<PAGE>
Filed Pursuant to Rule 424(b)(5)
File No. 333-15437
PROSPECTUS SUPPLEMENT
(To Prospectus dated March 14, 1997)
[LOGO OF GREEN TREE APPEARS HERE]
$250,000,000
(Approximate)
Green Tree Financial Corporation
(Seller and Servicer)
Green Tree Recreational, Equipment & Consumer Trust 1997-A
$65,000,000 (Approximate) Floating Rate Asset-Backed Notes, Class A-1A
$136,250,000 (Approximate) Floating Rate Asset-Backed Notes, Class A-1B
$12,500,000 (Approximate) Floating Rate Asset-Backed Notes, Class A-2
$11,875,000 (Approximate) Floating Rate Asset-Backed Notes, Class A-3
$9,375,000 (Approximate) Floating Rate Asset-Backed Notes, Class A-4
$15,000,000 (Approximate) 7.43% Asset-Backed Certificates
----------------
GREEN TREE RECREATIONAL, EQUIPMENT & CONSUMER TRUST 1997-A (THE "TRUST")
WILL BE FORMED PURSUANT TO A TRUST AGREEMENT, TO BE DATED AS OF MARCH 1, 1997
(THE "TRUST AGREEMENT"), AMONG GREEN TREE FINANCIAL CORPORATION ("GREEN
TREE"), GREEN TREE SECOND GP INC. (THE "GENERAL PARTNER") AND WILMINGTON TRUST
COMPANY, AS OWNER TRUSTEE. THE TRUST WILL ISSUE FIVE CLASSES (EACH A "CLASS")
OF FLOATING RATE ASSET-BACKED NOTES, DESIGNATED AS THE CLASS A-1A, CLASS A-1B,
CLASS A-2, CLASS A-3 AND CLASS A-4 NOTES, RESPECTIVELY, PURSUANT TO AN
INDENTURE, TO BE DATED AS OF MARCH 1, 1997 (THE "INDENTURE"), BETWEEN THE
TRUST AND FIRST TRUST NATIONAL ASSOCIATION, AS INDENTURE TRUSTEE. THE CLASS A-
1A NOTES, CLASS A-1B NOTES, CLASS A-2 NOTES, CLASS A-3 NOTES AND CLASS A-4
NOTES ARE COLLECTIVELY REFERRED TO HEREIN AS THE "NOTES." THE TRUST WILL ALSO
ISSUE 7.43% ASSET-BACKED CERTIFICATES (THE "CERTIFICATES" AND, TOGETHER WITH
THE NOTES, THE "SECURITIES"). THE TRUST PROPERTY WILL INCLUDE A POOL OF RETAIL
INSTALLMENT SALES CONTRACTS AND PROMISSORY NOTES (THE "CONTRACTS") FOR THE
PURCHASE OF A VARIETY OF CONSUMER PRODUCTS AND EQUIPMENT (THE "PRODUCTS"), AND
ALL PAYMENTS DUE
(Continued on following page)
FOR A DISCUSSION OF CERTAIN FACTORS WHICH SHOULD BE CONSIDERED BY
PROSPECTIVE PURCHASERS OF THE SECURITIES, SEE "RISK FACTORS" ON PAGE S-15
HEREIN AND ON PAGE 13 IN THE ACCOMPANYING PROSPECTUS.
----------------
THE NOTES REPRESENT OBLIGATIONS OF, AND THE CERTIFICATES REPRESENT INTERESTS
IN, THE TRUST ONLY AND DO NOT REPRESENT OBLIGATIONS OF OR INTERESTS IN
GREEN TREE, THE GENERAL PARTNER OR ANY OF THEIR RESPECTIVE AFFILIATES,
EXCEPT TO THE LIMITED EXTENT DESCRIBED HEREIN.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO PUBLIC (1) DISCOUNT GREEN TREE (1)(2)
------------------- ------------ -----------------
<S> <C> <C> <C>
Per Class A-1A Note........ 100% .375% 99.675%
Per Class A-1B Note........ 100% .425% 99.575%
Per Class A-2 Note......... 100% .55% 99.45%
Per Class A-3 Note......... 100% .75% 99.25%
Per Class A-4 Note......... 100% .95% 99.05%
Per Certificate............ 99.984375% .95% 99.034375%
Total...................... $249,997,656.25 $1,179,687.50 $248,817,968.75
</TABLE>
- --------
(1) Plus accrued interest, if any, from and including March 20, 1997.
(2) Before deducting estimated expenses of $425,000 payable by Green Tree.
----------------
The Securities are offered hereby by the Underwriters named below, subject
to receipt and acceptance by the Underwriters and their right to reject any
order in whole or in part. It is expected that delivery of the Securities will
be made on or about March 20, 1997 (the "Closing Date").
----------------
MORGAN STANLEY & CO. MERRILL LYNCH & CO.
Incorporated
March 14, 1997
<PAGE>
(Continued from preceding page)
THEREUNDER ON OR AFTER MARCH 1, 1997 OR THE DATE OF ORIGINATION, IF LATER (THE
"CUTOFF DATE"). THE CONTRACTS WERE ORIGINATED OR PURCHASED BY GREEN TREE IN
THE ORDINARY COURSE OF ITS BUSINESS. THE TRUST PROPERTY WILL ALSO INCLUDE AN
ASSIGNMENT OF GREEN TREE'S SECURITY INTERESTS IN THE PRODUCTS AND CERTAIN
OTHER PROPERTY, AS MORE FULLY DESCRIBED HEREIN. CONTRACTS ORIGINATED THROUGH
FEBRUARY 24, 1997 WHICH WILL BE INCLUDED IN THE TRUST ARE REFERRED TO HEREIN
AS THE "INITIAL CONTRACTS." THE SALE AND SERVICING AGREEMENT WILL PROVIDE THAT
ADDITIONAL CONTRACTS WILL BE PURCHASED BY THE TRUST FROM GREEN TREE ON THE
CLOSING DATE (THE "SUBSEQUENT CONTRACTS"). GREEN TREE WILL ALSO ACT AS
SERVICER OF THE CONTRACTS. TERMS USED AND NOT OTHERWISE DEFINED HEREIN HAVE
THE MEANINGS ASCRIBED THERETO IN THE ACCOMPANYING PROSPECTUS DATED MARCH 14,
1997 (THE "PROSPECTUS").
The per annum rate of interest on the Notes for each monthly interest period
will equal one-month LIBOR (as defined herein) plus .06% for the Class A-1A
Notes, plus .15% for the Class A-1B Notes, plus .27% for the Class A-2 Notes,
plus .37% for the Class A-3 Notes and plus .52% for the Class A-4 Notes, each
subject to a maximum rate of 10.75% per annum (or 12% per annum for the Class
A-1B Notes).
Principal and interest on the Notes are payable on the 15th day of each
month (or, if the 15th day is not a business day, the next business day
thereafter) (a "Distribution Date"), beginning in April 1997. The rights of
the holders of Class A-1A Notes and Class A-1B Notes (together, the "Class A-1
Notes") to receive distributions of interest and principal on each
Distribution Date will rank equally, with the holders of the Class A-1A Notes
entitled to receive 67% of the principal payable on the Class A-1 Notes (until
the Class A-1A Principal Balance has been reduced to zero) and the holders of
the Class A-1B Notes entitled to receive 33% of the principal payable on the
Class A-1 Notes (100% after the Class A-1A Principal Balance has been reduced
to zero). The rights of the holders of the Class A-2, Class A-3 and Class A-4
Notes and the Certificates to receive distributions on each Distribution Date
will be subordinated to such rights of the Class A-1 Noteholders; such rights
of the holders of the Class A-3 and Class A-4 Notes and the Certificates will
be subordinated to such rights of the Class A-2 Noteholders; such rights of
the holders of the Class A-4 Notes and the Certificates will be subordinated
to such rights of the Class A-3 Noteholders; and such rights of the
Certificateholders will be subordinated to such rights of the Class A-4
Noteholders.
The Certificates will represent fractional undivided interests in the Trust.
Interest will be distributed to the Certificateholders on each Distribution
Date as set forth herein. No distributions of principal on the Certificates
will be payable until all of the Notes have been paid in full. The
Certificateholders will have the benefit of a Limited Guaranty of Green Tree
to protect against losses that would otherwise be absorbed by the
Certificates. To the extent that available funds in the Collection Account are
insufficient to distribute to the holders of the Certificates the
Certificateholders' Distributable Amount (as described herein), Green Tree
will be obligated to make a payment under the Limited Guaranty equal to the
amount of such deficiency.
The Securities initially will be represented by certificates registered in
the name of Cede & Co., the nominee of The Depository Trust Company ("DTC").
The interests of beneficial owners of the Securities will be represented by
book entries on the records of the participating members of DTC. Definitive
Securities will be available only under the limited circumstances described
herein. Holders of the Securities may hold through DTC (in the United States)
or, solely in the case of the Notes, through CEDEL or Euroclear (as defined
herein) (in Europe) if they are participants of such systems, or indirectly
through organizations that are participants in such systems. The Certificates
may not be held, directly or indirectly, through CEDEL or Euroclear.
The Certificates may not be offered or sold in the United Kingdom. The Notes
may not be offered or sold in the United Kingdom by means of any document
except in circumstances which do not constitute an offer to the public within
the meaning of the Public Offers of Securities Regulations 1995. All
applicable provisions of the Financial Services Act of 1986 must be complied
with in connection with anything done in relation to the Notes in, from or
otherwise involving the United Kingdom. See "Underwriting."
There currently is no secondary market for the Securities. The Underwriters
expect, but are not obligated, to make a market in the Securities. There is no
assurance that any such market will develop or continue.
---------------
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT THE
OFFERING OF THE SECURITIES. ADDITIONAL INFORMATION IS CONTAINED IN THE
PROSPECTUS AND PROSPECTIVE INVESTORS ARE URGED TO READ BOTH THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS IN FULL. SALES OF THE SECURITIES MAY NOT BE
CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS SUPPLEMENT
AND THE PROSPECTUS.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES
OFFERED HEREBY. SUCH TRANSACTIONS MAY INCLUDE STABILIZING AND THE PURCHASE OF
SECURITIES TO COVER SYNDICATE SHORT POSITIONS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
REPORTS TO SECURITYHOLDERS
Unless and until Definitive Securities are issued, unaudited monthly and
annual reports, containing information concerning the Trust and prepared by
the Servicer, will be sent on behalf of the Trust to the Indenture Trustee,
the Owner Trustee, and Cede & Co., as registered holder of the Securities and
the nominee of DTC. See "Description of the Trust Documents and Indenture--
Statements to Securityholders," herein and "Certain Information Regarding the
Securities--Book-Entry Registration" and "--Reports to Securityholders" in the
accompanying Prospectus. Security Owners may receive such reports, upon
written request, together with a certification that they are Security Owners
and payment of reproduction and postage expenses associated with the
distribution of such reports, from the Indenture Trustee at 180 East Fifth
Street, St. Paul, Minnesota 55101, Attention: Corporate Trust Administration,
Structured Finance. Such reports will not constitute financial statements
prepared in accordance with generally accepted accounting principles. The
Servicer, on behalf of the Trust, will file with the Securities and Exchange
Commission (the "Commission") periodic reports concerning the Trust to the
extent required under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations of the Commission thereunder.
However, in accordance with the Exchange Act and the rules and regulations of
the Commission thereunder, Green Tree expects that the Trust's obligation to
file such reports will be terminated following the end of 1997.
S-2
<PAGE>
SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus Supplement and in
the accompanying Prospectus. Capitalized terms used herein and not otherwise
defined herein shall have the respective meanings ascribed to such terms
elsewhere in this Prospectus Supplement or the accompanying Prospectus.
Issuer........................ Green Tree Recreational, Equipment & Consumer
Trust 1997-A (the "Trust"), a Delaware business
trust to be formed on March 20, 1997, pursuant
to a Trust Agreement, dated as of March 1, 1997
(the "Trust Agreement"), among Green Tree
Second GP Inc. (the "General Partner"), Green
Tree Financial Corporation ("Green Tree") and
Wilmington Trust Company, as Owner Trustee (the
"Owner Trustee").
Seller and Servicer........... Green Tree Financial Corporation. See "Green
Tree Financial Corporation" in the accompanying
Prospectus.
Indenture Trustee............. First Trust National Association, St. Paul,
Minnesota (the "Indenture Trustee"). See "The
Notes--The Indenture Trustee" in the
accompanying Prospectus.
Owner Trustee................. Wilmington Trust Company, as Owner Trustee
under the Trust Agreement. See "Description of
the Trust Documents--The Trustee" in the
accompanying Prospectus.
The Notes..................... The Trust will issue five classes of Floating
Rate Asset-Backed Notes, designated as the
Class A-1A, Class A-1B, Class A-2, Class A-3
and Class A-4 Notes, respectively. The Class A-
1A Notes, Class A-1B Notes, Class A-2 Notes,
Class A-3 Notes and Class A-4 Notes are
collectively referred to herein as the "Notes."
The rights of the holders of each Class of
Notes to receive distributions will be
subordinated to the rights of the holders of
each Class of Notes with a prior numeric
designation, in the manner and to the extent
described herein.The rights of the holders of
Class A-1A Notes and Class A-1B Notes
(together, the "Class A-1 Notes"), to receive
distributions of interest and principal on each
Distribution Date will rank equally, with the
holders of Class A-1A Notes entitled to receive
67% of the principal payable on the Class A-1
Notes (until the Class A-1A Principal Balance
has been reduced to zero) and the holders of
the Class A-1B Notes entitled to receive 33% of
the principal payable on the Class A-1 Notes
(100% after the Class A-1A Principal Balance
has been reduced to zero). The Notes will be
issued pursuant to an Indenture, dated as of
March 1, 1997 (the "Indenture"), between the
Trust and the Indenture Trustee. The Notes will
be offered for purchase in denominations of
$1,000 and integral multiples thereof in book-
entry form only. See "Certain Information
Regarding the Securities--Book-Entry
Registration" in the accompanying Prospectus.
Original Class A-1A Principal $65,000,000 (Approximate. Subject to a
Balance....................... permitted variance of plus or minus 5%).
S-3
<PAGE>
Original Class A-1B Principal $136,250,000 (Approximate. Subject to a
Balance....................... permitted variance of plus or minus 5%).
Original Class A-2 Principal $12,500,000 (Approximate. Subject to a
Balance....................... permitted variance of plus or minus 5%).
Original Class A-3 Principal $11,875,000 (Approximate. Subject to a
Balance....................... permitted variance of plus or minus 5%).
Original Class A-4 Principal $9,375,000 (Approximate. Subject to a permitted
Balance....................... variance of plus or minus 5%).
The Certificates.............. The Trust will issue 7.43% Asset-Backed
Certificates (the "Certificates") representing
fractional undivided interests in the Trust.
The rights of the holders of the Certificates
(the "Certificateholders") to receive
distributions will be subordinated to the
rights of the holders of the Notes (the
"Noteholders") in the manner and to the extent
described herein. The Certificates will be
issued pursuant to the Trust Agreement. The
Certificates will be offered for purchase in
denominations of $1,000 and integral multiples
thereof in book-entry form only. See "Certain
Information Regarding the Securities--Book-
Entry Registration" in the accompanying
Prospectus.
Original Certificate $15,000,000 (Approximate. Subject to a
Principal Balance............. permitted variance of plus or minus 5%).
Distribution Date............. The 15th day of each month (or if such 15th day
is not a Business Day, the next Business Day
thereafter) commencing in April 1997. A
"Business Day" is a day on which banking
institutions in Minneapolis or St. Paul,
Minnesota, or in New York City, New York, are
not required or authorized by law to be closed.
Record Date................... The Business Day immediately preceding the
related Distribution Date.
Trust Property................ Each Note will represent an obligation of, and
each Certificate will represent a fractional
undivided interest in, the Trust. The Trust's
assets (the "Trust Property") will include,
among other things, a pool (the "Contract
Pool") of retail installment sales contracts
and promissory notes for the purchase of a
variety of consumer products and equipment (the
"Products"), and all rights to receive payments
due thereon on or after March 1, 1997 (the
"Cutoff Date"). The Trust Property will also
include an assignment of Green Tree's security
interests in the Products and of the right to
receive proceeds from claims on certain
insurance policies covering the Products or the
Obligors (as defined herein); the Collection
Account, the Reserve Account, and certain other
accounts including all investments therein, all
income from the investment of funds therein and
all proceeds thereof; and certain other rights
under the Sale and Servicing Agreement to be
dated as of March 1, 1997 (the "Sale and
Servicing Agreement"), between Green Tree and
the Trust. The Contracts will be
S-4
<PAGE>
transferred by Green Tree to the Trust pursuant
to the Sale and Servicing Agreement, and Green
Tree will be obligated to repurchase Contracts
(each, a "Purchased Contract") upon the
occurrence of certain breaches of
representations and warranties thereunder. See
"The Trust" herein. Pursuant to the Indenture,
the Trust Property will be pledged to the
Indenture Trustee on behalf of the Noteholders.
Contracts..................... The Contracts were originated or purchased by
Green Tree in the ordinary course of business.
This Prospectus Supplement contains information
regarding the Initial Contracts. The Subsequent
Contracts will be purchased by the Trust on the
Closing Date. As of the Cutoff Date, the
Initial Contracts had a weighted average annual
percentage rate of 11.35% and a weighted
average remaining maturity of approximately 98
months. As of the Cutoff Date, no Initial
Contract had a scheduled maturity prior to
October 1997 and no Initial Contract was more
than 60 days past due. The final scheduled
payment date on the Initial Contract with the
latest maturity occurs in March 2017. The
Contracts are generally prepayable at any time
without penalty to the person or persons who
are obligated to make payments thereunder
(each, an "Obligor"). See "The Contract Pool"
herein and "The Contracts" in the accompanying
Prospectus.
Terms of the Notes............
The principal terms of the Notes will be as
described below:
A. Distributions........... Noteholders will be entitled to receive on each
Distribution Date, to the extent that the
Amount Available in the Collection Account is
sufficient therefor, the Noteholders'
Distributable Amount, as defined under
"Description of the Trust Documents and
Indenture." Distributions on the Notes will be
made first to the Class A-1 Noteholders, then
to the Class A-2 Noteholders, then to the Class
A-3 Noteholders, and then to the Class A-4
Noteholders, in the manner described below.
The "Amount Available" on each Distribution
Date generally includes payments on the
Contracts due and received during the preceding
month, prepayments and other unscheduled
collections received during the preceding
month, and all collections in respect of
principal on the Contracts received during the
current month up to and including the third
Business Day prior to such Distribution Date
(but in no event later than the 10th day of the
month in which the Distribution Date occurs),
any amounts deposited in respect of Purchased
Contracts, the Guaranty Payment, if any, and
all earnings from the investment of funds in
the Collection Account, minus, with respect to
all Distribution Dates other than the
Distribution Date in April 1997, all
collections of principal on the Contracts
received during the preceding month up to and
including the third Business Day prior to the
preceding Distribution Date (but in no event
later than the 10th day of the prior month).
S-5
<PAGE>
The outstanding principal amount of each Class
of Notes, to the extent not previously paid,
will be payable on the Distribution Date
occurring in April 2018 (the "Final Scheduled
Distribution Date").
B. Interest Rates.......... The per annum rate of interest on the Notes for
each monthly interest period will equal one-
month LIBOR (as defined below) for such period:
plus .06% for the Class A-1A Notes, subject
to a maximum rate of 10.75% per annum (the
"Class A-1A Rate"),
plus .15% for the Class A-1B Notes, subject
to a maximum rate of 12% per annum (the
"Class A-1B Rate"),
plus .27% for the Class A-2 Notes subject
to a maximum rate of 10.75% per annum (the
"Class A-2 Rate"),
plus .37% for the Class A-3 Notes, subject
to a maximum rate of 10.75% per annum (the
"Class A-3 Rate"),
plus .52% for the Class A-4 Notes, subject
to a maximum rate of 10.75% per annum (the
"Class A-4 Rate").
Interest on the Notes will be calculated on the
basis of the actual number of days in the
monthly interest period divided by 360.
"LIBOR" ("London Interbank Offered Rate") with
respect to any monthly interest period will be
established by the calculation agent appointed
by the Trust (the "Calculation Agent") and will
equal the offered rate for United States dollar
deposits for one month that appears on Telerate
Page 3750 as of 11:00 A.M., London time, on the
second LIBOR Business Day prior to such monthly
interest period (a "LIBOR Determination Date").
"Telerate Page 3750" means the display page so
designated on the Dow Jones Telerate Service
(or such other page as may replace that page on
that service, or such other service as may be
designated by the Calculation Agent as the
information vendor, for the purpose of
displaying London interbank offered rates of
major banks). If such rate appears on Telerate
Page 3750, LIBOR will be such rate. "LIBOR
Business Day" as used herein means a day that
is both a Business Day and a day on which
banking institutions in the City of London,
England are not required or authorized by law
to be closed. If on any LIBOR Determination
Date the offered rate does not appear on
Telerate Page 3750, the Calculation Agent will
request each of the reference banks (which
shall be major banks that are engaged in
transactions in the London interbank market
selected by the Calculation Agent) to provide
the Calculation Agent with its offered
quotation for United States dollar deposits for
one month to prime banks in the London
interbank market as of 11:00 A.M., London time,
on such date. If at least two reference banks
provide the Calculation Agent with such offered
quotations, LIBOR on such date will be the
arithmetic mean, rounded upwards, if necessary,
to the nearest 1/100,000 of 1% (.00001%), with
five one-millionths of a
S-6
<PAGE>
percentage point rounded upward, of all such
quotations. If on such date fewer than two of
the reference banks provide the Calculation
Agent with such offered quotations, LIBOR on
such date will be the arithmetic mean, rounded
upwards, if necessary, to the nearest 1/100,000
of 1% (.00001%), with five one-millionths of a
percentage point rounded upward, of the offered
per annum rates that one or more leading banks
in New York City selected by the Calculation
Agent are quoting as of 11:00 A.M., New York
City time, on such date to leading European
banks for United States dollar deposits for one
month; provided, however, that if such banks
are not quoting as described above, LIBOR for
such date will be LIBOR applicable to the
monthly interest period immediately preceding
such monthly interest period. The "Calculation
Agent" will initially be the Indenture Trustee.
The interest rates for the five classes of
Notes are referred to collectively herein as
the "Interest Rates."
C. Class A-1 Interest......
Interest on the outstanding Class A-1A
Principal Balance will accrue from March 20,
1997, or from the most recent Distribution
Date, to but excluding the following
Distribution Date, at the Class A-1A Rate for
such monthly interest period. The "Class A-1A
Principal Balance" as of any Distribution Date
will be the Original Class A-1A Principal
Balance minus all amounts previously
distributed to the Class A-1A Noteholders in
respect of principal and minus any unreimbursed
liquidation losses absorbed by the Class A-1A
Notes.
Interest on the outstanding Class A-1B
Principal Balance will accrue from March 20,
1997, or from the most recent Distribution
Date, to but excluding the following
Distribution Date, at the Class A-1B Rate for
such monthly interest period. The "Class A-1B
Principal Balance" as of any Distribution Date
will be the Original Class A-1B Principal
Balance minus all amounts previously
distributed to the Class A-1B Noteholders in
respect of principal and minus any unreimbursed
liquidation losses absorbed by the Class A-1B
Notes.
Interest will be paid on the Class A-1 Notes to
the extent of funds available on each
Distribution Date (as described under
"Description of the Notes" herein). In the
event that the funds available are not
sufficient to make a full distribution of
interest on the Class A-1 Notes, the available
funds will be distributed on the Class A-1A
Notes and the Class A-1B Notes pro rata based
on the outstanding Class A-1A Principal Balance
and the outstanding Class A-1B Principal
Balance and the amount of the shortfall will be
carried forward and added to the amount of
interest payable on the next Distribution Date.
Any amount so carried forward will bear
interest at the Class A-1A Rate or the Class A-
1B Rate, as applicable, to the extent legally
permissible. See "Description of the Notes."
S-7
<PAGE>
D. Class A-1 Principal..... Class A-1 Noteholders will be entitled to
receive on each Distribution Date as payment of
principal, to the extent of funds available
after payment of all interest then payable on
the Class A-1 Notes, an amount equal to the sum
of 85.64% (approximate) of the Formula
Principal Distribution Amount for such
Distribution Date plus the Unpaid Class A-1
Principal Shortfall (as described under
"Description of the Notes--Class A-1
Principal"), if any, from prior Distribution
Dates.
Until the Class A-1A Principal Balance has been
reduced to zero, 67% of the principal payable
on the Class A-1 Notes will be paid to the
holders of the Class A-1A Notes and 33% will be
paid to the holders of the Class A-1B Notes.
After the Class A-1A Principal Balance has been
reduced to zero, 100% of the principal payable
on the Class A-1 Notes will be paid to the
holders of the Class A-1B Notes.
The "Formula Principal Distribution Amount"
with respect to any Distribution Date will be
an amount equal to the sum of the following
amounts with respect to the related Monthly
Period, in each case computed in accordance
with the method specified in each Contract: (i)
all scheduled payments of principal due on each
outstanding Contract during the related Monthly
Period, (ii) the Scheduled Principal Balance of
each Contract which, during the related Monthly
Period, was purchased by Green Tree pursuant to
the Sale and Servicing Agreement on account of
a breach of a representation or warranty or by
the Servicer as a result of an uncured breach
of the covenants made by it with respect to the
Contracts, (iii) all Partial Principal
Prepayments applied and all Principal
Prepayments in Full received during the related
Monthly Period, (iv) the Scheduled Principal
Balance of each Contract that became a
Liquidated Contract during the related Monthly
Period, (v) with respect to the Distribution
Date in April 1997, an amount equal to the
Excess Proceeds, (vi) all collections in
respect of principal on the Contracts received
during the current month up to and including
the third business day prior to such
Distribution Date (but in no event later than
the 10th day of the month in which the
Distribution Date occurs), minus (vii) with
respect to all Distribution Dates other than
the Distribution Date in April 1997, all
collections of principal on the Contracts
received during the preceding month up to and
including the third business day prior to the
preceding Distribution Date (but in no event
later than the 10th day of the prior month).
"Excess Proceeds" means an amount equal to the
excess, if any, of (a) the aggregate of the
Original Class A-1A, Class A-1B, Class A-2,
Class A-3, Class A-4 and Certificate Principal
Balances over (b) the Cutoff Date Pool
Principal Balance. A "Monthly Period" with
respect to any Distribution Date is the
calendar month immediately preceding the month
in which such Distribution Date occurs. The
"Scheduled Principal Balance" of a Contract for
any Monthly Period is its principal
S-8
<PAGE>
balance as specified in its amortization
schedule, after giving effect to any previous
Partial Principal Prepayments and to the
scheduled payment due on its scheduled payment
date (the "Due Date") in that month, but
without giving effect to any adjustments due to
bankruptcy or similar proceedings. See
"Description of the Trust Documents and
Indenture --Distributions."
E. Class A-2 Interest...... Interest on the outstanding Class A-2 Principal
Balance will accrue from March 20, 1997, or
from the most recent Distribution Date, to but
excluding the following Distribution Date, at
the Class A-2 Rate for such monthly interest
period. The "Class A-2 Principal Balance" as of
any Distribution Date will be the Original
Class A-2 Principal Balance minus all amounts
previously distributed to the Class A-2
Noteholders in respect of principal and minus
any unreimbursed liquidation losses absorbed by
the Class A-2 Notes.
Interest will be paid on the Class A-2 Notes to
the extent of funds available on each
Distribution Date, after payment of all
interest and principal then payable on the
Class A-1 Notes. In the event such funds
available are not sufficient to make a full
distribution of interest on the Class A-2
Notes, the amount of the shortfall will be
carried forward and added to the amount of
interest payable on the next Distribution Date.
Any amount so carried forward will bear
interest at the Class A-2 Rate, to the extent
legally permissible. See "Description of the
Notes."
F. Class A-2 Principal..... Class A-2 Noteholders will be entitled to
receive on each Distribution Date as payment of
principal, to the extent of funds available
after payment of all interest and principal
then payable on the Class A-1 Notes and after
payment of all interest then payable on the
Class A-2 Notes, the sum of 5.32% (approximate)
of the Formula Principal Distribution Amount
for such Distribution Date plus the Unpaid
Class A-2 Principal Shortfall, if any, from
prior Distribution Dates.
G. Class A-3 Interest...... Interest on the outstanding Class A-3 Principal
Balance will accrue from March 20, 1997, or
from the most recent Distribution Date, to but
excluding the following Distribution Date, at
the Class A-3 Rate for such monthly interest
period. The "Class A-3 Principal Balance" as of
any Distribution Date will be the Original
Class A-3 Principal Balance minus all amounts
previously distributed to the Class A-3
Noteholders in respect of principal and minus
any unreimbursed liquidation losses absorbed by
the Class A-3 Notes.
Interest will be paid on the Class A-3 Notes to
the extent of funds available on each
Distribution Date, after payment of all
interest and principal then payable on the
Class A-2 Notes. In the event such funds
available are not sufficient to make a full
distribution of interest on the Class A-3
Notes, the amount of the shortfall will be
carried forward and added to the amount of
interest
S-9
<PAGE>
payable on the next Distribution Date. Any
amount so carried forward will bear interest at
the Class A-3 Rate, to the extent legally
permissible. See "Description of the Notes."
H. Class A-3 Principal..... Class A-3 Noteholders will be entitled to
receive on each Distribution Date as payment of
principal, to the extent of funds available
after payment of all interest and principal
then payable on the Class A-2 Notes and after
payment of all interest then payable on the
Class A-3 Notes, the sum of 5.05% (approximate)
of the Formula Principal Distribution Amount
for such Distribution Date plus the Unpaid
Class A-3 Principal Shortfall, if any, from
prior Distribution Dates.
I. Class A-4 Interest...... Interest on the outstanding Class A-4 Principal
Balance will accrue from March 20, 1997, or
from the most recent Distribution Date, to but
excluding the following Distribution Date, at
the Class A-4 Rate for such monthly interest
period. The "Class A-4 Principal Balance" as of
any Distribution Date will be the Original
Class A-4 Principal Balance minus all amounts
previously distributed to the Class A-4
Noteholders in respect of principal and minus
any unreimbursed liquidation losses absorbed by
the Class A-4 Notes.
Interest will be paid on the Class A-4 Notes to
the extent of funds available on each
Distribution Date, after payment of all
interest and principal then payable on the
Class A-3 Notes. In the event such funds
available are not sufficient to make a full
distribution of interest on the Class A-4
Notes, the amount of the shortfall will be
carried forward and added to the amount of
interest payable on the next Distribution Date.
Any amount so carried forward will bear
interest at the Class A-4 Rate, to the extent
legally permissible. See "Description of the
Notes."
J. Class A-4 Principal..... Class A-4 Noteholders will be entitled to
receive on each Distribution Date as payment of
principal, to the extent of funds available
after payment of all interest and principal
then payable on the Class A-3 Notes and after
payment of all interest then payable on the
Class A-4 Notes, the sum of 3.99% (approximate)
of the Formula Principal Distribution Amount
for such Distribution Date plus the Unpaid
Class A-4 Principal Shortfall, if any, from
prior Distribution Dates.
K. Optional Redemption..... The Notes will be redeemed in whole, but not in
part, on any Distribution Date on which Green
Tree exercises its option to purchase the
Contracts, which, subject to certain provisions
in the Sale and Servicing Agreement, can occur
after the Pool Scheduled Principal Balance
declines to 10% or less of the Cutoff Date Pool
Principal Balance, at a redemption price equal
to the unpaid principal amount of the Notes
plus accrued and unpaid interest thereon. The
"Pool Scheduled Principal Balance" is the
aggregate Scheduled Principal Balance of all
outstanding Contracts during a Monthly Period.
See "Description of the Notes--Optional
Redemption."
Reserve Account............... Noteholders will have the benefit of an account
(the "Reserve Account") to be held by the
Indenture Trustee. On any
S-10
<PAGE>
Distribution Date, if the funds available in
the Note Distribution Account (after making all
distributions on each Class of Notes with a
prior numeric designation) are insufficient to
make full payment in respect of interest or
principal then payable on a Class of Notes, the
Indenture Trustee will withdraw the amount of
the deficiency from the Reserve Account (or the
amount on deposit in the Reserve Account, if
less) and deposit such amount in the Note
Distribution Account for distribution to the
applicable Class.
On the Closing Date, the amount on deposit in
the Reserve Account will be zero. On each
Distribution Date, the Indenture Trustee will
deposit all funds remaining in the Collection
Account, after distribution of all interest and
principal then payable on the Notes and all
interest then payable on the Certificates, into
the Reserve Account until the amount on deposit
in the Reserve Account equals 1.5% of the
Cutoff Date Pool Principal Balance. On the
first Distribution Date on which the
Certificate Principal Balance equals at least
9.5% of the Pool Scheduled Principal Balance,
the amount required to be on deposit in the
Reserve Account will be reduced to .5% of the
Cutoff Date Pool Principal Balance (subject to
further adjustment as provided in the Sale and
Servicing Agreement). If the Reserve Account is
drawn upon, it will be replenished to the
extent provided in the Sale and Servicing
Agreement and the Indenture. The Reserve
Account is included in the Trust Property. See
"Description of the Notes--The Reserve
Account."
Terms of the Certificates..... The principal terms of the Certificates will be
as described below:
A. Distributions............. Certificateholders will be entitled to receive
on each Distribution Date, to the extent the
Amount Available in the Collection Account
including the Guaranty Payment described below
is sufficient therefor, the Certificateholders'
Distributable Amount, as defined under
"Description of the Trust Documents and
Indenture."
The outstanding principal amount of the
Certificates, to the extent not previously
paid, will be payable on the Final Scheduled
Distribution Date.
B. Pass-Through Rate......... 7.43% per annum (the "Pass-Through Rate")
payable monthly at one-twelfth of the annual
rate, calculated on the basis of a 360-day year
consisting of twelve 30-day months.
C. Interest.................. On each Distribution Date, the Owner Trustee
will distribute to the Certificateholders, to
the extent the Amount Available in the
Collection Account including the Guaranty
Payment described below is sufficient therefor,
accrued interest at the Pass-Through Rate on
the outstanding Certificate Principal Balance.
Interest in respect of a Distribution Date will
accrue from March 20, 1997, or from the most
recent Distribution Date to but excluding the
following Distribution Date. The "Certificate
Principal Balance" as of any Distribution Date
will be the Original Certificate
S-11
<PAGE>
Principal Balance minus all amounts previously
distributed to the Certificateholders in
respect of principal and minus any unreimbursed
liquidation losses absorbed by the
Certificates.
Interest will be paid on the Certificates to
the extent of funds available on each
Distribution Date, after payment of all
interest and principal then payable on the
Notes. In the event such funds available are
not sufficient to make a full distribution of
interest on the Certificates, the amount of the
shortfall will be carried forward and added to
the amount of interest payable on the next
Distribution Date. Any amount so carried
forward will bear interest at the Pass-Through
Rate, to the extent legally permissible. See
"Description of the Certificates."
D. Principal................. No distributions of principal on the
Certificates will be payable until all of the
Notes have been paid in full. On each
Distribution Date commencing on the
Distribution Date on which the Notes are paid
in full, principal on the Certificates will be
payable in an amount equal to the Certificate
Percentage of the Formula Principal
Distribution Amount for such Distribution Date
(less, on the Distribution Date on which the
Notes are paid in full, the portion thereof
payable on the Notes), plus the Unpaid
Certificate Principal Shortfall, if any, from
prior Distribution Dates. The "Certificate
Percentage" for each Distribution Date will be
zero until all of the Notes are paid in full
and will be 100% thereafter. See "Description
of the Trust Documents and Indenture."
E. Limited Guaranty.......... In order to mitigate the effect of the
subordination of the Certificates and the
effect of liquidation losses on the Contracts,
the Certificateholders are entitled to receive
on each Distribution Date an amount equal to
the Guaranty Payment, if any, under Green
Tree's Limited Guaranty. The "Guaranty Payment"
for any Distribution Date will equal the
difference, if any, between the
Certificateholders' Distributable Amount (equal
to accrued and unpaid interest on the
Certificates, plus the Certificate Percentage
of the Formula Principal Distribution Amount,
plus any Unpaid Certificate Principal Shortfall
for such Distribution Date, and plus any
unreimbursed Certificate Principal Liquidation
Loss (as described under "Description of the
Certificates--Losses on Liquidated Contracts"
herein)) and the remaining funds available in
the Collection Account after payment of all
interest and principal on the Notes and the
deposit in the Reserve Account of any amounts
previously withdrawn from the Reserve Account
and not previously replenished.
F. Optional Prepayment....... If Green Tree or the Servicer exercises its
option to purchase the Contracts, which,
subject to certain provisions in the Sale and
Servicing Agreement, can occur after the Pool
Scheduled Principal Balance declines to 10% or
less of the Cutoff Date Pool Principal Balance,
the Certificateholders will receive an amount
in respect of the Certificates equal to the
Certificate Principal Balance, together with
accrued interest at the Pass-Through Rate, and
the Certificates will be retired. See
"Description of the Certificates--Optional
Prepayment."
S-12
<PAGE>
Collection Account; Priority Except under certain conditions described
of Payments................... herein or as otherwise acceptable to each
Rating Agency, the Servicer will be required to
remit payments received with respect to the
Contracts within one business day of receipt
thereof to an account in the name of the
Indenture Trustee (the "Collection Account").
On each Distribution Date, the Servicer will
instruct the Indenture Trustee to withdraw
funds on deposit in the Collection Account and
to apply such funds on such Distribution Date
as follows (in the priority indicated): (i) if
Green Tree is not the Servicer, the monthly
servicing fee, together with any unpaid
servicing fees from prior Distribution Dates,
(ii) reimbursement of any advances made that
were recovered during the prior Monthly Period,
(iii) the Noteholders' Interest Distributable
Amount, the Noteholders' Principal
Distributable Amount and any amounts previously
withdrawn from the Reserve Account and not
previously replenished, (iv) the
Certificateholders' Interest Distributable
Amount and, after the Notes have been paid in
full, the Certificateholders' Principal
Distributable Amount, (v) the amount necessary
to fully fund the Reserve Account and (vi) any
remaining amount will be paid to Green Tree as
the monthly servicing and guaranty fee (the
"Monthly Servicing and Guaranty Fee").
Tax Status.................... In the opinion of counsel to Green Tree, for
federal and Minnesota income tax purposes, the
Notes will be characterized as debt, and the
Trust will not be characterized as an associa-
tion (or a publicly traded partnership) taxable
as a corporation. Each Noteholder, by the ac-
ceptance of a Note, will agree to treat the
Notes as debt. Each Certificateholder, by the
acceptance of a Certificate, will agree to
treat the Trust as a partnership in which the
Certificateholders are partners for federal in-
come tax purposes. Alternative charac-
terizations of the Trust and the Certificates
are possible, but would not result in materi-
ally adverse tax consequences to
Certificateholders. See "Certain Federal and
State Income Tax Consequences" herein and "Cer-
tain Federal Income Tax Consequences" and "Cer-
tain State Income Tax Consequences" in the ac-
companying Prospectus.
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 Trust 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, and the
Internal Revenue Code of 1986, as amended, that
otherwise would possibly be applicable. Green
Tree believes that the Notes should be treated
as indebtedness without substantial equity
features for purposes of such regulation.
The Certificates may not be acquired by, or on
the behalf of, any employee benefit plan,
individual retirement account or Keogh
S-13
<PAGE>
Plan subject to either Title I of the Employee
Retirement Income Security Act of 1974, as
amended, or the Internal Revenue Code of 1986,
as amended. See "ERISA Considerations" herein
and in the accompanying Prospectus.
Ratings....................... It is a condition to the issuance of the
Securities that:
the Class A-1A Notes be rated "Aaa" by Moody's
Investors Service, Inc. ("Moody's"), and "AAA"
by Fitch Investors Service, L.P. ("Fitch")
(each, a "Rating Agency" and together, the
"Rating Agencies");
the Class A-1B Notes be rated "Aaa" by Moody's,
and "AAA" by Fitch;
the Class A-2 Notes be rated at least "Aa3" by
Moody's and at least "AA" by Fitch;
the Class A-3 Notes be rated at least "A3" by
Moody's and at least "A" by Fitch;
the Class A-4 Notes be rated at least "Baa3" by
Moody's and at least "BBB" by Fitch; and
the Certificates be rated at least "Baa1" by
Moody's and at least "A" by Fitch.
A security rating is not a recommendation to
buy, sell or hold securities and may be subject
to revision or withdrawal at any time by a
Rating Agency. The rating of the Certificates
will be based in part on an assessment of Green
Tree's ability to make payments under the
Limited Guaranty. Any reduction in a Rating
Agency's rating of Green Tree's debt securities
may result in a similar reduction in the rating
of the Certificates.
S-14
<PAGE>
RISK FACTORS
Prospective holders of the Securities (the "Securityholders") should
consider, in addition to the factors described under "Risk Factors" in the
Prospectus, the following factors in connection with the purchase of the
Securities:
SUBORDINATION OF CLASS A-2, CLASS A-3 AND CLASS A-4 NOTES AND CERTIFICATES;
LIMITED ASSETS
Distributions of interest and principal on each Class of Notes will be
subordinated to the rights of the holders of each Class of Notes with a prior
numeric designation to receive prior payment of interest and principal.
Distributions of interest and principal on the Certificates will be
subordinated in priority of payment to interest and principal due on the
Notes. Certificateholders, however, will not receive any distributions of
principal until the Distribution Date on which the outstanding principal
amounts of all of the Notes have been paid in full.
Holders of the Notes and the Certificates must primarily rely for repayment
upon payments on the Contracts. The Trust will not have, nor is it permitted
or expected to have, any significant assets or sources of funds other than the
Contracts, the Reserve Account and, for payment of losses absorbed by the
Certificates, the Limited Guaranty of Green Tree.
DELINQUENCY, LOAN LOSS AND REPOSSESSION EXPERIENCE
Green Tree began originating installment sales contracts for recreational
vehicles in 1985 and for motorcycles in May 1988, but has less extensive
underwriting and servicing experience with other types of products financed by
the Contracts. Although Green Tree has calculated and presented herein its
delinquency and net loss experience with respect to its servicing portfolio of
consumer product and equipment contracts, there can be no assurance that the
information presented will reflect actual experience with respect to the
Contracts. In addition, there can be no assurance that the future delinquency,
loan loss or repossession experience of the Trust with respect to the
Contracts will be better or worse than that set forth herein with respect to
Green Tree's servicing portfolio. See "The Contract Pool--Delinquency, Loan
Loss and Repossession Information" herein.
GEOGRAPHIC CONCENTRATION OF INITIAL CONTRACTS
As of the Cutoff Date, the Obligors on approximately 15.97%, 12.97%, 12.65%
and 5.04% of the Initial Contracts (based on principal balance and billing
address of the Obligor) were located in California, Texas, Florida and North
Carolina, respectively. See "The Contract Pool" herein. Accordingly, adverse
economic conditions or other factors particularly affecting any of these
states could adversely affect the delinquency, loan loss or repossession
experience of the Trust with respect to the Contracts.
YIELD AND PREPAYMENT CONSIDERATIONS
The Trust Agreement provides that, in the event that the General Partner
becomes insolvent, withdraws or is expelled as General Partner of the Trust or
is terminated or dissolved (a "Dissolution Event"), the Trust will terminate
in 90 days and effect redemption of the Notes and prepayment of the
Certificates following the winding-up of the affairs of the Trust, unless
within such 90 days the Owners of a majority of the Certificates agree in
writing to continue the business of the Trust and to the appointment of a
successor to the General Partner, and the Owner Trustee is able to obtain an
opinion of counsel to the effect that the Trust will not thereafter be an
association (or publicly traded partnership) taxable as a corporation for
federal income tax purposes. See "Yield and Prepayment Considerations" herein
and "Description of the Trust Documents--Termination" in the accompanying
Prospectus.
S-15
<PAGE>
THE TRUST
The following information supplements and, to the extent inconsistent
therewith, supersedes the information contained in the accompanying
Prospectus. Prospective Securityholders should consider, in addition to the
information below, the information under "The Trusts" in the accompanying
Prospectus.
