary
supervision over its administration, and one or more United States fiduciaries
have the authority to control all of its substantial decisions, or (B)
otherwise, the income of which is subject to U.S. federal income tax regardless
of its source. The term also includes certain former citizens of the United
States whose income and gain on the Notes will be subject to United States
taxation. As used herein, the term "United States Alien Holder" means a
beneficial owner of a Note that is not a United States Holder.
OPINION OF COUNSEL REGARDING TREATMENT OF THE NOTES
In the opinion of Counsel, the Notes will be treated as indebtedness for
United States federal income tax purposes. Under the terms of the Notes and the
Indenture, each Noteholder agrees and acknowledges upon its purchase of the
Notes and by acceptance of the Notes that it will also treat the Notes as
indebtedness for such purposes.
OPINION OF COUNSEL REGARDING TREATMENT OF THE ISSUER
In the opinion of Counsel, the Issuer will not be characterized as an
"association" taxable as a corporation for United States federal income tax
purposes. In addition, in the opinion of Counsel, the Issuer will not be
characterized as a "publicly traded partnership" taxable as a corporation for
United States federal income tax purposes, based on Counsel's opinion that the
Notes will be treated as indebtedness for federal income tax purposes. If the
Issuer were treated as either an association or a publicly traded partnership
taxable as a
57
<PAGE>
corporation, the resulting entity would be subject to federal income taxes at
corporate tax rates on its taxable income generated by ownership of the
Leases, and certain distributions by the entity would not be deductible in
computing the entity's taxable income. Such an entity-level tax could result
in reduced distributions to Noteholders.
PAYMENTS OF INTEREST
Interest paid on a Note will generally be taxable to a United States Holder
as ordinary interest income at the time it accrues or is received in
accordance with the United States Holder's method of accounting for federal
income tax purposes.
ORIGINAL ISSUE DISCOUNT
Under applicable regulations, a Note will be considered issued with original
issue discount ("OID") if the "stated redemption price at maturity" of the
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 regulations if it does not exceed
.25% of the stated redemption price at maturity of a Note multiplied by the
number of full years until its maturity date or, in the case of the Notes
which have more than one principal payment, the weighted average maturity
date. It is anticipated that the Notes will not be considered issued with more
than de minimis OID. Under the OID regulations, a holder of a Note issued with
a de minimis amount of OID must include an allocable portion of such OID in
income 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. If the Notes are
issued with more than de minimis OID, such OID would be includible in the
income of Noteholders as interest over the term of the Notes under a constant
yield method. Any amount included in income as OID would not, however, be
includible again when the amount is actually received. If the yield on a class
of Notes is not materially different from its coupon, this treatment will have
no significant effect on Noteholders using the accrual method of accounting.
Cash method Noteholders, however, may be required to report income with
respect to Notes issued with OID in advance of the receipt of cash
attributable to such income. Each Noteholder should consult its own tax
advisor regarding the impact of the OID rules if the Notes are issued with OID
and the consequences to such holder as a result of special rules in the Code
which are applicable to debt instruments whose principal payments may be
accelerated by reason of prepayments of other obligations securing such debt
instruments.
MARKET DISCOUNT
If a United States Holder purchases a Note at a price that is less than its
remaining principal amount or, in the case of a Note issued with OID, its
adjusted issue price, by 0.25% or more of its remaining redemption amount
multiplied by the number of whole years to maturity, the Note will be
considered to bear "market discount" in the hands of such United States
Holder. In such case, principal payments received by the United States Holder,
or gain realized by the United States Holder on the disposition of the Note,
generally will be treated as ordinary interest income to the extent of the
market discount that accrued on the Note while held by such United States
Holder and that has not previously been included in income. Market discount
generally accrues on a straight-line basis over the remaining term of a Note
except that, at the election of the United States Holder, market discount may
accrue on a constant yield basis. A United States Holder may not be allowed to
deduct immediately all or a portion of the interest expense on any
indebtedness incurred or continued to purchase or to carry such Note. A United
States Holder may elect to include market discount in income currently as it
accrues (either on a straight-line basis or, if the United States Holder so
elects, on a constant yield basis), in which case the interest deferral rule
set forth in the preceding sentence will not apply. Such an election will
apply to all bonds acquired by the United States Holder on or after the first
day of the first taxable year to which such election applies and may be
revoked only with the consent of the IRS. A United States Holder may not be
58
<PAGE>
allowed to deduct immediately all or a portion of the interest expense on any
indebtedness incurred or continued, or short-sale expenses incurred, to
purchase or carry such a Note; provided, that, if such a Noteholder elected to
include market discount in income currently as it accrues, the foregoing
deferral rule will not apply.
