<PAGE>
Filed Pursuant to Rule 424(b)(5)
File No. 333-63305
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED OCTOBER 9, 1998)
$425,250,000 (APPROXIMATE)
GREEN TREE
SELLER AND SERVICER
GREEN TREE HOME IMPROVEMENT AND HOME EQUITY LOAN TRUST 1998-F
LOAN-BACKED NOTES
----------------
The securities will consist of seven classes, but we are offering only
the following classes now:
<TABLE>
<CAPTION>
APPROXIMATE INTEREST UNDERWRITING PROCEEDS TO
CLASS PRINCIPAL AMOUNT(1) RATE PRICE TO PUBLIC(2) DISCOUNT COMPANY(3)
- ----- ------------------- -------- ------------------ ---------------- ---------------
<S> <C> <C> <C> <C> <C>
A-1 Notes............... $245,280,000 6.62% 99.9729986% .35% 99.6229986%
A-2 Notes............... $ 99,645,000 6.62% 99.9720352% .35% 99.6220352%
M-1 Notes............... $ 24,075,000 7.43% (4) (4) (4)
M-2 Notes............... $ 31,500,000 8.16% (4) (4) (4)
B-1 Notes............... $ 24,750,000 8.99% (4) (4) (4)
Total................... $425,250,000 $1,207,237.50(5) $343,623,668.00(5)
</TABLE>
- --------
(1) May vary plus or minus 5%.
(2) Plus any accrued interest beginning on December 30, 1998.
(3) Before deducting expenses, which we estimate to be $500,000.
(4) The Class M-1, Class M-2 and Class B-1 Notes will be offered from time to
time in negotiated transactions or otherwise at varying prices to be
determined at the time of the sale. The proceeds to the Company from any
sale of such Notes will be the purchase price paid by the purchaser, less
any expenses payable by the Company and any compensation payable to any
underwriter and dealer.
(5) Class A-1 and Class A-2 Notes only.
A note insurance policy, to be issued by Financial Security Assurance
Inc., will guarantee certain payments on the Class A-1 and Class A-2 Notes at
the times and to the extent described in this prospectus supplement.
INVESTING IN THE NOTES INVOLVES CERTAIN RISKS. PROSPECTIVE INVESTORS
SHOULD CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE S-12 IN THIS
PROSPECTUS SUPPLEMENT AND ON PAGE 15 IN THE PROSPECTUS.
----------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
The Attorney General of the State of New York has not passed on or
endorsed the merits of this offering. Any representation to the contrary is
unlawful.
The Class A-1 and Class A-2 Notes will be delivered through the Same-Day
Funds Settlement System of the Depository Trust Company on or about December
30, 1998.
The underwriters named below will offer the Class A-1 and Class A-2 Notes
to the public at the offering price listed on this cover page and they will
receive the discount listed above. See "Underwriting" on page S-59 in this
prospectus supplement and on page 60 in the prospectus.
----------------
MERRILL LYNCH & CO. LEHMAN BROTHERS
The date of this prospectus supplement is December 16, 1998
<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary of the Terms of the Notes.......................................... S-4
Risk Factors............................................................... S-12
The Trust.................................................................. S-13
The Trust Property......................................................... S-14
Use of Proceeds............................................................ S-16
The Contracts.............................................................. S-16
Yield and Prepayment Considerations........................................ S-26
Green Tree Financial Corporation........................................... S-32
Description of the Notes................................................... S-33
The Note Insurer........................................................... S-51
The Note Insurance Policy.................................................. S-54
Description of the Limited Guaranty........................................ S-56
Certain Federal and State Income Tax Consequences.......................... S-57
ERISA Considerations....................................................... S-57
Experts.................................................................... S-58
Underwriting............................................................... S-59
Legal Matters.............................................................. S-60
Annex I.................................................................... A-1
PROSPECTUS
Available Information...................................................... 3
Reports to Securityholders................................................. 3
Incorporation of Certain Documents by Reference............................ 3
Prospectus Summary ........................................................ 4
Risk Factors............................................................... 15
The Trusts................................................................. 17
Green Tree Financial Corporation........................................... 19
Yield Considerations....................................................... 21
Maturity and Prepayment Considerations..................................... 21
Pool Factor................................................................ 22
Use of Proceeds............................................................ 23
The Notes.................................................................. 23
The Certificates........................................................... 27
Certain Information Regarding the Securities............................... 29
Description of the Trust Documents......................................... 32
Description of FHA Insurance............................................... 42
Certain Legal Aspects of the Contracts; Repurchase Obligations............. 43
Certain Federal Income Tax Consequences.................................... 52
Certain State Income Tax Considerations.................................... 59
ERISA Considerations....................................................... 59
Legal Investment Considerations............................................ 60
Ratings.................................................................... 60
Underwriting............................................................... 60
Legal Matters.............................................................. 62
Experts.................................................................... 62
</TABLE>
No dealer, salesperson or other individual has been authorized to give
any information or make any representations not contained in this prospectus
supplement or the prospectus in connection with the offering covered by this
prospectus supplement and prospectus. If given or made, such information or
representations must not be relied upon as having been authorized by Green Tree
Financial Corporation or the underwriters. This prospectus supplement and
prospectus does not constitute an offer to sell, or a solicitation of an offer
to buy, the Notes in any jurisdiction where, or to any person to whom, it is
unlawful to make such offer or solicitation. Neither the delivery of this
prospectus supplement and prospectus nor any sale made hereunder shall, under
any circumstances, create an implication that there has not been any change in
the facts set forth in this prospectus supplement and prospectus or in the
affairs of the Green Tree Home Improvement and Home Equity Loan Trust 1998-F
since the date hereof.
S-2
<PAGE>
This document consists of a prospectus supplement and a prospectus. The
prospectus provides general information about Green Tree Financial Corporation
("Green Tree" or the "Company"), about Green Tree's home equity and home
improvement lending business, and about any series of certificates or notes for
home improvement and home equity loans that Green Tree may wish to sell. This
prospectus supplement contains more detailed information about this series of
notes. Since the terms of this series may differ from the general information
provided in the prospectus, you should rely on the information in this
prospectus supplement rather than any different information in the prospectus.
If you have received a copy of this prospectus supplement and prospectus
in an electronic format, and if the legal prospectus delivery period has not
expired, you may obtain a paper copy of this prospectus supplement and
prospectus from Green Tree or an underwriter by asking for it.
No prospectus regarding these Notes has been or will be prepared in the
United Kingdom pursuant to the United Kingdom Public Offers of Securities
Regulation 1995. These Notes may not be offered or sold, or re-offered or re-
sold, to persons in the United Kingdom, except (1) to persons whose ordinary
activities involve them in acquiring, holding, managing and disposing of
investments (as principal or agent) for the purpose of their businesses, or (2)
in circumstances that will not constitute or result in an offer to the public
in the United Kingdom within the meaning of the United Kingdom Public Offers of
Securities Regulation 1995. You may not pass this prospectus supplement and
prospectus, or any other document inviting applications or offers to purchase
Notes or offering Notes for purchase, to any person in the United Kingdom who
(1) does not fall within article 11(3) of the Financial Services Act 1986
(Investment Advisements) (Exemptions) Order 1996 or (2) is not otherwise a
person to whom passing this prospectus supplement and prospectus would be
lawful.
S-3
<PAGE>
SUMMARY OF THE TERMS OF THE NOTES
This summary highlights selected information regarding the Notes, and does
not contain all of the information that you need to consider in making your
investment decision. To understand all of the terms of the Notes, read this
entire prospectus supplement and the accompanying prospectus.
Green Tree Home Improvement and Home Equity Loan Trust 1998-F will issue
the classes of securities listed in the table below.
<TABLE>
<CAPTION>
INTEREST APPROXIMATE MOODY'S S&P
CLASS RATE PRINCIPAL AMOUNT (1) RATING RATING
- ----- -------- -------------------- ------- ------
<S> <C> <C> <C> <C>
A-1 Notes.......................... 6.62% $245,280,000 Aaa AAA
A-2 Notes.......................... 6.62 99,645,000 Aaa AAA
M-1 Notes.......................... 7.43 24,075,000 Aa3 AA
M-2 Notes.......................... 8.16 31,500,000 A3 A
B-1 Notes.......................... 8.99 24,750,000 Baa3 BBB
B-2 Notes.......................... 10.08 24,750,000 Ba1 BBB-
Certificates....................... -- -- -- --
</TABLE>
- -------
(1) May vary plus or minus 5%.
Only some classes of the Notes are being offered pursuant to this
prospectus supplement and the prospectus, and they are identified on the cover
page of this prospectus supplement. If the Class M-1, Class M-2 and Class B-1
Notes are not sold by December 30, 1998, Green Tree will retain such Notes
until such time as they are sold. Green Tree (or an affiliate) initially will
retain the Class B-2 Notes, but may sell any or all of these Notes at a later
date.
S-4
<PAGE>
Issuer .................... Green Tree Home Improvement and Home Equity Loan
Trust 1998-F, a Delaware business trust.
Seller and Servicer........ Green Tree Financial Corporation, 1100 Landmark
Towers, 345 St. Peter Street, St. Paul, Minnesota
55102, telephone: (651) 293-3400.
Indenture Trustee.......... U.S. Bank Trust National Association, St. Paul,
Minnesota, not in its individual capacity but
solely as trustee under the trust indenture.
Owner Trustee.............. Wilmington Trust Company, Wilmington, Delaware,
not in its individual capacity but solely as
owner trustee under the trust agreement.
Payment Date............... The fifteenth day of each month (or, if that
fifteenth day is not a business day, the next
succeeding business day) beginning on January 15,
1999.
Record Date................ The business day just before the related payment
date, beginning in January 1999.
Note Insurer and Insurance Financial Security Assurance Inc., a New York
Policy.................. monoline insurance company, will irrevocably and
unconditionally guarantee certain payments to the
indenture trustee for the benefit of the holders
of the Class A-1 and Class A-2 Notes. The
insurance payments, if any, made on a payment
date will equal the amount by which the sum of
(a) the current interest payable on the Class A
Notes and (b) the Class A Principal Deficiency
Amount (the amount by which the principal balance
of the Class A Notes exceeds the scheduled
principal balance of the contracts) and (c) on
the maturity date, the amount by which the unpaid
principal balance of the Class A Notes exceeds
the cash available to pay such amount on that
payment date. Insurance payments will not cover
deficiencies resulting from relief to debtors
under the federal Soldiers' and Sailors' Civil
Relief Act of 1940.
Distributions on Notes..... Distributions on the Notes on any payment date
will be made primarily from amounts collected on
the home improvement and home equity contracts
comprising the contract pool during the prior
calendar month (the "Amount Available"). On each
payment date, the indenture trustee will apply
the Amount Available, less certain fees to the
note insurer and servicer (if other than Green
Tree), to make distributions of principal and
interest on the Notes in the following order of
priority:
^ Class A-1 and Class A-2 interest;
^ Class M-1 interest;
^ Class M-2 interest;
S-5
<PAGE>
^ Class B-1 interest;
^ Class A-1 and Class A-2 principal;
^ Class M-1 principal (if due);
^ Class M-2 principal (if due);
^ Class B-1 principal (if due);
^ Class B-2 interest; and
^ Class B-2 principal (if due).
See "Description of the Notes--Payments on
Contracts" for a detailed description of the
amounts that will constitute the Amount Available
for any payment date.
A. Interest on the Class
A, Class M and Class B-
1 Notes................. After payment to the note insurer of its monthly
premium, interest will be payable first to the
Class A-1 and Class A-2 Notes concurrently, then
to the Class M-1 Notes, then to the Class M-2
Notes and then to the Class B-1 Notes, to the
extent of the Amount Available. See "Description
of the Notes--Distributions on the Notes" and "--
Losses on Liquidated Contracts" for a more
detailed description of the calculation of
interest payable on the Notes.
B. Principal on the Class
A and Class M Notes.....
After paying interest due on the Notes described
above, the indenture trustee will then apply the
remaining Amount Available to pay principal on
the Class A Notes, pay any reimbursement amount
due to the note insurer and then pay principal on
the Class M Notes. For purposes of determining
the amount of principal due on the Class A Notes,
the contract pool will be divided into Group 1
Contracts and Group 2 Contracts. A senior
percentage will be calculated on each payment
date for the purpose of determining the amount of
the principal payments, which are payable in the
following priority:
^ Concurrently, to the Class A-1 and Class A-2
Notes, until they are retired. The Class A-1
Notes will be entitled to receive the senior
percentage of scheduled (whether or not
collected) and unscheduled principal
payments and other recoveries on the Group 1
Contracts. The Class A-2 Notes will be
entitled to receive the senior percentage of
scheduled (whether or not collected) and
unscheduled principal payments and other
recoveries on the Group 2 Contracts. If
either the Class A-1 Notes or the Class A-2
Notes are retired, the remaining class will
be entitled to receive the senior percentage
of such payments and recoveries on the Group
1 and Group 2 Contracts.
S-6
<PAGE>
^ Following retirement of the Class A Notes
and after reimbursements, if any, are made
to the note insurer, to the Class M-1 Notes
until retired, the senior percentage of
scheduled (whether or not collected) and
unscheduled principal payments and other
recoveries on the Group 1 and Group 2
Contracts.
^ Following retirement of the Class A and
Class M-1 Notes, to the Class M-2 Notes
until retired, the senior percentage of
scheduled (whether or not collected) and
unscheduled principal payments and other
recoveries on the Group 1 and Group 2
Contracts.
C. Principal on the Class The indenture trustee will pay principal on the
B-1 Notes............... Class B-1 Notes from the Amount Available
remaining after the payments described above, in
an amount equal to a percentage of the scheduled
(whether or not collected) and unscheduled
principal payments and other recoveries on the
Group 1 and Group 2 Contracts. Prior to the
payment date in January 2003, the percentage will
be zero. Thereafter, if delinquencies, defaults
and losses on the Contracts remain below certain
thresholds and the ratio of the aggregate
outstanding principal balance of the Class B
Notes to the total outstanding balance of the
contract pool has become at least 22%, the
percentage will generally equal such ratio. See
"Description of the Notes--Distributions on the
Notes" for a more detailed description of the
calculation of principal payable on the Notes.
D. Interest on the Class After paying the amounts of interest and
B-2 Notes ................. principal due on the other Notes described above,
the indenture trustee will then apply the
remaining Amount Available to pay interest on the
Class B-2 Notes.
E. Principal on the Class After paying the amounts of interest and
B-2 Notes ................. principal due on the Notes described above, the
indenture trustee will then apply the remaining
Amount Available to pay principal due on the
Class B-2 Notes. In general, principal will not
be payable on the Class B-2 Notes until the Class
B-1 Notes have been retired and if the same
thresholds and ratios applicable to the Class B-1
Notes are met. If that has occurred, the Class B-
2 Notes will generally be entitled to receive
principal in an amount equal to a percentage of
the scheduled (whether or not collected) and
unscheduled principal payments and other
recoveries on the Group 1 and Group 2 Contracts.
The principal balance of the Class B-2 Notes will
generally not be reduced below $2,250,000 until
the Class A, Class M and Class B-1 Notes have
been paid in full.
F. Supplementary Principal
Distribution ............
If certain cumulative loss triggers are exceeded,
the Class A-1 and Class A-2 Notes will get an
additional payment of principal to the extent of
the Amount Available remaining after the above
distributions are made and the servicer is paid
its fee.
S-7
<PAGE>
Class B-2 Limited Green Tree will guarantee payment of interest and
Guaranty................... principal on the Class B-2 Notes. The Class B-2
Limited Guaranty is of no benefit to any other
class of Notes and will be an unsecured general
obligation of Green Tree unsupported by any
letter of credit or other credit enhancement. See
"Description of the Class B-2 Limited Guaranty"
for a complete description of Green Tree's
obligation under the Class B-2 Limited Guaranty.
Subordination of Class M
and Class B Notes..........
The Class M Notes and Class B Notes will be
subordinate to the Class A Notes in payment of
both interest and principal:
^ interest on the Class A Notes and Class M
Notes will be payable before interest on the
Class B Notes;
^ the Class M Notes are entitled to principal
distributions only after all the Class A
Notes are paid in full; and
^ The Class B Notes are entitled to principal
distributions on or after the payment date
in January 2003 and if certain tests are
met, or after all the Class A and Class M
Notes are paid in full.
This subordination feature increases the
possibility that the Class A Notes will be paid
in full but the Class M and Class B Notes will
not. See "Description of the Notes--Distributions
on the Notes" for a more detailed description of
the manner and order of priority of distributions
on the Notes.
In addition, in the event of severe losses and
delinquencies on the Contracts, those losses will
first be imposed on the Class B-2 Notes, and then
on the Class B-1 Notes, and so on through classes
of increasing seniority. See "Description of the
Notes--Losses on Liquidated Contracts" for a more
detailed description of the allocation of losses
on the Contracts.
The Contracts.............. The contract pool will include conventional home
improvement contracts and promissory notes and
home equity loans. These contracts will be
divided into two groups, Group 1 and Group 2.
Group 1 will not include any contracts secured by
a first priority lien on the related mortgaged
property with an original principal balance in
excess of $227,150, or any contracts secured by a
junior priority lien on the related mortgaged
property with an original principal balance in
excess of 50% of the original principal balance
of the related senior liens. Group 2 will include
some contracts with original principal balances
that exceed the foregoing
S-8
<PAGE>
amounts. The contracts are divided into Group 1
and Group 2 solely for the purpose of calculating
the respective amounts of principal to which the
Class A-1 and Class A-2 Notes are entitled.
Actual payments received from both Group 1 and
Group 2 will be used to make payments of interest
and principal on each class of Notes.
A. Group 1 Contracts....... With respect to the Group 1 Contracts (as of the
Cut-off Date):
^ all are conventional (not FHA-insured)
contracts;
^ 6,513 are home improvement contracts and
7,906 are home equity loans;
^ all are secured by a lien on the related
real property;
^ the related properties are located in 48
states and the District of Columbia;
^ the interest rates range from 6.99% to
20.14%, with a weighted average of 14.15%;
^ the weighted average term to scheduled
maturity, as of their dates of origination,
was 225 months, and the weighted average
term to scheduled maturity, as of the Cut-
off Date, was 221 months; and
^ the latest scheduled maturity date was in
November 2028.
See "The Contracts--Group 1 Contracts" for a more
detailed description of the Group 1 Contracts.
B. Group 2 Contracts....... This prospectus supplement provides information
regarding a portion of the Group 2 Contracts,
representing about 79% of all the Group 2
Contracts. Green Tree will transfer the remainder
of the Group 2 Contracts to the Trust on the
Closing Date.
With respect to the initial Group 2 Contracts (as
of the Cut-off Date):
^ all are conventional (not FHA-insured)
contracts;
^ 2,196 are home improvement contracts and
1,637 are home equity loans;
^ all are secured by a lien on the related real
property;
^ the related properties are located in 48
states and the District of Columbia;
S-9
<PAGE>
^ the interest rates range from 7.99% to
19.64%, with a weighted average of 13.76%;
^ the weighted average term to scheduled
maturity, as of their dates of origination,
was 232 months, and the weighted average term
to scheduled maturity, as of the Cut-off
Date, was 228 months; and
^ the latest scheduled maturity date was in
December 2023.
See "The Contracts--Group 2 Contracts" for a more
detailed description of the initial Group 2
Contracts.
Repurchase Obligations..... Green Tree will make representations and
warranties about the Contracts when it transfers
them to the Trust. If a representation or
warranty is breached in a way that materially and
adversely affects the interests of the
Noteholders or the note insurer, then Green Tree
must, within 90 days, either (i) cure the breach
or (ii) repurchase the defective Contracts. See
"Description of the Notes--Conveyance of
Contracts" herein and in the prospectus for a
more complete description of Green Tree's
representations and warranties about the
Contracts and its repurchase obligation.
Repurchase Option.......... After the scheduled principal balance of the
Contracts is less than 10% of the aggregate
principal balance of the Contracts as of the Cut-
off Date, Green Tree will have the option to
purchase all of the outstanding Contracts,
provided that all amounts owed to the note
insurer are paid in full. The note insurer has a
similar right to purchase the Contracts. See
"Description of the Notes--Repurchase Option" in
this prospectus supplement and in the prospectus
for a more detailed description of the terms of
this repurchase option.
Tax Status................. In the opinion of counsel to Green Tree, for
federal and Minnesota income tax purposes, the
Notes will be characterized as debt, and the
Trust will not be characterized as an association
(or a publicly traded partnership) taxable as a
corporation and neither the Trust nor any portion
of the Trust will constitute a taxable mortgage
pool taxable as a corporation. Each Noteholder,
by the acceptance of a Note, will agree to treat
the Notes as debt. See "Certain Federal Income
Tax Consequences" herein and in the prospectus
for a more detailed description of the federal
income tax consequences of an investment in the
Notes.
ERISA Considerations....... If the Notes are considered to be indebtedness
without substantial equity features under a
regulation issued by the United States Department
of Labor, the acquisition or holding of Notes by
or on behalf of a Benefit Plan will not cause the
assets of the Trust to become plan assets,
thereby
S-10
<PAGE>
generally preventing the application of certain
prohibited transaction rules of the Employee
Retirement Income Security Act of 1974, as
amended, and the Internal Revenue Code of 1986,
as amended, that otherwise would possibly be
applicable. Green Tree believes that the Notes
should be treated as indebtedness without
substantial equity features for purposes of such
regulation. See "ERISA Considerations" in this
prospectus supplement and in the prospectus.
Legal Investment The Notes will not constitute "mortgage related
Considerations............. securities" for purposes of the Secondary
Mortgage Market Enhancement Act of 1984 ("SMMEA")
because a number of the Contracts are not secured
by first liens on the related real estate, as
required by SMMEA. This means that many
institutions that have the legal authority to
invest in "mortgage related securities" may not
be legally authorized to invest in the Notes. You
should consult with your own legal advisor to
decide whether and to what extent you may legally
invest in the Notes.
Ratings.................... The Notes will not be issued and sold unless
Moody's Investors Service, Inc. ("Moody's") and
Standard & Poor's Rating Services, a division of
the McGraw-Hill Companies, Inc. ("S&P"), have
assigned the ratings specified on page S-4 (or
better) to the Notes.
The rating of each class of Notes by Moody's and
S&P addresses the likelihood of timely receipt of
interest and ultimate receipt of principal. A
security rating is not a recommendation to buy,
sell or hold securities and may be subject to
revision or withdrawal at any time by the
assigning rating agency.
The ratings of the Class A-1 and Class A-2 Notes
are based primarily on the creditworthiness of
the note insurer. Any reduction in a rating of
the claims-paying ability of the note insurer may
result in a similar reduction in the ratings of
the Class A-1 and Class A-2 Notes.
The ratings of the Class B-2 Notes are based in
part on an assessment of the Company's ability to
make payments under the Class B-2 Limited
Guaranty. Any reduction in the rating of the
Company's debt securities may result in a similar
reduction in the ratings of the Class B-2 Notes.
Green Tree's senior debt securities were recently
downgraded by Moody's to "Bal".
Green Tree has not requested a rating of the
Notes from any rating agencies other than Moody's
and S&P. You cannot assume that no other rating
agency will assign a rating to any of these
Notes, nor can you assume what any such rating,
if issued, would be.
S-11
<PAGE>
RISK FACTORS
Consider the following risk factors in deciding whether to purchase
Notes. More risk factors, applicable to any series of notes like these, are
printed in the prospectus, and you should consider those risk factors also.
High Loan-to-Value Ratio Loans. The Contracts were originated with a
limited expectation of recovering any amounts from the foreclosure of the
related mortgaged property and were underwritten with an emphasis on the
creditworthiness of the borrowers. If the Contracts go into foreclosure and are
liquidated, there may be no amounts recovered from the related mortgaged
property unless the value of the property has increased or the principal amount
of the related senior liens has been reduced to the point where the value of
the property, less any related foreclosure costs, is greater than the principal
amount of the related senior liens. To the extent that any losses are incurred
on any of the Contracts that are not covered by the credit enhancement
described herein, the holders of the Notes will bear all risk of such losses
resulting from defaults by borrowers.
Servicing High Loan-to-Value Ratio Loans. The servicing of high loan-to-
value ratio loans such as the Contracts requires special skill and diligence
and requires more attention to each account and earlier and more frequent
contact with borrowers in default. Green Tree has no historical loss or
delinquency data with respect to high loan-to-value contracts that may be
referred to for estimating the future delinquency and loss experience on the
Contracts. Green Tree has not included its historical delinquency and loan loss
and liquidation experience with home improvement contracts and home equity
loans because such information is not a meaningful predictor of the performance
of the pool of Contracts.
Truth-in-Lending Considerations. It is likely that some Contracts
included in the pool will be subject to the Home Ownership and Equity
Protection Act of 1994 (the "Home Protection Act"). The Home Protection Act
adds certain additional provisions to Regulation Z, the implementing regulation
of the Federal Truth-in-Lending Act. These provisions impose additional
disclosure and other requirements on creditors with respect to non-purchase
money mortgage loans with high interest rates or up-front fees and charges. A
violation of these provisions of the Home Protection Act can affect the
enforceability of the related loan, and it subjects any assignee of such a loan
(such as the Trust) to all the claims and defenses that the consumer could
assert against the creditor, including the right to rescind the loan. The
return on your investment will depend largely on the performance of the home
equity loans contained in the contract pool. If the Company is found to have
violated the provisions of the Home Protection Act with respect to any home
equity loan that is subject to the Home Protection Act, the Trust may be unable
to collect on that loan. The Company would, however, be obligated to repurchase
that loan because of the breach of its representation and warranty.
Variations in Contract Characteristics. This prospectus supplement
provides information regarding only a portion of the Group 2 Contracts that
will be transferred to the Trust. The subsequent Group 2 Contracts will have
characteristics that differ somewhat from the Group 2 Contracts described
herein. All of the subsequent Contracts will be transferred to the Trust on the
closing date and must satisfy various criteria specified in the Sale and
Servicing Agreement. If you purchase a Note, you must not assume that the
characteristics of the Contract pool will be identical to the characteristics
of the Contracts disclosed in this prospectus supplement. Current Reports on
Form 8-K will be filed following the purchase of Contracts by the Trust on the
closing date. The report will include the same type of information regarding
the entire contract pool as this prospectus supplement contains with respect to
the first group of Contracts.
Risk Associated with the Note Insurer. If the note insurer is unable to
meet its obligations under the note insurance policy, then holders of the Class
A-1 and Class A-2 Notes could suffer a loss in their investments. In addition,
a reduction in the claims-paying ability of the note insurer may result in a
similar reduction in the ratings of the Class A-1 and Class A-2 Notes.
S-12
<PAGE>
THE TRUST
The following information supplements and, to the extent inconsistent
therewith, supersedes the information contained in the accompanying Prospectus.
Prospective Securityholders should consider, in addition to the information
below, the information under "The Trusts" in the accompanying Prospectus.
GENERAL
Green Tree Home Improvement and Home Equity Loan Trust 1998-F (the
"Issuer" or the "Trust") is a business trust formed under the laws of the State
of Delaware pursuant to the Trust Agreement for the transactions described in
this Prospectus Supplement. After its formation, the Trust will not engage in
any activity other than (i) acquiring, holding and managing the Contracts and
the other assets of the Trust and proceeds therefrom, (ii) issuing the Notes
and the Certificates, (iii) making payments on the Notes and the Certificates
and (iv) engaging in other activities that are necessary, suitable or
convenient to accomplish the foregoing or are incidental thereto or connected
therewith.
The Trust will be capitalized with the proceeds of the initial sale of
the Notes, which will be used by the Trust to purchase the Contracts from Green
Tree pursuant to the Sale and Servicing Agreement between Green Tree and the
Indenture Trustee (the "Sale and Servicing Agreement").
The Trust's principal offices are in Wilmington, Delaware, at the address
listed below under "--The Owner Trustee."
CAPITALIZATION OF THE TRUST
The following table illustrates the capitalization of the Trust as of the
Cut-off Date, as if the issuance and sale of the Notes had taken place on such
date:
<TABLE>
<S> <C>
Class A-1 Notes.............................................. $245,280,000
Class A-2 Notes.............................................. $ 99,645,000
Class M-1 Notes.............................................. $ 24,075,000
Class M-2 Notes.............................................. $ 31,500,000
Class B-1 Notes.............................................. $ 24,750,000
Class B-2 Notes.............................................. $ 24,750,000
------------
Total...................................................... $450,000,000
============
</TABLE>
THE OWNER TRUSTEE
Wilmington Trust Company is the Owner Trustee under the Trust Agreement.
Wilmington Trust Company is a Delaware banking corporation and its principal
offices are located at Rodney Square North, 1100 North Market Street,
Wilmington, Delaware 19890-0001. The Owner Trustee will perform limited
administrative functions under the Trust Agreement, including making
distributions from the Certificate Distribution Account. The Owner Trustee's
liability in connection with the issuance and sale of the Certificates and the
Notes is limited solely to the express obligations of the Owner Trustee as set
forth in the Trust Agreement.
S-13
<PAGE>
THE TRUST PROPERTY
The Trust Property will include, among other things, (i) a pool of
conventional home improvement contracts and promissory notes ("Home Improvement
Contracts") and home equity loans ("Home Equity Contracts", together with the
Home Improvement Contracts, the "Contracts"); (ii) the mortgage, deed of trust
or security deed granted by or on behalf of the related obligor with respect
thereto, including the lien on the related real property, (iii) all other
security interests or liens and property subject thereto from time to time
purporting to secure payment of such Contract, whether pursuant to the
agreement giving rise to such Contract or otherwise, together with all
financing statements signed by the obligor describing any collateral securing
such Contract, (iv) all rights the Company may have against the originator of
the Contract if other than the Company, (v) all rights under hazard insurance,
if applicable, on the property described in the Contract, (vi) all rights in
any title insurance policy with respect to a Contract, (vii) all guarantees,
insurance and other agreements or arrangements of whatever character from time
to time supporting or securing payment of such Contract whether pursuant to the
agreement giving rise to such Contract or otherwise, (viii) all records in
respect of such Contract, and (ix) the note insurance policy issued by
Financial Security Assurance Inc. (the "Note Insurer") for the benefit of the
Class A Noteholders. See "The Contracts" and "Description of the Trust
Documents--Collections" in the accompanying Prospectus.
In order to protect the Trust's ownership interest in the Contracts,
Green Tree will file a UCC-1 financing statement in Minnesota to give notice of
the Trust's ownership of the Contracts and the related Trust Property.
Pursuant to the Indenture, the Trust will grant a security interest in
favor of the Indenture Trustee and the Note Insurer in the Trust Property, the
rights of the Trust under the Sale and Servicing Agreement (including the Class
B-2 Limited Guaranty of the Company for the benefit of the Class B-2
Noteholders), and the Collection Account and Note Distribution Account (as
defined below). Any proceeds of such property will be distributed according to
the Indenture, as described below under "Description of the Trust Documents and
Indenture--Distributions."
The Indenture Trustee or its custodian will hold each original Contract,
as well as copies of documents and instruments relating to such Contract and
evidencing the security interest in the real property securing such Contract
(the "Contract Files").
Payments and recoveries in respect of principal and interest on the
Contracts will be paid into a separate trust account maintained at an Eligible
Institution (as defined below) (initially U.S. Bank National Association,
Minneapolis, Minnesota) in the name of the Indenture Trustee (the "Collection
Account"), no later than one business day after receipt. The Indenture Trustee
will, on the fifteenth day of each month (or, if such day is not a business
day, the next succeeding business day) (each a "Payment Date"), deposit funds
from the Collection Account into a distribution account (the "Note Distribution
Account"). Payments on deposit in the Note Distribution Account will be applied
on each Payment Date to make the distributions to the Noteholders as of the
immediately preceding Record Date as described under "Description of the
Notes--Distributions on the Notes" herein and to pay certain monthly fees to
the Servicer as compensation for its servicing of the Contracts (the "Monthly
Servicing Fee" and premiums and other payments to the Note Insurer).
Following the transfer of the Contracts from the Company to the Trust,
the obligations of the Company are limited to (a) its obligations as Servicer
to service the Contracts, (b) certain representations and warranties in the
Sale and Servicing Agreement as described under "Description of the Notes--
Conveyance of Contracts" herein, (c) certain indemnities and fees and (d) the
Class B-2 Limited Guaranty. The Company is obligated under the Sale and
Servicing Agreement to repurchase at the Repurchase Price (as defined herein),
any Contract on the first Payment Date which is more than 90 days after the
Company becomes aware, or the Company receives written notice from the
Indenture Trustee or
S-14
<PAGE>
the Note Insurer, of any breach of any such representation and warranty in the
Sale and Servicing Agreement that materially and adversely affects the
Noteholders' or Note Insurer's interest in such Contract if such breach has not
been cured prior to such date. The Sale and Servicing Agreement also provides
that the Company has certain obligations to repurchase Contracts and to
indemnify the Indenture Trustee, Noteholders and the Note Insurer with respect
to certain other matters. The Company is obligated to indemnify the Note
Insurer for certain matters under the Note Insurance Policy. The Company is
also obligated to pay certain fees of the Owner Trustee and Indenture Trustee.
S-15
<PAGE>
USE OF PROCEEDS
The Company will use the net proceeds received from the sale of the Notes
for working capital and general corporate purposes, including building a
portfolio of home improvement contracts and home equity loans, providing
warehouse financing for the purchase of contracts and loans and other costs of
maintaining such contracts and loans until they are pooled and sold to other
investors.
THE CONTRACTS
GENERAL
The Contract Pool will consist of Home Improvement Contracts and Home
Equity Contracts, and will be divided into Group 1 and Group 2. Group 1 will
not include any Contracts secured by a first priority lien on the related
mortgaged property with an original principal balance in excess of $227,150, or
any Contracts secured by a junior lien on the related mortgaged property with
an original principal balance in excess of 50% of the original principal
balance of the related senior liens, as applicable. Group 2 will include some
Contracts with original principal balances that exceed the foregoing amounts.
The Contracts are divided into Group 1 and Group 2 solely for the purpose of
calculating the respective amounts of principal to which the Class A-1 and
Class A-2 Notes are entitled. Actual payments received from both Group 1 and
Group 2 will be used to make payments of interest and principal on each Class
of Notes.
HOME IMPROVEMENT CONTRACTS
This Prospectus Supplement contains information regarding certain Home
Improvement Contracts, which will represent approximately 90% of all Home
Improvement Contracts by aggregate principal balance as of the Cut-off Date,
and which consist of home improvement contracts and promissory notes originated
through November 18, 1998 (the "Initial Home Improvement Contracts"). The
information for the Initial Home Improvement Contract is as of the Cut-off Date
for such Contracts. The remaining Home Improvement Contracts will be purchased
by the Trust on the Closing Date.
The Initial Home Improvement Contracts have an aggregate principal
balance as of the Cut-off Date of $245,258,322.21. Each Home Improvement
Contract is a home improvement contract originated by a Company-approved home
improvement contractor and purchased by the Company, or a home improvement
promissory note originated by the Company directly. The primary loan purpose of
the Initial Home Improvement Contracts is debt consolidation. Each Home
Improvement Contract is secured by a lien on the related real estate, which
consists of a one- to four-family residential property, an owner-occupied
condominium or town house or a manufactured home which either qualifies as real
estate under state law or is located in a Company-approved park. Substantially
all of the liens are second or third liens.
The Home Improvement Contracts will be originated or acquired by the
Company in the ordinary course of the Company's business. A detailed listing of
the Home Improvement Contracts is appended to the Sale and Servicing Agreement.
All of the Home Improvement Contracts are conventional contracts, meaning they
are not FHA-insured. Each of the Initial Home Improvement Contracts has a
Contract Rate of at least 7.99% per annum and not more than 18.99% and the
weighted average of the Contract Rates of the Initial Home Improvement
Contracts as of the Cut-off Date is 12.98%. As of the Cut-off Date, the Initial
Home Improvement Contracts had remaining maturities of at least 17 months but
not more than 300 months and original maturities of at least 24 months but not
more than 300 months. The Initial Home Improvement Contracts had a weighted
average term to scheduled maturity, as of origination, of 235 months, and a
weighted average term to scheduled maturity, as of the Cut-off Date, of 232
months. The average principal balance per Initial Home Improvement Contract as
of the Cut-off Date was $28,161.48 and the principal balances on the Initial
Home Improvement Contracts as of the Cut-off Date ranged from $2,466.33 to
$139,199.09. The Initial Home Improvement Contracts arise from loans relating
to real property located in 48 states and the District of Columbia. By
principal balance as of the Cut-off Date, approximately 13.20% of the Initial
Home Improvement Contracts were secured by
S-16
<PAGE>
real property located in California, 9.30% in New York, 6.11% in Virginia,
5.93% in Florida, 5.59% in New Jersey and 5.53% in Pennsylvania. No other state
represented 5% or more of the aggregate principal balance as of the Cut-off
Date of the Initial Home Improvement Contracts. Substantially none of the
Initial Home Improvement Contracts provide for recourse to the originating
contractor in the event of a default by the obligor.
HOME EQUITY CONTRACTS
The following summary information about the Home Equity Contracts is as
of the Cut-off Date for such Contracts.
The Home Equity Contracts have an aggregate principal balance of
$177,579,883.43. Each Home Equity Contract is a closed-end home equity loan
originated by the Company or by a Company-approved correspondent lender and
purchased by the Company. Approximately 73.3% of the Home Equity Contracts by
principal balance are for the primary purpose of debt consolidation. Each Home
Equity Contract is secured by a lien on the related real estate, substantially
all of which are second or third liens.
The Home Equity Contracts will be originated or acquired by the Company
in the ordinary course of the Company's business. All of the Home Equity
Contracts are conventional contracts, meaning they are not FHA-insured. Each of
the Home Equity Contracts has a Contract Rate of at least 6.99% per annum and
not more than 20.14% and the weighted average of the Contract Rates of the
Initial Home Equity Contracts as of the Cut-off Date is 15.53%. As of the Cut-
off Date, the Home Equity Contracts had remaining maturities of at least 35
months but not more than 360 months and original maturities of at least 36
months but not more than 360 months. The Home Equity Contracts had a weighted
average term to scheduled maturity, as of origination, of 215 months, and a
weighted average term to scheduled maturity, as of the Cut-off Date, of 211
months. The average principal balance per Home Equity Contract as of the Cut-
off Date was $18,608.39 and the principal balances on the Initial Home Equity
Contracts as of the Cut-off Date ranged from $699.63 to $49,999.68. The Home
Equity Contracts arise from loans relating to real property located in 48
states and the District of Columbia. By principal balance as of the Cut-off
Date, approximately 8.28% of the Home Equity Contracts were secured by real
property located in California, 6.91% in Florida and 6.78% in Illinois. No
other state represented 5% or more of the Cut-off Date Pool Principal Balance
of the Home Equity Contracts.
GROUP 1 CONTRACTS
Set forth below is a description of certain characteristics of the Group
1 Contracts. The Group 1 Contracts consist of Home Improvement Contracts and
Home Equity Contracts.
The weighted average of the Contract Rates of the Group 1 Contracts as of
the Cut-off Date is 14.15%. As of the Cut-off Date, the Group 1 Contracts had
remaining maturities of at least 17 months but not more than 360 months and
original maturities of at least 24 months but not more than 360 months. The
Group 1 Contracts had a weighted average term to scheduled maturity, as of
origination, of 225 months, and a weighted average term to scheduled maturity,
as of the Cut-off Date, of 221 months. The average principal balance per Group
1 Contract as of the Cut-off Date was $22,192.94 and the principal balances on
the Group 1 Contracts as of the Cut-off Date ranged from $699.63 to $98,182.78.
The Group 1 Contracts arise from loans relating to real property located in 48
states and the District of Columbia. By principal balance as of the Cut-off
Date, approximately 12.07% of the Group 1 Contracts were secured by real
property located in California, 7.01% in New York, 6.10% in Florida, 5.88% in
Illinois and 5.25% in Virginia. No other state represented 5% or more of the
Cut-off Date Pool Principal Balance of the Group 1 Contracts.
S-17
<PAGE>
CONTRACT RATES--GROUP 1 CONTRACTS
<TABLE>
<CAPTION>
NUMBER OF % OF GROUP 1 CONTRACTS BY
CONTRACTS AGGREGATE PRINCIPAL OUTSTANDING PRINCIPAL
RANGE OF CONTRACTS AS OF CUT- BALANCE OUTSTANDING BALANCE AS OF
BY CONTRACT RATE OFF DATE AS OF CUT-OFF DATE CUT-OFF DATE
------------------ ---------- ------------------- -------------------------
<S> <C> <C> <C>
Less than 9.001%............ 16 $ 533,704.82 .17%
From 9.001%--10.000%....... 440 15,960,307.52 4.99
From 10.001%--11.000%....... 810 26,721,078.48 8.35
From 11.001%--12.000%....... 892 26,761,816.56 8.36
From 12.001%--13.000%....... 994 25,045,683.83 7.83
From 13.001%--14.000%....... 1,908 48,068,640.65 15.02
From 14.001%--15.000%....... 2,654 60,281,051.94 18.84
From 15.001%--16.000%....... 3,170 60,678,022.73 18.96
From 16.001%--17.000%....... 2,213 36,572,778.92 11.43
Greater than 17.000%........ 1,322 19,376,915.55 6.06
------ --------------- ------
Total................... 14,419 $320,000,001.00 100.00%
====== =============== ======
DISTRIBUTION OF CURRENT BALANCE--GROUP 1 CONTRACTS
<CAPTION>
% OF GROUP 1
CONTRACTS BY
OUTSTANDING PRINCIPAL
NUMBER OF AGGREGATE PRINCIPAL BALANCE AS OF
CURRENT BALANCE (IN DOLLARS) CONTRACTS BALANCE OUTSTANDING CUT-OFF DATE
- ---------------------------- ---------- ------------------- -------------------------
<S> <C> <C> <C>
Less than$ 10,000.00........ 1,372 $ 12,845,859.52 4.01%
$ 10,000.00--$ 19,999.99.... 6,183 93,535,753.49 29.23
$ 20,000.00--$ 29,999.99.... 3,857 95,051,659.46 29.70
$ 30,000.00--$ 39,999.99.... 1,785 61,806,203.40 19.31
$ 40,000.00--$ 49,999.99.... 924 40,327,130.19 12.60
$ 50,000.00--$ 59,999.99.... 244 12,713,514.11 3.97
Greater than $ 59,999.99.... 54 3,719,880.83 1.16
------ --------------- ------
Total................... 14,419 $320,000,001.00 100.00%
====== =============== ======
DISTRIBUTION OF ORIGINAL CONTRACT AMOUNTS--GROUP 1 CONTRACTS
<CAPTION>
% OF GROUP 1
NUMBER OF CONTRACTS BY
CONTRACTS AGGREGATE PRINCIPAL OUTSTANDING PRINCIPAL
ORIGINAL CONTRACT AS OF CUT- BALANCE OUTSTANDING BALANCE AS OF
AMOUNT (IN DOLLARS) OFF DATE AS OF CUT-OFF DATE CUT-OFF DATE
------------------- ---------- ------------------- -------------------------
<S> <C> <C> <C>
Less than$ 10,000.00........ 287 $ 2,198,814.14 .69%
Between$ 10,000.00--
$ 19,999.99................ 6,609 91,238,418.37 28.51
Between$ 20,000.00--
$ 29,999.99................ 4,235 99,690,008.03 31.15
Between$ 30,000.00--
$ 39,999.99................ 1,962 65,999,170.36 20.62
Between$ 40,000.00--
$ 49,999.99................ 994 42,768,321.66 13.37
Between$ 50,000.00--
$ 59,999.99................ 278 14,385,387.61 4.50
Greater than $59,999.99..... 54 3,719,880.83 1.16
------ --------------- ------
Total................... 14,419 $320,000,001.00 100.00%
====== =============== ======
</TABLE>
S-18
<PAGE>
REMAINING MONTHS TO MATURITY--GROUP 1 CONTRACTS
<TABLE>
<CAPTION>
% OF GROUP 1
NUMBER OF CONTRACTS BY
MONTHS REMAINING TO CONTRACTS AGGREGATE PRINCIPAL OUTSTANDING PRINCIPAL
SCHEDULED MATURITY AS OF CUT- BALANCE OUTSTANDING BALANCE AS OF
AS OF CUT-OFF DATE OFF DATE AS OF CUT-OFF DATE CUT-OFF DATE
------------------- ---------- ------------------- ---------------------
<S> <C> <C> <C>
1--60................... 253 $ 3,366,060.50 1.05%
61--120.................. 2,145 36,574,268.11 11.43
121--180.................. 3,564 76,431,729.33 23.88
181--240.................. 5,879 119,756,443.73 37.42
241--300.................. 2,570 83,625,593.09 26.13
301--360.................. 8 245,906.24 .08
------ --------------- ------
Total................. 14,419 $320,000,001.00 100.00%
====== =============== ======
MONTHS SINCE ORIGINATION--GROUP 1 CONTRACTS
<CAPTION>
% OF GROUP 1
NUMBER OF CONTRACTS BY
CONTRACTS AGGREGATE PRINCIPAL OUTSTANDING PRINCIPAL
AS OF CUT- BALANCE OUTSTANDING BALANCE AS OF
MONTHS SINCE ORIGINATION OFF DATE AS OF CUT-OFF DATE CUT-OFF DATE
- ------------------------ ---------- ------------------- ---------------------
<S> <C> <C> <C>
Less than 4............... 5,258 $114,725,094.61 35.85%
From 4--6................. 4,859 107,574,705.30 33.62
From 7--12................ 4,172 94,500,973.30 29.53
Greater than 12........... 130 3,199,227.79 1.00
------ --------------- ------
Total................. 14,419 $320,000,001.00 100.00%
====== =============== ======
</TABLE>
S-19
<PAGE>
GEOGRAPHICAL DISTRIBUTION OF MORTGAGED PROPERTIES--GROUP 1 CONTRACTS
<TABLE>
<CAPTION>
% OF GROUP 1
% OF GROUP 1 CONTRACTS BY
CONTRACTS AGGREGATE PRINCIPAL OUTSTANDING
NUMBER OF BY NUMBER OF BALANCE PRINCIPAL
CONTRACTS AS OF CONTRACTS AS OUTSTANDING AS OF BALANCE AS OF
CUT-OFF DATE OF CUT-OFF DATE CUT-OFF DATE CUT-OFF DATE
--------------- --------------- ------------------- -------------
<S> <C> <C> <C> <C>
Alabama................. 481 3.34% $ 9,815,850.45 3.07%
Arizona................. 449 3.11 12,790,581.08 4.00
Arkansas................ 67 .46 1,183,166.42 .37
California.............. 1,219 8.45 38,630,128.27 12.07
Colorado................ 260 1.80 5,844,038.74 1.83
Connecticut............. 290 2.01 7,028,175.40 2.20
Delaware................ 94 .65 2,118,597.50 .66
District of Columbia.... 9 .06 206,324.74 .06
Florida................. 884 6.13 19,510,872.46 6.10
Georgia................. 395 2.74 8,040,626.73 2.51
Idaho................... 69 .48 1,318,839.51 .41
Illinois................ 910 6.31 18,827,176.90 5.88
Indiana................. 328 2.27 5,873,034.93 1.84
Iowa.................... 250 1.73 3,903,003.91 1.22
Kansas.................. 335 2.32 5,309,551.81 1.66
Kentucky................ 128 .89 2,376,818.51 .74
Louisiana............... 165 1.14 2,748,633.77 .86
Maine................... 74 .51 1,692,472.33 .53
Maryland................ 289 2.00 6,769,027.99 2.12
Massachusetts........... 249 1.73 5,875,590.45 1.84
Michigan................ 545 3.78 10,162,104.48 3.18
Minnesota............... 367 2.55 7,500,323.09 2.34
Mississippi............. 131 .91 2,329,794.56 .73
Missouri................ 589 4.08 9,784,528.69 3.06
Montana................. 27 .19 558,528.38 .17
Nebraska................ 130 .90 2,173,968.95 .68
Nevada.................. 206 1.43 5,748,771.98 1.80
New Hampshire........... 61 .42 1,495,340.63 .47
New Jersey.............. 479 3.32 13,128,711.12 4.10
New Mexico.............. 86 .60 1,786,408.08 .56
New York................ 942 6.53 22,432,483.96 7.01
North Carolina.......... 409 2.84 7,785,546.18 2.43
North Dakota............ 37 .26 620,165.79 .19
Ohio.................... 483 3.35 9,359,020.25 2.92
Oklahoma................ 130 .90 2,455,614.73 .77
Oregon.................. 109 .76 2,539,578.05 .79
Pennsylvania............ 646 4.38 14,002,454.46 4.38
Rhode Island............ 60 .42 1,335,805.89 .42
South Carolina.......... 290 2.01 5,428,081.83 1.70
South Dakota............ 53 .37 923,315.38 .29
Tennessee............... 202 1.40 3,835,823.25 1.20
Texas................... 30 .21 609,218.72 .19
Utah.................... 85 .59 1,883,305.45 .59
Vermont................. 10 .07 246,182.32 .07
Virginia................ 709 4.92 16,792,876.31 5.25
Washington.............. 382 2.65 9,998,559.52 3.12
West Virginia........... 60 .42 1,207,227.86 .38
Wisconsin............... 177 1.23 3,230,583.61 1.01
Wyoming................. 39 .27 783,165.58 .24
------ ------ --------------- ------
Total................... 14,419 100.00% $320,000,001.00 100.00%
====== ====== =============== ======
</TABLE>
S-20
<PAGE>
CREDIT SCORES--GROUP 1 CONTRACTS
<TABLE>
<CAPTION>
% OF GROUP 1
NUMBER OF CONTRACTS BY
CONTRACTS AGGREGATE PRINCIPAL OUTSTANDING PRINCIPAL
AS OF CUT- BALANCE OUTSTANDING BALANCE AS OF
RANGE OF SCORES OFF DATE AS OF CUT-OFF DATE CUT-OFF DATE
- --------------- ---------- ------------------- ---------------------
<S> <C> <C> <C>
Less Than 551............ 462 $ 8,277,783.60 2.59%
From 551--600............ 1,695 32,853,020.76 10.27
From 601--650............ 6,382 139,297,090.39 43.53
From 651--700............ 4,379 101,837,557.99 31.82
From 701--750............ 1,240 31,286,029.26 9.78
Greater Than 750......... 261 6,448,519.00 2.02
------ --------------- ------
Total................ 14,419 $320,000,001.00 100.00%
====== =============== ======
DEBT TO INCOME RATIO--GROUP 1 CONTRACTS
<CAPTION>
% OF GROUP 1
NUMBER OF CONTRACTS BY
CONTRACTS AGGREGATE PRINCIPAL OUTSTANDING PRINCIPAL
RANGE OF DEBT TO INCOME AS OF CUT- BALANCE OUTSTANDING BALANCE AS OF
RATIOS OFF DATE AS OF CUT-OFF DATE CUT-OFF DATE
- ----------------------- ---------- ------------------- ---------------------
<S> <C> <C> <C>
Less Than 10.01%......... 746 $ 12,572,851.40 3.93%
From 10.01%-15.00%....... 211 3,566,756.32 1.11
From 15.01%-20.00%....... 374 6,301,860.35 1.97
From 20.01%-25.00%....... 773 15,479,642.89 4.84
From 25.01%-30.00%....... 1,344 29,274,900.44 9.15
From 30.01%-35.00%....... 2,084 47,504,546.39 14.85
From 35.01%-40.00%....... 2,609 59,887,956.92 18.71
From 40.01%-45.00%....... 3,087 70,791,511.64 22.12
From 45.01%-50.00%....... 2,069 48,881,923.16 15.28
Greater than 50.00%...... 1,122 25,738,051.49 8.04
------ --------------- ------
Total................ 14,419 $320,000,001.00 100.00%
====== =============== ======
</TABLE>
GROUP 2 CONTRACTS
The weighted average of the Contract Rates of the Initial Group 2
Contracts as of the Cut-off Date is 13.76%. As of the Cut-off Date, the Initial
Group 2 Contracts had remaining maturities of at least 32 months but not more
than 300 months and original maturities of at least 36 months but not more than
300 months. The Initial Group 2 Contracts had a weighted average term to
scheduled maturity, as of origination, of 232 months, and a weighted average
term to scheduled maturity, as of the Cut-off Date, of 228 months. The average
principal balance per Initial Group 2 Contract as of the Cut-off Date was
$26,829.69 and the principal balances on the Initial Group 2 Contracts as of
the Cut-off Date ranged from $2,577.94 to $139,199.09. The Initial Group 2
Contracts arise from loans relating to real property located in 48 states and
the District of Columbia. By principal balance as of the Cut-off Date,
approximately 8.31% of the Initial Group 2 Contracts were secured by real
property located in New York, 8.20% in California, 7.11% in Florida and 6.14%
in Pennsylvania. No other state represented 5% or more of the Cut-off Date Pool
Principal Balance of the Initial Group 2 Contracts.
