<PAGE>
As filed with the Securities and Exchange Commission on June 23, 2000
Registration No. 333-91557
333-91557-01
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
POST-EFFECTIVE AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
Under
The Securities Act of 1933
---------------
CONSECO FINANCE CORP.
(Exact name of registrant as specified in its charter)
---------------
Delaware 41-1807858
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
CONSECO FINANCE SECURITIZATIONS CORP.
(Exact name of registrant as specified in its charter)
---------------
Minnesota 41-1807858
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1100 Landmark Towers
345 St. Peter Street
Saint Paul, Minnesota 55102-1639
(651) 293-3400
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
---------------
BRIAN F. COREY, ESQ.
300 Landmark Towers
345 St. Peter Street
Saint Paul, Minnesota 55102-1639
(651) 293-3400
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
Copies to:
CHARLES F. SAWYER, ESQ. CATHY M. KAPLAN, ESQ.
Dorsey & Whitney LLP Brown & Wood LLP
220 South Sixth Street One World Trade Center
Minneapolis, Minnesota 55402 New York, New York 10048
(612) 340-2600 (212) 839-5531
---------------
Approximate date of commencement of proposed sale to the public: From time
to time after the effective date of this Registration Statement as determined
by market conditions.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(b)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
Pursuant to Rule 429, the Prospectus contained in this Registration
Statement also relates to and constitutes Post-Effective Amendment No. 3 to
Registration Statement No. 333-75375, which was declared effective on June 7,
1999 and Post-Effective Amendment No. 5 to Registration Statement No. 333-
52233.
---------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ +
+Information contained in this prospectus supplement is not complete and may +
+be changed. We may not sell these securities until the registration statement +
+filed with the Securities and Exchange Commission is effective. This +
+prospectus supplement is not an offer to sell these securities, and it is not +
+soliciting an offer to buy these securities in any state where the offer or +
+sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion, dated June 21, 2000
PROSPECTUS SUPPLEMENT
(To Prospectus dated June , 2000)
$274,400,000 (Approximate)
Conseco Finance Corp.
Servicer
[Conseco Logo]
Conseco Finance Securitizations Corp.
Seller
Conseco Finance Recreational Enthusiast Consumer Trust 2000-A
-----------
The offered securities will consist of the following 6 classes of notes.
<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......... $148,400,000 % % % %
Class A-2 Notes......... $ 50,700,000 % % % %
Class A-3 Notes......... $ 33,300,000 % % % %
Class M-1 Notes......... $ 14,000,000 % % % %
Class M-2 Notes......... $ 11,200,000 % % % %
Class B Notes........... $ 16,800,000 % % % %
</TABLE>
The approximate principal amount of the classes of securities listed above
may vary plus or minus 5%. The price to public will be the percentage total in
the table above plus any accrued interest beginning on June , 2000.
Consider carefully the risk factors beginning on page S-11 in this prospectus
supplement.
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 , 2000.
The underwriters named below will offer the 6 classes of notes listed in the
table above to the public at the price to public listed on this cover page and
the Underwriters will receive the discount listed above. See "Underwriting" on
page S-47 in this prospectus supplement and "Plan of Distribution" on page 54
in the prospectus.
-----------
Credit Suisse First Boston___________________Banc of America Securities LLC
The date of this prospectus supplement is June , 2000.
<PAGE>
TABLE OF CONTENTS
Prospectus Supplement
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary of the Terms of the Offered Securities........................... S-4
Risk Factors............................................................. S-11
The Trust................................................................ S-15
The Trust Property....................................................... S-16
The Contract Pool........................................................ S-18
Conseco Finance Corp..................................................... S-23
Yield and Prepayment Considerations...................................... S-26
Description of the Notes................................................. S-31
Description of the Trust Documents and Indenture......................... S-38
Federal and State Income Tax Consequences................................ S-44
ERISA Considerations..................................................... S-45
Underwriting............................................................. S-47
Legal Matters............................................................ S-49
Annex I.................................................................. A-1
Prospectus
Important Notice about Information Presented in this Prospectus and the
Prospectus Supplement................................................... 2
The Trusts............................................................... 3
The Contracts............................................................ 4
Conseco Finance Corp..................................................... 5
Conseco Finance Securitizations Corp..................................... 7
Yield and Prepayment Considerations...................................... 7
Pool Factor.............................................................. 8
Use of Proceeds.......................................................... 9
The Certificates......................................................... 9
The Notes................................................................ 10
Information Regarding the Securities..................................... 17
Description of the Trust Documents....................................... 21
Legal Aspects of the Contracts........................................... 34
Federal Income Tax Consequences.......................................... 39
State Income Tax Considerations.......................................... 52
ERISA Considerations..................................................... 53
Plan of Distribution..................................................... 54
Legal Matters............................................................ 55
Experts.................................................................. 55
</TABLE>
You should rely only on the information contained in this prospectus
supplement and prospectus. Conseco Finance and Conseco Securitizations 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. Conseco Finance and Conseco Securitizations 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 Conseco Finance, about its
recreational consumer lending business, and about any series of asset-backed
securities secured by a pool of recreational, equipment and consumer loans that
we may wish to sell. This prospectus supplement
S-2
<PAGE>
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 prospectus in
an electronic format, and if the legal prospectus delivery period has not
expired, you may obtain a paper copy of this prospectus supplement and
prospectus from Conseco Finance, Conseco Securitizations or an underwriter by
asking for it.
No prospectus regarding these securities has been or will be prepared in the
United Kingdom pursuant to the United Kingdom Public Offers of Securities
Regulation 1995. These securities may not be offered or sold, or re-offered or
re-sold, to persons in the United Kingdom, except (1) to persons whose ordinary
activities involve them in acquiring, holding, managing and disposing of
investments (as principal or agent) for the purpose of their businesses, or (2)
in circumstances that will not constitute or result in an offer to the public
in the United Kingdom within the meaning of the United Kingdom Public Offers of
Securities Regulation 1995. You may not pass this prospectus supplement and
prospectus, or any other document inviting applications or offers to purchase
securities or offering securities for purchase, to any person in the United
Kingdom who (1) does not fall within article 11 (3) of the Financial Services
Act 1986 (Investment Advisements) (Exemptions) Order 1996 or (2) is not
otherwise a person to whom passing this prospectus supplement and prospectus
would be lawful.
S-3
<PAGE>
SUMMARY OF THE TERMS OF THE 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
accompanying 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 7 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 marine
products, motorcycles and recreational vehicles.
<TABLE>
<CAPTION>
Interest Approximate S&P Moody's
Class Rate Principal Amount Rating Rating
----- -------- ---------------- ------ -------
<S> <C> <C> <C> <C>
Class A-1 Notes........................ % $148,400,000 AAA Aaa
Class A-2 Notes........................ % $ 50,700,000 AAA Aaa
Class A-3 Notes........................ % $ 33,300,000 AAA Aaa
Class M-1 Notes........................ % $ 14,000,000 AA Aa3
Class M-2 Notes........................ % $ 11,200,000 A A3
Class B Notes.......................... % $ 16,800,000 BBB Baa3
Class C Certificates................... -- -- -- --
</TABLE>
Conseco Securitizations will not issue or sell the securities unless S&P and
Moody's assign each class the rating listed above.
The rating of each class of notes addresses the likelihood of timely receipt
of interest and ultimate receipt of principal. A security rating is not a
recommendation to buy, sell or hold securities and may be subject to revision
or withdrawal at any time by the assigning rating agency.
Seller........................
Conseco Finance Securitizations Corp., 300
Landmark Towers, 345 St. Peter Street, St.
Paul, Minnesota, 55102, telephone: (651) 293-
3400.
Servicer......................
Conseco Finance Corp., 1100 Landmark Towers,
345 St. Peter Street, St. Paul, Minnesota
55102, telephone: (651) 293-3400. Conseco
Finance Corp. was formerly named Green Tree
Financial Corporation. Conseco Finance is a
wholly owned subsidiary of Conseco Inc. See
"Risk Factors--Conseco Inc. is exploring the
sale of Conseco Finance Corp." Conseco Inc. has
not guaranteed any of the obligations of
Conseco Finance or Conseco Securitizations with
respect to the contracts, the securities or the
trust.
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 on July 17, 2000.
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
Certificates..................
The trust will issue the certificates pursuant
to the trust agreement between Conseco
Securitizations, as depositor, and the owner
trustee. The certificates will represent
undivided ownership interests in the trust, and
will be subordinated to the notes. The
certificates are not offered under this
prospectus supplement and will initially be
retained by an affiliate of Conseco
Securitizations.
Distributions on the Notes.... Distributions on the notes on any 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 notes in the following
order of priority:
(1) Interest on the Class A-1 notes, Class
A-2 notes and Class A-3 notes, pro
rata;
(2) Interest on the Class M-1 notes, the
Class M-2 notes and the Class B notes
in that order of priority;
S-5
<PAGE>
(3) So long as the rate of defaults on the
contracts remains below specified
levels, the total principal
distribution amount will be distributed
to the Class A-1 notes, until the
principal balance of the Class A-1
notes has been reduced to zero. After
the outstanding principal balance of
the Class A-1 notes has been reduced to
zero, the total principal distribution
amount will be distributed to the Class
A-2, Class A-3, Class M-1, Class M-2
and Class B notes, in the following
manner and order of priority
(percentages are approximate due to
rounding):
(a) 66.67% of the total principal
distribution amount to the Class A-2
and Class A-3 notes, in sequential
order,
(b) 11.11% of the total principal
distribution amount to the Class M-1
notes,
(c) 8.89% of the total principal
distribution amount to the Class M-2
notes, and
(d) 13.33% of the total principal
distribution amount to the Class B-1
notes.
If the rate of defaults on the contracts
exceeds those specified levels, then the
total principal distribution amount will
instead be distributed first to the
Class A-1, Class A-2 and Class A-3 notes
pro rata until the principal balances of
those classes have been reduced to zero,
then sequentially to the Class M-1
notes, the Class M-2 notes and the Class
B notes, in each case until the
principal balance of that class has been
reduced to zero.
As described under "Description of the Notes--
Total Principal Distribution Amount," the total
principal distribution amount will include a
formula principal distribution amount plus, for
a limited number of distribution dates
commencing with the first distribution date, an
additional principal distribution amount.
S-6
<PAGE>
See "Description of the Trust Documents and
Indenture--Distributions" for a more detailed
description of the amounts that will constitute
the amount available for any distribution date.
Reserve Account.......... Each class of notes will have the benefit of
the reserve account as credit enhancement. On
the closing date, Conseco Securitizations will
deposit $7,000,000 in the reserve account.
On each distribution date, if collections on
the contracts, plus any amount withdrawn from
the Class B reserve account described below,
are insufficient to pay interest then due on
the notes, the indenture trustee will withdraw
funds from the reserve account to pay these
amounts in the order of priority described
under "Distributions on the Notes" above.
On the final scheduled distribution date for
any class of notes, if any principal amount of
that class remains outstanding, the indenture
trustee will withdraw funds from the reserve
account to reduce the principal amount of that
class to zero.
On each distribution date, the trust will
distribute funds on deposit in the reserve
account in excess of the required balance to
the holder of the Class C certificate. The
required balance for the reserve account will
initially be equal to $7,000,000. Beginning on
the distribution date in July 2002, and
provided that specified performance tests
relating to the contracts have been satisfied
and that Conseco Finance is the servicer, the
required balance in the reserve account will be
equal to the lesser of $7,000,000 and 5% of the
aggregate principal balance of the notes, and
will continue to decline on each distribution
date as the aggregate principal balance of the
notes declines. See "Description of the Trust
Documents--Reserve Account" in this prospectus
supplement. There will not be more than the
then-required balance available for withdrawal
from the reserve account at any time. If
withdrawals are made, the indenture trustee
will make deposits into the
S-7
<PAGE>
reserve account on each succeeding distribution
date from any collections on the contracts
remaining after payment of interest and formula
principal on the notes until that balance is
restored. We cannot assure you that the amounts
in the reserve account will be sufficient to
make up for delinquencies or losses on the
contracts or that if withdrawals are made
sufficient funds would be available to restore
its balance.