AMORTIZABLE BOND PREMIUM
If a United States Holder purchases a Note for an amount that is greater than
the amount payable at maturity, such holder will be considered to have
purchased such Note with "amortizable bond premium" equal in amount to such
excess, and may elect (in accordance with applicable Code provisions) to
amortize such premium using a constant yield method over the remaining term of
the Note. The amount amortized in any year will be treated as a reduction of
the United States Holder's interest income from the Note in such year. A United
States Holder that elects to amortize bond premium must reduce its tax basis in
the Note by the amount of the premium amortized in any year. An election to
amortize bond premium applies to all taxable debt obligations then owned or
thereafter acquired by the United States Holder and may be revoked only with
the consent of the IRS.
SALE, EXCHANGE OR RETIREMENT OF NOTES
Upon the sale, exchange or retirement of a Note, a United States Holder will
recognize taxable gain or loss equal to the difference between the amount
realized on the sale, exchange or retirement (not including any amount
attributable to accrued but unpaid interest) and such holder's adjusted tax
basis in the Note. To the extent attributable to accrued but unpaid interest,
the amount realized by a United States Holder would be treated as a payment of
interest. A United States Holder's adjusted tax basis in a Note will equal the
cost of the Note to such holder, increased by the amount of any OID and market
discount previously included in income by such holder with respect to such Note
and reduced by any amortized bond premium and any principal payments received
by such holder.
Subject to the discussion of market discount above, gain or loss realized on
the sale, exchange or retirement of a Note by a United States Holder will be
capital gain or loss, and will be long-term capital gain or loss if at the time
of the sale, exchange or retirement the Note has been held for more than one
year. The excess of net long-term capital gains over net short-term capital
losses is taxed at a lower rate than ordinary income for certain non-corporate
taxpayers, but not for corporate taxpayers. The distinction between capital
gain or loss and ordinary income or loss is also relevant for purposes of,
among other things, limitations on the deductibility of capital losses.
POSSIBLE ALTERNATIVE TREATMENT OF THE NOTES
If, contrary to the opinion of Counsel, the Service successfully asserted
that one or more classes of Notes did not represent indebtedness for federal
income tax purposes, the Notes might be treated as equity interests in the
Issuer. If so treated, the Issuer might be characterized as a publicly traded
partnership 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).
In addition, 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 at a rate as high as 30%, and
individual holders might be subject to certain limitations on their ability to
deduct their share of Issuer expenses.
THE FOREGOING DISCUSSION IS FOR GENERAL INFORMATION AND IS NOT TAX ADVICE.
ACCORDINGLY, EACH PROSPECTIVE NOTEHOLDER SHOULD CONSULT ITS OWN TAX ADVISOR AS
TO THE PARTICULAR TAX CONSEQUENCES TO THE PROSPECTIVE NOTEHOLDER, INCLUDING THE
APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN INCOME TAX LAWS AND ANY
RECENT OR POSSIBLE CHANGES IN APPLICABLE TAX LAWS.
59
<PAGE>
ERISA CONSIDERATIONS
Section 406 of the Employee Retirement Income Security Act ("ERISA"), and/or
Section 4975 of the Code, prohibits a pension, profit-sharing or other employee
benefit plan, as well as individual retirement accounts and certain types of
Keogh Plans (each a "Benefit Plan") from engaging in certain transactions with
persons that are "parties in interest" under ERISA or "disqualified persons"
under the Code with respect to such Benefit Plan. A violation of these
"prohibited transaction" rules may result in an excise tax or other penalties
and liabilities under ERISA and the Code for such persons. Title I of ERISA
also requires that fiduciaries of a Benefit Plan subject to ERISA make
investments that are prudent, diversified (except if prudent not to do so) and
in accordance with governing plan documents.
