<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 15, 1997
REGISTRATION NO. 333-38687-01
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 4 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
(STATE OR OTHER JURISDICTION OF 41-1892359
(I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
GREEN TREE LEASE FINANCE 1997-1, LLC
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE NONE
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
----------------
1100 LANDMARK TOWERS
345 ST. PETER STREET
ST. PAUL, MINNESOTA 55102-1639
(612) 293-3400
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
JOEL H. GOTTESMAN, ESQ.
1100 LANDMARK TOWERS
345 ST. PETER STREET
ST. PAUL, MINNESOTA 55102-1639
(612) 293-3400
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
COPIES TO: COPIES TO:
CHARLES F. SAWYER, ESQ. SIEGFRIED P. KNOPF, ESQ.
DORSEY & WHITNEY LLP BROWN & WOOD LLP
220 SOUTH SIXTH STREET ONE WORLD TRADE CENTER
MINNEAPOLIS, MINNESOTA 55402 NEW YORK, NEW YORK 10048
(612) 343-7986 (212) 839-5300
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box: [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box: [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [_]
(continued on next page)
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<PAGE>
(continued from previous page)
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [_]
----------------
CALCULATION OF REGISTRATION FEE
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- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS MAXIMUM AGGREGATE AMOUNT OF
OF SECURITIES AMOUNT TO BE AGGREGATE PRICE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED PER UNIT(1) PRICE(1) FEE
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<S> <C> <C> <C> <C>
Lease-Backed Notes... $550,991,889 100% $550,991,889 $162,550.64(2)
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</TABLE>
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(1) Estimated solely for the purposes of calculating the registration fee
pursuant to Rule 457.
(2) Of this amount, $162,258.03 has been previously paid and $292.61 is being
paid herewith.
----------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED DECEMBER 15, 1997
PROSPECTUS
$550,991,889 (APPROXIMATE)
LOGO
GREEN TREE LEASE FINANCE 1997-1, LLC
ISSUER
$196,466,000 (APPROXIMATE) % LEASE-BACKED NOTES, CLASS A-1
$ 52,897,000 (APPROXIMATE) % LEASE-BACKED NOTES, CLASS A-2
$218,183,000 (APPROXIMATE) % LEASE-BACKED NOTES, CLASS A-3
$ 32,676,000 (APPROXIMATE) % LEASE BACKED NOTES, CLASS A-4
$ 30,233,000 (APPROXIMATE) % LEASE-BACKED NOTES, CLASS B
$ 19,239,587 (APPROXIMATE) % 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 six classes, designated as the Class A-1 Notes, the
Class A-2 Notes, the Class A-3 Notes and the Class A-4 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 First Trust National Association, 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"), certain rights to the proceeds of disposition
of the equipment underlying the Leases and certain other property described
herein.
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, funds on
deposit in the Reserve Account and investment earnings on amounts deposited in
the Collection Account established pursuant to the Indenture). To the extent
described herein, payments of interest and principal on the Class B Notes will
be subordinated in priority of payment to interest and principal, respectively,
on the Class A Notes, and payments
(continued on following page)
------------
FOR A DISCUSSION OF CERTAIN FACTORS RELATING TO THIS OFFERING, SEE "RISK
FACTORS" ON PAGE 16 HEREIN.
------------
THE NOTES WILL NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF GREEN TREE VENDOR
SERVICES CORPORATION, GREEN TREE FINANCIAL CORPORATION OR ANY OF THEIR
RESPECTIVE AFFILIATES OTHER THAN GREEN TREE LEASE FINANCE 1997-1, LLC.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECU-
RITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
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<TABLE>
<CAPTION>
Initial Public Underwriting Proceeds to
Offering Price(1) Discount(2) the Issuer(1)(3)
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<S> <C> <C> <C>
Per Class A-1 Note............. % % %
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Per Class A-2 Note............. % % %
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Per Class A-3 Note............. % % %
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Per Class A-4 Note............. % % %
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Per Class B Note............... % % %
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Per Class C Note............... % % %
- --------------------------------------------------------------------------------
Total.......................... $ $ $
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</TABLE>
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(1) Plus accrued interest, if any, from December , 1997.
(2) Green Tree Financial Corporation has agreed to indemnify the Underwriters
against certain liabilities, including liabilities under the Securities Act
of 1933. See "Underwriting."
(3) Before deducting expenses estimated to be $ .
------------
The Notes are offered subject to receipt and acceptance by the Underwriters,
to prior sale and to the Underwriters' right to reject any order in whole or in
part and to withdraw, cancel or modify any order without notice. It is expected
that delivery of the Notes will be made in book-entry form through the
facilities of The Depository Trust Company on or about December , 1997.
------------
Underwriters of the Class A Notes
LEHMAN BROTHERS
FIRST UNION CAPITAL MARKETS CORP.
------------
Underwriter of the Class B and Class C Notes
LEHMAN BROTHERS
------------
December , 1997
<PAGE>
(continued from preceding page)
of interest and principal on the Class C Notes will be subordinated in
priority of payment to interest and principal, respectively, on the Class A
Notes and the Class B Notes. The Notes will have the benefit of limited credit
support from that month's Residual Realizations and amounts, if any, on
deposit in the Reserve Account. The Class A Notes will also have the benefit
of limited credit support consisting of the subordination, to the extent
described herein, 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, to the extent described herein, of the Class C Notes. See
"Description of the Notes."
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 February 20, 1998 (each, a
"Payment Date"). The Stated Maturity Date for the Class A-1 Notes is January
20, 1999, and the Stated Maturity Date for the Class A-2 Notes, the Class A-3
Notes, the Class A-4 Notes, the Class B Notes and the Class C Notes is
September 20, 2005, 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. Each Underwriter expects, but will not be
obligated, to make a market in the Classes of Notes for which it is acting as
Underwriter. 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 Standard & Poor's
Rating Services, a division of The McGraw-Hill Companies, Inc. and Fitch
I.B.C.A., Inc. (i) rate the Class A-1 Notes "A-1+" and "F-1+," respectively,
(ii) rate the Class A-2 Notes, Class A-3 Notes and Class A-4 Notes "AAA,"
(iii) rate the Class B Notes at least "A" and (iv) rate the Class C Notes at
least "BBB." 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."
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.
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.
i
<PAGE>
AVAILABLE INFORMATION
The Issuer and Green Tree Lease Finance II, Inc. have filed a Registration
Statement under the Securities Act of 1933, as amended (the "Securities Act"),
with the Securities and Exchange Commission (the "Commission") with respect to
the Notes offered pursuant to this Prospectus. For further information,
reference is made to the Registration Statement and amendments thereof and to
the exhibits thereto, which are available for inspection without charge at the
public reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549; 7 World Trade Center, 13th Floor, New York, New
York 10048; and Northwest Atrium Center, 500 Madison Street, Chicago, Illinois
60661. Copies of the Registration Statement and amendments thereof and exhibits
thereto may be obtained from the Public Reference Section of the Commission,
450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The
Commission also maintains a World Wide Web site which provides on-line access
to reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission at the address
"http://www.sec.gov."
REPORTS TO NOTEHOLDERS
Unless and until Definitive Notes are issued, monthly unaudited reports
containing information concerning the Issuer and the Notes will be sent on
behalf of the Issuer to Cede & Co. ("Cede"), as nominee of The Depository Trust
Company ("DTC") as registered holder of the Notes pursuant to the Indenture.
See "Description of the Notes--Book-Entry Registration." Such reports will be
made available to DTC and its participants to holders of interests in the Notes
in accordance with the rules, regulations and procedures creating and affecting
DTC. However, such reports will not be sent directly to each beneficial owner
while the Notes are in book-entry form. Upon the issuance of fully registered,
certificated Notes, such reports will be sent directly to each Noteholder. Such
reports will not constitute financial statements prepared in accordance with
generally accepted accounting principles. The Servicer, on behalf of the
Issuer, will file with the Commission periodic reports concerning the Issuer to
the extent required under the Exchange Act and the rules and regulations of the
Commission thereunder. However, in accordance with the Exchange Act and the
rules and regulations of the Commission thereunder, the Servicer expects that
the Issuer's obligation to file such reports will be terminated following the
end of 1998.
ii
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C>
INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE. i
AVAILABLE INFORMATION... ii
REPORTS TO NOTEHOLDERS.. ii
SUMMARY................. 1
RISK FACTORS............ 16
THE ISSUER AND THE SPC.. 21
GREEN TREE VENDOR
SERVICES CORPORATION... 22
THE LEASES.............. 25
MANAGEMENT'S DISCUSSION
AND ANALYSIS OF
FINANCIAL CONDITION OF
THE ISSUER............. 36
MANAGERS OF THE ISSUER.. 37
WEIGHTED AVERAGE LIFE OF
THE NOTES.............. 38
DESCRIPTION OF THE
NOTES.................. 39
DESCRIPTION OF THE
CONTRIBUTION AND
SERVICING AGREEMENT.... 52
CERTAIN LEGAL ASPECTS OF
THE LEASES............. 57
FEDERAL INCOME TAX
CONSEQUENCES........... 59
ERISA CONSIDERATIONS.... 64
RATINGS OF THE NOTES.... 65
USE OF PROCEEDS......... 65
EXPERTS................. 65
UNDERWRITING............ 65
LEGAL MATTERS........... 66
INDEX OF PRINCIPAL
TERMS.................. 67
INDEX TO FINANCIAL
STATEMENTS............. F-1
</TABLE>
iii
<PAGE>
SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus. Certain
capitalized terms used in this Summary are defined elsewhere in this Prospectus
on the pages indicated in the "Index of Principal Terms" on page 67.
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 and managing 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......................
First Trust National Association, 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
six classes of notes (the "Notes"), consisting
of four classes of senior notes, designated as
the Lease-Backed Notes, Class A-1, in the
original principal amount of approximately
$196,466,000, the Lease-Backed Notes, Class A-
2, in the original principal amount of
approximately $52,897,000, the Lease-Backed
Notes, Class A-3, in the original principal
amount of approximately $218,183,000 and the
Lease-Backed Notes, Class A-4, in the original
principal amount of approximately $32,676,000
(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 approximately
$30,233,000 and the Lease-Backed Notes, Class
C, in the original principal amount of
approximately $19,239,587. Investments in the
respective Classes of Notes will represent
substantially different investment risks due
primarily to the relative priority of payments
from the Trust Assets to which each such Class
is entitled. The Class A Notes will be senior
in right of payment of interest to the Class B
Notes and Class C Notes, and the Class B Notes
will be senior in right of payment of interest
to the Class C Notes, as described under
"Interest" and "Priority of Payments" below.
Similarly, the Class A Notes will be senior in
right of payment of principal to the Class B
Notes and Class C Notes, and the Class B Notes
will be senior in right of payment of principal
to the Class C Notes, to the extent described
under "Principal" below. All principal will be
allocated to the Class A-1 Notes until paid in
full, and then to the Class A-2 Notes, Class A-
3 Notes, Class A-4 Notes, Class B Notes and
Class C Notes, as described under "Principal"
below. The Class A-1 Notes will have a Stated
Maturity Date that is significantly earlier
than the other Classes of Notes, as described
under "Stated Maturity Dates" below. See
"Description of the Notes."
1
<PAGE>
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
February 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 A-3, Class A-4,
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
such Payment Date (or, in the case of the first
interest period, interest accrued on the
original principal amount of such Class of
Notes from and including the Closing Date to
but excluding February 20, 1998). 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 A-3 Notes, the Class A-4
Notes, the Class B Notes and the Class C Notes
(determined prior to payment of any principal
in respect thereof on such Payment Date). See
"--Priority of Payments" below.
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" below and
"Description of the Notes--Principal." 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, Class A-3 Noteholders
and Class A-4 Noteholders, sequentially, the
Class A Principal Payment, in that order,
until the Outstanding Principal Amount of each
such Class has been reduced to zero,
(b) to the Class B Noteholders, the Class B
Principal Payment,
(c) to the Class C Noteholders, the Class C
Principal Payment,
(d) to the extent that the Class B Floor
exceeds the Class B Target Investor Principal
Amount and the Class C Floor exceeds
2
<PAGE>
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 A-3 Notes, the Class A-4 Notes, the
Class B Notes and the Class C Notes, in that
order, until the Outstanding Principal Amount
of each such Class has been reduced to zero,
and
(e) to the extent the Class C Floor exceeds
the Class C Target Investor Principal Amount,
but the Class B Floor does not exceed the
Class B Target Investor Principal Amount,
Additional Principal shall be distributed as
an additional principal payment on the Class A
and Class B Notes, pro rata (and among the
Class A Notes, sequentially on the Class A-2,
Class A-3 and Class A-4 Notes, in that order),
until the Outstanding Principal Amount of each
such Class has been reduced to zero.
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 of the Class A Notes to the Class A
Target Investor Principal Amount.
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 the last day of the Collection
Period related to 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
3
<PAGE>
Class B Percentage and (b) the Lease Pool
Principal Balance as of the last day of the
Collection Period related to 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 the last day of the Collection
Period related to such Payment Date.
The "Class A Percentage" will be 85.994%. The
"Class B Percentage" will be 8.559%. The "Class
C Percentage" will be 5.447%.
The "Class B Floor" with respect to each Payment
Date means (a) 3.0% of the Initial Pool
Principal Balance, plus (b) the Cumulative Loss
Amount with respect to such Payment Date, minus
(c) the sum of the Outstanding Principal Amount
of the Class C Notes as of such Payment Date
and the amount on deposit in the Reserve
Account after giving effect to withdrawals to
be made on such Payment Date.
The "Class C Floor" with respect to each Payment
Date means (a) 2.0% of the Initial Pool
Principal Balance, plus (b) the Cumulative Loss
Amount with respect to such Payment Date minus
(c) the amount on deposit in the Reserve
Account after giving effect to withdrawals to
be made on such Payment Date; provided that if
the Outstanding Principal Amount of 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 of the Class C
Notes for such Payment Date.
The "Monthly Principal Amount" for any Payment
Date will equal the excess, if any, of (i) the
sum of the Outstanding Principal Amounts of the
Notes for 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 for such Payment
Date, minus (ii) the lesser of (A) the Monthly
Principal Amount and (B) the Amount Available
remaining after the payment of amounts owing
to the Servicer (other than the Servicing Fee
to the extent that Vendor Services is the
Servicer) and in respect of interest on the
Notes on such Payment Date, over
(b) the Lease Pool Principal Balance as of
the last day of the Collection Period related
to such Payment Date.
The "Principal Balance" of any Lease as of the
last day of any Collection Period is:
4
<PAGE>
(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 (a) the weighted average
Interest Rate of the Class A (utilizing the
Class A-4 Interest Rate), Class B and Class C
Notes on the Closing Date, plus (b) 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 Initial Cut-Off Date, calculated at
the Discount Rate, is $ . "Statistical
Discounted Present Value of the Leases" means
an amount equal to the future remaining
Scheduled Payments (not including delinquent
amounts) on the Leases as of December 1, 1997,
discounted at a rate equal to 7.0% (the
"Statistical Discount Rate"). The Statistical
Discounted Present Value of the Leases as of
December 1, 1997 is $550,991,889.46.
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 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
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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 (except that
the Collection Period for the Payment Date in
February 1998 will include December 1997 and
January 1998).
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 January 20, 1999,
and the Class A-2 Stated Maturity Date, the
Class A-3 Stated Maturity Date, the Class A-4
Stated Maturity Date, the Class B Stated
Maturity Date and the Class C Stated Maturity
Date will be September 20, 2005. If all
payments on the Leases are made as scheduled,
however, final payment with respect to the
Class A-2, Class A-3, Class A-4, Class B and
Class C Notes would occur prior to their Stated
Maturity.
Denominations................
The Notes will be available for purchase in
minimum denominations of $10,000 and integral
multiples of $1,000 in excess thereof, except
that one Class C Note may be issued in another
denomination.
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 February 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 and 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, to the
extent of the Class A Principal Payment and the
Class B Principal Payment on a Payment Date
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<PAGE>
on the Class A and Class B Notes, respectively,
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 and 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 Standard & Poor's Ratings Services, a
division of The McGraw-Hill Companies, Inc.
("S&P") and Fitch I.B.C.A., Inc. ("Fitch")
(together, the "Rating Agencies") (i) rate the
Class A-1 Notes "A-1+" and "F-1+,"
respectively, (ii) rate the Class A-2 Notes,
Class A-3 Notes and Class A-4 Notes "AAA",
(iii) rate the Class B Notes at least "A" and
(iv) rate the Class C Notes at least "BBB". 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."
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 "Initial Cut-Off
Date") or, in the case of Substitute Leases,
the first day of the month of transfer to the
Issuer (each such date, or the Initial Cut-Off
Date, as applicable to each Lease, a "Cut-Off
Date") in the form of (1) Scheduled Payments
(including all Scheduled Payments due prior to,
but not received as of, the Cut-Off Date, but
excluding any Scheduled Payments due on or
after, but received prior to, the Cut-Off
Date), (2) Prepayments and (3) Liquidation
Proceeds (including all net proceeds from the
disposition of the related Equipment);
(ii) certain rights to Residual Realizations
and amounts, if any, on deposit in the Residual
Account (described below);
(iii) amounts on deposit in (and Eligible
Investments allocated to) certain accounts
established pursuant to the Indenture and the
Contribution and Servicing Agreement, including
the Collection Account;
(iv) amounts on deposit in the Reserve
Account; and
(v) certain other property and assets as
herein described.
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<PAGE>
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 certain rights
to the Residual Realizations. 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 (a)
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 and investment earnings
on funds on deposit in the Collection Account
(the "Available Pledged Revenues"), plus (b)
Servicer Advances made by the Servicer, plus
(c) funds, if any, on deposit in the Residual
Account plus (d) funds on deposit in the
Reserve Account.
"Pledged Revenues" will consist of:
(i) "Scheduled Payments" on the Leases (which
will consist of all required payments under the
Leases other than those portions of such
payments which (A) under the Leases, are to be
applied by the Servicer to the payment of
insurance charges, maintenance, taxes and other
similar obligations or (B) under the
Contribution and Servicing Agreement, are to be
retained by the Servicer in payment of
Administrative Fees or are late payments as to
which Servicer Advances were made on a Payment
Date) received on or after the Cut-Off Date and
due during the term of the Leases, without
giving effect to end-of-term extensions or
renewals thereof (including all Scheduled
Payments due prior to, but not received as of,
the Cut-Off Date, but excluding any Scheduled
Payments due on or after, but received prior
to, the Cut-Off Date);
(ii) any voluntary prepayments ("Prepayments")
of Scheduled Payments received on or after the
Cut-Off Date under the Leases;
(iii) any amounts paid by Vendor Services to
repurchase Leases (to the extent Vendor
Services has not delivered Substitute 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 repurchase
the Leases as described under "--Optional
Repurchase of Leases" below;
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<PAGE>
(v) all net proceeds derived from the
liquidation of the Leases and the related
Equipment, as described under "--Liquidated
Leases" below (unless Vendor Services has
substituted a Substitute Lease therefor); and
(vi) any earnings on the investment of amounts
credited to the Collection Account.
Servicer Advances............ Prior to any Payment Date, the Servicer may, but
will not be required to, advance to the Trustee
an amount sufficient to cover delinquencies in
Scheduled Payments on the Leases with respect
to the prior Collection Period (a "Servicer
Advance"). The Servicer will be reimbursed for
Servicer Advances from late payments on the
delinquent Leases with respect to which such
advances were made and, if the Servicer later
determines that such Servicer Advance will not
be reimbursed from the recovery on the
delinquent Lease (a "Nonrecoverable Servicer
Advance"), from the Amount Available on the
next Payment Date.
Residual Realizations........
Cash flows realized from the sale or re-lease of
the Equipment following the scheduled
expiration dates or voluntary early termination
of the Leases, other than Equipment subject to
Liquidated Leases (the "Residual
Realizations"), will provide additional credit
support to the Notes. During each Collection
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. As of the Initial 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
$49,422,100.38. Actual Residual Realizations
may be more or less than the Book Value. The
Residual Realizations for a Collection Period
not distributed to Noteholders, paid to the
Servicer or deposited into the Reserve Account
on the related Payment Date will be released to
the SPC on such Payment Date, except during the
continuation of certain limited circumstances
specified in the Indenture (a "Residual
Event"). During the continuation of a Residual
Event, amounts in the Residual Account that
otherwise would be released to the SPC will be
retained in the Residual Account for
application on future Payment Dates. Upon the
termination of a Residual Event, any amounts on
deposit in the Residual Account will be (i)
deposited into the Reserve Account, to the
extent that the amount on deposit in the
Reserve Account is less than the Required
Reserve Amount, or (ii) released to the SPC and
thereafter will not be available to Noteholders
under any circumstance. The Residual Events
will be established prior to the Closing Date
based on criteria prescribed by the Rating
Agencies. Such criteria may be amended or
otherwise altered after the Closing Date,
without the
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<PAGE>
consent of Noteholders, to alter the
performance parameters that must occur to cause
a Residual Event, so long as doing so would not
cause either Rating Agency to reduce, withdraw
or qualify any of its ratings on the Notes.
Reserve Account....... The Noteholders will have the benefit of funds
on deposit in an account (the "Reserve
Account") to the extent that there is a
shortfall in the Available Pledged Revenues to
make interest and principal payments on the
Notes on any Payment Date and amounts on
deposit in the Residual Account are
insufficient to make up such shortfall. The
Reserve Account will be funded by an initial
deposit of 2.00% of the Initial Pool Principal
Balance. Thereafter, to the extent provided in
the Indenture, additional deposits will be made
to the Reserve Account to the extent that the
amount on deposit in the Reserve Account (the
"Available Reserve Amount") is less than the
Required Reserve Amount. The "Required Reserve
Amount" equals the lesser of (a) 2.00% of the
Initial Pool Principal Balance and (b) the
Outstanding Principal Amount of the Notes.
Amounts on deposit in the Reserve Account in
excess of the Required Reserve Amount will be
disbursed to the SPC in accordance with the
provisions of the Indenture, and thereafter
will not be available to Noteholders under any
circumstance.
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 Initial
Cut-Off Date, is referred to as the "Cut-Off
Date Pool." Unless otherwise noted, the
statistical information contained in this
Prospectus regarding the Cut-Off Date Pool is
calculated based on the Statistical Discounted
Present Value of the Leases and 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) on the Leases as
of the Initial Cut-Off Date, discounted at a
rate equal to the Statistical Discount Rate.
The Statistical Discounted Present Value of the
Leases as of the Initial Cut-Off Date is
$550,991,889.46 and will not vary materially
from the Initial Pool Principal Balance.
The following are the characteristics of the
Cut-Off Date Pool as of the Initial Cut-Off
Date, based on the Statistical Discounted
Present Value of the Leases:
(i) There were 54,483 Leases.
(ii) The average Principal Balance was
approximately $10,113.10.
(iii) Approximately 27.06% of such Leases
related to data processing equipment;
approximately 19.35% of such Leases related to
office equipment; approximately 19.20% of such
Leases related to telecommunications equipment;
and approximately 8.90% of such Leases related
to commercial laundry equipment.
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<PAGE>
(iv) The Obligors on approximately 14.27% of
the Leases were located in California;
approximately 11.14% were located in New York;
approximately 7.74% were located in Florida;
approximately 7.49% were located in Texas;
approximately 5.66% were located in New Jersey;
and no other state represented more than 5.0%
of the Statistical Discounted Present Value of
the Leases.
(v) The remaining term of the Leases ranged
from 6 months to 82 months.
(vi) The weighted average remaining term of
the Leases was approximately 35.67 months and
the weighted average age of the Leases was
approximately 14.93 months. See "The Leases--
Certain Statistics Relating to the Cut-Off Date
Pool."
(vii) The Leases with a single Obligor having
the largest aggregate Principal Balance as of
the Cut-Off Date represented no more than 0.20%
of the Statistical Discounted Present Value of
the Leases.
Vendor Services will make certain
representations and warranties regarding each
Lease in connection with its contribution of
the Leases to SPC, and will be obligated to
repurchase (or substitute another lease for)
any Lease in the event of a breach of any such
representation or warranty that materially and
adversely affects the value of such Lease. See
"Mandatory Repurchase or Substitution of
Certain Leases" below.
Lease Prepayments............ Vendor Services will represent and warrant that
none of the Leases permit the Obligor
thereunder to prepay the amounts due under such
Lease or otherwise terminate the Lease prior to
its scheduled expiration date (except for a de
minimis number of Leases which allow for a
prepayment or early termination upon payment of
an amount which is not less than the Required
Payoff Amount). Nevertheless, under the
Contribution and Servicing Agreement, the
Servicer will be permitted to allow Prepayments
of any of the Leases, but only if the amount
paid by or on behalf of the Obligor (or, in the
case of a partial Prepayment, the sum of such
amount and the remaining Principal Balance of
the Lease after application of such amount) is
at least equal to the Required Payoff Amount
for such Lease.
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).
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<PAGE>
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 (except that, to
the extent that Vendor Services elects to
substitute one or more Substitute Leases for
all or a portion of the unpaid Principal
Balance of the Liquidated Lease, Liquidation
Proceeds will be remitted to Vendor Services
and will not be available to Noteholders).
Servicing....................