GENERAL
Green Tree Recreational, Equipment & Consumer Trust 1997-A is a business
trust formed under the laws of the State of Delaware pursuant to the Trust
Agreement for the transactions described in this Prospectus Supplement. After
its formation, the Trust will not engage in any activity other than (i)
acquiring, holding and managing the Contracts and the other assets of the
Trust and proceeds therefrom, (ii) issuing the Notes and the Certificates,
(iii) making payments on the Notes and the Certificates and (iv) engaging in
other activities that are necessary, suitable or convenient to accomplish the
foregoing or are incidental thereto or connected therewith.
The Trust will initially be capitalized with equity equal to $15,000,000
(approximate) from the sale of the Certificates to third-party investors that
are expected to be unaffiliated with Green Tree or its affiliates. The equity
of the Trust, together with the proceeds of the initial sale of the Notes,
will be used by the Trust to purchase the Contracts from Green Tree pursuant
to the Sale and Servicing Agreement.
The Trust's principal offices are in Wilmington, Delaware, at the address
listed below under "--The Owner Trustee."
CAPITALIZATION OF THE TRUST
The following table illustrates the capitalization of the Trust as of the
Cutoff Date, as if the issuance and sale of the Notes and Certificates had
taken place on such date:
<TABLE>
<S> <C>
Class A-1A Notes............................................. $ 65,000,000
Class A-1B Notes............................................. 136,250,000
Class A-2 Notes.............................................. 12,500,000
Class A-3 Notes.............................................. 11,875,000
Class A-4 Notes.............................................. 9,375,000
Certificates................................................. 15,000,000
------------
Total...................................................... $250,000,000
============
</TABLE>
THE OWNER TRUSTEE
Wilmington Trust Company is the Owner Trustee under the Trust Agreement.
Wilmington Trust Company is a Delaware banking corporation and its principal
offices are located at Rodney Square North, 1100 North Market Street,
Wilmington, Delaware 19890-0001. The Owner Trustee will perform limited
administrative functions under the Trust Agreement, including making
distributions from the Certificate Distribution Account. The Owner Trustee's
liability in connection with the issuance and sale of the Certificates and the
Notes is limited solely to the express obligations of the Owner Trustee as set
forth in the Trust Agreement.
THE TRUST PROPERTY
The Trust Property will include, among other things, (i) the Contracts; (ii)
all rights to receive payments due thereon on or after the Cutoff Date
(excluding certain insurance premiums, late fees and other servicing charges);
(iii) such amounts as from time to time may be held in the Collection Account,
the Reserve Account and certain other accounts established and maintained by
the Servicer pursuant to the Sale and Servicing Agreement and the Trust
Agreement, as described below (including all investments in the Collection
Account, the Reserve Account and such other accounts and all income from the
investment of funds therein and all proceeds thereof); (iv) an assignment of
the security interests of Green Tree in the Products; (v) an assignment of the
right to receive proceeds from claims on certain insurance policies covering
the Products and the Obligors; and (vi) certain other rights under the Trust
Documents. See "The Contracts" and "Description of the Trust Documents--
Collections" in the accompanying Prospectus.
S-16
<PAGE>
Each Certificate will represent a fractional undivided interest in the Trust
Property. Pursuant to the Indenture the Trust will grant a security interest
in the Trust Property in favor of the Indenture Trustee on behalf of the
Noteholders. Any proceeds of such security interest in the Trust Property
would be distributed according to the Indenture, as described below under
"Description of the Trust Documents and Indenture--Distributions."
Green Tree, as custodian on behalf of the Trust, will hold each original
Contract, as well as copies of documents and instruments relating to such
Contract and evidencing the security interest in the Product securing such
Contract. In order to protect the Trust's ownership interest in the Contracts,
Green Tree will file a UCC-1 financing statement in Minnesota and Delaware to
give notice of the Trust's ownership of the Contracts and the related Trust
Property.
THE CONTRACT POOL
GENERAL
This Prospectus Supplement contains information regarding the Initial
Contracts, which are Contracts originated through February 24, 1997. The
information for each Initial Contract is as of the Cutoff Date for such
Initial Contract. Additional Contracts will be purchased by the Trust on the
Closing Date (the "Subsequent Contracts"). The Subsequent Contracts sold to
the Trust will have characteristics that differ somewhat from the Initial
Contracts described herein. Green Tree does not expect that the
characteristics of the Subsequent Contracts will vary materially from the
Initial Contracts. In addition, the Subsequent Contracts will conform to
certain criteria set forth in the Sale and Servicing Agreement.
Green Tree expects that, on the Closing Date, the Contract Pool, which will
consist of Initial Contracts and Subsequent Contracts, will have an aggregate
principal balance as of the Cutoff Date of approximately $250,000,000. The
Initial Contracts had an aggregate principal balance as of the Cutoff Date of
$196,676,349.26. The Initial Contracts were originated between May 1993 and
February 1997. All of the Contracts will be purchased by Green Tree from
dealers who regularly originate and sell such contracts to Green Tree, or
originated by Green Tree directly.
DELINQUENCY, LOAN LOSS AND REPOSSESSION INFORMATION
The following tables set forth information relating to Green Tree's
delinquency, loan loss and repossession experience for each period indicated
with respect to all consumer product and equipment contracts it has purchased
and continues to service. This information includes the experience with
respect to all consumer product and equipment contracts in Green Tree's
portfolio of contracts serviced during each such period, including consumer
product and equipment contracts which do not meet the criteria for selection
as a Contract. Green Tree began originating installment sales contracts for
recreational vehicles in 1985 and for motorcycles in May 1988, but has less
extensive underwriting and servicing experience with other types of Products
financed by the Contracts. Accordingly, the delinquency, loan loss and
repossession experience presented below largely represents experience only
with recreational vehicle and motorcycle contracts. In addition, because of
the rapid growth of Green Tree's portfolio of consumer product and equipment
contracts, the experience shown in more recent periods may not be indicative
of the experience to be expected from a more seasoned portfolio.
DELINQUENCY EXPERIENCE
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------------------------
1992 1993 1994 1995 1996
------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
Number of Contracts Outstanding (1).. 16,215 16,386 21,137 49,965 104,698
Number of Contracts Delinquent (2)
30-59 Days......................... 136 151 181 643 1,390
60-89 Days......................... 34 34 50 219 494
90 Days or More.................... 107 108 134 350 934
------ ------ ------ ------ -------
Total Contracts Delinquent........... 277 293 365 1,212 2,818
====== ====== ====== ====== =======
Delinquencies as a Percentage of
Contracts Outstanding (3)........... 1.71% 1.79% 1.73% 2.43% 2.69%
</TABLE>
- --------
(1) Excludes contracts already in repossession.
(2) The period of delinquency is based on the number of days payments are
contractually past due (assuming 30-day months). Consequently, a contract
due on the first day of a month is not 30 days delinquent until the first
day of the next month.
(3) By number of contracts.
S-17
<PAGE>
LOAN LOSS/REPOSSESSION EXPERIENCE
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1992 1993 1994 1995 1996
-------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Number of Contracts
Serviced (1)............. 16,257 16,415 21,184 50,233 105,410
Principal Balance of
Contracts (1)............ $128,561 $113,391 $148,734 $506,449 $1,351,220
Contract Liquidations:
Units................... 269 175 160 365 1,968
Percentage (2).......... 1.65% 1.07% 0.76% 0.73% 1.87%
Net Losses:
Dollars (3)............. $ 1,867 $ 981 $ 884 $ 1,278 $ 9,249
Percentage (4).......... 1.45% 0.87% 0.59% 0.25% 0.68%
</TABLE>
- --------
(1) As of period end. Includes contracts already in repossession.
(2) As a percentage of the total number of contracts being serviced as of
period end.
(3) The calculation of net loss includes unpaid interest to the date of
repossession and all expenses of repossession and liquidation.
(4) As a percentage of the principal balance of contracts being serviced as of
period end.
There can be no assurance that the delinquency, loan loss or repossession
experience of the Trust with respect to the Contracts will be better than,
worse than or comparable to the experience set forth above. See "Risk
Factors--Delinquency, Loan Loss and Repossession Experience" herein.
CERTAIN OTHER CHARACTERISTICS
The Initial Contracts (i) had a remaining maturity, as of the Cutoff Date,
of at least 8 months, but not more than 240 months, (ii) had an original
maturity of at least 11 months, but not more than 240 months, (iii) had an
original principal balance of at least $1,737.37 and not more than
$2,468,520.00, (iv) had a remaining principal balance as of the Cutoff Date of
at least $1,476.91 and not more than $2,468,520.00 and (v) had a contractual
rate of interest ("Contract Rate") of at least 6.90% and not more than 22.00%.
Neither Green Tree nor the Servicer may substitute other contracts for the
Contracts at any time during the term of the Trust.
CHARACTERISTICS OF THE INITIAL CONTRACTS
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
% OF CUTOFF WEIGHTED WEIGHTED AVERAGE AVERAGE
% OF SCHEDULED DATE POOL AVERAGE AVERAGE AVERAGE REMAINING LOAN-TO-
NUMBER OF CONTRACT PRINCIPAL PRINCIPAL PRINCIPAL CONTRACT ORIGINAL TERM VALUE
ASSET TYPE CONTRACTS POOL BALANCE BALANCE BALANCE RATE TERM (MONTHS)(1) RATIO
---------- --------- -------- --------------- ----------- ----------- -------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Aircraft............. 266 2.42% $ 37,615,755.18 19.13% $141,412.61 9.72% 155.70 155.21 89%
Trucks............... 814 7.42 56,340,742.40 28.65 69,214.67 11.26 50.84 50.28 92
Recreational
Vehicles............ 1,331 12.13 25,158,018.57 12.79 18,901.59 10.26 146.11 145.40 81
Motorcycles.......... 2,841 25.89 26,236,155.85 13.34 9,234.83 13.50 65.25 64.25 82
Keyboards............ 586 5.34 6,080,821.94 3.09 10,376.83 11.49 71.32 70.45 85
Marine Products...... 1,540 14.03 24,153,526.00 12.28 15,684.11 10.50 138.35 137.04 83
Horse Trailers....... 837 7.63 8,327,575.56 4.23 9,949.31 11.55 115.24 112.76 83
Sport Vehicles....... 2,759 25.14 12,763,753.76 6.49 4,626.22 15.78 52.13 50.92 84
------ ------ --------------- ------ ----------- ----- ------ ------ ---
Totals.............. 10,974 100.00% $196,676,349.26 100.00% $ 17,922.03 11.35% 99.20 98.35 86%
====== ====== =============== ====== =========== ===== ====== ====== ===
</TABLE>
- --------
(1) Based on scheduled payments due after the Cutoff Date and assuming no
prepayments on the Contracts.
S-18
<PAGE>
GEOGRAPHIC CONCENTRATION OF THE INITIAL CONTRACTS
<TABLE>
<CAPTION>
NUMBER OF
CONTRACTS AS OF PERCENT OF NUMBER PRINCIPAL BALANCE PERCENT OF CUTOFF DATE
STATE (1) CUTOFF DATE OF CONTRACTS AS OF CUTOFF DATE PRINCIPAL BALANCE
--------- --------------- ----------------- ----------------- ----------------------
<S> <C> <C> <C> <C>
Alabama................. 161 1.47% $ 3,068,259.41 1.56%
Alaska.................. 9 .08 177,541.15 .09
Arizona................. 685 6.24 8,986,314.84 4.57
Arkansas................ 40 .36 1,698,254.58 .86
California.............. 2,190 19.97 31,416,709.65 15.97
Colorado................ 176 1.60 5,201,778.33 2.64
Connecticut............. 74 .67 1,280,251.07 .65
Delaware................ 24 .22 406,243.23 .21
District of Columbia.... 9 .08 615,148.65 .31
Florida................. 1,230 11.21 24,870,117.62 12.65
Georgia................. 346 3.15 4,573,903.41 2.33
Hawaii.................. 35 .32 334,469.67 .17
Idaho................... 17 .15 607,102.23 .31
Illinois................ 205 1.87 5,443,623.97 2.77
Indiana................. 87 .79 1,578,659.54 .80
Iowa.................... 34 .31 887,450.93 .45
Kansas.................. 37 .34 2,391,748.79 1.22
Kentucky................ 92 .84 1,592,748.20 .81
Louisiana............... 82 .75 2,363,856.85 1.20
Maine................... 7 .06 47,590.65 .02
Maryland................ 192 1.75 2,205,045.63 1.12
Massachusetts........... 134 1.22 1,177,944.86 .60
Michigan................ 144 1.31 2,727,427.04 1.39
Minnesota............... 228 2.08 2,766,928.65 1.41
Mississippi............. 82 .75 1,452,407.08 .74
Missouri................ 176 1.60 5,425,887.44 2.76
Montana................. 9 .08 146,104.02 .07
Nebraska................ 22 .20 375,055.61 .19
Nevada.................. 168 1.53 3,198,758.53 1.63
New Hampshire........... 25 .23 993,207.35 .50
New Jersey.............. 290 2.64 3,128,673.94 1.59
New Mexico.............. 115 1.05 2,648,666.69 1.35
New York................ 249 2.27 3,293,116.40 1.67
North Carolina.......... 612 5.58 9,919,036.00 5.04
North Dakota............ 4 .04 43,479.26 .02
Ohio.................... 167 1.52 4,052,737.27 2.06
Oklahoma................ 145 1.32 2,270,815.43 1.15
Oregon.................. 145 1.32 3,226,806.76 1.64
Pennsylvania............ 105 .96 2,977,010.67 1.51
Rhode Island............ 25 .23 203,536.12 .10
South Carolina.......... 176 1.60 4,180,310.18 2.13
South Dakota............ 11 .10 189,360.33 .10
Tennessee............... 276 2.52 6,575,560.64 3.34
Texas................... 1,392 12.69 25,499,212.11 12.97
Utah.................... 40 .36 1,288,419.60 .66
Vermont................. 7 .06 59,374.34 .03
Virginia................ 198 1.80 2,316,111.82 1.18
Washington.............. 204 1.86 4,166,781.95 2.12
West Virginia........... 22 .20 1,429,484.53 .73
Wisconsin............... 58 .53 939,205.69 .48
Wyoming................. 13 .12 258,110.55 .13
------ ------ --------------- ------
Total................. 10,974 100.00% $196,676,349.26 100.00%
====== ====== =============== ======
</TABLE>
- --------
(1) Based on the address of the Obligor set forth in Green Tree's records.
S-19
<PAGE>
DISTRIBUTION OF ORIGINAL INITIAL CONTRACT AMOUNTS
<TABLE>
<CAPTION>
AGGREGATE
PRINCIPAL % OF
BALANCE CONTRACT POOL
NUMBER OF OUTSTANDING BY OUTSTANDING
CONTRACTS AS OF CUTOFF PRINCIPAL BALANCE
ORIGINAL CONTRACT AMOUNT AS OF CUTOFF DATE DATE AS OF CUTOFF DATE
------------------------ ----------------- --------------- -----------------
<S> <C> <C> <C>
Less than $10,000......... 6,310 $ 33,352,935.85 16.97%
Between $10,000 and
$19,999.................. 2,721 38,493,056.73 19.58
Between $20,000 and
$29,999.................. 813 19,308,637.26 9.82
Between $30,000 and
$39,999.................. 325 11,075,390.59 5.63
Between $40,000 and
$49,999.................. 171 7,491,833.79 3.81
Between $50,000 and
$59,999.................. 105 5,712,668.80 2.90
Between $60,000 and
$69,999.................. 80 5,116,963.34 2.60
Between $70,000 and
$79,999.................. 71 5,265,435.43 2.68
Between $80,000 and
$89,999.................. 104 8,740,163.80 4.44
Between $90,000 and
$99,999.................. 80 7,443,032.92 3.78
Between $100,000 and
$109,999................. 30 3,099,905.97 1.58
Between $110,000 and
$119,999................. 24 2,731,221.37 1.39
Between $120,000 and
$129,999................. 14 1,755,050.62 .89
Between $130,000 and
$139,999................. 8 1,069,186.18 .54
Between $140,000 and
$149,999................. 12 1,735,024.98 .88
Between $150,000 and
$159,999................. 12 1,839,833.05 .94
Between $160,000 and
$169,999................. 3 492,013.00 .25
Between $170,000 and
$179,999................. 10 1,745,671.09 .89
Between $180,000 and
$189,999................. 5 922,949.24 .47
Between $190,000 and
$199,999................. 6 1,167,859.19 .59
Between $200,000 and
$249,999................. 14 3,011,993.55 1.53
Between $250,000 and
$299,999................. 16 4,245,797.37 2.16
Between $300,000 and
$349,999................. 6 1,936,636.90 .98
Between $350,000 and
$399,999................. 6 2,271,486.14 1.15
Between $400,000 and
$449,999................. 5 2,046,725.04 1.04
Between $450,000 and
$499,999................. 2 926,918.44 .47
Between $500,000 and
$549,999................. 5 2,615,531.00 1.33
Between $550,000 and
$599,999................. 1 553,442.03 .28
Between $600,000 and
$649,999................. 1 633,070.00 .32
Between $650,000 and
$699,999................. 0 .00 .00
Between $700,000 and
$749,999................. 0 .00 .00
Between $750,000 and
$799,999................. 1 798,526.00 .41
Between $800,000 and
$849,999................. 0 .00 .00
Between $850,000 and
$899,999................. 1 883,626.38 .45
Between $900,000 and
$949,999................. 0 .00 .00
Between $950,000 and
$999,999................. 1 972,000.00 .49
Over $1,000,000........... 11 17,221,763.21 8.76
------ --------------- ------
Total................... 10,974 $196,676,349.26 100.00%
====== =============== ======
</TABLE>
S-20
<PAGE>
YEAR OF ORIGINATION OF INITIAL CONTRACTS
<TABLE>
<CAPTION>
% OF
AGGREGATE CONTRACT POOL
NUMBER OF PRINCIPAL BALANCE BY OUTSTANDING
YEAR OF CONTRACTS OUTSTANDING PRINCIPAL BALANCE
OIGINATIONR AS OF CUTOFF DATE AS OF CUTOFF DATE AS OF CUTOFF DATE
- ----------- ----------------- ----------------- -----------------
<S> <C> <C> <C>
1993.................... 3 $ 36,766.97 .02%
1994.................... 47 380,679.57 .19
1995.................... 105 1,275,853.71 .65
1996.................... 3,482 51,397,127.06 26.13
1997.................... 7,337 143,585,921.95 73.01
------ --------------- ------
Total................. 10,974 $196,676,349.26 100.00%
====== =============== ======
</TABLE>
DISTRIBUTION OF ORIGINAL LOAN-TO-VALUE RATIOS OF INITIAL CONTRACTS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL % OF CONTRACT POOL BY
NUMBER OF CONTRACTS BALANCE OUTSTANDING OUTSTANDING PRINCIPAL
LOAN-TO-VALUE RATIO AS OF CUTOFF DATE AS OF CUTOFF DATE BALANCE AS OF CUTOFF DATE
- ------------------- ------------------- ------------------- -------------------------
<S> <C> <C> <C>
Less than 61%........... 896 $ 7,275,259.78 3.70%
From 61 to 65%.......... 355 3,559,664.17 1.81
From 66 to 70%.......... 480 5,008,971.47 2.55
From 71 to 75%.......... 776 9,008,738.08 4.58
From 76 to 80%.......... 1,194 19,375,933.16 9.85
From 81 to 85%.......... 1,590 23,254,897.18 11.82
From 86 to 90%.......... 3,901 71,056,860.36 36.13
From 91 to 95%.......... 980 23,932,824.52 12.17
Over 95%................ 802 34,203,200.54 17.39
------ --------------- ------
Total................. 10,974 $196,676,349.26 100.00%
====== =============== ======
</TABLE>
INITIAL CONTRACT RATES
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL % OF CONTRACT POOL BY
NUMBER OF CONTRACTS BALANCE OUTSTANDING OUTSTANDING PRINCIPAL
CONTRACT RATE AS OF CUTOFF DATE AS OF CUTOFF DATE BALANCE AS OF CUTOFF DATE
------------- ------------------- ------------------- -------------------------
<S> <C> <C> <C>
Less than 9.01%......... 166 $ 21,842,471.23 11.11%
9.01% to 10.00%........ 1,216 53,464,768.94 27.19
10.01% to 11.00%........ 1,941 40,953,233.58 20.82
11.01% to 12.00%........ 1,527 28,683,745.21 14.58
12.01% to 13.00%........ 871 14,443,422.65 7.34
13.01% to 14.00%........ 1,298 13,148,925.61 6.69
14.01% to 15.00%........ 1,253 9,308,639.47 4.73
15.01% to 16.00%........ 993 6,015,367.06 3.06
16.01% to 17.00%........ 736 3,757,623.46 1.91
Over 17.00%............. 973 5,058,152.05 2.57
------ --------------- ------
Total................. 10,974 $196,676,349.26 100.00%
====== =============== ======
</TABLE>
S-21
<PAGE>
REMAINING MONTHS TO MATURITY OF THE INITIAL CONTRACTS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL % OF CONTRACT POOL BY
NUMBER OF CONTRACTS BALANCE OUTSTANDING OUTSTANDING PRINCIPAL
REMAINING MONTHS TO MATURITY AS OF CUTOFF DATE AS OF CUTOFF DATE BALANCE AS OF CUTOFF DATE
- ---------------------------- ------------------- ------------------- -------------------------
<S> <C> <C> <C>
Fewer than 31............. 710 $ 6,881,196.74 3.50%
31 to 60................ 6,042 80,285,193.84 40.83
61 to 90................ 1,600 25,989,912.44 13.21
91 to 120................ 1,285 26,993,805.74 13.72
121 to 150................ 697 13,341,593.40 6.78
151 to 180................ 596 38,310,803.21 19.48
181 to 210................ 4 535,724.11 0.27
211 to 240................ 40 4,338,119.78 2.21
------ --------------- ------
Total................... 10,974 $196,676,349.26 100.00%
====== =============== ======
</TABLE>
YIELD AND PREPAYMENT CONSIDERATIONS
The following information supplements the information in the Prospectus
under the heading "Yield and Prepayment Considerations."
The Servicer and Green Tree each has the option to purchase from the Trust
all remaining Contracts, and thereby effect early redemption of the Notes and
early retirement of the Certificates, on any Distribution Date when the Pool
Scheduled Principal Balance is 10% or less of the Cutoff Date Pool Principal
Balance. See "Description of the Trust Documents--Termination" in the
Prospectus.
It is anticipated that Green Tree will transfer approximately $53,324,000 of
Subsequent Contracts to the Trust on the Closing Date. To the extent that the
aggregate of the principal balance of the Initial Contracts and the Subsequent
Contracts is less than $250,000,000 as of the Cutoff Date, the Class A-1A,
Class A-1B, Class A-2, Class A-3 and Class A-4 Noteholders will receive, on
the first Distribution Date, a distribution allocable to principal in an
amount equal to such difference, in accordance with their applicable
percentage of the Formula Principal Distribution Amount.
WEIGHTED AVERAGE LIFE OF THE NOTES AND THE CERTIFICATES
The following information is given solely to illustrate the effect of
prepayments on the Contracts on the weighted average life of the Notes and the
Certificates under the stated assumptions and is not a prediction of the
prepayment rate that might actually be experienced by the Contracts.
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 and the
Certificates will be influenced by the rate at which principal on the
Contracts is paid. Principal payments on the Contracts may be in the form of
scheduled amortization or prepayments (including, for this purpose,
liquidations due to default).
The "Base Case" prepayment model is Green Tree management's best estimate of
the prepayment rates that may be experienced on the Contracts. Because Green
Tree began originating and servicing contracts for many of the Products only
recently, such estimate is based in part on industry experience with similar
loans and contracts rather than Green Tree's experience. There can be no
assurance that the Contracts for the purchase of any type of Product will
experience prepayments at such projected rates or in the manner assumed by the
prepayment model used for that type of Contract, or that the Contracts in the
aggregate will experience prepayments similar to the overall prepayment rate
or in the manner projected in the Base Case.
S-22
<PAGE>
<TABLE>
<CAPTION>
BASE CASE
PRODUCT PREPAYMENT RATE
------- ---------------
<S> <C>
Horse Trailers, Aircraft, Sport Vehicles, Keyboard
Instruments and Recreational Vehicles................. 18% CPR
Marine Products........................................ 325% SPA
Motorcycles ........................................... 28% CPR
Trucks................................................. 1.0% ABS
</TABLE>
The models used in this Prospectus Supplement are the Constant Prepayment
Rate ("CPR"), the Standard Prepayment Assumption ("SPA") and the Absolute
Prepayment Model ("ABS"). The CPR represents an assumed constant rate of
prepayment each month, expressed as a per annum percentage of the outstanding
principal balance of the Contracts secured by all Products other than marine
products and trucks. The SPA represents an assumed rate of prepayment each
month of the outstanding principal balance of the Contracts secured by marine
products. The ABS represents an assumed rate of prepayment each month relative
to the original number of Contracts secured by trucks in the Contract Pool.
As used in the following tables, the columns headed 80%, 90%, 100%, 110% and
120% assume that prepayments on the Contracts are made at Base Case Prepayment
Rates of 80%, 90%, 100%, 110% and 120%, respectively. For example, 80% Base
Case Prepayment Rate and 120% Base Case Prepayment Rate mean that Contracts
related to horse trailers, aircraft, sport vehicles, keyboard instruments and
recreational vehicles have been assumed to have a prepayment rate equal to
14.4% CPR and 21.6% CPR, respectively; Contracts related to marine products
have been assumed to have a prepayment rate equal to 260% SPA and 390% SPA,
respectively; Contracts related to motorcycles have been assumed to have a
prepayment rate equal to 22.4% CPR and 33.6% CPR, respectively; and Contracts
related to trucks have been assumed to have a prepayment rate equal to .8% ABS
and 1.2% ABS, respectively. NONE OF CPR, SPA OR ABS PURPORTS TO BE A
HISTORICAL DESCRIPTION OF PREPAYMENT EXPERIENCE OR A PREDICTION OF THE
ANTICIPATED RATE OF PREPAYMENT OF ANY POOL OF CONTRACTS, INCLUDING THE
CONTRACTS.
The weighted average lives in the following tables were determined assuming
that (i) scheduled interest and principal payments on the Contracts are
received in a timely manner and prepayments are made at the percentages of the
Base Case prepayment model set forth in the table; (ii) either Green Tree or
the Servicer exercises its right of optional termination described above;
(iii) the aggregate principal balance of the Initial Contracts as of the
Cutoff Date is $196,676,349.26 and the Initial Contracts have the
characteristics described under "The Contract Pool"; (iv) the Subsequent
Contracts have the characteristics set forth in the table following this
paragraph and are assumed to have their first payments due in March 1997; (v)
no interest shortfalls will arise in connection with prepayments in full of
the Contracts; (vi) distributions are made on the Notes and the Certificates
on the 15th day of each month commencing in April 1997; and (vii) the
Securities are issued on March 20, 1997. No representation is made that the
Contracts will not experience delinquencies or losses.
ASSUMED CHARACTERISTICS OF SUBSEQUENT CONTRACTS AS OF THE CUTOFF DATE
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL WEIGHTED AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE
BALANCE OUTSTANDING CONTRACT RATE ORIGINAL TERM REMAINING TERM
------------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Aircrafts............... $10,198,528.69 9.72% 156 156
Trucks.................. 15,275,319.49 11.26 51 51
Recreational Vehicles... 6,820,939.07 10.26 146 146
Motorcycles............. 7,113,247.81 13.50 65 65
Keyboard Instruments.... 1,648,655.92 11.49 71 71
Marine Products......... 6,548,597.17 10.50 138 138
Horse Trailers.......... 2,257,804.42 11.55 115 115
Sport Vehicles.......... 3,460,558.17 15.78 52 52
</TABLE>
S-23
<PAGE>
Based on the foregoing assumptions, the following tables indicate the
projected weighted average life of the Notes and the Certificates. Investors
are urged to make their investment decisions on a basis that includes their
determination as to anticipated prepayment rates under a variety of the
assumptions discussed herein.
WEIGHTED AVERAGE LIFE OF THE CLASS A-1A NOTES
AT THE RESPECTIVE PERCENTAGES OF THE BASE CASE PREPAYMENT MODEL SET FORTH
BELOW:
<TABLE>
<CAPTION>
80% 90% 100% 110% 120%
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Weighted Average Life (years).................... 1.05 0.99 0.93 0.88 0.84
</TABLE>
WEIGHTED AVERAGE LIFE OF THE CLASS A-1B NOTES
AT THE RESPECTIVE PERCENTAGES OF THE BASE CASE PREPAYMENT MODEL SET FORTH
BELOW:
<TABLE>
<CAPTION>
80% 90% 100% 110% 120%
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Weighted Average Life (years).................... 3.29 3.12 2.96 2.81 2.68
</TABLE>
WEIGHTED AVERAGE LIFE OF THE CLASS A-2, CLASS A-3, AND CLASS A-4 NOTES
AT THE RESPECTIVE PERCENTAGES OF THE BASE CASE PREPAYMENT MODEL SET FORTH
BELOW:
<TABLE>
<CAPTION>
80% 90% 100% 110% 120%
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Weighted Average Life (years).................... 2.57 2.43 2.30 2.19 2.08
</TABLE>
WEIGHTED AVERAGE LIFE OF THE CERTIFICATES
AT THE RESPECTIVE PERCENTAGES OF THE BASE CASE PREPAYMENT MODEL SET FORTH
BELOW:
<TABLE>
<CAPTION>
80% 90% 100% 110% 120%
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Weighted Average Life (years).................... 6.82 6.40 5.99 5.65 5.32
</TABLE>
DESCRIPTION OF THE NOTES
The following information supplements the information contained in the
accompanying Prospectus. Prospective Noteholders should consider, in addition
to the information below, the information in the accompanying Prospectus under
"The Notes," "Certain Information Regarding the Securities," and "Description
of the Trust Documents."
GENERAL
The Notes will be issued pursuant to the terms of the Indenture, a form of
which has been filed as an exhibit to the Registration Statement. A copy of
the Indenture, as executed, will be filed with the Commission following the
issuance of the Securities. The following summary describes certain terms of
the Notes and the Indenture. The summary does not purport to be complete and
is subject to, and is qualified in its entirety by reference to, all the
provisions of the Notes and the Indenture. The following summary supplements
the description of the general terms and provisions of the Notes of any given
series and the related Indenture set forth in the accompanying Prospectus, to
which description reference is hereby made. First Trust National Association,
a national banking association headquartered in St. Paul, Minnesota, will be
the Indenture Trustee.
DISTRIBUTIONS
Noteholders will be entitled to receive on each Distribution Date commencing
in April 1997, to the extent that funds available are sufficient therefor, the
Noteholders' Distributable Amount. Distributions on the Notes will be made
from funds available first to the holders of the Class A-1 Notes, then to the
holders of the Class A-2 Notes, then to the holders of the Class A-3 Notes,
and then to the holders of the Class A-4 Notes, in the manner and order of
priority described below.
S-24
<PAGE>
CLASS A-1 INTEREST
Interest on the outstanding Class A-1A Principal Balance will accrue from
March 20, 1997, or from the most recent Distribution Date, to but excluding
the following Distribution Date, at the Class A-1A Rate for such monthly
interest period. The "Class A-1A Principal Balance" as of any Distribution
Date will be the Original Class A-1A Principal Balance minus all amounts
previously distributed to the Class A-1A Noteholders in respect of principal,
and minus any unreimbursed Class A-1A Principal Liquidation Loss (described
below under "--Losses on Liquidated Contracts").
Interest on the outstanding Class A-1B Principal Balance will accrue from
March 20, 1997, or from the most recent Distribution Date, to but excluding
the following Distribution Date, at the Class A-1B Rate for such monthly
interest period. The "Class A-1B Principal Balance" as of any Distribution
Date will be the Original Class A-1B Principal Balance minus all amounts
previously distributed to the Class A-1B Noteholders in respect of principal,
and minus any unreimbursed Class A-1B Principal Liquidation Loss (described
below under "--Losses on Liquidated Contracts").
Interest will be paid on the Class A-1 Notes to the extent of funds
available on such Distribution Date. In the event the funds available are not
sufficient to make a full distribution of interest on the Class A-1 Notes, the
available funds will be distributed on the Class A-1A Notes and the Class A-1B
Notes pro rata based on the outstanding Class A-1A Principal Balance and the
outstanding Class A-1B Principal Balance, and the amount of the shortfall will
be carried forward and added to the amount of interest payable on the next
Distribution Date. Any amount so carried forward will bear interest at the
Class A-1A Rate or the Class A-1B Rate, as applicable, to the extent legally
permissible.
CLASS A-1 PRINCIPAL
Class A-1 Noteholders will be entitled to receive on each Distribution Date
as payment of principal, to the extent of funds available after payment of all
interest payable on the Class A-1 Notes, an amount equal to the sum of 85.64%
(approximate) of the Formula Principal Distribution Amount for such
Distribution Date plus the Unpaid Class A-1 Principal Shortfall, if any, for
such Distribution Date.
Until the Class A-1A Principal Balance has been reduced to zero, 67% of the
principal payable on the Class A-1 Notes will be paid to the holders of the
Class A-1A Notes and 33% will be paid to the holders of the Class A-1B Notes.
After the Class A-1A Principal Balance has been reduced to zero, 100% of the
principal payable on the Class A-1 Notes will be paid to the holders of the
Class A-1B Notes.
The "Formula Principal Distribution Amount" with respect to any Distribution
Date will be an amount equal to the sum of the following amounts with respect
to the related Monthly Period, in each case computed in accordance with the
method specified in each Contract: (i) all scheduled payments of principal due
on each outstanding Contract during the related Monthly Period, (ii) the
Scheduled Principal Balance (as defined below) of each Contract which, during
the related Monthly Period, was purchased by Green Tree pursuant to the Sale
and Servicing Agreement on account of a breach of a representation or
warranty, (iii) all Partial Principal Prepayments applied and all Principal
Prepayments in Full received during the related Monthly Period, (iv) the
Scheduled Principal Balance of each Contract that became a Liquidated Contract
(as defined below) during the related Monthly Period, (v) with respect to the
Distribution Date in April 1997, an amount equal to the Excess Proceeds, (vi)
all collections in respect of principal received on the Contracts received
during the current month up to and including the third Business Day prior to
such Distribution Date (but in no event later than the 10th day of the month
in which the Distribution Date occurs), minus (vii) with respect to all
Distribution Dates other than the Distribution Date in April 1997, all
collections of principal on the Contracts received during the preceding month
up to and including the third Business Day prior to the preceding Distribution
Date (but in no event later than the 10th day of the prior month). "Excess
Proceeds" means an amount equal to the excess, if any, of (a) the aggregate of
the original Class A-1A, Class A-1B, Class A-2, Class A-3, Class A-4 and
Certificate Principal Balances over (b) the Cutoff Date Pool Principal
Balance. A "Monthly Period" with respect to a Distribution Date is the
calendar month immediately preceding the month in which the Distribution Date
S-25
<PAGE>
occurs. The "Scheduled Principal Balance" of a Contract for any Monthly Period
is its principal balance as specified in its amortization schedule, after
giving effect to any previous Partial Principal Prepayments and to the
scheduled payment due on its scheduled payment date (the "Due Date") in that
month, but without giving effect to any adjustments due to bankruptcy or
similar proceedings.
The "Unpaid Class A-1 Principal Shortfall" for any Distribution Date will
equal any amount required to be paid in respect of principal on the Class A-1
Notes on any prior Distribution Date but not paid on any intervening
Distribution Date, less any unreimbursed Class A-1 Principal Liquidation Loss.
CLASS A-2 INTEREST
Interest on the outstanding Class A-2 Principal Balance will accrue from
March 20, 1997, or from the most recent Distribution Date, to but excluding
the following Distribution Date, at the Class A-2 Rate for such monthly
interest period. The "Class A-2 Principal Balance" as of any Distribution Date
will be the Original Class A-2 Principal Balance minus all amounts previously
distributed to the Class A-2 Noteholders in respect of principal, and minus
any unreimbursed Class A-2 Principal Liquidation Loss (described below under
"--Losses on Liquidated Contracts").
Interest will be paid on the Class A-2 Notes to the extent of funds
available on such Distribution Date, after payment of all interest and
principal then payable on the Class A-1 Notes. In the event such remaining
funds available are not sufficient to make a full distribution of interest on
the Class A-2 Notes, the amount of the shortfall will be carried forward and
added to the amount of interest payable on the next Distribution Date. Any
amount so carried forward will bear interest at the Class A-2 Rate, to the
extent legally permissible.
CLASS A-2 PRINCIPAL
Class A-2 Noteholders will be entitled to receive on each Distribution Date
as payment of principal, to the extent of funds available after payment of all
interest and principal payable on the Class A-1 Notes and after payment of all
interest payable on the Class A-2 Notes, the sum of 5.32% (approximate) of the
Formula Principal Distribution Amount for such Distribution Date, plus any
Unpaid Class A-2 Principal Shortfall (as defined below) for such Distribution
Date.
The "Unpaid Class A-2 Principal Shortfall" for any Distribution Date will
equal any amount required to be paid in respect of principal on the Class A-2
Notes on any prior Distribution Date but not paid on any intervening
Distribution Date, less any unreimbursed Class A-2 Principal Liquidation Loss.
CLASS A-3 INTEREST
Interest on the outstanding Class A-3 Principal Balance will accrue from
March 20, 1997, or from the most recent Distribution Date, to but excluding
the following Distribution Date, at the Class A-3 Rate for such monthly
interest period. The "Class A-3 Principal Balance" as of any Distribution Date
will be the Original Class A-3 Principal Balance minus all amounts previously
distributed to the Class A-3 Noteholders in respect of principal, and minus
any unreimbursed Class A-3 Principal Liquidation Loss (described below under
"--Losses on Liquidated Contracts").
Interest will be paid on the Class A-3 Notes to the extent of funds
available on such Distribution Date, after payment of all interest and
principal then payable on the Class A-2 Notes. In the event such remaining
funds available are not sufficient to make a full distribution of interest on
the Class A-3 Notes, the amount of the shortfall will be carried forward and
added to the amount of interest payable on the next Distribution Date. Any
amount so carried forward will bear interest at the Class A-3 Rate, to the
extent legally permissible.
CLASS A-3 PRINCIPAL
Class A-3 Noteholders will be entitled to receive on each Distribution Date
as payment of principal, to the extent of funds available after payment of all
interest and principal payable on the Class A-2 Notes and after payment of all
interest payable on the Class A-3 Notes, the sum of 5.05% (approximate) of the
Formula Principal Distribution Amount for such Distribution Date, plus any
Unpaid Class A-3 Principal Shortfall (as defined below) for such Distribution
Date.
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The "Unpaid Class A-3 Principal Shortfall" for any Distribution Date will
equal any amount required to be paid in respect of principal on the Class A-3
Notes on any prior Distribution Date but not paid on any intervening
Distribution Date, less any unreimbursed Class A-3 Principal Liquidation Loss.
CLASS A-4 INTEREST
Interest on the outstanding Class A-4 Principal Balance will accrue from
March 20, 1997, or from the most recent Distribution Date, to but excluding
the following Distribution Date, at the Class A-4 Rate for such monthly
interest period. The "Class A-4 Principal Balance" as of any Distribution Date
will be the Original Class A-4 Principal Balance minus all amounts previously
distributed to the Class A-4 Noteholders in respect of principal, and minus
any unreimbursed Class A-4 Principal Liquidation Loss (described below under
"--Losses on Liquidated Contracts").
Interest will be paid on the Class A-4 Notes to the extent of funds
available on such Distribution Date, after payment of all interest and
principal then payable on the Class A-3 Notes. In the event such remaining
funds available are not sufficient to make a full distribution of interest on
the Class A-4 Notes, the amount of the shortfall will be carried forward and
added to the amount of interest payable on the next Distribution Date. Any
amount so carried forward will bear interest at the Class A-4 Rate, to the
extent legally permissible.
CLASS A-4 PRINCIPAL
Class A-4 Noteholders will be entitled to receive on each Distribution Date
as payment of principal, to the extent of funds available after payment of all
interest and principal payable on the Class A-3 Notes and after payment of all
interest payable on the Class A-4 Notes, the sum of 3.99% (approximate) of the
Formula Principal Distribution Amount for such Distribution Date, plus any
Unpaid Class A-4 Principal Shortfall (as defined below) for such Distribution
Date.
The "Unpaid Class A-4 Principal Shortfall" for any Distribution Date will
equal any amount required to be paid in respect of principal on the Class A-4
Notes on any prior Distribution Date but not paid on any intervening
Distribution Date, less any unreimbursed Class A-4 Principal Liquidation Loss.
OPTIONAL REDEMPTION
The Notes will be redeemed in whole, but not in part, on any Distribution
Date on which Green Tree exercises its option to purchase the Contracts. Green
Tree may purchase the Contracts when the Pool Scheduled Principal Balance has
declined to 10% or less of the Cutoff Date Pool Principal Balance, as
described in the accompanying Prospectus under "Description of the Trust
Documents--Termination." The "Pool Scheduled Principal Balance" is the
aggregate Scheduled Principal Balance of all outstanding Contracts during a
Monthly Period. Such redemption will effect early retirement of the Notes. The
redemption price will be equal to the unpaid principal amount of the Notes
redeemed plus accrued and unpaid interest thereon (the "Redemption Price").
THE RESERVE ACCOUNT
Noteholders will have the benefit of the Reserve Account to be held by the
Indenture Trustee. On any Distribution Date, if the Amount Available in the
Note Distribution Account (after making all distributions on each Class of
Notes with a prior numeric designation) are insufficient to make full payment
in respect of interest or principal payable on a Class of Notes, the Indenture
Trustee will withdraw the amount of the deficiency from the Reserve Account
(or the amount on deposit in the Reserve Account, if less) and deposit such
amount in the Note Distribution Account for distribution to the applicable
Class.
On the Closing Date, the amount on deposit in the Reserve Account will be
zero. On each Distribution Date, the Indenture Trustee will deposit all funds
remaining in the Collection Account, after distribution of all interest and
principal then payable on the Notes and all interest then payable on the
Certificates, into the Reserve Account until the amount on deposit in the
Reserve Account equals 1.5% of the Cutoff Date Pool Principal Balance. On the
first Distribution Date on which the Certificate Principal Balance equals at
least 9.5% of
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the Pool Scheduled Principal Balance, the amount required to be on deposit in
the Reserve Account (the "Reserve Account Required Amount") will be reduced to
.5% of the Cutoff Date Pool Principal Balance. The Reserve Account Required
Amount is subject to further adjustment under the conditions specified in the
Sale and Servicing Agreement. If the Reserve Account is drawn upon, it will be
replenished to the extent provided in the Sale and Servicing Agreement and the
Indenture. The Reserve Account is included in the Trust Property. Any amount
remaining in the Reserve Account upon termination of the Trust will be
distributed to the General Partner.
LOSSES ON LIQUIDATED CONTRACTS
As described above, the distribution of principal to each Class of Notes is
intended to equal the applicable percentage of the Formula Principal
Distribution Amount. On each Distribution Date, each such amount includes the
Scheduled Principal Balance of each Contract that became a Liquidated Contract
during the Monthly Period related to such Distribution Date. If the Net
Liquidation Proceeds from such Liquidated Contract are less than the Scheduled
Principal Balance of such Liquidated Contract, the deficiency will, in effect,
be absorbed first by the Monthly Servicing and Guaranty Fee otherwise payable
to Green Tree, then by the Certificateholders (although Green Tree will be
obligated to make a Guaranty Payment equal to any shortfall in the
distribution to the Certificateholders), and then by each Class of Notes in
inverse numeric order (although funds on deposit in the Reserve Account will
be available to pay any shortfall in the distribution of interest and
principal to any Class of Notes).
If the funds available for any Distribution Date, after making all required
distributions of interest and principal to more senior Classes of Notes, are
insufficient to make a full distribution of interest and/or principal to a
Class of Notes or the Certificates, such deficiency will be carried forward
and added to the amount to be distributed to such Class of Notes or the
Certificates on the following Distribution Date.
If the Pool Scheduled Principal Balance for any Distribution Date is less
than the sum of the aggregate outstanding principal balance of the Notes and
the Certificate Principal Balance after giving effect to all distributions of
principal on such Distribution Date, then the Certificate Principal Balance
will be reduced by the amount of such deficiency (a "Certificate Principal
Liquidation Loss"). Green Tree will be obligated to pay the amount of any such
Certificate Principal Liquidation Loss under the Limited Guaranty. If Green
Tree should fail to pay such amount, however, the amount distributable on the
Certificates on future Distribution Dates would include interest on any such
Certificate Principal Liquidation Loss at the Pass-Through Rate (and, to the
extent legally permissible, interest on any unpaid interest at the Pass-
Through Rate) accrued from the date such Certificate Principal Liquidation
Loss was incurred, and the amount of such Certificate Principal Liquidation
Loss.
