<PAGE>
Filed Pursuant to Rule 424(B)(5)
File No. 333-52233
PROSPECTUS SUPPLEMENT
(To Prospectus dated September 4, 1998, as supplemented on September 15, 1998)
$574,500,000 (Approximate)
GREEN TREE
Seller and Servicer
Green Tree Recreational, Equipment & Consumer Trust 1999-A
----------------
The securities will consist of the following 9 classes:
<TABLE>
<CAPTION>
Approximate Interest Underwriting Proceeds to
Class Principal Amount Rate Price to Public Discount Company
----- ---------------- -------- --------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Class A-1 Notes......... $ 45,000,000 5.096% 100% 0.100% 99.90000%
Class A-2 Notes......... $ 61,500,000 5.502% 100% 0.150% 99.85000%
Class A-3 Notes......... $ 84,500,000 5.816% 99.99988% 0.170% 99.82988%
Class A-4 Notes......... $155,000,000 6.430% 99.99440% 0.250% 99.74440%
Class A-5 Notes......... $ 35,000,000 6.620% 99.99498% 0.325% 99.66998%
Class A-6 Notes......... $111,000,000 6.840% 99.96991% 0.375% 99.59491%
Class M-1 Notes......... $ 31,500,000 7.400% 99.99605% 0.500% 99.49605%
Class M-2 Notes......... $ 30,000,000 7.910% 99.96767% 0.870% 99.09767%
Class B-1 Certificates.. $ 21,000,000 9.090% 99.95546% 0.870% 99.08546%
</TABLE>
The approximate principal amount of each class listed above may vary plus or
minus 5%. Any increase or decrease will be allocated proportionately among all
classes. The price to public will be the percentage total in the table above
plus any accrued interest beginning on June 25, 1999. The proceeds to company
are before deducting expenses, which we estimate to be $425,000.
Consider carefully the risk factors beginning on page S-8 in this prospectus
supplement and page 18 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.
These securities will be delivered on or about June 25, 1999.
The underwriters named below will offer these securities 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-42 in this prospectus supplement and
"Plan of Distribution" on page 71 in the prospectus.
----------------
Banc of America Securities LLC
Chase Securities Inc.
J.P. Morgan & Co.
The date of this prospectus supplement is June 16, 1999.
<PAGE>
TABLE OF CONTENTS
Prospectus Supplement
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary of the Terms of the Offered Securities............................. S-4
Risk Factors............................................................... S-8
The Trust.................................................................. S-11
The Trust Property......................................................... S-12
The Contract Pool.......................................................... S-12
Green Tree Financial Corporation........................................... S-18
Yield and Prepayment Considerations........................................ S-21
Description of the Notes................................................... S-28
Description of the Certificates............................................ S-32
Description of the Trust Documents and Indenture........................... S-35
Certain Federal and State Income Tax Consequences.......................... S-39
ERISA Considerations....................................................... S-40
Underwriting............................................................... S-42
Legal Matters.............................................................. S-44
Prospectus
Available Information...................................................... 4
Reports to Securityholders................................................. 4
Incorporation of Certain Documents by Reference............................ 5
Propectus Summary.......................................................... 6
Risk Factors............................................................... 18
The Trusts................................................................. 20
The Contracts.............................................................. 22
Green Tree Financial Corporation........................................... 22
Yield and Prepayment Considerations........................................ 24
Pool Factor................................................................ 25
Use of Proceeds............................................................ 26
The Certificates........................................................... 26
The Notes.................................................................. 27
Certain Information Regarding the Securities............................... 33
Description of the Trust Documents......................................... 37
Certain Legal Aspects of the Contracts..................................... 49
Certain Federal Income Tax Consequences.................................... 56
Certain State Income Tax Consequences...................................... 69
ERISA Considerations....................................................... 70
Plan of Distribution....................................................... 71
Legal Matters.............................................................. 72
Experts.................................................................... 72
</TABLE>
You should rely only on the information contained in this prospectus. We and
the underwriters have not authorized any other person to provide you with
different information. If anyone provides you with different or inconsistent
information, you should not rely on it. We and the underwriters are not making
an offer to sell these securities in any jurisdiction where the offer or sale
is not permitted.
This document consists of a prospectus supplement and a prospectus. The
prospectus provides general information about Green Tree Financial Corporation,
about our recreational consumer lending business, and about any series of
asset-backed securities secured by a pool
S-2
<PAGE>
of contracts financing the purchase of consumer products that we may wish to
sell. This prospectus supplement contains more detailed information about the
specific terms of this series of securities. If the description of the term of
your series of securities varies between this prospectus supplement and the
prospectus, you should rely on the information in this prospectus supplement.
If you have received a copy of this prospectus supplement and the 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 the
prospectus from us or an underwriter by asking for it.
S-3
<PAGE>
SUMMARY OF THE TERMS OF THE OFFERED SECURITIES
This summary highlights selected information regarding the offered
securities, 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 offered securities, read this entire prospectus supplement and the
prospectus. In particular, we will refer throughout this summary to sections of
this prospectus supplement or the prospectus, or both, which will contain more
complete descriptions of the matters summarized. All these references will be
to sections of this prospectus supplement only unless we note otherwise.
The 10 classes of securities listed in the table below will be issued by the
trust. The trust will own a pool of contracts financing the purchase of a
variety of consumer products consisting of recreational vehicles, motorcycles,
keyboard instruments, marine products, horse trailers and sport vehicles.
<TABLE>
<CAPTION>
Interest Approximate S&P Fitch
Class Rate Principal Amount Rating Rating
- ----- -------- ---------------- ------ ------
<S> <C> <C> <C> <C>
Class A-1 Notes........................ 5.096% $ 45,000,000 A-1+ F1+
Class A-2 Notes........................ 5.502 61,500,000 AAA AAA
Class A-3 Notes........................ 5.816 84,500,000 AAA AAA
Class A-4 Notes........................ 6.430 155,000,000 AAA AAA
Class A-5 Notes........................ 6.620 35,000,000 AAA AAA
Class A-6 Notes........................ 6.840 111,000,000 AAA AAA
Class M-1 Notes........................ 7.400 31,500,000 AA AA
Class M-2 Notes........................ 7.910 30,000,000 A A
Class B-1 Certificates................. 9.090 21,000,000 BBB BBB
Class B-2 Certificates................. 9.810 25,500,000 BBB- BBB+
</TABLE>
The approximate principal amount of each class listed above may vary plus or
minus 5%. Any increase or decrease will be allocated proportionately among all
classes.
We will not issue or sell the securities unless S&P and Fitch assign each
class the rating listed above. The rating of each class of securities by S&P
and Fitch addresses the likelihood of timely payment of interest and ultimate
payment 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 B-2 certificates are based in
part on an assessment of our ability to make payments under the Class B-2
limited guaranty. Any reduction in S&P's or Fitch's ratings of our debt
securities may result in a similar reduction in the ratings of the Class B-2
certificates.
The Class B-2 certificates are not being offered under this prospectus
supplement and prospectus. We are offering all the other classes of securities
listed in the table above. We, or one of our affiliates, initially will retain
the Class B-2 certificates.
Seller and Servicer........... Green Tree Financial Corporation, 1100 Landmark
Towers, 345 St. Peter Street, St. Paul,
Minnesota 55102, telephone (651) 293-3400.
S-4
<PAGE>
Indenture Trustee............. U.S. Bank Trust National Association, St. Paul,
Minnesota, will be the indenture trustee. For a
more complete description of the indenture
trustee's responsibilities, see "The Notes--The
Indenture Trustee" in the prospectus.
Owner Trustee................. Wilmington Trust Company, Wilmington, Delaware,
will be the owner trustee. For a more complete
description of the owner trustee's
responsibilities, see "Description of the Trust
Documents--The Trustee" in the prospectus.
Distribution Date............. The fifteenth day of each month or, if that day
is not a regular business day, the next regular
business day. The first distribution date will
be July 15, 1999.
Record Date................... The business day just before the related
distribution date.
Description of the Notes...... The trust will issue the notes pursuant to the
indenture between the trust and the indenture
trustee. The notes will be debt obligations of
the trust, secured by the contracts and the
other property of the trust.
Description of the The trust will issue the certificates pursuant
Certificates.................. to the trust agreement between us, as
depositor, and the owner trustee. The
certificates will represent undivided ownership
interests in the trust, and will be
subordinated to the notes.
Distributions on the Distributions on the securities on any
Securities.................... distribution date will be made primarily from
amounts collected on the contracts during the
prior month. On each distribution date, the
indenture trustee will apply the amount
available to make distributions on the
securities in generally the following order of
priority:
(1) Interest on the Class A-1, Class A-2,
Class A-3, Class A-4, Class A-5 and
Class A-6 notes;
(2) Interest on the Class M-1 notes;
(3) Interest on the Class M-2 notes;
(4) Interest on the Class B-1 certificates;
S-5
<PAGE>
(5) A formula principal distribution amount
to be paid sequentially on the Class A
notes, beginning with the Class A-1
notes;
(6) A formula principal distribution amount
to be paid on the Class M-1 notes, if
the Class A notes have been paid in
full;
(7) A formula principal distribution amount
to be paid on the Class M-2 notes, if
the Class A and Class M-1 notes have
been paid in full;
(8) A formula principal distribution amount
to be paid on the Class B-1
certificates, if the notes have been
paid in full;
(9) Interest on the Class B-2 certificates;
and
(10) A formula principal distribution
amount to be paid on the Class B-2
certificates, if the notes and the
Class B-1 certificates have been paid
in full.
See "Description of the Trust Documents and
Indenture--Distributions" for a more detailed
description of the amounts that will be
distributed on any distribution date.
Class B-2 Limited Guaranty.... We will guarantee payment of principal and
interest on the Class B-2 certificates. See
"Description of the Certificates--Limited
Guaranty" for a more detailed description of
this guaranty.
Optional Redemption........... After the aggregate scheduled principal balance
of the contracts is 10% or less of the cutoff
date pool principal balance, we or the servicer
will have the option to purchase all of the
outstanding contracts. See "Description of the
Trust Documents and Indenture--Termination" for
a more detailed description of the terms of
this repurchase option.
The Contracts................. The contracts are retail installment sales
contracts and promissory notes for the purchase
of a variety of consumer products. See "The
Contract Pool" for more information about the
contracts and the products they finance.
Tax Status.................... In the opinion of our counsel, for federal and
Minnesota income tax purposes, the notes will
be characterized as debt, and the trust will
not be
S-6
<PAGE>
characterized as an association, or publicly
traded partnership, taxable as a corporation.
By purchasing a note, you will agree to treat
the notes as debt. By purchasing a certificate,
you 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 and
the certificates are possible, but would not
result in materially adverse tax consequences
to certificateholders. See "Certain Federal and
State Income Tax Consequences" in this
prospectus supplement and "Certain Federal
Income Tax Consequences" and "Certain State
Income Tax Consequences" in the prospectus.
Money Market Eligibility...... The Class A-1 notes will have a final maturity
of June 15, 2000. The Class A-1 notes have the
benefit of a reserve account to ensure that
they will be paid on their final maturity. See
"Description of the Notes--Principal" for a
description of this reserve account. The Class
A-1 notes will be eligible securities for
purchase by money market funds under Rule 2a-7
under the Investment Company Act of 1940. A
fund should consult with its advisor regarding
the eligibility of the Class A-1 notes under
Rule 2a-7 and the fund's investment policies
and objectives.
ERISA Considerations.......... Subject to the conditions described under
"ERISA Considerations," employee benefit plans
that are subject to the Employee Retirement
Income Security Act of 1974 may purchase the
notes. An employee benefit plan may not
purchase any class of certificates, unless it
satisfies the conditions described under "ERISA
Considerations" in this prospectus supplement
and in the prospectus.
Reports to Holders of the
Securities....................
As servicer, we will provide to the holders of
the securities monthly and annual reports about
the securities and the trust. For a more
complete description of the reports you will
receive, please read the section entitled
"Certain Information Regarding the Securities--
Statements to Securityholders."
S-7
<PAGE>
RISK FACTORS
You should consider the following risk factors in deciding whether to
purchase the securities.
The trust has limited assets.
Holders of the notes and the certificates must primarily rely for repayment
upon payments on the contracts. The trust will not have, nor is it permitted or
expected to have, any significant assets or sources of funds other than the
contracts and, for payment of losses absorbed by the Class B-2 certificates,
our limited guaranty.
The Class M notes and the certificates are subordinated.
Distributions of interest and principal on the Class M notes will be
subordinated to the rights of the holders of the Class A notes to receive prior
payment of interest and principal. Distributions of interest and principal on
the certificates will be subordinated in priority of payment to interest and
principal due on the notes. This makes it more likely that the Class M notes
and the certificates might not receive timely distributions of interest and
principal, or may not receive all the amounts due them. See "Description of the
Trust Documents and Indenture--Distributions."
We have limited delinquency, loan loss and repossession experience.
We began originating installment sales contracts for recreational vehicles in
1985 and for motorcycles in 1988, but have less extensive underwriting and
servicing experience with other types of products financed by the contracts.
Although we have calculated and presented our delinquency and net loss
experience for our servicing portfolio of consumer contracts, you must not
assume that the information presented will reflect the actual experience for
the contracts owned by the trust. In addition, you must not assume that the
future delinquency, loan loss or repossession experience for the contracts
owned by the trust will be better or worse than those described for our
servicing portfolio. If the delinquency, default or loss experience of the
contracts owned by the trust is worse than expected, you could suffer a loss on
your investment. See "The Contract Pool--Delinquency, Loan Loss and
Repossession Information."
Higher than expected delinquencies, higher than expected defaults, or higher
than expected losses after default could result in a loss on your investment.
Payments on the securities will be made primarily from payments on the
contracts. If the obligors on the contracts do not make timely payments, the
trust may not be able to make timely payment of interest and principal on your
note or certificate. If an obligor defaults on a contract, then the trust will
be relying on the servicer's ability to repossess and resell the related
product.
S-8
<PAGE>
You should consider these risks that might cause higher than expected
delinquencies, defaults or losses:
. Geographic concentration of initial contracts increases your exposure to
local economic conditions.
As of the cutoff date, the obligors on approximately 15.59%, 11.91% and
10.05% of the initial contracts, based on principal balance and billing
address of the obligor were located in California, Texas and Florida,
respectively. See "The Contract Pool." Accordingly, adverse economic
conditions or other factors particularly affecting these states could
adversely affect the delinquency, loan loss or repossession experience of
the trust with respect to the contracts. If the delinquency, default and
loss experience of the contracts owned by the trust is worse than
expected, you could suffer a loss on your investment.
. The trust may not be able to enforce the contracts.
When we originated each contract, we required the customer to grant us a
security interest in the financed product. When we assign a pool of
contracts to a trust, we will also assign our security interests in the
financed products. Because of the administrative burden and expense, the
documents reflecting our security interest in the products will not be
amended to reflect the assignment of the security interest. As a result,
there is a risk that the trust will not have a perfected security interest
in the products. If we were no longer the servicer of the contracts and
the trust had to begin enforcing contracts in its own name, either
directly or through a replacement servicer, there is a risk that the trust
would be unable to repossess a product following a default on the related
contract, which would result in higher losses on the contract pool. If
losses on the contract pool exceed expected levels, you may suffer a loss
on your investment.
The trust may not own the contracts.
We will hold the files evidencing the contracts, as servicer on behalf of the
trust. To facilitate servicing and save administrative costs, the documents
will not be physically segregated from other similar documents that are in our
possession. We will file UCC financing statements reflecting the assignment of
the contracts to the trust, and our accounting records and computer systems
will also reflect that assignment. We will stamp each contract to indicate that
the contract has been sold. Despite these precautions, if, through inadvertence
or otherwise, any of the contracts were sold or pledged to another party and
that party took possession of those contracts, then that purchaser, or secured
party, would acquire an interest in those contracts superior to that of the
trust. If the trust is unable to collect payments on some or all of the
contracts, then you may suffer a loss on your investment.
Prepayments on the contracts are unpredictable and will affect your yield.
The contracts may be prepaid in full or in part at any time before their
scheduled maturity due to various factors, including general and regional
economic conditions and
S-9
<PAGE>
prevailing interest rates. The prepayment experience on similar contracts
varies greatly and may affect the average life of the securities. You must not
assume that the contracts will prepay at any particular rate, or at a constant
rate. For more information, see "Yield and Prepayment Considerations."
There may be no secondary market for the securities.
We cannot assure you that a secondary market will develop for the securities
or, if a secondary market does develop, that it will provide the holders of any
of the securities with liquidity of investment. We also cannot assure you that
if a secondary market does develop, that it will continue to exist for the term
of the securities.
If we become insolvent, you may suffer delays or reductions in distributions on
your securities.
We intend that each transfer of contracts to the trust will constitute a
sale, rather than a pledge of the contracts to secure our indebtedness.
However, if we were to become a debtor under the federal bankruptcy code, it is
possible that our creditors, a bankruptcy trustee or we as debtor-in-
possession, may argue that the transfer of the contracts by us was a pledge of
the contracts rather than a sale. This position, if presented to or accepted by
a court, could result in a delay in or reduction of distributions to the
holders of the securities.
The case of Octagon Gas Systems, Inc. v. Rimmer, 995 F.2d 948 (10th Cir.
1993) contains language to the effect that accounts sold by an entity which
subsequently became bankrupt remained property of the debtor's bankruptcy
estate. Although the contracts constitute chattel paper rather than accounts
under the UCC, sales of chattel paper, like sales of accounts, are governed by
Article 9 of the UCC. If we became a debtor under the federal bankruptcy code
and a court follows the reasoning of the 10th Circuit and applies this rule to
chattel paper, holders of the securities could experience a delay or reduction
in distribution.
Other rating agencies could provide unsolicited ratings on the securities that
could be lower than the requested ratings.
Although we have not requested a rating of the securities from any rating
agencies other than S&P and Fitch, other rating agencies may rate the
securities. These ratings could be higher or lower than the ratings S&P and
Fitch initially give to the securities. There is a risk that a lower rating of
your securities from another rating agency could reduce the market value or
liquidity of your securities.
S-10
<PAGE>
THE TRUST
The following information supplements and, if inconsistent, supersedes the
information in the prospectus. You should consider, in addition to the
information below, the information under "The Trusts" in the prospectus.
General
Green Tree Recreational, Equipment & Consumer Trust 1999-A is a business
trust formed under the laws of the State of Delaware pursuant to the trust
agreement for the transactions described in this prospectus supplement. After
its formation, the trust will not engage in any activity other than:
(1) Acquiring, holding and managing the contracts and the other assets of
the trust and its proceeds.
(2) Issuing the notes and the certificates.
(3) Making payments on the notes and the certificates.
(4) Engaging in other activities that are necessary, suitable or convenient
to accomplish the foregoing.
The trust will initially be capitalized with equity of approximately
$46,500,000 from the sale of the certificates. The equity of the trust,
together with the proceeds of the initial sale of the notes, will be used by
the trust to purchase the contracts from us under 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 May 31,
1999, as if the issuance and sale of the notes and certificates had taken place
on that date.
<TABLE>
<S> <C>
Class A-1 Notes.............................................. $ 45,000,000
Class A-2 Notes.............................................. 61,500,000
Class A-3 Notes.............................................. 84,500,000
Class A-4 Notes.............................................. 155,000,000
Class A-5 Notes.............................................. 35,000,000
Class A-6 Notes.............................................. 111,000,000
Class M-1 Notes.............................................. 31,500,000
Class M-2 Notes.............................................. 30,000,000
Class B-1 Certificates....................................... 21,000,000
Class B-2 Certificates....................................... 25,500,000
------------
Total...................................................... $600,000,000
============
</TABLE>
S-11
<PAGE>
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 to the certificates. 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 described in the trust
agreement.
THE TRUST PROPERTY
The trust property will include the following:
(1) The contracts.
(2) All rights to receive payments due on the contracts after the cutoff
date, excluding certain insurance premiums, late fees and other
servicing charges. The cutoff date for a contract is May 31, 1999, or
the date of origination if later, but in no event after the closing
date.
(3) Such amounts as from time to time may be held in the collection account
and any other accounts established and maintained by the servicer
pursuant to the sale and servicing agreement.
(4) An assignment of the security interests by us in the products securing
the related contracts.
(5) An assignment of the right to receive proceeds from claims on certain
insurance policies covering the products and the obligors.
(6) All of the trust's rights under the sale and servicing agreement.
See "The Contracts" and "Description of the Trust Documents--Collections" in
the prospectus.
Each certificate will represent a fractional undivided interest in the trust
property. Pursuant to the indenture the trust will grant a security interest in
the trust property in favor of the indenture trustee for the noteholders. Any
proceeds of such security interest in the trust property would be distributed
according to the indenture, as described under "Description of the Trust
Documents and Indenture--Distributions."
We, as custodian on behalf of the trust, will hold each original contract, as
well as copies of documents and instruments relating to such contract and
evidencing the security interest in the product securing that contract. In
order to protect the trust's ownership interest in the contracts, we 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.
THE CONTRACT POOL
General
This prospectus supplement contains information regarding a portion of the
contracts to be purchased by the trust on the closing date, which is the date
on which the securities will
S-12
<PAGE>
be issued. These initial contracts were originated through May 17, 1999 and
will be transferred to the trust on the closing date. The information for each
initial contract is as of the cutoff date for that initial contract. The
initial contracts had an aggregate principal balance as of the cutoff date of
$508,071,812.36. The sale and servicing agreement provides that additional
contracts will be purchased by the trust on the closing date. We expect that,
on the closing date, the contract pool, which will consist of the initial
contracts and the additional contracts, will have an aggregate principal
balance as of the cutoff date of approximately $600,000,000. Although the
additional contracts sold to the trust on the closing date will have
characteristics that differ somewhat from the initial contracts described here,
we do not expect that the characteristics of the additional contracts will vary
materially from the initial contracts. In addition, the additional contracts
must conform to certain criteria in the sale and servicing agreement.
We originated the contracts directly or purchased the contracts from dealers
who regularly originate and sell such contracts to us.
Certain Other Characteristics
The initial contracts:
(1) Had a remaining maturity as of the cutoff date of at least 5 months,
but not more than 240 months.
(2) Had an original maturity of at least 12 months, but not more than 240
months.
(3) Had an original principal balance of at least $1,434.81, but not more
than $514,625.20.
(4) Had a remaining principal balance as of the cutoff date of at least
$1,002.36, but not more than $504,673.07.
(5) Had a contractual rate of interest of at least 3.99%, but not more
than 21.99%.
Neither we nor the servicer may substitute other contracts for the contracts
owned by the trust at any time during the term of the sale and servicing
agreement.
Characteristics of Initial Contracts
<TABLE>
<CAPTION>
% of Weighted Weighted Weighted
Cutoff Average Average Weighted Average
% of Scheduled Date Pool Average Remaining Original Average Loan-to-
Number of Contract Principal Principal Principal Term Scheduled Contract Value
Asset Type Contracts Pool Balance Balance Balance (1)(2) Term (2) Rate Ratio
---------- --------- -------- --------------- --------- ---------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Recreational Vehicles.. 8,165 18.99% $189,870,019.17 37.37% $23,254.14 161 166 9.78% 86%
Motorcycles............ 12,575 29.25 118,736,862.63 23.37 9,442.30 68 71 13.18 85
Keyboard Instruments... 1,542 3.59 17,579,494.57 3.46 11,400.45 99 103 10.94 84
Marine Products........ 5,517 12.83 88,976,722.31 17.51 16,127.74 143 146 10.68 86
Horsetrailers.......... 4,592 10.68 45,426,025.36 8.94 9,892.43 120 123 10.85 86
Sport Vehicles......... 10,604 24.66 47,482,688.32 9.35 4,477.81 49 53 15.07 88
------ ----- --------------- ----- ---------- --- --- ----- ---
Total................. 42,995 100% $508,071,812.36 100% $11,817.00 120 124 11.36% 86%
====== ===== =============== ===== ========== === === ===== ===
</TABLE>
- --------
(1) Based on scheduled payments due after the cutoff date and assuming no
prepayments on the initial contracts.
(2) Expressed in number of months.
S-13
<PAGE>
Geographic Concentration of Initial Contracts
<TABLE>
<CAPTION>
Aggregate % of Contracts
Number of % of Number Principal Balance by Outstanding
Contracts as of of Outstanding Principal Balance
State Cutoff Date Contracts as of Cutoff Date as of Cutoff Date
------ --------------- ----------- ----------------- -----------------
<S> <C> <C> <C> <C>
Alabama................. 1,213 2.82% $ 13,077,923.54 2.57%
Alaska.................. 57 .13 1,882,709.11 .37
Arizona................. 2,214 5.15 30,354,104.17 5.97
Arkansas................ 319 .74 5,137,476.98 1.01
California.............. 6,230 14.50 79,169,071.37 15.59
Colorado................ 644 1.50 10,535,937.79 2.07
Connecticut............. 503 1.17 4,268,950.36 .84
Delaware................ 97 .23 801,501.40 .16
District of Columbia.... 19 .04 310,426.57 .06
Florida................. 4,414 10.28 51,011,481.10 10.05
Georgia................. 1,986 4.62 21,656,108.33 4.26
Hawaii.................. 79 .18 676,516.15 .13
Idaho................... 66 .15 1,351,496.07 .27
Illinois................ 640 1.49 6,597,976.60 1.30
Indiana................. 522 1.21 4,976,598.87 .98
Iowa.................... 142 .33 1,506,268.78 .30
Kansas.................. 193 .45 2,845,931.13 .56
Kentucky................ 611 1.42 4,601,055.10 .91
Louisiana............... 541 1.26 7,201,914.06 1.42
Maine................... 67 .16 622,834.90 .12
Maryland................ 610 1.42 6,287,666.51 1.24
Massachusetts........... 719 1.67 6,176,221.23 1.22
Michigan................ 564 1.31 8,532,836.32 1.68
Minnesota............... 491 1.14 6,202,183.56 1.22
Mississippi............. 381 .89 4,278,913.69 .84
Missouri................ 881 2.05 9,773,370.90 1.92
Montana................. 58 .13 911,694.00 .18
Nebraska................ 64 .15 934,308.75 .18
Nevada.................. 640 1.49 10,298,418.44 2.03
New Hampshire........... 117 .27 1,586,276.65 .31
New Jersey.............. 1,188 2.76 8,688,711.46 1.71
New Mexico.............. 399 .93 4,761,232.06 .94
New York................ 1,109 2.58 13,987,884.52 2.75
North Carolina.......... 2,749 6.39 25,934,076.56 5.10
North Dakota............ 35 .08 432,092.86 .09
Ohio.................... 609 1.42 8,732,782.05 1.72
Oklahoma................ 518 1.20 5,844,079.94 1.15
Oregon.................. 816 1.90 11,353,680.58 2.23
Pennsylvania............ 775 1.80 7,311,154.08 1.44
Rhode Island............ 181 .42 1,447,621.44 .28
South Carolina.......... 959 2.23 10,933,335.17 2.15
South Dakota............ 51 .12 826,699.19 .16
Tennessee............... 766 1.78 9,650,965.50 1.90
Texas................... 5,061 11.78 60,477,311.69 11.91
Utah.................... 88 .20 1,543,925.86 .30
Vermont................. 32 .07 225,751.72 .04
Virginia................ 1,106 2.57 10,203,653.16 2.01
Washington.............. 1,105 2.57 16,937,867.91 3.33
West Virginia........... 101 .23 906,327.36 .18
Wisconsin............... 220 .51 3,890,784.98 .77
Wyoming................. 38 .09 361,148.51 .07
Non-U.S. based service
personnel.............. 7 .02 52,553.33 .01
------ ------ --------------- ------
Total................. 42,995 100.00% $508,071,812.36 100.00%
====== ====== =============== ======
</TABLE>
The state concentrations described in this table are based on the billing
address of the obligor listed in Green Tree's records.