The Servicer will be responsible for managing,
administering, servicing and making collections
on the Leases. Compensation to the Servicer
will include a monthly fee (the "Servicing
Fee"), which will be payable to the Servicer
from the Amount Available on each Payment Date
(payable in accordance with the priorities
described under "Priority of Payments" below),
in an amount equal to the product of one-
twelfth of .75% per annum multiplied by the
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 Initial Cut-Off Date, the
Initial Pool Principal Balance), plus any late
fees, late payment interest, documentation
fees, insurance administration charges and
other administrative charges and a portion of
any extension fees (collectively, the
"Administrative Fees") collected with respect
to the Leases during the related Collection
Period and any investment earnings on
collections prior to deposit thereof in the
Collection Account. The Servicer may be
terminated as Servicer under certain
circumstances, in which event a successor
Servicer would be appointed to service the
Leases. See "Description of the Contribution
and Servicing Agreement--Servicing--Events of
Termination."
Mandatory Repurchase or
Substitution of Certain
Leases......................
Vendor Services will make certain
representations and warranties with respect to
each Lease and the related Equipment, as more
fully described in "The Leases--Representations
and Warranties Made by Vendor Services." The
Trustee will be entitled to require Vendor
Services to repurchase any Lease and the
related Equipment, at a price equal to (i) the
Required Payoff Amount, plus (ii) the Book
Value (if any) 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
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<PAGE>
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 ("Adjusted Leases"). 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 no event will the Lease Pool Principal
Balance after the inclusion of the Substitute
Leases, be less than the Lease Pool Principal
Balance prior to such substitution. In
addition, after giving effect to such
substitutions, the aggregate Book Value of the
Equipment subject to the Leases will not be
materially less than the aggregate Book Value
of the Equipment subject to the Leases
immediately prior to such substitutions.
Additionally, the final payment on each
Substitute Lease must be on or prior to
September 2004 or, to the extent the final
payment on such Lease is due subsequent to
September 2004, only scheduled payments due on
or prior to such date may be included in
calculating the Principal Balance of such
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 for making
deposits into such accounts 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."
Priority of Payments.........
On each Payment Date, the Trustee will be
required to make the following payments, first,
from the Available Pledged Revenues plus any
Servicer Advances, second, from amounts on
deposit in the Residual Account as described
under "Residual Realizations" above and third,
from amounts on deposit in the Reserve Account
as described under "Reserve Account" above, in
the following order of priority (except as
otherwise described under "Description of the
Notes--Events of Default; Rights Upon Event of
Default"):
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<PAGE>
(i) the Servicing Fee (if Vendor Services or
an affiliate is no longer the Servicer);
(ii) to reimburse the Servicer for
unreimbursed Nonrecoverable Servicer Advances
made with respect to a prior Payment Date;
(iii) interest on the Notes in the following
order of priority:
(a) interest on the Class A Notes,
(b) interest on the Class B Notes, and
(c) interest on the Class C Notes;
(iv) an amount equal to the Monthly Principal
Amount as of such Payment Date, to the Class A,
Class B and Class C Notes in the amount and
order of priority described under "Principal"
above;
(v) from Available Pledged Revenues and
amounts (if any) on deposit in the Residual
Account, to the Reserve Account, an amount
equal to the excess of the Required Reserve
Amount over the Available Reserve Amount;
(vi) from Available Pledged Revenues only, for
so long as Vendor Services or an affiliate is
the Servicer, the Servicing Fee; and
(vii) the remainder of Available Pledged
Revenues, if any, to the SPC.
Optional Repurchase of
Leases...................... The SPC may repurchase 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 repurchase 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 repurchase 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."
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<PAGE>
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."
Legal Investment........ The Class A-1 Notes will be eligible securities
for purchase by money market funds under Rule
2a-7 under the Investment Company Act of 1940.
A fund should consult with its advisors
regarding the eligibility of the Class A-1
Notes under Rule 2a-7 and the fund's investment
policies and objectives.
Registration, Clearance and
Settlement of Notes......... Each of the Notes will be registered in the name
of Cede & Co., as the nominee of The Depository
Trust Company ("DTC"), and will be available
for purchase only in book-entry form on the
records of DTC and participating members
thereof. Notes will be issued in definitive
form only under the limited circumstances
described under "Description of the Notes--
Definitive Notes." All references herein to
"Holders" or "Noteholders" shall reflect the
rights of beneficial owners of Notes (the "Note
Owners"), as they may indirectly exercise such
rights through DTC and participating members
thereof, except as otherwise specified herein.
See "Description of the Notes--Book-Entry
Registration."
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<PAGE>
RISK FACTORS
Prospective Noteholders should consider the following factors in connection
with the purchase of the Notes:
RISKS RESULTING FROM LIMITED ASSETS OF THE ISSUER
The Issuer will have no assets other than the Leases (including the
Liquidation Proceeds derived from the liquidation of defaulted Leases),
certain rights to Residual Realizations on the Equipment, amounts on deposit
from time to time in the Collection Account, the Residual Account, the Reserve
Account and the accounts established pursuant to the Contribution and
Servicing Agreement. 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. As a result, the Noteholders may
be subject to delays in payment and may incur losses on their investment as a
result of defaults or delinquencies on the Leases and because of depreciation
in the value of the related Equipment or other inability to realize on the
Equipment. See "--Enforceability of the Leases" below.
RISKS OF LOSSES TO HOLDERS OF THE CLASS B NOTES AND CLASS C NOTES RESULTING
FROM SUBORDINATION
Payments of interest and principal on the Class B Notes will be subordinated
in priority of payment to interest and principal, respectively, on the Class A
Notes. Similarly, payments of interest and principal on the Class C Notes will
be subordinated in priority of payment to interest and principal,
respectively, on the Class A Notes and the Class B Notes. In addition,
payments of principal on the Notes will be subordinated in priority of payment
to payments of interest on the Notes to the extent described herein under
"Description of the Notes--Distributions" and "--Subordination of Class B
Notes and Class C Notes."
The only protection afforded the Class C Noteholders against delinquencies
and defaults on the Leases and resulting losses of principal will be any
Residual Realizations each month, and the amounts, if any, on deposit in the
Residual Account and the Reserve Account (in each case to the extent not used
to make payments of interest and principal on the Class A and Class B Notes).
With respect to the Class C Notes, sufficiently high delinquencies and
liquidation losses on the Leases will have the effect of reducing, and could
eliminate, the protection against loss afforded by the Residual Realizations
and the amounts, if any, on deposit in the Residual Account and the Reserve
Account. As a result, the Class C Noteholders would bear directly the risk of
losses on the remaining Trust Assets, and the Class C Noteholders could incur
losses on their investment as a result.
Further, delinquencies and defaults on the Leases could eliminate the
protection afforded the Class B Noteholders by the subordination of the Class
C Notes, and the Class B Noteholders could incur losses on their investment as
a result. In addition, delinquencies and defaults on the Leases could
eliminate the protection offered to the Class A Noteholders by the
subordination of the Class B Notes and the Class C Notes, and the Class A
Noteholders could also incur losses on their investment as a result.
RISKS RELATED TO BANKRUPTCY
Risks Relating to Characterization of the Transfer of the Leases and
Equipment as a Borrowing by Vendor Services. Dorsey & Whitney LLP, counsel to
the Issuer, will deliver a legal opinion to the effect that, subject to the
qualifications and limitations expressed therein, the transfer of the Leases
and the Equipment from Vendor Services to the SPC constitutes a sale or
absolute assignment, rather than a pledge to secure indebtedness of Vendor
Services; and that in the event that Vendor Services were to become a debtor
under the federal bankruptcy code, a creditor or trustee in bankruptcy would
be unable to successfully challenge the transfer of the
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Leases and the Equipment to the SPC and the Leases, payments thereunder and the
Equipment would not be property of the bankruptcy estate of Vendor Services.
However, if Vendor Services were to become a debtor under the federal
bankruptcy code or similar applicable state laws (collectively, "Insolvency
Laws"), a creditor or trustee in bankruptcy of Vendor Services, or Vendor
Services as debtor-in-possession, might argue that such transfer of the Leases
and the Equipment from Vendor Services to the SPC was (or should be
recharacterized as) a pledge of such assets rather than a sale or absolute
assignment. If this position were accepted by a court, any Leases considered to
be "true" leases under the applicable Insolvency Laws (as described under "The
Leases-- Description of the Leases"), and any other Lease considered to be
executory under such Insolvency Laws, could be rejected by such trustee in
bankruptcy or by Vendor Services as debtor-in-possession, which would result in
the termination of Scheduled Payments under any such Leases and reductions in
distributions to Noteholders, and Noteholders could incur a loss on their
investment as a result. To reduce the likelihood of such rejection, UCC
financing statements perfecting a security interest for the benefit of the SPC
in Vendor Services' interests in the Equipment, and assignments of such
perfected security interest to the Issuer and the Trustee, will be filed
against Vendor Services in those states where Equipment subject to Leases
constituting at least 75% of the Initial Pool Principal Balance and at least
75% of the aggregate Book Value as of December 1, 1997 is located. Even if such
Leases were not so rejected in the event of an insolvency of Vendor Services,
the Issuer and the Trustee could experience a delay in or reduction of
collections on all of the Leases, and Noteholders could incur a loss on their
investment as a result.
A case decided by the United States Court of Appeals for the Tenth Circuit
contains language to the effect that accounts sold by an entity that
subsequently became bankrupt remained property of the debtor's bankruptcy
estate because the sale of accounts is treated as a "security interest" that
must be perfected under the Uniform Commercial Code ("UCC"). Although the
Leases constitute chattel paper or general intangibles rather than accounts
under the UCC, sales of chattel paper, like sales of accounts, must be
perfected under Article 9 of the UCC. If Vendor Services were to become a
debtor under any Insolvency Law and a court were to follow the reasoning of the
Tenth Circuit Court of Appeals and apply such reasoning to chattel paper, the
Issuer (and thus the Trustee) could experience a delay in or reduction of
collections on the Leases, and Noteholders could incur a loss on their
investment as a result.
Risks Relating to Substantive Consolidation of Vendor Services and the
SPC. Dorsey & Whitney LLP will deliver a legal opinion to the effect that,
subject to the qualifications and limitations expressed therein, if Vendor
Services were to become a debtor in a bankruptcy case, a bankruptcy court would
not order that the assets and liabilities of the SPC be consolidated with those
of Vendor Services. The SPC has taken steps in structuring the transactions
described herein that are intended to prevent the voluntary or involuntary
application for relief by or on behalf of Vendor Services under any Insolvency
Law from resulting in the consolidation of the assets and liabilities of the
SPC with those of Vendor Services. Such steps include the maintenance of
separate books and records and the insistence on arm's-length terms in all
agreements with Vendor Services and affiliates thereof. Nevertheless, there can
be no assurance that, in the event of a bankruptcy or insolvency of Vendor
Services, a court would not order that the Issuer's or the SPC's assets and
liabilities be consolidated with those of Vendor Services. Any such order would
adversely affect the Issuer's ability to receive payments on the Leases, and
Noteholders could incur a loss on their investment as a result.
Risks Related to Fraudulent Transfer Laws. Under federal or state fraudulent
transfer laws, a court could, among other things, subordinate the rights of the
Noteholders in the Leases and Equipment to the rights of creditors of Vendor
Services, if a court were to find, among other things, that Vendor Services
received less than reasonably equivalent value or fair consideration for the
Leases and the Equipment and, at the time of any transfers, was insolvent or
rendered insolvent as a result of such transfer, and Noteholders could incur a
loss on their investment as a result.
Risks Relating to Commingling of Trust Assets by Vendor Services as
Servicer. While Vendor Services is the Servicer, cash collections held by
Vendor Services will be commingled and used for the benefit of the Servicer
prior to the date on which such collections are required to be deposited in a
Collection Account as described under "Description of the Contribution and
Servicing Agreement--Collections on Leases" and, in the
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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.
Risks Relating to Reliance on Representations and Warranties Made by Vendor
Services. Vendor Services will make certain representations and warranties
regarding the Leases, the Equipment and certain other matters (see "The
Leases--Representations and Warranties Made by Vendor Services"). In the event
that any such representation or warranty with regard to a specific Lease is
breached, is not cured within a specified period of time, and the value of
such Lease is materially and adversely affected by such breach, Vendor
Services will be required to purchase the Lease from the Issuer at a price
equal to the Required Payoff Amount of such Lease and, if there is a Book
Value of the related Equipment, will be required to purchase the related
Equipment from the SPC at a price equal to the Book Value thereof (or, subject
to certain conditions, deliver a Substitute Lease therefor). In the event of a
bankruptcy or insolvency of Vendor Services, the Trustee's right to compel a
purchase would be impaired and would have to be satisfied out of the available
assets, if any, of Vendor Services's bankruptcy estate, and Noteholders could
incur a loss on their investment as a result.
Risks Relating to Insolvency of the SPC or the Issuer. If the SPC or the
Issuer were to become insolvent under any Insolvency Law, delays in the amount
of distributions to Noteholders would be likely and Noteholders could incur a
loss on their investment as a result. The SPC and the Issuer have each taken
certain steps to minimize the likelihood that it will become bankrupt or
otherwise insolvent. The SPC is prohibited by its organizational documents and
the Transfer Agreement from engaging in activities (including the incurrence
or guaranty of debt) other than those permitted by the Transfer Agreement. See
"The Issuer and the SPC." Its Articles of Incorporation also contain
restrictions on the SPC's ability to commence a voluntary case or proceeding
under any Insolvency Law without the affirmative vote of all its directors,
including its independent directors. The Issuer is subject to similar
constraints under the Contribution and Servicing Agreement and its LLC
Agreement, including the requirement that an affirmative vote of all of the
SPC's directors, including the independent director, occur before the Issuer
may commence any such insolvency proceeding. The Trustee, on behalf of the
Noteholders, will covenant not to subject the SPC or the Issuer to bankruptcy
proceedings until the Notes have been paid in full and one year and one day
has elapsed. Vendor Services believes that such actions substantially mitigate
the risk of an involuntary bankruptcy petition being filed against either the
SPC or the Issuer.
Risk Relating to Insolvency of a Financial Intermediary. As described under
"Green Tree Vendor Services Corporation--Equipment Lease Business," Vendor
Services from time to time acquires leases from financial intermediaries.
Similar to the risks described above related to any insolvency of Vendor
Services, in the event that a financial intermediary were to become insolvent,
the sale of the related Leases from such financial intermediary to Vendor
Services could be characterized as a fraudulent transfer or as a pledge to
secure indebtedness rather than a sale. In such event, the Issuer and the
Trustee could experience a delay in or reduction of collections on such
Leases, and Noteholders could incur a loss on their investment as a result.
PREPAYMENT AND EARLY TERMINATION OF LEASES AND RELATED REINVESTMENT RISKS
The weighted average life of the Notes may be reduced by prepayments and
early terminations of the Leases. Prepayments and early terminations may
result from payments by Obligors, certain amounts received as a result of
default or early termination of a Lease, the receipt of proceeds from the
physical damage to the Equipment to the extent described herein under "The
Leases," purchases by Vendor Services of Leases as a result of certain uncured
breaches of the representations and warranties made by it with respect thereto
(see "The Leases--Representations and Warranties Made by Vendor Services") or
the SPC exercising its option to purchase all of the remaining Leases (see
"Description of the Notes--Optional Purchase of Leases"). Most of the Leases
do not permit a prepayment or early termination thereof. Nevertheless, Vendor
Services historically has permitted lessees to terminate leases early, either
in connection with the execution of a new lease of replacement equipment or
upon payment of a negotiated prepayment premium, or both. The Contribution and
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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." The rate of prepayments and early terminations on the
Leases (including those due to Obligors seeking early termination and those due
to defaults) may be influenced by a wide variety of economic and other factors,
including, among others, changes in the reimbursement policies of governmental
or third party payors, obsolescence of the Equipment, changes in interest
rates, changes in the local, regional or national economies or changes in
federal income tax laws. Therefore, no assurance can be given as to the rate of
prepayments or as to whether there will be a substantial amount of prepayments,
nor can any assurance be given as to the level or timing of any prepayments
that do occur. As the rate of payment of principal of the Notes will depend (in
the absence of Substitute Leases, as described below) on the rate of payment
(including prepayments) on the Leases, the rate at which such principal will be
paid cannot be predicted and the final payment of a Class of Notes could occur
significantly earlier than the Stated Maturity Date of such Class of Notes.
There can be no assurance that Noteholders will be able to reinvest principal
paid on any Class of Notes at an interest rate equal to the Interest Rate for
such Class of Notes, and Noteholders will bear all reinvestment risk resulting
from the timing of payments of principal on the Notes. See "Weighted Average
Life of the Notes."
RISKS RELATING TO SUBSTITUTE LEASES
As described herein, 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, Warranty Leases and
Adjusted 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 Substitute Lease, there can be no
assurance that the delinquency and default experience of the Issuer with
respect to such Substitute Leases will be comparable to that of the Leases so
replaced. The Servicer's monthly report to Noteholders will disclose all
Substitute Leases delivered to the Issuer during the related monthly period,
and Vendor Services will make representations and warranties regarding any
Substitute Leases described under "The Leases--Representations and Warranties
Made by Vendor Services," but the characteristics of such Substitute Leases
will not be verified by independent accountants or any other third party.
RISKS RELATING TO RELIANCE ON RESIDUAL REALIZATIONS
The availability of Residual Realizations will depend on various factors,
including the timing of Lease terminations and the future value of Equipment,
which in each case is inherently uncertain. The Servicer will be obligated to
use its best efforts to sell or re-lease any Equipment upon the termination of
the Lease to which such Equipment is subject (whether as a result of early
termination or upon scheduled expiration of the Lease), in a timely manner and
in a manner so as to maximize, to the extent possible under then prevailing
market conditions, the net proceeds from such Equipment. However, because,
among other things, the market value of equipment generally declines with age
and may be subject to sudden, significant declines in value due to
technological obsolescence, there can be no assurance as to the amount the
Servicer will be able to realize on any such Equipment at such time. Other
factors that may also affect the amount of the Residual Realization will
include whether the Equipment is returned to the Servicer upon termination or
expiration of such Lease and whether there has been damage to or loss of any
item of Equipment.
Moreover, unless a Residual Event has occurred and is continuing, any month's
Residual Realizations not used to pay interest or principal on the related
Payment Date will be (i) deposited into the Reserve Account to the extent that
the amount on deposit in the Reserve Account is less than the Required Reserve
Amount or (ii) released to the SPC, and, upon such release to the SPC, will not
thereafter be available to make payments on the Notes. Accordingly, there can
be no assurance that Residual Realizations will be available on a Payment Date
when the Available Pledged Revenues are insufficient to pay interest and
principal on the Notes.
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ENFORCEABILITY OF THE LEASES
The transfer of the Leases by Vendor Services to the SPC, and by the SPC to
the Issuer, the perfection of the interest of the Issuer in the Leases and the
right to receive payments thereon, and the Issuer's and the Trustee's interest
in such Leases and in the Equipment are subject to the requirements of the UCC
as in effect in Minnesota and, with respect to certain of the Equipment, in
the various states in which the Equipment subject to the applicable Lease is
located from time to time. Vendor Services will take or cause to be taken such
actions as are required to perfect the transfer to the SPC and thence to the
Issuer of Vendor Services's rights in the Leases and the right to receive
payments thereunder and to perfect the security interest of the Trustee in the
Issuer's rights in the Leases and the right to receive payments thereunder.
Risks Relating to Decision Not to File Certain UCC Financing Statements. It
has been the general policy of Vendor Services, depending on the dollar amount
of the particular Lease, not to file or (in certain cases) not to obtain or
file UCC financing statements with respect to the Equipment relating to
certain Leases. See "Green Tree Vendor Services Corporation--Documentation."
No representation and warranty will be made in connection with the transfer of
the Leases by Vendor Services with respect to the perfection or priority of
any security interest in the related Equipment (see "The Leases--
Representations and Warranties Made by Vendor Services"). With respect to any
such Leases that were deemed to be loans or leases intended for security (as
described under "The Leases-- Description of the Leases"), a purchaser from
the applicable Obligor of the related Equipment would acquire such Equipment
free and clear of the interest of Vendor Services in such Equipment, and a
creditor of the Obligor which has taken a security interest in such Equipment
and filed a UCC financing statement with respect thereto or a trustee in the
bankruptcy of such Obligor would have priority over the interest of Vendor
Services in such Equipment. Any such purchaser, creditor or trustee would have
an interest superior to the interest of the Issuer in such Equipment, which
interest is derived from the transfer and conveyance of a security interest in
the Equipment by Vendor Services to the SPC, and by the SPC to the Issuer. All
of the Leases prohibit the Obligor from selling or pledging the related
Equipment to third parties.
Due to the administrative burden and expense, no assignments of the UCC
financing statements evidencing the security interest of Vendor Services in
the Equipment (to the extent that such financing statements have been filed
against the Obligor, as discussed above) will be filed to reflect the SPC's,
the Issuer's or the Trustee's interests therein. While failure to file such
assignments does not affect the Issuer's interest in the Leases or perfection
of the Trustee's interest in such Leases (including Vendor Services's security
interest in the related Equipment), it does expose the Issuer (and thus
Noteholders) to the risk that Vendor Services could release its security
interest in the Equipment of record, and it could complicate the Issuer's
enforcement, as assignee, of Vendor Services's security interest in the
Equipment. While these risks should not affect the perfection or priority of
the interest of the Trustee in the Leases or rights to payment thereunder,
they may adversely affect the right of the Trustee to receive proceeds of
disposition of the Equipment subject to a Liquidated Lease. Additionally,
statutory liens for repairs or unpaid taxes and other liens arising by
operation of law may have priority even over prior perfected security
interests in the Equipment assigned to the Trustee.
Risks Relating to Servicer's Retention of Lease Documents; Risk of Sale to
Third Party. The Servicer will hold the Leases and certain related documents
on behalf of the Issuer and the Trustee. To facilitate servicing and save
administrative costs, the documents will not be physically segregated from
other similar documents that are in the Servicer's possession. UCC financing
statements will be filed in the appropriate jurisdictions reflecting (i) the
sale and assignment of the Leases and Vendor Services' interests in the
Equipment to the SPC (provided that filings with respect to Vendor Services'
interests in the Equipment will be made only in those jurisdictions described
above under "Risks Related to Bankruptcy--Risks Relating to Characterization
of the Transfer of the Leases and Equipment as a Borrowing by Vendor
Services"), (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
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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 OF THE NOTES
There is currently no market for the Notes. Each Underwriter expects, but
will not be obligated, to make a market for the Classes of Notes for which it
is acting as underwriter. There can be no assurance that a secondary market for
the Notes will develop or, if it does develop, that it will provide the Holders
of such Notes with liquidity of investment or will continue for the life of
such Notes. As a result, inverstors must be prepared to bear the risk of
holding the Notes for as long as the Notes are outstanding.
EFFECT OF BOOK-ENTRY REGISTRATION
The Notes will be issued in book-entry, rather than physical, form and, as a
result, in certain circumstances, the liquidity of the Notes in the secondary
market and the ability of the Noteholders to pledge them may be adversely
affected. See "Underwriting" and "Description of the Notes--Book-Entry
Registration." The Notes will be registered in the name of a nominee of DTC and
will not be registered in the names of the beneficial owners or their nominees.
As a result, unless and until Definitive Notes are issued in the limited
circumstances described under "Description of the Notes--Definitive Notes,"
beneficial owners will not be recognized by the Trustee as Noteholders, as that
term is used in the Indenture. Hence, until such time, beneficial owners will
only be able to exercise the rights of Noteholders indirectly through DTC and
its participating organizations. In addition, the laws of some states require
that certain purchasers of securities take physical delivery of such securities
in certificated form. Such limits and such laws may impair the ability to
transfer beneficial interests in the Notes.
THE ISSUER AND THE SPC
The Issuer is a limited liability company organized under the laws of the
State of Delaware. Green Tree Lease Finance II, Inc. ("SPC"), a corporation
organized under the laws of the State of Minnesota, 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
Leases 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 director.
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 and 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
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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. Pursuant to its
Articles of Incorporation, the SPC must at all times have at least one director
who is "independent" of Green Tree and its affiliates, as defined in such
articles.
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 the Reserve Account, and Vendor Services will agree to service
the Leases on behalf of the Issuer. The Issuer will pledge the Trust Assets to
the Trustee and issue the Notes pursuant to the Indenture.
The Trust Assets will consist of:
(1) a pool of equipment lease contracts (each, a "Lease") with various
lessees, borrowers or other obligors thereunder (each, an "Obligor"),
including all monies at any time paid or payable thereon or in respect
thereof from and after December 1, 1997 (the "Initial Cut-Off Date") or, in
the case of Substitute Leases, the first day of the month of transfer to
the Issuer (each such date, or the Initial Cut-Off Date, as applicable to
each Lease, a "Cut-Off Date") (in the form of (i) Scheduled Payments
(including all Scheduled Payments due prior to, but not received as of, the
Cut-Off Date, but excluding any Scheduled Payments due on or after, but
received prior to, the Cut-Off Date), (ii) Prepayments, and (iii)
Liquidation Proceeds (including all net proceeds from the disposition of
the related Equipment) received with respect to defaulted Leases;
(2) certain rights to Residual Realizations and amounts, if any, on
deposit in the Residual Account, to the extent necessary to make payments
of interest and principal then due on the Notes;
(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) funds on deposit in the Reserve Account; 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 ("Green Tree"), was acquired from FINOVA
Corporation in November 1996. Vendor Services' original predecessor,
TriContinental Leasing Corporation, was established in 1968, although its
equipment leasing business has undergone several restructurings and changes of
ownership since that time.
