<PAGE>
As filed with the Securities and Exchange Commission on November 12, 1997
Registration No. 333-38687-01_______
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 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 _______________
incorporation or organization) (I.R.S. Employer
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 _______________
incorporation or organization) (I.R.S. Employer
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: / /
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
<TABLE>
<CAPTION>
=============================================================================================================
Proposed Proposed
Maximum Maximum Amount of
Title of each Class Amount to be Aggregate Price Aggregate registration
to be Registered registered per Unit(1) Offering Price(1) fee
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Lease-Backed Notes, Class A.......... $ 500,000 100% $ 500,000 $ 151.51
Lease-Backed Notes, Class B.......... $ 250,000 100% $ 250,000 $ 75.76
Lease-Backed Notes, Class C.......... $ 250,000 100% $ 250,000 $ 75.76
Class C Limited Guaranty............. (2) (2) (2) (2)
Total.............................. $1,000,000 100% $1,000,000 $303.03(3)
=============================================================================================================
</TABLE>
(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) Previously paid.
------------------
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>
SUBJECT TO COMPLETION, DATED NOVEMBER 12, 1997
$________
[LOGO]
GREEN TREE LEASE FINANCE 1997-1, LLC
ISSUER
________$___% 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). 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 ___ 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
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<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............. $ $ $
------------ ---------- ----------
</TABLE>
(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
_______________
THE DATE OF THIS PROSPECTUS IS 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
-i-
<PAGE>
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 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
SECTION PAGE
- ------- ----
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.......... i
AVAILABLE INFORMATION.................................... ii
REPORTS TO NOTEHOLDERS................................... ii
SUMMARY.................................................. 1
RISK FACTORS............................................. 13
THE ISSUER AND THE SPC................................... 17
GREEN TREE VENDOR SERVICES CORPORATION................... 18
THE LEASES............................................... 21
WEIGHTED AVERAGE LIFE OF THE NOTES....................... 35
DESCRIPTION OF THE NOTES................................. 36
DESCRIPTION OF THE CONTRIBUTION AND SERVICING AGREEMENT.. 49
CERTAIN LEGAL ASPECTS OF THE LEASES...................... 54
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
-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."
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 $__________. 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 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
-1-
<PAGE>
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, and
(d) to the extent that the Class B Floor exceeds
the Class B Target Investor Principal Amount and/or
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-2
Notes, the Class B Notes and the Class C Notes
until the Outstanding Principal Amount of each
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).
-2-
<PAGE>
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.
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
-3-
<PAGE>
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
-4-
<PAGE>
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.
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.
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 __________.
-5-
<PAGE>
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 DATES......... Interest and principal on the Notes will be paid 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 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."
-6-
<PAGE>
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 (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 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 SECURITY........ 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
Revenues"), plus Servicer Advances made by the
Servicer, plus Residual Realizations for the related
Collection Period.
"Pledged Revenues" will consist of:
-7-
<PAGE>
(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 Green Tree has substituted
a Substitute 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; 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
-8-
<PAGE>
Liquidated Leases (the "Residual Realizations"), will
provide additional credit support to the Notes. During
each Collection 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 (the "Statistical Pool Principal Balance") is
$___________ and will not vary materially from the
Initial Pool Principal Balance.
(i) The Statistical Pool Principal Balance is
$__________.
(ii) There were __________ Leases.
-9-
<PAGE>
(iii) The average Principal Balance was
approximately $__________.
(iv) 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.
(v) 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.
(vi) 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.
(vii) The remaining term of the Leases ranged
from ___ month to ___ months.
(viii) The weighted average remaining term of
the Leases was approximately ___ months and the weighted
average age of the Leases was approximately ___ months.
See "The Leases -- 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
-10-
<PAGE>
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 "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 ___% 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
-11-
<PAGE>
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 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 ACCOUNTS.. 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 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."
-12-
<PAGE>
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.
PRIORITY OF PAYMENTS.. On each Payment Date, the Trustee will be required
to make the following payments, first, from the
Available Pledged Revenues and second, from amounts
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 in respect
of 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
-13-
<PAGE>
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
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
-14-
<PAGE>
"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."
-15-
<PAGE>
RISK FACTORS
Prospective Noteholders should consider the following factors in connection
with the purchase of the Notes:
LIMITED TRUST ASSETS
The Notes are secured by the payments to be derived from the Leases and
other Trust Assets. 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.
SUBORDINATION OF THE CLASS B NOTES AND CLASS C NOTES
To the extent described herein under "Description of the Notes --
Distributions" and "-- Subordination of Class B Notes and Class C Notes," (i)
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 (ii) 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.
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 not used to make payments of interest and
principal on the Class A and Class B Notes, and the amounts, if any, on deposit
in the Residual Account and the Class C Limited Guaranty. 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. Further
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.
BANKRUPTCY AND INSOLVENCY RISKS
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 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"
-16-
<PAGE>
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 Statistical
Pool Principal Balance and at least 75% of the aggregate Book Value as of the
Cut-Off Date 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.
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.
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.
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 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.
-17-
<PAGE>
If the SPC or the Issuer were to become insolvent under any Insolvency Law,
delays and reductions in the amount of distributions to Noteholders could occur.
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.
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.
YIELD AND PREPAYMENT CONSIDERATIONS
The weighted average life of the Notes will 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 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." 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. Vendor
Services may, but is not obligated to, designate one or more Additional Leases
as a replacement for any partially or fully prepaid or
-18-
<PAGE>
upgraded Lease, and to substitute one or more leases as Substitute Leases in
exchange for Liquidated Leases. As the rate of payment of principal of the
Notes will depend on the rate of payment (including prepayments) on the
Leases, 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."
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.
LIMITATIONS 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 the timing of Lease Terminations. 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.
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.
CERTAIN LEGAL ASPECTS 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.
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
-19-
<PAGE>
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.
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 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
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.
BOOK-ENTRY REGISTRATION
-20-
<PAGE>
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 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.
-21-
<PAGE>
The Trust Assets will consist of:
(1) a pool of equipment lease contracts (the "Leases") with
various lessees or other obligors thereunder (each, an "Obligor"),
including all monies at any time paid or payable thereon or in respect
thereof from and after 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 any derived
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 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 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
-22-
<PAGE>
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.
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
-23-
<PAGE>
applicant, loss experience 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.
-24-
<PAGE>
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.
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's management
reviews, among other things, the maturity of Vendor Services's portfolio, the
status of all non-performing leases and receivables, prior collection experience
and Vendor Services's 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
-25-
<PAGE>
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 third-party originator.
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
-26-
<PAGE>
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.