S-14
<PAGE>
Original Contract Amounts of Initial Contracts
<TABLE>
<CAPTION>
Aggregate
Principal
Balance % of Contracts
Number of Outstanding by Outstanding
Contracts as of Cutoff Principal Balance
Original Contract Amount as of Cutoff Date Date as of Cutoff Date
------------------------ ----------------- --------------- -----------------
<S> <C> <C> <C>
Less than $10,000......... 25,376 $131,200,797.95 25.82%
Between $10,000 and
$19,999.................. 12,139 167,894,580.84 33.04
Between $20,000 and
$29,999.................. 2,848 66,338,774.55 13.06
Between $30,000 and
$39,999.................. 1,008 33,888,592.58 6.67
Between $40,000 and
$49,999.................. 518 22,682,645.47 4.46
Between $50,000 and
$59,999.................. 354 19,020,156.18 3.74
Between $60,000 and
$69,999.................. 221 14,025,226.30 2.76
Between $70,000 and
$79,999.................. 165 12,222,368.79 2.41
Between $80,000 and
$89,999.................. 138 11,562,442.18 2.28
Between $90,000 and
$99,999.................. 67 6,298,003.18 1.24
Between $100,000 and
$109,999................. 32 3,308,512.05 .65
Between $110,000 and
$119,000................. 28 3,129,547.42 .62
Between $120,000 and
$129,999................. 24 2,947,013.17 .58
Between $130,000 and
$139,999................. 13 1,704,355.66 .34
Between $140,000 and
$149,999................. 19 2,711,682.12 .53
Between $150,000 and
$159,999................. 9 1,371,194.96 .27
Between $160,000 and
$169,999................. 4 644,947.42 .13
Between $170,000 and
$179,999................. 7 1,114,936.12 .22
Between $180,000 and
$189,999................. 4 736,403.39 .14
Between $190,000 and
$199,999................. 3 565,578.73 .11
Between $200,000 and
$249,999................. 11 2,376,355.29 .47
Between $250,000 and
$299,999................. 3 840,751.23 .17
Between $300,000 and
$349,999................. 3 982,273.71 .19
Between $350,000 and
$399,999................. 0 .00 .00
Between $400,000 and
$449,999................. 0 .00 .00
Between $450,000 and
$499,999................. 0 .00 .00
Between $500,000 and
$549,999................. 1 504,673.07 .10
------ --------------- ------
Total................... 42,995 $508,071,812.36 100.00%
====== =============== ======
</TABLE>
S-15
<PAGE>
Year of Origination of Initial Contracts
<TABLE>
<CAPTION>
% of Contracts
Aggregate Principal by Outstanding
Year of Number of Contracts Balance Outstanding Principal Balance
Oiginationr as of Cutoff Date as of Cutoff Date as of Cutoff Date
- ----------- ------------------- ------------------- -----------------
<S> <C> <C> <C>
1989................... 1 $ 46,241.97 .01%
1990................... 0 .00 .00
1991................... 0 .00 .00
1992................... 0 .00 .00
1993................... 0 .00 .00
1994................... 0 .00 .00
1995................... 18 198,865.54 .04
1996................... 99 2,401,543.88 .47
1997................... 214 5,977,701.94 1.18
1998................... 19,933 253,875,517.56 49.97
1999................... 22,730 245,571,941.47 48.33
------ --------------- ------
Total................ 42,995 $508,071,812.36 100.00%
====== =============== ======
Original Loan-to-Value Ratios of Initial Contracts
<CAPTION>
% of Contracts
Aggregate Principal by Outstanding
Number of Contracts Balance Outstanding Principal Balance
Loan-to-Value Ratio as of Cutoff Date as of Cutoff Date as of Cutoff Date
------------------- ------------------- ------------------- -----------------
<S> <C> <C> <C>
Less than 61%........... 3,087 $ 21,658,592.80 4.26%
From 61% to 65%......... 1,134 10,807,792.67 2.13
From 66% to 70%......... 1,674 16,765,378.55 3.30
From 71% to 75%......... 2,875 29,577,129.29 5.82
From 76% to 80%......... 3,999 46,422,950.99 9.14
From 81% to 85%......... 5,520 68,090,671.74 13.40
From 86% to 90%......... 11,713 136,381,198.76 26.84
From 91% to 95%......... 5,944 79,807,222.07 15.71
Over 95%................ 7,049 98,560,875.49 19.40
------ --------------- ------
Total................. 42,995 $508,071,812.36 100.00%
====== =============== ======
</TABLE>
S-16
<PAGE>
Contract Rates of Initial Contracts
<TABLE>
<CAPTION>
% of Contracts
Aggregate Principal by Outstanding
Number of Contracts Balance Outstanding Principal Balance
Contract Rate as of Cutoff Date as of Cutoff Date as of Cutoff Date
------------- ------------------- ------------------- -----------------
<S> <C> <C> <C>
Less than 5.000%..... 9 $ 139,958.87 .03%
5.001% to 6.000%.... 34 348,380.24 .07
6.001% to 7.000%.... 1 13,661.06 *
7.001% to 8.000%.... 254 21,884,816.41 4.31
8.001% to 9.000%.... 1,223 55,617,926.80 10.95
9.001% to 10.000%... 4,409 103,710,263.71 20.40
10.001% to 11.000%... 6,566 102,800,361.36 20.22
11.001% to 12.000%... 7,007 71,309,075.29 14.04
12.001% to 13.000%... 5,825 51,452,278.86 10.13
13.001% to 14.000%... 4,831 32,574,341.50 6.41
14.001% to 15.000%... 5,214 29,768,206.36 5.86
15.001% to 16.000%... 3,386 17,659,481.71 3.48
16.001% to 17.000%... 2,177 10,854,288.92 2.14
Over 17.000%......... 2,059 9,938,771.27 1.96
------ --------------- ------
Total.............. 42,995 $508,071,812.36 100.00%
====== =============== ======
</TABLE>
- --------
* Indicates an amount greater than zero but less than .005% of the aggregate
principal balance of the initial contracts as of the cutoff date.
Remaining Months to Maturity of Initial Contracts
<TABLE>
<CAPTION>
% of Contracts
Aggregate Principal by Outstanding
Number of Contracts Balance Outstanding Principal Balance
Remaining Months to Maturity as of Cutoff Date as of Cutoff Date as of Cutoff Date
- ---------------------------- ------------------- ------------------- -----------------
<S> <C> <C> <C>
Fewer than 31............. 2,785 $ 8,699,562.79 1.71%
31 to 60................ 18,736 103,237,046.59 20.32
61 to 90................ 9,268 100,891,891.05 19.86
91 to 120................ 3,554 51,839,598.32 10.20
121 to 150................ 5,189 90,209,345.60 17.76
151 to 180................ 2,796 102,557,739.06 20.19
181 to 210................ 213 9,217,907.24 1.81
211 to 240................ 454 41,418,721.71 8.15
------ --------------- ------
Total................... 42,995 $508,071,812.36 100.00%
====== =============== ======
</TABLE>
S-17
<PAGE>
GREEN TREE FINANCIAL CORPORATION
The following information supplements and, if inconsistent, supersedes the
information in the prospectus under the heading "Green Tree Financial
Corporation."
Delinquency, Loan Loss and Repossession Information
The following tables describe information about our delinquency, loan loss
and repossession experience for each period indicated for all consumer product
contracts we have originated or purchased and continue to service. These
contracts finance recreational vehicles, motorcycles, keyboard instruments,
marine products, horse trailers and sport vehicles and include contracts which
do not meet the criteria for selection for the trust. Because of the rapid
growth of our portfolio of consumer product contracts, the experience shown in
more recent periods may not be indicative of the experience to be expected from
a more seasoned portfolio. We began originating installment sales contracts for
recreational vehicles in 1985 and for motorcycles in 1988, but have less
extensive underwriting and servicing experience with other types of consumer
products financed by the contracts.
Delinquency Experience
<TABLE>
<CAPTION>
At December 31, At
-------------------------------- March 31,
1995 1996 1997 1998 1999
------ ------ ------- ------- ---------
<S> <C> <C> <C> <C> <C>
Number of Contracts Outstanding
(1)............................... 46,797 96,465 146,012 190,492 191,525
Number of Contracts Delinquent (2)
30-59 Days....................... 642 1,157 1,489 1,540 1,153
60-89 Days....................... 219 433 622 553 429
90 Days or More.................. 349 779 1,318 1,545 1,498
------ ------ ------- ------- -------
Total Contracts Delinquent......... 1,210 2,369 3,429 3,638 3,080
====== ====== ======= ======= =======
Delinquencies as a Percentage of
Contracts
Outstanding (3)................... 2.59% 2.46% 2.35% 1.91% 1.61%
</TABLE>
- --------
(1) Excludes contracts already in repossession.
(2) The period of delinquency for the number of contracts delinquent is based
on the number of days payments are contractually past due, assuming 30-day
months. Consequently, a contract due on the first day of a month is not 30
days delinquent until the first day of the next month.
(3) By number of contracts.
S-18
<PAGE>
Loan Loss/Repossession Experience
(Dollars in Thousands)
<TABLE>
<CAPTION>
Three Months
Year Ended December 31, Ended
------------------------------------------ March 31,
1995 1996 1997 1998 1999
-------- -------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Number of Contracts
Serviced (1)........... 47,031 97,035 146,895 191,256 192,237
Principal Balance of
Contracts (1).......... $352,648 $873,557 $1,460,588 $2,091,873 $2,081,068
Contract Liquidations:
Units................... 399 1,619 3,102 4,719 1,410
Percentage (2).......... 0.85% 1.67% 2.11% 2.47% 0.73%
Net Losses:
Dollars (3)............. $ 1,278 $ 3,813 $ 8,139 $ 14,616 $ 6,142
Percentage (4).......... 0.36% 0.44% 0.56% 0.70% 0.30%
</TABLE>
- --------
(1) As of period end. Includes contracts already in repossession.
(2) As a percentage of the total number of contracts being serviced as of
period end.
(3) The calculation of net loss includes unpaid interest to the date of
repossession and all expenses of repossession and liquidation.
(4) As a percentage of the principal balance of contracts being serviced as of
period end.
There can be no assurance that the delinquency, loan loss or repossession
experience for the contracts owned by the trust will be better than, worse than
or comparable to the experience described above. If the delinquency, default or
loss experience of the contracts owned by the trust is worse than expected, you
could suffer a loss on your investment. See "Risk Factors" in this prospectus
supplement.
Ratio of Earnings to Fixed Charges for Green Tree
Described below are our ratios of earnings to fixed charges for the past five
years ended December 31 and the three months ended March 31, 1999. 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, Three Months Ended
------------------------ March 31,
1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ------------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed
Charges.......................... 7.98 7.90 5.44 3.94 .62* 4.53
</TABLE>
- --------
* For 1998, adjusted earnings were $83.4 million less than fixed charges.
Adjusted earnings for 1998 included an impairment charge of $549.4 million
and nonrecurring charges of $108.0 million related to the merger of Green
Tree with Conseco, Inc.
Recent Developments
We have been served with various lawsuits in the United States District Court
for the District of Minnesota. These lawsuits were filed by our stockholders as
purported class actions on behalf of persons or entities who purchased common
stock or traded in options during the alleged class periods. In addition to the
company, some of our current and former officers and directors are named as
defendants in one or more of the lawsuits. The lawsuits have been consolidated
into two complaints, one relating to an alleged class of purchasers of our
common stock and the other relating to an alleged class of traders in options
for our common stock. In addition to these two complaints, a separate non-class
action lawsuit
S-19
<PAGE>
containing similar allegations was also filed. 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 we and the other defendants violated
federal securities laws by, among other things, making false and misleading
statements about our current state and future prospects, particularly about
prepayment assumptions and performance of some of our loan portfolios, which
allegedly rendered our financial statements false and misleading. We believe
that the lawsuits are without merit and intend to defend such lawsuits
vigorously.
S-20
<PAGE>
YIELD AND PREPAYMENT CONSIDERATIONS
The following information supplements the information in the prospectus under
the heading "Yield and Prepayment Considerations."
We and the servicer will have the option to purchase from the trust all
remaining contracts, and thereby cause early redemption of the notes and early
retirement of the certificates, on any distribution date when the pool
scheduled principal balance is 10% or less of the cutoff date pool principal
balance. See "Description of the Trust Documents--Termination" in the
prospectus and "Description of the Trust Documents and Indenture--Termination"
in this prospectus supplement.
Weighted Average Life of the Notes and Class B-1 Certificates
The following information is given solely to illustrate the effect of
prepayments on the contracts on the weighted average life of the notes and the
Class B-1 certificates under the stated assumptions and is not a prediction of
the prepayment rate that might actually be experienced by the contracts.
Weighted average life refers to the average amount of time from the date of
issuance of a security until each dollar of principal of such security will be
repaid to the investor. The weighted average life of the notes and the
certificates will be influenced by the rate at which principal on the contracts
is paid. Principal payments on the contracts may be in the form of scheduled
amortization or prepayments, including, for this purpose, liquidations due to
default.
The base case prepayment model is our management's best estimate of the
prepayment rates that may be experienced on the contracts. Because we began
originating and servicing contracts for many of the products only recently,
such estimate is based in part on industry experience with similar contracts
rather than our experience. There can be no assurance that the contracts will
experience prepayments at such projected rates or in the manner assumed by the
prepayment model used for that type of contract, or that the contracts in the
aggregate will experience prepayments similar to the overall prepayment rate or
in the manner projected in the base case.
<TABLE>
<CAPTION>
Base Case
Product Prepayment Rate
------- ---------------
<S> <C>
Horse Trailers, Keyboard Instruments and Recreational
Vehicles.............................................. 18% CPR
Marine Products........................................ 100% (1)
Motorcycles and Sport Vehicles......................... 25% CPR
</TABLE>
- --------
(1) As a percentage of the prepayment assumption for contracts secured by
marine products.
We use two prepayment models in this prospectus supplement. The constant
prepayment rate model (CPR), which is used for contracts other than those
secured by marine products, assumes a constant rate of prepayment each month,
expressed as a per annum percentage of the outstanding principal balance of the
contracts.
S-21
<PAGE>
The 100% prepayment assumption model, which is used for contracts secured by
marine products, assumes a conditional prepayment rate of 1.50% per annum of
the outstanding principal balance of these contracts for their first month of
life and an additional 1.50% per annum in each month afterwards until the
twelfth month. Beginning in the twelfth month and in each month afterwards
during the life of such contracts, the 100% prepayment assumption model assumes
a conditional prepayment rate of 18% per annum each month.
As used in the following tables, the columns headed 80%, 90%, 100%, 110% and
120% assume that prepayments on the contracts are made at base case prepayment
rates of 80%, 90%, 100%, 110% and 120%, respectively. For example, 80% base
case prepayment rate and 120% base case prepayment rate mean that contracts
related to horse trailers, keyboard instruments and recreational vehicles have
been assumed to have a prepayment rate equal to 14.4% CPR and 21.6% CPR,
respectively; contracts related to marine products have been assumed to have a
prepayment rate equal to 80% and 120%, respectively, of the prepayment
assumption for contracts secured by marine products; and contracts related to
motorcycles and sport vehicles have been assumed to have a prepayment rate
equal to 20% CPR and 30% CPR.
Neither prepayment model purports to be a historical description of
prepayment experience or a prediction of the anticipated rate of prepayment of
any pool of contracts, including the contracts owned by the trust.
The percentages and weighted average lives in the following tables were
determined assuming that:
(1) scheduled interest and principal payments on the contracts are received
in a timely manner and prepayments are made at the percentages of the
base case prepayment model set forth in the table;
(2) either we or the servicer exercises its right of optional repurchase
described above;
(3) the aggregate principal balance of the initial contracts as of the
cutoff date is $508,071,812.36 and the initial contracts have the
characteristics described under "The Contract Pool";
(4) the additional contracts to be transferred to the trust have the
characteristics described in the table following this paragraph and are
assumed to have their first payments due in July;
(5) no interest shortfalls will arise in connection with prepayments in
full of the contracts;
(6) distributions are made on the notes and the certificates on the 15th
day of each month commencing in July 1999; and
(7) the securities are issued on June 25, 1999.
S-22
<PAGE>
No representation is made that the contracts will not experience
delinquencies or losses.
Assumed Characteristics of Additional Contracts as of the Cutoff Date
<TABLE>
<CAPTION>
Weighted Average Weighted Average
Aggregate Principal Weighted Average Original Term Remaining Term
Balance Outstanding Contract Rate (Months) (Months)
------------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Horse Trailers.......... $ 8,219,177.06 10.85% 123 123
Marine.................. 16,099,040.78 10.68 146 146
Motorcycles............. 21,483,704.32 13.18 71 71
Sport Vehicles.......... 8,591,300.24 15.07 53 53
Keyboard Instruments.... 3,180,753.26 10.94 103 103
Recreational Vehicles... 34,354,211.99 9.78 166 166
-------------- ----- --- ---
Total................. $91,928,187.64 11.36% 124 124
============== ===== === ===
</TABLE>
Based on the foregoing assumptions, the following tables indicate the
projected weighted average lives of each class of notes and certificates and
shows 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 base case prepayment model. 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 in
this prospectus supplement.
The weighted average life of each class of the securities listed in the
tables below is determined by (1) multiplying the amount of cash distributions
in reduction of the principal balance of that class of securities by the number
of years from the date of issuance of that security to the stated distribution
date, (2) adding the results, and (3) dividing the sum by the initial principal
balance of that class of securities.
S-23
<PAGE>
Percentage of the Original Principal Balance of the Class A-1
Notes at the Respective Percentages of the
Base Case Prepayment Model Listed Below:
<TABLE>
<CAPTION>
Date 80% 90% 100% 110% 120%
- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage................................ 100% 100% 100% 100% 100%
June 15, 2000..................................... 0 0 0 0 0
Weighted Average Life (Years)..................... 0.19 0.18 0.17 0.16 0.14
Percentage of the Original Principal Balance of the Class A-2
Notes at the Respective Percentages of the
Base Case Prepayment Model Listed Below:
<CAPTION>
Date 80% 90% 100% 110% 120%
- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage................................ 100% 100% 100% 100% 100%
June 15, 2000..................................... 0 0 0 0 0
Weighted Average Life (Years)..................... 0.59 0.54 0.50 0.47 0.44
Percentage of the Original Principal Balance of the Class A-3
Notes at the Respective Percentages of the
Base Case Prepayment Model Listed Below:
<CAPTION>
Date 80% 90% 100% 110% 120%
- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage................................ 100% 100% 100% 100% 100%
June 15, 2000..................................... 73 60 48 35 23
June 15, 2001..................................... 0 0 0 0 0
Weighted Average Life (Years)..................... 1.18 1.08 1.00 0.93 0.87
</TABLE>
S-24
<PAGE>
Percentage of the Original Principal Balance of the Class A-4
Notes at the Respective Percentages of the
Base Case Prepayment Model Listed Below:
<TABLE>
<CAPTION>
Date 80% 90% 100% 110% 120%
- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage................................ 100% 100% 100% 100% 100%
June 15, 2000..................................... 100 100 100 100 100
June 15, 2001..................................... 68 58 48 38 28
June 15, 2002..................................... 10 0 0 0 0
June 15, 2003..................................... 0 0 0 0 0
Weighted Average Life (Years)..................... 2.33 2.16 2.00 1.87 1.74
Percentage of the Original Principal Balance of the Class A-5
Notes at the Respective Percentages of the
Base Case Prepayment Model Listed Below:
<CAPTION>
Date 80% 90% 100% 110% 120%
- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage................................ 100% 100% 100% 100% 100%
June 15, 2000..................................... 100 100 100 100 100
June 15, 2001..................................... 100 100 100 100 100
June 15, 2002..................................... 100 95 47 1 0
June 15, 2003..................................... 0 0 0 0 0
Weighted Average Life (Years)..................... 3.45 3.22 3.00 2.81 2.63
</TABLE>
Percentage of the Original Principal Balance of the Class A-6
Notes at the Respective Percentages of the
Base Case Prepayment Model Listed Below:
<TABLE>
<CAPTION>
Date 80% 90% 100% 110% 120%
- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage................................ 100% 100% 100% 100% 100%
June 15, 2000..................................... 100 100 100 100 100
June 15, 2001..................................... 100 100 100 100 100
June 15, 2002..................................... 100 100 100 100 86
June 15, 2003..................................... 81 66 52 39 27
June 15, 2004..................................... 33 20 8 0 0
June 15, 2005..................................... 0 0 0 0 0
Weighted Average Life (Years)..................... 4.68 4.38 4.11 3.86 3.63
</TABLE>
S-25
<PAGE>
Percentage of the Original Principal Balance of the Class M-1
Notes at the Respective Percentages of the
Base Case Prepayment Model Listed Below:
<TABLE>
<CAPTION>
Date 80% 90% 100% 110% 120%
- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage................................ 100% 100% 100% 100% 100%
June 15, 2000..................................... 100 100 100 100 100
June 15, 2001..................................... 100 100 100 100 100
June 15, 2002..................................... 100 100 100 100 100
June 15, 2003..................................... 100 100 100 100 100
June 15, 2004..................................... 100 100 100 88 52
June 15, 2005..................................... 92 52 17 0 0
June 15, 2006..................................... 8 0 0 0 0
June 15, 2007..................................... 0 0 0 0 0
Weighted Average Life (Years)..................... 6.50 6.06 5.68 5.34 5.04
</TABLE>
Percentage of the Original Principal Balance of the Class M-2
Notes at the Respective Percentages of the
Base Case Prepayment Model Listed Below:
<TABLE>
<CAPTION>
Date 80% 90% 100% 110% 120%
- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage................................ 100% 100% 100% 100% 100%
June 15, 2000..................................... 100 100 100 100 100
June 15, 2001..................................... 100 100 100 100 100
June 15, 2002..................................... 100 100 100 100 100
June 15, 2003..................................... 100 100 100 100 100
June 15, 2004..................................... 100 100 100 100 100
June 15, 2005..................................... 100 100 100 84 54
June 15, 2006..................................... 100 72 0 0 0
June 15, 2007..................................... 0 0 0 0 0
Weighted Average Life (Years)..................... 7.66 7.18 6.75 6.34 5.95
</TABLE>
S-26
<PAGE>
Percentage of the Original Principal Balance of the
Class B-1 Certificates at the Respective Percentages of the
Base Case Prepayment Model Listed Below:
<TABLE>
<CAPTION>
Date 80% 90% 100% 110% 120%
- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage................................ 100% 100% 100% 100% 100%
June 15, 2000..................................... 100 100 100 100 100
June 15, 2001..................................... 100 100 100 100 100
June 15, 2002..................................... 100 100 100 100 100
June 15, 2003..................................... 100 100 100 100 100
June 15, 2004..................................... 100 100 100 100 100
June 15, 2005..................................... 100 100 100 100 100
June 15, 2006..................................... 100 100 0 0 0
June 15, 2007..................................... 0 0 0 0 0
Weighted Average Life (Years)..................... 7.89 7.39 6.97 6.56 6.14
</TABLE>
Percentage of the Original Principal Balance of the
Class B-2 Certificates at the Respective Percentages of the
Base Case Prepayment Model Listed Below:
<TABLE>
<CAPTION>
Date 80% 90% 100% 110% 120%
- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage................................ 100% 100% 100% 100% 100%
June 15, 2000..................................... 100 100 100 100 100
June 15, 2001..................................... 100 100 100 100 100
June 15, 2002..................................... 100 100 100 100 100
June 15, 2003..................................... 100 100 100 100 100
June 15, 2004..................................... 100 100 100 100 100
June 15, 2005..................................... 100 100 100 100 100
June 15, 2006..................................... 100 100 0 0 0
June 15, 2007..................................... 0 0 0 0 0
Weighted Average Life (Years)..................... 7.89 7.39 6.97 6.56 6.14
</TABLE>
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<PAGE>
DESCRIPTION OF THE NOTES
Prospective noteholders should consider, in addition to the information
below, the information in the prospectus under "The Notes," "Certain
Information Regarding the Securities," and "Description of the Trust
Documents." The following information supplements and, if inconsistent,
supersedes the information in the prospectus.
General
The notes will be issued under the terms of the indenture, a form of which
has been filed as an exhibit to the registration statement filed with the SEC.
A copy of the indenture, as executed, will be filed with the SEC following the
issuance of the securities. The following summary describes certain terms of
the notes and the indenture. The summary is not 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 described in the prospectus. U.S. Bank Trust National Association, a
national banking association headquartered in St. Paul, Minnesota, will be the
indenture trustee.
Distributions
Noteholders will be entitled to receive distributions on each distribution
date commencing in July 1999, to the extent that the available funds are
sufficient. Distributions on the notes generally will be made from funds
available first in respect of interest on the notes, then in respect of
principal on the notes, in the manner and order of priority described in the
next two sections.
Interest
Interest on the principal balance of each class of Class A notes and on the
adjusted principal balance of each class of Class M notes will accrue from June
25, 1999, or from the most recent distribution date on which interest has been
paid, to but excluding the following distribution date, at the interest rate
for that class specified on the cover page. The principal balance of any class
of notes as of any distribution date will be the original principal balance of
that class minus all amounts previously distributed to the noteholders of that
class in respect of principal. The adjusted principal balance of a class of
Class M notes is the principal balance of that class less the amount of any
liquidation losses allocated to that class. See "--Losses on Liquidated
Contracts."
Interest on the Class A-1, Class A-2 and Class A-3 notes will be calculated
on the basis of the actual number of days elapsed in a 360-day year. Interest
on all the other classes of notes will be calculated on the basis of a 360-day
year of twelve 30-day months.
Class A Notes
Interest will be paid on the Class A notes on each distribution date to the
extent of funds available on that distribution date. In the event the funds
available are not sufficient to make a full distribution of interest on the
Class A notes, the funds available will be applied
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<PAGE>
pro rata to each class of Class A notes based on the amount payable to each
such class and the amount of the shortfall will be carried forward and added to
the amount of interest payable on the next distribution date. Any amount so
carried forward will bear interest at the interest rate for that class, to the
extent legally permissible.
Class M-1 Notes
Interest will be paid on the Class M-1 notes on each distribution date to the
extent of the remaining funds available on that distribution date after payment
of all interest on the Class A notes. In the event the remaining funds
available are not sufficient to make a full distribution of interest on the
Class M-1 notes, the remaining funds available will be applied to the payment
of interest on the Class M-1 notes and the amount of the shortfall will be
added to the amount of interest payable on the Class M-1 notes on the next
distribution date. Any amount so carried forward will bear interest at the
Class M-1 interest rate, to the extent legally permissible.
Class M-2 Notes
Interest will be paid on the Class M-2 notes on each distribution date to the
extent of the remaining funds available on that distribution date after payment
of all interest on the Class A notes and the Class M-1 notes. In the event the
remaining funds available are not sufficient to make a full distribution of
interest on the Class M-2 notes, the remaining funds available will be applied
to the payment of interest on the Class M-2 notes and the amount of the
shortfall will be added to the amount of interest payable on the Class M-2
notes on the next distribution date. Any amount so carried forward will bear
interest at the Class M-2 interest rate, to the extent legally permissible.
Principal
Noteholders will be entitled to receive on each distribution date as payment
of principal, in the manner and order of priority set forth below, an amount
equal to the formula principal distribution amount, described in the second
paragraph below, for that distribution date. After payment of all interest on
the notes and the Class B-1 certificates, this amount will be paid as principal
on the Class A-1 notes until the Class A-1 notes have been paid in full, then
on the Class A-2 notes until the Class A-2 notes have been paid in full, and so
on for the remaining classes of notes until the Class M-2 notes have been paid
in full.
To the extent not paid in full prior to such date, the outstanding principal
balance of each class of notes will be payable on the following final scheduled
distribution date for that class:
Class A-1: June 15, 2000
Class A-2: February 15, 2002
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<PAGE>
Class A-3: July 15, 2003
Class A-4: April 17, 2006
Class A-5: May 15, 2007
Class A-6: March 15, 2010
Class M-1: February 15, 2011
Class M-2: November 15, 2011
If the Class A-1 notes have not been paid in full by the ninth distribution
date, remaining funds available otherwise payable to us as the monthly
servicing and guaranty fee will be accumulated in a reserve account, starting
on the ninth distribution date. The funds will accumulate in the reserve
account up to a maximum of 0.50% of the cutoff date pool principal balance. On
the final scheduled distribution date for the Class A-1 notes, all funds in
this reserve account will be available to make payment on the outstanding
balance of the Class A-1 notes.
Formula Principal Distribution Amount
The formula principal distribution amount for any distribution date will be
an amount equal to the sum of the following amounts for the related monthly
period, in each case computed in accordance with the method specified in each
contract:
(1) all scheduled payments of principal due on each outstanding contract
during the related monthly period, after adjustments for previous partial
principal prepayments and after any adjustments to a contract's
amortization schedule as a result of a bankruptcy or similar proceeding
involving the related obligor, plus
(2) the scheduled principal balance of each contract which, during the
related monthly period, was purchased by us pursuant to the sale and
servicing agreement on account of a breach of a representation, warranty or
covenant, plus
(3) all partial principal prepayments applied and all principal
prepayments in full received on contracts during the related monthly
period, plus
(4) the scheduled principal balance of each contract that became a
liquidated contract during the related monthly period, plus the amount of
any reduction in the outstanding principal balance of a contract during
such monthly period ordered as a result of a bankruptcy or similar
proceeding involving the related obligor, plus
(5) without duplication of the foregoing, all collections in respect of
principal on the contracts received during the current month up to and
including the third business day prior to such distribution date, but in no
event later than the 10th day of the month in which such distribution date
occurs, minus
(6) the amount, if any, included in the formula principal distribution
amount for the preceding distribution date by virtue of clause (5) above.
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<PAGE>
A monthly period for a distribution date is the calendar month immediately
preceding the month in which that distribution date occurs. The scheduled
principal balance of a contract for any monthly period is its principal balance
as specified in its amortization schedule, after giving effect to any previous
partial principal prepayments and to the scheduled payment due on its scheduled
payment date in that month, and after giving effect to any adjustments due to
bankruptcy or similar proceedings. A liquidated contract means any defaulted
contract as to which the servicer has determined that all amounts which it
expects to recover from or on account of such contract through the date of
disposition of the related product have been recovered or any defaulted
contract in respect of which the related product has been realized upon and
disposed of and the proceeds of such disposition have been received.
In the event the remaining funds available for such distribution date are not
sufficient to make a full distribution of the formula principal distribution
amount, the amount of this principal shortfall will be added to the principal
distribution amount for the next distribution date.