Vendor Services offers "small-ticket" equipment leasing programs, for assets
with a purchase price generally less than $100,000, to manufacturers, dealers
and distributors, and to a select group of financial intermediaries nationwide,
facilitating the sale of their products to end-user customers.
EQUIPMENT LEASE BUSINESS
Market Position
Vendor Services establishes customized financing programs for the end-user
customers of equipment vendors and select financial intermediaries that focus
on end-user customers who meet Vendor Services's general
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customer profiles. The equipment vendor segment has been the primary focus of
Vendor Services's activities. In total, as of December 1996, Vendor Services
had in its portfolio a total of 57,000 individual end-user customers with
active accounts. Vendor Services attempts to maintain geographical diversity
and a broad cross-section of commercial account types in its lease portfolio.
Equipment Vendors
The primary sales focus of Vendor Services is on providing point-of-sale
financing for the customers of equipment vendors, including equipment
manufacturers, dealers and distributors that sell their products regionally or
nationally. While Vendor Services primarily finances office equipment such as
copy machines, fax machines, personal computers and related peripherals, office
furniture and telephone systems, its vendor base also consists of sellers of
commercial laundry equipment, automotive diagnostic equipment and health-care
related products.
Financial Intermediaries
With respect to financial intermediaries, Vendor Services focuses its
activities on those that have industry recognition, proven track records in
generating new business through end-user contracts or through low-end equipment
dealers and a customer base consistent with Vendor Services's general customer
profiles. Each lease acquired from financial intermediaries is individually
approved by Vendor Services using Vendor Services' own credit underwriting
criteria.
CREDIT UNDERWRITING STANDARDS
Vendor Services has established policies, controls, systems and procedures
designed to manage and limit credit risk. These policies, controls, systems and
procedures are subject to periodic review by management.
Vendor Services seeks to minimize credit risk through diversification of the
portfolio by customer, industry segment, equipment type, geography and
transaction maturity. Vendor Services's financing activities are spread across
a wide range of equipment types, including general equipment, office equipment,
information technology and light commercial equipment, with end-users located
throughout the United States.
Underwriting procedures are divided into three main categories: Equipment
Dealers and Manufacturers, Financial Intermediaries and Lessees. Listed below
is an overview of each underwriting process.
Equipment Dealers and Manufacturers
Vendor Services requires that all leased equipment be sold by authorized
sellers that have sufficient experience with each brand they sell. Credit
requirements vary depending on the degree to which Vendor Services relies on
the dealer or manufacturer to support and service the equipment.
Financial Intermediaries
Financial intermediaries are required to have well-established histories and
conform to Vendor Services's approved equipment Dealer/Manufacturers business
line. Although standard industry representations and warranties are required,
Vendor Services's credit decision will not depend on an financial
intermediary's ability to honor these obligations.
Lessees
Vendor Services's underwriting standards are intended to evaluate a
prospective customer's credit standing and repayment ability. Credit decisions
are based on the credit characteristics of the applicant, loss experience with
comparable customers, the amount, terms and conditions of the proposed
transaction and the type of
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equipment to be leased or financed. Vendor Services uses a proprietary
automated credit scoring system, which is a statistically based scoring system
that quantifies information obtained from customers' credit applications and
credit reports.
DOCUMENTATION
Prior to funding a leasing and financing transaction, a complete
documentation package must be completed. Generally, such a package includes a
credit application, signed lease/installment sale or financing agreement,
vendor invoice, initial lease/advance payment, proof of insurance (where
relevant), delivery and acceptance acknowledgments and appropriate UCC
financing statements. UCC filings are generally required if the underlying
equipment cost is over $25,000.
COLLECTIONS
Invoices are generated 21 days prior to the due date with a 10-day grace
period before late charges accrue. Identified payments are electronically
posted according to an established hierarchy.
The collection processes begin after 15 days with an automatic late notice.
Collection calls are placed between 15 and 30 days after the due date. A
contract is classified as delinquent when it reaches 31 days past due.
Automated "work to be done screens" are updated daily, allowing individual
collectors to customize their follow-up procedures. Management approval is
required for contract rewrites or extensions.
CHARGE-OFF POLICY
Vendor Services works closely with vendors to manage delinquencies by
maintaining and closely monitoring non-accrual and write-off policies. Vendor
Services requires that accounts 90-plus days past due (or less, if in the
judgment of the collection manager the account is impaired) are deemed "non-
earning" and are placed on non-accrual status. Non-accrual accounts are
assigned to the legal administration department. This department is responsible
for ensuring collection costs are reasonable in relation to exposure and
ability to collect from a lessee or guarantor, and for negotiating and
processing settlements and write-offs within authorized levels. A write-off is
recommended by the legal administration department if it has been determined
that the lease is uncollectible even through litigation. A legal administrator
may refer a delinquent account to a pre-approved collection agency or to an
attorney, based upon dollar amount and the likelihood of collection.
Before an account is written-off or settled, its disposition must be approved
at a level of management commensurate with the size of the account. Similarly,
re-writes and extensions must be approved at a level of management commensurate
with the size of the account.
PORTFOLIO MONITORING
Portfolio Performance Tracking
Vendor Services uses a number of tools to monitor portfolio performance.
Monthly vendor performance reports are prepared for all active accounts,
indicating the dollar amount of delinquent accounts, the percentage of accounts
delinquent, the dollar amount of accounts on non-accrual status, the percentage
of accounts on non-accrual status and the dollar amount of any accounts written
off. Accounts that fall outside standard Vendor Services guidelines are subject
to further analysis.
Each vendor relationship with a portfolio balance in excess of $1,000,000 is
given an annual in-depth review covering portfolio performance, an analysis of
management, the quality of the business sent to Vendor Services and the
financial condition of the vendor. Any vendors whose portfolio performance
falls outside the standard guidelines are assigned to a more senior analyst or
manager for further review.
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Ongoing Credit Review
In addition to the initial credit review, Vendor Services conducts ongoing
credit review procedures to identify at an early stage those customers who may
be experiencing financial difficulty. These customers are monitored by credit
personnel, who periodically summarize for the Credit Committee the possible
remedial actions, what portion, if any, of total credit exposures should be
written off, and whether a specific allocation of Vendor Services's loss
reserves is appropriate.
In establishing allowances for credit losses, Vendor Services' management
reviews, among other things, the maturity of Vendor Services' portfolio, the
status of all non-performing leases and receivables, prior collection
experience and Vendor Services' overall exposure and changes in credit risk.
RECENT DEVELOPMENTS
As disclosed in Green Tree's Exchange Act filings, Green Tree recently
announced that it has determined that a write down of the value of its
interest only securities in an amount estimated to be in the range of $125 to
$150 million will be made for the quarter ended December 31, 1997. Depending
on the final results of its review, Green Tree's actual valuation adjustment
may be greater or less than this amount. The valuation adjustment will result
in a fourth quarter pre-tax reduction to earnings equal to the amount of the
adjustment.
As disclosed in Green Tree's Exchange Act filings, Green Tree recently
received several securities law complaints filed in U.S. District Court. The
complaints allege that Green Tree and certain of its officers omitted or
misrepresented material facts about the business and financial condition of
Green Tree in violation of federal securities laws. The complaints seek class
action status. Green Tree has reviewed the complaints and believes the
allegations to be without merit. Green Tree plans a vigorous defense against
the lawsuits.
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
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income tax purposes. See "Federal Income Tax Consequences." However, true
leases are treated differently under the Bankruptcy Code from leases intended
for security. See "Risk Factors--Risks Related to Bankruptcy" and "Certain
Legal Aspects of the Leases--Insolvency Matters" for a discussion of these
differences.
Lease Forms
The Leases are generally in one of two forms: (a) a master lease agreement
containing all of the general terms and conditions of the lease transaction or
transactions, with schedules setting forth the specific terms of each lease
transaction with that particular Obligor (a "Master Form Lease") or (b) a
specific lease agreement form containing all of the terms and conditions of
the lease transaction (a "Specific Lease Form"). In certain cases, the Lease
may be written on another form which was created by Vendor Services, by a
customer or by a financial intermediary.
Payments
All of the Leases require that the Obligor make periodic payments on a
monthly basis. The payments under all of the Leases are required to be made in
United States dollars and are fixed and specified payments, rather than
payments which are tied to a formula or are otherwise at a floating rate.
Payments under the Leases are ordinarily payable in advance, although a small
percentage provide for payments in arrears. Many Leases also require security
deposits which are held until all contractual obligations are met.
Expenses Relating to Equipment
The Leases require the Obligors to assume the responsibility for payment of
all expenses of the related Equipment including (without limitation) any
expenses in connection with the maintenance and repair of the related
Equipment, the payment of any and all premiums for casualty and liability
insurance and the payment of all taxes relating to the Equipment.
Insurance; Repair and Replacement
The Leases (except for a small number of Leases which, in relation to the
Initial Pool Principal Balance, is not material) require the Obligors to
maintain liability insurance which must name the lessor as additional insured.
Leases require Obligors to procure property insurance against the loss, theft
or destruction of, or damage to, the Equipment for its full replacement value,
naming the lessor (or lender) as loss payee. This requirement is, from time to
time, waived by the originator for a small number of transactions and, for
some Leases, the Obligor is permitted to self-insure the Equipment under the
Obligor's already existing self-insurance program.
For transactions involving Equipment with a cost of $200,000 or less, the
Obligor is generally provided with written information concerning its property
insurance obligations under the Lease and the originator's own property
insurance coverage that will be provided at the expense of the Obligor if the
Obligor does not provide the originator with satisfactory evidence of its own
insurance coverage. The Obligor is given a specified time period in which to
provide such evidence. Proper evidence of coverage is verified independently
and tracked by a third party tracking company and licensed broker. If the
originator provides the insurance coverage, the Obligor is charged a monthly
fee covering the insurance charges and other related administrative charges.
The Obligor has the ability to "opt out" of the program by providing evidence
of its own coverage, at which time such monthly charges cease.
For transactions involving Equipment with a cost of more than $200,000,
insurance coverage generally is verified and traced by the respective
originator, and the failure to maintain such insurance constitutes an event of
default under the applicable Lease. Generally, either pursuant to the Specific
Lease Form or the Master Form Lease, the Obligor also agrees to indemnify the
originator for all liability and expenses arising from the use, condition or
ownership of the Equipment.
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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 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.
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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 Initial Cut-Off Date, and regarding each Substitute Lease as of the
applicable Cut-Off Date:
(A) Each Lease (i) constitutes a valid, binding and enforceable payment
obligation of the Obligor in accordance with its terms (except as may be
limited by applicable bankruptcy, insolvency or other similar laws
affecting the enforceability of creditors' rights generally and the
availability of equitable remedies), (ii) has been duly and properly sold,
assigned and conveyed by Vendor Services under the Transfer Agreement to
the SPC and has been duly and properly transferred and conveyed by the SPC
to the Issuer pursuant to the Contribution and Servicing Agreement, (iii)
was originated by Vendor Services in the ordinary course of its business,
or (in the case of any Lease purchased by Vendor Services) was acquired by
Vendor Services for proper consideration and was validly assigned to Vendor
Services by the originator of such Lease, and (iv) contains customary and
enforceable provisions adequate to enable realization against the Obligor
and/or the related Equipment (although no representation or warranty is
made with respect to the perfection or priority of any security interest in
such related Equipment);
(B) No selection procedures adverse to the Noteholders were utilized in
selecting the Leases from those leases owned by Vendor Services on the Cut-
Off Date;
(C) All requirements of applicable Federal, state and local laws, and
regulations thereunder, in respect of all of the Leases, have been complied
with in all material respects;
(D) There is no known default, breach, violation or event permitting
cancellation or termination of the Lease by the lessor under the terms of
any Lease (other than Scheduled Payment delinquencies (in excess of 10% of
the Scheduled Payment due) of not more than 59 days), and (except for
payment extensions and waivers of Administrative Fees in accordance with
Vendor Services's servicing and collection policies and procedures) there
has been no waiver of any of the foregoing; and as of the Cut-Off Date, no
related Equipment had been repossessed;
(E) Immediately prior to the sale, assignment and conveyance of each
Lease by Vendor Services to the SPC, Vendor Services had good title to such
Lease and Vendor Services' 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;
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(G) Each Lease was originated by Vendor Services or acquired by Vendor
Services and was sold and assigned by Vendor Services to the SPC without
any fraud or misrepresentation on the part of Vendor Services;
(H) Each Obligor (i) is located in the United States, and (ii) is not (a)
the United States of America or any State or local government or any
agency, department, subdivision or instrumentality thereof (except for
Leases representing no more than 3% of the Initial Pool Principal Balance)
or (b) Vendor Services or any affiliate thereof;
(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' 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;
(M) The Leases constitute chattel paper within the meaning of the UCC as
in effect in the States of Minnesota and Delaware (other than those Leases
in which the lessor is financing exclusively the Obligor's software license
or maintenance contract for Equipment, which Leases, in proportion to the
Initial Pool Principal Balance, are not material);
(N) Each Lease was entered into by an Obligor who, at the Cut-Off Date,
had not been identified on the records of Vendor Services as being the
subject of a current bankruptcy proceeding;
(O) The computer tape containing information with respect to the Leases
that was made available by Vendor Services to the Trustee on the Closing
Date and was used to select the Leases was complete and accurate in all
material respects as of the 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
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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 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;
(CC) To the best of Vendor Services' knowledge, each Obligor has accepted
the related Equipment and has had reasonable opportunity to inspect and
test such Equipment; and
(DD) The Obligor has made at least one payment under the Lease.
The above-described representations and warranties of Vendor Services will
survive the transfer and assignment of the related Leases and other Trust
Assets to the Issuer.
In the event of a breach of any such representation or warranty with respect
to a Lease that materially and adversely affects the value of such Lease (any
such breach being a "Repurchase Event"), Vendor Services, unless it cures the
breach by the end of the second Collection Period after the date on which
Vendor Services becomes aware of or receives written notice from the Trustee
or the Servicer of such breach, will be obligated to repurchase (or substitute
another lease for) the Lease and the related Equipment. Any such repurchase
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 the Book Value of the related Equipment. This repurchase 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
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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 repurchase or substitution by Vendor Services of a Lease and any
related Equipment, such Lease and related Equipment will be released to Vendor
Services.
CERTAIN STATISTICS RELATING TO THE CUT-OFF DATE POOL
General
Vendor Services has prepared certain statistics relating to the Pool as of
the Initial 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 7.0%. The Initial Pool Principal Balance
(calculated at the Discount Rate, which will be the weighted average of the
Interest Rates of the Class A (utilizing the Class A-4 Interest Rate), Class B
and Class C Notes on the Closing Date, plus the Servicing Fee), will not vary
materially from the Statistical Discounted Present Value of the Leases (which
is calculated using the Statistical Discount Rate).
The Statistical Discounted Present Value of the Leases is an amount equal to
$550,991,889.46 (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 all Scheduled
Payments on the Leases due prior to, but not received as of, the Initial Cut-
Off Date). The total number of Leases in the Cut-Off Date Pool is 54,483. The
average Principal Balance of the Leases, as of the Cut-Off Date, was
approximately $10,113.10.
COMPOSITION OF THE CUT-OFF DATE POOL
<TABLE>
<CAPTION>
STATISTICAL WEIGHTED AVERAGE
NUMBER POOL PRINCIPAL ORIGINAL TERM WEIGHTED AVERAGE AVERAGE PRINCIPAL
OF LEASES BALANCE (RANGE) REMAINING TERM (RANGE) BALANCE (RANGE)
- --------- --------------- ------------------------ ---------------------- ----------------------
<S> <C> <C> <C> <C>
54,483 $550,991,889.46 50.61 months 35.67 months $10,113.10
(7 months to 120 months) (6 months to 82 months) ($51.91 to $559,399.61)
</TABLE>
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Geographical Diversity
The following table shows the geographical diversity of the Cut-Off Date
Pool, by indicating the number of Leases, the aggregate Statistical Discounted
Present Value of the Leases and the percentage (by number of Leases and by
aggregate Statistical Discounted Present Value) of such Leases relative to all
of the Leases in the Cut-Off Date Pool by reference to the State in which the
Obligors on such Leases are located:
<TABLE>
<CAPTION>
AGGREGATE % OF STATISTICAL
STATISTICAL DISCOUNTED DISCOUNTED PRESENT
% OF TOTAL NUMBER PRESENT VALUE VALUE OF THE
STATE NUMBER OF LEASES OF LEASES OF THE LEASES LEASES
- ----- ---------------- ----------------- ---------------------- ------------------
<S> <C> <C> <C> <C>
Alabama................. 493 0.90% $ 4,597,928.28 0.83%
Alaska.................. 98 0.18 802,532.01 0.15
Arizona................. 783 1.44 7,472,767.52 1.36
Arkansas................ 229 0.42 2,318,963.37 0.42
California.............. 6,839 12.54 78,605,444.69 14.27
Colorado................ 788 1.45 8,707,814.20 1.58
Connecticut............. 1,089 2.00 9,089,549.17 1.65
Delaware................ 328 0.60 2,700,294.30 0.49
District of Columbia.... 216 0.40 2,652,111.51 0.48
Florida................. 4,184 7.68 42,659,247.70 7.74
Georgia................. 1,683 3.09 17,208,199.95 3.12
Hawaii.................. 123 0.23 1,165,718.24 0.21
Idaho................... 121 0.22 1,011,092.78 0.18
Illinois................ 2,435 4.47 23,987,946.22 4.35
Indiana................. 774 1.42 7,032,783.74 1.28
Iowa.................... 263 0.48 2,055,472.91 0.37
Kansas.................. 359 0.66 3,436,313.46 0.62
Kentucky................ 372 0.68 4,140,250.81 0.75
Louisiana............... 598 1.10 6,291,877.77 1.14
Maine................... 267 0.49 1,842,146.76 0.33
Maryland................ 889 1.63 9,141,020.85 1.66
Massachusetts........... 2,429 4.46 23,176,793.99 4.21
Michigan................ 948 1.74 9,288,727.72 1.69
Minnesota............... 1,270 2.33 10,399,666.09 1.89
Mississippi............. 271 0.50 2,295,684.74 0.42
Missouri................ 643 1.18 6,757,869.61 1.23
Montana................. 127 0.23 896,368.36 0.16
Nebraska................ 179 0.33 1,599,272.76 0.29
Nevada.................. 534 0.98 5,454,193.21 0.99
New Hampshire........... 488 0.90 4,187,067.32 0.76
New Jersey.............. 3,106 5.70 31,160,382.24 5.66
New Mexico.............. 259 0.48 2,579,634.04 0.47
New York................ 5,687 10.44 61,403,565.13 11.14
North Carolina.......... 1,779 3.27 15,243,481.42 2.77
North Dakota............ 40 0.07 298,972.14 0.05
Ohio.................... 1,877 3.45 15,943,144.88 2.89
Oklahoma................ 457 0.84 4,584,999.95 0.83
Oregon.................. 649 1.19 5,500,708.94 1.00
Pennsylvania............ 2,552 4.68 26,730,919.46 4.85
Rhode Island............ 209 0.38 1,909,689.99 0.35
South Carolina.......... 531 0.97 6,089,425.20 1.11
South Dakota............ 53 0.10 558,939.16 0.10
Tennessee............... 768 1.41 8,257,354.56 1.50
Texas................... 3,413 6.26 41,292,322.71 7.49
Utah.................... 205 0.38 2,125,138.20 0.39
Vermont................. 104 0.19 692,982.57 0.13
Virginia................ 1,387 2.55 12,319,438.94 2.24
Washington.............. 833 1.53 7,002,120.69 1.27
West Virginia........... 192 0.35 1,715,387.47 0.31
Wisconsin............... 471 0.86 4,087,409.09 0.74
Wyoming................. 91 0.17 520,752.64 0.09
------ ------ --------------- ------
Total.................. 54,483 100.00% $550,991,889.46 100.00%
====== ====== =============== ======
</TABLE>
32
<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 Statistical Discounted Present
Value of such Leases and the percentage (by number of Leases and by aggregate
Statistical Discounted Present Value) 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 Initial Cut-Off Date or were 31-60 days delinquent. 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.
<TABLE>
<CAPTION>
AGGREGATE
STATISTICAL % OF STATISTICAL
% OF TOTAL DISCOUNTED DISCOUNTED
NUMBER OF PRESENT VALUE PRESENT VALUE OF
PAYMENT STATUS NUMBER OF LEASES LEASES OF THE LEASES THE LEASES
- -------------- ---------------- ---------- --------------- ----------------
<S> <C> <C> <C> <C>
Current................. 53,008 97.29% $541,007,763.80 98.19%
31-60 Days Delinquent... 1,475 2.71 9,984,125.66 1.81
------ ------ --------------- ------
Total................. 54,483 100.00% $550,991,889.46 100.00%
====== ====== =============== ======
</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 Statistical
Discounted Present Value of such Leases, and the percentage (by number of
Leases and by aggregate Statistical Discounted Present Value) of such Leases
relative to all of the Leases:
<TABLE>
<CAPTION>
AGGREGATE
STATISTICAL % OF STATISTICAL
% OF TOTAL DISCOUNTED DISCOUNTED
NUMBER OF PRESENT VALUE PRESENT VALUE OF
TYPE OF EQUIPMENT NUMBER OF LEASES LEASES OF THE LEASES THE LEASES
- ----------------- ---------------- ---------- --------------- ----------------
<S> <C> <C> <C> <C>
Data Processing Equip-
ment................... 16,631 30.52% $149,081,554.06 27.06%
Office Machines......... 12,798 23.49 106,609,039.20 19.35
Telecommunications...... 12,799 23.49 105,784,038.16 19.20
Laundry & Cleaning...... 2,068 3.80 49,036,825.06 8.90
Furniture............... 2,681 4.92 26,320,485.89 4.78
Auto Services........... 1,583 2.91 21,888,770.63 3.97
Healthcare Related...... 1,598 2.93 21,441,764.53 3.89
Other................... 717 1.32 14,575,947.51 2.65
Machine Tool............ 662 1.22 11,727,937.19 2.13
Food & Lodging.......... 788 1.45 11,314,159.81 2.05
Recreation.............. 590 1.08 10,698,299.89 1.94
HVAC.................... 303 0.56 6,026,648.70 1.09
Printing................ 353 0.65 5,774,488.11 1.05
Imaging................. 317 0.58 2,714,867.96 0.49
Unclassified............ 231 0.42 2,401,237.56 0.44
Construction............ 86 0.16 2,100,498.48 0.38
Material Handling....... 95 0.17 1,116,125.21 0.20
Waste Management........ 61 0.11 665,276.05 0.12
Manufacturing........... 48 0.09 569,162.48 0.10
Maintenance............. 59 0.11 427,682.64 0.08
Secured Loans........... 7 0.01 400,821.42 0.07
Transportation.......... 8 0.01 316,258.92 0.06
------ ------ --------------- ------
Total................. 54,483 100.00% $550,991,889.46 100.00%
====== ====== =============== ======
</TABLE>
33
<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 Statistical Discounted Present
Value of the Leases, and the percentage (by number of Leases and by aggregate
Statistical Discounted Present Value) of such Leases relative to all of the
Leases:
<TABLE>
<CAPTION>
AGGREGATE
STATISTICAL % OF STATISTICAL
% OF TOTAL DISCOUNTED DISCOUNTED
NUMBER PRESENT VALUE PRESENT VALUE OF
PRINCIPAL BALANCE NUMBER OF LEASES OF LEASES OF THE LEASES THE LEASES
- ----------------- ---------------- ---------- --------------- ----------------
<S> <C> <C> <C> <C>
$ 0.01 to
$ 20,000.00............ 47,910 87.95% $273,395,991.38 49.62%
$ 20,000.01 to
$ 40,000.00............ 4,427 8.14 122,044,211.53 22.15
$ 40,000.01 to
$ 60,000.00............ 1,204 2.21 58,114,506.29 10.55
$ 60,000.01 to
$ 80,000.00............ 403 0.74 27,641,449.66 5.02
$ 80,000.01 to
$100,000.00............ 217 0.40 19,133,747.01 3.47
$100,000.01 to
$120,000.00............ 109 0.20 11,815,811.83 2.14
$120,000.01 to
$140,000.00............ 69 0.13 8,899,137.10 1.62
$140,000.01 to
$160,000.00............ 44 0.08 6,547,256.25 1.19
$160,000.01 to
$180,000.00............ 23 0.04 3,884,391.71 0.70
$180,000.01 to
$200,000.00............ 24 0.04 4,529,959.52 0.82
$200,000.01 to
$220,000.00............ 12 0.02 2,518,823.34 0.46
$220,000.01 to
$240,000.00............ 5 0.01 1,139,446.05 0.21
$240,000.01 to
$260,000.00............ 12 0.02 3,000,835.62 0.54
$260,000.01 to
$280,000.00............ 7 0.01 1,894,823.59 0.34
$280,000.01 to
$300,000.00............ 1 0.00 280,084.05 0.05
$300,000.01 to
$320,000.00............ 6 0.01 1,832,139.15 0.33
$320,000.01 to
$340,000.00............ 2 0.00 665,353.13 0.12
$360,000.01 to
$380,000.00............ 1 0.00 366,681.18 0.07
$400,000.01 to
$420,000.00............ 2 0.00 809,823.46 0.15
$440,000.01 to
$460,000.00............ 2 0.00 893,474.15 0.16
$480,000.01 to
$500,000.00............ 1 0.00 481,459.52 0.09
$540,000.01 to
$560,000.00............ 2 0.00 1,102,483.94 0.20
------ ------ --------------- ------
Total................. 54,483 100.00% $550,991,889.46 100.00%
====== ====== =============== ======
</TABLE>
Remaining Terms of Leases
The following table shows the remaining term of the Leases from the Initial
Cut-Off Date to the scheduled expiration date of such Leases, by indicating the
number of Leases, the aggregate Statistical Discounted Present Value of such
Leases, and the percentage (by number of Leases and by aggregate Statistical
Discounted Present Value) of such Leases relative to all of the Leases:
<TABLE>
<CAPTION>
AGGREGATE
STATISTICAL % OF STATISTICAL
% OF TOTAL DISCOUNTED DISCOUNTED
NUMBER OF PRESENT VALUE PRESENT VALUE OF
REMAINING TERMS OF LEASES NUMBER OF LEASES LEASES OF THE LEASES THE LEASES
- ------------------------- ---------------- ---------- --------------- ----------------
<S> <C> <C> <C> <C>
One Month to 12 Months... 8,503 15.61% $ 25,553,905.19 4.64%
13 Months to 24 Months... 17,445 32.01 108,204,282.98 19.64
25 Months to 36 Months... 16,420 30.14 170,812,466.60 31.00
37 Months to 48 Months... 7,064 12.97 115,262,240.97 20.92
49 Months to 60 Months... 4,931 9.05 125,136,919.76 22.71
61 Months to 72 Months... 112 0.21 4,511,433.42 0.82
Over 72 Months........... 8 0.01 1,510,640.54 0.27
------ ------ --------------- ------
Total.................. 54,483 100.00% $550,991,889.46 100.00%
====== ====== =============== ======
</TABLE>
34
<PAGE>
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 November 30, 1997.