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
-27-
<PAGE>
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.
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 the Cut-Off Date, and regarding each Substitute Lease as of the date of
its substitution:
(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;
-28-
<PAGE>
(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 Statistical Pool Principal Balance) or (b)
Vendor Services or any affiliate thereof;
(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
Statistical Pool Principal Balance, are not material);
-29-
<PAGE>
(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 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;
(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
-30-
<PAGE>
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.
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.
-31-
<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 ___%. Calculations of the Outstanding Principal Amounts for each
Payment Date, which will determine the amount of principal due on the Notes on
such Payment Date, will be made using the Discount Rate, which will be the
weighted average of the Interest Rates of each Class of Notes on the Closing
Date. The Lease Pool Principal Balance as of the Cut-off Date (calculated using
the Discount Rate) will not vary materially from Statistical Pool Principal
Balance (which is calculated using the Statistical Discount Rate), and will be
larger than the aggregate original principal balance of the Notes.
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>
WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
STATISTICAL ORIGINAL REMAINING PRINCIPAL
NUMBER POOL PRINCIPAL TERM TERM BALANCE
OF LEASES BALANCE (RANGE) (RANGE) (RANGE)
- ------------ ----------------- ------------------------- ------------------------- ------------------
months months
<S> <C> <C> <C> <C>
(__ months to __ months) (__ month to __ months) (___ to ________)
</TABLE>
-32-
<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>
% OF TOTAL NUMBER AGGREGATE % 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>
-33-
<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 STATISTICAL
POOL
% OF TOTAL AGGREGATE PRINCIPAL
PAYMENT STATUS NUMBER OF LEASES NUMBER OF 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 STATISTICAL
POOL
% OF TOTAL AGGREGATE PRINCIPAL
TYPE OF EQUIPMENT NUMBER OF LEASES NUMBER OF LEASES PRINCIPAL BALANCE BALANCE
- ------------------ ---------------- ------------------ ------------------- -----------------
<S> <C> <C> <C> <C>
Telecommunications.....
Manufacturing and
Construction.........
Computers and
Point-of-Sale........
General Office.........
Medical................
Printing...............
Other..................
Total............
</TABLE>
-34-
<PAGE>
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
Number of Number of Aggregate % of Statistical Pool
Principal Balance Leases Leases Principal Balance Principal 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>
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
Number of Number of Aggregate % of Statistical Pool
Remaining Term of Leases Leases Leases Principal Balance Principal 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>
-35-
<PAGE>
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
Number of Number of Aggregate % of Statistical Pool
Type of Obligor Leases Leases Principal Balance Principal Balance
- ------------------------------ ---------- ----------- ------------------ ---------------------
<S> <C> <C> <C> <C>
Service Organizations.......
Manufacturing and
Construction...............
Retail and Wholesale Trade..
Other.......................
Financial Services..........
Professionals...............
Printing and Copy Centers...
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 June 30, 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.
<TABLE>
<CAPTION>
Gross Receivable Percentage of Gross Receivable Balance of Leases
Balance of Which Were Delinquent
----------------------------------------------------------------
Date of Leases 31 to 60 61 to 90 91 to 120 Over 120
Calculation (in thousands) Days Days Days Days Total
- --------------- ---------------- --------- ---------- --------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
12/31/96......
6/30/97.......
</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 six-month period ending, June 30, 1997. Vendor
Services was acquired by Green Tree Financial Corporation in November 1996, and
current management,
-36-
<PAGE>
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 :
Aggregate net Percentage of
Investment of Aggregate Net Investment
Leases of Leases Which Were
Date of Calculation (In thousands) on Non-Accrual
- ----------------------- ---------------- ------------------------
12/31/96.....
6/30/97......
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..............
6/30/97...............
</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 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.
-37-
<PAGE>
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:
WEIGHTED AVERAGE LIFE (YEARS)
-----------------------------
% CPR % CPR % CPR
--------- --------- ------
Class A-1 Notes................
Class A-2 Notes................
Class B Notes..................
Class C Notes..................
-38-
<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. The
summary does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Notes and the Indenture.
_____________, 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
-39-
<PAGE>
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 purchase
Leases as of the end of such Collection Period (the "Available Pledged
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 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) retained by the Servicer in payment of Administrative Fees)
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") received on or
after the Cut-Off Date under the Leases (unless Vendor Services has substituted
a Substitute 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; 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 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;
-40-
<PAGE>
(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 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
-41-
<PAGE>
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.
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
only, until the Outstanding Principal Amount on the Class A-2 Notes
has been reduced to zero, 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, and
(d) to the extent that the Class B Floor exceeds the Class B Target
Investor Principal Amount and/or 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.
-42-
<PAGE>
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.
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.
-43-
<PAGE>
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.
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.
-44-
<PAGE>
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 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 and, if the Servicer later determines that such Servicer
Advance will not be recoverable from the delinquent Lease, from Available Funds
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 the Class B
-45-
<PAGE>
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 Avaliable less amounts due in respect of
interest and principal on the Class A and Class B Notes on such Payment Date.
Set forth below are the Company's ratios of earnings to fixed charges for
the past five years, and for the six months ended June 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.
Six Months
Ended
Year Ended December 31, June 30,
-------------------------------------------- ----------
1992 1993 1994 1995 1996 1997
------ ------ -------- ------- ------ ------
Ratio of Earnings to
Fixed Charges....... 3.55 4.81 7.98 7.90 7.83 5.89
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
-46-
<PAGE>
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" 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
-47-
<PAGE>
(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.
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.
-48-
<PAGE>
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."
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.
-49-
<PAGE>
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 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
-50-
<PAGE>
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.
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
-51-
<PAGE>
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.
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
-52-
<PAGE>
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
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
-53-
<PAGE>
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;
(iii) all amounts constituting Liquidation Proceeds on
Liquidated 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.
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.
-54-
<PAGE>
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).
SERVICING
-55-
<PAGE>
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
-56-
<PAGE>
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.
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
-57-
<PAGE>
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
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
-58-
<PAGE>
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.
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.
-59-
<PAGE>
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 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
-60-
<PAGE>
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.
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 certain federal income tax
matters 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
-61-
<PAGE>
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.
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.
TREATMENT OF THE ISSUER
In the opinion of Counsel, the Issuer will not be characterized as an
"association" or "publicly traded partnership" taxable as a corporation for
United States federal income tax purposes. If the Issuer were treated as either
an association or a publicly traded partnership taxable as a 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
-62-
<PAGE>
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 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
-63-
<PAGE>
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.
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.
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
-64-
<PAGE>
"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.