Losses on Liquidated Contracts
As described in the paragraphs above, the distribution of principal to the
securities on a distribution date is intended to equal the formula principal
distribution amount on that distribution date. This amount includes the
scheduled principal balance of each contract that became a liquidated contract
during the monthly period preceding that distribution date. If the net
liquidation proceeds from the liquidated contract are less than the scheduled
principal balance of the liquidated contract, the deficiency will, in effect,
be absorbed first by the monthly servicing and guaranty fee otherwise payable
to us and then by the Class B-2 certificateholders, although we will be
obligated to make a guaranty payment equal to any shortfall in the distribution
to the Class B-2 certificateholders.
If the pool scheduled principal balance for any distribution date is less
than the sum of the aggregate outstanding principal balance of the notes and
the certificates after giving effect to all distributions of principal on that
distribution date, then we will be obligated to pay the amount of the
deficiency, a Class B-2 principal liquidation loss, under the limited guaranty.
If the Class B-2 principal balance were reduced to zero, any further
liquidation losses would be allocated to reduce the Class B-1 adjusted
principal balance. If the Class B-1 adjusted principal balance were reduced to
zero, any further liquidation losses would be allocated to reduce the Class M-2
adjusted principal balance. If the Class M-1 adjusted principal balance were
reduced to zero, any further liquidation losses would be allocated to reduce
the Class M-1 adjusted principal balance.
Optional Redemption
The notes will be redeemed in whole, but not in part, on any distribution
date on which we or the servicer exercise the option to purchase the contracts.
We or the servicer may purchase the contracts when the pool scheduled principal
balance has declined to 10% or less of the cutoff date pool principal balance,
as described in the prospectus under "Description of the Trust Documents--
Termination." The redemption price will be equal to the unpaid principal
balance of the notes plus accrued and unpaid interest thereon.
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<PAGE>
DESCRIPTION OF THE CERTIFICATES
The following information supplements and, if inconsistent, supersedes, the
information contained in the prospectus under "The Certificates," "Certain
Information Regarding the Securities" and "Description of the Trust Documents."
General
The certificates will be issued under the terms of the trust agreement, a
form of which has been filed as an exhibit to the registration statement filed
with the SEC. A copy of the trust agreement, as executed, will be filed with
the SEC following the issuance of the securities. The following summary
describes certain terms of the certificates and the trust agreement. The
summary is not complete and is subject to, and qualified in its entirety by
reference to, all the provisions of the certificates and the trust agreement.
Distributions
Certificateholders will be entitled to receive distributions on each
distribution date commencing in July 1999, to the extent that the available
funds, together with the guaranty payment described below, are sufficient.
Distributions of interest and principal will be made in the manner and order of
priority described below.
To the extent not paid in full prior to such date, the outstanding principal
balance of each class of certificates will be payable on the following final
scheduled distribution date for that class:
Class B-1: August 15, 2012
Class B-2: December 16, 2019
Class B-1 Interest
Interest on the adjusted principal balance of the Class B-1 certificates will
accrue from June 25, 1999, or from the most recent distribution date, to but
excluding the following distribution date, at the interest rate specified on
the cover page. The principal balance of the Class B-1 certificates as of any
distribution date will be the original principal balance of the Class B-1
certificates minus all amounts previously distributed to the Class B-1
certificateholders in respect of principal. The adjusted principal balance of
the Class B-1 certificates is the Class B-1 principal balance less the amount
of any liquidation losses allocated to the Class B-1 certificates. See "--
Losses on Liquidated Contracts."
Interest on the Class B-1 certificates will be calculated on the basis of a
360-day year of twelve 30-day months.
Interest will be paid on the Class B-1 certificates on each distribution date
to the extent of the remaining funds available on that distribution date after
payment of all interest on the notes. In the event the remaining funds
available are not sufficient to make a full distribution of interest on the
Class B-1 certificates, the remaining funds available will be applied to the
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<PAGE>
payment of interest on the Class B-1 certificates and the amount of the
shortfall will be carried forward and added to the amount of interest payable
on the Class B-1 certificates on the next distribution date. Any amount so
carried forward will bear interest at the Class B-1 interest rate, to the
extent legally permissible.
Class B-1 Principal
No distributions of principal on the Class B-1 certificates will be payable
until all of the notes have been paid in full. On each distribution date
commencing on the distribution date on which the notes are paid in full,
principal will be paid on the Class B-1 certificates in an amount equal to the
formula principal distribution amount for that distribution date, to the extent
of funds available on that distribution date after payment of principal and
interest on the notes and interest on the Class B-1 certificates. The formula
principal distribution amount is described under "Description of the Notes--
Principal."
Class B-2 Interest
Interest on the principal balance of the Class B-2 certificates will accrue
from June 25, 1999, or from the most recent distribution date, to but excluding
the following distribution date, at the interest rate specified on the cover
page. The principal balance of the Class B-2 certificates as of any
distribution date will be the original principal balance of the Class B-2
certificates minus all amounts previously distributed to the Class B-2
certificateholders in respect of principal.
Interest on the Class B-2 certificates will be calculated on the basis of a
360-day year of twelve 30-day months.
Interest will be paid on the Class B-2 certificates on each distribution date
to the extent of the remaining funds available on that distribution date after
payment of all interest and principal on the notes and the Class B-1
certificates. In the event the remaining funds available are not sufficient to
make a full distribution of interest on the Class B-2 certificates, the
remaining funds available will be applied to the payment of interest on the
Class B-2 certificates and the amount of the shortfall will be carried forward
and added to the amount of interest payable on the Class B-2 certificates on
the next distribution date. Any amount so carried forward will bear interest at
the Class B-2 interest rate, to the extent legally permissible.
Class B-2 Principal
No distributions of principal on the Class B-2 certificates will be payable
until all of the notes and Class B-1 certificates have been paid in full,
except for any Class B-2 principal liquidation loss paid by us pursuant to the
limited guaranty. On each distribution date commencing on the distribution date
on which the Class B-1 certificates are paid in full, principal will be paid on
the Class B-2 certificates in an amount equal to the formula principal
distribution amount for such distribution date, to the extent of funds
available on that distribution date after payment of principal and interest on
the notes and Class B-1
S-33
<PAGE>
Certificates and interest on the Class B-2 certificates. The formula principal
distribution amount is described under "Description of the Notes--Principal."
Limited Guaranty
To mitigate the effect of the subordination of the Class B-2 certificates and
the effect of liquidation losses and delinquencies on the contracts, the Class
B-2 certificateholders are entitled to receive on each distribution date the
amount equal to the guaranty payment, if any, under our limited guaranty. The
guaranty payment for any distribution date will equal the difference between
the Class B-2 distributable amount and the remaining funds available in the
collection account after payment of all interest and principal on the notes and
Class B-1 certificates. The Class B-2 distributable amount equals the unpaid
and accrued interest on the Class B-2 certificates, plus on each distribution
date commencing on the distribution date on which the notes and the Class B-1
certificates are paid in full, principal in an amount equal to the formula
principal distribution amount for that distribution date, less, on the
distribution date on which the Class B-1 certificates are paid in full, that
portion payable on the Class B-1 certificates, plus any Class B-2 principal
liquidation loss for that distribution date described below under "--Losses on
Liquidated Contracts," but in no event more than the Class B-2 principal
balance.
The limited guaranty will be an unsecured general obligation and will not be
supported by any letter of credit or other enhancement arrangement. The limited
guaranty will not benefit in any way, or result in any payment to, the
noteholders or the Class B-1 certificateholders.
As compensation for servicing the contracts and providing the limited
guaranty, we will be entitled to receive the monthly servicing and guaranty fee
on each distribution date, which generally will be equal to the amount
available remaining after payment of the Class B-2 distributable amount.
Losses on Liquidated Contracts
As described in the paragraphs above, the distribution of principal to the
securities on a distribution date is intended to equal the formula principal
distribution amount on that distribution date. This amount includes the
scheduled principal balance of each contract that became a liquidated contract
during the monthly period preceding that distribution date. If the net
liquidation proceeds from the liquidated contract are less than the scheduled
principal balance of the liquidated contract, the deficiency will, in effect,
be absorbed first by the monthly servicing and guaranty fee otherwise payable
to us and then by the Class B-2 certificateholders, although we will be
obligated to make a guaranty payment equal to any shortfall in the distribution
to the Class B-2 certificateholders.
If the pool scheduled principal balance for any distribution date is less
than the sum of the aggregate outstanding principal balance of the notes and
the certificates after giving effect to all distributions of principal on that
distribution date, then we will be obligated to pay the amount of the
deficiency, a Class B-2 principal liquidation loss, under the limited
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<PAGE>
guaranty. If we fail to pay such amount, however, the Class B-2 principal
balance would not be reduced and interest would continue to accrue on the full
Class B-2 principal balance. Class B-2 certificateholders would, however, be
entitled to receive such unpaid amount as part of the formula principal
distribution amount prior to any payment of the monthly servicing and guaranty
fee to us on any subsequent distribution date.
Optional Prepayment
If we exercise our option to purchase the contracts when the pool scheduled
principal balance declines to 10% or less of the cutoff date pool principal
balance, certificateholders will receive an amount for the certificates equal
to the outstanding principal amount together with accrued interest at the
applicable interest rate, which distribution will effect early retirement of
the certificates. See "Description of the Trust Documents--Termination" in the
prospectus.
Form and Transfers of Certificates
The certificates will be issued only in physical form and will be registered
in the names of their holders.
Certificateholders, other than individuals or entities holding certificates
through a broker who reports sales of securities on Form 1099-B, are required
under the trust agreement to notify the owner trustee of any transfer of their
certificates in a taxable sale or exchange within 30 days of such transfer. In
addition, each purchaser of a certificate is required to execute and deliver a
letter certifying as to certain ERISA matters. See "ERISA Considerations" for a
description of this letter.
DESCRIPTION OF THE TRUST DOCUMENTS AND INDENTURE
The following summary describes certain terms of the sale and servicing
agreement and the trust agreement, which together form the trust documents, and
the indenture. Forms of the trust documents and indenture, as executed, have
been filed as exhibits to the registration statement. A copy of each of the
trust documents and indenture will be filed with the SEC following the issuance
of the securities. The summary is not complete and is subject to, and qualified
in its entirety by reference to, all the provisions of the trust documents and
indenture. The following summary supplements, the description of the general
terms and provisions of the trust documents and indenture under the prospectus.
Accounts
The servicer will establish and maintain a collection account, in the name of
the indenture trustee on behalf of the noteholders and the certificateholders,
into which all payments made on or for the contracts will be deposited. The
servicer will establish and maintain a note distribution account, in the name
of the indenture trustee on behalf of the noteholders, in which amounts
released from the collection account for distribution to noteholders will be
deposited and from which all distributions to noteholders will be made. The
servicer will also establish and maintain a certificate distribution account,
in the name of the owner trustee on behalf of the certificateholders, in which
amounts released from the collection account for distribution to
certificateholders will be deposited and from which all
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<PAGE>
distributions to certificateholders will be made. See "Description of the Trust
Documents--Collections" in the prospectus.
Distributions
On each distribution date, the servicer will instruct the indenture trustee
to distribute from the collection account the amount available in generally the
following order of priority:
(1) If we or our affiliate is no longer the servicer, then to the
servicer, the monthly servicing fee for the related monthly period.
(2) To the servicer, reimbursement for advances made with respect to
delinquent payments that were recovered during the related monthly period.
(3) To the note distribution account, all accrued interest on the Class A
notes.
(4) To the note distribution account, all accrued interest on the Class
M-1 notes.
(5) To the note distribution account, all accrued interest on the Class
M-2 notes.
(6) To the certificate distribution account, all accrued interest on the
Class B-1 certificates.
(7) To the note distribution account, the formula principal distribution
amount and any unpaid principal shortfalls, for payment sequentially to the
Class A notes, beginning with the Class A-1 notes.
(8) To the note distribution account, the formula principal distribution
amount, any unpaid principal shortfalls and any accrued interest on Class
M-1 principal liquidation losses, for payment to the Class M-1 notes, if
the Class A notes have been paid in full.
(9) To the note distribution account, the formula principal distribution
amount, any unpaid principal shortfalls and any accrued interest on Class
M-2 principal liquidation losses, for payment to the Class M-2 notes, if
the Class A and Class M-1 notes have been paid in full.
(10) To the certificate distribution account, the formula principal
distribution amount, any unpaid principal shortfalls and any accrued
interest on Class B-1 principal liquidation losses, for payment to the
Class B-1 certificates, if the notes have been paid in full.
(11) To the certificate distribution account, all accrued interest on the
Class B-2 certificates.
(12) To the certificate distribution account, the formula principal
distribution amount for payment to the Class B-2 certificates, if the notes
and the Class B-1 certificates have been paid in full, plus Class B-2
principal liquidation losses.
(13) To the reserve account, the Class A-1 reserve amount required to be
deposited starting on the ninth distribution date, if the Class A-1 notes
have not been paid in full on or after the ninth distribution date.
(14) Any remaining amount of the monthly servicing and guaranty fee to
us.
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<PAGE>
On each distribution date, the indenture trustee or its paying agent will
distribute all amounts on deposit in the note distribution account in payment
of interest and principal on the notes in the manner described above.
On each distribution date, the owner trustee or its paying agent will
distribute all amounts on deposit in the certificate distribution account, plus
any guaranty payment made by us, in payment of interest and principal on the
certificates in the manner described above.
The amount available with respect to any distribution date means generally
the sum of payments on the contracts due and received during the related
monthly period, prepayments and other unscheduled collections received during
the related monthly period, all collections in respect of principal on the
contracts received during the current month up to and including the third
business day prior to the distribution date but in no event later than the 10th
day of the month in which the distribution date occurs, any amounts deposited
in respect of purchased contracts, any guaranty payment, and all earnings from
the investment of funds in the collection account, minus, with respect to all
distribution dates other than the distribution date in July 1999, all
collections of principal on the contracts received during the related monthly
period up to and including the third business day prior to the preceding
distribution date, but in no event later than the 10th day of the prior month.
Statements to Securityholders
On or before each distribution date, the servicer will prepare and provide to
the indenture trustee a statement to be delivered to the noteholders and to the
owner trustee a statement to be delivered to the certificateholders on such
distribution date. These statements will be based on the information in the
related servicer's report describing information required under the trust
documents. Each statement to be delivered to noteholders will include the
following information as to the notes, and each statement to be delivered to
certificateholders will include the following information as to the
certificates, for the distribution date or the period since the previous
distribution date, as applicable:
(1) the amount of the distribution allocable to interest on or with
respect to each class of notes and certificates;
(2) the amount of the distribution allocable to principal on or with
respect to each class of notes and certificates;
(3) the aggregate outstanding principal balance and the pool factor for
each class of notes and the principal balance and the pool factor for each
class of certificates after giving effect to all payments reported under
(2) above on such date;
(4) the interest shortfall, if any, for each class of notes, the interest
shortfall, if any, for each class of certificates, and the change in such
amounts from the preceding statement;
(5) the amount, if any, of Class B-2 principal liquidation losses,
aggregate unreimbursed Class B-2 principal liquidation losses since the
closing date and the amount of the distribution allocable to such losses
for the Class B-2 certificates;
(6) the amount, if any, of the guaranty payment;
(7) the amount of the monthly servicing and guaranty fee paid to the
servicer;
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(8) the number and aggregate principal balances of delinquent contracts,
the number of products repossessed and repossessed and remaining in
inventory and the number of contracts that became liquidated contracts with
respect to the immediately preceding monthly period; and
(9) the aggregate amount of servicer advances made by the servicer with
respect to such distribution date, and the aggregate amount paid to the
servicer as reimbursement of servicer advances made on prior distribution
dates.
Each amount shown under subclauses (1) through (6) for notes or certificates
will be expressed as a dollar amount per $1,000 of the initial principal amount
of the notes or certificates, as applicable.
Unless and until definitive notes are issued, the reports will be sent on
behalf of the trust to Cede & Co., as registered holder of the notes and the
nominee of DTC. Note owners may receive copies of these reports upon written
request, together with a certification that they are note owners and payment of
any expenses associated with the distribution of such reports, from the
indenture trustee. See "Reports to Securityholders" and "Certain Information
Regarding the Securities" in the prospectus.
Within the required period of time after the end of each calendar year, the
indenture trustee and the owner trustee, as applicable, will furnish to each
person who at any time during the calendar year was a noteholder or
certificateholder, a statement as to the aggregate amounts of interest and
principal paid to such noteholder or certificateholder, information regarding
the amount of servicing compensation received by the servicer and other
information as we deem necessary to enable the noteholder or certificateholder
to prepare its tax returns. See "Certain Federal Income Tax Consequences" in
this prospectus supplement.
Termination
As described in the prospectus under "Description of the Trust Documents--
Termination," we or the servicer will have the 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 10% or less of
the cutoff date pool principal balance, all remaining contracts and the other
remaining trust property at a price equal to the unpaid principal amount of the
securities, plus accrued and unpaid interest thereon. The exercise of this
right will effect an early retirement of the certificates and early redemption
of the notes.
Administrator
Green Tree Financial Servicing Corporation, a Delaware corporation, as
administrator, will provide the notices and perform other administrative
obligations required by the indenture and the trust agreement. The
administrator, a subsidiary of ours, will enter into an administration
agreement with the trust and the indenture trustee describing its duties and
obligations as administrator.
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<PAGE>
CERTAIN FEDERAL AND STATE INCOME TAX CONSEQUENCES
The following is a general discussion of certain federal and state income tax
consequences relating to the purchase, ownership, and disposition of the notes
and the certificates. The discussion is based upon the current provisions of
the Internal Revenue Code of 1986, the Treasury regulations promulgated
thereunder, and judicial or ruling authority, all of which are subject to
change, which change may be retroactive. For additional information regarding
federal and state income tax consequences, see "Certain Federal Income Tax
Consequences--Owner Trust Series" and "Certain State Income Tax Consequences"
in the prospectus.
You should consult your own tax advisors to determine the federal, state,
local and other tax consequences of the purchase, ownership and disposition of
the notes and the certificates. You should note that no rulings have been or
will be sought from the IRS with respect to any of the federal income tax
consequences discussed herein or in the 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. You are
urged to consult your own tax advisors in determining the federal, state,
local, foreign and any other tax consequences to them of the purchase,
ownership and disposition of the securities.
In the opinion of our counsel, for federal and Minnesota income tax purposes,
the notes will be characterized as debt and the trust will not be characterized
as an association or a publicly traded partnership taxable as a corporation.
Each certificateholder, by the acceptance of a certificate, agrees to treat the
trust as a partnership in which the certificateholders are partners for federal
income tax purposes. The notes will not be issued with original issue discount.
The following paragraph replaces the information provided under the sub-
heading "--Disposition of Notes" on page 59 of the prospectus.
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 or long-term
capital gain or loss depending upon whether the note was held for less or more
than one year. Capital losses generally may be used only to offset capital
gains.
The following paragraph replaces the information provided in the second
paragraph under the sub-heading "--Backup Withholding" on page 60 of the
prospectus.
S-39
<PAGE>
Recently, the Treasury Department issued new regulations which make certain
modifications to the withholding, backup withholding and information reporting
rules described above. The new regulations attempt to unify certification
requirements and modify reliance standards, and will generally be effective for
payments made after December 31, 2000, subject to certain transition rules.
Prospective investors are urged to consult their own tax advisors regarding the
new regulations.
ERISA CONSIDERATIONS
Section 406 of the Employee Retirement Income Security Act of 1974, and
Section 4975 of the Internal Revenue 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 Internal Revenue Code for that benefit plan. A
violation of these prohibited transaction rules may result in an excise tax or
other penalties and liabilities under ERISA and the Internal Revenue Code for
these 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.
Some transactions involving the purchase, holding or transfer of the
securities might be deemed to constitute prohibited transactions under ERISA
and the Internal Revenue 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 called 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
Internal Revenue 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. We believe
that the notes should be treated as indebtedness without substantial equity
features for purposes of the plan assets regulation. However, without regard to
whether the notes are treated as an equity interest for such purposes, the
acquisition or holding of notes by or on behalf of a benefit plan could be
considered to give rise to a prohibited transaction if the trust, the owner
trustee or the indenture trustee, the owner of collateral, the underwriters, or
any of their respective affiliates is or becomes a party in interest or a
disqualified person with respect to the benefit plan. In such case, certain
exemptions from the prohibited transaction rules could be applicable depending
on the type of asset invested and the position of the plan fiduciary making the
decision to acquire a note. Included among these exemptions are:
. PTCE 90-1, regarding investments by insurance company pooled separate
accounts;
. PTCE 91-38, regarding investments by bank collective investment funds;
S-40
<PAGE>
. PTCE 84-14, regarding transactions effected by qualified professional
asset managers; and
. PTCE 96-23, regarding transactions effected by in-house asset
managers.
The certificates may not be acquired by:
(1) an employee benefit plan as defined in Section 3(3) of ERISA that is
subject to the provisions of Title I of ERISA,
(2) a plan described in Section 4975(e)(1) of the Internal Revenue Code
or
(3) any entity whose underlying assets include plan assets by reason of a
plan's investment in the entity including an insurance company acting on
behalf of its general account.
Before purchasing a certificate, each certificateholder must certify in writing
to us, the owner trustee, the underwriters and the servicer that its purchase
of that certificate will satisfy certain conditions specified in the exemptive
relief granted by, and regulations proposed by, the Department of Labor. In
this regard, purchasers that are insurance companies should consult with their
counsel with respect to the United States Supreme Court case interpreting the
fiduciary responsibility rules of ERISA, John Hancock Mutual Life Insurance Co.
v. Harris Trust and Savings Bank (decided December 13, 1993). In John Hancock,
the Supreme Court ruled that assets held in an insurance company's general
account may be deemed to be plan assets for ERISA purposes under certain
circumstances. You should determine whether the decision affects your ability
to make purchases of the certificates. In particular, an insurance company
should consider the exemptive relief granted by the Department of Labor for
transactions involving insurance company general accounts in PTCE 95-60 and
proposed by the Department of Labor in proposed ERISA regulation Section
2550.401(c)-1, 62 Fed. Reg. 66908 (December 22, 1997). For additional
information regarding treatment of the certificates under ERISA, see "ERISA
Considerations" in the prospectus.
Employee benefit plans that are governmental plans, as defined in Section
3(32) of ERISA, and some church plans, as defined in Section 3(33) of ERISA are
not subject to ERISA requirements. These plans may, however, be subject to the
provisions of other applicable federal and state laws, including, for any
governmental or church plan qualified under Section 401(a) of the Internal
Revenue Code and exempt from taxation under Section 501(a) of the Internal
Revenue Code, the prohibited transaction rules set forth in Section 503 of the
Internal Revenue 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.
S-41
<PAGE>
UNDERWRITING
The underwriters have agreed, subject to the terms and conditions of the
underwriting agreement, to purchase from us the respective principal amounts of
notes and certificates set forth opposite their names below:
<TABLE>
<CAPTION>
Class A-1 Class A-2 Class A-3 Class A-4
Notes Notes Notes Notes
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Banc of America Securities
LLC................ $15,000,000 $20,500,000 $28,166,668 $ 51,666,668
Chase Securities Inc. ..... 15,000,000 20,500,000 28,166,666 51,666,666
J.P. Morgan Securities
Inc. ..................... 15,000,000 20,500,000 28,166,666 51,666,666
----------- ------------ ----------- ------------
Totals................... $45,000,000 $61,500,000 $84,500,000 $155,000,000
=========== ============ =========== ============
<CAPTION>
Class A-5 Class A-6 Class M-1 Class M-2
Notes Notes Notes Notes
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Banc of America Securities
LLC............... $11,666,668 $ 37,000,000 $10,500,000 $10,000,000
Chase Securities Inc. ..... 11,666,666 37,000,000 10,500,000 10,000,000
J.P. Morgan Securities
Inc. ..................... 11,666,666 37,000,000 10,500,000 10,000,000
----------- ------------ ----------- ------------
Totals................... $35,000,000 $111,000,000 $31,500,000 $30,000,000
=========== ============ =========== ============
<CAPTION>
Class B-1
Certificates
------------
<S> <C> <C> <C> <C>
Banc of America Securities
LLC............... $ 7,000,000
Chase Securities Inc. ..... 7,000,000
J.P. Morgan Securities
Inc. ..................... 7,000,000
-----------
Total.................... $21,000,000
===========
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all of the securities offered in this prospectus supplement and the
prospectus, if any of such offered securities are purchased.
We have been advised by the underwriters that they propose initially to offer
the offered securities to the public at the respective offering prices shown on
the cover page of this prospectus supplement and to certain dealers at those
prices less a concession not in excess of the respective amounts set forth in
the table below, expressed as a percentage of the related principal balance.
The underwriters may allow and dealers may reallow a discount not in excess
of the amounts listed in the table below to certain other dealers.
<TABLE>
<CAPTION>
Selling Reallowance
Class Concession Discount
----- ---------- -----------
<S> <C> <C>
A-1................................................. 0.060% 0.040%
A-2................................................. 0.090% 0.050%
A-3................................................. 0.100% 0.065%
A-4................................................. 0.150% 0.110%
A-5................................................. 0.200% 0.150%
A-6................................................. 0.225% 0.170%
M-1................................................. 0.300% 0.200%
M-2................................................. 0.550% 0.400%
B-1................................................. 0.550% 0.400%
</TABLE>
S-42
<PAGE>
Until the distribution of the offered securities is completed, rules of the
SEC may limit the ability of the underwriters and certain selling group members
to bid for and purchase the offered securities. As an exception to these rules,
the underwriters are permitted to engage in certain transactions that stabilize
the price of the offered securities. These transactions consist of bids or
purchases for the purpose of pegging, fixing or maintaining the price of the
offered securities.
If the underwriters create a short position in the offered securities in
connection with the offering, for example, if they sell more offered securities
than are set forth on the cover page of this prospectus supplement, the
underwriters may reduce that short position by purchasing offered securities in
the open market.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases.
Neither we nor any of the underwriters makes any representation or prediction
as to the direction or magnitude of any effect that the transactions described
above may have on the prices of the offered securities. In addition, neither we
nor any of the underwriters makes any representation that the underwriters will
engage in transactions or that transactions, once commenced, will not be
discontinued without notice.
The underwriting agreement provides that we will indemnify the underwriters
against certain liabilities, including liabilities under the Securities Act of
1933 or will contribute to payments the underwriters may be required to make.
We do not intend to apply for listing of the offered securities on a national
securities exchange, but have been advised by the underwriters that the
underwriters currently intend to make a market in the offered securities, as
permitted by applicable laws and regulations. The underwriters are not
obligated, however, to make a market in the offered securities and any such
market may be discontinued at any time at the sole discretion of the
underwriters. Accordingly, no assurance can be given as to the liquidity of, or
trading markets for, the offered securities.
Upon receipt of a request by an investor who has received an electronic
prospectus supplement and prospectus from an underwriter or a request by such
investor's representative within the period during which there is an obligation
to deliver a prospectus supplement and prospectus, we or the underwriters will
promptly deliver, or cause to be delivered, without charge, a paper copy of the
prospectus supplement and prospectus.
Immediately prior to the sale of the contracts to the trust, the contracts
were subject to financing provided by the affiliates of certain underwriters.
We will apply some of the proceeds we receive from the sale of the contracts to
the trust to repay this financing.
S-43
<PAGE>
LEGAL MATTERS
The legality of the notes and certificates and consequences of the federal
and Minnesota income tax matters discussed under "Certain Federal and State
Income Tax Consequences" will be passed upon for us by Briggs and Morgan,
Professional Association, Minneapolis and Saint Paul, Minnesota. The validity
of the notes and certificates will be passed upon for the underwriters by Brown
& Wood LLP, New York, New York.
S-44
<PAGE>
PROSPECTUS
Green Tree Recreational, Equipment & Consumer Trusts
Asset-Backed Certificates
Asset-Backed Notes
----------------
Green Tree Financial Corporation
(Seller and Servicer)
----------------
The Asset-Backed Certificates (the "Certificates") and the Asset-Backed
Notes (the "Notes" and, collectively with the Certificates, the "Securities")
described herein may be sold from time to time in one or more series, in
amounts, at prices and on the terms to be determined at the time of sale and
to be set forth in a supplement to this Prospectus (a "Prospectus
Supplement"). Each series of Securities will include either one or more
classes of Certificates or, if Notes are issued as part of a series, one or
more classes of Notes and one or more classes of Certificates, as set forth in
the related Prospectus Supplement.
The Certificates and the Notes, if any, of any series of Securities will be
issued by a trust (a "Trust") to be formed with respect to such series by
Green Tree Financial Corporation ("Green Tree"). The assets of each Trust (the
"Trust Property") will include a pool of retail installment sales contracts
and promissory notes for the purchase of a variety of consumer products
(collectively, the "Products") as further described herein (such retail
installment sales contracts are referred to herein as the "Contracts"). The
Trust Property will also include certain monies paid or payable under the
Contracts after the Cutoff Date set forth in the related Prospectus Supplement
(the "Cutoff Date"), an assignment of Green Tree's security interests in the
Products financed thereby and certain other property, as more fully described
herein and in the related Prospectus Supplement. In addition, if so specified
in the related Prospectus Supplement, the Trust Property will include monies
on deposit in one or more trust accounts to be established with an Indenture
Trustee, which may include a Pre-Funding Account which would be used to
purchase additional Contracts (the "Subsequent Contracts") from the Seller
from time to time during the Pre-Funding Period specified in the related
Prospectus Supplement.