Vendor Services was acquired by Green Tree 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>
PERCENTAGE OF GROSS RECEIVABLE
GROSS BALANCE OF LEASES WHICH WERE
RECEIVABLE DELINQUENT
BALANCE OF -------------------------------
LEASES 31 TO 60 61 TO 90 OVER 90
DATE OF CALCULATION (IN THOUSANDS) DAYS DAYS DAYS TOTAL
- ------------------- -------------- -------- -------- ------- -----
<S> <C> <C> <C> <C> <C>
12/31/96........................ $618,075 2.20% 0.36% 0.13% 2.69%
11/30/97........................ 720,391 1.51 0.26 0.16 1.93
</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 December 31, 1996 and as of November 30, 1997. Vendor
Services was acquired by Green Tree in November 1996, and current management,
accordingly, cannot certify non-accrual experience for prior periods. However,
current management does not believe that Vendor Services' non-accrual
experience in prior periods was substantially different from the experience
presented here. For these purposes, a "Non-Accrual" means that, as of the date
indicated, the obligor on the relevant lease had failed to make payments in an
amount at least equal to 90% of the required Scheduled Payment for at least 90
days beyond the date required (or less, if in the judgment of the collection
manager the account is impaired), or commenced a bankruptcy or insolvency
proceeding. The following table is based, where indicated, on the net
investment of the leases (gross of any allowance for losses) as it appears on
the records of Vendor Services as of the date specified below:
<TABLE>
<CAPTION>
AGGREGATE NET PERCENTAGE OF
INVESTMENT OF AGGREGATE NET INVESTMENT
LEASES OF LEASES WHICH WERE
DATE OF CALCULATION (IN THOUSANDS) ON NON-ACCRUAL
------------------- ------------- ------------------------
<S> <C> <C> <C>
12/31/96....................... $558,040 3.42%
11/30/97....................... 658,416 3.55
</TABLE>
Losses and Recoveries
The following table sets forth statistics relating to gross losses and
losses net of recoveries on defaulted leases within Vendor Services' owned and
managed portfolio of receivables similar to the Leases during the twelve-month
period ending December 31, 1996 and during the eleven-month period ending
November 30, 1997. Vendor Services was acquired by Green Tree 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).
35
<PAGE>
<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................ $558,040 2.96% 1.83%
11/30/97................ 658,416 2.37 1.58
</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. These
conditions are often volatile, and no predictions can be made regarding them.
There can be no assurance that the delinquency, non-accrual and net loss
experience on the Leases will be comparable to that set forth above.
It has been Vendor Services' experience that 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. See
"Risk Factors--Risks Relating to Reliance on Residual Realizations."
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OF THE ISSUER
As of the date of this Prospectus, the Issuer has had no operating history.
The net proceeds of the sale of the Notes will be employed to purchase the
Leases. See "Use of Proceeds." The Issuer is prohibited by its LLC Agreement
from engaging in business other than (i) acquiring the Leases and rights to
the Residual Realizations from the SPC, (ii) pledging the Leases 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.
36
<PAGE>
MANAGERS OF THE ISSUER
The following table sets forth the managers of the Issuer and their ages and
positions as of the date of this Prospectus. Because the Issuer is organized as
a special purpose company and will be largely passive, it is expected that the
managers in such capacity will participate in the management of the Issuer to a
limited extent. Most of the actions related to maintaining and servicing the
assets will be performed by the Servicer.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------------------------------------
<S> <C> <C>
Joel H. Gottesman............... 48 Manager and Chair of Board of Managers
Edward L. Finn.................. 53 Manager
</TABLE>
Joel H. Gottesman was named to the Board of Managers of the Issuer in October
1997. Mr. Gottesman has been Senior Vice President and General Counsel of Green
Tree Financial Corporation since September 1995, and Secretary since May 1996.
From 1983 to 1995, Mr. Gottesman was an attorney at Briggs & Morgan,
Professional Association, Minneapolis, Minnesota.
Edward L. Finn was named to the Board of Managers of the Issuer in October
1997. Mr. Finn has served as Executive Vice President and Chief Financial
Officer of Green Tree Financial Corporation since July 1996. From 1970 to 1996,
Mr. Finn held various positions at Ernst & Young LLP, an accounting firm,
including Managing Partner of the Minneapolis office.
None of the above-listed managers of the Issuer will be compensated directly
by the Issuer nor with any funds or assets of the Issuer nor will any such
managers receive compensation in the capacities in which they act for the
Issuer.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to managers and controlling persons of the Issuer pursuant to
its LLC Agreement, or otherwise, the Issuer has been advised that in the
opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Issuer of expenses incurred or paid by a manager, officer or
controlling person of the Issuer in the successful defense of any action, suit
or proceeding) is asserted by such manager or controlling person in connection
with the Notes, the Issuer will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
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). See "Risk
Factors--Prepayment and Early Termination of Leases and Related Reinvestment
Risks."
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--Prepayment
and Early Termination of Leases and Related Reinvestment Risk."
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)
with respect to the table under the caption "To Maturity," the SPC does not
exercise its right to repurchase the Leases described under "Description of
the Notes--Optional Repurchase of the Leases," and with respect to the table
under the caption "To Call," the SPC does exercise such right at the earliest
possible time; (iii) the Initial Pool Principal Balance is $549,694,587 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
February 1998; and (v) the Closing Date is December 23, 1997. No
representation is made that these assumptions will be correct, including the
assumption that the Leases will not experience delinquencies or losses.
In making an investment decision with respect to the Notes, investors should
consider a variety of possible prepayment scenarios, including the limited
scenarios described in the table below.
WEIGHTED AVERAGE LIFE OF THE NOTES AT THE RESPECTIVE CPRS SET FORTH BELOW:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE LIFE (YEARS)
TO MATURITY ------------------------------------
2% CPR 5% CPR 7% CPR 10% CPR 13% CPR
------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C>
Class A-1 Notes............................ 0.48 0.46 0.45 0.43 0.41
Class A-2 Notes............................ 1.07 1.03 1.00 0.96 0.92
Class A-3 Notes............................ 2.12 2.05 2.00 1.93 1.87
Class A-4 Notes............................ 3.92 3.85 3.80 3.73 3.65
Class B Notes.............................. 2.20 2.14 2.10 2.04 1.98
Class C Notes.............................. 2.26 2.20 2.16 2.10 2.04
</TABLE>
<TABLE>
<CAPTION>
WEIGHTED AVERAGE LIFE (YEARS)
TO CALL ------------------------------------
2% CPR 5% CPR 7% CPR 10% CPR 13% CPR
------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C>
Class A-1 Notes............................ 0.48 0.46 0.45 0.43 0.41
Class A-2 Notes............................ 1.07 1.03 1.00 0.96 0.92
Class A-3 Notes............................ 2.11 2.04 2.00 1.92 1.86
Class A-4 Notes............................ 3.24 3.16 3.16 2.99 2.91
Class B Notes.............................. 2.05 1.98 1.95 1.87 1.81
Class C Notes.............................. 2.05 1.98 1.95 1.87 1.81
</TABLE>
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. A
copy of the form of the Indenture has been filed with the Commission as an
Exhibit to the Registration Statement of which this Prospectus is a part.
First Trust National Association, a national banking association headquartered
in St. Paul, Minnesota, will be the Trustee.
Pursuant to the Indenture, the Issuer will issue six classes of notes (the
"Notes"), consisting of four classes of senior notes, designated as the %
Lease-Backed Notes, Class A-1, in the original principal amount of
approximately $196,466,000, the % Lease-Backed Notes, Class A-2, in the
original principal amount of approximately $52,897,000, the % Lease-Backed
Notes, Class A-3, in the original principal amount of approximately
$218,183,000 and the % Lease-Backed Notes, Class A-4, in the original
principal amount of approximately $32,676,000 (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 approximately $30,233,000
and the % Lease-Backed Notes, Class C, in the original principal amount
of approximately $19,239,587 .
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 February 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 of $1,000 in excess thereof, except that one
Class C Note may be issued in another denomination in book-entry form only.
The Issuer has been informed by DTC that DTC's nominee will be Cede & Co.
Accordingly, Cede & Co. is expected to be the Holder of record of the Notes.
Unless and until Definitive Notes are issued under the limited circumstances
described herein, no Note Owner acquiring an interest in any Class of Notes
will be entitled to receive a certificate representing such Note Owner's
interest in such Notes. Until such time, all references herein to actions by
Noteholders of any Class of Notes will refer to actions taken by the
Depository upon instructions from its participating organizations and all
references herein to distributions, notices, reports and statements to
Noteholders of any Class of Notes will refer to distributions, notices,
reports and statements to the Depository or its nominee, as the registered
Holder of the Notes of such Class, for distribution to Note Owners of such
Class in accordance with the Depository's procedures. See "--Book-Entry
Registration" and "--Definitive Notes."
Subject to applicable laws with respect to escheat of funds, any money held
by the Trustee or any paying agent in trust under the Indenture for the
payment of any amount due with respect to any Note and remaining unclaimed for
two years after such amount has become due and payable shall be discharged
from such trust and, upon request of the Issuer, shall be deposited by the
Trustee in the Collection Account; and the Holder of such Note shall
thereafter, as an unsecured general creditor, look only to the Issuer for
payment thereof, and all liability of the Trustee or such paying agent with
respect to such money shall thereupon cease.
39
<PAGE>
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 (a) 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 and
investment earnings on funds on deposit in the Collection Account (the
"Available Pledged Revenues") plus (b) Servicer Advances made by the Servicer,
plus (c) funds, if any, on deposit in the Residual Account, as described
under""--Residual Realizations" below, plus (d) funds on deposit in the
Reserve Account. See "--The Reserve Account" below.
"Pledged Revenues" will consist of (i) "Scheduled Payments" on the Leases
(which will consist of all required payments under the Leases other than those
portions of such payments which, under the Leases, are to be (A) applied by
the Servicer to the payment of insurance charges, maintenance, taxes and other
similar obligations, or (B) under the Contribution and Servicing Agreement,
are to be retained by the Servicer in payment of Administrative Fees or are
late payments as to which Servicer Advances were made on a Payment Date)
received on or after the Cut-Off Date and due during the term of the Leases,
without giving effect to end-of-term extensions or renewals thereof (including
all Scheduled Payments due prior to, but not received as of, the Cut-Off Date,
but excluding any Scheduled Payments due on or after, but received prior to,
the Cut-Off Date); (ii) any voluntary prepayments ("Prepayments") of Scheduled
Payments received on or after the Cut-Off Date under the Leases; (iii) any
amounts paid by Vendor Services to repurchase Leases (to the extent Vendor
Services has not delivered a Substitute Lease) 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 repurchase the Leases as described under "--
Optional Repurchase of Leases"; (v) Liquidation Proceeds derived from the
liquidation of the Leases and the disposition of the related Equipment, as
described under "--Liquidated Leases" below (unless Vendor Services has
substituted a Substitute Lease therefor); and (vi) any earnings on the
investment of amounts credited to the Collection Account.
On each Payment Date, the Trustee will be required to make the following
payments, first, from Available Pledged Revenues plus any Servicer Advances,
second, from amounts on deposit in the Residual Account as described under "--
Residual Realizations" below, and third, from amounts on deposit in the
Reserve Account, in the following order of priority (except as otherwise
described under "--Events of Default; Rights Upon Event of Default" below):
(i) the Servicing Fee if Vendor Services or an affiliate is no longer the
Servicer;
(ii) to reimburse the Servicer for unreimbursed Nonrecoverable Servicer
Advances made with respect to a prior Payment Date;
(iii) interest on the Notes in the following order of priority:
(a) interest on the Class A Notes,
(b) interest on the Class B Notes, and
(c) interest on the Class C Notes;
(iv) an amount equal to the Monthly Principal Amount as of such Payment
Date, in respect of principal on the Notes in the amounts and in the
priority described under "--Principal" below;
(v) from Available Pledged Revenues and amounts (if any) on deposit in
the Residual Account, to the Reserve Account, an amount equal to the excess
of the Required Reserve Amount over the Available Reserve Amount;
(vi) from Available Pledged Revenues only, for so long as Vendor Services
or an affiliate is the Servicer, the Servicing Fee; and
(vii) the remainder of Available Pledged Revenues, if any, to the SPC.
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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 Outstanding
Principal Amount 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, Class A-3 Notes and Class A-4 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 such
Payment Date. Interest on each Class of the Class A Notes will accrue from and
including the Closing Date to but excluding February 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
all 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 such
Payment Date. Interest on the Class B Notes will accrue from and including the
Closing Date to but excluding February 20, 1998 (in the case of the first
interest period), and thereafter for each successive Payment Date from and
including the most recent prior Payment Date to which interest has been paid,
to but excluding such Payment Date.
In the event that, on a given Payment Date, the Amount Available, after
payment of interest on the Class A Notes, is not sufficient to make a full
payment of interest to the Holders of Class B Notes, the amount of interest to
be paid on the Class B Notes will be allocated among the Class B Notes pro
rata, and the amount of such shortfall will be carried forward and, together
with interest thereon at the Class B Interest Rate, added to the amount of
interest such Holders will be entitled to receive on the next Payment Date.
CLASS C INTEREST
Interest will be paid to the Holders of the Class C Notes on each Payment
Date, to the extent the remaining Amount Available (after taking into account
all 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 Outstanding Principal Amount of the Class C Notes as of such
Payment Date. Interest on the Class C Notes will accrue from and including the
Closing Date to but excluding February 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 and Class B Notes, is not sufficient to
make a full payment of interest to the Holders of Class C Notes, 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.
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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 "--
Distributions." 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, Class A-3
Noteholders and Class A-4 Noteholders, sequentially, the Class A Principal
Payment in that order, until the Outstanding Principal Amount of each such
Class has been reduced to zero,
(b) to the Class B Noteholders, the Class B Principal Payment,
(c) to the Class C Noteholders, the Class C Principal Payment,
(d) to the extent that the Class B Floor exceeds the Class B Target
Investor Principal Amount and the Class C Floor exceeds the Class C Target
Investor Principal Amount, Additional Principal (defined below) shall be
distributed, sequentially, as an additional principal payment on the Class
A-2 Notes, the Class A-3 Notes, the Class A-4 Notes, the Class B Notes and
the Class C Notes, in that order, until the Outstanding Principal Amount of
each such Class has been reduced to zero, and
(e) to the extent the Class C Floor exceeds the Class C Target Investor
Principal Amount, but the Class B Floor does not exceed the Class B Target
Investor Principal Amount, Additional Principal shall be distributed as an
additional principal payment on the Class A and Class B Notes, pro rata
(and among the Class A Notes, sequentially on the Class A-2, Class A-3 and
Class A-4 Notes, in that order), until the Outstanding Principal Amount of
each such Class has been reduced to zero.
The "Outstanding Principal Amounts" as of a Payment Date shall mean the then
unpaid principal amounts of the Class A-1 Notes, the Class A-2 Notes, the
Class A-3 Notes, the Class A-4 Notes, the Class B Notes and the Class C Notes
(determined prior to payment of any principal in respect thereof on such
Payment Date).
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 Notes to the Class A Target Investor Principal
Amount.
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 the last day of the Collection Period
related to such Payment Date.
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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 the last day of the Collection Period
related to 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 the last day of the Collection Period
related to such Payment Date.
The "Class A Percentage" will be 85.994%. The "Class B Percentage" will be
8.559%. The "Class C Percentage" will be 5.447%.
The "Class B Floor" with respect to each Payment Date means (a) 3.0% of the
Initial Pool Principal Balance, plus (b) the Cumulative Loss Amount with
respect to such Payment Date, minus (c) the sum of the Outstanding Principal
Amount of the Class C Notes as of such Payment Date and the amount on deposit
in the Reserve Account after giving effect to withdrawals to be made on such
Payment Date.
The "Class C Floor" with respect to each Payment Date means (a) 2.0% of the
Initial Pool Principal Balance, plus (b) the Cumulative Loss Amount with
respect to such Payment Date minus (c) the amount on deposit in the Reserve
Account after giving effect to withdrawals to be made on 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 of the Class C Notes as of such Payment Date.
The "Monthly Principal Amount" for any Payment Date will equal the excess,
if any, of (i) the sum of the Outstanding Principal Amount of the Notes for
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 for
such Payment Date, minus (ii) the lesser of (A) the Monthly Principal
Amount and (B) the Amount Available remaining after the payment of amounts
owing to the Servicer (other than the Servicing Fee to the extent that
Vendor Services is the Servicer) and in respect of interest on the Notes on
such Payment Date, over
(b) the Lease Pool Principal Balance as of the last day of the Collection
Period related to 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 (a) the weighted average
Interest Rate of the Class A (utilizing the Class A-4 Interest Rate), Class
B and Class C Notes on the Closing Date, plus the (b) 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)
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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 Initial Cut-Off Date, calculated at the
Discount Rate, is $ .
The Principal Balance of any Lease which became a Liquidated Lease during a
given Collection Period or which Vendor Services was obligated to purchase as
of the end of a given Collection Period due to a breach of representations and
warranties, will be deemed to be zero on and after the last day of such
Collection Period.
A "Liquidated Lease" is any Lease (a) which the Servicer has charged off as
uncollectible in accordance with its credit and collection policies and
procedures (which shall be no later than the date as of which the Servicer has
repossessed and disposed of the related Equipment, or otherwise collected all
proceeds which, in the Servicer's reasonable judgment, can be collected under
such Lease), or (b) as to which 10% or more of a Scheduled Payment is
delinquent 180 days or more.
The "Collection Period" for any Payment Date will be the calendar month
preceding the month in which such Payment Date occurs (except that the
Collection Period for the Payment Date in February 1998 will include December
1997 and January 1998).
SERVICER ADVANCES
Prior to any Payment Date, the Servicer may, but will not be required to,
advance to the Trustee an amount sufficient to cover delinquencies in
Scheduled Payments on the Leases with respect to the prior Collection Period
(a "Servicer Advance"). The Servicer will be reimbursed for Servicer Advances
from late payments on the delinquent Leases with respect to which such
advances were made and, if the Servicer later determines that such Servicer
Advance will not be reimbursed from the recovery on the delinquent Lease (a
"Nonrecoverable Servicer Advance"), from the Amount Available on the next
Payment Date.
RESIDUAL REALIZATIONS
Cash flows realized from the sale or re-lease of the Equipment following the
scheduled expiration dates or voluntary early termination of the Leases, other
than Equipment subject to Liquidated Leases (the "Residual Realizations"),
will provide additional credit support for the Notes. Historically Vendor
Services has realized amounts greater than book value through sale or re-lease
of equipment similar to the Equipment, but there can be no assurance as to the
amount or timing of Residual Realizations. See "Risk Factors--Risks Relating
to Reliance on Residual Realizations." 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. As of the Initial 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 $49,422,100.38. Actual Residual Realizations may be
more or less than Book Value. The Residual Realizations for a Collection
Period not distributed to Noteholders, paid to the Servicer or deposited into
the Reserve Account on the related Payment Date will be released to the SPC on
such Payment Date, except during the continuation of certain limited
circumstances specified in the Indenture (a "Residual Event"). During the
continuation of a Residual Event, amounts in the Residual Account that
otherwise would be released to the SPC will be retained in the Residual
Account for application on future Payment Dates.
Upon the termination of a Residual Event, any amounts on deposit in the
Residual Account will be (i) deposited into the Reserve Account, to the extent
that the amount on deposit in the Reserve Account is less than the Required
Reserve Amount, or (ii) released to the SPC, and thereafter will not be
available to Noteholders under any circumstance. The Residual Events will be
established prior to the Closing Date based on criteria
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prescribed by the Rating Agencies. Such criteria may be amended or otherwise
altered after the Closing Date, without the consent of Noteholders, to alter
the performance parameters that must occur to cause a Residual Event without
the consent of Noteholders, so long as doing so would not cause either Rating
Agency to reduce, withdraw or qualify any of its ratings on the Notes.
RESERVE ACCOUNT
The Trustee will establish and maintain as Eligible Account (the "Reserve
Account"). On the Closing Date, the SPC will make an initial deposit in an
amount equal to 2.00% of the Initial Pool Principal Balance into the Reserve
Account. In the event that Available Pledged Revenues are insufficient to pay
the amounts owing the Servicer, interest payments on the Notes and the Class A
Principal Payment, the Class B Principal Payment and the Class C Principal
Payment (such payments, the "Required Payments"), and amounts on deposit in the
Residual Account are insufficient to make up such shorfall, the Trustee will
withdraw from the Reserve Account an amount equal to the lesser of the funds on
deposit in the Reserve Account (the "Available Reserve Amount") and such
deficiency. In addition, on each Payment Date, the Amount Available remaining
after the payment of the Required Payments will be deposited into the Reserve
Account to the extent that the Required Reserve Amount exceeds the Available
Reserve Amount. The "Required Reserve Amount" equals the lesser of (a) 2.00% of
the Initial Pool Principal Balance and (b) the Outstanding Principal Amount of
the Notes. Any amounts on deposit in the Reserve Account in excess of the
Required Reserve Amount will be released to the SPC, and thereafter will not be
available to Noteholders under any circumstance.
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, to the extent of the Class A
Principal Payment and the Class B Principal Payment on a Payment Date on the
Class A and Class B Notes, respectively, 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 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.
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 (except that, to the extent that Vendor Services elects to
substitute one or more Substitute Leases for all or a portion of the unpaid
Principal Balance of the Liquidated Lease, Liquidation Proceeds will be
remitted to Vendor Services and will not be available to Noteholders).
OPTIONAL REPURCHASE 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.
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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," the "Reserve Account" and the "Note
Distribution Account" (collectively, the "Trust Accounts"). An "Eligible
Account" means any account which is (i) an account maintained with an Eligible
Institution (as defined below); (ii) an account or accounts the deposits in
which are fully insured by either the Bank Insurance Fund or the Savings
Association Insurance Fund of the FDIC; (iii) a "segregated trust account"
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;
(vii) the Cumulative Loss Amount, if any, for such Payment Date;
(viii)all Substitute Leases delivered by Vendor Services;
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(ix) the balance in the Reserve Account and the Required Reserve Amount;
and
(x) the amount on deposit in the Residual Account.
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.
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.
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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.
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.
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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 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
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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 Trust Assets or any portion thereof, exercise remedies as a
secured party, sell the Trust Assets or any portion thereof or elect to have
the Issuer maintain possession of the Trust Assets and continue to apply
collections on the Trust Assets 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 Trust Assets 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 Trust Assets, will be applied in the following order of
priority: (i) to the Servicer, the Servicing Fee (if Vendor Services or an
affiliate is no longer the Servicer); (ii) to the reimbursement of the Trustee
for its expenses; (iii) to the payment of interest, sequentially, on the Class
A Notes, the Class B Notes and the Class C Notes; (iv) to the payment of
principal, sequentially, on the Class A Notes, the Class B Notes and the Class
C Notes; (v) to the Servicer, the Servicing Fee (if Vendor Services or an
affiliate is the Servicer); and (vi) the remainder, if any, to the Issuer.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, if an Event of Default occurs and is continuing, the Trustee will be
under no obligation to exercise any of the rights or powers under the Indenture
at the request or direction of any of the Holders of the Notes, if the Trustee
reasonably believes it will not be adequately indemnified against the costs,
expenses and liabilities which might be incurred by it in complying with such
request. Subject to the provisions for indemnification and certain limitations
contained in the Indenture, a Note Majority will have the right to direct the
time, method and place of conducting any proceeding or any remedy available to
the Trustee, and a Note Majority may, in certain cases, waive any default with
respect thereto, except a default in the payment of principal or interest or a
default in respect of a covenant or provision of the Indenture that cannot be
modified without the waiver or consent of all of the Holders of such
outstanding Notes.