-65-
<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 Initial Initial Initial
Principal Principal Principal Principal
Amount of Amount of Amount of Amount of
U.S. 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
-66-
<PAGE>
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 __ %
per Class C Note. After the Notes are released for sale to the public, the
offering prices and other selling terms may be varied by the Representative.
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.
-67-
<PAGE>
INDEX OF PRINCIPAL TERMS
TERM PAGE TERM PAGE
---- ---- ---- ----
-68-
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED 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
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS
OF ANY TIME SUBSEQUENT TO THE DATE OF SUCH INFORMATION.
_______________
TABLE OF CONTENTS
PAGE
----
Incorporation of Certain Documents by Reference.. i
Available Information............................ ii
Reports to Noteholders........................... ii
Table of Contents................................ iii
Summary.......................................... 1
Risk Factors..................................... 13
The Issuer and the SPC........................... 17
Green Tree Vendor Services Corporation........... 18
The Leases....................................... 21
Weighted Average Life of the Notes............... 35
Description of the Notes......................... 36
Description of the Contribution and
Servicing Agreement............................ 49
Certain Legal Aspects of the Leases.............. 54
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
_______________
Until ________, 1998, all dealers effecting transactions in the Notes,
whether or not participating in this distribution, may be required to deliver a
Prospectus. This is in addition to the obligation of dealers to deliver a
Prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
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
__________
LEHMAN BROTHERS
DECEMBER ___, 1997
<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:
Securities and Exchange Commission Registration Fee $303.03
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 $ *
___________
* 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
II-1
<PAGE>
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 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.
II-2
<PAGE>
ITEM 16. EXHIBITS.
The Exhibits filed as part of this Registration Statement are:
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.
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
- ----------------------------
* 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 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
II-3
<PAGE>
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.
II-4
<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. 1 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 11th day of November, 1997.
GREEN TREE LEASE FINANCE 1997-1, LLC
By: GREEN TREE LEASE FINANCE II, INC.
By: /s/ Joel H. Gottesman
--------------------------------
Joel H. Gottesman
Senior Vice President and Secretary
II-5
<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. 1 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 11th day of November, 1997.
GREEN TREE LEASE FINANCE II, INC.
By: /s/ Joel H. Gottesman
--------------------------------
Joel H. Gottesman
Senior Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities indicated.
SIGNATURE TITLE DATE
- --------------------------- ----------------------------- -----------------
* Chairman of the Board and November 11, 1997
- ---------------------------
Robert D. Potts President
(Principal Executive Officer
and Director)
* Executive Vice President November 11, 1997
- ---------------------------
Edward L. Finn (Principal Financial and
Accounting Officer)
/s/ Joel H. Gottesman Director November 11, 1997
- ---------------------------
Joel H. Gottesman
* Director November 11, 1997
- -------------------------
Paul A. Boyum
* By: /s/ Joel H. Gottesman
------------------------------
Joel H. Gottesman
Attorney-in-fact
II-6
<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. 1 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 11th day of November, 1997.
GREEN TREE FINANCIAL CORPORATION
By /s/ Scott T. Young
---------------------------------
Scott T. Young
Vice President and Controller
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities indicated.
SIGNATURE TITLE DATE
- --------------------------- -------------------------------- ---------------
* Chairman of the Board and November 11, 1997
- ---------------------------
Lawrence M. Coss Chief Executive Officer
(Principal Executive Officer and
Director)
* Executive Vice President and November 11, 1997
- ---------------------------
Edward L. Finn Chief Financial Officer
/s/ Scott T. Young Vice President and Controller November 11, 1997
- ---------------------------
Scott T. Young (Principal Accounting Officer)
* Director November 11, 1997
- ---------------------------
Richard G. Evans
* Director November 11, 1997
- ---------------------------
W. Max McGee
* Director November 11, 1997
- ---------------------------
Robert S. Nickoloff
* Director November 11, 1997
- ---------------------------
Robert D. Potts
* By: /s/ Scott T. Young
--------------------------------
Scott T. Young
Attorney-in-fact
II-7
<PAGE>
EXHIBIT INDEX
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.
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
- ----------------------------
* To be filed by amendment.
** Previously filed.
<PAGE>
CERTIFICATE OF FORMATION
OF
GREEN TREE LEASE FINANCE 1997-1, LLC
This Certificate of Formation of Green Tree Lease Finance 1997-1, LLC
(the "Company") is executed and filed by the undersigned, as authorized person,
to form a limited liability company under the Delaware Limited Liability Company
Act (the "Act").
1. The name of the Company is Green Tree Lease Finance 1997-1, LLC.
2. The address of the registered office of the Company in the State
of Delaware is The Corporation Trust Company, located at Corporation Trust
Center, 1209 Orange Street, Wilmington, New Castle County, Delaware 19801.
3. The name and address of the registered agent for service of
process on the Company in the State of Delaware is The Corporation Trust
Company, located at Corporation Trust Center, 1209 Orange Street, Wilmington,
New Castle County, Delaware 19801.
4. The only duties of the members of the Company to the Company or
to each other in respect of the Company shall be those established in the
limited liability company agreement (as that term is defined in the Act), and
there shall be no other express or implied duties of the members of the Company
to the Company or to each other in respect of the Company.
5. Each manager of the Company shall owe duties of care and loyalty
to the Company and the members of the Company. A manager of the Company shall
not be personally liable to the Company or its members for monetary damages for
breach of fiduciary duty as a manager except (a) for any breach of the manager's
duty of loyalty to the Company or the members; (b) for acts or omissions not in
good faith or that involve intentional misconduct or a knowing violation of law;
or (c) for any transaction from which the manager derived an improper personal
benefit.
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Formation this 22nd day of October, 1997.
/s/ Charles F. Sawyer
---------------------------
Charles F. Sawyer
Authorized Person
<PAGE>
ARTICLES OF INCORPORATION
OF
GREEN TREE LEASE FINANCE II, INC.
To form a Minnesota business corporation under and pursuant to the
Minnesota Business Corporation Act, the following articles of incorporation are
adopted:
ARTICLE 1. Name. The name of the corporation is Green Tree Lease
Finance II, Inc. (hereinafter called the "Corporation").
ARTICLE 2. Registered Office. The address of the Corporation's
registered office is 1100 Landmark Towers, 345 Saint Peter Street, St. Paul,
Minnesota 55102-1641.
