<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 17, 1997
REGISTRATION NO. 333-38687-01
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 5 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
GREEN TREE FINANCIAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 41-1807858
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
GREEN TREE LEASE FINANCE II, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MINNESOTA 41-1892359
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
GREEN TREE LEASE FINANCE 1997-1, LLC
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE NONE
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
----------------
1100 LANDMARK TOWERS
345 ST. PETER STREET
ST. PAUL, MINNESOTA 55102-1639
(612) 293-3400
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
JOEL H. GOTTESMAN, ESQ.
1100 LANDMARK TOWERS
345 ST. PETER STREET
ST. PAUL, MINNESOTA 55102-1639
(612) 293-3400
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
COPIES TO: COPIES TO:
CHARLES F. SAWYER, ESQ. SIEGFRIED P. KNOPF, ESQ.
DORSEY & WHITNEY LLP BROWN & WOOD LLP
220 SOUTH SIXTH STREET ONE WORLD TRADE CENTER
MINNEAPOLIS, MINNESOTA 55402 NEW YORK, NEW YORK 10048
(612) 343-7986 (212) 839-5300
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box: [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [_]
(continued on next page)
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<PAGE>
(continued from previous page)
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [_]
* This Registration Statement, including Amendment Nos. 1, 2, 3 and 4
hereto, was initially filed on Form S-3.
----------------
CALCULATION OF REGISTRATION FEE
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- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS MAXIMUM AGGREGATE AMOUNT OF
OF SECURITIES AMOUNT TO BE AGGREGATE PRICE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED PER UNIT(1) PRICE(1) FEE
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<S> <C> <C> <C> <C>
Lease-Backed Notes... $550,991,889 100% $550,991,889 $162,550.64(2)
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</TABLE>
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(1) Estimated solely for the purposes of calculating the registration fee
pursuant to Rule 457.
(2) Previously paid.
----------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED DECEMBER 17, 1997
PROSPECTUS
$549,694,587 (APPROXIMATE)
LOGO
GREEN TREE LEASE FINANCE 1997-1, LLC
ISSUER
$196,466,000 (APPROXIMATE) % LEASE-BACKED NOTES, CLASS A-1
$ 52,897,000 (APPROXIMATE) % LEASE-BACKED NOTES, CLASS A-2
$218,183,000 (APPROXIMATE) % LEASE-BACKED NOTES, CLASS A-3
$ 32,676,000 (APPROXIMATE) % LEASE BACKED NOTES, CLASS A-4
$ 30,233,000 (APPROXIMATE) % LEASE-BACKED NOTES, CLASS B
$ 19,239,587 (APPROXIMATE) % LEASE-BACKED NOTES, CLASS C
GREEN TREE VENDOR SERVICES CORPORATION
SERVICER
------------
The Lease-Backed Notes issued by Green Tree Lease Finance 1997-1, LLC (the
"Issuer") will consist of six classes, designated as the Class A-1 Notes, the
Class A-2 Notes, the Class A-3 Notes and the Class A-4 Notes (together, the
"Class A Notes"), the Class B Notes and the Class C Notes (collectively, the
"Notes"). The Notes will be issued pursuant to an indenture (the "Indenture")
between the Issuer and First Trust National Association, as Trustee. Pursuant
to the Indenture, the Issuer will pledge the Trust Assets to secure the
repayment of the Notes. The Trust Assets will include a pool of equipment
leases (the "Leases") originated or acquired by Green Tree Vendor Services
Corporation ("Vendor Services"), certain rights to the proceeds of disposition
of the equipment underlying the Leases and certain other property described
herein.
The Notes will be payable from the Amount Available on each Payment Date
(which will consist primarily of the Scheduled Payments due under the Leases,
certain amounts received upon the prepayment or liquidation of Leases, funds on
deposit in the Reserve Account and investment earnings on amounts deposited in
the Collection Account established pursuant to the Indenture). To the extent
described herein, payments of interest and principal on the Class B Notes will
be subordinated in priority of payment to interest and principal, respectively,
on the Class A Notes, and payments
(continued on following page)
------------
FOR A DISCUSSION OF CERTAIN FACTORS RELATING TO THIS OFFERING, SEE "RISK
FACTORS" ON PAGE 16 HEREIN.
------------
THE NOTES WILL NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF GREEN TREE VENDOR
SERVICES CORPORATION, GREEN TREE FINANCIAL CORPORATION OR ANY OF THEIR
RESPECTIVE AFFILIATES OTHER THAN GREEN TREE LEASE FINANCE 1997-1, LLC.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECU-
RITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Initial Public Underwriting Proceeds to
Offering Price(1) Discount(2) the Issuer(1)(3)
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<S> <C> <C> <C>
Per Class A-1 Note............. % % %
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Per Class A-2 Note............. % % %
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Per Class A-3 Note............. % % %
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Per Class A-4 Note............. % % %
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Per Class B Note............... % % %
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Per Class C Note............... % % %
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Total.......................... $ $ $
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</TABLE>
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(1) Plus accrued interest, if any, from December , 1997.
(2) Green Tree Financial Corporation has agreed to indemnify the Underwriters
against certain liabilities, including liabilities under the Securities Act
of 1933. See "Underwriting."
(3) Before deducting expenses estimated to be $ .
------------
The Notes are offered subject to receipt and acceptance by the Underwriters,
to prior sale and to the Underwriters' right to reject any order in whole or in
part and to withdraw, cancel or modify any order without notice. It is expected
that delivery of the Notes will be made in book-entry form through the
facilities of The Depository Trust Company on or about December , 1997.
------------
Underwriters of the Class A Notes
LEHMAN BROTHERS FIRST UNION CAPITAL MARKETS CORP.
------------
Underwriter of the Class B and Class C Notes
LEHMAN BROTHERS
------------
December , 1997
<PAGE>
(continued from preceding page)
of interest and principal on the Class C Notes will be subordinated in
priority of payment to interest and principal, respectively, on the Class A
Notes and the Class B Notes. The Notes will have the benefit of limited credit
support from that month's Residual Realizations and amounts, if any, on
deposit in the Reserve Account. The Class A Notes will also have the benefit
of limited credit support consisting of the subordination, to the extent
described herein, of the Class B Notes and the Class C Notes. The Class B
Notes will have the benefit of limited credit support consisting of the
subordination, to the extent described herein, of the Class C Notes. See
"Description of the Notes."
To the extent the Amount Available is sufficient therefor, interest at the
rate per annum noted above for each Class of the Notes (the applicable
"Interest Rate") and principal will be paid to Holders of each class of the
Notes on the 20th day of each month (or, if such day is not a Business Day, on
the next succeeding Business Day), commencing February 20, 1998 (each, a
"Payment Date"). The Stated Maturity Date for the Class A-1 Notes is January
20, 1999, and the Stated Maturity Date for the Class A-2 Notes, the Class A-3
Notes, the Class A-4 Notes, the Class B Notes and the Class C Notes is
September 20, 2005, but final payment of any Class of Notes could occur
significantly earlier than the Stated Maturity Date of such Class of Notes.
The Notes are subject to redemption in whole as described herein under
"Description of the Notes--Optional Purchase of Leases."
There is currently no secondary market for the Notes and there is no
assurance that one will develop. Each Underwriter expects, but will not be
obligated, to make a market in the Classes of Notes for which it is acting as
Underwriter. There is no assurance that any such market will develop, or if
any such market does develop, that such market will continue. See "Risk
Factors."
It is a condition of issuance of the Notes that each of Standard & Poor's
Rating Services, a division of The McGraw-Hill Companies, Inc. and Fitch
I.B.C.A., Inc. (i) rate the Class A-1 Notes "A-1+" and "F-1+," respectively,
(ii) rate the Class A-2 Notes, Class A-3 Notes and Class A-4 Notes "AAA,"
(iii) rate the Class B Notes at least "A" and (iv) rate the Class C Notes at
least "BBB." See "Ratings of the Notes."
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE NOTES OFFERED
HEREBY. SUCH TRANSACTIONS MAY INCLUDE STABILIZING AND THE PURCHASE OF NOTES TO
COVER SYNDICATE SHORT POSITIONS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed by the Servicer, on behalf of the Issuer, pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), after the date of this Prospectus and prior to
the termination of the offering of the Notes shall be deemed to be
incorporated by reference into this Prospectus. Any statement contained herein
or in a document incorporated or deemed to be incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Prospectus
to the extent that a statement contained herein or in any subsequently filed
document which also is to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
this Prospectus.
The Issuer will provide without charge to each person to whom a copy of this
Prospectus is delivered on the written or oral request of such person, a copy
of any or all of the documents incorporated herein by reference, except the
exhibits to such documents. Requests for such copies should be directed to
John Dolphin, Vice President and Director of Investor Relations, Green Tree
Financial Corporation, 1100 Landmark Towers, 345 St. Peter Street, St. Paul,
Minnesota 55102-1639.
i
<PAGE>
AVAILABLE INFORMATION
The Issuer and Green Tree Lease Finance II, Inc. have filed a Registration
Statement under the Securities Act of 1933, as amended (the "Securities Act"),
with the Securities and Exchange Commission (the "Commission") with respect to
the Notes offered pursuant to this Prospectus. For further information,
reference is made to the Registration Statement and amendments thereof and to
the exhibits thereto, which are available for inspection without charge at the
public reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549; 7 World Trade Center, 13th Floor, New York, New
York 10048; and Northwest Atrium Center, 500 Madison Street, Chicago, Illinois
60661. Copies of the Registration Statement and amendments thereof and
exhibits thereto may be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. The Commission also maintains a World Wide Web site which provides on-
line access to reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission at the
address "http://www.sec.gov."
REPORTS TO NOTEHOLDERS
Unless and until Definitive Notes are issued, monthly unaudited reports
containing information concerning the Issuer and the Notes will be sent on
behalf of the Issuer to Cede & Co. ("Cede"), as nominee of The Depository
Trust Company ("DTC") as registered holder of the Notes pursuant to the
Indenture. See "Description of the Notes--Book-Entry Registration." Such
reports will be made available to DTC and its participants to holders of
interests in the Notes in accordance with the rules, regulations and
procedures creating and affecting DTC. However, such reports will not be sent
directly to each beneficial owner while the Notes are in book-entry form. Upon
the issuance of fully registered, certificated Notes, such reports will be
sent directly to each Noteholder. Such reports will not constitute financial
statements prepared in accordance with generally accepted accounting
principles. The Servicer, on behalf of the Issuer, will file with the
Commission periodic reports concerning the Issuer to the extent required under
the Exchange Act and the rules and regulations of the Commission thereunder.
However, in accordance with the Exchange Act and the rules and regulations of
the Commission thereunder, the Servicer expects that the Issuer's obligation
to file such reports will be terminated following the end of 1998.
ii
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C>
INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE. i
AVAILABLE INFORMATION... ii
REPORTS TO NOTEHOLDERS.. ii
SUMMARY................. 1
RISK FACTORS............ 16
THE ISSUER AND THE SPC.. 21
GREEN TREE VENDOR
SERVICES CORPORATION... 22
THE LEASES.............. 25
MANAGEMENT'S DISCUSSION
AND ANALYSIS OF
FINANCIAL CONDITION OF
THE ISSUER............. 36
MANAGERS OF THE ISSUER.. 37
WEIGHTED AVERAGE LIFE OF
THE NOTES.............. 38
DESCRIPTION OF THE
NOTES.................. 39
DESCRIPTION OF THE
CONTRIBUTION AND
SERVICING AGREEMENT.... 52
CERTAIN LEGAL ASPECTS OF
THE LEASES............. 57
FEDERAL INCOME TAX
CONSEQUENCES........... 59
ERISA CONSIDERATIONS.... 64
RATINGS OF THE NOTES.... 65
USE OF PROCEEDS......... 65
EXPERTS................. 65
UNDERWRITING............ 65
LEGAL MATTERS........... 66
INDEX OF PRINCIPAL
TERMS.................. 67
INDEX TO FINANCIAL
STATEMENTS............. F-1
</TABLE>
iii
<PAGE>
SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus. Certain
capitalized terms used in this Summary are defined elsewhere in this Prospectus
on the pages indicated in the "Index of Principal Terms" on page 67.
Issuer....................... Green Tree Lease Finance 1997-1, LLC, a limited
liability company organized under the laws of
the State of Delaware. Green Tree Lease Finance
II, Inc. (the "SPC"), a wholly owned subsidiary
of Green Tree Vendor Services Corporation, is
the sole and managing member of the Issuer. See
"The Issuer and the SPC."
Servicer..................... Green Tree Vendor Services Corporation ("Vendor
Services"). See "Green Tree Vendor Services
Corporation."
Trustee...................... First Trust National Association, in its
capacity as trustee under an Indenture (the
"Indenture"), dated as of December 1, 1997,
between the Issuer and the Trustee.
The Notes.................... Pursuant to the Indenture, the Issuer will issue
six classes of notes (the "Notes"), consisting
of four classes of senior notes, designated as
the Lease-Backed Notes, Class A-1, in the
original principal amount of approximately
$196,466,000, the Lease-Backed Notes, Class A-
2, in the original principal amount of
approximately $52,897,000, the Lease-Backed
Notes, Class A-3, in the original principal
amount of approximately $218,183,000 and the
Lease-Backed Notes, Class A-4, in the original
principal amount of approximately $32,676,000
(together, the "Class A Notes"), and two
classes of subordinated notes, designated as
the Lease-Backed Notes, Class B, in the
original principal amount of approximately
$30,233,000 and the Lease-Backed Notes, Class
C, in the original principal amount of
approximately $19,239,587. Investments in the
respective Classes of Notes will represent
substantially different investment risks due
primarily to the relative priority of payments
from the Trust Assets to which each such Class
is entitled. The Class A Notes will be senior
in right of payment of interest to the Class B
Notes and Class C Notes, and the Class B Notes
will be senior in right of payment of interest
to the Class C Notes, as described under
"Interest" and "Priority of Payments" below.
Similarly, the Class A Notes will be senior in
right of payment of principal to the Class B
Notes and Class C Notes, and the Class B Notes
will be senior in right of payment of principal
to the Class C Notes, to the extent described
under "Principal" below. All principal will be
allocated to the Class A-1 Notes until paid in
full, and then to the Class A-2 Notes, Class A-
3 Notes, Class A-4 Notes, Class B Notes and
Class C Notes, as described under "Principal"
below. The Class A-1 Notes will have a Stated
Maturity Date that is significantly earlier
than the other Classes of Notes, as described
under "Stated Maturity Dates" below. See
"Description of the Notes."
1
<PAGE>
Interest..................... Interest on the outstanding principal balance of
the Notes of each Class will accrue at the
interest rate for such Class of Notes specified
on the cover page of this Prospectus (the
"Interest Rate" for such Class of Notes) from
and including the Closing Date to but excluding
February 20, 1998 (in the case of the first
interest period), and thereafter for each
successive Payment Date from and including the
most recent prior Payment Date to which
interest has been paid, to but excluding such
Payment Date, calculated (i) in the case of the
Class A-1 Notes, on the basis of actual days
elapsed in a year of 360 days, and (ii) in the
case of the Class A-2, Class A-3, Class A-4,
Class B and Class C Notes, on the basis of a
360-day year comprised of twelve 30-day months.
To the extent the Amount Available is
sufficient therefor, the amount of interest to
be paid on the Notes on each Payment Date will
be equal to the product of (i) the applicable
Interest Rate (calculated in the manner
described above) and (ii) the Outstanding
Principal Amount of such Class of Notes as of
such Payment Date (or, in the case of the first
interest period, interest accrued on the
original principal amount of such Class of
Notes from and including the Closing Date to
but excluding February 20, 1998). The
"Outstanding Principal Amounts" as of a Payment
Date shall mean the then unpaid principal
amounts of the Class A-1 Notes, the Class A-2
Notes, the Class A-3 Notes, the Class A-4
Notes, the Class B Notes and the Class C Notes
(determined prior to payment of any principal
in respect thereof on such Payment Date). See
"--Priority of Payments" below.
Principal.................... For each Payment Date, each of the Class A
Noteholders, the Class B Noteholders and the
Class C Noteholders will be entitled to receive
payments of principal, to the extent funds are
available therefor, in the priorities set forth
in the Indenture and described herein below and
under "--Priority of Payments" below and
"Description of the Notes--Principal." On each
Payment Date, to the extent funds are available
therefor, principal will be paid to the
Noteholders in the following priority:
(a)(i) to the Class A-1 Noteholders only,
until the Outstanding Principal Amount on the
Class A-1 Notes has been reduced to zero, the
Class A Principal Payment, then (ii) to the
Class A-2 Noteholders, Class A-3 Noteholders
and Class A-4 Noteholders, sequentially, the
Class A Principal Payment, in that order,
until the Outstanding Principal Amount of each
such Class has been reduced to zero,
(b) to the Class B Noteholders, the Class B
Principal Payment,
(c) to the Class C Noteholders, the Class C
Principal Payment,
(d) to the extent that the Class B Floor
exceeds the Class B Target Investor Principal
Amount and the Class C Floor exceeds
2
<PAGE>
the Class C Target Investor Principal Amount,
Additional Principal (defined below) shall be
distributed, sequentially, as an additional
principal payment on the Class A-2 Notes, the
Class A-3 Notes, the Class A-4 Notes, the
Class B Notes and the Class C Notes, in that
order, until the Outstanding Principal Amount
of each such Class has been reduced to zero,
and
(e) to the extent the Class C Floor exceeds
the Class C Target Investor Principal Amount,
but the Class B Floor does not exceed the
Class B Target Investor Principal Amount,
Additional Principal shall be distributed as
an additional principal payment on the Class A
and Class B Notes, pro rata (and among the
Class A Notes, sequentially on the Class A-2,
Class A-3 and Class A-4 Notes, in that order),
until the Outstanding Principal Amount of each
such Class has been reduced to zero.
The "Class A Principal Payment" shall equal (a)
while the Class A-1 Notes are outstanding, (i)
on all Payment Dates prior to the January 1999
Payment Date, the lesser of (1) the amount
necessary to reduce the Outstanding Principal
Amount on the Class A-1 Notes to zero and (2)
the Monthly Principal Amount, and (ii) on the
January 1999 Payment Date, the entire
Outstanding Principal Amount on the Class A-1
Notes and (b) after the Class A-1 Notes have
been paid in full, the amount necessary to
reduce the aggregate Outstanding Principal
Amount of the Class A Notes to the Class A
Target Investor Principal Amount.
The "Class B Principal Payment" shall equal (a)
while the Class A-1 Notes are outstanding, zero
and (b) after the Outstanding Principal Amount
on the Class A-1 Notes has been reduced to
zero, the amount necessary to reduce the
Outstanding Principal Amount of the Class B
Notes to the greater of the Class B Target
Investor Principal Amount and the Class B
Floor.
The "Class C Principal Payment" shall equal (a)
while the Class A-1 Notes are outstanding, zero
and (b) after the Outstanding Principal Amount
on the Class A-1 Notes has been reduced to
zero, the amount necessary to reduce the
Outstanding Principal Amount of the Class C
Notes to the greater of the Class C Target
Investor Principal Amount and the Class C
Floor.
"Additional Principal" with respect to each
Payment Date is an amount equal to (a) the
Monthly Principal Amount, less (b) the Class A
Principal Payment, the Class B Principal
Payment and the Class C Principal Payment to be
paid on such Payment Date.
The "Class A Target Investor Principal Amount"
with respect to each Payment Date is an amount
equal to the product of (a) the Class A
Percentage and (b) the Lease Pool Principal
Balance as of the last day of the Collection
Period related to such Payment Date.
The "Class B Target Investor Principal Amount"
with respect to each Payment Date is an amount
equal to the product of (a) the
3
<PAGE>
Class B Percentage and (b) the Lease Pool
Principal Balance as of the last day of the
Collection Period related to such Payment Date.
The "Class C Target Investor Principal Amount"
with respect to each Payment Date is an amount
equal to the product of (a) the Class C
Percentage and (b) the Lease Pool Principal
Balance as of the last day of the Collection
Period related to such Payment Date.
The "Class A Percentage" will be 85.994%. The
"Class B Percentage" will be 8.559%. The "Class
C Percentage" will be 5.447%.
The "Class B Floor" with respect to each Payment
Date means (a) 3.0% of the Initial Pool
Principal Balance, plus (b) the Cumulative Loss
Amount with respect to such Payment Date, minus
(c) the sum of the Outstanding Principal Amount
of the Class C Notes as of such Payment Date
and the amount on deposit in the Reserve
Account after giving effect to withdrawals to
be made on such Payment Date.
The "Class C Floor" with respect to each Payment
Date means (a) 2.0% of the Initial Pool
Principal Balance, plus (b) the Cumulative Loss
Amount with respect to such Payment Date minus
(c) the amount on deposit in the Reserve
Account after giving effect to withdrawals to
be made on such Payment Date; provided that if
the Outstanding Principal Amount of the Class B
Notes is equal to the Class B Floor on such
Payment Date, the Class C Floor will equal the
Outstanding Principal Amount of the Class C
Notes for such Payment Date.
The "Monthly Principal Amount" for any Payment
Date will equal the excess, if any, of (i) the
sum of the Outstanding Principal Amounts of the
Notes for such Payment Date, over (ii) the
aggregate of the Principal Balance of each
Lease (the "Lease Pool Principal Balance") as
of the last day of the Collection Period
relating to such Payment Date.
The "Cumulative Loss Amount" with respect to
each Payment Date is an amount equal to the
excess, if any, of
(a) the total of (i) the Outstanding
Principal Amount of the Notes for such Payment
Date, minus (ii) the lesser of (A) the Monthly
Principal Amount and (B) the Amount Available
remaining after the payment of amounts owing
to the Servicer (other than the Servicing Fee
to the extent that Vendor Services is the
Servicer) and in respect of interest on the
Notes on such Payment Date, over
(b) the Lease Pool Principal Balance as of
the last day of the Collection Period related
to such Payment Date.
The "Principal Balance" of any Lease as of the
last day of any Collection Period is:
4
<PAGE>
(1) in the case of any Lease that does not by
its terms permit prepayment or early
termination, the present value of the unpaid
Scheduled Payments due on such Lease after
such last day of the Collection Period
(excluding all Scheduled Payments due on or
prior to, but not received as of, such last
day, as well as any Scheduled Payments due
after such last day and received on or prior
thereto), after giving effect to any
Prepayments received on or prior to such last
day, discounted monthly (assuming, for
purposes of such calculation, that each
Scheduled Payment is due on the last day of
the applicable Collection Period) at the rate
of % per annum (the "Discount Rate"), which
rate is equal to (a) the weighted average
Interest Rate of the Class A (utilizing the
Class A-4 Interest Rate), Class B and Class C
Notes on the Closing Date, plus (b) the
Servicing Fee;
(2) in the case of any Lease that permits
prepayment or early termination only upon
payment of a premium that is at least equal to
the present value (calculated in the manner
described in clause (1) above) of the unpaid
Scheduled Payments due on such Lease after the
date of such prepayment, the amount specified
in clause (1) above; and
(3) in the case of any Lease that permits
prepayment or early termination without
payment of a premium at least equal to the
amount specified in clause (2) above, the
lesser of (a) the outstanding principal
balance of such Lease after giving effect to
Scheduled Payments due on or prior to such
last day of the Collection Period, whether or
not received, as well as any Prepayments, and
any Scheduled Payments due after such last
day, received on or prior to such last day,
and (b) the amount specified in clause (1)
above.
The "Initial Pool Principal Balance," which is
the aggregate Principal Balance of the Leases
as of the Initial Cut-Off Date, calculated at
the Discount Rate, is $ . "Statistical
Discounted Present Value of the Leases" means
an amount equal to the future remaining
Scheduled Payments (not including delinquent
amounts) on the Leases as of December 1, 1997,
discounted at a rate equal to 7.0% (the
"Statistical Discount Rate"). The Statistical
Discounted Present Value of the Leases as of
December 1, 1997 is $550,991,889.46.
The Principal Balance of any Lease which became
a Liquidated Lease during a given Collection
Period or which Vendor Services was obligated
to purchase as of the end of a given Collection
Period due to a breach of representations and
warranties, will be deemed to be zero on and
after the last day of such Collection Period.
A "Liquidated Lease" is any Lease (a) which the
Servicer has charged off as uncollectible in
accordance with its credit and
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collection policies and procedures (which shall
be no later than the date as of which the
Servicer has repossessed and disposed of the
related Equipment, or otherwise collected all
proceeds which, in the Servicer's reasonable
judgment, can be collected under such Lease),
or (b) as to which 10% or more of a Scheduled
Payment is delinquent 180 days or more. See
"Description of the Notes--Principal."
The "Collection Period" for any Payment Date
will be the calendar month preceding the month
in which such Payment Date occurs (except that
the Collection Period for the Payment Date in
February 1998 will include December 1997 and
January 1998).
Stated Maturity Dates........ If and to the extent not previously paid, the
outstanding principal balance of each Class of
Notes will be payable on the Stated Maturity
Date of such Class of Notes. The Class A-1
Stated Maturity Date will be January 20, 1999,
and the Class A-2 Stated Maturity Date, the
Class A-3 Stated Maturity Date, the Class A-4
Stated Maturity Date, the Class B Stated
Maturity Date and the Class C Stated Maturity
Date will be September 20, 2005. If all
payments on the Leases are made as scheduled,
however, final payment with respect to the
Class A-2, Class A-3, Class A-4, Class B and
Class C Notes would occur prior to their Stated
Maturity.
Denominations................ The Notes will be available for purchase in
minimum denominations of $10,000 and integral
multiples of $1,000 in excess thereof, except
that one Class C Note may be issued in another
denomination.
Closing Date................. On or about December , 1997.
Payment Dates and Record
Dates....................... Interest and principal on the Notes will be paid
on the 20th day of each month (or, if such 20th
day is not a Business Day, the next succeeding
Business Day), commencing in February 1998, to
Holders of record on the Business Day
immediately preceding such Payment Date (so
long as the Notes are held in book-entry form),
or to Holders of record on the last day of the
preceding calendar month (if Definitive Notes
have been issued).
Subordination................ The likelihood of payment of interest on each
Class of Notes will be enhanced by the
application of the Amount Available to the
payment of such interest prior to the payment
of principal on any of the Notes, as well as by
the preferential right of the Holders of Class
A and Class B Notes to receive such interest
(1) in the case of the Class A Notes, prior to
the payment of any interest on the Class B
Notes and the Class C Notes, and (2) in the
case of the Class B Notes, prior to the payment
of any interest on the Class C Notes. Likewise,
the likelihood of payment of principal, to the
extent of the Class A Principal Payment and the
Class B Principal Payment on a Payment Date
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<PAGE>
on the Class A and Class B Notes, respectively,
will be enhanced by the preferential right of
the Holders of Notes of each such Class to
receive such principal, to the extent of the
Amount Available after payment of interest on
the Notes as aforesaid, (i) in the case of the
Class A Notes, prior to the payment of any
principal due on such Payment Date on the Class
B Notes and Class C Notes, and (ii) in the case
of the Class B Notes, prior to the payment of
any principal due on such Payment Date on the
Class C Notes. See "Description of the Notes."
Ratings...................... It is a condition of issuance of the Notes that
each of Standard & Poor's Ratings Services, a
division of The McGraw-Hill Companies, Inc.
("S&P") and Fitch I.B.C.A., Inc. ("Fitch")
(together, the "Rating Agencies") (i) rate the
Class A-1 Notes "A-1+" and "F-1+,"
respectively, (ii) rate the Class A-2 Notes,
Class A-3 Notes and Class A-4 Notes "AAA",
(iii) rate the Class B Notes at least "A" and
(iv) rate the Class C Notes at least "BBB". The
rating of each Class of Notes addresses the
likelihood of the timely receipt of interest
and payment of principal on such Class of Notes
on or before the Stated Maturity Date for such
Class of Notes. A rating is not a
recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at
any time by the assigning Rating Agency. The
ratings of the Notes do not address the
likelihood of payment of principal on any Class
of Notes prior to the Stated Maturity Date
thereof. See "Ratings of the Notes."
Trust Assets................. The Trust Assets will consist of:
(i)a pool of equipment lease contracts (each,
a "Lease") with various lessees, borrowers or
other obligors thereunder (each, an "Obligor"),
including all monies at any time paid or
payable thereon or in respect thereof from and
after December 1, 1997 (the "Initial Cut-Off
Date") or, in the case of Substitute Leases,
the first day of the month of transfer to the
Issuer (each such date, or the Initial Cut-Off
Date, as applicable to each Lease, a "Cut-Off
Date") in the form of (1) Scheduled Payments
(including all Scheduled Payments due prior to,
but not received as of, the Cut-Off Date, but
excluding any Scheduled Payments due on or
after, but received prior to, the Cut-Off
Date), (2) Prepayments and (3) Liquidation
Proceeds (including all net proceeds from the
disposition of the related Equipment);
(ii) certain rights to Residual Realizations
and amounts, if any, on deposit in the Residual
Account (described below);
(iii) amounts on deposit in (and Eligible
Investments allocated to) certain accounts
established pursuant to the Indenture and the
Contribution and Servicing Agreement, including
the Collection Account;
(iv) amounts on deposit in the Reserve
Account; and
(v) certain other property and assets as
herein described.
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<PAGE>
On the Closing Date, Vendor Services will
contribute to the SPC all of its right, title
and interest in the Leases and the related
Equipment, pursuant to the Transfer Agreement
between Vendor Services and the SPC. The SPC
will immediately contribute the Leases to the
Issuer and convey to the Issuer certain rights
to the Residual Realizations. The Trust Assets
will secure payment of the Notes. See "Source
of Payment and Security" below and "The Issuer
and the SPC."
Source of Payment and
Security.................... Principal of and interest on the Notes will be
paid on each Payment Date solely from, and
secured by, the "Amount Available" for such
Payment Date, which is equal to the sum of (a)
those Pledged Revenues on deposit in the
Collection Account as of the last Business Day
preceding the related Determination Date (the
"Deposit Date") which were received by the
Servicer during the related Collection Period
or which represent amounts paid by Vendor
Services to repurchase Leases as of the end of
such Collection Period and investment earnings
on funds on deposit in the Collection Account
(the "Available Pledged Revenues"), plus (b)
Servicer Advances made by the Servicer, plus
(c) funds, if any, on deposit in the Residual
Account plus (d) funds on deposit in the
Reserve Account.
"Pledged Revenues" will consist of:
(i) "Scheduled Payments" on the Leases (which
will consist of all required payments under the
Leases other than those portions of such
payments which (A) under the Leases, are to be
applied by the Servicer to the payment of
insurance charges, maintenance, taxes and other
similar obligations or (B) under the
Contribution and Servicing Agreement, are to be
retained by the Servicer in payment of
Administrative Fees or are late payments as to
which Servicer Advances were made on a Payment
Date) received on or after the Cut-Off Date and
due during the term of the Leases, without
giving effect to end-of-term extensions or
renewals thereof (including all Scheduled
Payments due prior to, but not received as of,
the Cut-Off Date, but excluding any Scheduled
Payments due on or after, but received prior
to, the Cut-Off Date);
(ii) any voluntary prepayments ("Prepayments")
of Scheduled Payments received on or after the
Cut-Off Date under the Leases;
(iii) any amounts paid by Vendor Services to
repurchase Leases (to the extent Vendor
Services has not delivered Substitute Leases)
due to a breach of representations and
warranties with respect thereto, as described
under "--Mandatory Repurchase or Substitution
of Certain Leases" below;
(iv) any amounts paid by the SPC to repurchase
the Leases as described under "--Optional
Repurchase of Leases" below;
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<PAGE>
(v) all net proceeds derived from the
liquidation of the Leases and the related
Equipment, as described under "--Liquidated
Leases" below (unless Vendor Services has
substituted a Substitute Lease therefor); and
(vi) any earnings on the investment of amounts
credited to the Collection Account.
Servicer Advances............ Prior to any Payment Date, the Servicer may, but
will not be required to, advance to the Trustee
an amount sufficient to cover delinquencies in
Scheduled Payments on the Leases with respect
to the prior Collection Period (a "Servicer
Advance"). The Servicer will be reimbursed for
Servicer Advances from late payments on the
delinquent Leases with respect to which such
advances were made and, if the Servicer later
determines that such Servicer Advance will not
be reimbursed from the recovery on the
delinquent Lease (a "Nonrecoverable Servicer
Advance"), from the Amount Available on the
next Payment Date.