S-21
<PAGE>
Set forth below is a description of certain characteristics of the Group
2 Contracts. The Group 2 Contracts consist of Home Improvement Contracts and
Home Equity Contracts.
CONTRACT RATES--INITIAL GROUP 2 CONTRACTS
<TABLE>
<CAPTION>
% OF INITIAL GROUP 2
NUMBER OF CONTRACTS BY
RANGE OF CONTRACTS AGGREGATE PRINCIPAL OUTSTANDING PRINCIPAL
CONTRACTS AS OF CUT- BALANCE OUTSTANDING BALANCE AS OF
BY CONTRACT RATE OFF DATE AS OF CUT-OFF DATE CUT-OFF DATE
- ---------------- ---------- ------------------- ---------------------
<S> <C> <C> <C>
Less than 9.001%.......... 9 $ 297,718.99 .29%
From 9.001%--10.000%..... 120 4,819,982.85 4.69
From 10.001%--11.000%..... 239 8,702,740.15 8.46
From 11.001%--12.000%..... 326 11,280,005.31 10.97
From 12.001%--13.000%..... 377 11,690,437.47 11.37
From 13.001%--14.000%..... 704 20,870,418.73 20.29
From 14.001%--15.000%..... 705 19,391,364.86 18.86
From 15.001%--16.000%..... 684 14,502,779.34 14.10
From 16.001%--17.000%..... 432 7,596,967.83 7.39
Over 17.000%.............. 237 3,685,789.11 3.58
----- ---------------- ------
Total................. 3,833 $ 102,838,204.64 100.00%
===== ================ ======
</TABLE>
DISTRIBUTION OF CURRENT BALANCE--INITIAL GROUP 2 CONTRACTS
<TABLE>
<CAPTION>
% OF INITIAL GROUP 2
CONTRACTS BY
OUTSTANDING
PRINCIPAL BALANCE AS
NUMBER OF AGGREGATE PRINCIPAL OF
CURRENT BALANCE (IN DOLLARS) CONTRACTS BALANCE OUTSTANDING CUT-OFF DATE
- ---------------------------- --------- ------------------- --------------------
<S> <C> <C> <C>
Less than $10,000.00........... 190 $ 1,764,974.86 1.72%
Between $10,000.00--
$19,999.99.................... 1,173 18,009,550.17 17.51
Between $20,000.00--
$29,999.99.................... 1,060 26,508,089.20 25.78
Between $30,000.00--
$39,999.99.................... 803 28,111,539.08 27.34
Between $40,000.00--
$49,999.99.................... 467 20,487,722.20 19.92
Between $50,000.00--
$59,999.99.................... 112 5,808,409.31 5.65
Greater than $59,999.99........ 28 2,147,919.82 2.09
----- --------------- ------
Total...................... 3,833 $102,838,204.64 100.00%
===== =============== ======
</TABLE>
DISTRIBUTION OF ORIGINAL CONTRACT AMOUNTS--INITIAL GROUP 2 CONTRACTS
<TABLE>
<CAPTION>
% OF INITIAL
NUMBER OF GROUP 2 CONTRACTS BY
CONTRACTS AGGREGATE PRINCIPAL OUTSTANDING PRINCIPAL
ORIGINAL CONTRACT AS OF CUT- BALANCE OUTSTANDING BALANCE AS OF
AMOUNT (IN DOLLARS) OFF DATE AS OF CUT-OFF DATE CUT-OFF DATE
------------------- ---------- ------------------- ---------------------
<S> <C> <C> <C>
Less Than $10,000.00..... 38 $ 276,867.09 .27%
Between$10,000.00--
$19,999.99.............. 1,216 17,346,670.19 16.87
Between$20,000.00--
$29,999.99.............. 1,094 26,427,737.51 25.70
Between$30,000.00--
$39,999.99.............. 802 27,354,787.22 26.60
Between$40,000.00--
$49,999.99.............. 520 22,371,586.97 21.75
Between$50,000.00--
$59,999.99.............. 135 6,912,635.84 6.72
Greater than $59,999.99.. 28 2,147,919.82 2.09
----- --------------- ------
Total.................... 3,833 $102,838,204.64 100.00%
===== =============== ======
</TABLE>
S-22
<PAGE>
REMAINING MONTHS TO MATURITY--INITIAL GROUP 2 CONTRACTS
<TABLE>
<CAPTION>
% OF INITIAL GROUP 2
NUMBER OF CONTRACTS BY
MONTHS REMAINING TO CONTRACTS AGGREGATE PRINCIPAL OUTSTANDING PRINCIPAL
SCHEDULED MATURITY AS OF CUT- BALANCE OUTSTANDING BALANCE AS OF
AS OF CUT-OFF DATE OFF DATE AS OF CUT-OFF DATE CUT-OFF DATE
------------------- ---------- ------------------- ---------------------
<S> <C> <C> <C>
1-- 60.................. 47 $ 606,884.02 .59%
61--120.................. 486 9,973,133.77 9.70
121--180.................. 942 24,502,400.25 23.83
181--240.................. 1,429 34,750,034.79 33.79
241--300.................. 929 33,005,751.81 32.09
----- --------------- ------
Total................. 3,833 $102,838,204.64 100.00%
===== =============== ======
</TABLE>
MONTHS SINCE ORIGINATION--INITIAL GROUP 2 CONTRACTS
<TABLE>
<CAPTION>
% OF INITIAL
NUMBER OF GROUP 2 CONTRACTS BY
CONTRACTS AGGREGATE PRINCIPAL OUTSTANDING PRINCIPAL
AS OF CUT- BALANCE OUTSTANDING BALANCE AS OF
MONTHS SINCE ORIGINATION OFF DATE AS OF CUT-OFF DATE CUT-OFF DATE
- ------------------------ ---------- ------------------- ---------------------
<S> <C> <C> <C>
Less than 4............... 1,377 $ 36,423,773.02 35.42%
From 4--6................. 1,330 35,781,933.76 34.79
From 7--12................ 1,068 28,820,033.53 28.02
Greater than 12........... 58 1,812,464.33 1.76
----- --------------- ------
Total................. 3,833 $102,838,204.64 100.00%
===== =============== ======
</TABLE>
S-23
<PAGE>
GEOGRAPHICAL DISTRIBUTION OF MORTGAGED PROPERTIES--INITIAL GROUP 2 CONTRACTS
<TABLE>
<CAPTION>
% OF INITIAL
% OF INITIAL GROUP 2
GROUP 2 CONTRACTS BY
CONTRACTS AGGREGATE PRINCIPAL OUTSTANDING
NUMBER OF BY NUMBER OF BALANCE PRINCIPAL
CONTRACTS AS OF CONTRACTS AS OUTSTANDING AS OF BALANCE AS OF
CUT-OFF DATE OF CUT-OFF DATE CUT-OFF DATE CUT-OFF DATE
--------------- --------------- ------------------- -------------
<S> <C> <C> <C> <C>
Alabama................. 133 3.47% $ 3,270,143.59 3.18%
Arizona................. 109 2.84 3,392,399.09 3.30
Arkansas................ 22 .57 568,257.01 .55
California.............. 237 6.16 8,437,832.21 8.20
Colorado................ 63 1.67 1,861,999.22 1.81
Connecticut............. 60 1.57 1,628,098.73 1.58
Delaware................ 29 .76 720,793.23 .70
District of Columbia.... 1 .03 19,368.97 .02
Florida................. 266 6.94 7,310,370.57 7.11
Georgia................. 89 2.32 2,403,788.25 2.34
Idaho................... 15 .39 369,602.65 .36
Illinois................ 190 4.96 4,685,323.43 4.54
Indiana................. 119 3.10 3,037,891.43 2.95
Iowa.................... 63 1.64 1,143,817.71 1.11
Kansas.................. 79 2.06 1,606,204.13 1.56
Kentucky................ 37 .97 872,958.35 .85
Louisiana............... 43 1.12 1,027,721.26 1.00
Maine................... 35 .91 1,093,087.83 1.06
Maryland................ 53 1.41 1,317,257.19 1.28
Massachusetts........... 41 1.07 1,154,577.86 1.12
Michigan................ 173 4.51 4,224,130.30 4.11
Minnesota............... 150 3.91 3,454,138.22 3.36
Mississippi............. 24 .63 535,672.60 .52
Missouri................ 148 3.86 3,297,138.39 3.21
Montana................. 11 .29 278,939.44 .27
Nebraska................ 37 .97 789,523.24 .77
Nevada.................. 40 1.04 1,166,431.80 1.13
New Hampshire........... 17 .44 550,438.22 .54
New Jersey.............. 89 2.32 2,862,695.25 2.78
New Mexico.............. 28 .73 775,542.86 .75
New York................ 299 7.80 8,544,410.94 8.31
North Carolina.......... 112 2.92 2,597,238.03 2.53
North Dakota............ 17 .44 421,234.06 .41
Ohio.................... 147 3.84 3,572,719.40 3.47
Oklahoma................ 48 1.23 1,310,233.46 1.27
Oregon.................. 30 .78 983,630.93 .96
Pennsylvania............ 231 6.03 6,318,348.64 6.14
Rhode Island............ 19 .50 466,769.23 .45
South Carolina.......... 70 1.83 1,719,317.56 1.67
South Dakota............ 25 .65 605,173.63 .59
Tennessee............... 49 1.28 1,378,246.42 1.34
Texas................... 13 .34 331,657.82 .32
Utah.................... 12 .31 262,698.91 .26
Vermont................. 2 .05 58,273.01 .06
Virginia................ 165 4.30 4,796,631.97 4.86
Washington.............. 97 2.53 3,120,102.87 3.03
West Virginia........... 15 .39 452,552.34 .44
Wisconsin............... 64 1.64 1,596,959.77 1.55
Wyoming................. 18 .47 505,302.09 .49
----- ------ --------------- ------
Total................... 3,833 100.00% $102,838,204.64 100.00%
===== ====== =============== ======
</TABLE>
S-24
<PAGE>
CREDIT SCORES--INITIAL GROUP 2 CONTRACTS
<TABLE>
<CAPTION>
% OF INITIAL
GROUP 2
NUMBER OF CONTRACTS BY
CONTRACTS AGGREGATE PRINCIPAL OUTSTANDING PRINCIPAL
AS OF CUT- BALANCE OUTSTANDING BALANCE AS OF
RANGE OF SCORES OFF DATE AS OF CUT-OFF DATE CUT-OFF DATE
- --------------- ---------- ------------------- ---------------------
<S> <C> <C> <C>
Less Than 551............. 126 $ 2,595,934.91 2.52%
From 551-600.............. 392 9,351,454.69 9.09
From 601-650.............. 1,696 44,160,072.72 42.94
From 651-700.............. 1,202 34,322,511.50 33.38
From 701-750.............. 361 10,855,428.68 10.56
Greater Than 750.......... 56 1,552,802.14 1.51
----- --------------- ------
Total................. 3,833 $102,838,204.64 100.00%
===== =============== ======
</TABLE>
DEBT TO INCOME RATIO--INITIAL GROUP 2 CONTRACTS
<TABLE>
<CAPTION>
% OF INITIAL
GROUP 2
NUMBER OF CONTRACTS BY
CONTRACTS AGGREGATE PRINCIPAL OUTSTANDING PRINCIPAL
RANGE OF DEBT TO INCOME AS OF CUT- BALANCE OUTSTANDING BALANCE AS OF
RATIOS OFF DATE AS OF CUT-OFF DATE CUT-OFF DATE
- ----------------------- ---------- ------------------- ---------------------
<S> <C> <C> <C>
Less Than 10.01%......... 173 $ 3,234,218.25 3.14%
From 10.01%-15.00%....... 52 1,012,062.06 .98
From 15.01%-20.00%....... 88 1,852,580.24 1.80
From 20.01%-25.00%....... 240 6,136,401.50 5.97
From 25.01%-30.00%....... 343 8,958,009.93 8.71
From 30.01%-35.00%....... 537 14,930,171.65 14.52
From 35.01%-40.00%....... 737 20,396,338.04 19.83
From 40.01%-45.00%....... 866 23,961,502.99 23.30
From 45.01%-50.00%....... 518 14,815,533.63 14.41
Greater Than 50.00%...... 279 7,541,386.35 7.33
----- --------------- ------
Total................ 3,833 $102,838,204.64 100.00%
===== =============== ======
</TABLE>
DELINQUENCY, LOAN DEFAULT AND LOSS INFORMATION
Because of the Company's limited historical experience with respect to
the performance of home improvement contracts and home equity loans similar to
the Contracts in the pool, no information has been included herein with respect
to the Company's historical loan loss or liquidation experience. The Contracts
in the pool have high loan-to-value ratios and have been issued primarily for
debt consolidation purposes.
S-25
<PAGE>
YIELD AND PREPAYMENT CONSIDERATIONS
The yield on any Note will depend on the price paid by the Noteholder,
the timing of principal payments, and the timing and amount of any liquidation
losses on the related Contracts.
The Company has no significant experience with respect to the rate of
Principal Prepayments on home improvement contracts or home equity loans.
Because the Contracts have scheduled due dates throughout the calendar month,
prepayments on the Contracts would affect the amount of funds available to make
distributions on the Notes on any Payment Date only if a substantial portion of
the Contracts prepaid prior to their respective due dates in the preceding
month (thus paying less than 30 days' interest for that month) while very few
Contracts prepaid after their respective due dates in the preceding month. In
addition, liquidations of defaulted contracts or the Servicer's exercise of its
option to repurchase the entire remaining pool of Contracts (see "Description
of the Notes--Repurchase Option" herein) will affect the timing of principal
distributions on the Notes.
The amount of interest to which the Noteholders of any Class are entitled
on any Payment Date will be the product of the related Interest Rate and (in
the absence of any liquidation loss amount adjustment) the principal balance of
such Class immediately following the preceding Payment Date. Interest on each
Class of will be computed on the basis of a 360-day year of twelve 30-day
months. Noteholders will receive payments in respect of principal on each
Payment Date to the extent that funds available in the Note Distribution
Account are sufficient therefor, in the priority described under "Description
of the Notes--Distributions on the Notes". As required by applicable state
laws, interest paid by Obligors on the Contracts is computed according to the
simple interest method.
WEIGHTED AVERAGE LIFE OF THE NOTES
The following information is given solely to illustrate the effect of
prepayments of the related Contracts on the weighted average life of each Class
of Notes under the stated assumptions and is not a prediction of the prepayment
rate that might actually be experienced by the Contracts.
Weighted average life refers to the average amount of time from the date
of issuance of a security until each dollar of principal of such security will
be repaid to the investor. The weighted average life of the Notes will be
influenced by the rate at which principal on the related Contracts is paid.
Principal payments on Contracts may be in the form of scheduled amortization or
prepayments (for this purpose, the term "prepayment" includes repayments and
liquidations due to default or other dispositions of the Contracts).
The rate of principal payments on pools of home improvement contracts and
home equity loans is influenced by a variety of economic, geographic, social
and other factors, including the level of interest rates and the rate at which
homeowners sell their homes or default on their contracts or loans. Other
factors affecting prepayment of Contracts include changes in obligors' housing
needs, job transfers, unemployment and obligors' net equity in their homes. In
the case of home improvement contracts and home equity loans secured by real
estate, in general, if prevailing interest rates fall significantly below the
interest rates on such contracts or loans, the contracts or loans are likely to
be subject to higher prepayment rates than if prevailing interest rates
remained at or above the rates borne by such contracts or loans. Conversely, if
prevailing interest rates rise above the interest rates on such home
improvement contracts or home equity loans, the rate of prepayment would be
expected to decrease.
The percentages and weighted average lives in the following tables were
determined assuming that: (i) scheduled interest and principal payments on the
Contracts are received in a timely manner and prepayments are made at the
indicated percentages of the model as described below set forth in the table;
(ii) the Servicer exercises its option to repurchase the Contracts, as
described under "Description of the Notes--Repurchase Option"; (iii) the
aggregate principal balance of the Initial Contracts as of the Cut-off Date is
approximately $422,838,206 and such Contracts have the characteristics set
forth under "The Contracts"; (iv) the Contracts will, as of the Cut-off Date,
be grouped into pools having the additional
S-26
<PAGE>
characteristics set forth below under "Assumed Group 1 Contract
Characteristics", "Assumed Initial Group 2 Characteristics" and "Assumed
Subsequent Group 2 Contract Characteristics"; (v) each Class of Notes has an
Original Principal Balance as indicated in "Summary of the Terms of the Notes";
(vi) the subsequent Contracts will have the characteristics set forth in the
table below and have their first scheduled payment date in February 1999; (vii)
the Interest Rates for the Notes are as indicated in "Summary of the Terms of
the Notes"; (viii) no interest shortfalls will arise in connection with
prepayments in full of the Contracts; (ix) no delinquencies or losses are
experienced on the Contracts; (x) distributions are made on the Notes on the
15th day of each month, commencing in January 1999; and (xi) the Notes are
issued on December 30, 1998. No representation is made that the Contracts will
not experience delinquencies or losses.
Prepayments on mortgage loans and other consumer installment obligations
are commonly measured relative to a prepayment standard or model (the
"Prepayment Assumption"). The Prepayment Assumption used in this Prospectus
Supplement with respect to the Home Improvement and Home Equity Contracts
represents an assumed rate of prepayment each month relative to the then
outstanding principal balance of a pool of home improvement and home equity
loans for the life of such home improvement and home equity loans. The "100%
Prepayment Assumption" assumes a constant prepayment of 0% per annum of the
then outstanding principal balance of such loans in the first month of the life
of such loans and an additional 1.14% (precisely, 16/14%) per annum in each
month thereafter until the fifteenth month. Beginning in the fifteenth month
and in each month thereafter during the life of such loans, the 100% Prepayment
Assumption assumes a constant prepayment rate of 16% per annum each month.
It is not likely that the Contracts will prepay at any constant
percentage of the Prepayment Assumption or that all of the Contracts will
prepay at the same rate.
Investors are urged to make their investment decisions on a basis that
includes their determination as to anticipated prepayment rates under a variety
of the assumptions discussed herein.
S-27
<PAGE>
ASSUMED GROUP 1 CONTRACT CHARACTERISTICS
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
WEIGHTED AVERAGE AVERAGE
CUT-OFF DATE AVERAGE REMAINING TERM ORIGINAL TERM
POOL PRINCIPAL CONTRACT TO MATURITY TO MATURITY
POOL BALANCE RATE (MONTHS) (MONTHS)
- ---- --------------- -------- -------------- -------------
<S> <C> <C> <C> <C>
1. ....................... $ 39,940,328.61 14.289% 108 112
2. ....................... 76,431,729.33 14.170 175 179
3. ....................... 119,756,443.73 15.019 236 240
4. ....................... 83,625,593.09 12.809 296 300
5. ....................... 245,906.24 12.323 356 360
</TABLE>
ASSUMED INITIAL GROUP 2 CONTRACT CHARACTERISTICS
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
WEIGHTED AVERAGE AVERAGE
CUT-OFF DATE AVERAGE REMAINING TERM ORIGINAL TERM
POOL PRINCIPAL CONTRACT TO MATURITY TO MATURITY
POOL BALANCE RATE (MONTHS) (MONTHS)
- ---- -------------- -------- -------------- -------------
<S> <C> <C> <C> <C>
1. ........................ $10,580,017.79 13.918% 110 114
2. ........................ 24,502,400.25 13.892 175 179
3. ........................ 34,750,034.79 14.446 236 240
4. ........................ 33,005,751.81 12.877 297 300
</TABLE>
ASSUMED SUBSEQUENT GROUP 2 CONTRACT CHARACTERISTICS
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
CUT-OFF DATE WEIGHTED AVERAGE AVERAGE
POOL AVERAGE REMAINING TERM ORIGINAL TERM
PRINCIPAL LOAN TO MATURITY TO MATURITY
POOL BALANCE RATE (MONTHS) (MONTHS)
- ---- ------------- -------- -------------- -------------
<S> <C> <C> <C> <C>
1. ......................... $2,794,411.66 13.918% 110 110
2. ......................... 6,471,614.16 13.892 175 175
3. ......................... 9,178,236.21 14.446 236 236
4. ......................... 8,717,533.33 12.877 297 297
</TABLE>
S-28
<PAGE>
Based on the foregoing assumptions, the following tables indicate the
projected weighted average lives of each Class of Notes, and set forth the
percentages of the Original Principal Balance of each Class that would be
outstanding after each of the dates shown, at the indicated percentages of the
CPR.
PERCENTAGE OF THE ORIGINAL PRINCIPAL BALANCE OF THE CLASS A-1
NOTES AT THE RESPECTIVE PERCENTAGES OF THE
PREPAYMENT ASSUMPTION SET FORTH BELOW:
<TABLE>
<CAPTION>
DATE 50% 75% 100% 125% 150%
- ---- --- --- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage.................................. 100% 100% 100% 100% 100%
December 15, 1999................................... 91 87 84 80 77
December 15, 2000................................... 79 71 64 56 49
December 15, 2001................................... 68 57 47 37 29
December 15, 2002................................... 57 44 32 22 13
December 15, 2003................................... 47 33 23 13 5
December 15, 2004................................... 38 25 16 7 0
December 15, 2005................................... 31 19 9 1 0
December 15, 2006................................... 24 13 4 0 0
December 15, 2007................................... 18 7 0 0 0
December 15, 2008................................... 14 3 0 0 0
December 15, 2009................................... 10 0 0 0 0
December 15, 2010................................... 6 0 0 0 0
December 15, 2011................................... 2 0 0 0 0
December 15, 2012................................... 0 0 0 0 0
Weighted Average Life (1) (years)................... 5.3 4.1 3.3 2.7 2.2
- --------
(1) The weighted average life of a Class A-1 Note is determined by (i)
multiplying the amount of cash distributions in reduction of the principal
balance of such Note by the number of years from the date of issuance of
such Class A-1 Note to the stated Payment Date, (ii) adding the results,
and (iii) dividing the sum by the initial principal balance of such Class
A-1 Note.
PERCENTAGE OF THE ORIGINAL PRINCIPAL BALANCE OF THE CLASS A-2
NOTES AT THE RESPECTIVE PERCENTAGES OF THE
PREPAYMENT ASSUMPTION SET FORTH BELOW:
<CAPTION>
DATE 50% 75% 100% 125% 150%
- ---- --- --- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage.................................. 100% 100% 100% 100% 100%
December 15, 1999................................... 92 89 86 83 80
December 15, 2000................................... 80 73 65 59 52
December 15, 2001................................... 69 58 48 39 31
December 15, 2002................................... 58 45 34 24 15
December 15, 2003................................... 49 34 25 15 7
December 15, 2004................................... 40 27 17 8 0
December 15, 2005................................... 32 20 10 2 0
December 15, 2006................................... 26 14 5 0 0
December 15, 2007................................... 20 9 0 0 0
December 15, 2008................................... 15 5 0 0 0
December 15, 2009................................... 11 1 0 0 0
December 15, 2010................................... 7 0 0 0 0
December 15, 2011................................... 3 0 0 0 0
December 15, 2012................................... 0 0 0 0 0
Weighted Average Life (1) (years)................... 5.5 4.2 3.4 2.8 2.3
</TABLE>
- --------
(1) The weighted average life of a Class A-2 Note is determined by (i)
multiplying the amount of cash distributions in reduction of the principal
balance of such Note by the number of years from the date of issuance of
such Class A-2 Note to the stated Payment Date, (ii) adding the results,
and (iii) dividing the sum by the initial principal balance of such Class
A-2 Note.
S-29
<PAGE>
PERCENTAGE OF THE ORIGINAL PRINCIPAL BALANCE OF THE CLASS M-1
NOTES AT THE RESPECTIVE PERCENTAGES OF THE
PREPAYMENT ASSUMPTION SET FORTH BELOW:
<TABLE>
<CAPTION>
DATE 50% 75% 100% 125% 150%
- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage................................ 100% 100% 100% 100% 100%
December 15, 1999................................. 100 100 100 100 100
December 15, 2000................................. 100 100 100 100 100
December 15, 2001................................. 100 100 100 100 100
December 15, 2002................................. 100 100 100 100 100
December 15, 2003................................. 100 100 100 100 100
December 15, 2004................................. 100 100 100 100 98
December 15, 2005................................. 100 100 100 100 35
December 15, 2006................................. 100 100 100 59 0
December 15, 2007................................. 100 100 96 10 0
December 15, 2008................................. 100 100 50 0 0
December 15, 2009................................. 100 100 0 0 0
December 15, 2010................................. 100 59 0 0 0
December 15, 2011................................. 100 20 0 0 0
December 15, 2012................................. 83 0 0 0 0
December 15, 2013................................. 41 0 0 0 0
December 15, 2014................................. 0 0 0 0 0
December 15, 2015................................. 0 0 0 0 0
Weighted Average Life (1) (years)................. 14.8 12.2 10.0 8.2 6.8
</TABLE>
- --------
(1) The weighted average life of a Class M-1 Note is determined by (i)
multiplying the amount of cash distributions in reduction of the principal
balance of such Note by the number of years from the date of issuance of
such Class M-1 Note to the stated Payment Date, (ii) adding the results,
and (iii) dividing the sum by the initial principal balance of such Class
M-1 Note.
PERCENTAGE OF THE ORIGINAL PRINCIPAL BALANCE OF THE CLASS M-2 NOTES AT THE
RESPECTIVE PERCENTAGES OF THE PREPAYMENT ASSUMPTION SET FORTH BELOW:
<TABLE>
<CAPTION>
DATE 50% 75% 100% 125% 150%
- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage................................ 100% 100% 100% 100% 100%
December 15, 1999................................. 100 100 100 100 100
December 15, 2000................................. 100 100 100 100 100
December 15, 2001................................. 100 100 100 100 100
December 15, 2002................................. 100 100 100 100 100
December 15, 2003................................. 100 100 100 100 100
December 15, 2004................................. 100 100 100 100 100
December 15, 2005................................. 100 100 100 100 100
December 15, 2006................................. 100 100 100 100 0
December 15, 2007................................. 100 100 100 100 0
December 15, 2008................................. 100 100 100 0 0
December 15, 2009................................. 100 100 0 0 0
December 15, 2010................................. 100 100 0 0 0
December 15, 2011................................. 100 100 0 0 0
December 15, 2012................................. 100 0 0 0 0
December 15, 2013................................. 100 0 0 0 0
December 15, 2014................................. 0 0 0 0 0
Weighted Average Life (1) (years)................. 15.9 13.1 11.0 9.1 7.8
</TABLE>
- --------
(1) The weighted average life of a Class M-2 Note is determined by (i)
multiplying the amount of cash distributions in reduction of the principal
balance of such Note by the number of years from the date of issuance of
such Class M-2 Note to the stated Payment Date, (ii) adding the results,
and (iii) dividing the sum by the initial principal balance of such Class
M-2 Note.
S-30
<PAGE>
PERCENTAGE OF THE ORIGINAL PRINCIPAL BALANCE OF THE CLASS B-1
NOTES AT THE RESPECTIVE PERCENTAGES OF THE
PREPAYMENT ASSUMPTION SET FORTH BELOW:
<TABLE>
<CAPTION>
DATE 50% 75% 100% 125% 150%
- ---- --- --- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage.................................. 100% 100% 100% 100% 100%
December 15, 1999................................... 100 100 100 100 100
December 15, 2000................................... 100 100 100 100 100
December 15, 2001................................... 100 100 100 100 100
December 15, 2002................................... 100 100 100 100 100
December 15, 2003................................... 100 97 62 55 47
December 15, 2004................................... 100 67 31 19 7
December 15, 2005................................... 87 40 5 0 0
December 15, 2006................................... 62 16 0 0 0
December 15, 2007................................... 39 0 0 0 0
December 15, 2008................................... 21 0 0 0 0
December 15, 2009................................... 4 0 0 0 0
December 15, 2010................................... 0 0 0 0 0
Weighted Average Life (1) (years)................... 8.6 6.7 5.4 5.2 5.0
</TABLE>
- --------
(1) The weighted average life of a Class B-1 Note is determined by (i)
multiplying the amount of cash distributions in reduction of the principal
balance of such Note by the number of years from the date of issuance of
such Class B-1 Note to the stated Payment Date, (ii) adding the results,
and (iii) dividing the sum by the initial principal balance of such Class
B-1 Note.
PERCENTAGE OF THE ORIGINAL PRINCIPAL BALANCE OF THE CLASS B-2 NOTES AT THE
RESPECTIVE PERCENTAGES OF THE PREPAYMENT ASSUMPTION SET FORTH BELOW:
<TABLE>
<CAPTION>
DATE 50% 75% 100% 125% 150%
- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage................................ 100% 100% 100% 100% 100%
December 15, 1999................................. 100 100 100 100 100
December 15, 2000................................. 100 100 100 100 100
December 15, 2001................................. 100 100 100 100 100
December 15, 2002................................. 100 100 100 100 100
December 15, 2003................................. 100 100 100 100 100
December 15, 2004................................. 100 100 100 100 100
December 15, 2005................................. 100 100 100 91 78
December 15, 2006................................. 100 100 83 68 0
December 15, 2007................................. 100 95 65 51 0
December 15, 2008................................. 100 79 52 0 0
December 15, 2009................................. 100 65 0 0 0
December 15, 2010................................. 88 53 0 0 0
December 15, 2011................................. 73 42 0 0 0
December 15, 2012................................. 59 0 0 0 0
December 15, 2013................................. 47 0 0 0 0
December 15, 2014................................. 0 0 0 0 0
Weighted Average Life (1) (years)................. 14.3 11.7 9.7 8.4 7.5
</TABLE>
- --------
(1) The weighted average life of a Class B-2 Note is determined by (i)
multiplying the amount of cash distributions in reduction of the principal
balance of such Note by the number of years from the date of issuance of
such Class B-2 Note to the stated Payment Date, (ii) adding the results,
and (iii) dividing the sum by the initial principal balance of such Class
B-2 Note.
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<PAGE>
GREEN TREE FINANCIAL CORPORATION
GENERAL
The following information supplements, and to the extent inconsistent
therewith supersedes, the information in the Prospectus under the heading
"Green Tree Financial Corporation."
The Company is a Delaware corporation which, as of December 31, 1997, had
stockholders' equity of approximately $1,332,000,000. The Company purchases,
pools, sells and services conditional sales contracts for manufactured homes
and other consumer installment sales contracts, as well as home equity loans.
The Company is the largest servicer of government-insured manufactured housing
contracts and conventional manufactured housing contracts in the United States.
Servicing functions are performed through Green Tree Financial Servicing
Corporation, a wholly owned subsidiary of the Company. Through its principal
offices in St. Paul, Minnesota, and service centers throughout the United
States, the Company serves all 50 states. The Company began financing FHA-
insured home improvement loans in April 1989, conventional home improvement
loans in September 1992 and home equity loans in January 1996. The Company also
purchases, pools and services installment sales contracts for various consumer
products. The Company's principal executive offices are located at 1100
Landmark Towers, 345 St. Peter Street, St. Paul, Minnesota 55102-1639
(telephone (651) 293-3400). The Company's quarterly and annual reports, which
are incorporated by reference in this Prospectus Supplement and in the
Prospectus, are available from the Company upon written request made to the
Company.
RATIO OF EARNINGS TO FIXED CHARGES FOR THE COMPANY
Set forth below are the Company's ratios of earnings (losses) to fixed
charges for the past five years and the nine months ended September 30, 1998.
For the purposes of compiling these ratios, earnings (losses) consist of
earnings (losses) before both income taxes and fixed charges. Fixed charges
consist of interest expense and the interest portion of rent expense.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------ -----------------
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Ratio of Earnings (Losses)
to Fixed Charges.......... 4.81 7.98 7.90 5.44 3.94 (.53)*
</TABLE>
- --------
*On July 6, 1998, Conseco, Inc. announced a second-quarter charge of $498
million, net of income taxes, related to the acquisition of Green Tree. The
charges are directly related to (1) $148 million in merger-related costs and
(2) $350 million non-cash supplemental reserve against the valuation of Green
Tree's interest only securities and servicing rights. As a result, the ratio of
earnings (losses) to fixed charges was less than 1.00 for the nine month period
ended September 30, 1998 and earnings were inadequate to cover fixed charges
for such period. The amount of the coverage deficiency for such period was
$251,600,000.
RECENT DEVELOPMENTS
On June 30, 1998, Green Tree became a wholly owned subsidiary of Conseco,
Inc., pursuant to a Merger Agreement announced on April 7, 1998. Green Tree
continues to operate from its headquarters in St. Paul, Minnesota, and its 200
local offices throughout the country. Lawrence M. Coss, Green Tree's Chairman
and Chief Executive Officer has announced his retirement from active management
of Green Tree at the end of 1998, but will remain a director of Conseco, Inc.
Headquartered in Carmel, Indiana, Conseco is among the nation's leading
providers of supplemental health insurance, retirement annuities and universal
life insurance.
Green Tree has been served with various lawsuits in the United States
District Court for the District of Minnesota. These lawsuits were filed by
certain stockholders of Green Tree as purported class actions on behalf of
persons or entities who purchased common stock of Green Tree during the alleged
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<PAGE>
class periods. In addition to Green Tree, certain current and former officers
and directors of Green Tree are named as defendants in one or more of the
lawsuits. Green Tree and the other defendants intend to seek consolidation of
each of the lawsuits in the United States District Court for the District of
Minnesota. Plaintiffs in the lawsuits assert claims under Sections 10(b) and
20(a) of the Securities Exchange Act of 1934. In each case, plaintiffs allege
that Green Tree and the other defendants violated federal securities laws by,
among other things, making false and misleading statements about the current
state and future prospects of Green Tree (particularly with respect to
prepayment assumptions and performance of certain of Green Tree's loan
portfolios) which allegedly rendered Green Tree's financial statements false
and misleading. Green Tree believes that the lawsuits are without merit and
intends to defend such lawsuits vigorously.
DESCRIPTION OF THE NOTES
The following information supplements and, to the extent inconsistent
therewith, supersedes the information contained in the accompanying Prospectus.
Prospective Noteholders should consider, in addition to the information below,
the information in the accompanying Prospectus under "The Notes," "Certain
Information Regarding the Securities," and "Description of the Trust
Documents."
GENERAL
The Notes will be issued pursuant to the terms of the Indenture, a form
of which has been filed as an exhibit to the Registration Statement. A copy of
the Indenture, as executed, will be filed in a Current Report on Form 8-K with
the Securities and Exchange Commission following the issuance of the
Securities. The following summary describes certain terms of the Notes and the
Indenture. The summary does not purport to be complete and is subject to, and
is qualified in its entirety by reference to, all the provisions of the Notes
and the Indenture. The following summary supplements the description of the
general terms and provisions of the Notes of any given series and the related
Indenture set forth in the accompanying Prospectus, to which description
reference is hereby made. U.S. Bank Trust National Association, a national
banking association headquartered in St. Paul, Minnesota, will be the Indenture
Trustee.
The Notes initially will be represented by certificates registered in the
name of Cede as the nominee of DTC, and will only be available in the form of
book-entries on the records of DTC and participating members thereof. See
"Description of the Notes--Registration of the Notes" herein. The property held
by the Indenture Trustee pursuant to the Indenture consists primarily of the
Contracts and the rights, benefits, obligations and proceeds arising therefrom
or in connection therewith, including liens on the related real estate, amounts
held in the Collection Account and Note Distribution Account, the Note
Insurance Policy and the Class B-2 Limited Guaranty of the Company for the
benefit of the Class B-2 Noteholders.
Payments on the Notes will be made each month by the paying agent (which
shall initially be the Indenture Trustee) on each Payment Date to persons in
whose names the Notes are registered as of the Business Day immediately
preceding the Payment Date (the "Record Date"). See "Description of the Notes--
Registration of the Notes" herein. The first Payment Date for the Notes will be
in January 1999. Payments will be made by check mailed to such Noteholder at
the address appearing on the Note Register (except that a Noteholder who holds
an aggregate Percentage Interest of at least 5% of a Class of Notes may request
payment in respect of its Percentage Interest in such Class by wire transfer).
Final payments will be made only upon tender of the Notes to the Indenture
Trustee for cancellation.
To the extent not paid in full prior to such date, the outstanding
principal amount of each Class of Notes will be payable on the following "Final
Scheduled Distribution Date" for such Class:
Class A-1:April 2018
Class A-2:May 2018
Class M-1:October 2020
Class M-2:July 2023
Class B-1:Janaury 2017
Class B-2:August 2028
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<PAGE>
PAYMENTS ON CONTRACTS
The Servicer will establish and maintain in the name of the Indenture
Trustee a Collection Account in an "Eligible Account" (as defined below) at a
depository institution (initially U.S. Bank National Association, Minneapolis,
Minnesota) with trust powers 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 Federal Deposit Insurance Corporation (the "FDIC"), whose short-term
deposits have been rated P-1 by Moody's and A-1 by S&P or whose unsecured long-
term debt has been rated in one of the two highest rating categories by Moody's
and S&P, and which is subject to supervision and examination by federal or
state authorities (an "Eligible Institution"). "Eligible Account" means, at any
time, an account which is any of the following: (i) an account maintained with
an Eligible Institution; (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 Indenture Trustee, which depository institution
or trust company has capital and surplus of not less than $50,000,000; or (iv)
an account that will not cause Moody's or S&P to downgrade or withdraw its
then-current rating assigned to the Notes without regard to the Note Policy, as
evidenced in writing by Moody's and S&P. The Servicer may authorize the
Indenture Trustee to invest the funds in the Collection Account in Eligible
Investments (as defined in the Sale and Servicing Agreement) that will mature
not later than the Business Day preceding the applicable monthly Payment Date.
Such 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 commercial banks; any other demand or time
deposit or certificate of deposit fully insured by the FDIC; investments in
certain money-market funds; certain repurchase agreements of United States
government securities with eligible commercial banks; securities bearing
interest or sold at a discount issued by a corporation which has a credit
rating of at least Aa2 by Moody's and AA from S&P (if rated by S&P) not in
excess of 10% of amounts in the Collection Account at the time of such
investment; and commercial paper assigned a rating of at least P-1 by Moody's
and A-1+ by S&P. Any losses on such investments will be deducted from other
investment earnings or from other funds in the Collection Account.
All receipts by the Servicer of payments with respect to the Contracts,
including Principal Prepayments and advance payments by Obligors not
constituting Principal Prepayments ("Advance Payments"), will be paid into the
Collection Account no later than one Business Day following receipt thereof,
except amounts received as extension fees or assumption fees not allocated to
regular installments due on Contracts, which are retained by the Servicer as
part of its servicing fees and are not paid into the Collection Account and
except for certain proceeds from Liquidated Contracts which are used to
reimburse the Servicer for customary out-of-pocket liquidation expenses. See
"Description of the Notes--Servicing Compensation and Payment of Expenses"
herein. In addition, any Advances by the Servicer or the Indenture Trustee as
described under "Description of the Notes--Advances," and amounts paid by the
Company for Contracts repurchased as a result of a breach of representations or
warranties under the Agreement, as described under "Description of the Notes--
Conveyance of Contracts," will be paid into the Collection Account.
On a specified Business Day preceding each Payment Date (the
"Determination Date"), the Servicer will determine the Amount Available in the
Collection Account and the amount of funds necessary to make all payments to be
made on the next Payment Date from the Collection Account. Not later than one
Business Day after the Determination Date, the Company will deposit in the
Collection Account the Repurchase Price of any Contracts required to be
repurchased on such Payment Date as a result of a breach of representations and
warranties under the Agreement.
The Amount Available will consist primarily of payments made on or in
respect of the Contracts and will include payments made by the Note Insurer
under the Note Insurance Policy and amounts payable, subject to the
subordination described herein, to the Servicer (so long as the Company or any
wholly owned subsidiary of the Company is the Servicer) as the Monthly
Servicing Fee with respect to the Contracts, and to the Certificateholders.
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<PAGE>
On each Payment Date the Indenture Trustee will withdraw the Amount
Available from the Collection Account and make the following payments, in the
following order of priority:
(i) if neither the Company nor any wholly owned subsidiary of the Company
is the Servicer, to pay the Monthly Servicing Fee with respect to the
Contracts to the Servicer;
(ii) to pay the amount payable monthly to the Note Insurer, in an amount
equal to the premium rate times the sum of the Class A-1 and Class A-2
Principal Balance (the "Premium Amount");
(iii) to pay interest on certain of the Notes, in the following order of
priority:
(A) first, to Class A-1 Noteholders and the Class A-2 Noteholders,
interest on the Class A-1 Principal Balance and Class A-2 Principal
Balance, respectively;
(B) second, to Class M-1 Noteholders, interest on the Class M-1
Adjusted Principal Balance;
(C) third, to Class M-2 Noteholders, interest on the Class M-2
Adjusted Principal Balance; and
(D) fourth, to Class B-1 Noteholders, interest on the Class B-1
Adjusted Principal Balance;
(iv) to pay principal on the Class A Notes, in the amount described below
under "Distributions on the Notes--Principal on the Class A, Class M-1,
Class M-2 and Class B-1 Notes," in respect of the Group 1 Formula Principal
Distribution Amount in the case of the Class A-1 Notes, and in respect of
the Group 2 Formula Principal Distribution Amount in the case of the Class
A-2 Notes;
(v) to pay the Note Insurer for any unreimbursed insurance payments and any
other amounts owing to the Note Insurer under the Insurance Agreement,
including any unpaid Premium Amount (together with interest thereon as
specified in the Insurance Agreement) (the "Reimbursement Amount");
(vi) to pay principal and interest on certain of the Notes, in the
following order of priority:
(A) principal on the Class M-1, Class M-2 and Class B-1 Notes, in the
amount described below under "Distributions on the Notes--Principal on
the Class A, Class M-1, Class M-2 and Class B-1 Notes," in respect of
the Class M Principal Distribution Amount and Class B-1 Principal
Distribution Amount, respectively;
(B) payments on the Class M-1, Class M-2 and Class B-1 Notes in respect
of Liquidation Loss Interest Amounts as follows:
(I) first, to Class M-1 Noteholders, any unpaid Class M-1
Liquidation Loss Interest Amount;
(II) second, to Class M-2 Noteholders, any unpaid Class M-2
Liquidation Loss Interest Amount; and
(III) third, to Class B-1 Noteholders, any unpaid Class B-1
Liquidation Loss Interest Amount; and
(C) interest and principal on the Class B-2 Notes, in the manner and
order of priority described below under "Distributions on the Notes--
Class B-2 Interest" and "--Class B-2 Principal."
(vii) if the Company or any wholly owned subsidiary of the Company is the
Servicer, to pay the Monthly Servicing Fee to the Servicer with respect to
the Contracts;
(viii) to pay principal on the Class A Notes, in the manner described below
under "Distributions on Notes--Principal on the Class A, Class M-1, Class
M-2 and Class B-1 Notes," in respect of any Supplementary Principal
Distribution Amount (which is an amount equal to the lesser of (1) the
Class A Principal Balance or (2) the Amount Available remaining after the
distributions described in (i) through (vii) above; and
(ix) to pay any remaining amounts to the holder of the Certificate.
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<PAGE>
DISTRIBUTIONS ON THE NOTES
On each Payment Date, distributions on the Notes will be made to the
holders of the Class A, the Class M and the Class B Notes in the manner
described below.
Noteholders will be entitled to receive on each Payment Date commencing
in January 1999, to the extent that the Amount Available (as defined herein) in
the Note Distribution Account (together with, in the case of the Class B-2
Notes, any Class B-2 Guaranty Payment, as described below) is sufficient
therefor, distributions allocable to interest and principal, as described
herein. The rights of the Class M and Class B Noteholders to receive
distributions in respect of the Amount Available are subordinated to the rights
of the Class A Noteholders and the Note Insurer's right to the Premium Amount
(as defined below) and the Reimbursement Amount; the rights of the Class M-2
and Class B Noteholders to receive such distributions are further subordinated
to the rights of the Class M-1 Noteholders; the rights of the Class B
Noteholders to receive such distributions are further subordinated to the
rights of the Class M-2 Noteholders; and the rights of the Class B-2
Noteholders to receive such distributions are further subordinated to the
rights of the Class B-1 Noteholders. Distributions will be made on each Payment
Date commencing in January 1999 to holders of record on the related Record
Date, except that the final distribution in respect of the Notes will only be
made upon presentation and surrender of the Notes at the office or agency
appointed by the Indenture Trustee for that purpose in Minneapolis or St. Paul,
Minnesota.
Interest on the Class A, Class M-1, Class M-2 and Class B-1 Notes
Interest will be distributable first to each Class of Class A Notes
concurrently, then to the Class M-1 Notes, then to the Class M-2 Notes and then
to the Class B-1 Notes. The Interest Rates for the Class A, Class M and Class
B-1 Notes are set forth in "Summary of the Terms of the Notes." Interest on the
outstanding Class A Principal Balance, Class M-1 Adjusted Principal Balance,
Class M-2 Adjusted Principal Balance and Class B-1 Adjusted Principal Balance,
as applicable, will accrue at the related Interest Rate from December 30, 1998,
or from the most recent Payment Date on which interest has been paid, to but
excluding the following Payment Date, and will be computed on the basis of a
360-day year of twelve 30-day months. The "Principal Balance" of a Class of
Notes as of any Payment Date is the Original Principal Balance of such Class
less all amounts previously distributed on account of principal of such Class.