No Holder of a Note will have the right to institute any proceeding with
respect to the Indenture, unless (i) such Holder previously has given to the
Trustee written notice of a continuing Event of Default, (ii) the Holders of
not less than 25% in principal amount of the outstanding Notes have made
written request of the Trustee to institute such proceeding in its own name as
Trustee, (iii) such Holder or Holders have offered the Trustee reasonable
indemnity, (iv) the Trustee has for 60 days failed to institute such
proceeding, and (v) no direction inconsistent with such written request has
been given to the Trustee during such 60-day period by the Holders of a
majority in principal amount of such outstanding Notes.
If an Event of Default occurs and is continuing and if it is known to the
Trustee, the Trustee will mail to each Noteholder notice of the Event of
Default within 90 days after it occurs. Except in the case of a failure to pay
principal of or interest on any Note, the Trustee may withhold the notice if
and so long as it determines in good faith that withholding the notice is in
the interests of the Noteholders.
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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
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.
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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
First Trust National Association 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 and others set forth in the
Indenture, the Issuer will be obligated to appoint a successor trustee. Any
resignation or removal of the Trustee and appointment of a successor trustee
will not become effective until acceptance of the appointment by a successor
trustee.
DESCRIPTION OF THE CONTRIBUTION AND SERVICING AGREEMENT
TRANSFER AND ASSIGNMENT OF LEASES AND EQUIPMENT
On the Closing Date, Vendor Services will transfer to the SPC pursuant to the
Transfer Agreement all of its right, title and interest in the Leases and the
related Equipment, including all security interests created thereby and
therein, the right to receive all Scheduled Payments and Prepayments received
on the Leases on or after the Cut-Off Date (including all Scheduled Payments
due prior to, but not received as of, the Cut-Off Date, but excluding any
Scheduled Payments due on or after, but received prior to, the Cut-Off Date),
all rights under insurance policies maintained on the Equipment pursuant to the
Leases, all documents contained in the Lease Files and all proceeds derived
from any of the foregoing. Pursuant to the Contribution and Servicing
Agreement, on the Closing Date, the SPC will transfer all of its rights in the
Leases and certain rights to Residual Realizations, together with all its
rights under the Transfer Agreement, to the Issuer.
The Contribution and Servicing Agreement will designate the Servicer as
custodian to maintain possession, as the Issuer's agent, of the Leases and all
documents related thereto. To facilitate servicing and save administrative
costs, the documents will not be physically segregated from other similar
documents that are in the Servicer's possession. UCC financing statements will
be filed on the Closing Date in the applicable jurisdictions reflecting the
transfer of the Leases by Vendor Services to the SPC, by the SPC to the Issuer,
and the pledge of the Leases by the Issuer to the Trustee, and Vendor
Services's accounting records and computer systems will also reflect such
assignments and pledge. The Leases will not, however, be stamped or otherwise
physically marked to reflect their assignment to the Issuer. If, through fraud,
negligence or otherwise, a subsequent purchaser were able to take physical
possession of the Leases without knowledge of the assignment, the Issuer's
interest in the Leases could be defeated. See "Risk Factors--Enforceability 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;
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(iii) all amounts constituting Liquidation Proceeds on Liquidated Leases
(to the extent Vendor Services has not delivered Substitute Leases);
(iv) any and all payments made by Vendor Services pursuant to the
Transfer Agreement in connection with the purchase of any Leases as a
result of a breach of a representation or warranty with respect thereto, as
described under "The Leases--Representations and Warranties Made by Vendor
Services"; and
(v) the amount paid by the SPC to purchase the Leases, as described under
"Description of the Notes--Optional Purchase of Leases."
The Servicer will transfer all Residual Realizations from the Servicing
Account to the Residual Account no later than the third Business Day after
deposit thereof in the Servicing Account.
So long as no Event of Termination shall have occurred and be continuing with
respect to the Servicer, the Servicer, if Vendor Services or an affiliate is no
longer the Servicer, may make the remittances to be made by it to the
Collection Account net of amounts (which amounts may be netted prior to any
such remittance for a Collection Period) otherwise to be distributed to it in
payment of its Servicing Fee.
The Servicer will be entitled to withdraw from the Collection Account any
amounts deposited therein in error or required to be repaid to an Obligor,
based on the Servicer's good-faith determination that such amount was deposited
in error or must be returned to the Obligor.
Under the Contribution and Servicing Agreement, the Servicer is required to
establish in its own name one or more "Insurance, Maintenance and Tax
Accounts," into which are to be deposited any payments made by or on behalf of
Obligors which constitute (a) insurance charges paid by an Obligor to the
lessor or secured party under a Lease (unless such payments are made directly
by the Obligor to the applicable insurance company, or Vendor Services has
previously paid such charges), (b) any insurance payments or recoveries paid by
an insurance company or comparable third party and related to the damage to, or
destruction of, the Equipment related to such Lease (unless paid directly by
such insurance company or comparable third party directly to the Obligor), (c)
any payments made by or on behalf of Obligors which constitute amounts paid by
an Obligor to the lessor or secured party under a Lease in respect of the
maintenance of the related Equipment, and (d) taxes paid by the Obligor and
related to the applicable Lease or the Equipment related thereto (unless such
payment is made directly by the Obligor to the applicable taxing authority or
authorities, or Vendor Services has previously paid such taxes). The Servicer
may withdraw amounts from the Insurance, Maintenance and Tax Accounts, when and
if appropriate, to pay when due (or may pay from its own funds and thereafter
reimburse itself from amounts in the Insurance, Maintenance and Tax Accounts)
(1) all insurance charges in the amounts received under clause (a) above, (2)
any amounts payable under any applicable maintenance contract or otherwise with
respect to the maintenance of the related Equipment in the amounts received
under clause (c) above, and (3) all taxes in the amounts received under clause
(d) above. Amounts on deposit in the Insurance, Maintenance and Tax Accounts
which represent amounts received by the Servicer pursuant to clause (b) above
shall be applied by the Servicer as follows: if equipment is purchased to
replace the Equipment that was damaged or destroyed, and such replacement
equipment is (in the reasonable opinion of the Servicer) of comparable use and
equivalent value to the Equipment that was damaged or destroyed, or if the
Equipment is to be repaired, the Servicer shall release such amount so received
from the insurance company or comparable third party in payment or
reimbursement for such replacement equipment or such repair; and if this
replacement option is not exercised and the Equipment is not to be repaired,
then the Servicer shall treat such amount as Liquidation Proceeds and transfer
that portion thereof which would be allocable to the Notes 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 Cumulative Loss 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
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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 and then amounts on
deposit in the Reserve Account 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 or Reserve Account as aforesaid), (2) the Cumulative Loss
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
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 Realizations, 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
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remainder of any such reserve, after reimbursement to the Servicer of all out-
of-pocket liquidation expenses, shall constitute Liquidation Proceeds and be
deposited in the Collection Account.
Under the Contribution and Servicing Agreement, the Servicer, subject to
certain limitations, is permitted to grant payment extensions on a Lease in
accordance with its credit and collection policies and procedures if the
Servicer believes in good faith that such extension is necessary to avoid a
termination and liquidation of such Lease and will maximize the amount to be
received by the Issuer with respect to such Lease. Under the Contribution and
Servicing Agreement, the Servicer, subject to certain limitations, is
permitted to grant modifications or amendments to a Lease in accordance with
its credit and collection policies and procedures.
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.
Evidence as to Compliance. On or before March 31 (or within 90 days after
the end of the Servicer's fiscal year, if other than December 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 .75% 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 Initial Cut-Off Date, the Initial Pool Principal Balance),
plus any late fees, late payment interest, documentation fees, insurance
administration charges and other administrative fees and charges and a portion
of any extension fees (collectively, the "Administrative Fees") collected with
respect to the Leases during the prior Collection Period and any investment
earnings on collections prior to deposit thereof in the Collection Account.
The Servicer is authorized under the Contribution and Servicing Agreement, in
its discretion, to waive any Administrative Fees or extension fees that may be
collected in the ordinary course of servicing any Lease.
Events of Termination. An Event of Termination under the Contribution and
Servicing Agreement will occur if (a) the Servicer fails to make any payment
or deposit required under the Contribution and Servicing Agreement and such
failure continues for five business days after notice from the Trustee or
after discovery by the Servicer; (b) the Servicer fails to deliver to the
Trustee and the Issuer the Servicer's Certificate (as defined in the
Contribution and Servicing Agreement) 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
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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
(as defined in the Indenture) shall, terminate all of the rights and
obligations of the Servicer under the Contribution and Servicing Agreement in
and to the Leases, whereupon a successor servicer (which, unless and until the
Trustee appoints a new servicer, will be the Trustee) will succeed to all the
responsibilities, duties and liabilities of the Servicer under the Contribution
and Servicing Agreement and will be entitled to similar compensation
arrangements; provided, however, that any successor servicer be liable for any
acts or omissions of the prior Servicer occurring prior to a transfer of the
Servicer's servicing and related functions or for any breach by such Servicer
of any of its obligations contained in the Contribution and Servicing
Agreement.
A Note Majority may waive any default by the Servicer in the performance of
its obligations under the Contribution and Servicing Agreement and its
consequences. Upon any such waiver of a past default, such default shall cease
to exist, and any Event of Termination arising therefrom shall be deemed to
have been remedied. No such waiver shall extend to any subsequent or other
default or impair any right consequent thereon.
AMENDMENT
The Contribution and Servicing Agreement may be amended by the parties
thereto (i) to cure any ambiguity, (ii) to correct or supplement any provision
therein that may be inconsistent with any other provision therein, or (iii) to
make any other provisions with respect to matters or questions arising under
the Contribution and Servicing Agreement that are not inconsistent with the
provisions thereof, provided that such action will not adversely affect in any
material respect the interests of the Noteholders. The Contribution and
Servicing Agreement may also be amended by the parties thereto with the consent
of a Note Majority for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of the Contribution and
Servicing Agreement or of modifying in any manner the rights of the
Noteholders; provided, however, that no such amendment (a) that reduces in any
manner the amount of, or accelerates or delays the timing of, any payment
received on or with respect to Leases that are required to be distributed on
any Note or that reduces the aforesaid percentage required to consent to any
such amendment or any waiver under the Contribution and Servicing Agreement,
may be effective without the consent of the Holder of each such Note, or (b)
will be effective unless each Rating Agency confirms that such amendment will
not result in a reduction, qualification or withdrawal of the ratings on the
Notes.
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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, except to the extent described under "Risk
Factors--Risks Related to Bankruptcy--Risks Relating to Characterization of the
Transfer of the Leases and Equipment as a Borrowing by Vendor Services." While
failure to file such assignments does not affect the Issuer's interest in the
Leases (including Vendor Services's interest in the related Equipment), it does
expose the Issuer and the Noteholders to the risk that Vendor Services could
release its security interest in the Equipment of record, and it could
complicate the Issuer's enforcement, as assignee, of Vendor Services's security
interest in the Equipment. While these risks should not affect the perfection
or priority of the interest of the Trustee in the Leases or rights to payment
thereunder, they may adversely affect the right of the Trustee to receive
proceeds of disposition of the Equipment subject to a Liquidated Lease, which
are to be allocated to the payment of the Notes as described under "Description
of the Notes--Liquidated Leases." Additionally, statutory liens for repairs or
unpaid taxes and other liens arising by operation of law may have priority even
over prior perfected security interests assigned to the Trustee in the
Equipment.
In the event of a default by the Obligor under a Lease intended for security,
the Servicer on behalf of the Issuer may take action to enforce Vendor
Services' interest in the related Equipment by repossession and resale or re-
lease of the Equipment. Under the UCC in most states, a creditor can, without
prior notice to the debtor, repossess assets securing a defaulted contract by
the Obligor's voluntary surrender, or by "self-help" repossession that does not
involve a breach of the peace and by judicial process. In the event of
bankruptcy or insolvency of the Obligor these remedies may require the
permission of a bankruptcy court or may otherwise not be immediately available.
See "--Insolvency Matters" below.
In the event of a default by the Obligor under a Lease intended for security,
some jurisdictions require that the Obligor be notified of the default and be
given a time period within which it may cure the default prior to repossession.
Generally, this right of reinstatement may be exercised on a limited number of
occasions in any one-year period.
The UCC and other state laws place restrictions on repossession sales,
including requirements that the secured party provide the debtor with
reasonable notice of the date, time and place of any public sale and/or the
date after which any private sale of the collateral may be held and that any
such sale be conducted in a commercially reasonable manner.
Under most state laws, an Obligor under a Lease intended for security has the
right to redeem collateral for its obligations prior to actual sale by paying
the lessor or secured party the unpaid balance of the obligation plus
reasonable expenses for repossessing, holding and preparing the collateral for
disposition and arranging for its sale, plus, to the extent provided for in the
written agreement of the parties, reasonable attorneys' fees.
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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
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
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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 the treatment of the Notes
and the treatment of the Issuer, as discussed below. The opinion of Counsel
addresses only those issues specifically identified below as being covered by
such opinion; however, the opinion of Counsel also states that the additional
discussion set forth below accurately sets forth Counsel's advice with respect
to material tax issues. The opinion of Counsel is not binding on the Internal
Revenue Service (the "IRS"). There can be no assurance that the IRS will take a
similar view of such issues, and no assurance can be given that the opinion of
Counsel would be sustained if challenged by the IRS. No ruling on any of the
issues discussed below will be sought from the IRS.
This summary does not purport to be a complete analysis of all the potential
federal income tax consequences relating to the purchase, ownership and
disposition of the Notes. Moreover, the discussion does not address all aspects
of taxation that may be relevant to particular purchasers in light of their
individual circumstances (including the effect of any foreign, state or local
tax laws) or to certain types of purchasers (including dealers in securities,
insurance companies, financial institutions and tax-exempt entities) subject to
special treatment under United States federal income tax laws. The discussion
below assumes that the Notes are held as capital assets.
The discussion of the United States federal income tax consequences set forth
below is based upon currently existing provisions of the Internal Revenue Code
of 1986, as amended (the "Code"), judicial decisions and administrative
interpretations, all of which are subject to change, which changes may be
retroactive. Because individual circumstances may differ, each prospective
purchaser of the Notes is strongly urged to consult its own tax advisor with
respect to its particular tax situation and the tax effects of any state,
local, foreign, or other tax laws and possible changes in the tax laws.
As used herein, the term "United States Holder" means a beneficial owner of a
Note who or which is for United States federal income tax purposes either (i) a
citizen or resident of the United States, (ii) a corporation, partnership or
other entity created or organized in or under the laws of the United States or
of any political subdivision thereof, (iii) an estate the income of which is
subject to United States federal income taxation regardless of its source or
(iv) a trust, (A) for taxable years beginning after December 31, 1996 (or after
August 20, 1996, if the trustee has made an applicable election), with respect
to which a court within the United States is able to exercise primary
supervision over its administration, and one or more United States persons 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.
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OPINION OF COUNSEL REGARDING TREATMENT OF THE NOTES
In the opinion of Counsel, the Notes will be treated as indebtedness for
United States federal income tax purposes. Under the terms of the Notes and the
Indenture, each Noteholder agrees and acknowledges upon its purchase of the
Notes and by acceptance of the Notes that it will also treat the Notes as
indebtedness for such purposes.
OPINION OF COUNSEL REGARDING TREATMENT OF THE ISSUER
In the opinion of Counsel, the Issuer will not be characterized as an
"association" taxable as a corporation for United States federal income tax
purposes. In addition, in the opinion of Counsel, the Issuer will not be
characterized as a "publicly traded partnership" taxable as a corporation for
United States federal income tax purposes, based on Counsel's opinion that the
Notes will be treated as indebtedness for federal income tax purposes. If the
Issuer were treated as either an association or a publicly traded partnership
taxable as a corporation, the resulting entity would be subject to federal
income taxes at corporate tax rates on its taxable income generated by
ownership of the Leases, and certain distributions by the entity would not be
deductible in computing the entity's taxable income. Such an entity-level tax
could result in reduced distributions to Noteholders.
PAYMENTS OF INTEREST
Interest paid on a Note will generally be taxable to a United States Holder
as ordinary interest income at the time it accrues or is received in accordance
with the United States Holder's method of accounting for federal income tax
purposes.
ORIGINAL ISSUE DISCOUNT
Under applicable regulations, a Note will be considered issued with original
issue discount ("OID") if the "stated redemption price at maturity" of the Note
(generally equal to its principal amount as of the date of issuance plus all
interest other than "qualified stated interest" payable prior to or at
maturity) exceeds the original issue price (in this case, the initial offering
price at which a substantial amount of the Notes are sold to the public). Any
OID would be considered de minimis under the regulations if it does not exceed
0.25% 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 United States Holders 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. Noteholders would be
required to currently include accrued OID in gross income without regard to
their regular method of accounting. Each United States Holder 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
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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.
AMORTIZABLE BOND PREMIUM
If a United States Holder purchases a Note for an amount that is greater than
the amount payable at maturity, such holder will be considered to have
purchased such Note with "amortizable bond premium" equal in amount to such
excess, and may elect (in accordance with applicable Code provisions) to
amortize such premium using a constant yield method over the remaining term of
the Note. The amount amortized in any year will be treated as a reduction of
the United States Holder's interest income from the Note in such year. A United
States Holder that elects to amortize bond premium must reduce its tax basis in
the Note by the amount of the premium amortized in any year. An election to
amortize bond premium applies to all taxable debt obligations held on the first
day of the first taxable year to which the election applies 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 short-term, mid-term or long-term capital
gain or loss depending upon whether, at the time of the sale, exchange or
retirement, the Note has been held for less than one year, more than one year
or more than eighteen months. Mid-term and long-term capital gains are 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.
TAX CONSEQUENCES TO UNITED STATES ALIEN HOLDERS
Under present United States federal income and estate tax law, and subject to
the discussion below concerning backup withholding:
(a) payments of principal of and interest on the Notes by the Trustee or
any paying agent to a beneficial owner of a Note that is a United States
Alien Holder, as defined above, will not be subject to United States
federal withholding tax, provided that, in the case of interest, (i) such
holder does not own, actually or constructively, 10 percent or more of the
total combined voting power of all classes of stock of Green Tree
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entitled to vote, (ii) such holder is not, for United States federal income
tax purposes, a controlled foreign corporation related, directly or
indirectly, to Green Tree through stock ownership, (iii) such holder is not
a bank receiving interest described in Section 881(c)(3)(A) of the Code,
and (iv) the certification requirements under Section 871(h) or Section
881(c) of the Code and Treasury regulations thereunder (summarized below)
are met:
(b) a United States Alien Holder of a Note will not be subject to United
States federal income tax on gain realized on the sale, exchange or other
disposition of such Note, unless (i) such holder is an individual who is
present in the United States for 183 days or more in the taxable year of
sale, exchange or other disposition, and certain conditions are met or (ii)
such gain is effectively connected with the conduct by such holder of a
trade or business in the United States; and
(c) a Note held by an individual who is not a citizen or resident of the
United States at the time of his death will not be subject to United States
federal estate tax as a result of such individual's death, provided that,
at the time of such individual's death, the individual does not own,
actually or constructively, 10 percent or more of the total combined voting
power of all classes of stock of Green Tree entitled to vote and payments
with respect to such Note would not have been effectively connected to the
conduct by such individual of a trade or business in the United States.
Sections 871(h) and 881(c) of the Code and Treasury Regulations thereunder
require that, in order to obtain the exemption from withholding tax described
in paragraph (a) above, either (i) the beneficial owner of a Note must certify
under penalties of perjury to the Trustee or the paying agent, as the case may
be, that such owner is a United States Alien Holder and must provide such
owner's name and address, and United States taxpayer identification number, if
any, or (ii) a securities clearing organization, bank or other financial
institution that holds customers' securities in the ordinary course of its
trade or business (a "Financial Institution") and holds the Note on behalf of
the beneficial owner thereof must certify under penalties of perjury to the
Indenture Trustee or the paying agent, as the case may be, that such
certificate has been received from the beneficial owner by it or by a Financial
Institution between it and the beneficial owner and must furnish the payor with
copy thereof. A certificate described in this paragraph is effective only with
respect to payments of interest made to the certifying United States Alien
Holder after issuance of the Notes in the calendar year of its issuance and the
two immediately succeeding calendar years. Under temporary United States
Treasury Regulations, such requirement will be fulfilled if the beneficial
owner of a Note certifies on IRS Form W-8, under penalties of perjury, that it
is a United States Alien Holder and provides its name and address, and any
Financial Institution holding the Note on behalf of the beneficial owner files
a statement with the withholding agent to the effect that it has received such
a statement from the beneficial owner (and furnishes the withholding agent with
a copy thereof). If the information shown on IRS Form W-8 changes, a new IRS
Form W-8 must be filed within 30 days of such change. IRS Form W-8 is valid for
the calendar year in which filed and the two succeeding calendar years.
A United States Alien Holder residing in a country that has a tax treaty with
the United States may be eligible for an exemption or reduced rate (depending
upon the terms of the treaty) with respect to U.S. withholding tax. In order to
secure this exemption or reduced rate, the United States Alien Holder (or his
agent) must certify the holder's residence in the treaty country filing IRS
Form 1001. If the treaty provides only for a reduced rate, U.S. withholding tax
will be imposed at the reduced rate unless the requirements set forth in
paragraph (a) above and the immediately preceding paragraph (including filing
of IRS Form W-8) are satisfied. IRS Form 1001 is valid for the calendar year in
which filed and the two succeeding calendar years.
If the United States Alien Holder of a Note is engaged in a trade or business
in the United States, and if interest on the Note, or gain realized on the
sale, exchange or other disposition of the Note, is effectively connected with
the conduct of such trade or business, the United States Alien Holder, although
exempt from United States withholding tax, will generally be subject to regular
United States income tax on such interest or gain in the same manner as if it
were a United States Holder. In lieu of the certificate described in the
preceding paragraph, such a holder will be required to provide to the Trustee
or the paying agent, as the case may be, a properly executed IRS Form 4224 in
order to claim an exemption from withholding tax. In addition, if such
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United States Alien Holder is a foreign corporation, it may be subject to a
branch profits tax equal to 30% (or such lower rate provided by an applicable
treaty) of its effectively connected earnings and profits for the taxable year,
subject to certain adjustments. For purposes of the branch profits tax,
interest on and any gain recognized on the sale, exchange or other disposition
of a Note will be included in the effectively connected earnings and profits of
such United States Alien Holder if such interest or gain is effectively
connected with the conduct by the United States Alien Holder of a trade or
business in the United States. IRS Form 4224 is valid solely for the calendar
year in which filed.
New Withholding Rules in 1999. Effective January 1, 1999, new withholding tax
regulations will take effect with respect to interest payments and certain
other categories of payments made to United States Alien Holders. Among other
things, these regulations generally will require any United States Alien Holder
that seeks the protection of an income tax treaty with respect to the
imposition of U.S. withholding tax to obtain a taxpayer identification number
("TIN") from the IRS in advance and provide verification that such holder is
entitled to the protection of the relevant income tax treaty. Tax-exempt United
States Alien Holders will generally be required to provide verification of
their tax-exempt status. United States Alien Holders are urged to consult with
their tax advisors with respect to these new withholding rules.
BACKUP WITHHOLDING
Under current United States federal income tax law, a 31% backup withholding
tax requirement applies to certain payments of interest on, and the proceeds of
a sale, exchange or redemption of, the Notes.
Backup withholding will generally not apply with respect to payments made to
certain exempt recipients such as corporations or other tax-exempt entities. In
the case of a non-corporate United States Holder, backup withholding will apply
only if such holder (i) fails to furnish its TIN which, for an individual,
would be his social security number, (ii) furnishes an incorrect TIN, (iii) is
notified by the IRS that it has failed to report properly payments of interest
and dividends or (iv) under certain circumstances, fails to certify under
penalties of perjury that it has furnished a correct TIN and has not been
notified by the IRS that it is subject to backup withholding for failure to
report interest and dividend payments.
In the case of a United States Alien Holder, under current Treasury
Regulations, backup withholding will not apply to payments made by the
Indenture Trustee or any paying agent thereof on a Note if such holder has
provided the required certificate under penalties of perjury that it is not a
United States Holder (as defined above) or has otherwise established an
exemption, provided in each case that the Trustee or such paying agent, as the
case may be, does not have actual knowledge that the payee is a United States
Holder.
Under current Treasury Regulations, if payments on a Note are made to or
through a foreign office of a custodian, nominee or other agent acting on
behalf of a beneficial owner of a Note, such custodian, nominee or other agent
will not be required to apply backup withholding to such payments made to such
beneficial owner.
Under current Treasury Regulations, payments on the sale, exchange or other
disposition of a Note made to or through a foreign office of a broker generally
will not be subject to backup withholding. Payments to or through the United
States office of a broker will be subject to backup withholding and information
reporting unless the holder certifies under penalties of perjury that it is not
a United States Holder and that certain other conditions are met or otherwise
establishes an exemption.
Holders of Notes should consult their tax advisors regarding the application
of backup withholding in their particular situations, the availability of an
exemption therefrom and the procedure for obtaining such an exemption, if
available. Any amounts withheld from payment under the backup withholding rules
will be allowed as a credit against a holder's United States federal income tax
liability and may entitle such holder to a refund, provided that the required
information is furnished to the IRS.
63
<PAGE>
POSSIBLE ALTERNATIVE TREATMENT OF THE NOTES
If, contrary to the opinion of Counsel, the Service successfully asserted
that one or more classes of Notes did not represent indebtedness for federal
income tax purposes, the Notes might be treated as equity interests in the
Issuer. If so treated, the Issuer might be characterized as a publicly traded
partnership taxable as a corporation with the adverse consequences described
above (and the taxable corporation would not be able to reduce its taxable
income by deductions for interest expense on Notes recharacterized as equity).