Each Trust will be formed pursuant to either (i) a Pooling and Servicing
Agreement (the "Pooling and Servicing Agreement") to be entered into between
Green Tree, as Seller and Servicer, and the Trustee specified in the related
Prospectus Supplement (the "Trustee") or (ii) a Trust Agreement (the "Trust
Agreement") to be entered into among the Seller, the Trust and certain other
parties as specified in the related Prospectus Supplement. If the Trust is
formed pursuant to a Trust Agreement, a Sale and Servicing Agreement (the
"Sale and Servicing Agreement") will be entered into among Green Tree, as
Seller and Servicer and the Trust. The Pooling and Servicing Agreement or the
Trust Agreement and the Sale and Servicing Agreement are collectively referred
to herein as the "Trust Documents." The Notes, if any, of a series will be
issued and secured pursuant to an Indenture (the "Indenture") between the
Trust and the Indenture Trustee specified in the related Prospectus Supplement
(the "Indenture Trustee").
For a discussion of certain factors which should be considered by prospective
purchasers of the Securities, see "Risk Factors" at page 13 herein and in the
related Prospectus Supplement.
----------------
(Continued on next page)
<PAGE>
(Continued from previous page)
THE CERTIFICATES REPRESENT INTERESTS IN AND THE NOTES REPRESENT OBLIGATIONS
OF THE RELATED TRUST AND DO NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF GREEN
TREE (EXCEPT TO THE LIMITED EXTENT DESCRIBED HEREIN AND IN THE RELATED
PROSPECTUS SUPPLEMENT) OR ANY AFFILIATE OF GREEN TREE.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
----------------
Retain this Prospectus for future reference. This Prospectus may not be used
to consummate sales of securities offered hereby unless accompanied by a
Prospectus Supplement.
The date of this Prospectus is September 4, 1998, as supplemented on September
15, 1998.
Except as otherwise provided in the related Prospectus Supplement, each
class of Securities of any series will represent the right to receive a
specified amount of payments of principal and interest on the related
Contracts in the manner described herein and in the related Prospectus
Supplement. The right of each class of Securities to receive payments may be
senior or subordinate to the rights of one or more of the other classes of
such series. A series may include two or more classes of Certificates or Notes
which differ as to the timing and priority of payment, interest rate or amount
of distributions in respect of principal or interest or both. A series may
include one or more classes of Certificates or Notes entitled to distributions
in respect of principal, with disproportionate, nominal or no interest
distributions, or to interest distributions, with disproportionate, nominal or
no distributions in respect of principal. Distributions on Certificates of any
series will be subordinated in priority to payments due on the related Notes,
if any, to the extent described herein and in the related Prospectus
Supplement. The Certificates will represent fractional undivided interests in
the related Trust.
Each class of Securities will represent the right to receive distributions
or payments in the amounts, at the rates, and on the dates set forth in the
related Prospectus Supplement. The rate of distributions in respect of
principal on Certificates and payment in respect of principal on Notes, if
any, of any class will depend on the priority of payment of such class
2
<PAGE>
and the rate and timing of payments (including prepayments, liquidations and
repurchases of Contracts) on the related Contracts.
If specified in the related Prospectus Supplement, a financial guaranty
insurance policy, letter of credit, surety bond, Green Tree guaranty, cash
reserve fund, or other form of credit enhancement, or any combination thereof,
may be provided with respect to a Trust or any class of Securities.
Unless otherwise provided in the related Prospectus Supplement, the
Certificates and the Notes, if any, of any series initially will be represented
by certificates and notes registered in the name of Cede & Co., the nominee of
The Depository Trust Company ("DTC"). The interests of beneficial owners of the
Securities will be represented by book entries on the records of the
participating members of DTC. Definitive Securities will be available only
under limited circumstances.
There currently is no secondary market for the Securities. There can be no
assurance that any such market will develop or, if it does develop, that it
will continue. The Securities will not be listed on any securities exchange.
3
<PAGE>
AVAILABLE INFORMATION
Green Tree, as originator of each Trust, has filed with the Securities and
Exchange Commission (the "Commission") a Registration Statement (together with
all amendments and exhibits thereto, referred to herein as the "Registration
Statement") under the Securities Act of 1933, as amended, with respect to the
Securities offered pursuant to this Prospectus. For further information,
reference is made to the Registration Statement which is available for
inspection without charge at the office of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the regional offices of the Commission at
Seven World Trade Center, Suite 1300, New York, New York 10048 and at
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511, and copies of which may be obtained from the Commission at
prescribed rates. The Commission also maintains a Web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission.
REPORTS TO SECURITYHOLDERS
Unless otherwise provided in the related Prospectus Supplement, unless and
until Definitive Certificates or Definitive Notes are issued, unaudited monthly
and annual reports, containing information concerning each Trust and prepared
by the Servicer, will be sent on behalf of the Trust to the Trustee for the
Certificateholders, the Indenture Trustee for the Noteholders and Cede & Co.,
as registered holder of the Certificates and the Notes and the nominee of DTC.
See "Certain Information Regarding the Securities--Statements to
Securityholders" and "--Book-Entry Registration." Certificateholders and
Noteholders are collectively referred to herein as the "Securityholders."
Certificate Owners or Note Owners may receive such reports, upon written
request, together with a certification that they are Certificate Owners or Note
Owners and payment of reproduction and postage expenses associated with the
distribution of such reports, from the Trustee, with respect to Certificate
Owners, or the Indenture Trustee, with respect to Note Owners, at the addresses
specified in the related Prospectus Supplement. Such reports will not
constitute financial statements prepared in accordance with generally accepted
accounting principles. Green Tree does not intend to send any of its financial
reports to Securityholders. The Servicer, on behalf of each Trust, will file
with the Commission periodic reports concerning each Trust to the extent
required under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations of the Commission thereunder. However, in
accordance with the Exchange Act and the rules and regulations of the
Commission thereunder, Green Tree expects that each Trust's obligation to file
such reports will be terminated following the end of the year in which such
Trust is formed.
4
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Green Tree's Annual Report on Form 10-K for the year ended December 31, 1997
and Form 8-K dated April 6, 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 (651) 293-3400.
5
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus and by reference to
the information with respect to the Securities contained in the related
Prospectus Supplement to be prepared and delivered in connection with the
offering of each series of Securities. Certain capitalized terms used in this
Prospectus Summary are defined elsewhere in this Prospectus and in the related
Prospectus Supplement.
<TABLE>
<S> <C>
Issuer.............................. With respect to each series of Securities,
a trust (the "Trust") will be formed by
Green Tree pursuant to either a Pooling and
Servicing Agreement between Green Tree, in
its capacity as Seller and as Servicer (in
such capacity referred to herein as the
"Servicer"), and the Trustee specified in
the related Prospectus Supplement (each
such trust, a "grantor trust"), or a Trust
Agreement between the Seller, the Trustee
specified in the related Prospectus
Supplement and certain other parties as
specified in the related Prospectus
Supplement (each such trust, an "owner
trust").
Seller and Servicer................. Green Tree Financial Corporation. See
"Green Tree Financial Corporation."
Trustee............................. The Trustee for a grantor trust or the
Owner Trustee for an owner trust, in each
case as specified in the related Prospectus
Supplement. The Trustee or Owner Trustee
for any Trust will be referred to in this
Prospectus as the "Trustee," although the
Prospectus Supplement relating to an owner
trust that issues Notes will refer to the
Trustee as the "Owner Trustee" in order to
distinguish the Owner Trustee and the
Indenture Trustee for such Series. See
"Description of the Trust Documents--The
Trustee."
Indenture Trustee................... With respect to any Series of Securities
including one or more classes of Notes, the
Indenture Trustee specified in the related
Prospectus Supplement (the "Indenture
Trustee").
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
The Certificates.................... Each series of Securities will include one
or more classes of Certificates which will
be issued pursuant to the related Trust
Documents.
Unless otherwise specified in the related
Prospectus Supplement, Certificates will be
available for purchase in denominations of
$1,000 and in integral multiples thereof
and will be available in book-entry form
only. Unless otherwise specified in the
related Prospectus Supplement, beneficial
owners of Certificates ("Certificate
Owners") will be able to receive Definitive
Certificates only in the limited
circumstances described herein or in the
related Prospectus Supplement. See "Certain
Information Regarding the Securities--Book-
Entry Registration."
Unless otherwise specified in the related
Prospectus Supplement, each class of
Certificates will have a stated Certificate
Balance (as defined in the related
Prospectus Supplement) and will accrue
interest on such Certificate Balance at a
specified rate (with respect to each class
of Certificates, the "Pass-Through Rate").
Each class of Certificates may have a
different Pass-Through Rate, which may be a
fixed, variable or adjustable Pass-Through
Rate, or any combination of the foregoing.
The related Prospectus Supplement will
specify the Pass-Through Rate for each
class of Certificates, or the initial Pass-
Through Rate and the method for determining
subsequent changes to the Pass-Through
Rate.
A series may include two or more classes of
Certificates which differ as to timing of
distributions, sequential order, priority
of payment, seniority, allocation of loss,
Pass-Through Rate or amount of
distributions in respect of principal or
interest, or as to
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
which distributions in respect of principal or
interest on any class may or may not be made upon
the occurrence of specified events or on the
basis of collections from designated portions of
the Contract Pool. In addition, a series may
include one or more classes of Certificates
("Stripped Certificates") entitled to (i)
distributions in respect of principal with
disproportionate, nominal or no interest
distributions, or (ii) interest distributions,
with disproportionate, nominal or no
distributions in respect of principal.
With respect to any series of Securities
including one or more classes of Notes,
distributions in respect of the Certificates may
be subordinated in priority of payment to
payments on the Notes, to the extent specified in
the related Prospectus Supplement. If the Seller
or Servicer exercises its option to purchase the
Contracts of a Trust on the terms and conditions
described below under "Description of the Trust
Documents--Termination," Certificate Owners will
receive an amount in respect of the Certificates
as specified in the related Prospectus
Supplement. In addition, if the related
Prospectus Supplement provides that the property
of a Trust will include a Pre-Funding Account (as
such term is defined in the related Prospectus
Supplement, the "Pre-Funding Account"),
Certificate Owners will receive a distribution in
respect of principal on or immediately following
the end of the funding period specified in the
related Prospectus Supplement (the "Pre-Funding
Period") in an amount and manner specified in the
related Prospectus Supplement.
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
The Notes........................... With respect to any series of Securities
including one or more classes of Notes,
such Notes will be issued pursuant to an
Indenture.
Unless otherwise specified in the related
Prospectus Supplement, Notes will be
available for purchase in denominations of
$1,000 and integral multiples thereof, and
will be available in book-entry form only.
Unless otherwise specified in the related
Prospectus Supplement, beneficial owners of
Notes ("Note Owners") will be able to
receive Definitive Notes only in the
limited circumstances described herein or
in the related Prospectus Supplement. See
"Certain Information Regarding the
Securities--Book-Entry Registration."
Unless otherwise specified in the related
Prospectus Supplement, each class of Notes
will have a stated principal amount and
will bear interest at a specified rate or
rates (with respect to each class of Notes,
the "Interest Rate"). Each class of Notes
may have a different Interest Rate, which
may be a fixed, variable or adjustable
Interest Rate, or any combination of the
foregoing. The related Prospectus
Supplement will specify the Interest Rate
and the method for determining subsequent
changes to the Interest Rate.
A series may include two or more classes of
Notes which differ as to the timing and
priority of payment, seniority, allocations
of loss, Interest Rate or amount of
payments of principal or interest, or as to
which payments of principal or interest may
or may not be made upon the occurrence of
specified events or on the basis of
collections from designated portions of the
Contract Pool. In addition, a series may
include one or more classes of Notes
("Stripped Notes") entitled to (i)
principal
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
payments with disproportionate, nominal or
no interest payments or (ii) interest
payments with disproportionate, nominal or
no principal payments.
If the Seller or the Servicer exercises its
option to purchase the Contracts of a Trust
on the terms and conditions described below
under "Description of the Trust Documents--
Termination," the outstanding Notes, if
any, of such series will be redeemed as set
forth in the related Prospectus Supplement.
In addition, if the related Prospectus
Supplement provides that the property of a
Trust will include a Pre-Funding Account,
the outstanding Notes, if any, of such
series will be subject to partial
redemption on or immediately following the
end of the Pre-Funding Period in an amount
and manner specified in the related
Prospectus Supplement. In the event of such
partial redemption, the Note Owners may be
entitled to receive a prepayment premium
from the Trust, in the amount and to the
extent provided in the related Prospectus
Supplement.
Trust Property...................... Each Certificate will represent a
fractional undivided interest in, and each
Note, if any, will represent an obligation
of, the related Trust. The assets of each
Trust (the "Trust Property") will include,
among other things, a pool (the "Contract
Pool") of retail installment sales
contracts and promissory notes (the
"Contracts") for the purchase of a variety
of consumer products as further described
under "Green Tree Financial Corporation"
herein (collectively, the "Products"),
certain monies paid or payable thereunder
on or after the Cutoff Date (as specified
in the related Prospectus Supplement), an
assignment of Green Tree's security
interests in the Products, an assignment of
the right to receive proceeds
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from claims on certain insurance policies
covering the Products, and or the Obligors,
the assignment of certain rights of Green
Tree against the Dealers originating such
Contracts, the Collection Account, including
all investments therein, all income from the
investment of funds therein and all proceeds
thereof, certain other accounts and the
proceeds thereof and certain other rights
under the Trust Documents. In addition, if
so specified in the related Prospectus
Supplement, the Trust Property will include
monies on deposit in a Pre-Funding Account
to be established with the Indenture Trustee
or the Trustee, which will be used to
purchase Subsequent Contracts (as defined
below) from the Seller from time to time
during the Pre-Funding Period specified in
the related Prospectus Supplement, as well
as any Subsequent Contracts so purchased.
See "The Trusts." If and to the extent
provided in the related Prospectus
Supplement, the related Trust will be
obligated to purchase from Green Tree
(subject to the satisfaction of certain
conditions described in the applicable Sale
and Servicing Agreement), additional
Contracts (the "Subsequent Contracts") from
time to time (as frequently as daily) during
the Pre-Funding Period specified in the
related Prospectus Supplement having an
aggregate principal balance approximately
equal to the amount on deposit in the Pre-
Funding Account (the "Pre-Funded Amount") on
such Closing Date. Green Tree will be
obligated to repurchase Contracts upon the
occurrence of certain breaches of
representations and warranties (a
"Repurchase Event"). See "Description of the
Trust Documents--Sale and Assignment of the
Contracts" and "--Servicing Procedures."
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Enhancement......................... If and to the extent specified in the
related Prospectus Supplement, enhancement
with respect to a Trust or any class of
Securities may include any one or more of
the following: a financial guaranty
insurance policy, letter of credit, Green
Tree guaranty, cash reserve fund,
derivative product, or other form of credit
enhancement, or any combination thereof.
The enhancement with respect to any Trust
or any class of Securities may be
structured to provide protection against
delinquencies and/or losses on the
Contracts, against changes in interest
rates, or other risks, to the extent and
under the conditions specified in the
related Prospectus Supplement. Unless
otherwise specified in the related
Prospectus Supplement, any form of
enhancement will have certain limitations
and exclusions from coverage thereunder,
which will be described in the related
Prospectus Supplement. Further information
regarding any provider of credit
enhancement, including financial
information when material, will be included
in the related Prospectus Supplement. See
"Description of the Trust Documents--
Enhancement."
Servicing........................... The Servicer will be responsible for
managing, administering, servicing and
making collections on the Contracts held by
each Trust. Unless otherwise specified in
the related Prospectus Supplement, with
respect to each series of Securities
compensation to the Servicer will include a
monthly fee (the "Servicing Fee") which
will be payable from the related Trust to
the Servicer on each Distribution Date, in
an amount equal to the product of one-
twelfth of .75% per annum multiplied by the
aggregate principal balance of the
Contracts (the "Aggregate Principal
Balance") as of the first day of the prior
calendar month, plus any late fees
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and other administrative fees and expenses
or similar charges collected with respect
to the Contracts during such Monthly
Period. See "Description of the Trust
Documents--Servicing Compensation."
Advances............................ Unless otherwise specified in the related
Prospectus Supplement, the Servicer will be
obligated to make Advances each month of
any scheduled payments on the Contracts
that were due but not received during the
prior Due Period. The Servicer will be
entitled to reimbursement of an Advance
from Available Funds in the Collection
Account for the related Trust. The Servicer
will be obligated to make an Advance only
to the extent that it determines that such
Advance will be recoverable from subsequent
funds available therefor in the Collection
Account for the related Trust. See
"Description of the Trust Documents--
Advances."
Contracts........................... The Contracts forming part of the Trust
Property of each Trust were or will have
been originated by Dealers and sold by the
Dealers to Green Tree in the ordinary
course of business. The Contracts will
generally be prepayable at any time without
penalty to the purchaser of the related
Product or other person or persons who are
obligated to make payments thereunder
(each, an "Obligor"). See "The Contracts."
Information with respect to each Contract
Pool, including the proportions of each
type of Product financed, the weighted
average annual percentage rate and the
weighted average remaining maturity, will
be set forth in the related Prospectus
Supplement.
Collection Account.................. With respect to each series of Securities,
the Servicer will establish and maintain
one or more separate accounts (the
"Collection Account") in the name of the
Trustee or, in the case of any series
including one or more
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classes of Notes, in the name of the
Indenture Trustee for the benefit of the
Certificate Owners and the Note Owners. All
payments from Obligors that are received by
the Servicer on behalf of each Trust will
be deposited in the related Collection
Account no later than one Business Day
after receipt thereof. Unless otherwise
specified in the related Prospectus
Supplement, all payments from Obligors and
all proceeds (net of reasonable expenses of
collection) with respect to Liquidated
Contracts ("Liquidation Proceeds") that are
received by the Servicer will be deposited
in the related Collection Account no later
than one Business Day after receipt
thereof. Unless otherwise specified in the
related Prospectus Supplement, the Servicer
will be permitted to use any alternative
remittance schedule acceptable to the
Rating Agencies (as defined below). See
"Description of the Trust Documents--
Collections."
Mandatory Purchase of Certain With respect to each series of Securities,
Contracts........................ Green Tree will make certain
representations and warranties relating to
the Contracts held by the related Trust to
the Trustee for the benefit of the related
Trust and if such series of Securities
includes one or more classes of Notes, the
Trustee will assign its right to enforce
such representations and warranties to the
related Indenture Trustee as collateral for
the Notes. The Trustee and the Indenture
Trustee, if any, will be entitled to
require that Green Tree repurchase any
Contract if the interests of the
Certificate Owners, the Note Owners, if
any, or the related Trust therein are
materially and adversely affected by a
breach of any such representation or
warranty (a "Repurchase Event"). See
"Description of the Trust Documents--Sale
and Assignment of the Contracts."
Optional Purchase of Contracts.... Unless otherwise specified in the related
Prospectus Supplement, with respect to each
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series of Securities, the Seller or the
Servicer may purchase all the Contracts
held by the related Trust on any
Distribution Date following the first
Monthly Period as of which the Aggregate
Principal Balance has declined to 10% or
less (or such other percentage as may be
specified in the related Prospectus
Supplement) of the Cutoff Date Principal
Balance, subject to certain provisions
in the related Trust Documents. See
"Description of the Trust Documents--
Termination."
Tax Status............................ If the Trust is structured as an owner
trust, in the opinion of Counsel to the
Seller, for federal and Minnesota
income tax purposes, the Notes will be
characterized as debt and the Trust
will not be characterized as an
association or a publicly traded
partnership taxable as a corporation.
Each Noteholder, by the acceptance of a
Note, will agree to treat the Notes as
debt. Each Certificateholder, by the
acceptance of a Certificate, will agree
to treat the Trust as a partnership in
which the Certificateholders are
partners for federal income tax
purposes. Alternative characterizations
of the Trust, the Notes and the
Certificates are possible, but would
not result in materially adverse tax
consequences to Noteholders or
Certificateholders. See "Certain
Federal Income Tax Consequences--Owner
Trust Series" and "Certain State Income
Tax Consequences" herein.
If the Trust is structured as a grantor
trust, in the opinion of Counsel to the
Seller, for federal and Minnesota income
tax purposes, the Trust will be
classified as a grantor trust and not as
an association which is taxable as a
corporation. Each Certificateholder will
be treated as the owner of an undivided
interest in the Contracts and other
Trust Property. See "Certain Federal
Income Tax Consequences--Grantor Trust
Series" and "Certain State Income Tax
Consequences" herein.
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ERISA Considerations .............. Subject to the considerations discussed
under "ERISA Considerations" herein and in
the related Prospectus Supplement, and
unless otherwise specified in the related
Prospectus Supplement, the Notes will be
eligible for purchase by employee benefit
plans. The related Prospectus Supplement
will provide further information with
respect to the eligibility of a class of
Certificates for purchase
by employee benefit plans. See "ERISA
Considerations" herein and in the related
Prospectus Supplement.
Rating............................. As a condition of issuance, the Securities
of each series offered pursuant to this
Prospectus will be rated in one of the four
highest rating categories by at least one
nationally recognized rating agency (a
"Rating Agency"). There is no assurance
that the rating initially assigned to such
Securities will not be subsequently lowered
or withdrawn by the Rating Agency. In the
event the rating initially assigned to any
Securities is subsequently lowered for any
reason, no person or entity will be
obligated to provide any credit enhancement
in addition to the credit enhancement, if
any, specified in the related Prospectus
Supplement.
Registration of Certificates....... Unless otherwise specified in the related
Prospectus Supplement, the Certificates and
the Notes, if any, of each series will be
registered in the name of Cede & Co., as
the nominee of DTC, and will be available
for purchase only in book-entry form on the
records of DTC and participating members
thereof. Certificates and Notes will be
issued in definitive form only under the
limited circumstances described herein. All
references herein to "Holders" or
"Certificateholders" or "Noteholders"
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shall reflect the rights of beneficial
owners of Certificates (the "Certificate
Owners") or of Notes ("Note Owners"), as
the case may be, as they may indirectly
exercise such rights through DTC and
participating members thereof, except as
otherwise specified herein or in the
related Prospectus Supplement. See
"Description of the Trust Documents--
Book-Entry Registration."
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RISK FACTORS
Certain Legal Aspects Relating to the Ownership and Enforceability of the
Contracts
With respect to each series of Securities, the transfer of the Contracts to
the related Trust will be subject to the requirements of the Uniform Commercial
Code (the "UCC") as in effect in Minnesota. The Seller will take or cause to be
taken such action as is required to perfect the Trust's rights in the
Contracts.
Unless otherwise provided in the related Prospectus Supplement, Green Tree
will hold the Contract Files on behalf of each Trust. To facilitate servicing
and save administrative costs, the documents will not be physically segregated
from other similar documents that are in Green Tree's possession. UCC financing
statements will be filed in Minnesota reflecting the sale and assignment of the
Contracts to the Trustee, and Green Tree's accounting records and computer
systems will also reflect such sale and assignment. In addition, the Contracts
will be stamped or otherwise marked to indicate that such Contracts have been
sold to the related Trust. Despite these precautions, if, through inadvertence
or otherwise, any of the Contracts were sold to another party (or a security
interest therein were granted to another party) that purchased (or took such
security interest in) any of such Contracts in the ordinary course of its
business and took possession of such Contracts, the purchaser (or secured
party) would acquire an interest in the Contracts superior to the interest of
the related Trust if the purchaser (or secured party) acquired (or took a
security interest in) the Contracts for new value and without actual knowledge
of such Trust's interest.
Due to the administrative burden and expense, the documents reflecting Green
Tree's security interest in the Products will not be amended to reflect the
assignment of the security interests in the Products by Green Tree to the
Trustee. In the absence of such an amendment, the Trustee may not have a
perfected security interest in the Products. Moreover, statutory liens for
repairs or unpaid taxes may have priority even over perfected security
interests in the Products. See "Description of the Trust Documents--Sale and
Assignment of the Contracts" and "Certain Legal Aspects of the Contracts."
Green Tree's Experience with the Products
Green Tree began originating and servicing retail installment contracts for
recreational vehicles in 1985 and for motorcycles in 1988 but has less
extensive underwriting and servicing experience with the other types of
products financed by Contracts that will be included in a Trust. Green Tree's
extensive experience in originating and servicing consumer financing contracts
for certain types of products, including manufactured housing, may not be
directly applicable to the servicing of consumer financing contracts secured by
other types of products.
Risks to Investors upon any Insolvency of Green Tree
Green Tree intends that any transfer of Contracts to the related Trust will
constitute a sale, rather than a pledge of the Contracts to secure indebtedness
of Green Tree. However, if Green Tree were to become a debtor under the federal
bankruptcy code or similar applicable
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state laws (collectively, "Insolvency Laws"), a creditor or trustee in
bankruptcy of Green Tree or Green Tree as debtor-in-possession might argue that
such sale of Contracts by Green Tree was a pledge of the Contracts rather than
a sale. This position, if presented to or accepted by a court, could cause the
related Trust to experience a delay in or reduction of collections on the
Contracts.
A case decided by the United States Court of Appeals for the Tenth Circuit,
Octagon Gas Systems, Inc. v. Rimmer, contains language to the effect that
accounts sold by an entity that subsequently became bankrupt remained property
of the debtor's bankruptcy estate. Although the Contracts (other than the Home
Improvement Contracts and the Home Equity Contracts) constitute chattel paper
rather than accounts under the UCC, sales of chattel paper, like sales of
accounts, are governed by Article 9 of the UCC. If Green Tree were to become a
debtor under any Insolvency Law and a court were to follow the reasoning of the
Tenth Circuit Court of Appeals and apply such reasoning to chattel paper, a
Trust could experience a delay in or reduction of collections on the Contracts.
Subordination of Certain Classes of Securities; Limited Assets
To the extent specified in the related Prospectus Supplement, distributions
of interest and principal on some or all classes of Securities of a series may
be subordinated in priority of payment to interest and principal due on the
Notes (if any) of such series and/or to distributions of interest and principal
on other classes of Securities of such series. In addition, holders of certain
classes of Securities of any series may have the right to take actions that are
detrimental to the interests of the holders of Securities of certain other
classes of Securities of such series. For example, holders of a class of more
senior Securities may be entitled to instruct the Indenture Trustee or Trustee
to liquidate the Trust Property when it is not in the interest of holders of
more junior classes of Securities of such series to do so. Conversely, certain
actions may require the consent of a majority of Security Owners of all classes
of a series, which may mean that Security Owners of more junior classes can
prevent the Security Owners of more senior classes of such series from taking
action. Moreover, no Trust will have any significant assets or sources of funds
other than the Contracts and, to the extent provided in the related Prospectus
Supplement, a Pre-Funding Account and any credit enhancement specified in the
related Prospectus Supplement. The Notes, if any, of any series will represent
obligations solely of, and the Certificates of such series will represent
interests solely in, the related Trust, and, except as specified in the related
Prospectus Supplement, neither the Notes nor the Certificates of any such
series will be insured or guaranteed by Green Tree, the Servicer, the
applicable Owner Trustee, the applicable Indenture Trustee or any other person
or entity. Consequently, holders of the Securities of any series must rely for
payment upon payments on the related Contracts and, if and to the extent
available, amounts on deposit in the Pre-Funding Account, if any, and any
credit enhancement, if any, as specified in the related Prospectus Supplement.
If specified in the related Prospectus Supplement, credit enhancement for a
class of Securities of a series may cover one or more other classes of
Securities of such series, and accordingly may be exhausted for the benefit of
some classes and thereafter be unavailable for such other classes.
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Yield and Prepayment Considerations
The weighted average life of the Securities will be reduced by full or
partial prepayments on the Contracts. The Contracts will generally be
prepayable at any time without penalty. Prepayments (or, for this purpose,
equivalent payments to the related Trust) may result from payments by Obligors,
liquidations due to default, the receipt of proceeds from physical damage or
credit insurance, repurchases by Green Tree as a result of certain uncured
breaches of the warranties made by it with respect to the Contracts, purchases
by the Servicer as a result of certain uncured breaches of the covenants with
respect to the Contracts made by it in the related Agreement, or Green Tree or
the Servicer exercising its option to purchase all of the remaining Contracts.
Unless otherwise specified in the related Prospectus Supplement, the amounts
paid to Securityholders in respect of principal on any Distribution Date will
include all prepayments on the Contracts during the corresponding Monthly
Periods. The Certificate Owners and the Note Owners will bear all reinvestment
risk resulting from the timing of payments of principal on the Securities.
Limited Liquidity of the Securities
There is currently no market for the Securities of any series. Although Green
Tree expects that the underwriters of any particular series will intend to make
a secondary market for such Securities, they will have no obligation to do so.
There can be no assurance that any such market will develop or, if it does
develop, that it will provide Certificate Owners or Note Owners with liquidity
of investment or will continue for the life of the Securities. The Securities
will not be listed on any securities exchange.
Unless otherwise specified in the related Prospectus Supplement, the
Securities will be issued in book-entry, rather than physical, form and, as a
result, in certain circumstances, the liquidity of the Securities in the
secondary market and the ability of the Certificate Owners and Note Owners to
pledge them may be adversely affected. See "Plan of Distribution" and "Certain
Information Regarding the Securities--Book-Entry Registration."
THE TRUSTS
With respect to each series of Securities, Green Tree will establish a Trust
pursuant to the related Trust Documents. Prior to the sale and assignment of
the related Contracts pursuant to the related Trust Documents, the Trust will
have no assets or obligations. The Trust will not engage in any business
activity other than acquiring and holding the Trust Property, issuing the
Certificates and the Notes, if any, of such series and distributing payments
thereon.