The Class B notes will also have the benefit of
a Class B reserve account. On the closing date,
Conseco Securitizations will deposit $1,400,000
in the Class B reserve account. On each
distribution date, if collections on the
contracts are insufficient to pay interest then
due on the Class B notes in accordance with the
priority of payments described above, the
indenture trustee will withdraw funds from the
Class B reserve account to pay this amount.
Funds in the Class B reserve account will not
be available to pay any amounts due on any
other classes of notes. If withdrawals are made
from the Class B reserve account, the indenture
trustee will make deposits into the Class B
reserve account from any collections on the
contracts remaining after payment of interest
and formula principal on the notes and any
required deposits into the reserve account
until the balance is restored to $1,400,000.
Overcollateralization;
Additional Principal
Distributions............ On the closing date, the sum of the aggregate
principal balances of the contracts as of the
cut-off date and the original pre-funded amount
will exceed the aggregate original principal
balances of the notes by approximately
$5,600,000, or approximately 2.0% of the
aggregate cut-off date principal balances of
the contracts included in the trust as of the
closing date plus the original pre-funded
amount. Beginning on the first distribution
date, the noteholders will receive an
additional distribution of principal, to the
extent there is any amount available remaining
after payment of all interest and formula
principal on the notes, any required deposits
in the reserve account
S-8
<PAGE>
and the Class B reserve account and the monthly
servicing fee to the servicer for that
distribution date, until the distribution date
on which the pool scheduled principal balance
plus the pre-funded amount, if any, exceeds the
aggregate principal balance of the notes by
$14,000,000. These additional principal
distributions will be paid on the various
classes of notes in the manner described under
"Distributions on the Notes" above.
Purchase Option; Auction Sale Beginning on the distribution date when the
......................... pool scheduled principal balance of the
contracts is less than 20% of cut-off date pool
principal balance of the contracts, the holder
of the Class C certificates will have the right
to repurchase all of the outstanding contracts,
at a price at least sufficient to pay the
aggregate unpaid principal balance of the notes
plus all accrued and unpaid interest.
If the holder of the Class C certificates does
not exercise this purchase option on the first
distribution date on which it is permitted to
do so, then the indenture trustee will begin an
auction process to sell the contracts and the
other trust assets, but the indenture trustee
will not consummate any auction and liquidate
the trust unless the proceeds of that sale are
sufficient to pay the aggregate unpaid
principal balance of the notes plus all accrued
and unpaid interest. If the first auction of
the trust property is not successful because
the highest bid received was too low, then the
indenture trustee will conduct an auction of
the contracts every third month after that,
until an acceptable bid is received for the
trust property or the Class C certificateholder
exercises its purchase option.
See "Description of the Trust Documents and
Indenture--Purchase Option; Auction Sale;
Additional Principal Distributions."
The Contracts.................
The contracts are retail installment sales
contracts and promissory notes for the purchase
of marine products, including boats, boat
trailers and outboard motors, motorcycles and
recreational vehicles. Conseco
S-9
<PAGE>
Finance and Conseco Securitizations provide
more information about the contracts and the
products they financed in "The Contract Pool."
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 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. See "Federal
and State Income Tax Consequences" in this
prospectus supplement and "Federal Income Tax
Consequences" and "State Income Tax
Consequences" in the prospectus.
Pre-Funding Account...... If the aggregate principal balance of the
contracts that Conseco Securitizations
transfers to the trust on the closing date is
less than $280,000,000, the indenture trustee
will deposit that difference in a pre-funding
account, and the trust will use those funds to
purchase contracts from time to time until
August 14, 2000. If those funds are not
completely used by August 14, 2000, the
remaining funds will be distributed as
principal on the Class A-1 notes on the August
2000 distribution date. See "Risk Factors--
Conseco Finance may not be able to originate
and deliver all of the subsequent contracts."
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.
Reports to Holders of the
Notes.................... Conseco Finance will provide to the holders of
the notes monthly and annual reports about the
notes and the trust. Unless and until
definitive notes are issued, the reports will
be sent to Cede & Co., as registered holder of
the notes and nominee of DTC. For a more
complete description of the reports you will
receive, see "Description of the Trust
Documents and Indenture--Statements to
Noteholders".
S-10
<PAGE>
RISK FACTORS
You should consider the following risk factors in deciding whether to
purchase the securities.
Conseco Inc. is exploring the sale of Conseco Finance Corp.
On March 31, 2000, Conseco Inc. announced that it plans to explore the
possible sale of Conseco Finance Corp. No assurance can be provided as to the
timing or the terms of any such sale, including whether Conseco Finance would
be sold in its entirety to a single purchaser or whether Conseco Finance would
be divided along asset lines and sold to a number of different purchasers.
Moreover, no assurance can be given that any agreement will actually be reached
for a sale of all or any part of Conseco Finance if a purchaser is not found.
Although the transaction that is the subject of this prospectus supplement is
structured as a sale of contracts by Conseco Finance, Conseco Finance, as
seller, will retain a number of significant obligations, including the
obligation to deliver subsequent contracts and the obligation to repurchase any
contract for breaches of any of the related representations and warranties. In
addition, Conseco Finance acts as servicer of the contracts, and disruptions or
delays in collections could occur if a replacement servicer is appointed.
Conseco Finance may not be able to originate and deliver all of the subsequent
contracts.
This prospectus supplement describes the pool of initial contracts, which
have a principal balance as of the cut-off date of approximately
$257,322,602.31. Conseco Finance will transfer additional contracts to Conseco
Securitizations, which will then transfer them to the trust, on the closing
date. If the total amount of contracts delivered to the trust on the closing
date is less than $280,000,000, the amount of that difference will be deposited
in the pre-funding account and Conseco Finance will be obligated to deliver
subsequent contracts with a principal balance equal to that amount, and meeting
the criteria specified in the pooling and servicing agreement, on or before
August 14, 2000. We cannot assure you that Conseco Finance will be able to
originate enough subsequent contracts. See "Conseco Inc. is exploring the sale
of Conseco Finance Corp." above. Any funds remaining in the pre-funding account
on August 14, 2000 will be distributed as an additional payment of principal on
the Class A-1 notes on the August 2000 distribution date. If the amount
remaining in the pre-funding account is greater than the remaining principal
balance of the Class A-1 notes, any additional amounts shall be distributed as
an additional payment of principal on the Class A-2, Class A-3, Class M-1,
Class M-2 and Class B notes sequentially until each class is retired.
The trust has limited assets.
Holders of the notes must rely for repayment upon payments on the contracts
and the limited amount deposited into the reserve account. The trust will not
have, nor is it permitted or expected to have, any significant assets or
sources of funds other than the contracts, the reserve account and the Class B
reserve account.
S-11
<PAGE>
The Class M and Class B notes are subordinated.
Distributions of interest and principal on the Class M and Class B notes will
be subordinated to the rights of the holders of the Class A notes to receive
prior payment of interest and principal, respectively. See "Description of the
Trust Documents and Indenture--Distributions." This makes it more likely that
the Class M and Class B notes might not receive timely distributions of
interest and principal, or may not receive all the amounts due them.
Subordinated noteholders may not be able to direct the indenture trustee upon
an event of default under the indenture and may have limited rights upon
nonpayment of interest.
If an event of default occurs under the indenture, only the holders of the
most senior class of notes outstanding (for example, the Class A notes, or
after the Class A notes have been paid in full but the Class M notes are still
outstanding, the Class M notes) may waive the event of default, accelerate the
maturity dates of the notes or direct or consent to any action under the
indenture. The holders of the outstanding subordinate class or classes of notes
will not have any rights to direct or to consent to any action until each of
the more senior class or classes of notes has been paid in full.
Conseco Finance has limited delinquency, loan loss and repossession experience.
Conseco Finance began originating installment sales contracts for
recreational vehicles in 1985 and for motorcycles in 1988, but has less
extensive underwriting and servicing experience with other types of products
financed by the contracts. Although Conseco Finance has calculated and
presented its delinquency and net loss experience for its servicing portfolio
of similar contracts, you must not assume that the information presented will
reflect actual experience for the contracts owned by the trust. In addition,
you must not assume that the future delinquency, loan loss or repossession
experience of the trust for the contracts will be better or worse than those
described for our servicing portfolio. See "The Contract Pool--Delinquency,
Loan Loss and Repossession Information." 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.
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 notes 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. 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.
You should consider these risks that might cause higher than expected
delinquencies, defaults or losses:
S-12
<PAGE>
. Geographic concentration of initial contracts increases your exposure to
local economic conditions.
As of the cutoff date, the obligors on approximately 20.37%, 12.67% and
10.75% 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 Conseco Finance originated each contract, it required the customer
to grant Conseco Finance a security interest in the financed product. When
Conseco Finance assigns the contracts to Conseco Securitizations, it will
also assign its security interests in the financed products. Because of
the administrative burden and expense, the documents reflecting the
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. Under
various circumstances, including if Conseco Finance 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.
Conseco Finance 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. Conseco Finance will file UCC financing statements
reflecting the assignment of the contracts to the trustee, and its accounting
records and computer systems will also reflect that assignment. Conseco Finance
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 trustee. 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.
The contracts may be prepaid in full or in part at any time before their
scheduled maturity at the option of obligor. The rate of payments on the
contracts will be affected by
S-13
<PAGE>
various factors, including general and regional economic conditions and
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." You will
bear all reinvestment risk resulting from prepayments on the contracts and the
rate of principal payments on your note.
There may be no secondary market for the notes, which means you may have
trouble selling them when you want to.
We cannot assure to you that a secondary market will develop for the notes
or, if a secondary market does develop, that it will provide the holders of any
of the notes 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 notes.
If Conseco Finance becomes insolvent, you may suffer delays or reductions in
distributions on your notes.
Conseco Finance intends that each transfer of contracts to Conseco
Securitizations, and by Conseco Securitizations to the trust, will constitute a
sale, rather than a pledge of the contracts to secure indebtedness. However, if
Conseco Finance were to become a debtor under the federal bankruptcy code, it
is possible that its creditors, a bankruptcy trustee or Conseco Finance as
debtor-in-possession, may argue that the sale of the contracts was a pledge of
the contracts rather than a sale or that the assets of the trust and Conseco
Securitizations should be consolidated in Conseco Finance's bankruptcy estate.
Either such position, if presented to or accepted by a court, could result in a
delay in or reduction of distributions to the holders of the notes.
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 Conseco Finance 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 notes could experience a delay
or reduction in distributions.
Other rating agencies could provide unsolicited ratings on the notes that could
be lower than the requested ratings.
Although Conseco Finance has not requested a rating of the notes from any
rating agencies other than S&P and Moody's, other rating agencies may rate the
notes. These ratings could be higher or lower than the ratings S&P and Moody's
initially give to the notes. There is a risk that a lower rating of your notes
from another rating agency could reduce the market value or liquidity of your
notes.
S-14
<PAGE>
We have defined some of the terms used in this prospectus supplement in the
"Glossary" section at the back of the prospectus.
THE TRUST
The following information supplements the information in the prospectus. You
should consider, in addition to the information below, the information under
"The Trusts" in the prospectus.
General
Conseco Finance Recreational Enthusiast Consumer Trust 2000-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; and
(4) engaging in other activities that are necessary, suitable or convenient
to accomplish the above or are incidental or connected to those
activities.
The trust will initially be capitalized with equity of approximately $5,600,000
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 Conseco Securitizations under the sale and
servicing agreement among Conseco Securitizations, as the seller of the
contracts, Conseco Finance, as the servicer of the contracts, and the trust.
The trust's principal offices are in Wilmington, Delaware, at the address
listed below under "--The Owner Trustee."
Capitalization of the Trust
The following table illustrates the capitalization of the trust as of the
cutoff date, as if the issuance and sale of the notes and certificates had
taken place on that date:
<TABLE>
<S> <C>
Class A-1 notes.............................................. $148,400,000
Class A-2 notes.............................................. 50,700,000
Class A-3 notes.............................................. 33,300,000
Class M-1 notes.............................................. 14,000,000
Class M-2 notes.............................................. 11,200,000
Class B notes................................................ 16,800,000
Class C certificates......................................... 5,600,000
------------
Total...................................................... $280,000,000
============
</TABLE>
S-15
<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 from the certificate distribution account. The owner trustee's
liability in connection with the issuance and sale of the certificates and the
notes is limited solely to the express obligations of the owner trustee
described in the trust agreement.