Similarly, if the Certificate Principal Balance were reduced to zero (which
would be caused only by Certificate Principal Liquidation Losses, whether or
not Green Tree makes any required payments under the Limited Guaranty) and the
Pool Scheduled Principal Balance on any Distribution Date were less than the
aggregate outstanding principal balance of the Notes after giving effect to
distributions of principal on such Distribution Date, then the Class A-4
Principal Balance would be reduced by the amount of such deficiency (a "Class
A-4 Principal Liquidation Loss"). The funds on deposit in the Reserve Account
will be available to pay the amount of any such Class A-4 Principal
Liquidation Loss. If the funds available in the Reserve Account are
insufficient to pay such amount, however, the amount distributable on the
Class A-4 Notes on future Distribution Dates would include interest on any
such Class A-4 Principal Liquidation Loss at the Class A-4 Rate (and, to the
extent legally permissible, interest on such unpaid interest at the Class A-4
Rate) accrued from the date such Class A-4 Principal Liquidation Loss was
incurred, and the amount of such Class A-4 Principal Liquidation Loss. Each
more senior Class of Notes would similarly be subject to reduction in its
outstanding principal balance if the aggregate outstanding principal balance
of all more junior Classes of Notes were reduced to zero and the Pool
Scheduled Principal Balance were less than the aggregate outstanding principal
balance of the Notes, and would similarly be entitled on future Distribution
Dates to receive interest on any such Principal Liquidation Loss at the
applicable Interest Rate, and the amount of such Principal Liquidation Loss.
Any Principal Liquidation Loss experienced by the Class A-1 Notes would be
allocated to the Class A-1A and Class A-1B Notes pro rata based on the
outstanding Class A-1A Principal Balance and the outstanding Class A-1B
Principal
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Balance. The Formula Principal Distribution Amount distributable to each Class
of Notes on each Distribution Date will not be affected by any Principal
Liquidation Loss experienced by a Class of Notes. Accordingly, even if a Class
of Notes has experienced a Principal Liquidation Loss, such Class will
continue to be entitled to receive its respective percentage of the Formula
Principal Distribution Amount (or, if the Amount Available in the Collection
Account is insufficient to make such distribution, such Class will be entitled
to receive the amount of such deficiency on subsequent Distribution Dates as
an Unpaid Principal Shortfall).
BOOK-ENTRY REGISTRATION
Holders of the Notes or the Certificates may hold through DTC (in the United
States) or, solely in the case of the Notes, CEDEL or Euroclear (in Europe) if
they are participants of such systems, or indirectly through organizations
that are participants in such systems. The Certificates may not be held,
directly or indirectly, through CEDEL or Euroclear.
Cede & Co., as nominee for DTC, will hold the Notes and the Certificates.
CEDEL and Euroclear will hold omnibus positions in the Notes on behalf of the
CEDEL Participants and the Euroclear Participants, respectively, through
customers' securities accounts in CEDEL's and Euroclear's names on the books
of their respective depositaries (collectively, the "Depositaries"), which in
turn will hold such positions in customers' securities accounts in the
Depositaries' names on the books of DTC.
Transfers between DTC's participating organizations (the "Participants")
will occur in accordance with DTC rules. Transfers between CEDEL Participants
and Euroclear Participants will occur in the ordinary way in accordance with
their applicable rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through CEDEL
Participants or Euroclear Participants, on the other, will be effected in DTC
in accordance with DTC rules on behalf of the relevant European international
clearing system by its Depositary; however, such cross-market transactions
will require delivery of instructions to the relevant European international
clearing system by the counterparty in such system in accordance with its
rules and procedures and within its established deadlines (European time). The
relevant European international clearing system will, if the transaction meets
its settlement requirements, deliver instructions to its Depositary to take
action to effect final settlement on its behalf by delivering or receiving
securities in DTC, and making or receiving payment in accordance with normal
procedures for same-day funds settlement applicable to DTC. CEDEL Participants
and Euroclear Participants may not deliver instructions directly to the
Depositaries.
Because of time-zone differences, credits of securities in CEDEL or
Euroclear as a result of a transaction with a Participant will be made during
the subsequent securities settlement processing, dated the business day
following the DTC settlement date, and such credits or any transactions in
such securities settled during such processing will be reported to the
relevant CEDEL Participant or Euroclear Participant on such business day. Cash
received in CEDEL or Euroclear as a result of sales of securities by or
through a CEDEL Participant or a Euroclear Participant to a Participant will
be received with value on the DTC settlement date but will be available in the
relevant CEDEL or Euroclear cash account only as of the business day following
settlement in DTC.
For a description of transfers between persons holding directly or
indirectly through DTC, see "Certain Information Regarding the Securities--
Book-Entry Registration" in the Prospectus.
Cedel Bank, societe anonyme ("CEDEL") is incorporated under the laws of
Luxembourg as a professional depository. CEDEL holds securities for its
participating organizations ("CEDEL Participants") and facilitates the
clearance and settlement of securities transactions between CEDEL Participants
through electronic book-entry changes in accounts of CEDEL Participants,
thereby eliminating the need for physical movement of certificates.
Transactions may be settled in CEDEL in any of 28 currencies, including United
States dollars. CEDEL provides to its CEDEL Participants, among other things,
services for safekeeping, administration, clearance and settlement of
internationally traded securities and securities lending and borrowing. CEDEL
interfaces with domestic markets in several countries. As a professional
depository, CEDEL is subject to regulation by the Luxembourg Monetary
Institute. CEDEL Participants are recognized financial institutions
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around the world, including underwriters, securities brokers and dealers,
banks, trust companies, clearing corporations and certain other organizations
and may include the Underwriters. Indirect access to CEDEL is also available
to others, such as banks, brokers, dealers and trust companies that clear
through or maintain a custodial relationship with a CEDEL Participant, either
directly or indirectly.
The Euroclear System was created in 1968 to hold securities for participants
of the Euroclear System ("Euroclear Participants") and to clear and settle
transactions between Euroclear Participants through simultaneous electronic
book-entry delivery against payment, thereby eliminating the need for physical
movement of certificates and any risk from lack of simultaneous transfers of
securities and cash. Transactions may now be settled in Euroclear in any of 32
currencies, including United States dollars. The Euroclear System includes
various other services, including securities lending and borrowing, and
interfaces with domestic markets in several countries generally similar to the
arrangements for cross-market transfers with DTC described in Annex I hereto.
The Euroclear System is operated by Morgan Guaranty Trust Company of New York,
Brussels, Belgium office (the "Euroclear Operator" or "Euroclear"), under
contract with Euroclear Clearance System, S.C., a Belgian cooperative
corporation (the "Cooperative"). All operations are conducted by the Euroclear
Operator, and all Euroclear securities clearance accounts and Euroclear cash
accounts are accounts with the Euroclear Operator, not the Cooperative. The
Cooperative establishes policy for the Euroclear System on behalf of Euroclear
Participants. Euroclear Participants include banks (including central banks),
securities brokers and dealers and other professional financial intermediaries
and may include the Underwriters. Indirect access to the Euroclear System is
also available to other firms that clear through or maintain a custodial
relationship with a Euroclear Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it
is regulated and examined by the Board of Governors of the Federal Reserve
System and the New York State Banking Department, as well as the Belgian
Banking Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System and applicable Belgian
law (collectively, the "Terms and Conditions"). The Terms and Conditions
govern transfers of securities and cash within the Euroclear System,
withdrawal of securities and cash from the Euroclear System, and receipts of
payments with respect to securities in the Euroclear System. All securities in
the Euroclear System are held on a fungible basis without attribution of
specific certificates to specific securities clearance accounts. The Euroclear
Operator acts under the Terms and Conditions only on behalf of Euroclear
Participants and has no record of or relationship with persons holding through
Euroclear Participants.
Distributions with respect to Notes held through CEDEL or Euroclear will be
credited to the cash accounts of CEDEL Participants or Euroclear Participants
in accordance with the relevant system's rules and procedures, to the extent
received by its Depositary. Such distributions will be subject to tax
reporting in accordance with relevant United States tax laws and regulations.
See "Certain Federal Income Tax Consequences" in the Prospectus and "Global
Clearance, Settlement and Tax Documentation Procedures" in Annex I to this
Prospectus Supplement. CEDEL or the Euroclear Operator, as the case may be,
will take any other action permitted to be taken by a Noteholder under the
Indenture on behalf of a CEDEL Participant or Euroclear Participant only in
accordance with its relevant rules and procedures and subject to its
Depositary's ability to effect such actions on its behalf through DTC.
Although DTC, CEDEL and Euroclear have agreed to the foregoing procedures in
order to facilitate transfers of Notes among participants of DTC, CEDEL and
Euroclear, they are under no obligation to perform or continue to perform such
procedures and such procedures may be discontinued at any time.
DESCRIPTION OF THE CERTIFICATES
The following information supplements the information contained in the
accompanying Prospectus. Prospective Certificateholders should consider, in
addition to the information below, the information in the
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accompanying Prospectus under "The Certificates," "Certain Information
Regarding the Securities," and "Description of the Trust Documents."
GENERAL
The Certificates will be issued pursuant to the terms of the Trust
Agreement, a form of which has been filed as an exhibit to the Registration
Statement. A copy of the Trust Agreement, as executed, will be filed with the
Commission following the issuance of the Securities. The following summary
describes certain terms of the Certificates and the Trust Agreement. The
summary does not purport to be complete and is subject to, and qualified in
its entirety by reference to, all the provisions of the Certificates and the
Trust Agreement. The following summary supplements the description of the
general terms and provisions of the Certificates of any given series and the
related Trust Agreement set forth in the Prospectus, to which description
reference is hereby made.
DISTRIBUTIONS
Certificateholders will be entitled to receive on each Distribution Date
commencing in April 1997, to the extent that funds available together with the
Guaranty Payment described below are sufficient therefor, the
Certificateholders' Distributable Amount.
INTEREST
On each Distribution Date, the Owner Trustee will distribute pro rata to
Certificateholders accrued interest at the Pass-Through Rate on the
outstanding Certificate Principal Balance. Interest in respect of a
Distribution Date will accrue from March 20, 1997, or from the most recent
Distribution Date to but excluding the following Distribution Date. The
"Certificate Principal Balance" as of any Distribution Date will be the
Original Certificate Principal Balance, reduced by all amounts allocable to
principal previously distributed to Certificateholders minus any unreimbursed
Certificate Principal Liquidation Loss (described below under "--Losses on
Liquidated Contracts").
Interest will be paid on the Certificates to the extent of funds available
on such Distribution Date, after payment of all interest and principal then
payable on the Notes and the deposit in the Reserve Account of any amounts
previously withdrawn from the Reserve Account and not previously replenished.
In the event such funds available are not sufficient to make a full
distribution of interest on the Certificates, the amount of the shortfall will
be carried forward and added to the amount of interest payable on the next
Distribution Date. Any amount so carried forward will bear interest at the
Pass-Through Rate, to the extent legally permissible. See "Description of the
Certificates."
PRINCIPAL
No distributions of principal on the Certificates will be payable until all
of the Notes have been paid in full. On each Distribution Date commencing on
the Distribution Date on which the Notes are paid in full, principal on the
Certificates will be payable in an amount equal to the Certificate Percentage
of the Formula Principal Distribution Amount for such Distribution Date plus
any Unpaid Certificate Principal Shortfall (as defined below) for such
Distribution Date.
The "Unpaid Certificate Principal Shortfall" for any Distribution Date will
equal any amount required to be paid in respect of principal on the
Certificates on any prior Distribution Date but not paid on any intervening
Distribution Date, less any unreimbursed Certificate Principal Liquidation
Loss.
OPTIONAL PREPAYMENT
If Green Tree exercises its option to purchase the Contracts when the Pool
Scheduled Principal Balance declines to 10% or less of the Cutoff Date Pool
Principal Balance, Certificateholders will receive an amount in respect of the
Certificates equal to the outstanding Certificate Principal Balance together
with accrued interest at the Pass-Through Rate, which distribution will effect
early retirement of the Certificates. See "Description of the Trust
Documents--Termination" in the accompanying Prospectus.
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LIMITED GUARANTY
In order to mitigate the effect of the subordination of the Certificates and
the effect of liquidation losses and delinquencies on the Contracts, the
Certificateholders are entitled to receive on each Distribution Date the
amount equal to the Guaranty Payment, if any, under Green Tree's Limited
Guaranty. The Guaranty Payment for any Distribution Date will equal the
difference, if any, between the Certificate Formula Distribution Amount (equal
to accrued and unpaid interest on the Certificates, plus the Certificate
Percentage of the Formula Principal Distribution Amount and the Formula
Principal Distribution Amount for such Distribution Date, plus any Unpaid
Certificate Principal Shortfall, plus any unreimbursed Certificate Principal
Liquidation Loss) and the remaining funds available in the Collection Account
after payment of all interest and principal on the Notes and the deposit in
the Reserve Account of any amounts previously withdrawn from the Reserve
Account and not previously replenished.
The Limited Guaranty will be an unsecured general obligation of Green Tree
and will not be supported by any letter of credit or other credit enhancement
arrangement. The Limited Guaranty will not benefit in any way, or result in
any payment to, the Noteholders.
As compensation for servicing the Contracts and providing the Limited
Guaranty, Green Tree will be entitled to receive the Monthly Servicing and
Guaranty Fee on each Distribution Date, which will be equal to the Amount
Available remaining after payment of the Certificateholder's Distributable
Amount and any deposits into the Reserve Account required on that Distribution
Date.
TRANSFERS OF CERTIFICATES
Certificateholders, other than individuals or entities holding Certificates
through a broker who reports sales of securities on Form 1099-B, are required
under the Trust Agreement to notify the Owner Trustee of any transfer of their
Certificates in a taxable sale or exchange within 30 days of such transfer.
LOSSES ON LIQUIDATED CONTRACTS
As described above, the distribution of principal to each Class of Notes is
intended to equal the applicable percentage of the Formula Principal
Distribution Amount. Such amount includes the Scheduled Principal Balance of
each Contract that became a Liquidated Contract during the Monthly Period
preceding such Distribution Date. If the Net Liquidation Proceeds from such
Liquidated Contract are less than the Scheduled Principal Balance of such
Liquidated Contract, the deficiency will, in effect, be absorbed first by the
Monthly Servicing and Guaranty Fee otherwise payable to Green Tree and then by
the Certificateholders (although Green Tree will be obligated to make a
Guaranty Payment equal to any shortfall in the distribution to the
Certificateholders).
If the funds available for any Distribution Date, after making all required
distributions of interest and principal to the Notes, are insufficient to make
a full distribution of interest and/or principal to the Certificates, such
deficiency will be carried forward and added to the amount to be distributed
to the Certificates on the following Distribution Date.
If the Pool Scheduled Principal Balance for any Distribution Date is less
than the sum of the aggregate outstanding Principal Balance of the Notes and
the Certificate Principal Balance after giving effect to all distributions of
principal on such Distribution Date, then the Certificate Principal Balance
will be reduced by the amount of such deficiency (a "Certificate Principal
Liquidation Loss"). Green Tree will be obligated to pay the amount of any such
Certificate Principal Liquidation Loss under the Limited Guaranty. If Green
Tree should fail to pay such amount, however, the amount distributable on the
Certificates on future Distribution Dates would include interest on any such
Certificate Principal Liquidation Loss at the Pass-Through Rate (and, to the
extent legally permissible, interest on any unpaid interest at the Pass-
Through Rate) accrued from the date such Certificate Principal Liquidation
Loss was incurred, and the amount of such Certificate Principal Liquidation
Loss.
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DESCRIPTION OF THE TRUST DOCUMENTS AND INDENTURE
The following summary describes certain terms of the Sale and Servicing
Agreement and the Trust Agreement (together, the "Trust Documents") and the
Indenture. Forms of the Trust Documents and Indenture have been filed as
exhibits to the Registration Statement. A copy of each of the Trust Documents
and Indenture, as executed, will be filed with the Commission following the
issuance of the Securities. The summary does not purport to be complete and is
subject to, and qualified in its entirety by reference to, all the provisions
of the Trust Documents and Indenture. The following summary supplements the
description of the general terms and provisions of the Trust Documents and
Indenture (as such terms are used in the accompanying Prospectus) set forth in
the accompanying Prospectus, to which description reference is hereby made.
ACCOUNTS
The Servicer will establish and maintain one or more accounts, in the name
of the Indenture Trustee on behalf of the Noteholders and the
Certificateholders, into which all payments made on or with respect to the
Contracts will be deposited (the "Collection Account"). The Servicer will
establish and maintain the Reserve Account in the name of the Indenture
Trustee on behalf of the Noteholders, in which amounts will be deposited to
cover shortfalls in interest or principal distributable on the Notes. The
Servicer will establish and maintain an account, in the name of the Indenture
Trustee on behalf of the Noteholders, in which amounts released from the
Collection Account and the Reserve Account for distribution to Noteholders
will be deposited and from which all distributions to Noteholders will be made
(the "Note Distribution Account"). The Servicer will also establish and
maintain an account, in the name of the Owner Trustee on behalf of the
Certificateholders, in which amounts released from the Collection Account for
distribution to Certificateholders will be deposited and from which all
distributions to Certificateholders will be made (the "Certificate
Distribution Account"). See "Description of the Trust Documents--Collections"
in the accompanying Prospectus.
DISTRIBUTIONS
On each Distribution Date, the Servicer shall instruct the Indenture Trustee
to distribute from the Collection Account the Amount Available in the
following order of priority:
1. If Green Tree or an affiliate is no longer the Servicer, then to the
Servicer, the Servicing Fee for the related Monthly Period.
2. To the Servicer, reimbursement for advances made with respect to
delinquent payments that were recovered during the prior Monthly Period.
3. To the Note Distribution Account, the Noteholders' Distributable
Amount, and any amounts previously withdrawn from the Reserve Account and
not previously replenished.
4. To the Certificate Distribution Account, the Certificateholders'
Interest Distributable Amount and, after the Notes have been paid in full,
the Certificateholders' Principal Distributable Amount.
5. To the Indenture Trustee for deposit in the Reserve Account, to fund
the initial amount required therein.
6. To Green Tree, the Monthly Servicing and Guaranty Fee.
On each Distribution Date, the Indenture Trustee will distribute all amounts
on deposit in the Note Distribution Account in the following order of
priority:
(i) to the Class A-1 Noteholders, interest, principal, interest and
principal shortfalls from prior payment periods, and interest and principal
in respect of Principal Liquidation Losses, with 67% of such principal
(other than principal in respect of Principal Liquidation Losses, which
would be paid on the Class A-1A Notes and Class A-1B Notes pro rata in
accordance with the amount of Principal Liquidation Losses realized by each
Class) payable to the Class A-1A Noteholders until the Class A-1A Principal
Balance is
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reduced to zero, and 33% to the Class A-1B Noteholders until the Class A-1A
Principal Balance is reduced to zero and 100% to the Class A-1B Noteholders
after the Class A-1A Principal Balance has been reduced to zero;
(ii) to the Class A-2 Noteholders, interest, principal, interest and
principal shortfalls from prior payment periods, and interest and principal
in respect of Principal Liquidation Losses;
(iii) to the Class A-3 Noteholders, interest, principal, interest and
principal shortfalls from prior payment periods, and interest and principal
in respect of Principal Liquidation Losses;
(iv) to the Class A-4 Noteholders, interest, principal, interest and
principal shortfalls from prior payment periods, and interest and principal
in respect of Principal Liquidation Losses; and
(v) to the Reserve Account to the extent amounts have previously been
withdrawn therefrom to pay interest or principal on any Class of Notes and
have not previously been replenished.
On each Distribution Date, the Owner Trustee or its Paying Agent will
distribute all amounts on deposit in the Certificate Distribution Account to
the Certificateholders.
For the purposes hereof, the following terms shall have the following
meanings:
"Amount Available" means, with respect to any Distribution Date, the sum of
payments on the Contracts due and received during the preceding month,
prepayments and other unscheduled collections received during the preceding
month, all collections in respect of principal on the Contracts received
during the current month up to and including the third business day prior to
such Distribution Date (but in no event later than the 10th day of the month
in which the Distribution Date occurs), any amounts deposited in respect of
Purchased Contracts, all earnings from the investment of funds in the
Collection Account, any Guaranty Payments, minus, with respect to all
Distribution Dates other than the Distribution Date in April 1997, all
collections of principal on the Contracts received during the preceding month
up to and including the third business day prior to the preceding Distribution
Date (but in no event later than the 10th day of the prior month).
"Formula Principal Distribution Amount" means, with respect to any
Distribution Date, an amount equal to the sum of the following amounts with
respect to the related Monthly Period, in each case computed in accordance
with the method specified in each Contract: (i) all scheduled payments of
principal due on each outstanding Contract during the related Monthly Period,
(ii) the Scheduled Principal Balance of each Contract which, during the
related Monthly Period, was purchased by Green Tree pursuant to the Sale and
Servicing Agreement on account of a breach of a representation or warranty or
by the Servicer as a result of an uncured breach of the covenants made by it
with respect to the Contracts, (iii) all Partial Principal Prepayments applied
and all Principal Prepayments in Full received during the related Monthly
Period, (iv) the Scheduled Principal Balance of each Contract that became a
Liquidated Contract during the related Monthly Period, (v) with respect to the
Distribution Date in April 1997, an amount equal to the Excess Proceeds, (vi)
all collections in respect of principal on the Contracts received during the
current month up to and including the third business day prior to such
Distribution Date (but in no event later than the 10th day of the month in
which the Distribution Date occurs), minus (vii) with respect to all
Distribution Dates other than the Distribution Date in April 1997, all
collections of principal on the Contracts received during the related Monthly
Period up to and including the third business day prior to the preceding
Distribution Date (but in no event later than the 10th day of the prior
month).
"Excess Proceeds" means an amount equal to the excess, if any, of (a) the
aggregate of the Original Class A-1A, Class A-1B, Class A-2, Class A-3, Class
A-4 and Certificate Principal Balances over (b) the Cutoff Date Pool Principal
Balance.
"Liquidated Contract" means any defaulted Contract as to which the Servicer
has determined that all amounts which it expects to recover from or on account
of such Contract through the date of disposition of the related Product have
been recovered; provided that any defaulted Contract in respect of which the
related Product has been realized upon and disposed of and proceeds of such
disposition have been received shall be deemed to be a Liquidated Contract.
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"Purchased Contract" means a Contract (i) that Green Tree has become
obligated to repurchase (or, under certain circumstances, has elected to
repurchase) as a result of an uncured breach by Green Tree of a representation
or warranty made by Green Tree with respect to such Contract or (ii) that the
Servicer has become obligated to repurchase (or, under certain circumstances,
has elected to repurchase) as a result of an uncured breach of the covenants
made by it with respect to such Contract.
"Noteholders' Distributable Amount" means, with respect to any Distribution
Date, the sum of the Noteholders' Interest Distributable Amount and the
Noteholders' Principal Distributable Amount.
"Noteholders' Interest Distributable Amount" means, with respect to any
Distribution Date, the sum of the Noteholders' Monthly Interest Distributable
Amount for such Distribution Date and the Noteholders' Interest Carryover
Shortfall for such Distribution Date.
"Noteholders' Monthly Interest Distributable Amount" means, with respect to
any Distribution Date, interest accrued for the related monthly interest
period on each Class of Notes at the respective Interest Rate for such Class
on (i) the outstanding Principal Balance of the Notes of such Class on the
immediately preceding Distribution Date (or, in the case of the first
Distribution Date, on the Closing Date), and (ii) the aggregate unreimbursed
Principal Liquidation Losses of such Class on each prior Distribution Date, in
each case after giving effect to all payments of principal to the Noteholders
of such Class on the immediately preceding Distribution Date.
"Principal Liquidation Loss" means, with respect to any Distribution Date
and any Class of Notes, the amount by which the aggregate Principal Balance of
such Class and each junior Class and the Certificate Principal Balance (after
giving effect to any Principal Liquidation Losses imposed on such junior
Classes and Certificates) exceeds the Pool Scheduled Principal Balance, after
giving effect to all distributions of principal on such Distribution Date.
"Principal Balance" means, with respect to any Determination Date and any
Class of Notes, the Original Principal Balance of such Class minus all amounts
previously distributed in respect of principal of such Class and minus any
unreimbursed Principal Liquidation Losses of such Class.
"Noteholders' Interest Carryover Shortfall" means, with respect to any
Distribution Date, the excess of the Noteholders' Monthly Interest
Distributable Amount for the preceding Distribution Date and any outstanding
Noteholders' Interest Carryover Shortfall on such preceding Distribution Date,
over the amount in respect of interest that is actually deposited in the Note
Distribution Account on such preceding Distribution Date, plus interest on the
amount of interest due but not paid to Noteholders on the preceding
Distribution Date, to the extent permitted by law, at the respective Interest
Rate for each Class of Notes for the applicable monthly interest period.
"Noteholder's Principal Distributable Amount" means, with respect to any
Distribution Date, the sum of the Noteholders' Monthly Principal Distributable
Amount for such Distribution Date and the Noteholders' Unpaid Principal
Shortfall as of the close of the preceding Distribution Date; provided,
however, that the Noteholders' Principal Distributable Amount shall not exceed
the outstanding principal balance of the Notes, and provided further, that the
Noteholders' Principal Distributable Amount on the Final Scheduled
Distribution Date shall not be less than the amount that is necessary (after
giving effect to other amounts to be deposited in the Note Distribution
Account on such Distribution Date and allocable to principal) to reduce the
outstanding principal balances (including all unpaid Principal Liquidation
Losses) of all Classes of Notes to zero.
"Noteholders' Monthly Principal Distributable Amount" means, with respect to
any Distribution Date, the Noteholders' Percentage of the Formula Principal
Distribution Amount plus the aggregate unreimbursed Principal Liquidation Loss
of each Class of Notes.
"Noteholders' Percentage" means 100% until and including the Distribution
Date on which the aggregate Principal Balance of the Notes (including any
unreimbursed liquidation losses thereon) are paid in full and 0% thereafter.
"Noteholders' Unpaid Principal Shortfall" means, as of the close of any
Distribution Date, the excess of the Noteholders' Monthly Principal
Distributable Amount and any outstanding Noteholders' Unpaid Principal
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Shortfall from the preceding Distribution Date over the amount in respect of
principal that is actually deposited in the Note Distribution Account on such
Distribution Date.
"Certificateholders' Distributable Amount" means, with respect to any
Distribution Date, the sum of the Certificateholders' Interest Distributable
Amount and the Certificateholders' Principal Distributable Amount.
"Certificateholders' Interest Distributable Amount" means, with respect to
any Distribution Date, the sum of the Certificateholders' Monthly Interest
Distributable Amount for such Distribution Date and the Certificateholders'
Interest Carryover Shortfall for such Distribution Date.
"Certificateholders' Monthly Interest Distributable Amount" means, with
respect to any Distribution Date, interest accrued at the Pass-Through Rate on
(i) the Certificate Principal Balance on the immediately preceding
Distribution Date (or, in the case of the first Distribution Date, on the
Closing Date), and (ii) the aggregate unreimbursed Certificate Principal
Liquidation Losses on each prior Distribution Date, in each case after giving
effect to all payments of principal to the Certificateholders on the
immediately preceding Distribution Date.
"Certificate Principal Liquidation Loss" means, with respect to any
Distribution Date, the amount by which the aggregate Principal Balance of the
Notes and the Certificate Principal Balance exceeds the Pool Scheduled
Principal Balance, after giving effect to all distributions of principal on
such Distribution Date.
"Certificate Principal Balance" equals, initially, $15,000,000 (approximate)
and, thereafter, equals the Original Certificate Principal Balance, reduced by
all amounts allocable to principal previously distributed to
Certificateholders minus any unreimbursed Certificate Principal Liquidation
Losses.
"Certificateholders' Interest Carryover Shortfall" means, with respect to
any Distribution Date, the excess of the Certificateholders' Monthly Interest
Distributable Amount for the preceding Distribution Date and any outstanding
Certificateholders' Interest Carryover Shortfall on such preceding
Distribution Date, over the amount in respect of interest at the Pass-Through
Rate that is actually deposited in the Certificate Distribution Account on
such preceding Distribution Date, plus interest on such excess, to the extent
permitted by law, at the Pass-Through Rate from such preceding Distribution
Date to but excluding the current Distribution Date.
"Certificateholders' Principal Distributable Amount" means, with respect to
any Distribution Date, the sum of the Certificateholders' Monthly Principal
Distributable Amount for such Distribution Date and the Certificateholders'
Unpaid Principal Shortfall as of the close of the preceding Distribution Date;
provided, however, that the Certificateholders' Principal Distributable Amount
shall not exceed the Certificate Principal Balance plus any unreimbursed
Certificate Principal Liquidation Losses. In addition, on the Final Scheduled
Distribution Date, the principal required to be deposited into the Certificate
Distribution Account shall not be less than the amount that is necessary
(after giving effect to the other amounts to be deposited in the Certificate
Distribution Account on such Distribution Date and allocable to principal) to
reduce to zero the Certificate Principal Balance plus the Certificate
Principal Liquidation Losses.
"Certificateholders' Monthly Principal Distributable Amount" means, with
respect to any Distribution Date prior to the Distribution Date on which the
Notes are paid in full, zero; and with respect to any Distribution Date
commencing on the Distribution Date on which the Notes are paid in full, the
Certificate Percentage of the Formula Principal Distribution Amount, plus any
unreimbursed Certificate Principal Liquidation Loss, and plus, on the
Distribution Date on which the Notes are paid in full, the Noteholders'
Percentage of the Formula Principal Distribution Amount (less, on such
Distribution Date, the portion thereof payable on the Notes).
"Certificate Percentage" means, for each Distribution Date, a percentage
equal to 100% minus the Noteholders' Percentage for such Distribution Date.
"Certificateholders' Unpaid Principal Shortfall" means, as of the close of
any Distribution Date, the excess of the Certificateholders' Monthly Principal
Distributable Amount and any outstanding Certificateholders'
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Unpaid Principal Shortfall from the preceding Distribution Date, over the
amount in respect of principal that is actually deposited in the Certificate
Distribution Account.
STATEMENTS TO SECURITYHOLDERS
On or prior to each Distribution Date, the Servicer will prepare and provide
to the Indenture Trustee a statement to be delivered to the Noteholders and to
the Owner Trustee a statement to be delivered to the Certificateholders on
such Distribution Date. Such statements will be based on the information in
the related Servicer's Certificate setting forth certain information required
under the Trust Documents. Each such statement to be delivered to Noteholders
will include the following information as to the Notes, and each such
statement to be delivered to Certificateholders will include the following
information as to the Certificates, with respect to such Distribution Date or
the period since the previous Distribution Date, as applicable:
(i) the amount of the distribution allocable to interest on or with
respect to each Class of Notes and to the Certificates;
(ii) the amount of the distribution allocable to principal on or with
respect to each Class of Notes and to the Certificates;
(iii) the aggregate outstanding principal balance and the Note Pool
Factor for the Notes and the Certificate Principal Balance and the
Certificate Pool Factor for the Certificates after giving effect to all
payments reported under (ii) above on such date;
(iv) the Noteholders' Interest Shortfall, the Noteholders' Principal
Shortfall, the Certificateholders' Interest Shortfall and the
Certificateholders' Principal Shortfall, if any, and the change in such
amounts from the preceding statement;
(v) the amount, if any, of Principal Liquidation Losses, aggregate
unreimbursed Principal Liquidation Losses since the Closing Date and the
amount of the distribution allocable to such losses for the Notes and
Certificates;
(vi) the amount, if any, deposited or withdrawn from the Reserve Account
and the amount on deposit in the Reserve Account after giving effect to all
withdrawals and deposits on such Distribution Date;
(vii) the amount, if any, of the Guaranty Payment;
(viii) the amount of the Monthly Servicing and Guaranty Fee paid to the
Servicer with respect to the related Monthly Period;
(ix) the number and aggregate principal balances of delinquent Contracts,
the number of Products repossessed, and repossessed and remaining in
inventory, and the number of Contracts that became Liquidated Contracts
with respect to the immediately preceding Monthly Period; and
(x) the aggregate amount of Servicer Advances made by the Servicer with
respect to such Distribution Date, and the aggregate amount paid to the
Servicer as reimbursement of Servicer Advances made on prior Distribution
Dates.
Each amount set forth pursuant to subclauses (i) through (vi) with respect
to Certificates or Notes will be expressed as a dollar amount per $1,000 of
the initial principal amount of the Notes or the initial Certificate Principal
Balance, as applicable.
Unless and until Definitive Notes or Definitive Certificates are issued,
such reports will be sent on behalf of the Trust to Cede & Co., as registered
holder of the Notes and the Certificates and the nominee of DTC. Note Owners
and Certificate Owners may receive copies of such reports upon written
request, together with a certification that they are Note Owners or
Certificate Owners, as the case may be, and payment of any expenses associated
with the distribution of such reports, from the Indenture Trustee or Owner
Trustee. See "Reports to Securityholders" herein and "Reports to
Securityholders" and "Certain Information Regarding the Securities" in the
accompanying Prospectus.
Within the required period of time after the end of each calendar year, the
Indenture Trustee and the Owner Trustee, as applicable, will furnish to each
person who at any time during such calendar year was a Noteholder
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or Certificateholder, a statement as to the aggregate amounts of interest and
principal paid to such Noteholder or Certificateholder, information regarding
the amount of servicing compensation received by the Servicer and such other
information as Green Tree deems necessary to enable such Noteholder or
Certificateholder to prepare its tax returns. See "Certain Federal Income Tax
Consequences" herein.
ADMINISTRATOR
Green Tree Financial Servicing Corporation, a Delaware corporation (the
"Administrator"), will provide the notices and perform other administrative
obligations required by the Indenture and the Trust Agreement. The
Administrator, a subsidiary of Green Tree, will enter into an Administration
Agreement with the Trust and the Indenture Trustee relating to its duties and
obligations as Administrator.
CERTAIN FEDERAL AND STATE INCOME TAX CONSEQUENCES
The following is a general discussion of certain federal and state income
tax consequences relating to the purchase, ownership, and disposition of the
Notes and the Certificates. The discussion is based upon the current
provisions of the Internal Revenue Code of 1986, as amended (the "Code"), the
Treasury regulations promulgated thereunder, and judicial or ruling authority,
all of which are subject to change, which change may be retroactive. For
additional information regarding federal and state income tax consequences,
see "Certain Federal Income Tax Consequences--Owner Trust Series" and "Certain
State Income Tax Consequences" in the Prospectus.
Prospective investors should consult their own tax advisors to determine the
federal, state, local and other tax consequences of the purchase, ownership
and disposition of the Notes and the Certificates. Prospective investors
should note that no rulings have been or will be sought from the Internal
Revenue Service (the "IRS") with respect to any of the federal income tax
consequences discussed herein or in the accompanying Prospectus, and no
assurance can be given that the IRS will not take contrary positions.
Moreover, there are no cases or IRS rulings on transactions similar to those
described herein with respect to the Trust, involving both debt and equity
interests issued by a trust with terms similar to those of the Notes and the
Certificates. Prospective investors are urged to consult their own tax
advisors in determining the federal, state, local, foreign and any other tax
consequences to them of the purchase, ownership and disposition of the
Securities.
In the opinion of Dorsey & Whitney LLP, for federal and Minnesota income tax
purposes, the Notes will be characterized as debt, and the Trust will not be
characterized as an association (or a publicly traded partnership) taxable as
a corporation. Each Certificateholder, by the acceptance of a Certificate,
agrees to treat the Trust as a partnership in which the Certificateholders are
partners for federal income tax purposes. The Notes will not be issued with
original issue discount ("OID"). The Notes provide for stated interest at a
floating rate based on LIBOR, subject to a cap of 10.75% per year (or 12% for
the Class A-1B Notes). Under Treasury regulations, stated interest payable at
a variable rate is not treated as OID or contingent interest if the variable
rate is a qualified floating rate or a qualified objective rate. The stated
interest on the Notes represents interest payable at a qualified floating rate
and will be taxable to holders of such Notes as interest and not as OID or
contingent interest.
ERISA CONSIDERATIONS
Section 406 of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and or Section 4975 of the Code, prohibit 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
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<PAGE>
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
Securities might be deemed to constitute prohibited transactions under ERISA
and the Code if assets of the Trust 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 Trust 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 Trust 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 other than
an instrument which is treated as indebtedness under applicable local law and
which has no substantial equity features. Green Tree believes that the Notes
should be treated as indebtedness without substantial equity features 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 Trust, the Owner Trustee or the
Indenture Trustee, the owner of collateral, 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") 90-1, regarding investments by insurance company pooled separate
accounts; PTCE 91-38 regarding investments by bank collective investment
funds; and PTCE 84-14, regarding transactions effected by "qualified
professional asset managers."
The Certificates may not be acquired by (a) an employee benefit plan (as
defined in Section 3(3) of ERISA) that is subject to the provisions of Title I
of ERISA, (b) a plan described in Section 4975(e)(1) of the Code or (c) any
entity whose underlying assets include plan assets by reason of a plan's
investment in the entity. By its acceptance of a Certificate, each
Certificateholder will be deemed to have represented and warranted that it is
not subject to the foregoing limitation. In this regard, purchasers that are
insurance companies should consult with their counsel with respect to the
United States Supreme Court case interpreting the fiduciary responsibility
rules of ERISA, John Hancock Mutual Life Insurance Co. v. Harris Trust and
Savings Bank (decided December 13, 1993). In John Hancock, the Supreme Court
ruled that assets held in an insurance company's general account may be deemed
to be "plan assets" for ERISA purposes under certain circumstances.
Prospective purchasers should determine whether the decision affects their
ability to make purchases of the Certificates. In particular, such an
insurance company should consider the exemptive relief granted by the
Department of Labor for transactions involving insurance company general
accounts in Prohibited Transactions Exemption 95-60, 60 Fed. Reg. 35925 (July
12, 1995). The Small Business Job Protection Act of 1996 (the "1996 Act")
became effective on August 20, 1996. The 1996 Act amends ERISA to require the
Department of Labor to issue regulations to clarify, retroactively, the
application of ERISA and the prohibited transaction provisions of the Code to
insurance company general accounts. For additional information regarding
treatment of the Certificates under ERISA, see "ERISA Considerations" in the
Prospectus.
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. Such plans may, however, be
subject to the provisions of other applicable federal and state laws,
including, for any such governmental or church plan qualified under Section
401(a) of the Code and exempt from taxation under Section 501(a) of the Code,
the prohibited transaction rules set forth in Section 503 of the Code.
A plan fiduciary considering the purchase of Notes should consult its tax
and/or legal advisors regarding whether the assets of the Trust would be
considered plan assets, the possibility of exemptive relief from the
prohibited transaction rules and other issues and their potential
consequences.
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UNDERWRITING
The Underwriters named below have severally agreed, subject to the terms and
conditions of the Underwriting Agreement, to purchase from Green Tree the
respective principal amounts of Notes and Certificates set forth opposite
their names below:
<TABLE>
<CAPTION>
CLASS A-1A CLASS A-1B CLASS A-2 CLASS A-3 CLASS A-4
UNDERWRITER NOTES NOTES NOTES NOTES NOTES CERTIFICATES
----------- ----------- ------------ ----------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Morgan Stanley & Co.
Incorporated........ $32,500,000 $68,125,000 $ 6,250,000 $ 5,937,500 $4,687,500 $ 7,500,000
Merrill Lynch, Pierce,
Fenner & Smith
Incorporated..... 32,500,000 68,125,000 6,250,000 5,937,500 4,687,500 7,500,000
----------- ------------ ----------- ----------- ---------- -----------
Total................ $65,000,000 $136,250,000 $12,500,000 $11,875,000 $9,375,000 $15,000,000
=========== ============ =========== =========== ========== ===========
</TABLE>
The Underwriting Agreement provides that the Underwriters are obligated to
purchase all of the Notes and Certificates offered hereby, if any of such
Notes and Certificates are purchased.
Green Tree has been advised by Morgan Stanley & Co. Incorporated, the
Representative of the Underwriters, that the Underwriters propose initially to
offer the Notes and Certificates to the public at the public offering prices
set forth on the cover page of this Prospectus Supplement and to certain
dealers at such price less a concession not in excess of .195% of the Class A-
1A Principal Balance, .255% of the Class A-1B Principal Balance, .33% of the
Class A-2 Principal Balance, .45% of the Class A-3 Principal Balance, .57% of
the Class A-4 Principal Balance and .57% of the Certificate Principal Balance,
and that the Underwriters and such dealers may reallow a discount of not in
excess of .100% of the Class A-1A Principal Balance, .125% of the Class A-1B
Principal Balance, .150% of the Class A-2 Principal Balance, .225% of the
Class A-3 Principal Balance, .250% of the Class A-4 Principal Balance and
.250% of the Certificate Principal Balance, to other dealers. The public
offering price and the concession and discount to dealers may be changed by
the Representative after the initial public offering of the Notes and
Certificates offered hereby.
Until the distribution of the Securities is completed, rules of the
Commission may limit the ability of the Underwriters and certain selling group
members to bid for and purchase the Securities. As an exception to these
rules, the Underwriters are permitted to engage in certain transactions that
stabilize the price of the Securities. Such transactions consist of bids or
purchases for the purpose of pegging, fixing or maintaining the price of the
Securities.
If the Underwriters create a short position in the Securities in connection
with the offering, i.e., if they sell more Securities than are set forth on
the cover page of this Prospectus Supplement, the Underwriters may reduce that
short position by purchasing Securities in the open market.
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 Seller 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 Securities. In
addition, neither Green Tree 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.
Each Underwriter has represented, warranted and agreed that (i) it has not
offered or sold and, prior to the expiration of the period of six months from
the Closing Date, will not offer or sell any Securities to persons in the
United Kingdom except to persons whose ordinary activities involve them in
acquiring, holding, managing or disposing of investments (as principal or
agent) for the purposes of their businesses or otherwise in circumstances
which have not resulted and will not result in an offer to the public in the
United Kingdom within the meaning of the Public Offers of Securities
Regulations 1995; (ii) it has complied and will comply with all applicable
provisions of the Financial Services Act 1986 with respect to anything done by
it in relation to the
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Securities in, from or otherwise involving the United Kingdom; and (iii) it
has only issued or passed on and will only issue or pass on in the United
Kingdom any document received by it in connection with the issue of the
Securities to a person who is of a kind described in Article 11(3) of the
Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order
1995 (as amended) or is a person to whom such document may otherwise lawfully
be issued or passed on.
The Notes have not been and will not be registered under the Securities and
Exchange Law of Japan (the "Securities and Exchange Law") and the Underwriters
have agreed that they will not offer or sell any of the Notes, directly or
indirectly, in Japan or to, or for the benefit of, any resident of Japan
(which term as used herein means any person resident in Japan, including any
corporation or other entity organized under the laws of Japan), except
pursuant to an exemption from the registration requirements of, and otherwise
in compliance with, the Securities and Exchange Law and any other applicable
laws, regulations and ministerial guidelines of Japan.
Green Tree has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended.
Green Tree does not intend to apply for listing of the Notes and
Certificates on a national securities exchange, but has been advised by the
Underwriters that the Underwriters currently intend to make a market in the
Notes and Certificates, as permitted by applicable laws and regulations. The
Underwriters are not obligated, however, to make a market in the Notes and
Certificates and any such market may be discontinued at any time at the sole
discretion of the Underwriters. Accordingly, no assurance can be given as to
the liquidity of, or trading markets for, the Notes and Certificates.
LEGAL MATTERS
Certain matters with respect to the legality of the Notes and Certificates
and with respect to the federal income tax matters discussed under "Certain
Federal and State Income Tax Consequences" will be passed upon for Green Tree
by Dorsey & Whitney LLP, Minneapolis, Minnesota. The validity of the Notes and
Certificates will be passed upon for the Underwriters by Brown & Wood LLP, New
York, New York.
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ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the Notes will be available only in
book-entry form (the "Global Notes"). Investors in the Global Notes may hold
such Global Notes through any of DTC, CEDEL or Euroclear. The Global
Securities will be tradeable as home market instruments in both the European
and U.S. domestic markets. Initial settlement and all secondary trades will
settle in same-day funds.