The "Class A Principal Balance" as of any Payment Date is the sum of the Class
A-1 Principal Balance and the Class A-2 Principal Balance. The "Class M
Principal Balance" as of any Payment Date is the sum of the Class M-1 Principal
Balance and the Class M-2 Principal Balance. The "Class M-1 Adjusted Principal
Balance" as of any Payment Date is the Class M-1 Principal Balance less any
Class M-1 Liquidation Loss Principal Amount (described below under "--Losses on
Liquidated Contracts"). The "Class M-2 Adjusted Principal Balance" as of any
Payment Date is the Class M-2 Principal Balance less any Class M-2 Liquidation
Loss Principal Amount (described below under "Losses on Liquidated Contracts").
The "Class B Principal Balance" as of any Payment Date is the sum of the Class
B-1 Principal Balance and the Class B-2 Principal Balance. The "Class B-1
Adjusted Principal Balance" as of any Payment Date is the Class B-1 Principal
Balance less any Class B-1 Liquidation Loss Principal Amount (described below
under "Losses on Liquidated Contracts").
In the event that, on a particular Payment Date, the Amount Available in
the Note Distribution Account (after payment of certain fees to the Servicer
(if other than the Company) and the Note Insurer) is not sufficient to make a
full distribution of interest to the holders of Class M-1 Notes, Class M-2
Notes or Class B-1 Notes, after payment of interest on each Class of Notes that
is senior to such Class of Notes, the amount of interest to be distributed in
respect of such Class will be allocated among the outstanding holders of such
Class pro rata in accordance with their respective entitlements to interest,
and the amount of the shortfall will be carried forward and added to the amount
such holders will be entitled to receive on the next Payment Date. Any such
amount so carried forward will bear interest at the applicable Interest Rate,
to the extent legally permissible.
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<PAGE>
Principal on the Class A, Class M-1, Class M-2 and Class B-1 Notes.
The Class A, Class M-1, Class M-2 and Class B-1 Notes will be entitled to
receive on each Payment Date distributions of principal, in the order of
priority set forth below and to the extent of the Amount Available in the Note
Distribution Account after payment of certain fees to the Servicer (if other
than the Company) and to the Note Insurer and all interest then accrued on the
Class A Principal Balance, Class M-1 Adjusted Principal Balance, Class M-2
Adjusted Principal Balance and Class B-1 Adjusted Principal Balance.
Principal will be distributable first to each Class of Class A Notes,
concurrently, until retired. The Class A-1 Notes will be entitled to receive an
amount equal to the Senior Percentage (as defined below) of the "Group 1
Formula Principal Distribution Amount," which is the sum of (i) all scheduled
payments of principal due on each outstanding Group 1 Contract during the
related Due Period, (ii) the Scheduled Principal Balance of each Group 1
Contract which, during such Due Period, was purchased by the Company pursuant
to the Agreement on account of certain breaches of its representations and
warranties, (iii) all partial Principal Prepayments applied and all Principal
Prepayments in Full received during such Due Period in respect of Group 1
Contracts, (iv) the Scheduled Principal Balance of each Group 1 Contract that
became a Liquidated Contract during such Due Period, and (v) any amount
described in clauses (i) through (iv) above that was not previously distributed
because of an insufficient amount of funds available in the Note Distribution
Account if (a) the Payment Date occurs on or after the Payment Date on which
the Class B-2 Principal Balance has been reduced to zero, or (b) such amount
was not covered by a Class B-2 Guaranty Payment and corresponding reduction in
the Class B-2 Principal Balance.
The Class A-2 Notes will be entitled to receive an amount equal to the
Senior Percentage (as defined below) of the "Group 2 Formula Principal
Distribution Amount," which is the sum of (i) all scheduled payments of
principal due on each outstanding Group 2 Contract during the related Due
Period, (ii) the Scheduled Principal Balance of each Group 2 Contract which,
during such Due Period, was purchased by the Company pursuant to the Agreement
on account of certain breaches of its representations and warranties, (iii) all
partial Principal Prepayments applied and all Principal Prepayments in Full
received during such Due Period in respect of Group 2 Contracts, (iv) the
Scheduled Principal Balance of each Group 2 Contract that became a Liquidated
Contract during such Due Period, and (v) any amount described in clauses (i)
through (iv) above that was not previously distributed because of an
insufficient amount of funds available in the Note Distribution Account if (a)
the Payment Date occurs on or after the Payment Date on which the Class B-2
Principal Balance has been reduced to zero, or (b) such amount was not covered
by a Class B-2 Guaranty Payment and corresponding reduction in the Class B-2
Principal Balance.
If either the Class A-1 Notes or the Class A-2 Notes are retired, the
remaining Class will be entitled to receive the Senior Percentage of the Group
1 Formula Principal Distribution Amount and Group 2 Formula Principal
Distribution Amount.
In addition, on each Payment Date on which the Supplementary Principal
Distribution Test has not been satisfied, holders of Class A Notes will be
entitled to receive as payments of principal the Supplementary Principal
Distribution Amount. The Supplementary Principal Distribution Test will not be
met if the cumulative losses on the Contracts exceed certain specified
percentages of the principal balance of the Contracts as of the Cut-off Date.
Upon the payment in full of the Class A Notes, the Class M-1 Notes will
be entitled to receive an amount equal to the Senior Percentage (as defined
below) of the Group 1 and Group 2 Formula Principal Distribution Amounts. Upon
payment in full of the Class M-1 Notes, the Class M-2 Notes will be entitled to
receive an amount equal to the Senior Percentage of the Group 1 and Group 2
Formula Principal Distribution Amounts. On each Payment Date, the Class B-1
Notes will be entitled to receive an amount equal to the Class B Percentage (as
defined below) of the Group 1 and Group 2 Formula
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Principal Distribution Amounts. When the Principal Balance of a Class of Notes
is reduced to zero, no further distributions of principal will be made to the
holders of such Class.
The Scheduled Principal Balance of a Contract with respect to any Payment
Date is its principal balance as of the scheduled payment date (the "Due Date")
in the Due Period, after giving effect to any previous partial Principal
Prepayments applied and to the scheduled payment due on such Due Date, and
after giving effect to any adjustments due to bankruptcy or similar
proceedings. The "Pool Scheduled
Principal Balance," with respect to the Contract Pool as of any Payment Date,
is the aggregate of the Scheduled Principal Balances of Contracts comprising
the Contract Pool that were outstanding during the preceding Due Period. A
"Liquidated Contract" is a defaulted Contract (a) which is 180 days delinquent
or (b) as to which all amounts that the Servicer expects to recover on account
of such Contract have been received.
The Senior Percentage for any Payment Date prior to the Class B Cross-
over Date (as described below), and for any Payment Date on or after the Class
B Cross-over Date on which any Class B Principal Distribution Test (as
described below) has not been satisfied, will equal 100%. On each Payment Date
on or after the Class B Cross-over Date, if each Class B Principal Distribution
Test has been satisfied on such Payment Date, the Senior Percentage will equal
a fraction, expressed as a percentage, the numerator of which is the sum of the
Class A Principal Balance and the Class M Principal Balance for such Payment
Date and the denominator of which is the Pool Scheduled Principal Balance for
the immediately preceding Payment Date.
Payments of principal on the Class B-l Notes will not commence until the
Class B Cross-over Date, and will be made on that Payment Date and each Payment
Date thereafter only if each Class B Principal Distribution Test (as defined
below) is satisfied on such Payment Date (unless the Class A Principal Balance
and the Class M Principal Balance have been reduced to zero). The "Class B
Cross-over Date" will be the earlier of (A) the Payment Date on which the Class
M-2 Principal Balance is reduced to zero and (B) the first Payment Date on or
after the Payment Date in January 2003.
The "Class B Principal Distribution Test" will be satisfied on each
Payment Date that (i) the average of the Sixty-Day Delinquency Ratio (as
defined in the Sale and Servicing Agreement) as of such Payment Date and the
prior two Payment Dates does not exceed 4.5%; (ii) the average of the Thirty-
Day Delinquency Ratio (as defined in the Agreement) as of such Payment Date and
the prior two Payment Dates does not exceed 7.5%; (iii) the Cumulative Realized
Loss Ratio (as defined in the Sale and Servicing Agreement) as of such Payment
Date does not exceed 13.0%; (iv) the Current Realized Loss Ratio (as defined in
the Sale and Servicing Agreement) as of such Payment Date does not exceed 5.0%;
and (v) the Class B Principal Balance divided by the Pool Scheduled Principal
Balance as of the immediately preceding Payment Date is equal to or greater
than 22.0%.
On each Payment Date on which the Class B Notes are eligible to receive
distributions of principal, the Class B Percentage of the Group 1 and Group 2
Formula Principal Distribution Amounts less the Class B Floor Reduction Amount
(as described below) will be paid to the Class B-1 Noteholders to the extent of
the Amount Available, after payment of certain fees to the Servicer (if other
than the Company) and the Note Insurer, all interest then accrued on the Class
A Principal Balance, Class M-1 Adjusted Principal Balance, Class M-2 Adjusted
Principal Balance and Class B-1 Adjusted Principal Balance, all principal then
due on the Class A Notes and Class M Notes and reimbursement to the Note
Insurer and all principal then due on the Class M Notes, until the Class B-l
Principal Balance has been reduced to zero. The Class B Floor Reduction Amount
means as to any Payment Date prior to the Class M-2 Cross-over Date, the
amount, if any, by which the Class B Percentage of the Group 1 and Group 2
Formula Principal Distribution Amounts exceeds (a) the Class B Principal
Balance prior to the effect of such distribution less (b) $2,250,000, and after
the Class M-2 Cross-over Date the Class B Floor Reduction Amount will equal
zero. The "Class M-2 Cross-over Date" is the Payment Date on which the Class M-
2 Principal Balance has been reduced to zero.
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<PAGE>
Any Class B Floor Reduction Amount will be distributed to the Class A-1
Notes and Class A-2 Notes concurrently, until the related balances are reduced
to zero, then to the Class M-1 Notes until the balance is reduced to zero, and
then to the Class M-2 Notes until the balance is reduced to zero.
The Class B Percentage for any Payment Date will be equal to 100% minus
the Senior Percentage. The Class B Percentage for each Payment Date, if any,
after the Class A Principal Balance and the Class M Principal Balance have been
reduced to zero will be equal to 100%.
Notwithstanding the foregoing, on any Payment Date as to which there is a
Class A Principal Deficiency Amount (which is the amount, if any, by which the
Pool Scheduled Principal Balance is less than the Class A Principal Balance),
the remaining Amount Available (including any Insured Payments under the Note
Insurance Policy), after payment of all interest then accrued on the Class A
Principal Balance, Class M-1 Adjusted Principal Balance, Class M-2 Adjusted
Principal Balance and Class B-1 Adjusted Principal Balance, will be distributed
pro rata to each Class of Class A Notes based on the Principal Balance of each
Class (but in no event will such amount exceed the Principal Balance of any
such Class).
Class B-2 Interest.
Interest on the outstanding Class B-2 Principal Balance will accrue from
December 30, 1998, or from the most recent Payment Date on which interest has
been paid, to but excluding the following Payment Date, and will be computed on
the basis of a 360-day year of twelve 30-day months.
To the extent of (i) the remaining Amount Available, if any, for a
Payment Date after payment of certain fees to the Servicer (if other than the
Company) and the Note Insurer, all interest and principal then payable on the
Class A, Class M-1, Class M-2 and Class B-1 Notes and reimbursement to the Note
Insurer, and (ii) the Class B-2 Guaranty Payment, if any, for such date,
interest will be paid to the Class B-2 Noteholders on such Payment Date at the
Class B-2 Interest Rate on the then outstanding Class B-2 Principal Balance.
The Class B-2 Principal Balance is the Original Class B-2 Principal Balance
less all amounts previously distributed to the Class B-2 Noteholders (including
any Class B-2 Guaranty Payments) on account of principal.
In the event that, on a particular Payment Date, the remaining Amount
Available in the Note Distribution Account plus any amounts actually paid under
the Class B-2 Limited Guaranty are not sufficient to make a full distribution
of interest to the Class B-2 Noteholders, the amount of the deficiency will be
carried forward as an amount that the Class B-2 Noteholders are entitled to
receive on the next Payment Date. Any amount so carried forward will, to the
extent legally permissible, bear interest at the Class B-2 Interest Rate.
Class B-2 Principal.
Except for payments of the Class B-2 Liquidation Loss Principal Amount,
payments of principal on the Class B-2 Notes will not commence until the
Payment Date on which the Class B-1 Principal Balance has been reduced to zero
(the "Class B-1 Cross-over Date"), and will be made on that Payment Date and
each Payment Date thereafter only if each Class B Principal Distribution Test
is satisfied on such Payment Date (unless the Class A Principal Balance and the
Class M Principal Balance have been reduced to zero). On any such Payment Date,
the Class B Percentage of the Group 1 and Group 2 Formula Principal
Distribution Amounts less the Class B Floor Reduction Amount will be
distributed, to the extent of any amounts actually paid under the Class B-2
Limited Guaranty and the Amount Available, after payment of certain fees to the
Servicer (if other than the Company) and the Note Insurer, all interest and
principal then due on the Class A and Class M and Class B-1 Notes,
reimbursement to the Note Insurer and interest on the Class B-2 Notes, to the
Class B-2 Noteholders until the Class B-2 Principal Balance has been reduced to
zero. The Class B-2 Principal Balance generally will not be reduced below
$2,250,000 until the Class A Principal Balance, the Class M Principal Balance
and the Class B-1 Principal Balance have been reduced to zero.
On each Payment Date, the Class B-2 Noteholders will be entitled to
receive, pursuant to the Class B-2 Limited Guaranty, the Class B-2 Liquidation
Loss Principal Amount until the Class B-2 Principal Balance has been reduced to
zero.
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SUBORDINATION OF CLASS M NOTES AND CLASS B NOTES
The rights of the holders of the Class M Notes and Class B Notes to
receive distributions with respect to the Contracts, as well as any other
amounts constituting the Amount Available, will be subordinated, to the extent
described herein, to such rights of the holders of the Class A Notes and the
rights of the Note Insurer under the Insurance Agreement. This subordination is
intended to enhance the likelihood of regular receipt by the holders of the
Class A Notes of the full amount of their scheduled monthly payments of
interest and principal and to afford such holders protection against losses on
Liquidated Contracts.
A portion of the protection afforded to the holders of the Class A Notes
by means of the subordination of the Class M and Class B Notes will be
accomplished by the preferential right of the Class A Noteholders to receive on
any Payment Date the amount of interest due on the Class A Notes, including any
interest due on a prior Payment Date but not received, prior to any
distribution being made on a Payment Date in respect of interest on the Class M
and Class B Notes. Thereafter, any remaining Amount Available in the Note
Distribution Account will be applied to the payment of interest due on the
Class M-1 Adjusted Principal Balance, then interest due on the Class M-2
Adjusted Principal Balance and then interest due on the Class B-1 Adjusted
Principal Balance. The Class A Notes will also have the benefit of the Note
Insurance Policy.
After payment of certain fees to the Servicer (if other than the Company)
and the Note Insurer, all interest then accrued on the Class A Principal
Balance, Class M-1 Adjusted Principal Balance, Class M-2 Adjusted Principal
Balance and Class B-1 Adjusted Principal Balance and reimbursement to the Note
Insurer as described above, any remaining Amount Available will be distributed
in the following order of priority: first, the Senior Percentage or the Class B
Percentage, as applicable, of the Formula Principal Distribution Amounts will
be distributed to the Class A, Class M and Class B-1 Noteholders in the order
of priority described above under "Distributions on the Notes--Principal on the
Class A, Class M-1, Class M-2 and Class B-1 Notes." Such remaining Amount
Available, to the extent sufficient therefor, will be distributed in the
following order of priority: first, any unpaid Class M-1 Liquidation Loss
Interest Amount (as described below under "Losses on Liquidated Contracts")
will be distributed to the Class M-1 Noteholders; then, any unpaid Class M-2
Liquidation Loss Interest Amount (as described below under "Losses on
Liquidated Contracts") will be distributed to the Class M-2 Noteholders; and,
finally, any unpaid Class B-1 Liquidation Loss Interest Amount (as described
below under "Losses on Liquidated Contracts") will be distributed to the Class
B-1 Noteholders.
The rights of the holders of the Class B-2 Notes to receive distributions
with respect to the Contracts and other amounts in the Note Distribution
Account will be subordinated to such rights of the holders of the Class A
Notes, Class M Notes and Class B-1 Notes and amounts payable to the Note
Insurer. Thus, the Class B-2 Noteholders will be entitled to distribution of
interest and principal on the Class B-2 Notes only after distribution of all
interest and principal then payable on the Class A, Class M and Class B-1
Notes.
If a Class B-2 Liquidation Loss Principal Amount is realized for any
Payment Date and the Company fails to pay such amount pursuant to its Class B-2
Limited Guaranty, the Class B-2 Noteholders may incur losses on their
investment in the Class B-2 Notes to the extent such losses are not made up
from future payments on the Contracts or the Class B-2 Limited Guaranty.
LOSSES ON LIQUIDATED CONTRACTS
As described above, the distribution of principal to the Class A
Noteholders is intended to include the Senior Percentage of the Scheduled
Principal Balance of each Contract that became a Liquidated Contract during the
preceding Due Period. If the Net Liquidation Proceeds from such Liquidated
Contract are less than the Scheduled Principal Balance of such Liquidated
Contract plus accrued and unpaid interest thereon, the deficiency will, in
effect, be absorbed by the Certificateholders first, then the Monthly Servicing
Fee otherwise payable to the Servicer (so long as the Company or any wholly
owned subsidiary of the Company is the Servicer) with respect to the Contracts,
then the Class B-2 Noteholders, then the Class B-1 Noteholders, then the Class
M-2 Noteholders and then the Class M-1 Noteholders. Likewise, to the extent the
Class M-1 Noteholders, the Class M-2 Noteholders or the Class B-1 Noteholders
are entitled to receive distributions of principal, similar deficiencies could
result for each Class of Notes with a lower payment priority.
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In the event the Amount Available in the Note Distribution Account for
any Payment Date is insufficient to distribute the full Formula Principal
Distribution Amounts for such Payment Date to the
Noteholders, the aggregate outstanding Principal Balance of the Notes will be
greater than the Pool Scheduled Principal Balance for such Payment Date. In
such event, the amount of such deficiency (the "Liquidation Loss Principal
Amount") would be allocated first to the Class B-2 Notes (the "Class B-2
Liquidation Loss Principal Amount"), and the Company would be obligated to pay
the amount of such Class B-2 Liquidation Loss Principal Amount to the Class B-2
Noteholders pursuant to the Class B-2 Limited Guaranty. If on any Payment Date
the sum of the Class A Principal Balance, the Class M-1 Principal Balance, the
Class M-2 Principal Balance and the Class B-1 Principal Balance was equal to
the Pool Scheduled Principal Balance, no further Liquidation Loss Principal
Amounts could be allocated to the Class B-2 Notes and any further Liquidation
Loss Principal Amounts realized would be allocated to reduce the Class B-1
Adjusted Principal Balance (a "Class B-1 Liquidation Loss Principal Amount").
If the Class B-1 Adjusted Principal Balance were reduced to zero, any further
Liquidation Loss Principal Amounts realized would be allocated to reduce the
Class M-2 Adjusted Principal Balance (a "Class M-2 Liquidation Loss Principal
Amount"). If the Class M-2 Adjusted Principal Balance were reduced to zero, any
further Liquidation Loss Principal Amounts realized would be allocated to
reduce the Class M-1 Adjusted Principal Balance (a "Class M-1 Liquidation Loss
Principal Amount"). Any such Liquidation Loss Principal Amounts would be
reduced on subsequent Payment Dates to the extent that the Amount Available in
the Note Distribution Account on such Payment Dates is sufficient to permit the
distribution of principal due, but not paid, on the Notes on prior Payment
Dates. In the event the Adjusted Principal Balance of the Class M-1, Class M-2
or Class B-1 Notes were reduced by a Liquidation Loss Principal Amount,
interest accruing on such Class would be calculated on the reduced Adjusted
Principal Balance of such Class. The interest accruing on such Class's
Liquidation Loss Principal Amount each month (such Class's "Liquidation Loss
Interest Amount"), plus interest at the applicable Interest Rate on any
Liquidation Loss Interest Amount due on a prior Payment Date but not paid,
would be paid to the Noteholders of such Class from the Amount Available, after
distributions of principal on all Class A, Class M and Class B-1 Notes, in the
order of priority described above under "Subordination of Class M and Class B
Notes."
But for the effect of the subordination of the Class M-2 and Class B
Notes and the Certificates and the related Monthly Servicing Fee otherwise
payable to the Servicer (so long as the Company or any wholly owned subsidiary
of the Company is the Servicer) with respect to the Contracts, the Class M-1
Noteholders will absorb all losses on each Liquidated Contract in the amount by
which its Net Liquidation Proceeds are less than its unpaid principal balance
plus accrued and unpaid interest thereon less the related Monthly Servicing
Fee.
But for the effect of the subordination of the Class B Notes and the
Certificates and the related Monthly Servicing Fee otherwise payable to the
Servicer (so long as the Company or any wholly owned subsidiary of the Company
is the Servicer) with respect to the Contracts, the Class M-2 Noteholders will
absorb all losses on each Liquidated Contract in the amount by which its Net
Liquidation Proceeds are less than its unpaid principal balance plus accrued
and unpaid interest thereon less the related Monthly Servicing Fee.
But for the effect of the subordination of the Class B-2 Notes and the
Certificates and the related Monthly Servicing Fee otherwise payable to the
Servicer (so long as the Company or any wholly owned subsidiary of the Company
is the Servicer) with respect to the Contracts, the Class B-1 Noteholders will
absorb all losses on each Liquidated Contract in the amount by which its Net
Liquidation Proceeds are less than its unpaid principal balance plus accrued
and unpaid interest thereon less the related Monthly Servicing Fee.
But for the payments under the Class B-2 Limited Guaranty described below
and the subordination of the Certificates and the related Monthly Servicing Fee
otherwise payable to the Servicer (so long as the Company or any wholly owned
subsidiary of the Company is the Servicer) with respect to the Contracts, the
Class B-2 Noteholders will absorb all losses on each Liquidated Contract in the
amount by which its Net Liquidation Proceeds are less than its unpaid principal
balance plus accrued and unpaid interest thereon less the related Monthly
Servicing Fee.
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REPORTS TO NOTEHOLDERS
The Servicer will furnish to the Indenture Trustee, and the Indenture
Trustee will include with each distribution to a Class A Noteholder, a
statement in respect of the related Payment Date setting forth, among other
things:
(a) the amount of such distribution to holders of each Class of Class A
Notes allocable to interest;
(b) the amount of such distribution to holders of each Class of Class A
Notes allocable to principal (separately identifying the aggregate
amount of any Principal Prepayments and any Supplementary Principal
Distribution Amount included);
(c) the amount, if any, by which the Class A Formula Distribution
Amount exceeds the Class A Distribution Amount for such Payment Date;
(d) the Principal Balance of each Class of Class A Notes after giving
effect to the distribution of principal on such Payment Date;
(e) the Senior Percentage for such Payment Date;
(f) the Pool Scheduled Principal Balance for such Payment Date;
(g) the Pool Factor (a percentage derived from a fraction the numerator
of which is the sum of the Class A Principal Balance, the Class M
Principal Balance and the Class B Principal Balance and the denominator
of which is the Cut-off Date Pool Principal Balance;
(h) the number and aggregate principal balance of Contracts delinquent
(i) 30-59 days, (ii) 60-89 days, and (iii) 90 or more days;
(i) the amount of any payment by the Note Insurer under the Note
Insurance Policy and any reimbursement paid to the Note Insurer; and
(j) the number of defaulted Contracts in foreclosure or foreclosed upon
and in the Servicer's inventory.
Information furnished pursuant to clauses (a) through (d) will be
expressed as dollar amounts for a Class A Note with a 1% Percentage Interest
or per $1,000 denomination of Class A Note.
In addition, within a reasonable period of time after the end of each
calendar year, the Servicer will furnish a report to each Class A Noteholder
of record at any time during such calendar year as to the aggregate of amounts
reported pursuant to (a) and (b) above for such calendar year.
The Servicer will furnish to the Indenture Trustee, and the Indenture
Trustee will include with each distribution to a Class M-1 Noteholder, a
statement in respect of the related Payment Date setting forth, among other
things:
(a) the amount of such distribution to holders of the Class M-1 Notes
allocable to interest (separately identifying any unpaid interest
shortfall included);
(b) the amount of such distribution to holders of the Class M-1 Notes
allocable to principal (separately identifying the aggregate amount of
any Principal Prepayments included);
(c) the amount, if any, by which the Class M-1 Formula Distribution
Amount exceeds the Class M-1 Distribution Amount for such Payment Date;
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(d) the Principal Balance of the Class M-1 Note after giving effect to
the distribution of principal on such Payment Date;
(e) any unpaid Class M-1 Liquidation Loss Interest Amount, after giving
effect to payments of interest on such Payment Date;
(f) the Senior Percentage for such Payment Date;
(g) the Pool Scheduled Principal Balance for such Payment Date;
(h) the Pool Factor;
(i) the number and aggregate principal balance of Contracts delinquent
(i) 30-59 days, (ii) 60-89 days, and (iii) 90 or more days; and
(j) the number of defaulted Contracts in foreclosure or foreclosed upon
and in the Servicer's inventory.
Information furnished pursuant to clauses (a) through (d) will be
expressed as dollar amounts for a Class M-1 Note with a 1% Percentage Interest
or per $1,000 denomination of Class M-1 Note.
In addition, within a reasonable period of time after the end of each
calendar year, the Servicer will furnish a report to each Class M-1 Noteholder
of record at any time during such calendar year as to the aggregate of amounts
reported pursuant to (a) and (b) above for such calendar year.
The Servicer will furnish to the Indenture Trustee, and the Indenture
Trustee will include with each distribution to a Class M-2 Noteholder, a
statement in respect of the related Payment Date setting forth, among other
things:
(a) the amount of such distribution to holders of the Class M-2 Notes
allocable to interest (separately identifying any unpaid interest
shortfall included);
(b) the amount of such distribution to holders of the Class M-2 Notes
allocable to principal (separately identifying the aggregate amount of
any Principal Prepayments included);
(c) the amount, if any, by which the Class M-2 Formula Distribution
Amount exceeds the Class M-2 Distribution Amount for such Payment Date;
(d) the Principal Balance of the Class M-2 Notes after giving effect to
the distribution of principal on such Payment Date;
(e) any unpaid Class M-2 Liquidation Loss Interest Amount, after giving
effect to payments of interest on such Payment Date;
(f) the Senior Percentage for such Payment Date;
(g) the Pool Scheduled Principal Balance for such Payment Date;
(h) the Pool Factor;
(i) the number and aggregate principal balance of Contracts delinquent
(i) 30-59 days, (ii) 60-89 days, and (iii) 90 or more days; and
(j) the number of defaulted Contracts in foreclosure or foreclosed upon
and in the Servicer's inventory.
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Information furnished pursuant to clauses (a) through (d) will be
expressed as dollar amounts for a Class M-2 Note with a 1% Percentage Interest
or per $1,000 denomination of Class M-2 Note.
In addition, within a reasonable period of time after the end of each
calendar year, the Servicer will furnish a report to each Class M-2 Noteholder
of record at any time during such calendar year as to the aggregate of amounts
reported pursuant to (a) and (b) above for such calendar year.
The Servicer will furnish to the Indenture Trustee, and the Indenture
Trustee will include with each distribution to a Class B-1 Noteholder, a
statement in respect of the related Payment Date setting forth, among other
things:
(a) the amount of such distribution to holders of the Class B-1 Notes
allocable to interest (separately identifying any unpaid interest
shortfall included);
(b) the amount of such distribution to holders of the Class B-1 Notes
allocable to principal (separately identifying the aggregate amount of
any Principal Prepayments included);
(c) the amount, if any, by which the Class B-1 Formula Distribution
Amount exceeds the Class B-1 Distribution Amount for such Payment Date;
(d) the Principal Balance of the Class B-1 Notes after giving effect to
the distribution of principal on such Payment Date;
(e) any unpaid Class B-1 Liquidation Loss Interest Amount, after giving
effect to payments of interest on such Payment Date;
(f) the Class B Percentage for such Payment Date;
(g) the Pool Scheduled Principal Balance for such Payment Date;
(h) the Pool Factor;
(i) the number and aggregate principal balance of Contracts delinquent
(i) 30-59 days, (ii) 60-89 days, and (iii) 90 or more days; and
(j) the number of defaulted Contracts in foreclosure or foreclosed upon
and in the Servicer's inventory.
Information furnished pursuant to clauses (a) through (d) will be
expressed as dollar amounts for a Class B-1 Note with a 1% Percentage Interest
or per $1,000 denomination of Class B-1 Note.
In addition, within a reasonable period of time after the end of each
calendar year, the Servicer will furnish a report to each Class B-1 Noteholder
of record at any time during such calendar year as to the aggregate of amounts
reported pursuant to (a) and (b) above for such calendar year.
The Servicer will furnish to the Indenture Trustee, and the Indenture
Trustee will include with each distribution to a Class B-2 Noteholder, a
statement in respect of the related Payment Date setting forth, among other
things:
(a) the amount of such distribution to holders of Class B-2 Notes
allocable to interest;
(b) the amount of such distribution to holders of Class B-2 Notes
allocable to principal (separately identifying the aggregate amount of
any Principal Prepayments included);
(c) the amount, if any, by which the sum of the Class B-2 Formula
Distribution Amount and the Class B-2 Liquidation Loss Principal
Amount, if any, exceeds the Class B-2 Distribution Amount for such
Payment Date;
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(d) the Class B-2 Liquidation Loss Principal Amount, if any, for such
Payment Date;
(e) the Class B-2 Guaranty Payment, if any, for such Payment Date;
(f) the Class B-2 Principal Balance after giving effect to the
distribution of principal on such Payment Date;
(g) the Class B Percentage for such Payment Date;
(h) the Pool Scheduled Principal Balance for such Payment Date;
(i) the Pool Factor;
(j) the number and aggregate principal balance of Contracts delinquent
(i) 30-59 days, (ii) 60-89 days, and (iii) 90 or more days; and
(k) the number of defaulted Contracts in foreclosure or foreclosed upon
and in the Servicer's inventory.
Information furnished pursuant to clauses (a) through (c) will be
expressed as dollar amounts for a Class B-2 Note with a 1% Percentage Interest
or per $1,000 denomination of Class B-2 Note.
In addition, within a reasonable period of time after the end of each
calendar year, the Servicer will furnish a report to each Class B-2 Noteholder
of record at any time during such calendar year as to the aggregate amounts
reported pursuant to (a) and (b) above for such calendar year.
Each of the foregoing statements will also be provided to the Note
Insurer, so long as the Note Insurance Policy is in effect.
CONVEYANCE OF CONTRACTS
On the Closing Date, the Company will establish the Trust and transfer,
assign, set over and otherwise convey to the Trust all right, title and
interest of the Company in the Home Improvement Contracts and the Home Equity
Contracts, including all principal and interest received on or with respect to
such Contracts (other than receipts of principal and interest due on such
Contracts before the Cut-off Date). The Trust will pledge each Contract to the
Indenture Trustee for the benefit of the Noteholders and the Note Insurer
pursuant to the Indenture.
The Indenture Trustee, concurrently with each conveyance, will execute
and deliver the Notes to or upon the order of the Company. The Contracts are
described on a list delivered to the Trust and certified by a duly authorized
officer of the Company. Such list includes the amount of monthly payments due
on each Contract as of the date of issuance of the Notes, the interest rate on
each Contract and the maturity date of each Contract. The list will be
available for inspection by any Noteholder at the principal office of the
Company. Prior to the conveyance of the Contracts to the Trust, the Company
will have completed a review of all the Contract files, confirming the
accuracy of each item on the list of Contracts delivered to the Indenture
Trustee. Any Contract discovered not to agree with such list in a manner that
is materially adverse to the interests of the Noteholders will be repurchased
by the Company, or, if the discrepancy relates to the unpaid principal balance
of a Contract, the Company may deposit cash in the Collection Account in an
amount sufficient to offset such discrepancy.
The Indenture Trustee will maintain possession of the Contracts and any
other documents contained in the Contract files. Uniform Commercial Code
financing statements will be filed in Minnesota, reflecting the pledge and
assignment of the Contracts to the Indenture Trustee, and the Company's
accounting records and computer systems will also reflect such pledge and
assignment.
Briggs and Morgan, Professional Association, counsel to the Company,
will render an opinion to the Indenture Trustee that the transfer of the
Contracts from the Company to the Trust would, in the event the Company became
a debtor under the United States Bankruptcy Code, be treated as a true sale
and not as a pledge to secure borrowings. If, however, the transfer of the
Contracts from the Company to the Trust were treated as a pledge to secure
borrowings by the Company, the distribution of proceeds of the Contracts to
the Trust might be subject to the automatic stay provisions of the United
States Bankruptcy Code, which would delay the distribution of such proceeds
for an uncertain period of time. In addition, a
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bankruptcy trustee would have the power to sell the Contracts if the proceeds
of such sale could satisfy the amount of the debt deemed owed by the Company,
or the bankruptcy trustee could substitute other collateral in lieu of the
Contracts to secure such debt, or such debt could be subject to adjustment by
the bankruptcy trustee if the Company were to file for reorganization under
Chapter 11 of the United States Bankruptcy Code.
The Company will make certain representations and warranties in the Sale
and Servicing Agreement with respect to each Contract, including that: (a) for
each Contract as of the applicable Cut-off Date, the most recent scheduled
payment was made or was not delinquent more than 59 days; (b) no provision of a
Contract has been waived, altered or modified in any respect, except by
instruments or documents included in the Contract file and reflected on the
list of Contracts delivered to the Trust; (c) each Contract is a legal, valid
and binding obligation of the Obligor and is enforceable in accordance with its
terms (except as may be limited by laws affecting creditors' rights generally);
(d) no Contract is subject to any right of rescission, set-off, counterclaim or
defense; (e) each Contract was originated by a home improvement contractor or
home equity lender in the ordinary course of its business or was originated by
the Company directly; (f) no Contract was originated in or is subject to the
laws of any jurisdiction whose laws would make the transfer of the Contract or
an interest therein pursuant to the Agreement or the Notes unlawful; (g) each
Contract complies with all requirements of law; (h) no Contract has been
satisfied, subordinated to a lower lien ranking than its original position (if
any) or rescinded; (i) each Contract creates a valid and perfected lien on the
related real estate; (j) all parties to each Contract had full legal capacity
to execute such Contract; (k) no Contract has been sold, conveyed and assigned
or pledged to any other person and the Company has good and marketable title to
each Contract free and clear of any encumbrance, equity, lien, pledge, charge,
claim or security interest, and is the sole owner and has full right to
transfer such Contract to the Trust; (l) as of the Cut-off Date there was no
default, breach, violation or event permitting acceleration under any Contract
(except for payment delinquencies permitted by clauses (a) and (b) above), no
event that with notice and the expiration of any grace or cure period would
constitute a default, breach, violation or event permitting acceleration under
such Contract, and the Company has not waived any of the foregoing; (m) each
Contract is a fully-amortizing loan and provides for level monthly payments
based on its applicable Contract Rate, for the final monthly payment, over the
term of such Contract; (n) each Contract contains customary and enforceable
provisions such as to render the rights and remedies of the holder thereof
adequate for realization against the collateral; (o) the description of each
Contract set forth in the list delivered to the Trust is true and correct; (p)
there is only one original of each Contract; and (q) each Contract was
originated or purchased in accordance with the Company's then-current
underwriting guidelines.
The Company will also make certain representations and warranties with
respect to the Home Improvement Contracts in the aggregate, including that (i)
the aggregate pool of Home Improvement Contracts have a contractual rate of
interest of at least 12.89%; (ii) no Home Improvement Contract had a remaining
term to maturity at origination of more than 232 months; (iii) no more than 1%
of the Home Improvement Contracts, by principal balance as of the Cut-off Date,
were secured by properties located in an area with the same zip code; (iv) no
more than 5% of the Home Improvement Contracts, by principal balance as of the
Cut-off Date, were originated by any one contractor or lender; and (v) no
adverse selection procedures were employed in selecting the Home Improvement
Contracts from the Company's portfolio.
Under the terms of the Sale and Servicing Agreement, the Company has
agreed to repurchase, at the Repurchase Price (as defined below), any Contract
that is materially and adversely affected by a breach of a representation and
warranty with respect to such Contract made in the Sale and Servicing Agreement
if such breach has not been cured within 90 days of the day it was or should
have been discovered by the Servicer or the Indenture Trustee. The "Repurchase
Price," with respect to any Contract to be so repurchased or with respect to a
Liquidated Contract, means the outstanding principal balance of such Contract
plus interest on such Contract at the Interest Rate (which will be the weighted
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average of the Interest Rates of the related Classes of Notes) from the end of
the Due Period with respect to which the Obligor last made a scheduled payment
(without giving effect to any Advances made by the Servicer or the Indenture
Trustee) through the date of such repurchase or liquidation. This repurchase
obligation constitutes the sole remedy available to the Trust and the
Noteholders for a breach of a representation or warranty under the Agreement
with respect to the Contracts (but not with respect to any other breach by the
Company of its obligations under the Agreement).
COLLECTION AND OTHER SERVICING PROCEDURES
The Servicer will manage, administer, service and make collections on the
Contracts, exercising the degree of skill and care consistent with the highest
degree of skill and care that the Servicer exercises with respect to similar
contracts (including manufactured housing contracts) serviced by the Servicer.
The Servicer will not be required to cause to be maintained, or otherwise
monitor the maintenance of, hazard insurance on the improved properties. The
Company does, however, as a matter of its own policy, monitor proof of hazard
insurance coverage (other than flood insurance) and require that it be named as
an additional loss payee on all first lien secured contracts and generally on
junior lien secured contracts with amounts financed of over $20,000.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Servicer will receive a Monthly Servicing Fee for each Due Period
(paid on the next succeeding Payment Date) for servicing the Contracts equal to
one-twelfth of the product of .75% and the remaining Pool Scheduled Principal
Balance of the Contracts.
The Monthly Servicing Fee provides compensation for customary third-party
servicing activities to be performed by the Servicer for the Trust, for
additional administrative services performed by the Servicer on behalf of the
Trust and for expenses paid by the Servicer on behalf of the Trust. The
Servicer is also entitled to reimbursement out of the liquidation proceeds of a
Liquidated Contract for customary out-of-pocket liquidation expenses incurred
by it.
Customary servicing activities include collecting and recording payments,
communicating with Obligors, investigating payment delinquencies, providing
billing and tax records to Obligors and maintaining internal records with
respect to each Contract. Administrative services performed by the Servicer on
behalf of the Trust include selecting and packaging the Contracts, calculating
distributions to Noteholders and providing related data processing and
reporting services for Noteholders and on behalf of the Indenture Trustee.
Expenses incurred in connection with the servicing of the Contracts and paid by
the Servicer from its servicing fees include payment of fees and expenses of
accountants, payments of all fees and expenses incurred in connection with the
enforcement of Contracts or foreclosure on collateral relating thereto, payment
of Trustee's fees, and payment of expenses incurred in connection with
distributions and reports to Noteholders.
EVIDENCE AS TO COMPLIANCE
The Sale and Servicing Agreement provides for delivery to the Indenture
Trustee of a monthly report by the Servicer no later than one Business Day
following the Determination Date, setting forth the information described under
"Description of the Notes--Reports to the Noteholders." Each report to the
Indenture Trustee will be accompanied by a statement from an appropriate
officer of the Servicer certifying the accuracy of such report and stating that
the Servicer has not defaulted in the performance of its obligations under the
Sale and Servicing Agreement. On or before May 1 of each year, beginning in
1999, the Servicer will deliver to the Indenture Trustee a report of a
nationally recognized accounting firm, stating that such firm has examined
certain documents and records relating to the servicing of loans serviced by
the Servicer and stating that, on the basis of such examination, such servicing
has been conducted in compliance with the Sale and Servicing Agreement, except
for any exceptions set forth in such report.
The Sale and Servicing Agreement provides that the Servicer shall furnish
to the Indenture Trustee and the Note Insurer such reasonably pertinent
underlying data as can be generated by the Servicer's existing data processing
system without undue modification or expense.
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The Sale and Servicing Agreement provides that a Noteholder holding Notes
representing at least 5% of the Aggregate Principal Balance will have the same
rights of inspection as the Indenture Trustee and may upon written request to
the Servicer receive copies of all reports provided to the Indenture Trustee.
CERTAIN MATTERS RELATING TO THE COMPANY
The Sale and Servicing Agreement provides that the Company may not resign
from its obligations and duties as Servicer thereunder, except upon a
determination that the Company's performance of such duties is no longer
permissible under the Agreement or applicable law, and prohibits the Company
from extending credit to any Noteholder for the purchase of a Note, purchasing
Notes in any agency or trustee capacity or lending money to the Trust. The
Company can be removed as Servicer only pursuant to an Event of Termination as
discussed below.
REPURCHASE OPTION
Green Tree, the Servicer and the Note Insurer each will be permitted, at
its option, to purchase from the Trust, on any Distribution Date immediately
following any Monthly Period as of the last day of which the Pool Scheduled
Principal Balance is equal to or less than 10% of the Cut-off Date Pool
Principal Balance, all remaining Contracts and the other remaining Trust
Property at a price equal to the unpaid principal amount of the Notes and
Certificates, plus accrued and unpaid interest thereon, provided that all
amounts owed to the Note Insurer are paid in full.
ADMINISTRATOR
Green Tree Financial Servicing Corporation, a Delaware corporation (the
"Administrator"), will provide the notices and perform other administrative
obligations required by the Indenture and the Trust Agreement. The
Administrator, a subsidiary of Green Tree, will enter into an Administration
Agreement with the Trust and the Indenture Trustee relating to its duties and
obligations as Administrator.
REGISTRATION OF THE NOTES
The Notes initially will be represented by certificates registered in the
name of Cede & Co., the nominee of The Depository Trust Company ("DTC"). The
interests of beneficial owners of the Notes will be represented by book entries
on the records of the participating members of DTC. Definitive Notes will be
available only under the limited circumstances described herein. Holders of the
Notes may hold through DTC (in the United States), CEDEL or Euroclear (as
defined herein) (in Europe) if they are participants of such systems, or
indirectly through organizations that are participants in such systems.
CEDEL and Euroclear will hold omnibus positions in the Notes on behalf of
the CEDEL Participants and the Euroclear Participants, respectively, through
customers' securities accounts in CEDEL's and Euroclear's names on the books of
their respective depositaries (collectively, the "Depositaries"), which in turn
will hold such positions in customers' securities accounts in the Depositaries'
names on the books of DTC.
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Exchange Act. DTC accepts securities for deposit from its participating
organizations ("Participants") and facilitates the clearance and settlement of
securities transactions between Participants in such securities through
electronic book-entry changes in accounts of Participants, thereby eliminating
the need for physical movement of certificates. Participants include securities
brokers and dealers, banks and trust companies and clearing corporations and
may include certain other organizations. Indirect access to the DTC system is
also available to others such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a Participant,
either directly or indirectly ("indirect participants").
The beneficial owners of Notes ("Note Owners") who are not Participants
but desire to purchase, sell or otherwise transfer ownership of the Notes may
do so only through Participants (unless
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and until Definitive Notes, as defined below, are issued). In addition, Note
Owners will receive all distributions of principal of, and interest on, the
Notes from the Indenture Trustee through DTC and Participants. Note Owners will
not receive or be entitled to receive certificates representing their
respective interests in the Notes, except under the limited circumstances
described below.
Unless and until Definitive Notes (as defined below) are issued, it is
anticipated that the only "Noteholder" of the Notes will be Cede & Co., as
nominee of DTC. Note Owners will not be recognized by the Indenture Trustee as
Noteholders as that term is used in the Agreement. Note Owners are only
permitted to exercise the rights of Noteholders indirectly through Participants
and DTC.
While Notes are outstanding (except under the circumstances described
below), under the rules, regulations and procedures creating and affecting DTC
and its operations (the "Rules"), DTC is required to make book-entry transfers
among Participants on whose behalf it acts with respect to the Notes and is
required to receive and transmit distributions of principal of, and interest
on, the Notes. Participants with whom Note Owners have accounts with respect to
Notes are similarly required to make book-entry transfers and receive and
transmit such distributions on behalf of their respective Note Owners.
Accordingly, although Note Owners will not possess certificates, the Rules
provide a mechanism by which Note Owners will receive distributions and will be
able to transfer their interests.
Notes will be issued in registered form to Note Owners, or their
nominees, rather than to DTC (such Notes being referred to herein as
"Definitive Notes"), only if (i) DTC or the Company advise the Indenture
Trustee in writing that DTC is no longer willing or able to discharge properly
its responsibilities as nominee and depository with respect to the Notes and
the Company or the Indenture Trustee is unable to locate a qualified successor
or (ii) the Company at its sole option advises the Indenture Trustee in writing
that it elects to terminate the book-entry system through DTC. Upon issuance of
Definitive Notes to Note Owners, such Notes will be transferable directly (and
not exclusively on a book-entry basis) and registered holders will deal
directly with the Indenture Trustee with respect to transfers, notices and
distributions.
DTC has advised the Company that, unless and until Definitive Notes are
issued, DTC will take any action permitted to be taken by a Noteholder under
the Sale and Servicing Agreement only at the direction of one or more
Participants to whose DTC accounts the Notes are credited. DTC has advised the
Company that DTC will take such action with respect to any fractional interest
of the Notes only at the direction of and on behalf of such Participants
beneficially owning a corresponding fractional interest of the Notes. DTC may
take actions, at the direction of the Participants, with respect to some Notes
which conflict with actions taken with respect to other Notes.
Issuance of Notes in book-entry form rather than as physical certificates
may adversely affect the liquidity of the Notes in the secondary market and the
ability of Note Owners to pledge them. In addition, since distributions on the
Notes will be made by the Indenture Trustee to DTC and DTC will credit such
distributions to the accounts of its Participants, with the Participants
further crediting such distributions to the accounts of indirect participants
or Note Owners, Note Owners may experience delays in the receipt of such
distributions.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through CEDEL
Participants or Euroclear Participants, on the other, will be effected in DTC
in accordance with DTC rules on behalf of the relevant European international
clearing system by its Depositary; however, such cross-market transactions will
require delivery of instructions to the relevant European international
clearing system by the counterparty in such system in accordance with its rules
and procedures and within its established deadlines (European time). The
relevant European international clearing system will, if the transaction meets
its settlement requirements, deliver instructions to its Depositary to take
action to effect final settlement on its behalf by delivering or receiving
securities in DTC, and making or receiving payment in accordance with normal
procedures for same-day funds settlement applicable to DTC. CEDEL Participants
and Euroclear Participants may not deliver instructions directly to the
Depositaries.
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Because of time-zone differences, credits of securities in CEDEL or
Euroclear as a result of a transaction with a Participant will be made during
the subsequent securities settlement processing, dated the business day
following the DTC settlement date, and such credits or any transactions in such
securities settled during such processing will be reported to the relevant
CEDEL Participant or Euroclear Participant on such business day. Cash received
in CEDEL or Euroclear as a result of sales of securities by or through a CEDEL
Participant or a Euroclear Participant to a Participant will be received with
value on the DTC settlement date but will be available in the relevant CEDEL or
Euroclear cash account only as of the business day following settlement in DTC.
CEDEL is incorporated under the laws of Luxembourg as a professional
depository. CEDEL holds securities for its participating organizations ("CEDEL
Participants") and facilitates the clearance and settlement of securities
transactions between CEDEL Participants through electronic book-entry changes
in accounts of CEDEL Participants, thereby eliminating the need for physical
movement of certificates. Transactions may be settled in CEDEL in any of 28
currencies, including United States dollars. CEDEL provides to its CEDEL
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. CEDEL interfaces with domestic markets in several
countries. As a professional depository, CEDEL is subject to regulation by the
Luxembourg Monetary Institute. CEDEL Participants are recognized financial
institutions around the world, including underwriters, securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations and may include the Underwriters. Indirect access to CEDEL is
also available to others, such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a CEDEL
Participant, either directly or indirectly.
The Euroclear System was created in 1968 to hold securities for
participants of the Euroclear System ("Euroclear Participants") and to clear
and settle transactions between Euroclear Participants through simultaneous
electronic book-entry delivery against payment, thereby eliminating the need
for physical movement of certificates and any risk from lack of simultaneous
transfers of securities and cash. Transactions may now be settled in Euroclear
in any of 32 currencies, including United States dollars. The Euroclear System
includes various other services, including securities lending and borrowing,
and interfaces with domestic markets in several countries generally similar to
the arrangements for cross-market transfers with DTC described in Annex I
hereto. The Euroclear System is operated by Morgan Guaranty Trust Company of
New York, Brussels, Belgium office (the "Euroclear Operator" or "Euroclear"),
under contract with Euroclear Clearance System, S.C., a Belgian cooperative
corporation (the "Cooperative"). All operations are conducted by the Euroclear
Operator, and all Euroclear securities clearance accounts and Euroclear cash
accounts are accounts with the Euroclear Operator, not the Cooperative. The
Cooperative establishes policy for the Euroclear System on behalf of Euroclear
Participants. Euroclear Participants include banks (including central banks),
securities brokers and dealers and other professional financial intermediaries
and may include the Underwriters. Indirect access to the Euroclear System is
also available to other firms that clear through or maintain a custodial
relationship with a Euroclear Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it
is regulated and examined by the Board of Governors of the Federal Reserve
System and the New York State Banking Department, as well as the Belgian
Banking Commission.