Certain transactions involving the purchase, holding or transfer of the Notes
might be deemed to constitute prohibited transactions under ERISA and the Code
if assets of the Issuer were deemed to be assets of a Benefit Plan. Under a
regulation issued by the United States Department of Labor (the "Plan Assets
Regulation"), the assets of the Issuer would be treated as plan assets of a
Benefit Plan for the purposes of ERISA and the Code only if the Benefit Plan
acquires an "equity interest" in the Issuer and none of the exceptions
contained in the Plan Assets Regulation is applicable. An equity interest is
defined under the Plan Assets Regulation as an interest in an entity other than
an instrument which is treated as indebtedness under applicable local law and
which has no substantial equity features. Although there can be no assurances
in this regard, it appears that the Notes should be treated as debt without
substantial equity features for purposes of the Plan Assets Regulation and that
the Notes do not constitute equity interests in the Issuer for purposes of the
Plan Assets Regulation. However, without regard to whether the Notes are
treated as an equity interest for such purposes, the acquisition or holding of
Notes by or on behalf of a Benefit Plan could be considered to give rise to a
prohibited transaction if the Issuer or the Trustee, or any of their respective
affiliates is or becomes a party in interest or a disqualified person with
respect to such Benefit Plan. In such case, certain exemptions from the
prohibited transaction rules could be applicable depending on the type and
circumstances of the plan fiduciary making the decision to acquire a Note.
Included among these exemptions are: Prohibited Transaction Class Exemption
("PTCE") 96-23, regarding transactions effected by "in-house asset managers";
PTCE 90-1, regarding investments by insurance company pooled separate accounts;
PTCE 95-60, regarding transactions effected by "insurance company general
accounts"; PTCE 91-38, regarding investments by bank collective investment
funds; and PTCE 84-14, regarding transactions effected by "qualified
professional asset managers."
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 ANY OF THE NOTES SHOULD CONSULT
ITS TAX AND/OR LEGAL ADVISORS REGARDING WHETHER THE ASSETS OF THE ISSUER WOULD
BE CONSIDERED PLAN ASSETS, THE POSSIBILITY OF EXEMPTIVE RELIEF FROM THE
PROHIBITED TRANSACTION RULES AND OTHER ISSUES AND THEIR POTENTIAL CONSEQUENCES.
60
<PAGE>
RATINGS OF THE NOTES
It is a condition of issuance that each of and (i) rate
the Class A-1 Notes " " and " ," respectively, (ii) rate the Class A-2
Notes in its highest rating category, (iii) rate the Class B Notes at least
" " and " ," respectively, and (iv) rate the Class C Notes at least " ."
The rating of each Class of Notes addresses the likelihood of the timely
receipt of interest and payment of principal on such Class of Notes on or
before the Stated Maturity Date for such Class of Notes. The rating of the
Class A and Class B Notes will be based primarily upon the Pledged Revenues,
the Residual Realizations and the subordination provided by (1) the Class B
Notes and the Class C Notes, in the case of the Class A Notes and (2) the Class
C Notes, in the case of the Class B Notes. The rating of Class C Notes will be
based primarily in the Class C Limited Guaranty provided by Green Tree. There
is no assurance that any such rating will not be lowered or withdrawn by the
assigning Rating Agency if, in its judgment, circumstances so warrant. If Green
Tree's long-term debt rating were lowered, it is likely that the rating of the
Class C Notes would be lowered as well. In the event that a rating or ratings
with respect to the Notes is qualified, reduced or withdrawn, no person or
entity will be obligated to provide any additional credit enhancement with
respect to the Notes so qualified, reduced or withdrawn.
The rating of the Notes should be evaluated independently from similar
ratings on other types of securities. A rating is not a recommendation to buy,
sell or hold the Notes, inasmuch as such rating does not comment as to market
price or suitability for a particular investor. The ratings of the Notes do not
address the likelihood of payment of principal on any Class of Notes prior to
the Stated Maturity Date thereof, or the possibility of the imposition of
United States withholding tax with respect to non-United States Persons.
USE OF PROCEEDS
The proceeds from the offering and sale of the Notes, after paying the
expenses of the Issuer, will be paid by the Issuer to the SPC and by the SPC to
Vendor Services in connection with the transfer of the Leases and Vendor
Services' interests in the Equipment.