THE TRUST PROPERTY
The trust property will consist of:
(1) the contracts;
(2) all rights to receive payments due thereon on or after the cutoff date,
excluding certain insurance premiums, late fees and other servicing
charges;
(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 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) the reserve account and the Class B reserve account; and
(7) all other rights under the trust documents.
See "The Contracts" and "Description of the Trust Documents--Collections" in
the prospectus.
Conseco Finance, 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.
To protect the trust's ownership interest in the contracts, we will file a
UCC-1 financing statement in Minnesota and Delaware to give notice of the
trust's ownership of the contracts and the related trust property.
Under the indenture, the trust will grant a security interest in favor of the
indenture trustee in the trust property, the rights of the trust under the sale
and servicing agreement, and the collection account and note distribution
account. Any proceeds of the trust property will be distributed according to
the indenture. See "Description of the Trust Documents and Indenture--
Distributions" in this prospectus supplement.
Payments and recoveries in respect of principal and interest on the contracts
will be paid into a separate trust account maintained at an eligible
institution, initially U.S. Bank
S-16
<PAGE>
National Association, in the name of the indenture trustee, no later than one
business day after receipt. The indenture trustee will, on the fifteenth day of
each month or, if such day is not a business day, the next succeeding business
day, deposit funds from the collection account into the note distribution
account and the certificate distribution account. Payments on deposit in the
note distribution account will be applied by the indenture trustee on each
payment date to make the distributions to the noteholders as of the immediately
preceding record date and payments on deposit in the certificate distribution
account will be applied by the owner trustee on each distribution date to make
the distributions to the certificateholders as of the immediately preceding
record date, all as described under "Description of the Notes" and "Description
of the Trust Documents and Indenture."
Following the transfer of the loans from Conseco Finance to Conseco
Securitizations, and then by Conseco Securitizations to the trust, Conseco
Finance's obligations are limited to:
(1) its obligations as servicer to service the contracts;
(2) the representations and warranties in the sale and servicing agreement
as described under "Description of the Trust Documents--Sale and
Assignment of the Contracts"; and
(3) indemnities and the payment of trustees' fees.
Conseco Finance is obligated under the sale and servicing agreement to
repurchase any loan on the first distribution date which is more than 90 days
after Conseco Finance becomes aware, or receives written notice from the
indenture trustee or the owner trustee, of any breach of any representation and
warranty in the sale and servicing agreement that materially and adversely
affects the securityholders' interest in the loan if the breach has not been
cured prior to that date. The sale and servicing agreement also provides that
Conseco Finance is obligated to repurchase loans and to indemnify the indenture
trustee or the owner trustee and the securityholders about other matters.
Conseco Finance is also obligated to pay the fees of the owner trustee and
indenture trustee.
S-17
<PAGE>
THE CONTRACT POOL
General
This prospectus supplement contains information regarding a portion of the
contracts to be included in the pool as of the closing date. These initial
contracts were originated through May 31, 2000 and will be transferred to the
trust by Conseco Securitizations on the closing date. The information for each
initial contract is as of May 31, 2000, which is the cutoff date for each
initial contract. The initial contracts had an aggregate principal balance as
of the cutoff date of $257,322,602.31. 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
$280,000,000. 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 the representations and
warranties in the sale and servicing agreement.
The contracts were purchased by Conseco Finance from dealers who regularly
originate and sell such contracts or were originated by Conseco Finance
directly.
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 $1,553.10 and not
more than $721,808.64,
(4) had a remaining principal balance as of the cutoff date of at
least $1,039.66 and not more than $710,615.35 and
(5) had a contractual rate of interest of at least 8.250% and not more
than 24.000%.
Neither Conseco Securitizations nor Conseco Finance 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 the Initial Contracts
<TABLE>
<CAPTION>
% of Weighted Weighted
Cutoff Average Average Weighted
% of Scheduled Date Pool Average Remaining Original Average
Number of Contract Principal Principal Principal Term Scheduled Contract
Asset Type Contracts Pool Balance Balance Balance (1)(2) Term (2) Rate
---------- --------- -------- --------------- --------- ---------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Recreational Vehicles... 5,513 30.95% $114,451,707.59 44.48% $20,760.33 158.18 165.96 11.64%
Motorcycles............. 8,755 49.15 84,807,622.45 32.96 9,686.76 70.06 77.72 14.11
Marine Products......... 3,545 19.90 58,063,272.27 22.56 16,378.92 142.36 150.30 12.24
------ ------ --------------- ------ ---------- ------ ------ -----
Total.................. 17,813 100.00% $257,322.602.31 100.00% $14,445.78 125.57 133.34 12.59%
====== ====== =============== ====== ========== ====== ====== =====
</TABLE>
--------
(1) Based on scheduled payments due after the cutoff date and assuming no
prepayments on the contracts.
(2) Expressed in number of months.
S-18
<PAGE>
Geographic Concentration of the Initial Contracts
<TABLE>
<CAPTION>
% of
Aggregate 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................. 368 2.07% $ 6,248,294.81 2.43%
Alaska.................. 30 0.17 1,030,840.50 0.40
Arizona................. 890 5.00 14,285,008.16 5.55
Arkansas................ 150 0.84 2,626,623.44 1.02
California.............. 3,436 19.29 52,418,473.92 20.37
Colorado................ 356 2.00 5,895,484.22 2.29
Connecticut............. 178 1.00 1,911,480.98 0.74
Delaware................ 21 0.12 283,894.92 0.11
District of Columbia.... 6 0.03 68,072.93 0.03
Florida................. 1,956 10.98 27,674,687.62 10.75
Georgia................. 784 4.40 11,157,526.08 4.34
Hawaii.................. 34 0.19 458,496.76 0.18
Idaho................... 25 0.14 511,387.30 0.20
Illinois................ 280 1.57 3,323,759.25 1.29
Indiana................. 171 0.96 2,589,805.64 1.01
Iowa.................... 27 0.15 414,874.31 0.16
Kansas.................. 64 0.36 804,930.69 0.31
Kentucky................ 150 0.84 1,721,318.92 0.67
Louisiana............... 211 1.18 3,738,665.73 1.45
Maine................... 29 0.16 472,560.70 0.18
Maryland................ 188 1.06 2,267,826.62 0.88
Massachusetts........... 239 1.34 2,318,009.82 0.90
Michigan................ 219 1.23 3,548,563.18 1.38
Minnesota............... 194 1.09 3,020,495.06 1.17
Mississippi............. 106 0.60 1,925,299.17 0.75
Missouri................ 295 1.66 3,671,232.19 1.43
Montana................. 18 0.10 302,993.57 0.12
Nebraska................ 29 0.16 404,416.82 0.16
Nevada.................. 244 1.37 4,521,306.86 1.76
New Hampshire........... 15 0.08 341,087.32 0.13
New Jersey.............. 435 2.44 4,142,318.81 1.61
New Mexico.............. 208 1.17 2,785,317.09 1.08
New York................ 321 1.80 3,679,875.96 1.43
North Carolina.......... 895 5.02 11,412,979.82 4.44
North Dakota............ 7 0.04 49,653.85 0.02
Ohio.................... 201 1.13 3,020,295.83 1.17
Oklahoma................ 180 1.01 2,477,275.19 0.96
Oregon.................. 420 2.36 6,876,953.59 2.67
Pennsylvania............ 165 0.93 2,145,922.62 0.83
Rhode Island............ 67 0.38 558,994.10 0.22
South Carolina.......... 437 2.45 5,956,799.42 2.31
South Dakota............ 22 0.12 450,770.18 0.18
Tennessee............... 227 1.27 3,915,920.92 1.52
Texas................... 2,414 13.55 32,595,887.52 12.67
Utah.................... 50 0.28 885,022.22 0.34
Vermont................. 17 0.10 214,243.29 0.08
Virginia................ 296 1.66 3,165,784.86 1.23
Washington.............. 646 3.63 11,295,285.27 4.39
West Virginia........... 15 0.08 187,569.53 0.07
Wisconsin............... 60 0.34 1,238,760.11 0.48
Wyoming................. 16 0.09 305,534.84 0.12
Other................... 1 0.01 4,019.80 *%
------ ------ --------------- ------
Total................... 17,813 100.00% $257,322,602.31 100.00%
====== ====== =============== ======
</TABLE>
--------
* Indicates a percentage greater than 0% but less than 0.005%
The state concentrations described in this table are based on the billing
address of the obligor listed in Conseco Finance's records.
S-19
<PAGE>
Distribution of Original Contract Amounts of the 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 $2,500.00....... 126 $ 212,723.62 0.08%
Between $2,500.00 and
$4,999.99................ 1,860 6,410,090.94 2.49
Between $5,000.00 and
$7,499.99................ 2,732 15,314,249.90 5.95
Between $7,500.00 and
$9,999.99................ 2,315 18,150,843.83 7.05
Between $10,000.00 and
$12,499.99............... 2,245 23,363,232.34 9.08
Between $12,500.00 and
$14,999.99............... 1,992 25,859,312.61 10.05
Between $15,000.00 and
$17,499.99............... 1,864 28,539,365.21 11.09
Between $17,500.00 and
$19,999.99............... 1,407 24,879,552.55 9.67
Between $20,000.00 and
$29,999.99............... 2,000 45,211,432.96 17.57
Between $30,000.00 and
$39,999.99............... 477 15,879,350.99 6.17
Between $40,000.00 and
$49,999.99............... 247 10,761,526.90 4.18
Between $50,000.00 and
$59,999.99............... 183 9,794,703.59 3.81
Between $60,000.00 and
$69,999.99............... 110 6,918,571.37 2.69
Between $70,000.00 and
$79,999.99............... 74 5,405,774.92 2.10
Between $80,000.00 and
$89,999.99............... 52 4,343,065.72 1.69
Between $90,000.00 and
$99,999.99............... 33 3,062,699.49 1.19
Between $100,000.00 and
$109,999.99.............. 16 1,662,793.13 0.65
Between $110,000.00 and
$119,999.99.............. 21 2,367,578.96 0.92
Between $120,000.00 and
$129,999.99.............. 18 2,193,743.69 0.85
Between $130,000.00 and
$139,999.99.............. 16 2,148,254.33 0.83
Between $140,000.00 and
$149,999.99.............. 6 861,795.70 0.33
Between $150,000.00 and
$159,999.99.............. 5 760,260.58 0.30
Between $160,000.00 and
$169,999.99.............. 3 492,660.53 0.19
Between $170,000.00 and
$179,999.99.............. 5 862,067.10 0.34
Between $180,000.00 and
$189,999.99.............. 2 368,048.30 0.14
Between $220,000.00 and
$229,999.99.............. 1 224,315.51 0.09
Between $260,000.00 and
$269,999.99.............. 1 265,267.29 0.10
Over $300,000.00.......... 2 1,009,320.25 0.39
------ --------------- ------
Total................... 17,813 $257,322,602.31 100.00%
====== =============== ======
</TABLE>
S-20
<PAGE>
Year of Origination of the 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>
1988................... 2 $ 30,323.24 0.01%
1991................... 1 4,710.15 *
1994................... 2 25,705.33 0.01
1996................... 19 298,034.04 0.12
1997................... 42 591,334.86 0.23
1998................... 77 1,550,949.01 0.60
1999................... 17,268 246,855,094.52 95.93
2000................... 402 7,966,451.16 3.10
------ --------------- ------
Total................ 17,813 $257,322,602.31 100.00%
====== =============== ======
</TABLE>
--------
* Indicates a percentage greater than 0% but less than 0.005%.