ARTICLE 3. Purposes. The purposes for which the Corporation is
organized are as follows:
(a) to acquire a pool of equipment lease contracts ("Contracts") and
the ownership interest in the equipment related to such Contracts ("Equipment")
from Green Tree Vendor Services Corporation and to hold, sell, transfer or
pledge such Contracts and an interest in such Equipment or rights thereto and/or
the proceeds thereof, to one or more special purpose entities (which may take
the form of corporations, limited liability companies, trusts, or other forms);
(b) to form, and hold ownership or equity interests in, such special
purpose entities;
(c) to enter into any agreement relating to any Contracts and
Equipment that provides for the administration, servicing and collection of
amounts due on such Contracts;
(d) to sell, lease, transfer or otherwise dispose of Equipment,
provided that such sale, lease, transfer or other method of disposition does not
expose the Corporation to any liability; and
(e) to engage in any lawful act or activity and to exercise any powers
permitted to corporations laws of the State of Minnesota that
<PAGE>
are incidental to and necessary, suitable or convenient for the accomplishment
of the foregoing.
The Corporation may not incur indebtedness other than liabilities
incurred in the ordinary course of the business described above.
ARTICLE 4. Number of Shares. The total number of shares of all
classes of stock which the Corporation has the authority to issue is 10, all of
which shares are to be Common Stock, of the par value of $.01 per share.
ARTICLE 5. Board of Directors.
(a) The number of directors of the Corporation will not be less than
three nor more than seven, with the exact number to be fixed in the Bylaws. The
Board of Directors shall include at least one individual who is an Independent
Director. As used herein, an "Independent Director" shall be an individual who:
(i) is not and has not been employed by Green Tree or any of its subsidiaries or
affiliates as a director, officer or employee within the five years immediately
prior to such individual's appointment as an Independent Director (provided that
such individual may also serve as a director of other subsidiaries of Green
Tree); (ii) is not (and is not affiliated with a company or a firm that is) a
significant advisor or consultant to Green Tree or any of its subsidiaries and
affiliates; (iii) is not affiliated with a significant customer or supplier of
Green Tree or any of its subsidiaries or affiliates; (iv) is not affiliated with
a company of which Green Tree or any of its subsidiaries and affiliates is a
significant customer or supplier; (v) does not have significant personal
services contract(s) with Green Tree or any of its subsidiaries or affiliates;
(vi) is not affiliated with a tax-exempt entity that receives significant
contributions from Green Tree or any of its subsidiaries or affiliates; (vii) is
not the beneficial owner at the time of such individual's appointment as an
Independent Director, or at any time thereafter while serving as an Independent
Director, of such number of shares of any classes of common stock of Green Tree
the value of which constitutes more than 0.1% of the outstanding common stock of
Green Tree; and (viii) is not a spouse, parent, sibling or child of any person
described by (i) through (vii).
-2-
<PAGE>
(b) As used in paragraph (a) of this Article 5, the following terms
shall have the meanings set forth in this section:
(i) An "affiliate" of a person, or a person "affiliated with" a
specified person, shall mean a person that directly, or indirectly through one
or more intermediaries, controls, or is controlled by, or is under common
control with, the specified person.
(ii) The term "control" (including the terms "controlling,"
"controlled by" and "under common control with") shall mean the possession,
direct or indirect, of the power to direct or cause the direction of the
management and policies of a person, whether through the ownership of voting
securities, by contract, or otherwise; provided, however, that a person shall
not be deemed to control another person solely because he or she is a director
of such other person.
(iii) The term "person" shall mean any individual, partnership,
firm, corporation, association, limited liability company, trust, unincorporated
organization or other entity, as well as any syndicate or group deemed to be a
person pursuant to Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended, as in effect on January 1, 1996.
(iv) A "subsidiary" of Green Tree shall mean any corporation a
majority of the voting stock of which is owned, directly or indirectly through
one or more other subsidiaries, by Green Tree.
(v) A person shall be deemed to be, or to be affiliated with, a
company or firm that is a "significant advisor or consultant to Green Tree or
any of its subsidiaries or affiliates" if he, she, or it, as the case may be,
received or would receive fees or similar compensation from Green Tree or any of
its subsidiaries or affiliates in excess of the lesser of (A) 3% of the
consolidated gross revenues which Green Tree and its subsidiaries received for
the sale of their products and services during the last fiscal year of Green
Tree; (B) 5% of the gross revenues of the person during the last calendar year
if such person is a self-employed individual and (C) 5% of the consolidated
gross revenues received by such company or firm for the sale of its products and
services during its last
-3-
<PAGE>
fiscal year, if the person is a company or firm; provided, however, that
director's fees and expense reimbursements shall not be included in the gross
revenues of an individual for purposes of this determination.
(vi) A "significant customer of Green Tree or any of its subsidiaries
or affiliates" shall mean a customer from which Green Tree and any of its
subsidiaries or affiliates collectively in the last fiscal year of Green Tree
received payments in consideration for the products and services of Green Tree
and its subsidiaries or affiliates which are in excess of 3% of the consolidated
gross revenues of Green Tree and its subsidiaries during such fiscal year.
(vii) A "significant supplier of Green Tree or any of its
subsidiaries or affiliates" shall mean a supplier to which Green Tree and any of
its subsidiaries or affiliates collectively in the last fiscal year of Green
Tree made payments in consideration for the supplier's products and services in
excess of 3% of the consolidated gross revenues of Green Tree and its
subsidiaries during such fiscal year.
(viii) Green Tree or any of its subsidiaries and affiliates shall
be deemed a "significant customer" of a company if Green Tree and any of its
subsidiaries and affiliates collectively were the direct source during such
company's last fiscal year of in excess of 5% of the gross revenues which such
company received for the sale of its products and services during such fiscal
year.
(ix) Green Tree or any of its subsidiaries and affiliates shall be
deemed a "significant supplier" of a company if Green Tree and any of its
subsidiaries and affiliates collectively received in such company's last fiscal
year payments from such company in excess of 5% of the gross revenues which such
company received during such fiscal year for the sale of its products and
services.
(x) A person shall be deemed to have "significant personal services
contract(s) with Green Tree or any of its subsidiaries or affiliates" if the
fees and other compensation received by the person pursuant to personal services
contract(s) with Green Tree and any of its subsidiaries or affiliates exceeded
or would exceed 5% of his or her gross
-4-
<PAGE>
revenues during the last calendar year.
(xi) A tax-exempt entity shall be deemed to receive "significant
contributions from Green Tree or any of its subsidiaries or affiliates" if such
tax-exempt entity received during such tax-exempt entity's last fiscal year
contributions from Green Tree or its subsidiaries or affiliates in excess of the
lesser of (A) 3% of the consolidated gross revenues of Green Tree and its
subsidiaries during such fiscal year and (B) 5% of the contributions received by
the tax-exempt entity during such fiscal year.