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement (the
"Underwriting Agreement"), the underwriters named below (the "Underwriters"),
through their representative, Lehman Brothers Inc. (the "Representative"), have
severally agreed to purchase from the Issuer the following respective Initial
Principal Amount of Notes (the "Notes") at the initial public offering price
less the underwriting discounts set forth on the cover page of this Prospectus:
<TABLE>
<CAPTION>
INITIAL PRINCIPAL INITIAL PRINCIPAL INITIAL PRINCIPAL INITIAL PRINCIPAL
AMOUNT OF AMOUNT OF AMOUNT OF AMOUNT OF
UNDERWRITERS CLASS A-1 NOTES CLASS A-2 NOTES CLASS B NOTES CLASS C NOTES
- ------------ ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Lehman Brothers Inc.....
---- ---- ---- ----
Total.................
==== ==== ==== ====
</TABLE>
In the Underwriting Agreement, the Underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all of the Notes offered
hereby if any of such Notes are purchased. The Issuer has been advised by the
Representative that the Underwriters propose initially to offer the Notes to
the public at the respective public offering prices set forth on the cover page
of this Prospectus, and to certain dealers at such price, less a concession not
in excess of % per Class A-1 Note, % per Class A-2 Note, % per Class B
Note and % per Class C Note. The Underwriters may allow and such dealers may
reallow to other dealers a discount not in excess of % per Class A-1 Note,
% per Class A-2 Note, % per Class B Note and %
61
<PAGE>
per Class C Note. After the initial public offering of the Notes, the offering
prices and such concessions and discounts may be varied by the Underwriters.
Until the distribution of the Notes is completed, rules of the Commission
may limit the ability of the Underwriters and certain selling group members to
bid for and purchase the Notes. As an exception to these rules, the
Underwriters are permitted to engage in certain transactions that stabilize
the price of the Notes. Such transactions consist of bids or purchases for the
purpose of pegging, fixing or maintaining the price of the Notes.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher
than it might be in the absence of such purchases.
Neither the Issuer nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the
transactions described above may have on the prices of the Notes. In addition,
neither the Issuer nor any of the Underwriters makes any representation that
the Underwriters will engage in such transactions or that such transactions,
once commenced, will not be discontinued without notice.
Green Tree Financial Corporation has agreed to indemnify the Underwriters
against certain liabilities, including liabilities under the Securities Act of
1933, as amended.
The Notes are new issues of securities with no established trading market.
The Issuer has been advised by the Representative that the Underwriters intend
to make a market in the Notes in the United States but are not obligated to do
so and may discontinue market making at any time without notice. No assurance
can be given as to the liquidity of the trading market for the Notes.
Funds in the Trust Accounts may, from time to time, be invested in Eligible
Investments acquired from the Underwriters.
LEGAL MATTERS
Certain legal matters with respect to the Notes will be passed upon for the
Issuer by Dorsey & Whitney LLP. Brown & Wood LLP will act as counsel to the
Underwriters. The Indenture, the Contribution and Servicing Agreement, the
Transfer Agreement and the Notes will be governed by the laws of the State of
Minnesota.
62
<PAGE>
INDEX OF PRINCIPAL TERMS
<TABLE>
<CAPTION>
TERM PAGE TERM PAGE
---- ---- ---- ----
<S> <C> <C> <C>
</TABLE>
63
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
TERM(S) PAGE(S)
- ------- -------
<S> <C>
Independent Auditor's Report ........................................... F-2
Balance Sheet of the Issuer as of October 23, 1997...................... F-3
Notes to Balance Sheet ................................................. F-4
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
[TO FOLLOW]
F-2
<PAGE>
GREEN TREE LEASE FINANCE 1997-1, LLC
BALANCE SHEET
DECEMBER , 1997
<TABLE>
<CAPTION>
ASSET
<S> <C>
Cash................................................................ $1,000
------
======
MEMBER'S EQUITY
Member's Equity (authorized 10 Units; issued
and outstanding 10 Units).......................................... $1,000
------
$1,000
======
</TABLE>
See accompanying notes to balance sheet.