Securities clearance accounts and cash accounts with the Euroclear
Operator are governed by the Terms and Conditions Governing Use of Euroclear
and the related Operating Procedures of the Euroclear System and applicable
Belgian law (collectively, the "Terms and Conditions"). The Terms and
Conditions govern transfers of securities and cash within the Euroclear System,
withdrawal of securities and cash from the Euroclear System, and receipts of
payments with respect to securities in the Euroclear System. All securities in
the Euroclear System are held on a fungible basis without attribution of
specific certificates to specific securities clearance accounts. The Euroclear
Operator acts under the Terms and Conditions only on behalf of Euroclear
Participants and has no record of or relationship with persons holding through
Euroclear Participants.
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Distributions with respect to Notes held through CEDEL or Euroclear will
be credited to the cash accounts of CEDEL Participants or Euroclear
Participants in accordance with the relevant system's rules and procedures, to
the extent received by its Depositary. Such distributions will be subject to
tax reporting in accordance with relevant United States tax laws and
regulations. See "Certain Federal Income Tax Consequences" in the Prospectus
and "Global Clearance, Settlement and Tax Documentation Procedures" in Annex I
to this Prospectus Supplement.
Although DTC, CEDEL and Euroclear have agreed to the foregoing procedures
in order to facilitate transfers of Notes among participants of DTC, CEDEL and
Euroclear, they are under no obligation to perform or continue to perform such
procedures and such procedures may be discontinued at any time.
THE NOTE INSURER
The information set forth in this section has been provided by Financial
Security Assurance Inc. ("Financial Security" or the "Note Insurer"). No
representation is made by the Company, the Underwriters or any of their
affiliates as to the accuracy or completeness of such information or any
information related to the Note Insurer incorporated by reference herein.
GENERAL
Financial Security is a monoline insurance company incorporated in 1984
under the laws of the State of New York. Financial Security is licensed to
engage in the financial guaranty insurance business in all 50 states, the
District of Columbia and Puerto Rico.
Financial Security and its subsidiaries are engaged in the business of
writing financial guaranty insurance, principally in respect of securities
offered in domestic and foreign markets. In general, financial guaranty
insurance consists of the issuance of a guaranty of scheduled payments of an
issuer's securities--thereby enhancing the credit rating of those securities--
in consideration for the payment of a premium to the insurer. Financial
Security and its subsidiaries principally insure asset-backed, collateralized
and municipal securities. Asset-backed securities are generally supported by
residential mortgage loans, consumer or trade receivables, securities or other
assets having an ascertainable cash flow or market value. Collateralized
securities include public utility first mortgage bonds and sale/leaseback
obligation bonds. Municipal securities consist largely of general obligation
bonds, special revenue bonds and other special obligations of state and local
governments. Financial Security insures both newly issued securities sold in
the primary market and outstanding securities sold in the secondary market that
satisfy Financial Security's underwriting criteria.
Financial Security is a wholly owned subsidiary of Financial Security
Assurance Holdings Ltd. ("Holdings"), a New York Stock Exchange listed company.
Major shareholders of Holdings include Fund American Enterprises Holdings,
Inc., MediaOne Capital Corporation, The Tokio Marine and Fire Insurance Co.,
Ltd. and EXEL Limited. No shareholder of Holdings is obligated to pay any debt
of Financial Security or any claim under any insurance policy issued by
Financial Security or to make any additional contribution to the capital of
Financial Security.
The principal executive offices of Financial Security are located at 350
Park Avenue, New York, New York 10022, and its telephone number at that
location is (212) 826-0100.
REINSURANCE
Pursuant to an intercompany agreement, liabilities on financial guaranty
insurance written or reinsured from third parties by Financial Security or its
domestic or Bermuda operating insurance company subsidiaries are generally
reinsured among such companies on an agreed-upon percentage substantially
proportional to their respective capital, surplus and reserves, subject to
applicable statutory risk limitations. In addition, Financial Security
reinsures a portion of its liabilities under certain of its financial guaranty
insurance policies with other reinsurers under various treaties and on a
transaction-by-transaction basis. Such reinsurance is utilized by Financial
Security as a risk management device and to comply with statutory and rating
agency requirements; it does not alter or limit Financial Security's
obligations under any financial guaranty insurance policy.
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RATINGS
Financial Security's insurance financial strength is rated "Aaa" by
Moody's; Financial Security's insurer financial strength is rated "AAA" by S&P
and Standard & Poor's (Australia) Pty. Ltd.; and Financial Security's claims
paying ability is rated "AAA" by Fitch IBCA, Inc. and Japan Rating and
Investment Information, Inc. Such ratings reflect only the views of the
respective rating agencies, are not recommendations to buy, sell or hold
securities and are subject to revision or withdrawal at any time by such rating
agencies. See "Summary of the Terms of the Notes--Ratings" herein.
CAPITALIZATION
The following table sets forth the capitalization of Financial Security
and its wholly owned subsidiaries on the basis of generally accepted accounting
principles as of September 30, 1998, as well as such capitalization as adjusted
to give effect to certain transactions entered into during November 1998:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
----------------------
(UNAUDITED)
(IN THOUSANDS)
AS
ACTUAL ADJUSTED(1)
---------- -----------
<S> <C> <C>
Deferred Premium Revenue
(net of prepaid reinsurance premiums)................. $ 480,089 $ 480,089
---------- ----------
Surplus Notes.......................................... 50,000 130,000
---------- ----------
Minority Interests..................................... -- 20,000
---------- ----------
Shareholder's Equity:
Common Stock......................................... 15,000 15,000
Additional Paid-In Capital........................... 614,787 684,787
Accumulated Other Comprehensive Income
(net of deferred income taxes)...................... 41,923 41,923
Accumulated Earnings................................. 326,145 326,145
Total Shareholder's Equity............................. 997,855 1,067,855
---------- ----------
Total Deferred Premium Revenue, Surplus Notes, Minority
Interests and Shareholder's Equity.................... $1,527,944 $1,697,944
========== ==========
</TABLE>
- --------
(1) Adjusted to give effect to the November 1998 (a) purchase by Holdings of
$80 million of surplus notes from the Note Insurer in connection with the
formation of a new indirect Bermuda subsidiary of the Note Insurer, initially
capitalized with $100 million, including a $20 million minority interest owned
by EXEL Limited, and (b) contribution by Holdings to the capital of the Note
Insurer of approximately $70 million, representing a portion of the proceeds
from the sale by Holdings of $100 million of 6.950% Senior Quarterly Income
Debt Securities due 2098.
For further information concerning Financial Security, see the
Consolidated Financial Statements of Financial Security Assurance Inc. and
Subsidiaries, and the notes thereto, incorporated by reference herein.
Financial Security's financial statements are included as exhibits to the
Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q filed with the
Securities and Exchange Commission by Holdings and may be reviewed at the EDGAR
website maintained by the Securities and Exchange Commission and at Holding's
website, http://www.FSA.com. Copies of the statutory quarterly and annual
statements filed with the State of New York Insurance Department by Financial
Security are available upon request to the State of New York Insurance
Department. Copies of the statutory quarterly and annual statements filed with
the State of New York Insurance Department by Financial Security are available
upon request to the State of New York Insurance Department.
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INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The financial statements of Financial Security and subsidiaries included
in, or as exhibits to, the following documents, which have been filed with the
Securities and Exchange Commission by Holdings, are hereby incorporated by
reference in the Registration Statement (as defined in the accompanying
Prospectus) of which this Prospectus Supplement and the Prospectus form a part:
(a) Annual Report on Form 10-K for the year ended December 31, 1997; and
(b) Quarterly Report on Form 10-Q for the quarter ended September 30, 1998.
All financial statements of Financial Security and subsidiaries included
in documents filed by Holdings pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934, as amended, subsequent to the date of this
Prospectus Supplement and prior to the termination of the offering of the Notes
shall be deemed to be incorporated by reference into this Prospectus Supplement
and to be a part hereof from the respective dates of the filing of such
documents.
Green Tree will provide without charge to any person to whom this
Prospectus Supplement is delivered, upon oral or written request of such
person, a copy of any or all of the foregoing financial statements incorporated
by reference. Requests for such copies should be directed to the Secretary,
Green Tree Financial Corporation, 1100 Landmark Towers, 345 St. Peter Street,
St. Paul, Minnesota 55102.
The Company on behalf of the Trust will undertake that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Trust's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act and each filing of the financial statements of Financial Security
included in or as an exhibit to the annual report of Holdings filed pursuant to
section 13(a) or Section 15(d) of the Exchange Act that is incorporated by
reference in the Registration Statement (as defined in the accompanying
Prospectus) shall be deemed to be a new registration statement relating to the
Notes offered hereby, and the offering of such Notes at that time shall be
deemed to be the initial bona fide offering thereof.
INSURANCE REGULATION
Financial Security is licensed and subject to regulation as a financial
guaranty insurance corporation under the laws of the State of New York, its
state of domicile. In addition, Financial Security and its insurance
subsidiaries are subject to regulation by insurance laws of the various other
jurisdictions in which they are licensed to do business. As a financial
guaranty insurance corporation licensed to do business in the State of New
York, Financial Security is subject to Article 69 of the New York Insurance Law
which, among other things, limits the business of each such insurer to
financial guaranty insurance and related lines, requires that each such insurer
maintain a minimum surplus to policyholders, establishes contingency, loss and
unearned premium reserve requirements for each such insurer, and limits the
size of individual transactions ("single risks") and the volume of transactions
("aggregate risks") that may be underwritten by each such insurer. Other
provisions of the New York Insurance Law, applicable to non-life insurance
companies such as Financial Security, regulate, among other things, permitted
investments, payment of dividends, transactions with affiliates, mergers,
consolidations, acquisitions or sales of assets and insurance of liability for
borrowings.
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THE NOTE INSURANCE POLICY
NOTE INSURANCE POLICY
The following summary of the terms of the Note Insurance Policy does not
purport to be complete and is qualified in its entirety by reference to the
Note Insurance Policy. A form of the Note Insurance Policy may be obtained,
upon request, from Green Tree.
Simultaneously with the issuance of the Notes, the Note Insurer will
deliver the Note Insurance Policy to the Indenture Trustee for the benefit of
the Class A Noteholders. Under the Note Insurance Policy, the Note Insurer will
irrevocably and unconditionally guarantee payment on each Payment Date to the
Indenture Trustee for the benefit of the Class A Noteholders of the Insured
Payments for such Payment Date calculated in accordance with the original terms
of the Class A Notes when issued and without regard to any amendment or
modification of the Class A Notes, the Indenture or the Sale and Servicing
Agreement, except amendments or modifications to which the Note Insurer has
given its prior written consent. An Insured Payment for a Payment Date, if any,
will equal the amount by which the sum of (a) the current interest payable on
the Class A Notes and (b) the Class A Principal Deficiency Amount (the amount
by which the principal balance of the Class A Notes exceeds the scheduled
principal balance of the Contracts) and (c) on the maturity date, the amount by
which the unpaid principal balance of the Class A Notes exceeds the cash
available to pay such amount on that Payment Date (without regard to any
Insured Payment to be made with respect to such Payment Date). Insured Payments
do not cover Realized Losses; provided, however, that the Note Insurer is
permitted at its sole option, but not required, to pay any losses in connection
with the liquidation of a Contract in accordance with the Note Insurance
Policy. Insured Payments do not cover deficiencies resulting from relief to
debtors under the federal Soldiers' and Sailors' Civil Relief Act of 1940.
Nevertheless, the effect of the Note Insurance Policy is to guaranty the timely
payments of interest on, and the ultimate payment of the principal amount of,
the Class A Notes.
Payment of claims under the Note Insurance Policy will be made by the
Note Insurer following Receipt by the Note Insurer of the appropriate notice
for payment on the later to occur of (a) 12:00 noon, New York City time, on the
second Business Day following Receipt of such notice for payment and (b) 12:00
noon, New York City time, on the relevant Payment Date.
If any payment of an amount guaranteed by the Note Insurer pursuant to
the Note Insurance Policy is avoided as a preference payment under applicable
bankruptcy, insolvency, receivership or similar law, the Note Insurer will pay
such amount out of the funds of the Note Insurer on the later of (a) the date
when due to be paid pursuant to the Order referred to below or (b) the first to
occur of (i) the fourth Business Day following Receipt by the Note Insurer from
the Indenture Trustee of (A) a certified copy of the order of the court or
other governmental body that exercised jurisdiction to the effect that a
Noteholder is required to return principal or interest distributed with respect
to a Note during the term of the Note Insurance Policy because such
distributions were avoidable preferences under applicable bankruptcy law (the
"Order"), (B) a certificate of the Class A Noteholders(s) that the Order has
been entered and is not subject to any stay, and (C) an assignment duly
executed and delivered by the Class A Noteholder(s) in such form as is
reasonably required by the Note Insurer and provided to the Class A
Noteholder(s) by the Note Insurer, irrevocably assigning to the Note Insurer
all rights and claims of the Class A Noteholder(s) relating to or arising under
the Class A Notes against the debtor that made such preference payment or
otherwise with respect to such preference payment, and (ii) the date of Receipt
by the Note Insurer from the Indenture Trustee of the items referred to in
clauses (A), (B) and (C) above if, at least four Business Days prior to such
date of Receipt, the Note Insurer shall have Received written notice from the
Indenture Trustee that such items were to be delivered on such date and such
date was specified in such notice. Such payment shall be disbursed to the
receiver, conservator, debtor-in-possession or trustee in bankruptcy named in
the Order and not to the Indenture Trustee or any Class A Noteholder directly
(unless a Class A Noteholder has previously paid such amount to the receiver,
conservator, debtor-in-possession or trustee in bankruptcy named in the Order,
in which case such payment shall be disbursed to the Indenture Trustee for
distribution to such Noteholder upon proof of such payment reasonably
satisfactory to the Note Insurer).
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The terms "Receipt" and "Received," with respect to the Note Insurance
Policy, mean actual delivery to the Note Insurer and to its fiscal agent
appointed by the Note Insurer at its option, if any, prior to 12:00 p.m., New
York City time, on a Business Day; delivery either on a day that is not a
Business Day or after 12:00 p.m., New York City time, shall be deemed to be
Receipt on the next succeeding Business Day. If any notice or certificate given
under the Note Insurance Policy by the Indenture Trustee is not in proper form
or is not properly completed, executed or delivered, it shall be deemed not to
have been Received, and the Note Insurer or the fiscal agent shall promptly so
advise the Indenture Trustee and the Indenture Trustee may submit an amended
notice.
Under the Note Insurance Policy, "Business Day" means any day other than
(i) a Saturday or Sunday or (ii) a day on which banking institutions in the
City of New York or the State of New York are authorized or obligated by law or
executive order to be closed. The Note Insurer's obligations under the Note
Insurance Policy to make Insured Payments shall be discharged to the extent
funds are transferred to the Indenture Trustee as provided in the Note
Insurance Policy, whether or not such funds are properly applied by the
Indenture Trustee.
The Note Insurer shall be subrogated to the rights of each Class A
Noteholder to receive payments of principal and interest, as applicable, with
respect to distribution on the Class A Notes to the extent of any payment by
the Note Insurer under the Note Insurance Policy. To the extent the Note
Insurer makes Insured Payments, either directly or indirectly (as by paying
through the Indenture Trustee), to the Class A Noteholders, the Note Insurer
will be subrogated to the rights of the Class A Noteholders, as applicable,
with respect to such Insured Payment and shall be deemed to the extent of the
payment so made to be a registered Class A Noteholder for purposes of payment.
Claims under the Note Insurance Policy will rank equally with any other
unsecured debt and unsubordinated obligations of the Note Insurer except for
certain obligations in respect of tax and other payments to which preference is
or may become afforded by statute. Claims against the Note Insurer under the
Note Insurance Policy constitute pari passu claims against the general assets
of the Note Insurer. The terms of the Note Insurance Policy cannot be modified
or altered by any other agreement or instrument, or by the merger,
consolidation or dissolution of the Company. The Note Insurance Policy may not
be canceled or revoked prior to payment in full of the Notes. The Note
Insurance Policy is governed by the laws of the State of New York. The Note
Insurance Policy is not covered by the Property/Casualty Insurance Security
Fund specified in Article 76 of the New York Insurance Law.
To the fullest extent permitted by applicable law, the Note Insurer
agrees under the Note Insurance Policy not to assert, and waives, for the
benefit of each Class A Noteholder, all of its rights (whether by counterclaim,
setoff or otherwise) and defense (including, without limitation, the defense of
fraud), whether acquired by subrogation, assignment or otherwise, to the extent
that such rights and defenses may be available to the Note Insurer to avoid
payment of its obligations under the Note Insurance Policy in accordance with
the express provisions of the Note Insurance Policy.
Pursuant to the terms of the Sale and Servicing Agreement and the
Indenture, unless a Note Insurer Default exists, the Note Insurer will be
deemed to be a Class A Noteholder for all purposes (other than with respect to
payment on the Class A Notes), will be entitled to exercise all rights of the
Class A Noteholders thereunder, without the consent of such Noteholders, and
the Class A Noteholders may exercise such rights only with the prior written
consent of the Note Insurer. In addition, the Note Insurer will have, as a
third party beneficiary to the Sale and Servicing Agreement, among others, the
following rights: (i) the right to give notices of breach or to terminate the
rights and obligations of the Servicer under the Sale and Servicing Agreement
in the event of a Servicer Termination Event (as defined in the Sale and
Servicing Agreement) and to institute proceedings against the Servicer; (ii)
the right to consent to or direct any waivers of defaults by the Servicer;
(iii) the right to remove the Indenture Trustee pursuant to the Indenture; (iv)
the right to direct the actions of the Indenture Trustee during the
continuation of a Servicer default; (v) the right to require the Company to
repurchase Contracts for breach of representation and warranty or defect in
documentation; (vi) the right to direct all matters relating to a bankruptcy or
other insolvency proceeding involving the Company; and (vii) the right to
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<PAGE>
direct the Indenture Trustee to investigate certain matters. The Note Insurer's
consent will be required prior to, among other things, (i) the removal of the
Indenture Trustee, (ii) the appointment of any successor Indenture Trustee or
Servicer or (iii) any amendment to the Sale and Servicing Agreement.
The Company, the Issuer and the Note Insurer will enter into an Insurance
and Indemnity Agreement (the "Insurance Agreement") pursuant to which the
Company will agree to reimburse, with interest, the Note Insurer for amounts
paid pursuant to claims under the Note Insurance Policy. The Company will
further agree to pay the Note Insurer all reasonable charges and expenses that
the Note Insurer may pay or incur relative to any amounts paid under the Note
Insurance Policy or otherwise in connection with the transaction and to
indemnify the Note Insurer against certain liabilities. Except to the extent
provided therein, amounts owing under the Insurance Agreement will be payable
solely from the Trust Estate. An "event of default" by the Company under the
Insurance Agreement will constitute a Servicer Termination Event under the Sale
and Servicing Agreement and allow the Note Insurer, among other things, to
direct the Indenture Trustee to terminate the Company or the Servicer. See
"Administration, Removal and Resignation of the Servicer" herein. An "event of
default" under the Insurance Agreement includes (i) the Company's or the
Issuer's failure to pay when due any amount owed under the Insurance Agreement
or certain other documents, (ii) the inaccuracy or incompleteness in any
material respect of any representation or warranty of the Company or the Issuer
in the Insurance Agreement, the Sale and Servicing Agreement or certain other
documents, (iii) the Company's or the Issuer's failure to perform or to comply
with any covenant or agreement in the Insurance Agreement, the Sale and
Servicing Agreement and certain other documents, (iv) a finding or ruling by a
governmental authority or agency that the Insurance Agreement, the Sale and
Servicing Agreement or certain other documents are not binding on the Company
or the Issuer, (v) the Company's failure to pay its debts in general or the
occurrence of certain events of insolvency or bankruptcy with respect to the
Company or the Issuer and (vi) the occurrence of certain "performance test
violations" designed to measure the performance of the Contracts.
DESCRIPTION OF THE LIMITED GUARANTY
In order to mitigate the effect of the subordination of the Class B-2
Notes and liquidation losses and delinquencies on the Contracts, the Company
will provide a guaranty (the "Class B-2 Limited Guaranty") against losses that
would otherwise be borne by the Class B-2 Notes. Each payment required to be
made under the Class B-2 Limited Guaranty is referred to as a "Class B-2
Guaranty Payment." Prior to the Class B-1 Cross-over Date, and on any Payment
Date on or after the Class B-1 Cross-over Date on which a Class B Principal
Distribution Test is not satisfied, the Class B-2 Guaranty Payment will equal
the amount, if any, by which (i) the sum of (a) the Class B-2 Formula
Distribution Amount for such Payment Date (which will be equal to accrued and
unpaid interest on the Class B-2 Notes) and (b) the Class B-2 Liquidation Loss
Principal Amount, if any, for such Payment Date exceeds (ii) the Class B-2
Distribution Amount for such Payment Date. The Class B-2 Liquidation Loss
Principal Amount for any Payment Date equals the amount, if any, by which the
sum of the Class A Principal Balance, the Class M Principal Balance and the
Class B Principal Balance for such Payment Date exceeds the Pool Scheduled
Principal Balance for such Payment Date (but in no event greater than the Class
B-2 Principal Balance). The Class B-2 Liquidation Loss Principal Amount is, in
substance, the amount of delinquencies and losses experienced on the Contracts
during the related Due Period that was not absorbed by the Certificate and the
related Monthly Servicing Fee otherwise payable to the Company (so long as the
Company or any wholly owned subsidiary of the Company is the Servicer) with
respect to the Contracts. On each Payment Date on or after the Class B-1 Cross-
over Date, if each Class B Principal Distribution Test is satisfied on such
Payment Date (or the Class A Principal Balance and the Class M Principal
Balance have been reduced to zero), the Class B-2 Guaranty Payment will equal
the amount, if any, by which (a) the sum of (i) the Class B-2 Formula
Distribution Amount for such Payment Date (which will include both interest and
principal) and (ii) the Class B-2 Liquidation Loss Principal Amount, if any,
for such Payment Date exceeds (b) the Class B-2 Distribution Amount for such
Payment Date.
The Class B-2 Limited Guaranty will be an unsecured general obligation of
the Company and will not be supported by any letter of credit or other credit
enhancement arrangement. The Class B-2
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<PAGE>
Limited Guaranty will not benefit in any way, or result in any payment to, the
Class A, Class M or Class B-1 Noteholders.
CERTAIN FEDERAL AND STATE INCOME TAX CONSEQUENCES
The following is a general discussion of certain federal and state income
tax consequences relating to the purchase, ownership and disposition of the
Notes. The discussion is based upon the current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), the Treasury regulations
promulgated thereunder, and judicial or ruling authority, all of which are
subject to change, which change may be retroactive. For additional information
regarding federal and state income tax consequences, see "Certain Federal
Income Tax Consequences" and "Certain State Income Tax Consequences" in the
Prospectus.
Prospective investors should consult their own tax advisors to determine
the federal, state, local and other tax consequences of the purchase, ownership
and disposition of the Notes. Prospective investors should note that no rulings
have been or will be sought from the Internal Revenue Service (the "IRS") with
respect to any of the federal income tax consequences discussed herein or in
the accompanying Prospectus, and no assurance can be given that the IRS will
not take contrary positions. Moreover, there are no cases or IRS rulings on
transactions similar to those described herein with respect to the Trust,
involving both debt and equity interests issued by a trust with terms similar
to those of the Notes and the Certificates. Prospective investors are urged to
consult their own tax advisors in determining the federal, state, local,
foreign and any other tax consequences to them of the purchase, ownership and
disposition of the Notes.
In the opinion of Briggs and Morgan, Professional Association, for
Federal and Minnesota income tax purposes, the Notes will be characterized as
debt and the Trust will not be characterized as an association (or a publicly
traded partnership) taxable as a corporation and neither the Trust nor any
portion of the Trust will constitute a taxable mortgage pool taxable as a
corporation.
The Class A-1 and Class A-2 Notes will not be issued with original issue
discount ("OID"). Depending upon the price at which a substantial portion of a
Class of Notes is sold, the Class M-1, Class M-2 and Class B-1 Notes may be
issued with OID.
The prepayment assumption that will be used in determining the rate of
accrual of original issue discount, market discount and premium, if any, for
federal income tax purposes will be 100% of the Prepayment Assumption. No
representation is made that the Contracts will prepay at that rate or any other
rate.
The Notes will not be treated as assets described in Section
7701(a)(19)(C) of the Code and "real estate assets" under Section 856(c)(4)(A)
of the Code. In addition, interest on the Notes will not be treated as
"interest on obligations secured by mortgages on real property" under Section
856(c)(3)(B) of the Code. The Notes also will not be treated as "qualified
mortgages" under Section 860G(a)(3)(C) of the Code.
ERISA CONSIDERATIONS
The following information supplements, and to the extent inconsistent
therewith supersedes, the information in the Prospectus under "ERISA
Considerations."
Section 406 of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and Section 4975 of the Code, prohibit a pension, profit-
sharing or other employee benefit plan, 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"
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<PAGE>
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 Trust were deemed to be assets of a Benefit Plan. Under a
regulation issued by the United States Department of Labor (the "Plan Assets
Regulation"), the assets of the Trust would be treated as plan assets of a
Benefit Plan for the purposes of ERISA and the Code only if the Benefit Plan
acquires an "Equity Interest" in the Trust and none of the exceptions contained
in the Plan Assets Regulation is applicable. An equity interest is defined
under the Plan Assets Regulation as an interest other than an instrument which
is treated as indebtedness under applicable local law and which has no
substantial equity features. Green Tree believes that, as of the date of this
prospectus supplement, the Notes should be treated as indebtedness without
substantial equity features for purposes of the Plan Assets Regulation.
However, without regard to whether the Notes are treated as an Equity Interest
for such purposes, the acquisition or holding of Notes by or on behalf of a
Benefit Plan could be considered to give rise to a prohibited transaction if
the Trust, the Owner Trustee or the Indenture Trustee, the owner of collateral,
the Underwriters, 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 asset invested and the
position of the plan fiduciary making the decision to acquire a Note. Included
among these exemptions are: Prohibited Transaction Class Exemption ("PTCE") 90-
1, regarding investments by insurance company pooled separate accounts; PTCE
91-38, regarding investments by bank collective investment funds; PTCE 84-14,
regarding transactions effected by "qualified professional asset managers"; and
PTCE 96-23, regarding transactions effected by "in-house asset managers."
In addition, if the Notes were treated as an Equity Interest in the
future, the assets of the Trust could be treated as plan assets of a Benefit
Plan for the purposes of ERISA and the Code. In view of the investor-specific
nature of the conditions on the exemptive relief available under ERISA and the
Code, each investor should determine whether it is investing plan assets in the
Notes and, if it is, should determine that appropriate exemptive relief from
ERISA's prohibited transaction provisions is available. By acquiring Notes,
each purchaser will be deemed to represent that either (1) it is not acquiring
the Note with the assets of a Benefit Plan; or (2) the acquisition and holding
of the Note will not give rise to a nonexempt prohibited transaction under
Section 406(a) of ERISA or Section 4975 of the Code.
Employee benefit plans that are governmental plans (as defined in Section
3(32) of ERISA) and certain church plans (as defined in Section 3(33) of ERISA)
are not subject to ERISA requirements. Such plans may, however, be subject to
the provisions of other applicable federal and state laws, including, for any
such governmental or church plan qualified under Section 401(a) of the Code and
exempt from taxation under Section 501(a) of the Code, the prohibited
transaction rules set forth in Section 503 of the Code.
A plan fiduciary considering the purchase of Notes should consult its tax
and/or legal advisors regarding whether the assets of the Trust would be
considered plan assets, the possibility of exemptive relief from the prohibited
transaction rules and other issues and their potential consequences.
EXPERTS
The consolidated balance sheets of Financial Security Assurance Inc. and
Subsidiaries as of December 31, 1997 and 1996 and the related consolidated
statements of income, changes in shareholder's equity, and cash flows for each
of the three years in the period ending December 31, 1997, incorporated by
reference in this Prospectus Supplement have been incorporated herein in
reliance on the report of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of that firm as experts in accounting and auditing.
S-58
<PAGE>
UNDERWRITING
The Underwriters have agreed, subject to the terms and conditions of the
Underwriting Agreement, to purchase from the Company the respective principal
amounts of the Notes set forth opposite their names below.
<TABLE>
<CAPTION>
PRINCIPAL PRINCIPAL
AMOUNT OF AMOUNT OF
CLASS CLASS
UNDERWRITER A-1 NOTES A-2 NOTES
----------- ------------ -----------
<S> <C> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................ $245,280,000 $ 0
Lehman Brothers Inc. .............................. 0 99,645,000
------------ -----------
Totals........................................... $245,280,000 $99,645,000
============ ===========
</TABLE>
In the Underwriting Agreement, the Underwriters have agreed, subject to
the terms and conditions set forth therein, to purchase all of the Class A-1
and Class A-2 Notes offered hereby if any such Notes are purchased. In the
event of a default by the Underwriters, the Underwriting Agreement provides
that, in certain circumstances, the Underwriting Agreement may be terminated.
The Company has been advised by the Underwriters that they propose
initially to offer the Notes to the public at the respective offering prices
set forth on the cover page of this Prospectus Supplement and to certain
dealers at such price less a concession not in excess of the respective amounts
set forth in the table below (expressed as a percentage of the relative
Principal Balance). The Underwriters may allow and such dealers may reallow a
discount not in excess of the respective amounts set forth in the table below
to certain other dealers.
<TABLE>
<CAPTION>
SELLING REALLOWANCE
CLASS CONCESSION DISCOUNT
----- ---------- -----------
<S> <C> <C>
A-1.............................................. 0.2% 0.075%
A-2.............................................. 0.2% 0.075%
</TABLE>
In general, purchases of a security for the purpose of stabilization
could cause the price of the security to be higher than it might be in the
absence of such purchases.
Neither the Company nor any of the Underwriters makes any representations
or prediction as to the direction or magnitude of any effect that the
transactions described above may have on the prices of the Class A-1 and Class
A-2 Notes. In addition, neither the Company 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.
Until the distribution of the Class A-1 and Class A-2 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 Class A-1 and Class A-2
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 purposes of pegging, fixing
or maintaining the price of the Class A-1 and Class A-2 Notes.
Each Underwriter has represented, warranted and agreed that (i) it has
not offered or sold and, prior to the expiration of the period of six months
from the Closing Date, will not offer or sell any Class Class A-1 and Class A-2
Notes to persons in the United Kingdom except to persons whose ordinary
activities involve them in acquiring, holding, managing or disposing of
investments (as principal or agent) for the purposes of their businesses or
otherwise in circumstances which have not resulted and will not result in an
offer to the public in the United Kingdom within the meaning of the Public
Offers of Securities Regulations 1995; (ii) it has complied and will comply
with all applicable provisions of the
S-59
<PAGE>
Financial Services Act 1986 with respect to anything done by it in relation to
the Class A-1 and Class A-2 Notes in, from or otherwise involving the United
Kingdom; and (iii) it has only issued or passed on and will only issue or pass
on in the United Kingdom any document received by it in connection with the
issue of the Class A-1 and Class A-2 Notes to a person who is of a kind
described in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1995 (as amended) or is a person to whom
such document may otherwise lawfully be issued or passed on.
Subject to the terms and conditions set forth in an Underwriting
Agreement relating to the Class M and Class B-1 Notes, the Underwriters have
agreed to offer the Class M and Class B-1 Notes on a best effort basis and the
Company has agreed to sell the Class M and Class B-1 Notes if and when sold by
the Underwriters.
Each Underwriting Agreement provides that the Company will indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended, or contribute to payments the Underwriters
may be required to make in respect thereof.
The Company has agreed that for a period of 30 days from the date of this
Prospectus Supplement it will not offer or sell publicly any other home
improvement contract or home equity loan pass-through certificates without the
consent of the Underwriters.
Each of the Underwriters (or affiliates thereof) has from time to time
provided or may in the future provide warehouse and other financing to the
Company or its affiliates.
LEGAL MATTERS
Certain legal matters relating to the issuance of the Notes will be
passed upon for the Company and the Trust by Briggs and Morgan, Professional
Association, St. Paul and Minneapolis, Minnesota, and for the Underwriters by
Thacher Proffitt & Wood, New York, New York. The material federal income tax
consequences of the Notes will be passed upon for the Company by Briggs and
Morgan, Professional Association.
S-60
<PAGE>
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the Certificates will be
available only in book-entry form (the "Global Certificates"). Investors in the
Global Certificates may hold such Global Certificates through any of DTC, CEDEL
or Euroclear. The Global Certificates will be tradeable as home market
instruments in both the European and U.S. domestic markets. Initial settlement
and all secondary trades will settle in same-day funds.
Secondary market trading between investors holding Global Certificates
through CEDEL and Euroclear will be conducted in the ordinary way in accordance
with their normal rules and operating procedures and in accordance with
conventional eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Global Certificates
through DTC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations.
Secondary cross-market trading between CEDEL or Euroclear and DTC
Participants holding Certificates will be effected on a delivery-against-
payment basis through the respective Depositaries of CEDEL and Euroclear (in
such capacity) and DTC Participants.
Non-U.S. holders (as described below) of Global Certificates will be
subject to U.S. withholding taxes unless such holders meet certain requirements
and deliver appropriate U.S. tax documents to the securities clearing
organizations or their participants.
INITIAL SETTLEMENT
All Global Certificates will be held in book-entry form by DTC in the
name of Cede & Co. as nominee of DTC. Investors' interests in the Global
Certificates will be represented through financial institutions acting on their
behalf as direct and indirect Participants in DTC. As a result, CEDEL and
Euroclear will hold positions on behalf of their participants through their
respective Depositaries, which in turn will hold such positions in accounts as
DTC Participants.
Investors electing to hold their Global Certificates through DTC will
follow the settlement practices applicable to United States corporate debt
obligations. Investors securities custody accounts will be credited with their
holdings against payment in same-day funds on the settlement date.
Investors electing to hold their Global Certificates through CEDEL or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global Certificates will be credited to
the securities custody accounts on the settlement date against payments in
same-day funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled using the procedures applicable to book-entry
securities in same-day funds.
Trading between CEDEL or Euroclear Participants. Secondary market trading
between CEDEL Participants or Euroclear Participants will be settled using the
procedures applicable to conventional eurobonds in same-day funds.
A-1
<PAGE>
Trading between DTC seller and CEDEL or Euroclear purchaser. When Global
Certificates are to be transferred from the account of a DTC Participant to the
account of a CEDEL Participant or a Euroclear Participant, the purchaser will
send instructions to CEDEL or Euroclear through a CEDEL Participant or
Euroclear Participant at least one business day prior to settlement. CEDEL or
Euroclear, as applicable, will instruct its Depositary to receive the Global
Certificates against payment. Payment will include interest accrued on the
Global Certificates from and including the last coupon payment date to and
excluding the settlement date. Payment will then be made by such Depositary to
the DTC Participant's account against delivery of the Global Certificates.
After settlement has been completed, the Global Certificates will be credited
to the applicable clearing system and by the clearing system, in accordance
with its usual procedures, to the CEDEL Participant's or Euroclear
Participant's account. The Global Certificates credit will appear the next day
(European time) and the cash debit will be back-valued to, and the interest on
the Global Certificates will accrue from, the value date (which would be the
preceding day when settlement occurred in New York). If settlement is not
completed on the intended value date (i.e., the trade fails), the CEDEL or
Euroclear cash debit will be valued instead as of the actual settlement date.
CEDEL Participants and Euroclear Participants will need to make available
to the respective clearing systems the funds necessary to process same-day
funds settlement. The most direct means of doing so is to pre-position funds
for settlement, either from cash on hand or existing lines of credit, as they
would for any settlement occurring within CEDEL or Euroclear. Under this
approach, they may take on credit exposure to CEDEL or Euroclear until the
Global Certificates are credited to their accounts one day later.
As an alternative, if CEDEL or Euroclear has extended a line of credit to
them, CEDEL Participants or Euroclear Participants can elect not to pre-
position funds and allow that credit line to be drawn upon the finance
settlement. Under this procedure, CEDEL Participants or Euroclear Participants
purchasing Global Certificates would incur overdraft charges for one day,
assuming they cleared the overdraft when the Global Certificates were credited
to their accounts. However, interest on the Global Certificates would accrue
from the value date. Therefore, in many cases the investment income on the
Global Certificates earned during that one-day period may substantially reduce
or offset the amount of such overdraft charges, although this result will
depend on each CEDEL Participant's or Euroclear Participant's particular cost
of funds.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for sending Global Certificates
to the respective Depositary for the benefit of CEDEL Participants or Euroclear
Participants. The sale proceeds will be available to the DTC seller on the
settlement date. Thus, to the DTC Participant a cross-market transaction will
settle no differently than a trade between two DTC Participants.
Trading between CEDEL or Euroclear seller and DTC purchaser. Due to time
zone differences in their favor, CEDEL Participants and Euroclear Participants
may employ their customary procedures for transactions in which Global
Certificates are to be transferred by the respective clearing systems, through
their respective Depositaries, to a DTC Participant. The seller will send
instructions to CEDEL or Euroclear through a CEDEL Participant or Euroclear
Participant at least one business day prior to settlement. In these cases,
CEDEL or Euroclear will instruct their respective Depositaries, as appropriate,
to deliver the Certificates to the DTC Participant's account against payment.
Payment will include interest accrued on the Global Certificates from and
including the last coupon payment date to and excluding the settlement date.
The payment will then be reflected in the account of the CEDEL Participant or
Euroclear Participant the following day, and receipt of the cash proceeds in
the CEDEL Participant's or Euroclear Participant's account would be back-valued
to the value date (which would be the preceding day, when settlement occurred
in New York). Should the CEDEL Participant or Euroclear Participant have a line
of credit with its clearing system and elect to be in debit in anticipation of
receipts of the sale proceeds in its account, the bank-valuation will
extinguish any overdraft charges incurred over that one-day period. If
settlement is not completed on the intended value date (i.e., the trade fails),
receipt of the cash proceeds in the CEDEL Participant's or Euroclear
Participant's account would instead be valued as of the actual settlement date.
Finally, day traders that use CEDEL or Euroclear and that
A-2
<PAGE>
purchase Global Certificates from DTC Participants for delivery to CEDEL
Participants or Euroclear Participants should note that these trades would
automatically fail on the sale side unless affirmative action were taken. At
least three techniques should be readily available to eliminate this potential
problem:
(a) borrowing through CEDEL or Euroclear for one day (until the purchase
side of the day trade is reflected in their CEDEL or Euroclear
accounts) in accordance with the clearing system's customary
procedures;
(b) borrowing the Global Certificates in the U.S. from a DTC Participant no
later than one day prior to settlement, which would give the Global
Certificates sufficient time to be reflected in their CEDEL or
Euroclear account in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade so
that the value date for the purchase from the DTC Participant is at
least one day prior to the value date for the sale to the CEDEL
Participant or Euroclear Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Certificates holding securities through
CEDEL or Euroclear (or through DTC if the holder has an address outside the
U.S.) will be subject to the 30% U.S. withholding tax that generally applies to
payments of interest (including original issue discount) on registered debt
issued by U.S. Persons, unless (i) each clearing system, bank or other
financial institution that holds customers' securities in the ordinary course
of its trade or business in the chain of intermediaries between such beneficial
owner and the U.S. entity required to withhold tax complies with applicable
certification requirements and (ii) such beneficial owner takes one of the
following steps to obtain an exemption or reduced tax rate:
Exemption of non-U.S. Persons (Form W-8). Beneficial owners of
Certificates that are non-U.S. Persons generally can obtain a complete
exemption from the withholding tax by filing a signed Form W-8 (Certificate
of Foreign Status) and a certificate under penalties of perjury (the "Tax
Certificate") that such beneficial owner is (i) not a controlled foreign
corporation (within the meaning of Section 957(a) of the Code) that is
related (within the meaning of Section 846(d)(4) of the Code) to the Trust
or the Transferor and (ii) not a 10% shareholder (within the meaning of
Section 871(h)(3)(B) of the Code) of the Trust or the Transferor. If the
information shown on Form W-8 or the Tax Certificate changes, a new Form W-
8 or Tax Certificate, as the case may be, must be filed within 30 days of
such change.
Exemption for non-U.S. Persons with effectively connected income
(Form 4224). A non-U.S. Person, including a non-U.S. corporation or bank
with a U.S. branch, for which the interest income is effectively connected
with its conduct of a trade or business in the United States can obtain an
exemption from the withholding tax by filing Form 4224 (Exemption from
Withholding of Tax on Income Effectively Connected with the Conduct of a
Trade or Business in the United States).
Exemption or reduced rate for non-U.S. Persons resident in treaty
countries (Form 1001). Non-U.S. Persons that are beneficial owners of
Certificates residing in a country that has a tax treaty with the United
States can obtain an exemption or reduced tax rate (depending on the treaty
terms) by filing Form 1001 (Ownership, Exemption or Reduced Rate
Certificate). If the treaty provides only for a reduced rate, withholding
tax will be imposed at that rate unless the filer alternatively files Form
W-8. Form 1001 may be filed by the beneficial owner of Certificates or such
owner's agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a
complete exemption from the withholding tax by filing Form W-9 (Payer's
Request for Taxpayer Identification Number and Certification).
A-3
<PAGE>
U.S. Federal Income Tax Reporting Procedure. The beneficial owner of
a Global Certificate or, in the case of a Form 1001 or a Form 4224 filer,
such owner's agent, files by submitting the appropriate form to the person
through whom it holds the security (the clearing agency, in the case of
persons holding directly on the books of the clearing agency). Form W-8 and
Form 1001 are effective for three calendar years and Form 4224 is effective
for one calendar year.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation or partnership organized in or under the laws of the
United States or any political subdivision thereof (except, in the case of a
partnership, to the extent provided in regulations), (iii) an estate the income
of which is includible in gross income for United States tax purposes,
regardless of its source or (iv) a trust other than a foreign trust within the
meaning of Section 7701 (1)(31) of the Code. To the extent prescribed in
regulations by the Secretary of the Treasury, which regulations have not yet
been issued, a trust which was in existence on August 20, 1996 (other than a
trust treated as owned by the grantor under Subpart E of Part 1 of Subchapter J
of Chapter 1 of the Code), and which was treated as a United States person on
August 19, 1996, may elect to continue to be treated as a United States person
notwithstanding the previous sentence. This summary does not deal with all
aspects of U.S. federal income tax withholding that may be relevant to foreign
holders of the Global Certificates. Investors are advised to consult their own
tax advisors for specific tax advice concerning their holding and disposing of
the Global Certificates.
A-4
<PAGE>
PROSPECTUS
GREEN TREE HOME IMPROVEMENT AND HOME EQUITY LOAN TRUSTS
LOAN-BACKED NOTES
LOAN-BACKED CERTIFICATES
---------------
GREEN TREE FINANCIAL CORPORATION
(SELLER AND SERVICER)
---------------
The Loan-Backed Notes (the "Notes") and the Loan-Backed Certificates (the
"Certificates" and, collectively with the Notes, the "Securities") described
herein may be sold from time to time in one or more series (each, a "Series"),
in amounts, at prices and on the terms to be determined at the time of sale
and to be set forth in a supplement to this Prospectus (a "Prospectus
Supplement"). Each Series of Securities will include either one or more
classes (each, a "Class") of Notes or, if Certificates are issued as part of a
Series, one or more Classes of Notes and one or more Classes of Certificates,
as set forth in the related Prospectus Supplement.
The Notes and the Certificates, if any, of any Series of Securities will be
issued by a trust (a "Trust") to be formed with respect to such Series by
Green Tree Financial Corporation ("Green Tree"). The assets of each Trust (the
"Trust Property") will include specified interests in separate pools of (i)
home improvement contracts and promissory notes (the "Home Improvement
Contracts") and (ii) closed-end home equity loans, and liens on the related
real estate (the "Home Equity Contracts," and, together with the Home
Improvement Contracts, the "Contracts"), as more particularly described
herein. Except as otherwise specified in the related Prospectus Supplement,
the Contracts will have been originated in the ordinary course of business by
Green Tree. Specific information, to the extent available, regarding the size
and composition of the pool of Contracts relating to each Series of Securities
will be set forth in the related Prospectus Supplement. Green Tree will act as
Servicer (in such capacity referred to herein as the "Servicer") of the
Contracts. In addition, if so specified in the related Prospectus Supplement,
the Trust Property will include monies on deposit in one or more trust
accounts to be established with an Indenture Trustee, which may include a Pre-
Funding Account which would be used to purchase additional Contracts (the
"Subsequent Contracts") from the Seller from time to time during the Pre-
Funding Period specified in the related Prospectus Supplement.
Each Trust will be formed pursuant to a Trust Agreement (the "Trust
Agreement") to be entered into among the Seller, the Owner Trustee and certain
other parties as specified in the related Prospectus Supplement. A Sale and
Servicing Agreement (the "Sale and Servicing Agreement") will be entered into
among Green Tree, as Seller and Servicer, and each Trust. The Trust Agreement
and the Sale and Servicing Agreement are collectively referred to herein as
the "Trust Documents." The Notes of a Series will be issued and secured
pursuant to an Indenture (the "Indenture") between the Trust and the Indenture
Trustee specified in the related Prospectus Supplement (the "Indenture
Trustee").
(Continued on next page)
FOR A DISCUSSION OF CERTAIN FACTORS WHICH SHOULD BE CONSIDERED BY PROSPECTIVE
PURCHASERS OF THE SECURITIES, SEE "RISK FACTORS" AT PAGE 15 HEREIN AND IN THE
RELATED PROSPECTUS SUPPLEMENT.
---------------
THE CERTIFICATES REPRESENT INTERESTS IN AND THE NOTES REPRESENT OBLIGATIONS
OF THE RELATED TRUST AND DO NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF GREEN
TREE (EXCEPT TO THE LIMITED EXTENT DESCRIBED HEREIN AND IN THE RELATED
PROSPECTUS SUPPLEMENT) OR ANY AFFILIATE OF GREEN TREE.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
---------------
Retain this Prospectus for future reference. This Prospectus may not be used
to consummate sales of securities offered hereby unless accompanied by a
Prospectus Supplement.
THE DATE OF THIS PROSPECTUS IS OCTOBER 9, 1998.
<PAGE>
(Continued from previous page)
Except as otherwise provided in the related Prospectus Supplement, each
Class of Securities of any Series will represent the right to receive a
specified amount of payments of principal and interest on the related
Contracts in the manner described herein and in the related Prospectus
Supplement. The right of each Class of Securities to receive payments may be
senior or subordinate to the rights of one or more of the other Classes of
such Series. A Series may include two or more Classes of Certificates or Notes
which differ as to the timing and priority of payment, interest rate or amount
of distributions in respect of principal or interest or both. A Series may
include one or more Classes of Certificates or Notes entitled to distributions
in respect of principal, with disproportionate, nominal or no interest
distributions, or to interest distributions, with disproportionate, nominal or
no distributions in respect of principal. Distributions on Certificates of any
Series, if any, will be subordinated in priority to payments due on the
related Notes to the extent described herein and in the related Prospectus
Supplement. The Certificates will represent fractional undivided interests in
the related Trust.
Each Class of Securities will represent the right to receive distributions
or payments in the amounts, at the rates, and on the dates set forth in the
related Prospectus Supplement. The rate of distributions in respect of
principal on Certificates and payment in respect of principal on Notes of any
Class will depend on the priority of payment of such Class and the rate and
timing of payments (including prepayments, liquidations and repurchases of
Contracts) on the related Contracts.
Except as otherwise specified in the related Prospectus Supplement, the only
obligations of Green Tree with respect to a Series of Securities will be
pursuant to certain limited representations and warranties. Except as
otherwise specified in the related Prospectus Supplement, the Servicer's
obligations with respect to the Securities evidencing interests in a pool of
Contracts are limited to its contractual servicing obligations. If so
specified in the related Prospectus Supplement, the Servicer may be obligated,
under certain terms and conditions, to advance the amount of any delinquent
payments of principal and interest during the immediately preceding Due Period
(as defined herein), but only to the extent the Servicer determines such
advances are recoverable from future payments and collections on the
delinquent Contracts. See "Description of the Trust Documents--Advances."
If specified in the related Prospectus Supplement, a financial guaranty
insurance policy, letter of credit, surety bond, Green Tree guaranty, cash
reserve fund, or other form of credit enhancement, or any combination thereof,
may be provided with respect to a Trust or any Class of Securities.
Unless otherwise provided in the related Prospectus Supplement, the Notes
and the Certificates, if any, of any Series initially will be represented by
certificates and notes registered in the name of Cede & Co., the nominee of
The Depository Trust Company ("DTC"). The interests of beneficial owners of
the Securities will be represented by book entries on the records of the
participating members of DTC. Definitive Securities will be available only
under limited circumstances.