(c) The number of directors constituting the initial Board of
Directors of the Corporation is four, and the names and addresses of the persons
who are to serve as directors until the first annual meeting of shareholders or
until their respective successors are elected and qualify are:
Name Address
--------------- ----------------------
Robert D. Potts 1100 Landmark Towers
345 St. Peter Street
St. Paul, MN 55102-1639
Joel H. Gottesman 1100 Landmark Towers
345 St. Peter Street
St. Paul, MN 55102-1639
Edward L. Finn 1100 Landmark Towers
345 St. Peter Street
St. Paul, MN 55102-1639
Paul A. Boyum 24739 Dobb Boulevard
Lakeville, MN 55044
(d) To the fullest extent permitted by the Minnesota Business
Corporation Act, as the same exists or may hereafter be amended, a director of
the Corporation shall not be liable to the Corporation or its shareholders for
monetary damages for breach of
-5-
<PAGE>
fiduciary duty as a director.
ARTICLE 6. Internal Affairs. The Corporation will conduct its
affairs in accordance with the following provisions:
(a) it will establish an office through which its business will be
conducted, which office will be separate and apart from that of any person or
entity owning beneficially more than 50% of the outstanding shares of Common
Stock of the Corporation and will be separate and apart from that of any of such
owner's subsidiaries or affiliates other than the Corporation;
(b) it will maintain separate corporate records and books of account
from those of such owner, subsidiaries and affiliates as are referred to in (a);
(c) its assets will not be commingled with those of any other
corporation; and
(d) its Board of Directors will hold regular meetings, not less
frequently than once every calendar quarter, to review the actions of the
officers of the Corporation and to authorized and approve (1) all transactions
outside the ordinary course of the Corporation's business, and (2) such other
transactions, agreements and actions of the Corporation as the Board of
Directors deems appropriate in connection with its review and supervision of the
Corporation's actions. The Board of Directors must consider the interests of
the creditors of the Corporation in connection with all corporate actions.
ARTICLE 7. Written Action By Directors. An action required or
permitted to be taken at a meeting of the Board of Directors of the Corporation
may be taken by a written action signed, or counterparts of a written action
signed, in the aggregate by all of the directors unless the action need not be
approved by the shareholders of the Corporation, in which case the actions may
be taken by a written action signed, or counterparts of a written action signed
in the aggregate, by the number of directors that would be required to take the
same action at a meeting of the Board of Directors of the Corporation at which
all of the directors
-6-
<PAGE>
were present.
ARTICLE 8. Limitations on Actions. Notwithstanding any other
provision of the Articles of Incorporation, Bylaws or any provision of law that
otherwise so empowers the Corporation, the Corporation shall not, without (i)
the affirmative vote of 100% of the members of the Board of Directors of the
Corporation, including the affirmative vote of the Independent Director:
(a) make an assignment for the benefit of creditors, file a petition
in bankruptcy, petition or apply to any tribunal for the appointment of a
custodian, receiver or any trustee for it or for a substantial part of its
property, commence any proceeding under any bankruptcy, reorganization,
arrangement, readjustment of debt, dissolution or liquidation law or
statute of any jurisdiction, whether now or hereinafter in effect, consent
or acquiesce in the filing of any such petition, application, proceeding or
appointment of or taking possession by the custodian, receiver, liquidator,
assignee, trustee, sequestrator (or other similar official) of the
Corporation or any substantial part of its property, or admit its inability
to pay its debts generally as they become due or authorize any of the
foregoing to be done or taken on behalf of the Corporation; provided, that
if there shall not be two Independent Directors then in office and acting,
a vote upon any matter set forth in this paragraph (a) of this Article 8
shall not be taken unless and until two Independent Directors shall have
been appointed and qualified;
(b) amend, alter, change or repeal any of the following articles of
these Articles of Incorporation: Article 3, Article 5, Article 6 or this
Article 8; or
(c) (i) engage in any business or activity other than as authorized
by Article 3 hereof, (ii) dissolve or liquidate, in whole or in part or
(iii) consolidate with or merge into any other entity or convey, transfer
or lease its properties and assets substantially as an entirety to any
entity, or permit any entity to merge into it or convey, transfer or lease
its properties and assets substantially as an entirety to it.
-7-
<PAGE>
ARTICLE 9. Amendment, Alteration or Repeal. The Corporation reserves
the right to amend, alter, or repeal any other provision contained in these
Articles of Incorporation in the manner now or hereafter prescribed by statute,
and all rights of shareholders herein are subject to this reservation; provided,
however, that Article 3, Article 5, Article 6 and Article 8 may be amended only
in accordance with Article 8 of these Articles of Incorporation.
ARTICLE 10. Name and Address of Incorporator. The name and
address of the incorporator, who is a natural person of full age, are:
NAME ADDRESS
---- -------
Charles F. Sawyer Pillsbury Center South
220 South Sixth Street
Minneapolis, MN 55402
Dated: October 23, 1997
/s/ Charles F. Sawyer
-----------------------------
Charles F. Sawyer
-8-
<PAGE>
BYLAWS
OF
GREEN TREE LEASE FINANCE II, INC.
ARTICLE I
OFFICES, CORPORATE SEAL
Section 1.01. OFFICES. The address of the registered office of the
Corporation in the State of Minnesota shall be set forth in the Articles of
Incorporation or in the latest statement filed with the Secretary of State. The
Corporation may have such other offices, within or without the State of
Minnesota, as the Board of Directors shall determine from time to time.
Section 1.02. NO CORPORATE SEAL. The Corporation shall not have a
corporate seal.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 2.01. REGULAR MEETINGS. The Corporation shall hold meetings of
the shareholders on a regular basis on such day or date and at such time and
place as the Board of Directors shall determine by resolution. At regular
meetings the shareholders shall elect qualified successors for directors whose
terms are expiring and may transact such other business as may be appropriate
for shareholders' action.
Section 2.02. SPECIAL MEETINGS. The Corporation may hold special
meetings of the shareholders at any time and for any purpose. The President,
the Secretary, two or more directors, or a shareholder or shareholders holding
at least 10% of the voting power of all shares entitled to vote may call a
special meeting.
Section 2.03. RECORD DATE. The Board of Directors shall fix a date not
more than sixty days preceding the date of any meeting of shareholders as the
record date for the determination of the shareholders entitled to notice of, and
to vote at, such meeting. When a record date is so fixed, only shareholders as
of that date are entitled to notice of and permitted to vote at that meeting of
shareholders.