F-3
<PAGE>
GREEN TREE LEASE FINANCE 1997-1, LLC
NOTES TO BALANCE SHEET
DECEMBER , 1997
(1) ORGANIZATION
Green Tree Lease Finance 1997-1, LLC (the "Company"), a wholly owned
subsidiary of Green Tree Lease Finance II, Inc., (the "SPC"), was formed as a
limited liability company in the State of Delaware on October 23, 1997. The
Company has been inactive since that date.
The Company was organized to engage exclusively in the following business and
financial activities: to acquire leases and rights to residual realizations on
the underlying equipment from the SPC; to issue and sell notes collateralized
by any or all of its assets pursuant to one or more indentures between the
Company and an indenture trustee; and to engage in other transactions,
including entering into agreements that are incidental and necessary, suitable
or convenient to the foregoing and permitted under Delaware law.
(2) CAPITAL CONTRIBUTION
The SPC purchased 10 Units of the Company for $1,000 on December , 1997.
F-4
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESEN-
TATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AU-
THORIZED BY THE ISSUER, THE SERVICER, THE SPC, THE TRUSTEE OR THE UNDERWRITER.
THIS PROSPECTUS DOES NOT CONSTITUTE AN ORDER OR SOLICITATION BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO
ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS, NOR ANY SALE MADE HEREUNDER, SHALL, UNDER ANY CIR-
CUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE OF SUCH INFORMATION.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Incorporation of Certain Documents by Reference............................ i
Available Information...................................................... ii
Reports to Noteholders..................................................... ii
Table of Contents.......................................................... iii
Summary.................................................................... 1
Risk Factors............................................................... 15
The Issuer and the SPC..................................................... 20
Green Tree Vendor Services Corporation..................................... 21
The Leases................................................................. 24
Management's Discussion and Analysis of
Financial Condition....................................................... 35
Managers of the Issuer..................................................... 35
Weighted Average Life of the Notes......................................... 36
Description of the Notes................................................... 37
Description of the Contribution and Servicing Agreement.................... 50
Certain Legal Aspects of the Leases........................................ 55
Federal Income Tax Consequences............................................ 57
ERISA Considerations....................................................... 60
Ratings of the Notes....................................................... 61
Use of Proceeds............................................................ 61
Underwriting............................................................... 61
Legal Matters.............................................................. 62
Index of Principal Terms................................................... 63
</TABLE>
------------------
UNTIL , 1998, ALL DEALERS EFFECTING TRANSACTIONS IN THE NOTES, WHETHER
OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PRO-
SPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPEC-
TUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LOGO
GREEN TREE LEASE FINANCE 1997-1, LLC
ISSUER
% LEASE-BACKED NOTES,
CLASS A-1
% LEASE-BACKED NOTES,
CLASS A-2
% LEASE-BACKED NOTES,
CLASS B
% LEASE-BACKED NOTES,
CLASS C
GREEN TREE VENDOR SERVICES CORPORATION
SERVICER
------------------
PROSPECTUS
DECEMBER , 1997
------------------
LEHMAN BROTHERS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
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 Lease-Backed Notes, other than underwriting discounts
and commissions, described in this Registration Statement:
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee............. $162,258
Printing and Engraving.......................................... *
Legal Fees and Expenses......................................... *
Blue Sky Filing and Counsel Fees................................ *
Accounting Fees and Expenses.................................... *
Trustee Fees and Expenses....................................... *
Rating Agencies' Fees........................................... *
Miscellaneous Expenses.......................................... *
--------
Total......................................................... $ *
========
</TABLE>
- --------
* To be provided by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Green Tree Lease Finance 1997-1, LLC is a limited liability company formed
under the laws of Delaware. Section 18-108 of the Delaware Limited Liability
Company Act provides that a Delaware limited liability company may indemnify
any member or manager or other person from and against any and all claims and
demands whatsoever. The Limited Liability Company Agreement of Green Tree
Lease Finance 1997-1, LLC provides, in effect, that, subject to certain
limited exceptions, such company will indemnify its managers and named
officers to the extent permitted by the Delaware Limited Liability Company
Act.