Distribution of Contract Rates of the 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 9.001%..... 79 $ 6,284,556.70 2.44%
9.001% to 10.000%... 622 21,600,208.31 8.39
10.001% to 11.000%... 2,117 48,994,614.91 19.04
11.001% to 12.000%... 3,122 51,419,546.45 19.98
12.001% to 13.000%... 3,480 48,028,788.73 18.66
13.001% to 14.000%... 2,556 30,862,747.49 11.99
14.001% to 15.000%... 1,663 17,059,274.07 6.63
15.001% to 16.000%... 1,281 10,900,785.45 4.24
16.001% to 17.000%... 1,074 8,134,802.67 3.16
Over 17.000%......... 1,819 14,037,277.53 5.46
------ --------------- ------
Total.............. 17,813 $257,322,602.31 100.00%
====== =============== ======
</TABLE>
S-21
<PAGE>
Remaining Months to Maturity of the 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>
0 to 30................ 711 $ 2,395,995.90 0.93%
31 to 60................ 4,004 25,043,983.68 9.73
61 to 90................ 5,832 63,792,019.47 24.79
91 to 120................ 1,856 27,754,589.59 10.79
121 to 150................ 3,795 62,650,115.03 24.35
151 to 180................ 1,220 45,367,791.66 17.63
181 to 210................ 58 1,832,906.40 0.71
211 to 240................ 337 28,485,200.58 11.07
------ --------------- ------
Total................... 17,813 $257,322,602.31 100.00%
====== =============== ======
</TABLE>
S-22
<PAGE>
CONSECO FINANCE CORP.
The following information supplements, and if inconsistent supersedes, the
information in the prospectus under the heading "Conseco Finance Corp." Conseco
Finance Corp. was previously named Green Tree Financial Corporation.
Delinquency, Loan Loss and Repossession Information
The following tables describe our delinquency, loan loss and repossession
experience for each period indicated for all marine product, motorcycle and
recreational vehicle contracts we have purchased and continue to service,
including the contracts which do not meet the selection criteria for sale to
the trust. Conseco Finance began originating installment sales contracts for
recreational vehicles in 1985 and for motorcycles in 1988, but has less
extensive underwriting and servicing experience with contracts for marine
products. Accordingly, the delinquency, loan loss and repossession experience
presented below largely represents experience only with recreational vehicle
and motorcycle contracts. In addition, because of the rapid growth of our
portfolio of consumer product and recreational product contracts, the
experience shown in more recent periods may not be indicative of the experience
to be expected from a more seasoned portfolio.
Delinquency Experience
<TABLE>
<CAPTION>
At December 31, At
---------------------------------------- March 31,
1995 1996 1997 1998 1999 2000
------ ------ ------ ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Number of Contracts
Outstanding (1)........... 33,081 64,710 98,678 129,786 133,851 132,569
Number of Contracts
Delinquent (2)
30-59 Days............... 391 766 981 982 1,780 1,499
60-89 Days............... 132 281 398 348 573 346
90 Days or More.......... 245 509 804 955 1,056 955
------ ------ ------ ------- ------- -------
Total Contracts
Delinquent................ 768 1,556 2,183 2,285 3,409 2,800
====== ====== ====== ======= ======= =======
Delinquencies as a
Percentage of Contracts
Outstanding (3)........... 2.32% 2.40% 2.21% 1.76% 2.55% 2.11%
</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-23
<PAGE>
Loan Loss/Repossession Experience
(Dollars in Thousands)
<TABLE>
<CAPTION>
Three Months
Year Ended December 31, Ended
------------------------------------------------------ March 31,
1995 1996 1997 1998 1999 2000
-------- -------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Number of Contracts
Serviced (1)........... 33,258 65,102 99,327 130,371 134,755 133,247
Principal Balance of
Contracts (1).......... $266,130 $689,336 $1,193,552 $1,746,781 $1,785,735 $1,624,101
Contract Liquidations:
Units................... 279 1,177 2,122 3,190 2,949 1,324
Percentage (2).......... 0.84% 1.81% 2.14% 2.45% 2.19% 0.99%
Net Losses:
Dollars (3)............. $ 936 $ 3,179 $ 6,159 $ 10,868 $ 16,225 $ 6,015
Percentage (4).......... 0.35% 0.46% 0.52% 0.62% 0.91% 0.37%
</TABLE>
--------
(1) As of period end. Includes contracts already in repossession.
(2) As a percentage of the total number of contracts being serviced as of
period end.
(3) The calculation of net loss includes unpaid interest to the date of
repossession and all expenses of repossession and liquidation.
(4) As a percentage of the principal balance of contracts being serviced as of
period end.
There can be no assurance that the delinquency, loan loss or repossession
experience of the trust for the contracts will be better than, worse than or
comparable to the experience described above. See "Risk Factors--Conseco
Finance has limited delinquency, loan loss and repossession experience."
Recent Developments
On March 31, 2000, Conseco Inc. announced its plan to explore the sale of
Conseco Finance. We can give you no assurance regarding the timing, price or
other terms related to the possible sale of Conseco Finance.
Following Conseco Inc.'s March 31 announcement of its plan to explore the
sale of Conseco Finance, rating agencies lowered their ratings of the debt
obligations of Conseco Finance and placed some ratings of Conseco Finance's
debt obligations on review as the rating agencies analyze the impact of the
developing events. The uncertainty surrounding the ultimate outcome of Conseco
Inc.'s plan has made it more difficult for Conseco Finance to complete new
public securitization transactions.
Conseco Finance has been served with various lawsuits in the United States
District Court for the District of Minnesota. These lawsuits were generally
filed as purported class actions on behalf of persons or entities who purchased
common stock or options to purchase common stock of Conseco Finance during
alleged class periods that generally run from February 1995 to January 1998.
One of these lawsuits did not include class action claims. In addition to
Conseco Finance, some of Conseco Finance's 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 Conseco Finance's common stock and the other relating to an
alleged class of traders in options for Conseco Finance's common stock. In
addition to these two complaints, a separate non-class
S-24
<PAGE>
action lawsuit 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 Conseco Finance and
the other defendants violated federal securities laws by making false and
misleading statements about Conseco Finance's current state and Conseco
Finance's future prospects, particularly about prepayment assumptions and
performance of some of our loan portfolios, which allegedly rendered Conseco
Finance's financial statements false and misleading. Conseco Finance filed
motions to dismiss these lawsuits. On August 24, 1999, Conseco Finance's
motions to dismiss were granted with prejudice. The plaintiffs subsequently
appealed the decision to the U.S. Court of Appeals for the 8th Circuit, and the
appeal is currently pending. Conseco Finance believes that the lawsuits are
without merit and intends to defend the lawsuits vigorously. However, the
ultimate outcome of these lawsuits cannot be predicted with certainty.
S-25
<PAGE>
YIELD AND PREPAYMENT CONSIDERATIONS
The following information supplements the information in the prospectus under
the heading "Yield and Prepayment Considerations."
Weighted Average Life of the Notes
The following information is given solely to illustrate the effect of
prepayments on the contracts on the weighted average life of the notes under
the stated assumptions and is not a prediction of the prepayment rate that
might actually be experienced by the contracts.
Weighted average life refers to the average amount of time from the date of
issuance of a security until each dollar of principal of such security will be
repaid to the investor. The weighted average life of the notes will be
influenced by the rate at which principal on the 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>
Marine Products........................................... 100%(1)
Motorcycles............................................... 25% CPR
Recreational Vehicles..................................... 25% CPR
</TABLE>
--------
(1) As a percentage of the prepayment assumption for contracts secured by
marine products.
The models used in this prospectus supplement are the constant prepayment
rate ("CPR") and the prepayment assumption for contracts secured by marine
products.
The CPR represents an assumed constant rate of prepayment each month,
expressed as a per annum percentage of the outstanding principal balance of the
contracts secured by all products other than marine products.
The 100% prepayment assumption for contracts secured by marine products
assumes a constant prepayment of 1.50% per annum of the then outstanding
principal balance of such loans in the first month of the life of such loans
and an additional 1.50% per annum in each month thereafter until the twelfth
month. Beginning in the twelfth month and in each month thereafter during the
life of such loans, the 100% prepayment assumption for contracts secured by
marine products assumes a constant prepayment rate of 18% per annum each month.
S-26
<PAGE>
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 recreational vehicles have been assumed to have a prepayment rate
equal to 20% CPR and 30% 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 have been assumed to have a
prepayment rate equal to 20% CPR and 30% CPR. NEITHER CPR NOR THE MARINE
PRODUCT PREPAYMENT ASSUMPTION PURPORTS TO BE AN 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 rate set forth in the table;
(2) the aggregate principal balance of the initial contracts as of their
cutoff date is $257,322,602.31 and the initial contracts have the
characteristics described under "The Contract Pool";
(3) 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 August 2000;
(4) no interest shortfalls will arise in connection with prepayments in
full of the contracts;
(5) distributions are made on the notes on the 15th day of each month
commencing in July 2000;
(6) the securities are issued on June 29, 2000; and
(7) the Class C certificateholder does not exercise its option to purchase
the remaining contracts when the pool scheduled principal balance is
20% of the cut-off date pool principal balance and the indenture
trustee is not able to auction the trust property; except that, where
the weighted average life is expressed as "Weighted Average Life to
Call," it is assumed that the option to purchase is exercised at the
earliest possible date.
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
Aggregate Principal Weighted Average Remaining Term
Balance Outstanding Contract Rate (Months)
------------------- ---------------- ----------------
<S> <C> <C> <C>
Marine Products........... $18,872,441,26 10.74% 93
Motorcycles............... 1,522,910.53 12.40 16
Recreational Vehicles..... 2,282,045.90 10.46 91
-------------- ----- ---
Total $22,677,397.69 10.83% 88
============== ===== ===
</TABLE>
S-27
<PAGE>
Based on the foregoing assumptions, the following tables indicate the
weighted average life of each class of notes 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
rate. Investors are urged to make their investment decisions on a basis that
includes their determination as to anticipated prepayment rates under a variety
of the assumptions discussed 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-28
<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, 2001..................................... 49 45 41 37 33
June 15, 2002..................................... 14 8 2 0 0
June 15, 2003..................................... 0 0 0 0 0
Weighted Average Life to Call..................... 1.07 0.98 0.90 0.83 0.77
Weighted Average Life to Maturity................. 1.07 0.98 0.90 0.83 0.77
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, 2001..................................... 100 100 100 100 100
June 15, 2002..................................... 100 100 100 93 82
June 15, 2003..................................... 72 59 47 36 26
June 15, 2004..................................... 28 16 5 0 0
June 15, 2005..................................... 0 0 0 0 0
Weighted Average Life to Call..................... 3.52 3.25 3.00 2.78 2.58
Weighted Average Life to Maturity................. 3.52 3.25 3.00 2.78 2.58
</TABLE>
Percentage of the Original Principal Balance of the Class A-3
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, 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 93 80
June 15, 2005..................................... 90 75 62 50 39
June 15, 2006..................................... 51 39 29 20 13
June 15, 2007..................................... 28 19 10 4 0
June 15, 2008..................................... 11 3 0 0 0
June 15, 2009..................................... 0 0 0 0 0
Weighted Average Life to Call..................... 5.10 4.77 4.44 4.18 3.86
Weighted Average Life to Maturity................. 6.31 5.89 5.50 5.16 4.84
</TABLE>
S-29
<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, 2001..................................... 100 100 100 100 100
June 15, 2002..................................... 100 100 100 96 89
June 15, 2003..................................... 83 75 68 61 55
June 15, 2004..................................... 57 49 43 37 32
June 15, 2005..................................... 36 30 24 20 16
June 15, 2006..................................... 20 16 12 8 5
June 15, 2007..................................... 11 7 4 1 0
June 15, 2008..................................... 4 1 0 0 0
June 15, 2009..................................... 0 0 0 0 0
Weighted Average Life to Call..................... 4.15 3.85 3.57 3.33 3.09
Weighted Average Life to Maturity................. 4.63 4.29 3.99 3.72 3.48
Percentage of the Original Principal Balance of the Class M-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, 2001..................................... 100 100 100 100 100
June 15, 2002..................................... 100 100 100 96 89
June 15, 2003..................................... 83 75 68 61 55
June 15, 2004..................................... 57 49 43 37 32
June 15, 2005..................................... 36 30 24 20 16
June 15, 2006..................................... 20 16 12 8 5
June 15, 2007..................................... 11 7 4 1 0
June 15, 2008..................................... 4 1 0 0 0
June 15, 2009..................................... 0 0 0 0 0
Weighted Average Life to Call..................... 4.15 3.85 3.57 3.33 3.09
Weighted Average Life to Maturity................. 4.63 4.29 3.99 3.72 3.48
</TABLE>
Percentage of the Original Principal Balance of the Class B
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, 2001..................................... 100 100 100 100 100
June 15, 2002..................................... 100 100 100 96 89
June 15, 2003..................................... 83 75 68 61 55
June 15, 2004..................................... 57 49 43 37 32
June 15, 2005..................................... 36 30 24 20 16
June 15, 2006..................................... 20 16 12 8 5
June 15, 2007..................................... 11 7 4 1 0
June 15, 2008..................................... 4 1 0 0 0
June 15, 2009..................................... 0 0 0 0 0
Weighted Average Life to Call..................... 4.15 3.85 3.57 3.33 3.09
Weighted Average Life to Maturity................. 4.63 4.29 3.99 3.72 3.48
</TABLE>
S-30
<PAGE>
DESCRIPTION OF THE NOTES
The following information supplements, and if inconsistent supersedes, the
information in the prospectus under "The Notes," "Information Regarding the
Securities," and "Description of the Trust Documents."