Section 2.04. NOTICE OF MEETING. Except as otherwise specified in
Section 2.06 or required by law, notice of each meeting of the shareholders,
given in the manner provided in Minnesota Statutes, Section 302A.11, Subdivision
17, stating the date, time, and place and, in the case of a special meeting, the
purpose or purposes, shall be given at least ten days and not more than sixty
days prior to the meeting to every shareholder entitled to vote at such meeting.
Section 2.05. QUORUM. The holders of a majority of the voting power of
the shares entitled to vote at a meeting, whether present in person or by proxy,
shall constitute a quorum for the transaction of business at any regular or
special meeting. If a quorum is present when a duly called or held meeting is
convened, the shareholders present may continue to transact business until
adjournment, even though the withdrawal of a number of shareholders originally
present leaves less than the proportion or number otherwise required for a
quorum.
Section 2.06. ADJOURNED MEETINGS. A majority of those shareholders
present at a
-1-
<PAGE>
shareholders' meeting may adjourn the meeting from time to time, whether or
not a quorum is present. The Corporation shall not be required to give notice
of the reconvened meeting to the shareholders if the date, time, and place of
the reconvened meeting is announced at the meeting being adjourned. In case a
quorum shall not be present at a shareholders' meeting, those present may
adjourn the meeting to such day as they shall agree upon by majority vote, and
a notice of such adjournment and the date, place and time at which such
meeting shall be reconvened shall be mailed to each shareholder entitled to
vote at least five days before such reconvened meeting. If a quorum is
present, a meeting may be adjourned from time to time without notice other
than announcement at the adjourned meeting. At reconvened meetings at which a
quorum is present, any business may be transacted which might have been
transacted at the meeting as originally noticed.
Section 2.07. ACT OF THE SHAREHOLDERS. At any meeting of shareholders,
the shareholders shall take action by the affirmative vote of the holders of a
majority of the voting power of the shares present and entitled to vote, except
to the extent otherwise required by Minnesota Statutes, Chapter 302A or the
Corporation's Articles of Incorporation. In the event the Corporation shall
have outstanding a class or series of shares that are entitled to vote as a
class or series by Minnesota Statutes, Chapter 302A, the Articles of
Incorporation, these Bylaws, or the terms of such shares, the matter being voted
upon must also receive the affirmative vote of the holders of the same
proportion of the shares of that class or series as is required pursuant to the
preceding sentence. For the election of directors, the persons receiving the
largest number of votes (up to and including the number of directors to be
elected) shall be directors.
Section 2.08. VOTING. At each meeting of the shareholders every
shareholder having the right to vote shall be entitled to vote either in person
or by proxy meeting the requirements of Section 2.09. Unless otherwise provided
in the Articles of Incorporation or according to the terms of the shares, each
shareholder shall have one vote for each share having voting power registered in
such shareholder's name on the books of the Corporation. Holders of shares
entitled to vote may vote any portion of the shares in any way the shareholder
chooses. If a shareholder votes without designating the proportion or number of
shares voted in a particular way, the shareholder is deemed to have voted all of
the shares in that way. Jointly owned shares may be voted by any joint owner
unless the Corporation receives written notice from any one of them denying the
authority of that person to vote the shares.
Section 2.09. PROXIES. A shareholder may cast or authorize the casting
of a vote by filing a written appointment of a proxy with an officer of the
Corporation at or before the meeting at which the appointment is to be
effective. An appointment of a proxy for shares held jointly by two or more
shareholders is valid if signed by any one of them, unless the Corporation
receives from any one of those shareholders written notice either denying the
authority of that person to appoint a proxy or appointing a different proxy. To
be valid, all proxies must meet the requirements of, and shall be governed by,
Minnesota Statutes, Section 302A.449.
Section 2.10. WAIVER OF NOTICE. Any shareholder may waive notice of
any regular or special meeting, either before, at, or after such meeting, and
such waiver of notice shall be effective whether given orally or in a writing
signed by such shareholder or a representative entitled to vote the shares, of
such shareholder. Attendance by a shareholder at any meeting of shareholders is
a waiver of notice of such meeting, except when the shareholder objects at the
beginning of the meeting to the transaction of business because the meeting is
not lawfully called or convened or objects before a vote on an item of business
because the item may not lawfully be considered at that meeting and the
shareholder does not participate in the consideration of the item at that
meeting.
-2-
<PAGE>
Section 2.11. WRITTEN ACTION. Any action that is required or permitted
to be taken at a meeting of shareholders may be taken without a meeting if done
in writing and signed by all of the shareholders entitled to vote on that
action.
ARTICLE III
DIRECTORS
Section 3.01. GENERAL POWERS. The business and affairs of the
Corporation shall be managed by or under the direction of the Board of
Directors.
Section 3.02. NUMBER, QUALIFICATION AND TERM OF OFFICE. The number of
directors of the Corporation will be established within the limits set by the
Articles of Incorporation by resolution adopted by a majority of the directors
from time to time. Directors need not be shareholders. Each director shall
hold office from the regular meeting at which such director was elected and
until the next regular meeting of shareholders and until such director's
successor shall have been elected and shall qualify, or until the earlier death,
resignation, removal or disqualification of the director.
Section 3.03. BOARD MEETINGS. The Board of Directors may hold meetings
from time to time at such time and place as the notice of such meeting may
designate or at the place announced if no notice is required. No notice of any
kind to either old or new members of the Board of Directors shall be necessary
for any regular meeting of the directors fixed from time to time by resolution
of a majority of the directors.
Section 3.04. CALLING MEETINGS; NOTICE. Meetings of the Board of
Directors may be called by the Chairman of the Board, or any other director, by
giving at least five days' notice, of the date, time and place thereof to each
director by mail, telephone, telegram or in person. If the date, time and place
of a Board of Directors meeting have been announced at a previous meeting of the
Board of Directors, no notice is required. Notice of an adjourned meeting need
not be given other than by announcement at the meeting at which adjournment is
taken of the date, time and place at which the meeting will be reconvened.
Section 3.05. WAIVER OF NOTICE. Any director may waive notice of any
meeting of the Board of Directors either before, at, or after such meeting
orally or in a writing signed by such director. A director, by the director's
attendance at any meeting of the Board of Directors, shall be deemed to have
waived notice of such meeting, except when the director objects at the beginning
of the meeting to the transaction of business because the meeting is not
lawfully called or convened and does not participate thereafter in the meeting.
Section 3.06. QUORUM. A majority of the directors holding office
immediately prior to a meeting of the Board of Directors shall constitute a
quorum for the transaction of business at such meeting.