Green Tree Lease Finance II, Inc. is incorporated under the laws of
Minnesota. Section 302A.521 of the Minnesota Statutes provides that a
corporation shall indemnify any person made or threatened to be made a party
to a proceeding by reason of the former or present official capacity of such
person against judgments, penalties, fines (including, without limitation,
excise taxes assessed against such person with respect to any employee benefit
plan), settlements and reasonable expenses, including attorneys' fees and
disbursements, incurred by such person in connection with the proceeding, if,
with respect to the acts or omissions of such person complained of in the
proceeding, such person (1) has not been indemnified therefor by another
organization or employee benefit plan for the same judgments, penalties or
fines; (2) acted in good faith; (3) received no improper personal benefit and
Section 302A.255 (with respect to director conflicts of interest), if
applicable, has been satisfied; (4) in the case of a criminal proceeding, had
no reasonable cause to believe the conduct was unlawful; and (5) in the case
of acts or omissions in such person's official capacity for the corporation,
reasonably believed that the conduct was in the best interests of the
corporation, or in the case of acts or omissions in such person's official
capacity for other affiliated organizations, reasonably believed that the
conduct was not opposed to the best interests of the corporation. Section
302A.521 also requires payment by a corporation, upon written request, of
reasonable expenses in advance of final disposition of the proceeding in
certain instances. A decision as to required indemnification is made by a
disinterested majority of the Board of Directors present at a meeting at which
a disinterested quorum is present, or by a designated committee of the Board,
by special legal counsel, by the shareholders or by a court.
The Bylaws of Green Tree Lease Finance II, Inc. provide, in effect, that,
subject to certain limited exceptions, such corporation will indemnify its
officers and directors to the extent permitted by the Minnesota Business
Corporation Act.
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
II-1
<PAGE>
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, 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 proceeding, 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 indemnify 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 and 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.
3.1 --Certificate of Formation of Green Tree Lease Finance 1997-1, LLC.
3.2* --LLC Agreement of Green Tree Lease Finance 1997-1, LLC.
3.3 --Articles of Incorporation of Green Tree Lease Finance II, Inc.
3.4 --By-Laws of Green Tree Lease Finance II, Inc.
3.5 --Certificate of Incorporation of Green Tree Financial Corporation
(incorporated by reference to Exhibit 1.2 to Green Tree Financial
Corporation's Registration Statement No. 33-60869.)
3.6 --By-Laws of Green Tree Financial Corporation (incorporated by
reference to Exhibit 3.2 to Green Tree Financial Corporation's
Registration Statement No. 33-60869).
4.1* --Form of Transfer Agreement.
4.2* --Form of Contribution and Servicing Agreement.
4.3* --Form of Indenture.
5.1* --Opinion and consent of Dorsey & Whitney LLC with respect to
legality (to be filed by amendment).
8.1* --Opinion and consent of Dorsey & Whitney LLC with respect to tax
matters (to be filed by amendment).
23.1* --Consent of Dorsey & Whitney LLC (included as part of Exhibit 5.1).
23.2* --Consent of Dorsey & Whitney LLC (included as part of Exhibit 8.1).
24.1** --Power of attorney from officers and directors of Green Tree Lease
Finance II, Inc. (included on page (II-6).
24.2** --Power of attorney from officers and directors of Green Tree
Financial Corporation (included on page (II-7).
25.1* --Statement of eligibility of Trustee.
</TABLE>
- --------
* To be filed by amendment.
** Previously filed.
ITEM 17. UNDERTAKINGS.
Each of the undersigned, Green Tree Lease Finance 1997-1, LLC, Green Tree
Lease Finance II, Inc. and Green Tree Financial Corporation (collectively, the
"Registrants"), hereby undertakes that, for purposes of
II-2
<PAGE>
determining any liability under the Securities Act of 1933, each filing of any
Registrant 's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to 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 Registrants pursuant to the foregoing provisions, or otherwise, the
Registrants have 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 Registrants of expenses incurred or paid by a director, officer or
controlling person of the Registrants 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 Registrants
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 Registrants hereby undertake:
(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 Registrants 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.
The Registrants hereby undertake 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 Act.
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<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, GREEN TREE LEASE
FINANCE 1997-1, LLC 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 AMENDMENT NO. 2 TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF
BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF ST. PAUL, STATE
OF MINNESOTA, ON THE 4TH DAY OF DECEMBER, 1997.
Green Tree Lease Finance 1997-1, LLC
By: Green Tree Lease Finance II,
Inc.