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 notes. 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 of interest and
principal on each distribution date commencing in July 2000, to the extent that
sufficient funds are available. 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 notes will accrue from
June , 2000, 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 for this purpose will be the
original principal balance of that class minus all amounts previously
distributed to the noteholders of that class in respect of principal. Interest
on all the notes will be calculated on the basis of a 360-day year of twelve
30-day months.
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, plus amounts in the reserve account, are not sufficient to make a
full distribution of interest on the Class A notes, the funds available will be
applied pro rata to the Class A-1, Class A-2 and Class A-3 notes based on the
amount payable to each such class and the amount of the shortfall will bear
interest at the interest rate for that class, to the extent legally
permissible, until paid.
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 accrued on the Class A notes.
S-31
<PAGE>
In the event the remaining funds available, plus amounts available in the
reserve account, 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
bear interest at the Class M-1 interest rate, to the extent legally
permissible, until paid.
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 accrued on the Class A and Class M-1 notes.
In the event that the remaining funds available, plus any amounts available
in the reserve account, 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 bear interest at the Class M-2 interest rate, to the extent
legally permissible, until paid.
Interest will be paid on the Class B notes on each distribution date, to the
extent of the remaining funds available on that distribution date after payment
of:
(1) all interest accrued on the Class A notes, and
(2) all interest accrued on the Class M notes.
In the event the remaining funds available, plus amounts available in the Class
B reserve account and the reserve account, are not sufficient to make a full
distribution of interest on the Class B notes, the remaining funds available
will be applied to the payment of interest on the Class B notes and the amount
of the shortfall will bear interest at the Class B interest rate, to the extent
legally permissible, until paid.
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, to the
extent that sufficient funds are available after the payment of all amounts
having a higher priority as described under "Description of the Trust Documents
and Indenture--Distributions," an amount equal to the total principal
distribution amount, described below, for that distribution date. So long as
the rate of defaults on the contracts remains below levels specified in the
sale and servicing agreement, the total principal distribution amount will be
distributed to the Class A-1 notes until the principal balance of the Class A-1
notes has been reduced to zero. After the outstanding principal balance of the
Class A-1 notes has been reduced to zero, the total principal distribution
amount will be distributed to the Class A-2, Class A-3, Class M-1, Class M-2
and Class B notes, in the following manner and order of priority (percentages
are approximate due to rounding):
(a) 66.67% of the total principal distribution amount to the Class A-2
and Class A-3 notes, in sequential order,
(b) 11.11% of the total principal distribution amount to the Class M-1
notes,
(c) 8.89% of the total principal distribution amount to the Class M-2
notes, and
(d) 13.33% of the total principal distribution amount to the Class B-1
notes.
S-32
<PAGE>
If the rate of defaults on the contracts exceeds those specified levels, then
the total principal distribution amount will instead be distributed, first to
the Class A-1, Class A-2 and Class A-3 notes pro rata until the principal
balances of those classes have been reduced to zero, then sequentially to the
Class M-1 notes, the Class M-2 notes and the Class B notes, in each case until
the principal balance of that class has been reduced to zero.
To the extent not paid in full prior to such date, the outstanding principal
amount of each class of notes will be payable on the following final scheduled
distribution date for such class:
Class A-1: January 2006
Class A-2: April 2010
Class A-3: May 2020
Class M-1: May 2020
Class M-2: May 2020
Class B: May 2020
Prior to the maturity date of the notes, the failure to pay principal on the
notes on a distribution date will not result in an event of default on the
notes except to the extent it is caused by failure to distribute the amount
available in accordance with the priorities and in the amounts described under
"Description of the Trust Documents and Indenture--Distributions."
Total Principal Distribution Amount
The total principal distribution amount for any distribution date will equal:
(1) the formula principal distribution amount for that distribution date,
plus
(2) any formula principal shortfall for prior distribution dates not
previously paid, plus
(3) the additional principal distribution amount, if any, as described
under "Description of the Trust Documents and Indenture--
Overcollateralization" and "--Purchase Option; Auction Sale."
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,
(2) the scheduled principal balance of each contract which, during the
related monthly period, was purchased by Conseco Finance pursuant to the
sale and servicing agreement on account of a breach of a representation or
warranty,
S-33
<PAGE>
(3) all partial principal prepayments applied and all principal
prepayments in full received on contracts during the related monthly
period,
(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,
(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.
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 such deficiency, which we refer to as the formula
principal shortfall for such distribution date, will be added to the total
principal distribution amount for the next distribution date.
Events of Default
This section supplements "The Notes--The Indenture--Events of Default; Rights
Upon Event of Default" in the prospectus.
Rights Upon Event of Default. Upon an event of default under the indenture,
holders of (1) a majority of the Class A Notes, or (2) if the Class A notes
have been paid in full, a majority of the Class M notes, or (3) if the Class A
notes and Class M notes have been paid in full, a majority of the Class B notes
(the "Controlling Noteholders") will have the rights described in the
prospectus under "The Notes--The Indenture--Events of Default; Rights Upon
Event of Default" as being exercisable by a note majority, including the right
to declare all of the notes to be immediately due and payable.
Under the Trust Indenture Act of 1939, the indenture trustee may be deemed to
have a conflict of interest and be required to resign as indenture trustee for
the Class A notes, the Class M notes or the Class B notes if a default occurs
under the indenture. In these circumstances, the indenture will provide for a
successor indenture trustee to be appointed
S-34
<PAGE>
for one or all of the Class A notes, the Class M notes and the Class B notes.
In general, so long as any amounts remain unpaid with respect to the Class A
notes,
. only the indenture trustee for the Class A noteholders will have the
right to exercise remedies under the indenture; and
. only the Class A noteholders will have the right to direct or consent to
any action to be taken, including the sale of the contracts.
In any case, the Class M and the Class B noteholders will be entitled to their
respective shares of any proceeds of enforcement, subject to the subordination
of the Class M notes and the Class B notes to the Class A notes as described in
this prospectus supplement. When the Class A notes are repaid in full, all
rights to exercise remedies under the indenture will transfer to the indenture
trustee for the Class M notes.
Similarly, after the Class A notes are repaid in full and so long as any
amounts remain unpaid with respect to the Class M notes,
. only the indenture trustee for the Class M noteholders will have the
right to exercise remedies under the indenture; and
. only the Class M noteholders will have the right to direct or consent to
any action to be taken, including the sale of the contracts.
In any case, the Class B noteholders will be entitled to their respective
shares of any proceeds of enforcement, subject to the subordination of the
Class B notes to the Class A and Class M notes as described in this prospectus
supplement. When the Class M notes are repaid in full, all rights to exercise
remedies under the indenture will transfer to the indenture trustee for the
Class B notes.
If the indenture trustee relating to any class of notes resigns, its
resignation will become effective only after a successor indenture trustee for
that class of notes is appointed and the successor accepts the appointment.
Book-Entry Registration
Holders of the notes may hold through DTC in the United States or Clearstream
Banking, societe anonyme or Euroclear in Europe if they are participants of
these systems, or indirectly through organizations that are participants in
these systems.
Cede & Co., as nominee for DTC, will hold the notes. Clearstream and
Euroclear will hold omnibus positions in the notes on behalf of the Clearstream
Participants and the Euroclear participants, through customers' securities
accounts in Clearstream's and Euroclear's names on the books of their
respective depositaries, which in turn will hold such positions in customers'
securities accounts in the depositaries' names on the books of DTC.
Transfers between DTC's participating organizations will occur in accordance
with DTC rules. Transfers between Clearstream participants and Euroclear
participants will occur in the ordinary way according to their applicable rules
and operating procedures.
Cross-market transfers between persons holding directly or indirectly through
DTC, on the one hand, and directly or indirectly through Clearstream
participants or Euroclear
S-35
<PAGE>
participants, on the other, will be effected in DTC according to DTC rules on
behalf of the relevant European international clearing system by its
depositary; however, such cross-market transactions will require delivery of
instructions to the relevant European international clearing system by the
counterparty in such system according to its rules and procedures and within
its established deadlines. The relevant European international clearing system
will, if the transaction meets its settlement requirements, deliver
instructions to its depositary to take action to effect final settlement on its
behalf by delivering or receiving securities in DTC, and making or receiving
payment according to normal procedures for same-day funds settlement applicable
to DTC. Clearstream participants and Euroclear participants may not deliver
instructions directly to the depositaries.
Because of time-zone differences, credits of securities in Clearstream or
Euroclear for a transaction with a participant will be made during the
subsequent securities settlement processing, dated the business day following
the DTC settlement date, and these credits or any transactions in the
securities settled during the processing will be reported to the relevant
Clearstream participant or Euroclear participant on the following business day.
Cash received in Clearstream or Euroclear for sales of securities by or through
a Clearstream participant or a Euroclear participant to a participant will be
received with value on the DTC settlement date but will be available in the
relevant Clearstream or Euroclear cash account only as of the business day
following settlement in DTC.
For a description of transfers between persons holding directly or indirectly
through DTC, see "Information Regarding the Securities--Book-Entry
Registration" in the prospectus.
Clearstream is incorporated under the laws of Luxembourg as a limited
liability company. Clearstream holds securities for its participating
organizations and facilitates the clearance and settlement of securities
transactions between Clearstream participants through electronic book-entry
changes in accounts of Clearstream participants, thereby eliminating the need
for physical movement of securities. Transactions may be settled in Clearstream
in any of 28 currencies, including United States dollars. Clearstream provides
to its Clearstream participants, among other things, services for safekeeping,
administration, clearance and settlement of internationally traded securities
and securities lending and borrowing. Clearstream interfaces with domestic
markets in several countries. As a professional depository, Clearstream is
subject to regulation by the Luxembourg Monetary Institute. Clearstream
participants are recognized financial institutions around the world, including
underwriters, securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations and may include the underwriters.
Indirect access to Clearstream is also available to others, such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a Clearstream Participant, either directly or indirectly.
The Euroclear System was created in 1968 to hold securities for participants
of the Euroclear System and to clear and settle transactions between Euroclear
participants through simultaneous electronic book-entry delivery against
payment, thereby eliminating the need for physical movement of securities and
any risk from lack of simultaneous transfers of securities and cash.
Transactions may now be settled in Euroclear in any of 32 currencies,
S-36
<PAGE>
including United States dollars. The Euroclear System includes various other
services, including securities lending and borrowing, and interfaces with
domestic markets in several countries generally similar to the arrangements for
cross-market transfers with DTC described in Annex I hereto. The Euroclear
System is operated by Morgan Guaranty Trust Company of New York, Brussels,
Belgium office, under contract with Euroclear Clearance System, S.C., a Belgian
cooperative corporation. All operations are conducted by the Euroclear
Operator, and all Euroclear securities clearance accounts and Euroclear cash
accounts are accounts with the Euroclear Operator, not the Cooperative. The
Cooperative establishes policy for the Euroclear System on behalf of Euroclear
participants. Euroclear participants include banks, including central banks,
securities brokers and dealers and other professional financial intermediaries
and may include the underwriters. Indirect access to the Euroclear System is
also available to other firms that clear through or maintain a custodial
relationship with a Euroclear participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it
is regulated and examined by the Board of Governors of the Federal Reserve
System and the New York State Banking Department, as well as the Belgian
Banking Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System and applicable Belgian
law, collectively, the terms and conditions. The terms and conditions govern
transfers of securities and cash within the Euroclear System, withdrawal of
securities and cash from the Euroclear System, and receipts of payments with
respect to securities in the Euroclear System. All securities in the Euroclear
System are held on a fungible basis without attribution of specific securities
to specific securities clearance accounts. The Euroclear Operator acts under
the terms and conditions only on behalf of Euroclear participants and has no
record of or relationship with persons holding through Euroclear participants.