There currently is no secondary market for the Securities. There can be no
assurance that any such market will develop or, if it does develop, that it
will continue. The Securities will not be listed on any securities exchange.
2
<PAGE>
AVAILABLE INFORMATION
Green Tree, as originator of each Trust, has filed with the Securities and
Exchange Commission (the "Commission") a Registration Statement (together with
all amendments and exhibits thereto, referred to herein as the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities
Act"), with respect to the Securities offered pursuant to this Prospectus. For
further information, reference is made to the Registration Statement which is
available for inspection without charge at the office of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of the
Commission at Seven World Trade Center, Suite 1300, New York, New York 10048
and at Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511, and copies of which may be obtained from the
Commission at prescribed rates. The Commission also maintains a Web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission.
REPORTS TO SECURITYHOLDERS
Unless otherwise provided in the related Prospectus Supplement, unless and
until Definitive Certificates or Definitive Notes are issued, unaudited
monthly and annual reports, containing information concerning each Trust and
prepared by the Servicer, will be sent on behalf of the Trust to the Trustee
for the Certificateholders, the Indenture Trustee for the Noteholders and Cede
& Co., as registered holder of the Certificates and the Notes and the nominee
of DTC. See "Certain Information Regarding the Securities--Statements to
Securityholders" and "--Book-Entry Registration." Certificateholders and
Noteholders are collectively referred to herein as the "Securityholders."
Certificate Owners or Note Owners may receive such reports, upon written
request, together with a certification that they are Certificate Owners or
Note Owners and payment of reproduction and postage expenses associated with
the distribution of such reports, from the Trustee, with respect to
Certificate Owners, or the Indenture Trustee, with respect to Note Owners, at
the addresses specified in the related Prospectus Supplement. Such reports
will not constitute financial statements prepared in accordance with generally
accepted accounting principles. Green Tree does not intend to send any of its
financial reports to Securityholders. The Servicer, on behalf of each Trust,
will file with the Commission periodic reports concerning each Trust to the
extent required under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations of the Commission thereunder.
However, unless otherwise specified in the related Prospectus Supplement,
Green Tree expects that each Trust's obligation to file such reports will be
terminated following the end of the year in which such Trust is formed in
accordance with the Exchange Act and the rules and regulations of the
Commission thereunder.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Green Tree's Annual Report on Form 10-K for the year ended December 31,
1997, and the Company's quarterly reports on Form 10-Q for the quarters ended
March 31, 1998 and June 30, 1998, which have been filed with the Commission,
are hereby incorporated by reference in this Prospectus and the related
Prospectus Supplement.
All documents filed by the Servicer on behalf of each Trust pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date
of this Prospectus and prior to the termination of the offering of the related
Securities shall be deemed to be incorporated by reference into this
Prospectus and the related Prospectus Supplement and to be a part hereof and
thereof from the respective dates of filing of such documents. Any statement
contained herein or in a document all or any portion of which is deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus and the related Prospectus Supplement to the
extent that a statement contained herein or in any other subsequently filed
document which also is deemed to be incorporated by reference herein modifies
or supersedes such statement. Any statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
this Prospectus or the related Prospectus Supplement.
Green Tree will provide without charge to any person to whom this Prospectus
is delivered, upon the written or oral request of such person, a copy of any
or all of the foregoing documents incorporated herein by reference (other than
certain exhibits to such documents). Requests for such copies should be
directed to John Dolphin, Vice President and Director of Investor Relations,
Green Tree Financial Corporation, 1100 Landmark Towers, 345 St. Peter Street,
Saint Paul, Minnesota 55102-1639, telephone number (612) 293-3400.
3
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus and by reference to
the information with respect to the Securities contained in the related
Prospectus Supplement to be prepared and delivered in connection with the
offering of each series of Securities. Certain capitalized terms used in this
Prospectus Summary are defined elsewhere in this Prospectus and in the related
Prospectus Supplement.
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Issuer.............................. With respect to each series of Securities,
a trust (the "Trust") will be formed by
Green Tree pursuant to a Trust Agreement
between the Seller, the trustee (the "Owner
Trustee") specified in the related
Prospectus Supplement and certain other
parties as specified in the related
Prospectus Supplement.
Seller.............................. Green Tree Financial Corporation (in such
capacity referred to herein as "Green
Tree").
Servicer............................ Green Tree Financial Corporation (in such
capacity referred to herein as the
"Servicer," which term shall include any
successor to Green Tree Financial
Corporation in such capacity under the
applicable Sale and Servicing Agreement (as
defined herein)).
Risk Factors........................ Certain special considerations are
particularly relevant to a decision to
invest in any Securities sold hereunder.
See "Risk Factors" herein.
Trustee............................. The Owner Trustee for a Trust, as specified
in the related Prospectus Supplement. The
Owner Trustee for any Trust will be
referred to in this Prospectus as the
"Trustee," although the Prospectus
Supplement will refer to the Trustee as the
"Owner Trustee" in order to distinguish the
Owner Trustee and the Indenture Trustee for
such Series. See "Description of the Trust
Documents--The Trustee."
Indenture Trustee................... With respect to any Series of Securities,
the Indenture Trustee specified in the
related Prospectus Supplement (the
"Indenture Trustee").
</TABLE>
<TABLE>
<S> <C>
The Notes.......................... Each Series of Securities will include one
or more Classes of Notes, which will be
issued pursuant to an Indenture.
Unless otherwise specified in the related
Prospectus Supplement, Notes will be
available for purchase in denominations of
$1,000 and integral multiples thereof, and
will be available in book-entry form only.
Unless otherwise specified in the related
Prospectus Supplement, beneficial owners of
Notes ("Note Owners") will be able to
receive Definitive Notes only in the
limited circumstances described herein or
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4
<PAGE>
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<S> <C>
in the related Prospectus Supplement. See
"Certain Information Regarding the
Securities--Book-Entry Registration."
</TABLE>
<TABLE>
<S> <C>
The Notes will not be guaranteed or insured
by any government agency or, unless
otherwise specified in the related
Prospectus Supplement, other insurer and,
except as described herein and in the
related Prospectus Supplement, the
Contracts will not be guaranteed or insured
by any government agency or other insurer.
Unless otherwise specified in the related
Prospectus Supplement, each Class of Notes
will have a stated principal amount and
will bear interest at a specified rate or
rates (with respect to each Class of Notes,
the "Interest Rate"). Each Class of Notes
may have a different Interest Rate, which
may be a fixed, variable or adjustable
Interest Rate, or any combination of the
foregoing. The related Prospectus
Supplement will specify the Interest Rate
and the method for determining subsequent
changes to the Interest Rate.
A Series may include two or more Classes of
Notes which differ as to the timing and
priority of payment, seniority, allocations
of loss, Interest Rate or amount of
payments of principal or interest, or as to
which payments of principal or interest may
or may not be made upon the occurrence of
specified events or on the basis of
collections from designated portions of the
Contract Pool. In addition, a Series may
include one or more Classes of Notes
("Stripped Notes") entitled to (i)
principal payments with disproportionate,
nominal or no interest payments or (ii)
interest payments with disproportionate,
nominal or no principal payments.
The Notes of a Series may include one or
more Classes ("Subordinated Notes") which
are subordinated in right of distribution
to one or more other Classes of Notes
("Senior Notes"). Notes of a Series which
includes Senior Notes and Subordinated
Notes are referred to herein collectively
as "Senior/Subordinated Notes." A Series of
Senior/Subordinated Notes may include one
or more Classes ("Mezzanine Notes") which
are subordinated to one or more Classes of
Notes and are senior to one or more Classes
of Notes.
If the Seller or the Servicer exercises its
option to purchase the Contracts of a Trust
on the terms and conditions described under
"Description of the Trust Documents--
Termination," the outstanding Notes, if
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5
<PAGE>
<TABLE>
<S> <C>
any, of such Series will be redeemed as set
forth in the related Prospectus Supplement.
In addition, if the related Prospectus
Supplement provides that the property of a
Trust will include a Pre-Funding Account
(the "Pre-Funding Account"), the
outstanding Notes, if any, of such Series
will be subject to partial redemption on or
immediately following the end of the Pre-
Funding Period in an amount and manner
specified in the related Prospectus
Supplement (the "Pre-Funding Period"). In
the event of such partial redemption, the
Note Owners may be entitled to receive a
prepayment premium from the Trust, in the
amount and to the extent provided in the
related Prospectus Supplement.
The Certificates.................... With respect to any Series of Securities
including one or more Classes of
Certificates, such Certificates will be
issued pursuant to the related Trust
Documents. For convenience of description,
any reference in this Prospectus to a
"Class" of Certificates includes a
reference to any subclasses of such Class.
If so specified in a Prospectus Supplement,
the Certificates of a Series may include
one or more Classes which (i) are entitled
to receive distributions only in respect of
principal ("Principal Only Certificates"),
interest ("Interest Only Certificates") or
any combination thereof, or in specified
proportions in respect of such payments,
and/or (ii) are entitled to receive
distributions in respect of principal
before or after specified principal
distributions have been made on one or more
other Classes of Certificates within such
Series ("Fast Pay/Slow Pay Certificates"),
or on a planned amortization schedule ("PAC
Certificates") or targeted amortization
schedule ("TAC Certificates") or upon the
occurrence of other specified events. See
"The Certificates."
Unless otherwise specified in the related
Prospectus Supplement, Certificates will be
available for purchase in denominations of
$1,000 and in integral multiples thereof
and will be available in book-entry form
only. Unless otherwise specified in the
related Prospectus Supplement, beneficial
owners of Certificates ("Certificate
Owners") will be able to receive Definitive
Certificates only in the limited
circumstances described herein or in the
related Prospectus Supplement. See "Certain
Information Regarding the Securities--Book-
Entry Registration."
</TABLE>
<TABLE>
<S> <C>
The Certificates of a Series will not be
guaranteed or insured by any government
agency or, unless otherwise
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
specified in the related Prospectus
Supplement, other insurer and, except as
described herein and in the related
Prospectus Supplement, the Contracts will
not be guaranteed or insured by any
government agency or other insurer.
Unless otherwise specified in the related
Prospectus Supplement, each Class of
Certificates will have a stated Certificate
Balance (as defined in the related
Prospectus Supplement) and will accrue
interest on such Certificate Balance at a
specified rate (with respect to each Class
of Certificates, the "Pass-Through Rate").
Each Class of Certificates may have
a different Pass-Through Rate, which may be
a fixed, variable or adjustable Pass-
Through Rate, or any combination of the
foregoing. The related Prospectus
Supplement will specify the Pass-Through
Rate for each Class of Certificates, or the
initial Pass-Through Rate and the method
for determining subsequent changes to the
Pass-Through Rate.
The Certificates of a Series may include
one or more Classes ("Subordinated
Certificates") which are subordinated in
right of distribution to one or more other
Classes of Certificates ("Senior
Certificates"). Certificates of a Series
which includes Senior Certificates and
Subordinated Certificates are referred to
herein collectively as "Senior/Subordinated
Certificates." A Series of
Senior/Subordinated Certificates may
include one or more Classes ("Mezzanine
Certificates") which are subordinated to
one or more Classes of Certificates and are
senior to one or more Classes of
Certificates.
If the Seller or Servicer exercises its
option to purchase the Contracts of a Trust
on the terms and conditions described under
"Description of the Trust Documents--
Termination," Certificate Owners will
receive an amount in respect of the
Certificates as specified in the related
Prospectus Supplement. In addition, if the
related Prospectus Supplement provides that
the property of a Trust will include a Pre-
Funding Account, Certificate Owners will
receive a distribution in respect of
principal on or immediately following the
end of the funding period specified in the
related Prospectus Supplement in an amount
and manner specified in the related
Prospectus Supplement.
Subordination....................... With respect to any Series of Securities
including one or more Classes of
Certificates, distributions in respect of
the Certificates may be subordinated in
priority of payment to payments on the
Notes, to the
extent specified in the related Prospectus
Supplement.
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<PAGE>
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One or more Classes of Notes of any Series
may be Subordinated Notes, as specified in
the related Prospectus Supplement. The
rights of the Subordinated Noteholders to
receive any or a specified portion of
distributions with respect to the Contracts
will be subordinated to the rights of
Senior Noteholders to the extent and in the
manner specified in the related Prospectus
Supplement. If a Series contains more than
one Class of Subordinated Notes,
distributions and losses will be allocated
among such Classes in the manner specified
in the related Prospectus Supplement. The
rights of the Subordinated Noteholders, to
the extent not subordinated, may be on a
parity with those of the Senior
Noteholders. This subordination is intended
to enhance the likelihood of regular
receipt by Senior Noteholders of the full
amount of scheduled monthly payments of
principal and interest due them and to
protect the Senior Noteholders against
losses. If so specified in the applicable
Prospectus Supplement, other Classes of
Subordinated Notes may be entitled to the
benefits of other forms of credit
enhancement and may, if rated in one of the
four highest rating categories by a
nationally recognized statistical rating
organization, be offered pursuant to this
Prospectus and such Prospectus Supplement.
One or more Classes of Certificates of any
Series may be Subordinated Certificates, as
specified in the related Prospectus
Supplement. The rights of the Subordinated
Certificateholders to receive any or a
specified portion of distributions with
respect to the Contracts will be
subordinated to the rights of Senior
Certificateholders to the extent and in the
manner specified in the related Prospectus
Supplement. If a Series contains more than
one Class of Subordinated Certificates,
distributions and losses will be allocated
among such Classes in the manner specified
in the related Prospectus Supplement. The
rights of the Subordinated
Certificateholders, to the extent not
subordinated, may be on a parity with those
of the Senior Certificateholders. This
subordination is intended to enhance the
likelihood of regular receipt by Senior
Certificateholders of the full amount of
scheduled monthly payments of principal and
interest due them and to protect the Senior
Certificateholders against losses. If so
specified in the applicable Prospectus
Supplement, Mezzanine Certificates or other
Classes of Subordinated Certificates may be
entitled to the benefits of other forms of
credit enhancement and may, if rated in one
of the four
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8
<PAGE>
<TABLE>
<S> <C>
highest rating categories by a nationally
recognized statistical rating organization,
be offered pursuant to this Prospectus and
such Prospectus Supplement.
</TABLE>
<TABLE>
<S> <C>
Trust Property...................... Each Note will represent an obligation of,
and each Certificate, if any, will
represent a fractional undivided interest
in, the related Trust. The assets of
each Trust (the "Trust Property") will
include, among other things, (i) a pool
(the "Contract Pool") of fixed or variable
rate home improvement contacts and
promissory notes and closed-end home equity
loans, (ii) amounts held in the Collection
Account, including all investments therein,
all income from the investment of funds
therein and all proceeds thereof, certain
other accounts and the proceeds thereof,
(iii) proceeds from FHA Insurance (with
respect to any FHA-insured Home Improvement
Contract included in the Contract Pool),
(iv) any letter of credit, guarantee,
surety bond, insurance policy, cash reserve
fund or other credit enhancement securing
payment of all or part of a Series of
Securities, (v) certain other rights under
the Trust Documents and (vi) such other
property as may be specified in the related
Prospectus Supplement. In addition, if so
specified in the related Prospectus
Supplement, the Trust Property will include
monies on deposit in a Pre-Funding Account
to be established with the Indenture
Trustee or the Trustee, which will be used
to purchase Subsequent Contracts (as
defined below) from the Seller from time to
time during the Pre-Funding Period
specified in the related Prospectus
Supplement, as well as any Subsequent
Contracts so purchased. See "The Trusts."
If and to the extent provided in the
related Prospectus Supplement, the related
Trust will be obligated to purchase from
Green Tree (subject to the satisfaction of
certain conditions described in the
applicable Sale and Servicing Agreement),
additional Contracts (the "Subsequent
Contracts") from time to time (as
frequently as daily) during the Pre-Funding
Period specified in the related Prospectus
Supplement having an aggregate principal
balance approximately equal to the amount
on deposit in the Pre-Funding Account (the
"Pre-Funded Amount") on such Closing Date.
Green Tree will be obligated to repurchase
Contracts upon the occurrence of certain
breaches of representations and warranties
(a "Repurchase Event"). See "Description of
the Trust Documents--Sale and Assignment of
the Contracts" and "Certain Legal Aspects
of the Contracts--Repurchase Obligations."
</TABLE>
9
<PAGE>
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<S> <C>
Enhancement......................... If and to the extent specified in the
related Prospectus Supplement, as an
alternative, or in addition, to the credit
enhancement afforded by subordination of
the Subordinated Notes and Subordinated
Certiticates, credit enhancement with
respect to a Trust or any Class of
Securities may include any one or more of
the following: a financial guaranty
insurance policy,
letter of credit, surety bond, Green Tree
guaranty, cash reserve fund, derivative
product, or other form of credit
enhancement, or any combination thereof.
The enhancement with respect to any Trust
or any Class of Securities may be
structured to provide protection against
delinquencies and/or losses on the
Contracts, against changes in interest
rates, or other risks, to the extent and
under the conditions specified in the
related Prospectus Supplement. Unless
otherwise specified in the related
Prospectus Supplement, any form of
enhancement will have certain limitations
and exclusions from coverage thereunder,
which will be described in the related
Prospectus Supplement. Further information
regarding any provider of credit
enhancement, including financial
information when material, will be included
in the related Prospectus Supplement. See
"Description of the Trust Documents--
Enhancement."
Servicing........................... The Servicer will be responsible for
managing, administering, servicing and
making collections on the Contracts held by
each Trust. Unless otherwise specified in
the related Prospectus Supplement, with
respect to each Series of Securities
compensation to the Servicer will include a
monthly fee (the "Monthly Servicing Fee")
which will be payable from the
related Trust to the Servicer on each
Distribution Date, in an amount equal to
the product of one-twelfth of the annual
servicing fee rate described in the
applicable Prospectus Supplement multiplied
by the aggregate principal balance of the
Contracts (the "Aggregate Principal
Balance") as of the first day of the prior
calendar month ("Due Period"), plus any
late fees and other administrative fees and
expenses or similar charges collected with
respect to the Contracts during such Due
Period. See "Description of the Trust
Documents--Servicing."
Advances............................ Unless otherwise specified in the related
Prospectus Supplement, the Servicer will be
obligated to make advances ("Advances")
each month of any scheduled payments on the
Contracts that were due but not received
during the prior Due Period. The Servicer
will be entitled to reimbursement of an
Advance from the Amount Available in the
Collection Account for
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the related Trust. The Servicer will be
obligated to make an Advance only to the
extent that it determines that such Advance
will be recoverable from subsequent funds
available therefor in the Collection
Account for the related Trust. See
"Description of the Trust Documents--
Advances."
Contracts........................... The Contract Pool underlying a Series of
Securities will consist of fixed or
variable rate Contracts. Such Contracts, as
specified in the related Prospectus
Supplement, will consist of (1) home
improvement contracts and promissory notes
(the "Home Improvement Contracts"), which
will be either conventional contracts or
contracts insured by the Federal Housing
Administration ("FHA") pursuant to Title I
of the National Housing Act ("Title I"),
and (2) closed-end home equity loans (the
"Home Equity Contracts"). The Home
Improvement Contracts will not be secured
by any lien on the related real estate, and
the Home Equity Loans may have a loan-to-
value ratio substantially in excess of
100%. If so specified in the related
Prospectus Supplement, the Contract Pool
may be divided into two or more sub-pools,
in which event the Securities of certain
specified Classes may be payable primarily
from, and in respect of, the Contracts
comprising a given sub-pool.
</TABLE>
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The Prospectus Supplement for each Series
will provide information with respect to
(i) the aggregate principal balance of the
Contracts comprising the Contract Pool, as
of the date specified in the Prospectus
Supplement (the "Cut-off Date"); (ii) the
weighted average and range of contractual
rates of interest (each, a "Contract Rate")
on the Contracts; (iii) the weighted
average and ranges of terms to scheduled
maturity of the Contracts as of origination
and as of the Cut-off Date; (iv) the
percentage of the Contracts that are Home
Improvement Contracts and Home Equity
Contracts, respectively; (v) the average
outstanding principal balance of the
Contracts as of the Cut-off Date; (vi) the
percentage of the Contracts that are FHA-
insured; and (vii) the geographic location
of improved real estate underlying the
Contracts. In addition, if so specified in
the related Prospectus Supplement,
additional Contracts may be purchased from
Green Tree during the Pre-Funding Period
specified in the related Prospectus
Supplement, from funds on deposit in a Pre-
Funding Account.
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Except as otherwise specified in the
related Prospectus Supplement, the
Contracts will have been originated by
Green Tree on an individual basis in the
ordinary course of its business.
Collection Account................. With respect to each Series of Securities,
the Servicer will establish and maintain
one or more separate accounts (the
"Collection Account") in the name of the
Indenture Trustee for the benefit of the
Certificate Owners and the Note Owners. All
payments from obligors under the Contracts
("Obligors") that are received by the
Servicer on behalf of each Trust will be
deposited in the related Collection Account
no later than one Business Day after
receipt thereof.
Unless otherwise specified in the related
Prospectus Supplement, all payments from
Obligors and all proceeds (net of
reasonable expenses of collection) with
respect to Liquidated Contracts ("Net
Liquidation Proceeds") that are received by
the Servicer will be deposited in the
related Collection Account no later than
one Business Day after receipt thereof.
Unless otherwise specified in the related
Prospectus Supplement, the Servicer will be
permitted to use any alternative remittance
schedule acceptable to the Rating Agencies
(as defined below). See "Description of the
Trust Documents--Collections."
Representations and Warranties of As a condition to the Seller's conveyance
the Seller........................ of any Contract Pool to the Trust, the
Seller will make certain representations
and warranties in the related Sale and
Servicing Agreement regarding the
Contracts. The Trustee will assign its
right to enforce such representations and
warranties to the related Indenture Trustee
as collateral for the Notes. Under the
terms of the Sale and Servicing Agreement,
if the Seller becomes aware of a breach of
any such representation or warranty that
materially adversely affects the interests
of the Note Owners, the Certificate Owners,
if any, or the related Trust therein (a
"Repurchase Event") in any Contract or
receives written notice of such a breach
from the Trustee, the Indenture Trustee or
the Servicer, then the Seller will be
obligated either to cure such breach or to
repurchase or, if so provided in the
related Prospectus Supplement, substitute
for the affected Contract, in each case
under the conditions further described
herein and in the Prospectus Supplement.
See "Description of the Trust Documents--
Sale and Assignment of the Contracts."
Optional Purchase of Contracts..... Unless otherwise specified in the related
Prospectus Supplement, with respect to each
Series of Securities, the Seller or the
Servicer may purchase all the
</TABLE>
12
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<TABLE>
<S> <C>
Contracts held by the related Trust on any
Distribution Date following the first Due
Period as of which the Aggregate Principal
Balance has declined
to 10% or less (or such other percentage as
may be specified in the related Prospectus
Supplement) of the Aggregate Principal
Balance as of the Cut-off Date (the "Cut-
off Date Principal Balance"), subject to
certain provisions in the related Trust
Documents. See "Description of the Trust
Documents--Termination."
Tax Status.......................... In the opinion of Counsel to Green Tree,
for federal and Minnesota income tax
purposes, the Notes will be characterized
as debt and the Trust will not be
characterized as an association or a
publicly traded partnership taxable as a
corporation. Each Noteholder, by the
acceptance of a Note, will agree to treat
the Notes as debt. Each Certificateholder,
by the acceptance of a Certificate, will
agree to treat the Trust as a partnership
in which the Certificateholders are
partners for federal income tax purposes.
Alternative characterizations of the Trust,
the Notes and the Certificates are
possible, but would not result in
materially adverse tax consequences to
Noteholders or Certificateholders. See
"Certain Federal Income Tax Consequences"
and "Certain State Income Tax Consequences"
herein.
ERISA Considerations ............... Subject to the considerations discussed
under "ERISA Considerations" herein and in
the related Prospectus Supplement, and
unless otherwise specified in the related
Prospectus Supplement, the Notes will be
eligible for purchase by employee benefit
plans subject to the Employee Retirement
Income Security Act of 1974, as amended
("ERISA"). The related Prospectus
Supplement will provide further information
with respect to the eligibility of a Class
of Certificates for purchase
by employee benefit plans. A fiduciary of
any employee benefit plan subject to ERISA,
or the Internal Revenue Code of 1986, as
amended (the "Code"), should review
carefully with its legal advisors whether
the purchase or holding of a Class of
Certificates could give rise to a
transaction prohibited or otherwise
impermissible under ERISA or the Code. See
"ERISA Considerations" herein and in the
related Prospectus Supplement.
Legal Investment ................... The Securities will not constitute
"mortgage related securities" under the
Secondary Mortgage Market Enhancement Act
of 1984, as amended. See "Legal Investment
Considerations."
</TABLE>
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<TABLE>
<S> <C>
Rating.............................. As a condition of issuance, the Securities
of each Series offered pursuant to this
Prospectus will be rated in one of the four
highest rating categories by at least one
nationally recognized rating agency (a
"Rating Agency"). There is no assurance
that the rating initially assigned to such
Securities will not be subsequently lowered
or withdrawn by the Rating Agency. In the
event the rating initially assigned to any
Securities is subsequently lowered for any
reason, no person or entity will be
obligated to provide any
credit enhancement in addition to the
credit enhancement, if any, specified in
the related Prospectus Supplement.
Registration of Certificates........ Unless otherwise specified in the related
Prospectus Supplement, the Notes and the
Certificates, if any, of each Series will
be registered in the name of Cede & Co., as
the nominee of DTC, and will be available
for purchase only in book-entry form on the
records of DTC and participating members
thereof. Notes and Certificates will be
issued in definitive form only under the
limited circumstances
described herein. All references herein to
"Holders," "Certificateholders" or
"Noteholders" shall reflect the rights of
beneficial owners of Notes ("Note Owners")
or of Certificates ("Certificate Owners"),
as the case may be, as they may indirectly
exercise such rights through DTC and
participating members thereof, except as
otherwise specified herein or in the
related Prospectus Supplement. See "Certain
Information Regarding the Securities--Book-
Entry Registration."
</TABLE>
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RISK FACTORS
LIMITATIONS ON AVAILABILITY OF FHA INSURANCE
The related Prospectus Supplement will specify the number and percentage of
Contracts included in the Contract Pool that are insured by FHA pursuant to
Title I. The availability of FHA Insurance following a default on an FHA-
insured Home Improvement Contract is subject to a number of conditions,
including strict compliance by Green Tree with FHA regulations in originating
and servicing the Home-Improvement Contract. Although Green Tree is an FHA-
approved lender and believes, and will represent and warrant in the Sale and
Servicing Agreement, that it has complied with FHA regulations, such
regulations are susceptible to substantial interpretation. Green Tree is not
required to obtain, and has not obtained, approval from FHA of its origination
and servicing practices. Failure to comply with FHA regulations may result in
a denial of FHA Insurance claims, and there can be no assurance that FHA's
enforcement of its regulations will not become stricter in the future. From
time to time Green Tree is engaged in disputes with FHA over the validity of
claims submitted and Green Tree's compliance with FHA regulations in servicing
loans insured by FHA, such as the FHA-insured Home Improvement Contracts. In
addition, any insurance claim paid by FHA will cover only 90% of the sum of
the unpaid principal on the Home Improvement Contract, up to nine months
unpaid interest thereon (computed at 7% per annum) and certain liquidation
costs.
The amount of FHA Insurance available with respect to a Series of Securities
at any given time with respect to the FHA-insured Home Improvement Contracts
included in a Contract Pool is limited to the balance of a reserve amount
determined with respect to all FHA Title I loans originated and reported for
insurance by Green Tree and not sold, or sold with recourse, by Green Tree,
including manufactured housing contracts as well as home improvement loans.
Such reserve amount, as of December 31, 1997, was equal to approximately
$86,950,000, but will be reduced by the amount of all FHA Insurance claims
paid, and will be increased by an amount equal to 10% of the unpaid principal
balance of FHA Title I loans subsequently originated and reported for
insurance by Green Tree. Severe losses on Green Tree's FHA-insured
manufactured housing contracts, or on other FHA-insured home improvement loans
originated by Green Tree, could reduce or eliminate Green Tree's FHA Insurance
reserves, in which event FHA Insurance would not be available to cover losses
on FHA-insured Contracts. In the event Green Tree were terminated as Servicer
due to its bankruptcy or otherwise, it is anticipated that a proportionate
amount of Green Tree's FHA Insurance reserves would be transferred to the
reserve account of the Trustee or other successor servicer, but there can be
no assurance of the amount, if any, that would be so transferred. See
"Description of FHA Insurance."
LIMITED OBLIGATIONS
Except as otherwise specified in the related Prospectus Supplement, the
Securities of a Series will not represent an interest in or obligation of
Green Tree. The Securities of any Series will not be insured or guaranteed by
any governmental agency or instrumentality, any Underwriter or its affiliates,
the Servicer or (except as otherwise specified in the related Prospectus
Supplement) any other party.
JUNIOR MORTGAGE LIENS
Green Tree expects that a substantial number of the liens on the improved
real estate securing the Contracts in a given Contract Pool will be junior to
other liens on such real estate. The rights of the Trust (and therefore the
Securityholders of the related Series), as beneficiary under a conventional
junior deed of trust or as mortgagee under a conventional junior mortgage, are
subordinate to those of the mortgagee or beneficiary under the senior mortgage
or deed of trust, including the prior rights of the senior mortgagee or
beneficiary to cause the property securing the Home Equity Contract to be sold
upon default of the mortgagor or trustor, thereby extinguishing the junior
mortgagee's or junior beneficiary's lien unless the Servicer on behalf of the
Trust asserts its subordinate interest in the property in foreclosure
litigation and, possibly, satisfies the defaulted senior loan or loans. See
"Certain Legal Aspects of the Contracts--Repurchase Obligations."
HOME IMPROVEMENT CONTRACTS UNSECURED
The obligations of the Obligor under each Home Improvement Contract included
in a Contract Pool will not be secured by an interest in the related real
estate or otherwise, and the related Trust, as the owner of such
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<PAGE>
Home Improvement Contract, will be a general unsecured creditor as to such
obligations. As a consequence, in the event of a default under a Home
Improvement Contract, the related Trust will have recourse only against the
Obligor's assets generally, along with all other general unsecured creditors
of the Obligor. In a bankruptcy or insolvency proceeding relating to an
Obligor on a Home Improvement Contract, the obligations of the Obligor under
such Home Improvement Contract may be discharged in their entirety,
notwithstanding the fact that the portion of such Obligor's assets made
available to the related Trust as a general unsecured creditor to pay amounts
due and owing thereunder are insufficient to pay all such amounts. An Obligor
on a Home Improvement Contract may not demonstrate the same degree of concern
over performance of the Obligor's obligations under such Home Improvement
Contract as if such obligations were secured by the real estate owned by such
Obligor.
RISKS TO INVESTORS UPON ANY INSOLVENCY OF GREEN TREE
Green Tree intends that any transfer of Contracts to the related Trust will
constitute a sale, rather than a pledge of the Contracts to secure
indebtedness of Green Tree. However, if Green Tree were to become a debtor
under the federal bankruptcy code or similar applicable state laws
(collectively, "Insolvency Laws"), a creditor or trustee in bankruptcy of
Green Tree or Green Tree as debtor-in-possession might argue that such sale of
Contracts by Green Tree was a pledge of the Contracts rather than a sale. This
position, if presented to or accepted by a court, could cause the related
Trust to experience a delay in or reduction of collections on the Contracts.
VALUE OF MORTGAGED PROPERTY
A substantial portion of the Home Equity Contracts included in a Contract
Pool are expected to have loan-to-value ratios of 90% or more, based on the
aggregate of the outstanding principal balances of all senior mortgages or
deeds of trust and of the Contract on the one hand, and the value of the home
and an estimate of the value of the financed improvement, where applicable, on
the other. See "Green Tree Financial Corporation--Contract Origination." An
overall decline in the residential real estate market, the general condition
of a property securing a Contract or other factors could adversely affect the
value of the property securing a conventional (i.e., not insured by FHA) Home
Improvement Contract or a Home Equity Contract such that the remaining balance
of such Contract, together with that of any senior liens on the related
property, could equal or exceed the value of the property.
NON-RECORDATION OF MORTGAGE ASSIGNMENTS
Because of the expense and administrative inconvenience involved, Green Tree
will not record the assignment to the Trustee of the mortgage or deed of trust
securing any Home Equity Contract. In some states, in the absence of such
recordation, the assignment to the related Trustee of the mortgage or deed of
trust securing a Home Equity Contract may not be effective against creditors
of or purchasers from Green Tree or a trustee in bankruptcy of Green Tree.
SUBORDINATION OF CERTAIN CLASSES OF SECURITIES; LIMITED ASSETS
To the extent specified in the related Prospectus Supplement, distributions
of interest and principal on some or all Classes of Securities of a Series may
be subordinated in priority of payment to interest and principal due on the
Notes of such Series and/or to distributions of interest and principal on
other Classes of Securities of such Series. In addition, holders of certain
Classes of Securities of any Series may have the right to take actions that
are detrimental to the interests of the holders of certain other Classes of
Securities of such Series. For example, holders of a Class of more senior
Securities may be entitled to instruct the Indenture Trustee or Trustee to
liquidate the Trust Property when it is not in the interest of holders of more
junior Classes of Securities of such Series to do so. Conversely, certain
actions may require the consent of a majority of Security Owners of all
Classes of a Series, which may mean that Security Owners of more junior
classes can prevent the Security Owners of more senior Classes of such Series
from taking action. Moreover, no Trust will have any significant
16
<PAGE>
assets or sources of funds other than the Contracts and, to the extent
provided in the related Prospectus Supplement, a Pre-Funding Account and any
credit enhancement specified in the related Prospectus Supplement. The Notes
of any Series will represent obligations solely of, and the Certificates, if
any, of such Series will represent interests solely in, the related Trust,
and, except as specified in the related Prospectus Supplement, neither the
Notes nor the Certificates of any such Series will be insured or guaranteed by
Green Tree, the Servicer, the applicable Owner Trustee, the applicable
Indenture Trustee or any other person or entity. Consequently, holders of the
Securities of any Series must rely for payment upon payments on the related
Contracts and, if and to the extent available, amounts on deposit in the Pre-
Funding Account, if any, and any credit enhancement, if any, as specified in
the related Prospectus Supplement. If specified in the related Prospectus
Supplement, credit enhancement for a Class of Securities of a Series may cover
one or more other Classes of Securities of such Series, and accordingly may be
exhausted for the benefit of some Classes and thereafter be unavailable for
such other Classes.
YIELD AND PREPAYMENT CONSIDERATIONS
The weighted average life of the Securities will be reduced by full or
partial prepayments on the Contracts. The Contracts will generally be
prepayable at any time without penalty. Prepayments (or, for this purpose,
equivalent payments to the related Trust) may result from payments by
Obligors, liquidations due to default, the receipt of proceeds from physical
damage or credit insurance, repurchases by Green Tree as a result of certain
uncured breaches of the warranties made by it with respect to the Contracts,
purchases by the Servicer as a result of certain uncured breaches of the
covenants with respect to the Contracts made by it in the related Sale and
Servicing Agreement, or Green Tree or the Servicer exercising its option to
purchase all of the remaining Contracts.
Unless otherwise specified in the related Prospectus Supplement, the amounts
paid to Securityholders in respect of principal on any Distribution Date will
include all prepayments on the Contracts during the corresponding Due Periods.
The Certificate Owners and the Note Owners will bear all reinvestment risk
resulting from the timing of payments of principal on the Securities.
LIMITED LIQUIDITY OF THE SECURITIES
There is currently no market for the Securities of any Series. Although
Green Tree expects that the underwriters of any particular Series will intend
to make a secondary market for such Securities, they will have no obligation
to do so. There can be no assurance that any such market will develop or, if
it does develop, that it will provide Certificate Owners or Note Owners with
liquidity of investment or will continue for the life of the Securities. The
Securities will not be listed on any securities exchange.
Unless otherwise specified in the related Prospectus Supplement, the
Securities will be issued in book-entry, rather than physical, form and, as a
result, in certain circumstances, the liquidity of the Securities in the
secondary market and the ability of the Certificate Owners and Note Owners to
pledge them may be adversely affected. See "Plan of Distribution" and "Certain
Information Regarding the Securities--Book-Entry Registration."
THE TRUSTS
With respect to each Series of Securities, Green Tree will establish a Trust
pursuant to the related Trust Documents. Prior to the sale and assignment of
the related Contracts pursuant to the related Trust Documents, the Trust will
have no assets or obligations. The Trust will not engage in any business
activity other than acquiring and holding the Trust Property, issuing the
Notes and the Certificates, if any, of such Series and distributing payments
thereon.
Each Note will represent an obligation of, and each Certificate, if any,
will represent a fractional undivided interest in, the related Trust. The
Trust Property of each Trust will include, among other things, (i) a Contract
Pool, (ii) such amounts as from time to time may be held in the Collection
Account (including all investments in
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<PAGE>
the Collection Account and all income from the investment of funds therein and
all proceeds thereof) and certain other accounts (including the proceeds
thereof), (iii) proceeds from FHA Insurance (with respect to any FHA-insured
Home Improvement Contract included in the Contract Pool), (iv) any letter of
credit, guarantee, surety bond, insurance policy, cash reserve fund or other
credit enhancement securing payment of all or part of a Series of Securities,
(v) certain other rights under the Trust Documents and (vi) such other
property as may be specified in the related Prospectus Supplement. See "The
Contracts" and "Description of the Trust Documents--Collections." The Trust
Property will also include, if so specified in the related Prospectus
Supplement, monies on deposit in a Pre-Funding Account to be established with
the Indenture Trustee or the Trustee, which will be used to purchase
Subsequent Contracts from Green Tree from time to time (and as frequently as
daily) during the Pre-Funding Period specified in the related Prospectus
Supplement. Any Subsequent Contracts so purchased will be included in the
related Contract Pool forming part of the Trust Property, subject to the prior
rights of the related Indenture Trustee and the Noteholders therein. In
addition, to the extent specified in the related Prospectus Supplement, a form
of credit enhancement may be issued to or held by the Trustee or the Indenture
Trustee for the benefit of holders of one or more Classes of Securities.
Holders of Securities of a Series will have interests only in such Contract
Pool and will have no interest in the Contract Pool created with respect to
any other Series of Securities, except with respect to FHA Insurance reserves.
Except as otherwise specified in the related Prospectus Supplement, all of
the Contracts will have been originated by Green Tree in the ordinary course
of its business. Specific information respecting the Contracts included in
each Trust will be provided in the related Prospectus Supplement and, to the
extent not contained in the related Prospectus Supplement, in a report on Form
8-K to be filed with the Commission within fifteen days after the initial
issuance of the Securities. A copy of the Sale and Servicing Agreement with
respect to each Series of Securities will be attached to the Form 8-K and will
be available for inspection at the corporate trust office of the Trustee
specified in the related Prospectus Supplement. A schedule of the Contracts
relating to such Series will be attached to the Sale and Servicing Agreement
delivered to the Trustee upon delivery of the Securities.
Whenever in this Prospectus terms such as "Contract Pool," "Trust," "Sale
and Servicing Agreement," "Interest Rate or "Pass-Through Rate" are used,
those terms respectively apply, unless the context otherwise indicates, to one
specific Contract Pool and Trust, each Sale and Servicing Agreement, each
Interest Rate applicable to the related Class of Notes and each Pass-Through
Rate applicable to the related Class of Certificates.
THE CONTRACT POOLS
Except as otherwise specified in the related Prospectus Supplement, the
Contract Pool will consist of (i) home improvement contracts and promissory
notes (the "Home Improvement Contracts"), and (ii) closed-end home equity
loans (the "Home Equity Contracts" and, together with the Home Improvement
Contracts, the "Contracts"), originated by Green Tree on an individual basis
in the ordinary course of business. The Home Improvement Contracts may be
conventional home improvement contracts or contracts insured by FHA. The Home
Improvement Contracts will not be secured by any lien on the related real
estate, and the Home Equity Loans may have a loan-to-value ratio substantially
in excess of 100%. Except as otherwise specified in the related Prospectus
Supplement, the Contracts will be fully amortizing and will bear interest at a
fixed or variable annual percentage rate (the "Contract Rate").
For each Series of Securities, Green Tree will assign the Contracts
constituting the Contract Pool to the trustee named in the related Prospectus
Supplement (the "Trustee"). Green Tree, as Servicer (in such capacity referred
to herein as the "Servicer," which term shall include any successor to Green
Tree in such capacity under the applicable Sale and Servicing Agreement), will
service the Contracts pursuant to the Sale and Servicing Agreement. See
"Description of the Trust Documents--Servicing." Unless otherwise specified in
the related Prospectus Supplement, the Contract documents will be held by the
Trustee or a custodian on its behalf.
The related Prospectus Supplement will specify for the Contracts contained
in the related Contract Pool, among other things, the range of the dates of
origination of the Contracts; the range of the Contract Rates and
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the weighted average Contract Rate; the minimum and maximum outstanding
principal balances and the average outstanding principal balance as of the
Cut-off Date; the aggregate principal balance of the Contracts included in the
Contract Pool as of the Cut-off Date; the weighted average and range of
scheduled terms to maturity as of origination and as of the Cut-off Date; the
range of original maturities of the Contracts and the last maturity date of
any Contract; and the geographic location of improved real estate securing the
Contracts. If the Trust includes a Pre-Funding Account, the related Prospectus
Supplement will specify the conditions that must be satisfied prior to any
transfer of Subsequent Contracts, including the requisite characteristics of
the Subsequent Contracts.
Green Tree will make representations and warranties as to the types and
geographical distribution of the Contracts included in a Contract Pool and as
to the accuracy in all material respects of certain information furnished to
the Trustee in respect of each such Contract. Upon a breach of any
representation or warranty that materially and adversely affects the interests
of the Securityholders in a Contract, Green Tree will be obligated to cure the
breach in all material respects, or to repurchase or substitute for
the Contract as described below. This repurchase obligation constitutes the
sole remedy available to the Securityholders or the Trustee for a breach of
representation or warranty by Green Tree. See "Description of the Trust
Documents--Sale and Assignment of the Contracts."
THE TRUSTEE
The Trustee for each Trust will be specified in the related Prospectus
Supplement. The Trustee's liability in connection with the issuance and sale
of the Securities of such Series will be limited solely to the express
obligations of such Trustee set forth in the related Trust Documents. A
Trustee may resign at any time, in which event the General Partner will be
obligated to appoint a successor trustee. The General Partner may also remove
the Trustee if the Trustee ceases to be eligible to continue as Trustee under
the related Trust Documents or if the Trustee becomes insolvent. In such
circumstances, the General Partner will be obligated to appoint a successor
trustee. Any resignation or removal of a Trustee and appointment of a
successor trustee will be subject to any conditions or approvals specified in
the related Prospectus Supplement and will not become effective until
acceptance of the appointment by the successor trustee.
GREEN TREE FINANCIAL CORPORATION
GENERAL
Green Tree is a Delaware corporation that, as of December 31, 1997, had
stockholders' equity of approximately $1,332,000,000. Through its various
divisions, Green Tree purchases, pools, sells and services retail conditional
sales contracts for manufactured housing and retail installment sales
contracts for home improvements, a variety of consumer products and equipment
finance, and home equity loans. Green Tree is the largest servicer of
government-insured manufactured housing contracts and conventional
manufactured housing contracts in the United States. Servicing functions are
performed through Green Tree Financial Servicing Corporation, a wholly owned
subsidiary of Green Tree. Through its principal offices in St. Paul,
Minnesota, and service centers throughout the United States, Green Tree serves
all 50 states. Green Tree began financing FHA-insured home improvement loans
in April 1989 and conventional home improvement loans in September 1992. Green
Tree also purchases, pools and services installment sales contracts for
various consumer products. Its principal executive offices are located at 1100
Landmark Towers, St. Paul, Minnesota 55102-1639 (telephone (651) 293-3400).
Green Tree's Annual Report on Form 10-K for the year ended December 31, 1997,
most recent Proxy Statement and, when available, subsequent quarterly and
annual reports are available from Green Tree upon written request.
CONTRACT ORIGINATION
Home Improvement Contracts. Through its centralized loan processing
operations in St. Paul, Minnesota, Green Tree arranges to purchase certain
contracts from home improvement contractors located throughout the United
States. Green Tree's regional sales managers contact home improvement
contractors and explain Green
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Tree's available financing plans, terms, prevailing rates and credit and
financing policies. If the contractor wishes to utilize Green Tree's available
customer financing, the contractor must make an application for contractor
approval. Green Tree has a contractor approval process pursuant to which the
financial condition, business experience and qualifications of the contractor
are reviewed prior to his or her approval to sell contracts to Green Tree. In
addition, Green Tree has a centralized compliance group which reviews and
updates contractor financial condition and reviews contractors on an annual
basis to determine whether such contractor's approval will be continued. Green
Tree also reviews monthly contractor trend reports which show the default and
delinquency trends of the particular contractor with respect to contracts sold
to Green Tree. Green Tree occasionally will originate directly a home
improvement promissory note involving a home improvement transaction.
All contracts that Green Tree originates are written on forms provided or
approved by Green Tree and are purchased on an individually approved basis in
accordance with Green Tree's guidelines. The contractor submits the customer's
credit application and construction contract to Green Tree's office where an
analysis of the creditworthiness of the customer is made using a proprietary
credit scoring system that was implemented by Green Tree in June 1993. If
Green Tree determines that the application meets Green Tree's underwriting
guidelines and applicable FHA regulations (for FHA-insured contracts) and the
credit is approved, Green Tree purchases the contract from the contractor when
the customer verifies satisfactory completion of the work, or, in the case of
staged funding, Green Tree follows up with the customer for the completion
certificate 90 days after funding.
The types of home improvements financed by Green Tree include (i) exterior
renovations, including windows, siding and roofing, (ii) pools and spas, (iii)
kitchen and bath remodeling, and (iv) room additions and garages. Green Tree
may also, under certain limited conditions, extend additional credit beyond
the purchase price of the home improvement for the purpose of debt
consolidation.
The original principal amount of an unsecured FHA-insured home improvement
contract currently may not exceed $7,500 without specific FHA approval, with a
maximum term of 20 years. Certain other criteria for home improvement
contracts eligible for FHA Insurance are described under the caption
"Description of FHA Insurance."
Green Tree began financing conventional home improvement loans in September
1992. Conventional home improvement loans are not insured by FHA. The
unsecured conventional program allows for an amount financed from $2,500 to
$15,000 (except in Massachusetts where the loan limit may be $20,000). The
allowable term of unsecured contracts is 24 to 120 months. Green Tree's
underwriting standards with respect to unsecured home improvement contracts
are, in general, more stringent than its underwriting standards with respect
to secured home improvement contracts with similar terms. Eligible property
includes an owner-occupied single family home, up to four unit multiple-family
dwelling, owner-occupied condominium or town house, or an owner-occupied
manufactured home located in a Green Tree-approved park or attached to the
real estate.
Home Equity Contracts. Green Tree has originated closed-end home equity
loans since January 1996. As of December 31, 1997, Green Tree had
approximately $3,116,054,406 aggregate principal amount of outstanding closed-
end home equity loans.
Through a system of regional offices, Green Tree markets its home equity
lending directly to consumers using a variety of marketing techniques. Green
Tree also reviews and re-underwrites loan applications forwarded by
correspondent lenders.
Green Tree's credit approval process analyzes both the equity position of
the requested loan (including both the priority of the lien and the combined
loan-to-value ratio) and the applicant's creditworthiness; to the extent the
requested loan would have a less favorable (or more favorable) equity
position, the creditworthiness of the borrower must be stronger (or may be
weaker). The loan-to-value ratio of the requested loan, combined with any
existing loans with a senior lien position, may not exceed 95% without senior
management approval. In most circumstances, an appraisal of the property is
required. Currently, loans secured by a first mortgage with an
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obligor having a superior credit rating may not exceed $300,000 without senior
management approval, and loans secured by a second mortgage with an obligor
having a superior credit rating may not exceed $250,000 without senior
management approval.
LOSS AND DELINQUENCY INFORMATION
Each Prospectus Supplement will include Green Tree's loss and delinquency
experience with respect to its entire servicing portfolio of home improvement
contracts and home equity loans. However, there can be no assurance that such
experience will be indicative of the performance of the Contracts included in
a particular Contract Pool.
RATIO OF EARNINGS TO FIXED CHARGES FOR GREEN TREE
Set forth below are Green Tree's ratios of earnings to fixed charges for the
past five years. For the purposes of compiling these ratios, earnings consist
of earnings before income taxes plus fixed charges. Fixed charges consist of
interest expense and the interest portion of rent expense.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
MONTHS
ENDED
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ---------
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges........... 4.81 7.98 7.90 5.44 3.94
</TABLE>
YIELD CONSIDERATIONS
The Interest Rates, Pass-Through Rates and the weighted average Contract
Rate of the Contracts (as of the related Cut-off Date) relating to each Series
of Securities will be set forth in the related Prospectus Supplement.