/s/ Joel H. Gottesman
By: _________________________________
Joel H. Gottesman
Senior Vice President and
Secretary
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, GREEN TREE LEASE
FINANCE II, INC. 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
AMENDMENT NO. 2 TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY
THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF ST. PAUL, STATE OF
MINNESOTA, ON THE 4TH DAY OF DECEMBER, 1997.
Green Tree Lease Finance II, Inc.
/s/ Joel H. Gottesman
By: _________________________________
Joel H. Gottesman
Senior Vice President and
Secretary
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 2 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS
IN THE CAPACITIES INDICATED.
SIGNATURE TITLE DATE
* Chairman of the
- ------------------------------------- Board and President December 4,
ROBERT D. POTTS (Principal 1997
Executive Officer
and Director)
*
- ------------------------------------- Executive Vice
EDWARD L. FINN President December 4,
(Principal 1997
Financial and
Accounting Officer)
/s/ Joel H. Gottesman Director
- ------------------------------------- December 4,
JOEL H. GOTTESMAN 1997
* Director
- ------------------------------------- December 4,
PAUL A. BOYUM 1997
/s/ Joel H. Gottesman
*By: ________________________________
JOEL H. GOTTESMAN
Attorney-in-fact
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, GREEN TREE
FINANCIAL CORPORATION 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 AMENDMENT NO. 2 TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF
BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF ST. PAUL, STATE
OF MINNESOTA, ON THE 4TH DAY OF DECEMBER, 1997.
Green Tree Financial Corporation
/s/ Scott T. Young
By __________________________________
SCOTT T. YOUNG
VICE PRESIDENT AND CONTROLLER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 2 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS
IN THE CAPACITIES INDICATED.
SIGNATURE TITLE DATE
* Chairman of the
- ------------------------------------- Board and Chief December 4,
LAWRENCE M. COSS Executive Officer 1997
(Principal
Executive Officer
and Director)
*
- ------------------------------------- Executive Vice
EDWARD L. FINN President and Chief December 4,
Financial Officer 1997
/s/ Scott T. Young
- ------------------------------------- Vice President and
SCOTT T. YOUNG Controller December 4,
(Principal 1997
Accounting Officer)
*
- ------------------------------------- Director
RICHARD G. EVANS December 4,
1997
* Director
- ------------------------------------- December 4,
W. MAX MCGEE 1997
* Director
- ------------------------------------- December 4,
ROBERT S. NICKOLOFF 1997
* Director
- ------------------------------------- December 4,
ROBERT D. POTTS 1997
/s/ Scott T. Young
*By: ________________________________
SCOTT T. YOUNG
ATTORNEY-IN-FACT
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<C> <S>
1.1* --Form of Underwriting Agreement.
3.1 --Certificate of Formation of Green Tree Lease Finance 1997-1, LLC.
3.2* --LLC Agreement of Green Tree Lease Finance 1997-1, LLC.
3.3 --Articles of Incorporation of Green Tree Lease Finance II, Inc.
3.4 --By-Laws of Green Tree Lease Finance II, Inc.
3.5 --Certificate of Incorporation of Green Tree Financial Corporation
(incorporated by reference to Exhibit 1.2 to Green Tree Financial
Corporation's Registration Statement No. 33-60869.)
3.6 --By-Laws of Green Tree Financial Corporation (incorporated by
reference to Exhibit 3.2 to Green Tree Financial Corporation's
Registration Statement No. 33-60869.
4.1* --Form of Transfer Agreement.
4.2* --Form of Contribution and Servicing Agreement.
4.3* --Form of Indenture.
5.1* --Opinion and consent of Dorsey & Whitney LLC with respect to legality
(to be filed by amendment).
8.1* --Opinion and consent of Dorsey & Whitney LLC with respect to tax
matters (to be filed by amendment).
23.1* --Consent of Dorsey & Whitney LLC (included as part of Exhibit 5.1).
23.2* --Consent of Dorsey & Whitney LLC (included as part of Exhibit 8.1).
24.1** --Power of attorney from officers and directors of Green Tree Lease
Finance II, Inc. (included on page (II-6).
24.2** --Power of attorney from officers and directors of Green Tree Financial
Corporation (included on page (II-7).
25.1* --Statement of eligibility of Trustee.
</TABLE>
- --------
* To be filed by amendment.
** Previously filed.