Residual Realizations........ Cash flows realized from the sale or re-lease of
the Equipment following the scheduled
expiration dates or voluntary early termination
of the Leases, other than Equipment subject to
Liquidated Leases (the "Residual
Realizations"), will provide additional credit
support to the Notes. During each Collection
Period, the Residual Realizations will be
deposited in the Residual Account. As provided
in the Indenture, funds on deposit in the
Residual Account will be available to cover
shortfalls in the Available Pledged Revenues to
pay interest and principal payments then due on
the Notes. As of the Initial Cut-Off Date, the
aggregate residual value of the Equipment
recorded on the accounting books of Vendor
Services (the "Book Value") of the Leases was
$49,422,100.38. Actual Residual Realizations
may be more or less than the Book Value. The
Residual Realizations for a Collection Period
not distributed to Noteholders, paid to the
Servicer or deposited into the Reserve Account
on the related Payment Date will be released to
the SPC on such Payment Date, except during the
continuation of certain limited circumstances
specified in the Indenture (a "Residual
Event"). During the continuation of a Residual
Event, amounts in the Residual Account that
otherwise would be released to the SPC will be
retained in the Residual Account for
application on future Payment Dates. Upon the
termination of a Residual Event, any amounts on
deposit in the Residual Account will be (i)
deposited into the Reserve Account, to the
extent that the amount on deposit in the
Reserve Account is less than the Required
Reserve Amount, or (ii) released to the SPC and
thereafter will not be available to Noteholders
under any circumstance. The Residual Events
will be established prior to the Closing Date
based on criteria prescribed by the Rating
Agencies. Such criteria may be amended or
otherwise altered after the Closing Date,
without the
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<PAGE>
consent of Noteholders, to alter the
performance parameters that must occur to cause
a Residual Event, so long as doing so would not
cause either Rating Agency to reduce, withdraw
or qualify any of its ratings on the Notes.
Reserve Account.............. The Noteholders will have the benefit of funds
on deposit in an account (the "Reserve
Account") to the extent that there is a
shortfall in the Available Pledged Revenues to
make interest and principal payments on the
Notes on any Payment Date and amounts on
deposit in the Residual Account are
insufficient to make up such shortfall. The
Reserve Account will be funded by an initial
deposit of 2.00% of the Initial Pool Principal
Balance. Thereafter, to the extent provided in
the Indenture, additional deposits will be made
to the Reserve Account to the extent that the
amount on deposit in the Reserve Account (the
"Available Reserve Amount") is less than the
Required Reserve Amount. The "Required Reserve
Amount" equals the lesser of (a) 2.00% of the
Initial Pool Principal Balance and (b) the
Outstanding Principal Amount of the Notes.
Amounts on deposit in the Reserve Account in
excess of the Required Reserve Amount will be
disbursed to the SPC in accordance with the
provisions of the Indenture, and thereafter
will not be available to Noteholders under any
circumstance.
The Leases................... The aggregate of the Leases held by the Issuer
as part of the Trust Assets, as of any
particular date, is referred to as the "Lease
Pool," and the Lease Pool, as of the Initial
Cut-Off Date, is referred to as the "Cut-Off
Date Pool." Unless otherwise noted, the
statistical information contained in this
Prospectus regarding the Cut-Off Date Pool is
calculated based on the Statistical Discounted
Present Value of the Leases and the Statistical
Discount Rate. "Statistical Discounted Present
Value of the Leases" means an amount equal to
the future remaining Scheduled Payments (not
including delinquent amounts) on the Leases as
of the Initial Cut-Off Date, discounted at a
rate equal to the Statistical Discount Rate.
The Statistical Discounted Present Value of the
Leases as of the Initial Cut-Off Date is
$550,991,889.46 and will not vary materially
from the Initial Pool Principal Balance.
The following are the characteristics of the
Cut-Off Date Pool as of the Initial Cut-Off
Date, based on the Statistical Discounted
Present Value of the Leases:
(i) There were 54,483 Leases.
(ii) The average Principal Balance was
approximately $10,113.10.
(iii) Approximately 27.06% of such Leases
related to data processing equipment;
approximately 19.35% of such Leases related to
office equipment; approximately 19.20% of such
Leases related to telecommunications equipment;
and approximately 8.90% of such Leases related
to commercial laundry equipment.
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<PAGE>
(iv) The Obligors on approximately 14.27% of
the Leases were located in California;
approximately 11.14% were located in New York;
approximately 7.74% were located in Florida;
approximately 7.49% were located in Texas;
approximately 5.66% were located in New Jersey;
and no other state represented more than 5.0%
of the Statistical Discounted Present Value of
the Leases.
(v) The remaining term of the Leases ranged
from 6 months to 82 months.
(vi) The weighted average remaining term of
the Leases was approximately 35.67 months and
the weighted average age of the Leases was
approximately 14.93 months. See "The Leases--
Certain Statistics Relating to the Cut-Off Date
Pool."
(vii) The Leases with a single Obligor having
the largest aggregate Principal Balance as of
the Cut-Off Date represented no more than 0.20%
of the Statistical Discounted Present Value of
the Leases.
Vendor Services will make certain
representations and warranties regarding each
Lease in connection with its contribution of
the Leases to SPC, and will be obligated to
repurchase (or substitute another lease for)
any Lease in the event of a breach of any such
representation or warranty that materially and
adversely affects the value of such Lease. See
"Mandatory Repurchase or Substitution of
Certain Leases" below.
Lease Prepayments............ Vendor Services will represent and warrant that
none of the Leases permit the Obligor
thereunder to prepay the amounts due under such
Lease or otherwise terminate the Lease prior to
its scheduled expiration date (except for a de
minimis number of Leases which allow for a
prepayment or early termination upon payment of
an amount which is not less than the Required
Payoff Amount). Nevertheless, under the
Contribution and Servicing Agreement, the
Servicer will be permitted to allow Prepayments
of any of the Leases, but only if the amount
paid by or on behalf of the Obligor (or, in the
case of a partial Prepayment, the sum of such
amount and the remaining Principal Balance of
the Lease after application of such amount) is
at least equal to the Required Payoff Amount
for such Lease.
The "Required Payoff Amount," with respect to
any Collection Period for any Lease, is equal
to the sum of:
(i) the Scheduled Payment due in such
Collection Period, together with any Scheduled
Payments due in prior Collection Periods and
not yet received, plus
(ii) the Principal Balance of such Lease as of
the last day of such Collection Period (after
taking into account the Scheduled Payment due
in such Collection Period).
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<PAGE>
Liquidated Leases............ Liquidation Proceeds (which will consist
generally of all amounts received by the
Servicer in connection with the liquidation of
a Liquidated Lease and disposition of the
related Equipment, net of any related out-of-
pocket liquidation expenses) will be deposited
in the Collection Account and constitute
Pledged Revenues to be applied to the payment
of interest and principal on the Notes in
accordance with the priorities described under
"Priority of Payments" below (except that, to
the extent that Vendor Services elects to
substitute one or more Substitute Leases for
all or a portion of the unpaid Principal
Balance of the Liquidated Lease, Liquidation
Proceeds will be remitted to Vendor Services
and will not be available to Noteholders).
Servicing.................... The Servicer will be responsible for managing,
administering, servicing and making collections
on the Leases. Compensation to the Servicer
will include a monthly fee (the "Servicing
Fee"), which will be payable to the Servicer
from the Amount Available on each Payment Date
(payable in accordance with the priorities
described under "Priority of Payments" below),
in an amount equal to the product of one-
twelfth of .75% per annum multiplied by the
Lease Pool Principal Balance determined as of
the last day of the second preceding Collection
Period (or, in the case of the Servicing Fee
with respect to the Collection Period
commencing on the Initial Cut-Off Date, the
Initial Pool Principal Balance), plus any late
fees, late payment interest, documentation
fees, insurance administration charges and
other administrative charges and a portion of
any extension fees (collectively, the
"Administrative Fees") collected with respect
to the Leases during the related Collection
Period and any investment earnings on
collections prior to deposit thereof in the
Collection Account. The Servicer may be
terminated as Servicer under certain
circumstances, in which event a successor
Servicer would be appointed to service the
Leases. See "Description of the Contribution
and Servicing Agreement--Servicing--Events of
Termination."
Mandatory Repurchase or
Substitution of Certain
Leases...................... Vendor Services will make certain
representations and warranties with respect to
each Lease and the related Equipment, as more
fully described in "The Leases--Representations
and Warranties Made by Vendor Services." The
Trustee will be entitled to require Vendor
Services to repurchase any Lease and the
related Equipment, at a price equal to (i) the
Required Payoff Amount, plus (ii) the Book
Value (if any) of the related Equipment, if the
value of the Lease is materially and adversely
affected by a breach of any such representation
or warranty which is not cured within a
specified period.
Vendor Services will have the option to
substitute one or more Leases having similar
characteristics (each, a "Substitute Lease")
for (a) Liquidated Leases, (b) Leases subject
to
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<PAGE>
repurchase as a result of a breach of
representation and warranty ("Warranty Leases")
and (c) Leases following a material
modification or adjustment to the terms of such
Lease ("Adjusted Leases"). The aggregate
Principal Balance of the Liquidated Leases,
Warranty Leases or Adjusted Leases for which
Vendor Services may substitute Substitute
Leases is limited to an amount not in excess of
10% of the Initial Pool Principal Balance.
In no event will the Lease Pool Principal
Balance after the inclusion of the Substitute
Leases, be less than the Lease Pool Principal
Balance prior to such substitution. In
addition, after giving effect to such
substitutions, the aggregate Book Value of the
Equipment subject to the Leases will not be
materially less than the aggregate Book Value
of the Equipment subject to the Leases
immediately prior to such substitutions.
Additionally, the final payment on each
Substitute Lease must be on or prior to
September 2004 or, to the extent the final
payment on such Lease is due subsequent to
September 2004, only scheduled payments due on
or prior to such date may be included in
calculating the Principal Balance of such
Lease.
Servicing and Collection The Trustee will establish and maintain a
Accounts.................... Servicing Account, into which the Servicer will
deposit, no later than the second Business Day
after receipt thereof, all Scheduled Payments,
Prepayments, Liquidation Proceeds and other
amounts received by the Servicer in respect of
the Leases on and after the Cut-Off Date. The
Trustee will also establish and maintain (i)
the Collection Account, into which those
amounts deposited in the Servicing Account and
constituting Pledged Revenues will be
transferred within three Business Days
following the deposit thereof in the Servicing
Account, and (ii) the Residual Account, into
which those amounts deposited in the Servicing
Account and constituting Residual Realizations
will be transferred within three Business Days
following the deposit thereof in the Servicing
Account. The Servicer will be permitted to use
any alternative remittance schedule for making
deposits into such accounts which is acceptable
to the Rating Agencies if the effect thereof
will not result in a qualification, reduction
or withdrawal of any of the ratings then
applicable to the Notes. See "Description of
the Contribution and Servicing Agreement--
Collections on Leases."
Priority of Payments......... On each Payment Date, the Trustee will be
required to make the following payments, first,
from the Available Pledged Revenues plus any
Servicer Advances, second, from amounts on
deposit in the Residual Account as described
under "Residual Realizations" above and third,
from amounts on deposit in the Reserve Account
as described under "Reserve Account" above, in
the following order of priority (except as
otherwise described under "Description of the
Notes--Events of Default; Rights Upon Event of
Default"):
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<PAGE>
(i) the Servicing Fee (if Vendor Services or
an affiliate is no longer the Servicer);
(ii) to reimburse the Servicer for
unreimbursed Nonrecoverable Servicer Advances
made with respect to a prior Payment Date;
(iii) interest on the Notes in the following
order of priority:
(a) interest on the Class A Notes,
(b) interest on the Class B Notes, and
(c) interest on the Class C Notes;
(iv) an amount equal to the Monthly Principal
Amount as of such Payment Date, to the Class A,
Class B and Class C Notes in the amount and
order of priority described under "Principal"
above;
(v) from Available Pledged Revenues and
amounts (if any) on deposit in the Residual
Account, to the Reserve Account, an amount
equal to the excess of the Required Reserve
Amount over the Available Reserve Amount;
(vi) from Available Pledged Revenues only, for
so long as Vendor Services or an affiliate is
the Servicer, the Servicing Fee; and
(vii) the remainder of Available Pledged
Revenues, if any, to the SPC.
Optional Repurchase of The SPC may repurchase all of the Leases on any
Leases...................... Payment Date following the date on which the
unpaid principal balance of the Notes is less
than 10% of the Initial Pool Principal Balance.
The purchase price to be paid in connection
with such repurchase shall be at least equal to
the unpaid principal balance of the Notes as of
such Payment Date plus interest to be paid on
the Notes on such Payment Date. The proceeds of
such repurchase shall be applied on such
Payment Date to the payment of the remaining
principal balance of the Notes, together with
accrued interest thereon.
Tax Status................... In the opinion of counsel to the Issuer, the
Notes will be characterized as indebtedness and
the Issuer will not be characterized as an
"association" or "publicly traded partnership"
taxable as a corporation for federal income tax
purposes. Each Noteholder, by its acceptance of
a Note, will agree to treat the Notes as
indebtedness for federal, state and local
income tax purposes. Prospective investors are
advised to consult their own tax advisors
regarding the federal income tax consequences
of the purchase, ownership and disposition of
Notes, and the tax consequences arising under
the laws of any state or other taxing
jurisdiction. See "Federal Income Tax
Consequences."
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<PAGE>
ERISA Considerations......... If the Notes are considered to be indebtedness
without substantial equity features under a
regulation issued by the United States
Department of Labor, the acquisition or holding
of Notes by or on behalf of a Benefit Plan will
not cause the assets of the Issuer to become
plan assets, thereby generally preventing the
application of certain prohibited transaction
rules of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and
the Internal Revenue Code of 1986, as amended
(the "Code"), that otherwise could possibly be
applicable. Although there can be no assurances
in this regard, it appears that the Notes
should be treated as indebtedness without
substantial equity features for purposes of
such regulation. As a result, subject to the
considerations described in "ERISA
Considerations" herein, the Notes are eligible
for purchase with plan assets of any Benefit
Plan. However, a fiduciary or other person
contemplating purchasing the Notes on behalf of
or with plan assets of any Benefit Plan should
carefully review with its legal advisors
whether the purchase or holding of the Notes
could give rise to a transaction prohibited or
not otherwise permissible under ERISA or
Section 4975 of the Code. See "ERISA
Considerations."
Legal Investment............. The Class A-1 Notes will be eligible securities
for purchase by money market funds under Rule
2a-7 under the Investment Company Act of 1940.
A fund should consult with its advisors
regarding the eligibility of the Class A-1
Notes under Rule 2a-7 and the fund's investment
policies and objectives.
Registration, Clearance and
Settlement of Notes......... Each of the Notes will be registered in the name
of Cede & Co., as the nominee of The Depository
Trust Company ("DTC"), and will be available
for purchase only in book-entry form on the
records of DTC and participating members
thereof. Notes will be issued in definitive
form only under the limited circumstances
described under "Description of the Notes--
Definitive Notes." All references herein to
"Holders" or "Noteholders" shall reflect the
rights of beneficial owners of Notes (the "Note
Owners"), as they may indirectly exercise such
rights through DTC and participating members
thereof, except as otherwise specified herein.
See "Description of the Notes--Book-Entry
Registration."
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<PAGE>
RISK FACTORS
Prospective Noteholders should consider the following factors in connection
with the purchase of the Notes:
RISKS RESULTING FROM LIMITED ASSETS OF THE ISSUER
The Issuer will have no assets other than the Leases (including the
Liquidation Proceeds derived from the liquidation of defaulted Leases),
certain rights to Residual Realizations on the Equipment, amounts on deposit
from time to time in the Collection Account, the Residual Account, the Reserve
Account and the accounts established pursuant to the Contribution and
Servicing Agreement. The Notes will represent obligations solely of the
Issuer, and none of the Notes will be insured or guaranteed, directly or
indirectly, by Vendor Services, the SPC, or the Trustee (or any affiliate of
any of them) or any other person or entity. As a result, the Noteholders may
be subject to delays in payment and may incur losses on their investment as a
result of defaults or delinquencies on the Leases and because of depreciation
in the value of the related Equipment or other inability to realize on the
Equipment. See "--Enforceability of the Leases" below.
RISKS OF LOSSES TO HOLDERS OF THE CLASS B NOTES AND CLASS C NOTES RESULTING
FROM SUBORDINATION
Payments of interest and principal on the Class B Notes will be subordinated
in priority of payment to interest and principal, respectively, on the Class A
Notes. Similarly, payments of interest and principal on the Class C Notes will
be subordinated in priority of payment to interest and principal,
respectively, on the Class A Notes and the Class B Notes. In addition,
payments of principal on the Notes will be subordinated in priority of payment
to payments of interest on the Notes to the extent described herein under
"Description of the Notes--Distributions" and "--Subordination of Class B
Notes and Class C Notes."
The only protection afforded the Class C Noteholders against delinquencies
and defaults on the Leases and resulting losses of principal will be any
Residual Realizations each month, and the amounts, if any, on deposit in the
Residual Account and the Reserve Account (in each case to the extent not used
to make payments of interest and principal on the Class A and Class B Notes).
With respect to the Class C Notes, sufficiently high delinquencies and
liquidation losses on the Leases will have the effect of reducing, and could
eliminate, the protection against loss afforded by the Residual Realizations
and the amounts, if any, on deposit in the Residual Account and the Reserve
Account. As a result, the Class C Noteholders would bear directly the risk of
losses on the remaining Trust Assets, and the Class C Noteholders could incur
losses on their investment as a result.
Further, delinquencies and defaults on the Leases could eliminate the
protection afforded the Class B Noteholders by the subordination of the Class
C Notes, and the Class B Noteholders could incur losses on their investment as
a result. In addition, delinquencies and defaults on the Leases could
eliminate the protection offered to the Class A Noteholders by the
subordination of the Class B Notes and the Class C Notes, and the Class A
Noteholders could also incur losses on their investment as a result.
RISKS RELATED TO BANKRUPTCY
Risks Relating to Characterization of the Transfer of the Leases and
Equipment as a Borrowing by Vendor Services. Dorsey & Whitney LLP, counsel to
the Issuer, will deliver a legal opinion to the effect that, subject to the
qualifications and limitations expressed therein, the transfer of the Leases
and the Equipment from Vendor Services to the SPC constitutes a sale or
absolute assignment, rather than a pledge to secure indebtedness of Vendor
Services; and that in the event that Vendor Services were to become a debtor
under the federal bankruptcy code, a creditor or trustee in bankruptcy would
be unable to successfully challenge the transfer of the
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Leases and the Equipment to the SPC and the Leases, payments thereunder and
the Equipment would not be property of the bankruptcy estate of Vendor
Services. However, if Vendor Services were to become a debtor under the
federal bankruptcy code or similar applicable state laws (collectively,
"Insolvency Laws"), a creditor or trustee in bankruptcy of Vendor Services, or
Vendor Services as debtor-in-possession, might argue that such transfer of the
Leases and the Equipment from Vendor Services to the SPC was (or should be
recharacterized as) a pledge of such assets rather than a sale or absolute
assignment. If this position were accepted by a court, any Leases considered
to be "true" leases under the applicable Insolvency Laws (as described under
"The Leases-- Description of the Leases"), and any other Lease considered to
be executory under such Insolvency Laws, could be rejected by such trustee in
bankruptcy or by Vendor Services as debtor-in-possession, which would result
in the termination of Scheduled Payments under any such Leases and reductions
in distributions to Noteholders, and Noteholders could incur a loss on their
investment as a result. To reduce the likelihood of such rejection, UCC
financing statements perfecting a security interest for the benefit of the SPC
in Vendor Services' interests in the Equipment, and assignments of such
perfected security interest to the Issuer and the Trustee, will be filed
against Vendor Services in those states where Equipment subject to Leases
constituting at least 75% of the Initial Pool Principal Balance and at least
75% of the aggregate Book Value as of December 1, 1997 is located. Even if
such Leases were not so rejected in the event of an insolvency of Vendor
Services, the Issuer and the Trustee could experience a delay in or reduction
of collections on all of the Leases, and Noteholders could incur a loss on
their investment as a result.
A case decided by the United States Court of Appeals for the Tenth Circuit
contains language to the effect that accounts sold by an entity that
subsequently became bankrupt remained property of the debtor's bankruptcy
estate because the sale of accounts is treated as a "security interest" that
must be perfected under the Uniform Commercial Code ("UCC"). Although the
Leases constitute chattel paper or general intangibles rather than accounts
under the UCC, sales of chattel paper, like sales of accounts, must be
perfected under Article 9 of the UCC. If Vendor Services were to become a
debtor under any Insolvency Law and a court were to follow the reasoning of
the Tenth Circuit Court of Appeals and apply such reasoning to chattel paper,
the Issuer (and thus the Trustee) could experience a delay in or reduction of
collections on the Leases, and Noteholders could incur a loss on their
investment as a result.
Risks Relating to Substantive Consolidation of Vendor Services and the
SPC. Dorsey & Whitney LLP will deliver a legal opinion to the effect that,
subject to the qualifications and limitations expressed therein, if Vendor
Services were to become a debtor in a bankruptcy case, a bankruptcy court
would not order that the assets and liabilities of the SPC be consolidated
with those of Vendor Services. The SPC has taken steps in structuring the
transactions described herein that are intended to prevent the voluntary or
involuntary application for relief by or on behalf of Vendor Services under
any Insolvency Law from resulting in the consolidation of the assets and
liabilities of the SPC with those of Vendor Services. Such steps include the
maintenance of separate books and records and the insistence on arm's-length
terms in all agreements with Vendor Services and affiliates thereof.
Nevertheless, there can be no assurance that, in the event of a bankruptcy or
insolvency of Vendor Services, a court would not order that the Issuer's or
the SPC's assets and liabilities be consolidated with those of Vendor
Services. Any such order would adversely affect the Issuer's ability to
receive payments on the Leases, and Noteholders could incur a loss on their
investment as a result.
Risks Related to Fraudulent Transfer Laws. Under federal or state fraudulent
transfer laws, a court could, among other things, subordinate the rights of
the Noteholders in the Leases and Equipment to the rights of creditors of
Vendor Services, if a court were to find, among other things, that Vendor
Services received less than reasonably equivalent value or fair consideration
for the Leases and the Equipment and, at the time of any transfers, was
insolvent or rendered insolvent as a result of such transfer, and Noteholders
could incur a loss on their investment as a result.
Risks Relating to Commingling of Trust Assets by Vendor Services as
Servicer. While Vendor Services is the Servicer, cash collections held by
Vendor Services will be commingled and used for the benefit of the Servicer
prior to the date on which such collections are required to be deposited in a
Collection Account as described under "Description of the Contribution and
Servicing Agreement--Collections on Leases" and, in the
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event of the insolvency or receivership of the Servicer or, in certain
circumstances, the lapse of certain time periods, the Issuer may not have a
perfected ownership or security interest in such collections, and Noteholders
could incur a loss on their investment as a result.
Risks Relating to Reliance on Representations and Warranties Made by Vendor
Services. Vendor Services will make certain representations and warranties
regarding the Leases, the Equipment and certain other matters (see "The
Leases--Representations and Warranties Made by Vendor Services"). In the event
that any such representation or warranty with regard to a specific Lease is
breached, is not cured within a specified period of time, and the value of
such Lease is materially and adversely affected by such breach, Vendor
Services will be required to purchase the Lease from the Issuer at a price
equal to the Required Payoff Amount of such Lease and, if there is a Book
Value of the related Equipment, will be required to purchase the related
Equipment from the SPC at a price equal to the Book Value thereof (or, subject
to certain conditions, deliver a Substitute Lease therefor). In the event of a
bankruptcy or insolvency of Vendor Services, the Trustee's right to compel a
purchase would be impaired and would have to be satisfied out of the available
assets, if any, of Vendor Services's bankruptcy estate, and Noteholders could
incur a loss on their investment as a result.
Risks Relating to Insolvency of the SPC or the Issuer. If the SPC or the
Issuer were to become insolvent under any Insolvency Law, delays in the amount
of distributions to Noteholders would be likely and Noteholders could incur a
loss on their investment as a result. The SPC and the Issuer have each taken
certain steps to minimize the likelihood that it will become bankrupt or
otherwise insolvent. The SPC is prohibited by its organizational documents and
the Transfer Agreement from engaging in activities (including the incurrence
or guaranty of debt) other than those permitted by the Transfer Agreement. See
"The Issuer and the SPC." Its Articles of Incorporation also contain
restrictions on the SPC's ability to commence a voluntary case or proceeding
under any Insolvency Law without the affirmative vote of all its directors,
including its independent directors. The Issuer is subject to similar
constraints under the Contribution and Servicing Agreement and its LLC
Agreement, including the requirement that an affirmative vote of all of the
SPC's directors, including the independent director, occur before the Issuer
may commence any such insolvency proceeding. The Trustee, on behalf of the
Noteholders, will covenant not to subject the SPC or the Issuer to bankruptcy
proceedings until the Notes have been paid in full and one year and one day
has elapsed. Vendor Services believes that such actions substantially mitigate
the risk of an involuntary bankruptcy petition being filed against either the
SPC or the Issuer.
Risk Relating to Insolvency of a Financial Intermediary. As described under
"Green Tree Vendor Services Corporation--Equipment Lease Business," Vendor
Services from time to time acquires leases from financial intermediaries.
Similar to the risks described above related to any insolvency of Vendor
Services, in the event that a financial intermediary were to become insolvent,
the sale of the related Leases from such financial intermediary to Vendor
Services could be characterized as a fraudulent transfer or as a pledge to
secure indebtedness rather than a sale. In such event, the Issuer and the
Trustee could experience a delay in or reduction of collections on such
Leases, and Noteholders could incur a loss on their investment as a result.
PREPAYMENT AND EARLY TERMINATION OF LEASES AND RELATED REINVESTMENT RISKS
The weighted average life of the Notes may be reduced by prepayments and
early terminations of the Leases. Prepayments and early terminations may
result from payments by Obligors, certain amounts received as a result of
default or early termination of a Lease, the receipt of proceeds from the
physical damage to the Equipment to the extent described herein under "The
Leases," purchases by Vendor Services of Leases as a result of certain uncured
breaches of the representations and warranties made by it with respect thereto
(see "The Leases--Representations and Warranties Made by Vendor Services") or
the SPC exercising its option to purchase all of the remaining Leases (see
"Description of the Notes--Optional Purchase of Leases"). Most of the Leases
do not permit a prepayment or early termination thereof. Nevertheless, Vendor
Services historically has permitted lessees to terminate leases early, either
in connection with the execution of a new lease of replacement equipment or
upon payment of a negotiated prepayment premium, or both. The Contribution and
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Servicing Agreement will permit the Servicer to allow a voluntary prepayment
of a Lease by an Obligor at any time so long as the amount paid by or on
behalf of the Obligor (or, in the case of a partial prepayment, the sum of
such amount and the remaining Principal Balance of the Lease after application
of such amount) is at least equal to the Required Payoff Amount for such
Lease. The amounts so received in respect of such prepayments are to be added
to the Amount Available and applied in the priority described in "Description
of the Notes--Distributions." The rate of prepayments and early terminations
on the Leases (including those due to Obligors seeking early termination and
those due to defaults) may be influenced by a wide variety of economic and
other factors, including, among others, changes in the reimbursement policies
of governmental or third party payors, obsolescence of the Equipment, changes
in interest rates, changes in the local, regional or national economies or
changes in federal income tax laws. Therefore, no assurance can be given as to
the rate of prepayments or as to whether there will be a substantial amount of
prepayments, nor can any assurance be given as to the level or timing of any
prepayments that do occur. As the rate of payment of principal of the Notes
will depend (in the absence of Substitute Leases, as described below) on the
rate of payment (including prepayments) on the Leases, the rate at which such
principal will be paid cannot be predicted and the final payment of a Class of
Notes could occur significantly earlier than the Stated Maturity Date of such
Class of Notes. There can be no assurance that Noteholders will be able to
reinvest principal paid on any Class of Notes at an interest rate equal to the
Interest Rate for such Class of Notes, and Noteholders will bear all
reinvestment risk resulting from the timing of payments of principal on the
Notes. See "Weighted Average Life of the Notes."
RISKS RELATING TO SUBSTITUTE LEASES
As described herein, pursuant to the Contribution and Servicing Agreement,
Vendor Services may, but is not obligated to, substitute one or more leases as
Substitute Leases in exchange for Liquidated Leases, Warranty Leases and
Adjusted Leases. Accordingly, payments of principal of and interest on the
Notes may be dependent, in part, upon payments received on such Substitute
Leases. Although the Contribution and Servicing Agreement specifies various
criteria that must be satisfied by any Substitute Lease, there can be no
assurance that the delinquency and default experience of the Issuer with
respect to such Substitute Leases will be comparable to that of the Leases so
replaced. The Servicer's monthly report to Noteholders will disclose all
Substitute Leases delivered to the Issuer during the related monthly period,
and Vendor Services will make representations and warranties regarding any
Substitute Leases described under "The Leases--Representations and Warranties
Made by Vendor Services," but the characteristics of such Substitute Leases
will not be verified by independent accountants or any other third party.
RISKS RELATING TO RELIANCE ON RESIDUAL REALIZATIONS
The availability of Residual Realizations will depend on various factors,
including the timing of Lease terminations and the future value of Equipment,
which in each case is inherently uncertain. The Servicer will be obligated to
use its best efforts to sell or re-lease any Equipment upon the termination of
the Lease to which such Equipment is subject (whether as a result of early
termination or upon scheduled expiration of the Lease), in a timely manner and
in a manner so as to maximize, to the extent possible under then prevailing
market conditions, the net proceeds from such Equipment. However, because,
among other things, the market value of equipment generally declines with age
and may be subject to sudden, significant declines in value due to
technological obsolescence, there can be no assurance as to the amount the
Servicer will be able to realize on any such Equipment at such time. Other
factors that may also affect the amount of the Residual Realization will
include whether the Equipment is returned to the Servicer upon termination or
expiration of such Lease and whether there has been damage to or loss of any
item of Equipment.
Moreover, unless a Residual Event has occurred and is continuing, any
month's Residual Realizations not used to pay interest or principal on the
related Payment Date will be (i) deposited into the Reserve Account to the
extent that the amount on deposit in the Reserve Account is less than the
Required Reserve Amount or (ii) released to the SPC, and, upon such release to
the SPC, will not thereafter be available to make payments on the Notes.
Accordingly, there can be no assurance that Residual Realizations will be
available on a Payment Date when the Available Pledged Revenues are
insufficient to pay interest and principal on the Notes.
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ENFORCEABILITY OF THE LEASES
The transfer of the Leases by Vendor Services to the SPC, and by the SPC to
the Issuer, the perfection of the interest of the Issuer in the Leases and the
right to receive payments thereon, and the Issuer's and the Trustee's interest
in such Leases and in the Equipment are subject to the requirements of the UCC
as in effect in Minnesota and, with respect to certain of the Equipment, in
the various states in which the Equipment subject to the applicable Lease is
located from time to time. Vendor Services will take or cause to be taken such
actions as are required to perfect the transfer to the SPC and thence to the
Issuer of Vendor Services's rights in the Leases and the right to receive
payments thereunder and to perfect the security interest of the Trustee in the
Issuer's rights in the Leases and the right to receive payments thereunder.
Risks Relating to Decision Not to File Certain UCC Financing Statements. It
has been the general policy of Vendor Services, depending on the dollar amount
of the particular Lease, not to file or (in certain cases) not to obtain or
file UCC financing statements with respect to the Equipment relating to
certain Leases. See "Green Tree Vendor Services Corporation--Documentation."
No representation and warranty will be made in connection with the transfer of
the Leases by Vendor Services with respect to the perfection or priority of
any security interest in the related Equipment (see "The Leases--
Representations and Warranties Made by Vendor Services"). With respect to any
such Leases that were deemed to be loans or leases intended for security (as
described under "The Leases-- Description of the Leases"), a purchaser from
the applicable Obligor of the related Equipment would acquire such Equipment
free and clear of the interest of Vendor Services in such Equipment, and a
creditor of the Obligor which has taken a security interest in such Equipment
and filed a UCC financing statement with respect thereto or a trustee in the
bankruptcy of such Obligor would have priority over the interest of Vendor
Services in such Equipment. Any such purchaser, creditor or trustee would have
an interest superior to the interest of the Issuer in such Equipment, which
interest is derived from the transfer and conveyance of a security interest in
the Equipment by Vendor Services to the SPC, and by the SPC to the Issuer. All
of the Leases prohibit the Obligor from selling or pledging the related
Equipment to third parties.
Due to the administrative burden and expense, no assignments of the UCC
financing statements evidencing the security interest of Vendor Services in
the Equipment (to the extent that such financing statements have been filed
against the Obligor, as discussed above) will be filed to reflect the SPC's,
the Issuer's or the Trustee's interests therein. While failure to file such
assignments does not affect the Issuer's interest in the Leases or perfection
of the Trustee's interest in such Leases (including Vendor Services's security
interest in the related Equipment), it does expose the Issuer (and thus
Noteholders) to the risk that Vendor Services could release its security
interest in the Equipment of record, and it could complicate the Issuer's
enforcement, as assignee, of Vendor Services's security interest in the
Equipment. While these risks should not affect the perfection or priority of
the interest of the Trustee in the Leases or rights to payment thereunder,
they may adversely affect the right of the Trustee to receive proceeds of
disposition of the Equipment subject to a Liquidated Lease. Additionally,
statutory liens for repairs or unpaid taxes and other liens arising by
operation of law may have priority even over prior perfected security
interests in the Equipment assigned to the Trustee.