In addition, treatment of the Notes as equity interests in such a partnership
could have adverse tax consequences to certain holders. For example, income to
foreign holders generally would be subject to federal tax and federal tax
return filing and withholding requirements at a rate as high as 30%, and
individual holders might be subject to certain limitations on their ability to
deduct their share of Issuer expenses.
THE FOREGOING DISCUSSION IS FOR GENERAL INFORMATION AND IS NOT TAX ADVICE.
ACCORDINGLY, EACH PROSPECTIVE NOTEHOLDER SHOULD CONSULT ITS OWN TAX ADVISOR AS
TO THE PARTICULAR TAX CONSEQUENCES TO THE PROSPECTIVE NOTEHOLDER, INCLUDING THE
APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN INCOME TAX LAWS AND ANY
RECENT OR POSSIBLE CHANGES IN APPLICABLE TAX LAWS.
ERISA CONSIDERATIONS
Section 406 of the Employee Retirement Income Security Act ("ERISA"), and/or
Section 4975 of the Code, prohibits a pension, profit-sharing or other employee
benefit plan, as well as individual retirement accounts and certain types of
Keogh Plans (each a "Benefit Plan") from engaging in certain transactions with
persons that are "parties in interest" under ERISA or "disqualified persons"
under the Code with respect to such Benefit Plan. A violation of these
"prohibited transaction" rules may result in an excise tax or other penalties
and liabilities under ERISA and the Code for such persons. Title I of ERISA
also requires that fiduciaries of a Benefit Plan subject to ERISA make
investments that are prudent, diversified (except if prudent not to do so) and
in accordance with governing plan documents.
Certain transactions involving the purchase, holding or transfer of the Notes
might be deemed to constitute prohibited transactions under ERISA and the Code
if assets of the Issuer were deemed to be assets of a Benefit Plan. Under a
regulation issued by the United States Department of Labor (the "Plan Assets
Regulation"), the assets of the Issuer would be treated as plan assets of a
Benefit Plan for the purposes of ERISA and the Code only if the Benefit Plan
acquires an "equity interest" in the Issuer and none of the exceptions
contained in the Plan Assets Regulation is applicable. An equity interest is
defined under the Plan Assets Regulation as an interest in an entity other than
an instrument which is treated as indebtedness under applicable local law and
which has no substantial equity features. Although there can be no assurances
in this regard, it appears that the Notes should be treated as debt without
substantial equity features for purposes of the Plan Assets Regulation and that
the Notes do not constitute equity interests in the Issuer for purposes of the
Plan Assets Regulation. However, without regard to whether the Notes are
treated as an equity interest for such purposes, the acquisition or holding of
Notes by or on behalf of a Benefit Plan could be considered to give rise to a
prohibited transaction if the Issuer or the Trustee, or any of their respective
affiliates is or becomes a party in interest or a disqualified person with
respect to such Benefit Plan. In such case, certain exemptions from the
prohibited transaction rules could be applicable depending on the type and
circumstances of the plan fiduciary making the decision to acquire a Note.
Included among these exemptions are: Prohibited Transaction Class Exemption
("PTCE") 96-23, regarding transactions effected by "in-house asset managers";
PTCE 90-1, regarding investments by insurance company pooled separate accounts;
PTCE 95-60, regarding transactions effected by "insurance company general
accounts"; PTCE 91-38, regarding investments by bank collective investment
funds; and PTCE 84-14, regarding transactions effected by "qualified
professional asset managers."
64
<PAGE>
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.
RATINGS OF THE NOTES
It is a condition of issuance that each of S&P and Fitch (i) rate the Class
A-1 Notes "A-1+" and "F-1+," respectively, (ii) rate the Class A-2 Notes
"AAA," (iii) rate the Class B Notes at least "A," and (iv) rate the Class C
Notes at least "BBB." 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, the Reserve Account 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. 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.
EXPERTS
The financial statements of Green Tree Lease Finance 1997-1, LLC as of
December 12, 1997 included herein have been included in reliance upon the
report of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
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 at the initial public offering price less
the underwriting discounts set forth on the cover page of this Prospectus:
<TABLE>
<CAPTION>
INITIAL PRINCIPAL INITIAL PRINCIPAL INITIAL PRINCIPAL INITIAL PRINCIPAL INITIAL PRINCIPAL INITIAL PRINCIPAL
AMOUNT OF AMOUNT OF AMOUNT OF AMOUNT OF AMOUNT OF AMOUNT OF
CLASS A-1 CLASS A-2 CLASS A-3 CLASS A-4 CLASS B CLASS C
UNDERWRITERS NOTES NOTES NOTES NOTES NOTES NOTES
- ------------ ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Lehman Brothers
Inc..............
First Union Capi-
tal
Markets Corp.....
---- ---- ---- ---- ---- ----
Total...........
==== ==== ==== ==== ==== ====
</TABLE>
65
<PAGE>
In the Underwriting Agreement, the Underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all of the Notes offered
hereby if any of such Notes are purchased. The Issuer has been advised by the
Representative that the Underwriters propose initially to offer the Notes to
the public at the respective public offering prices set forth on the cover page
of this Prospectus, and to certain dealers at such price, less a concession not
in excess of % per Class A-1 Note, % per Class A-2 Note, % per Class A-3
Note, % per Class A-4 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 A-3 Note, % per Class A-4 Note, % per Class B Note and % per
Class C Note. After the initial public offering of the Notes, the offering
prices and such concessions and discounts may be varied by the Underwriters.
Until the distribution of the Notes is completed, rules of the Commission may
limit the ability of the Underwriters and certain selling group members to bid
for and purchase the Notes. As an exception to these rules, the Underwriters
are permitted to engage in certain transactions that stabilize the price of the
Notes. Such transactions consist of bids or purchases for the purpose of
pegging, fixing or maintaining the price of the Notes.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases.
Neither the Issuer nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the prices of the Notes. In addition, neither the
Issuer nor any of the Underwriters makes any representation that the
Underwriters will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
Green Tree Financial Corporation has agreed to indemnify the Underwriters
against certain liabilities, including liabilities under the Securities Act of
1933, as amended.
The Notes are new issues of securities with no established trading market.
The Issuer has been advised by the Representative that each Underwriter intends
to make a market in the United States in the Classes of Notes for which it is
acting as underwriter 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.
66
<PAGE>
INDEX OF PRINCIPAL TERMS
<TABLE>
<CAPTION>
TERM PAGE
- ---- ----
<S> <C>
Additional Principal.............................................. 3, 42
Adjusted Lease.................................................... 13
Administrative Fees............................................... 12, 55
Amount Available.................................................. 8, 40
Article 2A........................................................ 58
Available Pledged Revenues........................................ 8, 40
Available Reserve Amount.......................................... 10, 45
Bankruptcy Code................................................... 58
Benefit Plan...................................................... 64
Book-Entry Certificates........................................... 39
Book Value........................................................ 9, 44
Business Day...................................................... 39
Cede.............................................................. ii
Class A Notes..................................................... Cover, 1, 39
Class A Percentage................................................ 4, 43
Class A Principal Payment......................................... 3, 42
Class A Target Investor Principal Amount.......................... 3, 42
Class B Floor..................................................... 4, 43
Class B Percentage................................................ 4, 43
Class B Principal Payment......................................... 3, 42
Class B Target Investor Principal Amount.......................... 3, 43
Class C Floor..................................................... 4, 43
Class C Percentage................................................ 4, 43
Class C Principal Payment......................................... 3, 42
Class C Target Investor Principal Amount.......................... 4, 43
Clearing Corporation.............................................. 47
Code.............................................................. 15, 59
Collection Account................................................ 44
Collection Period................................................. 6, 46
Commission........................................................ i
Counsel........................................................... 59
CPR............................................................... 38
Cumulative Loss Amount............................................ 4, 43
Cut-Off Date...................................................... 7, 22
Cut-Off Date Pool................................................. 10, 31
Definitive Notes.................................................. 48
Delinquency....................................................... 35
Deposit Date...................................................... 8, 40
Depository........................................................ 39
Determination Date................................................ 53
Discount Rate..................................................... 5, 43
DTC............................................................... ii, 15
DTC Participants.................................................. 47
Eligible Account.................................................. 46
</TABLE>
67
<PAGE>
<TABLE>
<CAPTION>
TERM PAGE
- ---- ----
<S> <C>
Eligible Institution.......................................... 46
Eligible Investments.......................................... 46
ERISA......................................................... 15, 64
Events of Default............................................. 49
Exchange Act.................................................. i
Financial Institution......................................... 62
Fitch......................................................... 7
Green Tree.................................................... 22
Gross Losses.................................................. 35
Holders....................................................... 15, 39
Indenture..................................................... Cover, 1
Indirect Participants......................................... 47
Initial Cut-Off Date.......................................... 7, 22
Initial Pool Principal Balance................................ 5, 44
Insolvency Laws............................................... 17
Insurance, Maintenance and Tax Accounts....................... 53
Interest Rate................................................. i, 2
IRS........................................................... 59
Issuer........................................................ Cover
Lease......................................................... 7, 22
Lease Pool.................................................... 10
Lease Pool Principal Balance.................................. 4, 31, 43
Leases........................................................ Cover, 1
Liquidated Lease.............................................. 5, 44
Losses Net of Recoveries...................................... 35
Master Form Lease............................................. 26
Monthly Principal Amount...................................... 4, 43
Non-Accrual................................................... 35
Nonrecoverable Servicer Advance............................... 9, 44
Note Distribution Account..................................... 46
Note Majority................................................. 49
Note Owner.................................................... 15
Noteholders................................................... 15, 39
Notes......................................................... Cover, 1, 39, 65
Obligor....................................................... 7, 22
OID........................................................... 60
Outstanding Principal Amounts................................. 2, 42
Participants.................................................. 47
Payment Date.................................................. i
Payment Shortfall............................................. 54
Plan Assets Regulation........................................ 64
Pledged Revenues.............................................. 8, 40
Prepayments................................................... 8, 40
Principal Balance............................................. 4, 43
PTCE.......................................................... 64
Rating Agencies............................................... 7
Representative................................................ 65
Repurchase Event.............................................. 30
Required Payoff Amount........................................ 11
Required Payment.............................................. 45
Required Reserve Amount....................................... 10, 45, 46
Reserve Account............................................... 10, 45, 46
Residual Account.............................................. 46
</TABLE>
68
<PAGE>
<TABLE>
<CAPTION>
TERM PAGE
- ---- ----
<S> <C>
Residual Event.................................................... 9, 44
Residual Realizations............................................. 9, 44
Rules............................................................. 47
S&P............................................................... 7
Scheduled Payments................................................ 8, 40
Securities Act.................................................... ii
Security Interest................................................. 17
Servicer Advance.................................................. 9, 44
Servicing Account................................................. 46
Servicing Fee..................................................... 12, 55
SPC............................................................... 1, 21
Specific Lease Form............................................... 26
Statistical Discount Rate......................................... 5
Statistical Discounted Present Value of the Leases................ 5
Substitute Lease.................................................. 12
TIN............................................................... 63
Transfer Agent and Registrar...................................... 48
Trust Accounts.................................................... 46
UCC............................................................... 17
Underwriters...................................................... 65
Underwriting Agreement............................................ 65
United States Alien Holder........................................ 59
United States Holder.............................................. 59
Vendor Services................................................... Cover, 1, 22
Warranty Leases................................................... 13
</TABLE>
69
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report ............................................... F-2
Balance Sheet as of December 12, 1997....................................... F-3
Notes to Balance Sheet ..................................................... F-4
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Green Tree Financial Corporation:
We have audited the accompanying balance sheet of Green Tree Lease Finance
1997-1, LLC, a wholly owned subsidiary of Green Tree Lease Finance II, Inc.,
as of December 12, 1997. This balance sheet is the responsibility of the
Company's management. Our responsibility is to express an opinion on the
balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the balance sheet is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the balance sheet. An audit of a
balance sheet also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
balance sheet presentation. We believe that our audit of the balance sheet
provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Green Tree Lease Finance 1997-1,
LLC as of December 12, 1997 in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
December 12, 1997
F-2
<PAGE>
GREEN TREE LEASE FINANCE 1997-1, LLC
BALANCE SHEET
DECEMBER 12, 1997
<TABLE>
<CAPTION>
ASSET
<S> <C>
Cash................................................................ $1,000
======
MEMBER'S EQUITY
Member's Equity (authorized 10 Units; issued
and outstanding 10 Units).......................................... $1,000
======
</TABLE>
See accompanying notes to balance sheet.
F-3
<PAGE>
GREEN TREE LEASE FINANCE 1997-1, LLC
NOTES TO BALANCE SHEET
DECEMBER 12, 1997
(1) ORGANIZATION
Green Tree Lease Finance 1997-1, LLC (the "Company"), a wholly owned
subsidiary of Green Tree Lease Finance II, Inc., (the "SPC"), was formed as a
limited liability company in the State of Delaware on October 23, 1997. The
Company has been inactive since that date.
The Company was organized to engage exclusively in the following business
and financial activities: to acquire leases and rights to residual
realizations on the underlying equipment from the SPC; to issue and sell notes
collateralized by any or all of its assets pursuant to one or more indentures
between the Company and an indenture trustee; and to engage in other
transactions, including entering into agreements that are incidental and
necessary, suitable or convenient to the foregoing and permitted under
Delaware law.
(2) CAPITAL CONTRIBUTION
The SPC purchased 10 Units of the Company for $1,000 on December 12, 1997.
(3) ACCOUNTING POLICIES
Generally all lease receivables to be acquired by the Company are direct
financing leases as defined in FAS No. 13. The carrying value of lease
receivables represents the present value of both the future minimum lease
payments and related residual value less an allowance for expected losses.
Revenue is recognized in interest income as a constant percentage return on
the asset carrying value.
F-4
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESEN-
TATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AU-
THORIZED BY THE ISSUER, THE SERVICER, THE SPC, THE TRUSTEE OR THE UNDERWRITERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN ORDER OR SOLICITATION BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO
ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS, NOR ANY SALE MADE HEREUNDER, SHALL, UNDER ANY CIR-
CUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE OF SUCH INFORMATION.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Incorporation of Certain Documents by Reference............................ i
Available Information...................................................... ii
Reports to Noteholders..................................................... ii
Table of Contents.......................................................... iii
Summary.................................................................... 1
Risk Factors............................................................... 16
The Issuer and the SPC..................................................... 21
Green Tree Vendor Services Corporation..................................... 22
The Leases................................................................. 25
Management's Discussion and Analysis of
Financial Condition....................................................... 36
Managers of the Issuer..................................................... 37
Weighted Average Life of the Notes......................................... 38
Description of the Notes................................................... 39
Description of the Contribution and Servicing Agreement.................... 52
Certain Legal Aspects of the Leases........................................ 57
Federal Income Tax Consequences............................................ 59
ERISA Considerations....................................................... 64
Ratings of the Notes....................................................... 65
Use of Proceeds............................................................ 65
Experts.................................................................... 65
Underwriting............................................................... 65
Legal Matters.............................................................. 66
Index of Principal Terms................................................... 67
Index to Financial Statements.............................................. F-1
</TABLE>
------------------
UNTIL , 1998, ALL DEALERS EFFECTING TRANSACTIONS IN THE NOTES, WHETHER
OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PRO-
SPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPEC-
TUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$550,991,889
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 A-3
% LEASE-BACKED NOTES,
CLASS A-4
% LEASE-BACKED NOTES,
CLASS B
% LEASE-BACKED NOTES,
CLASS C
GREEN TREE VENDOR SERVICES CORPORATION
SERVICER
------------------
PROSPECTUS
DECEMBER , 1997
------------------
------------------
Underwriters of the Class A Notes
LEHMAN BROTHERS
FIRST UNION CAPITAL MARKETS CORP.
------------------
Underwriter of the Class B and Class C Notes
LEHMAN BROTHERS
------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses to be incurred in connection
with the offering of the Lease-Backed Notes, other than underwriting discounts
and commissions, described in this Registration Statement:
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee........... $162,258
Printing and Engraving........................................ 100,000*
Legal Fees and Expenses....................................... 100,000*
Blue Sky Filing and Counsel Fees.............................. 5,000*
Accounting Fees and Expenses.................................. 30,000*
Trustee Fees and Expenses..................................... 20,000*
Rating Agencies' Fees......................................... 50,000*
Miscellaneous Expenses........................................ 7,742*
---------
Total....................................................... $ 475,000*
=========
</TABLE>
- --------
* Other than the registration fee, all expense items are estimates.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Green Tree Lease Finance 1997-1, LLC is a limited liability company formed
under the laws of Delaware. Section 18-108 of the Delaware Limited Liability
Company Act provides that a Delaware limited liability company may indemnify
any member or manager or other person from and against any and all claims and
demands whatsoever. The Limited Liability Company Agreement of Green Tree
Lease Finance 1997-1, LLC provides, in effect, that, subject to certain
limited exceptions, such company will indemnify its managers and named
officers to the extent permitted by the Delaware Limited Liability Company
Act.
Green Tree Lease Finance II, Inc. is incorporated under the laws of
Minnesota. Section 302A.521 of the Minnesota Statutes provides that a
corporation shall indemnify any person made or threatened to be made a party
to a proceeding by reason of the former or present official capacity of such
person against judgments, penalties, fines (including, without limitation,
excise taxes assessed against such person with respect to any employee benefit
plan), settlements and reasonable expenses, including attorneys' fees and
disbursements, incurred by such person in connection with the proceeding, if,
with respect to the acts or omissions of such person complained of in the
proceeding, such person (1) has not been indemnified therefor by another
organization or employee benefit plan for the same judgments, penalties or
fines; (2) acted in good faith; (3) received no improper personal benefit and
Section 302A.255 (with respect to director conflicts of interest), if
applicable, has been satisfied; (4) in the case of a criminal proceeding, had
no reasonable cause to believe the conduct was unlawful; and (5) in the case
of acts or omissions in such person's official capacity for the corporation,
reasonably believed that the conduct was in the best interests of the
corporation, or in the case of acts or omissions in such person's official
capacity for other affiliated organizations, reasonably believed that the
conduct was not opposed to the best interests of the corporation. Section
302A.521 also requires payment by a corporation, upon written request, of
reasonable expenses in advance of final disposition of the proceeding in
certain instances. A decision as to required indemnification is made by a
disinterested majority of the Board of Directors present at a meeting at which
a disinterested quorum is present, or by a designated committee of the Board,
by special legal counsel, by the shareholders or by a court.
The Bylaws of Green Tree Lease Finance II, Inc. provide, in effect, that,
subject to certain limited exceptions, such corporation will indemnify its
officers and directors to the extent permitted by the Minnesota Business
Corporation Act.
Green Tree Financial Corporation is incorporated under the laws of Delaware.
Section 145 of the Delaware General Corporation Law provides that a Delaware
corporation may indemnify any persons, including officers
II-1
<PAGE>
and directors, who are, or are threatened to be made, parties to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of such corporation, by reason of the fact that such person was an
officer, director, employee or agent of such corporation, or is or was serving
at the request of such corporation as a director, employee or agent of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation or enterprise).
The indemnity may include expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by such
person in connection with such action, suit or proceeding, provided such
person acted in good faith and in a manner he reasonably believed to be in or
not opposed to the corporation's best interests and, for criminal proceedings,
had no reasonable cause to believe that his conduct was illegal. A Delaware
corporation may indemnify officers and directors in an action by or in the
right of the corporation under the same conditions, except that no
indemnification is permitted without judicial approval if the officer or
director is adjudged to be liable to the corporation. Where and officer or
director is successful on the merits or otherwise in the defense of any action
referred to above, the corporation must indemnify him against the expenses
which such officer or director actually and reasonably incurred.
The Certificate of Incorporation and Bylaws of Green Tree Financial
Corporation provide, in effect, that, subject to certain limited exceptions,
such corporation will indemnify its officers and directors to the extent
permitted by the Delaware General Corporation Law.
ITEM 16. EXHIBITS.
The Exhibits filed as part of this Registration Statement are:
<TABLE>
<C> <S>
1.1 --Form of Underwriting Agreement.
3.1** --Certificate of Formation of Green Tree Lease Finance 1997-1, LLC.
3.2** --LLC Agreement of Green Tree Lease Finance 1997-1, LLC.
3.3** --Articles of Incorporation of Green Tree Lease Finance II, Inc.
3.4** --By-Laws of Green Tree Lease Finance II, Inc.
3.5** --Certificate of Incorporation of Green Tree Financial Corporation
(incorporated by reference to Exhibit 1.2 to Green Tree Financial
Corporation's Registration Statement No. 33-60869.)
3.6** --By-Laws of Green Tree Financial Corporation (incorporated by
reference to Exhibit 3.2 to Green Tree Financial Corporation's
Registration Statement No. 33-60869).
4.1** --Form of Transfer Agreement.
4.2** --Form of Contribution and Servicing Agreement.
4.3** --Form of Indenture.
5.1** --Opinion and consent of Dorsey & Whitney LLP with respect to
legality.
8.1* --Opinion and consent of Dorsey & Whitney LLP with respect to tax
matters.
23.1** --Consent of Dorsey & Whitney LLP (included as part of Exhibit 5.1).
23.2* --Consent of Dorsey & Whitney LLP (included as part of Exhibit 8.1).
23.3** --Consent of Dorsey & Whitney LLP (true sale and nonconsolidation
opinions).
23.4 --Consent of KPMG Peat Marwick LLP.
24.1** --Power of attorney from officers and directors of Green Tree Lease
Finance II, Inc.
24.2** --Power of attorney from officers and directors of Green Tree
Financial Corporation.
25.1* --Statement of eligibility of Trustee.
99.1** --Form of Opinion of Dorsey & Whitney LLP with respect to true sale
of the Leases.
99.2** --Form of Opinion of Dorsey & Whitney LLP with respect to
nonconsolidation.
</TABLE>
- --------
* To be filed by amendment.
** Previously filed.
ITEM 17. UNDERTAKINGS.
Each of the undersigned, Green Tree Lease Finance 1997-1, LLC, Green Tree
Lease Finance II, Inc. and Green Tree Financial Corporation (collectively, the
"Registrants"), hereby undertakes that, for purposes of
II-2
<PAGE>
determining any liability under the Securities Act of 1933, each filing of any
Registrant 's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of
the Registrants pursuant to the foregoing provisions, or otherwise, the
Registrants have been advised that, in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrants of expenses incurred or paid by a director, officer or
controlling person of the Registrants in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrants
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
The Registrants hereby undertake:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrants pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
The Registrants hereby undertake to file an application for the purpose of
determining the eligibility of the trustee to act under subsection (a) of
Section 310 of the Trust Indenture Act in accordance with the rules and
regulations prescribed by the Commission under Section 305(b)(2) of the Act.
II-3
<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. 4 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 DECEMBER, 1997.
Green Tree Lease Finance 1997-1, LLC
By: Green Tree Lease Finance II,
Inc.
/s/ Joel H. Gottesman
By: _________________________________
Joel H. Gottesman
Senior Vice President and
Secretary
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, GREEN TREE LEASE
FINANCE II, INC. CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT
MEETS ALL OF THE REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS
AMENDMENT NO. 4 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 DECEMBER, 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. 4 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS
IN THE CAPACITIES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Executive Vice December 11, 1997
- ------------------------------------- President
EDWARD L. FINN (Principal
Executive Officer
and Principal
Financial and
Accounting Officer)
/s/ Joel H. Gottesman Director December 11, 1997
- -------------------------------------
JOEL H. GOTTESMAN
* Director
- -------------------------------------
PAUL A. BOYUM
/s/ Joel H. Gottesman
*By: ________________________________
JOEL H. GOTTESMAN
Attorney-in-fact
</TABLE>
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, GREEN TREE
FINANCIAL CORPORATION CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT
IT MEETS ALL OF THE REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED
THIS AMENDMENT NO. 4 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 DECEMBER, 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. 4 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS
IN THE CAPACITIES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Chairman of the Board and December 11, 1997
- ------------------------------------- Chief Executive Officer
LAWRENCE M. COSS (Principal Executive
Officer and Director)
* Executive Vice President and December 11, 1997
- ------------------------------------- Chief Financial Officer
EDWARD L. FINN
/s/ Scott T. Young Vice President and December 11, 1997
- ------------------------------------- Controller (Principal
SCOTT T. YOUNG Accounting Officer)
* Director December 11, 1997
- -------------------------------------
RICHARD G. EVANS
* Director December 11, 1997
- -------------------------------------
W. MAX MCGEE
* Director December 11, 1997
- -------------------------------------
ROBERT S. NICKOLOFF
*By: /s/ Scott T. Young
--------------------------------
SCOTT T. YOUNG
ATTORNEY-IN-FACT
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<C> <S>
1.1 --Form of Underwriting Agreement.
3.1** --Certificate of Formation of Green Tree Lease Finance 1997-1, LLC.
3.2** --LLC Agreement of Green Tree Lease Finance 1997-1, LLC.
3.3** --Articles of Incorporation of Green Tree Lease Finance II, Inc.
3.4** --By-Laws of Green Tree Lease Finance II, Inc.
3.5** --Certificate of Incorporation of Green Tree Financial Corporation
(incorporated by reference to Exhibit 1.2 to Green Tree Financial
Corporation's Registration Statement No. 33-60869.)
3.6** --By-Laws of Green Tree Financial Corporation (incorporated by
reference to Exhibit 3.2 to Green Tree Financial Corporation's
Registration Statement No. 33-60869.