Secondary market trading between investors holding Global Notes through
CEDEL and Euroclear will be conducted in the ordinary way in accordance with
their normal rules and operating procedures and in accordance with
conventional eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Global Notes through DTC
will be conducted according to the rules and procedures applicable to U.S.
corporate debt obligations.
Secondary cross-market trading between CEDEL or Euroclear and DTC
Participants holding Notes will be effected on a delivery-against-payment
basis through the respective Depositaries of CEDEL and Euroclear (in such
capacity) and DTC Participants.
Non-U.S. holders (as described below) of Global Notes will be subject to
U.S. withholding taxes unless such holders meet certain requirements and
deliver appropriate U.S. tax documents to the securities clearing
organizations or their participants.
INITIAL SETTLEMENT
All Global Notes will be held in book-entry form by DTC in the name of Cede
& Co. as nominee of DTC. Investors' interests in the Global Notes will be
represented through financial institutions acting on their behalf as direct
and indirect Participants in DTC. As a result, CEDEL and Euroclear will hold
positions on behalf of their participants through their respective
Depositaries, which in turn will hold such positions in accounts as DTC
Participants.
Investors electing to hold their Global Notes through DTC will follow the
settlement practices applicable to United States corporate debt obligations.
Investors securities custody accounts will be credited with their holdings
against payment in same-day funds on the settlement date.
Investors electing to hold their Global Notes through CEDEL or Euroclear
accounts will follow the settlement procedures applicable to conventional
eurobonds, except that there will be no temporary global security and no
"lock-up" or restricted period. Global Notes will be credited to the
securities custody accounts on the settlement date against payments in same-
day funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired
value date.
Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled using the procedures applicable to book-entry
securities in same-day funds.
Trading between CEDEL and/or Euroclear Participants. Secondary market
trading between CEDEL Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
Trading between DTC seller and CEDEL or Euroclear purchaser. When Global
Notes are to be transferred from the account of a DTC Participant to the
account of a CEDEL Participant or a Euroclear Participant, the
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<PAGE>
purchaser will send instructions to CEDEL or Euroclear through a CEDEL
Participant or Euroclear Participant at least one business day prior to
settlement. CEDEL or Euroclear, as applicable, will instruct its Depositary to
receive the Global Notes against payment. Payment will include interest
accrued on the Global Notes from and including the last coupon payment date to
and excluding the settlement date. Payment will then be made by such
Depositary to the DTC Participant's account against delivery of the Global
Notes. After settlement has been completed, the Global Notes will be credited
to the applicable clearing system and by the clearing system, in accordance
with its usual procedures, to the CEDEL Participant's or Euroclear
Participant's account. The Global Notes credit will appear the next day
(European time) and the cash debit will be back-valued to, and the interest on
the Global Notes will accrue from, the value date (which would be the
preceding day when settlement occurred in New York). If settlement is not
completed on the intended value date (i.e., the trade fails), the CEDEL or
Euroclear cash debit will be valued instead as of the actual settlement date.
CEDEL Participants and Euroclear Participants will need to make available to
the respective clearing systems the funds necessary to process same-day funds
settlement. The most direct means of doing so is to pre-position funds for
settlement, either from cash on hand or existing lines of credit, as they
would for any settlement occurring within CEDEL or Euroclear. Under this
approach, they may take on credit exposure to CEDEL or Euroclear until the
Global Securities are credited to their accounts one day later.
As an alternative, if CEDEL or Euroclear has extended a line of credit to
them, CEDEL Participants or Euroclear Participants can elect not to pre-
position funds and allow that credit line to be drawn upon the finance
settlement. Under this procedure, CEDEL Participants or Euroclear Participants
purchasing Global Notes would incur overdraft charges for one day, assuming
they cleared the overdraft when the Global Notes were credited to their
accounts. However, interest on the Global Notes would accrue from the value
date. Therefore, in many cases the investment income on the Global Notes
earned during that one-day period may substantially reduce or offset the
amount of such overdraft charges, although this result will depend on each
CEDEL Participant's or Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for sending Global Notes to the
respective Depositary for the benefit of CEDEL Participants or Euroclear
Participants. The sale proceeds will be available to the DTC seller on the
settlement date. Thus, to the DTC Participant a cross-market transaction will
settle no differently than a trade between two DTC Participants.
Trading between CEDEL or Euroclear seller and DTC purchaser. Due to time
zone differences in their favor, CEDEL Participants and Euroclear Participants
may employ their customary procedures for transactions in which Global Notes
are to be transferred by the respective clearing systems, through their
respective Depositaries, to a DTC Participant. The seller will send
instructions to CEDEL or Euroclear through a CEDEL Participant or Euroclear
Participant at least one business day prior to settlement. In these cases,
CEDEL or Euroclear will instruct their respective Depositaries, as
appropriate, to deliver the Notes to the DTC Participant's account against
payment. Payment will include interest accrued on the Global Notes from and
including the last coupon payment date to and excluding the settlement date.
The payment will then be reflected in the account of the CEDEL Participant or
Euroclear Participant the following day, and receipt of the cash proceeds in
the CEDEL Participant's or Euroclear Participant's account would be back-
valued to the value date (which would be the preceding day, when settlement
occurred in New York). Should the CEDEL Participant or Euroclear Participant
have a line of credit with its clearing system and elect to be in debit in
anticipation of receipt of the sale proceeds in its account, the bank-
valuation will extinguish any overdraft charges incurred over that one-day
period. If settlement is not completed on the intended value date (i.e., the
trade fails), receipt of the cash proceeds in the CEDEL Participant's or
Euroclear Participant's account would instead be valued as of the actual
settlement date. Finally, day traders that use CEDEL or Euroclear and that
purchase Global Notes from DTC Participants for delivery to CEDEL Participants
or Euroclear Participants should note that these trades would automatically
fail on the sale side unless affirmative action were taken. At least three
techniques should be readily available to eliminate this potential problem:
A-2
<PAGE>
(a) borrowing through CEDEL or Euroclear for one day (until the purchase
side of the day trade is reflected in their CEDEL or Euroclear accounts) in
accordance with the clearing system's customary procedures;
(b) borrowing the Global Notes in the U.S. from a DTC Participant no
later than one day prior to settlement, which would give the Global Notes
sufficient time to be reflected in their CEDEL or Euroclear account in
order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade so
that the value date for the purchase from the DTC Participant is at least
one day prior to the value date for the sale to the CEDEL Participant or
Euroclear Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Notes holding securities through CEDEL or
Euroclear (or through DTC if the holder has an address outside the U.S.) will
be subject to the 30% U.S. withholding tax that generally applies to payments
of interest (including original issue discount) on registered debt issued by
U.S. Persons, unless (i) each clearing system, bank or other financial
institution that holds customers' securities in the ordinary course of its
trade or business in the chain of intermediaries between such beneficial owner
and the U.S. entity required to withhold tax complies with applicable
certification requirements and (ii) such beneficial owner takes one of the
following steps to obtain an exemption or reduced tax rate:
Exemption of non-U.S. Persons (Form W-8). Beneficial owners of Notes that
are non-U.S. Persons generally can obtain a complete exemption from the
withholding tax by filing a signed Form W-8 (Certificate of Foreign Status)
and a certificate under penalties of perjury (the "Tax Certificate") that
such beneficial owner is (i) not a controlled foreign corporation (within
the meaning of Section 957(a) of the Code) that is related (within the
meaning of Section 864(d)(4) of the Code) to the Trust or the Transferor
and (ii) not a 10 percent shareholder (within the meaning of Section
871(h)(3)(B) of the Code) of the Trust or the Transferor. If the
information shown on Form W-8 or the Tax Certificate changes, a new Form W-
8 or Tax Certificate, as the case may be, must be filed within 30 days of
such change.
Exemption for non-U.S. Person with effectively connected income (Form
4224). A non-U.S. Person, including a non-U.S. corporation or bank with a
U.S. branch, for which the interest income is effectively connected with
its conduct of a trade or business in the United States can obtain an
exemption from the withholding tax by filing Form 4224 (Exemption from
Withholding of Tax on Income Effectively Connected with the Conduct of a
Trade or Business in the United States).
Exemption or reduced rate for non-U.S. Persons resident in treaty
countries (Form 1001). Non-U.S. Persons that are beneficial owners of Notes
residing in a country that has a tax treaty with the United States can
obtain an exemption or reduced tax rate (depending on the treaty terms) by
filing Form 1001 (Ownership, Exemption or Reduced Rate Certificate). If the
treaty provides only for a reduced rate, withholding tax will be imposed at
that rate unless the filer alternatively files Form W-8. Form 1001 may be
filed by the beneficial owner of Notes or such owner's agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a complete
exemption from the withholding tax by filing Form W-9 (Payer's Request for
Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The beneficial owner of a
Global Security or, in the case of a Form 1001 or a Form 4224 filer, such
owner's agent, files by submitting the appropriate form to the person
through whom it holds the security (the clearing agency, in the case of
persons holding directly on the books of the clearing agency). Form W-8 and
Form 1001 are effective for three calendar years and Form 4224 is effective
for one calendar year.
The term "U.S. Person" means (i) a citizen or resident of the United States,
(ii) a corporation or partnership organized in or under the laws of the United
States or any political subdivision thereof, (iii) an estate or trust the
income of which is includible in gross income for United States tax purposes,
regardless of its source, or (iv) a trust if a court within the United States
is able to exercise primary supervision of the administration of the trust and
one or more United States fiduciaries have the authority to control all
substantial decisions of the trust. This summary does not deal with all
aspects of U.S. federal income tax withholding that may be relevant to foreign
holders of the Global Notes. Investors are advised to consult their own tax
advisors for specific tax advice concerning their holding and disposing of the
Global Notes.
A-3
<PAGE>
PROSPECTUS
GREEN TREE RECREATIONAL, EQUIPMENT & CONSUMER TRUSTS
ASSET-BACKED CERTIFICATES
ASSET-BACKED NOTES
----------------
GREEN TREE FINANCIAL CORPORATION
(SELLER AND SERVICER)
----------------
The Asset-Backed Certificates (the "Certificates") and the Asset-Backed
Notes (the "Notes" and, collectively with the Certificates, the "Securities")
described herein may be sold from time to time in one or more series, in
amounts, at prices and on the terms to be determined at the time of sale and
to be set forth in a supplement to this Prospectus (a "Prospectus
Supplement"). Each series of Securities will include either one or more
classes of Certificates or, if Notes are issued as part of a series, one or
more classes of Notes and one or more classes of Certificates, as set forth in
the related Prospectus Supplement.
The Certificates and the Notes, if any, of any series of Securities will be
issued by a trust (a "Trust") to be formed with respect to such series by
Green Tree Financial Corporation ("Green Tree"). The assets of each Trust (the
"Trust Property") will include a pool of retail installment sales contracts
and promissory notes for the purchase of a variety of consumer products
(collectively, the "Products"), retail installment sales contracts and
promissory notes financing home improvements, and closed-end home equity
loans, each as further described herein (such retail installment sales
contracts, promissory notes and home equity loans are referred to herein as
the "Contracts"). The Trust Property will also include certain monies paid or
payable under the Contracts after the Cutoff Date set forth in the related
Prospectus Supplement (the "Cutoff Date"), an assignment of Green Tree's
security interests in the Products financed thereby and the mortgages securing
the home equity loans, and certain other property, as more fully described
herein and in the related Prospectus Supplement. In addition, if so specified
in the related Prospectus Supplement, the Trust Property will include monies
on deposit in one or more trust accounts to be established with an Indenture
Trustee, which may include a Pre-Funding Account which would be used to
purchase additional Contracts (the "Subsequent Contracts") from the Seller
from time to time during the Pre-Funding Period specified in the related
Prospectus Supplement.
Each Trust will be formed pursuant to either (i) a Pooling and Servicing
Agreement (the "Pooling and Servicing Agreement") to be entered into between
Green Tree, as Seller and Servicer, and the Trustee specified in the related
Prospectus Supplement (the "Trustee") or (ii) a Trust Agreement (the "Trust
Agreement") to be entered into among the Seller, the Trust and certain other
parties as specified in the related Prospectus Supplement. If the Trust is
formed pursuant to a Trust Agreement, a Sale and Servicing Agreement (the
"Sale and Servicing Agreement") will be entered into among Green Tree, as
Seller and Servicer and the Trust. The Pooling and Servicing Agreement or the
Trust Agreement and the Sale and Servicing Agreement are collectively referred
to herein as the "Trust Documents." The Notes, if any, of a series will be
issued and secured pursuant to an Indenture (the "Indenture") between the
Trust and the Indenture Trustee specified in the related Prospectus Supplement
(the "Indenture Trustee").
(Continued on next page)
FOR A DISCUSSION OF CERTAIN FACTORS WHICH SHOULD BE CONSIDERED BY PROSPECTIVE
PURCHASERS OF THE SECURITIES, SEE "RISK FACTORS" AT PAGE 13 HEREIN AND IN THE
RELATED PROSPECTUS SUPPLEMENT.
----------------
THE CERTIFICATES REPRESENT INTERESTS IN AND THE NOTES REPRESENT OBLIGATIONS
OF THE RELATED TRUST AND DO NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF GREEN
TREE (EXCEPT TO THE LIMITED EXTENT DESCRIBED HEREIN AND IN THE RELATED
PROSPECTUS SUPPLEMENT) OR ANY AFFILIATE OF GREEN TREE.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
----------------
Retain this Prospectus for future reference. This Prospectus may not be used
to consummate sales of securities offered hereby unless accompanied by a
Prospectus Supplement.
THE DATE OF THIS PROSPECTUS IS MARCH 14, 1997.
<PAGE>
(Continued from previous page)
Except as otherwise provided in the related Prospectus Supplement, each
class of Securities of any series will represent the right to receive a
specified amount of payments of principal and interest on the related
Contracts in the manner described herein and in the related Prospectus
Supplement. The right of each class of Securities to receive payments may be
senior or subordinate to the rights of one or more of the other classes of
such series. A series may include two or more classes of Certificates or Notes
which differ as to the timing and priority of payment, interest rate or amount
of distributions in respect of principal or interest or both. A series may
include one or more classes of Certificates or Notes entitled to distributions
in respect of principal, with disproportionate, nominal or no interest
distributions, or to interest distributions, with disproportionate, nominal or
no distributions in respect of principal. Distributions on Certificates of any
series will be subordinated in priority to payments due on the related Notes,
if any, to the extent described herein and in the related Prospectus
Supplement. The Certificates will represent fractional undivided interests in
the related Trust.
Each class of Securities will represent the right to receive distributions
or payments in the amounts, at the rates, and on the dates set forth in the
related Prospectus Supplement. The rate of distributions in respect of
principal on Certificates and payment in respect of principal on Notes, if
any, of any class will depend on the priority of payment of such class and the
rate and timing of payments (including prepayments, liquidations and
repurchases of Contracts) on the related Contracts.
If specified in the related Prospectus Supplement, a financial guaranty
insurance policy, letter of credit, surety bond, Green Tree guaranty, cash
reserve fund, or other form of credit enhancement, or any combination thereof,
may be provided with respect to a Trust or any class of Securities.
Unless otherwise provided in the related Prospectus Supplement, the
Certificates and the Notes, if any, of any series initially will be
represented by certificates and notes registered in the name of Cede & Co.,
the nominee of The Depository Trust Company ("DTC"). The interests of
beneficial owners of the Securities will be represented by book entries on the
records of the participating members of DTC. Definitive Securities will be
available only under limited circumstances.
There currently is no secondary market for the Securities. There can be no
assurance that any such market will develop or, if it does develop, that it
will continue. The Securities will not be listed on any securities exchange.
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<PAGE>
AVAILABLE INFORMATION
Green Tree, as originator of each Trust, has filed with the Securities and
Exchange Commission (the "Commission") a Registration Statement (together with
all amendments and exhibits thereto, referred to herein as the "Registration
Statement") under the Securities Act of 1933, as amended, with respect to the
Securities offered pursuant to this Prospectus. For further information,
reference is made to the Registration Statement which is available for
inspection without charge at the office of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the regional offices of the Commission at
Seven World Trade Center, Suite 1300, New York, New York 10048 and at
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511, and copies of which may be obtained from the Commission
at prescribed rates. The Commission also maintains a Web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission.
REPORTS TO SECURITYHOLDERS
Unless otherwise provided in the related Prospectus Supplement, unless and
until Definitive Certificates or Definitive Notes are issued, unaudited
monthly and annual reports, containing information concerning each Trust and
prepared by the Servicer, will be sent on behalf of the Trust to the Trustee
for the Certificateholders, the Indenture Trustee for the Noteholders and Cede
& Co., as registered holder of the Certificates and the Notes and the nominee
of DTC. See "Certain Information Regarding the Securities--Statements to
Securityholders" and "--Book-Entry Registration." Certificateholders and
Noteholders are collectively referred to herein as the "Securityholders."
Certificate Owners or Note Owners may receive such reports, upon written
request, together with a certification that they are Certificate Owners or
Note Owners and payment of reproduction and postage expenses associated with
the distribution of such reports, from the Trustee, with respect to
Certificate Owners, or the Indenture Trustee, with respect to Note Owners, at
the addresses specified in the related Prospectus Supplement. Such reports
will not constitute financial statements prepared in accordance with generally
accepted accounting principles. Green Tree does not intend to send any of its
financial reports to Securityholders. The Servicer, on behalf of each Trust,
will file with the Commission periodic reports concerning each Trust to the
extent required under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations of the Commission thereunder.
However, in accordance with the Exchange Act and the rules and regulations of
the Commission thereunder, Green Tree expects that each Trust's obligation to
file such reports will be terminated following the end of the year in which
such Trust is formed.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Green Tree's Annual Report on Form 10-K for the year ended December 31,
1996, which has been filed with the Commission, is hereby incorporated by
reference in this Prospectus and the related Prospectus Supplement.
All documents filed by the Servicer on behalf of each Trust pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date
of this Prospectus and prior to the termination of the offering of the related
Securities shall be deemed to be incorporated by reference into this
Prospectus and the related Prospectus Supplement and to be a part hereof and
thereof from the respective dates of filing of such documents. Any statement
contained herein or in a document all or any portion of which is deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus and the related Prospectus Supplement to the
extent that a statement contained herein or in any other subsequently filed
document which also is deemed to be incorporated by reference herein modifies
or supersedes such statement. Any statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
this Prospectus or the related Prospectus Supplement.
Green Tree will provide without charge to any person to whom this Prospectus
is delivered, upon the written or oral request of such person, a copy of any
or all of the foregoing documents incorporated herein by reference (other than
certain exhibits to such documents). Requests for such copies should be
directed to John Dolphin, Vice President and Director of Investor Relations,
Green Tree Financial Corporation, 1100 Landmark Towers, 345 St. Peter Street,
Saint Paul, Minnesota 55102-1639, telephone number (612) 293-3400.
3
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus and by reference to
the information with respect to the Securities contained in the related
Prospectus Supplement to be prepared and delivered in connection with the
offering of each series of Securities. Certain capitalized terms used in this
Prospectus Summary are defined elsewhere in this Prospectus and in the related
Prospectus Supplement.
<TABLE>
<S> <C>
Issuer.............................. With respect to each series of Securities,
a trust (the "Trust") will be formed by
Green Tree pursuant to either a Pooling and
Servicing Agreement between Green Tree, in
its capacity as Seller and as Servicer (in
such capacity referred to herein as the
"Servicer"), and the Trustee specified in
the related Prospectus Supplement (each
such trust, a "grantor trust"), or a Trust
Agreement between the Seller, the Trustee
specified in the related Prospectus
Supplement and certain other parties as
specified in the related Prospectus
Supplement (each such trust, an "owner
trust").
Seller and Servicer................. Green Tree Financial Corporation. See
"Green Tree Financial Corporation."
Trustee............................. The Trustee for a grantor trust or the
Owner Trustee for an owner trust, in each
case as specified in the related Prospectus
Supplement. The Trustee or Owner Trustee
for any Trust will be referred to in this
Prospectus as the "Trustee," although the
Prospectus Supplement relating to an owner
trust that issues Notes will refer to the
Trustee as the "Owner Trustee" in order to
distinguish the Owner Trustee and the
Indenture Trustee for such Series. See
"Description of the Trust Documents--The
Trustee."
Indenture Trustee................... With respect to any Series of Securities
including one or more classes of Notes, the
Indenture Trustee specified in the related
Prospectus Supplement (the "Indenture
Trustee").
The Certificates.................... Each series of Securities will include one
or more classes of Certificates which will
be issued pursuant to the related Trust
Documents.
Unless otherwise specified in the related
Prospectus Supplement, Certificates will be
available for purchase in denominations of
$1,000 and in integral multiples thereof
and will be available in book-entry form
only. Unless otherwise specified in the
related Prospectus Supplement, beneficial
owners of Certificates ("Certificate
Owners") will be able to receive Definitive
Certificates only in the limited
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
circumstances described herein or in the
related Prospectus Supplement. See "Certain
Information Regarding the Securities--Book-
Entry Registration."
Unless otherwise specified in the related
Prospectus Supplement, each class of
Certificates will have a stated Certificate
Balance (as defined in the related
Prospectus Supplement) and will accrue
interest on such Certificate Balance at a
specified rate (with respect to each class
of Certificates, the "Pass-Through Rate").
Each class of Certificates may have a
different Pass-Through Rate, which may be a
fixed, variable or adjustable Pass-Through
Rate, or any combination of the foregoing.
The related Prospectus Supplement will
specify the Pass-Through Rate for each
class of Certificates, or the initial Pass-
Through Rate and the method for determining
subsequent changes to the Pass-Through
Rate.
A series may include two or more classes of
Certificates which differ as to timing of
distributions, sequential order, priority
of payment, seniority, allocation of loss,
Pass-Through Rate or amount of
distributions in respect of principal or
interest, or as to which distributions in
respect of principal or interest on any
class may or may not be made upon the
occurrence of specified events or on the
basis of collections from designated
portions of the Contract Pool. In addition,
a series may include one or more classes of
Certificates ("Stripped Certificates")
entitled to (i) distributions in respect of
principal with disproportionate, nominal or
no interest distributions, or (ii) interest
distributions, with disproportionate,
nominal or no distributions in respect of
principal.
With respect to any series of Securities
including one or more classes of Notes,
distributions in respect of the
Certificates may be subordinated in
priority of payment to payments on the
Notes, to the extent specified in the
related Prospectus Supplement.
If the Seller or Servicer exercises its
option to purchase the Contracts of a Trust
on the terms and conditions described below
under "Description of the Trust Documents--
Termination," Certificate Owners will
receive an amount in respect of the
Certificates as specified in the related
Prospectus Supplement. In addition, if the
related Prospectus Supplement provides that
the property of a Trust will include a Pre-
Funding Account (as such term is defined in
the related Prospectus Supplement, the
"Pre-Funding Account"),
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
Certificate Owners will receive a
distribution in respect of principal on or
immediately following the end of the
funding period specified in the related
Prospectus Supplement (the "Pre-Funding
Period") in an amount and manner specified
in the related Prospectus Supplement.
The Notes........................... With respect to any series of Securities
including one or more classes of Notes,
such Notes will be issued pursuant to an
Indenture.
Unless otherwise specified in the related
Prospectus Supplement, Notes will be
available for purchase in denominations of
$1,000 and integral multiples thereof, and
will be available in book-entry form only.
Unless otherwise specified in the related
Prospectus Supplement, beneficial owners of
Notes ("Note Owners") will be able to
receive Definitive Notes only in the
limited circumstances described herein or
in the related Prospectus Supplement. See
"Certain Information Regarding the
Securities--Book-Entry Registration."
Unless otherwise specified in the related
Prospectus Supplement, each class of Notes
will have a stated principal amount and
will bear interest at a specified rate or
rates (with respect to each class of Notes,
the "Interest Rate"). Each class of Notes
may have a different Interest Rate, which
may be a fixed, variable or adjustable
Interest Rate, or any combination of the
foregoing. The related Prospectus
Supplement will specify the Interest Rate
and the method for determining subsequent
changes to the Interest Rate.
A series may include two or more classes of
Notes which differ as to the timing and
priority of payment, seniority, allocations
of loss, Interest Rate or amount of
payments of principal or interest, or as to
which payments of principal or interest may
or may not be made upon the occurrence of
specified events or on the basis of
collections from designated portions of the
Contract Pool. In addition, a series may
include one or more classes of Notes
("Stripped Notes") entitled to (i)
principal payments with disproportionate,
nominal or no interest payments or (ii)
interest payments with disproportionate,
nominal or no principal payments.
If the Seller or the Servicer exercises its
option to purchase the Contracts of a Trust
on the terms and conditions described below
under "Description of the Trust Documents--
Termination," the outstanding Notes, if
any, of such series will be redeemed as set
</TABLE>
6
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<TABLE>
<S> <C>
forth in the related Prospectus Supplement.
In addition, if the related Prospectus
Supplement provides that the property of a
Trust will include a Pre-Funding Account,
the outstanding Notes, if any, of such
series will be subject to partial
redemption on or immediately following the
end of the Pre-Funding Period in an amount
and manner specified in the related
Prospectus Supplement. In the event of such
partial redemption, the Note Owners may be
entitled to receive a prepayment premium
from the Trust, in the amount and to the
extent provided in the related Prospectus
Supplement.
Trust Property...................... Each Certificate will represent a
fractional undivided interest in, and each
Note, if any, will represent an obligation
of, the related Trust. The assets of each
Trust (the "Trust Property") will include,
among other things, a pool (the "Contract
Pool") of retail installment sales
contracts and promissory notes for the
purchase of a variety of consumer products
as further described under "Green Tree
Financial Corporation" herein
(collectively, the "Products"), retail
installment sales contracts and promissory
notes financing home improvements ("Home
Improvement Contracts"), and closed-end
home equity loans ("Home Equity Contracts")
(such retail installment sales contracts,
promissory notes and Home Equity Contracts
are referred to herein as the "Contracts"),
certain monies paid or payable thereunder
on or after the Cutoff Date (as specified
in the related Prospectus Supplement), an
assignment of Green Tree's security
interests in the Products and the mortgages
securing any Home Equity Contracts, an
assignment of the right to receive proceeds
from claims on certain insurance policies
covering the Products, the real estate
securing any Home Equity Contracts, or the
Obligors, the assignment of certain rights
of Green Tree against the Dealers
originating such Contracts, the Collection
Account, including all investments therein,
all income from the investment of funds
therein and all proceeds thereof, certain
other accounts and the proceeds thereof and
certain other rights under the Trust
Documents. In addition, if so specified in
the related Prospectus Supplement, the
Trust Property will include monies on
deposit in a Pre-Funding Account to be
established with the Indenture Trustee or
the Trustee, which will be used to purchase
Subsequent Contracts (as defined below)
from the Seller from time to time during
the Pre-Funding Period specified in the
related Prospectus
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
Supplement, as well as any Subsequent
Contracts so purchased. See "The Trusts."
If and to the extent provided in the
related Prospectus Supplement, the related
Trust will be obligated to purchase from
Green Tree (subject to the satisfaction of
certain conditions described in the
applicable Sale and Servicing Agreement),
additional Contracts (the "Subsequent
Contracts") from time to time (as
frequently as daily) during the Pre-Funding
Period specified in the related Prospectus
Supplement having an aggregate principal
balance approximately equal to the amount
on deposit in the Pre-Funding Account (the
"Pre-Funded Amount") on such Closing Date.
Green Tree will be obligated to repurchase
Contracts upon the occurrence of certain
breaches of representations and warranties
(a "Repurchase Event"). See "Description of
the Trust Documents--Sale and Assignment of
the Contracts" and "--Servicing
Procedures."
Enhancement......................... If and to the extent specified in the
related Prospectus Supplement, enhancement
with respect to a Trust or any class of
Securities may include any one or more of
the following: a financial guaranty
insurance policy, letter of credit, Green
Tree guaranty, cash reserve fund,
derivative product, or other form of credit
enhancement, or any combination thereof.
The enhancement with respect to any Trust
or any class of Securities may be
structured to provide protection against
delinquencies and/or losses on the
Contracts, against changes in interest
rates, or other risks, to the extent and
under the conditions specified in the
related Prospectus Supplement. Unless
otherwise specified in the related
Prospectus Supplement, any form of
enhancement will have certain limitations
and exclusions from coverage thereunder,
which will be described in the related
Prospectus Supplement. Further information
regarding any provider of credit
enhancement, including financial
information when material, will be included
in the related Prospectus Supplement. See
"Description of the Trust Documents--
Enhancement."
Servicing........................... The Servicer will be responsible for
managing, administering, servicing and
making collections on the Contracts held by
each Trust. Unless otherwise specified in
the related Prospectus Supplement, with
respect to each series of Securities
compensation to the Servicer will include a
monthly fee (the "Servicing Fee") which
will be payable from the related Trust to
the Servicer on each Distribution
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
Date, in an amount equal to the product of
one-twelfth of .75% per annum multiplied by
the aggregate principal balance of the
Contracts (the "Aggregate Principal
Balance") as of the first day of the prior
calendar month, plus any late fees and
other administrative fees and expenses or
similar charges collected with respect to
the Contracts during such Monthly Period.
See "Description of the Trust Documents--
Servicing Compensation."
Advances............................ Unless otherwise specified in the related
Prospectus Supplement, the Servicer will be
obligated to make Advances each month of
any scheduled payments on the Contracts
that were due but not received during the
prior Due Period. The Servicer will be
entitled to reimbursement of an Advance
from Available Funds in the Collection
Account for the related Trust. The Servicer
will be obligated to make an Advance only
to the extent that it determines that such
Advance will be recoverable from subsequent
funds available therefor in the Collection
Account for the related Trust. See
"Description of the Trust Documents--
Advances."
Contracts........................... The Contracts forming part of the Trust
Property of each Trust were or will have
been originated by
Dealers and sold by the Dealers to Green
Tree in the ordinary course of business.
The Contracts will generally be prepayable
at any time without penalty to the
purchaser of the related Product or other
person or persons who are obligated to make
payments thereunder (each, an "Obligor").
See "The Contracts." Information with
respect to each Contract Pool, including
the proportions of each type of Product
financed, the weighted average annual
percentage rate and the weighted average
remaining maturity, will be set forth in
the related Prospectus Supplement.
Collection Account.................. With respect to each series of Securities,
the Servicer will establish and maintain
one or more separate accounts (the
"Collection Account") in the name of the
Trustee or, in the case of any series
including one or more classes of Notes, in
the name of the Indenture Trustee for the
benefit of the Certificate Owners and the
Note Owners. All payments from Obligors
that are received by the Servicer on behalf
of each Trust will be deposited in the
related Collection Account no later than
one Business Day after receipt thereof.
Unless otherwise specified in the related
Prospectus Supplement, all payments from
Obligors and all proceeds (net of
reasonable expenses of collection)
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with respect to Liquidated Contracts
("Liquidation Proceeds") that are received
by the Servicer will be deposited in the
related Collection Account no later than
one Business Day after receipt thereof.
Unless otherwise specified in the related
Prospectus Supplement, the Servicer will be
permitted to use any alternative remittance
schedule acceptable to the Rating Agencies
(as defined below). See "Description of the
Trust Documents--Collections."
Mandatory Purchase of Certain With respect to each series of Securities,
Contracts........................ Green Tree will make certain
representations and warranties relating to
the Contracts held by the related Trust to
the Trustee for the benefit of the related
Trust and if such series of Securities
includes one or more classes of Notes, the
Trustee will assign its right to enforce
such representations and warranties to the
related Indenture Trustee as collateral for
the Notes. The Trustee and the Indenture
Trustee, if any, will be entitled to
require that Green Tree repurchase any
Contract if the interests of the
Certificate Owners, the Note Owners, if
any, or the related Trust therein are
materially and adversely affected by a
breach of any such representation or
warranty (a "Repurchase
Event"). See "Description of the Trust
Documents--Sale and Assignment of the
Contracts."
Optional Purchase of Contracts.... Unless otherwise specified in the related
Prospectus Supplement, with respect to each
series of Securities, the Seller or the
Servicer may purchase all the
Contracts held by the related Trust on any
Distribution Date following the first
Monthly Period as of which the Aggregate
Principal Balance has declined to 10% or
less (or such other percentage as may be
specified in the related Prospectus
Supplement) of the Cutoff Date Principal
Balance, subject to certain provisions in
the related Trust Documents. See
"Description of the Trust Documents--
Termination."
Tax Status.........................If the Trust is structured as an owner
trust, in the opinion of Counsel to the
Seller, for federal and Minnesota income tax
purposes, the Notes will be characterized as
debt and the Trust will not be characterized
as an association or a publicly traded
partnership taxable as a corporation. Each
Noteholder, by the acceptance of a Note,
will agree to treat the Notes as debt. Each
Certificateholder, by the acceptance of a
Certificate, will agree to treat the Trust
as a partnership in which the
Certificateholders are partners for federal
income tax purposes. Alternative
characterizations of the Trust, the Notes
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and the Certificates are possible, but would
not result in materially adverse tax
consequences to Noteholders or
Certificateholders. See "Certain Federal
Income Tax Consequences--Owner Trust Series"
and "Certain State Income Tax Consequences"
herein.
If the Trust is structured as a grantor
trust, in the opinion of Counsel to the
Seller, for federal and Minnesota income
tax purposes, the Trust will be classified
as a grantor trust and not as an
association which is taxable as a
corporation. Each Certificateholder will be
treated as the owner of an undivided
interest in the Contracts and other Trust
Property. See "Certain Federal Income Tax
Consequences--Grantor Trust Series" and
"Certain State Income Tax Consequences"
herein.
ERISA Considerations .............. Subject to the considerations discussed
under "ERISA Considerations" herein and in
the related Prospectus Supplement, and
unless otherwise specified in the related
Prospectus Supplement, the Notes will be
eligible for purchase by employee benefit
plans. The related Prospectus Supplement
will provide further information with
respect to the eligibility of a class of
Certificates for purchase
by employee benefit plans. See "ERISA
Considerations" herein and in the related
Prospectus Supplement.
Rating............................. As a condition of issuance, the Securities
of each series offered pursuant to this
Prospectus will be rated in one of the four
highest rating categories by at least one
nationally recognized rating agency (a
"Rating Agency"). There is no assurance
that the rating initially assigned to such
Securities will not be subsequently lowered
or withdrawn by the Rating Agency. In the
event the rating initially assigned to any
Securities is subsequently lowered for any
reason, no person or entity will be
obligated to provide any credit enhancement
in addition to the credit enhancement, if
any, specified in the related Prospectus
Supplement.
Registration of Certificates....... Unless otherwise specified in the related
Prospectus Supplement, the Certificates and
the Notes, if any, of each series will be
registered in the name of Cede & Co., as
the nominee of DTC, and will be available
for purchase only in book-entry form on the
records of DTC and participating members
thereof. Certificates and Notes will be
issued in definitive form only under the
limited circumstances described herein. All
references herein to "Holders" or
"Certificateholders" or "Noteholders" shall
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reflect the rights of beneficial owners of
Certificates (the "Certificate Owners") or
of Notes ("Note Owners"), as the case may
be, as they may indirectly exercise such
rights through DTC and participating
members thereof, except as otherwise
specified herein or in the related
Prospectus Supplement. See "Description of
the Trust Documents--Book-Entry
Registration."
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RISK FACTORS
CERTAIN LEGAL ASPECTS RELATING TO THE OWNERSHIP AND ENFORCEABILITY OF THE
CONTRACTS
With respect to each series of Securities, the transfer of the Contracts
(other than the Home Improvement Contracts and the Home Equity Contracts) to
the related Trust will be subject to the requirements of the Uniform
Commercial Code (the "UCC") as in effect in Minnesota. The Seller will take or
cause to be taken such action as is required to perfect the Trust's rights in
the Contracts.
Unless otherwise provided in the related Prospectus Supplement, Green Tree
will hold the Contract Files, other than the Home Improvement Contract Files
and the Home Equity Contract Files, on behalf of each Trust. The Contract
Files relating to the Home Improvement Contracts (the "Home Improvement
Contract Files") and the Contract Files relating to the Home Equity Contracts
(the "Home Equity Contract Files") will be held by the Trustee or a custodian
on its behalf. To facilitate servicing and save administrative costs, the
documents will not be physically segregated from other similar documents that
are in Green Tree's possession. UCC financing statements will be filed in
Minnesota reflecting the sale and assignment of the Contracts to the Trustee,
and Green Tree's accounting records and computer systems will also reflect
such sale and assignment. In addition, the Contracts will be stamped or
otherwise marked to indicate that such Contracts have been sold to the related
Trust. Despite these precautions, if, through inadvertence or otherwise, any
of the Contracts were sold to another party (or a security interest therein
were granted to another party) that purchased (or took such security interest
in) any of such Contracts in the ordinary course of its business and took
possession of such Contracts, the purchaser (or secured party) would acquire
an interest in the Contracts superior to the interest of the related Trust if
the purchaser (or secured party) acquired (or took a security interest in) the
Contracts for new value and without actual knowledge of such Trust's interest.
Due to the administrative burden and expense, the documents reflecting Green
Tree's security interest in the Products will not be amended to reflect the
assignment of the security interests in the Products by Green Tree to the
Trustee, nor will assignments to the Trustee of the mortgage securing any Home
Equity Contract be recorded. In the absence of such an amendment, the Trustee
may not have a perfected security interest in the Products, and, in the
absence of such recordation of a mortgage assignment, the Trustee may not have
a valid lien on the real estate securing any Home Equity Contracts. Moreover,
statutory liens for repairs or unpaid taxes may have priority even over
perfected security interests in the Products. See "Description of the Trust
Documents--Sale and Assignment of the Contracts" and "Certain Legal Aspects of
the Contracts."
GREEN TREE'S EXPERIENCE WITH THE PRODUCTS
Green Tree began originating and servicing retail installment contracts for
recreational vehicles in 1985 and for motorcycles in 1988 but has less
extensive underwriting and servicing experience with the other types of
products financed by Contracts that will be included in a Trust. Green Tree's
extensive experience in originating and servicing consumer financing contracts
for certain types of products, including manufactured housing, may not be
directly applicable to the servicing of consumer financing contracts secured
by other types of products.
RISKS TO INVESTORS UPON ANY INSOLVENCY OF GREEN TREE
Green Tree intends that any transfer of Contracts to the related Trust will
constitute a sale, rather than a pledge of the Contracts to secure
indebtedness of Green Tree. However, if Green Tree were to become a debtor
under the federal bankruptcy code or similar applicable state laws
(collectively, "Insolvency Laws"), a creditor or trustee in bankruptcy of
Green Tree or Green Tree as debtor-in-possession might argue that such sale of
Contracts by Green Tree was a pledge of the Contracts rather than a sale. This
position, if presented to or accepted by a court, could cause the related
Trust to experience a delay in or reduction of collections on the Contracts.
A case decided by the United States Court of Appeals for the Tenth Circuit,
Octagon Gas Systems, Inc. v. Rimmer, contains language to the effect that
accounts sold by an entity that subsequently became bankrupt remained property
of the debtor's bankruptcy estate. Although the Contracts (other than the Home
Improvement
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Contracts and the Home Equity Contracts) constitute chattel paper rather than
accounts under the UCC, sales of chattel paper, like sales of accounts, are
governed by Article 9 of the UCC. If Green Tree were to become a debtor under
any Insolvency Law and a court were to follow the reasoning of the Tenth
Circuit Court of Appeals and apply such reasoning to chattel paper, a Trust
could experience a delay in or reduction of collections on the Contracts.
SUBORDINATION OF CERTAIN CLASSES OF SECURITIES; LIMITED ASSETS
To the extent specified in the related Prospectus Supplement, distributions
of interest and principal on some or all classes of Securities of a series may
be subordinated in priority of payment to interest and principal due on the
Notes (if any) of such series and/or to distributions of interest and
principal on other classes of Securities of such series. In addition, holders
of certain classes of Securities of any series may have the right to take
actions that are detrimental to the interests of the holders of Securities of
certain other classes of Securities of such series. For example, holders of a
class of more senior Securities may be entitled to instruct the Indenture
Trustee or Trustee to liquidate the Trust Property when it is not in the
interest of holders of more junior classes of Securities of such series to do
so. Conversely, certain actions may require the consent of a majority of
Security Owners of all classes of a series, which may mean that Security
Owners of more junior classes can prevent the Security Owners of more senior
classes of such series from taking action. Moreover, no Trust will have any
significant assets or sources of funds other than the Contracts and, to the
extent provided in the related Prospectus Supplement, a Pre-Funding Account
and any credit enhancement specified in the related Prospectus Supplement. The
Notes, if any, of any series will represent obligations solely of, and the
Certificates of such series will represent interests solely in, the related
Trust, and, except as specified in the related Prospectus Supplement, neither
the Notes nor the Certificates of any such series will be insured or
guaranteed by Green Tree, the Servicer, the applicable Owner Trustee, the
applicable Indenture Trustee or any other person or entity. Consequently,
holders of the Securities of any series must rely for payment upon payments on
the related Contracts and, if and to the extent available, amounts on deposit
in the Pre-Funding Account, if any, and any credit enhancement, if any, as
specified in the related Prospectus Supplement. If specified in the related
Prospectus Supplement, credit enhancement for a class of Securities of a
series may cover one or more other classes of Securities of such series, and
accordingly may be exhausted for the benefit of some classes and thereafter be
unavailable for such other classes.
YIELD AND PREPAYMENT CONSIDERATIONS
The weighted average life of the Securities will be reduced by full or
partial prepayments on the Contracts. The Contracts will generally be
prepayable at any time without penalty. Prepayments (or, for this purpose,
equivalent payments to the related Trust) may result from payments by
Obligors, liquidations due to default, the receipt of proceeds from physical
damage or credit insurance, repurchases by Green Tree as a result of certain
uncured breaches of the warranties made by it with respect to the Contracts,
purchases by the Servicer as a result of certain uncured breaches of the
covenants with respect to the Contracts made by it in the related Agreement,
or Green Tree or the Servicer exercising its option to purchase all of the
remaining Contracts.
Unless otherwise specified in the related Prospectus Supplement, the amounts
paid to Securityholders in respect of principal on any Distribution Date will
include all prepayments on the Contracts during the corresponding Monthly
Periods. The Certificate Owners and the Note Owners will bear all reinvestment
risk resulting from the timing of payments of principal on the Securities.
LIMITED LIQUIDITY OF THE SECURITIES
There is currently no market for the Securities of any series. Although
Green Tree expects that the underwriters of any particular series will intend
to make a secondary market for such Securities, they will have no obligation
to do so. There can be no assurance that any such market will develop or, if
it does develop, that it will provide Certificate Owners or Note Owners with
liquidity of investment or will continue for the life of the Securities. The
Securities will not be listed on any securities exchange.
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Unless otherwise specified in the related Prospectus Supplement, the
Securities will be issued in book-entry, rather than physical, form and, as a
result, in certain circumstances, the liquidity of the Securities in the
secondary market and the ability of the Certificate Owners and Note Owners to
pledge them may be adversely affected. See "Plan of Distribution" and "Certain
Information Regarding the Securities--Book-Entry Registration."
THE TRUSTS
With respect to each series of Securities, Green Tree will establish a Trust
pursuant to the related Trust Documents. Prior to the sale and assignment of
the related Contracts pursuant to the related Trust Documents, the Trust will
have no assets or obligations. The Trust will not engage in any business
activity other than acquiring and holding the Trust Property, issuing the
Certificates and the Notes, if any, of such series and distributing payments
thereon.
Each Certificate will represent a fractional undivided interest in, and each
Note, if any, will represent an obligation of, the related Trust. The Trust
Property of each Trust will include, among other things, (i) a Contract Pool;
(ii) all monies paid or payable thereon on or after the Cutoff Date (as
specified in the related Prospectus Supplement); (iii) such amounts as from
time to time may be held in the Collection Account (including all investments
in the Collection Account and all income from the investment of funds therein
and all proceeds thereof) and certain other accounts (including the proceeds
thereof); (iv) an assignment of the security interests of Green Tree in the
Products securing the related Contracts and an assignment of the lien on the
real estate securing the Home Equity Contracts; (v) an assignment of the right
to receive proceeds from claims on certain insurance policies covering the
related Products or Obligors; and (vi) certain other rights under the related
Trust Documents. See "The Contracts" and "Description of the Trust Documents--
Collections." The Trust Property will also include, if so specified in the
related Prospectus Supplement, monies on deposit in a Pre-Funding Account to
be established with the Indenture Trustee or the Trustee, which will be used
to purchase Subsequent Contracts from the Seller from time to time (and as
frequently as daily) during the Pre-Funding Period specified in the related
Prospectus Supplement. Any Subsequent Contracts so purchased will be included
in the related Contract Pool forming part of the Trust Property, subject to
the prior rights of the related Indenture Trustee and the Noteholders therein.