The Prospectus Supplement for each Series will indicate that a lower rate of
principal prepayments than anticipated would negatively affect the total
return to investors of any Class of Securities that is offered at a discount
to its principal amount, and a higher rate of principal prepayments than
anticipated would negatively affect the total return to investors of any such
Class of Securities that is offered at a premium to its principal amount or
without any principal amount.
The yield on some types of Securities which may be offered hereby, such as
Stripped Notes, Interest Only Certificates, Principal Only Certificates and
Fast Pay/Slow Pay Certificates, may be particularly sensitive to prepayment
rates, and to changes in prepayment rates, on the underlying Contracts. If so
stated in the related Prospectus Supplement, the yield on some types of
Securities which may be offered hereby could change and may be negative under
certain prepayment rate scenarios. Accordingly, some types of Securities may
not be legal or appropriate investments for certain financial institutions,
pension funds or others. See "ERISA Considerations" and "Legal Investment
Considerations." In addition, the timing of changes in the rate of prepayment
on the Contracts included in a Contract Pool may significantly affect an
investor's actual yield to maturity, even if the average prepayment rate over
time is consistent with the investor's expectations. In general, the earlier
that prepayments on Contracts occur, the greater the effect on the investor's
yield to maturity.
MATURITY AND PREPAYMENT CONSIDERATIONS
MATURITY
Unless otherwise described in an applicable Prospectus Supplement, all of
the Contracts will have maturities at origination of not more than 25 years.
PREPAYMENT CONSIDERATIONS
Contracts generally may be prepaid in full or in part without penalty. FHA-
insured Contracts may be prepaid at any time without penalty. Green Tree has
no significant experience with respect to the rate of principal
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prepayments on home improvement contracts and home equity loans. Because the
Contracts have scheduled due dates throughout the calendar month, and because
(unless otherwise specified in the related Prospectus Supplement) all
principal prepayments will be passed through to Securityholders of the related
Series on the Payment Date following the Due Period in which such principal
prepayment occurred, prepayments on the Contracts would affect the amount of
funds available to make distributions on the Securities on any Payment Date
only if a substantial portion of the Contracts prepaid prior to their
respective due dates in a particular month (thus paying less than 30 days'
interest for that Due Period) while very few Contracts prepaid after their
respective due dates in that month. In addition, liquidations of defaulted
Contracts or the Servicer's or Green Tree's exercise of its option to
repurchase the entire remaining pool of Contracts (see "Description of the
Trust Documents--Termination") will affect the timing of principal
distributions on the Securities of a Series.
Information regarding the prepayment standard or model or any other rate of
assumed prepayment, as applicable, will be set forth in the Prospectus
Supplement with respect to a Series of Securities. Although the related
Prospectus Supplement will specify the prepayment assumptions used to price
any Series of Securities, there can be no assurance that the Contracts will
prepay at such rate, and it is unlikely that prepayments or liquidations of
the Contracts will occur at any constant rate.
See "Description of the Trust Documents--Termination" for a description of
Green Tree's or the Servicer's option to repurchase the Contracts comprising
part of a Trust when the Aggregate Principal Balance of such Contracts as of
the related Cut-off Date is less than a specified percentage of the Cut-off
Date Principal Balance of such Contracts. See also "The Trusts--The Contract
Pools" for a description of the obligations of Green Tree to repurchase a
Contract in case of a breach of a representation or warranty relative to such
Contract.
POOL FACTOR
The "Certificate Pool Factor" for each Class of Certificates will be an
eight-digit decimal which the Servicer will compute indicating the outstanding
balance (the "Certificate Balance") with respect to such Certificates as of
each Distribution Date (after giving effect to all distributions of principal
made on such Distribution Date), as a fraction of the original Certificate
Balance of such Certificates. The "Note Pool Factor" for each Class of Notes,
if any, will be an eight-digit decimal which the Servicer will compute
indicating the remaining outstanding principal balance with respect to such
Notes as of each Distribution Date (after giving effect to all distributions
of principal on such Distribution Date) as a fraction of the initial
outstanding principal balance of such Class of Notes. Each Certificate Pool
Factor and each Note Pool Factor will initially be 1.00000000; thereafter, the
Certificate Pool Factor and the Note Pool Factor will decline to reflect
reductions in the Certificate Balance of the applicable Class of Certificates
or reductions in the outstanding principal balance of the applicable Class of
Notes, as the case may be. The amount of a Certificateholder's pro rata share
of the Certificate Balance for the related Class of Certificates can be
determined by multiplying the original denomination of the Certificateholder's
Certificate by the then applicable Certificate Pool Factor. The amount of a
Noteholder's pro rata share of the aggregate outstanding principal balance of
the applicable Class of Notes can be determined by multiplying the original
denomination of such Noteholder's Note by the then applicable Note Pool
Factor.
With respect to each Trust and pursuant to the related Trust Documents, on
each Distribution Date or Payment Date, as the case may be, the related
Certificateholders and Noteholders will receive periodic reports from the
Trustee stating the Certificate Pool Factor or the Note Pool Factor, as the
case may be, and containing various other items of information. Unless and
until Definitive Certificates or Definitive Notes are issued, such reports
will be sent on behalf of the Trust to the Trustee and the Indenture Trustee
and Cede & Co., as registered holder of the Certificates and the Notes and the
nominee of DTC. Certificate Owners and Note Owners may receive such reports,
upon written request, together with a certification that they are Certificate
Owners or Note Owners and payment of any expenses associated with the
distribution of such reports, from the Trustee and the Indenture Trustee at
the addresses specified in the related Prospectus Supplement. See "Certain
Information Regarding the Securities--Statements to Securityholders."
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USE OF PROCEEDS
Unless otherwise specified in the related Prospectus Supplement, the net
proceeds to be received by the Trust from the sale of each Series of
Securities will be used to pay to Green Tree the purchase price for the
Contracts and to make the deposit of the Pre-Funded Amount into the Pre-
Funding Account, if any, to repay warehouse lenders and/or to provide for
other forms of credit enhancement specified in the related Prospectus
Supplement. The net proceeds to be received by Green Tree will be used for its
general corporate purposes, including the origination or acquisition of
additional home improvement loan contracts and home equity loans, costs of
carrying such contracts until sale of the related certificates and to pay
other expenses connected with pooling the Contracts and issuing the
Securities.
THE NOTES
GENERAL
With respect to each Series of Securities, one or more Classes of Notes will
be issued pursuant to the terms of an Indenture, a form of which has been
filed as an exhibit to the Registration Statement of which this Prospectus
forms a part. Unless otherwise specified in the related Prospectus Supplement,
no Notes will be issued as a part of any Series. The following summary does
not purport to be complete and is subject to, and is qualified in its entirety
by reference to, all of the provisions of the Notes and the Indenture, and the
following summary will be supplemented in whole or in part by the related
Prospectus Supplement. Where particular provisions of or terms used in the
Indenture are referred to, the actual provisions (including definition of
terms) are incorporated by reference as part of this summary.
Unless otherwise specified in the related Prospectus Supplement, each Class
of Notes will initially be represented by a single Note registered in the name
of the nominee of the Depository. See "Certain Information Regarding the
Securities--Book-Entry Registration." Unless otherwise specified in the
related Prospectus Supplement, Notes will be available for purchase in
denominations of $1,000 and integral multiples thereof. Notes may be
transferred or exchanged without the payment of any service charge other than
any tax or governmental charge payable in connection with such transfer or
exchange. Unless otherwise provided in the related Prospectus Supplement, the
Indenture Trustee will initially be designated as the registrar for the Notes.
PRINCIPAL AND INTEREST ON THE NOTES
The timing and priority of payment, seniority, allocations of loss, Interest
Rate and amount of or method of determining payments of principal and interest
on the Notes will be described in the related Prospectus Supplement. The right
of holders of any Class of Notes to receive payments of principal and interest
may be senior or subordinate to the rights of holders of any Class or Classes
of Notes of such Series, or any Class of Certificates, as described in the
related Prospectus Supplement. Unless otherwise provided in the related
Prospectus Supplement, payments of interest on the Notes will be made prior to
payments of principal thereon. A Series may include one or more Classes of
Stripped Notes entitled to (i) principal payments with disproportionate,
nominal or no interest payment, or (ii) interest payments with
disproportionate, nominal or no principal payments. Each Class of Notes may
have a different Interest Rate, which may be a fixed, variable or adjustable
Interest Rate (and which may be zero for certain Classes of Stripped Notes),
or any combination of the foregoing. The related Prospectus Supplement will
specify the Interest Rate for each Class of Notes, or the initial Interest
Rate and the method for determining the Interest Rate. One or more Classes of
Notes of a Series may be redeemable under the circumstances specified in the
related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, payments in
respect of interest to Noteholders of all Classes within a Series will have
the same priority. Under certain circumstances, the amount available for such
payments could be less than the amount of interest payable on the Notes on any
of the dates specified for payments in the related Prospectus Supplement
(each, a "Payment Date"), in which case each Class
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of Noteholders will receive their ratable share (based upon the aggregate
amount of interest due to such Class of Noteholders) of the aggregate amount
available to be distributed in respect of interest on the Notes.
In the case of a Series of Securities which includes two or more Classes of
Notes, the timing, sequential order and priority of payment in respect of
principal and interest, and any schedule or formula or other provisions
applicable to the determination thereof, of each such Class will be set forth
in the related Prospectus Supplement. Unless otherwise specified in the
related Prospectus Supplement, payments in respect of principal and interest
of any Class of Notes will be made on a pro rata basis among all of the Notes
of such Class.
THE INDENTURE
A form of Indenture has been filed as an exhibit to the Registration
Statement of which this Prospectus forms a part. Green Tree will provide a
copy of the applicable Indenture (without exhibits) upon request to a holder
of Notes issued thereunder.
Modification of Indenture Without Noteholder Consent. Each Trust and related
Indenture Trustee (on behalf of such Trust) may, without consent of the
related Noteholders, enter into one or more supplemental indentures for any of
the following purposes: (i) to correct or amplify the description of the
collateral or add additional collateral; (ii) to provide for the assumption of
the Note and the Indenture obligations by a permitted successor to the Trust;
(iii) to add additional covenants for the benefit of the related Noteholders;
(iv) to convey, transfer, assign, mortgage or pledge any property to or with
the Indenture Trustee; (v) to cure any ambiguity or correct or supplement any
provision in the Indenture or in any supplemental indenture; (vi) to provide
for the acceptance of the appointment of a successor Indenture Trustee or to
add to or change any of the provisions of the Indenture or any supplemental
indenture which may be inconsistent with any other provision of the Indenture
as shall be necessary and permitted to facilitate the administration by more
than one trustee; (vii) to modify, eliminate or add to the provisions of the
Indenture in order to comply with the Trust Indenture Act of 1939, as amended;
and (viii) to add any provisions to, change in any manner, or eliminate any of
the provisions of, the Indenture or modify in any manner the rights of
Noteholders under such Indenture; provided that any action specified in this
clause (viii) shall not, as evidenced by an opinion of counsel, adversely
affect in any material respect the interests of any related Noteholder unless
Noteholder consent is otherwise obtained as described below.
Modifications of Indenture With Noteholder Consent. With respect to each
Trust, with the consent of the holders representing a majority of the
principal balance of the outstanding related Notes (a "Note Majority"), the
Owner Trustee and the Indenture Trustee may execute a supplemental indenture
to add provisions, to change in any manner or eliminate any provisions of, the
related Indenture, or modify in any manner the rights of the related
Noteholders.
Without the consent of the holder of each outstanding related Note affected
thereby, however, no supplemental indenture may: (i) change the due date of
any installment of principal of or interest on any Note or reduce the
principal amount thereof, the interest rate specified thereon or the
redemption price with respect thereto or change the manner of calculating any
such payment, any place of payment where, or the coin or currency in which any
Note or any interest thereon is payable; (ii) impair the right to institute
suit for the enforcement of certain provisions of the Indenture regarding
payment; (iii) reduce the percentage of the aggregate amount of the
outstanding Notes the consent of the holders of which is required for any such
supplemental indenture or the consent of the holders of which is required for
any waiver of compliance with certain provisions of the Indenture or of
certain defaults thereunder and their consequences as provided for in the
Indenture; (iv) modify or alter the provisions of the Indenture regarding the
voting of Notes held by the related Trust, any other obligor on the Notes,
Green Tree or an affiliate of any of them; (v) reduce the percentage of the
aggregate outstanding amount of the Notes the consent of the holders of which
is required to direct the Indenture Trustee to sell or liquidate the Contracts
if the proceeds of such sale would be insufficient to pay the principal amount
and accrued but unpaid interest on the outstanding Notes; (vi) decrease the
percentage of the aggregate principal amount of the Notes required to amend
the sections of the Indenture which specify the applicable percentage of
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aggregate principal amount of the Notes necessary to amend the Indenture or
certain other related agreements; or (vii) permit the creation of any lien
ranking prior to or on a parity with the lien of the Indenture with respect to
any of the collateral for the Notes or, except as otherwise permitted or
contemplated in the Indenture, terminate the lien of the Indenture on any such
collateral or deprive the holder of any Note of the security afforded by the
lien of the Indenture.
Events of Default; Rights Upon Event of Default. With respect to each Trust,
unless otherwise specified in the related Prospectus Supplement, "Events of
Default" under the Indenture will consist of: (i) a default for five days or
more in the payment of any interest on any Note; (ii) a default in the payment
of the principal of or any installment of the principal of any Note when the
same becomes due and payable; (iii) a default in the observance or performance
in any material respect of any covenant or agreement of the Trust made in the
Indenture, or any representation or warranty made by the Trust in the
Indenture or in any certificate delivered pursuant thereto or in connection
therewith having been incorrect as of the time made, and the continuation of
any such default or the failure to cure such breach of a representation or
warranty for a period of 30 days after notice thereof is given to the Trust by
the Indenture Trustee or to the Trust and the Indenture Trustee by the holders
of at least 25% in principal amount of the Notes then outstanding; or (iv)
certain events of bankruptcy, insolvency, receivership or liquidation of the
Trust. However, the amount of principal due and payable on any Class of Notes
on any Payment Date (prior to the final scheduled payment date, if any, for
such Class) will generally be determined by amounts available to be deposited
in the Note Distribution Account for such Payment Date. Therefore, unless
otherwise specified in the related Prospectus Supplement, the failure to pay
principal on a Class of Notes generally will not result in the occurrence of
an Event of Default unless such Class of Notes has a final scheduled payment
date, and then not until such final scheduled payment date for such Class of
Notes.
Unless otherwise specified in the related Prospectus Supplement, if an Event
of Default should occur and be continuing with respect to the Notes of any
Series, the related Indenture Trustee or a Note Majority may declare the
principal of the Notes to be immediately due and payable. Such declaration
may, under certain circumstances, be rescinded by a Note Majority.
Unless otherwise specified in the related Prospectus Supplement, if the
Notes of any Series have been declared due and payable following an Event of
Default with respect thereto, the related Indenture Trustee may institute
proceedings to collect amounts due or foreclose on Trust Property, exercise
remedies as a secured party, sell the related Contracts or elect to have the
Trust maintain possession of such Contracts and continue to apply collections
on such Contracts as if there had been no declaration of acceleration. Unless
otherwise specified in the related Prospectus Supplement, the Indenture
Trustee, however, will be prohibited from selling the related Contracts
following an Event of Default, unless (i) the holders of all the outstanding
related Notes consent to such sale; (ii) the proceeds of such sale are
sufficient to pay in full the principal of and the accrued interest on such
outstanding Notes at the date of such sale; or (iii) the Indenture Trustee
determines that the proceeds of the Contracts would not be sufficient on an
ongoing basis to make all payments on the Notes as such payments would have
become due if such obligations had not been declared due and payable, and the
Indenture Trustee obtains the consent of the holders of 66 2/3% of the
aggregate outstanding amount of the Notes. Unless otherwise specified in the
related Prospectus Supplement, following a declaration upon an Event of
Default that the Notes are immediately due and payable, (i) Note Owners will
be entitled to ratable repayment of principal on the basis of their respective
unpaid principal balances and (ii) repayment in full of the accrued interest
on and unpaid principal balances of the Notes will be made prior to any
further payment of interest or principal on the Certificates.
Subject to the provisions of the Indenture relating to the duties of the
Indenture Trustee, if an Event of Default occurs and is continuing with
respect to a Series of Notes, the Indenture Trustee will be under no
obligation to exercise any of the rights or powers under the Indenture at the
request or direction of any of the holders of such Notes, if the Indenture
Trustee reasonably believes it will not be adequately indemnified against the
costs, expenses and liabilities which might be incurred by it in complying
with such request. Subject to the provisions for indemnification and certain
limitations contained in the Indenture, a Note Majority in a Series will have
the right to direct the time, method and place of conducting any proceeding or
any remedy available to the
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Indenture Trustee, and a Note Majority may, in certain cases, waive any
default with respect thereto, except a default in the payment of principal or
interest or a default in respect of a covenant or provision of the Indenture
that cannot be modified without the waiver or consent of all of the holders of
such outstanding Notes.
No holder of a Note of any Series will have the right to institute any
proceeding with respect to the related Indenture, unless (i) such holder
previously has given to the Indenture Trustee written notice of a continuing
Event of Default, (ii) the holders of not less than 25% in principal amount of
the outstanding Notes of such Series have made written request of the
Indenture Trustee to institute such proceeding in its own name as Indenture
Trustee, (iii) such holder or holders have offered the Indenture Trustee
reasonable indemnity, (iv) the Indenture Trustee has for 60 days failed to
institute such proceeding, and (v) no direction inconsistent with such written
request has been given to the Indenture Trustee during such 60-day period by
the holders of a majority in principal amount of such outstanding Notes.
If an Event of Default occurs and is continuing and if it is known to the
Indenture Trustee, the Indenture Trustee will mail to each Noteholder notice
of the Event of Default within 90 days after it occurs. Except in the case of
a failure to pay principal of or interest on any Note, the Indenture Trustee
may withhold the notice if and so long as it determines in good faith that
withholding the notice is in the interests of the Noteholders.
In addition, each Indenture Trustee and the related Noteholders, by
accepting the related Notes, will covenant that they will not at any time
institute against the Seller or the related Trust any bankruptcy,
reorganization or other proceeding under any federal or state bankruptcy or
similar law.
Neither the Indenture Trustee nor the Trustee in its individual capacity,
nor any holder of a Certificate including, without limitation, Green Tree, nor
any of their respective owners, beneficiaries, agents, officers, directors,
employees, affiliates, successors or assigns will, in the absence of an
express agreement to the contrary, be personally liable for the payment of the
related Notes or for any agreement or covenant of the related Trust contained
in the Indenture.
Certain Covenants. Each Indenture will provide that the related Trust may
not consolidate with or merge into any other entity, unless (i) the entity
formed by or surviving such consolidation or merger is organized under the
laws of the United States or any state, (ii) such entity expressly assumes the
Trust's obligation to make due and punctual payments upon the Notes and the
performance or observance of every agreement and covenant of the Trust under
the Indenture, (iii) no Event of Default shall have occurred and be continuing
immediately after such merger or consolidation, (iv) the Trustee has been
advised that the then current rating of the related Notes or Certificates then
in effect would not be reduced or withdrawn by the Rating Agencies as a result
of such merger or consolidation, (v) the Trustee has received an opinion of
counsel to the effect that such consolidation or merger would have no material
adverse tax consequence to the Trust or to any related Note Owner or
Certificate Owner.
Each Trust will not, among other things, (i) except as expressly permitted
by the Indenture, the Trust Documents or certain related documents for such
Trust (collectively, the "Related Documents"), sell, transfer, exchange or
otherwise dispose of any of the assets of the Trust, (ii) claim any credit on
or make any deduction from the principal and interest payable in respect of
the related Notes (other than amounts withheld under the Code or applicable
state law) or assert any claim against any present or former holder of such
Notes because of the payment of taxes levied or assessed upon the Trust, (iii)
dissolve or liquidate in whole or in part, (iv) permit the validity or
effectiveness of the related Indenture to be impaired or permit any person to
be released from any covenants or obligations with respect to the related
Notes under such Indenture except as may be expressly permitted thereby, or
(v) except as expressly permitted by the Related Documents, permit any lien,
charge, excise, claim, security interest, mortgage or other encumbrance to be
created on or extend to or otherwise arise upon or burden the assets of the
Trust or any part thereof, or any interest therein or proceeds thereof.
No Trust may engage in any activity other than as specified under the
section of the related Prospectus Supplement entitled "The Trust." No Trust
will incur, assume or guarantee any indebtedness other than
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indebtedness incurred pursuant to the related Notes and the related Indenture
or otherwise in accordance with the Related Documents.
Annual Compliance Statement. Each Trust will be required to file annually
with the related Indenture Trustee a written statement as to the fulfillment
of its obligations under the Indenture.
Indenture Trustee's Annual Report. The Indenture Trustee will be required to
mail each year to all related Noteholders a brief report relating to its
eligibility and qualification to continue as Indenture Trustee under the
related Indenture, any amounts advanced by it under the Indenture, the amount,
interest rate and maturity date of certain indebtedness owing by the Trust to
the Indenture Trustee in its individual capacity, the property and funds
physically held by the Indenture Trustee as such and any action taken by it
that materially affects the Notes and that has not been previously reported.
Note Owners may receive such reports upon written request, together with a
certification that they are Note Owners and payment of reproduction and
postage expenses associated with the distribution of such reports, from the
Indenture Trustee at the address specified in the related Prospectus
Supplement.
Satisfaction and Discharge of Indenture. The Indenture will be discharged
with respect to the collateral securing the related Notes upon the delivery to
the related Indenture Trustee for cancellation of all such Notes or, with
certain limitations, upon deposit with the Indenture Trustee of funds
sufficient for the payment in full of all of such Notes.
THE INDENTURE TRUSTEE
The Indenture Trustee for a Series of Notes will be specified in the related
Prospectus Supplement. The Indenture Trustee may resign at any time, in which
event the Seller will be obligated to appoint a successor trustee. Green Tree
may also remove the Indenture Trustee if the Indenture Trustee ceases to be
eligible to continue as such under the Indenture or if the Indenture Trustee
becomes insolvent. In such circumstances, Green Tree will be obligated to
appoint a successor trustee. Any resignation or removal of the Indenture
Trustee and appointment of a successor trustee will be subject to any
conditions or approvals, if any, specified in the related Prospectus
Supplement and will not become effective until acceptance of the appointment
by a successor trustee.
THE CERTIFICATES
GENERAL
A Series of Securities may include one or more Classes of Certificates
issued pursuant to Trust Documents to be entered into between Green Tree, as
Seller and as Servicer, and the Trustee, forms of which have been filed as
exhibits to the Registration Statement of which this Prospectus forms a part.
The following summary does not purport to be complete and is subject to, and
is qualified in its entirety by reference to, all of the material provisions
of the Trust Documents. Where particular provisions of or terms used in the
Trust Documents are referred to, the actual provisions (including definitions
of terms) are incorporated by reference as part of this summary.
If the Certificates of a Series are issued in more than one Class, the
Certificates of all or less than all of such Classes may be sold pursuant to
this Prospectus, and there may be separate Prospectus Supplements relating to
one or more of such Classes so sold. Any reference herein to the Prospectus
Supplement relating to a Series comprised of more than one Class should be
understood as a reference to each of the Prospectus Supplements relating to
the Classes sold hereunder. Any reference herein to the Certificates of a
Class should be understood to refer to the Certificates of a Class within a
Series or all of the Certificates of a single-Class Series, as the context may
require. For convenience of description, any reference in this Prospectus to a
"Class" of Certificates includes a reference to any subclasses of such Class.
Unless otherwise specified in the related Prospectus Supplement, each Class
of Certificates will initially be represented by a single Certificate
registered in the name of the nominee of DTC (together with any successor
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depository selected by Green Tree, the "Depository"). See "Certain Information
Regarding the Securities--Book-Entry Registration." Unless otherwise specified
in the related Prospectus Supplement, the Certificates evidencing interests in
a Trust will be available for purchase in denominations of $1,000 initial
principal amount and integral multiples thereof, except that one Certificate
evidencing an interest in such Trust may be issued in a denomination that is
less than $1,000 initial principal amount. Certificates may be transferred or
exchanged without the payment of any service charge other than any tax or
governmental charge payable in connection with such transfer or exchange.
Unless otherwise specified in the related Prospectus Supplement, the Trustee
will initially be designated as the registrar for the Certificates.
DISTRIBUTIONS OF INTEREST AND PRINCIPAL
The timing and priority of distributions, seniority, allocations of loss,
Pass-Through Rate and amount of or method of determining distributions with
respect to principal and interest (or, where applicable, with respect to
principal only or interest only) on the Certificates of any Series will be
described in the related Prospectus Supplement. Distributions of interest on
the Certificates will be made on the dates specified in the related Prospectus
Supplement (each, a "Distribution Date") and, unless otherwise specified in
the related Prospectus Supplement, will be made prior to distributions with
respect to principal. A Series may include one or more Classes of Certificates
("Subordinated Certificates") which are subordinated in right of distribution
to one or more other Classes of Certificates ("Senior Certificates"), as
provided in the related Prospectus Supplement. Certificates of a Series which
includes Senior and Subordinated Certificates are referred to herein
collectively as "Senior/Subordinated Certificates." A Series of
Senior/Subordinated Certificates may include one or more Classes ("Mezzanine
Certificates") which are subordinated to one or more Classes of Certificates
and are senior to one or more Classes of Certificates. The Prospectus
Supplement with respect to a Series of Senior/Subordinated Certificates will
set forth, among other things, the extent to which the Subordinated
Certificates are subordinated (which may include a formula for determining the
subordinated amount or for determining the allocation of the Amount Available
(hereinafter defined) among Senior Certificates and Subordinated
Certificates), the allocation of losses among the Classes of Subordinated
Certificates, the period or periods of such subordination, the minimum
subordinated amount, if any, and any distributions or payments which will not
be affected by such subordination. The protection afforded to the Senior
Certificateholders from the subordination feature described above will be
effected by the preferential right of such Certificateholders to receive
current distributions from the Contract Pool. If a Series of Certificates
contains more than one Class of Subordinated Certificates, losses will be
allocated among such Classes in the manner described in the Prospectus
Supplement. If so specified in the applicable Prospectus Supplement, Mezzanine
Certificates or other Classes of Subordinated Certificates may be entitled to
the benefits of other forms of credit enhancement and may, if rated in one of
the four highest rating categories by a nationally recognized statistical
rating organization, be offered pursuant to this Prospectus and such
Prospectus Supplement.
If so specified in a Prospectus Supplement, a Series may include one or more
Classes of Certificates which (i) are entitled to receive distributions only
in respect of principal ("Principal Only Certificates"), interest ("Interest
Only Certificates") or any combination thereof, or in specified proportions in
respect of such payments, and/or (ii) are entitled to receive distributions in
respect of principal before or after specified principal distributions have
been made on one or more other Classes within such Series ("Fast Pay/Slow Pay
Certificates"), or on a planned amortization schedule ("PAC Certificates") or
targeted amortization schedule ("TAC Certificates") or upon the occurrence of
other specified events. The Prospectus Supplement will set forth the rate at
which interest will be paid to Certificateholders of each Class of a given
Series (the "Pass-Through Rate"). Such Pass-Through Rate may be fixed,
variable or adjustable, as specified in the related Prospectus Supplement.
The related Prospectus Supplement will specify the Pass-Through Rate for
each Class of Certificate, or the initial Pass-Through Rate and the method for
determining the Pass-Through Rate. Unless otherwise specified in the related
Prospectus Supplement, interest on the Certificates will be calculated on the
basis of a 360-day year consisting of twelve 30-day months. Unless otherwise
specified in the related Prospectus Supplement, distributions in respect of
the Certificates will be subordinate to payments in respect of the Notes, if
any, as more
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fully described in the related Prospectus Supplement. Distributions in respect
of principal of any Class of Certificates will be made on a pro rata basis
among all of the Certificateholders of such Class.
In the case of a Series of Certificates which includes two or more Classes
of Certificates, the timing, sequential order, priority of payment or amount
of distributions in respect of principal, and any schedule or formula or other
provisions applicable to the determination thereof, of each such Class shall
be as set forth in the related Prospectus Supplement.
CERTAIN INFORMATION REGARDING THE SECURITIES
BOOK-ENTRY REGISTRATION
Unless otherwise provided in the related Prospectus Supplement, the
Securities of each Series will be registered in the name of Cede & Co., the
nominee of DTC. DTC is a limited-purpose trust company organized under the
laws of the State of New York, a member of the Federal Reserve System, a
"clearing corporation" within the meaning of the New York Uniform Commercial
Code, and a "clearing agency" registered pursuant to the provisions of Section
17A of the Exchange Act. DTC accepts securities for deposit from its
participating organizations ("Participants") and facilitates the clearance and
settlement of securities transactions between Participants in such securities
through electronic book-entry changes in accounts of Participants, thereby
eliminating the need for physical movement of certificates. Participants
include securities brokers and dealers, banks and trust companies and clearing
corporations and may include certain other organizations. Indirect access to
the DTC system is also available to others such as banks, brokers, dealers and
trust companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly ("indirect participants").
Certificate Owners and Note Owners who are not Participants but desire to
purchase, sell or otherwise transfer ownership of Securities may do so only
through Participants (unless and until Definitive Certificates or Definitive
Notes, each as defined below, are issued). In addition, Certificate Owners and
Note Owners will receive all distributions of principal of, and interest on,
the Securities from the Trustee or the Indenture Trustee, as applicable,
through DTC and Participants. Certificate Owners and Note Owners will not
receive or be entitled to receive certificates representing their respective
interests in the Securities, except under the limited circumstances described
below and such other circumstances, if any, as may be specified in the related
Prospectus Supplement.
Unless and until Definitive Securities are issued, it is anticipated that
the only Certificateholder of the Certificates and the only Noteholder of the
Notes, if any, will be Cede & Co., as nominee of DTC. Certificate Owners and
Note Owners will not be recognized by the Trustee as Certificateholders or by
the Indenture Trustee as Noteholders as those terms are used in the related
Trust Documents or Indenture. Certificate Owners and Note Owners will be
permitted to exercise the rights of Certificateholders or Noteholders, as the
case may be, only indirectly through Participants and DTC.
With respect to any Series of Securities, while the Securities are
outstanding (except under the circumstances described below), under the rules,
regulations and procedures creating and affecting DTC and its operations (the
"Rules"), DTC is required to make book-entry transfers among Participants on
whose behalf it acts with respect to the Securities and is required to receive
and transmit distributions of principal of, and interest on, the Securities.
Participants with whom Certificate Owners or Note Owners have accounts with
respect to Securities are similarly required to make book-entry transfers and
receive and transmit such distributions on behalf of their respective
Certificate Owners and Note Owners. Accordingly, although Certificate Owners
and Note Owners will not possess Securities, the Rules provide a mechanism by
which Certificate Owners and Note Owners will receive distributions and will
be able to transfer their interests.
With respect to any series of Securities, unless otherwise specified in the
related Prospectus Supplement, Certificates (if any) and Notes will be issued
in registered form to Certificate Owners and Note Owners, or their
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nominees, rather than to DTC (such Certificates and Notes being referred to
herein as "Definitive Certificates" and "Definitive Notes," respectively),
only if (i) DTC, Green Tree or the Servicer advises the Trustee or the
Indenture Trustee, as the case may be, in writing that DTC is no longer
willing or able to discharge properly its responsibilities as nominee and
depository with respect to the Certificates or the Notes, and Green Tree, the
Servicer, the Trustee or the Indenture Trustee, as the case may be, is unable
to locate a qualified successor, (ii) Green Tree or the Administrator (if any)
at its sole option has advised the Trustee or the Indenture Trustee, as the
case may be, in writing that it elects to terminate the book-entry system
through DTC and (iii) after the occurrence of a Servicer Termination Event,
the holders representing a majority of the Certificate Balance (a "Certificate
Majority") or a Note Majority advises the Trustee or the Indenture Trustee, as
the case may be, through DTC, that continuation of a book-entry system is no
longer in their best interests. Upon issuance of Definitive Certificates or
Definitive Notes to Certificate Owners or Note Owners, such Certificates or
Notes will be transferable directly (and not exclusively on a book-entry
basis) and registered holders will deal directly with the Trustee or the
Indenture Trustee, as the case may be, with respect to transfers, notices and
distributions.
DTC has advised Green Tree that, unless and until Definitive Certificates or
Definitive Notes are issued, DTC will take any action permitted to be taken by
a Certificateholder or a Noteholder under the related Trust Documents or
Indenture only at the direction of one or more Participants to whose DTC
accounts the Certificates or Notes are credited. DTC has advised Green Tree
that DTC will take such action with respect to any fractional interest of the
Certificates or the Notes only at the direction of and on behalf of such
Participants beneficially owning a corresponding fractional interest of the
Certificates or the Notes. DTC may take actions, at the direction of the
related Participants, with respect to some Certificates or Notes which
conflict with actions taken with respect to other Certificates or Notes.
Issuance of Certificates and Notes in book-entry form rather than as
physical certificates or notes may adversely affect the liquidity of
Certificates or Notes in the secondary market and the ability of the
Certificate Owners or Note Owners to pledge them. In addition, since
distributions on the Certificates and the Notes will be made by the Trustee or
the Indenture Trustee to DTC and DTC will credit such distributions to the
accounts of its Participants, with the Participants further crediting such
distributions to the accounts of indirect participants or Certificate Owners
or Note Owners, Certificate Owners and Note Owners may experience delays in
the receipt of such distributions.
STATEMENTS TO SECURITYHOLDERS
On or prior to each Distribution Date, the Servicer will prepare and provide
to the Trustee a statement to be delivered to the related Certificateholders
on such Distribution Date. On or prior to each Distribution Date, the Servicer
will prepare and provide to the Indenture Trustee a statement to be delivered
to the related Noteholders on such Distribution Date. Such statements will be
based on the information in the related Servicer's Certificate setting forth
certain information required under the Trust Documents (the "Servicer's
Certificate"). Unless otherwise specified in the related Prospectus
Supplement, each such statement to be delivered to Certificateholders will
include the following information as to the Certificates with respect to such
Distribution Date or the period since the previous Distribution Date, as
applicable, and each such statement to be delivered to Noteholders will
include the following information as to the Notes with respect to such
Distribution Date or the period since the previous Distribution Date, as
applicable:
(i) the amount of the distribution allocable to interest on or with
respect to each Class of Securities;
(ii) the amount of the distribution allocable to principal on or with
respect to each Class of Securities;
(iii) the Certificate Balance and the Certificate Pool Factor for each
Class of Certificates and the aggregate outstanding principal balance and
the Note Pool Factor for each Class of Notes, after giving effect to all
payments reported under (ii) above on such date;
(iv) the amount of the Monthly Servicing Fee paid to the Servicer with
respect to the related Due Period or Periods, as the case may be;
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(v) the Pass-Through Rate or Interest Rate for the next period for any
Class of Certificates or Notes with variable or adjustable rates;
(vi) the amount of Advances made by the Servicer with respect to such
Distribution Date, and the amount paid to the Servicer on such Distribution
Date as reimbursement of Advances made on previous Distribution Dates;
(vii) the amount, if any, distributed to Certificateholders and
Noteholders applicable to payments under the related form of credit
enhancement, if any;
(viii) Green Tree's FHA Insurance reserve amount;
(ix) the number and aggregate principal balance of Contracts delinquent
(i) 31-59 days, (ii) 60-89 and (iii) 90 or more days;
(x) the number of Contracts liquidated during the Due Period ending
immediately before such Payment Date;
(xi) such customary factual information as is necessary to enable
Securityholders to prepare their tax returns; and
(xii) such other information as may be specified in the related
Prospectus Supplement.
Each amount set forth pursuant to subclauses (i), (ii), (iv) and (vi) with
respect to Certificates or Notes will be expressed as a dollar amount per
$1,000 of the initial Certificate Balance or the initial principal balance of
the Notes, as applicable.
Unless and until Definitive Certificates or Definitive Notes are issued,
such reports with respect to a Series of Securities will be sent on behalf of
the related Trust to the Trustee, the Indenture Trustee and Cede & Co., as
registered holder of the Certificates and the Notes and the nominee of DTC.
Certificate Owners and Note Owners may receive copies of such reports upon
written request, together with a certification that they are Certificate
Owners or Note Owners, as the case may be, and payment of reproduction and
postage expenses associated with the distribution of such reports, from the
Trustee or the Indenture Trustee, as applicable. See "Reports to
Securityholders" and "--Book-Entry Registration" above.
Within the prescribed period of time for tax reporting purposes after the
end of each calendar year during the term of a Trust, the Trustee and the
Indenture Trustee, as applicable, will mail to each holder of a Class of
Securities who at any time during such calendar year has been a
Securityholder, and received any payment thereon, a statement containing
certain information for the purposes of such Securityholder's preparation of
federal income tax returns. DTC will convey such information to its
Participants, who in turn will convey such information to their related
indirect participants in accordance with arrangements among DTC and such
participants. Certificate Owners and Note Owners may receive such reports upon
written request, together with a certification that they are Certificate
Owners or Note Owners and payment of reproduction and postage expenses
associated with the distribution of such information, from the Trustee, with
respect to Certificate Owners, or from the Indenture Trustee, with respect to
Note Owners, at the addresses specified in the related Prospectus Supplement.
See "Certain Federal Income Tax Consequences."
LISTS OF SECURITYHOLDERS
Unless otherwise provided in the related Prospectus Supplement, with respect
to each Series of Certificates, at such time, if any, as Definitive
Certificates have been issued, the Trustee will, upon written request by three
or more Certificateholders or one or more holders of Certificates evidencing
not less than 25% of the Certificate Balance, within five Business Days after
provision to the Trustee of a statement of the applicants' desire to
communicate with other Certificateholders about their rights under the related
Trust Documents or the Certificates and a copy of the communication that the
applicants propose to transmit, afford such Certificateholders access during
business hours to the current list of Certificateholders for purposes of
communicating with other Certificateholders with respect to their rights under
the Trust Documents. Unless
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otherwise specified in the related Prospectus Supplement, the Trust Documents
will not provide for holding any annual or other meetings of
Certificateholders.
Unless otherwise provided in the related Prospectus Supplement, with respect
to each Series of Notes, if any, at such time, if any, as Definitive Notes
have been issued, the Indenture Trustee will, upon written request by three or
more Noteholders or one or more holders of Notes evidencing not less than 25%
of the aggregate principal balance of the related Notes, within five Business
Days after provision to the Indenture Trustee of a statement of the
applicants' desire to communicate with other Noteholders about their rights
under the related Indenture or the Notes and a copy of the communication that
the applicants propose to transmit, afford such Noteholders access during
business hours to the current list of Noteholders for purposes of
communicating with other Noteholders with respect to their rights under the
Indenture. Unless otherwise specified in the related Prospectus Supplement,
the Indenture will not provide for holding any annual or other meetings of
Noteholders.
DESCRIPTION OF THE TRUST DOCUMENTS
Except as otherwise specified in the related Prospectus Supplement, the
following summary describes certain terms of the Sale and Servicing Agreements
and the Trust Agreements (collectively referred to as the "Trust Documents")
pursuant to which Green Tree will sell and assign such Contracts to a Trust
and the Servicer will agree to service such Contracts on behalf of the Trust,
and pursuant to which such Trust will be created and Certificates will be
issued. Forms of the Trust Documents have been filed as exhibits to the
Registration Statement of which this Prospectus forms a part. Green Tree will
provide a copy of such agreements (without exhibits) upon request to a holder
of Securities described therein. This summary does not purport to be complete
and is subject to, and qualified in its entirety by reference to, all of the
provisions of the Trust Documents. Where particular provisions or terms used
in the Trust Documents are referred to, the actual provisions (including
definitions of terms) are incorporated by reference as part of such summary.
SALE AND ASSIGNMENT OF THE CONTRACTS
On the Closing Date (as defined in the Prospectus Supplement), Green Tree
will sell and assign to the Trust, without recourse, Green Tree's entire
interest in the related Contracts, including all principal and interest
received on or with respect to the Contracts (other than receipts of principal
and interest due on the Contracts before the Cut-off Date). Each Contract
transferred by Green Tree to the Trust will be identified in a schedule
appearing as an exhibit to the related Trust Documents (the "Schedule of
Contracts"). Concurrently with such sale and assignment, the Trustee will
execute and the Indenture Trustee will authenticate and deliver the Notes to
or upon the order of the Seller, and the Trustee will execute and deliver the
related certificates representing the Certificates, if any, to or upon the
order of Green Tree.
The Schedule of Contracts will include the amount of monthly payments due on
each Contract as of the date of issuance of the Securities, the Contract Rate
on each Contract and the maturity date of each Contract. Such list will be
available for inspection by any Securityholder at the principal executive
office of the Servicer. Prior to the conveyance of the Contracts to the
Trustee, Green Tree's internal audit department will complete a review of all
of the Contract files confirming the accuracy of the list of Contracts
delivered to the Trustee. Any Contract discovered not to agree with such list
in a manner that is materially adverse to the interests of the Securityholders
will be repurchased or substituted for by Green Tree, or, if the discrepancy
relates to the unpaid principal balance of a Contract, Green Tree may deposit
cash in the separate account maintained at an Eligible Institution in the name
of the Trustee (the "Collection Account") in an amount sufficient to offset
such discrepancy. If the Trust includes a Pre-Funding Account, the related
Prospectus Supplement will specify the conditions that must be satisfied prior
to any transfer of Subsequent Contracts, including the requisite
characteristics of the Subsequent Contracts.
Unless otherwise specified in the related Prospectus Supplement, the Trustee
or its custodian will maintain possession of the Contracts and any other
documents contained in the Contract files. Uniform Commercial Code
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financing statements will be filed in Minnesota reflecting the sale and
assignment of the Contracts to the Trustee, and Green Tree's accounting
records and computer systems will also reflect such sale and assignment.
The counsel to Green Tree identified in the applicable Prospectus Supplement
will render an opinion to the Trustee that the transfer of the Contracts from
Green Tree to the related Trust would, in the event Green Tree became a debtor
under the United States Bankruptcy Code, be treated as a true sale and not as
a pledge to secure borrowings. If, however, the transfer of the Contracts from
Green Tree to the Trust were treated as a pledge to secure borrowings by Green
Tree, the distribution of proceeds of the Contracts to the Trust might be
subject to the automatic stay provisions of the United States Bankruptcy Code,
which would delay the distribution of such proceeds for an uncertain period of
time. In addition, a bankruptcy trustee would have the power to sell the
Contracts if the proceeds of such sale could satisfy the amount of the debt
deemed owed by Green Tree, or the bankruptcy trustee could substitute other
collateral in lieu of the Contracts to secure such debt, or such debt could be
subject to adjustment by the bankruptcy trustee if Green Tree were to file for
reorganization under Chapter 11 of the United States Bankruptcy Code.
Except as otherwise specified in the related Prospectus Supplement, Green
Tree will make certain representations and warranties in the Sale and
Servicing Agreement with respect to each Contract as of the related Closing
Date, including that: (a) as of the Cut-off Date the most recent scheduled
payment was made or was not delinquent more than 59 days; (b) no provision of
a Contract has been waived, altered or modified in any respect, except by
instruments or documents included in the Contract file and reflected on the
list of Contracts delivered to the Trustee; (c) each Contract is a legal,
valid and binding obligation of the Obligor and is enforceable in accordance
with its terms (except as may be limited by laws affecting creditors rights
generally); (d) no Contract is subject to any right of rescission, set-off,
counterclaim or defense; (e) each FHA-insured Home Improvement Contract was
originated in accordance with applicable FHA regulations and is insured,
without set off, surcharge or defense, by FHA Insurance; (f) each Contract was
either (i) entered into by a home improvement contractor in the ordinary
course of such contractor's business and, immediately upon funding, assigned
to Green Tree or (ii) was originated by a home equity lender in the ordinary
course of such lender's business and assigned to Green Tree or (iii) was
originated by Green Tree directly; (g) no Contract was originated in or is
subject to the laws of any jurisdiction whose laws would make the transfer of
the Contract or an interest therein pursuant to the Sale and Servicing
Agreement or the Securities unlawful; (h) each Contract complies with all
requirements of law; (i) no Contract has been satisfied, subordinated to a
lower lien ranking than its original position (if any) or rescinded; (j) all
parties to each Contract had full legal capacity to execute such Contract; (k)
no Contract has been sold, conveyed and assigned or pledged to any other
person and Green Tree has good and marketable title to each Contract free and
clear of any encumbrance, equity, loan, pledge, charge, claim or security
interest, and is the sole owner and has full right to transfer such Contract
to the Trustee; (l) as of the Cut-off Date there was no default, breach,
violation or event permitting acceleration under any Contract (except for
payment delinquencies permitted by clause (a) above), no event that with
notice and the expiration of any grace or cure period would constitute a
default, breach, violation or event permitting acceleration under such
Contract, and Green Tree has not waived any of the foregoing; (m) each
Contract is a fully-amortizing loan with a fixed rate of interest and provides
for level payments over the term of such Contract; (n) the description of each
Contract set forth in the list delivered to the Trustee is true and correct;
(o) there is only one original of each Contract; and (p) each Contract was
originated or purchased in accordance with Green Tree's then-current
underwriting guidelines.
The warranties of Green Tree will be made as of the execution and delivery
of the related Trust Documents and will survive the sale, transfer and
assignment of the related Contracts and other Trust Property to the Trust but
will speak only as of the date made.
Under the terms of the Sale and Servicing Agreement, if Green Tree becomes
aware of a breach of any such representation or warranty that materially
adversely affects the interests of the Note Owners, the Certificate Owners, if
any, or the related Trust in any Contract or receives written notice of such a
breach from the Trustee or the Servicer, then Green Tree will be obligated
either to cure such breach or to repurchase or, if so provided in the related
Prospectus Supplement, substitute for the affected Contract, in each case
under the conditions
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further described herein and in the Prospectus Supplement. This repurchase
obligation will constitute the sole remedy available to the Trust and the
Securityholders for a breach of a representation or warranty under the Sale
and Servicing Agreement with respect to the Contracts (but not with respect to
any other breach by Green Tree of its obligations under the Sale and Servicing
Agreement).
The "Purchase Amount" of a Contract at any time means the outstanding
principal amount of such Contract (without giving effect to any Advances made
by the Servicer or the Trustee), plus interest at the applicable Contract Rate
on such Contract from the end of the Due Period with respect to which the
Obligor last made a payment (without giving effect to any Advances made by the
Servicer or the Trustee) through the end of the immediately preceding Due
Period.
Upon the purchase by Green Tree of a Contract due to a breach of a
representation or warranty, the Trustee will convey such Contract and the
related Trust Property to Green Tree.
COLLECTIONS
With respect to each Trust, the Servicer will establish one or more
Collection Accounts in the name of the Indenture Trustee for the benefit of
the related Securityholders. If so specified in the related Prospectus
Supplement, the Indenture Trustee will establish and maintain for each Series
an account, in the name of the Indenture Trustee on behalf of the related
Noteholders, in which amounts released from the Collection Account and any
Pre-Funding Account and any amounts received from any source of credit
enhancement for payment to such Noteholders will be deposited and from which
all distributions to such Noteholders will be made (the "Note Distribution
Account"). With respect to any Series including one or more Classes of
Certificates, the Trustee will establish and maintain for each Series an
account, in the name of the Trustee on behalf of the related
Certificateholders, in which amounts released from the Collection Account and
any Pre-Funding Account and any amounts received from any source of credit
enhancement for distribution to such Certificateholders will be deposited and
from which all distributions to such Certificateholders will be made (the
"Certificate Distribution Account"). The Collection Account, the Certificate
Distribution Account (if any), and the Note Distribution Account (if any), are
referred to herein collectively as the "Designated Accounts." Any other
accounts to be established with respect to a Trust will be described in the
related Prospectus Supplement.
Each Designated Account will be an Eligible Account maintained with the
Trustee, the Indenture Trustee and/or other depository institutions. "Eligible
Account" means any account which is (i) an account maintained with an Eligible
Institution (as defined below); (ii) an account or accounts the deposits in
which are fully insured by either the Bank Insurance Fund or the Savings
Association Insurance Fund of the FDIC; (iii) a "segregated trust account"
maintained with the corporate trust department of a federal or state chartered
depository institution or trust company with trust powers and acting in its
fiduciary capacity for the benefit of the Trustee, which depository
institution or trust company has capital and surplus (or, if such depository
institution or trust company is a subsidiary of a bank holding company system,
the capital and surplus of the bank holding company) of not less than
$50,000,000 and the securities of such depository institution (or, if such
depository institution is a subsidiary of a bank holding company system and
such depository institution's securities are not rated, the securities of the
bank holding company) has a credit rating from each rating agency rating such
Series of Notes and/or Certificates (a "Rating Agency") in one of its generic
credit rating categories which signifies investment grade; or (iv) an account
that will not cause any Rating Agency to downgrade or withdraw its then-
current rating assigned to the Securities, as confirmed in writing by each
Rating Agency. "Eligible Institution" means any depository institution
organized under the laws of the United States or any state, the deposits of
which are insured to the full extent permitted by law by the Bank Insurance
Fund (currently administered by the Federal Deposit Insurance Corporation),
whose short-term deposits have been rated in one of the two highest rating
categories or such other rating category as will not adversely affect the
ratings assigned to the Securities of such Series. On the Closing Date
specified in the related Prospectus Supplement, the Servicer will cause to be
deposited in the Collection Account all payments on the Contracts received by
the Servicer after the Cut-off Date and on or prior to the second Business Day
preceding the Closing Date.