Risks Relating to Servicer's Retention of Lease Documents; Risk of Sale to
Third Party. The Servicer will hold the Leases and certain related documents
on behalf of the Issuer and the Trustee. To facilitate servicing and save
administrative costs, the documents will not be physically segregated from
other similar documents that are in the Servicer's possession. UCC financing
statements will be filed in the appropriate jurisdictions reflecting (i) the
sale and assignment of the Leases and Vendor Services' interests in the
Equipment to the SPC (provided that filings with respect to Vendor Services'
interests in the Equipment will be made only in those jurisdictions described
above under "Risks Related to Bankruptcy--Risks Relating to Characterization
of the Transfer of the Leases and Equipment as a Borrowing by Vendor
Services"), (ii) the transfer and assignment of the Leases and rights to
Residual Realizations by the SPC to the Issuer, and (iii) the pledge of the
Leases and the Residual Realizations by the Issuer to the Trustee, and the
Servicer's accounting records and computer systems will also reflect such
transfers. The Leases will not, however, be stamped or otherwise marked to
reflect that such Leases have been sold to the SPC, transferred to the Issuer
or pledged to the Trustee. If, through inadvertence or otherwise, any of the
Leases were sold to another party (or a security interest therein were granted
to another party) that purchased (or took a security interest in) any of such
Leases in the ordinary course of business and
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took possession of such Leases, the purchaser (or secured party) would acquire
an interest in the Leases superior to the interest of the Issuer and the
Trustee if the purchaser (or secured party) acquired (or took a security
interest in) such Leases for new value and without actual knowledge of the
Issuer's or the Trustee's interest. Such superior interest may include an
ownership interest, which would cut off all rights of the Issuer to such
Leases and payments thereunder, or a security interest, which would be senior
to the security interest held by the Issuer; in either case, Noteholders could
incur a loss on their investment as a result.
LIMITED LIQUIDITY OF THE NOTES
There is currently no market for the Notes. Each Underwriter expects, but
will not be obligated, to make a market for the Classes of Notes for which it
is acting as underwriter. There can be no assurance that a secondary market
for the Notes will develop or, if it does develop, that it will provide the
Holders of such Notes with liquidity of investment or will continue for the
life of such Notes. As a result, inverstors must be prepared to bear the risk
of holding the Notes for as long as the Notes are outstanding.
EFFECT OF BOOK-ENTRY REGISTRATION
The Notes will be issued in book-entry, rather than physical, form and, as a
result, in certain circumstances, the liquidity of the Notes in the secondary
market and the ability of the Noteholders to pledge them may be adversely
affected. See "Underwriting" and "Description of the Notes--Book-Entry
Registration." The Notes will be registered in the name of a nominee of DTC
and will not be registered in the names of the beneficial owners or their
nominees. As a result, unless and until Definitive Notes are issued in the
limited circumstances described under "Description of the Notes--Definitive
Notes," beneficial owners will not be recognized by the Trustee as
Noteholders, as that term is used in the Indenture. Hence, until such time,
beneficial owners will only be able to exercise the rights of Noteholders
indirectly through DTC and its participating organizations. In addition, the
laws of some states require that certain purchasers of securities take
physical delivery of such securities in certificated form. Such limits and
such laws may impair the ability to transfer beneficial interests in the
Notes.
THE ISSUER AND THE SPC
The Issuer is a limited liability company organized under the laws of the
State of Delaware. Green Tree Lease Finance II, Inc. ("SPC"), a corporation
organized under the laws of the State of Minnesota, is the sole and managing
member of the Issuer. The SPC is wholly owned by Vendor Services.
The Issuer has been formed solely for the purposes of the transactions
described in this Prospectus. Under its LLC Agreement and the Indenture, the
Issuer is not permitted to engage in any activity other than (i) acquiring the
Leases and rights to the Residual Realizations from the SPC, (ii) pledging the
Leases and its rights to the Residual Realizations to the Trustee, (iii)
executing and performing its obligations under the Contribution and Servicing
Agreement and the Indenture, and (iv) engaging in other transactions,
including entering into agreements, that are necessary, suitable or convenient
to accomplish the foregoing or are incidental thereto or connected therewith.
The Issuer is prohibited from incurring any debt, issuing any obligations,
incurring any liabilities, except in connection with the issuance of the Notes
or voting to file for bankruptcy without the affirmative vote of all of the
SPC's directors, including the independent director.
The SPC, as sole and managing member of the Issuer, does not intend to
engage in any business or activities other than (i) becoming a member or
shareholder of, making capital contributions to, and acting as the managing
member of, the Issuer and other similar special purpose entities; (ii)
acquiring, owning, leasing, transferring, receiving and pledging the Leases
and related Equipment, other similar leases and related equipment, and related
activities set forth in the SPC's Articles of Incorporation; and (iii)
engaging in any lawful act or activity and exercising any powers permitted to
corporations organized under the Minnesota Business Corporation Act that are
incidental to and necessary or convenient for the accomplishment of the above
mentioned business and purposes, all as more specifically set forth in its
Articles of Incorporation, provided that none of the actions
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referenced in clauses (ii) and (iii) with respect to such other leases and
equipment and related activities above, shall result in a downgrade of a
rating issued by a Rating Agency with respect to the Notes. The SPC is not
liable, responsible or obligated, directly or indirectly, for payment of any
principal, interest or any other amount in respect of any of the Notes.
Pursuant to its Articles of Incorporation, the SPC must at all times have at
least one director who is "independent" of Green Tree and its affiliates, as
defined in such articles.
On the Closing Date, Vendor Services will contribute the Leases and the
Equipment to the SPC pursuant to the Transfer Agreement. Immediately
thereafter, the SPC will, pursuant to the Contribution and Servicing
Agreement, contribute to the Issuer all of the Leases and certain rights to
the Residual Realizations and the Reserve Account, and Vendor Services will
agree to service the Leases on behalf of the Issuer. The Issuer will pledge
the Trust Assets to the Trustee and issue the Notes pursuant to the Indenture.
The Trust Assets will consist of:
(1) a pool of equipment lease contracts (each, a "Lease") with various
lessees, borrowers or other obligors thereunder (each, an "Obligor"),
including all monies at any time paid or payable thereon or in respect
thereof from and after December 1, 1997 (the "Initial Cut-Off Date") or, in
the case of Substitute Leases, the first day of the month of transfer to
the Issuer (each such date, or the Initial Cut-Off Date, as applicable to
each Lease, a "Cut-Off Date") (in the form of (i) Scheduled Payments
(including all Scheduled Payments due prior to, but not received as of, the
Cut-Off Date, but excluding any Scheduled Payments due on or after, but
received prior to, the Cut-Off Date), (ii) Prepayments, and (iii)
Liquidation Proceeds (including all net proceeds from the disposition of
the related Equipment) received with respect to defaulted Leases;
(2) certain rights to Residual Realizations and amounts, if any, on
deposit in the Residual Account, to the extent necessary to make payments
of interest and principal then due on the Notes;
(3) amounts on deposit in (and Eligible Investments allocated to) certain
accounts established pursuant to the Indenture and the Contribution and
Servicing Agreement, including the Collection Account;
(4) funds on deposit in the Reserve Account; and
(5) the Issuer's rights under the Contribution and Servicing Agreement
and the SPC's rights under the Transfer Agreement.
GREEN TREE VENDOR SERVICES CORPORATION
GENERAL
The Leases comprising the Trust Assets have been originated by Green Tree
Vendor Services Corporation ("Vendor Services"), a Delaware corporation, or,
in some cases, purchased from third parties by Vendor Services. Vendor
Services is a leading independent provider of vendor/manufacturer-oriented
equipment finance programs, with headquarters in Bloomington, Minnesota,
additional operations in Paramus, New Jersey, and twelve regional sales
offices located throughout the United States. Vendor Services, a wholly-owned
subsidiary of Green Tree Financial Corporation ("Green Tree"), was acquired
from FINOVA Corporation in November 1996. Vendor Services' original
predecessor, TriContinental Leasing Corporation, was established in 1968,
although its equipment leasing business has undergone several restructurings
and changes of ownership since that time.
Vendor Services offers "small-ticket" equipment leasing programs, for assets
with a purchase price generally less than $100,000, to manufacturers, dealers
and distributors, and to a select group of financial intermediaries
nationwide, facilitating the sale of their products to end-user customers.
EQUIPMENT LEASE BUSINESS
Market Position
Vendor Services establishes customized financing programs for the end-user
customers of equipment vendors and select financial intermediaries that focus
on end-user customers who meet Vendor Services's general
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customer profiles. The equipment vendor segment has been the primary focus of
Vendor Services's activities. In total, as of December 1996, Vendor Services
had in its portfolio a total of 57,000 individual end-user customers with
active accounts. Vendor Services attempts to maintain geographical diversity
and a broad cross-section of commercial account types in its lease portfolio.
Equipment Vendors
The primary sales focus of Vendor Services is on providing point-of-sale
financing for the customers of equipment vendors, including equipment
manufacturers, dealers and distributors that sell their products regionally or
nationally. While Vendor Services primarily finances office equipment such as
copy machines, fax machines, personal computers and related peripherals,
office furniture and telephone systems, its vendor base also consists of
sellers of commercial laundry equipment, automotive diagnostic equipment and
health-care related products.
Financial Intermediaries
With respect to financial intermediaries, Vendor Services focuses its
activities on those that have industry recognition, proven track records in
generating new business through end-user contracts or through low-end
equipment dealers and a customer base consistent with Vendor Services's
general customer profiles. Each lease acquired from financial intermediaries
is individually approved by Vendor Services using Vendor Services' own credit
underwriting criteria.
CREDIT UNDERWRITING STANDARDS
Vendor Services has established policies, controls, systems and procedures
designed to manage and limit credit risk. These policies, controls, systems
and procedures are subject to periodic review by management.
Vendor Services seeks to minimize credit risk through diversification of the
portfolio by customer, industry segment, equipment type, geography and
transaction maturity. Vendor Services's financing activities are spread across
a wide range of equipment types, including general equipment, office
equipment, information technology and light commercial equipment, with end-
users located throughout the United States.
Underwriting procedures are divided into three main categories: Equipment
Dealers and Manufacturers, Financial Intermediaries and Lessees. Listed below
is an overview of each underwriting process.
Equipment Dealers and Manufacturers
Vendor Services requires that all leased equipment be sold by authorized
sellers that have sufficient experience with each brand they sell. Credit
requirements vary depending on the degree to which Vendor Services relies on
the dealer or manufacturer to support and service the equipment.
Financial Intermediaries
Financial intermediaries are required to have well-established histories and
conform to Vendor Services's approved equipment Dealer/Manufacturers business
line. Although standard industry representations and warranties are required,
Vendor Services's credit decision will not depend on an financial
intermediary's ability to honor these obligations.
Lessees
Vendor Services's underwriting standards are intended to evaluate a
prospective customer's credit standing and repayment ability. Credit decisions
are based on the credit characteristics of the applicant, loss experience with
comparable customers, the amount, terms and conditions of the proposed
transaction and the type of
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<PAGE>
equipment to be leased or financed. Vendor Services uses a proprietary
automated credit scoring system, which is a statistically based scoring system
that quantifies information obtained from customers' credit applications and
credit reports.
DOCUMENTATION
Prior to funding a leasing and financing transaction, a complete
documentation package must be completed. Generally, such a package includes a
credit application, signed lease/installment sale or financing agreement,
vendor invoice, initial lease/advance payment, proof of insurance (where
relevant), delivery and acceptance acknowledgments and appropriate UCC
financing statements. UCC filings are generally required if the underlying
equipment cost is over $25,000.
COLLECTIONS
Invoices are generated 21 days prior to the due date with a 10-day grace
period before late charges accrue. Identified payments are electronically
posted according to an established hierarchy.
The collection processes begin after 15 days with an automatic late notice.
Collection calls are placed between 15 and 30 days after the due date. A
contract is classified as delinquent when it reaches 31 days past due.
Automated "work to be done screens" are updated daily, allowing individual
collectors to customize their follow-up procedures. Management approval is
required for contract rewrites or extensions.
CHARGE-OFF POLICY
Vendor Services works closely with vendors to manage delinquencies by
maintaining and closely monitoring non-accrual and write-off policies. Vendor
Services requires that accounts 90-plus days past due (or less, if in the
judgment of the collection manager the account is impaired) are deemed "non-
earning" and are placed on non-accrual status. Non-accrual accounts are
assigned to the legal administration department. This department is
responsible for ensuring collection costs are reasonable in relation to
exposure and ability to collect from a lessee or guarantor, and for
negotiating and processing settlements and write-offs within authorized
levels. A write-off is recommended by the legal administration department if
it has been determined that the lease is uncollectible even through
litigation. A legal administrator may refer a delinquent account to a pre-
approved collection agency or to an attorney, based upon dollar amount and the
likelihood of collection.
Before an account is written-off or settled, its disposition must be
approved at a level of management commensurate with the size of the account.
Similarly, re-writes and extensions must be approved at a level of management
commensurate with the size of the account.
PORTFOLIO MONITORING
Portfolio Performance Tracking
Vendor Services uses a number of tools to monitor portfolio performance.
Monthly vendor performance reports are prepared for all active accounts,
indicating the dollar amount of delinquent accounts, the percentage of
accounts delinquent, the dollar amount of accounts on non-accrual status, the
percentage of accounts on non-accrual status and the dollar amount of any
accounts written off. Accounts that fall outside standard Vendor Services
guidelines are subject to further analysis.
Each vendor relationship with a portfolio balance in excess of $1,000,000 is
given an annual in-depth review covering portfolio performance, an analysis of
management, the quality of the business sent to Vendor Services and the
financial condition of the vendor. Any vendors whose portfolio performance
falls outside the standard guidelines are assigned to a more senior analyst or
manager for further review.
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Ongoing Credit Review
In addition to the initial credit review, Vendor Services conducts ongoing
credit review procedures to identify at an early stage those customers who may
be experiencing financial difficulty. These customers are monitored by credit
personnel, who periodically summarize for the Credit Committee the possible
remedial actions, what portion, if any, of total credit exposures should be
written off, and whether a specific allocation of Vendor Services's loss
reserves is appropriate.
In establishing allowances for credit losses, Vendor Services' management
reviews, among other things, the maturity of Vendor Services' portfolio, the
status of all non-performing leases and receivables, prior collection
experience and Vendor Services' overall exposure and changes in credit risk.
RECENT DEVELOPMENTS
As disclosed in Green Tree's Exchange Act filings, Green Tree recently
announced that it has determined that a write down of the value of its
interest only securities in an amount estimated to be in the range of $125 to
$150 million will be made for the quarter ended December 31, 1997. Depending
on the final results of its review, Green Tree's actual valuation adjustment
may be greater or less than this amount. The valuation adjustment will result
in a fourth quarter pre-tax reduction to earnings equal to the amount of the
adjustment.
As disclosed in Green Tree's Exchange Act filings, Green Tree recently
received several securities law complaints filed in U.S. District Court. The
complaints allege that Green Tree and certain of its officers omitted or
misrepresented material facts about the business and financial condition of
Green Tree in violation of federal securities laws. The complaints seek class
action status. Green Tree has reviewed the complaints and believes the
allegations to be without merit. Green Tree plans a vigorous defense against
the lawsuits.
THE LEASES
DESCRIPTION OF THE LEASES
General
Substantially all of the Leases are commercial rather than consumer leases.
The following description of the Leases generally describes the material terms
of the Leases to be included in the Lease Pool, although an immaterial number
of Leases may differ in one or more provisions from the following description.
Vendor Services offers a variety of lease plans based on (i) the type of
equipment sold by the vendor, (ii) the average transaction size, (iii) the
vendor's monthly lease volume, (iv) the general credit characteristics of the
vendor's end-user customers and (v) the end-of-lease purchase option.
The Leases include both true leases and leases intended for security. Under
a true lease the lessor bears the risk of ownership and takes any federal tax
benefits associated with the lease, and no title is conferred upon the lessee.
The lessee under a true lease has the right to the temporary use of equipment
for a term shorter than the economic life of such equipment in exchange for
payments at scheduled intervals during the lease term and the lessor retains a
significant "residual" economic interest in the leased equipment. End of lease
options for true leases include purchase of the equipment at fair market value
or renewal of the lease at fair market value. Under leases intended for
security, the lessor in effect finances the "purchase" of the leased assets by
the lessee and retains a security interest in the leased assets. The lessee
retains the leased property for substantially all its economic life and the
lessor retains no significant residual interest. These leases are considered
conditional sales type leases for federal tax purposes, and, accordingly, the
lessor may not claim any federal tax benefits of ownership of the leased
equipment. End of lease options for such leases depend on the terms of the
related Lease, although generally these terms provide for purchase of the
Equipment at a prestated price. The inclusion of true leases in the Lease Pool
will have no income tax impact on Noteholders since the Notes are treated as
debt for
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income tax purposes. See "Federal Income Tax Consequences." However, true
leases are treated differently under the Bankruptcy Code from leases intended
for security. See "Risk Factors--Risks Related to Bankruptcy" and "Certain
Legal Aspects of the Leases--Insolvency Matters" for a discussion of these
differences.
Lease Forms
The Leases are generally in one of two forms: (a) a master lease agreement
containing all of the general terms and conditions of the lease transaction or
transactions, with schedules setting forth the specific terms of each lease
transaction with that particular Obligor (a "Master Form Lease") or (b) a
specific lease agreement form containing all of the terms and conditions of
the lease transaction (a "Specific Lease Form"). In certain cases, the Lease
may be written on another form which was created by Vendor Services, by a
customer or by a financial intermediary.
Payments
All of the Leases require that the Obligor make periodic payments on a
monthly basis. The payments under all of the Leases are required to be made in
United States dollars and are fixed and specified payments, rather than
payments which are tied to a formula or are otherwise at a floating rate.
Payments under the Leases are ordinarily payable in advance, although a small
percentage provide for payments in arrears. Many Leases also require security
deposits which are held until all contractual obligations are met.
Expenses Relating to Equipment
The Leases require the Obligors to assume the responsibility for payment of
all expenses of the related Equipment including (without limitation) any
expenses in connection with the maintenance and repair of the related
Equipment, the payment of any and all premiums for casualty and liability
insurance and the payment of all taxes relating to the Equipment.
Insurance; Repair and Replacement
The Leases (except for a small number of Leases which, in relation to the
Initial Pool Principal Balance, is not material) require the Obligors to
maintain liability insurance which must name the lessor as additional insured.
Leases require Obligors to procure property insurance against the loss, theft
or destruction of, or damage to, the Equipment for its full replacement value,
naming the lessor (or lender) as loss payee. This requirement is, from time to
time, waived by the originator for a small number of transactions and, for
some Leases, the Obligor is permitted to self-insure the Equipment under the
Obligor's already existing self-insurance program.
For transactions involving Equipment with a cost of $200,000 or less, the
Obligor is generally provided with written information concerning its property
insurance obligations under the Lease and the originator's own property
insurance coverage that will be provided at the expense of the Obligor if the
Obligor does not provide the originator with satisfactory evidence of its own
insurance coverage. The Obligor is given a specified time period in which to
provide such evidence. Proper evidence of coverage is verified independently
and tracked by a third party tracking company and licensed broker. If the
originator provides the insurance coverage, the Obligor is charged a monthly
fee covering the insurance charges and other related administrative charges.
The Obligor has the ability to "opt out" of the program by providing evidence
of its own coverage, at which time such monthly charges cease.
For transactions involving Equipment with a cost of more than $200,000,
insurance coverage generally is verified and traced by the respective
originator, and the failure to maintain such insurance constitutes an event of
default under the applicable Lease. Generally, either pursuant to the Specific
Lease Form or the Master Form Lease, the Obligor also agrees to indemnify the
originator for all liability and expenses arising from the use, condition or
ownership of the Equipment.
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Under each Lease, if the Equipment is damaged or destroyed, the Obligor is
required (i) to repair such Equipment, (ii) to make a termination payment to
the lessor in an amount not less than the Required Payoff Amount, or (iii) in
some cases, to replace such damaged or destroyed Equipment with other
equipment of comparable use and value. Under the Contribution and Service
Agreement, the Servicer is permitted (in the case of the destruction of the
Equipment related to a particular Lease) either to allow the Lessee to replace
such Equipment (provided that the replacement equipment is, in the judgment of
the Servicer, of comparable use and at least equivalent value to the value of
the Equipment which was destroyed) or to accept the termination payment
referred to above.
Assignment of Leases
The Leases permit the assignment thereof by the lessor or secured party
without the consent of the Obligor, except for a small number of Leases which
require notification of the assignment to, or the consent of, the Obligor.
The Leases do not permit the assignment thereof (or the Equipment related
thereto) by the Obligor without the prior consent of the lessor or secured
party, other than Leases which (i) may permit assignments to a parent,
subsidiary or affiliate, (ii) permit the assignment to a third party, provided
the Obligor remains liable under the Lease or (iii) permit assignment to a
third party with a credit standing (determined by Vendor Services in
accordance with its underwriting policy and practice at the time for an
equivalent contract type, term and amount) equal to or better than the
original Obligor.
Under the Contribution and Servicing Agreement, the Servicer may permit an
assignment of a particular Lease from an Obligor to a third party only if the
Servicer (utilizing the current underwriting criteria for its contract
origination activities generally) determines that such third party is of
sufficient credit quality that the Servicer would permit such third party to
become an Obligor with respect to a Lease originated by the Servicer
generally.
Hell-or-High-Water Leases
The Leases are "hell-or-high-water" contracts which require any payments
thereunder to be made regardless of the condition or suitability of the
related Equipment and notwithstanding any defense, set-off or counterclaim
that the Obligor may have against the lessor.
Events of Default and Remedies
Events of default under the Leases generally include the failure to pay all
amounts required by the Lease when due, the failure of the Obligor to perform
its agreements and covenants under the applicable Lease, material
misrepresentations made by the Obligor, the bankruptcy or insolvency of the
Obligor or the appointment of a receiver for the Obligor and, in some cases,
default by the Obligor under other contracts or agreements. Some of these
default provisions are subject to notice provisions and cure periods. Remedies
available to the lessor or secured party upon the occurrence of an event of
default by the Obligor include the right to cancel or terminate the Lease, to
recover possession of the related Equipment, and to receive an amount intended
to make the lessor or secured party (as the case may be) whole plus costs and
expenses (including legal fees) incurred by the lessor or secured party as a
result of such default. Notwithstanding such events of default and remedies,
under the Contribution and Servicing Agreement, the Servicer is permitted to
take such actions, with respect to delinquent and defaulted Leases, as a
reasonably prudent creditor would do under similar circumstances. See
"Description of the Contribution and Servicing Agreement--Servicing." Vendor
Services may occasionally provide payment extensions (generally of three
months or less, although longer extensions are occasionally granted) to
customers experiencing delays in payment due to cash flow shortages or other
reasons. However, it is not intended that extensions be used to provide a
temporary solution for a delinquent account. Rather, extensions are intended
to be used when, in the judgment of the relevant credit authority, it will
permit the permanent resolution of the delinquency.
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Prepayments and Early Termination
None of the Leases permit the prepayment or early termination of the Lease
(except for a de minimis number of Leases which allow for a prepayment or
early termination upon payment of an amount which is not less than the
Required Payoff Amount). Nevertheless, the Servicer is permitted under the
Contribution and Servicing Agreement to accept prepayments of any of the
Leases, but only if the amount paid by or on behalf of the Obligor (or, in the
case of a partial prepayment, the sum of such amount and the remaining
Principal Balance of the Lease after application of such amount) is at least
equal to the Required Payoff Amount for such Lease.
Disclaimer of Warranties
The Leases contain provisions whereby the lessor (or Vendor Services, as
assignee of the lessor) disclaims all warranties with respect to the Equipment
and, in the majority of cases, the lessor assigns the manufacturer's
warranties to the Obligor for the term of the Lease. Under the Leases, the
Obligor "accepts" the Equipment under the applicable Lease following delivery
and an opportunity to inspect the related Equipment.
REPRESENTATIONS AND WARRANTIES MADE BY VENDOR SERVICES
Under the Transfer Agreement, Vendor Services will make the following
representations and warranties regarding each Lease (and the related
Equipment) as of the Initial Cut-Off Date, and regarding each Substitute Lease
as of the applicable Cut-Off Date:
(A) Each Lease (i) constitutes a valid, binding and enforceable payment
obligation of the Obligor in accordance with its terms (except as may be
limited by applicable bankruptcy, insolvency or other similar laws
affecting the enforceability of creditors' rights generally and the
availability of equitable remedies), (ii) has been duly and properly sold,
assigned and conveyed by Vendor Services under the Transfer Agreement to
the SPC and has been duly and properly transferred and conveyed by the SPC
to the Issuer pursuant to the Contribution and Servicing Agreement, (iii)
was originated by Vendor Services in the ordinary course of its business,
or (in the case of any Lease purchased by Vendor Services) was acquired by
Vendor Services for proper consideration and was validly assigned to Vendor
Services by the originator of such Lease, and (iv) contains customary and
enforceable provisions adequate to enable realization against the Obligor
and/or the related Equipment (although no representation or warranty is
made with respect to the perfection or priority of any security interest in
such related Equipment);
(B) No selection procedures adverse to the Noteholders were utilized in
selecting the Leases from those leases owned by Vendor Services on the Cut-
Off Date;
(C) All requirements of applicable Federal, state and local laws, and
regulations thereunder, in respect of all of the Leases, have been complied
with in all material respects;
(D) There is no known default, breach, violation or event permitting
cancellation or termination of the Lease by the lessor under the terms of
any Lease (other than Scheduled Payment delinquencies (in excess of 10% of
the Scheduled Payment due) of not more than 59 days), and (except for
payment extensions and waivers of Administrative Fees in accordance with
Vendor Services's servicing and collection policies and procedures) there
has been no waiver of any of the foregoing; and as of the Cut-Off Date, no
related Equipment had been repossessed;
(E) Immediately prior to the sale, assignment and conveyance of each
Lease by Vendor Services to the SPC, Vendor Services had good title to such
Lease and Vendor Services' interest in the related Equipment (subject to
the terms of such Lease) and was the sole owner thereof, free of any lien;
and immediately prior to the transfer and conveyance of the Leases by the
SPC to the Issuer, the SPC had good title to such Leases and such interest
in the related Equipment and was the sole owner thereof, free of any Lien
(other than the rights of the Obligor under the related Lease);
(F) No person has a participation in or other right to receive Scheduled
Payments under any Lease, and neither the SPC nor Vendor Services has taken
any action to convey any right to any person that would result in such
person having a right to Scheduled Payments received with respect to any
Lease;
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(G) Each Lease was originated by Vendor Services or acquired by Vendor
Services and was sold and assigned by Vendor Services to the SPC without
any fraud or misrepresentation on the part of Vendor Services;
(H) Each Obligor (i) is located in the United States, and (ii) is not (a)
the United States of America or any State or local government or any
agency, department, subdivision or instrumentality thereof (except for
Leases representing no more than 3% of the Initial Pool Principal Balance)
or (b) Vendor Services or any affiliate thereof;
(I) The sale, transfer and assignment of such Lease and Vendor Services'
interest in the related Equipment to the SPC under the Transfer Agreement,
and the transfer and conveyance of such Lease from, and the grant of rights
to the related Residual Realizations by, the SPC to the Issuer under the
Contribution and Servicing Agreement, are not unlawful, void or voidable
under the laws of the jurisdiction applicable to such Lease;
(J) All filings and other actions required to be made, taken or performed
by any person in any jurisdiction to give the Issuer a first priority
perfected lien or ownership interest in the Leases and a first priority
perfected security interest in Vendor Services' interest in the Equipment
have been made, taken or performed;
(K) There exists a Lease File pertaining to each Lease, and such Lease
File contains the Lease or a facsimile copy thereof;
(L) There is only one original executed copy of each Lease;
(M) The Leases constitute chattel paper within the meaning of the UCC as
in effect in the States of Minnesota and Delaware (other than those Leases
in which the lessor is financing exclusively the Obligor's software license
or maintenance contract for Equipment, which Leases, in proportion to the
Initial Pool Principal Balance, are not material);
(N) Each Lease was entered into by an Obligor who, at the Cut-Off Date,
had not been identified on the records of Vendor Services as being the
subject of a current bankruptcy proceeding;
(O) The computer tape containing information with respect to the Leases
that was made available by Vendor Services to the Trustee on the Closing
Date and was used to select the Leases was complete and accurate in all
material respects as of the Cut-Off Date and includes a description of the
same Leases that are described in the Schedule of Leases to the
Contribution and Servicing Agreement;
(P) By the Closing Date, the portions of the electronic master record of
Vendor Services relating to the Leases will have been clearly and
unambiguously marked to show that the Leases constitute part of the Trust
Assets and are owned by the Issuer in accordance with the terms of the
Contribution and Servicing Agreement;
(Q) No Lease has a Scheduled Payment delinquency (in excess of 10% of the
Scheduled Payment due) of more than 59 days past due as of the Cut-Off
Date;
(R) Each Lease may be sold, assigned and transferred by Vendor Services
to the SPC, and may be assigned and transferred by the SPC to the Issuer,
without the consent of, or prior approval from, or any notification to, the
applicable Obligor, other than (i) certain Leases (which, in proportion to
the aggregate of all of the Leases, are not material) that require
notification of the assignment to the Obligor, which notification will be
given by the Servicer not later than 10 days following the Closing Date,
and (ii) Leases (which, in proportion to the aggregate of all of the
Leases, are not material) that require the consent of the Obligor, which
consent will be obtained by the Servicer not later than 10 days following
the Closing Date;
(S) Each Lease prohibits the sale, assignment or transfer of the
Obligor's interest therein, the assumption of the Lease by another person
in a manner that would release the Obligor thereof from the Obligor's
obligation, or any sale, assignment or transfer of the related Equipment,
without the prior consent of the lessor, other than Leases which may (i)
permit assignment to a subsidiary, corporate parent or other
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affiliate, (ii) permit the assignment to a third party, provided the
Obligor remains liable under the Lease, or (iii) permit assignment to a
third party with a credit standing (determined by Vendor Services in
accordance with its underwriting policy and practice at the time for an
equivalent contract type, term and amount) equal to or better than the
original Obligor;
(T) The Obligor under each Lease is required to make payments thereunder
(i) in United States dollars, and (ii) in fixed amounts and on fixed and
predetermined dates;
(U) Each Lease requires the Obligor to assume responsibility for payment
of all expenses in connection with the maintenance and repair of the
related Equipment, the payment of all premiums for insurance of such
Equipment and the payment of all taxes (including sales and property taxes)
relating to such Equipment;
(V) Each Lease requires the Obligor thereunder to make all Scheduled
Payments thereon under all circumstances and regardless of the condition or
suitability of the related Equipment and notwithstanding any defense, set-
off or counterclaim that the Obligor may have against the manufacturer,
lessor or lender (as the case may be);
(W) Under each Lease, if the Equipment is damaged or destroyed, the
Obligor is required either (i) to repair such Equipment, (ii) to make a
termination payment to the lessor in an amount not less than the Required
Payoff Amount, or (iii) in some cases, to replace such damaged or destroyed
Equipment with other equipment of comparable use and value;
(X) None of the Leases permit the Obligor to terminate the Lease prior to
the latest Stated Maturity Date or to otherwise prepay the amounts due and
payable thereunder, except for a de minimis number of Leases which allow
for an early termination or prepayment upon payment of an amount which is
not less than the Required Payoff Amount;
(Y) It is not a precondition to the valid transfer or assignment of
Vendor Services' interest in any of the Equipment related to any Lease that
title to such Equipment be transferred on the records of any governmental
or quasi-governmental agency, body or authority;
(Z) The information with respect to the Leases listed on the Schedule of
Leases attached to the Contribution and Servicing Agreement is true,
correct and complete in all material respects;
(AA) No provisions of any Lease have been waived, altered or modified in
any material respect, except as indicated in the Lease File;
(BB) No Lease is a "consumer lease" as defined in Article 2A of the
Uniform Commercial Code, except for a de minimis number of Leases;
(CC) To the best of Vendor Services' knowledge, each Obligor has accepted
the related Equipment and has had reasonable opportunity to inspect and
test such Equipment; and
(DD) The Obligor has made at least one payment under the Lease.
The above-described representations and warranties of Vendor Services will
survive the transfer and assignment of the related Leases and other Trust
Assets to the Issuer.