In addition, to the extent specified in the related Prospectus Supplement, a
form of credit enhancement may be issued to or held by the Trustee or the
Indenture Trustee for the benefit of holders of one or more classes of
Securities.
The Servicer will service the Contracts held by each Trust and will receive
fees for such services. See "Description of the Trust Documents--Servicing
Compensation." Unless otherwise specified in the related Prospectus
Supplement, Green Tree, on behalf of each Trust, will hold the original
installment sales contract or promissory note as well as copies of documents
and instruments relating to each Contract and evidencing the security interest
in the Product securing each Contract (the "Contract Files"), other than the
Home Improvement Contract Files and the Home Equity Contract Files (which will
be held by the Trustee or a custodian on its behalf). In order to protect the
Trust's ownership interest in the Contracts, Green Tree will file a UCC-1
financing statement in Minnesota to give notice of such Trust's ownership of
the related Contracts and the related Trust Property.
THE TRUSTEE
The Trustee for each Trust will be specified in the related Prospectus
Supplement. The Trustee's liability in connection with the issuance and sale
of the Securities of such series will be limited solely to the express
obligations of such Trustee set forth in the related Trust Documents. A
Trustee may resign at any time, in which event the General Partner (if the
related Trust is structured as an owner trust) or the Servicer or its
successor (if the related Trust is structured as a grantor trust) will be
obligated to appoint a successor trustee. The General Partner (if the related
Trust is structured as an owner trust) or the Servicer (if the related Trust
is structured as a grantor trust) may also remove the Trustee if the Trustee
ceases to be eligible to continue as Trustee under the
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related Trust Documents or if the Trustee becomes insolvent. In such
circumstances, the General Partner (if the related Trust is structured as an
owner trust) or the Servicer (if the related Trust is structured as a grantor
trust) will be obligated to appoint a successor trustee. Any resignation or
removal of a Trustee and appointment of a successor trustee will be subject to
any conditions or approvals specified in the related Prospectus Supplement and
will not become effective until acceptance of the appointment by the successor
trustee.
THE CONTRACTS
Each pool of Contracts with respect to a Trust (a "Contract Pool") will
consist of retail installment sales contracts and promissory notes to finance
the purchase of Products (described below), retail installment sales contracts
and promissory notes financing home improvements ("Home Improvement
Contracts"), and closed-end home equity loans ("Home Equity Contracts") (such
retail installment sales contracts, promissory notes and Home Equity Contracts
are referred to herein as the "Contracts"). Unless otherwise specified in the
related Prospectus Supplement, no more than 50% of any Contract Pool will
consist of Home Equity Contracts. The Contracts will be originated or
purchased by Green Tree on an individual basis in the ordinary course of
business. Except as otherwise specified in the related Prospectus Supplement,
the Contracts will be fully amortizing and will bear interest at a fixed or
variable rate (the "Contract Rate").
The Products financed by the Contracts included in a Contract Pool are
expected to include all the types of consumer products Green Tree is then
financing for retail customers (subject to the availability of such contracts
and subject to any eligibility criteria specified in the Trust Documents).
Currently, Green Tree provides financing for the purchase of motorcycles;
marine products (including boats, boat trailers and outboard motors); pianos
and organs; horse trailers; sport vehicles (including snowmobiles, personal
watercraft and all-terrain vehicles); trucks; aircraft; and recreational
vehicles. Any Trust whose Securities are offered pursuant to this Prospectus
will include only Contracts secured by the foregoing types of Products, as
well as Home Improvement Contracts and Home Equity Contracts of the type
described herein. The types of Products securing a Contract Pool and the
relative concentrations of each such type, together with a description of Home
Improvement Contracts and Home Equity Contracts included in the Contract Pool,
will be specified in the related Prospectus Supplement. Because Green Tree has
less extensive experience in underwriting and servicing retail installment
sales contracts for items such as the Products, Green Tree has no basis upon
which to distinguish the expected delinquency, default or prepayment
experience of Contracts secured by different types of Products. Similarly,
Green Tree has limited experience in underwriting and servicing Home
Improvement Contracts and Home Equity Contracts of the type that will be
included in the Contract Pools.
GREEN TREE FINANCIAL CORPORATION
GENERAL
Green Tree is a Delaware corporation that, as of December 31, 1996, had
stockholders' equity of approximately $1,245,454,000. Through its various
divisions, Green Tree purchases, pools, sells and services retail conditional
sales contracts for manufactured housing and retail installment sales
contracts for home improvements, a variety of consumer products and equipment
finance, and provides credit to manufactured housing dealers for purposes of
purchasing manufactured home inventory from manufacturers. Green Tree conducts
its business throughout the United States through 50 manufactured housing
offices, 80 home improvement locations and three regional wholesale lending
centers, as well as centralized operations in St. Paul, Minnesota and Rapid
City, South Dakota. Its principal executive offices are located at 1100
Landmark Towers, St. Paul, Minnesota 55102-1639 (telephone (612) 293-3400).
Green Tree's Annual Report on Form 10-K for the year ended December 31, 1996,
most recent Proxy Statement and, when available, subsequent quarterly and
annual reports are available from Green Tree upon written request.
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PURCHASE OF CONTRACTS (OTHER THAN HOME IMPROVEMENT CONTRACTS AND HOME EQUITY
CONTRACTS)
Green Tree arranges to purchase certain contracts originated by dealers of
Products located throughout the United States ("Dealers"). Green Tree's
personnel contact dealers and explain Green Tree's available financing plans,
terms, prevailing rates and credit and financing policies. If the dealer
wishes to utilize Green Tree's available customer financing, the dealer must
make an application for dealer approval.
All contracts that Green Tree purchases are written on forms provided or
approved by Green Tree and are purchased on an individually approved basis in
accordance with Green Tree's guidelines. The dealer submits the customer's
credit application and purchase order to Green Tree's office where an analysis
of the creditworthiness of the proposed buyer is made. The analysis includes a
review of the applicant's paying habits, length and likelihood of continued
employment and certain other procedures. Green Tree's underwriting guidelines
for consumer products focus primarily on the obligor's ability to repay the
loan rather than the collateral value of the product financed. The maximum
loan amount for an obligor will depend on a variety of factors, including the
type of product, whether the product is new or used, the obligor's debt-to-
income ratio, and the manufacturer's invoice price of the product (plus
certain dealer-installed accessories, sales taxes, title fees, registration
fees, and certain other items). For products other than aircraft and trucks,
the maximum permissible debt-to-income ratio (based on the monthly loan
payments) is between 55% and 65%, the maximum loan-to-invoice ratio (for new
products) ranges from 100% to 125%, and the maximum loan-to-sales-price ratio
(for used products) is typically 90% (subject to further limitation based on a
standard assumed value for such a used product). Green Tree's underwriting
guidelines for truck loans (other than a small number of loans made to
corporate borrowers to finance the purchase of a fleet of trucks) emphasize
the trucking experience of the obligor and the projected operating revenues of
the truck, rather than the obligor's current income, because the obligor's
income as owner-operator of the truck is generally expected to be the source
of funds to make payments on the contract and because Green Tree believes that
the obligor's past trucking experience is the best predictor of success as an
owner-operator of the truck. With respect to some truck loans, Green Tree may
allow the dealer to maintain collection responsibility with respect to the
customers' payments and to remit such payments to Green Tree; if the customer
should fail to make timely payment on the loan, the dealer remains obligated
to make payment to Green Tree. Green Tree nevertheless requires that the
customer meet Green Tree's underwriting standards, and Green Tree's records
show the customer as the obligor on the loan. There is a risk, however, that
insolvency or fraud on the part of the dealer could result in a loss on such
truck loans. A loan for the purchase of an aircraft is generally subject to
limitations of a 45% debt-to-income ratio and generally will not exceed
$1,000,000, although loans of up to $10,000,000 may be made with senior
management approval. Green Tree management may revise these guidelines from
time to time, and the underwriting guidelines may be exceeded in certain cases
with the approval of Green Tree management. Accordingly, some of the Contracts
included in a Trust may not conform in all respects to the criteria described
above. Green Tree will generally finance premiums for the term of the contract
on optional credit life, accident and health and extended warranty insurance,
up to 20% of the sales price of the Product, and may finance premiums for
required physical damage insurance on the product. If the application meets
Green Tree's guidelines and the credit is approved, Green Tree purchases the
contract when the customer accepts delivery of the Product.
Currently, Green Tree's consumer finance and equipment finance divisions
finance the purchase of motorcycles; marine products (including boats, boat
trailers and outboard motors); pianos and organs; horse trailers; sport
vehicles (including snowmobiles, personal watercraft and all-terrain
vehicles); trucks; aircraft; and recreational vehicles. The Products financed
by Contracts included in any Trust whose Securities are offered pursuant to
this Prospectus will include only the products listed above.
PURCHASE OF HOME IMPROVEMENT CONTRACTS
Through its centralized loan processing operations in St. Paul, Minnesota,
Green Tree arranges to purchase certain contracts from home improvement
contractors located throughout the United States. Green Tree's regional sales
managers contact home improvement contractors and explain Green Tree's
available financing plans, terms, prevailing rates and credit and financing
policies. If the contractor wishes to utilize Green Tree's
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available customer financing, the contractor must make an application for
contractor approval. Green Tree has a contractor approval process pursuant to
which the financial condition, business experience and qualifications of the
contractor are reviewed prior to his or her approval to sell Home Improvement
Contracts to Green Tree. In addition, Green Tree has a centralized compliance
group which reviews and updates contractor financial condition and reviews
contractors on an annual basis to determine whether such contractor's approval
will be continued. Green Tree also reviews monthly contractor trend reports
which show the default and delinquency trends of the particular contractor
with respect to contracts sold to Green Tree. Green Tree occasionally will
originate directly a home improvement promissory note involving a home
improvement transaction.
All contracts that Green Tree originates are written on forms provided or
approved by Green Tree and are purchased on an individually approved basis in
accordance with Green Tree's guidelines. The contractor submits the customer's
credit application and construction contract to Green Tree's office where an
analysis of the creditworthiness of the customer is made using a proprietary
credit scoring system that was implemented by Green Tree in June 1993. If
Green Tree determines that the application meets Green Tree's underwriting
guidelines and the credit is approved, Green Tree purchases the contracts from
the contractor when the customer verifies satisfactory completion of the work,
or, in the case of staged funding, Green Tree follows up with the customer for
the completion certificate 90 days after funding.
The types of home improvements financed by Green Tree include (i) exterior
renovations, including windows, siding and roofing, (ii) pools and spas, (iii)
kitchen and bath remodeling, and (iv) room additions and garages. Green Tree
may also, under certain limited conditions, extend additional credit beyond
the purchase price of the home improvement for the purpose of debt
consolidation.
Substantially all of Green Tree's home improvement loans are securitized in
pools of home improvement and home equity loans, which are not described in
this Prospectus. The Home Improvement Contracts to be included in the Contract
Pools described in this Prospectus will be those home improvement loans as to
which, in accordance with Green Tree's underwriting guidelines, no mortgage on
the improved real estate was filed to secure the Home Improvement Contract.
PURCHASE OF HOME EQUITY CONTRACTS
Green Tree has originated closed-end home equity loans since January 1996.
As of September 30, 1996, Green Tree had approximately $414,727,736 aggregate
principal amount of outstanding closed-end home equity loans.
Through a system of regional offices, Green Tree markets its home equity
lending directly to consumers using a variety of marketing techniques. Green
Tree also reviews and re-underwrites loan applications forwarded by
correspondent lenders.
Green Tree's credit approval process analyzes both the equity position of
the requested loan (including both the priority of the lien and the combined
loan-to-value ratio) and the applicant's creditworthiness; to the extent the
requested loan would have a less favorable (or more favorable) equity
position, the creditworthiness of the borrower must be stronger (or may be
weaker). The Home Equity Contracts that Green Tree expects to include in each
Contract Pool will tend to have a less favorable equity position and a more
creditworthy borrower. Currently, loans secured by a first mortgage with an
obligor having a superior credit rating may not exceed $300,000 without senior
management approval, and loans secured by a second mortgage with an obligor
having a superior credit rating may not exceed $250,000 without senior
management approval.
The homes used for collateral to secure the Home Equity Contracts may be
either primary residential (which includes second and vacation homes) or
investor owned one- to four-family homes, condominiums, townhouses or certain
qualified manufactured housing. Generally, each home must have a minimum
appraised value of $25,000. Agricultural, mixed-usage and multifamily
properties are not accepted as collateral.
For all Home Equity Contracts that are first mortgage loans, the applicant
is required to obtain (a) property insurance in an amount sufficient to cover
the Home Equity Contract, and (b) an ALTA title insurance policy or an
attorney's opinion of title.
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Prior to funding a Home Equity Contract, the rescission period, to the
extent provided for by the Home Ownership and Equity Protection Act, must have
expired. Such rescission period may not be waived by the applicant except as
permitted by law.
For Green Tree's full documentation program, each mortgage applicant
provides, and Green Tree personnel must verify, personal financial
information. Applicants who are salaried employees must provide current
employment information in addition to two recent years of employment history.
Self-employed applicants must generally be self-employed in the same field for
a minimum of two years, although self-employment for a period of no less than
one year may be considered on a case-by-case basis. The self-employed
applicant must provide signed copies of complete federal income tax returns
for the most recent two years.
For Green Tree's no-income-qualifier program, proof of at least one year's
history of self-employment plus proof of current self-employed status is
required. The applicant's debt-to-income ratio is calculated based on income
as certified on the application and must be reasonable. No-income-verification
Home Equity Contracts are also available to borrowers other than self-employed
borrowers. The maximum loan amount and maximum loan-to-value ratio for the no-
income qualifier and no-income-verification programs may not exceed $250,000
and 85%, respectively.
Green Tree offers a streamlined underwriting process for applicants who have
existing home equity contracts originated by Green Tree. In connection with
these applications, (i) no appraisal will generally be required, although a
Green Tree employee will visit the property to confirm that there has been no
decline in the quality of the property or the neighboring area; and (ii) no
verification of employment or income will generally be required, provided that
the applicant had sufficient verified income (plus reasonable income growth)
at the time of origination of the original home equity contract and that the
applicant claims to be employed by the same employer. In each case, the
underwriter has the discretion to obtain a new appraisal, verification of
employment and verification of income. For such Home Equity Contracts that are
first mortgage loans, Green Tree will conduct a title search and verify
property insurance coverage.
Substantially all Green Tree's Home Equity Contracts are securitized in
pools of home improvement and home equity loans, which are not described in
this Prospectus. The Home Equity Contracts to be included in the Contract
Pools described in this Prospectus generally are those Home Equity Contracts
which, for one or more reasons, Green Tree is not willing to represent to be
"qualified mortgages" that may be included in a "real estate mortgage
investment conduit" (as defined in the Internal Revenue Code of 1986, as
amended).
LOSS AND DELINQUENCY INFORMATION
Each Prospectus Supplement will include Green Tree's loss and delinquency
experience with respect to its entire servicing portfolio of consumer product
contracts and its portfolio of Home Improvement Contracts and Home Equity
Contracts. However, there can be no assurance that such experience will be
indicative of the performance of the Contracts included in a particular
Contract Pool.
RATIO OF EARNINGS TO FIXED CHARGES FOR THE COMPANY
Set forth below are the Company's ratios of earnings to fixed charges for
the past five years. For the purposes of compiling these ratios, earnings
consist of earnings before income taxes plus fixed charges. Fixed charges
consist of interest expense and the interest portion of rent expense.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges..................... 3.55 4.81 7.98 7.90 7.83
</TABLE>
YIELD AND PREPAYMENT CONSIDERATIONS
Unless otherwise specified in the related Prospectus Supplement, many of the
Contracts will be simple interest retail installment sales contracts and
promissory notes. Payments on simple interest obligations are applied first to
interest accrued through the payment date, and the remainder is applied to
reduce the unpaid
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principal balance. Accordingly, if an Obligor pays an installment before its
due date, the portion of the payment allocable to interest for the period will
be less than if the payment had been made on the due date, the portion of the
payment applied to reduce the principal balance will be correspondingly
greater, and the principal balance will be amortized more rapidly than
scheduled. Conversely, if an Obligor pays an installment after its due date,
the portion of the payment allocable to interest will be greater than if the
payment had been made on the due date, the portion of the payment applied to
reduce the principal balance will be correspondingly less, and the principal
balance will be amortized slower than scheduled, in which case a larger
portion of the principal balance may be due on the final scheduled payment
date. Any interest shortfalls resulting from early payment or prepayment of a
Contract will be funded by collections on other Contracts or, to the extent
collections are insufficient, by payments under the applicable form of credit
enhancement, if any, described in the related Prospectus Supplement.
The Contracts will be prepayable, without premium or penalty, by Obligors at
any time. Prepayments (or, for this purpose, equivalent payments to a Trust)
also may result from liquidations due to default, receipt of proceeds from
insurance policies, repurchases by Green Tree due to breach of a
representation or warranty, or as a result of Green Tree or the Servicer
exercising its option to purchase the Contract Pool. See "Description of the
Trust Documents." The rate of prepayments on the Contracts may be influenced
by a variety of economic, social and other factors. No assurance can be given
that prepayments on the Contracts will conform to any estimated or actual
historical experience, and no prediction can be made as to the actual
prepayment rates which will be experienced on the Contracts.
Certificateholders and Noteholders will bear all reinvestment risk resulting
from the timing of payments of principal on the Certificates or the Notes, as
the case may be.
POOL FACTOR
The "Certificate Pool Factor" for each class of Certificates will be an
eight-digit decimal which the Servicer will compute indicating the Certificate
Balance with respect to such Certificates as of each Distribution Date (after
giving effect to all distributions of principal made on such Distribution
Date), as a fraction of the Original Principal Balance of such Certificates.
The "Note Pool Factor" for each class of Notes, if any, will be an eight-digit
decimal which the Servicer will compute indicating the remaining outstanding
principal balance with respect to such Notes as of each Distribution Date
(after giving effect to all distributions of principal on such Distribution
Date) as a fraction of the initial outstanding principal balance of such class
of Notes. Each Certificate Pool Factor and each Note Pool Factor will
initially be 1.00000000; thereafter, the Certificate Pool Factor and the Note
Pool Factor will decline to reflect reductions in the Certificate Balance of
the applicable class of Certificates or reductions in the outstanding
principal balance of the applicable class of Notes, as the case may be. The
amount of a Certificateholder's pro rata share of the Certificate Balance for
the related class of Certificates can be determined by multiplying the
original denomination of the Certificateholder's Certificate by the then
applicable Certificate Pool Factor. The amount of a Noteholder's pro rata
share of the aggregate outstanding principal balance of the applicable class
of Notes can be determined by multiplying the original denomination of such
Noteholder's Note by the then applicable Note Pool Factor.
With respect to each Trust and pursuant to the related Trust Documents, on
each Distribution Date or Payment Date, as the case may be, the related
Certificateholders and Noteholders will receive periodic reports from the
Trustee stating the Certificate Pool Factor or the Note Pool Factor, as the
case may be, and containing various other items of information. Unless and
until Definitive Certificates or Definitive Notes are issued, such reports
will be sent on behalf of the Trust to the Trustee and the Indenture Trustee
(if any) and Cede & Co., as registered holder of the Certificates and the
Notes and the nominee of DTC. Certificate Owners and Note Owners may receive
such reports, upon written request, together with a certification that they
are Certificate Owners or Note Owners and payment of any expenses associated
with the distribution of such reports, from the Trustee and the Indenture
Trustee (if any) at the addresses specified in the related Prospectus
Supplement. See "Certain Information Regarding the Securities--Statements to
Securityholders."
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USE OF PROCEEDS
Unless otherwise specified in the related Prospectus Supplement, the net
proceeds to be received by the Trust from the sale of each series of
Securities will be used to pay to Green Tree the purchase price for the
Contracts and to make the deposit of the Pre-Funded Amount into the Pre-
Funding Account, if any, to repay warehouse lenders and/or to provide for
other forms of credit enhancement specified in the related Prospectus
Supplement. The net proceeds to be received by Green Tree will be used to pay
its warehouse loans, and any additional proceeds will be added to Green Tree's
general funds and used for its general corporate purposes.
THE CERTIFICATES
GENERAL
With respect to each Trust, one or more classes of Certificates of a given
series will be issued pursuant to Trust Documents to be entered into between
Green Tree, as Seller and as Servicer, and the Trustee, forms of which have
been filed as exhibits to the Registration Statement of which this Prospectus
forms a part. The following summary does not purport to be complete and is
subject to, and is qualified in its entirety by reference to, all of the
material provisions of the Trust Documents. Where particular provisions of or
terms used in the Trust Documents are referred to, the actual provisions
(including definitions of terms) are incorporated by reference as part of this
summary.
Unless otherwise specified in the related Prospectus Supplement, each class
of Certificates will initially be represented by a single Certificate
registered in the name of the nominee of DTC (together with any successor
depository selected by the Seller, the "Depository"). See "Certain Information
Regarding the Securities--Book-Entry Registration." Unless otherwise specified
in the related Prospectus Supplement, the Certificates evidencing interests in
a Trust will be available for purchase in denominations of $1,000 initial
principal amount and integral multiples thereof, except that one Certificate
evidencing an interest in such Trust may be issued in a denomination that is
less than $1,000 initial principal amount. Certificates may be transferred or
exchanged without the payment of any service charge other than any tax or
governmental charge payable in connection with such transfer or exchange.
Unless otherwise specified in the related Prospectus Supplement, the Trustee
will initially be designated as the registrar for the Certificates.
DISTRIBUTIONS OF INTEREST AND PRINCIPAL
The timing and priority of distributions, seniority, allocations of loss,
Pass-Through Rate and amount of or method of determining distributions with
respect to principal and interest (or, where applicable, with respect to
principal only or interest only) on the Certificates of any series will be
described in the related Prospectus Supplement. Distributions of interest on
the Certificates will be made on the dates specified in the related Prospectus
Supplement (each, a "Distribution Date") and, unless otherwise specified in
the related Prospectus Supplement, will be made prior to distributions with
respect to principal. A series may include one or more classes of Stripped
Certificates entitled to (i) distributions in respect of principal with
disproportionate, nominal or no interest distribution, or (ii) interest
distributions, with disproportionate, nominal or no distributions in respect
of principal. Each class of Certificates may have a different Pass-Through
Rate, which may be a fixed, variable or adjustable Pass-Through Rate (and
which may be zero for certain classes of Stripped Certificates), or any
combination of the foregoing. The related Prospectus Supplement will specify
the Pass-Through Rate for each class of Certificate, or the initial Pass-
Through Rate and the method for determining the Pass-Through Rate. Unless
otherwise specified in the related Prospectus Supplement, interest on the
Certificates will be calculated on the basis of a 360-day year consisting of
twelve 30-day months. Unless otherwise specified in the related Prospectus
Supplement, distributions in respect of the Certificates will be subordinate
to payments in respect of the Notes, if any, as more fully described in the
related Prospectus Supplement. Distributions in respect of principal of any
class of Certificates will be made on a pro rata basis among all of the
Certificateholders of such class.
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In the case of a series of Certificates which includes two or more classes
of Certificates, the timing, sequential order, priority of payment or amount
of distributions in respect of principal, and any schedule or formula or other
provisions applicable to the determination thereof, of each such class shall
be as set forth in the related Prospectus Supplement.
THE NOTES
GENERAL
A series of Securities may include one or more classes of Notes issued
pursuant to the terms of an Indenture, a form of which has been filed as an
exhibit to the Registration Statement of which this Prospectus forms a part.
Unless otherwise specified in the related Prospectus Supplement, no Notes will
be issued as a part of any series. The following summary does not purport to
be complete and is subject to, and is qualified in its entirety by reference
to, all of the provisions of the Notes and the Indenture, and the following
summary will be supplemented in whole or in part by the related Prospectus
Supplement. Where particular provisions of or terms used in the Indenture are
referred to, the actual provisions (including definition of terms) are
incorporated by reference as part of this summary.
Unless otherwise specified in the related Prospectus Supplement, each class
of Notes will initially be represented by a single Note registered in the name
of the nominee of the Depository. See "Certain Information Regarding the
Securities--Book-Entry Registration." Unless otherwise specified in the
related Prospectus Supplement, Notes will be available for purchase in
denominations of $1,000 and integral multiples thereof. Notes may be
transferred or exchanged without the payment of any service charge other than
any tax or governmental charge payable in connection with such transfer or
exchange. Unless otherwise provided in the related Prospectus Supplement, the
Indenture Trustee will initially be designated as the registrar for the Notes.
PRINCIPAL AND INTEREST ON THE NOTES
The timing and priority of payment, seniority, allocations of loss, Interest
Rate and amount of or method of determining payments of principal and interest
on the Notes will be described in the related Prospectus Supplement. The right
of holders of any class of Notes to receive payments of principal and interest
may be senior or subordinate to the rights of holders of any class or classes
of Notes of such series, or any class of Certificates, as described in the
related Prospectus Supplement. Unless otherwise provided in the related
Prospectus Supplement, payments of interest on the Notes will be made prior to
payments of principal thereon. A series may include one or more classes of
Stripped Notes entitled to (i) principal payments with disproportionate,
nominal or no interest payment, or (ii) interest payments with
disproportionate, nominal or no principal payments. Each class of Notes may
have a different Interest Rate, which may be a fixed, variable or adjustable
Interest Rate (and which may be zero for certain classes of Stripped Notes),
or any combination of the foregoing. The related Prospectus Supplement will
specify the Interest Rate for each class of Notes, or the initial Interest
Rate and the method for determining the Interest Rate. One or more classes of
Notes of a series may be redeemable under the circumstances specified in the
related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, payments in
respect of interest to Noteholders of all classes within a series will have
the same priority. Under certain circumstances, the amount available for such
payments could be less than the amount of interest payable on the Notes on any
of the dates specified for payments in the related Prospectus Supplement
(each, a "Payment Date"), in which case each class of Noteholders will receive
their ratable share (based upon the aggregate amount of interest due to such
class of Noteholders) of the aggregate amount available to be distributed in
respect of interest on the Notes.
In the case of a series of Securities which includes two or more classes of
Notes, the sequential order and priority of payment in respect of principal
and interest, and any schedule or formula or other provisions applicable to
the determination thereof, of each such class will be set forth in the related
Prospectus Supplement. Unless otherwise specified in the related Prospectus
Supplement, payments in respect of principal and interest of any class of
Notes will be made on a pro rata basis among all of the Notes of such class.
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THE INDENTURE
A form of Indenture has been filed as an exhibit to the Registration
Statement of which this Prospectus forms a part. Green Tree will provide a
copy of the applicable Indenture (without exhibits) upon request to a holder
of Notes issued thereunder.
Modification of Indenture Without Noteholder Consent. Each Trust and related
Indenture Trustee (on behalf of such Trust) may, without consent of the
related Noteholders, enter into one or more supplemental indentures for any of
the following purposes: (i) to correct or amplify the description of the
collateral or add additional collateral; (ii) to provide for the assumption of
the Note and the Indenture obligations by a permitted successor to the Trust;
(iii) to add additional covenants for the benefit of the related Noteholders;
(iv) to convey, transfer, assign, mortgage or pledge any property to or with
the Indenture Trustee; (v) to cure any ambiguity or correct or supplement any
provision in the Indenture or in any supplemental indenture; (vi) to provide
for the acceptance of the appointment of a successor Indenture Trustee or to
add to or change any of the provisions of the Indenture or any supplemental
indenture which may be inconsistent with any other provision of the Indenture
as shall be necessary and permitted to facilitate the administration by more
than one trustee; (vii) to modify, eliminate or add to the provisions of the
Indenture in order to comply with the Trust Indenture Act of 1939, as amended;
and (viii) to add any provisions to, change in any manner, or eliminate any of
the provisions of, the Indenture or modify in any manner the rights of
Noteholders under such Indenture; provided that any action specified in this
clause (viii) shall not, as evidenced by an opinion of counsel, adversely
affect in any material respect the interests of any related Noteholder unless
Noteholder consent is otherwise obtained as described below.
Modifications of Indenture With Noteholder Consent. With respect to each
Trust, with the consent of the holders representing a majority of the
principal balance of the outstanding related Notes (a "Note Majority"), the
Owner Trustee and the Indenture Trustee may execute a supplemental indenture
to add provisions, to change in any manner or eliminate any provisions of, the
related Indenture, or modify in any manner the rights of the related
Noteholders.
Without the consent of the holder of each outstanding related Note affected
thereby, however, no supplemental indenture may: (i) change the due date of
any installment of principal of or interest on any Note or reduce the
principal amount thereof, the interest rate specified thereon or the
redemption price with respect thereto or change the manner of calculating any
such payment, any place of payment where, or the coin or currency in which any
Note or any interest thereon is payable; (ii) impair the right to institute
suit for the enforcement of certain provisions of the Indenture regarding
payment; (iii) reduce the percentage of the aggregate amount of the
outstanding Notes the consent of the holders of which is required for any such
supplemental indenture or the consent of the holders of which is required for
any waiver of compliance with certain provisions of the Indenture or of
certain defaults thereunder and their consequences as provided for in the
Indenture; (iv) modify or alter the provisions of the Indenture regarding the
voting of Notes held by the related Trust, any other obligor on the Notes, the
Seller or an affiliate of any of them; (v) reduce the percentage of the
aggregate outstanding amount of the Notes the consent of the holders of which
is required to direct the Indenture Trustee to sell or liquidate the Contracts
if the proceeds of such sale would be insufficient to pay the principal amount
and accrued but unpaid interest on the outstanding Notes; (vi) decrease the
percentage of the aggregate principal amount of the Notes required to amend
the sections of the Indenture which specify the applicable percentage of
aggregate principal amount of the Notes necessary to amend the Indenture or
certain other related agreements; or (vii) permit the creation of any lien
ranking prior to or on a parity with the lien of the Indenture with respect to
any of the collateral for the Notes or, except as otherwise permitted or
contemplated in the Indenture, terminate the lien of the Indenture on any such
collateral or deprive the holder of any Note of the security afforded by the
lien of the Indenture.
Events of Default; Rights Upon Event of Default. With respect to each Trust,
unless otherwise specified in the related Prospectus Supplement, "Events of
Default" under the Indenture will consist of: (i) a default for five days or
more in the payment of any interest on any Note; (ii) a default in the payment
of the principal of or any
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installment of the principal of any Note when the same becomes due and
payable; (iii) a default in the observance or performance in any material
respect of any covenant or agreement of the Trust made in the Indenture, or
any representation or warranty made by the Trust in the Indenture or in any
certificate delivered pursuant thereto or in connection therewith having been
incorrect as of the time made, and the continuation of any such default or the
failure to cure such breach of a representation or warranty for a period of 30
days after notice thereof is given to the Trust by the Indenture Trustee or to
the Trust and the Indenture Trustee by the holders of at least 25% in
principal amount of the Notes then outstanding; or (iv) certain events of
bankruptcy, insolvency, receivership or liquidation of the Trust. However, the
amount of principal due and payable on any class of Notes on any Payment Date
(prior to the Final Scheduled Payment Date, if any, for such class) will
generally be determined by amounts available to be deposited in the Note
Distribution Account for such Payment Date. Therefore, unless otherwise
specified in the related Prospectus Supplement, the failure to pay principal
on a class of Notes generally will not result in the occurrence of an Event of
Default unless such class of Notes has a Final Scheduled Payment Date, and
then not until such Final Scheduled Payment Date for such class of Notes.
Unless otherwise specified in the related Prospectus Supplement, if an Event
of Default should occur and be continuing with respect to the Notes of any
series, the related Indenture Trustee or a Note Majority may declare the
principal of the Notes to be immediately due and payable. Such declaration
may, under certain circumstances, be rescinded by a Note Majority.
Unless otherwise specified in the related Prospectus Supplement, if the
Notes of any series have been declared due and payable following an Event of
Default with respect thereto, the related Indenture Trustee may institute
proceedings to collect amounts due or foreclose on Trust Property, exercise
remedies as a secured party, sell the related Contracts or elect to have the
Trust maintain possession of such Contracts and continue to apply collections
on such Contracts as if there had been no declaration of acceleration. Unless
otherwise specified in the related Prospectus Supplement, the Indenture
Trustee, however, will be prohibited from selling the related Contracts
following an Event of Default, unless (i) the holders of all the outstanding
related Notes consent to such sale; (ii) the proceeds of such sale are
sufficient to pay in full the principal of and the accrued interest on such
outstanding Notes at the date of such sale; or (iii) the Indenture Trustee
determines that the proceeds of the Contracts would not be sufficient on an
ongoing basis to make all payments on the Notes as such payments would have
become due if such obligations had not been declared due and payable, and the
Indenture Trustee obtains the consent of the holders of 66 2/3% of the
aggregate outstanding amount of the Notes. Unless otherwise specified in the
related Prospectus Supplement, following a declaration upon an Event of
Default that the Notes are immediately due and payable, (i) Note Owners will
be entitled to ratable repayment of principal on the basis of their respective
unpaid principal balances and (ii) repayment in full of the accrued interest
on and unpaid principal balances of the Notes will be made prior to any
further payment of interest or principal on the Certificates.
Subject to the provisions of the Indenture relating to the duties of the
Indenture Trustee, if an Event of Default occurs and is continuing with
respect to a series of Notes, the Indenture Trustee will be under no
obligation to exercise any of the rights or powers under the Indenture at the
request or direction of any of the holders of such Notes, if the Indenture
Trustee reasonably believes it will not be adequately indemnified against the
costs, expenses and liabilities which might be incurred by it in complying
with such request. Subject to the provisions for indemnification and certain
limitations contained in the Indenture, a Note Majority in a series will have
the right to direct the time, method and place of conducting any proceeding or
any remedy available to the Indenture Trustee, and a Note Majority may, in
certain cases, waive any default with respect thereto, except a default in the
payment of principal or interest or a default in respect of a covenant or
provision of the Indenture that cannot be modified without the waiver or
consent of all of the holders of such outstanding Notes.
No holder of a Note of any series will have the right to institute any
proceeding with respect to the related Indenture, unless (i) such holder
previously has given to the Indenture Trustee written notice of a continuing
Event of Default, (ii) the holders of not less than 25% in principal amount of
the outstanding Notes of such series have made written request of the
Indenture Trustee to institute such proceeding in its own name as
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Indenture Trustee, (iii) such holder or holders have offered the Indenture
Trustee reasonable indemnity, (iv) the Indenture Trustee has for 60 days
failed to institute such proceeding, and (v) no direction inconsistent with
such written request has been given to the Indenture Trustee during such 60-
day period by the holders of a majority in principal amount of such
outstanding Notes.
If an Event of Default occurs and is continuing and if it is known to the
Indenture Trustee, the Indenture Trustee will mail to each Noteholder notice
of the Event of Default within 90 days after it occurs. Except in the case of
a failure to pay principal of or interest on any Note, the Indenture Trustee
may withhold the notice if and so long as it determines in good faith that
withholding the notice is in the interests of the Noteholders.
In addition, each Indenture Trustee and the related Noteholders, by
accepting the related Notes, will covenant that they will not at any time
institute against the Seller or the related Trust any bankruptcy,
reorganization or other proceeding under any federal or state bankruptcy or
similar law.
Neither the Indenture Trustee nor the Trustee in its individual capacity,
nor any holder of a Certificate including, without limitation, the Seller, nor
any of their respective owners, beneficiaries, agents, officers, directors,
employees, affiliates, successors or assigns will, in the absence of an
express agreement to the contrary, be personally liable for the payment of the
related Notes or for any agreement or covenant of the related Trust contained
in the Indenture.
Certain Covenants. Each Indenture will provide that the related Trust may
not consolidate with or merge into any other entity, unless (i) the entity
formed by or surviving such consolidation or merger is organized under the
laws of the United States or any state, (ii) such entity expressly assumes the
Trust's obligation to make due and punctual payments upon the Notes and the
performance or observance of every agreement and covenant of the Trust under
the Indenture, (iii) no Event of Default shall have occurred and be continuing
immediately after such merger or consolidation, (iv) the Trustee has been
advised that the then current rating of the related Notes or Certificates then
in effect would not be reduced or withdrawn by the Rating Agencies as a result
of such merger or consolidation, (v) the Trustee has received an opinion of
counsel to the effect that such consolidation or merger would have no material
adverse tax consequence to the Trust or to any related Note Owner or
Certificate Owner.
Each Trust will not, among other things, (i) except as expressly permitted
by the Indenture, the Trust Documents or certain related documents for such
Trust (collectively, the "Related Documents"), sell, transfer, exchange or
otherwise dispose of any of the assets of the Trust, (ii) claim any credit on
or make any deduction from the principal and interest payable in respect of
the related Notes (other than amounts withheld under the Code or applicable
state law) or assert any claim against any present or former holder of such
Notes because of the payment of taxes levied or assessed upon the Trust, (iii)
dissolve or liquidate in whole or in part, (iv) permit the validity or
effectiveness of the related Indenture to be impaired or permit any person to
be released from any covenants or obligations with respect to the related
Notes under such Indenture except as may be expressly permitted thereby, or
(v) except as expressly permitted by the Related Documents, permit any lien,
charge, excise, claim, security interest, mortgage or other encumbrance to be
created on or extend to or otherwise arise upon or burden the assets of the
Trust or any part thereof, or any interest therein or proceeds thereof.
No Trust may engage in any activity other than as specified under the
section of the related Prospectus Supplement entitled "The Trust." No Trust
will incur, assume or guarantee any indebtedness other than indebtedness
incurred pursuant to the related Notes and the related Indenture or otherwise
in accordance with the Related Documents.
Annual Compliance Statement. Each Trust will be required to file annually
with the related Indenture Trustee a written statement as to the fulfillment
of its obligations under the Indenture.
Indenture Trustee's Annual Report. The Indenture Trustee will be required to
mail each year to all related Noteholders a brief report relating to its
eligibility and qualification to continue as Indenture Trustee under the
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related Indenture, any amounts advanced by it under the Indenture, the amount,
interest rate and maturity date of certain indebtedness owing by the Trust to
the Indenture Trustee in its individual capacity, the property and funds
physically held by the Indenture Trustee as such and any action taken by it
that materially affects the Notes and that has not been previously reported.
Note Owners may receive such reports upon written request, together with a
certification that they are Note Owners and payment of reproduction and
postage expenses associated with the distribution of such reports, from the
Indenture Trustee at the address specified in the related Prospectus
Supplement.
Satisfaction and Discharge of Indenture. The Indenture will be discharged
with respect to the collateral securing the related Notes upon the delivery to
the related Indenture Trustee for cancellation of all such Notes or, with
certain limitations, upon deposit with the Indenture Trustee of funds
sufficient for the payment in full of all of such Notes.
THE INDENTURE TRUSTEE
The Indenture Trustee for a series of Notes will be specified in the related
Prospectus Supplement. The Indenture Trustee may resign at any time, in which
event the Seller will be obligated to appoint a successor trustee. Green Tree
may also remove the Indenture Trustee if the Indenture Trustee ceases to be
eligible to continue as such under the Indenture or if the Indenture Trustee
becomes insolvent. In such circumstances, Green Tree will be obligated to
appoint a successor trustee. Any resignation or removal of the Indenture
Trustee and appointment of a successor trustee will be subject to any
conditions or approvals, if any, specified in the related Prospectus
Supplement and will not become effective until acceptance of the appointment
by a successor trustee.
CERTAIN INFORMATION REGARDING THE SECURITIES
BOOK-ENTRY REGISTRATION
Unless otherwise provided in the related Prospectus Supplement, the
Securities of each series will be registered in the name of Cede & Co., the
nominee of DTC. DTC is a limited-purpose trust company organized under the
laws of the State of New York, a member of the Federal Reserve System, a
"clearing corporation" within the meaning of the New York Uniform Commercial
Code, and a "clearing agency" registered pursuant to the provisions of Section
17A of the Exchange Act. DTC accepts securities for deposit from its
participating organizations ("Participants") and facilitates the clearance and
settlement of securities transactions between Participants in such securities
through electronic book-entry changes in accounts of Participants, thereby
eliminating the need for physical movement of certificates. Participants
include securities brokers and dealers, banks and trust companies and clearing
corporations and may include certain other organizations. Indirect access to
the DTC system is also available to others such as banks, brokers, dealers and
trust companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly ("indirect participants").
Certificate Owners and Note Owners who are not Participants but desire to
purchase, sell or otherwise transfer ownership of Securities may do so only
through Participants (unless and until Definitive Certificates or Definitive
Notes, each as defined below, are issued). In addition, Certificate Owners and
Note Owners will receive all distributions of principal of, and interest on,
the Securities from the Trustee or the Indenture Trustee, as applicable,
through DTC and Participants. Certificate Owners and Note Owners will not
receive or be entitled to receive certificates representing their respective
interests in the Securities, except under the limited circumstances described
below and such other circumstances, if any, as may be specified in the related
Prospectus Supplement.
Unless and until Definitive Securities are issued, it is anticipated that
the only Certificateholder of the Certificates and the only Noteholder of the
Notes, if any, will be Cede & Co., as nominee of DTC. Certificate Owners and
Note Owners will not be recognized by the Trustee as Certificateholders or by
the Indenture Trustee as Noteholders as those terms are used in the related
Trust Documents or Indenture. Certificate Owners and Note
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Owners will be permitted to exercise the rights of Certificateholders or
Noteholders, as the case may be, only indirectly through Participants and DTC.
With respect to any series of Securities, while the Securities are
outstanding (except under the circumstances described below), under the rules,
regulations and procedures creating and affecting DTC and its operations (the
"Rules"), DTC is required to make book-entry transfers among Participants on
whose behalf it acts with respect to the Securities and is required to receive
and transmit distributions of principal of, and interest on, the Securities.
Participants with whom Certificate Owners or Note Owners have accounts with
respect to Securities are similarly required to make book-entry transfers and
receive and transmit such distributions on behalf of their respective
Certificate Owners and Note Owners. Accordingly, although Certificate Owners
and Note Owners will not possess Securities, the Rules provide a mechanism by
which Certificate Owners and Note Owners will receive distributions and will
be able to transfer their interests.
With respect to any series of Securities, unless otherwise specified in the
related Prospectus Supplement, Certificates and Notes (if any) will be issued
in registered form to Certificate Owners and Note Owners, or their nominees,
rather than to DTC (such Certificates and Notes being referred to herein as
"Definitive Certificates" and "Definitive Notes," respectively), only if (i)
DTC, the Seller or the Servicer advises the Trustee or the Indenture Trustee,
as the case may be, in writing that DTC is no longer willing or able to
discharge properly its responsibilities as nominee and depository with respect
to the Certificates or the Notes, and the Seller, the Servicer, the Trustee or
the Indenture Trustee, as the case may be, is unable to locate a qualified
successor, (ii) the Seller or the Administrator (if any) at its sole option
has advised the Trustee or the Indenture Trustee, as the case may be, in
writing that it elects to terminate the book-entry system through DTC and
(iii) after the occurrence of a Servicer Termination Event, the holders
representing a majority of the Certificate Balance (a "Certificate Majority")
or a Note Majority advises the Trustee or the Indenture Trustee, as the case
may be, through DTC, that continuation of a book-entry system is no longer in
their best interests. Upon issuance of Definitive Certificates or Definitive
Notes to Certificate Owners or Note Owners, such Certificates or Notes will be
transferable directly (and not exclusively on a book-entry basis) and
registered holders will deal directly with the Trustee or the Indenture
Trustee, as the case may be, with respect to transfers, notices and
distributions.
DTC has advised the Seller that, unless and until Definitive Certificates or
Definitive Notes are issued, DTC will take any action permitted to be taken by
a Certificateholder or a Noteholder under the related Trust Documents or
Indenture only at the direction of one or more Participants to whose DTC
accounts the Certificates or Notes are credited. DTC has advised the Seller
that DTC will take such action with respect to any fractional interest of the
Certificates or the Notes only at the direction of and on behalf of such
Participants beneficially owning a corresponding fractional interest of the
Certificates or the Notes. DTC may take actions, at the direction of the
related Participants, with respect to some Certificates or Notes which
conflict with actions taken with respect to other Certificates or Notes.