4.1** --Form of Transfer Agreement.
4.2** --Form of Contribution and Servicing Agreement.
4.3** --Form of Indenture.
5.1** --Opinion and consent of Dorsey & Whitney LLP with respect to legality.
8.1* --Opinion and consent of Dorsey & Whitney LLP with respect to tax
matters.
23.1** --Consent of Dorsey & Whitney LLP (included as part of Exhibit 5.1).
23.2* --Consent of Dorsey & Whitney LLP (included as part of Exhibit 8.1).
23.3** --Consent of Dorsey & Whitney LLP (true sale and nonconsolidation
opinions).
23.4 --Consent of KPMG Peat Marwick LLP.
24.1** --Power of attorney from officers and directors of Green Tree Lease
Finance II, Inc.
24.2** --Power of attorney from officers and directors of Green Tree Financial
Corporation.
25.1* --Statement of eligibility of Trustee.
99.1** --Form of Opinion of Dorsey & Whitney LLP with respect to true sale of
the Leases.
99.2** --Form of Opinion of Dorsey & Whitney LLP with respect to
nonconsolidation.
</TABLE>
- --------
* To be filed by amendment.
** Previously filed.
<PAGE>
B&W Draft No. 1
GREEN TREE LEASE FINANCE II, INC.
GREEN TREE LEASE FINANCE 1997-1, LLC
AND GREEN TREE FINANCIAL CORPORATION
Lease-Backed Notes, Class A-1,
Class A-2, Class B and Class C
UNDERWRITING AGREEMENT
----------------------
December __, 1997
LEHMAN BROTHERS INC.
Three World Financial Center
New York, New York 10285
[OTHER UNDERWRITERS]
Dear Sirs:
Green Tree Lease Finance 1997-1, LLC (the "Issuer") is a Delaware limited
liability company. Green Tree Lease Finance II, Inc. (the "SPC"), a wholly
owned subsidiary of Green Tree Vendor Services Corporation ("Vendor Services"),
is the sole member of the Issuer. The Issuer's Lease-Backed Notes (the "Notes")
will be issued pursuant to an Indenture, dated as of December 1, 1997 (the
"Indenture"), between the Issuer, Green Tree Financial Corporation ("Green
Tree") and [First Trust National Association] (the "Trustee"). The Notes will
be secured by a pledge by the Issuer of a pool of Leases (the "Leases") and
certain other property, including certain rights to the proceeds of disposition
of the equipment underlying the leases (the "Equipment") to be held in trust
pursuant to the Indenture (the "Trust Assets"). The Leases will be serviced by
Vendor Services pursuant to a Contribution and Servicing Agreement, dated as of
December 1, 1997 (the "Contribution and Servicing Agreement"), among the Issuer,
Vendor Services and the SPC. The Leases will have been contributed by Vendor
Services, together with Vendor Services' rights in the Equipment, to the SPC
pursuant to a Transfer Agreement, dated as of December 1, 1997 (the "Transfer
Agreement"), between Vendor Services and the SPC and the SPC will in turn
contribute the
<PAGE>
Leases, together with certain rights to the proceeds of disposition of the
Equipment, to the Issuer pursuant to the Contribution and Servicing Agreement.
Green Tree will provide a limited guaranty against losses on the Class C Notes
(the "Class C Limited Guaranty"). The forms of the Indenture, Transfer
Agreement and Contribution and Servicing Agreement have been filed as exhibits
to the Registration Statement (hereinafter defined).
Issuer, the SPC and Green Tree (collectively, the "Registrants") have filed
with the Securities and Exchange Commission (the "Commission") a registration
statement on Form S-3 (File No. 333-38687-01), relating to the offering of Notes
and the registration of the Class C Limited Guaranty under the Securities Act of
1933 (the "1933 Act"), and have filed, and propose to file, such amendments
thereto as may be required pursuant to the 1933 Act and the rules of the
Commission thereunder (the "Regulations").
The terms which follow, when used in this Underwriting Agreement, shall
have the meaning indicated. The term "Effective Date" shall mean each date that
the Registration Statement and any post-effective amendment or amendments
thereto became or become effective under the 1933 Act. "Execution Time" shall
mean the date and time that this Agreement and the Terms Agreement (hereinafter
defined) have been executed and delivered by the parties hereto. "Preliminary
Prospectus" shall mean any preliminary prospectus included in the Registration
Statement, or amendments thereof, which, as completed, is proposed to be used in
connection with the sale of the Notes and any prospectus subsequently filed with
the Commission by the Registrants with the consent of the Underwriters pursuant
to Rule 424(a) of the Regulations. "Prospectus" shall mean the prospectus
relating to the Notes that is first filed with the Commission pursuant to Rule
424(b) or any prospectus subsequently filed pursuant to Rule 424 or, if no
filing pursuant to Rule 424(b) is required, shall mean the form of final
prospectus included in the Registration Statement at the Effective Date.
Reference made herein to the Preliminary Prospectus or the Prospectus shall be
deemed to refer to and include any documents incorporated by reference therein
pursuant to Item 12 of Form S-3 under the 1933 Act, as of the date of the
Preliminary Prospectus or the Prospectus, as the case may be, and any reference
to any amendment or supplement to the Preliminary Prospectus or the Prospectus
shall be deemed to refer to and include any document filed under the Securities
Exchange Act of 1934 (the "1934 Act") after the date of the Preliminary
Prospectus or the Prospectus and incorporated by reference in the Preliminary
Prospectus or the Prospectus; and any reference to any amendment to the
Registration Statement shall be deemed to include any report of any of the
Registrant filed with the Commission pursuant Section 13(a) or 15(d) of the 1934
Act after the Effective Time that is incorporated by reference in the
Registration Statement. "Registration
2
<PAGE>
Statement" shall mean the registration statement referred to in the preceding
paragraph and any registration statements required to be filed under the 1933
Act or the Regulations, including incorporated documents, exhibits and financial
statements, in the form in which it has or shall become effective and, in the
event of any post effective amendment thereto which becomes effective prior to
the Closing Time, shall also mean such Registration Statement as so amended and
including the Rule 430A Information deemed to be included therein at the
Effective Date as provided by Rule 430A. "Rule 424" and "Rule 430A" refer to
such rules and regulations under the 1933 Act. "Rule 430A Information" means
information with respect to the Notes and the offering thereof permitted to be
omitted form the Registration Statement when it becomes effective pursuant to
Rule 430A.
The Notes are more fully described in the Registration Statement which the
Registrants have furnished to you. Capitalized terms used but not defined
herein shall have the meanings given to them in the Registration Statement. The
term "you" or "Underwriters" as used herein, unless the context otherwise
requires, shall mean you acting severally and not jointly under this Agreement.
The Registrants will also enter into an agreement (the "Terms Agreement")
providing for the sale of the Notes to, and the purchase thereof by, you,
severally and not jointly. The Terms Agreement shall specify, among other
things, the price or prices at which the Notes are to be purchased by the
Underwriters from the Issuer and the initial public offering price or prices at
which the Notes are to be sold will be determined. The Terms Agreement, may take
the form of an exchange of any standard form of written telecommunication
between the Issuer and the Registrants. The offering of the Notes will be
governed by this Agreement, as supplemented by the Terms Agreement and which,
together, form one agreement between the Registrants, on one hand, and the
Underwriters, on the other.
SECTION 1. Representations and Warranties. The Registrants represent and
warrant to the Underwriters as of the date hereof as follows:
(a) The conditions to the use by the Registrants of a registration
statement on Form S-3 under the 1933 Act, as set forth in the General
Instructions to Form S-3, have been satisfied with respect to the
Registration Statement and the Prospectus. The Commission has not issued
any order preventing or suspending the use of the Preliminary Prospectus.
There are no contracts or documents of the Registrants which are required
to be filed as exhibits to the
3
<PAGE>
Registration Statement pursuant to the 1933 Act or the Regulations which
have not been so filed.
(b) The Registrants will next file with the Commission either, (i)
prior to the effectiveness of the Registration Statement, a further
amendment thereto (including the form of final prospectus) or (ii) after
effectiveness of the Registration Statement, a final prospectus in
accordance with Rule 430A and 424(b)(1) or (4). In the case of clause
(ii), the Registrants have included in the Registration Statement, as
amended at the Effective Date, all information (other than Rule 430A
information required by the 1933 Act and the Regulations to be included in
the Registration Statement (defined herein) with respect to the Class C
Limited Guaranty and the Notes and the offering of the Notes. As filed,
such amendment and form of final prospectus, or such final prospectus,
shall include all Rule 430A Information and, except to the extent the
Underwriters shall agree in writing to a modification, shall be in all
substantive respects in the form furnished to the Underwriters prior to the
Execution Time or, to the extent not completed at the Execution Time, shall
contain only such specific additional information and other changes (beyond
that contained in the Preliminary Prospectus which has previously been
furnished to the Underwriters) as the Registrants have advised the
Underwriters, prior to the Execution Time, will be included or made
therein.
(c) On the Effective Date the Registration Statement did or will
comply in all material respects with the requirements of the 1933 Act and
the Regulations; when the Prospectus is first filed (if required) in
accordance with Rule 424(b), as of its date and at the Closing Time, the
Prospectus (and any supplements thereto) will comply in all material
respects with the applicable requirements of the 1933 Act and the
Regulations; on the Effective Date, the Registration Statement, did nor
will not contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading. The Prospectus as of its date and on
the date of any filing pursuant to Rule 424(b) (if required) and at the
Closing Time, (together with any supplement thereto) will not, contain any
untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided,
however, that the representations and warranties in this subsection shall
not apply to statements in, or omissions from, the Registration Statement
or Prospectus (or any supplements thereto) made in reliance upon and in
conformity with information furnished to the Registrants in writing by the
4
<PAGE>
Underwriters expressly for use in the Registration Statement or Prospectus
(or any supplements thereto).
(d) The Issuer has been duly organized and is validly existing as a
limited liability company in good standing under the laws of the State of
Delaware. The SPC has been duly incorporated and is validly excising as a
corporation in good standing under the laws of the State of Minnesota.
Green Tree has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware. Each
Registrant possesses the power and authority to own, lease and operate its
properties and conduct its business as described in the Prospectus and to
enter into and perform its obligations under this Agreement, the Terms
Agreement, the Indenture, the Contribution and Servicing Agreement and the
Transfer Agreement, as applicable; and each Registrant is duly qualified as
a foreign entity to transact business and is in good standing in each
jurisdiction in which the ownership or lease of its properties or the
conduct of its business requires such qualification.
(e) Each Registrant is not in violation of its limited liability
company agreement or articles or incorporation or by-laws, as the case may
be, or in default in the performance or observance of any obligation,
agreement, covenant or condition contained in any contract, indenture,
mortgage, loan agreement, note, lease or other instrument to which it is a
party or by which it or its properties may be bound, which default might
result in any material adverse change in the financial condition, earnings,
affairs or business of such Registrant or which might materially and
adversely affect the properties or assets thereof.
(f) The execution and delivery by each Registrant of this Agreement,
the Terms Agreement, the Indenture, the Contribution and Servicing
Agreement and the Transfer Agreement, as applicable, are within the
corporate or limited liability company power of such Registrant and have
been duly authorized by all necessary corporate or limited liability
company action on the part of such Registrant and neither the issuance and
sale of the Notes to the Underwriters, nor the execution and delivery by
such Registrant of this Agreement, the Terms Agreement, the Indenture, the
Contribution and Servicing Agreement and the Transfer Agreement, as
applicable, nor the consummation by such Registrant of the transactions
herein or therein contemplated, nor compliance by such Registrant with the
provisions hereof or thereof, will materially conflict with or result in a
material breach of, or constitute a material default under, any of the
provisions of any law, governmental rule, regulation, judgment, decree or
5
<PAGE>
order binding on such Registrant or its properties or the limited liability
company agreement or articles or incorporation or by-laws, as the case may
be, of such Registrant, or any of the provisions of any indenture,
mortgage, contract or other instrument to which such Registrant is a party
or by which it is bound or result in the creation or imposition of any
lien, charge or encumbrance upon any of its property pursuant to the terms
of any such indenture, mortgage, contract or other instrument.
(g) This Agreement has been, and the Terms Agreement when executed
and delivered as contemplated hereby and thereby will have been, duly
authorized, executed and delivered by each of the Registrants and each
constitutes, or will constitute when so executed and delivered, a legal,
valid and binding instrument enforceable against each of the Registrants in
accordance with its terms, subject (i) to applicable bankruptcy,
reorganization, insolvency, moratorium or other similar laws affecting
creditors' rights generally, (ii) as to enforceability, to general
principles of equity (regardless of whether enforcement is sought in a
proceeding in equity or at law) and (iii) as to enforceability with respect
to rights of indemnity thereunder, to limitations of public policy under
applicable securities laws.
(h) Each of the Indenture, the Transfer Agreement and the
Contribution and Servicing Agreement when executed and delivered as
contemplated hereby and thereby will have been duly authorized, executed
and delivered by each Registrant purporting to execute the same, and will
constitute when so executed and delivered, a legal, valid and binding
instrument enforceable against each such Registrant in accordance with its
terms, subject (i) to applicable bankruptcy, reorganization, insolvency,
moratorium or other similar laws affecting creditors' rights generally and
(ii) as to enforceability, to general principles of equity (regardless of
whether enforcement is sought in a proceeding in equity or at law).
(i) As of the Closing Time, the Notes will have been duly and validly
authorized by the Issuer, and, when executed and authenticated as specified
in the Indenture, will be validly issued and outstanding and will be
entitled to the benefits of the Indenture, and will be binding obligations
of the Issuer to the extent provided in the Indenture.
(j) No filing or registration with, notice to or consent, approval,
authorization or order of any court or governmental authority or agency is
required for the consummation by any of the Registrants of the
transactions
6
<PAGE>
contemplated by this Agreement, the Terms Agreement, the Indenture, the
Contribution and Servicing Agreement and the Transfer Agreement, except
such as may be required under the 1933 Act, the Regulations, or state
securities or Blue Sky laws.
(k) Each Registrant possesses all material licenses, certificates,
authorities or permits issued by the appropriate state, federal or foreign
regulatory agencies or bodies necessary to conduct the business now
operated by it and as described in the Prospectus and has received no
notice of proceedings relating to the revocation or modification of any
such license, certificate, authority or permit which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding,
would materially and adversely affect its business, operations, financial
condition or earnings.
(l) As of the Closing Time, the Leases and the other Trust Assets
will have been duly and validly granted to the Trustee in accordance with
the Indenture; and when such assignment is effected, a duly and validly
perfected transfer to the Trustee of all such Trust Assets subject to no
prior lien, mortgage, security interest, pledge, charge or other
encumbrance created by Vendor Services or any of the Registrants, will have
occurred.
(m) As of the Closing Time, each of the Leases will meet the
eligibility criteria described in the Prospectus.
(n) Neither the Issuer nor the Trust Assets created by the Indenture
will be subject to registration as an "investment company" under the
Investment Company Act of 1940, as amended (the "1940 Act").
(o) The Notes, the Indenture, the Contribution and Servicing
Agreement, the Transfer Agreement and the Class C Limited Guaranty conform
in all material respects to the descriptions thereof contained in the
Prospectus.
SECTION 2. Purchase and Sale. The commitment of the Underwriters to
purchase the Notes pursuant to this Agreement and this Terms Agreement shall be
deemed to have been made on the basis of the representations and warranties
herein contained and shall be subject to the terms and conditions herein set
forth.
Payment of the purchase price for, and delivery of, the Notes to be
purchased by the Underwriters shall be made at the offices of Dorsey & Whitney
L.L.P., 220 South Sixth Street, Minneapolis, Minnesota 55402, or at such other
place as shall be agreed upon by
7
<PAGE>
you and the Issuer, at such time or date as shall be agreed upon by you and the
Issuer in the Terms Agreement, (the "Closing Time"). Unless otherwise specified
in the Terms Agreement, payment shall be made to the Issuer, at the option of
the Issuer, either (a) by certified or official bank check or checks in New York
Clearing House or similar next day funds payable to the order of the Issuer, or
(b) in immediately available Federal funds wired to such bank as may be
designated by the Issuer; provided, however, that if payment is made in
immediately available Federal funds if so specified in the Terms Agreement, the
Issuer shall simultaneously reimburse the Underwriters for the cost to the
Underwriters of such funds, based on the Underwriters' cost of borrowing such
funds for one day at their most favorable commercial paper rate at the Closing
Time. The Notes shall be in such denominations and registered in such names as
you may request in writing at least two business days prior to the applicable
Closing Time. The Notes, which may be in temporary form, will be made available
for examination and packaging by you no later than 12:00 noon on the first
business day prior to the applicable Closing Time.
SECTION 3. Covenants of the Registrants. Each of the Registrants
covenants with each of the Underwriters, as follows:
(a) If at any time when the Prospectus is required by the 1933 Act to
be delivered in connection with sales of the Notes by the Underwriters, any
event shall occur or condition exist as a result of which it is necessary,
in the opinion of your counsel, counsel for the Registrants, or otherwise,
to further amend or supplement the Prospectus in order that the Prospectus
will not include an untrue statement of a material fact or omit to state
any material fact necessary to make the statements therein, in the light of
circumstances existing at the time it is delivered to a purchaser, not
misleading or if it shall be necessary, in the opinion of any such counsel
or otherwise, at any such time to amend or supplement the Registration
Statement or the Prospectus in order to comply with the requirements of the
1933 Act or the Regulations thereunder, the Registrants will promptly
prepare and file with the Commission such amendment or supplement as may be
necessary to correct such untrue statement or omission or to make the
Registration Statement comply with such requirements, and within two
business days will furnish to the Underwriters as many copies of the
Prospectus, as so amended or supplemented, as you shall reasonably request.
(b) The Registrants will give you reasonable notice of any intention
to file any amendment to the Registration Statement or any amendment or
supplement to the Prospectus, whether pursuant to the 1933 Act or otherwise
(other than reports to be filed pursuant to the 1934 Act), will furnish
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you with copies of any such amendment or supplement or other documents
proposed to be filed a reasonable time in advance of filing, and will not
file any such amendment or supplement or other documents in a form to which
you or your counsel shall object.
(c) The Registrants will notify you immediately, and confirm the
notice in writing, (i) of the effectiveness of any amendment to the
Registration Statement, (ii) of the mailing or the delivery to the
Commission for filing of any supplement to the Prospectus or any document,
other than reports to be filed pursuant to the 1934 Act, (iii) of the
receipt of any comments from the Commission with respect to the
Registration Statement or the Prospectus, (iv) of any request by the
Commission for any amendment to the Registration Statement or any amendment
or supplement to the Prospectus or for additional information, and (v) of
the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or suspension of the
qualification of the Notes or the initiation of any proceedings for that
purpose. The Registrants will make every reasonable effort to prevent the
issuance of any such stop order or suspension and, if any such stop order
or suspension is issued, to obtain the lifting thereof at the earliest
possible moment.
(d) The Registrants will deliver to you as many signed and as many
conformed copies of the Registration Statement (as originally filed) and of
each amendment thereto (including exhibits filed therewith or incorporated
by reference therein and documents incorporated by reference in the
Prospectus) as you may reasonably request.
(e) The Registrants will endeavor, in cooperation with you, to
qualify the Notes for offering and sale under the applicable securities
laws of such states and other jurisdictions of the United States as you
may designate, and will maintain or cause to be maintained such
qualifications in effect for as long as may be required for the
distribution of the Notes. The Registrants will file or cause the filing
of such statements and reports as may be required by the laws of each
jurisdiction in which the Notes have been qualified as above provided.
(f) The Registrants will file with the Commission within fifteen days
of the issuance of the Notes a current report on Form 8-K setting forth
specific information concerning the Notes and the Lease Pool to the extent
that such information is not set forth in the Prospectus.
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(g) As soon as practicable, but not later than sixteen months after
the original effective date of the Registration Statement, the Registrants
will cause the Trust to make generally available to Noteholders an earnings
statement of the Trust covering a period of at least twelve months
beginning after the effective date of the Registration Statement that will
satisfy the provisions of Section 11(a) of the Act and Rule 158
promulgated thereunder.
(h) The Registrants will file the Monthly Report on Form 8-K for a
period of twelve months following the Closing Time.
SECTION 4. Conditions of Underwriters' Obligations. The Obligations of
the Underwriters to purchase Notes pursuant to this Agreement and the Terms
Agreement are subject to the accuracy of the representations and warranties on
the part of the Registrants herein contained, to the accuracy of the statements
of the Registrants officers made pursuant hereto, to the performance by the
Registrants of all of its obligations hereunder and to the following further
conditions:
(a) At the Closing Time (i) no stop order suspending the
effectiveness of the Registration Statement shall have been issued or
proceedings therefor initiated or threatened by the Commission, (ii) the
Notes shall have received the rating or ratings specified in the Terms
Agreement, and (iii) there shall not have come to your attention any facts
that would cause you to believe that the Prospectus, at the time it was
required to be delivered to a purchaser of the Notes, contained an untrue
statement of a material fact or omitted to state a material fact necessary
in order to make the statements therein, in light of the circumstances
existing at such time, not misleading.
(b) At the Closing Time you shall have received:
(1) The favorable opinion, dated as of the Closing Time, of
Dorsey & Whitney L.L.P., counsel for the Registrants, in form and substance
satisfactory to such of you as are named in the Terms Agreement, to the
effect that:
(i) The Issuer has been duly organized and is validly existing
as a limited liability company in good standing under the laws of the
State of Delaware; the SPC has been duly organized and is validly
existing as a corporation in good standing under the laws of the State
of Minnesota, and that Green Tree has been duly incorporated and is
validly existing as a corporation in good standing under the laws of
the State of Delaware.
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(ii) The execution and delivery by the Registrants of this
Agreement, the Terms Agreement, the Contribution and Servicing
Agreement, the Transfer Agreement and the Indenture and the signing of
the Registration Statement by the Registrants are within the corporate
or limited liability company power of the Registrants and have been
duly authorized by all necessary corporate or limited liability
company action on the part of the Registrants.
(iii) This Agreement and the Terms Agreement have been duly
authorized, executed and delivered by the Registrants, and each is a
valid and binding obligation of the Registrants enforceable against
the Registrants in accordance with its terms, except that (A) such
enforcement may be subject to applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in
effect relating to creditors' or secured parties' rights generally,
(B) such enforcement may be limited by general principles of equity,
including (without limitation) concepts of materiality,
reasonableness, good faith and fair dealing, and other similar
doctrines affecting the enforceability of agreements generally
(regardless of whether enforcement is sought in a proceeding in equity
or at law), and (C) the enforceability as to rights to indemnity
thereunder is subject to the effect of federal and state securities
laws and public policy relating thereto.
(iv) The Indenture (including the Class C Limited Guaranty
contained therein), Transfer Agreement and Contribution and Servicing
Agreement and the Registration Statement have been duly authorized,
executed and delivered by each of Vendor Services, if applicable, and
the Registrants purporting to execute the same, and are the valid and
binding obligations of Vendor Services and the Registrants, as
applicable, enforceable against the Vendor Services and the
Registrants, as applicable, in accordance with its terms, except that
(A) such enforcement may be subject to bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in
effect relating to creditors' rights generally and (B) such
enforcement may be limited by general principles of equity (regardless
of whether enforcement is sought in a proceeding in equity or at law).
(v) None of the transfer of the Leases and its rights in the
Equipment by Vendor Services to the SPC or of the Leases and its
rights to disposition proceeds of the Equipment by the SPC to the
Issuer, the pledge of the
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Trust Assets by the Issuer, the issue and sale of the Notes by the
Issuer or the consummation of the trans actions contemplated herein
nor the fulfillment of the terms hereof will, to the best of such
counsel's knowledge, conflict with or constitute a breach of, or
default under, any contract, indenture, mortgage, loan agreement,
note, lease or other instrument to which Vendor Services or any of the
Registrants may be a party or by which any may be bound or to which
the property or assets of any the Registrants are subject (which
contracts, indentures, mortgages, loan agreements, notes, leases and
other such instruments have been identified by the Registrants to such
counsel), nor will such action result in any violation of the
provisions of the certificate of incorporation or by-laws or limited
liability company agreement, as the case may be, of Vendor Services or
any of the Registrants or, to the best of such counsel's knowledge,
any order or regulation known to us to be applicable to Vendor
Services or any of the Registrants of any state or federal court,
regulatory body, administrative agency, governmental body or
arbitrator having jurisdiction over Vendor Services or any of the
Registrants.
(vi) The Notes have been duly authorized and executed by the
Issuer and when authenticated as specified in the Indenture and
delivered and paid for pursuant to this Agreement and the Terms
Agreement, will be duly issued obligations of the Issuer, entitled to
the benefits of the Indenture.
(vii) The Indenture creates a valid security interest in favor of
the Trustee in the Leases and other property included in the Trust
Assets on the date hereof, which security interest of the Trustee in
the Leases and the Trust Assets will be perfected and will constitute
a first perfected security interest upon the filing of Uniform
Commercial Code ("UCC") financing statements in the offices of the
Secretary of State of Minnesota and Delaware; provided, however, that
such counsel may take customary exceptions acceptable to you. Such
counsel need express no opinion (a) as to the continuation of a
security interest in the Leases if the Trustee does not file
continuation statements as required by the Indenture or (b) as to the
priority of any security interest in the Leases against any liens,
claims or other interests that arise by operation of law and do not
require any filing or similar action in order to take priority over
perfected security interests.