In the event of a breach of any such representation or warranty with respect
to a Lease that materially and adversely affects the value of such Lease (any
such breach being a "Repurchase Event"), Vendor Services, unless it cures the
breach by the end of the second Collection Period after the date on which
Vendor Services becomes aware of or receives written notice from the Trustee
or the Servicer of such breach, will be obligated to repurchase (or substitute
another lease for) the Lease and the related Equipment. Any such repurchase
shall be made on the Deposit Date immediately following the end of such second
Collection Period at a price equal to the Required Payoff Amount applicable to
such Lease plus the Book Value of the related Equipment. This repurchase or
substitution obligation may be enforced by the Trustee on behalf of the
holders of the Notes, and will constitute the sole remedy available to the
Noteholders against Vendor Services for any such uncured breach, except that
pursuant to the Transfer Agreement, Vendor Services will indemnify the
Trustee, the Issuer and the
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Noteholders against losses, damages, liabilities and claims which may be
asserted against any of them as a result of third-party claims arising out of
the facts giving rise to such breach.
Upon the repurchase or substitution by Vendor Services of a Lease and any
related Equipment, such Lease and related Equipment will be released to Vendor
Services.
CERTAIN STATISTICS RELATING TO THE CUT-OFF DATE POOL
General
Vendor Services has prepared certain statistics relating to the Pool as of
the Initial Cut-Off Date (the "Cut-Off Date Pool"). All calculations of the
Principal Balances of the Leases set forth herein are made using the
Statistical Discount Rate of 7.0%. The Initial Pool Principal Balance
(calculated at the Discount Rate, which will be the weighted average of the
Interest Rates of the Class A (utilizing the Class A-4 Interest Rate), Class B
and Class C Notes on the Closing Date, plus the Servicing Fee), will not vary
materially from the Statistical Discounted Present Value of the Leases (which
is calculated using the Statistical Discount Rate).
The Statistical Discounted Present Value of the Leases is an amount equal to
$550,991,889.46 (which amount is based upon the aggregate of the Principal
Balance of each Lease (the "Lease Pool Principal Balance") determined as of
the Cut-Off Date, but also includes an amount in respect of all Scheduled
Payments on the Leases due prior to, but not received as of, the Initial Cut-
Off Date). The total number of Leases in the Cut-Off Date Pool is 54,483. The
average Principal Balance of the Leases, as of the Cut-Off Date, was
approximately $10,113.10.
COMPOSITION OF THE CUT-OFF DATE POOL
<TABLE>
<CAPTION>
STATISTICAL WEIGHTED AVERAGE
NUMBER POOL PRINCIPAL ORIGINAL TERM WEIGHTED AVERAGE AVERAGE PRINCIPAL
OF LEASES BALANCE (RANGE) REMAINING TERM (RANGE) BALANCE (RANGE)
- --------- --------------- ------------------------ ---------------------- ----------------------
<S> <C> <C> <C> <C>
54,483 $550,991,889.46 50.61 months 35.67 months $10,113.10
(7 months to 120 months) (6 months to 82 months) ($51.91 to $559,399.61)
</TABLE>
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Geographical Diversity
The following table shows the geographical diversity of the Cut-Off Date
Pool, by indicating the number of Leases, the aggregate Statistical Discounted
Present Value of the Leases and the percentage (by number of Leases and by
aggregate Statistical Discounted Present Value) of such Leases relative to all
of the Leases in the Cut-Off Date Pool by reference to the State in which the
Obligors on such Leases are located:
<TABLE>
<CAPTION>
AGGREGATE % OF STATISTICAL
STATISTICAL DISCOUNTED DISCOUNTED PRESENT
% OF TOTAL NUMBER PRESENT VALUE VALUE OF THE
STATE NUMBER OF LEASES OF LEASES OF THE LEASES LEASES
- ----- ---------------- ----------------- ---------------------- ------------------
<S> <C> <C> <C> <C>
Alabama................. 493 0.90% $ 4,597,928.28 0.83%
Alaska.................. 98 0.18 802,532.01 0.15
Arizona................. 783 1.44 7,472,767.52 1.36
Arkansas................ 229 0.42 2,318,963.37 0.42
California.............. 6,839 12.54 78,605,444.69 14.27
Colorado................ 788 1.45 8,707,814.20 1.58
Connecticut............. 1,089 2.00 9,089,549.17 1.65
Delaware................ 328 0.60 2,700,294.30 0.49
District of Columbia.... 216 0.40 2,652,111.51 0.48
Florida................. 4,184 7.68 42,659,247.70 7.74
Georgia................. 1,683 3.09 17,208,199.95 3.12
Hawaii.................. 123 0.23 1,165,718.24 0.21
Idaho................... 121 0.22 1,011,092.78 0.18
Illinois................ 2,435 4.47 23,987,946.22 4.35
Indiana................. 774 1.42 7,032,783.74 1.28
Iowa.................... 263 0.48 2,055,472.91 0.37
Kansas.................. 359 0.66 3,436,313.46 0.62
Kentucky................ 372 0.68 4,140,250.81 0.75
Louisiana............... 598 1.10 6,291,877.77 1.14
Maine................... 267 0.49 1,842,146.76 0.33
Maryland................ 889 1.63 9,141,020.85 1.66
Massachusetts........... 2,429 4.46 23,176,793.99 4.21
Michigan................ 948 1.74 9,288,727.72 1.69
Minnesota............... 1,270 2.33 10,399,666.09 1.89
Mississippi............. 271 0.50 2,295,684.74 0.42
Missouri................ 643 1.18 6,757,869.61 1.23
Montana................. 127 0.23 896,368.36 0.16
Nebraska................ 179 0.33 1,599,272.76 0.29
Nevada.................. 534 0.98 5,454,193.21 0.99
New Hampshire........... 488 0.90 4,187,067.32 0.76
New Jersey.............. 3,106 5.70 31,160,382.24 5.66
New Mexico.............. 259 0.48 2,579,634.04 0.47
New York................ 5,687 10.44 61,403,565.13 11.14
North Carolina.......... 1,779 3.27 15,243,481.42 2.77
North Dakota............ 40 0.07 298,972.14 0.05
Ohio.................... 1,877 3.45 15,943,144.88 2.89
Oklahoma................ 457 0.84 4,584,999.95 0.83
Oregon.................. 649 1.19 5,500,708.94 1.00
Pennsylvania............ 2,552 4.68 26,730,919.46 4.85
Rhode Island............ 209 0.38 1,909,689.99 0.35
South Carolina.......... 531 0.97 6,089,425.20 1.11
South Dakota............ 53 0.10 558,939.16 0.10
Tennessee............... 768 1.41 8,257,354.56 1.50
Texas................... 3,413 6.26 41,292,322.71 7.49
Utah.................... 205 0.38 2,125,138.20 0.39
Vermont................. 104 0.19 692,982.57 0.13
Virginia................ 1,387 2.55 12,319,438.94 2.24
Washington.............. 833 1.53 7,002,120.69 1.27
West Virginia........... 192 0.35 1,715,387.47 0.31
Wisconsin............... 471 0.86 4,087,409.09 0.74
Wyoming................. 91 0.17 520,752.64 0.09
------ ------ --------------- ------
Total.................. 54,483 100.00% $550,991,889.46 100.00%
====== ====== =============== ======
</TABLE>
32
<PAGE>
Adverse economic conditions in states where a substantial number of Obligors
are located, such as California and New York, may adversely affect such
Obligors' ability to make payments on the related Leases, and the Noteholders
could suffer a loss on their investment as a result.
Payment Status
The following table shows the payment status of the Cut-Off Date Pool, by
indicating the number of Leases, the aggregate Statistical Discounted Present
Value of such Leases and the percentage (by number of Leases and by aggregate
Statistical Discounted Present Value) of such Leases relative to all of the
Leases in the Cut-Off Date Pool by reference to whether such Leases were
current as of the Initial Cut-Off Date or were 31-60 days delinquent. For
these purposes, a "delinquency" means that the Obligor on the Lease has failed
to make a required Scheduled Payment in an amount equal to at least 90% of the
required Scheduled Payment within 30 days of the due date.
<TABLE>
<CAPTION>
AGGREGATE
STATISTICAL % OF STATISTICAL
% OF TOTAL DISCOUNTED DISCOUNTED
NUMBER OF PRESENT VALUE PRESENT VALUE OF
PAYMENT STATUS NUMBER OF LEASES LEASES OF THE LEASES THE LEASES
- -------------- ---------------- ---------- --------------- ----------------
<S> <C> <C> <C> <C>
Current................. 53,008 97.29% $541,007,763.80 98.19%
31-60 Days Delinquent... 1,475 2.71 9,984,125.66 1.81
------ ------ --------------- ------
Total................. 54,483 100.00% $550,991,889.46 100.00%
====== ====== =============== ======
</TABLE>
Leases by Equipment Type
The following table shows the type of Equipment securing or otherwise
related to the Leases, by the number of Leases, the aggregate Statistical
Discounted Present Value of such Leases, and the percentage (by number of
Leases and by aggregate Statistical Discounted Present Value) of such Leases
relative to all of the Leases:
<TABLE>
<CAPTION>
AGGREGATE
STATISTICAL % OF STATISTICAL
% OF TOTAL DISCOUNTED DISCOUNTED
NUMBER OF PRESENT VALUE PRESENT VALUE OF
TYPE OF EQUIPMENT NUMBER OF LEASES LEASES OF THE LEASES THE LEASES
- ----------------- ---------------- ---------- --------------- ----------------
<S> <C> <C> <C> <C>
Data Processing Equip-
ment................... 16,631 30.52% $149,081,554.06 27.06%
Office Machines......... 12,798 23.49 106,609,039.20 19.35
Telecommunications...... 12,799 23.49 105,784,038.16 19.20
Laundry & Cleaning...... 2,068 3.80 49,036,825.06 8.90
Furniture............... 2,681 4.92 26,320,485.89 4.78
Auto Services........... 1,583 2.91 21,888,770.63 3.97
Healthcare Related...... 1,598 2.93 21,441,764.53 3.89
Other................... 717 1.32 14,575,947.51 2.65
Machine Tool............ 662 1.22 11,727,937.19 2.13
Food & Lodging.......... 788 1.45 11,314,159.81 2.05
Recreation.............. 590 1.08 10,698,299.89 1.94
HVAC.................... 303 0.56 6,026,648.70 1.09
Printing................ 353 0.65 5,774,488.11 1.05
Imaging................. 317 0.58 2,714,867.96 0.49
Unclassified............ 231 0.42 2,401,237.56 0.44
Construction............ 86 0.16 2,100,498.48 0.38
Material Handling....... 95 0.17 1,116,125.21 0.20
Waste Management........ 61 0.11 665,276.05 0.12
Manufacturing........... 48 0.09 569,162.48 0.10
Maintenance............. 59 0.11 427,682.64 0.08
Secured Loans........... 7 0.01 400,821.42 0.07
Transportation.......... 8 0.01 316,258.92 0.06
------ ------ --------------- ------
Total................. 54,483 100.00% $550,991,889.46 100.00%
====== ====== =============== ======
</TABLE>
33
<PAGE>
Principal Balances
The following table shows the distribution of the Cut-Off Date Pool by
Principal Balance by indicating the number of Leases which have a Principal
Balance within a defined range and the aggregate Statistical Discounted
Present Value of the Leases, and the percentage (by number of Leases and by
aggregate Statistical Discounted Present Value) of such Leases relative to all
of the Leases:
<TABLE>
<CAPTION>
AGGREGATE
STATISTICAL % OF STATISTICAL
% OF TOTAL DISCOUNTED DISCOUNTED
NUMBER PRESENT VALUE PRESENT VALUE OF
PRINCIPAL BALANCE NUMBER OF LEASES OF LEASES OF THE LEASES THE LEASES
- ----------------- ---------------- ---------- --------------- ----------------
<S> <C> <C> <C> <C>
$ 0.01 to
$ 20,000.00............ 47,910 87.95% $273,395,991.38 49.62%
$ 20,000.01 to
$ 40,000.00............ 4,427 8.14 122,044,211.53 22.15
$ 40,000.01 to
$ 60,000.00............ 1,204 2.21 58,114,506.29 10.55
$ 60,000.01 to
$ 80,000.00............ 403 0.74 27,641,449.66 5.02
$ 80,000.01 to
$100,000.00............ 217 0.40 19,133,747.01 3.47
$100,000.01 to
$120,000.00............ 109 0.20 11,815,811.83 2.14
$120,000.01 to
$140,000.00............ 69 0.13 8,899,137.10 1.62
$140,000.01 to
$160,000.00............ 44 0.08 6,547,256.25 1.19
$160,000.01 to
$180,000.00............ 23 0.04 3,884,391.71 0.70
$180,000.01 to
$200,000.00............ 24 0.04 4,529,959.52 0.82
$200,000.01 to
$220,000.00............ 12 0.02 2,518,823.34 0.46
$220,000.01 to
$240,000.00............ 5 0.01 1,139,446.05 0.21
$240,000.01 to
$260,000.00............ 12 0.02 3,000,835.62 0.54
$260,000.01 to
$280,000.00............ 7 0.01 1,894,823.59 0.34
$280,000.01 to
$300,000.00............ 1 0.00 280,084.05 0.05
$300,000.01 to
$320,000.00............ 6 0.01 1,832,139.15 0.33
$320,000.01 to
$340,000.00............ 2 0.00 665,353.13 0.12
$360,000.01 to
$380,000.00............ 1 0.00 366,681.18 0.07
$400,000.01 to
$420,000.00............ 2 0.00 809,823.46 0.15
$440,000.01 to
$460,000.00............ 2 0.00 893,474.15 0.16
$480,000.01 to
$500,000.00............ 1 0.00 481,459.52 0.09
$540,000.01 to
$560,000.00............ 2 0.00 1,102,483.94 0.20
------ ------ --------------- ------
Total................. 54,483 100.00% $550,991,889.46 100.00%
====== ====== =============== ======
</TABLE>
Remaining Terms of Leases
The following table shows the remaining term of the Leases from the Initial
Cut-Off Date to the scheduled expiration date of such Leases, by indicating
the number of Leases, the aggregate Statistical Discounted Present Value of
such Leases, and the percentage (by number of Leases and by aggregate
Statistical Discounted Present Value) of such Leases relative to all of the
Leases:
<TABLE>
<CAPTION>
AGGREGATE
STATISTICAL % OF STATISTICAL
% OF TOTAL DISCOUNTED DISCOUNTED
NUMBER OF PRESENT VALUE PRESENT VALUE OF
REMAINING TERMS OF LEASES NUMBER OF LEASES LEASES OF THE LEASES THE LEASES
- ------------------------- ---------------- ---------- --------------- ----------------
<S> <C> <C> <C> <C>
One Month to 12 Months... 8,503 15.61% $ 25,553,905.19 4.64%
13 Months to 24 Months... 17,445 32.01 108,204,282.98 19.64
25 Months to 36 Months... 16,420 30.14 170,812,466.60 31.00
37 Months to 48 Months... 7,064 12.97 115,262,240.97 20.92
49 Months to 60 Months... 4,931 9.05 125,136,919.76 22.71
61 Months to 72 Months... 112 0.21 4,511,433.42 0.82
Over 72 Months........... 8 0.01 1,510,640.54 0.27
------ ------ --------------- ------
Total.................. 54,483 100.00% $550,991,889.46 100.00%
====== ====== =============== ======
</TABLE>
34
<PAGE>
CERTAIN STATISTICS RELATING TO DELINQUENCIES AND DEFAULTS
Delinquencies
The following table sets forth statistics relating to delinquencies on
leases within Vendor Services' owned and managed portfolio of receivables
similar to the Leases as of December 31, 1996 and as of November 30, 1997.
Vendor Services was acquired by Green Tree in November 1996, and current
management, accordingly, cannot certify delinquency and default experience for
prior periods. However, current management does not believe that Vendor
Services' delinquency and default experience in prior periods was
substantially different from the experience presented here. For these
purposes, a "Delinquency" means that the obligor on the lease has failed to
make a required Scheduled Payment in an amount equal to at least 90% of the
required Scheduled Payment within 30 days of the due date. For these purposes,
any payment made by the obligor on a lease subsequent to the required payment
date is applied to the earliest payment which was unpaid. The following table
is based, where indicated, on the gross receivable balance of the leases, as
it appears on the accounting records of Vendor Services as of the date set
forth below and not solely the overdue payments.
<TABLE>
<CAPTION>
PERCENTAGE OF GROSS RECEIVABLE
GROSS BALANCE OF LEASES WHICH WERE
RECEIVABLE DELINQUENT
BALANCE OF -------------------------------
LEASES 31 TO 60 61 TO 90 OVER 90
DATE OF CALCULATION (IN THOUSANDS) DAYS DAYS DAYS TOTAL
- ------------------- -------------- -------- -------- ------- -----
<S> <C> <C> <C> <C> <C>
12/31/96........................ $618,075 2.20% 0.36% 0.13% 2.69%
11/30/97........................ 720,391 1.51 0.26 0.16 1.93
</TABLE>
Non-Accruals
The following table sets forth statistics relating to Non-Accruals on leases
within Vendor Services' owned and managed portfolio of receivables similar to
the Leases as of December 31, 1996 and as of November 30, 1997. Vendor
Services was acquired by Green Tree in November 1996, and current management,
accordingly, cannot certify non-accrual experience for prior periods. However,
current management does not believe that Vendor Services' non-accrual
experience in prior periods was substantially different from the experience
presented here. For these purposes, a "Non-Accrual" means that, as of the date
indicated, the obligor on the relevant lease had failed to make payments in an
amount at least equal to 90% of the required Scheduled Payment for at least 90
days beyond the date required (or less, if in the judgment of the collection
manager the account is impaired), or commenced a bankruptcy or insolvency
proceeding. The following table is based, where indicated, on the net
investment of the leases (gross of any allowance for losses) as it appears on
the records of Vendor Services as of the date specified below:
<TABLE>
<CAPTION>
AGGREGATE NET PERCENTAGE OF
INVESTMENT OF AGGREGATE NET INVESTMENT
LEASES OF LEASES WHICH WERE
DATE OF CALCULATION (IN THOUSANDS) ON NON-ACCRUAL
------------------- ------------- ------------------------
<S> <C> <C> <C>
12/31/96....................... $558,040 3.42%
11/30/97....................... 658,416 3.55
</TABLE>
Losses and Recoveries
The following table sets forth statistics relating to gross losses and
losses net of recoveries on defaulted leases within Vendor Services' owned and
managed portfolio of receivables similar to the Leases during the twelve-month
period ending December 31, 1996 and during the eleven-month period ending
November 30, 1997. Vendor Services was acquired by Green Tree in November
1996, and current management, accordingly, cannot certify loss and recovery
experience for prior periods. However, current management does not believe
that Vendor Services' loss and recovery experience in prior periods was
substantially different from the experience presented here. For these
purposes, "gross losses" means total losses before recoveries measured against
the net investment of the leases (gross of any allowance for losses), and
"losses net of recoveries" means losses after recoveries measured against the
net investment of the leases (gross of any allowance for losses).
35
<PAGE>
<TABLE>
<CAPTION>
AGGREGATE NET GROSS LOSSES AS A NET LOSSES AS A
INVESTMENT OF LEASES PERCENTAGE OF NET PERCENTAGE OF NET
DATE OF CALCULATION (IN THOUSANDS) INVESTMENT INVESTMENT
------------------- -------------------- ----------------- -----------------
<S> <C> <C> <C>
12/31/96................ $558,040 2.96% 1.83%
11/30/97................ 658,416 2.37 1.58
</TABLE>
Vendor Services' delinquency, non-accrual and net loss experience has
historically been affected by prevailing economic conditions, particularly in
industries and geographic regions where it has customer concentrations. These
conditions are often volatile, and no predictions can be made regarding them.
There can be no assurance that the delinquency, non-accrual and net loss
experience on the Leases will be comparable to that set forth above.
It has been Vendor Services' experience that collections from the obligors
constitute a significant portion of recoveries on defaulted equipment lease
receivables, in addition to the proceeds from liquidation of the related
equipment. The resale value of individual items of Equipment, which would be
collected by the Servicer in the event of a default under the related Lease,
will vary substantially, depending on such factors as the expected remaining
useful life of the Equipment at the time of the default and the obsolescence
of the Equipment, it is possible that the resale values for some Equipment
would be negligible or insufficient to justify repossession and resale. See
"Risk Factors--Risks Relating to Reliance on Residual Realizations."
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OF THE ISSUER
As of the date of this Prospectus, the Issuer has had no operating history.
The net proceeds of the sale of the Notes will be employed to purchase the
Leases. See "Use of Proceeds." The Issuer is prohibited by its LLC Agreement
from engaging in business other than (i) acquiring the Leases and rights to
the Residual Realizations from the SPC, (ii) pledging the Leases and its
rights to the Residual Realizations to the Trustee, (iii) executing and
performing its obligations under the Contribution and Servicing Agreement and
the Indenture, and (iv) engaging in other transactions, including entering
into agreements, that are necessary, suitable or convenient to accomplish the
foregoing or are incidental thereto or connected therewith.
36
<PAGE>
MANAGERS OF THE ISSUER
The following table sets forth the managers of the Issuer and their ages and
positions as of the date of this Prospectus. Because the Issuer is organized
as a special purpose company and will be largely passive, it is expected that
the managers in such capacity will participate in the management of the Issuer
to a limited extent. Most of the actions related to maintaining and servicing
the assets will be performed by the Servicer.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------------------------------------
<S> <C> <C>
Joel H. Gottesman............... 48 Manager and Chair of Board of Managers
Edward L. Finn.................. 53 Manager
</TABLE>
Joel H. Gottesman was named to the Board of Managers of the Issuer in
October 1997. Mr. Gottesman has been Senior Vice President and General Counsel
of Green Tree Financial Corporation since September 1995, and Secretary since
May 1996. From 1983 to 1995, Mr. Gottesman was an attorney at Briggs & Morgan,
Professional Association, Minneapolis, Minnesota.
Edward L. Finn was named to the Board of Managers of the Issuer in October
1997. Mr. Finn has served as Executive Vice President and Chief Financial
Officer of Green Tree Financial Corporation since July 1996. From 1970 to
1996, Mr. Finn held various positions at Ernst & Young LLP, an accounting
firm, including Managing Partner of the Minneapolis office.
None of the above-listed managers of the Issuer will be compensated directly
by the Issuer nor with any funds or assets of the Issuer nor will any such
managers receive compensation in the capacities in which they act for the
Issuer.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to managers and controlling persons of the Issuer pursuant to
its LLC Agreement, or otherwise, the Issuer has been advised that in the
opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Issuer of expenses incurred or paid by a manager, officer or
controlling person of the Issuer in the successful defense of any action, suit
or proceeding) is asserted by such manager or controlling person in connection
with the Notes, the Issuer will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
37
<PAGE>
WEIGHTED AVERAGE LIFE OF THE NOTES
THE FOLLOWING INFORMATION IS GIVEN SOLELY TO ILLUSTRATE THE EFFECT OF
PREPAYMENTS ON THE LEASES ON THE WEIGHTED AVERAGE LIFE OF THE NOTES UNDER THE
ASSUMPTIONS STATED BELOW AND IS NOT A PREDICTION OF THE PREPAYMENT RATE THAT
MIGHT ACTUALLY BE EXPERIENCED BY THE LEASES.
Weighted average life refers to the average amount of time from the date of
issuance of a security until each dollar of principal of such security will be
repaid to the investor. The weighted average life of the Notes will be
primarily a function of the rate at which payments are made on the Leases.
Payments on the Leases may be in the form of Scheduled Payments or prepayments
(including, for this purpose, liquidations due to default). See "Risk
Factors--Prepayment and Early Termination of Leases and Related Reinvestment
Risks."
The Constant Prepayment Rate prepayment model ("CPR") represents an assumed
constant rate of prepayment of Leases outstanding as of the beginning of each
month expressed as a per annum percentage. There can be no assurance that
Leases will experience prepayments at a constant prepayment rate or otherwise
in the manner assumed by the prepayment model. See "Risk Factors--Prepayment
and Early Termination of Leases and Related Reinvestment Risk."
The weighted average lives in the following table were determined assuming
that (i) Scheduled Payments on the Leases are received in a timely manner and
prepayments are made at the percentages of CPR set forth in the table; (ii)
with respect to the table under the caption "To Maturity," the SPC does not
exercise its right to repurchase the Leases described under "Description of
the Notes--Optional Repurchase of the Leases," and with respect to the table
under the caption "To Call," the SPC does exercise such right at the earliest
possible time; (iii) the Initial Pool Principal Balance is $549,694,587 and
the Leases have the characteristics described under "The Leases"; (iv)
payments are made on the Notes on the 20th day of each month commencing in
February 1998; and (v) the Closing Date is December 23, 1997. No
representation is made that these assumptions will be correct, including the
assumption that the Leases will not experience delinquencies or losses.
In making an investment decision with respect to the Notes, investors should
consider a variety of possible prepayment scenarios, including the limited
scenarios described in the table below.
WEIGHTED AVERAGE LIFE OF THE NOTES AT THE RESPECTIVE CPRS SET FORTH BELOW:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE LIFE (YEARS)
TO MATURITY ------------------------------------
2% CPR 5% CPR 7% CPR 10% CPR 13% CPR
------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C>
Class A-1 Notes............................ 0.48 0.46 0.45 0.43 0.41
Class A-2 Notes............................ 1.07 1.03 1.00 0.96 0.92
Class A-3 Notes............................ 2.12 2.05 2.00 1.93 1.87
Class A-4 Notes............................ 3.92 3.85 3.80 3.73 3.65
Class B Notes.............................. 2.20 2.14 2.10 2.04 1.98
Class C Notes.............................. 2.26 2.20 2.16 2.10 2.04
</TABLE>
<TABLE>
<CAPTION>
WEIGHTED AVERAGE LIFE (YEARS)
TO CALL ------------------------------------
2% CPR 5% CPR 7% CPR 10% CPR 13% CPR
------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C>
Class A-1 Notes............................ 0.48 0.46 0.45 0.43 0.41
Class A-2 Notes............................ 1.07 1.03 1.00 0.96 0.92
Class A-3 Notes............................ 2.11 2.04 2.00 1.92 1.86
Class A-4 Notes............................ 3.24 3.16 3.16 2.99 2.91
Class B Notes.............................. 2.05 1.98 1.95 1.87 1.81
Class C Notes.............................. 2.05 1.98 1.95 1.87 1.81
</TABLE>
38
<PAGE>
DESCRIPTION OF THE NOTES
GENERAL
The Notes will be issued pursuant to the terms of the Indenture. The
following summary describes certain terms of the Notes and the Indenture. A
copy of the form of the Indenture has been filed with the Commission as an
Exhibit to the Registration Statement of which this Prospectus is a part.
First Trust National Association, a national banking association headquartered
in St. Paul, Minnesota, will be the Trustee.
Pursuant to the Indenture, the Issuer will issue six classes of notes (the
"Notes"), consisting of four classes of senior notes, designated as the %
Lease-Backed Notes, Class A-1, in the original principal amount of
approximately $196,466,000, the % Lease-Backed Notes, Class A-2, in the
original principal amount of approximately $52,897,000, the % Lease-Backed
Notes, Class A-3, in the original principal amount of approximately
$218,183,000 and the % Lease-Backed Notes, Class A-4, in the original
principal amount of approximately $32,676,000 (together, the "Class A Notes")
and two classes of subordinated notes, designated as the % Lease-Backed
Notes, Class B, in the original principal amount of approximately $30,233,000
and the % Lease-Backed Notes, Class C, in the original principal amount
of approximately $19,239,587 .
Payments on the Notes will be made by the Trustee on each Payment Date to
persons in whose names the Notes are registered as of the related Record Date
(the "Holders" or "Noteholders"). The Payment Date for the Notes will be the
20th day of each month (or if such 20th day is not a Business Day, the next
succeeding Business Day), commencing in February 1998. The Record Date for any
Payment Date will be the Business Day immediately preceding the Payment Date
(so long as the Notes are held in the book-entry form), or the last day of the
prior calendar month (if Definitive Notes have been issued).
A "Business Day" is any day (other than a Saturday, Sunday or legal holiday)
on which commercial banks in New York City, or any other location of a
successor Servicer or Trustee, are open for regular business.
Each Class of Notes initially will be represented by one or more
certificates (the "Book-Entry Certificates") registered in the name of the
nominee of DTC (together with any successor depository selected by the
Trustee, the "Depository"), except as set forth below. Beneficial interests in
each Class of Notes will be available for purchase in minimum denominations of
$10,000 and integral multiples of $1,000 in excess thereof, except that one
Class C Note may be issued in another denomination in book-entry form only.
The Issuer has been informed by DTC that DTC's nominee will be Cede & Co.
Accordingly, Cede & Co. is expected to be the Holder of record of the Notes.
Unless and until Definitive Notes are issued under the limited circumstances
described herein, no Note Owner acquiring an interest in any Class of Notes
will be entitled to receive a certificate representing such Note Owner's
interest in such Notes. Until such time, all references herein to actions by
Noteholders of any Class of Notes will refer to actions taken by the
Depository upon instructions from its participating organizations and all
references herein to distributions, notices, reports and statements to
Noteholders of any Class of Notes will refer to distributions, notices,
reports and statements to the Depository or its nominee, as the registered
Holder of the Notes of such Class, for distribution to Note Owners of such
Class in accordance with the Depository's procedures. See "--Book-Entry
Registration" and "--Definitive Notes."
Subject to applicable laws with respect to escheat of funds, any money held
by the Trustee or any paying agent in trust under the Indenture for the
payment of any amount due with respect to any Note and remaining unclaimed for
two years after such amount has become due and payable shall be discharged
from such trust and, upon request of the Issuer, shall be deposited by the
Trustee in the Collection Account; and the Holder of such Note shall
thereafter, as an unsecured general creditor, look only to the Issuer for
payment thereof, and all liability of the Trustee or such paying agent with
respect to such money shall thereupon cease.
39
<PAGE>
DISTRIBUTIONS
Principal of and interest on the Notes will be paid on each Payment Date,
solely from, and secured by, the "Amount Available" for such Payment Date,
which is equal to the sum of those (a) Pledged Revenues on deposit in the
Collection Account as of the last Business Day preceding the related
Determination Date (the "Deposit Date") which were received by the Servicer
during the related Collection Period or which represent amounts paid by Vendor
Services to repurchase Leases as of the end of such Collection Period and
investment earnings on funds on deposit in the Collection Account (the
"Available Pledged Revenues") plus (b) Servicer Advances made by the Servicer,
plus (c) funds, if any, on deposit in the Residual Account, as described
under""--Residual Realizations" below, plus (d) funds on deposit in the
Reserve Account. See "--The Reserve Account" below.
"Pledged Revenues" will consist of (i) "Scheduled Payments" on the Leases
(which will consist of all required payments under the Leases other than those
portions of such payments which, under the Leases, are to be (A) applied by
the Servicer to the payment of insurance charges, maintenance, taxes and other
similar obligations, or (B) under the Contribution and Servicing Agreement,
are to be retained by the Servicer in payment of Administrative Fees or are
late payments as to which Servicer Advances were made on a Payment Date)
received on or after the Cut-Off Date and due during the term of the Leases,
without giving effect to end-of-term extensions or renewals thereof (including
all Scheduled Payments due prior to, but not received as of, the Cut-Off Date,
but excluding any Scheduled Payments due on or after, but received prior to,
the Cut-Off Date); (ii) any voluntary prepayments ("Prepayments") of Scheduled
Payments received on or after the Cut-Off Date under the Leases; (iii) any
amounts paid by Vendor Services to repurchase Leases (to the extent Vendor
Services has not delivered a Substitute Lease) due to a breach of
representations and warranties with respect thereto, as described under "The
Leases--Representations and Warranties Made by Vendor Services"; (iv) any
amounts paid by the SPC to repurchase the Leases as described under "--
Optional Repurchase of Leases"; (v) Liquidation Proceeds derived from the
liquidation of the Leases and the disposition of the related Equipment, as
described under "--Liquidated Leases" below (unless Vendor Services has
substituted a Substitute Lease therefor); and (vi) any earnings on the
investment of amounts credited to the Collection Account.