Issuance of Certificates and Notes in book-entry form rather than as
physical certificates or notes may adversely affect the liquidity of
Certificates or Notes in the secondary market and the ability of the
Certificate Owners or Note Owners to pledge them. In addition, since
distributions on the Certificates and the Notes will be made by the Trustee or
the Indenture Trustee to DTC and DTC will credit such distributions to the
accounts of its Participants, with the Participants further crediting such
distributions to the accounts of indirect participants or Certificate Owners
or Note Owners, Certificate Owners and Note Owners may experience delays in
the receipt of such distributions.
STATEMENTS TO SECURITYHOLDERS
On or prior to each Distribution Date, the Servicer will prepare and provide
to the Trustee a statement to be delivered to the related Certificateholders
on such Distribution Date. On or prior to each Distribution Date, the Servicer
will prepare and provide to the Indenture Trustee a statement to be delivered
to the related Noteholders on such Distribution Date. Such statements will be
based on the information in the related Servicer's Certificate setting forth
certain information required under the Trust Documents (the "Servicer's
Certificate"). Unless
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otherwise specified in the related Prospectus Supplement, each such statement
to be delivered to Certificateholders will include the following information
as to the Certificates with respect to such Distribution Date or the period
since the previous Distribution Date, as applicable, and each such statement
to be delivered to Noteholders will include the following information as to
the Notes with respect to such Distribution Date or the period since the
previous Distribution Date, as applicable:
(i) the amount of the distribution allocable to interest on or with
respect to each class of Securities;
(ii) the amount of the distribution allocable to principal on or with
respect to each class of Securities;
(iii) the Certificate Balance and the Certificate Pool Factor for each
class of Certificates and the aggregate outstanding principal balance and
the Note Pool Factor for each class of Notes, after giving effect to all
payments reported under (ii) above on such date;
(iv) the amount of the Servicing Fee paid to the Servicer with respect to
the related Monthly Period or Periods, as the case may be;
(v) the Pass-Through Rate or Interest Rate for the next period for any
class of Certificates or Notes with variable or adjustable rates;
(vi) the amount of Advances made by the Servicer with respect to such
Distribution Date, and the amount paid to the Servicer on such Distribution
Date as reimbursement of Advances made on previous Distribution Dates;
(vii) the amount, if any, distributed to Certificateholders and
Noteholders applicable to payments under the related form of credit
enhancement, if any; and
(viii) such other information as may be specified in the related
Prospectus Supplement.
Each amount set forth pursuant to subclauses (i), (ii), (iv) and (vi) with
respect to Certificates or Notes will be expressed as a dollar amount per
$1,000 of the initial Certificate Balance or the initial principal balance of
the Notes, as applicable.
Unless and until Definitive Certificates or Definitive Notes are issued,
such reports with respect to a series of Securities will be sent on behalf of
the related Trust to the Trustee, the Indenture Trustee and Cede & Co., as
registered holder of the Certificates and the Notes and the nominee of DTC.
Certificate Owners and Note Owners may receive copies of such reports upon
written request, together with a certification that they are Certificate
Owners or Note Owners, as the case may be, and payment of reproduction and
postage expenses associated with the distribution of such reports, from the
Trustee or the Indenture Trustee, as applicable. See "Reports to
Securityholders" and "--Book-Entry Registration" above.
Within the prescribed period of time for tax reporting purposes after the
end of each calendar year during the term of a Trust, the Trustee and the
Indenture Trustee, as applicable, will mail to each holder of a class of
Securities who at any time during such calendar year has been a
Securityholder, and received any payment thereon, a statement containing
certain information for the purposes of such Securityholder's preparation of
federal income tax returns. DTC will convey such information to its
Participants, who in turn will convey such information to their related
indirect participants in accordance with arrangements among DTC and such
participants. Certificate Owners and Note Owners may receive such reports upon
written request, together with a certification that they are Certificate
Owners or Note Owners and payment of reproduction and postage expenses
associated with the distribution of such information, from the Trustee, with
respect to Certificate Owners, or from the Indenture Trustee, with respect to
Note Owners, at the addresses specified in the related Prospectus Supplement.
See "Certain Federal Income Tax Consequences."
LISTS OF SECURITYHOLDERS
Unless otherwise provided in the related Prospectus Supplement, with respect
to each series of Certificates, at such time, if any, as Definitive
Certificates have been issued, the Trustee will, upon written request by three
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or more Certificateholders or one or more holders of Certificates evidencing
not less than 25% of the Certificate Balance, within five Business Days after
provision to the Trustee of a statement of the applicants' desire to
communicate with other Certificateholders about their rights under the related
Trust Documents or the Certificates and a copy of the communication that the
applicants propose to transmit, afford such Certificateholders access during
business hours to the current list of Certificateholders for purposes of
communicating with other Certificateholders with respect to their rights under
the Trust Documents. Unless otherwise specified in the related Prospectus
Supplement, the Trust Documents will not provide for holding any annual or
other meetings of Certificateholders.
Unless otherwise provided in the related Prospectus Supplement, with respect
to each series of Notes, if any, at such time, if any, as Definitive Notes
have been issued, the Indenture Trustee will, upon written request by three or
more Noteholders or one or more holders of Notes evidencing not less than 25%
of the aggregate principal balance of the related Notes, within five Business
Days after provision to the Indenture Trustee of a statement of the
applicants' desire to communicate with other Noteholders about their rights
under the related Indenture or the Notes and a copy of the communication that
the applicants propose to transmit, afford such Noteholders access during
business hours to the current list of Noteholders for purposes of
communicating with other Noteholders with respect to their rights under the
Indenture. Unless otherwise specified in the related Prospectus Supplement,
the Indenture will not provide for holding any annual or other meetings of
Noteholders.
DESCRIPTION OF THE TRUST DOCUMENTS
Except as otherwise specified in the related Prospectus Supplement, the
following summary describes certain terms of either (i) the Pooling and
Servicing Agreements or (ii) the Sale and Servicing Agreements and the Trust
Agreements (in either case collectively referred to as the "Trust Documents")
pursuant to which Green Tree will sell and assign such Contracts to a Trust
and the Servicer will agree to service such Contracts on behalf of the Trust,
and pursuant to which such Trust will be created and Certificates will be
issued. Forms of the Trust Documents have been filed as exhibits to the
Registration Statement of which this Prospectus forms a part. Green Tree will
provide a copy of such agreements (without exhibits) upon request to a holder
of Securities described therein. This summary does not purport to be complete
and is subject to, and qualified in its entirety by reference to, all of the
provisions of the Trust Documents. Where particular provisions or terms used
in the Trust Documents are referred to, the actual provisions (including
definitions of terms) are incorporated by reference as part of such summary.
SALE AND ASSIGNMENT OF THE CONTRACTS
On the Closing Date, Green Tree will sell and assign to the Trust, without
recourse, Green Tree's entire interest in the related Contracts and the
proceeds thereof, including its security interests in the related Products and
the mortgages securing any Home Equity Contracts. Each Contract transferred by
Green Tree to the Trust will be identified in a schedule appearing as an
exhibit to the related Trust Documents (the "Schedule of Contracts").
Concurrently with such sale and assignment, the Trustee will execute and
deliver the related certificates representing the Certificates to or upon the
order of the Seller, and the Trustee will execute and the Indenture Trustee
will authenticate and deliver the Notes, if any, to or upon the order of the
Seller.
Except as otherwise specified in the related Prospectus Supplement, Green
Tree will make certain warranties in the Trust Documents with respect to each
Contract as of the Closing Date, including that: (a) as of the Cutoff Date,
the most recent scheduled payment was made or was not delinquent more than 59
days; (b) no provision of a Contract has been waived, altered or modified in
any respect, except by instruments or documents contained in the Contract
file; (c) each Contract is a legal, valid and binding obligation of the
Obligor and is enforceable in accordance with its terms (except as may be
limited by laws affecting creditors' rights generally); (d) no Contract is
subject to any right of rescission, set-off, counterclaim or defense; (e) for
Contracts (other than Home Improvement Contracts and Home Equity Contracts)
with an original balance greater than $7,500, the related Product is covered
by insurance naming Green Tree as an additional insured party; (f) each
Contract has been
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originated by a dealer (or home equity lender) or Green Tree in the ordinary
course of such dealer's, home equity lender's, or Green Tree's business and,
if originated by a dealer or home equity lender, was purchased by Green Tree
in the ordinary course of business; (g) no Contract was originated in or is
subject to the laws of any jurisdiction whose laws would make the transfer of
the Contract or an interest therein to the Trustee pursuant to the Trust
Documents or pursuant to the Notes or Certificates unlawful; (h) each Contract
complies with all requirements of law; (i) no Contract has been satisfied,
subordinated to a lower lien ranking than its original position in whole or in
part or rescinded and the Product or real estate securing the Contract has not
been released from the lien of the Contract in whole or in part; (j) each
Contract (other than a Home Improvement Contract or a Home Equity Contract)
creates a valid and enforceable first priority security interest in favor of
Green Tree in the Product covered thereby and such security interest has been
assigned by Green Tree to the Trustee, and each Home Equity Contract creates a
valid and perfected lien on the related real estate; (k) all parties to each
Contract had capacity to execute such Contract; (l) no Contract has been sold,
assigned or pledged to any other person and prior to the transfer of the
Contracts by Green Tree to the Trustee, Green Tree had good and marketable
title to each Contract free and clear of any encumbrance, equity, loan,
pledge, charge, claim or security interest, and was the sole owner and had
full right to transfer such Contract to the Trustee; (m) as of the Cutoff
Date, there was no default, breach, violation or event permitting acceleration
under any Contract (except for payment delinquencies permitted by clause (a)
above), no event which with notice and the expiration of any grace or cure
period would constitute a default, breach, violation or event permitting
acceleration under such Contract, and Green Tree has not waived any of the
foregoing; (n) as of the Closing Date there were, to the best of Green Tree's
knowledge, no liens or claims which have been filed for work, labor or
materials affecting the Product securing a Contract, which are or may be liens
prior or equal to the lien of the Contract; (o) each Contract is a fully-
amortizing loan and provides for level payments over the term of such
Contract; (p) each Contract contains customary and enforceable provisions such
as to render the rights and remedies of the Holder thereof adequate for
realization against the collateral of the benefits of the security; (q) the
description of each Contract set forth in the Schedule of Contracts delivered
to the Trustee is true and correct; and (r) there is only one original of each
Contract (other than the copy in the possession of the Obligor).
The warranties of Green Tree will be made as of the execution and delivery
of the related Trust Documents and will survive the sale, transfer and
assignment of the related Contracts and other Trust Property to the Trust but
will speak only as of the date made.
Green Tree will be obligated to repurchase for the Repurchase Price (as
defined below) any Contract on the first business day after the first
Determination Date which is more than 90 days after Green Tree becomes aware,
or should have become aware, or Green Tree's receipt of written notice from
the Trustee or the Servicer, of a breach of any representation or warranty of
Green Tree in the Trust Documents that materially adversely affects the
Trust's interest in any Contract if such breach has not been cured. The
Repurchase Price for any Contract will be the remaining principal amount
outstanding on such Contract on the date of repurchase plus accrued and unpaid
interest thereon at its Contract Rate to the date of such repurchase. This
repurchase obligation constitutes the sole remedy available to the Trust and
the Securityholders for a breach of a representation or warranty under the
Trust Documents with respect to the Contracts (but not with respect to any
other breach by Green Tree of its obligations under the Trust Documents).
Upon the purchase by Green Tree of a Contract due to a breach of a
representation or warranty, the Trustee will convey such Contract and the
related Trust Property to Green Tree.
CUSTODY OF CONTRACT FILES
Unless otherwise specified in the related Prospectus Supplement, Green Tree
initially will be appointed to act as custodian for the Contract Files of each
Trust (other than the Home Improvement Contract Files and the Home Equity
Contract Files). Prior to the appointment of any custodian other than Green
Tree, the Trust and such institution specified in the related Prospectus
Supplement shall enter into a custodian agreement pursuant to which such
institution will agree to hold the Contract Files on behalf of the related
Trust. Any such custodian agreement may be terminated by the Trust on 30 days'
notice to such institution. The Home Improvement Contract Files and Home
Equity Contract Files will be held by the Trustee or a custodian on its
behalf.
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To facilitate servicing and save administrative costs, the documents will
not be physically segregated from other similar documents that are in Green
Tree's possession. UCC financing statements will be filed in Minnesota
reflecting the sale and assignment of the Contracts to the Trustee, and Green
Tree's accounting records and computer systems will also reflect such sale and
assignment. In addition, the Contracts that are in Green Tree's possession
will be stamped or otherwise marked to indicate that such Contracts have been
sold to the related Trust. Despite these precautions, if, through inadvertence
or otherwise, any of the Contracts were sold to another party (or a security
interest therein were granted to another party) that purchased (or took such
security interest in) any of such Contracts in the ordinary course of its
business and took possession of such Contracts, the purchaser (or secured
party) would acquire an interest in the Contracts superior to the interest of
the related Trust if the purchaser (or secured party) acquired (or took a
security interest in) the Contracts for new value and without actual knowledge
of such Trust's interest. See "Certain Legal Aspects of the Contracts--Rights
in the Contracts."
COLLECTIONS
With respect to each Trust, the Servicer will establish one or more
Collection Accounts in the name of the Trustee or, in the case of any series
including one or more classes of Notes, in the name of the Indenture Trustee
for the benefit of the related Securityholders. If so specified in the related
Prospectus Supplement, the Trustee will establish and maintain for each series
an account, in the name of the Trustee on behalf of the related
Certificateholders, in which amounts released from the Collection Account and
any Pre-Funding Account and any amounts received from any source of credit
enhancement for distribution to such Certificateholders will be deposited and
from which all distributions to such Certificateholders will be made (the
"Certificate Distribution Account"). With respect to any series including one
or more classes of Notes, the Indenture Trustee will establish and maintain
for each series an account, in the name of the Indenture Trustee on behalf of
the related Noteholders, in which amounts released from the Collection Account
and any Pre-Funding Account and any amounts received from any source of credit
enhancement for payment to such Noteholders will be deposited and from which
all distributions to such Noteholders will be made (the "Note Distribution
Account"). The Collection Account, the Certificate Distribution Account (if
any), and the Note Distribution Account (if any), are referred to herein
collectively as the "Designated Accounts." Any other accounts to be
established with respect to a Trust will be described in the related
Prospectus Supplement.
Each Designated Account will be an Eligible Account maintained with the
Trustee, the Indenture Trustee and/or other depository institutions. "Eligible
Account" means any account which is (i) an account maintained with an Eligible
Institution (as defined below); (ii) an account or accounts the deposits in
which are fully insured by either the Bank Insurance Fund or the Savings
Association Insurance Fund of the FDIC; (iii) a "segregated trust account"
maintained with the corporate trust department of a federal or state chartered
depository institution or trust company with trust powers and acting in its
fiduciary capacity for the benefit of the Trustee, which depository
institution or trust company has capital and surplus (or, if such depository
institution or trust company is a subsidiary of a bank holding company system,
the capital and surplus of the bank holding company) of not less than
$50,000,000 and the securities of such depository institution (or, if such
depository institution is a subsidiary of a bank holding company system and
such depository institution's securities are not rated, the securities of the
bank holding company) has a credit rating from each rating agency rating such
series of Notes and/or Certificates (a "Rating Agency") in one of its generic
credit rating categories which signifies investment grade; or (iv) an account
that will not cause any Rating Agency to downgrade or withdraw its then-
current rating assigned to the Securities, as confirmed in writing by each
Rating Agency. "Eligible Institution" means any depository institution
organized under the laws of the United States or any state, the deposits of
which are insured to the full extent permitted by law by the Bank Insurance
Fund (currently administered by the Federal Deposit Insurance Corporation),
whose short-term deposits have been rated in one of the two highest rating
categories or such other rating category as will not adversely affect the
ratings assigned to the Securities of such series. On the Closing Date
specified in the related Prospectus Supplement, the Servicer will cause to be
deposited in the Collection Account all payments on the Contracts received by
the Servicer after the Cutoff Date and on or prior to the second Business Day
preceding the Closing Date.
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The Servicer will deposit all payments on the Contracts held by any Trust
received directly by the Servicer from Obligors and all proceeds of Contracts
collected directly by the Servicer during each Monthly Period into the
Collection Account no later than one Business Day after receipt.
Notwithstanding the foregoing and unless otherwise provided in the related
Prospectus Supplement, the Servicer may utilize an alternative remittance
schedule, if the Servicer provides to the Trustee and the Indenture Trustee
written confirmation from each Rating Agency that such alternative remittance
schedule will not result in the downgrading or withdrawal by such Rating
Agency of the rating(s) then assigned to the Securities. Green Tree will also
deposit into the Collection Account on or before the Deposit Date the Purchase
Amount of each Contract to be purchased by it for breach of a representation
or warranty.
For any series of Securities, funds in the Designated Accounts and any other
accounts identified in the related Prospectus Supplement will be invested, as
provided in the related Trust Documents, at the direction of the Servicer in
United States government securities and certain other high-quality investments
meeting the criteria specified in the related Trust Documents ("Eligible
Investments"). Eligible Investments shall mature no later than the Business
Day preceding the applicable Distribution Date for the Monthly Period to which
such amounts relate. Investments in Eligible Investments will be made in the
name of the Trustee or the Indenture Trustee, as the case may be, and such
investments will not be sold or disposed of prior to their maturity.
Unless otherwise specified in the related Prospectus Supplement, collections
or recoveries on a Contract (other than late fees or certain other similar
fees or charges) received during a Monthly Period and Purchase Amounts
deposited with the Trustee prior to a Distribution Date will be applied first
to any outstanding Monthly Advances made by the Servicer with respect to such
Contract, and then to interest and principal on the Contract in accordance
with the terms of the Contract.
SERVICING PROCEDURES
The Servicer will make reasonable efforts, consistent with the customary
servicing procedures employed by the Servicer with respect to Contracts owned
or serviced by it, to collect all payments due with respect to the Contracts
held by any Trust and, in a manner consistent with the Trust Documents, will
follow its customary collection procedures with respect to secured consumer
loans that it services for itself and others.
Under the Trust Documents, the Servicer will be required to use its best
efforts to repossess or otherwise comparably convert the ownership of any
Product securing a Contract, or to begin foreclosure proceedings under a Home
Equity Contract, with respect to which the Servicer has determined that
payments thereunder are not likely to be resumed as soon as practicable after
default on such Contract. The Servicer is authorized to follow such of its
normal collection practices and procedures as it deems necessary or advisable
to realize upon any Contract. The Servicer may repossess and sell the Product
securing such Contract at judicial sale, or take any other action permitted by
applicable law. See "Certain Legal Aspects of the Contracts." The Servicer
will be entitled to recover all reasonable expenses incurred by it in
connection therewith. The proceeds of such realization (net of such expenses)
will be deposited in the Collection Account at the time and in the manner
described above under "--Collections."
The Trust Documents will provide that the Servicer will indemnify and defend
the Trustee, the Indenture Trustee, the Trust and the Securityholders against,
among other things, any and all costs, expenses, losses, damages, claims and
liabilities, including reasonable fees and expenses of counsel and expenses of
litigation, or in respect of any action taken or failed to be taken by the
Servicer with respect to any portion of the Trust Property in violation of the
provisions of the Trust Documents. The Servicer's obligations to indemnify the
Trustee, the Indenture Trustee, the Trust and the Securityholders for the
Servicer's actions or omissions will survive the removal of the Servicer but
will not apply to any action or omission of a successor Servicer.
SERVICING COMPENSATION
Unless otherwise specified in the related Prospectus Supplement, with
respect to each series of Securities, the Servicer will be entitled to receive
the Servicing Fee for each Monthly Period in an amount equal to the
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product of one-twelfth of the Servicing Rate and the Aggregate Principal
Balance as of the first day of such Monthly Period. The Servicer also will be
entitled to collect and retain any late fees or other administrative fees or
similar charges allowed by the terms of the Contracts or applicable law.
Unless otherwise provided in the related Prospectus Supplement, the "Servicing
Rate" will equal .75% per annum calculated on the basis of a 360-day year
consisting of twelve 30-day months. As long as Green Tree is the Servicer, the
Servicing Fee and any additional servicing compensation will be paid out of
collections on or with respect to the Contracts after the required
distributions to Noteholders and Certificateholders. If Green Tree is no
longer the Servicer, the Servicing Fee and any additional servicing
compensation will be paid out of collections on or with respect to the
Contracts prior to distributions to Certificateholders and Noteholders. Unless
otherwise specified in the related Prospectus Supplement, a "Monthly Period"
with respect to any Distribution Date is the calendar month immediately
preceding the month in which the Distribution Date occurs.
Green Tree, as Servicer, will be required to pay all expenses incurred by it
in connection with its servicing activities (including fees, expenses and
disbursements of the Trustee, the Indenture Trustee, the Custodian and
independent accountants, taxes imposed on the Servicer and expenses incurred
in connection with distributions and reports to Certificateholders and
Noteholders), except certain expenses incurred in connection with realizing
upon the Contracts.
DISTRIBUTIONS
With respect to each Trust, beginning on the Distribution Date specified in
the related Prospectus Supplement, distributions of principal and interest
(or, where applicable, of principal or interest only) on each class of
Securities entitled thereto will be made by the Trustee or the Indenture
Trustee, as applicable, to the Certificateholders and the Noteholders. The
timing, calculation, allocation, order, source, priorities of and requirements
for all distributions to each class of Certificateholders and all payments to
each class of Noteholders will be set forth in the related Prospectus
Supplement.
Except as otherwise specified in the related Prospectus Supplement, on the
third Business Day prior to each Distribution Date (the "Determination Date"),
the Servicer will determine the Amount Available and the amounts to be
distributed on the Notes and Certificates for such Distribution Date. Except
as otherwise specified in the related Prospectus Supplement, the "Amount
Available" for any Distribution Date will be equal to (i) the funds on deposit
in the Collection Account at the close of business on the last day of the
related Monthly Period, plus (ii) any Advances to be made by the Servicer with
respect to delinquent payments, plus (iii) any Repurchase Amounts to be
deposited by Green Tree with respect to Contracts to be repurchased due to a
breach of a representation or warranty, minus (iv) any amounts paid by
Obligors in the related Monthly Period, but to be applied in respect of a
regular monthly payment due in a subsequent Monthly Period (an "Advance
Payment"), minus (v) any amounts incorrectly deposited in the Collection
Account.
Except as otherwise specified in the related Prospectus Supplement, on each
Distribution Date, prior to making distributions in respect of the Notes and
Certificates, the Amount Available will be applied, first, if Green Tree is no
longer the Servicer, to pay the servicing fee to the successor Servicer, and
second, to reimburse the Servicer (including Green Tree) for any Advances made
with respect to a prior Monthly Period and subsequently recovered and for any
Advances previously made that the Servicer has determined are Uncollectible
Advances.
ENHANCEMENT
The amounts and types of enhancement arrangements and the provider thereof,
if applicable, with respect to each class of Securities will be set forth in
the related Prospectus Supplement. If and to the extent provided in the
related Prospectus Supplement, enhancement may be in the form of a financial
guaranty insurance policy, letter of credit, Green Tree guaranty, cash reserve
fund, derivative product, or other form of enhancement, or any combination
thereof, as may be described in the related Prospectus Supplement. If
specified in the applicable Prospectus Supplement, enhancement for a class of
Securities of a Series may cover one or more other classes of Securities in
such Series, and accordingly may be exhausted for the benefit of a particular
class and thereafter be
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unavailable to such other classes. Further information regarding any provider
of enhancement, including financial information when material, will be
included in the related Prospectus Supplement.
The presence of enhancement may be intended to enhance the likelihood of
receipt by the Certificateholders and the Noteholders of the full amount of
principal and interest due thereon and to decrease the likelihood that the
Certificateholders and the Noteholders will experience losses, or may be
structured to provide protection against changes in interest rates or against
other risks, to the extent and under the conditions specified in the related
Prospectus Supplement. Unless otherwise specified in the related Prospectus
Supplement, the enhancement for a class of Securities will not provide
protection against all risks of loss and will not guarantee repayment of the
entire principal and interest thereon. If losses occur which exceed the amount
covered by any enhancement or which are not covered by any enhancement,
Securityholders will bear their allocable share of deficiencies. In addition,
if a form of enhancement covers more than one class of Securities of a Series,
Securityholders of any such class will be subject to the risk that such
enhancement will be exhausted by the claims of Securityholders of other
classes.
ADVANCES
Unless otherwise specified in the related Prospectus Supplement, the
Servicer will be obligated to make Advances each month of any scheduled
payments on the Contracts included in a Trust that were due but not received
during the prior Monthly Period. The Servicer will be entitled to
reimbursement of an Advance from Available Funds in the Collection Account for
the related Trust (i) when the delinquent payment is recovered by the Trust,
or (ii) when the Servicer has determined that such Advance has become an
Uncollectible Advance. The Servicer will be obligated to make an Advance only
to the extent that it determines that such Advance will be recoverable from
subsequent funds available therefor in the Collection Account for the related
Trust.
EVIDENCE AS TO COMPLIANCE
On or before March 31 of each year the Servicer will deliver to each Trustee
and each Indenture Trustee a report of a nationally recognized accounting firm
stating that such firm has examined certain documents and records relating to
the servicing of Contracts serviced by the Servicer under pooling and
servicing agreements or sale and servicing agreements similar to the Trust
Documents and stating that, on the basis of such procedures, such servicing
has been conducted in compliance with the applicable Trust Documents, except
for any exceptions set forth in such report. A copy of such statement may be
obtained by any Certificate Owner or Note Owner upon compliance with the
requirements described above. See "Certain Information Regarding the
Securities--Statements to Securityholders" above.
CERTAIN MATTERS REGARDING THE SERVICER
Unless otherwise provided in the related Prospectus Supplement, Green Tree's
appointment as Servicer under the related Trust Documents will continue until
such time as it resigns or is terminated as Servicer, or until such time, if
any, as a Servicer Termination Event shall have occurred under the related
Trust Documents. The related Trust Documents will provide that the Servicer
may not resign from its obligations and duties as Servicer thereunder, except
upon a determination (as evidenced by an opinion of independent counsel,
delivered and acceptable to the Trustee and the Indenture Trustee), that by
reason of a change in legal requirements its performance of such duties would
cause it to be in violation of such legal requirements in a manner which would
result in a material adverse effect on the Servicer. No such resignation will
become effective until a successor Servicer has assumed the servicing
obligations and duties under the related Trust Documents.
Unless otherwise provided in the related Prospectus Supplement, any
corporation or other entity into which the Servicer may be merged or
consolidated, resulting from any merger or consolidation to which the Servicer
is a party, which acquires by conveyance, transfer or lease substantially all
of the assets of the Servicer or succeeds to all or substantially all the
business of the Servicer, where the Servicer is not the surviving entity,
which corporation or other entity assumes every obligation of the Servicer
under each Trust Document, will be the
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successor to the Servicer under the related Trust Documents; provided,
however, that (i) such entity is an Eligible Servicer, and (ii) immediately
after giving effect to such transaction, no Servicer Termination Event and no
event which, after notice or lapse of time, or both, would become a Servicer
Termination Event shall have occurred and be continuing.
INDEMNIFICATION AND LIMITS ON LIABILITY
Unless otherwise specified in the related Prospectus Supplement, the Trust
Documents will provide that the Servicer will be liable only to the extent of
the obligations specifically undertaken by it under the Trust Documents and
will have no other obligations or liabilities thereunder. The Trust Documents
will further provide that neither the Servicer nor any of its directors,
officers, employees and agents will have any liability to the Trust, the
Certificateholders or the Noteholders, except as provided in the Trust
Documents, for any action taken or for refraining from taking any action
pursuant to the Trust Documents, other than any liability that would otherwise
be imposed by reason of the Servicer's breach of the Trust Documents or
willful misfeasance, bad faith or negligence (including errors in judgment) in
the performance of its duties, or by reason of reckless disregard of
obligations and duties under the Trust Documents or any violation of law.
The Servicer may, with the prior consent of the Trustee and the Indenture
Trustee, if any, delegate duties under the related Trust Documents to any of
its affiliates. In addition, the Servicer may at any time perform the specific
duty of repossessing Products through subcontractors who are in the business
of servicing consumer receivables. The Servicer may also perform other
specific duties through subcontractors; provided, however, that no such
delegation of such duties by the Servicer shall relieve the Servicer of its
responsibility with respect thereto.
SERVICER TERMINATION EVENTS
Except as otherwise specified in the related Prospectus Supplement, Servicer
Termination Events under the Trust Documents will include (i) any failure by
the Servicer to deliver to the Indenture Trustee for distribution to the
Noteholders or to the Trustee for distribution to the Certificateholders any
required payment which continues unremedied for 5 days (or such other period
specified in the related Prospectus Supplement) after the giving of written
notice; (ii) any failure by the Servicer duly to observe or perform in any
material respect any other of its covenants or agreements in the Trust
Documents that materially and adversely affects the interests of
Securityholders, which, in either case, continues unremedied for 30 days after
the giving of written notice of such failure of breach; (iii) any assignment
or delegation by the Servicer of its duties or rights under the Trust
Documents, except as specifically permitted under the Trust Documents, or any
attempt to make such an assignment or delegation; (iv) certain events of
insolvency, readjustment of debt, marshalling of assets and liabilities or
similar proceedings regarding the Servicer; and (v) the Servicer is no longer
an Eligible Servicer (as defined in the Trust Documents). Notice as used
herein shall mean notice to the Servicer by the Trustee, the Indenture
Trustee, if any, or Green Tree, or to Green Tree, the Servicer, the Indenture
Trustee, if any, and the Trustee by the holders of Securities representing
interests aggregating not less than 25% of the outstanding principal balance
of the Securities issued by such Trust.
Unless otherwise specified in the related Prospectus Supplement, if a
Servicer Termination Event occurs and is continuing, the Trustee, the
Indenture Trustee (if any), or the holders of at least 25% in aggregate
principal balance of the outstanding Securities issued by such Trust, by
notice then given in writing to the Servicer (and to the Trustee and the
Indenture Trustee if given by the Securityholders) may terminate all of the
rights and obligations of the Servicer under the Trust Documents. Immediately
upon the giving of such notice, and, in the case of a successor Servicer other
than the Trustee, the acceptance by such successor Servicer of its
appointment, all authority of the Servicer will pass to the Trustee or other
successor Servicer. The Trustee, the Indenture Trustee and the successor
Servicer may set off and deduct any amounts owed by the Servicer from any
amounts payable to the outgoing Servicer.
On and after the time the Servicer receives a notice of termination, the
Trustee or other successor Servicer specified in the related Prospectus
Supplement (the "Backup Servicer") will be the successor in all respects to
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the Servicer and will be subject to all the responsibilities, restrictions,
duties and liabilities of the Servicer under the related Trust Documents;
provided, however, that the successor Servicer shall have no liability with
respect to any obligation which was required to be performed by the prior
Servicer prior to the date that the successor Servicer becomes the Servicer or
any claim of a third party (including a Securityholder) based on any alleged
action or inaction of the prior Servicer. Notwithstanding such termination,
the Servicer shall be entitled to payment of certain amounts payable to it
prior to such termination, for services rendered prior to such termination. No
such termination will affect in any manner Green Tree's obligation to
repurchase certain Contracts for breaches of representations or warranties
under the Trust Documents. In the event that the Trustee would be obligated to
succeed the Servicer but is unwilling or unable so to act, it may appoint, or
petition to a court of competent jurisdiction for the appointment of a
Servicer. Pending such appointment, the Trustee is obligated to act in such
capacity. The Trustee and such successor Servicer may agree upon the servicing
compensation to be paid, which in no event may be greater than the
compensation to the Servicer under the Trust Documents.
Upon any termination of, or appointment of a successor to, the Servicer, the
Trustee and the Indenture Trustee (if any) will each give prompt written
notice thereof to Certificateholders and Noteholders, respectively, at their
respective addresses appearing in the Certificate Register or the Note
Register and to each Rating Agency.
AMENDMENT
Unless otherwise provided in the related Prospectus Supplement, the Trust
Documents may be amended by the Seller, the Servicer, the Trustee and the
Indenture Trustee, if any, but without the consent of any of the
Securityholders, to cure any ambiguity or to correct or supplement any
provision therein, provided that such action will not, in the opinion of
counsel (which may be internal counsel to Green Tree or the Servicer)
reasonably satisfactory to the Trustee and the Indenture Trustee, materially
and adversely affect the interests of the Securityholders. The Trust Documents
may also be amended by Green Tree, the Servicer and the Trustee and the
Indenture Trustee (if any), and a Certificate Majority and a Note Majority (if
applicable), for the purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions of the Trust Documents or of
modifying, in any manner, the rights of the Certificateholders or the
Noteholders. No such amendment may (i) increase or reduce in any manner the
amount of, or accelerate or delay the timing of, collections of payments on
the related Contracts or distributions that are required to be made on any
related Certificate or Note or the related Pass-Through Rate or Interest Rate
or (ii) reduce the percentage of the Certificate Balance evidenced by
Certificates or of the aggregate principal amount of Notes then outstanding
required to consent to any such amendment, without the consent of the holders
of all Certificates or all Notes, as the case may be, then outstanding.
TERMINATION
The obligations created by the Trust Documents will terminate upon the date
calculated as specified in the Trust Documents, generally upon (i) the later
of the final payment or other liquidation of the last Contract subject thereto
and the disposition of all property acquired upon repossession of any Product
and (ii) the payment to the Securityholders of all amounts held by the
Servicer or the Trustee and required to be paid to the Securityholders
pursuant to the Trust Documents.
Unless otherwise provided in the related Prospectus Supplement, with respect
to each series of Securities, in order to avoid excessive administrative
expense, Green Tree and the Servicer each will be permitted, at its option, to
purchase from the Trust, on any Distribution Date immediately following any
Monthly Period as of the last day of which the Aggregate Principal Balance is
equal to or less than 10% (or such other percentage as may be specified in the
related Prospectus Supplement) of the Cutoff Date Principal Balance, all
remaining Contracts in the related Trust and the other remaining Trust
Property at a price equal to the aggregate of the Purchase Amounts therefor
and the appraised value of any other remaining Trust Property. The exercise of
this right will effect an early retirement of the related Certificates and
Notes.
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If a General Partner is named in the related Prospectus Supplement, unless
otherwise specified in the related Prospectus Supplement, the Trust Agreement
will provide that, in the event that the General Partner becomes insolvent,
withdraws or is expelled as a General Partner or is terminated or dissolved,
the Trust will terminate in 90 days and effect redemption of the Notes (if
any) and prepayment of the Certificates following the winding-up of the
affairs of the related Trust, unless within such 90 days the remaining General
Partner, if any, and holders of a majority of the Certificates of such series
agree in writing to the continuation of the business of the Trust and to the
appointment of a successor to the former General Partner, and the Owner
Trustee is able to obtain an opinion of counsel to the effect that the Trust
will not thereafter be an association (or publicly traded partnership) taxable
as a corporation for federal income tax purposes.
Unless otherwise specified in the related Prospectus Supplement, with
respect to each series of Securities, the Trustee will give written notice of
the final distribution with respect to the Certificates to each
Certificateholder of record and the Indenture Trustee will give written notice
of the final payment with respect to the Notes (if any), to each Noteholder of
record. The final distribution to any Certificateholder and the final payment
to any Noteholder will be made only upon surrender and cancellation of such
holder's Certificate or Note at the office or agency of the Trustee, with
respect to Certificates, or of the Indenture Trustee, with respect to Notes,
specified in the notice of termination. Any funds remaining in the Trust,
after the Trustee or the Indenture Trustee has taken certain measures to
locate a Certificateholder or Noteholder, as the case may be, and such
measures have failed, will be distributed to The United Way, and the
Certificateholders and Noteholders, by acceptance of their Certificates and
Notes, will waive any rights with respect to such funds.
THE TRUSTEE
The Trustee or Owner Trustee, as applicable, for each Trust will be
specified in the related Prospectus Supplement. The Trustee, in its individual
capacity or otherwise, and any of its affiliates may hold Certificates or
Notes in their own names or as pledgee. In addition, for the purpose of
meeting the legal requirements of certain jurisdictions, the Trustee, with the
consent of the Servicer, shall have the power to appoint co-trustees or
separate trustees of all or any part of the related Trust. In the event of
such appointment, all rights, powers, duties and obligations conferred or
imposed upon the Trustee by the related Trust Documents will be conferred or
imposed upon the Trustee and such separate trustee or co-trustee jointly, or,
in any jurisdiction where the Trustee is incompetent or unqualified to perform
certain acts, singly upon such separate trustee or co-trustee who shall
exercise and perform such rights, powers, duties and obligations solely at the
direction of the Trustee.
The Trustee of any Trust may resign at any time, in which event the General
Partner, if any, specified in the related Prospectus Supplement or, if no such
General Partner is specified, the Servicer or its successor will be obligated
to appoint a successor trustee. The General Partner, if any, specified in the
related Prospectus Supplement (or, if no such General Partner is specified,
the Servicer) may also remove the Trustee, if the Trustee ceases to be
eligible to serve, becomes legally unable to act, is adjudged insolvent or is
placed in receivership or similar proceedings. In such circumstances, the
General Partner, if any, specified in the related Prospectus Supplement or, if
no such General Partner is specified, the Servicer will be obligated to
appoint a successor trustee. Any resignation or removal of the Trustee and
appointment of a successor trustee will not become effective until acceptance
of the appointment by the successor trustee.
DUTIES OF THE TRUSTEE
The Trustee will make no representation as to the validity or sufficiency of
any Trust Document, the Certificates or the Notes (other than its execution of
the Certificates and the Notes), the Contracts or any related documents, and
will not be accountable for the use or application by the Servicer of any
funds paid to the Servicer in respect of the Certificates, the Notes or the
Contracts prior to deposit in the related Collection Account.
The Trustee will be required to perform only those duties specifically
required of it under the Trust Documents. Generally, those duties will be
limited to the receipt of the various certificates, reports or other
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instruments required to be furnished by the Servicer to the Trustee under the
Trust Documents, in which case it will only be required to examine such
certificates, reports or instruments to determine whether they conform
substantially to the requirements of the Trust Documents.
The Trustee will be under no obligation to exercise any of the rights or
powers vested in it by the Trust Documents or to institute, conduct, or defend
any litigation thereunder or in relation thereto at the request, order or
direction of any of the Certificateholders or Noteholders, unless such
Certificateholders or Noteholders have offered the Trustee reasonable security
or indemnity against the costs, expenses and liabilities which may be incurred
therein or thereby. No Certificateholder nor any Noteholder will have any
right under the Trust Documents to institute any proceeding with respect to
such Trust Documents, unless such holder has given the Trustee written notice
of default and unless the holders of Certificates evidencing not less than 25%
of the Certificate Balance or the holders of Notes evidencing not less than
25% of the aggregate principal balance of the Notes then outstanding, as the
case may be, have made written request to the Trustee to institute such
proceeding in its own name as Trustee thereunder and have offered to the
Trustee reasonable indemnity, and the Trustee for 30 days after the receipt of
such notice, request and offer to indemnify has neglected or refused to
institute any such proceedings.
ADMINISTRATOR
If an Administrator is specified in the related Prospectus Supplement, such
Administrator will enter into an agreement (the "Administration Agreement")
pursuant to which such Administrator will agree, to the extent provided in
such Administration Agreement, to provide the notices and to perform other
administrative obligations required by the related Indenture and the Trust
Agreement.
CERTAIN LEGAL ASPECTS OF THE CONTRACTS
(OTHER THAN HOME EQUITY CONTRACTS)
RIGHTS IN THE CONTRACTS
The Contracts (other than the Home Improvement Contracts and the Home Equity
Contracts) are "chattel paper" as defined in the UCC as in effect in the State
of Minnesota. Pursuant to the UCC, an ownership interest in chattel paper may
be perfected by possession or by filing a UCC-1 financing statement in the
state where the seller's principal executive office is located. Accordingly,
financing statements covering the Contracts will be filed by Green Tree in
Minnesota.
The Servicer will be obligated from time to time to take such actions as are
necessary to continue the perfection of each Trust's interest in the related
Contracts and the proceeds thereof. Green Tree will warrant in the Trust
Documents with respect to the Contracts held by the related Trust and the
Trustee will pledge the right to enforce such warranty to the Indenture
Trustee as collateral for the Notes, if any, that, as of the Closing Date,
such Contracts have not been sold, pledged or assigned by Green Tree to any
other person, and that it has good and indefeasible title thereto and is the
sole owner thereof free of any Liens and that, immediately upon the transfer
of the Contracts to such Trust pursuant to the related Trust Document, the
Trust will have good and indefeasible title to and will be the sole owner of
the Contracts, free of any Liens. In the event of an uncured breach of any of
such warranties in the Trust Documents that materially and adversely affects
the related Trust's, Certificateholders' or Noteholders' interest in any
Contract (a "Repurchase Event"), Green Tree will be obligated to repurchase
such Contract.
Unless otherwise provided in the related Prospectus Supplement, Green Tree
will hold the Contract Files on behalf of each Trust. To facilitate servicing
and save administrative costs, the documents will not be physically segregated
from other similar documents that are in Green Tree's possession. UCC
financing statements will be filed in Minnesota reflecting the sale and
assignment of the Contracts to the Trustee, and Green Tree's accounting
records and computer systems will also reflect such sale and assignment. In
addition, the Contracts will be stamped or otherwise marked to indicate that
such Contracts have been sold to the related Trust. Despite these precautions,
if, through inadvertence or otherwise, any of the Contracts were sold to
another party (or a security
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interest therein were granted to another party) that purchased (or took such
security interest in) any of such Contracts in the ordinary course of its
business and took possession of such Contracts, the purchaser (or secured
party) would acquire an interest in the Contracts superior to the interest of
the related Trust if the purchaser (or secured party) acquired (or took a
security interest in) the Contracts for new value and without actual knowledge
of such Trust's interest. See "Description of the Trust Documents--Custody of
Contract Files."
SECURITY INTERESTS IN THE PRODUCTS (OTHER THAN AIRCRAFT)
Security interests in some Products must be perfected by notation of the
secured party's lien on the certificate of title or by actual possession of
the certificate of title, depending on the law of the state wherein the
purchaser resides. Security interests in certain other Products must be
perfected by the filing of a UCC financing statement, naming the Obligor as
debtor and Green Tree as secured party. Purchase money security interests in
Products that are "consumer goods" (as defined in the UCC) are deemed
perfected under some states' laws when the contract is executed and Green Tree
has advanced the purchase price of the goods. The practice of Green Tree is to
take such action as is required to perfect its security interest under the
laws of the state in which the Product is located. In the event of clerical
errors, administrative delays or otherwise, such actions may not have been
taken with respect to a Product and such security interest may be subordinate
to the interests of, among others, subsequent purchasers of the Products,
holders of perfected security interests in the Product, and the trustee in
bankruptcy of the Obligor. Likewise, where Green Tree did not file a UCC
financing statement because its security interest was perfected as a purchase
money security interest in "consumer goods," (i) such security interest may be
deemed not to be perfected if the Product were ultimately determined not to be
"consumer goods," and (ii) a subsequent purchaser of the Product may acquire
the Product free of Green Tree's security interest. Such events would,
however, give rise to a Repurchase Event and obligate Green Tree to repurchase
the affected Contract if the interests of the related Certificateholders,
Noteholders or Trust were materially and adversely affected.
Pursuant to the related Trust Document, Green Tree will assign the security
interests in the Products to the Owner Trustee on behalf of the related Trust.
However, because of the administrative burden and expense that would be
entailed in doing so, none of Green Tree, the Seller, the Trustee or the
Servicer will be required, except to the extent provided below, to amend the
certificates of title or UCC financing statements to identify the Trustee as
the new secured party and, accordingly, Green Tree will continue to be named
as the secured party on the certificates of title or UCC financing statements
relating to the Products. The Servicer will be required to note the interest
of the related Trust on the certificates of title for the Products or to amend
the UCC financing statements only upon a Servicer Termination Event. In most
states, an assignment such as that under the related Trust Documents should be
an effective transfer of a security interest without amendment of any lien
noted on the related certificate of title or financing statement, and the
assignee should succeed to the assignor's status as the secured party. In the
absence of fraud or forgery by the Obligor or administrative error by state
recording officials, the notation of the lien of Green Tree on the certificate
of title or the UCC financing statement should be sufficient to protect the
related Trust against the rights of subsequent purchasers of a Product or
subsequent lenders who take a security interest in the related Product.