Section 3.07. ABSENT DIRECTORS. A director may give advance written
consent or opposition to a proposal to be acted on at a meeting of the Board of
Directors. If such director is not present at the meeting, consent or
opposition to a proposal does not constitute presence for purposes of
determining the existence of a quorum, but consent or opposition shall be
counted as a vote in favor of or against the proposal and shall be entered in
the minutes or other record of action at the meeting, if the proposal acted on
at the meeting is substantially the same or has substantially the same effect as
the proposal to which the director has consented or objected.
-3-
<PAGE>
Section 3.08. CONFERENCE COMMUNICATIONS. Any or all directors may
participate in any meeting or conference of the Board of Directors, or of any
duly constituted committee thereof, by any means of communication through which
the directors may simultaneously hear each other during such meeting. For the
purposes of establishing a quorum and taking any action, such directors
participating pursuant to this Section 3.08 shall be deemed present in person at
the meeting.
Section 3.09. VACANCIES. Vacancies in the Board of Directors occurring
by reason of death, resignation, removal, or disqualification shall be filled
for the unexpired term by a majority of the remaining directors, even though
less than a quorum, or by the sole remaining director. Vacancies resulting from
newly created directorships may be filled by a majority vote of the remaining
directors. Each director elected to fill a vacancy shall hold office until a
qualified successor is elected by the shareholders at their next regular or
special meeting.
Section 3.10. COMMITTEES. A resolution approved by the affirmative
vote of a majority of the Board of Directors may establish committees having the
authority of the Board of Directors in the management of the business of the
Corporation to the extent provided in the resolution. A committee shall consist
of one or more persons, who need not be directors, appointed by affirmative vote
of a majority of the directors present. Committees are subject to the direction
and control of, and vacancies in the membership thereof shall be filled by, the
Board of Directors, except as provided by Section 3.11 and by Minnesota
Statutes, Section 302A.243. A majority of the members of the committee present
at a meeting is a quorum for the transaction of business, unless a larger or
smaller proportion or number is provided in the resolution establishing the
committee.
Section 3.11. COMMITTEE OF DISINTERESTED PERSONS. Pursuant to the
procedure set forth in Section 3.10, the Board of Directors may establish a
committee composed of two or more disinterested persons to determine whether it
is in the best interests of the Corporation to pursue a particular legal right
or remedy of the Corporation and whether to cause the dismissal or
discontinuance of a particular proceeding that seeks to assert a right or remedy
on behalf of the Corporation. For purposes of this section, a person is
"disinterested" if the person is not the owner of more than one percent of the
outstanding shares of, or a present or former officer, employee, or agent of,
the Corporation or of a related corporation and has not been made or threatened
to be made a party to the proceeding in question. The committee, once
established, is not subject to the direction or control of, or termination by,
the Board of Directors. Any vacancy on the committee may be filled by a
majority of the remaining committee members. The good faith determinations of
the committee are binding upon the Corporation and its directors, officers and
stockholders. The committee shall terminate when it issues a written report of
its determination to the Board of Directors.
Section 3.12. WRITTEN ACTION. Any action which might be taken at a
meeting of the Board of Directors, or any duly constituted committee thereof,
may be taken without a meeting if done in writing and signed by all of the
directors or committee members, unless the action need not be approved by the
shareholders of the Corporation, in which case the action may be taken by a
written action signed, or counterparts of a written action signed in the
aggregate, by the number of directors or committee members that would be
required to take the same action of the Board of Directors or such committee, as
the case may be, at which all of the directors or committee members were
present.
ARTICLE IV
-4-
<PAGE>
OFFICERS
Section 4.01. NUMBER AND DESIGNATION. The Board of Directors may elect
or appoint such officers or agents as it deems necessary for the operation and
management of the Corporation, with such powers, rights, duties, and
responsibilities as may be determined by the Board of Directors, including,
without limitation, a President, one or more Vice Presidents, a Secretary, a
Treasurer, and such assistant officers or other officers as may from time to
time be elected or appointed by the Board of Directors. Each such officer shall
have the powers, rights, duties and responsibilities set forth in these Bylaws
unless otherwise determined by the Board of Directors. Any number of offices
may be held by the same person.
Section 4.02. CHAIRMAN OF THE BOARD. The Chairman of the Board, if one
is elected, shall preside at all meetings of the directors and shall have such
other duties as may be prescribed, from time to time, by the Board of Directors.
Section 4.03. PRESIDENT. Unless otherwise determined by the Board of
Directors, the President shall be the Chief Executive Officer of the
Corporation. If an officer other than the President is designated Chief
Executive Officer, the President shall perform such duties as may from time to
time be assigned by the Board of Directors.
Section 4.04. VICE PRESIDENT. Each Vice President shall perform such
duties as may be prescribed from time to time by these Bylaws or by the Board of
Directors.
Section 4.05. SECRETARY. Unless provided otherwise by a resolution
adopted by the Board of Directors, the Secretary: (a) shall attend all meetings
of the stockholders and Board of Directors, and shall record all the proceedings
of such meetings in the minute book of the Corporation; (b) shall give proper
notice of meetings of stockholders and Board of Directors and other notices
required by law or these Bylaws; and (c) shall perform such other duties as from
time to time may be assigned by the Board of Directors.
Section 4.06. TREASURER. Unless otherwise determined by the Board of
Directors, the Treasurer shall be the Chief Financial Officer of the
Corporation. If an officer other than the Treasurer is designated Chief
Financial Officer, the Treasurer shall perform such duties as may from time to
time be assigned by the Board of Directors.
Section 4.07. AUTHORITY AND DUTIES. In addition to the foregoing
authority and duties, all officers of the Corporation shall respectively have
such authority and perform such duties in the management of the business of the
Corporation as may be determined from time to time by the Board of Directors.
Unless prohibited by a resolution of the Board of Directors, an officer elected
or appointed by the Board of Directors may, without specific approval of the
Board of Directors, delegate some or all of the duties and powers of an office
to other persons.
Section 4.08. REMOVAL AND VACANCIES. The Board of Directors may remove
any officer from office at any time, with or without cause, by a resolution
approved by the affirmative vote of a majority of the directors present. Such
removal, however, shall be without prejudice to the contract rights of the
person so removed. A vacancy in an office of the Corporation by reason of
death, resignation, removal, disqualification, or otherwise may, or in the case
of a vacancy in the office of the President or Treasurer shall, be filled for
the unexpired term by the Board of Directors.
Section 4.09. COMPENSATION. The officers of this Corporation shall
receive such compensation for their services as may be determined by or in
accordance with resolutions of the
-5-
<PAGE>
Board of Directors or by one or more committees to the extent so authorized
from time to time by the Board of Directors.