On each Payment Date, the Trustee will be required to make the following
payments, first, from Available Pledged Revenues plus any Servicer Advances,
second, from amounts on deposit in the Residual Account as described under "--
Residual Realizations" below, and third, from amounts on deposit in the
Reserve Account, in the following order of priority (except as otherwise
described under "--Events of Default; Rights Upon Event of Default" below):
(i) the Servicing Fee if Vendor Services or an affiliate is no longer the
Servicer;
(ii) to reimburse the Servicer for unreimbursed Nonrecoverable Servicer
Advances made with respect to a prior Payment Date;
(iii) interest on the Notes in the following order of priority:
(a) interest on the Class A Notes,
(b) interest on the Class B Notes, and
(c) interest on the Class C Notes;
(iv) an amount equal to the Monthly Principal Amount as of such Payment
Date, in respect of principal on the Notes in the amounts and in the
priority described under "--Principal" below;
(v) from Available Pledged Revenues and amounts (if any) on deposit in
the Residual Account, to the Reserve Account, an amount equal to the excess
of the Required Reserve Amount over the Available Reserve Amount;
(vi) from Available Pledged Revenues only, for so long as Vendor Services
or an affiliate is the Servicer, the Servicing Fee; and
(vii) the remainder of Available Pledged Revenues, if any, to the SPC.
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CLASS A INTEREST
Interest will be paid to the Holders of each Class of the Class A Notes on
each Payment Date, to the extent the Amount Available (after taking into
account any prior applications described under "--Distributions" above) is
sufficient therefor, at the Interest Rate for such Class on the Outstanding
Principal Amount of such Class. Interest on the Class A-1 Notes will be
calculated on the basis of actual days elapsed in a year of 360 days, and
interest on the Class A-2 Notes, Class A-3 Notes and Class A-4 Notes will be
calculated on the basis of a 360-day year consisting of twelve 30-day months.
Such interest so payable on such Payment Date will be equal to the product of
(i) the Interest Rate for such Class (calculated in the manner described
above) and (ii) the Outstanding Principal Amount of such Class as of such
Payment Date. Interest on each Class of the Class A Notes will accrue from and
including the Closing Date to but excluding February 20, 1998 (in the case of
the first interest period), and thereafter for each successive Payment Date
from and including the most recent prior Payment Date to which interest has
been paid, to but excluding such Payment Date.
In the event that, on a given Payment Date, the Amount Available is not
sufficient to make a full payment of interest to the Holders of Class A Notes,
the amount of interest to be paid on the Class A Notes will be allocated among
the Notes of each Class of Class A Notes pro rata in accordance with their
respective entitlements to interest (and within each such Class pro rata among
the holders of such Class), and the amount of such shortfall will be carried
forward and, together with interest thereon at the applicable Interest Rate,
added to the amount of interest such Holders will be entitled to receive on
the next Payment Date.
CLASS B INTEREST
Interest will be paid to the Holders of the Class B Notes on each Payment
Date, to the extent the remaining Amount Available (after taking into account
all prior applications described under "--Distributions" above) is sufficient
therefor, at the Interest Rate on the Outstanding Principal Amount of the
Class B Notes, and will be calculated on the basis of a 360-day year
consisting of twelve 30-day months. Such interest so paid on such Payment Date
will be equal to one-twelfth of the product of (i) the Class B Interest Rate
and (ii) the Outstanding Principal Amount of the Class B Notes as of such
Payment Date. Interest on the Class B Notes will accrue from and including the
Closing Date to but excluding February 20, 1998 (in the case of the first
interest period), and thereafter for each successive Payment Date from and
including the most recent prior Payment Date to which interest has been paid,
to but excluding such Payment Date.
In the event that, on a given Payment Date, the Amount Available, after
payment of interest on the Class A Notes, is not sufficient to make a full
payment of interest to the Holders of Class B Notes, the amount of interest to
be paid on the Class B Notes will be allocated among the Class B Notes pro
rata, and the amount of such shortfall will be carried forward and, together
with interest thereon at the Class B Interest Rate, added to the amount of
interest such Holders will be entitled to receive on the next Payment Date.
CLASS C INTEREST
Interest will be paid to the Holders of the Class C Notes on each Payment
Date, to the extent the remaining Amount Available (after taking into account
all prior applications described under "--Distributions" above) is sufficient
therefor, at the Class C Interest Rate on the Outstanding Principal Amount of
the Class C Notes, and will be calculated on the basis of a 360-day year
consisting of twelve 30-day months. Such interest so paid on such Payment Date
will be equal to one-twelfth of the product of (i) the Class C Interest Rate
and (ii) the Outstanding Principal Amount of the Class C Notes as of such
Payment Date. Interest on the Class C Notes will accrue from and including the
Closing Date to but excluding February 20, 1998 (in the case of the first
interest period), and thereafter for each successive Payment Date from and
including the most recent prior Payment Date to which interest has been paid,
to but excluding such Payment Date.
In the event that, on a given Payment Date, the Amount Available, after
payment of interest on the Class A and Class B Notes, is not sufficient to
make a full payment of interest to the Holders of Class C Notes, the amount of
interest to be paid on the Class C Notes will be allocated among the Class C
Notes pro rata, and the amount of such shortfall will be carried forward and,
together with interest thereon at the Class C Interest Rate, added to the
amount of interest such Holders will be entitled to receive on the next
Payment Date.
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PRINCIPAL
For each Payment Date, each of the Class A Noteholders, the Class B
Noteholders and the Class C Noteholders will be entitled to receive payments
of principal, to the extent funds are available therefor, in the priorities
set forth in the Indenture and described herein below and under "--
Distributions." On each Payment Date, to the extent funds are available
therefor, principal will be paid to the Noteholders in the following priority:
(a) (i) to the Class A-1 Noteholders only, until the Outstanding
Principal Amount on the Class A-1 Notes has been reduced to zero, the Class
A Principal Payment, then (ii) to the Class A-2 Noteholders, Class A-3
Noteholders and Class A-4 Noteholders, sequentially, the Class A Principal
Payment in that order, until the Outstanding Principal Amount of each such
Class has been reduced to zero,
(b) to the Class B Noteholders, the Class B Principal Payment,
(c) to the Class C Noteholders, the Class C Principal Payment,
(d) to the extent that the Class B Floor exceeds the Class B Target
Investor Principal Amount and the Class C Floor exceeds the Class C Target
Investor Principal Amount, Additional Principal (defined below) shall be
distributed, sequentially, as an additional principal payment on the Class
A-2 Notes, the Class A-3 Notes, the Class A-4 Notes, the Class B Notes and
the Class C Notes, in that order, until the Outstanding Principal Amount of
each such Class has been reduced to zero, and
(e) to the extent the Class C Floor exceeds the Class C Target Investor
Principal Amount, but the Class B Floor does not exceed the Class B Target
Investor Principal Amount, Additional Principal shall be distributed as an
additional principal payment on the Class A and Class B Notes, pro rata
(and among the Class A Notes, sequentially on the Class A-2, Class A-3 and
Class A-4 Notes, in that order), until the Outstanding Principal Amount of
each such Class has been reduced to zero.
The "Outstanding Principal Amounts" as of a Payment Date shall mean the then
unpaid principal amounts of the Class A-1 Notes, the Class A-2 Notes, the
Class A-3 Notes, the Class A-4 Notes, the Class B Notes and the Class C Notes
(determined prior to payment of any principal in respect thereof on such
Payment Date).
The "Class A Principal Payment" shall equal (a) while the Class A-1 Notes
are outstanding, (i) on all Payment Dates prior to the January 1999 Payment
Date, the lesser of (1) the amount necessary to reduce the Outstanding
Principal Amount on the Class A-1 Notes to zero and (2) the Monthly Principal
Amount, and (ii) on the January 1999 Payment Date, the entire Outstanding
Principal Amount on the Class A-1 Notes and (b) after the Class A-1 Notes have
been paid in full, the amount necessary to reduce the aggregate Outstanding
Principal Amount on the Class A Notes to the Class A Target Investor Principal
Amount.
The "Class B Principal Payment" shall equal (a) while the Class A-1 Notes
are outstanding, zero and (b) after the Outstanding Principal Amount on the
Class A-1 Notes has been reduced to zero, the amount necessary to reduce the
Outstanding Principal Amount of the Class B Notes to the greater of the Class
B Target Investor Principal Amount and the Class B Floor.
The "Class C Principal Payment" shall equal (a) while the Class A-1 Notes
are outstanding, zero and (b) after the Outstanding Principal Amount on the
Class A-1 Notes has been reduced to zero, the amount necessary to reduce the
Outstanding Principal Amount of the Class C Notes to the greater of the Class
C Target Investor Principal Amount and the Class C Floor.
"Additional Principal" with respect to each Payment Date is an amount equal
to (a) the Monthly Principal Amount, less (b) the Class A Principal Payment,
the Class B Principal Payment and the Class C Principal Payment to be paid on
such Payment Date.
The "Class A Target Investor Principal Amount" with respect to each Payment
Date is an amount equal to the product of (a) the Class A Percentage and (b)
the Lease Pool Principal Balance as of the last day of the Collection Period
related to such Payment Date.
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The "Class B Target Investor Principal Amount" with respect to each Payment
Date is an amount equal to the product of (a) the Class B Percentage and (b)
the Lease Pool Principal Balance as of the last day of the Collection Period
related to such Payment Date.
The "Class C Target Investor Principal Amount" with respect to each Payment
Date is an amount equal to the product of (a) the Class C Percentage and (b)
the Lease Pool Principal Balance as of the last day of the Collection Period
related to such Payment Date.
The "Class A Percentage" will be 85.994%. The "Class B Percentage" will be
8.559%. The "Class C Percentage" will be 5.447%.
The "Class B Floor" with respect to each Payment Date means (a) 3.0% of the
Initial Pool Principal Balance, plus (b) the Cumulative Loss Amount with
respect to such Payment Date, minus (c) the sum of the Outstanding Principal
Amount of the Class C Notes as of such Payment Date and the amount on deposit
in the Reserve Account after giving effect to withdrawals to be made on such
Payment Date.
The "Class C Floor" with respect to each Payment Date means (a) 2.0% of the
Initial Pool Principal Balance, plus (b) the Cumulative Loss Amount with
respect to such Payment Date minus (c) the amount on deposit in the Reserve
Account after giving effect to withdrawals to be made on such Payment Date;
provided that if the Outstanding Principal Amount on the Class B Notes is
equal to the Class B Floor on such Payment Date, the Class C Floor will equal
the Outstanding Principal Amount of the Class C Notes as of such Payment Date.
The "Monthly Principal Amount" for any Payment Date will equal the excess,
if any, of (i) the sum of the Outstanding Principal Amount of the Notes for
such Payment Date, over (ii) the aggregate of the Principal Balance of each
Lease (the "Lease Pool Principal Balance") as of the last day of the
Collection Period relating to such Payment Date.
The "Cumulative Loss Amount" with respect to each Payment Date is an amount
equal to the excess, if any, of
(a) the total of (i) the Outstanding Principal Amount of the Notes for
such Payment Date, minus (ii) the lesser of (A) the Monthly Principal
Amount and (B) the Amount Available remaining after the payment of amounts
owing to the Servicer (other than the Servicing Fee to the extent that
Vendor Services is the Servicer) and in respect of interest on the Notes on
such Payment Date, over
(b) the Lease Pool Principal Balance as of the last day of the Collection
Period related to such Payment Date.
The "Principal Balance" of any Lease as of the last day of any Collection
Period is:
(1) in the case of any Lease that does not by its terms permit prepayment
or early termination, the present value of the unpaid Scheduled Payments
due on such Lease after such last day of the Collection Period (excluding
all Scheduled Payments due on or prior to, but not received as of, such
last day, as well as any Scheduled Payments due after such last day and
received on or prior thereto), after giving effect to any Prepayments
received on or prior to such last day, discounted monthly (assuming, for
purposes of such calculation, that each Scheduled Payment is due on the
last day of the applicable Collection Period) at the rate of % per annum
(the "Discount Rate"), which rate is equal to (a) the weighted average
Interest Rate of the Class A (utilizing the Class A-4 Interest Rate), Class
B and Class C Notes on the Closing Date, plus the (b) Servicing Fee;
(2) in the case of any Lease that permits prepayment or early termination
only upon payment of a premium that is at least equal to the present value
(calculated in the manner described in clause (1) above)
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of the unpaid Scheduled Payments due on such Lease after the date of such
prepayment, the amount specified in clause (1) above; and
(3) in the case of any Lease that permits prepayment or early termination
without payment of a premium at least equal to the amount specified in
clause (2) above, the lesser of (a) the outstanding principal balance of
such Lease after giving effect to Scheduled Payments due on or prior to
such last day of the Collection Period, whether or not received, as well as
any Prepayments, and any Scheduled Payments due after such last day,
received on or prior to such last day, and (b) the amount specified in
clause (1) above.
The "Initial Pool Principal Balance," which is the aggregate Principal
Balance of the Leases as of the Initial Cut-Off Date, calculated at the
Discount Rate, is $ .
The Principal Balance of any Lease which became a Liquidated Lease during a
given Collection Period or which Vendor Services was obligated to purchase as
of the end of a given Collection Period due to a breach of representations and
warranties, will be deemed to be zero on and after the last day of such
Collection Period.
A "Liquidated Lease" is any Lease (a) which the Servicer has charged off as
uncollectible in accordance with its credit and collection policies and
procedures (which shall be no later than the date as of which the Servicer has
repossessed and disposed of the related Equipment, or otherwise collected all
proceeds which, in the Servicer's reasonable judgment, can be collected under
such Lease), or (b) as to which 10% or more of a Scheduled Payment is
delinquent 180 days or more.
The "Collection Period" for any Payment Date will be the calendar month
preceding the month in which such Payment Date occurs (except that the
Collection Period for the Payment Date in February 1998 will include December
1997 and January 1998).
SERVICER ADVANCES
Prior to any Payment Date, the Servicer may, but will not be required to,
advance to the Trustee an amount sufficient to cover delinquencies in
Scheduled Payments on the Leases with respect to the prior Collection Period
(a "Servicer Advance"). The Servicer will be reimbursed for Servicer Advances
from late payments on the delinquent Leases with respect to which such
advances were made and, if the Servicer later determines that such Servicer
Advance will not be reimbursed from the recovery on the delinquent Lease (a
"Nonrecoverable Servicer Advance"), from the Amount Available on the next
Payment Date.
RESIDUAL REALIZATIONS
Cash flows realized from the sale or re-lease of the Equipment following the
scheduled expiration dates or voluntary early termination of the Leases, other
than Equipment subject to Liquidated Leases (the "Residual Realizations"),
will provide additional credit support for the Notes. Historically Vendor
Services has realized amounts greater than book value through sale or re-lease
of equipment similar to the Equipment, but there can be no assurance as to the
amount or timing of Residual Realizations. See "Risk Factors--Risks Relating
to Reliance on Residual Realizations." The Residual Realizations will be
deposited in the Residual Account. As provided in the Indenture, funds on
deposit in the Residual Account will be available to cover shortfalls in the
Available Pledged Revenues to pay interest and principal payments then due on
the Notes. As of the Initial Cut-Off Date, the aggregate residual value of the
Equipment recorded on the accounting books of Vendor Services (the "Book
Value") of the Leases was $49,422,100.38. Actual Residual Realizations may be
more or less than Book Value. The Residual Realizations for a Collection
Period not distributed to Noteholders, paid to the Servicer or deposited into
the Reserve Account on the related Payment Date will be released to the SPC on
such Payment Date, except during the continuation of certain limited
circumstances specified in the Indenture (a "Residual Event"). During the
continuation of a Residual Event, amounts in the Residual Account that
otherwise would be released to the SPC will be retained in the Residual
Account for application on future Payment Dates.
Upon the termination of a Residual Event, any amounts on deposit in the
Residual Account will be (i) deposited into the Reserve Account, to the extent
that the amount on deposit in the Reserve Account is less than the Required
Reserve Amount, or (ii) released to the SPC, and thereafter will not be
available to Noteholders under any circumstance. The Residual Events will be
established prior to the Closing Date based on criteria
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prescribed by the Rating Agencies. Such criteria may be amended or otherwise
altered after the Closing Date, without the consent of Noteholders, to alter
the performance parameters that must occur to cause a Residual Event without
the consent of Noteholders, so long as doing so would not cause either Rating
Agency to reduce, withdraw or qualify any of its ratings on the Notes.
RESERVE ACCOUNT
The Trustee will establish and maintain as Eligible Account (the "Reserve
Account"). On the Closing Date, the SPC will make an initial deposit in an
amount equal to 2.00% of the Initial Pool Principal Balance into the Reserve
Account. In the event that Available Pledged Revenues are insufficient to pay
the amounts owing the Servicer, interest payments on the Notes and the Class A
Principal Payment, the Class B Principal Payment and the Class C Principal
Payment (such payments, the "Required Payments"), and amounts on deposit in
the Residual Account are insufficient to make up such shorfall, the Trustee
will withdraw from the Reserve Account an amount equal to the lesser of the
funds on deposit in the Reserve Account (the "Available Reserve Amount") and
such deficiency. In addition, on each Payment Date, the Amount Available
remaining after the payment of the Required Payments will be deposited into
the Reserve Account to the extent that the Required Reserve Amount exceeds the
Available Reserve Amount. The "Required Reserve Amount" equals the lesser of
(a) 2.00% of the Initial Pool Principal Balance and (b) the Outstanding
Principal Amount of the Notes. Any amounts on deposit in the Reserve Account
in excess of the Required Reserve Amount will be released to the SPC, and
thereafter will not be available to Noteholders under any circumstance.
SUBORDINATION OF CLASS B NOTES AND CLASS C NOTES
The likelihood of payment of interest on each Class of Notes will be
enhanced by the application of the Amount Available to the payment of such
interest prior to the payment of principal on any of the Notes, as well as by
the preferential right of the Holders of Class A and Class B Notes to receive
such interest (1) in the case of the Class A Notes, prior to the payment of
any interest on the Class B Notes or the Class C Notes, and (2) in the case of
the Class B Notes, prior to the payment of any interest on the Class C Notes.
Likewise, the likelihood of payment of principal, to the extent of the Class A
Principal Payment and the Class B Principal Payment on a Payment Date on the
Class A and Class B Notes, respectively, will be enhanced by the preferential
right of the Holders of Notes of each such Class to receive such principal, to
the extent of the Amount Available, after payment of interest on the Notes as
aforesaid, (i) in the case of the Class A Notes, prior to the payment of any
principal on the Class B Notes or the Class C Notes and (ii) in the case of
the Class B Notes, prior to the payment of any principal on the Class C Notes.
LIQUIDATED LEASES
Liquidation Proceeds (which will consist generally of all amounts received
by the Servicer in connection with the liquidation of a Liquidated Lease and
disposition of the related Equipment, net of any related out-of-pocket
liquidation expenses) will be deposited in the Collection Account and
constitute Pledged Revenues to be applied to the payment of interest and
principal on the Notes in accordance with the priorities described under "--
Distributions" above (except that, to the extent that Vendor Services elects
to substitute one or more Substitute Leases for all or a portion of the unpaid
Principal Balance of the Liquidated Lease, Liquidation Proceeds will be
remitted to Vendor Services and will not be available to Noteholders).
OPTIONAL REPURCHASE OF LEASES
The SPC may purchase all of the Leases on any Payment Date following the
date on which the unpaid principal balance of the Notes is less than 10% of
the Initial Pool Principal Balance. The purchase price to be paid in
connection with such purchase shall be at least equal to the unpaid principal
balance of the Notes as of such Payment Date plus interest to be paid on the
Notes on such Payment Date. The proceeds of such purchase shall be applied on
such Payment Date to the payment of the remaining principal balance of the
Notes, together with accrued interest thereon.
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TRUST ACCOUNTS
The Trustee will establish and maintain under the Indenture segregated trust
accounts (which need not be deposit accounts, but which shall constitute
"Eligible Accounts"), consisting of the "Collection Account," the "Servicing
Account," the "Residual Account," the "Reserve Account" and the "Note
Distribution Account" (collectively, the "Trust Accounts"). An "Eligible
Account" means any account which is (i) an account maintained with an Eligible
Institution (as defined below); (ii) an account or accounts the deposits in
which are fully insured by either the Bank Insurance Fund or the Savings
Association Insurance Fund of the FDIC; (iii) a "segregated trust account"
maintained with the corporate trust department of a federal or state chartered
depository institution or trust company with trust powers and acting in its
fiduciary capacity for the benefit of the Trustee, which depository
institution or trust company has capital and surplus (or, if such depository
institution or trust company is a subsidiary of a bank holding company system,
the bank holding company has capital and surplus) of not less than $50,000,000
and the securities of such depository institution or trust company (or, if
such depository institution or trust company is a subsidiary of a bank holding
company system and such depository institution's or trust company's securities
are not rated, the securities of the bank holding company) have a credit
rating from each of the Rating Agencies (if rated by such Rating Agency) which
signifies "investment grade"; or (iv) an account that will not cause any
Rating Agency to reduce, qualify or withdraw its then-current rating assigned
to the Notes, as confirmed in writing by such Rating Agency. "Eligible
Institution" means any depository institution organized under the laws of the
United States or any state, the deposits of which are insured to the full
extent permitted by law by the Bank Insurance Fund (currently administered by
the Federal Deposit Insurance Corporation), whose short-term deposits or
unsecured long-term debt have a credit rating from each of the Rating Agencies
(if rated by such Rating Agency), and which is subject to supervision and
examination by federal or state authorities.
The Servicer, as agent for the Trustee, may designate, or otherwise arrange
for the purchase by the Trustee of, investments to be made with funds in the
Trust Accounts, which investments shall be Eligible Investments (as defined in
the Indenture) that will mature not later than the business day preceding the
applicable monthly Payment Date. "Eligible Investments" include, among other
investments, obligations of the United States or of any agency thereof backed
by the full faith and credit of the United States; federal funds, certificates
of deposit, time deposits and bankers' acceptances sold by eligible financial
institutions; certain repurchase agreements with eligible institutions and
other investments which would not result in the reduction, qualification or
withdrawal of any rating of the Notes by any Rating Agency.
REPORTS TO NOTEHOLDERS
The Servicer will furnish to the Trustee, and the Trustee will include with
each distribution to a Noteholder, a statement in respect of the related
Payment Date setting forth, among other things:
(i) the amount of interest paid on each Class of Class A Notes, including
any unpaid interest from the prior Payment Date, and any remaining unpaid
interest on each Class of Class A Notes;
(ii) the amount of interest paid on the Class B Notes, including any
unpaid interest from the prior Payment Date, and any remaining unpaid
interest on the Class B Notes;
(iii) the amount of interest paid on the Class C Notes, including any
unpaid interest from the prior Payment Date, and any remaining unpaid
interest on the Class C Notes;
(iv) the amount of principal paid on each Class of Class A Notes;
(v) the amount of principal paid on the Class B Notes;
(vi) an amount of principal paid on the Class C Notes;
(vii) the Cumulative Loss Amount, if any, for such Payment Date;
(viii)all Substitute Leases delivered by Vendor Services;
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(ix) the balance in the Reserve Account and the Required Reserve Amount;
and
(x) the amount on deposit in the Residual Account.
The Notes will be registered in the name of a nominee of DTC and will not be
registered in the names of the beneficial owners or their nominees. As a
result, unless and until Definitive Notes are issued in the limited
circumstances described under "--Definitive Notes" below, beneficial owners
will not be recognized by the Trustee as Noteholders, as that term is used in
the Indenture. Hence, until such time, beneficial owners will receive reports
and other information provided for under the Indenture only if, when and to
the extent provided by DTC and its participating organizations.
BOOK-ENTRY REGISTRATION
Each Class of Notes will initially be represented by one or more Book-Entry
Certificates registered in the name of the nominee of DTC. The Issuer has been
informed by DTC that DTC's nominee will be Cede & Co. Noteholders may hold
their Notes through DTC, if they are participants of DTC ("Participants"), or
indirectly through organizations that are Participants.
DTC is a New York-chartered limited-purpose trust company, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the UCC
in effect in the State of New York, and a "clearing agency" registered
pursuant to the provisions of Section 17A of the Exchange Act. DTC holds
securities for its Participants ("DTC Participants") and facilitates the
clearance and settlement among Participants of securities transactions, such
as transfers and pledges, in deposited securities through electronic book-
entry changes in Participants' accounts, thereby eliminating the need for
physical movement of securities. Participants include securities brokers and
dealers, banks, trust companies, clearing corporations, and certain other
organizations. Indirect access to the DTC system is also available to others
such as securities brokers and dealers, banks, and trust companies that clear
through or maintain a custodial relationship with a Participant, either
directly or indirectly ("Indirect Participants"). Transfers between DTC
Participants will occur in accordance with DTC rules.
Note Owners that are not Participants or Indirect Participants but desire to
purchase, sell or otherwise transfer ownership of, or other interests in,
Notes may do so only through Participants and Indirect Participants. Note
Owners will receive all distributions from the Trustee through Participants
and Indirect Participants. Note Owners may experience some delay in their
receipt of payments, since such payments will be forwarded by the Trustee to
DTC's nominee. DTC will forward such payments to its Participants, which
thereafter will forward them to indirect Participants or Note Owners. Note
Owners will not be recognized by the Trustee as Noteholders and Note Owners
will be permitted to exercise the rights of Noteholders only indirectly
through DTC and its Participants.
Under the rules, regulations and procedures creating and affecting DTC and
its operations (the "Rules"), DTC is required to make book-entry transfers of
Notes among Participants on whose behalf it acts with respect to the Notes and
to receive and transmit distributions of amounts payable on the Notes.
Participants and Indirect Participants with which Note Owners have accounts
similarly are required to make book-entry transfers and receive and transmit
such payments on behalf of their respective Note Owners. Accordingly, although
Note Owners will not possess Notes, the Rules provide a mechanism by which
Participants will receive payments and will be able to transfer their
interests.
Because DTC can act only on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a Note Owner
to pledge Notes to persons or entities that do not participate in the DTC
system, or to otherwise act with respect to such Notes, may be limited due to
the lack of a physical certificate for such Notes.
DTC has advised the Issuer that it will take any action permitted to be
taken by a Noteholder under the Indenture, only at the direction of one or
more Participants to whose accounts with DTC the Notes are credited.
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DTC may take conflicting actions with respect to other undivided interests to
the extent that such actions are taken on behalf of Participants whose
holdings include such undivided interests.
Except as required by law, Vendor Services, the SPC, the Issuer, and the
Trustee will not have any liability for any aspect of the records relating to
or payments made on account of beneficial ownership interest of the Notes held
by DTC's nominee, or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests.
DTC may discontinue providing its services as securities depository with
respect to the Notes at any time by giving reasonable notice to the Trustee.
Under such circumstances, in the event that a successor securities depository
is not obtained, Definitive Notes are required to be printed and delivered.
See "--Definitive Notes."
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Issuer believes to be reliable, but
the Issuer takes no responsibility for the accuracy or completeness thereof.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of Notes among participants of DTC, DTC is under no obligation to
perform or continue to perform such procedures and such procedures may be
discontinued at any time.
DEFINITIVE NOTES
The Notes of each Class will be issued in registered, certificated form to
the Note Owners of such Class or their nominees ("Definitive Notes"), rather
than to the Depository or its nominee, only if (i) the Depository advises the
Trustee in writing that it is no longer willing or able to discharge properly
its responsibilities as Depository with respect to the Notes of such Class,
and the Trustee is unable to locate a qualified successor, or (ii) an Event of
Default has occurred, and Note Owners representing not less than 50% of the
principal balance of such Class advise the Trustee and the Depository through
Participants in writing that the continuation of a book-entry system through
the Depository is no longer in the best interest of the Note Owners of such
Class.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Depository is required to notify all Participants of
the availability through the Depository of Definitive Notes. Upon surrender by
the Depository of the definitive certificate representing the Notes of the
affected Class and instructions for registration, the Trustee will issue the
Notes of such Class as Definitive Notes, and thereafter the Trustee will
recognize the Note Owners of such Definitive Notes as Noteholders under the
Indenture.
Distributions of principal and interest on the Notes will be made by the
Trustee directly to Noteholders in accordance with the procedures set forth
herein and in the Indenture. Interest payments and any principal payments on
each Payment Date will be made to Noteholders in whose names the Definitive
Notes were registered at the close of business on the related Record Date.
Distributions will be made by check mailed to the address of such Noteholder
as it appears on the register maintained by the Trustee. The final payment on
any Note, however, will be made only upon presentation and surrender of such
Note at the office or agency specified in the notice of final distribution to
Noteholders. The Trustee will provide such notice to registered Noteholders
mailed not later than the fifth day of the month of such final distributions.
Definitive Notes will be transferable and exchangeable at the offices of the
transfer agent and registrar, which initially will be the Trustee (in such
capacity, the "Transfer Agent and Registrar"). No service charge will be
imposed for any registration of transfer or exchange, but the Transfer Agent
and Registrar may require payment of a sum sufficient to cover any tax or
other governmental charge imposed in connection therewith. The Transfer Agent
and Registrar will not be required to register the transfer or exchange of
Definitive Notes for the period from the Record Date preceding the due date
for any payment to the Payment Date with respect to such Definitive Notes.
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MODIFICATION OF INDENTURE WITHOUT NOTEHOLDER CONSENT
The Issuer and the Trustee may, without consent of the Noteholders, enter
into one or more supplemental indentures for any of the following purposes:
(i) to correct or amplify the description of the collateral or add additional
collateral; (ii) to provide for the assumption of the Notes and the Indenture
obligations by a permitted successor to the Issuer (as described under "--
Certain Covenants"); (iii) to add additional covenants for the benefit of the
Noteholders, or to surrender any rights or power conferred upon the Issuer;
(iv) to convey, transfer, assign, mortgage or pledge any property to or with
the Trustee; (v) to cure any ambiguity or correct or supplement any provision
in the Indenture or in any supplemental indenture which may be inconsistent
with any other provision of the Indenture; (vi) to provide for the acceptance
of the appointment of a successor Trustee or to add to or change any of the
provisions of the Indenture or in any supplemental indenture as shall be
necessary and permitted to facilitate the administration by more than one
trustee; (vii) to modify, eliminate or add to the provisions of the Indenture
in order to comply with the Trust Indenture Act of 1939, as amended; (viii) to
avoid a reduction, qualification or withdrawal of any rating of the Notes; or
(ix) to add any provisions to, or change in any manner or eliminate any of the
provisions of, the Indenture or to modify in any manner the rights of the
Holders of the Notes under the Indenture, provided that such action shall not
(a) result in a reduction, qualification or withdrawal of the then-current
ratings of the Notes, or (b) as evidenced by an opinion of counsel, adversely
affect in any material respect the interests of any Noteholder.
MODIFICATION OF INDENTURE WITH NOTEHOLDER CONSENT
With the consent of the Holders representing a majority of the principal
balance of each Class of the Notes then outstanding (a "Note Majority"), the
Issuer and the Trustee may execute a supplemental indenture to add provisions
to change in any manner or eliminate any provisions of, the Indenture, or
modify in any manner the rights of the Noteholders.
Without the consent of the Holder of each outstanding Note affected thereby,
however, no supplemental indenture may: (i) change the date, timing or method
of determination of any installment of principal of or interest on any Note or
reduce the principal amount thereof, the interest rate specified thereon or
the redemption price with respect thereto or change the manner of calculating
any such payment or any place of payment where, or the coin or currency in
which, any Note or any interest thereon is payable; (ii) impair the right to
institute suit for the enforcement of certain provisions of the Indenture
regarding payment; (iii) reduce the percentage of each Class of the Notes then
outstanding the consent of the Holders of which is required for any such
supplemental indenture or for any waiver of compliance with certain provisions
of the Indenture or of certain defaults thereunder and their consequences;
(iv) modify or alter the provisions of the Indenture regarding the voting of
Notes held by the Issuer, any other obligor on the Notes, the Issuer or an
affiliate of any of them; (v) reduce the percentage of the Notes the consent
of the Holders of which is required to direct the Trustee to sell or liquidate
the Trust Assets if the proceeds of such sale would be insufficient to pay the
principal amount and accrued but unpaid interest on the outstanding Notes;
(vi) reduce the percentage of each Class of the Notes then outstanding
required to amend the sections of the Indenture which specify the applicable
percentage of each Class of the Notes then outstanding necessary to amend the
Indenture or certain other related agreements; (vii) permit the creation of
any lien ranking prior to or on a parity with the lien of the Indenture with
respect to any of the collateral for the Notes or, except as otherwise
permitted or contemplated in the Indenture, terminate the lien of the
Indenture on any such collateral or deprive the Holder of any Note of the
security afforded by the lien of the Indenture; or (viii) result in a
reduction, qualification or withdrawal of the rating of any Class of Notes by
a Rating Agency, as confirmed in writing by each Rating Agency.
EVENTS OF DEFAULT; RIGHTS UPON EVENT OF DEFAULT
"Events of Default" under the Indenture will consist of: (i) a default for
five calendar days or more in the payment of interest due on any Note; (ii)
failure to pay the unpaid principal amount of any Class of Notes on the Stated
Maturity Date or any redemption date for such Class; (iii) a default in the
observance or performance in any material respect of any covenant or agreement
of the Issuer made in the Indenture, or any representation or
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warranty made by the Issuer in the Indenture or in any certificate delivered
pursuant thereto or in connection therewith having been incorrect as of the
time made, and the continuation of any such default or the failure to cure
such breach of a representation or warranty for a period of 30 calendar days
after notice thereof is given to the Issuer by the Trustee or to the Issuer
and the Trustee by the Holders of at least 25% in principal amount of the
Notes then outstanding; or (iv) certain events of bankruptcy, insolvency,
receivership or liquidation of the Issuer.