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(viii) To the best of such counsel's knowledge, no filing or
registration with or notice to or consent, approval, authorization or
order of any Minnesota or federal court or governmental authority or
agency is required to be obtained by the Registrants for the
consummation by Vendor Services or any of the Registrants, as
applicable, of the transactions contemplated by the Transfer
Agreement, the Contribution and Servicing Agreement or the Indenture,
except such as may be required under the 1933 Act or the Regulations,
or state securities or Blue Sky laws.
(ix) The Registration Statement is effective under the 1933
Act and, to the best of such counsel's knowledge and information, no
stop order suspending the effectiveness of the Registration Statement
has been issued under the 1933 Act or proceedings therefor initiated
or threatened by the Commission.
(x) The Indenture has been duly qualified under the Trust
Indenture Act of 1939, as amended.
(xi) The conditions to the use by the Registrants of a
registration statement on Form S-3 under the 1933 Act, as set forth in
the General Instructions to Form S-3, have been satisfied with respect
to the Registration Statement and the Prospectus. To the best of such
counsel's knowledge, there are no contracts or documents of the
Registrants which are required to be filed as exhibits to the
Registration Statement pursuant to the 1933 Act or the Regulations
thereunder which have not been so filed or incorporated by reference.
(xii) The statements in the Prospectus under the heading
"Federal Income Tax Consequences," to the extent that they constitute
statements of law or legal conclusions as to the likely outcome of
material issues under the federal income tax laws, have been prepared
or reviewed by such counsel and are correct in all material respects.
(xiii) The Issuer is not and will not as a result of the offer
and sale of the Notes as contemplated in the Prospectus and in this
Agreement become, an "investment company" or "under the control of an
investment company" as such terms are defined in the 1940 Act.
(xiv) The statements in the Prospectus under the caption
"Description of the Notes," "Green Tree Vendor Services Corporation -
Representations and Warrantees
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Notes, by Vender Services" and "Description of the Contribution and
Servicing Agreement insofar as such statements purport to summarize
certain terms of the Notes, the Contribution and Servicing Agreement,
the Transfer Agreement and the Indenture, constitute a fair and
accurate summary of such documents.
(xv) The Registration Statement and the Prospectus (other than
the financial statements and other financial, statistical and
numerical information included therein, as to which no opinion need be
rendered) as of their respective effective or issue dates, complied as
to form in all material respects with the requirements of the 1933 Act
and the Regulations thereunder.
(xvi) The execution, delivery and performance by Vendor Services
or the Registrants, as applicable, of the Transfer Agreement
Contribution and Servicing Agreement and Indenture do not require the
consent or approval of, the giving of notice to, the registration
with, or the taking of any other action in respect of any federal,
state or other governmental agency or authority which has not
previously been effected.
(xvii) To such counsel's knowledge, there are no pending or
overtly threatened lawsuits or claims against the Registrants or
relating to the transactions Vendor Services or contemplated by the
Underwriting Agreement and the Transfer Agreement, Contribution and
Servicing Agreement and Indenture which, if adversely determined,
would have a material adverse effect on the transactions contemplated
by the Underwriting Agreement and the Transfer Agreement, Contribution
and Servicing Agreement and Indenture.
Such counsel shall deliver to you such additional opinions addressing the
transfer by Vendor Services or the Registrants of any right, title and interest
in and to the Leases and other property included in the Trust Assets on the
Closing Time as may be required by each Rating Agency rating the Notes.
Such counsel shall state that it has participated in the conferences with
officers and other representatives of the Registrants, your counsel,
representatives of the independent accountants for the Registrants and you at
which the contents of the Registration Statement and the Prospectus were
discussed and, although such counsel is not passing upon and does not assume
responsibility for, the factual accuracy, completeness or fairness of the
statements contained in the Registration Statement or the Prospectus (except as
stated in paragraphs (xii) and (xiv) above)
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and has made no independent check or verification thereof for the purpose of
rendering this opinion, on the basis of the foregoing, nothing has come to their
attention that leads such counsel to believe that the Registration Statement,
when it became effective, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading or that the Registration Statement
and the Prospectus on the date of the Terms Agreement contained, and the
Prospectus on the date thereof contains, any untrue statement of a material fact
or omitted or omits to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, except that such counsel need express no view with respect
to the financial statements, schedules and other financial, statistical and
numerical data included in or incorporated by reference into the Registration
Statement or the Prospectus.
Said counsel may state that they are admitted to practice only in the State
of Minnesota, that they are not admitted to the Bar in any other State and are
not experts in the law of any other State and to the extent that the foregoing
opinions concern the laws of any other State such counsel may rely upon the
opinion of counsel satisfactory to the Underwriters and admitted to practice in
such jurisdiction. Any opinions relied upon by such counsel as aforesaid shall
be addressed to the Underwriters and shall be delivered together with the
opinion of such counsel, which shall state that such counsel believes that their
reliance thereon is justified.
(2) The favorable opinion, dated as of the Closing Time, of [Joel
H. Gottesman, Senior Vice President and Secretary to the Issuer and the SPC
and Senior Vice President and General Counsel to Green Tree], in form and
substance satisfactory to you and your counsel, to the effect that:
(i) There are no pending or threatened litigation or
administrative proceeding of or before any court, tribunal or
governmental agency, authority or body or any arbitrator which, if
adversely determined, would have a material adverse effect on the
financial condition of Vendor Services or any of the Registrants.
(ii) Each of Vendor Services and the Registrants is qualified to
do business, and is in good standing, as a foreign corporation or
other appropriate entity in each U.S. jurisdiction in which the
character of the business owned or leased by it makes such
qualification necessary, except where the failure to be so qualified
would not have a material adverse effect on the financial condition of
Vendor Services or such Registrant.
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(3) The favorable opinion of counsel to the Trustee, dated as of the
Closing Time, addressed to you and in form and scope satisfactory to your
counsel, to the effect that:
(i) The Trustee has duly authorized, executed and delivered the
Indenture and the Indenture is enforceable against the Trustee in
accordance with its terms, except as such enforceability may be
limited by bankruptcy, insolvency, reorganization or other similar
laws affecting the enforcement of creditors' rights in general and by
general principles of equity regardless of whether such enforcement is
considered in a proceeding in equity or at law.
(ii) The Trustee has full power and authority to execute and
deliver the Indenture and to perform its obligations thereunder.
(iii) To the best of such counsel's knowledge, there are no
actions, proceedings or investigations pending or threatened against
or affecting the Trustee before or by any court, arbitrator,
administrative agency or other governmental authority which, if
adversely decided, would materially and adversely affect the ability
of the Trustee to carry out the transactions contemplated in the
Indenture.
(iv) No consent, approval or authorization of, or registration,
declaration or filing with, any court or governmental agency or body
of the jurisdiction of incorporation of the Trustee is required for
the execu tion, delivery or performance by the Trustee of the
Indenture.
(v) The Notes have been duly authenticated by the Trustee.
In rendering such opinion, such counsel may rely, as to matters of fact, to
the extent deemed proper and stated therein, on certificates of responsible
officers of the Trustee or public officials.
(4) The favorable opinion or opinions, dated as of the Closing
Time, of Brown & Wood LLP, counsel for the Underwriters, with respect to
the issue and sale of the Notes, the Registration Statement, this
Agreement, the Prospectus, and other related matters as the Underwriters
may require.
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(c) At the Closing Time you shall have received a certificate of an
authorized officer of each of the Registrants, dated as of such Closing
Time, to the effect that the representations and warranties of the
Registrants contained in Section 1 are true and correct as of the Closing
Time with the same force and effect as though made as of the Closing Time.
(d) You shall have received from [Coopers & Lybrand L.L.P.] or other
independent certified public accountants acceptable to you, a letter, dated
as of the date hereof and as of the Closing Time, delivered at such times,
in the form heretofore agreed to.
(e) At the Closing Time you shall have received, addressed to you,
any additional opinions delivered by counsel pursuant to the request of the
Rating Agency or Rating Agencies rating the Notes.
(f) At the Closing Time, counsel for the Underwriters shall have been
furnished with such documents and opinions as they reasonably may require
for the purpose of enabling them to pass upon the issuance and sale of the
Notes as herein contemplated and related proceedings or in order to
evidence the accuracy and completeness of any of the representations and
warranties, or the fulfillment of any of the conditions, herein contained;
and all proceedings taken by the Registrants in connection with the
issuance and sale of the Notes as herein contemplated shall be satisfactory
in form and substance to you and counsel for the Underwriters.
(g) At the Closing Time, each of the representations and warranties
of the Registrants set forth in the Transfer Agreement, Contribution and
Servicing Agreement and Indenture, as applicable, will be true and correct.
(h) As of the Closing Time, the Class C Limited Guaranty will have
been duly and validly authorized, executed and delivered by, and will
constitute a legal, valid and binding obligation of, Green Tree,
enforceable against Green Tree in accordance with its terms, subject to
applicable bankruptcy, reorganization, insolvency, moratorium or other
similar laws affecting creditors' rights generally and as to
enforceability, to general principles of equity (regardless whether
enforcement is sought in a proceeding in equity or at law).
(i) As of the Closing Time, each of the Contribution and Servicing
Agreement and the Transfer Agreement will have been duly authorized,
executed and delivered by, and will
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constitute a legal, valid and binding obligation of, the Vendor Services
and the SPC and, in the case of the Contribution and Servicing Agreement,
the Issuer, enforceable against the Vendor Services and the SPC and, in the
case of the Contribution and Servicing Agreement, in accordance with its
terms, subject to applicable bankruptcy, reorganization, insolvency,
moratorium or other similar laws affecting creditors' rights generally and
as to enforceability, to general principles of equity (regardless whether
enforcement is sought in a proceeding in equity or at law).
(j) As of the Closing Time, the Indenture will have been duly
authorized, executed and delivered by, and will constitute a legal, valid
and binding obligation of the Issuer and Green Tree, enforceable against
the Issuer and Green Tree in accordance with its terms, subject to
applicable bankruptcy, reorganization, insolvency, moratorium or other
similar laws affecting creditors' rights generally and as to
enforceability, to general principles of equity (regardless whether
enforcement is sought in a proceeding in equity or at law).
If any condition specified in this Section shall not have been fulfilled
when and as required to be fulfilled, the Terms Agreement may be terminated by
you by notice to the Registrants at any time at or prior to the Closing Time,
and such termination shall be without liability of any party to any other party
except as provided in Section 6.
SECTION 5. Payment of Expenses. Green Tree will pay all expenses incident
to the performance of the Registrants' obligations under this Agreement,
including without limitation those related to (i) the filing of the Registration
Statement and all amendments thereto, (ii) the printing and delivery to the
Underwriters, in such quantities as you may reasonably request, of copies of
this Agreement, each Terms Agreement, any agreements among Underwriters and
selling agreements and the Underwriters' questionnaires and powers of attorney,
(iii) the preparation, issuance and delivery of the Notes to the Underwriters,
(iv) the fees and disbursements of the Registrants' counsel and accountants, (v)
the qualification of the Notes under securities and Blue Sky laws and the
determination of the eligibility of the Notes for investment in accordance with
the provisions of Section 3(e), including filing fees, and the fees and
disbursements of counsel for the Underwriters in connection therewith and in
connection with the preparation of any Blue Sky Survey and Legal Investment
Survey, (vi) the printing and delivery to the Underwriters, in such quantities
as you may reasonably request, hereinafter stated, of copies of the Registration
Statement and Prospectus and all amendments and supplements thereto, and of any
Blue Sky Survey and Legal Invest-
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ment Survey, (vii) the printing and delivery to the Underwriters, in such
quantities as you may reasonably request, of copies of the Indenture, (viii)
the fees charged by investment rating agencies for rating the Notes, (ix) the
fees and expenses incurred in connection with the listing of the Notes on any
national securities exchange, (x) the fees and expenses incurred with respect to
the National Association of Securities Dealers, Inc., including the fees and
disbursements of counsel for the Underwriters in connection therewith and (xi)
the fees and expenses of the Trustee and its counsel.
If a Terms Agreement is terminated by you in accordance with the provisions
of Section 4 hereof, Green Tree shall reimburse you for all reasonable out-of-
pocket expenses, including the reasonable fees and disbursements of counsel for
the Underwriter.
SECTION 6. Indemnification. (a) The Registrants agree jointly and
severally to indemnify and hold harmless the Underwriters and each person, if
any, who controls any of the Underwriters within the meaning of Section 15 of
the 1933 Act as follows:
(1) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, (x) arising out of any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(or any amendment thereto), including information deemed to be part of the
Registration Statement under the 1933 Act, or the omission or alleged
omission therefrom of a material fact required to be stated therein or
necessary to make the statements therein not misleading or (y) arising out
of any untrue statement or alleged untrue statement of a material fact
contained in the Prospectus (or any amendment or supplement thereto) or the
omission or alleged omission therefrom of a material fact necessary in
order to make the statements therein, in light of the circumstances under
which they were made, not misleading, unless such untrue statement or
omission or alleged untrue statement or omission was made in reliance upon
and in conformity with written information furnished to the Registrants by
the Underwriters expressly for use in the Registration Statement (or any
amendment thereto) or the Prospectus (or any amendment or supplement
thereto);
(2) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, (A) if such
settlement is effected with the written consent of the
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Registrants or (B) if such settlement is effected without the written
consent of the Registrants more than 30 days after receipt by the
Registrants of a notice from the Underwriters, substantially reflecting the
proposed terms of such settlement, to which the Registrants have not
responded prior to the date such settlement is effected; and
(3) against any and all expense whatsoever (including the fees and
disbursements of counsel chosen by you), reasonably incurred in
investigating, preparing to defend or defending against any litigation, or
investigation or proceeding by any governmental agency or body, commenced
or threatened, or any claim whatsoever based upon any such untrue statement
or omission, to the extent that any such expense is not paid under (1) or
(2) above, which expenses shall be reimbursed as they are incurred.
This indemnity agreement will be in addition to any liability which the
Registrants may otherwise have. Insofar as this indemnity may permit
indemnification for liabilities under the 1933 Act of any person who is a
partner of the Underwriters entitled to indemnity hereby or who controls the
Underwriters within the meaning of Section 15 of the 1933 Act and who, at the
date of this Agreement, is a director, officer or controlling person of the
Registrants, such indemnity agreement is subject to the undertaking of the
Registrants in the Registration Statement.
(b) Each Underwriter severally and not jointly agrees to indemnify and
hold harmless the Registrants, each of the Registrants' directors, each of the
Registrants' officers who signed the Registration Statement, and each person, if
any, who controls any of the Registrants within the meaning of Section 15 of the
1933 Act against any and all loss, liability, claim, damage and expense
described in the indemnity contained in subsection (a) of this Section, as
incurred, but only with respect to untrue statements or omissions, or alleged
untrue statements or omissions, made in the Registration Statement (or any
amendment thereto) or the Prospectus (or any amendment or supplement thereto) in
reliance upon and in conformity with written information furnished to the
Registrants by the Underwriters expressly for use in the Registration Statement
(or any amendment thereto) or the Prospectus (or any amendment or supplement
thereto).
This indemnity agreement will be in addition to any liability which such
Underwriter may otherwise have.
(c) Each indemnified party shall give prompt notice to each indemnifying
party of any action commenced against it with respect to which indemnity may be
sought hereunder but failure to so notify an indemnifying party shall not
relieve it from any liability which
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it may have on account of this indemnity agreement to the extent such
indemnifying party was not materially prejudiced by such failure or which it may
have otherwise than on account of this indemnity agreement. An indemnifying
party may participate at its own expense in the defense of such action;
provided, however, that counsel to the indemnifying party shall not (except with
the consent of the indemnified party) also be counsel to the indemnified party.
In no event shall the indemnifying parties be liable for the fees and expenses
of more than one counsel (in addition to local counsel) for all indemnified
parties in connection with any one action or separate but similar or related
actions in the same jurisdiction arising out of the same general allegations or
circumstances.
SECTION 7. Contribution. In order to provide for just and equitable
contribution in circumstances in which the indemnity agreement provided for in
Section 6 hereof is for any reason held to be unenforceable by the indemnified
parties although applicable in accordance with its terms, the Registrants on the
one hand, and the Underwriters, on the other, shall contribute to the aggregate
losses, liabilities, claims, damages and expenses of the nature contemplated by
said indemnity agreement incurred by the Registrants and one or more of the
Underwriters (i) in such proportion as shall be appropriate to reflect the
relative benefit received by the Underwriters, as represented by the percentage
that the Underwriting discount or discounts on the cover of such Prospectus
bears to the initial public offering price or prices as set forth thereon, and
the Registrants shall be responsible for the balance; or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the benefit referred to in
clause (i) above but also the relative fault of the Registrants on the one hand
and the Underwriters on the other with respect to statements or omissions which
resulted in such loss, claim, damage or liability, or action in respect thereof,
as well as any other relevant equitable considerations; provided, however, that
no person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the 1933 Act) shall be entitled to contribution from any person who
was not guilty of such fraudulent misrepresen tation. For purposes of this
Section, each person, if any, who controls the Underwriters within the meaning
of Section 15 of the 1933 Act shall have the same rights to contribution as the
Underwriters and each director of the Registrants, each officer of the
Registrants who signed the Registration Statement, and each person, if any, who
controls the Registrants within the meaning of Section 15 of the 1933 Act shall
have the same rights to contribution as the Registrants. All liability of the
Registrants under the Section 7 shall be joint and several.
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SECTION 8. Representations, Warranties and Agreements to Survive Delivery.
All representations, warranties and agreements contained in this Agreement, or
contained in certificates of officers of the Registrants submitted pursuant
hereto, shall remain operative and in full force and effect, regardless of any
termination of this Agreement, or any investigation made by or on behalf of the
Underwriters or controlling person thereof, or by or on behalf of the
Registrants and shall survive delivery of any Notes to the Underwriters.
SECTION 9. Termination of Agreement. The Underwriters may terminate this
Agreement, immediately upon notice to the Registrants, at any time at or prior
to the Closing Time (i) if there has been, since the date of this Agreement any
changes, or any development involving a prospective change in, or affecting, the
condition, financial or otherwise, earnings, affairs or business of the
Registrants whether or not arising in the ordinary course of business, which in
your judgment would materially impair the market for, or the investment quality
of, the Notes, or (ii) if there has occurred any material adverse change in the
financial markets in the United States or if there has occurred any outbreak or
escalation of hostilities or other calamity or crisis the effect of which on the
financial markets of the United States is such as to make it, in your judgment,
impracticable to proceed with the offering or delivery of the Notes or enforce
contracts for the sale of the Notes, or (iii) if trading in any securities of
Green Tree has been suspended or limited by the Commission or the New York Stock
Exchange, or if trading generally on either the New York Stock Exchange or the
American Stock Exchange has been suspended, or minimum or maximum prices for
securities have been required, by either of said exchanges or by order of the
Commission or any other governmental authority, or if a banking moratorium has
been declared by either Federal, Minnesota, or New York authorities. In the
event of any such termination, (A) the covenants set forth in Section 3 with
respect to the offering of Notes shall remain in effect so long as the
Underwriters own any such Notes purchased from the Registrants pursuant to the
Terms Agreement and (B) the covenant set forth in Section 3(b), the provisions
of Section 5, the indemnity agreement set forth in Section 6, and the
contribution provisions set forth in Section 7, and the provisions of
Sections 11 shall remain in effect.
SECTION 10. Notices. All notices and other communications hereunder shall
be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunications. Notices to the
Underwriters shall be directed to you at the addresses set forth on the first
page hereof, attention of the Syndicate Registration Department. Notices to
the Issuer, the SPC and Green Tree shall be directed to [1100 Landmark
22
<PAGE>
Towers, 345 St. Peter Street, Saint Paul, Minnesota 55102-1639, attention of the
Secretary, with a copy to the Treasurer.]
SECTION 11. Parties. This Agreement shall inure to the benefit of and be
binding upon you and the Registrants and their respective successors. Nothing
expressed or mentioned in this Agreement is intended or shall be construed to
give any person, firm or corporation, other than the parties hereto and their
respective successors and the controlling persons and officers and directors
referred to in Sections 7, 8 and 9 and their heirs and legal representatives any
legal or equitable right, remedy or claim under or with respect to this
Agreement or any provision herein or therein contained. This Agreement and all
conditions and provisions hereof are intended to be for the sole and exclusive
benefit of the parties and their respective successors and said controlling
persons and officers and directors and their heirs and legal representatives (to
the extent of their rights as specified herein and therein) and for the benefit
of no other person, firm or corporation. No purchaser of Notes from any
Underwriters shall be deemed to be a successor by reason merely of such
purchase.
SECTION 12. Governing Law and Time. This Agreement and each Terms
Agreement shall be governed by the laws of the State of New York. Specified
times of day refer to New York City time.
SECTION 13. Counterparts. This Agreement including the Terms Agreement
may be executed in counterparts, each of which shall constitute an original of
any party whose signature appears on it, and all of which shall together
constitute a single instrument.
23
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to us a counterpart hereof, whereupon this instrument
along with all counterparts will become a binding agreement between you and the
Registrants in accordance with its terms.
Very truly yours,
GREEN TREE LEASE FINANCE II, INC.
By: ___________________________
Name:
Title:
GREEN TREE LEASE FINANCE 1997-1, LLC
By: ___________________________
Name:
Title:
GREEN TREE FINANCIAL CORPORATION
By: ___________________________
Name:
Title:
CONFIRMED AND ACCEPTED, as of
the date first above written:
LEHMAN BROTHERS INC.
By: ________________________________
Name:
Title:
[OTHER UNDERWRITERS]
By: ________________________________
Name:
Title:
<PAGE>
EXHIBIT A
GREEN TREE LEASE FINANCE II, INC. ("SPC"),
GREEN TREE LEASE FINANCE 1997-1, LLC ("Issuer"),
AND GREEN TREE FINANCIAL CORPORATION ("Green Tree")
Lease-Backed Notes, Class A-1,
Class A-2, Class B and Class C
FORM OF TERMS AGREEMENT
-----------------------
Dated: December __, 1997
To: Green Tree Lease Finance II, Inc. ("SPC")
Green Tree Lease Finance 1997-1, LLC ("Issuer")
Green Tree Financial Corporation ("Green Tree")
Re: Underwriting Agreement dated December __, 1997
Series Designation: Lease-Backed Notes
- ------------------ Class A-1, Class A-2, Class B, Class C
Co-managers:
- -----------
Lehman Brothers Inc. ("Lehman Brothers")
[Other Underwriters]
Terms of the Notes:
- ------------------
Outstanding
Principal Interest
Class Amount* Rate
- ----- --------- ----------
Class A-1 $_____________ ____% per annum,
computed on the basis of actual
days elapsed in a 360-day year
Class A-2 $_____________ ____% per annum,
A-1
<PAGE>
computed on the basis
of a 360-day year of
twelve 30-day months
Class B $_____________ ____% per annum,
computed on the basis
of a 360-day year of
twelve 30-day months
Class C $_____________ ____% per annum,
computed on the basis
of a 360-day year of
twelve 30-day months
* Approximate. Subject to permitted variance of plus or minus 5%.
A-2
<PAGE>
Note Ratings:
- ------------
Class A-1: [______] by Standard & Poor's ("S&P") and
[______] by Fitch Investors Service, L.P.
("Fitch").
Class A-2: [______] by S&P and [______] by Fitch.
Class B: [______] by S&P and [______] by Fitch.
Class C: [______] by S&P and [______] by Fitch.
Payment Dates:
- -------------
The 20th day (or if such day is not a business day, the next succeeding
business day) of each month commencing January 20, 1998.
Purchase Price:
- --------------
Subject to the terms of the following paragraph, the purchase price payable
by the Underwriters for each Class of Notes is as follows: _______% of the
principal amount of the Class A-1 Notes; _________% of the principal amount of
the Class A-2 Notes; _________% of the principal amount of the Class B Notes and
______% of the principal amount of the Class C Notes.
[Any allocation of the Notes among Lehman Brothers, [Other Underwriter] and
[Other Underwriter] will be governed by the Agreement Among Underwriters.]
Payment of the purchase price shall be in immediately available Federal
funds wired to such bank as may be designated by the Issuer.
Underwriting Commission:
- -----------------------
Notwithstanding anything to the contrary in the Underwriting Agreement, no
additional underwriting commission shall be payable by the Issuer to the
Underwriters in connection with the purchase of the Notes.
Public Offering price and/or method of determining price at which the
Underwriters will sell the Notes:
Class A-1: ________%
Class A-2: ________%
A-3
<PAGE>
Class B: ________%
Class C: ________%
Closing Date and Location:
- -------------------------
On or about December __, 1997, offices of Dorsey & Whitney L.L.P.,
Minneapolis, Minnesota.
A-4
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to us a counterpart hereof, whereupon this instrument
along with all counterparts will become a binding agreement between you and the
Registrants in accordance with its terms.
LEHMAN BROTHERS INC.
By: ________________________________
Name:
Title:
[OTHER UNDERWRITERS]
ACCEPTED:
GREEN TREE LEASE FINANCE II, INC.
By: ___________________________
Name:
Title:
GREEN TREE LEASE FINANCE 1997-1, LLC
By: ___________________________
Name:
Title:
GREEN TREE FINANCIAL CORPORATION
By: ___________________________
Name:
Title:
<PAGE>
Exhibit 23.4
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Green Tree Financial Corporation:
We consent to the use of our report included herein and to the reference to our
firm under the heading "EXPERTS."
/s/ KPMG Peat Marwick LLP
Minneapolis, Minnesota
December 15, 1997