Each Certificate will represent a fractional undivided interest in, and each
Note, if any, will represent an obligation of, the related Trust. The Trust
Property of each Trust will include, among other things, (i) a Contract Pool;
(ii) all monies paid or payable thereon on or after the Cutoff Date (as
specified in the related Prospectus Supplement); (iii) such
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amounts as from time to time may be held in the Collection Account (including
all investments in the Collection Account and all income from the investment of
funds therein and all proceeds thereof) and certain other accounts (including
the proceeds thereof); (iv) an assignment of the security interests of Green
Tree in the Products securing the related Contracts; (v) an assignment of the
right to receive proceeds from claims on certain insurance policies covering
the related Products or Obligors; and (vi) certain other rights under the
related Trust Documents. See "The Contracts" and "Description of the Trust
Documents--Collections." The Trust Property will also include, if so specified
in the related Prospectus Supplement, monies on deposit in a Pre-Funding
Account to be established with the Indenture Trustee or the Trustee, which will
be used to purchase Subsequent Contracts from the Seller from time to time (and
as frequently as daily) during the Pre-Funding Period specified in the related
Prospectus Supplement. Any Subsequent Contracts so purchased will be included
in the related Contract Pool forming part of the Trust Property, subject to the
prior rights of the related Indenture Trustee and the Noteholders therein. In
addition, to the extent specified in the related Prospectus Supplement, a form
of credit enhancement may be issued to or held by the Trustee or the Indenture
Trustee for the benefit of holders of one or more classes of Securities.
The Servicer will service the Contracts held by each Trust and will receive
fees for such services. See "Description of the Trust Documents--Servicing
Compensation." Unless otherwise specified in the related Prospectus Supplement,
Green Tree, on behalf of each Trust, will hold the original installment sales
contract or promissory note as well as copies of documents and instruments
relating to each Contract and evidencing the security interest in the Product
securing each Contract (the "Contract Files"). In order to protect the Trust's
ownership interest in the Contracts, Green Tree will file a UCC-1 financing
statement in Minnesota to give notice of such Trust's ownership of the related
Contracts and the related Trust Property.
The Trustee
The Trustee for each Trust will be specified in the related Prospectus
Supplement. The Trustee's liability in connection with the issuance and sale of
the Securities of such series will be limited solely to the express obligations
of such Trustee set forth in the related Trust Documents. A Trustee may resign
at any time, in which event the General Partner (if the related Trust is
structured as an owner trust) or the Servicer or its successor (if the related
Trust is structured as a grantor trust) will be obligated to appoint a
successor trustee. The General Partner (if the related Trust is structured as
an owner trust) or the Servicer (if the related Trust is structured as a
grantor trust) may also remove the Trustee if the Trustee ceases to be eligible
to continue as Trustee under the related Trust Documents or if the Trustee
becomes insolvent. In such circumstances, the General Partner (if the related
Trust is structured as an owner trust) or the Servicer (if the related Trust is
structured as a grantor trust) will be obligated to appoint a successor
trustee. Any resignation or removal of a Trustee and appointment of a successor
trustee will be subject to any conditions or approvals specified in the related
Prospectus Supplement and will not become effective until acceptance of the
appointment by the successor trustee.
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THE CONTRACTS
Each pool of Contracts with respect to a Trust (a "Contract Pool") will
consist of retail installment sales contracts and promissory notes (the
"Contracts") to finance the purchase of Products (described below). The
Contracts will be originated or purchased by Green Tree on an individual basis
in the ordinary course of business. Except as otherwise specified in the
related Prospectus Supplement, the Contracts will be fully amortizing and will
bear interest at a fixed or variable rate (the "Contract Rate").
The Products financed by the Contracts included in a Contract Pool are
expected to include all the types of consumer products Green Tree is then
financing for retail customers (subject to the availability of such contracts
and subject to any eligibility criteria specified in the Trust Documents).
Currently, Green Tree provides financing for the purchase of motorcycles;
marine products (including boats, boat trailers and outboard motors); pianos
and organs; horse trailers; sport vehicles (including snowmobiles, personal
watercraft and all-terrain vehicles); trucks; aircraft; and recreational
vehicles. Any Trust whose Securities are offered pursuant to this Prospectus
will include only Contracts secured by the foregoing types of Products. The
types of Products securing a Contract Pool and the relative concentrations of
each such type, will be specified in the related Prospectus Supplement. Because
Green Tree has less extensive experience in underwriting and servicing retail
installment sales contracts for items such as the Products, Green Tree has no
basis upon which to distinguish the expected delinquency, default or prepayment
experience of Contracts secured by different types of Products.
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 provides credit to manufactured housing dealers for purposes of purchasing
manufactured home inventory from manufacturers. Green Tree conducts its
business throughout the United States through 50 manufactured housing offices,
80 home improvement locations and three regional wholesale lending centers, as
well as centralized operations in St. Paul, Minnesota and Rapid City, South
Dakota. Its principal executive offices are located at 1100 Landmark Towers,
St. Paul, Minnesota 55102-1639 (telephone (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.
Purchase of Contracts
Green Tree arranges to purchase certain contracts originated by dealers of
Products located throughout the United States ("Dealers"). Green Tree's
personnel contact dealers
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and explain Green Tree's available financing plans, terms, prevailing rates and
credit and financing policies. If the dealer wishes to utilize Green Tree's
available customer financing, the dealer must make an application for dealer
approval.
All contracts that Green Tree purchases are written on forms provided or
approved by Green Tree and are purchased on an individually approved basis in
accordance with Green Tree's guidelines. The dealer submits the customer's
credit application and purchase order to Green Tree's office where an analysis
of the creditworthiness of the proposed buyer is made. The analysis includes a
review of the applicant's paying habits, length and likelihood of continued
employment and certain other procedures. Green Tree's underwriting guidelines
for consumer products focus primarily on the obligor's ability to repay the
loan rather than the collateral value of the product financed. The maximum loan
amount for an obligor will depend on a variety of factors, including the type
of product, whether the product is new or used, the obligor's debt-to-income
ratio, and the manufacturer's invoice price of the product (plus certain
dealer-installed accessories, sales taxes, title fees, registration fees, and
certain other items). For products other than aircraft and trucks, the maximum
permissible debt-to-income ratio (based on the monthly loan payments) is
between 55% and 65%, the maximum loan-to-invoice ratio (for new products)
ranges from 100% to 125%, and the maximum loan-to-sales-price ratio (for used
products) is typically 90% (subject to further limitation based on a standard
assumed value for such a used product). Green Tree's underwriting guidelines
for truck loans (other than a small number of loans made to corporate borrowers
to finance the purchase of a fleet of trucks) emphasize the trucking experience
of the obligor and the projected operating revenues of the truck, rather than
the obligor's current income, because the obligor's income as owner-operator of
the truck is generally expected to be the source of funds to make payments on
the contract and because Green Tree believes that the obligor's past trucking
experience is the best predictor of success as an owner-operator of the truck.
With respect to some truck loans, Green Tree may allow the dealer to maintain
collection responsibility with respect to the customers' payments and to remit
such payments to Green Tree; if the customer should fail to make timely payment
on the loan, the dealer remains obligated to make payment to Green Tree. Green
Tree nevertheless requires that the customer meet Green Tree's underwriting
standards, and Green Tree's records show the customer as the obligor on the
loan. There is a risk, however, that insolvency or fraud on the part of the
dealer could result in a loss on such truck loans. A loan for the purchase of
an aircraft is generally subject to limitations of a 45% debt-to-income ratio
and generally will not exceed $1,000,000, although loans of up to $10,000,000
may be made with senior management approval. Green Tree management may revise
these guidelines from time to time, and the underwriting guidelines may be
exceeded in certain cases with the approval of Green Tree management.
Accordingly, some of the Contracts included in a Trust may not conform in all
respects to the criteria described above. Green Tree will generally finance
premiums for the term of the contract on optional credit life, accident and
health and extended warranty insurance, up to 20% of the sales price of the
Product, and may finance premiums for required physical damage insurance on the
product. If the application meets Green Tree's guidelines and the credit is
approved, Green Tree purchases the contract when the customer accepts delivery
of the Product.
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Currently, Green Tree's consumer finance and equipment finance divisions
finance the purchase of motorcycles; marine products (including boats, boat
trailers and outboard motors); pianos and organs; horse trailers; sport
vehicles (including snowmobiles, personal watercraft and all-terrain vehicles);
trucks; aircraft; and recreational vehicles. The Products financed by Contracts
included in any Trust whose Securities are offered pursuant to this Prospectus
will include only the products listed above.
Loss and Delinquency Information
Each Prospectus Supplement will include Green Tree's loss and delinquency
experience with respect to its entire servicing portfolio of consumer product
contracts. However, there can be no assurance that such experience will be
indicative of the performance of the Contracts included in a particular
Contract Pool.
Ratio of Earnings to Fixed Charges for the Company
Set forth below are the Company's ratios of earnings (losses) to fixed
charges for the past five years and the six months ended June 30, 1998. For the
purposes of compiling these ratios, earnings (losses) consist of earnings
(losses) 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, Six Months Ended
------------------------ June 30,
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings (Losses) to Fixed
Charges............................ 4.81 7.98 7.90 5.44 3.94 (3.18)*
</TABLE>
- --------
* On July 6, 1998, Conseco 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) a
$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 six months
ended June 30, 1998 and earnings were inadequate to cover fixed charges for
such period. The amount of the coverage deficiency for such period was
$444,351,000.
YIELD AND PREPAYMENT CONSIDERATIONS
Unless otherwise specified in the related Prospectus Supplement, many of the
Contracts will be simple interest retail installment sales contracts and
promissory notes. Payments on simple interest obligations are applied first to
interest accrued through the payment date, and the remainder is applied to
reduce the unpaid principal balance. Accordingly, if an Obligor pays an
installment before its due date, the portion of the payment allocable to
interest for the period will be less than if the payment had been made on the
due date, the portion of the payment applied to reduce the principal balance
will be correspondingly greater, and the principal balance will be amortized
more rapidly than scheduled. Conversely, if an Obligor pays an installment
after its due date, the portion of the payment allocable to interest will be
greater than if the payment had been made on the due date, the portion of the
payment applied to reduce the principal balance will be correspondingly less,
and the principal balance will be amortized slower than scheduled, in which
case a larger portion of the principal balance may be due on the final
scheduled payment date. Any interest shortfalls resulting from early payment or
prepayment of a Contract will be funded by collections on other Contracts or,
to
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the extent collections are insufficient, by payments under the applicable form
of credit enhancement, if any, described in the related Prospectus Supplement.
The Contracts will be prepayable, without premium or penalty, by Obligors at
any time. Prepayments (or, for this purpose, equivalent payments to a Trust)
also may result from liquidations due to default, receipt of proceeds from
insurance policies, repurchases by Green Tree due to breach of a representation
or warranty, or as a result of Green Tree or the Servicer exercising its option
to purchase the Contract Pool. See "Description of the Trust Documents." The
rate of prepayments on the Contracts may be influenced by a variety of
economic, social and other factors. No assurance can be given that prepayments
on the Contracts will conform to any estimated or actual historical experience,
and no prediction can be made as to the actual prepayment rates which will be
experienced on the Contracts. Certificateholders and Noteholders will bear all
reinvestment risk resulting from the timing of payments of principal on the
Certificates or the Notes, as the case may be.
POOL FACTOR
The "Certificate Pool Factor" for each class of Certificates will be an
eight-digit decimal which the Servicer will compute indicating the Certificate
Balance with respect to such Certificates as of each Distribution Date (after
giving effect to all distributions of principal made on such Distribution
Date), as a fraction of the Original Principal Balance of such Certificates.
The "Note Pool Factor" for each class of Notes, if any, will be an eight-digit
decimal which the Servicer will compute indicating the remaining outstanding
principal balance with respect to such Notes as of each Distribution Date
(after giving effect to all distributions of principal on such Distribution
Date) as a fraction of the initial outstanding principal balance of such class
of Notes. Each Certificate Pool Factor and each Note Pool Factor will initially
be 1.00000000; thereafter, the Certificate Pool Factor and the Note Pool Factor
will decline to reflect reductions in the Certificate Balance of the applicable
class of Certificates or reductions in the outstanding principal balance of the
applicable class of Notes, as the case may be. The amount of a
Certificateholder's pro rata share of the Certificate Balance for the related
class of Certificates can be determined by multiplying the original
denomination of the Certificateholder's Certificate by the then applicable
Certificate Pool Factor. The amount of a Noteholder's pro rata share of the
aggregate outstanding principal balance of the applicable class of Notes can be
determined by multiplying the original denomination of such Noteholder's Note
by the then applicable Note Pool Factor.
With respect to each Trust and pursuant to the related Trust Documents, on
each Distribution Date or Payment Date, as the case may be, the related
Certificateholders and Noteholders will receive periodic reports from the
Trustee stating the Certificate Pool Factor or the Note Pool Factor, as the
case may be, and containing various other items of information. Unless and
until Definitive Certificates or Definitive Notes are issued, such reports will
be sent on behalf of the Trust to the Trustee and the Indenture Trustee (if
any) and Cede & Co., as registered holder of the Certificates and the Notes and
the nominee of DTC. Certificate Owners and Note Owners may receive such
reports, upon written request, together with a certification that they are
Certificate Owners or Note Owners and payment of any expenses associated with
the distribution of such reports, from the Trustee and the Indenture Trustee
(if any) at the addresses specified in the related Prospectus Supplement. See
"Certain Information Regarding the Securities--Statements to Securityholders."
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<PAGE>
USE OF PROCEEDS
Unless otherwise specified in the related Prospectus Supplement, the net
proceeds to be received by the Trust from the sale of each series of Securities
will be used to pay to Green Tree the purchase price for the Contracts and to
make the deposit of the Pre-Funded Amount into the Pre-Funding Account, if any,
to repay warehouse lenders and/or to provide for other forms of credit
enhancement specified in the related Prospectus Supplement. The net proceeds to
be received by Green Tree will be used to pay its warehouse loans, and any
additional proceeds will be added to Green Tree's general funds and used for
its general corporate purposes.
THE CERTIFICATES
General
With respect to each Trust, one or more classes of Certificates of a given
series will be issued pursuant to Trust Documents to be entered into between
Green Tree, as Seller and as Servicer, and the Trustee, forms of which have
been filed as exhibits to the Registration Statement of which this Prospectus
forms a part. The following summary does not purport to be complete and is
subject to, and is qualified in its entirety by reference to, all of the
material provisions of the Trust Documents. Where particular provisions of or
terms used in the Trust Documents are referred to, the actual provisions
(including definitions of terms) are incorporated by reference as part of this
summary.
Unless otherwise specified in the related Prospectus Supplement, each class
of Certificates will initially be represented by a single Certificate
registered in the name of the nominee of DTC (together with any successor
depository selected by the Seller, the "Depository"). See "Certain Information
Regarding the Securities--Book-Entry Registration." Unless otherwise specified
in the related Prospectus Supplement, the Certificates evidencing interests in
a Trust will be available for purchase in denominations of $1,000 initial
principal amount and integral multiples thereof, except that one Certificate
evidencing an interest in such Trust may be issued in a denomination that is
less than $1,000 initial principal amount. Certificates may be transferred or
exchanged without the payment of any service charge other than any tax or
governmental charge payable in connection with such transfer or exchange.
Unless otherwise specified in the related Prospectus Supplement, the Trustee
will initially be designated as the registrar for the Certificates.
Distributions of Interest and Principal
The timing and priority of distributions, seniority, allocations of loss,
Pass-Through Rate and amount of or method of determining distributions with
respect to principal and interest (or, where applicable, with respect to
principal only or interest only) on the Certificates of any series will be
described in the related Prospectus Supplement. Distributions of interest on
the Certificates will be made on the dates specified in the related Prospectus
Supplement (each, a "Distribution Date") and, unless otherwise specified in the
related Prospectus Supplement, will be made prior to distributions with respect
to principal.
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<PAGE>
A series may include one or more classes of Stripped Certificates entitled to
(i) distributions in respect of principal with disproportionate, nominal or no
interest distribution, or (ii) interest distributions, with disproportionate,
nominal or no distributions in respect of principal. Each class of Certificates
may have a different Pass-Through Rate, which may be a fixed, variable or
adjustable Pass-Through Rate (and which may be zero for certain classes of
Stripped Certificates), or any combination of the foregoing. The related
Prospectus Supplement will specify the Pass-Through Rate for each class of
Certificate, or the initial Pass-Through Rate and the method for determining
the Pass-Through Rate. Unless otherwise specified in the related Prospectus
Supplement, interest on the Certificates will be calculated on the basis of a
360-day year consisting of twelve 30-day months. Unless otherwise specified in
the related Prospectus Supplement, distributions in respect of the Certificates
will be subordinate to payments in respect of the Notes, if any, as more fully
described in the related Prospectus Supplement. Distributions in respect of
principal of any class of Certificates will be made on a pro rata basis among
all of the Certificateholders of such class.
In the case of a series of Certificates which includes two or more classes of
Certificates, the timing, sequential order, priority of payment or amount of
distributions in respect of principal, and any schedule or formula or other
provisions applicable to the determination thereof, of each such class shall be
as set forth in the related Prospectus Supplement.
THE NOTES
General
A series of Securities may include one or more classes of Notes issued
pursuant to the terms of an Indenture, a form of which has been filed as an
exhibit to the Registration Statement of which this Prospectus forms a part.
Unless otherwise specified in the related Prospectus Supplement, no Notes will
be issued as a part of any series. The following summary does not purport to be
complete and is subject to, and is qualified in its entirety by reference to,
all of the provisions of the Notes and the Indenture, and the following summary
will be supplemented in whole or in part by the related Prospectus Supplement.
Where particular provisions of or terms used in the Indenture are referred to,
the actual provisions (including definition of terms) are incorporated by
reference as part of this summary.
Unless otherwise specified in the related Prospectus Supplement, each class
of Notes will initially be represented by a single Note registered in the name
of the nominee of the Depository. See "Certain Information Regarding the
Securities--Book-Entry Registration." Unless otherwise specified in the related
Prospectus Supplement, Notes will be available for purchase in denominations of
$1,000 and integral multiples thereof. Notes may be transferred or exchanged
without the payment of any service charge other than any tax or governmental
charge payable in connection with such transfer or exchange. Unless otherwise
provided in the related Prospectus Supplement, the Indenture Trustee will
initially be designated as the registrar for the Notes.
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<PAGE>
Principal and Interest on the Notes
The timing and priority of payment, seniority, allocations of loss, Interest
Rate and amount of or method of determining payments of principal and interest
on the Notes will be described in the related Prospectus Supplement. The right
of holders of any class of Notes to receive payments of principal and interest
may be senior or subordinate to the rights of holders of any class or classes
of Notes of such series, or any class of Certificates, as described in the
related Prospectus Supplement. Unless otherwise provided in the related
Prospectus Supplement, payments of interest on the Notes will be made prior to
payments of principal thereon. A series may include one or more classes of
Stripped Notes entitled to (i) principal payments with disproportionate,
nominal or no interest payment, or (ii) interest payments with
disproportionate, nominal or no principal payments. Each class of Notes may
have a different Interest Rate, which may be a fixed, variable or adjustable
Interest Rate (and which may be zero for certain classes of Stripped Notes), or
any combination of the foregoing. The related Prospectus Supplement will
specify the Interest Rate for each class of Notes, or the initial Interest Rate
and the method for determining the Interest Rate. One or more classes of Notes
of a series may be redeemable under the circumstances specified in the related
Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, payments in
respect of interest to Noteholders of all classes within a series will have the
same priority. Under certain circumstances, the amount available for such
payments could be less than the amount of interest payable on the Notes on any
of the dates specified for payments in the related Prospectus Supplement (each,
a "Payment Date"), in which case each class of Noteholders will receive their
ratable share (based upon the aggregate amount of interest due to such class of
Noteholders) of the aggregate amount available to be distributed in respect of
interest on the Notes.
In the case of a series of Securities which includes two or more classes of
Notes, the sequential order and priority of payment in respect of principal and
interest, and any schedule or formula or other provisions applicable to the
determination thereof, of each such class will be set forth in the related
Prospectus Supplement. Unless otherwise specified in the related Prospectus
Supplement, payments in respect of principal and interest of any class of Notes
will be made on a pro rata basis among all of the Notes of such class.
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
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<PAGE>
convey, transfer, assign, mortgage or pledge any property to or with the
Indenture Trustee; (v) to cure any ambiguity or correct or supplement any
provision in the Indenture or in any supplemental indenture; (vi) to provide
for the acceptance of the appointment of a successor Indenture Trustee or to
add to or change any of the provisions of the Indenture or any supplemental
indenture which may be inconsistent with any other provision of the Indenture
as shall be necessary and permitted to facilitate the administration by more
than one trustee; (vii) to modify, eliminate or add to the provisions of the
Indenture in order to comply with the Trust Indenture Act of 1939, as amended;
and (viii) to add any provisions to, change in any manner, or eliminate any of
the provisions of, the Indenture or modify in any manner the rights of
Noteholders under such Indenture; provided that any action specified in this
clause (viii) shall not, as evidenced by an opinion of counsel, adversely
affect in any material respect the interests of any related Noteholder unless
Noteholder consent is otherwise obtained as described below.
Modifications of Indenture With Noteholder Consent. With respect to each
Trust, with the consent of the holders representing a majority of the principal
balance of the outstanding related Notes (a "Note Majority"), the Owner Trustee
and the Indenture Trustee may execute a supplemental indenture to add
provisions, to change in any manner or eliminate any provisions of, the related
Indenture, or modify in any manner the rights of the related Noteholders.
Without the consent of the holder of each outstanding related Note affected
thereby, however, no supplemental indenture may: (i) change the due date of any
installment of principal of or interest on any Note or reduce the principal
amount thereof, the interest rate specified thereon or the redemption price
with respect thereto or change the manner of calculating any such payment, any
place of payment where, or the coin or currency in which any Note or any
interest thereon is payable; (ii) impair the right to institute suit for the
enforcement of certain provisions of the Indenture regarding payment; (iii)
reduce the percentage of the aggregate amount of the outstanding Notes the
consent of the holders of which is required for any such supplemental indenture
or the consent of the holders of which is required for any waiver of compliance
with certain provisions of the Indenture or of certain defaults thereunder and
their consequences as provided for in the Indenture; (iv) modify or alter the
provisions of the Indenture regarding the voting of Notes held by the related
Trust, any other obligor on the Notes, the Seller or an affiliate of any of
them; (v) reduce the percentage of the aggregate outstanding amount of the
Notes the consent of the holders of which is required to direct the Indenture
Trustee to sell or liquidate the Contracts if the proceeds of such sale would
be insufficient to pay the principal amount and accrued but unpaid interest on
the outstanding Notes; (vi) decrease the percentage of the aggregate principal
amount of the Notes required to amend the sections of the Indenture which
specify the applicable percentage of aggregate principal amount of the Notes
necessary to amend the Indenture or certain other related agreements; or (vii)
permit the creation of any lien ranking prior to or on a parity with the lien
of the Indenture with respect to any of the collateral for the Notes or, except
as otherwise permitted or contemplated in the Indenture, terminate the lien of
the Indenture on any such collateral or deprive the holder of any Note of the
security afforded by the lien of the Indenture.
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<PAGE>
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
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of the accrued interest on and unpaid principal balances of the Notes will be
made prior to any further payment of interest or principal on the Certificates.
Subject to the provisions of the Indenture relating to the duties of the
Indenture Trustee, if an Event of Default occurs and is continuing with respect
to a series of Notes, the Indenture Trustee will be under no obligation to
exercise any of the rights or powers under the Indenture at the request or
direction of any of the holders of such Notes, if the Indenture Trustee
reasonably believes it will not be adequately indemnified against the costs,
expenses and liabilities which might be incurred by it in complying with such
request. Subject to the provisions for indemnification and certain limitations
contained in the Indenture, a Note Majority in a series will have the right to
direct the time, method and place of conducting any proceeding or any remedy
available to the Indenture Trustee, and a Note Majority may, in certain cases,
waive any default with respect thereto, except a default in the payment of
principal or interest or a default in respect of a covenant or provision of the
Indenture that cannot be modified without the waiver or consent of all of the
holders of such outstanding Notes.
No holder of a Note of any series will have the right to institute any
proceeding with respect to the related Indenture, unless (i) such holder
previously has given to the Indenture Trustee written notice of a continuing
Event of Default, (ii) the holders of not less than 25% in principal amount of
the outstanding Notes of such series have made written request of the Indenture
Trustee to institute such proceeding in its own name as Indenture Trustee,
(iii) such holder or holders have offered the Indenture Trustee reasonable
indemnity, (iv) the Indenture Trustee has for 60 days failed to institute such
proceeding, and (v) no direction inconsistent with such written request has
been given to the Indenture Trustee during such 60-day period by the holders of
a majority in principal amount of such outstanding Notes.
If an Event of Default occurs and is continuing and if it is known to the
Indenture Trustee, the Indenture Trustee will mail to each Noteholder notice of
the Event of Default within 90 days after it occurs. Except in the case of a
failure to pay principal of or interest on any Note, the Indenture Trustee may
withhold the notice if and so long as it determines in good faith that
withholding the notice is in the interests of the Noteholders.
In addition, each Indenture Trustee and the related Noteholders, by accepting
the related Notes, will covenant that they will not at any time institute
against the Seller or the related Trust any bankruptcy, reorganization or other
proceeding under any federal or state bankruptcy or similar law.
Neither the Indenture Trustee nor the Trustee in its individual capacity, nor
any holder of a Certificate including, without limitation, the Seller, nor any
of their respective owners, beneficiaries, agents, officers, directors,
employees, affiliates, successors or assigns will, in the absence of an express
agreement to the contrary, be personally liable for the payment of the related
Notes or for any agreement or covenant of the related Trust contained in the
Indenture.
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Certain Covenants. Each Indenture will provide that the related Trust may not
consolidate with or merge into any other entity, unless (i) the entity formed
by or surviving such consolidation or merger is organized under the laws of the
United States or any state, (ii) such entity expressly assumes the Trust's
obligation to make due and punctual payments upon the Notes and the performance
or observance of every agreement and covenant of the Trust under the Indenture,
(iii) no Event of Default shall have occurred and be continuing immediately
after such merger or consolidation, (iv) the Trustee has been advised that the
then current rating of the related Notes or Certificates then in effect would
not be reduced or withdrawn by the Rating Agencies as a result of such merger
or consolidation, (v) the Trustee has received an opinion of counsel to the
effect that such consolidation or merger would have no material adverse tax
consequence to the Trust or to any related Note Owner or Certificate Owner.
Each Trust will not, among other things, (i) except as expressly permitted by
the Indenture, the Trust Documents or certain related documents for such Trust
(collectively, the "Related Documents"), sell, transfer, exchange or otherwise
dispose of any of the assets of the Trust, (ii) claim any credit on or make any
deduction from the principal and interest payable in respect of the related
Notes (other than amounts withheld under the Code or applicable state law) or
assert any claim against any present or former holder of such Notes because of
the payment of taxes levied or assessed upon the Trust, (iii) dissolve or
liquidate in whole or in part, (iv) permit the validity or effectiveness of the
related Indenture to be impaired or permit any person to be released from any
covenants or obligations with respect to the related Notes under such Indenture
except as may be expressly permitted thereby, or (v) except as expressly
permitted by the Related Documents, permit any lien, charge, excise, claim,
security interest, mortgage or other encumbrance to be created on or extend to
or otherwise arise upon or burden the assets of the Trust or any part thereof,
or any interest therein or proceeds thereof.
No Trust may engage in any activity other than as specified under the section
of the related Prospectus Supplement entitled "The Trust." No Trust will incur,
assume or guarantee any indebtedness other than indebtedness incurred pursuant
to the related Notes and the related Indenture or otherwise in accordance with
the Related Documents.
Annual Compliance Statement. Each Trust will be required to file annually
with the related Indenture Trustee a written statement as to the fulfillment of
its obligations under the Indenture.
Indenture Trustee's Annual Report. The Indenture Trustee will be required to
mail each year to all related Noteholders a brief report relating to its
eligibility and qualification to continue as Indenture Trustee under the
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
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reports, from the Indenture Trustee at the address specified in the related
Prospectus Supplement.
Satisfaction and Discharge of Indenture. The Indenture will be discharged
with respect to the collateral securing the related Notes upon the delivery to
the related Indenture Trustee for cancellation of all such Notes or, with
certain limitations, upon deposit with the Indenture Trustee of funds
sufficient for the payment in full of all of such Notes.
The Indenture Trustee
The Indenture Trustee for a series of Notes will be specified in the related
Prospectus Supplement. The Indenture Trustee may resign at any time, in which
event the Seller will be obligated to appoint a successor trustee. Green Tree
may also remove the Indenture Trustee if the Indenture Trustee ceases to be
eligible to continue as such under the Indenture or if the Indenture Trustee
becomes insolvent. In such circumstances, Green Tree will be obligated to
appoint a successor trustee. Any resignation or removal of the Indenture
Trustee and appointment of a successor trustee will be subject to any
conditions or approvals, if any, specified in the related Prospectus Supplement
and will not become effective until acceptance of the appointment by a
successor trustee.