If an Event of Default should occur and be continuing with respect to the
Notes, the Trustee or a Note Majority may declare the principal of the Notes
to be immediately due and payable. Such declaration may, under certain
circumstances, be rescinded by a Note Majority.
If the Notes have been declared due and payable following an Event of
Default, the Trustee may institute proceedings to collect amounts due or
foreclose on Trust Assets or any portion thereof, exercise remedies as a
secured party, sell the Trust Assets or any portion thereof or elect to have
the Issuer maintain possession of the Trust Assets and continue to apply
collections on the Trust Assets as if there had been no declaration of
acceleration. The Trustee, however, will be prohibited from selling the
Pledged Revenues following an Event of Default, unless (i) the Holders of all
the outstanding Notes consent to such sale; (ii) the proceeds of such sale
distributable to Holders of the Notes are sufficient to pay in full the
principal of and the accrued interest on all the outstanding Notes at the date
of such sale; or (iii) the Trustee determines that the Trust Assets would not
be sufficient on an ongoing basis to make all payments on the Notes as such
payments would have become due if such obligations had not been declared due
and payable, and the Trustee obtains the consent of the Holders of 66 2/3% of
the aggregate outstanding amount of the Notes. Following a declaration upon an
Event of Default that the Notes are immediately due and payable, any proceeds
of liquidation of the Trust Assets, will be applied in the following order of
priority: (i) to the Servicer, the Servicing Fee (if Vendor Services or an
affiliate is no longer the Servicer); (ii) to the reimbursement of the Trustee
for its expenses; (iii) to the payment of interest, sequentially, on the Class
A Notes, the Class B Notes and the Class C Notes; (iv) to the payment of
principal, sequentially, on the Class A Notes, the Class B Notes and the Class
C Notes; (v) to the Servicer, the Servicing Fee (if Vendor Services or an
affiliate is the Servicer); and (vi) the remainder, if any, to the Issuer.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, if an Event of Default occurs and is continuing, the Trustee will be
under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the Holders of the Notes, if
the Trustee reasonably believes it will not be adequately indemnified against
the costs, expenses and liabilities which might be incurred by it in complying
with such request. Subject to the provisions for indemnification and certain
limitations contained in the Indenture, a Note Majority will have the right to
direct the time, method and place of conducting any proceeding or any remedy
available to the Trustee, and a Note Majority may, in certain cases, waive any
default with respect thereto, except a default in the payment of principal or
interest or a default in respect of a covenant or provision of the Indenture
that cannot be modified without the waiver or consent of all of the Holders of
such outstanding Notes.
No Holder of a Note will have the right to institute any proceeding with
respect to the Indenture, unless (i) such Holder previously has given to the
Trustee written notice of a continuing Event of Default, (ii) the Holders of
not less than 25% in principal amount of the outstanding Notes have made
written request of the Trustee to institute such proceeding in its own name as
Trustee, (iii) such Holder or Holders have offered the Trustee reasonable
indemnity, (iv) the Trustee has for 60 days failed to institute such
proceeding, and (v) no direction inconsistent with such written request has
been given to the Trustee during such 60-day period by the Holders of a
majority in principal amount of such outstanding Notes.
If an Event of Default occurs and is continuing and if it is known to the
Trustee, the Trustee will mail to each Noteholder notice of the Event of
Default within 90 days after it occurs. Except in the case of a failure to pay
principal of or interest on any Note, the Trustee may withhold the notice if
and so long as it determines in good faith that withholding the notice is in
the interests of the Noteholders.
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In addition, the Trustee and the Noteholders, by accepting the Notes, will
covenant that they will not at any time institute against the Issuer any
bankruptcy, reorganization or other proceeding under any federal or state
bankruptcy or similar law.
Neither the Trustee nor the Issuer in its individual capacity, nor any
Holder of a Note including, without limitation, the SPC, nor any of their
respective owners, beneficiaries, agents, officers, directors, employees,
affiliates, successors or assigns will, in the absence of an express agreement
to the contrary, be personally liable for the payment of the Notes or for any
agreement or covenant of the Issuer contained in the Indenture.
CERTAIN COVENANTS
The Indenture will provide that the Issuer may not consolidate with or merge
into any other entity, unless (i) the entity formed by or surviving such
consolidation or merger is organized under the laws of the United States or
any state, (ii) such entity expressly assumes the Issuer's obligation to make
due and punctual payments upon the Notes and the performance or observance of
every agreement and covenant of the Issuer under the Indenture, (iii) no Event
of Default shall have occurred and be continuing immediately after such merger
or consolidation, (iv) the Issuer has been advised that the rating of the
Notes then in effect would not be reduced or withdrawn by the Rating Agencies
as a result of such merger or consolidation, (v) the Issuer has received an
opinion of counsel to the effect that such consolidation or merger would have
no material adverse tax consequence to the Issuer or to any Noteholder, and
(vi) the Issuer or the Person (if other than the Issuer) formed by or
surviving such consolidation or merger has a net worth, immediately after such
consolidation or merger, that is (a) greater than zero and (b) not less than
the net worth of the Issuer immediately prior to giving effect to such
consolidation or merger.
The Issuer will not, among other things, (i) except as expressly permitted
by the Indenture, sell, transfer, exchange or otherwise dispose of any of the
Trust Assets, (ii) claim any credit on or make any deduction from the
principal and interest payable in respect of the related Notes (other than
amounts withheld under the Code or applicable state law) or assert any claim
against any present or former Holder of such Notes because of the payment of
taxes levied or assessed upon the Issuer, (iii) dissolve or liquidate in whole
or in part, (iv) permit the validity or effectiveness of the Indenture to be
impaired or permit any person to be released from any covenants or obligations
with respect to the Notes under the indenture except as may be expressly
permitted thereby, or (v) except as expressly permitted by the Indenture or
the Contribution and Servicing Agreement, permit any lien, charge, excise,
claim, security interest, mortgage or other encumbrance to be created on or
extend to or otherwise arise upon or burden the assets of the Issuer or any
part thereof, or any interest therein or proceeds thereof.
The Issuer may not engage in any activity other than as specified under "The
SPC and the Issuer." The Issuer will not incur, assume or guarantee any
indebtedness other than indebtedness incurred pursuant to the Notes and the
Indenture or otherwise in accordance with the Indenture and the Contribution
and Servicing Agreement.
ANNUAL COMPLIANCE STATEMENT
The Issuer will be required to file annually with the Trustee a written
statement as to the fulfillment of its obligations under the Indenture.
TRUSTEE'S ANNUAL REPORT
The Trustee will be required to mail each year to all Noteholders a brief
report relating to its eligibility and qualification to continue as Trustee
under the related Indenture, any amounts advanced by it under the Indenture,
the amount, interest rate and maturity date of certain indebtedness owing by
the Issuer to the Trustee in its individual capacity, the property and funds
physically held by the Trustee as such and any action taken by it that
materially affects the Notes and that has not been previously reported.
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SATISFACTION AND DISCHARGE OF INDENTURE
The Indenture will be discharged with respect to the collateral securing the
Notes upon the delivery to the related Trustee for cancellation of all such
Notes or, with certain limitations, upon deposit with the Trustee of funds
sufficient for the payment in full of all of such Notes.
THE TRUSTEE
First Trust National Association will be the Trustee. The Trustee may resign
at any time, in which event the Issuer will be obligated to appoint a
successor trustee. The Issuer may also remove the Trustee if the Trustee
ceases to be eligible to continue as such under the Indenture, if the Trustee
becomes insolvent or if the rating assigned to the long-term unsecured debt
obligations of the Trustee (or the holding company thereof) by the Rating
Agencies shall be lowered below the rating of "BBB", "Baa3" or equivalent
rating or be withdrawn by any Rating Agency. In such circumstances and others
set forth in the Indenture, the Issuer will be obligated to appoint a
successor trustee. Any resignation or removal of the Trustee and appointment
of a successor trustee will not become effective until acceptance of the
appointment by a successor trustee.
DESCRIPTION OF THE CONTRIBUTION AND SERVICING AGREEMENT
TRANSFER AND ASSIGNMENT OF LEASES AND EQUIPMENT
On the Closing Date, Vendor Services will transfer to the SPC pursuant to
the Transfer Agreement all of its right, title and interest in the Leases and
the related Equipment, including all security interests created thereby and
therein, the right to receive all Scheduled Payments and Prepayments received
on the Leases on or after the Cut-Off Date (including all Scheduled Payments
due prior to, but not received as of, the Cut-Off Date, but excluding any
Scheduled Payments due on or after, but received prior to, the Cut-Off Date),
all rights under insurance policies maintained on the Equipment pursuant to
the Leases, all documents contained in the Lease Files and all proceeds
derived from any of the foregoing. Pursuant to the Contribution and Servicing
Agreement, on the Closing Date, the SPC will transfer all of its rights in the
Leases and certain rights to Residual Realizations, together with all its
rights under the Transfer Agreement, to the Issuer.
The Contribution and Servicing Agreement will designate the Servicer as
custodian to maintain possession, as the Issuer's agent, of the Leases and all
documents related thereto. To facilitate servicing and save administrative
costs, the documents will not be physically segregated from other similar
documents that are in the Servicer's possession. UCC financing statements will
be filed on the Closing Date in the applicable jurisdictions reflecting the
transfer of the Leases by Vendor Services to the SPC, by the SPC to the
Issuer, and the pledge of the Leases by the Issuer to the Trustee, and Vendor
Services's accounting records and computer systems will also reflect such
assignments and pledge. The Leases will not, however, be stamped or otherwise
physically marked to reflect their assignment to the Issuer. If, through
fraud, negligence or otherwise, a subsequent purchaser were able to take
physical possession of the Leases without knowledge of the assignment, the
Issuer's interest in the Leases could be defeated. See "Risk Factors--
Enforceability of the Leases" and "Certain Legal Aspects of the Leases."
COLLECTIONS ON LEASES
The Trustee will establish and maintain a Servicing Account, into which the
Servicer will deposit, no later than the second Business Day after receipt
thereof, all Scheduled Payments, Prepayments, Liquidation Proceeds, Residual
Realizations and other amounts received by the Servicer in respect of the
Leases on and after the Cut-Off Date. The Servicer will thereafter transfer to
the Collection Account, no later than the third Business Day after deposit
thereof in the Servicing Account, the following amounts:
(i) all Scheduled Payments made by or on behalf of Obligors under the
Leases;
(ii) all Prepayments;
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(iii) all amounts constituting Liquidation Proceeds on Liquidated Leases
(to the extent Vendor Services has not delivered Substitute Leases);
(iv) any and all payments made by Vendor Services pursuant to the
Transfer Agreement in connection with the purchase of any Leases as a
result of a breach of a representation or warranty with respect thereto, as
described under "The Leases--Representations and Warranties Made by Vendor
Services"; and
(v) the amount paid by the SPC to purchase the Leases, as described under
"Description of the Notes--Optional Purchase of Leases."
The Servicer will transfer all Residual Realizations from the Servicing
Account to the Residual Account no later than the third Business Day after
deposit thereof in the Servicing Account.
So long as no Event of Termination shall have occurred and be continuing
with respect to the Servicer, the Servicer, if Vendor Services or an affiliate
is no longer the Servicer, may make the remittances to be made by it to the
Collection Account net of amounts (which amounts may be netted prior to any
such remittance for a Collection Period) otherwise to be distributed to it in
payment of its Servicing Fee.
The Servicer will be entitled to withdraw from the Collection Account any
amounts deposited therein in error or required to be repaid to an Obligor,
based on the Servicer's good-faith determination that such amount was
deposited in error or must be returned to the Obligor.
Under the Contribution and Servicing Agreement, the Servicer is required to
establish in its own name one or more "Insurance, Maintenance and Tax
Accounts," into which are to be deposited any payments made by or on behalf of
Obligors which constitute (a) insurance charges paid by an Obligor to the
lessor or secured party under a Lease (unless such payments are made directly
by the Obligor to the applicable insurance company, or Vendor Services has
previously paid such charges), (b) any insurance payments or recoveries paid
by an insurance company or comparable third party and related to the damage
to, or destruction of, the Equipment related to such Lease (unless paid
directly by such insurance company or comparable third party directly to the
Obligor), (c) any payments made by or on behalf of Obligors which constitute
amounts paid by an Obligor to the lessor or secured party under a Lease in
respect of the maintenance of the related Equipment, and (d) taxes paid by the
Obligor and related to the applicable Lease or the Equipment related thereto
(unless such payment is made directly by the Obligor to the applicable taxing
authority or authorities, or Vendor Services has previously paid such taxes).
The Servicer may withdraw amounts from the Insurance, Maintenance and Tax
Accounts, when and if appropriate, to pay when due (or may pay from its own
funds and thereafter reimburse itself from amounts in the Insurance,
Maintenance and Tax Accounts) (1) all insurance charges in the amounts
received under clause (a) above, (2) any amounts payable under any applicable
maintenance contract or otherwise with respect to the maintenance of the
related Equipment in the amounts received under clause (c) above, and (3) all
taxes in the amounts received under clause (d) above. Amounts on deposit in
the Insurance, Maintenance and Tax Accounts which represent amounts received
by the Servicer pursuant to clause (b) above shall be applied by the Servicer
as follows: if equipment is purchased to replace the Equipment that was
damaged or destroyed, and such replacement equipment is (in the reasonable
opinion of the Servicer) of comparable use and equivalent value to the
Equipment that was damaged or destroyed, or if the Equipment is to be
repaired, the Servicer shall release such amount so received from the
insurance company or comparable third party in payment or reimbursement for
such replacement equipment or such repair; and if this replacement option is
not exercised and the Equipment is not to be repaired, then the Servicer shall
treat such amount as Liquidation Proceeds and transfer that portion thereof
which would be allocable to the Notes from the Insurance, Maintenance and Tax
Accounts to the Collection Account.
On or before the first Business Day preceding each Payment Date (the
"Determination Date"), the Servicer is required to determine the amount of
Available Pledged Revenues for such Payment Date, the amount of interest
payable on the Notes on such Payment Date, the Monthly Principal Amount for
such Payment Date, the Cumulative Loss Amount (if any) for such Payment Date,
and the amount, if any, by which such Available Pledged Revenues plus any
Servicer Advances with respect to such Payment Date, when applied in
accordance
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with the priorities described under "Description of the Notes--Distributions,"
are insufficient to pay the interest and principal payable on the Notes on
such Payment Date (a "Payment Shortfall"). If there is a Payment Shortfall for
such Payment Date, amounts on deposit in the Residual Account and then amounts
on deposit in the Reserve Account will be applied to the payment of interest
and principal on the Notes to the extent necessary to cure such Payment
Shortfall. The Servicer shall further give notice to the Trustee of (1) any
remaining Payment Shortfall (after giving effect to the previous application
of funds in the Residual Account or Reserve Account as aforesaid), (2) the
Cumulative Loss Amount (if any), and (3) if such Payment Date is the Stated
Maturity Date for any Class of Notes, the remaining unpaid principal balance
of such Class of Notes (after giving effect to previous application of funds
in the Residual Account as aforesaid).
SERVICING
Pursuant to the Contribution and Servicing Agreement, Vendor Services will
be engaged to act as Servicer on behalf of the Issuer. The Servicer is
generally obligated under the Contribution and Servicing Agreement to service
the Leases in accordance with customary and usual procedures of institutions
which service equipment Leases, installment sale contracts, promissory notes,
loan and security agreements and other similar types of receivables comparable
to the Leases and, to the extent more exacting, the degree of skill and
attention that the Servicer exercises from time to time with respect to all
comparable such contracts that it services for itself or others. In performing
such duties, so long as Vendor Services is the Servicer, it shall comply in
all material respects with its credit and collection policies and procedures
in effect from time to time (which credit and collection policies currently in
effect are described under "Green Tree Vendor Services Corporation"). The
Servicer may delegate certain of its servicing responsibilities with respect
to the Leases to third parties, provided that the Servicer will remain
obligated to the Issuer for the proper performance of all such servicing
responsibilities.
The Servicer will use its best efforts to sell or re-lease any Equipment
upon the termination of the Lease to which such Equipment is subject (whether
as a result of early termination following an Obligor default or upon
scheduled expiration of the Lease), in a timely manner and in a manner so as
to maximize, to the extent possible under then prevailing market conditions,
the net proceeds from such Equipment. The Servicer may, in its discretion,
choose to dispose of Equipment through a new lease or in some other manner
which provides for payment for the Equipment over time. In any such event, the
Servicer will be required to pay from its own funds an amount which, in its
reasonable judgment, is equal to the fair market value of such Equipment (less
any related out-of-pocket liquidation expenses), and the Servicer will be
entitled to all payments received thereafter in respect of such Equipment. Any
such amounts so paid by the Servicer will be deemed to constitute additional
Liquidation Proceeds or Residual Realizations, depending on the reason for the
disposition of the Equipment, with respect to the related Lease and Equipment.
Under the Contribution and Servicing Agreement, the Servicer is responsible
for, among other things: reviewing and certifying that the Lease Files are
complete; monitoring and tracking any property and sales taxes to be paid by
Obligors; billing, collection and recording of payments from Obligors;
communicating with and providing billing records to Obligors; deposit of funds
into the Collection Account; receiving payments as the Issuer's agent on the
insurance policies maintained by the Obligors and communicating with insurers
with respect thereto; issuance of reports to the Trustee specified in the
Indenture and in the Contribution and Servicing Agreement; repossession and
remarketing of Equipment following Obligor defaults or upon scheduled
termination or early termination of Leases; and paying the fees and ordinary
expenses of the Trustee.
The Servicer shall, to the extent the proceeds of such liquidation are
sufficient therefor, be entitled to recover all reasonable out-of-pocket
expenses incurred by it in the course of liquidating a Lease and disposing of
the related Equipment, which amounts may be retained by the Servicer from such
proceeds to the extent of such expenses. The Servicer is entitled under the
Contribution and Servicing Agreement to retain, from liquidation proceeds, a
reserve for out-of-pocket liquidation expenses in an amount equal to such
expenses, in addition to those previously incurred, as it reasonably estimates
will be incurred. Upon completion of such liquidation, the
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remainder of any such reserve, after reimbursement to the Servicer of all out-
of-pocket liquidation expenses, shall constitute Liquidation Proceeds and be
deposited in the Collection Account.
Under the Contribution and Servicing Agreement, the Servicer, subject to
certain limitations, is permitted to grant payment extensions on a Lease in
accordance with its credit and collection policies and procedures if the
Servicer believes in good faith that such extension is necessary to avoid a
termination and liquidation of such Lease and will maximize the amount to be
received by the Issuer with respect to such Lease. Under the Contribution and
Servicing Agreement, the Servicer, subject to certain limitations, is
permitted to grant modifications or amendments to a Lease in accordance with
its credit and collection policies and procedures.
Prepayments. The Servicer may in its discretion allow a Prepayment of any
Lease, but only if the amount paid by or on behalf of the Obligor (or, in the
case of a partial Prepayment, the sum of such amount and the remaining
Principal Balance of the Lease after application of such amount) is at least
equal to the Required Payoff Amount of such Lease. To the extent any
Prepayment exceeds the Required Payoff Amount of a Lease, such excess will be
paid to the Issuer.
Evidence as to Compliance. On or before March 31 (or within 90 days after
the end of the Servicer's fiscal year, if other than December 31) of each
year, the Servicer must deliver to the Trustee a report of a nationally
recognized accounting firm stating that such firm has examined certain
documents and records relating to the servicing of equipment leases and loans
serviced by the Servicer and stating that, on the basis of such procedures,
such servicing has been conducted in compliance with the Contribution and
Servicing Agreement, except for any exceptions set forth in such report.
Certain Matters Regarding the Servicer. The Servicer may not resign from its
obligations under the Contribution and Servicing Agreement except upon a
determination that its duties thereunder are no longer permissible under
applicable law. No such resignation will become effective until a successor
servicer has assumed the Servicer's obligations and duties under the
Contribution and Servicing Agreement. The Servicer can be removed as Servicer
only upon the occurrence of an Event of Termination as discussed below.
The Servicer must keep in place throughout the term of the Contribution and
Servicing Agreement (i) a policy or policies of insurance covering errors and
omissions by the Servicer, and (ii) a fidelity bond. Such policy or policies
and such fidelity bond shall be in such form and amount as is generally
customary among persons that service a portfolio of equipment leases having an
unpaid balance of at least $100 million and which are generally regarded as
servicers acceptable to institutional investors.
Servicing Compensation and Payment of Expenses. Compensation to the Servicer
will include a monthly fee (the "Servicing Fee"), which will be payable to the
Servicer from the Amount Available on each Payment Date, in an amount equal to
the product of one-twelfth of .75% per annum multiplied by the Lease Pool
Principal Balance as of the last day of the second preceding Collection Period
(or, in the case of the Servicing Fee with respect to the Collection Period
commencing on the Initial Cut-Off Date, the Initial Pool Principal Balance),
plus any late fees, late payment interest, documentation fees, insurance
administration charges and other administrative fees and charges and a portion
of any extension fees (collectively, the "Administrative Fees") collected with
respect to the Leases during the prior Collection Period and any investment
earnings on collections prior to deposit thereof in the Collection Account.
The Servicer is authorized under the Contribution and Servicing Agreement, in
its discretion, to waive any Administrative Fees or extension fees that may be
collected in the ordinary course of servicing any Lease.
Events of Termination. An Event of Termination under the Contribution and
Servicing Agreement will occur if (a) the Servicer fails to make any payment
or deposit required under the Contribution and Servicing Agreement and such
failure continues for five business days after notice from the Trustee or
after discovery by the Servicer; (b) the Servicer fails to deliver to the
Trustee and the Issuer the Servicer's Certificate (as defined in the
Contribution and Servicing Agreement) by the third Business Day prior to the
related Payment Date; (c) the Servicer fails to observe or perform in any
material respect any other covenants or agreements of the Servicer set forth
in the Contribution and Servicing Agreement (and, if Vendor Services is the
Servicer, the Transfer
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Agreement), and such failure (i) materially and adversely affects the rights
of the Issuer or Noteholders, and (ii) continues unremedied for 30 days after
written notice thereof has been given to the Servicer by the Issuer, the
Trustee or any Noteholder; (d) certain events of bankruptcy or insolvency
occur with respect to the Servicer; or (e) any representation, warranty or
statement of the Servicer made in the Contribution and Servicing Agreement or
any certificate, report or other writing delivered pursuant thereto proves to
be incorrect in any material respect, and such incorrectness (i) has a
material adverse effect on the Issuer or Noteholders, and (ii) continues
uncured for 30 days after written notice thereof has been given to the
Servicer by the Issuer, the Trustee or any Noteholder. The Servicer is
required under the Contribution and Servicing Agreement to give the Trustee,
the Issuer and each Rating Agency notice of an Event of Termination promptly
after having obtained knowledge of such event.
Federal bankruptcy laws limit the termination of contracts solely by reason
of the fact that the party obligated to provide such performance is subject to
federal bankruptcy proceedings. In such a circumstance, the Trustee may be
unable to terminate the Servicer unless it could demonstrate that independent
grounds (whether or not arising from the same facts causing the Servicer to be
subject to bankruptcy proceedings) exist to declare an Event of Termination
and the court supervising the bankruptcy proceeding determines that such
grounds warrant termination of the Servicer.
Rights upon Event of Termination. So long as an Event of Termination remains
unremedied, the Trustee may, and at the written direction of a Note Majority
(as defined in the Indenture) shall, terminate all of the rights and
obligations of the Servicer under the Contribution and Servicing Agreement in
and to the Leases, whereupon a successor servicer (which, unless and until the
Trustee appoints a new servicer, will be the Trustee) will succeed to all the
responsibilities, duties and liabilities of the Servicer under the
Contribution and Servicing Agreement and will be entitled to similar
compensation arrangements; provided, however, that any successor servicer be
liable for any acts or omissions of the prior Servicer occurring prior to a
transfer of the Servicer's servicing and related functions or for any breach
by such Servicer of any of its obligations contained in the Contribution and
Servicing Agreement.
A Note Majority may waive any default by the Servicer in the performance of
its obligations under the Contribution and Servicing Agreement and its
consequences. Upon any such waiver of a past default, such default shall cease
to exist, and any Event of Termination arising therefrom shall be deemed to
have been remedied. No such waiver shall extend to any subsequent or other
default or impair any right consequent thereon.
AMENDMENT
The Contribution and Servicing Agreement may be amended by the parties
thereto (i) to cure any ambiguity, (ii) to correct or supplement any provision
therein that may be inconsistent with any other provision therein, or (iii) to
make any other provisions with respect to matters or questions arising under
the Contribution and Servicing Agreement that are not inconsistent with the
provisions thereof, provided that such action will not adversely affect in any
material respect the interests of the Noteholders. The Contribution and
Servicing Agreement may also be amended by the parties thereto with the
consent of a Note Majority for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of the
Contribution and Servicing Agreement or of modifying in any manner the rights
of the Noteholders; provided, however, that no such amendment (a) that reduces
in any manner the amount of, or accelerates or delays the timing of, any
payment received on or with respect to Leases that are required to be
distributed on any Note or that reduces the aforesaid percentage required to
consent to any such amendment or any waiver under the Contribution and
Servicing Agreement, may be effective without the consent of the Holder of
each such Note, or (b) will be effective unless each Rating Agency confirms
that such amendment will not result in a reduction, qualification or
withdrawal of the ratings on the Notes.
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TERMINATION OF THE CONTRIBUTION AND SERVICING AGREEMENT
The obligations created by the Contribution and Servicing Agreement will
terminate (after distribution of all interest and principal then due to
Noteholders) on the earlier of (i) the Payment Date next succeeding the later
of the final payment or other liquidation of the last Lease or the disposition
of all Equipment acquired upon termination of any Lease; or (b) the Payment
Date on which the SPC repurchases the Leases as described under "Description
of the Notes--Optional Purchase of Leases." However, Vendor Services's
representations, warranties and indemnities will survive any termination of
the Contribution and Servicing Agreement.
CERTAIN LEGAL ASPECTS OF THE LEASES
ENFORCEMENT OF SECURITY INTERESTS IN THE EQUIPMENT
Due to the administrative burden and expense, no assignments of the UCC
financing statements evidencing the security interest of Vendor Services in
the Equipment (to the extent that such financing statements have been filed
against the Obligor, as discussed under "Green Tree Vendor Services
Corporation--Documentation") will be filed to reflect the SPC's, the Issuer's
or the Trustee's interests therein, except to the extent described under "Risk
Factors--Risks Related to Bankruptcy--Risks Relating to Characterization of
the Transfer of the Leases and Equipment as a Borrowing by Vendor Services."
While failure to file such assignments does not affect the Issuer's interest
in the Leases (including Vendor Services's interest in the related Equipment),
it does expose the Issuer and the Noteholders to the risk that Vendor Services
could release its security interest in the Equipment of record, and it could
complicate the Issuer's enforcement, as assignee, of Vendor Services's
security interest in the Equipment. While these risks should not affect the
perfection or priority of the interest of the Trustee in the Leases or rights
to payment thereunder, they may adversely affect the right of the Trustee to
receive proceeds of disposition of the Equipment subject to a Liquidated
Lease, which are to be allocated to the payment of the Notes as described
under "Description of the Notes--Liquidated Leases." Additionally, statutory
liens for repairs or unpaid taxes and other liens arising by operation of law
may have priority even over prior perfected security interests assigned to the
Trustee in the Equipment.
In the event of a default by the Obligor under a Lease intended for
security, the Servicer on behalf of the Issuer may take action to enforce
Vendor Services' interest in the related Equipment by repossession and resale
or re-lease of the Equipment. Under the UCC in most states, a creditor can,
without prior notice to the debtor, repossess assets securing a defaulted
contract by the Obligor's voluntary surrender, or by "self-help" repossession
that does not involve a breach of the peace and by judicial process. In the
event of bankruptcy or insolvency of the Obligor these remedies may require
the permission of a bankruptcy court or may otherwise not be immediately
available. See "--Insolvency Matters" below.
In the event of a default by the Obligor under a Lease intended for
security, some jurisdictions require that the Obligor be notified of the
default and be given a time period within which it may cure the default prior
to repossession. Generally, this right of reinstatement may be exercised on a
limited number of occasions in any one-year period.
The UCC and other state laws place restrictions on repossession sales,
including requirements that the secured party provide the debtor with
reasonable notice of the date, time and place of any public sale and/or the
date after which any private sale of the collateral may be held and that any
such sale be conducted in a commercially reasonable manner.
Under most state laws, an Obligor under a Lease intended for security has
the right to redeem collateral for its obligations prior to actual sale by
paying the lessor or secured party the unpaid balance of the obligation plus
reasonable expenses for repossessing, holding and preparing the collateral for
disposition and arranging for its sale, plus, to the extent provided for in
the written agreement of the parties, reasonable attorneys' fees.
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In addition, because the market value of equipment of the type subject to
the Leases generally declines with age, due to obsolescence, the net
disposition proceeds of Equipment at any time during the term of the Leases
may not equal or exceed the Principal Balance on the related Lease. Because of
this, and because other creditors may in certain cases have rights in the
related Equipment superior to those of the Issuer, the Servicer may not be
able to recover the entire amount due on a defaulted Lease in the event that
the Servicer elects to repossess and dispose of such Equipment at any time.
Under the UCC and laws applicable in most states, a creditor is entitled to
obtain a deficiency judgment from an Obligor under a Lease intended for
security for any deficiency on repossession and resale of the asset securing
the unpaid balance of such Obligor's Lease. However, some states impose
prohibitions or limitations on deficiency judgments. In most jurisdictions,
the courts, in interpreting the UCC, would impose upon a creditor an
obligation to repossess the equipment in a commercially reasonable manner and
to "mitigate damages" in the event of an Obligor's failure to cure a default.
The creditor would be required to exercise reasonable judgment and follow
acceptable commercial practice in seizing, selling or re-leasing the equipment
and to offset the net proceeds of such disposition against its claim. In
addition, an Obligor may successfully invoke an election of remedies defense
to a deficiency claim in the event that the Servicer's repossession and sale
of the Equipment is found to be a retention discharging the Obligor from all
further obligations under the UCC. If a deficiency judgment were granted, the
judgment would be a personal judgment against the Obligor for the shortfall,
but a defaulting Obligor may have limited assets or sources of income
available following repossession. Therefore, in many cases, it may not be
useful to seek a deficiency judgment or, if one is obtained, it may be settled
at a significant discount.
Many states have adopted a version of Article 2A of the UCC ("Article 2A").
Article 2A purports to codify many provisions of existing common law. Although
there is little precedental authority regarding how Article 2A will be
interpreted, it may, among other things, limit enforceability of any
"unconscionable" provision in a Lease, provide an Obligor with remedies
including the right to cancel the Lease for any lessor breach or default, and
may add to or modify the terms of "consumer leases" and leases where the
Obligor is a "merchant lessee." However, each Lease contains an
acknowledgement by the Obligor that the Equipment was acquired for business
purposes, and Vendor Services will represent in the Contribution and Servicing
Agreement that no Lease (other than a de minimis number of Leases) is a
"consumer lease" under Article 2A. Article 2A, moreover, recognizes typical
commercial lease "hell or high water" rental payment clauses and validates
reasonable liquidated damages provisions in the event of lessor or Obligor
defaults. Article 2A also recognizes the concept of freedom of contract and
permits the parties in a commercial context a wide latitude to vary provisions
of the law.
INSOLVENCY MATTERS
Certain statutory provisions, including federal and state bankruptcy and
insolvency laws, may also limit the ability of the Servicer to repossess and
resell or re-lease Equipment or obtain a deficiency judgment. In the event of
the bankruptcy or reorganization of an Obligor, various provisions of the
Bankruptcy Code of 1978 (the "Bankruptcy Code") and related laws may interfere
with or eliminate the ability of the Servicer to enforce the Issuer's rights
under the Leases. For example, although the bankruptcy or reorganization of an
Obligor would constitute an event of default under such Lease, the Bankruptcy
Code provides generally that rights and obligations under an unexpired lease
or an executory contract may not be terminated or modified solely because of a
provision in the lease or executory contract conditioned upon the commencement
of a case under the Bankruptcy Code. If bankruptcy proceedings were instituted
in respect of an Obligor under such a Lease, the Issuer could be prevented
from continuing to collect payments due from or on behalf of such Obligor or
exercising any remedies assigned to the Issuer without the approval of the
bankruptcy court, and, with respect to a Lease intended as security, the
bankruptcy court could permit the Obligor, as owner of the Equipment, to use
or dispose of the Equipment and provide the Issuer with a lien on substitute
collateral, so long as the court held that such substitute collateral
constituted "adequate protection" within the meaning of the Bankruptcy Code.