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Unless otherwise specified in the related Prospectus Supplement, the
Servicer will deposit in the Collection Account on a daily basis all proceeds
and collections received or made by it with respect to the related Contracts
subsequent to the Cut-off Date (including scheduled payments of principal and
interest due after the Cut-off Date but received by the Servicer on or before
the Cut-off Date), including:
(i) all Obligor payments on account of principal, including principal
prepayments, on the Contracts;
(ii) all Obligor payments on account of interest on the Contracts;
(iii) all FHA Insurance payments received by the Servicer;
(iv) all amounts received and retained in connection with the liquidation
of defaulted Contracts, net of liquidation expenses ("Net Liquidation
Proceeds");
(v) any Advances made as described under "Advances" below and certain
other amounts required under the Sale and Servicing Agreement to be
deposited in the Collection Account;
(vi) all amounts received from any credit enhancement provided with
respect to a Series of Securities; and
(vii) all proceeds of any Contract or property acquired in respect
thereof repurchased by the Servicer or Green Tree, as described under "Sale
and Assignment of the Contracts" above or under "Repurchase Option" below.
Notwithstanding the foregoing and unless otherwise provided in the related
Prospectus Supplement, the Servicer may utilize an alternative remittance
schedule, if the Servicer provides to the Trustee and the Indenture Trustee
written confirmation from each Rating Agency that such alternative remittance
schedule will not result in the downgrading or withdrawal by such Rating
Agency of the rating(s) then assigned to the Securities. Green Tree will also
deposit into the Collection Account on or before the Deposit Date the Purchase
Amount of each Contract to be purchased by it for breach of a representation
or warranty.
For any Series of Securities, funds in the Designated Accounts and any other
accounts identified in the related Prospectus Supplement will be invested, as
provided in the related Trust Documents, at the direction of the Servicer in
United States government securities and certain other high-quality investments
meeting the criteria specified in the related Trust Documents ("Eligible
Investments"). Eligible Investments shall mature no later than the Business
Day preceding the applicable Distribution Date for the Due Period to which
such amounts relate. Investments in Eligible Investments will be made in the
name of the Trustee or the Indenture Trustee, as the case may be, and such
investments will not be sold or disposed of prior to their maturity.
Unless otherwise specified in the related Prospectus Supplement, collections
or recoveries on a Contract (other than late fees or certain other similar
fees or charges) received during a Due Period and Purchase Amounts deposited
with the Trustee prior to a Distribution Date will be applied first to any
outstanding Advances made by the Servicer with respect to such Contract, and
then to interest and principal on the Contract in accordance with the terms of
the Contract.
SERVICING
Pursuant to the Sale and Servicing Agreement, the Servicer will service and
administer the Contracts assigned to the Trustee as more fully set forth
below. The Servicer will perform diligently all services and duties specified
in each Sale and Servicing Agreement, in the same manner as prudent lending
institutions of home improvement contracts of the same type as the Contracts
in those jurisdictions where the related real properties are located or as
otherwise specified in the Sale and Servicing Agreement. The duties to be
performed by the Servicer will include collection and remittance of principal
and interest payments, as well as submission of FHA Insurance claims where
applicable.
The Servicer will make reasonable efforts to collect all payments called for
under the Contracts and, consistent with the Sale and Servicing Agreement and
any FHA Insurance, will follow such collection procedures
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with respect to the Contracts as it follows with respect to loans or contracts
serviced by it that are comparable to the Contracts.
Evidence as to Compliance. Unless otherwise specified in the related
Prospectus Supplement, each Sale and Servicing Agreement will require the
Servicer to deliver to the Trustee a monthly report prior to each Payment
Date, setting forth certain information regarding the Contract Pool and the
Securities of such Series as is specified in the related Prospectus
Supplement. Each such report to the Trustee will be accompanied by a statement
from an appropriate officer of the Servicer certifying the accuracy of such
report and stating that the Servicer has not defaulted in the performance of
its obligations under the Sale and Servicing Agreement. On or before May 1 of
each year, the Servicer will 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 home improvement contracts
serviced by the Servicer under agreements similar to the Sale and Servicing
Agreement and stating that, on the basis of such procedures, such servicing
has been conducted in compliance with the Sale 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 and duties under a Sale 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 the Trustee or
a successor servicer has assumed the Servicer's obligations and duties under
such Sale and Servicing Agreement. The Servicer can only be removed as
servicer upon the occurrence of an Event of Termination as discussed below.
The Servicer shall keep in force throughout the term of the Sale and
Servicing Agreement (i) a policy or policies of insurance covering errors and
omissions for failure to maintain insurance as required by the Sale and
Servicing Agreement, 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 which service a portfolio of home improvement contracts having
an aggregate principal amount of $10 million or more and which are generally
regarded as servicers acceptable to institutional investors.
Servicing Compensation and Payment of Expenses. For its servicing of the
Contracts, the Servicer will receive servicing fees ("Servicing Fees") which
include a Monthly Servicing Fee (which Green Tree may assign) for each Due
Period (paid on the next succeeding Payment Date) equal to 1/12th of the
product of the annual servicing fee rate described in the applicable
Prospectus Supplement and the Aggregate Principal Balance for such Payment
Date. As long as Green Tree is the Servicer, the Trustee will pay Green Tree
its Monthly Servicing Fee from any monies remaining after the Securityholders
have received all payments of principal and interest for such Payment Date.
The Monthly Servicing Fee provides compensation for customary third-party
servicing activities to be performed by the Servicer for the Trust, for
additional administrative services performed by the Servicer on behalf of the
Trust and for expenses paid by the Servicer on behalf of the Trust.
Customary servicing activities include collecting and recording payments,
communicating with Obligors, investigating payment delinquencies, providing
billing and tax records to Obligors and maintaining internal records with
respect to each Contract. Administrative services performed by the Servicer on
behalf of the Trust include selecting and packaging the Contracts, calculating
distributions to Securityholders and providing related data processing and
reporting services for Securityholders and on behalf of the Trustee. Expenses
incurred in connection with servicing of the Contracts and paid by Green Tree
from its Monthly Servicing Fees include payment of FHA Insurance premiums,
payment of fees and expenses of accountants, payments of all fees and expenses
incurred in connection with the enforcement of Contracts (including submission
of FHA Insurance claims, if applicable) or payment of Trustee's fees, and
payment of expenses incurred in connection with distributions and reports to
Securityholders, except that the Servicer shall be reimbursed out of the
liquidation proceeds of a liquidated Contract (including FHA Insurance
proceeds) for customary out-of-pocket liquidation expenses incurred by it.
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Events of Termination. Except as otherwise specified in the related
Prospectus Supplement, Events of Termination under each Sale and Servicing
Agreement will occur if (i) any failure by the Servicer to deliver to the
Indenture Trustee for distribution to the Noteholders or to the Trustee for
distribution to the Certificateholders any required payment which continues
unremedied for 5 days (or such other period specified in the related
Prospectus Supplement) after the giving of written notice; (ii) any failure by
the Servicer duly to observe or perform in any material respect any other of
its covenants or agreements in the Trust Documents that materially and
adversely affects the interests of Securityholders, which, in either case,
continues unremedied for 30 days after the giving of written notice of such
failure of breach; (iii) any assignment or delegation by the Servicer of its
duties or rights under the Trust Documents, except as specifically permitted
under the Trust Documents, or any attempt to make such an assignment or
delegation; (iv) certain events of insolvency, readjustment of debt,
marshalling of assets and liabilities or similar proceedings regarding the
Servicer; (v) the Servicer is no longer an Eligible Servicer (as defined in
the Trust Documents) or (vi) if Green Tree is the Servicer, Green Tree's
receiving rights under its master seller-servicer contract with GNMA are
terminated. Notice as used herein shall mean notice to the Servicer by the
Trustee, the Indenture Trustee, if any, or Green Tree, or to Green Tree, the
Servicer, the Indenture Trustee, if any, and the Trustee by the holders of
Securities representing interests aggregating not less than 25% of the
outstanding principal balance of the Securities issued by such Trust.
Unless otherwise specified in the related Prospectus Supplement, if a
Servicer Termination Event occurs and is continuing, the Trustee, the
Indenture Trustee or the holders of at least 25% in aggregate principal
balance of the outstanding Securities issued by such Trust, by notice then
given in writing to the Servicer (and to the Trustee and the Indenture Trustee
if given by the Securityholders) may terminate all of the rights and
obligations of the Servicer under the Trust Documents. Immediately upon the
giving of such notice, and, in the case of a successor Servicer other than the
Trustee, the acceptance by such successor Servicer of its appointment, all
authority of the Servicer will pass to the Trustee or other successor
Servicer. The Trustee, the Indenture Trustee and the successor Servicer may
set off and deduct any amounts owed by the Servicer from any amounts payable
to the outgoing Servicer.
On and after the time the Servicer receives a notice of termination, the
Trustee or other successor Servicer specified in the related Prospectus
Supplement (the "Backup Servicer") will be the successor in all respects to
the Servicer and will be subject to all the responsibilities, restrictions,
duties and liabilities of the Servicer under the related Trust Documents;
provided, however, that the successor Servicer shall have no liability with
respect to any obligation which was required to be performed by the prior
Servicer prior to the date that the successor Servicer becomes the Servicer or
any claim of a third party (including a Securityholder) based on any alleged
action or inaction of the prior Servicer.
In addition, the Trustee will notify FHA of Green Tree's termination as
Servicer of the Contracts and will request that the portion of Green Tree's
FHA Insurance reserves allocable to the FHA-insured Contracts be transferred
to the Trustee or a successor Servicer. See "Description of FHA Insurance."
Notwithstanding such termination, the Servicer shall be entitled to payment of
certain amounts payable to it prior to such termination, for services rendered
prior to such termination. No such termination will affect in any manner Green
Tree's obligation to repurchase certain Contracts for breaches of
representations or warranties under the Trust Documents. In the event that the
Trustee would be obligated to succeed the Servicer but is unwilling or unable
so to act, it may appoint, or petition to a court of competent jurisdiction
for the appointment of, a Servicer. Pending such appointment, the Trustee is
obligated to act in such capacity. The Trustee and such successor may agree
upon the servicing compensation to be paid, which in no event may be greater
than the compensation to the Servicer under the Trust Documents without the
consent of all of the Securityholders.
The Trustee will be under no obligation to take any action or to institute,
conduct or defend any litigation under the Sale and Servicing Agreement at the
request, order or direction of any of the Holders of Securities, unless such
Securityholders have offered to the Trustee reasonable security or indemnity
against the costs, expenses and liabilities which the Trustee may incur.
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Green Tree, as Servicer, will be required to pay all expenses incurred by it
in connection with its servicing activities (including fees, expenses and
disbursements of the Trustee, the Indenture Trustee, the Custodian and
independent accountants, taxes imposed on the Servicer and expenses incurred
in connection with distributions and reports to Certificateholders and
Noteholders), except certain expenses incurred in connection with realizing
upon the Contracts.
Upon any termination of, or appointment of a successor to, the Servicer, the
Trustee and the Indenture Trustee will each give prompt written notice thereof
to Certificateholders and Noteholders, respectively, at their respective
addresses appearing in the Certificate Register or the Note Register and to
each Rating Agency.
DISTRIBUTIONS
With respect to each Trust, beginning on the Distribution Date specified in
the related Prospectus Supplement, distributions of principal and interest
(or, where applicable, of principal or interest only) on each Class of
Securities entitled thereto will be made by the Trustee or the Indenture
Trustee, as applicable, to the Certificateholders and the Noteholders. The
timing, calculation, allocation, order, source, priorities of and requirements
for all distributions to each Class of Certificateholders and all payments to
each Class of Noteholders will be set forth in the related Prospectus
Supplement.
Except as otherwise specified in the related Prospectus Supplement, on the
third Business Day prior to each Distribution Date (the "Determination Date"),
the Servicer will determine the Amount Available and the amounts to be
distributed on the Notes and Certificates for such Distribution Date. Except
as otherwise specified in the related Prospectus Supplement, the "Amount
Available" for any Distribution Date will be equal to (i) the funds on deposit
in the Collection Account at the close of business on the last day of the
related Due Period, plus (ii) any Advances to be made by the Servicer with
respect to delinquent payments, plus (iii) any Purchase Amounts to be
deposited by Green Tree with respect to Contracts to be repurchased due to a
breach of a representation or warranty, minus (iv) any amounts paid by
Obligors in the related Due Period, but to be applied in respect of a regular
monthly payment due in a subsequent Due Period (an "Advance Payment"), minus
(v) any amounts incorrectly deposited in the Collection Account.
Except as otherwise specified in the related Prospectus Supplement, on each
Distribution Date, prior to making distributions in respect of the Notes and
Certificates, the Amount Available will be applied, first, if Green Tree is no
longer the Servicer, to pay the Monthly Servicing Fee to the successor
Servicer, and second, to reimburse the Servicer (including Green Tree) for any
Advances made with respect to a prior Due Period and subsequently recovered
and for any Advances previously made that the Servicer has determined are
Uncollectible Advances.
ENHANCEMENT
The amounts and types of enhancement arrangements and the provider thereof,
if applicable, with respect to each Class of Securities will be set forth in
the related Prospectus Supplement. If and to the extent provided in the
related Prospectus Supplement, enhancement may be in the form of a financial
guaranty insurance policy, letter of credit, Green Tree guaranty, cash reserve
fund, derivative product, or other form of enhancement, or any combination
thereof, as may be described in the related Prospectus Supplement. If
specified in the applicable Prospectus Supplement, enhancement for a Class of
Securities of a Series may cover one or more other Classes of Securities in
such Series, and accordingly may be exhausted for the benefit of a particular
Class and thereafter be unavailable to such other Classes. Further information
regarding any provider of enhancement, including financial information when
material, will be included in the related Prospectus Supplement.
The presence of enhancement may be intended to enhance the likelihood of
receipt by the Certificateholders and the Noteholders of the full amount of
principal and interest due thereon and to decrease the likelihood that the
Certificateholders and the Noteholders will experience losses, or may be
structured to provide protection against changes in interest rates or against
other risks, to the extent and under the conditions specified in the
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related Prospectus Supplement. Unless otherwise specified in the related
Prospectus Supplement, the enhancement for a Class of Securities will not
provide protection against all risks of loss and will not guarantee repayment
of the entire principal and interest thereon. If losses occur which exceed the
amount covered by any enhancement or which are not covered by any enhancement,
Securityholders will bear their allocable share of deficiencies. In addition,
if a form of enhancement covers more than one Class of Securities of a Series,
Securityholders of any such Class will be subject to the risk that such
enhancement will be exhausted by the claims of Securityholders of other
Classes.
ADVANCES
Unless otherwise specified in the related Prospectus Supplement, the
Servicer will be obligated to make Advances each month of any scheduled
payments on the Contracts included in a Trust that were due but not received
during the prior Due Period. The Servicer will be entitled to reimbursement of
an Advance from the Amount Available in the Collection Account for the related
Trust (i) when the delinquent payment is recovered by the Trust, or (ii) when
the Servicer has determined that such Advance has become an Uncollectible
Advance. The Servicer will be obligated to make an Advance only to the extent
that it determines that such Advance will be recoverable from subsequent funds
available therefor in the Collection Account for the related Trust. The
Servicer will be entitled to recoup its advances on a Contract from subsequent
payments by or on behalf of the Obligor and from liquidation proceeds
(including FHA Insurance payments, if applicable), if any, of the Contract,
and will release its right to reimbursements in conjunction with the purchase
of the Contract by Green Tree for breach of representations and warranties. If
the Servicer determines in good faith that an amount previously advanced will
not ultimately be recoverable from payments by or on behalf of the Obligor or
from Net Liquidation Proceeds (including FHA Insurance payments, if
applicable), if any, of the Contract (an "Uncollectible Advance"), the
Servicer will be entitled to reimbursement from payments on other Contracts or
from other funds available therefor.
Unless otherwise specified in the related Prospectus Supplement, if the
Servicer fails to make an Advance required under the Sale and Servicing
Agreement, the Trustee will be obligated to deposit the amount of such Advance
in the Collection Account on the Payment Date. The Trustee will not, however,
be obligated to deposit any such amount if (i) the Trustee does not expect to
recoup such Advance from subsequent collections on the Contract or from
liquidation proceeds thereof, if any, or (ii) the Trustee determines that it
is not legally able to make such Advance.
EVIDENCE AS TO COMPLIANCE
On or before March 31 of each year the Servicer will deliver to each Trustee
and each Indenture Trustee a report of a nationally recognized accounting firm
stating that such firm has examined certain documents and records relating to
the servicing of Contracts serviced by the Servicer under pooling and
servicing agreements or sale and servicing agreements similar to the Trust
Documents and stating that, on the basis of such procedures, such servicing
has been conducted in compliance with the applicable Trust Documents, except
for any exceptions set forth in such report. A copy of such statement may be
obtained by any Certificate Owner or Note Owner upon compliance with the
requirements described above. See "Certain Information Regarding the
Securities--Statements to Securityholders" above.
INDEMNIFICATION AND LIMITS ON LIABILITY
Unless otherwise specified in the related Prospectus Supplement, the Trust
Documents will provide that the Servicer will be liable only to the extent of
the obligations specifically undertaken by it under the Trust Documents and
will have no other obligations or liabilities thereunder. The Trust Documents
will further provide that neither the Servicer nor any of its directors,
officers, employees and agents will have any liability to the Trust, the
Certificateholders or the Noteholders, except as provided in the Trust
Documents, for any action taken or for refraining from taking any action
pursuant to the Trust Documents, other than any liability that would otherwise
be imposed by reason of the Servicer's breach of the Trust Documents or
willful misfeasance, bad
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faith or negligence (including errors in judgment) in the performance of its
duties, or by reason of reckless disregard of obligations and duties under the
Trust Documents or any violation of law.
The Servicer may, with the prior consent of the Trustee and the Indenture
Trustee, if any, delegate duties under the related Trust Documents to any of
its affiliates. In addition, the Servicer may at any time perform the specific
duty of repossessing Products through subcontractors who are in the business
of servicing consumer receivables. The Servicer may also perform other
specific duties through subcontractors; provided, however, that no such
delegation of such duties by the Servicer shall relieve the Servicer of its
responsibility with respect thereto.
AMENDMENT
Unless otherwise provided in the related Prospectus Supplement, the Trust
Documents may be amended by the Seller, the Servicer, the Trustee and the
Indenture Trustee, but without the consent of any of the Securityholders, to
cure any ambiguity or to correct or supplement any provision therein, provided
that such action will not, in the opinion of counsel (which may be internal
counsel to Green Tree or the Servicer) reasonably satisfactory to the Trustee
and the Indenture Trustee, materially and adversely affect the interests of
the Securityholders. The Trust Documents may also be amended by Green Tree,
the Servicer and the Trustee and the Indenture Trustee, and a Certificate
Majority and a Note Majority, for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of the Trust
Documents or of modifying, in any manner, the rights of the Certificateholders
or the Noteholders. No such amendment may (i) increase or reduce in any manner
the amount of, or accelerate or delay the timing of, collections of payments
on the related Contracts or distributions that are required to be made on any
related Certificate or Note or the related Pass-Through Rate or Interest Rate
or (ii) reduce the percentage of the Certificate Balance evidenced by
Certificates or of the aggregate principal amount of Notes then outstanding
required to consent to any such amendment, without the consent of the holders
of all Certificates or all Notes, as the case may be, then outstanding.
TERMINATION
The obligations created by the Trust Documents will terminate upon the date
calculated as specified in the Trust Documents, generally upon (i) the later
of the final payment or other liquidation of the last Contract subject thereto
and the disposition of all property acquired upon repossession of any Product
and (ii) the payment to the Securityholders of all amounts held by the
Servicer or the Trustee and required to be paid to the Securityholders
pursuant to the Trust Documents.
Unless otherwise provided in the related Prospectus Supplement, with respect
to each Series of Securities, in order to avoid excessive administrative
expense, Green Tree and the Servicer each will be permitted, at its option, to
purchase from the Trust, on any Distribution Date immediately following any
Due Period as of the last day of which the Aggregate Principal Balance is
equal to or less than 10% (or such other percentage as may be specified in the
related Prospectus Supplement) of the Cut-off Date Principal Balance, all
remaining Contracts in the related Trust and the other remaining Trust
Property at a price equal to the aggregate of the Purchase Amounts therefor
and the appraised value of any other remaining Trust Property. The exercise of
this right will effect an early retirement of the related Certificates and
Notes.
If a General Partner is named in the related Prospectus Supplement, unless
otherwise specified in the related Prospectus Supplement, the Trust Agreement
will provide that, in the event that the General Partner becomes insolvent,
withdraws or is expelled as a General Partner or is terminated or dissolved,
the Trust will terminate in 90 days and effect redemption of the Notes and
prepayment of the Certificates (if any) following the winding-up of the
affairs of the related Trust, unless within such 90 days the remaining General
Partner, if any, and holders of a majority of the Certificates of such Series
agree in writing to the continuation of the business of the Trust and to the
appointment of a successor to the former General Partner, and the Owner
Trustee is able to obtain an
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opinion of counsel to the effect that the Trust will not thereafter be an
association (or publicly traded partnership) taxable as a corporation for
federal income tax purposes.
Unless otherwise specified in the related Prospectus Supplement, with
respect to each Series of Securities, the Trustee will give written notice of
the final distribution with respect to the Certificates (if any), to each
Certificateholder of record and the Indenture Trustee will give written notice
of the final payment with respect to the Notes to each Noteholder of record.
The final distribution to any Certificateholder and the final payment to any
Noteholder will be made only upon surrender and cancellation of such holder's
Certificate or Note at the office or agency of the Trustee, with respect to
Certificates, or of the Indenture Trustee, with respect to Notes, specified in
the notice of termination. Any funds remaining in the Trust, after the Trustee
or the Indenture Trustee has taken certain measures to locate a
Certificateholder or Noteholder, as the case may be, and such measures have
failed, will be distributed to The United Way, and the Certificateholders and
Noteholders, by acceptance of their Certificates and Notes, will waive any
rights with respect to such funds.
THE TRUSTEE
The Trustee or Owner Trustee, as applicable, for each Trust will be
specified in the related Prospectus Supplement. The Trustee, in its individual
capacity or otherwise, and any of its affiliates may hold Certificates or
Notes in their own names or as pledgee. In addition, for the purpose of
meeting the legal requirements of certain jurisdictions, the Trustee, with the
consent of the Servicer, shall have the power to appoint co-trustees or
separate trustees of all or any part of the related Trust. In the event of
such appointment, all rights, powers, duties and obligations conferred or
imposed upon the Trustee by the related Trust Documents will be conferred or
imposed upon the Trustee and such separate trustee or co-trustee jointly, or,
in any jurisdiction where the Trustee is incompetent or unqualified to perform
certain acts, singly upon such separate trustee or co-trustee who shall
exercise and perform such rights, powers, duties and obligations solely at the
direction of the Trustee.
The Trustee of any Trust may resign at any time, in which event the General
Partner, if any, specified in the related Prospectus Supplement or, if no such
General Partner is specified, the Servicer or its successor will be obligated
to appoint a successor trustee. The General Partner, if any, specified in the
related Prospectus Supplement (or, if no such General Partner is specified,
the Servicer) may also remove the Trustee, if the Trustee ceases to be
eligible to serve, becomes legally unable to act, is adjudged insolvent or is
placed in receivership or similar proceedings. In such circumstances, the
General Partner, if any, specified in the related Prospectus Supplement or, if
no such General Partner is specified, the Servicer will be obligated to
appoint a successor trustee. Any resignation or removal of the Trustee and
appointment of a successor trustee will not become effective until acceptance
of the appointment by the successor trustee.
DUTIES OF THE TRUSTEE
The Trustee will make no representation as to the validity or sufficiency of
any Trust Document, the Certificates or the Notes (other than its execution of
the Certificates and the Notes), the Contracts or any related documents, and
will not be accountable for the use or application by the Servicer of any
funds paid to the Servicer in respect of the Certificates, the Notes or the
Contracts prior to deposit in the related Collection Account.
The Trustee will be required to perform only those duties specifically
required of it under the Trust Documents. Generally, those duties will be
limited to the receipt of the various certificates, reports or other
instruments required to be furnished by the Servicer to the Trustee under the
Trust Documents, in which case it will only be required to examine such
certificates, reports or instruments to determine whether they conform
substantially to the requirements of the Trust Documents.
The Trustee will be under no obligation to exercise any of the rights or
powers vested in it by the Trust Documents or to institute, conduct, or defend
any litigation thereunder or in relation thereto at the request, order or
direction of any of the Certificateholders or Noteholders, unless such
Certificateholders or Noteholders have
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offered the Trustee reasonable security or indemnity against the costs,
expenses and liabilities which may be incurred therein or thereby. No
Certificateholder nor any Noteholder will have any right under the Trust
Documents to institute any proceeding with respect to such Trust Documents,
unless such holder has given the Trustee written notice of default and unless
the holders of Certificates evidencing not less than 25% of the Certificate
Balance or the holders of Notes evidencing not less than 25% of the aggregate
principal balance of the Notes then outstanding, as the case may be, have made
written request to the Trustee to institute such proceeding in its own name as
Trustee thereunder and have offered to the Trustee reasonable indemnity, and
the Trustee for 30 days after the receipt of such notice, request and offer to
indemnify has neglected or refused to institute any such proceedings.
ADMINISTRATOR
If an Administrator is specified in the related Prospectus Supplement, such
Administrator will enter into an agreement (the "Administration Agreement")
pursuant to which such Administrator will agree, to the extent provided in
such Administration Agreement, to provide the notices and to perform other
administrative obligations required by the related Indenture and the Trust
Agreement.
DESCRIPTION OF FHA INSURANCE
Certain of the Home Improvement Contracts may be FHA-insured, the payments
upon which, subject to the following discussion, are insured by the FHA under
Title I of the National Housing Act.
The insurance available to any Trust will be subject to the limit of a
reserve amount equal to 10% of the principal balance of all Title I insured
loans originated or purchased and reported for FHA Insurance by Green Tree,
which amount will be increased by an amount equal to 10% of the lesser of the
principal balance or the purchase price of insured loans subsequently
originated or purchased of record by Green Tree. Green Tree's reserve amount
may be reduced by 10% of the principal balance of any loans reported to FHA as
sold without recourse by Green Tree. In the Sale and Servicing Agreement,
Green Tree will agree to pay all FHA Insurance premiums required by FHA
Regulations. If Green Tree fails to pay any such premium, the Trustee or the
successor Servicer (if any) with respect to each Series is obligated to pay
such premium and is entitled to be reimbursed by Green Tree and from
collections on the related Home Improvement Contracts.
As of December 31, 1997, Green Tree's FHA Insurance reserve amount was equal
to approximately $86,950,000. These insurance reserves were available to cover
losses on approximately $883,889,000 of FHA-insured manufactured housing
contracts and approximately $128,145,000 of FHA-insured home improvement
loans, including the FHA-insured Contracts that may be owned by a Trust Fund.
If an Event of Termination (as defined under "Description of the Trust
Documents--Termination") occurs, each Trustee will notify FHA of Green Tree's
termination as Servicer of the related FHA-insured Contracts and will request
that the portion of Green Tree's FHA Insurance reserves allocable to the FHA-
insured Contracts be transferred to the Trustee or a successor servicer.
Although each Trustee will request such a transfer of reserves, FHA is not
obligated to comply with such a request, and may determine that it is not in
FHA's interest to permit such transfer of reserves. In addition, FHA has not
specified how insurance reserves might be allocated in such event, and there
can be no assurance that any reserve amount, if transferred to the Trustee or
a successor Servicer, would not be substantially less than 10% of the
outstanding principal amount of the FHA-insured Contracts. It is likely that
the Trustee or any successor Servicer would be the lender of record on other
FHA Title I loans, so that any reserves that are so permitted to be
transferred would become commingled with reserves available for other FHA
Title I loans. FHA also reserves the right to transfer reserves with
"earmarking" (segregating such reserves so that they will not be commingled
with the reserves of the transferee) if it is in FHA's interest to do so.
In general, FHA will insure unsecured property improvement loans up to
$7,500, with a maximum term of 20 years. The loan proceeds must be used for
the purposes described in the loan application, and those improvements must
substantially protect or improve the basic livability or utility of the
property. The Secretary
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of HUD from time to time publishes a list of ineligible items and activities
which may not be financed with the proceeds of an FHA-insured home improvement
loan.
Following a default on an FHA-insured Home Improvement Contract the Servicer
may, subject to certain conditions, submit a claim to FHA. The availability of
FHA Insurance following a default on an FHA-insured Contract is subject to a
number of conditions, including strict compliance by the Company with FHA
regulations in originating and servicing the Contract. Failure to comply with
FHA regulations may result in a denial of or surcharge on the FHA Insurance
claim. Prior to declaring an FHA-insured Home Improvement Contract in default
and submitting a claim to FHA, the Servicer must take certain steps to attempt
to cure the default, including personal contact with the borrower either by
telephone or in a meeting and providing the borrower with 30 days' written
notice prior to declaration of default. FHA may deny insurance coverage if the
borrower's nonpayment is related to a valid objection to faulty contractor
performance. In such event, the Company will seek to obtain payment by or a
judgment against the borrower, and may resubmit the claim to FHA following
such a judgment. As described under "Green Tree Financial Corporation--
Contract Origination," Green Tree does not purchase a Contract until the
customer verifies satisfactory completion of the work.
Upon submission of a claim to FHA, the related Trust must assign its entire
interest in the Contract to the United States. In general, the claim payment
will equal 90% of the sum of (i) the unpaid principal amount of the Home
Improvement Contract at the date of default and uncollected interest computed
at the Contract Rate earned to the data of default, (ii) accrued and unpaid
interest on the unpaid amount of the Contract from the date of default to the
date of submission of the claim plus 15 calendar days (but in no event more
than nine months) computed at a rate of 7% per annum, (iii) uncollected court
costs, and (iv) legal fees, not to exceed $500.
CERTAIN LEGAL ASPECTS OF THE CONTRACTS; REPURCHASE OBLIGATIONS
As a result of Green Tree's conveyance and assignment of a pool of Contracts
to a Trust, the Securityholders of such Series, as the beneficial owners of
the Trust, will succeed collectively to all of the rights thereunder
(including the right to receive payment on the Contracts). The following
discussion contains summaries of certain legal aspects of home improvement
contracts which are general in nature. These legal aspects are in addition to
the requirements of FHA regulations described in "Description of FHA
Insurance" with respect to the FHA-insured Home Improvement Contracts. Because
such legal aspects are governed by applicable state law (which laws may differ
substantially), the summaries do not purport to be complete nor to reflect the
laws of any particular state, nor to encompass the laws of all states in which
the improved real estate is situated. The summaries are qualified in their
entirety by reference to the applicable federal and state laws governing the
Contracts.
MORTGAGES AND DEEDS OF TRUST
The Home Equity Contracts (but not the Home Improvement Contracts) will be
secured by either mortgages, deeds of trust, security deeds or deeds to secure
debt depending upon the prevailing practice in the state in which the
underlying property is located, and may have first, second or third priority.
In some states, a mortgage creates a lien upon the real property encumbered by
the mortgage or deed of trust. In other states, the mortgage conveys legal
title to the property to the mortgagee subject to a condition subsequent,
i.e., the payment of the indebtedness secured thereby. There are two parties
to a mortgage: the mortgagor, who is the borrower, and the mortgagee, who is
the lender. In a mortgage state, the mortgagor delivers to the mortgagee a
note or retail installment contract evidencing the loan and the mortgage.
Although a deed of trust is similar to a mortgage, a deed of trust has three
parties: the borrower, or trustor, the lender as beneficiary, and a third-
party grantee called the trustee. Under a deed of trust, the borrower grants
the property, irrevocably until the debt is paid, in trust, generally with a
power of sale, to the trustee to secure repayment of the loan. The trustee's
authority under a deed of trust and the mortgagee's authority under a mortgage
are governed by applicable state law, the express provisions of the deed of
trust or mortgage, and, in some cases with respect to deeds of trust,
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the directions of the beneficiary. Some states use a security deed or deed to
secure debt which is similar to a deed of trust except that it has only two
parties: a grantor (similar to a mortgagor) and a grantee (similar to a
mortgagee). Mortgages, deeds of trust and deeds to secure debt are not prior
to liens for real estate taxes and assessments and other charges imposed under
governmental police powers. Priority between mortgages, deeds of trust and
deeds to secure debt and other encumbrances depends on their terms, the
knowledge of the parties to such instrument in some cases and generally on the
order of recordation of the mortgage, deed of trust or the deed to secure debt
in the appropriate recording office.
SUBORDINATE MORTGAGES; RIGHTS OF SENIOR MORTGAGEES OR BENEFICIARIES
A substantial number of the mortgages, security deeds, deeds to secure debt
and deeds of trust securing the Home Equity Contracts in any Contract Pool are
expected to be second or third mortgages or deeds of trust which are junior to
mortgages or deeds of trust held by other lenders or institutional investors.
The rights of the related Trust (and therefore the Securityholders), as
beneficiary under a junior deed of trust or as mortgagee under a junior
mortgage, are subordinate to those of the mortgagee or beneficiary under the
senior mortgage or deed of trust, including the prior rights of the senior
mortgagee or beneficiary to receive hazard insurance and condemnation proceeds
and to cause the property securing the Contract to be sold upon default of the
mortgagor or trustor under the senior mortgage or deed of trust, thereby
extinguishing the junior mortgagee's or junior beneficiary's lien unless the
Servicer on behalf of the Trust asserts its subordinate interest in the
property in foreclosure litigation and, possibly, satisfies the defaulted
senior loan or loans. As discussed more fully below, a junior mortgagee or
beneficiary may satisfy a defaulted senior loan in full, or in some states may
cure such default and bring the senior loan current, in either event usually
adding the amounts expended to the balance due on the junior loan. Although
Green Tree generally does not cure defaults under a senior mortgage or deed of
trust, it is Green Tree's standard practice to protect its interest by
attending any foreclosure sale and bidding for property only if it is in Green
Tree's best interests to do so.
The standard form of the mortgage or deed of trust used by most
institutional lenders, like that of Green Tree, confers on the mortgagee or
beneficiary the right both to receive all proceeds collected under any hazard
insurance policy and all awards made in connection with any condemnation
proceedings, and to apply such proceeds and awards to any indebtedness secured
by the mortgage or deed of trust, in such order as the mortgagee or
beneficiary may determine. Thus, in the event improvements on the property are
damaged or destroyed by fire or other casualty, or in the event the property
is taken by condemnation, the mortgagee or beneficiary under the underlying
first mortgage or deed of trust will have the prior right to collect any
insurance proceeds payable under a hazard insurance policy and any award of
damages in connection with the condemnation and to apply the same to the
indebtedness secured by the first mortgage or deed of trust. Proceeds in
excess of the amount of first mortgage indebtedness, in most cases, may be
applied to the indebtedness of a junior mortgage or deed of trust.
The form of mortgage or deed of trust used by institutional lenders may
contain a "future advance" clause, which provides, in essence, that additional
amounts advanced to or on behalf of the mortgagor or trustor by the mortgagee
or beneficiary are to be secured by the mortgage or deed of trust. The
priority of any advance made under the clause depends, in some states, on
whether the advance was an "obligatory" or "optional" advance. If the
mortgagee or beneficiary is obligated to advance the additional amounts, the
advance is entitled to receive the same priority as amounts initially advanced
under the mortgage or deed of trust, notwithstanding the fact that there may
be junior mortgages or deeds of trust and other liens which intervene between
the date of recording of the mortgage or deed of trust and the date of the
future advance, and, in some states, notwithstanding that the senior mortgagee
or beneficiary had actual knowledge of such intervening junior mortgages or
deeds of trust and other liens at the time of the advance. Where the mortgagee
or beneficiary is not obligated to advance additional amounts or, in some
states, has actual knowledge of the intervening junior mortgages or deeds of
trust and other liens, the advance will be subordinate to such intervening
junior mortgages or deeds of trust and other liens. Priority of advances under
the clause rests, in some states, on state statutes giving priority to all
advances made under the loan agreement to a "credit limit" amount stated in
the recorded mortgage.
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Another provision typically found in the form of the mortgage or deed of
trust used by most institutional lenders obligates the mortgagor or trustor to
pay before delinquency all taxes and assessments on the property and, when
due, all encumbrances, charges and liens on the property which appear prior to
the mortgage or deed of trust, to provide and maintain fire insurance on the
property, to maintain and repair the property and not to commit or permit any
waste thereof, and to appear in and defend any action or proceeding purporting
to affect the property or the rights of the mortgagee or beneficiary under the
mortgage or deed of trust. Upon a failure of the mortgagor or trustor to
perform any of these obligations, the mortgagee or beneficiary is given the
right under the mortgage or deed of trust to perform the obligation itself, at
its election, with the mortgagor or trustor agreeing to reimburse the
mortgagee or beneficiary for any sums expended by the mortgagee or beneficiary
on behalf of the mortgagor or trustor. All sums so expended by a senior
mortgagee or beneficiary generally become part of the indebtedness secured by
the senior mortgage or deed of trust.
SUBORDINATE FINANCING
Where the borrower encumbers the mortgaged property with one or more junior
liens, the senior lender is subjected to additional risk. First, the borrower
may have difficulty servicing and repaying multiple loans. Second, acts of the
senior lender which prejudice the junior lender or impair the junior lender's
security may create a superior equity in favor of the junior lender. For
example, if the borrower and the senior lender agree to an increase in the
principal amount of or the interest rate payable on the senior loan, the
senior lender may lose its priority to the extent any existing junior lender
is harmed or the borrower is additionally burdened. Third, if the borrower
defaults on the senior loan and/or any junior loan or loans, the existence of
junior loans and actions taken by junior lenders can impair the security
available to the senior lender and can interfere with or delay the taking of
action by the senior lender. The bankruptcy of a junior lender may operate to
stay foreclosure or similar proceedings by the senior lender.
FORECLOSURE
Foreclosure is a legal procedure that allows the mortgagor to recover its
mortgage debt by enforcing its rights and available remedies under the
mortgage, deed of trust, deed to secure debt or security deed. Foreclosure of
a mortgage is generally accomplished by judicial action. A foreclosure action
is regulated by statutes and rules and subject throughout to the court's
equitable powers. Generally, a mortgagor is bound by the terms of the mortgage
note and the mortgage as made and cannot be relieved from its own default.
However, since a foreclosure action is equitable in nature and is addressed to
a court of equity, the court may relieve a mortgagor of a default and deny the
mortgagee foreclosure on proof that the mortgagor's default was neither
willful nor in bad faith and that the mortgagee's action was such as to
establish a waiver, or fraud, bad faith, oppressive or unconscionable conduct
as to warrant a court of equity to refuse affirmative relief to the mortgagee.
Under certain circumstances a court of equity may relieve the mortgagor from
an entirely technical default where such default was not willful. Generally,
the action is initiated by the service of legal pleadings upon all parties
having an interest of record in the real property. Delays in completion of the
foreclosure occasionally may result from difficulties in locating necessary
parties defendant. When the mortgagee's right to foreclosure is contested, the
legal proceedings necessary to resolve the issue can be time-consuming. After
the completion of a judicial foreclosure proceeding, the court may issue a
judgment of foreclosure and appoint a referee or other officer to conduct the
sale of the property. In some states, mortgages may also be foreclosed by
advertisement, pursuant to a power of sale provided in the mortgage.
Foreclosure of a mortgage by advertisement is essentially similar to
foreclosure of a deed of trust by non-judicial power of sale.
Foreclosure of a deed of trust or a deed to secure debt is generally
accomplished by a non-judicial trustee's sale under a specific provision in
the deed of trust, security deed or deed to secure debt that authorizes the
trustee to sell the property upon any default by the borrower under the terms
of the note, deed of trust, security deed or deed to secure debt. In certain
states, such foreclosure also may be accomplished by judicial action in the
manner provided for foreclosure of mortgages. In some states, prior to a sale,
the trustee must record a notice of default and send a copy to the borrower
trustor and to any person who has recorded a request for a copy of a notice of
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default and notice of sale. In addition, prior to such sale, the trustee must
provide notice in some states to any other individual having an interest of
record in the real property, including any junior lienholders. Certain states
require that a notice of sale be posted in a public place and, in most states,
published for a specified period of time in one or more newspapers in a
specified manner prior to the date of trustee's sale. In addition, some state
laws require that a copy of the notice of sale be posted on the property and
sent to all parties having an interest of record in the property.
In some states, the borrower trustor has the right to reinstate the loan at
any time following default until shortly before the trustee's sale. In
general, the borrower, or any other person having a junior encumbrance on the
real estate, may, during a reinstatement period, cure the default by paying
the entire amount in arrears plus the costs and expenses incurred in enforcing
the obligation. Certain state laws control the amount of foreclosure expenses
and costs, including attorney's fees, which may be recovered by a lender.
In the case of foreclosure under either a mortgage or a deed of trust, the
sale by the referee or other designated officer, or by the trustee, is
generally a public sale. However, because of the difficulty a potential third
party buyer at the sale might have in determining the exact status of title
and because the physical condition of the property may have deteriorated
during the foreclosure proceedings, it is not common for a third party to
purchase the property at the foreclosure sale. In some states, there is a
statutory minimum purchase price which the lender may offer for the property.
Thereafter, subject to the right of the borrower in some states to remain in
possession during the redemption period, the lender will assume the burdens of
ownership, including obtaining hazard insurance, paying taxes and making such
repairs at its own expense as are necessary to render the property suitable
for sale. The lender commonly will obtain the services of a real estate broker
and pay the broker a commission in connection with the sale of the property.
Depending upon market conditions, the ultimate proceeds of the sale of the
property may not equal the lender's investment in the property. Any loss
resulting from such sale may be reduced by the receipt of mortgage insurance
proceeds, if any.
A second or third mortgagee (junior mortgagee) may not foreclose on the
property securing a second or first mortgage (senior mortgages) unless it
forecloses subject to the senior mortgages, in which case it must either pay
the entire amount due on the senior mortgages prior to or at the time of the
foreclosure sale or make payments on the senior mortgages in the event the
mortgagor is in default thereunder, in either event adding the amounts
expended to the balance due on the junior loan, and may be subrogated to the
rights of the senior mortgagees. In addition, in the event that the
foreclosure by a junior mortgagee triggers the enforcement of a "due-on-sale"
clause in a senior mortgage, the junior mortgagee may be required to pay the
full amount of the senior mortgages to the senior mortgagees. Accordingly,
with respect to those Contracts which are second or third mortgage loans, if
the lender purchases the property, the lender's title will be subject to all
senior liens and claims and certain governmental liens.
The proceeds received by the referee or trustee from the sale are applied
first to the costs, fees, and expenses of sale and then in satisfaction of the
indebtedness secured by the mortgage or deed of trust under which the sale was
conducted. Any remaining proceeds are generally payable to the holders of
junior mortgages or deeds of trust and other liens and claims in order of
their priority, whether or not the borrower is in default. Any additional
proceeds are generally payable to the mortgagor or trustor. The payment of the
proceeds to the holders of junior mortgages may occur in the foreclosure
action of the senior mortgagee or may require the institution of separate
legal proceeding.
Some states impose prohibitions or limitations on remedies available to the
mortgagee, including the right to recover the debt from the mortgagor. See "--
Anti-Deficiency Legislation and Other Limitations on Lenders" herein.
In certain jurisdictions, real property transfer or recording taxes or fees
may be imposed on the related Trust with respect to its acquisition (by
foreclosure or otherwise) and disposition of real property securing a
Contract, and any such taxes or fees imposed may reduce liquidation proceeds
with respect to such property, as well as distributions payable to the
Securityholders.
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SECOND OR THIRD MORTGAGES
The Home Equity Contracts may be secured by second or third mortgages or
deeds of trust, which are junior to first or second mortgages or deeds of
trust held by other lenders. The rights of the Securityholders as the holders
of a junior deed of trust, junior mortgage, or junior security deed are
subordinate in lien and in payment to those of the holder of the senior
mortgage, deed of trust, or security deed including the prior rights of the
senior mortgagee or beneficiary to receive and apply hazard insurance and
condemnation proceeds and, upon default of the mortgagor under the senior
mortgage or deed of trust, to cause a foreclosure on the property. Upon
completion of the foreclosure proceedings by the holder of the senior mortgage
or the sale pursuant to the senior deed of trust, the junior mortgagee's or
junior beneficiary's lien will be extinguished unless the junior lienholder
satisfies the defaulted senior loan or asserts its subordinate interest in a
property in foreclosure proceedings. Such extinguishment will eliminate access
to the collateral for the Contract. See "--Foreclosure" herein.
Furthermore, the terms of the junior mortgage, deed of trust, deed to secure
debt or security deed are subordinate to the terms of the senior mortgage,
deed of trust, deed to secure debt or security deed. In the event of a
conflict between the terms of the senior mortgage, deed of trust, deed to
secure debt or security deed and the junior mortgage, deed of trust, deed to
secure debt or security deed, the terms of the senior mortgage, deed of trust,
deed to secure debt or security deed will govern generally. Upon a failure of
the mortgagor or trustor to perform any of its obligations, the senior
mortgagee or beneficiary, subject to the terms of the senior mortgage, deed of
trust, deed to secure debt or security deed may have the right to perform the
obligation itself. Generally, all sums so expended by the mortgagee or
beneficiary become part of the indebtedness secured by the mortgage,
deed of trust, deed to secure debt or security deed. To the extent a first
mortgagee expends such sums, such sums will generally have priority over all
sums due under a junior mortgage, deed of trust, deed to secure debt or
security deed.
RIGHTS OF REDEMPTION
The purposes of a foreclosure action are to enable the mortgagee to realize
upon its security and to bar the mortgagor, and all persons who have an
interest in the property which is subordinate to the foreclosing mortgagee,
from their "equity of redemption." The doctrine of equity of redemption
provides that, until the property covered by a mortgage has been sold in
accordance with a properly conducted foreclosure and foreclosure sale, those
having an interest which is subordinate to that of the foreclosing mortgagee
have an equity of redemption and may redeem the property by paying the entire
debt with interest. In addition, in some states, when a foreclosure action has
been commenced, the redeeming party must pay certain costs of such action.
Those having an equity of redemption must generally be made parties and duly
summoned to the foreclosure action in order for their equity of redemption to
be barred.
In some states, after sale pursuant to a deed of trust or foreclosure of a
mortgage, the borrower and certain foreclosed junior lienors are given a
statutory period in which to redeem the property from the foreclosure sale. In
certain other states, this right of redemption applies only to sale following
judicial foreclosure, and not to sale pursuant to a non-judicial power of
sale. In most states where the right of redemption is available, statutory
redemption may occur upon payment of the foreclosure purchase price, accrued
interest and expenses of foreclosure. In other states, redemption may be
authorized if the former borrower pays only a portion of the sums due. In some
states, the right to redeem is an equitable right. The equity of redemption,
which is a non-statutory right that must be exercised prior to foreclosure
sale, should be distinguished from statutory rights of redemption. The effect
of a right of redemption is to diminish the ability of the lender to sell the
foreclosed property. The exercise of a right of redemption would defeat the
title of any purchaser at a foreclosure sale, or of any purchaser from the
lender subsequent to judicial foreclosure or sale under a deed of trust.
Consequently, the practical effect of the redemption right is to force the
lender to maintain the property and pay the expenses of ownership until the
redemption period has run. In some states, there is no right to redeem
property after a trustee's sale under a deed of trust.
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ANTI-DEFICIENCY LEGISLATION AND OTHER LIMITATIONS ON LENDERS
Certain states have imposed statutory restrictions that limit the remedies
of a beneficiary under a deed of trust or a mortgagee under a mortgage. In
some states, statutes limit the right of the beneficiary or mortgagee to
obtain a deficiency judgment against the borrower following foreclosure or
sale under a deed of trust. A deficiency judgment is a personal judgment
against the borrower equal in most cases to the difference between the amount
due to the lender and the net amount realized upon the public sale.
Some state statutes may require the beneficiary or mortgagee to exhaust the
security afforded under a deed of trust or mortgage by foreclosure in an
attempt to satisfy the full debt before bringing a personal action against the
borrower. In certain other states, the lender has the option of bringing a
personal action against the borrower on the debt without first exhausting such
security; however, in some of these states, the lender, following judgment on
such personal action, may be deemed to have elected a remedy and may be
precluded from exercising remedies with respect to the security. Consequently,
the practical effect of the election requirement, when applicable, is that
lenders will usually proceed first against the security rather than bringing a
personal action against the borrower.
Other statutory provisions may limit any deficiency judgment against the
borrower following a foreclosure sale to the excess of the outstanding debt
over the fair market value of the property at the time of such sale. The
purpose of these statutes is to prevent a beneficiary or a mortgagee from
obtaining a large deficiency judgment against the former borrower as a result
of low or no bids at the foreclosure sale.