CERTAIN INFORMATION REGARDING THE SECURITIES
Book-Entry Registration
Unless otherwise provided in the related Prospectus Supplement, the
Securities of each series will be registered in the name of Cede & Co., the
nominee of DTC. DTC is a limited-purpose trust company organized under the laws
of the State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Exchange Act. DTC accepts securities for deposit from its participating
organizations ("Participants") and facilitates the clearance and settlement of
securities transactions between Participants in such securities through
electronic book-entry changes in accounts of Participants, thereby eliminating
the need for physical movement of certificates. Participants include securities
brokers and dealers, banks and trust companies and clearing corporations and
may include certain other organizations. Indirect access to the DTC system is
also available to others such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a Participant,
either directly or indirectly ("indirect participants").
Certificate Owners and Note Owners who are not Participants but desire to
purchase, sell or otherwise transfer ownership of Securities may do so only
through Participants (unless and until Definitive Certificates or Definitive
Notes, each as defined below, are issued). In addition, Certificate Owners and
Note Owners will receive all distributions of principal of, and interest on,
the Securities from the Trustee or the Indenture Trustee, as applicable,
through DTC and Participants. Certificate Owners and Note Owners will not
receive or be entitled to receive certificates representing their respective
interests in the
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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 and Notes (if any) will be issued
in registered form to Certificate Owners and Note Owners, or their nominees,
rather than to DTC (such Certificates and Notes being referred to herein as
"Definitive Certificates" and "Definitive Notes," respectively), only if (i)
DTC, the Seller or the Servicer advises the Trustee or the Indenture Trustee,
as the case may be, in writing that DTC is no longer willing or able to
discharge properly its responsibilities as nominee and depository with respect
to the Certificates or the Notes, and the Seller, the Servicer, the Trustee or
the Indenture Trustee, as the case may be, is unable to locate a qualified
successor, (ii) the Seller or the Administrator (if any) at its sole option has
advised the Trustee or the Indenture Trustee, as the case may be, in writing
that it elects to terminate the book-entry system through DTC and (iii) after
the occurrence of a Servicer Termination Event, the holders representing a
majority of the Certificate Balance (a "Certificate Majority") or a Note
Majority advises the Trustee or the Indenture Trustee, as the case may be,
through DTC, that continuation of a book-entry system is no longer in their
best interests. Upon issuance of Definitive Certificates or Definitive Notes to
Certificate Owners or Note Owners, such Certificates or Notes will be
transferable directly (and not exclusively on a book-entry basis) and
registered holders will deal directly with the Trustee or the Indenture
Trustee, as the case may be, with respect to transfers, notices and
distributions.
DTC has advised the Seller that, unless and until Definitive Certificates or
Definitive Notes are issued, DTC will take any action permitted to be taken by
a Certificateholder or a Noteholder under the related Trust Documents or
Indenture only at the direction of one or
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more Participants to whose DTC accounts the Certificates or Notes are credited.
DTC has advised the Seller that DTC will take such action with respect to any
fractional interest of the Certificates or the Notes only at the direction of
and on behalf of such Participants beneficially owning a corresponding
fractional interest of the Certificates or the Notes. DTC may take actions, at
the direction of the related Participants, with respect to some Certificates or
Notes which conflict with actions taken with respect to other Certificates or
Notes.
Issuance of Certificates and Notes in book-entry form rather than as physical
certificates or notes may adversely affect the liquidity of Certificates or
Notes in the secondary market and the ability of the Certificate Owners or Note
Owners to pledge them. In addition, since distributions on the Certificates and
the Notes will be made by the Trustee or the Indenture Trustee to DTC and DTC
will credit such distributions to the accounts of its Participants, with the
Participants further crediting such distributions to the accounts of indirect
participants or Certificate Owners or Note Owners, Certificate Owners and Note
Owners may experience delays in the receipt of such distributions.
Statements to Securityholders
On or prior to each Distribution Date, the Servicer will prepare and provide
to the Trustee a statement to be delivered to the related Certificateholders on
such Distribution Date. On or prior to each Distribution Date, the Servicer
will prepare and provide to the Indenture Trustee a statement to be delivered
to the related Noteholders on such Distribution Date. Such statements will be
based on the information in the related Servicer's Certificate setting forth
certain information required under the Trust Documents (the "Servicer's
Certificate"). Unless otherwise specified in the related Prospectus Supplement,
each such statement to be delivered to Certificateholders will include the
following information as to the Certificates with respect to such Distribution
Date or the period since the previous Distribution Date, as applicable, and
each such statement to be delivered to Noteholders will include the following
information as to the Notes with respect to such Distribution Date or the
period since the previous Distribution Date, as applicable:
(i) the amount of the distribution allocable to interest on or with
respect to each class of Securities;
(ii) the amount of the distribution allocable to principal on or with
respect to each class of Securities;
(iii) the Certificate Balance and the Certificate Pool Factor for each
class of Certificates and the aggregate outstanding principal balance and
the Note Pool Factor for each class of Notes, after giving effect to all
payments reported under (ii) above on such date;
(iv) the amount of the Servicing Fee paid to the Servicer with respect to
the related Monthly Period or Periods, as the case may be;
(v) the Pass-Through Rate or Interest Rate for the next period for any
class of Certificates or Notes with variable or adjustable rates;
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(vi) the amount of Advances made by the Servicer with respect to such
Distribution Date, and the amount paid to the Servicer on such Distribution
Date as reimbursement of Advances made on previous Distribution Dates;
(vii) the amount, if any, distributed to Certificateholders and
Noteholders applicable to payments under the related form of credit
enhancement, if any; and
(viii) such other information as may be specified in the related
Prospectus Supplement.
Each amount set forth pursuant to subclauses (i), (ii), (iv) and (vi) with
respect to Certificates or Notes will be expressed as a dollar amount per
$1,000 of the initial Certificate Balance or the initial principal balance of
the Notes, as applicable.
Unless and until Definitive Certificates or Definitive Notes are issued, such
reports with respect to a series of Securities will be sent on behalf of the
related Trust to the Trustee, the Indenture Trustee and Cede & Co., as
registered holder of the Certificates and the Notes and the nominee of DTC.
Certificate Owners and Note Owners may receive copies of such reports upon
written request, together with a certification that they are Certificate Owners
or Note Owners, as the case may be, and payment of reproduction and postage
expenses associated with the distribution of such reports, from the Trustee or
the Indenture Trustee, as applicable. See "Reports to Securityholders" and "--
Book-Entry Registration" above.
Within the prescribed period of time for tax reporting purposes after the end
of each calendar year during the term of a Trust, the Trustee and the Indenture
Trustee, as applicable, will mail to each holder of a class of Securities who
at any time during such calendar year has been a Securityholder, and received
any payment thereon, a statement containing certain information for the
purposes of such Securityholder's preparation of federal income tax returns.
DTC will convey such information to its Participants, who in turn will convey
such information to their related indirect participants in accordance with
arrangements among DTC and such participants. Certificate Owners and Note
Owners may receive such reports upon written request, together with a
certification that they are Certificate Owners or Note Owners and payment of
reproduction and postage expenses associated with the distribution of such
information, from the Trustee, with respect to Certificate Owners, or from the
Indenture Trustee, with respect to Note Owners, at the addresses specified in
the related Prospectus Supplement. See "Certain Federal Income Tax
Consequences."
Lists of Securityholders
Unless otherwise provided in the related Prospectus Supplement, with respect
to each series of Certificates, at such time, if any, as Definitive
Certificates have been issued, the Trustee will, upon written request by three
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
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such Certificateholders access during business hours to the current list of
Certificateholders for purposes of communicating with other Certificateholders
with respect to their rights under the Trust Documents. Unless otherwise
specified in the related Prospectus Supplement, the Trust Documents will not
provide for holding any annual or other meetings of Certificateholders.
Unless otherwise provided in the related Prospectus Supplement, with respect
to each series of Notes, if any, at such time, if any, as Definitive Notes have
been issued, the Indenture Trustee will, upon written request by three or more
Noteholders or one or more holders of Notes evidencing not less than 25% of the
aggregate principal balance of the related Notes, within five Business Days
after provision to the Indenture Trustee of a statement of the applicants'
desire to communicate with other Noteholders about their rights under the
related Indenture or the Notes and a copy of the communication that the
applicants propose to transmit, afford such Noteholders access during business
hours to the current list of Noteholders for purposes of communicating with
other Noteholders with respect to their rights under the Indenture. Unless
otherwise specified in the related Prospectus Supplement, the Indenture will
not provide for holding any annual or other meetings of Noteholders.
DESCRIPTION OF THE TRUST DOCUMENTS
Except as otherwise specified in the related Prospectus Supplement, the
following summary describes certain terms of either (i) the Pooling and
Servicing Agreements or (ii) the Sale and Servicing Agreements and the Trust
Agreements (in either case collectively referred to as the "Trust Documents")
pursuant to which Green Tree will sell and assign such Contracts to a Trust and
the Servicer will agree to service such Contracts on behalf of the Trust, and
pursuant to which such Trust will be created and Certificates will be issued.
Forms of the Trust Documents have been filed as exhibits to the Registration
Statement of which this Prospectus forms a part. Green Tree will provide a copy
of such agreements (without exhibits) upon request to a holder of Securities
described therein. This summary does not purport to be complete and is subject
to, and qualified in its entirety by reference to, all of the provisions of the
Trust Documents. Where particular provisions or terms used in the Trust
Documents are referred to, the actual provisions (including definitions of
terms) are incorporated by reference as part of such summary.
Sale and Assignment of the Contracts
On the Closing Date, Green Tree will sell and assign to the Trust, without
recourse, Green Tree's entire interest in the related Contracts and the
proceeds thereof, including its security interests in the related Products.
Each Contract transferred by Green Tree to the Trust will be identified in a
schedule appearing as an exhibit to the related Trust Documents (the "Schedule
of Contracts"). Concurrently with such sale and assignment, the Trustee will
execute and deliver the related certificates representing the Certificates to
or upon the order of the Seller, and the Trustee will execute and the Indenture
Trustee will authenticate and deliver the Notes, if any, to or upon the order
of the Seller.
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Except as otherwise specified in the related Prospectus Supplement, Green
Tree will make certain warranties in the Trust Documents with respect to each
Contract as of the Closing Date, including that: (a) as of the Cutoff Date, the
most recent scheduled payment was made or was not delinquent more than 59 days;
(b) no provision of a Contract has been waived, altered or modified in any
respect, except by instruments or documents contained in the Contract file; (c)
each Contract is a legal, valid and binding obligation of the Obligor and is
enforceable in accordance with its terms (except as may be limited by laws
affecting creditors' rights generally); (d) no Contract is subject to any right
of rescission, set-off, counterclaim or defense; (e) for Contracts with an
original balance greater than $7,500, the related Product is covered by
insurance naming Green Tree as an additional insured party; (f) each Contract
has been originated by a dealer or Green Tree in the ordinary course of such
dealer's, or Green Tree's business and, if originated by a dealer, was
purchased by Green Tree in the ordinary course of business; (g) no Contract was
originated in or is subject to the laws of any jurisdiction whose laws would
make the transfer of the Contract or an interest therein to the Trustee
pursuant to the Trust Documents or pursuant to the Notes or Certificates
unlawful; (h) each Contract complies with all requirements of law; (i) no
Contract has been satisfied, subordinated to a lower lien ranking than its
original position in whole or in part or rescinded and the Product has not been
released from the lien of the Contract in whole or in part; (j) each Contract
creates a valid and enforceable first priority security interest in favor of
Green Tree in the Product covered thereby and such security interest has been
assigned by Green Tree to the Trustee; (k) all parties to each Contract had
capacity to execute such Contract; (l) no Contract has been sold, assigned or
pledged to any other person and prior to the transfer of the Contracts by Green
Tree to the Trustee, Green Tree had good and marketable title to each Contract
free and clear of any encumbrance, equity, loan, pledge, charge, claim or
security interest, and was the sole owner and had full right to transfer such
Contract to the Trustee; (m) as of the Cutoff Date, there was no default,
breach, violation or event permitting acceleration under any Contract (except
for payment delinquencies permitted by clause (a) above), no event which with
notice and the expiration of any grace or cure period would constitute a
default, breach, violation or event permitting acceleration under such
Contract, and Green Tree has not waived any of the foregoing; (n) as of the
Closing Date there were, to the best of Green Tree's knowledge, no liens or
claims which have been filed for work, labor or materials affecting the Product
securing a Contract, which are or may be liens prior or equal to the lien of
the Contract; (o) each Contract is a fully-amortizing loan and provides for
level payments over the term of such Contract; (p) each Contract contains
customary and enforceable provisions such as to render the rights and remedies
of the Holder thereof adequate for realization against the collateral of the
benefits of the security; (q) the description of each Contract set forth in the
Schedule of Contracts delivered to the Trustee is true and correct; and (r)
there is only one original of each Contract (other than the copy in the
possession of the Obligor).
The warranties of Green Tree will be made as of the execution and delivery of
the related Trust Documents and will survive the sale, transfer and assignment
of the related Contracts and other Trust Property to the Trust but will speak
only as of the date made.
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Green Tree will be obligated to repurchase for the Repurchase Price (as
defined below) any Contract on the first business day after the first
Determination Date which is more than 90 days after Green Tree becomes aware,
or should have become aware, or Green Tree's receipt of written notice from the
Trustee or the Servicer, of a breach of any representation or warranty of Green
Tree in the Trust Documents that materially adversely affects the Trust's
interest in any Contract if such breach has not been cured. The Repurchase
Price for any Contract will be the remaining principal amount outstanding on
such Contract on the date of repurchase plus accrued and unpaid interest
thereon at its Contract Rate to the date of such repurchase. This repurchase
obligation constitutes the sole remedy available to the Trust and the
Securityholders for a breach of a representation or warranty under the Trust
Documents with respect to the Contracts (but not with respect to any other
breach by Green Tree of its obligations under the Trust Documents).
Upon the purchase by Green Tree of a Contract due to a breach of a
representation or warranty, the Trustee will convey such Contract and the
related Trust Property to Green Tree.
Custody of Contract Files
Unless otherwise specified in the related Prospectus Supplement, Green Tree
initially will be appointed to act as custodian for the Contract Files of each
Trust. Prior to the appointment of any custodian other than Green Tree, the
Trust and such institution specified in the related Prospectus Supplement shall
enter into a custodian agreement pursuant to which such institution will agree
to hold the Contract Files on behalf of the related Trust. Any such custodian
agreement may be terminated by the Trust on 30 days' notice to such
institution.
To facilitate servicing and save administrative costs, the documents will not
be physically segregated from other similar documents that are in Green Tree's
possession. UCC financing statements will be filed in Minnesota reflecting the
sale and assignment of the Contracts to the Trustee, and Green Tree's
accounting records and computer systems will also reflect such sale and
assignment. In addition, the Contracts that are in Green Tree's possession will
be stamped or otherwise marked to indicate that such Contracts have been sold
to the related Trust. Despite these precautions, if, through inadvertence or
otherwise, any of the Contracts were sold to another party (or a security
interest therein were granted to another party) that purchased (or took such
security interest in) any of such Contracts in the ordinary course of its
business and took possession of such Contracts, the purchaser (or secured
party) would acquire an interest in the Contracts superior to the interest of
the related Trust if the purchaser (or secured party) acquired (or took a
security interest in) the Contracts for new value and without actual knowledge
of such Trust's interest. See "Certain Legal Aspects of the Contracts--Rights
in the Contracts."
Collections
With respect to each Trust, the Servicer will establish one or more
Collection Accounts in the name of the Trustee or, in the case of any series
including one or more classes of Notes, in the name of the Indenture Trustee
for the benefit of the related Securityholders. If so specified in the related
Prospectus Supplement, the Trustee will establish and maintain for
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each series an account, in the name of the Trustee on behalf of the related
Certificateholders, in which amounts released from the Collection Account and
any Pre-Funding Account and any amounts received from any source of credit
enhancement for distribution to such Certificateholders will be deposited and
from which all distributions to such Certificateholders will be made (the
"Certificate Distribution Account"). With respect to any series including one
or more classes of Notes, the Indenture Trustee will establish and maintain for
each series an account, in the name of the Indenture Trustee on behalf of the
related Noteholders, in which amounts released from the Collection Account and
any Pre-Funding Account and any amounts received from any source of credit
enhancement for payment to such Noteholders will be deposited and from which
all distributions to such Noteholders will be made (the "Note Distribution
Account"). The Collection Account, the Certificate Distribution Account (if
any), and the Note Distribution Account (if any), are referred to herein
collectively as the "Designated Accounts." Any other accounts to be established
with respect to a Trust will be described in the related Prospectus Supplement.
Each Designated Account will be an Eligible Account maintained with the
Trustee, the Indenture Trustee and/or other depository institutions. "Eligible
Account" means any account which is (i) an account maintained with an Eligible
Institution (as defined below); (ii) an account or accounts the deposits in
which are fully insured by either the Bank Insurance Fund or the Savings
Association Insurance Fund of the FDIC; (iii) a "segregated trust account"
maintained with the corporate trust department of a federal or state chartered
depository institution or trust company with trust powers and acting in its
fiduciary capacity for the benefit of the Trustee, which depository institution
or trust company has capital and surplus (or, if such depository institution or
trust company is a subsidiary of a bank holding company system, the capital and
surplus of the bank holding company) of not less than $50,000,000 and the
securities of such depository institution (or, if such depository institution
is a subsidiary of a bank holding company system and such depository
institution's securities are not rated, the securities of the bank holding
company) has a credit rating from each rating agency rating such series of
Notes and/or Certificates (a "Rating Agency") in one of its generic credit
rating categories which signifies investment grade; or (iv) an account that
will not cause any Rating Agency to downgrade or withdraw its then-current
rating assigned to the Securities, as confirmed in writing by each Rating
Agency. "Eligible Institution" means any depository institution organized under
the laws of the United States or any state, the deposits of which are insured
to the full extent permitted by law by the Bank Insurance Fund (currently
administered by the Federal Deposit Insurance Corporation), whose short-term
deposits have been rated in one of the two highest rating categories or such
other rating category as will not adversely affect the ratings assigned to the
Securities of such series. On the Closing Date specified in the related
Prospectus Supplement, the Servicer will cause to be deposited in the
Collection Account all payments on the Contracts received by the Servicer after
the Cutoff Date and on or prior to the second Business Day preceding the
Closing Date.
The Servicer will deposit all payments on the Contracts held by any Trust
received directly by the Servicer from Obligors and all proceeds of Contracts
collected directly by the Servicer during each Monthly Period into the
Collection Account no later than one Business
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Day after receipt. Notwithstanding the foregoing and unless otherwise provided
in the related Prospectus Supplement, the Servicer may utilize an alternative
remittance schedule, if the Servicer provides to the Trustee and the Indenture
Trustee written confirmation from each Rating Agency that such alternative
remittance schedule will not result in the downgrading or withdrawal by such
Rating Agency of the rating(s) then assigned to the Securities. Green Tree will
also deposit into the Collection Account on or before the Deposit Date the
Purchase Amount of each Contract to be purchased by it for breach of a
representation or warranty.
For any series of Securities, funds in the Designated Accounts and any other
accounts identified in the related Prospectus Supplement will be invested, as
provided in the related Trust Documents, at the direction of the Servicer in
United States government securities and certain other high-quality investments
meeting the criteria specified in the related Trust Documents ("Eligible
Investments"). Eligible Investments shall mature no later than the Business Day
preceding the applicable Distribution Date for the Monthly Period to which such
amounts relate. Investments in Eligible Investments will be made in the name of
the Trustee or the Indenture Trustee, as the case may be, and such investments
will not be sold or disposed of prior to their maturity.
Unless otherwise specified in the related Prospectus Supplement, collections
or recoveries on a Contract (other than late fees or certain other similar fees
or charges) received during a Monthly Period and Purchase Amounts deposited
with the Trustee prior to a Distribution Date will be applied first to any
outstanding Monthly Advances made by the Servicer with respect to such
Contract, and then to interest and principal on the Contract in accordance with
the terms of the Contract.
Servicing Procedures
The Servicer will make reasonable efforts, consistent with the customary
servicing procedures employed by the Servicer with respect to Contracts owned
or serviced by it, to collect all payments due with respect to the Contracts
held by any Trust and, in a manner consistent with the Trust Documents, will
follow its customary collection procedures with respect to secured consumer
loans that it services for itself and others.
Under the Trust Documents, the Servicer will be required to use its best
efforts to repossess or otherwise comparably convert the ownership of any
Product securing a Contract, with respect to which the Servicer has determined
that payments thereunder are not likely to be resumed as soon as practicable
after default on such Contract. The Servicer is authorized to follow such of
its normal collection practices and procedures as it deems necessary or
advisable to realize upon any Contract. The Servicer may repossess and sell the
Product securing such Contract at judicial sale, or take any other action
permitted by applicable law. See "Certain Legal Aspects of the Contracts." The
Servicer will be entitled to recover all reasonable expenses incurred by it in
connection therewith. The proceeds of such realization (net of such expenses)
will be deposited in the Collection Account at the time and in the manner
described above under "--Collections."
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The Trust Documents will provide that the Servicer will indemnify and defend
the Trustee, the Indenture Trustee, the Trust and the Securityholders against,
among other things, any and all costs, expenses, losses, damages, claims and
liabilities, including reasonable fees and expenses of counsel and expenses of
litigation, or in respect of any action taken or failed to be taken by the
Servicer with respect to any portion of the Trust Property in violation of the
provisions of the Trust Documents. The Servicer's obligations to indemnify the
Trustee, the Indenture Trustee, the Trust and the Securityholders for the
Servicer's actions or omissions will survive the removal of the Servicer but
will not apply to any action or omission of a successor Servicer.
Servicing Compensation
Unless otherwise specified in the related Prospectus Supplement, with respect
to each series of Securities, the Servicer will be entitled to receive the
Servicing Fee for each Monthly Period in an amount equal to the product of one-
twelfth of the Servicing Rate and the Aggregate Principal Balance as of the
first day of such Monthly Period. The Servicer also will be entitled to collect
and retain any late fees or other administrative fees or similar charges
allowed by the terms of the Contracts or applicable law. Unless otherwise
provided in the related Prospectus Supplement, the "Servicing Rate" will equal
.75% per annum calculated on the basis of a 360-day year consisting of twelve
30-day months. As long as Green Tree is the Servicer, the Servicing Fee and any
additional servicing compensation will be paid out of collections on or with
respect to the Contracts after the required distributions to Noteholders and
Certificateholders. If Green Tree is no longer the Servicer, the Servicing Fee
and any additional servicing compensation will be paid out of collections on or
with respect to the Contracts prior to distributions to Certificateholders and
Noteholders. Unless otherwise specified in the related Prospectus Supplement, a
"Monthly Period" with respect to any Distribution Date is the calendar month
immediately preceding the month in which the Distribution Date occurs.
Green Tree, as Servicer, will be required to pay all expenses incurred by it
in connection with its servicing activities (including fees, expenses and
disbursements of the Trustee, the Indenture Trustee, the Custodian and
independent accountants, taxes imposed on the Servicer and expenses incurred in
connection with distributions and reports to Certificateholders and
Noteholders), except certain expenses incurred in connection with realizing
upon the Contracts.
Distributions
With respect to each Trust, beginning on the Distribution Date specified in
the related Prospectus Supplement, distributions of principal and interest (or,
where applicable, of principal or interest only) on each class of Securities
entitled thereto will be made by the Trustee or the Indenture Trustee, as
applicable, to the Certificateholders and the Noteholders. The timing,
calculation, allocation, order, source, priorities of and requirements for all
distributions to each class of Certificateholders and all payments to each
class of Noteholders will be set forth in the related Prospectus Supplement.
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Except as otherwise specified in the related Prospectus Supplement, on the
third Business Day prior to each Distribution Date (the "Determination Date"),
the Servicer will determine the Amount Available and the amounts to be
distributed on the Notes and Certificates for such Distribution Date. Except as
otherwise specified in the related Prospectus Supplement, the "Amount
Available" for any Distribution Date will be equal to (i) the funds on deposit
in the Collection Account at the close of business on the last day of the
related Monthly Period, plus (ii) any Advances to be made by the Servicer with
respect to delinquent payments, plus (iii) any Repurchase Amounts to be
deposited by Green Tree with respect to Contracts to be repurchased due to a
breach of a representation or warranty, minus (iv) any amounts paid by Obligors
in the related Monthly Period, but to be applied in respect of a regular
monthly payment due in a subsequent Monthly Period (an "Advance Payment"),
minus (v) any amounts incorrectly deposited in the Collection Account.
Except as otherwise specified in the related Prospectus Supplement, on each
Distribution Date, prior to making distributions in respect of the Notes and
Certificates, the Amount Available will be applied, first, if Green Tree is no
longer the Servicer, to pay the servicing fee to the successor Servicer, and
second, to reimburse the Servicer (including Green Tree) for any Advances made
with respect to a prior Monthly Period and subsequently recovered and for any
Advances previously made that the Servicer has determined are Uncollectible
Advances.
Enhancement
The amounts and types of enhancement arrangements and the provider thereof,
if applicable, with respect to each class of Securities will be set forth in
the related Prospectus Supplement. If and to the extent provided in the related
Prospectus Supplement, enhancement may be in the form of a financial guaranty
insurance policy, letter of credit, Green Tree guaranty, cash reserve fund,
derivative product, or other form of enhancement, or any combination thereof,
as may be described in the related Prospectus Supplement. If specified in the
applicable Prospectus Supplement, enhancement for a class of Securities of a
Series may cover one or more other classes of Securities in such Series, and
accordingly may be exhausted for the benefit of a particular class and
thereafter be unavailable to such other classes. Further information regarding
any provider of enhancement, including financial information when material,
will be included in the related Prospectus Supplement.
The presence of enhancement may be intended to enhance the likelihood of
receipt by the Certificateholders and the Noteholders of the full amount of
principal and interest due thereon and to decrease the likelihood that the
Certificateholders and the Noteholders will experience losses, or may be
structured to provide protection against changes in interest rates or against
other risks, to the extent and under the conditions specified in the related
Prospectus Supplement. Unless otherwise specified in the related Prospectus
Supplement, the enhancement for a class of Securities will not provide
protection against all risks of loss and will not guarantee repayment of the
entire principal and interest thereon. If losses occur which exceed the amount
covered by any enhancement or which are not covered by any enhancement,
Securityholders will bear their allocable share of deficiencies. In addition,
if a form of enhancement covers more than one class of Securities of a Series,
Securityholders of
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any such class will be subject to the risk that such enhancement will be
exhausted by the claims of Securityholders of other classes.
Advances
Unless otherwise specified in the related Prospectus Supplement, the Servicer
will be obligated to make Advances each month of any scheduled payments on the
Contracts included in a Trust that were due but not received during the prior
Monthly Period. The Servicer will be entitled to reimbursement of an Advance
from Available Funds in the Collection Account for the related Trust (i) when
the delinquent payment is recovered by the Trust, or (ii) when the Servicer has
determined that such Advance has become an Uncollectible Advance. The Servicer
will be obligated to make an Advance only to the extent that it determines that
such Advance will be recoverable from subsequent funds available therefor in
the Collection Account for the related Trust.
Evidence as to Compliance
On or before March 31 of each year the Servicer will deliver to each Trustee
and each Indenture Trustee a report of a nationally recognized accounting firm
stating that such firm has examined certain documents and records relating to
the servicing of Contracts serviced by the Servicer under pooling and servicing
agreements or sale and servicing agreements similar to the Trust Documents and
stating that, on the basis of such procedures, such servicing has been
conducted in compliance with the applicable Trust Documents, except for any
exceptions set forth in such report. A copy of such statement may be obtained
by any Certificate Owner or Note Owner upon compliance with the requirements
described above. See "Certain Information Regarding the Securities--Statements
to Securityholders" above.
Certain Matters Regarding the Servicer
Unless otherwise provided in the related Prospectus Supplement, Green Tree's
appointment as Servicer under the related Trust Documents will continue until
such time as it resigns or is terminated as Servicer, or until such time, if
any, as a Servicer Termination Event shall have occurred under the related
Trust Documents. The related Trust Documents will provide that the Servicer may
not resign from its obligations and duties as Servicer thereunder, except upon
a determination (as evidenced by an opinion of independent counsel, delivered
and acceptable to the Trustee and the Indenture Trustee), that by reason of a
change in legal requirements its performance of such duties would cause it to
be in violation of such legal requirements in a manner which would result in a
material adverse effect on the Servicer. No such resignation will become
effective until a successor Servicer has assumed the servicing obligations and
duties under the related Trust Documents.
Unless otherwise provided in the related Prospectus Supplement, any
corporation or other entity into which the Servicer may be merged or
consolidated, resulting from any merger or consolidation to which the Servicer
is a party, which acquires by conveyance, transfer or lease substantially all
of the assets of the Servicer or succeeds to all or substantially all the
business of the Servicer, where the Servicer is not the surviving entity, which
corporation or other entity assumes every obligation of the Servicer under each
Trust
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Document, will be the successor to the Servicer under the related Trust
Documents; provided, however, that (i) such entity is an Eligible Servicer, and
(ii) immediately after giving effect to such transaction, no Servicer
Termination Event and no event which, after notice or lapse of time, or both,
would become a Servicer Termination Event shall have occurred and be
continuing.