In the case of a Lease that is deemed not to be intended as security, the
Bankruptcy Code grants to the bankruptcy trustee or the debtor-in-possession a
right to elect to assume or reject any executory contract or
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unexpired lease. Any such rejection by the lessee would result in the return
of the leased equipment to the lessor. Any rejection of such a lease or
contract constitutes a breach of such lease or contract, entitling the non-
breaching party to a claim for breach of contract, which claim would be
payable only from the assets of the debtor's bankruptcy estate. The net
proceeds from any resulting judgment would be deposited into the Collection
Account by the Servicer. See "Description of the Notes--Liquidated Leases."
In the event that, as a result of the bankruptcy or reorganization of an
Obligor, the related Lease becomes a defaulted Lease without breach of any
representation or warranty of Vendor Services, no recourse would be available
against Vendor Services and the Noteholders could suffer a loss with respect
to such Lease.
These UCC and bankruptcy provisions, in addition to the possible decrease in
the value of a repossessed item of Equipment, may limit the amount realized on
the sale of Equipment securing the Leases to less than the amount due
thereunder.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a summary of certain United States federal
income tax considerations relevant to the purchase, ownership and disposition
of the Notes by the holders thereof. Dorsey & Whitney LLP, counsel to the
Issuer ("Counsel"), will deliver their opinion regarding the treatment of the
Notes and the treatment of the Issuer, as discussed below. The opinion of
Counsel addresses only those issues specifically identified below as being
covered by such opinion; however, the opinion of Counsel also states that the
additional discussion set forth below accurately sets forth Counsel's advice
with respect to material tax issues. The opinion of Counsel is not binding on
the Internal Revenue Service (the "IRS"). There can be no assurance that the
IRS will take a similar view of such issues, and no assurance can be given
that the opinion of Counsel would be sustained if challenged by the IRS. No
ruling on any of the issues discussed below will be sought from the IRS.
This summary does not purport to be a complete analysis of all the potential
federal income tax consequences relating to the purchase, ownership and
disposition of the Notes. Moreover, the discussion does not address all
aspects of taxation that may be relevant to particular purchasers in light of
their individual circumstances (including the effect of any foreign, state or
local tax laws) or to certain types of purchasers (including dealers in
securities, insurance companies, financial institutions and tax-exempt
entities) subject to special treatment under United States federal income tax
laws. The discussion below assumes that the Notes are held as capital assets.
The discussion of the United States federal income tax consequences set
forth below is based upon currently existing provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), judicial decisions and
administrative interpretations, all of which are subject to change, which
changes may be retroactive. Because individual circumstances may differ, each
prospective purchaser of the Notes is strongly urged to consult its own tax
advisor with respect to its particular tax situation and the tax effects of
any state, local, foreign, or other tax laws and possible changes in the tax
laws.
As used herein, the term "United States Holder" means a beneficial owner of
a Note who or which is for United States federal income tax purposes either
(i) a citizen or resident of the United States, (ii) a corporation,
partnership or other entity created or organized in or under the laws of the
United States or of any political subdivision thereof, (iii) an estate the
income of which is subject to United States federal income taxation regardless
of its source or (iv) a trust, (A) for taxable years beginning after December
31, 1996 (or after August 20, 1996, if the trustee has made an applicable
election), with respect to which a court within the United States is able to
exercise primary supervision over its administration, and one or more United
States persons have the authority to control all of its substantial decisions,
or (B) otherwise, the income of which is subject to U.S. federal income tax
regardless of its source. The term also includes certain former citizens of
the United States whose income and gain on the Notes will be subject to United
States taxation. As used herein, the term "United States Alien Holder" means a
beneficial owner of a Note that is not a United States Holder.
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OPINION OF COUNSEL REGARDING TREATMENT OF THE NOTES
In the opinion of Counsel, the Notes will be treated as indebtedness for
United States federal income tax purposes. Under the terms of the Notes and
the Indenture, each Noteholder agrees and acknowledges upon its purchase of
the Notes and by acceptance of the Notes that it will also treat the Notes as
indebtedness for such purposes.
OPINION OF COUNSEL REGARDING TREATMENT OF THE ISSUER
In the opinion of Counsel, the Issuer will not be characterized as an
"association" taxable as a corporation for United States federal income tax
purposes. In addition, in the opinion of Counsel, the Issuer will not be
characterized as a "publicly traded partnership" taxable as a corporation for
United States federal income tax purposes, based on Counsel's opinion that the
Notes will be treated as indebtedness for federal income tax purposes. If the
Issuer were treated as either an association or a publicly traded partnership
taxable as a corporation, the resulting entity would be subject to federal
income taxes at corporate tax rates on its taxable income generated by
ownership of the Leases, and certain distributions by the entity would not be
deductible in computing the entity's taxable income. Such an entity-level tax
could result in reduced distributions to Noteholders.
PAYMENTS OF INTEREST
Interest paid on a Note will generally be taxable to a United States Holder
as ordinary interest income at the time it accrues or is received in
accordance with the United States Holder's method of accounting for federal
income tax purposes.
ORIGINAL ISSUE DISCOUNT
Under applicable regulations, a Note will be considered issued with original
issue discount ("OID") if the "stated redemption price at maturity" of the
Note (generally equal to its principal amount as of the date of issuance plus
all interest other than "qualified stated interest" payable prior to or at
maturity) exceeds the original issue price (in this case, the initial offering
price at which a substantial amount of the Notes are sold to the public). Any
OID would be considered de minimis under the regulations if it does not exceed
0.25% of the stated redemption price at maturity of a Note multiplied by the
number of full years until its maturity date or, in the case of the Notes
which have more than one principal payment, the weighted average maturity
date. It is anticipated that the Notes will not be considered issued with more
than de minimis OID. Under the OID regulations, a holder of a Note issued with
a de minimis amount of OID must include an allocable portion of such OID in
income as principal payments are made on the Note.
While it is not anticipated that the Notes will be issued with more than de
minimis OID, it is possible that they will be so issued. If the Notes are
issued with more than de minimis OID, such OID would be includible in the
income of United States Holders as interest over the term of the Notes under a
constant yield method. Any amount included in income as OID would not,
however, be includible again when the amount is actually received. Noteholders
would be required to currently include accrued OID in gross income without
regard to their regular method of accounting. Each United States Holder should
consult its own tax advisor regarding the impact of the OID rules if the Notes
are issued with OID and the consequences to such holder as a result of special
rules in the Code which are applicable to debt instruments whose principal
payments may be accelerated by reason of prepayments of other obligations
securing such debt instruments.
MARKET DISCOUNT
If a United States Holder purchases a Note at a price that is less than its
remaining principal amount or, in the case of a Note issued with OID, its
adjusted issue price, by 0.25% or more of its remaining redemption amount
multiplied by the number of whole years to maturity, the Note will be
considered to bear "market
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discount" in the hands of such United States Holder. In such case, principal
payments received by the United States Holder, or gain realized by the United
States Holder on the disposition of the Note, generally will be treated as
ordinary interest income to the extent of the market discount that accrued on
the Note while held by such United States Holder and that has not previously
been included in income. Market discount generally accrues on a straight-line
basis over the remaining term of a Note except that, at the election of the
United States Holder, market discount may accrue on a constant yield basis. A
United States Holder may not be allowed to deduct immediately all or a portion
of the interest expense on any indebtedness incurred or continued to purchase
or to carry such Note. A United States Holder may elect to include market
discount in income currently as it accrues (either on a straight-line basis
or, if the United States Holder so elects, on a constant yield basis), in
which case the interest deferral rule set forth in the preceding sentence will
not apply. Such an election will apply to all bonds acquired by the United
States Holder on or after the first day of the first taxable year to which
such election applies and may be revoked only with the consent of the IRS.
AMORTIZABLE BOND PREMIUM
If a United States Holder purchases a Note for an amount that is greater
than the amount payable at maturity, such holder will be considered to have
purchased such Note with "amortizable bond premium" equal in amount to such
excess, and may elect (in accordance with applicable Code provisions) to
amortize such premium using a constant yield method over the remaining term of
the Note. The amount amortized in any year will be treated as a reduction of
the United States Holder's interest income from the Note in such year. A
United States Holder that elects to amortize bond premium must reduce its tax
basis in the Note by the amount of the premium amortized in any year. An
election to amortize bond premium applies to all taxable debt obligations held
on the first day of the first taxable year to which the election applies or
thereafter acquired by the United States Holder and may be revoked only with
the consent of the IRS.
SALE, EXCHANGE OR RETIREMENT OF NOTES
Upon the sale, exchange or retirement of a Note, a United States Holder will
recognize taxable gain or loss equal to the difference between the amount
realized on the sale, exchange or retirement (not including any amount
attributable to accrued but unpaid interest) and such holder's adjusted tax
basis in the Note. To the extent attributable to accrued but unpaid interest,
the amount realized by a United States Holder would be treated as a payment of
interest. A United States Holder's adjusted tax basis in a Note will equal the
cost of the Note to such holder, increased by the amount of any OID and market
discount previously included in income by such holder with respect to such
Note and reduced by any amortized bond premium and any principal payments
received by such holder.
Subject to the discussion of market discount above, gain or loss realized on
the sale, exchange or retirement of a Note by a United States Holder will be
capital gain or loss, and will be short-term, mid-term or long-term capital
gain or loss depending upon whether, at the time of the sale, exchange or
retirement, the Note has been held for less than one year, more than one year
or more than eighteen months. Mid-term and long-term capital gains are taxed
at a lower rate than ordinary income for certain non-corporate taxpayers, but
not for corporate taxpayers. The distinction between capital gain or loss and
ordinary income or loss is also relevant for purposes of, among other things,
limitations on the deductibility of capital losses.
TAX CONSEQUENCES TO UNITED STATES ALIEN HOLDERS
Under present United States federal income and estate tax law, and subject
to the discussion below concerning backup withholding:
(a) payments of principal of and interest on the Notes by the Trustee or
any paying agent to a beneficial owner of a Note that is a United States
Alien Holder, as defined above, will not be subject to United States
federal withholding tax, provided that, in the case of interest, (i) such
holder does not own, actually or constructively, 10 percent or more of the
total combined voting power of all classes of stock of Green Tree
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entitled to vote, (ii) such holder is not, for United States federal income
tax purposes, a controlled foreign corporation related, directly or
indirectly, to Green Tree through stock ownership, (iii) such holder is not
a bank receiving interest described in Section 881(c)(3)(A) of the Code,
and (iv) the certification requirements under Section 871(h) or Section
881(c) of the Code and Treasury regulations thereunder (summarized below)
are met:
(b) a United States Alien Holder of a Note will not be subject to United
States federal income tax on gain realized on the sale, exchange or other
disposition of such Note, unless (i) such holder is an individual who is
present in the United States for 183 days or more in the taxable year of
sale, exchange or other disposition, and certain conditions are met or (ii)
such gain is effectively connected with the conduct by such holder of a
trade or business in the United States; and
(c) a Note held by an individual who is not a citizen or resident of the
United States at the time of his death will not be subject to United States
federal estate tax as a result of such individual's death, provided that,
at the time of such individual's death, the individual does not own,
actually or constructively, 10 percent or more of the total combined voting
power of all classes of stock of Green Tree entitled to vote and payments
with respect to such Note would not have been effectively connected to the
conduct by such individual of a trade or business in the United States.
Sections 871(h) and 881(c) of the Code and Treasury Regulations thereunder
require that, in order to obtain the exemption from withholding tax described
in paragraph (a) above, either (i) the beneficial owner of a Note must certify
under penalties of perjury to the Trustee or the paying agent, as the case may
be, that such owner is a United States Alien Holder and must provide such
owner's name and address, and United States taxpayer identification number, if
any, or (ii) a securities clearing organization, bank or other financial
institution that holds customers' securities in the ordinary course of its
trade or business (a "Financial Institution") and holds the Note on behalf of
the beneficial owner thereof must certify under penalties of perjury to the
Indenture Trustee or the paying agent, as the case may be, that such
certificate has been received from the beneficial owner by it or by a
Financial Institution between it and the beneficial owner and must furnish the
payor with copy thereof. A certificate described in this paragraph is
effective only with respect to payments of interest made to the certifying
United States Alien Holder after issuance of the Notes in the calendar year of
its issuance and the two immediately succeeding calendar years. Under
temporary United States Treasury Regulations, such requirement will be
fulfilled if the beneficial owner of a Note certifies on IRS Form W-8, under
penalties of perjury, that it is a United States Alien Holder and provides its
name and address, and any Financial Institution holding the Note on behalf of
the beneficial owner files a statement with the withholding agent to the
effect that it has received such a statement from the beneficial owner (and
furnishes the withholding agent with a copy thereof). If the information shown
on IRS Form W-8 changes, a new IRS Form W-8 must be filed within 30 days of
such change. IRS Form W-8 is valid for the calendar year in which filed and
the two succeeding calendar years.
A United States Alien Holder residing in a country that has a tax treaty
with the United States may be eligible for an exemption or reduced rate
(depending upon the terms of the treaty) with respect to U.S. withholding tax.
In order to secure this exemption or reduced rate, the United States Alien
Holder (or his agent) must certify the holder's residence in the treaty
country filing IRS Form 1001. If the treaty provides only for a reduced rate,
U.S. withholding tax will be imposed at the reduced rate unless the
requirements set forth in paragraph (a) above and the immediately preceding
paragraph (including filing of IRS Form W-8) are satisfied. IRS Form 1001 is
valid for the calendar year in which filed and the two succeeding calendar
years.
If the United States Alien Holder of a Note is engaged in a trade or
business in the United States, and if interest on the Note, or gain realized
on the sale, exchange or other disposition of the Note, is effectively
connected with the conduct of such trade or business, the United States Alien
Holder, although exempt from United States withholding tax, will generally be
subject to regular United States income tax on such interest or gain in the
same manner as if it were a United States Holder. In lieu of the certificate
described in the preceding paragraph, such a holder will be required to
provide to the Trustee or the paying agent, as the case may be, a properly
executed IRS Form 4224 in order to claim an exemption from withholding tax. In
addition, if such
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United States Alien Holder is a foreign corporation, it may be subject to a
branch profits tax equal to 30% (or such lower rate provided by an applicable
treaty) of its effectively connected earnings and profits for the taxable
year, subject to certain adjustments. For purposes of the branch profits tax,
interest on and any gain recognized on the sale, exchange or other disposition
of a Note will be included in the effectively connected earnings and profits
of such United States Alien Holder if such interest or gain is effectively
connected with the conduct by the United States Alien Holder of a trade or
business in the United States. IRS Form 4224 is valid solely for the calendar
year in which filed.
New Withholding Rules in 1999. Effective January 1, 1999, new withholding
tax regulations will take effect with respect to interest payments and certain
other categories of payments made to United States Alien Holders. Among other
things, these regulations generally will require any United States Alien
Holder that seeks the protection of an income tax treaty with respect to the
imposition of U.S. withholding tax to obtain a taxpayer identification number
("TIN") from the IRS in advance and provide verification that such holder is
entitled to the protection of the relevant income tax treaty. Tax-exempt
United States Alien Holders will generally be required to provide verification
of their tax-exempt status. United States Alien Holders are urged to consult
with their tax advisors with respect to these new withholding rules.
BACKUP WITHHOLDING
Under current United States federal income tax law, a 31% backup withholding
tax requirement applies to certain payments of interest on, and the proceeds
of a sale, exchange or redemption of, the Notes.
Backup withholding will generally not apply with respect to payments made to
certain exempt recipients such as corporations or other tax-exempt entities.
In the case of a non-corporate United States Holder, backup withholding will
apply only if such holder (i) fails to furnish its TIN which, for an
individual, would be his social security number, (ii) furnishes an incorrect
TIN, (iii) is notified by the IRS that it has failed to report properly
payments of interest and dividends or (iv) under certain circumstances, fails
to certify under penalties of perjury that it has furnished a correct TIN and
has not been notified by the IRS that it is subject to backup withholding for
failure to report interest and dividend payments.
In the case of a United States Alien Holder, under current Treasury
Regulations, backup withholding will not apply to payments made by the
Indenture Trustee or any paying agent thereof on a Note if such holder has
provided the required certificate under penalties of perjury that it is not a
United States Holder (as defined above) or has otherwise established an
exemption, provided in each case that the Trustee or such paying agent, as the
case may be, does not have actual knowledge that the payee is a United States
Holder.
Under current Treasury Regulations, if payments on a Note are made to or
through a foreign office of a custodian, nominee or other agent acting on
behalf of a beneficial owner of a Note, such custodian, nominee or other agent
will not be required to apply backup withholding to such payments made to such
beneficial owner.
Under current Treasury Regulations, payments on the sale, exchange or other
disposition of a Note made to or through a foreign office of a broker
generally will not be subject to backup withholding. Payments to or through
the United States office of a broker will be subject to backup withholding and
information reporting unless the holder certifies under penalties of perjury
that it is not a United States Holder and that certain other conditions are
met or otherwise establishes an exemption.
Holders of Notes should consult their tax advisors regarding the application
of backup withholding in their particular situations, the availability of an
exemption therefrom and the procedure for obtaining such an exemption, if
available. Any amounts withheld from payment under the backup withholding
rules will be allowed as a credit against a holder's United States federal
income tax liability and may entitle such holder to a refund, provided that
the required information is furnished to the IRS.
63
<PAGE>
POSSIBLE ALTERNATIVE TREATMENT OF THE NOTES
If, contrary to the opinion of Counsel, the Service successfully asserted
that one or more classes of Notes did not represent indebtedness for federal
income tax purposes, the Notes might be treated as equity interests in the
Issuer. If so treated, the Issuer might be characterized as a publicly traded
partnership taxable as a corporation with the adverse consequences described
above (and the taxable corporation would not be able to reduce its taxable
income by deductions for interest expense on Notes recharacterized as equity).
In addition, treatment of the Notes as equity interests in such a partnership
could have adverse tax consequences to certain holders. For example, income to
foreign holders generally would be subject to federal tax and federal tax
return filing and withholding requirements at a rate as high as 30%, and
individual holders might be subject to certain limitations on their ability to
deduct their share of Issuer expenses.
THE FOREGOING DISCUSSION IS FOR GENERAL INFORMATION AND IS NOT TAX ADVICE.
ACCORDINGLY, EACH PROSPECTIVE NOTEHOLDER SHOULD CONSULT ITS OWN TAX ADVISOR AS
TO THE PARTICULAR TAX CONSEQUENCES TO THE PROSPECTIVE NOTEHOLDER, INCLUDING
THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN INCOME TAX LAWS
AND ANY RECENT OR POSSIBLE CHANGES IN APPLICABLE TAX LAWS.
ERISA CONSIDERATIONS
Section 406 of the Employee Retirement Income Security Act ("ERISA"), and/or
Section 4975 of the Code, prohibits a pension, profit-sharing or other
employee benefit plan, as well as individual retirement accounts and certain
types of Keogh Plans (each a "Benefit Plan") from engaging in certain
transactions with persons that are "parties in interest" under ERISA or
"disqualified persons" under the Code with respect to such Benefit Plan. A
violation of these "prohibited transaction" rules may result in an excise tax
or other penalties and liabilities under ERISA and the Code for such persons.
Title I of ERISA also requires that fiduciaries of a Benefit Plan subject to
ERISA make investments that are prudent, diversified (except if prudent not to
do so) and in accordance with governing plan documents.
Certain transactions involving the purchase, holding or transfer of the
Notes might be deemed to constitute prohibited transactions under ERISA and
the Code if assets of the Issuer were deemed to be assets of a Benefit Plan.
Under a regulation issued by the United States Department of Labor (the "Plan
Assets Regulation"), the assets of the Issuer would be treated as plan assets
of a Benefit Plan for the purposes of ERISA and the Code only if the Benefit
Plan acquires an "equity interest" in the Issuer and none of the exceptions
contained in the Plan Assets Regulation is applicable. An equity interest is
defined under the Plan Assets Regulation as an interest in an entity other
than an instrument which is treated as indebtedness under applicable local law
and which has no substantial equity features. Although there can be no
assurances in this regard, it appears that the Notes should be treated as debt
without substantial equity features for purposes of the Plan Assets Regulation
and that the Notes do not constitute equity interests in the Issuer for
purposes of the Plan Assets Regulation. However, without regard to whether the
Notes are treated as an equity interest for such purposes, the acquisition or
holding of Notes by or on behalf of a Benefit Plan could be considered to give
rise to a prohibited transaction if the Issuer or the Trustee, or any of their
respective affiliates is or becomes a party in interest or a disqualified
person with respect to such Benefit Plan. In such case, certain exemptions
from the prohibited transaction rules could be applicable depending on the
type and circumstances of the plan fiduciary making the decision to acquire a
Note. Included among these exemptions are: Prohibited Transaction Class
Exemption ("PTCE") 96-23, regarding transactions effected by "in-house asset
managers"; PTCE 90-1, regarding investments by insurance company pooled
separate accounts; PTCE 95-60, regarding transactions effected by "insurance
company general accounts"; PTCE 91-38, regarding investments by bank
collective investment funds; and PTCE 84-14, regarding transactions effected
by "qualified professional asset managers."
64
<PAGE>
Employee benefit plans that are governmental plans (as defined in Section
3(32) of ERISA) and certain church plans (as defined in Section 3(33) of
ERISA) are not subject to ERISA requirements.
A PLAN FIDUCIARY CONSIDERING THE PURCHASE OF ANY OF THE NOTES SHOULD CONSULT
ITS TAX AND/OR LEGAL ADVISORS REGARDING WHETHER THE ASSETS OF THE ISSUER WOULD
BE CONSIDERED PLAN ASSETS, THE POSSIBILITY OF EXEMPTIVE RELIEF FROM THE
PROHIBITED TRANSACTION RULES AND OTHER ISSUES AND THEIR POTENTIAL
CONSEQUENCES.
RATINGS OF THE NOTES
It is a condition of issuance that each of S&P and Fitch (i) rate the Class
A-1 Notes "A-1+" and "F-1+," respectively, (ii) rate the Class A-2 Notes
"AAA," (iii) rate the Class B Notes at least "A," and (iv) rate the Class C
Notes at least "BBB." The rating of each Class of Notes addresses the
likelihood of the timely receipt of interest and payment of principal on such
Class of Notes on or before the Stated Maturity Date for such Class of Notes.
The rating of the Class A and Class B Notes will be based primarily upon the
Pledged Revenues, the Residual Realizations, the Reserve Account and the
subordination provided by (1) the Class B Notes and the Class C Notes, in the
case of the Class A Notes and (2) the Class C Notes, in the case of the Class
B Notes. In the event that a rating or ratings with respect to the Notes is
qualified, reduced or withdrawn, no person or entity will be obligated to
provide any additional credit enhancement with respect to the Notes so
qualified, reduced or withdrawn.
The rating of the Notes should be evaluated independently from similar
ratings on other types of securities. A rating is not a recommendation to buy,
sell or hold the Notes, inasmuch as such rating does not comment as to market
price or suitability for a particular investor. The ratings of the Notes do
not address the likelihood of payment of principal on any Class of Notes prior
to the Stated Maturity Date thereof, or the possibility of the imposition of
United States withholding tax with respect to non-United States Persons.
USE OF PROCEEDS
The proceeds from the offering and sale of the Notes, after paying the
expenses of the Issuer, will be paid by the Issuer to the SPC and by the SPC
to Vendor Services in connection with the transfer of the Leases and Vendor
Services' interests in the Equipment.
EXPERTS
The financial statements of Green Tree Lease Finance 1997-1, LLC as of
December 12, 1997 included herein have been included in reliance upon the
report of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement (the
"Underwriting Agreement"), the underwriters named below (the "Underwriters"),
through their representative, Lehman Brothers Inc. (the "Representative"),
have severally agreed to purchase from the Issuer the following respective
initial principal amount of Notes at the initial public offering price less
the underwriting discounts set forth on the cover page of this Prospectus:
<TABLE>
<CAPTION>
INITIAL PRINCIPAL INITIAL PRINCIPAL INITIAL PRINCIPAL INITIAL PRINCIPAL INITIAL PRINCIPAL INITIAL PRINCIPAL
AMOUNT OF AMOUNT OF AMOUNT OF AMOUNT OF AMOUNT OF AMOUNT OF
CLASS A-1 CLASS A-2 CLASS A-3 CLASS A-4 CLASS B CLASS C
UNDERWRITERS NOTES NOTES NOTES NOTES NOTES NOTES
- ------------ ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Lehman Brothers
Inc..............
First Union Capi-
tal
Markets Corp.....
---- ---- ---- ---- ---- ----
Total...........
==== ==== ==== ==== ==== ====
</TABLE>
65
<PAGE>
In the Underwriting Agreement, the Underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all of the Notes offered
hereby if any of such Notes are purchased. The Issuer has been advised by the
Representative that the Underwriters propose initially to offer the Notes to
the public at the respective public offering prices set forth on the cover
page of this Prospectus, and to certain dealers at such price, less a
concession not in excess of % per Class A-1 Note, % per Class A-2 Note,
% per Class A-3 Note, % per Class A-4 Note, % per Class B Note and %
per Class C Note. The Underwriters may allow and such dealers may reallow to
other dealers a discount not in excess of % per Class A-1 Note, % per
Class A-2 Note, % per Class A-3 Note, % per Class A-4 Note, % per Class
B Note and % per Class C Note. After the initial public offering of the
Notes, the offering prices and such concessions and discounts may be varied by
the Underwriters.
Until the distribution of the Notes is completed, rules of the Commission
may limit the ability of the Underwriters and certain selling group members to
bid for and purchase the Notes. As an exception to these rules, the
Underwriters are permitted to engage in certain transactions that stabilize
the price of the Notes. Such transactions consist of bids or purchases for the
purpose of pegging, fixing or maintaining the price of the Notes.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher
than it might be in the absence of such purchases.
Neither the Issuer nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the
transactions described above may have on the prices of the Notes. In addition,
neither the Issuer nor any of the Underwriters makes any representation that
the Underwriters will engage in such transactions or that such transactions,
once commenced, will not be discontinued without notice.
Green Tree Financial Corporation has agreed to indemnify the Underwriters
against certain liabilities, including liabilities under the Securities Act of
1933, as amended.
The Notes are new issues of securities with no established trading market.
The Issuer has been advised by the Representative that each Underwriter
intends to make a market in the United States in the Classes of Notes for
which it is acting as underwriter but are not obligated to do so and may
discontinue market making at any time without notice. No assurance can be
given as to the liquidity of the trading market for the Notes.
Funds in the Trust Accounts may, from time to time, be invested in Eligible
Investments acquired from the Underwriters.
LEGAL MATTERS
Certain legal matters with respect to the Notes will be passed upon for the
Issuer by Dorsey & Whitney LLP. Brown & Wood LLP will act as counsel to the
Underwriters. The Indenture, the Contribution and Servicing Agreement, the
Transfer Agreement and the Notes will be governed by the laws of the State of
Minnesota.
66
<PAGE>
INDEX OF PRINCIPAL TERMS
<TABLE>
<CAPTION>
TERM PAGE
- ---- ----
<S> <C>
Additional Principal.............................................. 3, 42
Adjusted Lease.................................................... 13
Administrative Fees............................................... 12, 55
Amount Available.................................................. 8, 40
Article 2A........................................................ 58
Available Pledged Revenues........................................ 8, 40
Available Reserve Amount.......................................... 10, 45
Bankruptcy Code................................................... 58
Benefit Plan...................................................... 64
Book-Entry Certificates........................................... 39
Book Value........................................................ 9, 44
Business Day...................................................... 39
Cede.............................................................. ii
Class A Notes..................................................... Cover, 1, 39
Class A Percentage................................................ 4, 43
Class A Principal Payment......................................... 3, 42
Class A Target Investor Principal Amount.......................... 3, 42
Class B Floor..................................................... 4, 43
Class B Percentage................................................ 4, 43
Class B Principal Payment......................................... 3, 42
Class B Target Investor Principal Amount.......................... 3, 43
Class C Floor..................................................... 4, 43
Class C Percentage................................................ 4, 43
Class C Principal Payment......................................... 3, 42
Class C Target Investor Principal Amount.......................... 4, 43
Clearing Corporation.............................................. 47
Code.............................................................. 15, 59
Collection Account................................................ 46
Collection Period................................................. 6, 44
Commission........................................................ ii
Counsel........................................................... 59
CPR............................................................... 38
Cumulative Loss Amount............................................ 4, 43
Cut-Off Date...................................................... 7, 22
Cut-Off Date Pool................................................. 10, 31
Definitive Notes.................................................. 48
Delinquency....................................................... 35
Deposit Date...................................................... 8, 40
Depository........................................................ 39
Determination Date................................................ 53
Discount Rate..................................................... 5, 43
DTC............................................................... ii, 15
DTC Participants.................................................. 47
Eligible Account.................................................. 46
</TABLE>
67
<PAGE>
<TABLE>
<CAPTION>
TERM PAGE
- ---- ----
<S> <C>
Eligible Institution.......................................... 46
Eligible Investments.......................................... 46
ERISA......................................................... 15, 64
Events of Default............................................. 49
Exchange Act.................................................. i
Financial Institution......................................... 62
Fitch......................................................... 7
Green Tree.................................................... 22
Gross Losses.................................................. 35
Holders....................................................... 15, 39
Indenture..................................................... Cover, 1
Indirect Participants......................................... 47
Initial Cut-Off Date.......................................... 7, 22
Initial Pool Principal Balance................................ 5, 44
Insolvency Laws............................................... 17
Insurance, Maintenance and Tax Accounts....................... 53
Interest Rate................................................. i, 2
IRS........................................................... 59
Issuer........................................................ Cover
Lease......................................................... 7, 22
Lease Pool.................................................... 10
Lease Pool Principal Balance.................................. 4, 31, 43
Leases........................................................ Cover
Liquidated Lease.............................................. 5, 44
Losses Net of Recoveries...................................... 35
Master Form Lease............................................. 26
Monthly Principal Amount...................................... 4, 43
Non-Accrual................................................... 35
Nonrecoverable Servicer Advance............................... 9, 44
Note Distribution Account..................................... 46
Note Majority................................................. 49
Note Owner.................................................... 15
Noteholders................................................... 15, 39
Notes......................................................... Cover, 1, 39, 65
Obligor....................................................... 7, 22
OID........................................................... 60
Outstanding Principal Amounts................................. 2, 42
Participants.................................................. 47
Payment Date.................................................. i
Payment Shortfall............................................. 54
Plan Assets Regulation........................................ 64
Pledged Revenues.............................................. 8, 40
Prepayments................................................... 8, 40
Principal Balance............................................. 4, 43
PTCE.......................................................... 64
Rating Agencies............................................... 7
Representative................................................ 65
Repurchase Event.............................................. 30
Required Payoff Amount........................................ 11
Required Payment.............................................. 45
Required Reserve Amount....................................... 10, 44, 45
Reserve Account............................................... 10, 45, 46
Residual Account.............................................. 46
</TABLE>
68
<PAGE>
<TABLE>
<CAPTION>
TERM PAGE
- ---- ----
<S> <C>
Residual Event.................................................... 9, 44
Residual Realizations............................................. 9, 44
Rules............................................................. 47
S&P............................................................... 7
Scheduled Payments................................................ 8, 40
Securities Act.................................................... ii
Security Interest................................................. 17
Servicer Advance.................................................. 9, 44
Servicing Account................................................. 46
Servicing Fee..................................................... 12, 55
SPC............................................................... 1, 21
Specific Lease Form............................................... 26
Statistical Discount Rate......................................... 5
Statistical Discounted Present Value of the Leases................ 5
Substitute Lease.................................................. 12
TIN............................................................... 63
Transfer Agent and Registrar...................................... 48
Trust Accounts.................................................... 46
UCC............................................................... 17
Underwriters...................................................... 65
Underwriting Agreement............................................ 65
United States Alien Holder........................................ 59
United States Holder.............................................. 59
Vendor Services................................................... Cover, 1, 22
Warranty Leases................................................... 13
</TABLE>
69
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Independent Auditors' Report ............................................... F-2
Balance Sheet as of December 12, 1997....................................... F-3
Notes to Balance Sheet ..................................................... F-4
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Green Tree Financial Corporation:
We have audited the accompanying balance sheet of Green Tree Lease Finance
1997-1, LLC, a wholly owned subsidiary of Green Tree Lease Finance II, Inc.,
as of December 12, 1997. This balance sheet is the responsibility of the
Company's management. Our responsibility is to express an opinion on the
balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the balance sheet is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the balance sheet. An audit of a
balance sheet also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
balance sheet presentation. We believe that our audit of the balance sheet
provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Green Tree Lease Finance 1997-1,
LLC as of December 12, 1997 in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
December 12, 1997
F-2
<PAGE>
GREEN TREE LEASE FINANCE 1997-1, LLC
BALANCE SHEET
DECEMBER 12, 1997
<TABLE>
<CAPTION>
ASSET
<S> <C>
Cash................................................................ $1,000
======
MEMBER'S EQUITY
Member's Equity (authorized 10 Units; issued
and outstanding 10 Units).......................................... $1,000
======
</TABLE>
See accompanying notes to balance sheet.