ARTICLE V
SHARES AND THEIR TRANSFER
Section 5.01. CERTIFICATES FOR SHARES. All shares of the Corporation
shall be certificated shares. Each holder of shares of the Corporation shall be
entitled to a certificate, to be in such form as shall be prescribed by the
Board of Directors, certifying the number of shares of the Corporation owned by
such shareholder. The certificates for such shares shall be numbered in the
order in which they shall be issued and shall be signed, in the name of the
Corporation, by the President and by the Secretary or an Assistant Secretary or
by such officers as the Board of Directors may designate. If the certificate is
signed by a transfer agent or registrar, such signatures of the corporate
officers may be facsimiles, engraved or printed. A certificate representing
shares of this Corporation shall contain on its face the information required by
Minnesota Statutes, Section 302A.417 subdivision 4. A certificate representing
shares issued by this Corporation, if it is authorized to issue shares of more
than one class or series, shall set forth upon the face or back of the
certificate, or shall state that the Corporation will furnish to any shareholder
upon request and without charge, a full statement of the designations,
preferences, limitations, and relative rights of the shares of each class or
series authorized to be issued, so far as they have been determined, and the
authority of the Board of Directors to determine relative rights and preferences
of subsequent classes or series. Every certificate surrendered to the
Corporation for exchange or transfer shall be cancelled, and no new certificate
or certificates shall be issued in exchange for any existing certificate until
such existing certificate shall have been so cancelled, except in cases provided
for in Section 5.03.
Section 5.02. TRANSFER OF SHARES. Transfer of shares on the books of
the Corporation may be authorized only by the shareholder named in the
certificate, or the shareholder's legal representative, or the shareholder's
duly authorized attorney-in-fact, and upon surrender of the certificate or the
certificates for such shares. The Corporation may treat as the absolute owner
of shares of the Corporation the person or persons in whose name shares are
registered on the books of the Corporation. The Board of Directors may appoint
one or more transfer agents and registrars to maintain the share records of the
Corporation and to effect share transfers on its behalf.
Section 5.03. LOSS OF CERTIFICATES. Except as otherwise provided by
Minnesota Statutes Section 302A.419, any shareholder claiming a certificate for
shares to be lost, stolen or destroyed shall make an affidavit of that fact in
such form as the Board of Directors shall require and shall, if the Board of
Directors so requires, give the Corporation a bond of indemnity in form, in an
amount, and with one or more securities satisfactory to the Board of Directors,
to indemnify the Corporation against any claim which may be made against it on
account of the reissue of such certificate, whereupon a new certificate may be
issued in the same tenor and for the same number of shares as the one alleged to
have been lost, stolen or destroyed.
ARTICLE VI
DIVIDENDS, RECORD DATE
Section 6.01. DIVIDENDS. Subject to the provisions of the Articles of
Incorporation, of these Bylaws, and of the law, the Board of Directors has the
authority and will declare and cause to be issued regular cash or other
dividends or distributions to the shareholders of the corporation when and in
the amounts it deems advisable.
-6-
<PAGE>
Section 6.02. RECORD DATE. The Board of Directors may fix a date not
exceeding 120 days preceding the date fixed for the payment of any dividend as
the record date for the determination of the shareholders entitled to receive
payment of the dividend and, in such case, only shareholders of record on the
date so fixed shall be entitled to receive payment of such dividend. If no
record date is fixed, the record date shall be at the close of business on the
day on which the Board of Directors adopts the resolution authorizing the
payment of such dividend.
ARTICLE VII
CORPORATE RECORDS
Section 7.01. SHARE REGISTER. The Corporation shall keep at its
Principal Executive Office a share register not more than one year old,
containing the names and addresses of the shareholders and the number and
classes of shares held by each shareholder. The Corporation shall also keep at
its Principal Executive Office a record of the dates on which certificates or
transaction statements representing shares were issued.
Section 7.02. OTHER RECORDS. The Corporation shall keep at its
Principal Executive Office originals or copies of: (a) records of all
proceedings of shareholders for the last three years; (b) records of all
proceedings of the Board of Directors for the last three years; (c) the Articles
of Incorporation and all amendments currently in effect; (d) the Bylaws and all
amendments currently in effect; (e) financial statements; (f) reports made to
shareholders generally within the last three years; (g) a statement of the names
and usual business addresses of the directors and principal officers; (h) voting
trust agreements described in Minnesota Statutes, Section 302A.453 and (i)
shareholder control agreements described in Minnesota Statutes, Section
302A.457.
ARTICLE VIII
SECURITIES OF OTHER CORPORATIONS
Section 8.01. VOTING SECURITIES HELD BY THE CORPORATION. Unless
otherwise ordered by the Board of Directors the President shall have full power
and authority on behalf of the Corporation (a) to attend any meeting of security
holders of other corporations in which the Corporation may hold securities and
to vote such securities on behalf of the Corporation; (b) to execute any proxy
for such meeting on behalf of the Corporation; or (c) to execute a written
action in lieu of a meeting of such other corporation on behalf of this
Corporation. At such meeting, by such proxy or by such writing in lieu of
meeting, the President shall possess and may exercise any and all rights and
powers incident to the ownership of such securities that the Corporation
possesses. The Board of Directors or the President, from time to time, may
confer or delegate such powers to one or more other persons.
Section 8.02. PURCHASE AND SALE OF SECURITIES. Unless otherwise
ordered by the Board of Directors, the President shall have full power and
authority on behalf of the Corporation to purchase, sell, transfer or encumber
any and all securities of any other corporation owned by the Corporation and may
execute and deliver such documents as may be necessary to effectuate such
purchase, sale, transfer or encumbrance. The Board of Directors or the
President, from time to time, may confer or delegate such powers to one or more
other persons.
ARTICLE IX
INDEMNIFICATION OF CERTAIN PERSONS
Section 9.01. The Corporation shall indemnify such persons, for such
expenses and
-7-
<PAGE>
liabilities, in such manner, under such circumstances, and to such extent as
permitted by Minnesota Statutes Section 302A.521, as now enacted or hereafter
amended.
ARTICLE X
MISCELLANEOUS
Section 10.01. FISCAL YEAR. The fiscal year of the Corporation shall
be determined by the Board of Directors.
ARTICLE XI
AMENDMENTS
Section 11.01. These Bylaws may be amended at any meeting of the Board
of Directors if notice of such proposed amendment shall have been given in the
notice of such meeting. Such authority in the Board of Directors is subject to
(a) the limitations imposed by Minnesota Statutes, Section 302A.181, as now
enacted or hereafter amended, or other applicable law and (b) the power of the
shareholders to change or repeal such Bylaws by a majority vote of the
shareholders present or represented at any meeting of shareholders called for
such purpose.
-8-