However, in the absence of such an amendment, the security interest of the
related Trust in the related Products might be defeated by, among others, the
trustee in bankruptcy of Green Tree or the Obligor. However, such failure
would give rise to a Repurchase Event and obligate Green Tree to repurchase
the affected Contract if the interests of the related Certificateholders,
Noteholders or Trust were materially and adversely affected.
In most states, a perfected security interest in a Product subject to
certificate of title or a financing statement continues for four months after
the Product is moved to a different state and thereafter until the owner re-
registers the Product in the new state, but in no event beyond the surrender
of the certificate of title. A majority of states require surrender of a
certificate of title to re-register a Product. Accordingly, the secured party
must surrender possession if it holds the certificate of title to such
Product. In the case of Products registered in states which provide for
notation of a lien but not possession of the certificate of title by the
holder of the security interest in the related Product, the secured party
should receive notice of surrender if the security interest in the Product is
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noted on the certificate of title. Accordingly, the secured party should have
the opportunity to re-perfect its security interest in the Product in the
state of relocation. In states that do not require a certificate of title for
registration of a Product, re-registration could defeat perfection.
In the ordinary course of servicing its secured consumer contract portfolio,
it is the practice of Green Tree to effect such re-perfection upon receipt of
notice of re-registration or information from the Obligor as to relocation.
Similarly, when an Obligor sells a Product subject to a certificate of title,
Green Tree must surrender possession of the certificate of title or receive
notice as a result of its lien noted thereon and accordingly should have an
opportunity to require satisfaction of the related Contract before release of
the lien.
Under the laws of most states, liens for repairs performed on a Product and
liens for unpaid taxes take priority over even a perfected security interest
in a Product. Green Tree in the related Trust Document will represent that,
immediately prior to the sale, assignment and transfer thereof to the related
Trust, each Contract held by such Trust was secured by a valid, subsisting and
enforceable first priority perfected security interest in favor of Green Tree,
as secured party. However, liens for taxes, judicial liens or liens arising by
operation of law could arise at any time during the term of a Contract. In
addition, the laws of certain states and federal law permit the confiscation
of motor vehicles and certain other consumer products by governmental
authorities under certain circumstances if used in unlawful activities, which
may result in the loss of a secured party's perfected security interest in the
confiscated product. No notice will be given to the Owner Trustee, Indenture
Trustee, Certificateholders or Noteholders in the event such a lien or
confiscation arises, and if such lien arises or confiscation occurs after the
date of issuance of any series of Certificates and Notes, neither Green Tree
nor the Servicer will be required to repurchase or purchase the related
Contract.
SECURITY INTERESTS IN AIRCRAFT
In order for a valid security interest in a United States-registered
aircraft to be perfected against third parties, including a trustee in
bankruptcy of the borrower, it must be perfected in accordance with the
Federal Aviation Act. The UCC has been preempted by the Federal Aviation Act
with respect to the method and location of filing against goods such as
aircraft, engines, propellers, appliances and certain spare parts to the
extent that it is possible to record against them at the Federal Aviation
Administration ("FAA") Aircraft Registry located in Oklahoma City, Oklahoma
(the "Registry").
Security interests perfected by filing with the Registry may nevertheless be
subject to (1) purchase money security interests which may be filed up to ten
days (21 days in some states) after a debtor receives possession and which
will then have, in most states, priority in the aircraft (unless it is
property held as inventory) over a conflicting security interest in the same
aircraft and (2) the rights of buyers in the ordinary course of business from
persons in the business of selling goods of that kind.
Exceptions also include possessory mechanic's and storage liens, which may
or may not need to be filed and which usually have priority over a mortgage,
whether or not such liens are incurred before or after the mortgage is
recorded. Non-possessory mechanic's liens, which exist under many state laws,
probably do not take priority over mortgages previously filed with the
Registry. If provided for by state law, a non-possessory mechanic's lien on an
aircraft may be filed at the Registry.
Federal tax liens are filed according to Federal law in the appropriate
location in each state and cannot be filed at the Registry. When so filed,
Federal tax liens can have priority over subsequent FAA recorded mortgages in
aircraft with many exceptions, including the exception of a purchase money
security interest. It is an open issue whether unrecorded liens arising out of
FAA penalties have priority over filed security interests in a registered
aircraft.
The principal effect of recordation is that each mortgage or other
conveyance that is filed with the Registry for recordation affecting the
applicable aircraft, engine, propeller, appliance or spare parts (so long as
they are maintained at any designated locations) is valid and perfected from
the time of filing as to all persons with
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whatever priority is given by state law. If not filed for recordation, such a
mortgage or other conveyance will not be valid against third persons except
persons having actual notice thereof. The date of filing for recordation at
the Registry is the date of perfection of the mortgage or other conveyance,
even though recordation by the Registry may not occur for several weeks or
months after delivery to the Registry. The case law is not clear as to the
effect of a rejection of the documents when they are examined by the Registry
several weeks after filing. The usual practice is to retain expert FAA counsel
to ensure, among other things, that the documents are in due form for
recording, that the record is free and clear of liens and that the documents
are filed correctly. Title companies are also available to check the FAA
records and file documents.
If the aircraft is not registered with the Registry, under the UCC, the
perfection and effect of perfection of the mortgage or any security interest
in other collateral would be governed by the law (including the conflict of
laws rules) of the jurisdiction in which the debtor is located.
REPOSSESSION
In the event of default by an Obligor, the owner of a retail installment
sales contract or installment loan has all the remedies of a secured party
under the UCC, except where specifically limited by other state laws. The
remedies of a secured party under the UCC include the right to repossession by
self-help means, unless such means would constitute a breach of the peace.
Self-help repossession is the method employed by Green Tree in most cases and
is accomplished simply by taking possession of the Product. In the event of
default by the Obligor, some jurisdictions require that the Obligor be
notified of the default and be given a time period within which the Obligor
may cure the default prior to repossession. In cases where the Obligor objects
or raises a defense to repossession, or if otherwise required by applicable
state law, a court order must be obtained from the appropriate state court,
and the Product must then be repossessed in accordance with that order. If a
breach of the peace cannot be avoided, judicial action is required. A secured
party may be held responsible for damages caused by a wrongful repossession of
a Product, including a wrongful repossession conducted by an agent of the
secured party. In many states, a Product may be repossessed without notice to
the Obligor, but only if the repossession can be accomplished without a breach
of the peace.
NOTICE OF SALE; REDEMPTION RIGHTS
The UCC and various other state laws require a secured party who has
repossessed the collateral securing an obligation to provide an obligor with
reasonable notice of the date, time and place of any public sale and/or the
date after which any private sale of the collateral may be held. The obligor
has the right to redeem the collateral prior to actual sale by paying the
secured party the entire unpaid time balance of the obligation (less any
unaccrued finance charges) plus accrued default charges, reasonable expenses
for repossessing, holding and preparing the collateral for disposition and
arranging for its sale, plus, to the extent provided in the financing
documents, reasonable attorneys' fees, or in some states, by payment of
delinquent installments or the unpaid principal balance of the related
obligation.
DEFICIENCY JUDGMENTS AND EXCESS PROCEEDS
The proceeds of resale of Products generally will be applied first to the
expenses of repossession and resale and then to the satisfaction of the
related Contract. While some states impose prohibitions or limitations on
deficiency judgments if the net proceeds from resale do not cover the full
amount of the indebtedness, a deficiency judgment can be sought in other
states that do not prohibit or limit such judgments, subject to satisfaction
of statutory procedural requirements by the holder of the obligation. However,
any deficiency judgment would be a personal judgment against the Obligor for
the shortfall, and a defaulting Obligor can be expected to have very little
capital or sources of income available following repossession. Therefore, in
many cases, it may not be useful to seek a deficiency judgment or, if one is
obtained, it may be settled at a significant discount or not paid at all.
Green Tree generally seeks to recover any deficiency existing after
repossession and sale of a Product.
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Occasionally, after resale of a repossessed Products, and payment of all
expenses and indebtedness, there is a surplus of funds. In that case, the law
of most states requires the secured party to remit the surplus to any holder
of another lien with respect to the Product, if proper notification of demand
for proceeds is received prior to distribution, or, if no such lienholder
exists, to remit the surplus to the former owner of the Product.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT
The Relief Act imposes certain limitations upon the actions of creditors
with respect to persons serving in the Armed Forces of the United States and,
to a more limited extent, their dependents and guarantors and sureties of debt
incurred by such persons. An obligation incurred by a person prior to entering
military service cannot bear interest at a rate in excess of 6% during the
person's term of military service, unless the obligee petitions a court which
determines that the person's military service does not impair his or her
ability to pay interest at a higher rate. Further, a secured party may not
repossess during a person's military service a Product subject to an
installment sales contract or a promissory note entered into prior to the
person's entering military service, for a loan default which occurred prior to
or during such service, without court action. The Relief Act imposes penalties
for knowingly repossessing property in contravention of its provisions.
Additionally, dependents of military personnel are entitled to the protection
of the Relief Act, upon application to a court, if such court determines the
obligation of such dependent has been materially impaired by reason of the
military service. To the extent an obligation is unenforceable against the
person in military service or a dependent, any guarantor or surety of such
obligation will not be liable for performance.
CONSUMER PROTECTION LAWS
Numerous Federal and state consumer protection laws and related regulations
impose substantive and disclosure requirements upon lenders and servicers
involved in consumer finance. Some of the Federal laws and regulations include
the Truth-in-Lending Act, the Equal Credit Opportunity Act, the Federal Trade
Commission Act, the Fair Credit Reporting Act, the Fair Debt Collection
Practices Act, the Magnuson-Moss Warranty Act, and the Federal Reserve Board's
Regulations B and Z.
In addition to Federal law, state consumer protection statutes regulate,
among other things, the terms and conditions of retail installment contracts
and promissory notes pursuant to which purchasers finance the acquisition of
consumer products. These laws place finance charge ceilings on the amount that
a creditor may charge in connection with financing the purchase of a consumer
product. These laws also impose other restrictions on consumer transactions
and require contract disclosures in addition to those required under federal
law. These requirements impose specific statutory liabilities upon creditors
who fail to comply. In some cases, this liability could affect the ability of
an assignee, such as the related Trust, to enforce consumer finance contracts
such as the Contracts. The "Credit Practices" Rule of the Federal Trade
Commission (the "FTC") imposes additional restrictions on contract provisions
and credit practices.
The FTC's so-called holder-in-due-course rule has the effect of subjecting
persons that finance consumer credit transactions (and certain related lenders
and their assignees) to all claims and defenses which the purchaser could
assert against the seller of the goods and services. An assignee's affirmative
liability to pay money to such aggrieved purchaser in the event of a
successful claim is limited to amounts paid by the purchaser under the
consumer credit contract. However, the assignee's ability to collect any
balance remaining due thereunder is subject to these claims and defenses.
Accordingly, each Trust, as assignee of the related Contracts, will be subject
to claims or defenses, if any, that the purchaser of the related Product may
assert against the seller of such Product.
Courts have applied general equitable principles to secured parties pursuing
repossession or litigation involving deficiency balances. These equitable
principles may have the effect of relieving an Obligor from some or all of the
legal consequences of a default.
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Green Tree will warrant in the related Trust Document that as of the date of
origination each Contract held by the related Trust complied with all
requirements of applicable law in all material respects. Accordingly, if such
Trust's interest in a Contract were materially and adversely affected by a
violation of any such law, such violation would constitute a Repurchase Event
and would obligate Green Tree to repurchase the Contract unless the breach
were cured. See "Description of the Trust Documents--Sale and Assignment of
the Contracts."
OTHER LIMITATIONS
In addition to the laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including Federal bankruptcy laws and
related state laws, may interfere with or affect the ability of a lender to
realize upon collateral or enforce a deficiency judgment. For example, in a
proceeding under Chapter 13 of the U.S. Bankruptcy Code of 1978, as amended, a
court may prevent a lender from repossessing collateral, and, as part of the
rehabilitation plan, reduce the amount of the secured indebtedness to the
market value of the collateral at the time of bankruptcy (as determined by the
court), leaving the party providing financing as a general unsecured creditor
for the remainder of the indebtedness. A bankruptcy court may also reduce the
monthly payments due under a contract, change the rate of interest and time of
repayment of the indebtedness or substitute collateral securing such
indebtedness.
CERTAIN LEGAL ASPECTS OF THE HOME EQUITY CONTRACTS
MORTGAGES AND DEEDS OF TRUST
The Home Equity Contracts will be secured by either mortgages, deeds of
trust, security deeds or deeds to secure debt depending upon the prevailing
practice in the state in which the underlying property is located, and may
have first, second or third priority. In some states, a mortgage creates a
lien upon the real property encumbered by the mortgage or deed of trust. In
other states, the mortgage conveys legal title to the property to the
mortgagee subject to a condition subsequent, i.e., the payment of the
indebtedness secured thereby. There are two parties to a mortgage: the
mortgagor, who is the borrower, and the mortgagee, who is the lender. In a
mortgage state, the mortgagor delivers to the mortgagee a note or retail
installment contract evidencing the loan and the mortgage. Although a deed of
trust is similar to a mortgage, a deed of trust has three parties: the
borrower, or trustor, the lender as beneficiary, and a third-party grantee
called the trustee. Under a deed of trust, the borrower grants the property,
irrevocably until the debt is paid, in trust, generally with a power of sale,
to the trustee to secure repayment of the loan. The trustee's authority under
a deed of trust and the mortgagee's authority under a mortgage are governed by
applicable state law, the express provisions of the deed of trust or mortgage,
and, in some cases with respect to deeds of trust, the directions of the
beneficiary. Some states use a security deed or deed to secure debt which is
similar to a deed of trust except that it has only two parties: a grantor
(similar to a mortgagor) and a grantee (similar to a mortgagee). Mortgages,
deeds of trust and deeds to secure debt are not prior to liens for real estate
taxes and assessments and other charges imposed under governmental police
powers. Priority between mortgages, deeds of trust and deeds to secure debt
and other encumbrances depends on their terms, the knowledge of the parties to
such instrument in some cases and generally on the order of recordation of the
mortgage, deed of trust or the deed to secure debt in the appropriate
recording office.
SUBORDINATE MORTGAGES; RIGHTS OF SENIOR MORTGAGEES OR BENEFICIARIES
A substantial number of the mortgages, security deeds, deeds to secure debt
and deeds of trust securing the Home Equity Contracts in any Contract Pool are
expected to be second or third mortgages or deeds of trust which are junior to
mortgages or deeds of trust held by other lenders or institutional investors.
The rights of the related Trust (and therefore the Securityholders), as
beneficiary under a junior deed of trust or as mortgagee under a junior
mortgage, are subordinate to those of the mortgagee or beneficiary under the
senior mortgage or deed of trust, including the prior rights of the senior
mortgagee or beneficiary to receive hazard insurance and condemnation proceeds
and to cause the property securing the Home Equity Contract to be sold upon
default of
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the mortgagor or trustor under the senior mortgage or deed of trust, thereby
extinguishing the junior mortgagee's or junior beneficiary's lien unless the
Servicer on behalf of the Trust asserts its subordinate interest in the
property in foreclosure litigation and, possibly, satisfies the defaulted
senior loan or loans. As discussed more fully below, a junior mortgagee or
beneficiary may satisfy a defaulted senior loan in full, or in some states may
cure such default and bring the senior loan current, in either event usually
adding the amounts expended to the balance due on the junior loan. Although
Green Tree generally does not cure defaults under a senior mortgage or deed of
trust, it is Green Tree's standard practice to protect its interest by
attending any foreclosure sale and bidding for property only if it is in Green
Tree's best interests to do so.
The standard form of the mortgage or deed of trust used by most
institutional lenders, like that of Green Tree, confers on the mortgagee or
beneficiary the right both to receive all proceeds collected under any hazard
insurance policy and all awards made in connection with any condemnation
proceedings, and to apply such proceeds and awards to any indebtedness secured
by the mortgage or deed of trust, in such order as the mortgagee or
beneficiary may determine. Thus, in the event improvements on the property are
damaged or destroyed by fire or other casualty, or in the event the property
is taken by condemnation, the mortgagee or beneficiary under the underlying
first mortgage or deed of trust will have the prior right to collect any
insurance proceeds payable under a hazard insurance policy and any award of
damages in connection with the condemnation and to apply the same to the
indebtedness secured by the first mortgage or deed of trust. Proceeds in
excess of the amount of first mortgage indebtedness, in most cases, may be
applied to the indebtedness of a junior mortgage or deed of trust.
The form of mortgage or deed of trust used by institutional lenders may
contain a "future advance" clause, which provides, in essence, that additional
amounts advanced to or on behalf of the mortgagor or trustor by the mortgagee
or beneficiary are to be secured by the mortgage or deed of trust. The
priority of any advance made under the clause depends, in some states, on
whether the advance was an "obligatory" or "optional" advance. If the
mortgagee or beneficiary is obligated to advance the additional amounts, the
advance is entitled to receive the same priority as amounts initially advanced
under the mortgage or deed of trust, notwithstanding the fact that there may
be junior mortgages or deeds of trust and other liens which intervene between
the date of recording of the mortgage or deed of trust and the date of the
future advance, and, in some states, notwithstanding that the senior mortgagee
or beneficiary had actual knowledge of such intervening junior mortgages or
deeds of trust and other liens at the time of the advance. Where the mortgagee
or beneficiary is not obligated to advance additional amounts or, in some
states, has actual knowledge of the intervening junior mortgages or deeds of
trust and other liens, the advance will be subordinate to such intervening
junior mortgages or deeds of trust and other liens. Priority of advances under
the clause rests, in some states, on state statutes giving priority to all
advances made under the loan agreement to a "credit limit" amount stated in
the recorded mortgage.
Another provision typically found in the form of the mortgage or deed of
trust used by most institutional lenders obligates the mortgagor or trustor to
pay before delinquency all taxes and assessments on the property and, when
due, all encumbrances, charges and liens on the property which appear prior to
the mortgage or deed of trust, to provide and maintain fire insurance on the
property, to maintain and repair the property and not to commit or permit any
waste thereof, and to appear in and defend any action or proceeding purporting
to affect the property or the rights of the mortgagee or beneficiary under the
mortgage or deed of trust. Upon a failure of the mortgagor or trustor to
perform any of these obligations, the mortgagee or beneficiary is given the
right under the mortgage or deed of trust to perform the obligation itself, at
its election, with the mortgagor or trustor agreeing to reimburse the
mortgagee or beneficiary for any sums expended by the mortgagee or beneficiary
on behalf of the mortgagor or trustor. All sums so expended by a senior
mortgagee or beneficiary generally become part of the indebtedness secured by
the senior mortgage or deed of trust.
SUBORDINATE FINANCING
Where the borrower encumbers the mortgaged property with one or more junior
liens, the senior lender is subjected to additional risk. First, the borrower
may have difficulty servicing and repaying multiple loans. Second, acts of the
senior lender which prejudice the junior lender or impair the junior lender's
security may
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create a superior equity in favor of the junior lender. For example, if the
borrower and the senior lender agree to an increase in the principal amount of
or the interest rate payable on the senior loan, the senior lender may lose
its priority to the extent any existing junior lender is harmed or the
borrower is additionally burdened. Third, if the borrower defaults on the
senior loan and/or any junior loan or loans, the existence of junior loans and
actions taken by junior lenders can impair the security available to the
senior lender and can interfere with or delay the taking of action by the
senior lender. The bankruptcy of a junior lender may operate to stay
foreclosure or similar proceedings by the senior lender.
FORECLOSURE
Foreclosure is a legal procedure that allows the mortgagor to recover its
mortgage debt by enforcing its rights and available remedies under the
mortgage, deed of trust, deed to secure debt or security deed. Foreclosure of
a mortgage is generally accomplished by judicial action. A foreclosure action
is regulated by statutes and rules and subject throughout to the court's
equitable powers. Generally, a mortgagor is bound by the terms of the mortgage
note and the mortgage as made and cannot be relieved from its own default.
However, since a foreclosure action is equitable in nature and is addressed to
a court of equity, the court may relieve a mortgagor of a default and deny the
mortgagee foreclosure on proof that the mortgagor's default was neither
willful nor in bad faith and that the mortgagee's action was such as to
establish a waiver, or fraud, bad faith, oppressive or unconscionable conduct
as to warrant a court of equity to refuse affirmative relief to the mortgagee.
Under certain circumstances a court of equity may relieve the mortgagor from
an entirely technical default where such default was not willful. Generally,
the action is initiated by the service of legal pleadings upon all parties
having an interest of record in the real property. Delays in completion of the
foreclosure occasionally may result from difficulties in locating necessary
parties defendant. When the mortgagee's right to foreclosure is contested, the
legal proceedings necessary to resolve the issue can be time-consuming. After
the completion of a judicial foreclosure proceeding, the court may issue a
judgment of foreclosure and appoint a referee or other officer to conduct the
sale of the property. In some states, mortgages may also be foreclosed by
advertisement, pursuant to a power of sale provided in the mortgage.
Foreclosure of a mortgage by advertisement is essentially similar to
foreclosure of a deed of trust by non-judicial power of sale.
Foreclosure of a deed of trust or a deed to secure debt is generally
accomplished by a non-judicial trustee's sale under a specific provision in
the deed of trust, security deed or deed to secure debt that authorizes the
trustee to sell the property upon any default by the borrower under the terms
of the note, deed of trust, security deed or deed to secure debt. In certain
states, such foreclosure also may be accomplished by judicial action in the
manner provided for foreclosure of mortgages. In some states, prior to a sale,
the trustee must record a notice of default and send a copy to the borrower
trustor and to any person who has recorded a request for a copy of a notice of
default and notice of sale. In addition, prior to such sale, the trustee must
provide notice in some states to any other individual having an interest of
record in the real property, including any junior lienholders. Certain states
require that a notice of sale be posted in a public place and, in most states,
published for a specified period of time in one or more newspapers in a
specified manner prior to the date of trustee's sale. In addition, some state
laws require that a copy of the notice of sale be posted on the property and
sent to all parties having an interest of record in the property.
In some states, the borrower trustor has the right to reinstate the loan at
any time following default until shortly before the trustee's sale. In
general, the borrower, or any other person having a junior encumbrance on the
real estate, may, during a reinstatement period, cure the default by paying
the entire amount in arrears plus the costs and expenses incurred in enforcing
the obligation. Certain state laws control the amount of foreclosure expenses
and costs, including attorney's fees, which may be recovered by a lender.
In the case of foreclosure under either a mortgage or a deed of trust, the
sale by the referee or other designated officer, or by the trustee, is
generally a public sale. However, because of the difficulty a potential third
party buyer at the sale might have in determining the exact status of title
and because the physical condition of the property may have deteriorated
during the foreclosure proceedings, it is not common for a third party to
purchase the property at the foreclosure sale. In some states, there is a
statutory minimum purchase price which
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the lender may offer for the property. Thereafter, subject to the right of the
borrower in some states to remain in possession during the redemption period,
the lender will assume the burdens of ownership, including obtaining hazard
insurance, paying taxes and making such repairs at its own expense as are
necessary to render the property suitable for sale. The lender commonly will
obtain the services of a real estate broker and pay the broker a commission in
connection with the sale of the property. Depending upon market conditions,
the ultimate proceeds of the sale of the property may not equal the lender's
investment in the property. Any loss resulting from such sale may be reduced
by the receipt of mortgage insurance proceeds, if any.
A second or third mortgagee (junior mortgagee) may not foreclose on the
property securing a second or first mortgage (senior mortgages) unless it
forecloses subject to the senior mortgages, in which case it must either pay
the entire amount due on the senior mortgages prior to or at the time of the
foreclosure sale or make payments on the senior mortgages in the event the
mortgagor is in default thereunder, in either event adding the amounts
expended to the balance due on the junior loan, and may be subrogated to the
rights of the senior mortgagees. In addition, in the event that the
foreclosure by a junior mortgagee triggers the enforcement of a "due-on-sale"
clause in a senior mortgage, the junior mortgagee may be required to pay the
full amount of the senior mortgages to the senior mortgagees. Accordingly,
with respect to those Home Equity Contracts which are second or third mortgage
loans, if the lender purchases the property, the lender's title will be
subject to all senior liens and claims and certain governmental liens.
The proceeds received by the referee or trustee from the sale are applied
first to the costs, fees, and expenses of sale and then in satisfaction of the
indebtedness secured by the mortgage or deed of trust under which the sale was
conducted. Any remaining proceeds are generally payable to the holders of
junior mortgages or deeds of trust and other liens and claims in order of
their priority, whether or not the borrower is in default. Any additional
proceeds are generally payable to the mortgagor or trustor. The payment of the
proceeds to the holders of junior mortgages may occur in the foreclosure
action of the senior mortgagee or may require the institution of separate
legal proceeding.
Some states impose prohibitions or limitations on remedies available to the
mortgagee, including the right to recover the debt from the mortgagor. See "--
Anti-Deficiency Legislation and Other Limitations on Lenders" herein.
In certain jurisdictions, real property transfer or recording taxes or fees
may be imposed on the related Trust with respect to its acquisition (by
foreclosure or otherwise) and disposition of real property securing a Home
Equity Contract, and any such taxes or fees imposed may reduce liquidation
proceeds with respect to such property, as well as distributions payable to
the Securityholders.
SECOND OR THIRD MORTGAGES
The Home Equity Contracts may be secured by second or third mortgages or
deeds of trust, which are junior to first or second mortgages or deeds of
trust held by other lenders. The rights of the Trust as the holder of a junior
deed of trust, junior mortgage, or junior security deed are subordinate in
lien and in payment to those of the holder of the senior mortgage, deed of
trust, or security deed including the prior rights of the senior mortgagee or
beneficiary to receive and apply hazard insurance and condemnation proceeds
and, upon default of the mortgagor under the senior mortgage or deed of trust,
to cause a foreclosure on the property. Upon completion of the foreclosure
proceedings by the holder of the senior mortgage or the sale pursuant to the
senior deed of trust, the junior mortgagee's or junior beneficiary's lien will
be extinguished unless the junior lienholder satisfies the defaulted senior
loan or asserts its subordinate interest in a property in foreclosure
proceedings. Such extinguishment will eliminate access to the collateral for
the Home Equity Contract. See "--Foreclosure" herein.
Furthermore, the terms of the junior mortgage, deed of trust, deed to secure
debt or security deed are subordinate to the terms of the senior mortgage,
deed of trust, deed to secure debt or security deed. In the event
of a conflict between the terms of the senior mortgage, deed of trust, deed to
secure debt or security deed and the
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junior mortgage, deed of trust, deed to secure debt or security deed, the
terms of the senior mortgage, deed of trust, deed to secure debt or security
deed will govern generally. Upon a failure of the mortgagor or trustor to
perform any of its obligations, the senior mortgagee or beneficiary, subject
to the terms of the senior mortgage, deed of trust, deed to secure debt or
security deed may have the right to perform the obligation itself. Generally,
all sums so expended by the mortgagee or beneficiary become part of the
indebtedness secured by the mortgage, deed of trust, deed to secure debt or
security deed. To the extent a first mortgagee expends such sums, such sums
will generally have priority over all sums due under a junior mortgage, deed
of trust, deed to secure debt or security deed.
RIGHTS OF REDEMPTION
The purposes of a foreclosure action are to enable the mortgagee to realize
upon its security and to bar the mortgagor, and all persons who have an
interest in the property which is subordinate to the foreclosing mortgagee,
from their "equity of redemption." The doctrine of equity of redemption
provides that, until the property covered by a mortgage has been sold in
accordance with a properly conducted foreclosure and foreclosure sale, those
having an interest which is subordinate to that of the foreclosing mortgagee
have an equity of redemption and may redeem the property by paying the entire
debt with interest. In addition, in some states, when a foreclosure action has
been commenced, the redeeming party must pay certain costs of such action.
Those having an equity of redemption must generally be made parties and duly
summoned to the foreclosure action in order for their equity of redemption to
be barred.
In some states, after sale pursuant to a deed of trust or foreclosure of a
mortgage, the borrower and certain foreclosed junior lienors are given a
statutory period in which to redeem the property from the foreclosure sale. In
certain other states, this right of redemption applies only to sale following
judicial foreclosure, and not to sale pursuant to a non-judicial power of
sale. In most states where the right of redemption is available, statutory
redemption may occur upon payment of the foreclosure purchase price, accrued
interest and expenses of foreclosure. In other states, redemption may be
authorized if the former borrower pays only a portion of the sums due. In some
states, the right to redeem is an equitable right. The equity of redemption,
which is a non-statutory right that must be exercised prior to foreclosure
sale, should be distinguished from statutory rights of redemption. The effect
of a right of redemption is to diminish the ability of the lender to sell the
foreclosed property. The exercise of a right of redemption would defeat the
title of any purchaser at a foreclosure sale, or of any purchaser from the
lender subsequent to judicial foreclosure or sale under a deed of trust.
Consequently, the practical effect of the redemption right is to force the
lender to maintain the property and pay the expenses of ownership until the
redemption period has run. In some states, there is no right to redeem
property after a trustee's sale under a deed of trust.
ANTI-DEFICIENCY LEGISLATION AND OTHER LIMITATIONS ON LENDERS
Certain states have imposed statutory restrictions that limit the remedies
of a beneficiary under a deed of trust or a mortgagee under a mortgage. In
some states, statutes limit the right of the beneficiary or mortgagee to
obtain a deficiency judgment against the borrower following foreclosure or
sale under a deed of trust. A deficiency judgment is a personal judgment
against the borrower equal in most cases to the difference between the amount
due to the lender and the net amount realized upon the public sale.
Some state statutes may require the beneficiary or mortgagee to exhaust the
security afforded under a deed of trust or mortgage by foreclosure in an
attempt to satisfy the full debt before bringing a personal action against the
borrower. In certain other states, the lender has the option of bringing a
personal action against the borrower on the debt without first exhausting such
security; however, in some of these states, the lender, following judgment on
such personal action, may be deemed to have elected a remedy and may be
precluded from exercising remedies with respect to the security. Consequently,
the practical effect of the election requirement, when applicable, is that
lenders will usually proceed first against the security rather than bringing a
personal action against the borrower.
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Other statutory provisions may limit any deficiency judgment against the
borrower following a foreclosure sale to the excess of the outstanding debt
over the fair market value of the property at the time of such sale. The
purpose of these statutes is to prevent a beneficiary or a mortgagee from
obtaining a large deficiency judgment against the former borrower as a result
of low or no bids at the foreclosure sale.
In some states, exceptions to the anti-deficiency statutes are provided for
in certain instances where the value of the lender's security has been
impaired by acts or omissions of the borrower, for example, in the event of
waste of the property.
In addition to anti-deficiency and related legislation, numerous other
federal and state statutory provisions, including the federal bankruptcy laws,
the federal Soldiers' and Sailors' Civil Relief Act of 1940 and state laws
affording relief to debtors, may interfere with or affect the ability of a
secured mortgage lender to realize upon its security and/or enforce a
deficiency judgment. For example, in a Chapter 13 proceeding, the holder may
not be able to obtain a lift of the automatic stay to foreclose if the
borrower has equity and the home is necessary to the bankruptcy
reorganization. Generally, with respect to the federal bankruptcy law, the
filing of a petition acts as a stay against virtually all actions against the
debtor, including the enforcement of remedies of collection of a debt and,
often, no interest or principal payments are made during bankruptcy
proceedings. A bankruptcy court may also grant the debtor a reasonable time to
cure a payment default with respect to a mortgage loan on a debtor's residence
by paying arrearages and reinstate the original mortgage loan payment schedule
even though the lender accelerated the mortgage loan and final judgment of
foreclosure had been entered in state court (provided no sale of the property
had yet occurred) prior to the filing of the debtor's Chapter 13 petition.
Some courts with federal bankruptcy jurisdiction have approved plans, based on
the particular facts of the reorganization case, that effected the curing of a
mortgage loan default by paying arrearages over a number of years. In the case
of a mortgage loan not secured by the debtor's principal residence, courts
with federal bankruptcy jurisdiction may also reduce the monthly payments due
under such mortgage loan, change the rate of interest and alter the mortgage
loan repayment schedule.
The Internal Revenue Code and the Bankruptcy Code provide priority to
certain tax liens over the lien of the mortgage or deed of trust. The laws of
some states provide priority to certain state tax liens over the lien of the
mortgage or deed of trust. Numerous federal and some state consumer protection
laws impose substantive requirements upon mortgage lenders in connection with
the origination, servicing and the enforcement of mortgage loans. These laws
include the federal Truth in Lending Act, Real Estate Settlement Procedures
Act, Equal Credit Opportunity Act, Fair Credit Billing Act, Fair Credit
Reporting Act, state licensing requirements, and related statutes and
regulations. These federal laws and state laws impose specific statutory
liabilities upon lenders who originate or service mortgage loans and who fail
to comply with the provisions of the law. In some cases, this liability may
affect assignees of the mortgage loans.
CONSUMER PROTECTION LAWS WITH RESPECT TO CONTRACTS
Numerous Federal and state consumer protection laws impose substantial
requirements upon creditors involved in consumer finance. These laws include
the Federal Truth-in-Lending Act, Regulation "Z", the Equal Credit Opportunity
Act, Regulation "B", the Fair Credit Reporting Act, and related statutes. The
Home Ownership and Equity Protection Act of 1994 (the "Home Protection Act"),
which became effective on October 1, 1995, adds provisions to Regulation Z
which impose additional disclosure and other requirements on creditors
involved in non-purchase money mortgage loans with high interest rates or high
up-front fees and charges. It is possible that some Home Equity Contracts
included in a Contract Pool may be subject to such provisions. The Home
Protection Act applies to mortgage loans originated on or after the effective
date of such regulations. These laws can impose specific statutory liabilities
upon creditors who fail to comply with their provisions and may affect the
enforceability of the contract.
Courts have imposed general equitable principles upon repossession and
litigation involving deficiency balances. These equitable principles are
generally designed to relieve a consumer from the legal consequences of a
default.
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In several cases, consumers have asserted that the remedies provided secured
parties under the UCC and related laws violate the due process protections
provided under the 14th Amendment to the Constitution of the United States.
For the most part, courts have upheld the notice provisions of the UCC and
related laws as reasonable or have found that the repossession and resale by
the creditor does not involve sufficient state action to afford constitutional
protection to consumers.
The so-called "Holder-in-Due-Course" rule of the Federal Trade Commission is
intended to defeat the ability of the transferor of a consumer credit contract
which is the seller of goods which gave rise to the transaction (and certain
related lenders and assignees) to transfer such contract free of notice of
claims by the debtor thereunder. The effect of this rule is to subject the
assignee of such a contract to all claims and defenses which the debtor could
assert against the seller of goods, such as a home improvement contractor.
Liability under this rule is limited to amounts paid under the Contract;
however, the Obligor also may be able to assert the rule to set off remaining
amounts due as a defense against a claim brought by the Trust against such
Obligor. The Home Protection Act provides that assignees of certain high-
interest, non-purchase money mortgage loans (which may include some Home
Equity Contracts) are subject to all claims and defenses that the debtor could
assert against the original creditor, unless the assignee demonstrates that a
reasonable person in the exercise of ordinary due diligence could not have
determined that the mortgage loan was subject to the provisions of the Home
Protection Act.
ENFORCEABILITY OF CERTAIN PROVISIONS
The standard forms of note, mortgage and deed of trust generally contain
provisions obligating the borrower to pay a late charge if payments are not
timely made. In certain states there are or may be specific limitations upon
late charges which a lender may collect from a borrower for delinquent
payments. Under the related Trust Document, late charges (to the extent
permitted by law and not waived by Green Tree) will be retained by Green Tree
as additional servicing compensation.
The standard forms of note, mortgage and deed of trust also include a debt-
acceleration clause, which permits the lender to accelerate the debt upon a
monetary default of the borrower, after the applicable cure period. Courts
will generally enforce clauses providing for acceleration in the event of a
material payment default. However, courts, exercising equity jurisdiction, may
refuse to allow a lender to foreclose a mortgage or deed of trust when an
acceleration of the indebtedness would be inequitable or unjust and the
circumstances would render the acceleration unconscionable.
Courts have imposed general equitable principles upon foreclosure. These
equitable principles are generally designed to relieve the borrower from the
legal effect of defaults under the loan documents. Examples of judicial
remedies that may be fashioned include judicial requirements that the lender
undertake affirmative actions to determine the causes for the borrower's
default and the likelihood that the borrower will be able to reinstate the
loan. In some cases, courts have required lenders to reinstate loans or recast
payment schedules to accommodate borrowers who are suffering from temporary
financial disability. In some cases, courts have limited the right of lenders
to foreclose if the default under the mortgage instrument is not monetary,
such as the borrower failing to adequately maintain the property or the
borrower executing a junior mortgage or deed of trust affecting the property.
In other cases, some courts have been faced with the issue whether federal or
state constitutional provisions reflecting due process concerns for adequate
notice require that borrowers under mortgages or the deeds of trust receive
notices in addition to statutorily-prescribed minimum requirements. For the
most part, these cases have upheld the notice provisions as being reasonable
or have found that the sale by a trustee under a deed of trust or under a
mortgage having a power of sale does not involve sufficient state action to
afford constitutional protection to the borrower.
"DUE-ON-SALE" CLAUSES
All of the Home Equity Contract documents will contain due-on-sale clauses
unless the Prospectus Supplement indicates otherwise. These clauses permit the
Servicer to accelerate the maturity of the loan on
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notice, which is usually 30 days, if the borrower sells, transfers or conveys
the property without the prior consent of the mortgagee. In recent years,
court decisions and legislative actions placed substantial restrictions on the
right of lenders to enforce such clauses in many states. However, effective
October 15, 1982, Congress enacted the Garn-St Germain Depository Institutions
Act of 1982 (the "Garn-St. Germain Act"), which, after a three-year grace
period, preempts state laws which prohibit the enforcement of due-on-sale
clauses by providing, among other matters, that "due-on-sale" clauses in
certain loans (including the Home Equity Contracts) made after the effective
date of the Garn-St. Germain Act are enforceable within certain limitations as
set forth in the Garn-St. Germain Act and the regulations promulgated
thereunder.
By virtue of the Garn-St. Germain Act, the Servicer generally may be
permitted to accelerate any Home Equity Contract which contains a "due-on-
sale" clause upon transfer of an interest in the mortgaged property. This
ability to accelerate will not apply to certain types of transfers, including
(i) the granting of a leasehold interest which has a term of three years or
less and which does not contain an option to purchase, (ii) a transfer to a
relative resulting from the death of a mortgagor or trustor, or a transfer
where the spouse or child(ren) becomes an owner of the mortgaged property in
each case where the transferee(s) will occupy the mortgaged property, (iii) a
transfer resulting from a decree of dissolution of marriage, legal separation
agreement or from an incidental property settlement agreement by which the
spouse becomes an owner of the mortgaged property, (iv) the creation of a lien
or other encumbrance subordinate to the lender's security instrument which
does not relate to a transfer of rights of occupancy in the mortgaged property
(provided that such lien or encumbrance is not created pursuant to a contract
for deed), (v) a transfer by devise, descent or operation of law on the death
of a joint tenant or tenant by the entirety, and (vi) other transfers as set
forth in the Garn-St. Germain Act and the regulations thereunder. As a result,
a lesser number Home Equity Contracts which contain "due-on-sale" clauses may
extend to full maturity than earlier experience would indicate with respect to
single-family mortgage loans. The extent of the effect of the Garn-St. Germain
Act on the average lives and delinquency rates of the Home Equity Contracts,
however, cannot be predicted.
The inability to enforce a due-on-sale clause may result in Home Equity
Contracts bearing an interest rate below the current market rate being assumed
by a new home buyer rather than being paid off, which may have an impact upon
the average life of the Home Equity Contracts and the number of Home Equity
Contracts which may be outstanding until maturity.
Although Title V of the Depository Institutions Deregulation and Monetary
Control Act of 1980, as amended ("Title V"), provides that, subject to certain
conditions, state usury limitations shall not apply to FHA-insured loans and
to first mortgage secured conventional contracts if the contract is defined as
a "federally related mortgage loan," a number of states have adopted
legislation overriding Title V's exemptions, as permitted by Title V. Green
Tree will represent and warrant in each Trust Document that all Home Equity
Contracts comply with any applicable usury limitations.
ENVIRONMENTAL LEGISLATION
Under the federal Comprehensive Environmental Response, Compensation and
Liability Act, as amended ("CERCLA"), and under state law in certain states, a
secured party which takes a deed-in-lieu of foreclosure, purchases a mortgaged
property at a foreclosure sale, or operates a mortgaged property may become
liable in certain circumstances for the costs of cleaning up hazardous
substances regardless of whether they have contaminated the property. CERCLA
imposes strict, as well as joint and several, liability on several classes of
potentially responsible parties, including current owners and operators of the
property who did not cause or contribute to the contamination. Furthermore,
liability under CERCLA is not limited to the original or unamortized principal
balance of a loan or to the value of the property securing a loan. Lenders may
be held liable under CERCLA as owners or operators unless they qualify for the
secured creditor exemption to CERCLA. This exemption exempts from the
definition of owners and operators those who, without participating in the
management of a facility, hold indicia of ownership primarily to protect a
security interest in the facility. What constitutes sufficient participation
in the management of a property securing a loan or the business of a borrower
to render the exemption unavailable to a lender has been a matter of
interpretation by the courts. CERCLA has
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been interpreted to impose liability on a secured party, even absent
foreclosure, where the party participated in the financial management of the
borrower's business to a degree indicating a capacity to influence waste
disposal decisions. However, court interpretations of the secured creditor
exemption have been inconsistent. In addition, when lenders foreclose and
thereupon become owners of collateral property, courts are inconsistent as to
whether such ownership renders the secured creditor exemption unavailable.
Other federal and state laws in certain circumstances may impose liability on
a secured party which takes a deed-in-lieu of foreclosure, purchases a
mortgaged property at a foreclosure sale, or operates a mortgaged property on
which contaminants other than CERCLA hazardous substances are present,
including petroleum, agricultural chemicals, hazardous wastes, asbestos,
radon, and lead-based paint. Such cleanup costs may be substantial. It is
possible that such cleanup costs could become a liability of a Trust Fund and
reduce the amounts otherwise distributable to the holders of the related
Series of Certificates in certain circumstances if such cleanup costs were
incurred. Moreover, certain states by statute impose a lien for any cleanup
costs incurred by such state on the property that is the subject of such
cleanup costs (an "environmental lien"). All subsequent liens on such property
generally are subordinated to such an environmental lien and, in some states,
even prior recorded liens are subordinated to environmental liens. In the
latter states, the security interest of the Trustee in a related parcel of
real property that is subject to such an environmental lien could be adversely
affected.
Traditionally, many residential mortgage lenders have not taken steps to
evaluate whether contaminants are present with respect to any mortgaged
property prior to the origination of the mortgage loan or prior to foreclosure
or accepting a deed-in-lieu of foreclosure. Accordingly, Green Tree has not
made and will not make such evaluations prior to the origination of the Home
Equity Contracts. Neither Green Tree nor any replacement Servicer will be
required by any Trust Document to undertake any such evaluations prior to
foreclosure or accepting a deed-in-lieu of foreclosure. Green Tree does not
make any representations or warranties or assume any liability with respect to
the absence or effect of contaminants on any related real property or any
casualty resulting from the presence or effect of contaminants. However, Green
Tree will not foreclose on related real property or accept a deed-in-lieu of
foreclosure if it knows or reasonably believes that there are material
contaminated conditions on such property. A failure so to foreclose may reduce
the amounts otherwise available to Securityholders of the related Trust.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT
Application of the Soldiers' and Sailors' Civil Relief Act of 1940, as
amended (the "Relief Act"), would adversely affect, for an indeterminate
period of time, the ability of the Servicer to collect full amounts of
interest on certain of the Home Equity Contracts. Any shortfall in interest
collections resulting from the application of the Relief Act or similar
legislation, which would not be recoverable from the related Home Equity
Contracts, would result in a reduction of the amounts distributable to the
Securityholders. In addition, the Relief Act imposes limitations that would
impair the ability of the Servicer to foreclose on an affected mortgage, deed
of trust, deed to secured debt or security deed during the mortgagor's period
of active duty status, and, under certain circumstances, during an additional
three-month period thereafter. Thus, in the event that the Relief Act or
similar legislation applies to any Home Equity Contract which goes into
default, there may be delays in payment on the Securities in connection
therewith. Any other interest shortfalls, deferrals or forgiveness of payments
on the Home Equity Contracts resulting from similar legislation or regulations
may result in delays in payments or losses to Securityholders.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of the material federal income tax
consequences relating to the purchase, ownership, and disposition of the
Securities. The discussion is based upon the current provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), the Treasury
regulations promulgated thereunder and judicial or ruling authority, all of
which are subject to change, which change may be retroactive. The discussion
does not deal with federal income tax consequences applicable to all
categories of investors, some of which may be subject to special rules.