Indemnification and Limits on Liability
Unless otherwise specified in the related Prospectus Supplement, the Trust
Documents will provide that the Servicer will be liable only to the extent of
the obligations specifically undertaken by it under the Trust Documents and
will have no other obligations or liabilities thereunder. The Trust Documents
will further provide that neither the Servicer nor any of its directors,
officers, employees and agents will have any liability to the Trust, the
Certificateholders or the Noteholders, except as provided in the Trust
Documents, for any action taken or for refraining from taking any action
pursuant to the Trust Documents, other than any liability that would otherwise
be imposed by reason of the Servicer's breach of the Trust Documents or willful
misfeasance, bad faith or negligence (including errors in judgment) in the
performance of its duties, or by reason of reckless disregard of obligations
and duties under the Trust Documents or any violation of law.
The Servicer may, with the prior consent of the Trustee and the Indenture
Trustee, if any, delegate duties under the related Trust Documents to any of
its affiliates. In addition, the Servicer may at any time perform the specific
duty of repossessing Products through subcontractors who are in the business of
servicing consumer receivables. The Servicer may also perform other specific
duties through subcontractors; provided, however, that no such delegation of
such duties by the Servicer shall relieve the Servicer of its responsibility
with respect thereto.
Servicer Termination Events
Except as otherwise specified in the related Prospectus Supplement, Servicer
Termination Events under the Trust Documents will include (i) any failure by
the Servicer to deliver to the Indenture Trustee for distribution to the
Noteholders or to the Trustee for distribution to the Certificateholders any
required payment which continues unremedied for 5 days (or such other period
specified in the related Prospectus Supplement) after the giving of written
notice; (ii) any failure by the Servicer duly to observe or perform in any
material respect any other of its covenants or agreements in the Trust
Documents that materially and adversely affects the interests of
Securityholders, which, in either case, continues unremedied for 30 days after
the giving of written notice of such failure of breach; (iii) any assignment or
delegation by the Servicer of its duties or rights under the Trust Documents,
except as specifically permitted under the Trust Documents, or any attempt to
make such an assignment or delegation; (iv) certain events of insolvency,
readjustment of debt, marshalling of assets and liabilities or similar
proceedings regarding the Servicer; and (v) the Servicer is no longer an
Eligible Servicer (as defined in the Trust Documents). Notice as used herein
shall mean notice to the Servicer by the Trustee, the Indenture Trustee, if
any, or Green Tree, or to Green Tree, the Servicer, the Indenture Trustee, if
any, and the Trustee by the
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holders of Securities representing interests aggregating not less than 25% of
the outstanding principal balance of the Securities issued by such Trust.
Unless otherwise specified in the related Prospectus Supplement, if a
Servicer Termination Event occurs and is continuing, the Trustee, the Indenture
Trustee (if any), or the holders of at least 25% in aggregate principal balance
of the outstanding Securities issued by such Trust, by notice then given in
writing to the Servicer (and to the Trustee and the Indenture Trustee if given
by the Securityholders) may terminate all of the rights and obligations of the
Servicer under the Trust Documents. Immediately upon the giving of such notice,
and, in the case of a successor Servicer other than the Trustee, the acceptance
by such successor Servicer of its appointment, all authority of the Servicer
will pass to the Trustee or other successor Servicer. The Trustee, the
Indenture Trustee and the successor Servicer may set off and deduct any amounts
owed by the Servicer from any amounts payable to the outgoing Servicer.
On and after the time the Servicer receives a notice of termination, the
Trustee or other successor Servicer specified in the related Prospectus
Supplement (the "Backup Servicer") will be the successor in all respects to the
Servicer and will be subject to all the responsibilities, restrictions, duties
and liabilities of the Servicer under the related Trust Documents; provided,
however, that the successor Servicer shall have no liability with respect to
any obligation which was required to be performed by the prior Servicer prior
to the date that the successor Servicer becomes the Servicer or any claim of a
third party (including a Securityholder) based on any alleged action or
inaction of the prior Servicer. Notwithstanding such termination, the Servicer
shall be entitled to payment of certain amounts payable to it prior to such
termination, for services rendered prior to such termination. No such
termination will affect in any manner Green Tree's obligation to repurchase
certain Contracts for breaches of representations or warranties under the Trust
Documents. In the event that the Trustee would be obligated to succeed the
Servicer but is unwilling or unable so to act, it may appoint, or petition to a
court of competent jurisdiction for the appointment of a Servicer. Pending such
appointment, the Trustee is obligated to act in such capacity. The Trustee and
such successor Servicer may agree upon the servicing compensation to be paid,
which in no event may be greater than the compensation to the Servicer under
the Trust Documents.
Upon any termination of, or appointment of a successor to, the Servicer, the
Trustee and the Indenture Trustee (if any) will each give prompt written notice
thereof to Certificateholders and Noteholders, respectively, at their
respective addresses appearing in the Certificate Register or the Note Register
and to each Rating Agency.
Amendment
Unless otherwise provided in the related Prospectus Supplement, the Trust
Documents may be amended by the Seller, the Servicer, the Trustee and the
Indenture Trustee, if any, but without the consent of any of the
Securityholders, to cure any ambiguity or to correct or supplement any
provision therein, provided that such action will not, in the opinion of
counsel (which may be internal counsel to Green Tree or the Servicer)
reasonably
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satisfactory to the Trustee and the Indenture Trustee, materially and adversely
affect the interests of the Securityholders. The Trust Documents may also be
amended by Green Tree, the Servicer and the Trustee and the Indenture Trustee
(if any), and a Certificate Majority and a Note Majority (if applicable), for
the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of the Trust Documents or of modifying, in
any manner, the rights of the Certificateholders or the Noteholders. No such
amendment may (i) increase or reduce in any manner the amount of, or accelerate
or delay the timing of, collections of payments on the related Contracts or
distributions that are required to be made on any related Certificate or Note
or the related Pass-Through Rate or Interest Rate or (ii) reduce the percentage
of the Certificate Balance evidenced by Certificates or of the aggregate
principal amount of Notes then outstanding required to consent to any such
amendment, without the consent of the holders of all Certificates or all Notes,
as the case may be, then outstanding.
Termination
The obligations created by the Trust Documents will terminate upon the date
calculated as specified in the Trust Documents, generally upon (i) the later of
the final payment or other liquidation of the last Contract subject thereto and
the disposition of all property acquired upon repossession of any Product and
(ii) the payment to the Securityholders of all amounts held by the Servicer or
the Trustee and required to be paid to the Securityholders pursuant to the
Trust Documents.
Unless otherwise provided in the related Prospectus Supplement, with respect
to each series of Securities, in order to avoid excessive administrative
expense, Green Tree and the Servicer each will be permitted, at its option, to
purchase from the Trust, on any Distribution Date immediately following any
Monthly Period as of the last day of which the Aggregate Principal Balance is
equal to or less than 10% (or such other percentage as may be specified in the
related Prospectus Supplement) of the Cutoff Date Principal Balance, all
remaining Contracts in the related Trust and the other remaining Trust Property
at a price equal to the aggregate of the Purchase Amounts therefor and the
appraised value of any other remaining Trust Property. The exercise of this
right will effect an early retirement of the related Certificates and Notes.
If a General Partner is named in the related Prospectus Supplement, unless
otherwise specified in the related Prospectus Supplement, the Trust Agreement
will provide that, in the event that the General Partner becomes insolvent,
withdraws or is expelled as a General Partner or is terminated or dissolved,
the Trust will terminate in 90 days and effect redemption of the Notes (if any)
and prepayment of the Certificates following the winding-up of the affairs of
the related Trust, unless within such 90 days the remaining General Partner, if
any, and holders of a majority of the Certificates of such series agree in
writing to the continuation of the business of the Trust and to the appointment
of a successor to the former General Partner, and the Owner Trustee is able to
obtain an opinion of counsel to the effect that the Trust will not thereafter
be an association (or publicly traded partnership) taxable as a corporation for
federal income tax purposes.
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Unless otherwise specified in the related Prospectus Supplement, with respect
to each series of Securities, the Trustee will give written notice of the final
distribution with respect to the Certificates to each Certificateholder of
record and the Indenture Trustee will give written notice of the final payment
with respect to the Notes (if any), to each Noteholder of record. The final
distribution to any Certificateholder and the final payment to any Noteholder
will be made only upon surrender and cancellation of such holder's Certificate
or Note at the office or agency of the Trustee, with respect to Certificates,
or of the Indenture Trustee, with respect to Notes, specified in the notice of
termination. Any funds remaining in the Trust, after the Trustee or the
Indenture Trustee has taken certain measures to locate a Certificateholder or
Noteholder, as the case may be, and such measures have failed, will be
distributed to The United Way, and the Certificateholders and Noteholders, by
acceptance of their Certificates and Notes, will waive any rights with respect
to such funds.
The Trustee
The Trustee or Owner Trustee, as applicable, for each Trust will be specified
in the related Prospectus Supplement. The Trustee, in its individual capacity
or otherwise, and any of its affiliates may hold Certificates or Notes in their
own names or as pledgee. In addition, for the purpose of meeting the legal
requirements of certain jurisdictions, the Trustee, with the consent of the
Servicer, shall have the power to appoint co-trustees or separate trustees of
all or any part of the related Trust. In the event of such appointment, all
rights, powers, duties and obligations conferred or imposed upon the Trustee by
the related Trust Documents will be conferred or imposed upon the Trustee and
such separate trustee or co-trustee jointly, or, in any jurisdiction where the
Trustee is incompetent or unqualified to perform certain acts, singly upon such
separate trustee or co-trustee who shall exercise and perform such rights,
powers, duties and obligations solely at the direction of the Trustee.
The Trustee of any Trust may resign at any time, in which event the General
Partner, if any, specified in the related Prospectus Supplement or, if no such
General Partner is specified, the Servicer or its successor will be obligated
to appoint a successor trustee. The General Partner, if any, specified in the
related Prospectus Supplement (or, if no such General Partner is specified, the
Servicer) may also remove the Trustee, if the Trustee ceases to be eligible to
serve, becomes legally unable to act, is adjudged insolvent or is placed in
receivership or similar proceedings. In such circumstances, the General
Partner, if any, specified in the related Prospectus Supplement or, if no such
General Partner is specified, the Servicer will be obligated to appoint a
successor trustee. Any resignation or removal of the Trustee and appointment of
a successor trustee will not become effective until acceptance of the
appointment by the successor trustee.
Duties of the Trustee
The Trustee will make no representation as to the validity or sufficiency of
any Trust Document, the Certificates or the Notes (other than its execution of
the Certificates and the Notes), the Contracts or any related documents, and
will not be accountable for the use or application by the Servicer of any funds
paid to the Servicer in respect of the Certificates, the Notes or the Contracts
prior to deposit in the related Collection Account.
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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 offered the Trustee reasonable security
or indemnity against the costs, expenses and liabilities which may be incurred
therein or thereby. No Certificateholder nor any Noteholder will have any right
under the Trust Documents to institute any proceeding with respect to such
Trust Documents, unless such holder has given the Trustee written notice of
default and unless the holders of Certificates evidencing not less than 25% of
the Certificate Balance or the holders of Notes evidencing not less than 25% of
the aggregate principal balance of the Notes then outstanding, as the case may
be, have made written request to the Trustee to institute such proceeding in
its own name as Trustee thereunder and have offered to the Trustee reasonable
indemnity, and the Trustee for 30 days after the receipt of such notice,
request and offer to indemnify has neglected or refused to institute any such
proceedings.
Administrator
If an Administrator is specified in the related Prospectus Supplement, such
Administrator will enter into an agreement (the "Administration Agreement")
pursuant to which such Administrator will agree, to the extent provided in such
Administration Agreement, to provide the notices and to perform other
administrative obligations required by the related Indenture and the Trust
Agreement.
CERTAIN LEGAL ASPECTS OF THE CONTRACTS
Rights in the Contracts
The Contracts are "chattel paper" as defined in the UCC as in effect in the
State of Minnesota. Pursuant to the UCC, an ownership interest in chattel paper
may be perfected by possession or by filing a UCC-1 financing statement in the
state where the seller's principal executive office is located. Accordingly,
financing statements covering the Contracts will be filed by Green Tree in
Minnesota.
The Servicer will be obligated from time to time to take such actions as are
necessary to continue the perfection of each Trust's interest in the related
Contracts and the proceeds thereof. Green Tree will warrant in the Trust
Documents with respect to the Contracts held by the related Trust and the
Trustee will pledge the right to enforce such warranty to the Indenture Trustee
as collateral for the Notes, if any, that, as of the Closing Date, such
Contracts have not been sold, pledged or assigned by Green Tree to any other
person, and
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that it has good and indefeasible title thereto and is the sole owner thereof
free of any Liens and that, immediately upon the transfer of the Contracts to
such Trust pursuant to the related Trust Document, the Trust will have good and
indefeasible title to and will be the sole owner of the Contracts, free of any
Liens. In the event of an uncured breach of any of such warranties in the Trust
Documents that materially and adversely affects the related Trust's,
Certificateholders' or Noteholders' interest in any Contract (a "Repurchase
Event"), Green Tree will be obligated to repurchase such Contract.
Unless otherwise provided in the related Prospectus Supplement, Green Tree
will hold the Contract Files on behalf of each Trust. To facilitate servicing
and save administrative costs, the documents will not be physically segregated
from other similar documents that are in Green Tree's possession. UCC financing
statements will be filed in Minnesota reflecting the sale and assignment of the
Contracts to the Trustee, and Green Tree's accounting records and computer
systems will also reflect such sale and assignment. In addition, the Contracts
will be stamped or otherwise marked to indicate that such Contracts have been
sold to the related Trust. Despite these precautions, if, through inadvertence
or otherwise, any of the Contracts were sold to another party (or a security
interest therein were granted to another party) that purchased (or took such
security interest in) any of such Contracts in the ordinary course of its
business and took possession of such Contracts, the purchaser (or secured
party) would acquire an interest in the Contracts superior to the interest of
the related Trust if the purchaser (or secured party) acquired (or took a
security interest in) the Contracts for new value and without actual knowledge
of such Trust's interest. See "Description of the Trust Documents--Custody of
Contract Files."
Security Interests in the Products (Other than Aircraft)
Security interests in some Products must be perfected by notation of the
secured party's lien on the certificate of title or by actual possession of the
certificate of title, depending on the law of the state wherein the purchaser
resides. Security interests in certain other Products must be perfected by the
filing of a UCC financing statement, naming the Obligor as debtor and Green
Tree as secured party. Purchase money security interests in Products that are
"consumer goods" (as defined in the UCC) are deemed perfected under some
states' laws when the contract is executed and Green Tree has advanced the
purchase price of the goods. The practice of Green Tree is to take such action
as is required to perfect its security interest under the laws of the state in
which the Product is located. In the event of clerical errors, administrative
delays or otherwise, such actions may not have been taken with respect to a
Product and such security interest may be subordinate to the interests of,
among others, subsequent purchasers of the Products, holders of perfected
security interests in the Product, and the trustee in bankruptcy of the
Obligor. Likewise, where Green Tree did not file a UCC financing statement
because its security interest was perfected as a purchase money security
interest in "consumer goods," (i) such security interest may be deemed not to
be perfected if the Product were ultimately determined not to be "consumer
goods," and (ii) a subsequent purchaser of the Product may acquire the Product
free of Green Tree's security interest. Such events would, however, give rise
to a Repurchase Event and obligate Green
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Tree to repurchase the affected Contract if the interests of the related
Certificateholders, Noteholders or Trust were materially and adversely
affected.
Pursuant to the related Trust Document, Green Tree will assign the security
interests in the Products to the Owner Trustee on behalf of the related Trust.
However, because of the administrative burden and expense that would be
entailed in doing so, none of Green Tree, the Seller, the Trustee or the
Servicer will be required, except to the extent provided below, to amend the
certificates of title or UCC financing statements to identify the Trustee as
the new secured party and, accordingly, Green Tree will continue to be named as
the secured party on the certificates of title or UCC financing statements
relating to the Products. The Servicer will be required to note the interest of
the related Trust on the certificates of title for the Products or to amend the
UCC financing statements only upon a Servicer Termination Event. In most
states, an assignment such as that under the related Trust Documents should be
an effective transfer of a security interest without amendment of any lien
noted on the related certificate of title or financing statement, and the
assignee should succeed to the assignor's status as the secured party. In the
absence of fraud or forgery by the Obligor or administrative error by state
recording officials, the notation of the lien of Green Tree on the certificate
of title or the UCC financing statement should be sufficient to protect the
related Trust against the rights of subsequent purchasers of a Product or
subsequent lenders who take a security interest in the related Product.
However, in the absence of such an amendment, the security interest of the
related Trust in the related Products might be defeated by, among others, the
trustee in bankruptcy of Green Tree or the Obligor. However, such failure would
give rise to a Repurchase Event and obligate Green Tree to repurchase the
affected Contract if the interests of the related Certificateholders,
Noteholders or Trust were materially and adversely affected.
In most states, a perfected security interest in a Product subject to
certificate of title or a financing statement continues for four months after
the Product is moved to a different state and thereafter until the owner re-
registers the Product in the new state, but in no event beyond the surrender of
the certificate of title. A majority of states require surrender of a
certificate of title to re-register a Product. Accordingly, the secured party
must surrender possession if it holds the certificate of title to such Product.
In the case of Products registered in states which provide for notation of a
lien but not possession of the certificate of title by the holder of the
security interest in the related Product, the secured party should receive
notice of surrender if the security interest in the Product is noted on the
certificate of title. Accordingly, the secured party should have the
opportunity to re-perfect its security interest in the Product in the state of
relocation. In states that do not require a certificate of title for
registration of a Product, re-registration could defeat perfection.
In the ordinary course of servicing its secured consumer contract portfolio,
it is the practice of Green Tree to effect such re-perfection upon receipt of
notice of re-registration or information from the Obligor as to relocation.
Similarly, when an Obligor sells a Product subject to a certificate of title,
Green Tree must surrender possession of the certificate of title or receive
notice as a result of its lien noted thereon and accordingly should have an
opportunity to require satisfaction of the related Contract before release of
the lien.
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Under the laws of most states, liens for repairs performed on a Product and
liens for unpaid taxes take priority over even a perfected security interest in
a Product. Green Tree in the related Trust Document will represent that,
immediately prior to the sale, assignment and transfer thereof to the related
Trust, each Contract held by such Trust was secured by a valid, subsisting and
enforceable first priority perfected security interest in favor of Green Tree,
as secured party. However, liens for taxes, judicial liens or liens arising by
operation of law could arise at any time during the term of a Contract. In
addition, the laws of certain states and federal law permit the confiscation of
motor vehicles and certain other consumer products by governmental authorities
under certain circumstances if used in unlawful activities, which may result in
the loss of a secured party's perfected security interest in the confiscated
product. No notice will be given to the Owner Trustee, Indenture Trustee,
Certificateholders or Noteholders in the event such a lien or confiscation
arises, and if such lien arises or confiscation occurs after the date of
issuance of any series of Certificates and Notes, neither Green Tree nor the
Servicer will be required to repurchase or purchase the related Contract.
Security Interests in Aircraft
In order for a valid security interest in a United States-registered aircraft
to be perfected against third parties, including a trustee in bankruptcy of the
borrower, it must be perfected in accordance with the Federal Aviation Act. The
UCC has been preempted by the Federal Aviation Act with respect to the method
and location of filing against goods such as aircraft, engines, propellers,
appliances and certain spare parts to the extent that it is possible to record
against them at the Federal Aviation Administration ("FAA") Aircraft Registry
located in Oklahoma City, Oklahoma (the "Registry").
Security interests perfected by filing with the Registry may nevertheless be
subject to (1) purchase money security interests which may be filed up to ten
days (21 days in some states) after a debtor receives possession and which will
then have, in most states, priority in the aircraft (unless it is property held
as inventory) over a conflicting security interest in the same aircraft and (2)
the rights of buyers in the ordinary course of business from persons in the
business of selling goods of that kind.
Exceptions also include possessory mechanic's and storage liens, which may or
may not need to be filed and which usually have priority over a mortgage,
whether or not such liens are incurred before or after the mortgage is
recorded. Non-possessory mechanic's liens, which exist under many state laws,
probably do not take priority over mortgages previously filed with the
Registry. If provided for by state law, a non-possessory mechanic's lien on an
aircraft may be filed at the Registry.
Federal tax liens are filed according to Federal law in the appropriate
location in each state and cannot be filed at the Registry. When so filed,
Federal tax liens can have priority over subsequent FAA recorded mortgages in
aircraft with many exceptions, including the exception of a purchase money
security interest. It is an open issue whether unrecorded liens arising out of
FAA penalties have priority over filed security interests in a registered
aircraft.
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The principal effect of recordation is that each mortgage or other conveyance
that is filed with the Registry for recordation affecting the applicable
aircraft, engine, propeller, appliance or spare parts (so long as they are
maintained at any designated locations) is valid and perfected from the time of
filing as to all persons with whatever priority is given by state law. If not
filed for recordation, such a mortgage or other conveyance will not be valid
against third persons except persons having actual notice thereof. The date of
filing for recordation at the Registry is the date of perfection of the
mortgage or other conveyance, even though recordation by the Registry may not
occur for several weeks or months after delivery to the Registry. The case law
is not clear as to the effect of a rejection of the documents when they are
examined by the Registry several weeks after filing. The usual practice is to
retain expert FAA counsel to ensure, among other things, that the documents are
in due form for recording, that the record is free and clear of liens and that
the documents are filed correctly. Title companies are also available to check
the FAA records and file documents.
If the aircraft is not registered with the Registry, under the UCC, the
perfection and effect of perfection of the mortgage or any security interest in
other collateral would be governed by the law (including the conflict of laws
rules) of the jurisdiction in which the debtor is located.
Repossession
In the event of default by an Obligor, the owner of a retail installment
sales contract or installment loan has all the remedies of a secured party
under the UCC, except where specifically limited by other state laws. The
remedies of a secured party under the UCC include the right to repossession by
self-help means, unless such means would constitute a breach of the peace.
Self-help repossession is the method employed by Green Tree in most cases and
is accomplished simply by taking possession of the Product. In the event of
default by the Obligor, some jurisdictions require that the Obligor be notified
of the default and be given a time period within which the Obligor may cure the
default prior to repossession. In cases where the Obligor objects or raises a
defense to repossession, or if otherwise required by applicable state law, a
court order must be obtained from the appropriate state court, and the Product
must then be repossessed in accordance with that order. If a breach of the
peace cannot be avoided, judicial action is required. A secured party may be
held responsible for damages caused by a wrongful repossession of a Product,
including a wrongful repossession conducted by an agent of the secured party.
In many states, a Product may be repossessed without notice to the Obligor, but
only if the repossession can be accomplished without a breach of the peace.
Notice of Sale; Redemption Rights
The UCC and various other state laws require a secured party who has
repossessed the collateral securing an obligation to provide an obligor with
reasonable notice of the date, time and place of any public sale and/or the
date after which any private sale of the collateral may be held. The obligor
has the right to redeem the collateral prior to actual sale by paying the
secured party the entire unpaid time balance of the obligation (less any
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unaccrued finance charges) plus accrued default charges, reasonable expenses
for repossessing, holding and preparing the collateral for disposition and
arranging for its sale, plus, to the extent provided in the financing
documents, reasonable attorneys' fees, or in some states, by payment of
delinquent installments or the unpaid principal balance of the related
obligation.
Deficiency Judgments and Excess Proceeds
The proceeds of resale of Products generally will be applied first to the
expenses of repossession and resale and then to the satisfaction of the related
Contract. While some states impose prohibitions or limitations on deficiency
judgments if the net proceeds from resale do not cover the full amount of the
indebtedness, a deficiency judgment can be sought in other states that do not
prohibit or limit such judgments, subject to satisfaction of statutory
procedural requirements by the holder of the obligation. However, any
deficiency judgment would be a personal judgment against the Obligor for the
shortfall, and a defaulting Obligor can be expected to have very little capital
or sources of income available following repossession. Therefore, in many
cases, it may not be useful to seek a deficiency judgment or, if one is
obtained, it may be settled at a significant discount or not paid at all. Green
Tree generally seeks to recover any deficiency existing after repossession and
sale of a Product.
Occasionally, after resale of a repossessed Products, and payment of all
expenses and indebtedness, there is a surplus of funds. In that case, the law
of most states requires the secured party to remit the surplus to any holder of
another lien with respect to the Product, if proper notification of demand for
proceeds is received prior to distribution, or, if no such lienholder exists,
to remit the surplus to the former owner of the Product.
Soldiers' and Sailors' Civil Relief Act
The Relief Act imposes certain limitations upon the actions of creditors with
respect to persons serving in the Armed Forces of the United States and, to a
more limited extent, their dependents and guarantors and sureties of debt
incurred by such persons. An obligation incurred by a person prior to entering
military service cannot bear interest at a rate in excess of 6% during the
person's term of military service, unless the obligee petitions a court which
determines that the person's military service does not impair his or her
ability to pay interest at a higher rate. Further, a secured party may not
repossess during a person's military service a Product subject to an
installment sales contract or a promissory note entered into prior to the
person's entering military service, for a loan default which occurred prior to
or during such service, without court action. The Relief Act imposes penalties
for knowingly repossessing property in contravention of its provisions.
Additionally, dependents of military personnel are entitled to the protection
of the Relief Act, upon application to a court, if such court determines the
obligation of such dependent has been materially impaired by reason of the
military service. To the extent an obligation is unenforceable against the
person in military service or a dependent, any guarantor or surety of such
obligation will not be liable for performance.
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Consumer Protection Laws
Numerous Federal and state consumer protection laws and related regulations
impose substantive and disclosure requirements upon lenders and servicers
involved in consumer finance. Some of the Federal laws and regulations include
the Truth-in-Lending Act, the Equal Credit Opportunity Act, the Federal Trade
Commission Act, the Fair Credit Reporting Act, the Fair Debt Collection
Practices Act, the Magnuson-Moss Warranty Act, and the Federal Reserve Board's
Regulations B and Z.
In addition to Federal law, state consumer protection statutes regulate,
among other things, the terms and conditions of retail installment contracts
and promissory notes pursuant to which purchasers finance the acquisition of
consumer products. These laws place finance charge ceilings on the amount that
a creditor may charge in connection with financing the purchase of a consumer
product. These laws also impose other restrictions on consumer transactions and
require contract disclosures in addition to those required under federal law.
These requirements impose specific statutory liabilities upon creditors who
fail to comply. In some cases, this liability could affect the ability of an
assignee, such as the related Trust, to enforce consumer finance contracts such
as the Contracts. The "Credit Practices" Rule of the Federal Trade Commission
(the "FTC") imposes additional restrictions on contract provisions and credit
practices.
The FTC's so-called holder-in-due-course rule has the effect of subjecting
persons that finance consumer credit transactions (and certain related lenders
and their assignees) to all claims and defenses which the purchaser could
assert against the seller of the goods and services. An assignee's affirmative
liability to pay money to such aggrieved purchaser in the event of a successful
claim is limited to amounts paid by the purchaser under the consumer credit
contract. However, the assignee's ability to collect any balance remaining due
thereunder is subject to these claims and defenses. Accordingly, each Trust, as
assignee of the related Contracts, will be subject to claims or defenses, if
any, that the purchaser of the related Product may assert against the seller of
such Product.
Courts have applied general equitable principles to secured parties pursuing
repossession or litigation involving deficiency balances. These equitable
principles may have the effect of relieving an Obligor from some or all of the
legal consequences of a default.
Green Tree will warrant in the related Trust Document that as of the date of
origination each Contract held by the related Trust complied with all
requirements of applicable law in all material respects. Accordingly, if such
Trust's interest in a Contract were materially and adversely affected by a
violation of any such law, such violation would constitute a Repurchase Event
and would obligate Green Tree to repurchase the Contract unless the breach were
cured. See "Description of the Trust Documents--Sale and Assignment of the
Contracts."
Other Limitations
In addition to the laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including Federal bankruptcy laws and
related state laws, may interfere
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with or affect the ability of a lender to realize upon collateral or enforce a
deficiency judgment. For example, in a proceeding under Chapter 13 of the U.S.
Bankruptcy Code of 1978, as amended, a court may prevent a lender from
repossessing collateral, and, as part of the rehabilitation plan, reduce the
amount of the secured indebtedness to the market value of the collateral at the
time of bankruptcy (as determined by the court), leaving the party providing
financing as a general unsecured creditor for the remainder of the
indebtedness. A bankruptcy court may also reduce the monthly payments due under
a contract, change the rate of interest and time of repayment of the
indebtedness or substitute collateral securing such indebtedness.
CERTAIN 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 the Seller, has delivered an opinion
regarding certain federal income tax matters discussed below. Counsel to the
Seller identified in the related Prospectus Supplement ("Counsel") will deliver
an opinion regarding tax matters applicable to each Series of Securities. Such
an opinion, however, is not binding on the Internal Revenue Service (the
"Service") or the courts. The opinion of Counsel will specifically address only
those issues specifically identified below as being covered by such opinion;
however, the opinion of Counsel also will state that the additional discussion
set forth below accurately sets forth Counsel's advice with respect to material
tax issues. No ruling on any of the issues discussed below will be sought from
the Service.