In some states, exceptions to the anti-deficiency statutes are provided for
in certain instances where the value of the lender's security has been
impaired by acts or omissions of the borrower, for example, in the event of
waste of the property.
In addition to anti-deficiency and related legislation, numerous other
federal and state statutory provisions, including the federal bankruptcy laws,
the federal Soldiers' and Sailors' Civil Relief Act of 1940 and state laws
affording relief to debtors, may interfere with or affect the ability of a
secured mortgage lender to realize upon its security and/or enforce a
deficiency judgment. For example, in a Chapter 13 proceeding, the holder may
not be able to obtain a lift of the automatic stay to foreclose if the
borrower has equity and the home is necessary to the bankruptcy
reorganization. Generally, with respect to the federal bankruptcy law, the
filing of a petition acts as a stay against virtually all actions against the
debtor, including the enforcement of remedies of collection of a debt and,
often, no interest or principal payments are made during bankruptcy
proceedings. A bankruptcy court may also grant the debtor a reasonable time to
cure a payment default with respect to a mortgage loan on a debtor's residence
by paying arrearages and reinstate the original mortgage loan payment schedule
even though the lender accelerated the mortgage loan and final judgment of
foreclosure had been entered in state court (provided no sale of the property
had yet occurred) prior to the filing of the debtor's Chapter 13 petition.
Some courts with federal bankruptcy jurisdiction have approved plans, based on
the particular facts of the reorganization case, that effected the curing of a
mortgage loan default by paying arrearages over a number of years. In the case
of a mortgage loan not secured by the debtor's principal residence, courts
with federal bankruptcy jurisdiction may also reduce the monthly payments due
under such mortgage loan, change the rate of interest and alter the mortgage
loan repayment schedule.
The Code provides priority to certain federal tax liens over the lien of the
mortgage or deed of trust. The Bankruptcy Code also provides priority to
certain tax liens over the lien of the mortgage or deed of trust. The laws of
some states provide priority to certain state tax liens over the lien of the
mortgage or deed of trust. Numerous federal and some state consumer protection
laws impose substantive requirements upon mortgage lenders in connection with
the origination, servicing and the enforcement of mortgage loans. These laws
include the federal Truth in Lending Act, Real Estate Settlement Procedures
Act, Equal Credit Opportunity Act, Fair Credit Billing Act, Fair Credit
Reporting Act, state licensing requirements, and related statutes and
regulations. These federal laws and state laws impose specific statutory
liabilities upon lenders who originate or service mortgage loans and who fail
to comply with the provisions of the law. In some cases, this liability may
affect assignees of the mortgage loans.
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CONSUMER PROTECTION LAWS WITH RESPECT TO CONTRACTS
Numerous Federal and state consumer protection laws impose substantial
requirements upon creditors involved in consumer finance. These laws include
the Federal Truth-in-Lending Act, Regulation "Z", the Equal Credit Opportunity
Act, Regulation "B", the Fair Credit Reporting Act, and related statutes. The
Home Ownership and Equity Protection Act of 1994 (the "Home Protection Act"),
which became effective on October 1, 1995, adds provisions to Regulation Z
which impose additional disclosure and other requirements on creditors
involved in non-purchase money mortgage loans with high interest rates or high
up-front fees and charges. It is possible that some Contracts included in a
Contract Pool may be subject to such provisions. The Home Protection Act
applies to mortgage loans originated on or after the effective date of such
regulations. These laws can impose specific statutory liabilities upon
creditors who fail to comply with their provisions and may affect the
enforceability of the contract.
Courts have imposed general equitable principles upon repossession and
litigation involving deficiency balances. These equitable principles are
generally designed to relieve a consumer from the legal consequences of a
default.
In several cases, consumers have asserted that the remedies provided secured
parties under the UCC and related laws violate the due process protections
provided under the 14th Amendment to the Constitution of the United States.
For the most part, courts have upheld the notice provisions of the UCC and
related laws as
reasonable or have found that the repossession and resale by the creditor does
not involve sufficient state action to afford constitutional protection to
consumers.
The so-called "Holder-in-Due-Course" rule of the Federal Trade Commission is
intended to defeat the ability of the transferor of a consumer credit contract
which is the seller of goods which gave rise to the transaction (and certain
related lenders and assignees) to transfer such contract free of notice of
claims by the debtor thereunder. The effect of this rule is to subject the
assignee of such a contract to all claims and defenses which the debtor could
assert against the seller of goods, such as a home improvement contractor.
Liability under this rule is limited to amounts paid under a Contract;
however, the Obligor also may be able to assert the rule to set off remaining
amounts due as a defense against a claim brought by the Trust against such
Obligor. The Home Protection Act provides that assignees of certain high-
interest, non-purchase money mortgage loans (which may include some Contracts)
are subject to all claims and defenses that the debtor could assert against
the original creditor, unless the assignee demonstrates that a reasonable
person in the exercise of ordinary due diligence could not have determined
that the mortgage loan was subject to the provisions of the Home Protection
Act.
ENFORCEABILITY OF CERTAIN PROVISIONS
The standard forms of note, mortgage and deed of trust generally contain
provisions obligating the borrower to pay a late charge if payments are not
timely made. In addition to limitations imposed by FHA regulations with
respect to FHA-insured Home Improvement Contracts, in certain states there are
or may be specific limitations upon late charges which a lender may collect
from a borrower for delinquent payments. Under the Sale and Servicing
Agreement, late charges (to the extent permitted by law and not waived by
Green Tree) will be retained by Green Tree as additional servicing
compensation.
The standard forms of note, mortgage and deed of trust also include a debt-
acceleration clause, which permits the lender to accelerate the debt upon a
monetary default of the borrower, after the applicable cure period. Courts
will generally enforce clauses providing for acceleration in the event of a
material payment default. However, courts, exercising equity jurisdiction, may
refuse to allow a lender to foreclose a mortgage or deed of trust when an
acceleration of the indebtedness would be inequitable or unjust and the
circumstances would render the acceleration unconscionable.
Courts have imposed general equitable principles upon foreclosure. These
equitable principles are generally designed to relieve the borrower from the
legal effect of defaults under the loan documents. Examples of judicial
remedies that may be fashioned include judicial requirements that the lender
undertake affirmative actions to
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determine the causes for the borrower's default and the likelihood that the
borrower will be able to reinstate the loan. In some cases, courts have
required lenders to reinstate loans or recast payment schedules to accommodate
borrowers who are suffering from temporary financial disability. In some
cases, courts have limited the right of lenders to foreclose if the default
under the mortgage instrument is not monetary, such as the borrower failing to
adequately maintain the property or the borrower executing a junior mortgage
or deed of trust affecting the property. In other cases, some courts have been
faced with the issue whether federal or state constitutional provisions
reflecting due process concerns for adequate notice require that borrowers
under mortgages or the deeds of trust receive notices in addition to
statutorily-prescribed minimum requirements. For the most part, these cases
have upheld the notice provisions as being reasonable or have found that the
sale by a trustee under a deed of trust or under a mortgage having a power of
sale does not involve sufficient state action to afford constitutional
protection to the borrower.
It is Green Tree's practice with some of the Home Improvement Contracts to
defer the first payment thereon for up to 90 days, and to charge the home
improvement contractor points to cover the lost interest due to collecting
only 30 days' interest on the first payment on these deferred payment
contracts.
"DUE-ON-SALE" CLAUSES
All of the Contract documents will contain due-on-sale clauses unless the
Prospectus Supplement indicates otherwise. These clauses permit the Servicer
to accelerate the maturity of the loan on notice, which is usually 30 days, if
the borrower sells, transfers or conveys the property without the prior
consent of the mortgagee. In recent years, court decisions and legislative
actions placed substantial restrictions on the right of lenders to enforce
such clauses in many states. However, effective October 15, 1982, Congress
enacted the Garn-St Germain Depository Institutions Act of 1982 (the "Garn-St.
Germain Act"), which, after a three-year grace period, preempts state laws
which prohibit the enforcement of due-on-sale clauses by providing, among
other matters, that "due-on-sale" clauses in certain loans (including the
Contracts) made after the effective date of the Garn-St. Germain Act are
enforceable within certain limitations as set forth in the Garn-St. Germain
Act and the regulations promulgated thereunder.
By virtue of the Garn-St. Germain Act, the Servicer generally may be
permitted to accelerate any Contract which contains a "due-on-sale" clause
upon transfer of an interest in the mortgaged property. This ability to
accelerate will not apply to certain types of transfers, including (i) the
granting of a leasehold interest which has a term of three years or less and
which does not contain an option to purchase, (ii) a transfer to a relative
resulting from the death of a mortgagor or trustor, or a transfer where the
spouse or child(ren) becomes an owner of the mortgaged property in each case
where the transferee(s) will occupy the mortgaged property, (iii) a transfer
resulting from a decree of dissolution of marriage, legal separation agreement
or from an incidental property settlement agreement by which the spouse
becomes an owner of the mortgaged property, (iv) the creation of a lien or
other encumbrance subordinate to the lender's security instrument which does
not relate to a transfer of rights of occupancy in the mortgaged property
(provided that such lien or encumbrance is not created pursuant to a contract
for deed), (v) a transfer by devise, descent or operation of law on the death
of a joint tenant or tenant by the entirety, and (vi) other transfers as set
forth in the Garn-St. Germain Act and the regulations thereunder. As a result,
a lesser number of Contracts which contain "due-on-sale" clauses may extend to
full maturity than earlier experience would indicate with respect to single-
family mortgage loans. The extent of the effect of the Garn-St. Germain Act on
the average lives and delinquency rates of the Contracts, however, cannot be
predicted.
The inability to enforce a due-on-sale clause may result in Contracts
bearing an interest rate below the current market rate being assumed by a new
home buyer rather than being paid off, which may have an impact upon the
average life of the Contracts and the number of Contracts which may be
outstanding until maturity.
Although Title V of the Depository Institutions Deregulation and Monetary
Control Act of 1980, as amended ("Title V"), provides that, subject to certain
conditions, state usury limitations shall not apply to FHA-
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insured loans and to first mortgage secured conventional contracts if the
contract is defined as a "federally related mortgage loan," a number of states
have adopted legislation overriding Title V's exemptions, as permitted by
Title V. Green Tree will represent and warrant in each Sale and Servicing
Agreement that all Contracts comply with any applicable usury limitations.
ENVIRONMENTAL LEGISLATION
Under the federal Comprehensive Environmental Response, Compensation and
Liability Act, as amended ("CERCLA"), and under state law in certain states, a
secured party which takes a deed-in-lieu of foreclosure, purchases a mortgaged
property at a foreclosure sale, or operates a mortgaged property may become
liable in certain circumstances for the costs of cleaning up hazardous
substances regardless of whether they have contaminated the property. CERCLA
imposes strict, as well as joint and several, liability on several classes of
potentially responsible parties, including current owners and operators of the
property who did not cause or contribute to the contamination. Furthermore,
liability under CERCLA is not limited to the original or unamortized principal
balance of a loan or to the value of the property securing a loan. Lenders may
be held liable under CERCLA as owners or operators unless they qualify for the
secured creditor exemption to CERCLA. This exemption exempts from the
definition of owners and operators those who, without participating in the
management of a facility, hold indicia of ownership primarily to protect a
security interest in the facility. What constitutes sufficient participation
in the management of a property securing a loan or the business of a borrower
to render the exemption unavailable to a lender has been a matter of
interpretation by the courts. CERCLA has been interpreted to impose liability
on a secured party, even absent foreclosure, where the party participated in
the financial management of the borrower's business to a degree indicating a
capacity to influence waste disposal decisions. However, court interpretations
of the secured creditor exemption have been inconsistent. In addition, when
lenders foreclose and thereupon become owners of collateral property, courts
are inconsistent as to whether such ownership renders the secured creditor
exemption unavailable. Other federal and state laws in certain circumstances
may impose liability on a secured party which takes a deed-in-lieu of
foreclosure, purchases a mortgaged property at a foreclosure sale, or operates
a mortgaged property on which contaminants other than CERCLA hazardous
substances are present, including petroleum, agricultural chemicals, hazardous
wastes, asbestos, radon, and lead-based paint. Such cleanup costs may be
substantial. It is possible that such cleanup costs could become a liability
of a Trust and reduce the amounts otherwise distributable to the holders of
the related Series of Securities in certain circumstances if such cleanup
costs were incurred. Moreover, certain states by statute impose a lien for any
cleanup costs incurred by such state on the property that is the subject of
such cleanup costs (an "environmental lien"). All subsequent liens on such
property generally are subordinated to such an environmental lien and, in some
states, even prior recorded liens are subordinated to environmental liens. In
the latter states, the security interest of the Trustee in a related parcel of
real property that is subject to such an environmental lien could be adversely
affected.
Traditionally, many residential mortgage lenders have not taken steps to
evaluate whether contaminants are present with respect to any mortgaged
property prior to the origination of the mortgage loan or prior to foreclosure
or accepting a deed-in-lieu of foreclosure. Accordingly, Green Tree has not
made and will not make such evaluations prior to the origination of the
Contracts. Neither Green Tree nor any replacement Servicer will be required by
any Sale and Servicing Agreement to undertake any such evaluations prior to
foreclosure or accepting a deed-in-lieu of foreclosure. Green Tree does not
make any representations or warranties or assume any liability with respect to
the absence or effect of contaminants on any related real property or any
casualty resulting from the presence or effect of contaminants. However, Green
Tree will not foreclose on related real property or accept a deed-in-lieu of
foreclosure if it knows or reasonably believes that there are material
contaminated conditions on such property. A failure so to foreclose may reduce
the amounts otherwise available to Securityholders of the related Series.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT
Application of the Soldiers' and Sailors' Civil Relief Act of 1940, as
amended (the "Relief Act"), would adversely affect, for an indeterminate
period of time, the ability of the Servicer to collect full amounts of
interest
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on certain of the Contracts. Any shortfall in interest collections resulting
from the application of the Relief Act or similar legislation, which would not
be recoverable from the related Contracts, would result in a reduction of the
amounts distributable to the Securityholders. In addition, the Relief Act
imposes limitations that would impair the ability of the Servicer to foreclose
on an affected mortgage, deed of trust, deed to secured debt or security deed
during the mortgagor's period of active duty status, and, under certain
circumstances, during an additional three month period thereafter. Thus, in
the event that the Relief Act or similar legislation applies to any Contract
which goes into default, there may be delays in payment on the Securities in
connection therewith. Any other interest shortfalls, deferrals or forgiveness
of payments on the Contracts resulting from similar legislation or regulations
may result in delays in payments or losses to Securityholders.
REPURCHASE OBLIGATIONS
Under the Sale and Servicing Agreement, Green Tree will represent and
warrant that each FHA-insured Home Improvement Contract was originated in
compliance with FHA regulations and is covered by FHA Insurance. In the event
FHA were to deny insurance coverage on an FHA-insured Home Improvement
Contract due to a violation of FHA regulations in originating or servicing
such Home Improvement Contracts, such violation would constitute a breach of a
representation and warranty under the Sale and Servicing Agreement and would
create an obligation of Green Tree to repurchase such Home Improvement
Contract unless the breach is cured. See "Description of the Trust Documents--
Sale and Assignment of the Contracts."
In addition, Green Tree will also represent and warrant under each Sale and
Servicing Agreement that each Contract complies with all requirements of law.
Accordingly, if any Obligor has a claim against the related Trust for
violation of any law and such claim materially adversely affects the Trust's
interest in a Contract, such violation would constitute a breach of a
representation and warranty under the Agreement and would create an obligation
to repurchase such Contract unless the breach is cured. See "Description of
the Trust Documents--Sale and Assignment of the Contracts."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of the material federal income tax
consequences relating to the purchase, ownership, and disposition of the
Securities. The discussion is based upon the current provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), the Treasury
regulations promulgated thereunder and judicial or ruling authority, all of
which are subject to change, which change may be retroactive. The discussion
does not deal with federal income tax consequences applicable to all
categories of investors, some of which may be subject to special rules.
Investors are encouraged to consult their own tax advisors with respect to the
federal, state, local, and any other tax consequences of the purchase,
ownership, and disposition of the Securities.
Dorsey & Whitney LLP, counsel to Green Tree, has delivered an opinion
regarding certain federal income tax matters discussed below. Counsel to Green
Tree identified in the related Prospectus Supplement ("Counsel") will deliver
an opinion regarding tax matters applicable to each Series of Securities. Such
an opinion, however, is not binding on the Internal Revenue Service (the
"Service") or the courts. The opinion of Counsel will specifically address
only those issues specifically identified below as being covered by such
opinion; however, the opinion of Counsel also will state that the additional
discussion set forth below accurately sets forth Counsel's advice with respect
to material tax issues. No ruling on any of the issues discussed below will be
sought from the Service.
TAX STATUS OF THE TRUST
With respect to each Series of Securities which includes both Notes and
Certificates, Counsel will deliver its opinion that the Trust will not be an
association or publicly traded partnership taxable as a corporation for
federal income tax purposes. As a result, in the opinion of Counsel, the Trust
itself will not be subject to federal
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income tax but, instead, each Certificateholder will be required to take into
account its distributive share of items of income and deduction (including
deductions for distributions of interest to the Noteholders) of the Trust as
though such items had been realized directly by the Certificateholder. This
opinion will be based on the assumption that the terms of the Trust Agreement
and related documents will be complied with, and on Counsel's conclusion that
the nature of the income of the Trust will exempt it from the rule that
certain publicly traded partnerships are taxable as corporations. There are,
however, no cases or Service rulings on transactions involving a trust issuing
both debt and equity interests with terms similar to those of the Notes and
the Certificates. As a result, the Service may disagree with all or a part of
this discussion.
If the Trust were taxable as a corporation for federal income tax purposes,
the Trust would be subject to corporate income tax on its taxable income. The
Trust's taxable income would include all its income on the Contracts, possibly
reduced by its interest expense on the Notes. Any such corporate income tax
could materially reduce cash available to make payments on the Notes and
distributions on the Certificates.
TAX CONSEQUENCES TO NOTEHOLDERS
Treatment of the Notes as Indebtedness. The Owner Trustee, on behalf of the
Trust, will agree, and the Noteholders will agree by their purchase of Notes,
to treat the Notes as debt for federal income tax purposes. Counsel will
deliver its opinion that the Notes will be classified as debt for federal
income tax purposes. The discussion below assumes this characterization of the
Notes is correct.
Interest Income on the Notes. Interest on the Notes will be taxable as
ordinary interest income when received by Noteholders utilizing the cash-basis
method of accounting and when accrued by Noteholders utilizing the accrual
method of accounting. Under the applicable regulations, the Notes would be
considered issued with original issue discount ("OID") if the "stated
redemption price at maturity" of a Note (generally equal to its principal
amount as of the date of issuance plus all interest other than "qualified
stated interest" payable prior to or at maturity) exceeds the original issue
price (in this case, the initial offering price at which a substantial amount
of the Notes are sold to the public). Any OID would be considered de minimis
under the OID regulations if it does not exceed 1/4% of the stated redemption
price at maturity of a Note multiplied by the number of full years until its
maturity date. It is anticipated that the Notes will not be considered issued
with more than de minimis OID. Under the OID regulations, an owner of a Note
issued with a de minimis amount of OID must include such OID in income, on a
pro rata basis, as principal payments are made on the Note.
While it is not anticipated that the Notes will be issued with more than de
minimis OID, it is possible that they will be so issued or will be deemed to
be issued with OID. This deemed OID could arise, for example, if interest
payments on the Notes are not deemed to be "qualified stated interest" because
the Notes do not provide for default remedies ordinarily available to holders
of debt instruments or do not contain terms and conditions that make the
likelihood of late payment or nonpayment a remote contingency. Based upon
existing authority, however, the Trust will treat interest payments on the
Notes as qualified stated interest under the OID regulations. If the Notes are
issued or are deemed to be issued with OID, all or a portion of the taxable
income to be recognized with respect to the Notes would be includible in the
income of Noteholders as OID. Any amount treated as OID would not, however, be
includible again when the amount is actually received. If the yield on a class
of Notes were not materially different from its coupon, this treatment would
have no significant effect on Noteholders using the accrual method of
accounting. However, cash method Noteholders may be required to report income
with respect to the Notes in advance of the receipt of cash attributable to
such income.
A Noteholder must include OID in income as interest over the term of the
Notes under a constant yield method. In general, OID must be included in
income in advance of the receipt of cash representing that income. Each
Noteholder is encouraged to consult its own tax advisor regarding the impact
of the OID rules if the Notes are issued with OID.
Market Discount. The Notes, whether or not issued with original issue
discount, will be subject to the "market discount rules" of Section 1276 of
the Code. In general, these rules provide that if a Noteholder
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purchases the Note at a market discount (i.e., a discount from its original
issue price plus any accrued original issue discount) that exceeds a de
minimis amount specified in the Code, and thereafter recognizes gain upon a
disposition, the lesser of (i) such gain or (ii) the accrued market discount
will be taxed as ordinary interest income. Market discount also will be
recognized and taxable as ordinary interest income as payments of principal
are received on the Notes to the extent that the amount of such payments does
not exceed the accrued market discount. Generally, the accrued market discount
will be the total market discount on the Note multiplied by a fraction, the
numerator of which is the number of days the Noteholder held the Note and the
denominator of which is the number of days after the date the Noteholder
acquired the Note until and including its maturity date. The Noteholder may
elect, however, to determine accrued market discount under the constant-yield
method, which election shall not be revoked without the consent of the
Service.
Limitations imposed by the Code which are intended to match deductions with
the taxation of income may defer deductions for interest on indebtedness
incurred or continued, or short-sale expenses incurred, to purchase or carry a
Note with accrued market discount. A Noteholder may elect to include market
discount in gross income as it accrues and, if such Noteholder makes such an
election, is exempt from this rule. The adjusted basis of a Note subject to
such election will be increased to reflect market discount included in gross
income, thereby reducing any gain or increasing any loss on a sale or taxable
disposition. Any such election to include market discount in gross income as
it accrues shall apply to all debt instruments held by the Noteholder at the
beginning of the first taxable year to which the election applies or
thereafter acquired and is irrevocable without the consent of the Service.
Amortizable Bond Premium. In general, if a Noteholder purchases a Note at a
premium (i.e., an amount in excess of the amount payable upon the maturity
thereof), such Noteholder will be considered to have purchased such Note with
"amortizable bond premium" equal to the amount of such excess. Such Noteholder
may elect to deduct the amortizable bond premium as it accrues under a
constant-yield method over the remaining term of the Note. Such Noteholder's
tax basis in the Note will be reduced by the amount of the amortizable bond
premium deducted. Amortizable bond premium with respect to a Note will be
treated as an offset to interest income on such Note, and a Noteholder's
deduction for amortizable bond premium with respect to a Note will be limited
in each year to the amount of interest income derived with respect to such
Note for such year. Any election to deduct amortizable bond premium shall
apply to all debt instruments (other than instruments the interest on which is
excludible from gross income) held by the Noteholder at the beginning of the
first taxable year to which the election applies or thereafter acquired and is
irrevocable without the consent of the Service. Bond premium on a Note held by
a Noteholder who does not elect to deduct the premium will decrease the gain
or increase the loss otherwise recognized on the disposition of the Note.
Disposition of Notes. If a Noteholder sells a Note, the Noteholder will
recognize gain or loss in an amount equal to the difference between the amount
realized on the sale and the Noteholder's adjusted tax basis in the Note. The
adjusted tax basis of a Note to a particular Noteholder generally will equal
the Noteholder's cost for the Note, increased by any market discount, OID and
gain previously included by such Noteholder in income with respect to the Note
and decreased by principal payments previously received by such Noteholder and
the amount of bond premium previously amortized with respect to the Note. Any
such gain or loss will be capital gain or loss if the Note was held as a
capital asset, except for gain representing accrued interest and accrued
market discount not previously included in income, and will be short-term,
mid-term or long-term capital gain or loss depending upon whether the Note was
held for more or less than one year or for more than eighteen months. Capital
losses generally may be used only to offset capital gains.
Foreign Holders. Generally, interest paid to a Noteholder who is a
nonresident alien individual or a foreign corporation and who does not hold
the Note in connection with a United States trade or business will be treated
as "portfolio interest" and therefore will be exempt from the 30% withholding
tax. Such a Noteholder will be entitled to receive interest payments on the
Notes free of United States federal income tax provided that such Noteholder
periodically provides the Indenture Trustee (or other person who would
otherwise be required to withhold tax) with a statement certifying under
penalty of perjury that such Noteholder is not a United States person and
providing the name and address of such Noteholder and will not be subject to
federal income tax on
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gain from the disposition of a Note unless the Noteholder is an individual who
is present in the United States for 183 days or more during the taxable year
in which the disposition takes place and certain other requirements are met.
Tax Administration and Reporting. The Indenture Trustee will furnish to each
Noteholder with each distribution a statement setting forth the amount of such
distribution allocable to principal and to interest. Reports will be made
annually to the Service and to holders of record that are not excepted from
the reporting requirements regarding such information as may be required with
respect to interest and original issue discount, if any, with respect to the
Notes.
Backup Withholding. Under certain circumstances, a Noteholder may be subject
to "backup withholding" at a 31% rate. Backup withholding may apply to a
Noteholder who is a United States person if the holder, among other
circumstances, fails to furnish his Social Security number or other taxpayer
identification number to the Indenture Trustee. Backup withholding may apply,
under certain circumstances, to a Noteholder who is a foreign person if the
Noteholder fails to provide the Indenture Trustee or the Noteholder's
securities broker with the statement necessary to establish the exemption from
federal income and withholding tax on interest on the Note. Backup
withholding, however, does not apply to payments on a Note made to certain
exempt recipients, such as corporations and tax-exempt organizations, and to
certain foreign persons. Noteholders should consult their tax advisors for
additional information concerning the potential application of backup
withholding to payments received by them with respect to a Note.
Possible Alternative Treatment of the Notes. If, contrary to the opinion of
Counsel, the Service successfully asserted that the Notes did not represent
debt for federal income tax purposes, the Notes might be treated as equity
interests in the Trust. If so treated, the Trust would be treated as a
publicly traded partnership that would not be taxable as a corporation because
it would meet certain qualifying income tests. Nonetheless, treatment of the
Notes as equity interests in such a partnership could have adverse tax
consequences to certain holders. For example, income to foreign holders
generally would be subject to federal tax and federal tax return filing and
withholding requirements, income to certain tax-exempt entities (including
pension funds) would be "unrelated business taxable income," and individual
holders might be subject to certain limitations on their ability to deduct
their share of Trust expenses.
TAX CONSEQUENCES TO CERTIFICATEHOLDERS
Treatment of the Trust as a Partnership. Green Tree, the General Partner and
the Owner Trustee will agree, and the Certificateholders will agree by their
purchase of Certificates, to treat the Trust as a partnership for purposes of
federal and state income tax, franchise tax and any other tax measured in
whole or in part by income, with the assets of the partnership being the
assets held by the Trust, the partners of the partnership being the
Certificateholders and the General Partner, and the Notes being debt of the
partnership. The proper characterization of the arrangement involving the
Trust, the Certificates, the Notes, the General Partner, Green Tree and the
Servicer, however, is not certain because there is no authority on
transactions closely comparable to that contemplated herein.
A variety of alternative characterizations are possible. For example,
because the Certificates have certain features characteristic of debt, the
Certificates might be considered debt of the Trust. Any such characterization
would not result in materially adverse tax consequences to Certificateholders
as compared to the consequences from treatment of the Certificates as equity
in a partnership, described below. The following discussion assumes that the
Certificates represent equity interests in a partnership.
Partnership Taxation. As a partnership, the Trust will not be subject to
federal income tax. Rather, each Certificateholder will be required to
separately take into account such holder's allocated share of income, gains,
losses, deductions and credits of the Trust. The Trust's income will consist
primarily of interest and finance charges earned on the Contracts (including
appropriate adjustments for market discount, OID and bond premium) and any
gain upon collection or disposition of the Contracts. The Trust's deductions
will consist primarily of
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interest accruing with respect to the Notes, servicing and other fees, and
losses or deductions upon collection or disposition of the Contracts.
The tax items of a partnership are allocable to the partners in accordance
with the Code, Treasury regulations and the partnership agreement (here, the
Trust Agreement and related documents). The Trust Agreement will provide, in
general, that the Certificateholders will be allocated taxable income of the
Trust for each month equal to the sum of (i) the interest that accrues on the
Certificates in accordance with their terms for such month, including interest
accruing at the Pass-Through Rate for such month and interest on amounts
previously due on the Certificates but not yet distributed; (ii) any Trust
income attributable to discount on the Contracts that corresponds to any
excess of the principal amount of the Certificates over their initial issue
price; (iii) Prepayment Premium payable to the Certificateholders for such
month; and (iv) any other amounts of income payable to the Certificateholders
for such month. Although it is not anticipated that the Certificates will be
issued at a price which exceeds their principal amount, such allocations of
Trust income to the Certificateholders will be reduced by any amortization by
the Trust of premium on Contracts that corresponds to any such excess of the
issue price of Certificates over their principal amount. All remaining taxable
income of the Trust will be allocated to the General Partner. Based on the
economic arrangement of the parties, this approach for allocating Trust income
should be permissible under applicable Treasury regulations, although no
assurance can be given that the Service would not require a greater amount of
income to be allocated to Certificateholders. Moreover, even under the
foregoing method of allocation, Certificateholders may be allocated income
equal to the entire Pass-Through Rate plus the other items described above
even though the Trust might not have sufficient cash to make current cash
distributions of such amount. Thus, cash basis holders will in effect be
required to report income from the Certificates on the accrual basis, and
Certificateholders may become liable for taxes on Trust income even if they
have not received cash from the Trust to pay such taxes. In addition, because
tax allocations and tax reporting will be done on a uniform basis for all
Certificateholders but Certificateholders may be purchasing Certificates at
different times and at different prices, Certificateholders may be required to
report on their tax returns taxable income that is greater or less than the
amount reported to them by the Trust.
All of the taxable income allocated to a Certificateholder that is a
pension, profit sharing or employee benefit plan or other tax-exempt entity
(including an individual retirement account) will constitute "unrelated
business taxable income" generally taxable to such a holder under the Code.
A Certificateholder's share of expenses of the Trust (including fees to the
Servicer but not interest expense) will be miscellaneous itemized deductions.
An individual, an estate, or a trust that holds a Certificate either directly
or through a pass-through entity will be allowed to deduct such expenses under
Section 212 of the Code only to the extent that, in the aggregate and combined
with certain other itemized deductions, they exceed 2% of the adjusted gross
income of the Certificateholder. In addition, Section 68 of the Code provides
that the amount of itemized deductions (including those provided for in
Section 212 of the Code) otherwise allowable for the taxable year for an
individual whose adjusted gross income exceeds a threshold amount determined
under the Code ($124,500 in 1998, in the case of a joint return) will be
reduced by the lesser of (i) 3% of the excess of adjusted gross income over
the specified threshold amount or (ii) 80% of the amount of itemized
deductions otherwise allowable for such taxable year. To the extent that a
Certificateholder is not permitted to deduct servicing fees allocable to a
Certificate, the taxable income of the Certificateholder attributable to that
Certificate will exceed the net cash distributions related to such income.
Certificateholders may deduct any loss on disposition of the Contracts to the
extent permitted under the Code.
Discount and Premium. It is believed that the Contracts were not issued with
OID, and, therefore, the Trust should not have OID income. The purchase price
paid by the Trust for the Contracts may exceed the remaining principal balance
of the Contracts at the time of purchase. If the Trust is deemed to acquire
the Contracts at such a premium or at a market discount, the Trust will elect
to offset any such premium against interest income on the Contracts or to
include any such discount in income currently as it accrues over the life of
the Contracts. The Trust will make this premium or market discount calculation
on an aggregate basis but may be required to recompute it on a Contract-by-
Contract basis. As indicated above, a portion of such premium deduction or
market discount income may be allocated to Certificateholders.
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Distributions to Certificateholders. Certificateholders generally will not
recognize gain or loss with respect to distributions from the Trust. A
Certificateholder will recognize gain, however, to the extent that any money
distributed exceeds the Certificateholder's adjusted basis in its Certificates
(as described below under "Disposition of Certificates") immediately before
the distribution. A Certificateholder will recognize loss upon termination of
the Trust or termination of the Certificateholder's interest in the Trust if
the Trust only distributes money to the Certificateholder and the amount
distributed is less than the Certificateholder's adjusted basis in the
Certificates. Any such gain or loss generally will be capital gain or loss if
the Certificates are held as capital assets and will be long-term gain or loss
if the holding period of the Certificates is more than one year.
Section 708 Termination. Under Section 708 of the Code, the Trust will be
deemed to terminate for federal income tax purposes if 50% or more of the
capital and profits interests in the Trust are sold or exchanged within a 12-
month period. Under Treasury regulations, if such a termination occurs, the
Trust will be considered to have contributed the assets of the Trust (the "Old
Partnership") to a new partnership (the "New Partnership") in exchange for
interests in the New Partnership. Such interests would be deemed distributed
to the partners of the Old Partnership in liquidation thereof, which would not
constitute a sale or exchange for United States federal income tax purposes.
Disposition of Certificates. If a Certificateholder sells a Certificate, the
Certificateholder generally will recognize capital gain or loss in an amount
equal to the difference between the amount realized on the sale and the
seller's tax basis in the Certificate. A Certificateholder's tax basis in a
Certificate generally will equal the Certificateholder's cost increased by the
Certificateholder's share of Trust income and decreased by any distributions
received with respect to such Certificate. In addition, both the tax basis in
the Certificate and the amount realized on a sale of a Certificate would
include the Certificateholder's share of the Notes and other liabilities of
the Trust. A Certificateholder acquiring Certificates at different prices may
be required to maintain a single aggregate adjusted tax basis in such
Certificates, and, upon sale or other disposition of some of the Certificates,
allocate a portion of such aggregate tax basis to the Certificates sold
(rather than maintain a separate tax basis in each Certificate for purposes of
computing gain or loss on a sale of that Certificate).
Any gain on the sale of a Certificate attributable to the
Certificateholder's share of unrecognized accrued market discount on the
Contracts would generally be treated as ordinary income to the
Certificateholder and would give rise to special tax reporting requirements.
The Trust does not expect to have any other assets that would give rise to
such special reporting requirements. Thus, to avoid those special reporting
requirements, the Trust will elect to include market discount in income as it
accrues.
If a Certificateholder is required to recognize an aggregate amount of
income (not including income attributable to disallowed itemized deductions
described above) over the life of the Certificates that exceeds the aggregate
cash distributions with respect thereto, such excess generally will give rise
to a capital loss upon the retirement of the Certificates.
Allocations Between Transferors and Transferees. In general, the Trust's
taxable income and losses will be determined monthly, and the tax items for a
particular calendar month will be apportioned among the Certificateholders in
proportion to the principal amount of Certificates owned by them as of the
close of the related Record Date. As a result, a Certificateholder purchasing
a Certificate may be allocated tax items (which will affect the
Certificateholder's tax liability and tax basis) attributable to periods
before the Certificateholder actually owns the Certificate. The use of such a
convention may not be permitted by existing regulations. If a monthly
convention is not permitted (or only applies to transfers of less than all of
the Certificateholder's interest), taxable income or losses of the Trust may
be reallocated among the Certificateholders. The General Partner is authorized
to revise the Trust's method of allocation between transferors and transferees
to conform to a method permitted by future regulations.
Section 754 Election. In the event that a Certificateholder sells a
Certificate at a profit or loss, the purchasing Certificateholder will have a
higher or lower basis in the Certificate than the selling Certificateholder
had. The tax basis of the Trust's assets will not be adjusted to reflect that
higher or lower basis unless the Trust files an
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election under Section 754 of the Code. In order to avoid the administrative
complexities that would be involved in keeping accurate accounting records, as
well as potentially onerous information reporting requirements, the Trust will
not make such election. As a result, Certificateholders may be allocated a
greater or lesser amount of Trust income than would be appropriate based on
their own purchase price for Certificates.
Administrative Matters. Pursuant to the Administration Agreement, the
Trustee will monitor the performance of the following responsibilities of the
Trust by other service providers. The Trust is required to keep or have kept
complete and accurate books of the Trust. Such books will be maintained for
financial reporting and tax purposes on an accrual basis and the fiscal year
of the Trust will be the calendar year. The Trust will file a partnership
information return (IRS Form 1065) with the Service for each taxable year of
the Trust and will report each Certificateholder's allocable share of items of
Trust income and expense to Certificateholders and the Service on Schedule K-
1. The Trust will provide the Schedule K-1 information to nominees that fail
to provide the Trust with certain required information statements relating to
identification of beneficial owners of Certificates and such nominees will be
required to forward such information to such beneficial owners. Generally,
Certificateholders must file tax returns that are consistent with the
information return filed by the Trust or be subject to penalties unless the
Certificateholder notifies the Service of all such inconsistencies.
Green Tree or a subsidiary identified in the related Prospectus Supplement
will be designated as the tax matters partner in the Trust Agreement and, as
such, will be responsible for representing the Certificateholders in any
dispute with the Service. The Code provides for administrative examination of
a partnership as if the partnership were a separate and distinct taxpayer.
Generally, the statute of limitations for partnership items does not expire
before three years after the date on which the partnership information return
is filed. Any adverse determination following an audit of the return of the
Trust by the appropriate taxing authorities could result in an adjustment of
the returns of the Certificateholders, and, under certain circumstances, a
Certificateholder may be precluded from separately litigating a proposed
adjustment to the items of the Trust. An adjustment could also result in an
audit of a Certificateholder's returns and adjustments of items not related to
the income and losses of the Trust.
Tax Consequences to Foreign Certificateholders. It is not clear whether the
Trust will be considered to be engaged in a trade or business in the United
States for purposes of federal withholding taxes with respect to non-U.S.
persons because there is no clear authority dealing with that issue under
facts substantially similar to those described herein. Although it is not
expected that the Trust will be engaged in a trade or business in the United
States for such purposes, the Trust will withhold as if it were so engaged in
order to protect the Trust from possible adverse consequences of a failure to
withhold. It is expected that the Trust will withhold on the portion of its
taxable income that is allocable to foreign Certificateholders pursuant to
Section 1446 of the Code, as if such income were effectively connected to a
U.S. trade or business, at a rate of 35% for foreign holders that are taxable
as corporations and 39.6% for all other foreign Certificateholders. Subsequent
adoption of Treasury regulations or the issuance of other administrative
pronouncements may require the Trust to change its withholding procedures. In
determining a Certificateholder's nonforeign status, the Trust may rely on
Form W-8, Form W-9 or the Certificateholder's certification of nonforeign
status signed under penalties of perjury.
Each foreign Certificateholder might be required to file a U.S. individual
or corporate income tax return (including, in the case of a corporation, the
branch profits tax) on its share of the Trust's income. Each foreign
Certificateholder must obtain a taxpayer identification number from the
Service and submit that number to the Trust on Form W-8 in order to assure
appropriate crediting of the taxes withheld. A foreign Certificateholder
generally will be entitled to file with the Service a claim for refund with
respect to taxes withheld by the Trust, taking the position that no taxes are
due because the Trust is not engaged in a U.S. trade or business. However, the
Service may assert that additional taxes are due, and no assurance can be
given as to the appropriate amount of tax liability.
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Backup Withholding. Under certain circumstances, a Certificateholder may be
subject to "backup withholding" at a 31% rate. See the discussion above under
"--Tax Consequences to Noteholders--Backup Withholding."
CERTAIN STATE INCOME TAX CONSEQUENCES
The activities to be undertaken by the Servicer in servicing and collecting
the Contracts will take place in Minnesota. The State of Minnesota imposes an
income tax on individuals, trusts and estates and a franchise tax measured by
net income on corporations. This discussion of Minnesota taxation is based
upon current statutory provisions and the regulations promulgated thereunder,
and applicable judicial or ruling authority, all of which are subject to
change (which may be retroactive). No ruling on any of the issues discussed
below will be sought from the Minnesota Department of Revenue.
If the Notes are treated as debt for federal income tax purposes, in the
opinion of Counsel this treatment will also apply for Minnesota tax purposes.
Noteholders not otherwise subject to Minnesota income or franchise taxation
would not become subject to such a tax solely because of their ownership of
the Notes. Noteholders already subject to income or franchise taxation in
Minnesota could, however, be required to pay such a tax on all or a portion of
the income generated from ownership of the Notes.
If the Trust is treated as a partnership (not taxable as a corporation) for
federal income tax purposes, in the opinion of Counsel the Trust would also be
treated as a partnership for Minnesota income tax purposes. The partnership
therefore would not be subject to Minnesota taxation. Certificateholders that
are not otherwise subject to Minnesota income or franchise taxation would not
become subject to such a tax solely because of their interests in the
partnership. Certificateholders already subject to income or franchise
taxation in Minnesota could, however, be required to pay such a tax on all or
a portion of the income from the partnership.
If the Certificates are treated as ownership interests in an association or
publicly traded partnership taxable as a corporation for federal income tax
purposes, in the opinion of Counsel this treatment would also apply for
Minnesota income and franchise tax purposes. Pursuant to this treatment, the
Trust would be subject to the Minnesota franchise tax measured by net income
(which could result in reduced distributions to Certificateholders).
Certificateholders that are not otherwise subject to Minnesota income or
franchise taxation would not become subject to such a tax solely because of
their interests in the constructive corporation. Certificateholders already
subject to income or franchise taxation in Minnesota could, however, be
required to pay such a tax on all or a portion of the income from the
constructive corporation.
ERISA CONSIDERATIONS
Section 406 of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and Section 4975 of the Code prohibit a pension, profit
sharing or other employee benefit plan from engaging in certain transactions
involving "plan assets" with persons that are "parties in interest" under
ERISA or "disqualified persons" under the Code with respect to the plan. ERISA
also imposes certain duties and certain prohibitions on persons who are
fiduciaries of plans subject to ERISA. Under ERISA, generally any person who
exercises any authority or control with respect to the management or
disposition of the assets of a plan is considered to be a fiduciary of such
plan. A violation of these "prohibited transaction" rules may generate excise
tax and other liabilities under ERISA and the Code for such persons.
Certain transactions involving the related Trust might be deemed to
constitute prohibited transactions under ERISA and the Code with respect to a
Benefit Plan that purchased Securities if assets of the related Trust were
deemed to be assets of the Benefit Plan. Under a regulation issued by the
United States Department of Labor (the "Plan Assets Regulation"), the assets
of a Trust would be treated as plan assets of a Benefit Plan for the purposes
of ERISA and the Code only if the Benefit Plan acquired an "equity interest"
in the Trust and none of
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the exceptions contained in the Plan Assets Regulation was applicable. An
equity interest is defined under the Plan Assets Regulation as an interest
other than an instrument which is treated as indebtedness under applicable
local law and which has no substantial equity features. The likely treatment
of Notes and Certificates will be discussed in the related Prospectus
Supplement.
Employee benefit plans that are governmental plans (as defined in Section
3(32) of ERISA) and certain church plans (as defined in Section 3(33) of
ERISA) are not subject to ERISA requirements.
A plan fiduciary considering the purchase of Securities should consult its
tax and/or legal advisors regarding whether the assets of the Trust would be
considered plan assets, the possibility of exemptive relief from the
prohibited transaction rules and other issues and their potential
consequences.
LEGAL INVESTMENT CONSIDERATIONS
Unless otherwise indicated in the applicable Prospectus Supplement, any
Securities offered hereby are not expected to constitute "mortgage related
securities" for purposes of the Secondary Mortgage Market Enhancement Act of
1984 ("SMMEA") because there will be a substantial number of Contracts that
are secured by liens on real estate that are not first liens, as required by
SMMEA. Accordingly, many institutions with legal authority to invest in
"mortgage related securities" may not be legally authorized to invest in the
Securities.
The Federal Financial Institutions Examination Council, The Federal Deposit
Insurance Corporation, the Office of Thrift Supervision, the Office of the
Comptroller of the Currency and the National Credit Union Administration have
proposed or adopted guidelines regarding investment in various types of
mortgage-backed securities. In addition, certain state regulators have taken
positions that may prohibit regulated institutions subject to their
jurisdiction from holding securities representing residual interests,
including securities previously purchased. There may be other restrictions on
the ability of certain investors, including depository institutions, either to
purchase Securities or to purchase Securities representing more than a
specified percentage of the investor's assets. Investors should consult their
own legal advisors in determining whether and to what extent the Securities
constitute legal investments for such investors.
RATINGS
It is a condition precedent to the issuance of any Class of Securities sold
under this Prospectus that they be rated by at least one nationally recognized
statistical rating organization in one of its four highest rating categories
(within which there may be sub-categories or gradations indicating relative
standing). A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning rating agency. The security rating of any Series of Securities
should be evaluated independently of similar security ratings assigned to
other kinds of securities.
UNDERWRITING
Green Tree may sell Securities of each Series to or through underwriters
(the "Underwriters") by a negotiated firm commitment underwriting and public
reoffering by the Underwriters, and also may sell and place Securities
directly to other purchasers or through agents. Green Tree intends that
Securities will be offered through such various methods from time to time and
that offerings may be made concurrently through more than one of these methods
or that an offering of a particular Series of Securities may be made through a
combination of such methods.
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The distribution of the Securities may be effected from time to time in one
or more transactions at a fixed price or prices, which may be changed, or at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices.
If so specified in the Prospectus Supplement relating to a Series of
Securities, Green Tree or any affiliate thereof may purchase some or all of
one or more Classes of Securities of such Series from the Underwriter or
Underwriters at a price specified in such Prospectus Supplement. Such
purchaser may thereafter from time to time offer and sell, pursuant to this
Prospectus, some or all of such Securities so purchased directly, through one
or more Underwriters to be designated at the time of the offering of such
Securities or through broker-dealers acting as agent and/or principal. Such
offering may be restricted in the manner specified in such Prospectus
Supplement. Such transactions may be effected at market prices prevailing at
the time of sale, at negotiated prices or at fixed prices.
In connection with the sale of the Securities, Underwriters may receive
compensation from Green Tree or from purchasers of Securities for whom they
may act as agents in the form of discounts, concessions or commissions.
Underwriters may sell the Securities of a Series to or through dealers and
such dealers may receive compensation in the form of discounts, concessions or
commissions from the Underwriters and/or commissions from the purchasers for
whom they may act as agents. Underwriters, dealers and agents that participate
in the distribution of the Securities of a Series may be deemed to be
Underwriters, and any discounts or commissions received by them from Green
Tree and any profit on the resale of the Securities by them may be deemed to
be underwriting discounts and commissions, under the Securities Act. Any such
Underwriters or agents will be identified, and any such compensation received
from Green Tree will be described, in the Prospectus Supplement.
Under agreements which may be entered into by Green Tree, Underwriters and
agents who participate in the distribution of the Securities may be entitled
to indemnification by Green Tree against certain liabilities, including
liabilities under the Securities Act.
If so indicated in the Prospectus Supplement, Green Tree will authorize
Underwriters or other persons acting as Green Tree's agents to solicit offers
by certain institutions to purchase the Securities from Green Tree pursuant to
contracts providing for payment and delivery on a future date. Institutions
with which such contracts may be made include commercial and savings banks,
insurance companies, pension funds, investment companies, educational
charitable institutions and others, but in all cases such institutions must be
approved by Green Tree. The obligation of any purchaser under any such
contract will be subject to the condition that the purchaser of the offered
Securities shall not at the time of delivery be prohibited under the laws of
the jurisdiction to which such purchaser is subject from purchasing such
Securities. The Underwriters and such other agents will not have
responsibility in respect of the validity or performance of such contracts.
The Underwriters may, from time to time, buy and sell Securities, but there
can be no assurance that an active secondary market will develop and there is
no assurance that any such market, if established, will continue.
Certain of the Underwriters and their associates may engage in transactions
with and perform services for Green Tree in the ordinary course of business.
The Indenture Trustee, if any, may, from time to time, invest the funds in
the Designated Accounts in Eligible Investments acquired from the
underwriters.
Under each Underwriting Agreement, the closing of the sale of any Class of
Securities subject thereto will be conditioned on the closing of the sale of
all other such Classes.
The place and time of delivery for the Securities in respect of which this
Prospectus is delivered will be set forth in the related Prospectus
Supplement.
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LEGAL MATTERS
Certain matters with respect to the validity of the Certificates and the
Notes will be passed upon for Green Tree by the counsel for Green Tree
identified in the applicable Prospectus Supplement. The validity of the
Certificates and the Notes will be passed upon for the underwriters named in
the related Prospectus Supplement by the counsel for the underwriters
identified in the applicable Prospectus Supplement.
EXPERTS
The consolidated financial statements of the Company as of December 31, 1997
and 1996 and for each of the years in the three-year period ended December 31,
1997, incorporated by reference herein, have been audited by KPMG Peat Marwick
LLP, independent accountants, as stated in their report given upon their
authority as experts in accounting and auditing.
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For 90 days after the date of this prospectus supplement, all dealers
that effect transactions in these securities, whether or not participating in
this offering, may be required to deliver a prospectus. This is in addition to
the dealers' obligation to deliver a copy of this prospectus supplement and the
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
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