Distributions with respect to notes held through Clearstream or Euroclear
will be credited to the cash accounts of Clearstream participants or Euroclear
participants in accordance with the relevant system's rules and procedures, to
the extent received by its depositary. Such distributions will be subject to
tax reporting in accordance with relevant United States tax laws and
regulations. See "Certain Federal Income Tax Consequences" in the prospectus
and "Global Clearance, Settlement and Tax Documentation Procedures" in Annex I
to this prospectus supplement. Clearstream or the Euroclear Operator, as the
case may be, will take any other action permitted to be taken by a noteholder
under the Indenture on behalf of a Clearstream participant or Euroclear
participant only in accordance with its relevant rules and procedures and
subject to its depositary's ability to effect such actions on its behalf
through DTC.
Although DTC, Clearstream and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of notes among participants of DTC,
Clearstream and Euroclear, they are under no obligation to perform or continue
to perform the procedures and the procedures may be discontinued at any time.
S-37
<PAGE>
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. 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 in the prospectus.
Accounts
The servicer will establish and maintain one or more accounts, in the name of
the indenture trustee on behalf of the noteholders and the certificateholders,
into which all payments made on or for the contracts will be deposited, which
we refer to as the collection account. The servicer will establish and maintain
an account, in the name of the indenture trustee on behalf of the noteholders,
in which amounts released from the collection account for distribution to
noteholders will be deposited and from which all distributions to noteholders
will be made, which we call the note distribution account. The servicer will
also establish and maintain an account, in the name of the owner trustee on
behalf of the certificateholders, in which amounts released from the collection
account for distribution to certificateholders will be deposited and from which
all distributions to certificateholders will be made which we call the
certificate distribution account. The servicer will also establish and maintain
an account in the name of the indenture trustee, which will provide credit
enhancement to the notes to the extent of the limited amount on deposit in the
account, which we call the reserve account. The servicer will also establish
and maintain an account in the name of the indenture trustee, which will
provide credit enhancement for the Class B notes to the extent of the limited
amount on deposit in the account, which we call the Class B reserve account.
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, plus any
amounts withdrawn from the reserve account and the Class B reserve account, in
the following order of priority:
(1) if Conseco Finance or an 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 prior 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;
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<PAGE>
(6) to the note distribution account, all accrued interest on the Class B
notes;
(7) to the note distribution account, the formula principal distribution
amount and any unpaid formula principal shortfall;
(8) to the reserve account, the amount required to reinstate the amount
in the reserve account up to the specified reserve balance;
(9) to the Class B reserve account, the amount required to reinstate the
amount in the Class B reserve account up to the specified Class B reserve
balance;
(10) the monthly servicing fee to us;
(11) to the note distribution account, the additional principal
distribution amount, if any; and
(12) any remaining amount to the certificate distribution account for
distribution to the Class C certificateholders.
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 under
"Description of the Notes--Interest" and "--Principal."
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 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, 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 2000, 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 Noteholders
On or before each distribution date, the servicer will prepare and provide to
the indenture trustee a statement to be delivered to the noteholders. 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, 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;
(2) the amount of the distribution allocable to principal on or with
respect to each class of notes;
(3) the aggregate outstanding principal balance and the pool factor for
each class of notes after giving effect to all payments reported under (2)
above on such date;
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<PAGE>
(4) the interest shortfall, if any, for each class of notes, and the
change in such amounts from the preceding statement;
(5) the balance in the reserve account, the specified reserve account
balance, the balance in the Class B reserve account and the specified Class
B reserve balance;
(6) the amount of the monthly servicing fee paid to the servicer;
(7) 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
(8) the aggregate amount of servicer advances made by the servicer for
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 (4) will be expressed as a
dollar amount per $1,000 of the initial principal amount of the notes.
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" in this prospectus
supplement and "Reports to Securityholders" and "Information Regarding the
Securities" in the prospectus.
Within the required period of time after the end of each calendar year, the
indenture trustee, will furnish to each person who at any time during the
calendar year was a noteholder, a statement as to the aggregate amounts of
interest and principal paid to such noteholder, information regarding the
amount of servicing compensation received by the servicer and other information
as we deem necessary to enable the noteholder to prepare its tax returns. See
"Federal and State Income Tax Consequences".
Reserve Account
The servicer will establish and maintain the reserve account. It will be held
in the name of the indenture trustee for the benefit of the noteholders. To the
extent that amounts on deposit in the reserve account are depleted, the
noteholders will have no recourse to the assets of the seller or servicer as a
source of payment.
Deposits to the Reserve Account. The reserve account will be funded by a
deposit on the closing date in the amount of $7,000,000. The required balance
for the reserve account will initially be equal to $7,000,000. Beginning on the
distribution date in July 2002, and provided that specified performance tests
relating to the contracts have been satisfied and that Conseco Finance is the
servicer, the required balance in the reserve account will be equal to the
lesser of $7,000,000 and 5% of the aggregate principal balance of the notes,
and will continue to decline on each distribution date as the aggregate
principal balance of the notes declines. If, due to withdrawals from the
reserve account, the balance has fallen below the specified reserve balance,
any remaining amount available in the collection account on
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<PAGE>
the next distribution date, after payment of the amounts described under "--
Distributions" above, will be deposited into the reserve account until the
balance equals the specified reserve balance.
Withdrawals From the Reserve Account. The amount on deposit in the reserve
account may decrease:
. on each distribution date by withdrawal of excess amounts, if any, above
the specified reserve balance;
. on each distribution date by withdrawal of any shortfall of the amount
available to pay the amounts of interest due on the notes on such
distribution date; and
. on the final scheduled distribution date of any class of notes by
withdrawal of an amount equal to the remaining principal balance, if
any, of that class of notes.
In addition, the indenture trustee will withdraw amounts from the reserve
account on any distribution date to the extent that such amounts together with
the amount available for such distribution date would be sufficient to pay the
sum of the servicing fee and all outstanding notes in full.
Investment. Amounts on deposit in the reserve account will be invested by the
indenture trustee at the direction of the seller in eligible investments and
investment earnings (net of losses and investment expenses) therefrom will be
deposited into the reserve account subject to withdrawal as defined above.
Eligible investments are generally limited to obligations or securities that
mature on or before the next distribution date. However, to the extent each
rating agency rating the notes confirms that such actions will not adversely
affect its ratings of the notes, funds in the reserve account may be invested
in obligations or securities that will not mature prior to the next
distribution date.
Funds in the Reserve Account Will be Limited. Amounts on deposit in the
reserve account from time to time are available to:
. enhance the likelihood that you will receive the amounts due on your
notes; and
. decrease the likelihood that you will experience losses on your notes.
However, the amounts on deposit in the reserve account at any time are
limited to the specified reserve balance. If the amount required to cover
shortfalls in funds on deposit in the collection account exceeds the amount on
deposit in the reserve account, a temporary shortfall in the amounts
distributed to the noteholders would result. In addition, depletion of the
reserve account ultimately could result in losses on your notes.
After the payment in full, or the provision for such payment, of all accrued
and unpaid interest on the notes and the outstanding principal amount of the
notes, any funds remaining on deposit in the reserve account, subject to
certain limitations, will be paid to the certificateholder.
Class B Reserve Account
The servicer will establish and maintain the Class B reserve account. It will
be held in the name of the indenture trustee for the benefit of the Class B
noteholders. To the extent that amounts on deposit in the Class B reserve
account are depleted, the Class B noteholders will have no recourse to the
assets of the seller or servicer as a source of payment.
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<PAGE>
Deposits to the Class B Reserve Account. The Class B reserve account will be
funded by a deposit on the closing date in the amount of $1,400,000 which will
also equal the specified Class B reserve balance. If, due to withdrawals from
the Class B reserve account the balance has fallen below the specified Class B
reserve balance, any remaining amount available in the collection account, on
the next distribution date, after payment of the amounts described under "--
Distributions" above, will be deposited into the Class B reserve account until
the balance equals the specified Class B reserve balance.
Withdrawals From the Class B Reserve Account. The amount on deposit in the
Class B reserve account may decrease:
. on each distribution date by withdrawal of excess amounts, if any, above
the specified Class B reserve balance; and
. on each distribution date by withdrawal of any shortfall of the amount
available to pay the amount of interest due on the Class B notes on such
distribution date.
Investment. Amounts on deposit in the Class B reserve account will be
invested by the indenture trustee at the direction of the seller in eligible
investments and investment earnings (net of losses and investment expenses)
therefrom will be deposited into the Class B reserve account subject to
withdrawal as defined above. Eligible investments are generally limited to
obligations or securities that mature on or before the nest distribution date.
However, to the extent each rating agency rating the Class B notes confirms
that such actions will not adversely affect its ratings of the Class B notes,
funds in the Class B reserve account may be invested in obligations or
securities that will not mature prior to the next distribution date.
Funds in the Class B Reserve Account Will be Limited. Amounts on deposit in
the Class B reserve account from time to time are available to:
. enhance the likelihood that you will receive interest due on the Class B
notes; and
. decrease the likelihood that you will experience losses on the Class B
notes.
However, the amounts on deposit in the Class B reserve account at any time
are limited to the specified Class B reserve balance. If the amount required to
be withdrawn from the reserve account to cover shortfalls in funds on deposit
in the collection account exceeds the amount on deposit in the reserve account,
a temporary shortfall in the amount of interest distributed to the Class B
noteholders would likely result. In addition, depletion of the Class B reserve
account ultimately could result in losses on the Class B notes.
After the payment in full, or the provision for such payment, of all accrued
and unpaid interest on the Class B notes, any funds remaining on deposit in the
Class B reserve account, subject to certain limitations, will be paid to the
certificateholder.
Overcollateralization
On the closing date, the sum of the aggregate principal balances of the
contracts as of the cut-off date and the original pre-funded amount will exceed
the aggregate original
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principal balances of the notes by approximately $5,600,000, or approximately
2.0% of the aggregate cut-off date principal balances of the contracts included
in the trust as of the closing date plus the original pre-funded amount.
Beginning on the first distribution date, the noteholders will receive an
additional distribution of principal, to the extent there is any amount
available remaining after payment of all interest and principal on the notes,
any required deposits to the reserve account and the Class B reserve account
and the monthly servicing fee to the servicer for that distribution date, until
the distribution date on which the pool scheduled principal balance plus the
prefunded amount, if any, exceeds the aggregate note principal balance by
$14,000,000, which we refer to as the overcollateralization amount. These
additional principal distribution amounts will be paid on the various classes
of notes in the manner described under "Description of the Notes--Principal."
Purchase Option; Auction Sale; Additional Principal Distributions
Beginning on the payment date when the pool scheduled principal balance is
less than 20% of the cut-off date pool principal balance, the holder of the
Class C certificates will have the right to repurchase or arrange for the
repurchase of all outstanding contracts at a price equal to the greater of:
(1)the sum of:
(a) 100% of the scheduled principal balance of each contract, other
than any contract as to which the related product has been
repossessed and whose fair market value is included in clause (b)
below as of the final distribution date, and
(b) the fair market value of any acquired property, as determined by
the servicer; and
(2) the aggregate fair market value, as determined by the servicer of all
of the assets of the trust, plus, in each case, any unpaid interest at
the applicable interest rate on each class of notes, as well as one
month's interest at the applicable contract rate on the scheduled
principal balance of each contract.
This amount will be distributed on the distribution date occurring in the
month following the date of repurchase.
If the holder of the Class C certificates does not exercise this purchase
option on the first distribution date on which it is permitted to do so, then
the indenture trustee will begin an auction process to sell the contracts and
the other trust assets at the highest offered price prior to the next
distribution date. The indenture trustee will not consummate any auction and
liquidate the trust unless at least two bids are received and the highest bid
would be sufficient to pay the aggregate unpaid principal balance of the notes
plus all accrued and unpaid interest. If the first auction of the trust
property is not successful because the highest bid received was too low, then
the indenture trustee will conduct an auction of the contracts every third
month after that, until an acceptable bid is received for the trust property.