Investors are encouraged to consult their own tax advisors with respect to
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the federal, state, local, and any other tax consequences of the purchase,
ownership, and disposition of the Securities.
Dorsey & Whitney LLP, counsel to the Seller, has delivered an opinion
regarding certain federal income tax matters discussed below. Counsel to the
Seller identified in the related Prospectus Supplement ("Counsel") will
deliver an opinion regarding tax matters applicable to each Series of
Securities. Such an opinion, however, is not binding on the Internal Revenue
Service (the "Service") or the courts. The opinion of Counsel will
specifically address only those issues specifically identified below as being
covered by such opinion; however, the opinion of Counsel also will state that
the additional discussion set forth below accurately sets forth Counsel's
advice with respect to material tax issues. No ruling on any of the issues
discussed below will be sought from the Service.
Many aspects of the federal tax treatment of the purchase, ownership and
disposition of the Securities of any series will depend upon whether the Trust
created with respect to such series is structured as an owner trust (treated
as a partnership for federal income tax purposes) or as a grantor trust. The
Prospectus Supplement for each series of Securities will indicate whether the
Trust created for such series will be treated as a partnership or as a grantor
trust. The following discussion deals first with series with respect to which
the Trust has been structured as an owner trust (treated as a partnership),
and then with series with respect to which the Trust has been structured as a
grantor trust.
OWNER TRUST SERIES
TAX STATUS OF THE TRUST
With respect to each series of Securities which includes both Notes and
Certificates, Counsel will deliver its opinion that the Trust will not be an
association or publicly traded partnership taxable as a corporation for
federal income tax purposes. As a result, in the opinion of Counsel, the Trust
itself will not be subject to federal income tax but, instead, each
Certificateholder will be required to take into account its distributive share
of items of income and deduction (including deductions for distributions of
interest to the Noteholders) of the Trust as though such items had been
realized directly by the Certificateholder. This opinion will be based on the
assumption that the terms of the Trust Agreement and related documents will be
complied with, and on counsel's conclusion that the nature of the income of
the Trust will exempt it from the rule that certain publicly traded
partnerships are taxable as corporations. There are, however, no cases or
Service rulings on transactions involving a trust issuing both debt and equity
interests with terms similar to those of the Notes and the Certificates. As a
result, the Service may disagree with all or a part of this discussion.
If the Trust were taxable as a corporation for federal income tax purposes,
the Trust would be subject to corporate income tax on its taxable income. The
Trust's taxable income would include all its income on the Contracts, possibly
reduced by its interest expense on the Notes. Any such corporate income tax
could materially reduce cash available to make payments on the Notes and
distributions on the Certificates.
TAX CONSEQUENCES TO NOTEHOLDERS
Treatment of the Notes as Indebtedness. The Owner Trustee, on behalf of the
Trust, will agree, and the Noteholders will agree by their purchase of Notes,
to treat the Notes as debt for federal income tax purposes. Counsel will
deliver its opinion that the Notes will be classified as debt for federal
income tax purposes. The discussion below assumes this characterization of the
Notes is correct.
Interest Income on the Notes. Interest on the Notes will be taxable as
ordinary interest income when received by Noteholders utilizing the cash-basis
method of accounting and when accrued by Noteholders utilizing the accrual
method of accounting. Under the applicable regulations, the Notes would be
considered issued with original issue discount ("OID") if the "stated
redemption price at maturity" of a Note (generally equal to its principal
amount as of the date of issuance plus all interest other than "qualified
stated interest" payable prior to or at maturity) exceeds the original issue
price (in this case, the initial offering price at which a
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substantial amount of the Notes are sold to the public). Any OID would be
considered de minimis under the OID regulations if it does not exceed 1/4% of
the stated redemption price at maturity of a Note multiplied by the number of
full years until its maturity date. It is anticipated that the Notes will not
be considered issued with more than de minimis OID. Under the OID regulations,
an owner of a Note issued with a de minimis amount of OID must include such
OID in income, on a pro rata basis, as principal payments are made on the
Note.
While it is not anticipated that the Notes will be issued with more than de
minimis OID, it is possible that they will be so issued or will be deemed to
be issued with OID. This deemed OID could arise, for example, if interest
payments on the Notes are not deemed to be "qualified stated interest" because
the Notes do not provide for default remedies ordinarily available to holders
of debt instruments or do not contain terms and conditions that make the
likelihood of late payment or nonpayment a remote contingency. Based upon
existing authority, however, the Trust will treat interest payments on the
Notes as qualified stated interest under the OID regulations. If the Notes are
issued or are deemed to be issued with OID, all or a portion of the taxable
income to be recognized with respect to the Notes would be includible in the
income of Noteholders as OID. Any amount treated as OID would not, however, be
includible again when the amount is actually received. If the yield on a class
of Notes were not materially different from its coupon, this treatment would
have no significant effect on Noteholders using the accrual method of
accounting. However, cash method Noteholders may be required to report income
with respect to the Notes in advance of the receipt of cash attributable to
such income.
A Noteholder must include OID in income as interest over the term of the
Notes under a constant yield method. In general, OID must be included in
income in advance of the receipt of cash representing that income. Each
Noteholder is encouraged to consult its own tax advisor regarding the impact
of the OID rules if the Notes are issued with OID.
Market Discount. The Notes, whether or not issued with original issue
discount, will be subject to the "market discount rules" of Section 1276 of
the Code. In general, these rules provide that if a Noteholder purchases the
Note at a market discount (i.e., a discount from its original issue price plus
any accrued original issue discount) that exceeds a de minimis amount
specified in the Code, and thereafter recognizes gain upon a disposition, the
lesser of (i) such gain or (ii) the accrued market discount will be taxed as
ordinary interest income. Market discount also will be recognized and taxable
as ordinary interest income as payments of principal are received on the Notes
to the extent that the amount of such payments does not exceed the accrued
market discount. Generally, the accrued market discount will be the total
market discount on the Note multiplied by a fraction, the numerator of which
is the number of days the Noteholder held the Note and the denominator of
which is the number of days after the date the Noteholder acquired the Note
until and including its maturity date. The Noteholder may elect, however, to
determine accrued market discount under the constant-yield method, which
election shall not be revoked without the consent of the Service.
Limitations imposed by the Code which are intended to match deductions with
the taxation of income may defer deductions for interest on indebtedness
incurred or continued, or short-sale expenses incurred, to purchase or carry a
Note with accrued market discount. A Noteholder may elect to include market
discount in gross income as it accrues and, if such Noteholder makes such an
election, is exempt from this rule. The adjusted basis of a Note subject to
such election will be increased to reflect market discount included in gross
income, thereby reducing any gain or increasing any loss on a sale or taxable
disposition. Any such election to include market discount in gross income as
it accrues shall apply to all debt instruments held by the Noteholder at the
beginning of the first taxable year to which the election applies or
thereafter acquired and is irrevocable without the consent of the Service.
Amortizable Bond Premium. In general, if a Noteholder purchases a Note at a
premium (i.e., an amount in excess of the amount payable upon the maturity
thereof), such Noteholder will be considered to have purchased such Note with
"amortizable bond premium" equal to the amount of such excess. Such Noteholder
may elect to deduct the amortizable bond premium as it accrues under a
constant-yield method over the remaining term of the Note. Such Noteholder's
tax basis in the Note will be reduced by the amount of the amortizable bond
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premium deducted. Amortizable bond premium with respect to a Note will be
treated as an offset to interest income on such Note, and a Noteholder's
deduction for amortizable bond premium with respect to a Note will be limited
in each year to the amount of interest income derived with respect to such
Note for such year. Any election to deduct amortizable bond premium shall
apply to all debt instruments (other than instruments the interest on which is
excludible from gross income) held by the Noteholder at the beginning of the
first taxable year to which the election applies or thereafter acquired and is
irrevocable without the consent of the Service. Bond premium on a Note held by
a Noteholder who does not elect to deduct the premium will decrease the gain
or increase the loss otherwise recognized on the disposition of the Note.
Disposition of Notes. If a Noteholder sells a Note, the Noteholder will
recognize gain or loss in an amount equal to the difference between the amount
realized on the sale and the Noteholder's adjusted tax basis in the Note. The
adjusted tax basis of a Note to a particular Noteholder generally will equal
the Noteholder's cost for the Note, increased by any market discount, OID and
gain previously included by such Noteholder in income with respect to the Note
and decreased by principal payments previously received by such Noteholder and
the amount of bond premium previously amortized with respect to the Note. Any
such gain or loss will be capital gain or loss if the Note was held as a
capital asset, except for gain representing accrued interest and accrued
market discount not previously included in income, and will be long-term
capital gain or loss if the Note was held for more than one year. Capital
losses generally may be used only to offset capital gains.
Foreign Holders. Generally, interest paid to a Noteholder who is a
nonresident alien individual or a foreign corporation and who does not hold
the Note in connection with a United States trade or business will be treated
as "portfolio interest" and therefore will be exempt from the 30% withholding
tax. Such a Noteholder will be entitled to receive interest payments on the
Notes free of United States federal income tax provided that such Noteholder
periodically provides the Indenture Trustee (or other person who would
otherwise be required to withhold tax) with a statement certifying under
penalty of perjury that such Noteholder is not a United States person and
providing the name and address of such Noteholder and will not be subject to
federal income tax on gain from the disposition of a Note unless the
Noteholder is an individual who is present in the United States for 183 days
or more during the taxable year in which the disposition takes place and
certain other requirements are met.
Tax Administration and Reporting. The Indenture Trustee will furnish to each
Noteholder with each distribution a statement setting forth the amount of such
distribution allocable to principal and to interest. Reports will be made
annually to the Service and to holders of record that are not excepted from
the reporting requirements regarding such information as may be required with
respect to interest and original issue discount, if any, with respect to the
Notes.
Backup Withholding. Under certain circumstances, a Noteholder may be subject
to "backup withholding" at a 31% rate. Backup withholding may apply to a
Noteholder who is a United States person if the holder, among other
circumstances, fails to furnish his Social Security number or other taxpayer
identification number to the Indenture Trustee. Backup withholding may apply,
under certain circumstances, to a Noteholder who is a foreign person if the
Noteholder fails to provide the Indenture Trustee or the Noteholder's
securities broker with the statement necessary to establish the exemption from
federal income and withholding tax on interest on the Note. Backup
withholding, however, does not apply to payments on a Note made to certain
exempt recipients, such as corporations and tax-exempt organizations, and to
certain foreign persons. Noteholders should consult their tax advisors for
additional information concerning the potential application of backup
withholding to payments received by them with respect to a Note.
Possible Alternative Treatment of the Notes. If, contrary to the opinion of
Counsel, the Service successfully asserted that the Notes did not represent
debt for federal income tax purposes, the Notes might be treated as equity
interests in the Trust. If so treated, the Trust would be treated as a
publicly traded partnership that would not be taxable as a corporation because
it would meet certain qualifying income tests. Nonetheless, treatment of the
Notes as equity interests in such a partnership could have adverse tax
consequences to certain holders. For
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example, income to foreign holders generally would be subject to federal tax
and federal tax return filing and withholding requirements, income to certain
tax-exempt entities (including pension funds) would be "unrelated business
taxable income", and individual holders might be subject to certain
limitations on their ability to deduct their share of Trust expenses.
TAX CONSEQUENCES TO CERTIFICATEHOLDERS
Treatment of the Trust as a Partnership. The Seller, the General Partner and
the Owner Trustee will agree, and the Certificateholders will agree by their
purchase of Certificates, to treat the Trust as a partnership for purposes of
federal and state income tax, franchise tax and any other tax measured in
whole or in part by income, with the assets of the partnership being the
assets held by the Trust, the partners of the partnership being the
Certificateholders and the General Partner, and the Notes being debt of the
partnership. The proper characterization of the arrangement involving the
Trust, the Certificates, the Notes, the General Partner, the Seller and the
Servicer, however, is not certain because there is no authority on
transactions closely comparable to that contemplated herein.
A variety of alternative characterizations are possible. For example,
because the Certificates have certain features characteristic of debt, the
Certificates might be considered debt of the Trust. Any such characterization
would not result in materially adverse tax consequences to Certificateholders
as compared to the consequences from treatment of the Certificates as equity
in a partnership, described below. The following discussion assumes that the
Certificates represent equity interests in a partnership.
Partnership Taxation. As a partnership, the Trust will not be subject to
federal income tax. Rather, each Certificateholder will be required to
separately take into account such holder's allocated share of income, gains,
losses, deductions and credits of the Trust. The Trust's income will consist
primarily of interest and finance charges earned on the Contracts (including
appropriate adjustments for market discount, OID and bond premium) and any
gain upon collection or disposition of the Contracts. The Trust's deductions
will consist primarily of interest accruing with respect to the Notes,
servicing and other fees, and losses or deductions upon collection or
disposition of the Contracts.
The tax items of a partnership are allocable to the partners in accordance
with the Code, Treasury regulations and the partnership agreement (here, the
Trust Agreement and related documents). The Trust Agreement will provide, in
general, that the Certificateholders will be allocated taxable income of the
Trust for each month equal to the sum of (i) the interest that accrues on the
Certificates in accordance with their terms for such month, including interest
accruing at the Pass-Through Rate for such month and interest on amounts
previously due on the Certificates but not yet distributed; (ii) any Trust
income attributable to discount on the Contracts that corresponds to any
excess of the principal amount of the Certificates over their initial issue
price; (iii) Prepayment Premium payable to the Certificateholders for such
month; and (iv) any other amounts of income payable to the Certificateholders
for such month. Although it is not anticipated that the Certificates will be
issued at a price which exceeds their principal amount, such allocations of
Trust income to the Certificateholders will be reduced by any amortization by
the Trust of premium on Contracts that corresponds to any such excess of the
issue price of Certificates over their principal amount. All remaining taxable
income of the Trust will be allocated to the General Partner. Based on the
economic arrangement of the parties, this approach for allocating Trust income
should be permissible under applicable Treasury regulations, although no
assurance can be given that the Service would not require a greater amount of
income to be allocated to Certificateholders. Moreover, even under the
foregoing method of allocation, Certificateholders may be allocated income
equal to the entire Pass-Through Rate plus the other items described above
even though the Trust might not have sufficient cash to make current cash
distributions of such amount. Thus, cash basis holders will in effect be
required to report income from the Certificates on the accrual basis, and
Certificateholders may become liable for taxes on Trust income even if they
have not received cash from the Trust to pay such taxes. In addition, because
tax allocations and tax reporting will be done on a uniform basis for all
Certificateholders but Certificateholders may be purchasing Certificates at
different times and at different prices, Certificateholders may be required to
report on their tax returns taxable income that is greater or less than the
amount reported to them by the Trust.
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All of the taxable income allocated to a Certificateholder that is a
pension, profit sharing or employee benefit plan or other tax-exempt entity
(including an individual retirement account) will constitute "unrelated
business taxable income" generally taxable to such a holder under the Code.
A Certificateholder's share of expenses of the Trust (including fees to the
Servicer but not interest expense) will be miscellaneous itemized deductions.
An individual, an estate, or a trust that holds a Certificate either directly
or through a pass-through entity will be allowed to deduct such expenses under
Section 212 of the Code only to the extent that, in the aggregate and combined
with certain other itemized deductions, they exceed 2% of the adjusted gross
income of the Certificateholder. In addition, Section 68 of the Code provides
that the amount of itemized deductions (including those provided for in
Section 212 of the Code) otherwise allowable for the taxable year for an
individual whose adjusted gross income exceeds a threshold amount determined
under the Code ($121,000 in 1997, in the case of a joint return) will be
reduced by the lesser of (i) 3% of the excess of adjusted gross income over
the specified threshold amount or (ii) 80% of the amount of itemized
deductions otherwise allowable for such taxable year. To the extent that a
Certificateholder is not permitted to deduct servicing fees allocable to a
Certificate, the taxable income of the Certificateholder attributable to that
Certificate will exceed the net cash distributions related to such income.
Certificateholders may deduct any loss on disposition of the Contracts to the
extent permitted under the Code.
Discount and Premium. It is believed that the Contracts were not issued with
OID, and, therefore, the Trust should not have OID income. The purchase price
paid by the Trust for the Contracts may exceed the remaining principal balance
of the Contracts at the time of purchase. If the Trust is deemed to acquire
the Contracts at such a premium or at a market discount, the Trust will elect
to offset any such premium against interest income on the Contracts or to
include any such discount in income currently as it accrues over the life of
the Contracts. The Trust will make this premium or market discount calculation
on an aggregate basis but may be required to recompute it on a Contract-by-
Contract basis. As indicated above, a portion of such premium deduction or
market discount income may be allocated to Certificateholders.
Distributions to Certificateholders. Certificateholders generally will not
recognize gain or loss with respect to distributions from the Trust. A
Certificateholder will recognize gain, however, to the extent that any money
distributed exceeds the Certificateholder's adjusted basis in its Certificates
(as described below under "Disposition of Certificates") immediately before
the distribution. A Certificateholder will recognize loss upon termination of
the Trust or termination of the Certificateholder's interest in the Trust if
the Trust only distributes money to the Certificateholder and the amount
distributed is less than the Certificateholder's adjusted basis in the
Certificates. Any such gain or loss generally will be capital gain or loss if
the Certificates are held as capital assets and will be long-term gain or loss
if the holding period of the Certificates is more than one year.
Section 708 Termination. Under Section 708 of the Code, the Trust will be
deemed to terminate for federal income tax purposes if 50% or more of the
capital and profits interests in the Trust are sold or exchanged within a 12-
month period. If such a termination occurs, the Trust will be considered to
distribute its assets to the partners, who would then be treated as
recontributing those assets to the Trust, as a new partnership. Such deemed
distribution and recontribution should not result in material adverse tax
consequences to Certificateholders (although it may accelerate the recognition
of income from the Trust for Certificateholders whose taxable year is
different than that of the Trust). Because the Trust may not have the
necessary data, the Trust will not comply with certain technical requirements
that may apply when such a constructive termination occurs. As a result, the
Trust may be subject to certain tax penalties and may incur additional
expenses if it is required to comply with those requirements.
Disposition of Certificates. If a Certificateholder sells a Certificate, the
Certificateholder generally will recognize capital gain or loss in an amount
equal to the difference between the amount realized on the sale and the
seller's tax basis in the Certificate. A Certificateholder's tax basis in a
Certificate generally will equal the Certificateholder's cost increased by the
Certificateholder's share of Trust income and decreased by any distributions
received with respect to such Certificate. In addition, both the tax basis in
the Certificate and the amount realized on a sale of a Certificate would
include the Certificateholder's share of the Notes and other liabilities of
the Trust. A Certificateholder acquiring Certificates at different prices may
be required to maintain a
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single aggregate adjusted tax basis in such Certificates, and, upon sale or
other disposition of some of the Certificates, allocate a portion of such
aggregate tax basis to the Certificates sold (rather than maintain a separate
tax basis in each Certificate for purposes of computing gain or loss on a sale
of that Certificate).
Any gain on the sale of a Certificate attributable to the
Certificateholder's share of unrecognized accrued market discount on the
Contracts would generally be treated as ordinary income to the
Certificateholder and would give rise to special tax reporting requirements.
The Trust does not expect to have any other assets that would give rise to
such special reporting requirements. Thus, to avoid those special reporting
requirements, the Trust will elect to include market discount in income as it
accrues.
If a Certificateholder is required to recognize an aggregate amount of
income (not including income attributable to disallowed itemized deductions
described above) over the life of the Certificates that exceeds the aggregate
cash distributions with respect thereto, such excess generally will give rise
to a capital loss upon the retirement of the Certificates.
Allocations Between Transferors and Transferees. In general, the Trust's
taxable income and losses will be determined monthly, and the tax items for a
particular calendar month will be apportioned among the Certificateholders in
proportion to the principal amount of Certificates owned by them as of the
close of the related Record Date. As a result, a Certificateholder purchasing
a Certificate may be allocated tax items (which will affect the
Certificateholder's tax liability and tax basis) attributable to periods
before the Certificateholder actually owns the Certificate. The use of such a
convention may not be permitted by existing regulations. If a monthly
convention is not permitted (or only applies to transfers of less than all of
the Certificateholder's interest), taxable income or losses of the Trust may
be reallocated among the Certificateholders. The General Partner is authorized
to revise the Trust's method of allocation between transferors and transferees
to conform to a method permitted by future regulations.
Section 754 Election. In the event that a Certificateholder sells a
Certificate at a profit or loss, the purchasing Certificateholder will have a
higher or lower basis in the Certificate than the selling Certificateholder
had. The tax basis of the Trust's assets will not be adjusted to reflect that
higher or lower basis unless the Trust files an election under Section 754 of
the Code. In order to avoid the administrative complexities that would be
involved in keeping accurate accounting records, as well as potentially
onerous information reporting requirements, the Trust will not make such
election. As a result, Certificateholders may be allocated a greater or lesser
amount of Trust income than would be appropriate based on their own purchase
price for Certificates.
Administrative Matters. Pursuant to an administration agreement (the
"Administration Agreement"), the Trustee will monitor the performance of the
following responsibilities of the Trust by other service providers. The Trust
is required to keep or have kept complete and accurate books of the Trust.
Such books will be maintained for financial reporting and tax purposes on an
accrual basis and the fiscal year of the Trust will be the calendar year. The
Trust will file a partnership information return (IRS Form 1065) with the
Service for each taxable year of the Trust and will report each
Certificateholder's allocable share of items of Trust income and expense to
Certificateholders and the Service on Schedule K-1. The Trust will provide the
Schedule K-1 information to nominees that fail to provide the Trust with
certain required information statements relating to identification of
beneficial owners of Certificates and such nominees will be required to
forward such information to such beneficial owners. Generally,
Certificateholders must file tax returns that are consistent with the
information return filed by the Trust or be subject to penalties unless the
Certificateholder notifies the Service of all such inconsistencies.
Green Tree or a subsidiary identified in the related Prospectus Supplement
will be designated as the tax matters partner in the Trust Agreement and, as
such, will be responsible for representing the Certificateholders in any
dispute with the Service. The Code provides for administrative examination of
a partnership as if the partnership were a separate and distinct taxpayer.
Generally, the statute of limitations for partnership items does not expire
before three years after the date on which the partnership information return
is filed. Any adverse determination following an audit of the return of the
Trust by the appropriate taxing authorities could result in an adjustment of
the returns of the Certificateholders, and, under certain circumstances, a
Certificateholder may
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be precluded from separately litigating a proposed adjustment to the items of
the Trust. An adjustment could also result in an audit of a
Certificateholder's returns and adjustments of items not related to the income
and losses of the Trust.
Tax Consequences to Foreign Certificateholders. It is not clear whether the
Trust will be considered to be engaged in a trade or business in the United
States for purposes of federal withholding taxes with respect to non-U.S.
persons because there is no clear authority dealing with that issue under
facts substantially similar to those described herein. Although it is not
expected that the Trust will be engaged in a trade or business in the United
States for such purposes, the Trust will withhold as if it were so engaged in
order to protect the Trust from possible adverse consequences of a failure to
withhold. It is expected that the Trust will withhold on the portion of its
taxable income that is allocable to foreign Certificateholders pursuant to
Section 1446 of the Code, as if such income were effectively connected to a
U.S. trade or business, at a rate of 35% for foreign holders that are taxable
as corporations and 39.6% for all other foreign Certificateholders. Subsequent
adoption of Treasury regulations or the issuance of other administrative
pronouncements may require the Trust to change its withholding procedures. In
determining a Certificateholder's nonforeign status, the Trust may rely on
Form W-8, Form W-9 or the Certificateholder's certification of nonforeign
status signed under penalties of perjury.
Each foreign Certificateholder might be required to file a U.S. individual
or corporate income tax return (including, in the case of a corporation, the
branch profits tax) on its share of the Trust's income. Each foreign
Certificateholder must obtain a taxpayer identification number from the
Service and submit that number to the Trust on Form W-8 in order to assure
appropriate crediting of the taxes withheld. A foreign Certificateholder
generally will be entitled to file with the Service a claim for refund with
respect to taxes withheld by the Trust, taking the position that no taxes are
due because the Trust is not engaged in a U.S. trade or business. However, the
Service may assert that additional taxes are due, and no assurance can be
given as to the appropriate amount of tax liability.
Backup Withholding. Under certain circumstances, a Certificateholder may be
subject to "backup withholding" at a 31% rate. See the discussion above under
"Tax Consequences to Noteholders--Backup Withholding."
GRANTOR TRUST SERIES
TAX STATUS OF THE TRUST
With respect to each series of Securities which includes only Certificates,
unless otherwise specified in the related Prospectus Supplement, Counsel will
deliver its opinion that the Trust will be classified as a grantor trust for
federal income tax purposes and not as an association which is taxable as a
corporation. The Trust will be classified as a trust regardless of whether the
Seller is considered to retain an interest in the Contracts, as discussed
below. While such a retained interest might be viewed as a second class of
beneficial interest in the Trust and Treasury Regulations Section 301.7701-
4(c) generally provides that an investment trust with more than one class of
ownership interest will be classified as an association taxable as a
corporation or a partnership, that regulation would treat the Trust as a
grantor trust because there will be no power under the Pooling and Servicing
Agreement to vary the investment of the Certificateholders, the purpose of the
Trust will be to facilitate direct investment in the Contracts, and the
existence of multiple classes of ownership interests in the Trust will be
incidental to that purpose.
TAX CONSEQUENCES TO CERTIFICATEHOLDERS
Because the Trust will be classified as a grantor trust, each
Certificateholder (including any holder of a subordinated Certificate) will,
in the opinion of Counsel, be treated for federal income tax purposes as the
owner of an undivided interest in the Contracts and other Trust Property.
Accordingly, subject to the discussion below of certain limitations on
deductions and the "stripped bond" rules of the Code, each Certificateholder
must report on its federal income tax return its pro rata share of the entire
income from the Contracts and other Trust Property, and may deduct its pro
rata share of the fees paid by the Trust, at the same time as such items would
be reported under the Certificateholder's tax accounting method if it held
directly a pro rata interest in the assets of the Trust and received and paid
directly the amounts received and paid by the Trust. A Certificateholder's
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share of expenses of the Trust will be miscellaneous itemized deductions
subject to certain limits on deductibility. See the discussion above under
"OWNER TRUST SERIES--Tax Consequences to Certificateholders--Partnership
Taxation."
A purchaser of a Certificate will be treated as purchasing an interest in
each Contract in the Trust at a price determined by allocating the purchase
price paid for the Certificate among all Contracts in proportion to their fair
market values at the time of purchase of the Certificate. To the extent that
the portion of the purchase price of a Certificate allocated to a Contract is
greater than or less than the portion of the principal balance of the Contract
allocable to the Certificate, that interest in the Contract will be deemed to
have been acquired with premium or discount, respectively. See the discussions
above under "OWNER TRUST SERIES--Tax Consequences to Noteholders--Market
Discount" and "--Amortizable Bond Premium."
The treatment of any discount will depend on whether the discount represents
original issue discount or market discount. It is not anticipated that the
Contracts will have original issue discount, unless they are subject to the
"stripped bond" rules of the Code described below. If the Contracts are
subject to the stripped bond rules of the Code, the market discount rules
discussed above may not apply.
Subordinated Certificates. If the subordinated Certificateholders receive
distributions of less than their share of the Trust's receipts of principal or
interest (the "Shortfall Amount") because of the subordination of the
subordinated Certificates, holders of subordinated Certificates would probably
be treated for federal income tax purposes as if they had (i) received as
distributions their full share of such receipts, (ii) paid over to the senior
Certificateholders an amount equal to such Shortfall Amount, and (iii)
retained the right to reimbursement of such amounts to the extent available
from future collections on the Contracts.
Under this analysis, (a) subordinated Certificateholders would be required
to accrue as current income any interest or OID income of the Trust that was a
component of the Shortfall Amount, even though such amount was in fact paid to
the senior Certificateholders, (b) a loss would only be allowed to the
subordinated Certificateholders when their right to receive reimbursement of
such Shortfall Amount became worthless (i.e., when it becomes clear that
amount will not be available from any source to reimburse such loss), and (c)
reimbursement of such Shortfall Amount prior to such a claim of worthlessness
would not be taxable income to subordinated Certificateholders because such
amount was previously included in income. Those results should not
significantly affect the inclusion of income for subordinated
Certificateholders on the accrual method of accounting, but could accelerate
inclusion of income to subordinated Certificateholders on the cash method of
accounting by, in effect, placing them on the accrual method. Moreover, the
character and timing of loss deductions is unclear.
Under current Service interpretations of applicable Treasury Regulations,
the Seller would be able to sell or otherwise dispose of any subordinated
Certificates. Accordingly, the Seller may offer subordinated Certificates for
sale to investors.
Stripped Certificates. Certain classes of Certificates may be subject to the
stripped bond rules of Section 1286 of the Code and for purposes of this
discussion will be referred to as "Stripped Certificates." In general, a
Stripped Certificate will be subject to the stripped bond rules where there
has been a separation of ownership of the right to receive some or all of the
principal payments on a Contract from ownership of the right to receive some
or all of the related interest payments. Certificates will constitute Stripped
Certificates and will be subject to these rules under various circumstances,
including the following: (i) if any servicing compensation is deemed to exceed
a reasonable amount; (ii) if two or more classes of Certificates are issued
representing the right to non-pro rata percentages of the interest or
principal payments on the Contracts; or (iii) if Certificates are issued which
represent the right to interest only payments or principal only payments.
Although not entirely clear, each Stripped Certificate should be considered
to be a single debt instrument issued on the day it is purchased for purposes
of calculating any original issue discount. Original issue discount with
respect to a Stripped Certificate, if any, must be included in ordinary gross
income for federal income tax purposes as it accrues in accordance with the
constant-yield method that takes into account the compounding of
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interest and such accrual of income may be in advance of the receipt of any
cash attributable to such income. See "OWNER TRUST SERIES--Tax Consequences to
Noteholders--Interest Income on the Notes" above. For purposes of applying the
original issue discount provisions of the Code, the issue price of a Stripped
Certificate will be the purchase price paid by the holder thereof and the
stated redemption price at maturity may include the aggregate amount of all
payments to be made with respect to the Stripped Certificate whether or not
denominated as interest. The amount of original issue discount with respect to
a Stripped Certificate may be treated as zero under the original issue
discount de minimis rules described above. Under rules similar to those
provided in Rev. Proc. 91-49, applicable only to mortgages secured by real
property, a Certificateholder may be required to account for any discount on a
Stripped Certificate as market discount rather than original issue discount if
either (i) the amount of original issue discount with respect to the
Certificate was treated as zero under the original issue discount de minimis
rule when the Certificate was stripped or (ii) no more than 100 basis points
(including any amount of servicing in excess of reasonable servicing) is
stripped off of the Contracts.
When an investor purchases more than one class of Stripped Certificates, it
is currently unclear whether for federal income tax purposes such classes of
Stripped Certificates should be treated separately or aggregated for purposes
of applying the original issue discount rules described above.
It is possible that the Service may take a contrary position with respect to
some or all of the foregoing tax consequences. For example, a holder of a
Stripped Certificate may be treated as the owner of (i) as many stripped bonds
or stripped coupons as there are scheduled payments of principal and/or
interest on each Contract or (ii) a separate installment obligation for each
Contract representing the Stripped Certificate's pro rata share of principal
and/or interest payments to be made with respect thereto. In addition, if a
Trust issues more than one class of Certificates with different Pass-Through
Rates, a holder of such a Certificate may be treated as the owner of a
stripped bond with a rate equal to the lowest such Pass-Through Rate and a
stripped coupon representing the excess, if any, of the Pass-Through Rate on
such Certificate over the lowest Pass-Through Rate. As a result of these
possible alternative characterizations, investors should consult their own tax
advisors regarding the proper treatment of Stripped Certificates for federal
income tax purposes.
The Servicing Fee to be received by the Servicer and the fee for the
enhancement, if any, provided with respect to a series of Certificates may be
questioned by the Service with respect to certain Certificates or Contracts as
exceeding a reasonable fee for the services being performed in exchange
therefor, and a portion of such servicing compensation could be
recharacterized as an ownership interest retained by the Servicer or other
party in a portion of the interest payments to be made pursuant to the
Contracts. In this event, a Certificate might be treated as a Stripped
Certificate subject to the stripped bond rules of Section 1286 of the Code and
the original issue discount provisions rather than to the market discount and
premium rules.
Disposition of Certificates. If a Certificate is sold, gain or loss will be
recognized equal to the difference between the amount realized on the sale and
the Certificateholder's adjusted tax basis in the Certificate. See the
discussion above under "OWNER TRUST SERIES--Tax Consequences to Noteholders--
Disposition of Notes."
Foreign Holders. Generally, interest paid to a Certificateholder who is a
nonresident alien individual or a foreign corporation and who does not hold
the Certificates in connection with a United States trade or business will be
treated as "portfolio interest." See the discussion above under "OWNER TRUST
SERIES--Tax Consequences to Noteholders--Foreign Holders."
TAX ADMINISTRATION AND REPORTING
The Trustee will furnish to each Certificateholder with each distribution a
statement setting forth the amount of such distribution allocable to principal
and to interest. In addition, the Trustee will furnish, within a reasonable
time after the end of each calendar year, to each Certificateholder who was a
Certificateholder at any time during such year, information regarding the
amount of servicing compensation received by the Servicer and such other
factual information as the Seller deems necessary to enable Certificateholders
to prepare their tax returns. Reports
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will be made annually to the Internal Revenue Service and to holders of record
that are not excepted from the reporting requirements regarding information as
may be required with respect to interest and original issue discount, if any,
with respect to the Certificates.
BACKUP WITHHOLDING
Under certain circumstances, a Certificateholder may be subject to "backup
withholding" at a 31% rate. See the discussion above under "OWNER TRUST
SERIES--Tax Consequences to Noteholders--Backup Withholding."
CERTAIN STATE INCOME TAX CONSEQUENCES
The activities to be undertaken by the Servicer in servicing and collecting
the Contracts will take place in Minnesota. The State of Minnesota imposes an
income tax on individuals, trusts and estates and a franchise tax measured by
net income on corporations. This discussion of Minnesota taxation is based
upon current statutory provisions and the regulations promulgated thereunder,
and applicable judicial or ruling authority, all of which are subject to
change (which may be retroactive). No ruling on any of the issues discussed
below will be sought from the Minnesota Department of Revenue.
OWNER TRUST SERIES
If the Notes are treated as debt for federal income tax purposes, in the
opinion of Counsel this treatment will also apply for Minnesota tax purposes.
Noteholders not otherwise subject to Minnesota income or franchise taxation
would not become subject to such a tax solely because of their ownership of
the Notes. Noteholders already subject to income or franchise taxation in
Minnesota could, however, be required to pay such a tax on all or a portion of
the income generated from ownership of the Notes.
If the Trust is treated as a partnership (not taxable as a corporation) for
federal income tax purposes, in the opinion of Counsel the Trust would also be
treated as a partnership for Minnesota income tax purposes. The partnership
therefore would not be subject to Minnesota taxation. Certificateholders that
are not otherwise subject to Minnesota income or franchise taxation would not
become subject to such a tax solely because of their interests in the
partnership. Certificateholders already subject to income or franchise
taxation in Minnesota could, however, be required to pay such a tax on all or
a portion of the income from the partnership.
If the Certificates are treated as ownership interests in an association or
publicly traded partnership taxable as a corporation for federal income tax
purposes, in the opinion of Counsel this treatment would also apply for
Minnesota income and franchise tax purposes. Pursuant to this treatment, the
Trust would be subject to the Minnesota franchise tax measured by net income
(which could result in reduced distributions to Certificateholders).
Certificateholders that are not otherwise subject to Minnesota income or
franchise taxation would not become subject to such a tax solely because of
their interests in the constructive corporation. Certificateholders already
subject to income or franchise taxation in Minnesota could, however, be
required to pay such a tax on all or a portion of the income from the
constructive corporation.
GRANTOR TRUST SERIES
If the Trust is treated as a grantor trust for federal income tax purposes,
in the opinion of Counsel the Trust would also be treated as a grantor trust
for Minnesota income tax purposes. The Trust therefore would not be subject to
Minnesota taxation. Certificateholders that are not otherwise subject to
Minnesota income or franchise taxation would not become subject to such a tax
solely because of their interests in the Trust. Certificateholders already
subject to income or franchise taxation in Minnesota could, however, be
required to pay such a tax on all or a portion of the income from the Trust.
Because state tax laws vary, it is not possible to describe the tax
consequences to the Noteholders and Certificateholders in all of the states.
Noteholders and Certificateholders are therefore urged to consult their own
tax advisors with respect to the state tax treatment of the Notes and
Certificates and income derived therefrom.
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ERISA CONSIDERATIONS
Section 406 of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and Section 4975 of the Code prohibit a pension, profit
sharing or other employee benefit plan from engaging in certain transactions
involving "plan assets" with persons that are "parties in interest" under
ERISA or "disqualified persons" under the Code with respect to the plan. ERISA
also imposes certain duties and certain prohibitions on persons who are
fiduciaries of plans subject to ERISA. Under ERISA, generally any person who
exercises any authority or control with respect to the management or
disposition of the assets of a plan is considered to be a fiduciary of such
plan. A violation of these "prohibited transaction" rules may generate excise
tax and other liabilities under ERISA and the Code for such persons.
Certain transactions involving the related Trust might be deemed to
constitute prohibited transactions under ERISA and the Code with respect to a
Benefit Plan that purchased Securities if assets of the related Trust were
deemed to be assets of the Benefit Plan. Under a regulation issued by the
United States Department of Labor (the "Plan Assets Regulation"), the assets
of a Trust would be treated as plan assets of a Benefit Plan for the purposes
of ERISA and the Code only if the Benefit Plan acquired an "equity interest"
in the Trust and none of the exceptions contained in the Plan Assets
Regulation was applicable. An equity interest is defined under the Plan Assets
Regulation as an interest other than an instrument which is treated as
indebtedness under applicable local law and which has no substantial equity
features. The likely treatment of Notes and Certificates will be discussed in
the related Prospectus Supplement.
Employee benefit plans that are governmental plans (as defined in Section
3(32) of ERISA) and certain church plans (as defined in Section 3(33) of
ERISA) are not subject to ERISA requirements.
A plan fiduciary considering the purchase of Securities should consult its
tax and/or legal advisors regarding whether the assets of the Trust would be
considered plan assets, the possibility of exemptive relief from the
prohibited transaction rules and other issues and their potential
consequences.
PLAN OF DISTRIBUTION
On the terms and conditions set forth in an underwriting agreement (the
"Underwriting Agreement") with respect to each Trust, the Seller will agree to
sell to each of the underwriters named therein and in the related Prospectus
Supplement, and each of such underwriters will severally agree to purchase
from the Seller, the principal amount of each class of Securities of the
related series set forth therein and in the related Prospectus Supplement.
In each Underwriting Agreement, the several underwriters will agree, subject
to the terms and conditions set forth therein, to purchase all the Securities
described therein which are offered hereby and by the related Prospectus
Supplement if any of such Securities are purchased. In the event of a default
by any such underwriter, each Underwriting Agreement will provide that, in
certain circumstances, purchase commitments of the nondefaulting underwriters
may be increased, or the Underwriting Agreement may be terminated.
Each Prospectus Supplement will either (i) set forth the price at which each
class of Securities being offered thereby will be offered to the public and
any concessions that may be offered to certain dealers participating in the
offering of such Securities or (ii) specify that the related Securities are to
be resold by the underwriters in negotiated transactions at varying prices to
be determined at the time of such sale. After the initial public offering of
any Securities, the public offering price and such concessions may be changed.
Each Underwriting Agreement will provide that Green Tree will indemnify the
underwriters against certain liabilities, including liabilities under the
Securities Act.
The Indenture Trustee, if any, may, from time to time, invest the funds in
the Designated Accounts in Eligible Investments acquired from the
underwriters.
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Under each Underwriting Agreement, the closing of the sale of any class of
Securities subject thereto will be conditioned on the closing of the sale of
all other such classes.
The place and time of delivery for the Securities in respect of which this
Prospectus is delivered will be set forth in the related Prospectus
Supplement.
LEGAL MATTERS
Certain matters with respect to the validity of the Certificates and the
Notes will be passed upon for the Seller by the counsel for the Seller
identified in the applicable Prospectus Supplement. The validity of the
Certificates and the Notes will be passed upon for the underwriters named in
the related Prospectus Supplement by Brown & Wood LLP, New York, New York.
EXPERTS
The consolidated financial statements of the Company as of December 31, 1996
and 1995 and for each of the years in the three-year period ended December 31,
1996 incorporated by reference herein have been audited by KPMG Peat Marwick
LLP, independent accountants, as stated in their opinion given upon their
authority as experts in accounting and auditing.
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NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION
NOT CONTAINED IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS, AND ANY INFOR-
MATION OR REPRESENTATION NOT CONTAINED HEREIN OR THEREIN MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY GREEN TREE OR ANY UNDERWRITER. THIS PROSPEC-
TUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER OF ANY SECURITIES
OTHER THAN THE REGISTERED SECURITIES TO WHICH THE PROSPECTUS SUPPLEMENT RE-
LATES OR AN OFFER TO ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER WOULD
BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE PRO-
SPECTUS NOR ANY SALES MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF GREEN TREE OR
THE TRUST SINCE THE DATE HEREOF.
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TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<S> <C>
PAGE
----
Reports to Securityholders................................................. S-2
Summary of Terms........................................................... S-3
Risk Factors............................................................... S-15
The Trust.................................................................. S-16
The Trust Property......................................................... S-16
The Contract Pool.......................................................... S-17
Yield and Prepayment Considerations........................................ S-22
Description of the Notes................................................... S-24
Description of the Certificates............................................ S-30
Description of the Trust Documents and Indenture........................... S-33
Certain Federal and State Income Tax Consequences.......................... S-38
ERISA Considerations....................................................... S-38
Underwriting............................................................... S-40
Legal Matters.............................................................. S-41
Annex I.................................................................... A-1
PROSPECTUS
Available Information...................................................... 3
Reports to Securityholders................................................. 3
Incorporation of Certain Documents by Reference............................ 3
Prospectus Summary......................................................... 4
Risk Factors............................................................... 13
The Trusts................................................................. 15
The Contracts.............................................................. 16
Green Tree Financial Corporation........................................... 16
Yield and Prepayment Considerations........................................ 19
Pool Factor................................................................ 20
Use of Proceeds............................................................ 21
The Certificates........................................................... 21
The Notes.................................................................. 22
Certain Information Regarding the Securities............................... 26
Description of the Trust Documents......................................... 29
Certain Legal Aspects of the Contracts..................................... 38
Certain Legal Aspects of the Home Equity Contracts......................... 43
Certain Federal Income Tax Consequences.................................... 51
Certain State Income Tax Consequences...................................... 61
ERISA Considerations....................................................... 62
Plan of Distribution....................................................... 62
Legal Matters.............................................................. 63
Experts.................................................................... 63
</TABLE>
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FOR 90 DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT, ALL DEALERS EFFECT-
ING TRANSACTIONS IN THE SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DIS-
TRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
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$250,000,000 (Approximate)
[LOGO OF GREEN TREE APPEARS HERE]
SELLER AND SERVICER
GREEN TREE RECREATIONAL,
EQUIPMENT
& CONSUMER
TRUST 1997-A
$65,000,000 (Approximate)Floating Rate Asset-Backed Notes, Class A-1A
$136,250,000 (Approximate)Floating Rate Asset-Backed Notes, Class A-1B
$12,500,000 (Approximate)Floating Rate Asset-Backed Notes, Class A-2
$11,875,000 (Approximate)Floating Rate Asset-Backed Notes, Class A-3
$9,375,000 (Approximate)Floating Rate Asset-Backed Notes, Class A-4
$15,000,000 (Approximate) 7.43%Asset-Backed Certificates
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PROSPECTUS SUPPLEMENT
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MORGAN STANLEY & CO.
INCORPORATED
MERRILL LYNCH & CO.
March 14, 1997
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