Many aspects of the federal tax treatment of the purchase, ownership and
disposition of the Securities of any series will depend upon whether the Trust
created with respect to such series is structured as an owner trust (treated as
a partnership for federal income tax purposes) or as a grantor trust. The
Prospectus Supplement for each series of Securities will indicate whether the
Trust created for such series will be treated as a partnership or as a grantor
trust. The following discussion deals first with series with respect to which
the Trust has been structured as an owner trust (treated as a partnership), and
then with series with respect to which the Trust has been structured as a
grantor trust.
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Owner Trust Series
Tax Status of the Trust
With respect to each series of Securities which includes both Notes and
Certificates, Counsel will deliver its opinion that the Trust will not be an
association or publicly traded partnership taxable as a corporation for federal
income tax purposes. As a result, in the opinion of Counsel, the Trust itself
will not be subject to federal income tax but, instead, each Certificateholder
will be required to take into account its distributive share of items of income
and deduction (including deductions for distributions of interest to the
Noteholders) of the Trust as though such items had been realized directly by
the Certificateholder. This opinion will be based on the assumption that the
terms of the Trust Agreement and related documents will be complied with, and
on counsel's conclusion that the nature of the income of the Trust will exempt
it from the rule that certain publicly traded partnerships are taxable as
corporations. There are, however, no cases or Service rulings on transactions
involving a trust issuing both debt and equity interests with terms similar to
those of the Notes and the Certificates. As a result, the Service may disagree
with all or a part of this discussion.
If the Trust were taxable as a corporation for federal income tax purposes,
the Trust would be subject to corporate income tax on its taxable income. The
Trust's taxable income would include all its income on the Contracts, possibly
reduced by its interest expense on the Notes. Any such corporate income tax
could materially reduce cash available to make payments on the Notes and
distributions on the Certificates.
Tax Consequences to Noteholders
Treatment of the Notes as Indebtedness. The Owner Trustee, on behalf of the
Trust, will agree, and the Noteholders will agree by their purchase of Notes,
to treat the Notes as debt for federal income tax purposes. Counsel will
deliver its opinion that the Notes will be classified as debt for federal
income tax purposes. The discussion below assumes this characterization of the
Notes is correct.
Interest Income on the Notes. Interest on the Notes will be taxable as
ordinary interest income when received by Noteholders utilizing the cash-basis
method of accounting and when accrued by Noteholders utilizing the accrual
method of accounting. Under the applicable regulations, the Notes would be
considered issued with original issue discount ("OID") if the "stated
redemption price at maturity" of a Note (generally equal to its principal
amount as of the date of issuance plus all interest other than "qualified
stated interest" payable prior to or at maturity) exceeds the original issue
price (in this case, the initial offering price at which a 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.
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While it is not anticipated that the Notes will be issued with more than de
minimis OID, it is possible that they will be so issued or will be deemed to be
issued with OID. This deemed OID could arise, for example, if interest payments
on the Notes are not deemed to be "qualified stated interest" because the Notes
do not provide for default remedies ordinarily available to holders of debt
instruments or do not contain terms and conditions that make the likelihood of
late payment or nonpayment a remote contingency. Based upon existing authority,
however, the Trust will treat interest payments on the Notes as qualified
stated interest under the OID regulations. If the Notes are issued or are
deemed to be issued with OID, all or a portion of the taxable income to be
recognized with respect to the Notes would be includible in the income of
Noteholders as OID. Any amount treated as OID would not, however, be includible
again when the amount is actually received. If the yield on a class of Notes
were not materially different from its coupon, this treatment would have no
significant effect on Noteholders using the accrual method of accounting.
However, cash method Noteholders may be required to report income with respect
to the Notes in advance of the receipt of cash attributable to such income.
A Noteholder must include OID in income as interest over the term of the
Notes under a constant yield method. In general, OID must be included in income
in advance of the receipt of cash representing that income. Each Noteholder is
encouraged to consult its own tax advisor regarding the impact of the OID rules
if the Notes are issued with OID.
Market Discount. The Notes, whether or not issued with original issue
discount, will be subject to the "market discount rules" of Section 1276 of the
Code. In general, these rules provide that if a Noteholder purchases the Note
at a market discount (i.e., a discount from its original issue price plus any
accrued original issue discount) that exceeds a de minimis amount specified in
the Code, and thereafter recognizes gain upon a disposition, the lesser of (i)
such gain or (ii) the accrued market discount will be taxed as ordinary
interest income. Market discount also will be recognized and taxable as
ordinary interest income as payments of principal are received on the Notes to
the extent that the amount of such payments does not exceed the accrued market
discount. Generally, the accrued market discount will be the total market
discount on the Note multiplied by a fraction, the numerator of which is the
number of days the Noteholder held the Note and the denominator of which is the
number of days after the date the Noteholder acquired the Note until and
including its maturity date. The Noteholder may elect, however, to determine
accrued market discount under the constant-yield method, which election shall
not be revoked without the consent of the Service.
Limitations imposed by the Code which are intended to match deductions with
the taxation of income may defer deductions for interest on indebtedness
incurred or continued, or short-sale expenses incurred, to purchase or carry a
Note with accrued market discount. A Noteholder may elect to include market
discount in gross income as it accrues and, if such Noteholder makes such an
election, is exempt from this rule. The adjusted basis of a Note subject to
such election will be increased to reflect market discount included in gross
income, thereby reducing any gain or increasing any loss on a sale or taxable
disposition. Any such election to include market discount in gross income as it
accrues shall apply to all
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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 gain from the disposition of a Note unless the Noteholder
is an individual who is present in the United States for 183
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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.
On October 6, 1997, the Treasury Department issued new regulations which make
certain modifications to the withholding, backup withholding and information
reporting rules described above. The new regulations attempt to unify
certification requirements and modify reliance standards, and will generally be
effective for payments made after December 31, 1999, subject to certain
transition rules. Prospective investors are urged to consult their own tax
advisors regarding the new regulations.
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. The Seller, the General Partner and
the Owner Trustee will agree, and the Certificateholders will agree by their
purchase of Certificates, to
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treat the Trust as a partnership for purposes of federal and state income tax,
franchise tax and any other tax measured in whole or in part by income, with
the assets of the partnership being the assets held by the Trust, the partners
of the partnership being the Certificateholders and the General Partner, and
the Notes being debt of the partnership. The proper characterization of the
arrangement involving the Trust, the Certificates, the Notes, the General
Partner, the Seller and the Servicer, however, is not certain because there is
no authority on transactions closely comparable to that contemplated herein.
A variety of alternative characterizations are possible. For example, because
the Certificates have certain features characteristic of debt, the Certificates
might be considered debt of the Trust. Any such characterization would not
result in materially adverse tax consequences to Certificateholders as compared
to the consequences from treatment of the Certificates as equity in a
partnership, described below. The following discussion assumes that the
Certificates represent equity interests in a partnership.
Partnership Taxation. As a partnership, the Trust will not be subject to
federal income tax. Rather, each Certificateholder will be required to
separately take into account such holder's allocated share of income, gains,
losses, deductions and credits of the Trust. The Trust's income will consist
primarily of interest and finance charges earned on the Contracts (including
appropriate adjustments for market discount, OID and bond premium) and any gain
upon collection or disposition of the Contracts. The Trust's deductions will
consist primarily of interest accruing with respect to the Notes, servicing and
other fees, and losses or deductions upon collection or disposition of the
Contracts.
The tax items of a partnership are allocable to the partners in accordance
with the Code, Treasury regulations and the partnership agreement (here, the
Trust Agreement and related documents). The Trust Agreement will provide, in
general, that the Certificateholders will be allocated taxable income of the
Trust for each month equal to the sum of (i) the interest that accrues on the
Certificates in accordance with their terms for such month, including interest
accruing at the Pass-Through Rate for such month and interest on amounts
previously due on the Certificates but not yet distributed; (ii) any Trust
income attributable to discount on the Contracts that corresponds to any excess
of the principal amount of the Certificates over their initial issue price;
(iii) Prepayment Premium payable to the Certificateholders for such month; and
(iv) any other amounts of income payable to the Certificateholders for such
month. Although it is not anticipated that the Certificates will be issued at a
price which exceeds their principal amount, such allocations of Trust income to
the Certificateholders will be reduced by any amortization by the Trust of
premium on Contracts that corresponds to any such excess of the issue price of
Certificates over their principal amount. All remaining taxable income of the
Trust will be allocated to the General Partner. Based on the economic
arrangement of the parties, this approach for allocating Trust income should be
permissible under applicable Treasury regulations, although no assurance can be
given that the Service would not require a greater amount of income to be
allocated to Certificateholders. Moreover, even under the foregoing method of
allocation, Certificateholders may be allocated income equal to the entire
Pass-Through Rate plus the other items described above even though the Trust
might not have sufficient cash to make
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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 ($121,000 in 1997, in the case of a joint return) will be reduced by the
lesser of (i) 3% of the excess of adjusted gross income over the specified
threshold amount or (ii) 80% of the amount of itemized deductions otherwise
allowable for such taxable year. To the extent that a Certificateholder is not
permitted to deduct servicing fees allocable to a Certificate, the taxable
income of the Certificateholder attributable to that Certificate will exceed
the net cash distributions related to such income. Certificateholders may
deduct any loss on disposition of the Contracts to the extent permitted under
the Code.
Discount and Premium. It is believed that the Contracts were not issued with
OID, and, therefore, the Trust should not have OID income. The purchase price
paid by the Trust for the Contracts may exceed the remaining principal balance
of the Contracts at the time of purchase. If the Trust is deemed to acquire the
Contracts at such a premium or at a market discount, the Trust will elect to
offset any such premium against interest income on the Contracts or to include
any such discount in income currently as it accrues over the life of the
Contracts. The Trust will make this premium or market discount calculation on
an aggregate basis but may be required to recompute it on a Contract-by-
Contract basis. As indicated above, a portion of such premium deduction or
market discount income may be allocated to Certificateholders.
Distributions to Certificateholders. Certificateholders generally will not
recognize gain or loss with respect to distributions from the Trust. A
Certificateholder will recognize gain, however, to the extent that any money
distributed exceeds the Certificateholder's adjusted basis in its Certificates
(as described below under "Disposition of Certificates") immediately
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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
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Certificateholder's tax liability and tax basis) attributable to periods before
the Certificateholder actually owns the Certificate. The use of such a
convention may not be permitted by existing regulations. If a monthly
convention is not permitted (or only applies to transfers of less than all of
the Certificateholder's interest), taxable income or losses of the Trust may be
reallocated among the Certificateholders. The General Partner is authorized to
revise the Trust's method of allocation between transferors and transferees to
conform to a method permitted by future regulations.
Section 754 Election. In the event that a Certificateholder sells a
Certificate at a profit or loss, the purchasing Certificateholder will have a
higher or lower basis in the Certificate than the selling Certificateholder
had. The tax basis of the Trust's assets will not be adjusted to reflect that
higher or lower basis unless the Trust files an election under Section 754 of
the Code. In order to avoid the administrative complexities that would be
involved in keeping accurate accounting records, as well as potentially onerous
information reporting requirements, the Trust will not make such election. As a
result, Certificateholders may be allocated a greater or lesser amount of Trust
income than would be appropriate based on their own purchase price for
Certificates.
Administrative Matters. Pursuant to an administration agreement (the
"Administration Agreement"), the Trustee will monitor the performance of the
following responsibilities of the Trust by other service providers. The Trust
is required to keep or have kept complete and accurate books of the Trust. Such
books will be maintained for financial reporting and tax purposes on an accrual
basis and the fiscal year of the Trust will be the calendar year. The Trust
will file a partnership information return (IRS Form 1065) with the Service for
each taxable year of the Trust and will report each Certificateholder's
allocable share of items of Trust income and expense to Certificateholders and
the Service on Schedule K-1. The Trust will provide the Schedule K-1
information to nominees that fail to provide the Trust with certain required
information statements relating to identification of beneficial owners of
Certificates and such nominees will be required to forward such information to
such beneficial owners. Generally, Certificateholders must file tax returns
that are consistent with the information return filed by the Trust or be
subject to penalties unless the Certificateholder notifies the Service of all
such inconsistencies.
Green Tree or a subsidiary identified in the related Prospectus Supplement
will be designated as the tax matters partner in the Trust Agreement and, as
such, will be responsible for representing the Certificateholders in any
dispute with the Service. The Code provides for administrative examination of a
partnership as if the partnership were a separate and distinct taxpayer.
Generally, the statute of limitations for partnership items does not expire
before three years after the date on which the partnership information return
is filed. Any adverse determination following an audit of the return of the
Trust by the appropriate taxing authorities could result in an adjustment of
the returns of the Certificateholders, and, under certain circumstances, a
Certificateholder may 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.
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Tax Consequences to Foreign Certificateholders. It is not clear whether the
Trust will be considered to be engaged in a trade or business in the United
States for purposes of federal withholding taxes with respect to non-U.S.
persons because there is no clear authority dealing with that issue under facts
substantially similar to those described herein. Although it is not expected
that the Trust will be engaged in a trade or business in the United States for
such purposes, the Trust will withhold as if it were so engaged in order to
protect the Trust from possible adverse consequences of a failure to withhold.
It is expected that the Trust will withhold on the portion of its taxable
income that is allocable to foreign Certificateholders pursuant to Section 1446
of the Code, as if such income were effectively connected to a U.S. trade or
business, at a rate of 35% for foreign holders that are taxable as corporations
and 39.6% for all other foreign Certificateholders. Subsequent adoption of
Treasury regulations or the issuance of other administrative pronouncements may
require the Trust to change its withholding procedures. In determining a
Certificateholder's nonforeign status, the Trust may rely on Form W-8, Form W-9
or the Certificateholder's certification of nonforeign status signed under
penalties of perjury.
Each foreign Certificateholder might be required to file a U.S. individual or
corporate income tax return (including, in the case of a corporation, the
branch profits tax) on its share of the Trust's income. Each foreign
Certificateholder must obtain a taxpayer identification number from the Service
and submit that number to the Trust on Form W-8 in order to assure appropriate
crediting of the taxes withheld. A foreign Certificateholder generally will be
entitled to file with the Service a claim for refund with respect to taxes
withheld by the Trust, taking the position that no taxes are due because the
Trust is not engaged in a U.S. trade or business. However, the Service may
assert that additional taxes are due, and no assurance can be given as to the
appropriate amount of tax liability.
Backup Withholding. Under certain circumstances, a Certificateholder may be
subject to "backup withholding" at a 31% rate. See the discussion above under
"Tax Consequences to Noteholders--Backup Withholding."
Grantor Trust Series
Tax Status of the Trust
With respect to each series of Securities which includes only Certificates,
unless otherwise specified in the related Prospectus Supplement, Counsel will
deliver its opinion that the Trust will be classified as a grantor trust for
federal income tax purposes and not as an association which is taxable as a
corporation. The Trust will be classified as a trust regardless of whether the
Seller is considered to retain an interest in the Contracts, as discussed
below. While such a retained interest might be viewed as a second class of
beneficial interest in the Trust and Treasury Regulations Section 301.7701-4(c)
generally provides that an investment trust with more than one class of
ownership interest will be classified as an association taxable as a
corporation or a partnership, that regulation would treat the Trust as a
grantor trust because there will be no power under the Pooling and Servicing
Agreement to vary the investment of the Certificateholders, the purpose of the
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Trust will be to facilitate direct investment in the Contracts, and the
existence of multiple classes of ownership interests in the Trust will be
incidental to that purpose.
Tax Consequences to Certificateholders
Because the Trust will be classified as a grantor trust, each
Certificateholder (including any holder of a subordinated Certificate) will, in
the opinion of Counsel, be treated for federal income tax purposes as the owner
of an undivided interest in the Contracts and other Trust Property.
Accordingly, subject to the discussion below of certain limitations on
deductions and the "stripped bond" rules of the Code, each Certificateholder
must report on its federal income tax return its pro rata share of the entire
income from the Contracts and other Trust Property, and may deduct its pro rata
share of the fees paid by the Trust, at the same time as such items would be
reported under the Certificateholder's tax accounting method if it held
directly a pro rata interest in the assets of the Trust and received and paid
directly the amounts received and paid by the Trust. A Certificateholder's
share of expenses of the Trust will be miscellaneous itemized deductions
subject to certain limits on deductibility. See the discussion above under
"OWNER TRUST SERIES--Tax Consequences to Certificateholders--Partnership
Taxation."
A purchaser of a Certificate will be treated as purchasing an interest in
each Contract in the Trust at a price determined by allocating the purchase
price paid for the Certificate among all Contracts in proportion to their fair
market values at the time of purchase of the Certificate. To the extent that
the portion of the purchase price of a Certificate allocated to a Contract is
greater than or less than the portion of the principal balance of the Contract
allocable to the Certificate, that interest in the Contract will be deemed to
have been acquired with premium or discount, respectively. See the discussions
above under "OWNER TRUST SERIES--Tax Consequences to Noteholders--Market
Discount" and "--Amortizable Bond Premium."
The treatment of any discount will depend on whether the discount represents
original issue discount or market discount. It is not anticipated that the
Contracts will have original issue discount, unless they are subject to the
"stripped bond" rules of the Code described below. If the Contracts are subject
to the stripped bond rules of the Code, the market discount rules discussed
above may not apply.
Subordinated Certificates. If the subordinated Certificateholders receive
distributions of less than their share of the Trust's receipts of principal or
interest (the "Shortfall Amount") because of the subordination of the
subordinated Certificates, holders of subordinated Certificates would probably
be treated for federal income tax purposes as if they had (i) received as
distributions their full share of such receipts, (ii) paid over to the senior
Certificateholders an amount equal to such Shortfall Amount, and (iii) retained
the right to reimbursement of such amounts to the extent available from future
collections on the Contracts.
Under this analysis, (a) subordinated Certificateholders would be required to
accrue as current income any interest or OID income of the Trust that was a
component of the
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Shortfall Amount, even though such amount was in fact paid to the senior
Certificateholders, (b) a loss would only be allowed to the subordinated
Certificateholders when their right to receive reimbursement of such Shortfall
Amount became worthless (i.e., when it becomes clear that amount will not be
available from any source to reimburse such loss), and (c) reimbursement of
such Shortfall Amount prior to such a claim of worthlessness would not be
taxable income to subordinated Certificateholders because such amount was
previously included in income. Those results should not significantly affect
the inclusion of income for subordinated Certificateholders on the accrual
method of accounting, but could accelerate inclusion of income to subordinated
Certificateholders on the cash method of accounting by, in effect, placing them
on the accrual method. Moreover, the character and timing of loss deductions is
unclear.
Under current Service interpretations of applicable Treasury Regulations, the
Seller would be able to sell or otherwise dispose of any subordinated
Certificates. Accordingly, the Seller may offer subordinated Certificates for
sale to investors.
Stripped Certificates. Certain classes of Certificates may be subject to the
stripped bond rules of Section 1286 of the Code and for purposes of this
discussion will be referred to as "Stripped Certificates." In general, a
Stripped Certificate will be subject to the stripped bond rules where there has
been a separation of ownership of the right to receive some or all of the
principal payments on a Contract from ownership of the right to receive some or
all of the related interest payments. Certificates will constitute Stripped
Certificates and will be subject to these rules under various circumstances,
including the following: (i) if any servicing compensation is deemed to exceed
a reasonable amount; (ii) if two or more classes of Certificates are issued
representing the right to non-pro rata percentages of the interest or principal
payments on the Contracts; or (iii) if Certificates are issued which represent
the right to interest only payments or principal only payments.
Although not entirely clear, each Stripped Certificate should be considered
to be a single debt instrument issued on the day it is purchased for purposes
of calculating any original issue discount. Original issue discount with
respect to a Stripped Certificate, if any, must be included in ordinary gross
income for federal income tax purposes as it accrues in accordance with the
constant-yield method that takes into account the compounding of interest and
such accrual of income may be in advance of the receipt of any cash
attributable to such income. See "OWNER TRUST SERIES--Tax Consequences to
Noteholders--Interest Income on the Notes" above. For purposes of applying the
original issue discount provisions of the Code, the issue price of a Stripped
Certificate will be the purchase price paid by the holder thereof and the
stated redemption price at maturity may include the aggregate amount of all
payments to be made with respect to the Stripped Certificate whether or not
denominated as interest. The amount of original issue discount with respect to
a Stripped Certificate may be treated as zero under the original issue discount
de minimis rules described above. Under rules similar to those provided in Rev.
Proc. 91-49, applicable only to mortgages secured by real property, a
Certificateholder may be required to account for any discount on a Stripped
Certificate as market discount rather than original issue discount if either
(i) the amount of original issue discount with respect to the Certificate was
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treated as zero under the original issue discount de minimis rule when the
Certificate was stripped or (ii) no more than 100 basis points (including any
amount of servicing in excess of reasonable servicing) is stripped off of the
Contracts.
When an investor purchases more than one class of Stripped Certificates, it
is currently unclear whether for federal income tax purposes such classes of
Stripped Certificates should be treated separately or aggregated for purposes
of applying the original issue discount rules described above.
It is possible that the Service may take a contrary position with respect to
some or all of the foregoing tax consequences. For example, a holder of a
Stripped Certificate may be treated as the owner of (i) as many stripped bonds
or stripped coupons as there are scheduled payments of principal and/or
interest on each Contract or (ii) a separate installment obligation for each
Contract representing the Stripped Certificate's pro rata share of principal
and/or interest payments to be made with respect thereto. In addition, if a
Trust issues more than one class of Certificates with different Pass-Through
Rates, a holder of such a Certificate may be treated as the owner of a stripped
bond with a rate equal to the lowest such Pass-Through Rate and a stripped
coupon representing the excess, if any, of the Pass-Through Rate on such
Certificate over the lowest Pass-Through Rate. As a result of these possible
alternative characterizations, investors should consult their own tax advisors
regarding the proper treatment of Stripped Certificates for federal income tax
purposes.
The Servicing Fee to be received by the Servicer and the fee for the
enhancement, if any, provided with respect to a series of Certificates may be
questioned by the Service with respect to certain Certificates or Contracts as
exceeding a reasonable fee for the services being performed in exchange
therefor, and a portion of such servicing compensation could be recharacterized
as an ownership interest retained by the Servicer or other party in a portion
of the interest payments to be made pursuant to the Contracts. In this event, a
Certificate might be treated as a Stripped Certificate subject to the stripped
bond rules of Section 1286 of the Code and the original issue discount
provisions rather than to the market discount and premium rules.
Disposition of Certificates. If a Certificate is sold, gain or loss will be
recognized equal to the difference between the amount realized on the sale and
the Certificateholder's adjusted tax basis in the Certificate. See the
discussion above under "OWNER TRUST SERIES--Tax Consequences to Noteholders--
Disposition of Notes."
Foreign Holders. Generally, interest paid to a Certificateholder who is a
nonresident alien individual or a foreign corporation and who does not hold the
Certificates in connection with a United States trade or business will be
treated as "portfolio interest." See the discussion above under "OWNER TRUST
SERIES--Tax Consequences to Noteholders--Foreign Holders."
Tax Administration and Reporting
The Trustee will furnish to each Certificateholder with each distribution a
statement setting forth the amount of such distribution allocable to principal
and to interest. In
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addition, the Trustee will furnish, within a reasonable time after the end of
each calendar year, to each Certificateholder who was a Certificateholder at
any time during such year, information regarding the amount of servicing
compensation received by the Servicer and such other factual information as the
Seller deems necessary to enable Certificateholders to prepare their tax
returns. Reports will be made annually to the Internal Revenue Service and to
holders of record that are not excepted from the reporting requirements
regarding information as may be required with respect to interest and original
issue discount, if any, with respect to the Certificates.
Backup Withholding
Under certain circumstances, a Certificateholder may be subject to "backup
withholding" at a 31% rate. See the discussion above under "OWNER TRUST
SERIES--Tax Consequences to Noteholders--Backup Withholding."
CERTAIN STATE INCOME TAX CONSEQUENCES
The activities to be undertaken by the Servicer in servicing and collecting
the Contracts will take place in Minnesota. The State of Minnesota imposes an
income tax on individuals, trusts and estates and a franchise tax measured by
net income on corporations. This discussion of Minnesota taxation is based upon
current statutory provisions and the regulations promulgated thereunder, and
applicable judicial or ruling authority, all of which are subject to change
(which may be retroactive). No ruling on any of the issues discussed below will
be sought from the Minnesota Department of Revenue.
OWNER TRUST SERIES
If the Notes are treated as debt for federal income tax purposes, in the
opinion of Counsel this treatment will also apply for Minnesota tax purposes.
Noteholders not otherwise subject to Minnesota income or franchise taxation
would not become subject to such a tax solely because of their ownership of the
Notes. Noteholders already subject to income or franchise taxation in Minnesota
could, however, be required to pay such a tax on all or a portion of the income
generated from ownership of the Notes.
If the Trust is treated as a partnership (not taxable as a corporation) for
federal income tax purposes, in the opinion of Counsel the Trust would also be
treated as a partnership for Minnesota income tax purposes. The partnership
therefore would not be subject to Minnesota taxation. Certificateholders that
are not otherwise subject to Minnesota income or franchise taxation would not
become subject to such a tax solely because of their interests in the
partnership. Certificateholders already subject to income or franchise taxation
in Minnesota could, however, be required to pay such a tax on all or a portion
of the income from the partnership.
If the Certificates are treated as ownership interests in an association or
publicly traded partnership taxable as a corporation for federal income tax
purposes, in the opinion of Counsel this treatment would also apply for
Minnesota income and franchise tax purposes.
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Pursuant to this treatment, the Trust would be subject to the Minnesota
franchise tax measured by net income (which could result in reduced
distributions to Certificateholders). Certificateholders that are not otherwise
subject to Minnesota income or franchise taxation would not become subject to
such a tax solely because of their interests in the constructive corporation.
Certificateholders already subject to income or franchise taxation in Minnesota
could, however, be required to pay such a tax on all or a portion of the income
from the constructive corporation.
GRANTOR TRUST SERIES
If the Trust is treated as a grantor trust for federal income tax purposes,
in the opinion of Counsel the Trust would also be treated as a grantor trust
for Minnesota income tax purposes. The Trust therefore would not be subject to
Minnesota taxation. Certificateholders that are not otherwise subject to
Minnesota income or franchise taxation would not become subject to such a tax
solely because of their interests in the Trust. Certificateholders already
subject to income or franchise taxation in Minnesota could, however, be
required to pay such a tax on all or a portion of the income from the Trust.
Because state tax laws vary, it is not possible to describe the tax
consequences to the Noteholders and Certificateholders in all of the states.
Noteholders and Certificateholders are therefore urged to consult their own tax
advisors with respect to the state tax treatment of the Notes and Certificates
and income derived therefrom.
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 (a "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 Benefit 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 Benefit Plan is considered to be a
fiduciary of such plan. A violation of these "prohibited transaction" rules may
generate excise tax and other liabilities under ERISA and the Code for such
persons.
Certain transactions involving the related Trust might be deemed to
constitute prohibited transactions under ERISA and the Code with respect to a
Benefit Plan that purchased Securities if assets of the related Trust were
deemed to be assets of the Benefit Plan. Under a regulation issued by the
United States Department of Labor (the "Plan Assets Regulation"), the assets of
a Trust would be treated as plan assets of a Benefit Plan for the purposes of
ERISA and the Code only if the Benefit Plan acquired an "equity interest" in
the Trust and none of the exceptions contained in the Plan Assets Regulation
was applicable. An equity interest is defined under the Plan Assets Regulation
as an interest other than an instrument which is treated as indebtedness under
applicable local law and which has no
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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 Benefit Plan fiduciary considering the purchase of Securities should
consult its tax and/or legal advisors regarding whether the assets of the Trust
would be considered plan assets, the possibility of exemptive relief from the
prohibited transaction rules and other issues and their potential consequences.
PLAN OF DISTRIBUTION
On the terms and conditions set forth in an underwriting agreement (the
"Underwriting Agreement") with respect to each Trust, the Seller will agree to
sell to each of the underwriters named therein and in the related Prospectus
Supplement, and each of such underwriters will severally agree to purchase from
the Seller, the principal amount of each class of Securities of the related
series set forth therein and in the related Prospectus Supplement.
In each Underwriting Agreement, the several underwriters will agree, subject
to the terms and conditions set forth therein, to purchase all the Securities
described therein which are offered hereby and by the related Prospectus
Supplement if any of such Securities are purchased. In the event of a default
by any such underwriter, each Underwriting Agreement will provide that, in
certain circumstances, purchase commitments of the nondefaulting underwriters
may be increased, or the Underwriting Agreement may be terminated.
Each Prospectus Supplement will either (i) set forth the price at which each
class of Securities being offered thereby will be offered to the public and any
concessions that may be offered to certain dealers participating in the
offering of such Securities or (ii) specify that the related Securities are to
be resold by the underwriters in negotiated transactions at varying prices to
be determined at the time of such sale. After the initial public offering of
any Securities, the public offering price and such concessions may be changed.
Each Underwriting Agreement will provide that Green Tree will indemnify the
underwriters against certain liabilities, including liabilities under the
Securities Act.
The Indenture Trustee, if any, may, from time to time, invest the funds in
the Designated Accounts in Eligible Investments acquired from the underwriters.
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 the Seller by the counsel for the Seller
identified in the applicable Prospectus Supplement. The validity of the
Certificates and the Notes will be passed upon for the underwriters named in
the related Prospectus Supplement by Brown & Wood LLP, New York, New York.
EXPERTS
The consolidated financial statements of the Company as of December 31, 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 opinion 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 for their unsold allotments or
subscriptions.
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