We cannot assure you that the first auction or any subsequent auction will be
successful. The holder of the Class C certificates may exercise its purchase
option on any distribution date after the first distribution date described
above, unless the indenture trustee has accepted a qualifying bid for the trust
property.
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<PAGE>
Administrator
Conseco 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 Conseco Finance, will enter into an
administration agreement with the trust and the indenture trustee describing
its duties and obligations as administrator.
Use of Proceeds
Conseco Securitizations will pay the net proceeds from the sale of the notes,
after paying its expenses, to Conseco Finance. Conseco Finance will use a
portion of the proceeds to repay warehouse financings. Conseco Finance will use
the remainder of the proceeds for working capital and general corporate
purposes, including the origination of the contracts, the costs of carrying the
contracts until the sale of the notes and to pay other expenses of pooling the
contracts and issuing the notes.
FEDERAL AND STATE INCOME TAX CONSEQUENCES
The following is a general discussion of federal and state income tax
consequences relating to the purchase, ownership, and disposition of the notes.
The discussion is based upon the current provisions of the Internal Revenue
Code of 1986, 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 "Federal Income Tax Consequences--Owner Trust Series" and
"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. 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. 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 notes.
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.
The notes will not be issued with original issue discount.
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ERISA CONSIDERATIONS
Section 406 of the Employee Retirement Income Security Act of 1974, and
Section 4975 of the IRS 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 IRS 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 IRS 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 IRS 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 IRS 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;
. PTCE 84-14, regarding transactions effected by qualified professional
asset managers; and
. PTCE 96-23, regarding transactions effected by in-house asset
managers.
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 IRS code and
exempt from taxation under Section 501(a) of the IRS code, the prohibited
transaction rules set forth in Section 503 of the IRS code.
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A plan fiduciary considering the purchase of notes should consult its tax
and/or legal advisors regarding whether the assets of the trust would be
considered plan assets, the possibility of exemptive relief from the prohibited
transaction rules and other issues and their potential consequences.
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<PAGE>
UNDERWRITING
The underwriters have agreed, subject to the terms and conditions of the
underwriting agreement, to purchase from Conseco Securitizations the respective
principal amounts of notes set forth opposite their names below:
<TABLE>
<CAPTION>
Class A-1 Class A-2 Class A-3 Class M-1 Class M-2 Class B
Notes Notes Notes Notes Notes Notes
---------- ---------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Credit Suisse First
Boston Corporation..... $ $ $ $ $ $
Banc of America
Securities LLC.........
---------- ---------- --------- ---------- ---------- ---------
Totals................ $ $ $ $ $ $
========== ========== ========= ========== ========== =========
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all of the notes offered in this prospectus, if any of such offered
securities are purchased.
Conseco Securitizations has been advised by the underwriters that they
propose initially to offer the notes to the public at the respective price to
public shown on the cover page of this prospectus supplement and to certain
dealers at this price 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 respective amounts listed in the table below to certain other dealers.
<TABLE>
<CAPTION>
Selling Reallowance
Class Concession Discount
----- ---------- -----------
<S> <C> <C>
A-1 Notes........................................... % %
A-2 Notes........................................... % %
A-3 Notes........................................... % %
M-1 Notes........................................... % %
M-2 Notes........................................... % %
B Notes............................................. % %
</TABLE>
Until the distribution of the notes is completed, rules of the SEC may limit
the ability of the underwriters and certain selling group members to bid for
and purchase the notes. As an exception to these rules, the underwriters are
permitted to engage in certain transactions that stabilize the price of the
notes. These transactions consist of bids or purchases for the purpose of
pegging, fixing or maintaining the price of the notes.
If the underwriters create a short position in the notes in connection with
the offering, for example, if they sell more notes than are set forth on the
cover page of this prospectus supplement, the underwriters may reduce that
short position by purchasing notes 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.
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<PAGE>
Neither Conseco Finance, Conseco Securitizations nor any of the underwriters
makes any representation or prediction as to the direction or magnitude of any
effect that the transactions described above may have on the prices of the
notes. In addition, neither Conseco Finance, Conseco Securitizations 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 Conseco Finance and Conseco
Securitizations 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.
Each of the underwriters has represented, warranted and agreed that:
(1) it has not offered or sold and, prior to the expiration of the period
of six months from the closing date, will not offer or sell any notes to
persons in the United Kingdom except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments,
as principal or agent for the purposes of their businesses or otherwise in
circumstances which have not resulted and will not result in an offer to
the public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995;
(2) it has complied and will comply with all applicable provisions of the
Financial Services Act 1986 with respect to anything done by it in relation
to the notes in, from or otherwise involving the United Kingdom; and
(3) it has only issued or passed on and will only issue or pass on in the
United Kingdom any document received by it in connection with the issue of
the notes to a person who is of a kind described in Article 11(3) of the
Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order
1995 or is a person to whom such document may otherwise lawfully be issued
or passed on.
The notes have not been and will not be registered under the Securities and
Exchange Law of Japan and each of the underwriters has agreed that it will not
offer or sell any of the notes, directly or indirectly, in Japan or to, or for
the benefit of, any resident of Japan, which term means any person resident in
Japan, including any corporation or other entity organized under the laws of
Japan, except under an exemption from the registration requirements of, and
otherwise in compliance with, the Securities and Exchange Law of Japan and any
other applicable laws, regulations and ministerial guidelines of Japan.
Conseco Finance and Conseco Securitizations do not intend to apply for
listing of the notes on a national securities exchange, but have been advised
by the underwriters that the underwriters currently intend to make a market in
the notes, as permitted by applicable laws and regulations. The underwriters
are not obligated, however, to make a market in the notes and any such market
may be discontinued at any time at the sole discretion of the underwriters.
Accordingly, no assurance can be given as to the liquidity of, or trading
markets for, the notes.
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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 and the underwriters will
promptly deliver, or cause to be delivered, without charge, a paper copy of the
prospectus supplement and prospectus.
Credit Suisse First Boston Corporation and its affiliates have provided and
may from time to time provide investment banking, consumer banking and secured
lending services to Conseco Inc. and its affiliates, and/or have held or may
hold securities issued by Conseco Inc. and its affiliates.
Banc of America Securities LLC and its affiliates have provided and may from
time to time provide investment banking, consumer banking and secured lending
services to Conseco Inc. and its affiliates, and/or have held or may hold
securities issued by Conseco Inc. and its affiliates.
LEGAL MATTERS
The legality of the notes and certificates and consequences of the federal
and Minnesota income tax matters discussed under "Federal and State Income Tax
Consequences" will be passed upon for Conseco Finance and Conseco
Securitizations by Dorsey & Whitney LLP. The validity of the notes and
certificates will be passed upon for the underwriters by Brown & Wood LLP, New
York, New York.
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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The Information contained in this prospectus supplement is not complete and +
+may be changed. We may not sell these securities until the registration +
+statement filed with the Securities and Exchange Commission is effective. +
+This prospectus supplement is not an offer to sell these securities, and it +
+is not soliciting an offer to buy these securities in any state where the +
+offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
[Conseco Logo]
PROSPECTUS SUPPLEMENT PROSPECTUS SUPPLEMENT to Marine Products,
Motorcycles and Recreational Vehicles
(To Prospectus dated , 2000)
$ (Approximate)
Conseco Finance Corp.
Servicer
Conseco Finance Securitizations Corp.
Seller
Conseco Finance Recreational Enthusiast Consumer Trust 2000-
-----------
The securities will consist of classes, of which are offered under
this prospectus supplement.
<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..........
Class A-2
Notes..........
Class A-3
Notes..........
Class A-4
Notes..........
Class A-5
Notes..........
Class A-6
Notes..........
Class A-7
Notes..........
Class B-1
Certificates...
</TABLE>
The approximate principal amount of the classes of securities listed above
may vary plus or minus 5%. The price to public will be the percentage total in
the table above plus any accrued interest beginning on , 2000.
Consider carefully the risk factors beginning on page S-9 in this prospectus
supplement.
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 , 2000.
The underwriters named below will offer classes of notes listed in the
table above to the public at the offering price listed on this cover page and
they will receive the discount listed above. [There is currently no
underwriting arrangement for the other class of offered notes.] See
"Underwriting" on page S-49 in this prospectus supplement and "Plan of
Distribution" on page 54 in the prospectus.
-----------
[Underwriters]
The date of this prospectus supplement is , 2000.
<PAGE>
TABLE OF CONTENTS
Prospectus Supplement
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary of the Terms of the Offered Securities........................... S-4
Risk Factors............................................................. S-10
The Trust................................................................ S-14
The Trust Property....................................................... S-15
The Contract Pool........................................................ S-16
Conseco Finance Corp..................................................... S-22
Yield and Prepayment Considerations...................................... S-25
Description of the Notes................................................. S-31
Description of the Certificates.......................................... S-39
Description of the Trust Documents and Indenture......................... S-42
Federal and State Income Tax Consequences................................ S-46
ERISA Considerations..................................................... S-47
Underwriting............................................................. S-50
Legal Matters............................................................ S-52
Annex I.................................................................. A-1
Prospectus
Important Notice about Information Presented in this Prospectus and the
Prospectus Supplement................................................... 2
The Trusts............................................................... 3
The Contracts............................................................ 4
Conseco Finance Corp..................................................... 5
Conseco Finance Securitizations Corp..................................... 7
Yield and Prepayment Considerations...................................... 7
Pool Factor.............................................................. 8
Use of Proceeds.......................................................... 9
The Certificates......................................................... 9
The Notes................................................................ 10
Information Regarding the Securities..................................... 17
Description of the Trust Documents....................................... 21
Legal Aspects of the Contracts........................................... 34
Federal Income Tax Consequences.......................................... 39
State Income Tax Considerations.......................................... 52
ERISA Considerations..................................................... 53
Plan of Distribution..................................................... 54
Legal Matters............................................................ 55
Experts.................................................................. 55
</TABLE>
You should rely only on the information contained in this prospectus
supplement and prospectus. Conseco Finance and Conseco Securitizations 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. Conseco Finance and Conseco Securitizations 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 Conseco Finance, about its
recreational consumer lending business, and about any series of asset-backed
securities secured by a pool of recreational, equipment and consumer loans that
we may wish to sell. This prospectus
S-2
<PAGE>
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 prospectus in
an electronic format, and if the legal prospectus delivery period has not
expired, you may obtain a paper copy of this prospectus supplement and
prospectus from Conseco Finance, Conseco Securitizations or an underwriter by
asking for it.
No prospectus regarding these securities has been or will be prepared in the
United Kingdom pursuant to the United Kingdom Public Offers of Securities
Regulation 1995. These securities may not be offered or sold, or re-offered or
re-sold, to persons in the United Kingdom, except (1) to persons whose ordinary
activities involve them in acquiring, holding, managing and disposing of
investments (as principal or agent) for the purpose of their businesses, or (2)
in circumstances that will not constitute or result in an offer to the public
in the United Kingdom within the meaning of the United Kingdom Public Offers of
Securities Regulation 1995. You may not pass this prospectus supplement and
prospectus, or any other document inviting applications or offers to purchase
securities or offering securities for purchase, to any person in the United
Kingdom who (1) does not fall within article 11 (3) of the Financial Services
Act 1986 (Investment Advisements) (Exemptions) Order 1996 or (2) is not
otherwise a person to whom passing this prospectus supplement and prospectus
would be lawful.
S-3
<PAGE>
SUMMARY OF THE TERMS OF THE 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
accompanying 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 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 and equipment.
<TABLE>
<CAPTION>
Interest Approximate S&P Fitch
Class Rate Principal Amount Rating Rating
----- -------- ---------------- ------ ------
<S> <C> <C> <C> <C>
Class A-1 Notes........................
Class A-2 Notes........................
Class A-3 Notes........................
Class A-4 Notes........................
Class A-5 Notes........................
Class A-6 Notes........................
Class A-7 Notes........................
Class B-1 Certificates.................
Class B-2 Certificates.................
Class C Certificates...................
</TABLE>
Conseco Securitizations 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 addresses the likelihood of
timely receipt of interest and ultimate receipt of principal. The rating of
each class of securities by 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.