F-3
<PAGE>
GREEN TREE LEASE FINANCE 1997-1, LLC
NOTES TO BALANCE SHEET
DECEMBER 12, 1997
(1) ORGANIZATION
Green Tree Lease Finance 1997-1, LLC (the "Company"), a wholly owned
subsidiary of Green Tree Lease Finance II, Inc., (the "SPC"), was formed as a
limited liability company in the State of Delaware on October 23, 1997. The
Company has been inactive since that date.
The Company was organized to engage exclusively in the following business
and financial activities: to acquire leases and rights to residual
realizations on the underlying equipment from the SPC; to issue and sell notes
collateralized by any or all of its assets pursuant to one or more indentures
between the Company and an indenture trustee; and to engage in other
transactions, including entering into agreements that are incidental and
necessary, suitable or convenient to the foregoing and permitted under
Delaware law.
(2) CAPITAL CONTRIBUTION
The SPC purchased 10 Units of the Company for $1,000 on December 12, 1997.
(3) ACCOUNTING POLICIES
Generally all lease receivables to be acquired by the Company are direct
financing leases as defined in FAS No. 13. The carrying value of lease
receivables represents the present value of both the future minimum lease
payments and related residual value less an allowance for expected losses.
Revenue is recognized in interest income as a constant percentage return on
the asset carrying value.
F-4
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESEN-
TATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AU-
THORIZED BY THE ISSUER, THE SERVICER, THE SPC, THE TRUSTEE OR THE UNDERWRITERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN ORDER OR SOLICITATION BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO
ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS, NOR ANY SALE MADE HEREUNDER, SHALL, UNDER ANY CIR-
CUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE OF SUCH INFORMATION.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Incorporation of Certain Documents by Reference............................ i
Available Information...................................................... ii
Reports to Noteholders..................................................... ii
Table of Contents.......................................................... iii
Summary.................................................................... 1
Risk Factors............................................................... 16
The Issuer and the SPC..................................................... 21
Green Tree Vendor Services Corporation..................................... 22
The Leases................................................................. 25
Management's Discussion and Analysis of
Financial Condition....................................................... 36
Managers of the Issuer..................................................... 37
Weighted Average Life of the Notes......................................... 38
Description of the Notes................................................... 39
Description of the Contribution and Servicing Agreement.................... 52
Certain Legal Aspects of the Leases........................................ 57
Federal Income Tax Consequences............................................ 59
ERISA Considerations....................................................... 64
Ratings of the Notes....................................................... 65
Use of Proceeds............................................................ 65
Experts.................................................................... 65
Underwriting............................................................... 65
Legal Matters.............................................................. 66
Index of Principal Terms................................................... 67
Index to Financial Statements.............................................. F-1
</TABLE>
------------------
UNTIL , 1998, ALL DEALERS EFFECTING TRANSACTIONS IN THE NOTES, WHETHER
OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PRO-
SPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPEC-
TUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$549,694,587
LOGO
GREEN TREE LEASE FINANCE 1997-1, LLC
ISSUER
% LEASE-BACKED NOTES,
CLASS A-1
% LEASE-BACKED NOTES,
CLASS A-2
% LEASE-BACKED NOTES,
CLASS A-3
% LEASE-BACKED NOTES,
CLASS A-4
% LEASE-BACKED NOTES,
CLASS B
% LEASE-BACKED NOTES,
CLASS C
GREEN TREE VENDOR SERVICES CORPORATION
SERVICER
------------------
PROSPECTUS
DECEMBER , 1997
------------------
------------------
Underwriters of the Class A Notes
LEHMAN BROTHERS
FIRST UNION CAPITAL MARKETS CORP.
------------------
Underwriter of the Class B and Class C Notes
LEHMAN BROTHERS
------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses to be incurred in connection
with the offering of the Lease-Backed Notes, other than underwriting discounts
and commissions, described in this Registration Statement:
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee........... $162,258
Printing and Engraving........................................ 100,000*
Legal Fees and Expenses....................................... 100,000*
Blue Sky Filing and Counsel Fees.............................. 5,000*
Accounting Fees and Expenses.................................. 30,000*
Trustee Fees and Expenses..................................... 20,000*
Rating Agencies' Fees......................................... 150,000*
Miscellaneous Expenses........................................ 7,742*
---------
Total....................................................... $ 575,000*
=========
</TABLE>
- --------
* Other than the registration fee, all expense items are estimates.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Green Tree Lease Finance 1997-1, LLC is a limited liability company formed
under the laws of Delaware. Section 18-108 of the Delaware Limited Liability
Company Act provides that a Delaware limited liability company may indemnify
any member or manager or other person from and against any and all claims and
demands whatsoever. The Limited Liability Company Agreement of Green Tree
Lease Finance 1997-1, LLC provides, in effect, that, subject to certain
limited exceptions, such company will indemnify its managers and named
officers to the extent permitted by the Delaware Limited Liability Company
Act.
Green Tree Lease Finance II, Inc. is incorporated under the laws of
Minnesota. Section 302A.521 of the Minnesota Statutes provides that a
corporation shall indemnify any person made or threatened to be made a party
to a proceeding by reason of the former or present official capacity of such
person against judgments, penalties, fines (including, without limitation,
excise taxes assessed against such person with respect to any employee benefit
plan), settlements and reasonable expenses, including attorneys' fees and
disbursements, incurred by such person in connection with the proceeding, if,
with respect to the acts or omissions of such person complained of in the
proceeding, such person (1) has not been indemnified therefor by another
organization or employee benefit plan for the same judgments, penalties or
fines; (2) acted in good faith; (3) received no improper personal benefit and
Section 302A.255 (with respect to director conflicts of interest), if
applicable, has been satisfied; (4) in the case of a criminal proceeding, had
no reasonable cause to believe the conduct was unlawful; and (5) in the case
of acts or omissions in such person's official capacity for the corporation,
reasonably believed that the conduct was in the best interests of the
corporation, or in the case of acts or omissions in such person's official
capacity for other affiliated organizations, reasonably believed that the
conduct was not opposed to the best interests of the corporation. Section
302A.521 also requires payment by a corporation, upon written request, of
reasonable expenses in advance of final disposition of the proceeding in
certain instances. A decision as to required indemnification is made by a
disinterested majority of the Board of Directors present at a meeting at which
a disinterested quorum is present, or by a designated committee of the Board,
by special legal counsel, by the shareholders or by a court.
The Bylaws of Green Tree Lease Finance II, Inc. provide, in effect, that,
subject to certain limited exceptions, such corporation will indemnify its
officers and directors to the extent permitted by the Minnesota Business
Corporation Act.
Green Tree Financial Corporation is incorporated under the laws of Delaware.
Section 145 of the Delaware General Corporation Law provides that a Delaware
corporation may indemnify any persons, including officers
II-1
<PAGE>
and directors, who are, or are threatened to be made, parties to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of such corporation, by reason of the fact that such person was an
officer, director, employee or agent of such corporation, or is or was serving
at the request of such corporation as a director, employee or agent of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation or enterprise).
The indemnity may include expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by such
person in connection with such action, suit or proceeding, provided such
person acted in good faith and in a manner he reasonably believed to be in or
not opposed to the corporation's best interests and, for criminal proceedings,
had no reasonable cause to believe that his conduct was illegal. A Delaware
corporation may indemnify officers and directors in an action by or in the
right of the corporation under the same conditions, except that no
indemnification is permitted without judicial approval if the officer or
director is adjudged to be liable to the corporation. Where and officer or
director is successful on the merits or otherwise in the defense of any action
referred to above, the corporation must indemnify him against the expenses
which such officer or director actually and reasonably incurred.
The Certificate of Incorporation and Bylaws of Green Tree Financial
Corporation provide, in effect, that, subject to certain limited exceptions,
such corporation will indemnify its officers and directors to the extent
permitted by the Delaware General Corporation Law.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
None.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The Exhibits filed as part of this Registration Statement are:
<TABLE>
<C> <S>
1.1** --Form of Underwriting Agreement.
3.1** --Certificate of Formation of Green Tree Lease Finance 1997-1, LLC.
3.2** --LLC Agreement of Green Tree Lease Finance 1997-1, LLC.
3.3** --Articles of Incorporation of Green Tree Lease Finance II, Inc.
3.4** --By-Laws of Green Tree Lease Finance II, Inc.
3.5* --Certificate of Incorporation of Green Tree Financial Corporation
3.6* --By-Laws of Green Tree Financial Corporation
4.1** --Form of Transfer Agreement.
4.2** --Form of Contribution and Servicing Agreement.
4.3** --Form of Indenture.
5.1** --Opinion and consent of Dorsey & Whitney LLP with respect to
legality.
8.1 --Opinion and consent of Dorsey & Whitney LLP with respect to tax
matters.
23.1** --Consent of Dorsey & Whitney LLP (included as part of Exhibit 5.1).
23.2 --Consent of Dorsey & Whitney LLP (included as part of Exhibit 8.1).
23.3** --Consent of Dorsey & Whitney LLP (true sale and nonconsolidation
opinions).
23.4** --Consent of KPMG Peat Marwick LLP.
24.1** --Power of attorney from officers and directors of Green Tree Lease
Finance II, Inc.
24.2** --Power of attorney from officers and directors of Green Tree
Financial Corporation.
25.1 --Statement of eligibility of Trustee.
99.1** --Form of Opinion of Dorsey & Whitney LLP with respect to true sale
of the Leases.
99.2** --Form of Opinion of Dorsey & Whitney LLP with respect to
nonconsolidation.
</TABLE>
- --------
* To be filed by amendment.
** Previously filed.
II-2
<PAGE>
ITEM 17. UNDERTAKINGS.
Each of the undersigned, Green Tree Lease Finance 1997-1, LLC, Green Tree
Lease Finance II, Inc. and Green Tree Financial Corporation (collectively, the
"Registrants"), hereby undertakes that, insofar as indemnification for
liabilities arising under the Securities Act of 1933 may be permitted to
directors, officers, and controlling persons of the Registrants pursuant to
the foregoing provisions, or otherwise, the Registrants have been advised
that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrants of
expenses incurred or paid by a director, officer or controlling person of the
Registrants in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Registrants will, unless in the opinion
of its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether such indemnification
by it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
The Registrants hereby undertake:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrants pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
The Registrants hereby undertake to file an application for the purpose of
determining the eligibility of the trustee to act under subsection (a) of
Section 310 of the Trust Indenture Act in accordance with the rules and
regulations prescribed by the Commission under Section 305(b)(2) of the Act.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, GREEN TREE LEASE
FINANCE 1997-1, LLC CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT
IT MEETS ALL OF THE REQUIREMENTS FOR FILING ON FORM S-1 AND HAS DULY CAUSED
THIS AMENDMENT NO. 5 TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF
BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF ST. PAUL, STATE
OF MINNESOTA, ON THE 16TH DAY OF DECEMBER, 1997.
Green Tree Lease Finance 1997-1, LLC
By: Green Tree Lease Finance II,
Inc.
/s/ Joel H. Gottesman
By: _________________________________
Joel H. Gottesman
Senior Vice President and
Secretary
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, GREEN TREE LEASE
FINANCE II, INC. CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT
MEETS ALL OF THE REQUIREMENTS FOR FILING ON FORM S-1 AND HAS DULY CAUSED THIS
AMENDMENT NO. 5 TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY
THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF ST. PAUL, STATE OF
MINNESOTA, ON THE 16TH DAY OF DECEMBER, 1997.
Green Tree Lease Finance II, Inc.
By: /s/ Joel H. Gottesman
---------------------------------
Joel H. Gottesman
Senior Vice President and Secretary
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 5 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS
IN THE CAPACITIES INDICATED.
SIGNATURE TITLE DATE
* Executive Vice
- ------------------------------------- President December 16,
EDWARD L. FINN (Principal 1997
Executive Officer
and Principal
Financial and
Accounting Officer)
/s/ Joel H. Gottesman
- ------------------------------------- Director
JOEL H. GOTTESMAN December 16,
1997
* Director
- ------------------------------------- December 16,
PAUL A. BOYUM 1997
/s/ Joel H. Gottesman
*By: ________________________________
JOEL H. GOTTESMAN
Attorney-in-fact
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, GREEN TREE
FINANCIAL CORPORATION CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT
IT MEETS ALL OF THE REQUIREMENTS FOR FILING ON FORM S-1 AND HAS DULY CAUSED
THIS AMENDMENT NO. 5 TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF
BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF ST. PAUL, STATE
OF MINNESOTA, ON THE 16TH DAY OF DECEMBER, 1997.
Green Tree Financial Corporation
By /s/ Scott T. Young
----------------------------------
SCOTT T. YOUNG
VICE PRESIDENT AND CONTROLLER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 5 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS
IN THE CAPACITIES INDICATED.
SIGNATURE TITLE DATE
* Chairman of the
- ------------------------------------- Board and Chief December 16,
LAWRENCE M. COSS Executive Officer 1997
(Principal
Executive Officer
and Director)
*
- ------------------------------------- Executive Vice
EDWARD L. FINN President and Chief December 16,
Financial Officer 1997
/s/ Scott T. Young
- ------------------------------------- Vice President and
SCOTT T. YOUNG Controller December 16,
(Principal 1997
Accounting Officer)
* Director
- ------------------------------------- December 16,
RICHARD G. EVANS 1997
*
- ------------------------------------- Director
W. MAX MCGEE December 16,
1997
* Director
- ------------------------------------- December 16,
ROBERT S. NICKOLOFF 1997
/s/ Scott T. Young
*By: ________________________________
SCOTT T. YOUNG
ATTORNEY-IN-FACT
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<C> <S>
1.1** --Form of Underwriting Agreement.
3.1** --Certificate of Formation of Green Tree Lease Finance 1997-1, LLC.
3.2** --LLC Agreement of Green Tree Lease Finance 1997-1, LLC.
3.3** --Articles of Incorporation of Green Tree Lease Finance II, Inc.
3.4** --By-Laws of Green Tree Lease Finance II, Inc.
3.5* --Certificate of Incorporation of Green Tree Financial Corporation
3.6* --By-Laws of Green Tree Financial Corporation
4.1** --Form of Transfer Agreement.
4.2** --Form of Contribution and Servicing Agreement.
4.3** --Form of Indenture.
5.1** --Opinion and consent of Dorsey & Whitney LLP with respect to legality.
8.1 --Opinion and consent of Dorsey & Whitney LLP with respect to tax
matters.
23.1** --Consent of Dorsey & Whitney LLP (included as part of Exhibit 5.1).
23.2 --Consent of Dorsey & Whitney LLP (included as part of Exhibit 8.1).
23.3** --Consent of Dorsey & Whitney LLP (true sale and nonconsolidation
opinions).
23.4** --Consent of KPMG Peat Marwick LLP.
24.1** --Power of attorney from officers and directors of Green Tree Lease
Finance II, Inc.
24.2** --Power of attorney from officers and directors of Green Tree Financial
Corporation.
25.1 --Statement of eligibility of Trustee.
99.1** --Form of Opinion of Dorsey & Whitney LLP with respect to true sale of
the Leases.
99.2** --Form of Opinion of Dorsey & Whitney LLP with respect to
nonconsolidation.
</TABLE>
- --------
* To be filed by amendment.
** Previously filed.
<PAGE>
[LETTERHEAD OF DORSEY & WHITNEY LLP]
EXHIBIT 8.1
Green Tree Financial Corporation
1100 Landmark Towers
345 St. Peter Street
St. Paul, MN 55102
Re: Green Tree Lease Finance 1997-1, LLC
Federal Income Tax Characterization
Ladies and Gentlemen:
We have acted as counsel for Green Tree Financial Corporation, a
Delaware corporation ("Green Tree Financial"), Green Tree Vendor Services
Corporation, a Delaware corporation and a subsidiary of Green Tree Financial
("Vendor Services"), Green Tree Lease Finance II, Inc., a Minnesota corporation
and a subsidiary of Vendor Services (the "SPC"), and Green Tree Lease Finance
1997-1, LLC, a Delaware limited liability company of which the SPC is the sole
member (the "Issuer"), in connection with the issuance of Lease-Backed Notes
(the "Notes") pursuant to an Indenture, dated as of December 1, 1997 (the
"Indenture"), among the Issuer and First Trust National Association (the
"Trustee"), as Trustee.
Pursuant to a Transfer Agreement dated as of December 1, 1997 (the
"Transfer Agreement"), among the SPC, as Purchaser, and Vendor Services, as
Seller and Servicer, Vendor Services has sold certain leases, including all
collections received with respect to the leases and certain other related rights
(the "Leases") and its interests (which may be deemed an ownership interest or a
security interest, depending on the terms of the related Lease) in the equipment
related to such Leases (such interests being hereinafter referred to as the
"Equipment") to the SPC. The Leases will be transferred by the SPC to the
Issuer pursuant to the terms of a Contribution and Servicing Agreement dated as
of December 1, 1997 (the "Contribution and Servicing Agreement"), among the
Issuer, the SPC, Vendor Services, in its individual capacity and as Servicer,
and the Trustee. Pursuant to the Contribution and Servicing Agreement, the SPC
will also grant to the Issuer certain rights to the proceeds of the Equipment
(the "Residual Realizations"). The Leases, the Equipment and the Residual
Realizations are collectively referred to as the "Trust Assets."
You have requested our opinion with respect to the federal income tax
<PAGE>
Green Tree Financial
December 16, 1997
Page 2
characterization of the Notes and the Issuer. For purposes of rendering our
opinion we have examined the Prospectus dated December _____ , 1997, relating to
the Notes (the "Prospectus"), the Transfer Agreement, the Contribution and
Servicing Agreement, the Indenture and the related documents and agreements
contemplated therein (collectively, the "Transaction Documents") and we have
reviewed such questions of law as we have considered necessary and appropriate.
All capitalized terms used herein and not defined herein have the meanings set
forth in the Indenture or the Contribution and Servicing Agreement.
Our opinion is based upon the existing provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), currently applicable Treasury
Department regulations issued thereunder, current published administrative
positions of the Internal Revenue Service (the "Service") contained in revenue
rulings and revenue procedures, and judicial decisions, all of which are subject
to change, either prospectively or retroactively, and to possibly differing
interpretations. Any change in such authorities may affect the opinions
rendered herein.
Our opinion is also based on the projections, representations,
warranties, covenants and agreements set forth in the Transaction Documents and
the assumption that Vendor Services, the SPC, the Issuer, the Indenture Trustee
and the Noteholders will at all times comply with the requirements of the
Transaction Documents. We have also relied in part on various factual
representations made to us by the Green Tree Financial and Vendor Services.
Although we have not undertaken an independent investigation of any factual
matters, nothing contrary to any of these representations has come to our
attention in the course of our consideration of these matters. Any alteration
of such factual representations may adversely affect our opinion.
An opinion of counsel is predicated on all the facts and conditions
set forth in the opinion and is based upon counsel's analysis of the statutes,
regulatory interpretations and case law in effect as of the date of the opinion.
It should not be accepted as a guarantee that a court of law or an
administrative agency will concur in the opinion.
Federal Income Tax Characterization of the Notes
- ------------------------------------------------
In general, for federal income tax purposes, the characterization of
the issuance and sale of notes as the issuance and sale of debt, the issuance
and sale of an equity or beneficial interest in the issuer or the sale of an
ownership interest in property of the issuer is a question of fact, the
resolution of which is based upon a variety of factors, principal among which is
a determination of who will receive the benefits of, and bear the burdens
relating to, the property. Thus, the determination of whether an instrument
issued in connection with such a transaction will be treated as debt for federal
income tax purposes, or instead will be treated as an equity or beneficial
interest in the issuer or as an ownership interest in the assets of the issuer,
depends on all the facts and circumstances in each case. See generally, Plumb,
The Federal Income Tax Significance of Corporate Debt:
<PAGE>
Green Tree Financial
December 16, 1997
Page 3
A Critical Analysis and a Proposal, 26 Tax L. Rev. 369 (1971).
In any such determination, several factors must be considered, and
debt characterization may be indicated by, among other things, the independence
of the debt holders and equity holders, the intention of the parties to create a
debt, the issuance of a formal debt instrument, the provision of a fixed
maturity date, the likelihood and expectation that the principal amount will be
repaid, the debt to equity ratio of the issuer, the nature of the assets serving
as security for the obligation, and various other factors. In the context of
this transaction, the most important considerations are: (i) whether the
Noteholders bear the burdens of ownership (i.e., the risk of loss from the Trust
Assets) and (ii) whether the Noteholders have acquired the benefits of ownership
(i.e., the potential for gain from the Trust Assets). In view of all of the
relevant facts and circumstances, the likelihood of the Noteholders bearing any
actual loss in respect of the Trust Assets is considered to be remote, as
evidenced by the investment grade debt ratings assigned to the Notes by the
Rating Agencies. Accordingly, the Noteholders should not be regarded as bearing
a significant risk of loss associated with ownership of the Trust Assets. In
addition, because the Noteholders are entitled to receive a fixed principal
amount and a fixed rate of interest, the economic return to the Noteholders will
not be affected by any change in the value of the Trust Assets. Accordingly, the
Noteholders will not receive any benefit from any increase in the value of the
Trust Assets.
A number of other factors are consistent with the treatment of the
Notes as debt. The most important of these factors are as follows: the form of
the Notes as debt, the sequential payment feature of the Notes, the Servicer's
ability to permit prepayments on the Leases, the ultimate retention of
reinvestment risk by the SPC, the fact that delinquencies on the Leases and the
negative carry resulting therefrom are not borne by the Noteholders and the
existence of a clean-up call option in favor of the SPC. In addition, debt
characterization is also supported by the rights of Noteholders in the proceeds
of any liquidation of Equipment upon a default under the related Lease, the
rights of Noteholders in Residual Realizations and the initial deposit and
subsequent deposits to be made to the Reserve Account.
Based upon the foregoing, we are of the opinion that the Notes will be
treated as debt for federal income tax purposes.
Federal Income Tax Characterization of the Issuer
- -------------------------------------------------
The Issuer is similar in many respects to trusts established to hold
collateral pledged as security in connection with lending transactions. If all
classes of Notes and other interests issued by the Issuer were debt for federal
income tax purposes, the Issuer would be disregarded for federal income tax
purposes and would be characterized as a mere security arrangement. Treas. Reg.
(S) 1.61-13(b); Rev. Rul. 76-265, 1976-2 C.B. 448; see also Rev. Rul. 73-100,
1973-1 C.B. 613 (domestic corporations's transfer of securities to Canadian
security holder, to secure liabilities to policyholders in Canada, does not
create a trust where discretionary powers retained by corporation); Rev. Rul.
71-119, 1971 C.B. 163 (settlement fund administered by "trustee" not a trust).
<PAGE>
Green Tree Financial
December 16, 1997
Page 4
The Issuer, however, has issued a membership interest to the SPC and
the membership interest (i) will not take the form of debt, (ii) is intended not
to be treated as debt for federal income tax purposes, and (iii) is intended to
be treated instead as evidencing the ownership interest of the SPC in property
transferred by the SPC to the Issuer, subject to the security interests of the
Noteholders. As long as, for federal income tax purposes, the Notes are treated
as debt and the SPC is viewed to hold all interests in the Issuer other than the
Notes, the Issuer should be treated as a mere security arrangement and
disregarded for federal income tax purposes.
If the Issuer is recognized as an entity for federal tax purposes, the
Issuer will be viewed as a business entity whose federal tax characterization
will be determined under Treasury Regulations (S)(S) 301.7701-2 and 301.7701-3.
Treasury Regulations (S) 301.7701-2 provides that "a business entity is any
entity recognized for federal tax purposes . . . that is not properly classified
as a trust under (S) 301.7701-4 or otherwise subject to special treatment under
the Internal Revenue Code."
Treasury Regulations (S) 301.7701-2 also provides that certain types
of entities are treated as corporations for federal tax purposes, including
entities formed under a state statute which refers to the entity as
"incorporated or as a corporation, body corporate or body politic," or as a
"joint-stock company or joint-stock association". The definition of corporation
also includes insurance companies, certain banking entities, foreign entities
and other entities specified in (S) 301.7701-2. The Issuer is not an entity
which is treated as a corporation under (S) 301.7701-2.
Treasury Regulations (S) 301.7701-3 refers to a business entity that
is not classified as a corporation as an "eligible entity." That section
provides that an eligible entity with a single owner can elect to be classified
as an association (which is taxed as a corporation) or to be disregarded as an
entity separate from its owner. An eligible entity with at least two members
can elect to be classified as either an association or a partnership. Treasury
Regulations (S) 301.7701-3 further provides certain default rules pursuant to
which, unless the entity affirmatively elects to be classified as an
association, an eligible entity is disregarded as an entity separate from its
owner if it has a single owner, and is treated as a partnership if it has two or
more members.
If the Issuer is recognized as an entity for federal tax purposes and
all classes of Notes are treated as debt for federal tax purposes, then the
Issuer would be an eligible entity with a single owner, the SPC. Under the
default rules of Treasury Regulations (S) 301.7701-3 described above, the Issuer
would be disregarded as an entity separate from the SPC for federal tax
purposes.
If any interest in the Issuer other than the membership interest of
the SPC were treated as an equity interest in the Issuer, the Issuer would be an
eligible entity with two or more members. In such a case, under the default
rules of Treasury Regulations (S) 301.7701-3 described above, the Issuer would
be treated as a partnership for federal tax purposes.
<PAGE>
Green Tree Financial
December 16, 1997
Page 5
Under Section 10.10 of the Contribution and Servicing Agreement, all
of the parties to such Agreement have agreed not to file an election to treat
the Issuer as an association taxable as a corporation.
Based on the foregoing, it is our opinion that the Issuer will not be
treated as an association taxable as a corporation for federal income tax
purposes.
Publicly Traded Partnership
- ---------------------------
Section 7704 of the Code provides that, subject to certain exceptions,
a partnership the interests in which are (i) traded on an established securities
market or (ii) readily tradable on a secondary market (or the substantial
equivalent thereof) will be treated as a corporation for federal income tax
purposes.
Treasury Regulations Section 1.7704-1, issued on November 29, 1995
(the "PTP Regulations"), provide further explanation of the rules governing
publicly traded partnerships. The PTP Regulations provide that an "established
securities market" includes a national, foreign, regional or local exchange, as
well as an interdealer quotation system which regularly disseminates firm buy or
sell quotations by identified brokers or dealers, by electronic means or
otherwise. The PTP Regulations also provide that interests in a partnership are
readily tradable on a secondary market or the substantial equivalent thereof if
the partners are readily able to buy, sell or exchange their partnership
interests in a manner that is economically comparable to trading on an
established securities market.
Interests in the Issuer or in the Trust Assets which might be viewed
to constitute interests in a partnership will not be traded on an established
securities market within the meaning of the PTP Regulations. The PTP
Regulations provide a safe harbor pursuant to which interests in a partnership
will not be considered readily tradable on a secondary market or the substantial
equivalent thereof if (i) all interests in such partnership were issued in a
transaction (or transactions) that was not required to be registered under the
Securities Act of 1933 (the "Securities Act") and (ii) the partnership does not
have more than 100 partners at any time during the taxable year of the
partnership.
As discussed above, it is our opinion that the Notes will be treated
as debt and will not be viewed to constitute interests in a partnership for
federal income tax purposes. The membership interest in the Issuer will be
issued to the SPC and the SPC will be required to retain such interest, except
that such interest may be transferred in connection with a sale of all or
substantially all of the assets of the SPC, provided that such transfer is
exempt from registration under the Securities Act. Thus, no interests in the
Issuer will be issued in a transaction that is required to be registered under
the Securities Act of 1933.
<PAGE>
Green Tree Financial
December 16, 1997
Page 6
Based upon the foregoing and on our opinion that the Notes will be
treated as debt for federal income tax purposes, it is our opinion that the
Issuer will not be characterized as a "publicly traded partnership" taxable as a
corporation for federal income tax purposes.
We express no opinions other than those expressly set forth above.
Except as provided below, the foregoing opinions are being furnished
to you solely for your benefit and may not be relied upon by, nor may copies be
delivered to, any other person without our prior written consent.
We hereby consent to the inclusion of this opinion as an exhibit to
the Registration Statement (File No. 333-38687-01) and to the use of our name
under the heading "Federal Income Tax Consequences" in the Prospectus, and we
hereby confirm that the discussion under such heading accurately sets forth our
advice as to the likely outcome of material issues under the federal income tax
laws.
Dated: December 16, 1997
Very truly yours,
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________
FORM T-1
Statement of Eligibility Under the
Trust Indenture Act of 1939 of a Corporation
Designated to Act as Trustee
FIRST TRUST NATIONAL ASSOCIATION
(Exact name of Trustee as specified in its charter)
United States 41-0257700
(State of Incorporation) (I.R.S. Employer
Identification No.)
First Trust Center
180 East Fifth Street
St. Paul, Minnesota 55101
(Address of Principal Executive Offices) (Zip Code)
GREEN TREE FINANCIAL CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 41-1807858
(State of Incorporation) (I.R.S. Employer
Identification No.)
GREEN TREE LEASE FINANCE II, INC.
(Exact name of Registrant as specified in its charter)
Minnesota Applied for
(State of Incorporation) (I.R.S. Employer
Identification No.)
GREEN TREE LEASE FINANCE 1997-1, LLC
(Exact name of Registrant as specified in its charter)
Delaware None
(State of Incorporation) (I.R.S. Employer
Identification No.)
1100 Landmark Towers
345 St. Peter Street
St. Paul, Minnesota 55102-1639
(Address of Principal Executive Offices) (Zip Code)
LEASE-BACKED NOTES
(Title of the Indenture Securities)
<PAGE>
GENERAL
-------
1. GENERAL INFORMATION Furnish the following information as to the Trustee.
(a) Name and address of each examining or supervising authority to
which it is subject.
Comptroller of the Currency
Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
Yes
2. AFFILIATIONS WITH OBLIGOR AND UNDERWRITERS If the obligor or any underwriter
for the obligor is an affiliate of the Trustee, describe each such
affiliation.
None
See Note following Item 16.
Items 3-15 are not applicable because to the best of the Trustee's
knowledge the obligor is not in default under any Indenture for which the
Trustee acts as Trustee.
16. LIST OF EXHIBITS List below all exhibits filed as a part of this statement
of eligibility and qualification.
1. Copy of Articles of Association.*
2. Copy of Certificate of Authority to Commence Business.*
3. Authorization of the Trustee to exercise corporate trust powers (included
in Exhibits 1 and 2; no separate instrument).*
4. Copy of existing By-Laws.*
5. Copy of each Indenture referred to in Item 4. N/A.
6. The consents of the Trustee required by Section 321(b) of the act.
7. Copy of the latest report of condition of the Trustee published pursuant
to law or the requirements of its supervising or examining authority is
incorporated by reference to Registration Number 333-42147.
* Incorporated by reference to Registration Number 22-27000.
<PAGE>
NOTE
The answers to this statement insofar as such answers relate to what
persons have been underwriters for any securities of the obligors within three
years prior to the date of filing this statement, or what persons are owners of
10% or more of the voting securities of the obligors, or affiliates, are based
upon information furnished to the Trustee by the obligors. While the Trustee
has no reason to doubt the accuracy of any such information, it cannot accept
any responsibility therefor.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
Trustee, First Trust National Association, an Association organized and existing
under the laws of the United States, has duly caused this statement of
eligibility and qualification to be signed on its behalf by the undersigned,
thereunto duly authorized, and its seal to be hereunto affixed and attested, all
in the City of Saint Paul and State of Minnesota on the 16th day of December,
1997.
FIRST TRUST NATIONAL ASSOCIATION
/s/ Richard H. Prokosch
________________________________
Richard H. Prokosch
Assistant Vice President
/s/ Kathe M Barrett
_____________________________
Kathe M Barrett
Assistant Secretary
<PAGE>
EXHIBIT 6
CONSENT
In accordance with Section 321(b) of the Trust Indenture Act of 1939, the
undersigned, FIRST TRUST NATIONAL ASSOCIATION hereby consents that reports of
examination of the undersigned by Federal, State, Territorial or District
authorities may be furnished by such authorities to the Securities and Exchange
Commission upon its request therefor.
Dated: December 16, 1997
FIRST TRUST NATIONAL ASSOCIATION
/s/ Richard H. Prokesch
________________________________
Richard H. Prokosch
Assistant Vice President