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........................
Conseco Finance Securitizations Corp.
Servicer...................... Conseco Finance Corp.
S-4
<PAGE>
Indenture Trustee.............
[Indenture Trustee], 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................. [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 on 15, 2000.
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
Certificates.................. The trust will issue the certificates pursuant
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 the following order of priority:
(1) Interest on the Class A-1, Class A-2,
Class A-3, Class A-4 and Class A-5
notes, which we refer to as the senior
notes;
(2) An amount of principal will be due on
the senior notes, if the performance of
the contracts is far worse than we
expect, to the senior notes;
S-5
<PAGE>
(3) Interest on the Class A-6 notes;
(4) An amount of principal will be due on
the notes, if the performance of the
contracts is worse than we expect;
(5) Interest on the Class A-7 notes;
(6) An amount of principal will be due on
the notes, if the performance of the
contracts is worse than we expect;
(7) Interest on the Class B-1 certificates;
(8) An amount of principal will be due on
the notes or the Class B-1
certificates, if the performance of the
contracts is worse than we expect;
(9) A formula principal amount to be paid
on the notes or the Class B-1
certificates;
(10) Interest on the Class B-2
certificates; and
(11) The formula principal amounts 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 constitute
the amount available for any distribution date.
Class B-2 Limited Guaranty....
Conseco Finance 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.
Initial The sum of the aggregate cut-off date principal
Overcollateralization......... balance of the contracts included in the trust
as of the closing date plus the amount on
deposit in the pre-funding account on the
closing date will exceed the aggregate
principal balance of the securities on the
closing date by approximately $ , which
represents approximately 1.5% of the aggregate
cut-off date principal balance of the contracts
included in
S-6
<PAGE>
the trust as of the closing date plus the
amount on deposit in the pre-funding account on
the closing date.
Repurchase Option............. After the aggregate principal balance of the
contracts is less than 10% of their aggregate
principal balance at the time Conseco
Securitizations transferred them to the trust,
Conseco Finance 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.
Purchase Option; Auction
Sale; Additional Principal Beginning on the remittance date when the pool
Distributions................. scheduled principal balance of the contracts is
less than 20% of cut-off date pool principal
balance of the contracts, the holder of the
Class C certificates will have the right to
repurchase all of the outstanding contracts, at
a price sufficient to pay the aggregate unpaid
principal balance of the certificates plus all
accrued and unpaid interest.
If the holder of the Class C certificates does
not exercise this purchase option, then on the
next remittance date the trustee will begin an
auction process to sell the contracts and the
other trust assets, but the trustee cannot sell
the trust assets and liquidate the trust unless
the proceeds of that sale are sufficient to pay
the aggregate unpaid principal balance of the
notes plus all accrued and unpaid interest. If
the first auction of the trust property is not
successful because the highest bid received was
too low, then the trustee will conduct an
auction of the contracts every third month
after that, unless and until an acceptable bid
is received for the trust property.
If the first auction of the trust property is
not successful because the highest bid received
was too low, then on each remittance date after
that the Class B-1 and Class B-2 certificates
will be entitled to receive, pro rata based on
the then outstanding principal balance of those
classes of certificates, an additional
principal distribution amount equal to the
S-7
<PAGE>
remaining amount available after paying all
interest and principal then due on the
certificates and payment of the monthly
servicing fee. See "Description of the Trust
Documents and Indenture--Purchase Option;
Auction Sale; Additional Principal Distribution
Amount."
The Contracts................. The contracts are retail installment sales
contracts and promissory notes for the purchase
of a variety of consumer products and
equipment. Conseco Finance and Conseco
Securitizations provide more information about
the contracts and the products they financed in
"The Contract Pool."
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 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 "Federal Income Tax
Consequences" in this prospectus supplement and
"Federal Income Tax Consequences" and "State
Income Tax Consequences" in the prospectus.
Pre-Funding Account........... If the aggregate principal balance of the
contracts that Conseco Securitizations
transfers to the trust on the closing date is
less than $ , the indenture trustee will
deposit that difference in a pre-funding
account, and the trust will use those funds to
purchase contracts from time to time until
, 2000. If those funds are not completely
used by , 2000, the remaining funds will be
distributed as principal on the Class A-1 notes
on the 2000 distribution date.
Money Market Eligibility...... The Class A-1 notes will have a final maturity
of , 20 . The Class A-1 notes will be
eligible securities for purchase by money
market funds under
S-8
<PAGE>
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....................
Conseco Finance will provide to the holders of
the securities of each series 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 "Information Regarding the
Securities--Statements to Securityholders."
S-9
<PAGE>
RISK FACTORS
You should consider the following risk factors in deciding whether to
purchase the securities.
The more subordinate classes of securities have a greater risk of loss from
delinquency and defaults on the contracts.
Conseco Inc. is exploring the sale of Conseco Finance Corp.
On March 31, 2000, Conseco Inc. announced that it plans to explore the
possible sale of Conseco Finance Corp. No assurance can be provided as to the
timing or the terms of any such sale, including whether Conseco Finance would
be sold in its entirety to a single purchaser or whether Conseco Finance would
be divided along asset lines and sold to a number of different purchasers.
Moreover, no assurance can be given that any agreement will actually be reached
for a sale of all or any part of Conseco Finance if a purchaser is not found.
Although the transaction that is the subject of this prospectus supplement is
structured as a sale of contracts by Conseco Finance, Conseco Finance, as
seller, will retain a number of significant obligations, including the
obligation to deliver subsequent contracts and the obligation to repurchase any
contract for breaches of any of the related representations and warranties. In
addition, Conseco Finance acts as servicer of the contracts, and disruptions or
delays in collections could occur if a replacement servicer is appointed.
Conseco Finance may not be able to originate and deliver all of the subsequent
contracts.
This prospectus supplement describes the pool of initial contracts, which
have a principal balance as of the cut-off date of approximately
$257,322,602.31. Conseco Finance will transfer additional contracts to Conseco
Securitizations, which will then transfer them to the trust, on the closing
date. If the total amount of contracts delivered to the trust on the closing
date is less than $280,000,000, the amount of that difference will be deposited
in the pre-funding account and Conseco Finance will be obligated to deliver
subsequent contracts with a principal balance equal to that amount, and meeting
the criteria specified in the pooling and servicing agreement, on or before
August 14, 2000. We cannot assure you that Conseco Finance will be able to
originate enough subsequent contracts. See "Conseco Inc. is exploring the sale
of Conseco Finance Corp." above. Any funds remaining in the pre-funding account
on August 14, 2000 will be distributed as an additional payment of principal on
the Class A-1 notes on the August 2000 distribution date. If the amount
remaining in the pre-funding account is greater than the remaining principal
balance of the Class A-1 notes, any additional amounts shall be distributed as
an additional payment of principal on the Class A-2, Class A-3, Class M-1,
Class M-2 and Class B notes sequentially until each class is retired.
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,
S-10
<PAGE>
any significant assets or sources of funds other than the contracts and, for
payment of losses absorbed by the Class B-2 certificates, the limited guaranty
of Conseco Finance.
The Class A-6 and Class A-7 notes and the certificates are subordinated.
Distributions of interest and principal on the Class A-6 and Class A-7 notes
will be subordinated to the rights of the holders of the senior 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 A-6 and Class A-7 notes and the certificates might not receive timely
distributions of interest and principal, or may not receive all the amounts due
then.
Conseco Finance has limited delinquency, loan loss and repossession experience.
Conseco Finance 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 Conseco Finance has calculated and
presented its delinquency and net loss experience for its servicing portfolio
of consumer contracts, you must not assume that the information presented will
reflect actual experience for the contracts owned by the trust. In addition,
you must not assume that the future delinquency, loan loss or repossession
experience of the trust for the contracts will be better or worse than those
described for our servicing portfolio. See "The Contract Pool--Delinquency,
Loan Loss and Repossession Information." 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.
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.
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 % and % of the
initial contracts, based on principal balance and billing address of the
obligor were located in and , 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.
S-11
<PAGE>
. The trust may not be able to enforce the contracts.
When Conseco Finance originated each contract, it required the customer
to grant Conseco Finance a security interest in the financed product. When
Conseco Finance assigns a pool of contracts to Conseco Securitizations, it
will also assign its security interests in the financed products. Because
of the administrative burden and expense, the documents reflecting the
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
Conseco Finance 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.
Conseco Finance 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. Conseco Finance will file UCC financing statements
reflecting the assignment of the contracts to the trustee, and its accounting
records and computer systems will also reflect that assignment. Conseco Finance
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 trustee. 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 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 which means you may have
trouble selling them when you want to.
We cannot assure to 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.
S-12
<PAGE>
If Conseco Finance becomes insolvent, you may suffer delays or reductions in
distributions on your securities.
Conseco Finance intends that each transfer of contracts to the related trust
will constitute a sale, rather than a pledge of the contracts to secure our
indebtedness. However, if Conseco Finance were to become a debtor under the
federal bankruptcy code, it is possible that its creditors, a bankruptcy
trustee or Conseco Finance as debtor-in-possession, may argue its the sale of
the contracts 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 Conseco Finance 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 certificates could experience a
delay or reduction in distributions.
Other rating agencies could provide unsolicited ratings on the certificates
that could be lower than the requested ratings.
Although Conseco Finance has not requested a rating of the securities from
any rating agencies other than S&P and Fitch, other rating agencies may rate
the certificates. 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. There is a risk that a lower rating of your
securities from another rating agency could reduce the market value on
liquidity of your securities.
S-13
<PAGE>
We have defined terms in the "Glossary" section at the back of the prospectus.
THE TRUST
The following information supplements the information in the prospectus. You
should consider, in addition to the information below, the information under
"The Trusts" in the prospectus.
General
Conseco Finance Recreational Enthusiast Consumer Trust 2000- 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; and
(4) engaging in other activities that are necessary, suitable or convenient
to accomplish the above or are incidental or connected to those
activities.
The trust will initially be capitalized with equity of approximately
$ from the sale of the certificates. The Class B-2 certificates will
be sold to Conseco Finance or its affiliate and the Class B-1 certificates will
be sold to third party investors that is not affiliated with Conseco Finance or
its affiliates. The equity of the trust, together with the proceeds of the
initial sale of the notes, will be used by the trust to purchase the contracts
from Conseco Securitizations under the sale and servicing agreement among
Conseco Securitizations, Conseco Finance and the trust.
The trust's principal offices are in [City, State], at the address listed
below under""--The Owner Trustee."
Capitalization of the Trust
The following table illustrates the capitalization of the trust as of the
cutoff date, as if the issuance and sale of the notes and certificates had
taken place on that date:
<TABLE>
<S> <C>
Class A-1 notes............................................... $
Class A-2 notes...............................................
Class A-3 notes...............................................
Class A-4 notes...............................................
Class A-5 notes...............................................
Class A-6 notes...............................................
Class A-7 notes...............................................
Class B-1 certificates........................................
Class B-2 certificates........................................
Class C certificates..........................................
-----------
Total....................................................... $
===========
</TABLE>
S-14
<PAGE>
The Owner Trustee
[Owner Trustee] is the owner trustee under the trust agreement. [Owner
Trustee] is a Delaware banking corporation and its principal offices are
located at [Address]. The owner trustee will perform limited administrative
functions under the trust agreement, including making distributions from the
certificate distribution account. The owner trustee's liability in connection
with the issuance and sale of the certificates and the notes is limited solely
to the express obligations of the owner trustee described in the trust
agreement.
THE TRUST PROPERTY
The trust property will consist of:
(1) the contracts;
(2) all rights to receive payments due thereon on or after the cutoff date,
excluding certain insurance premiums, late fees and other servicing
charges;
(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; and
(6) all other rights under the trust documents.
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."
Conseco Finance, 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.
To protect the trust's ownership interest in the contracts, we will file a
UCC-1 financing statement in Minnesota and Delaware to give notice of the
trust's ownership of the contracts and the related trust property.
Under the indenture, the trust will grant a security interest in favor of the
indenture trustee in the trust property, the rights of the trust under the sale
and servicing agreement, and the collection account and note distribution
account. Any proceeds of the property will
S-15
<PAGE>
be distributed according to the trust. See "Description of the Trust Documents
and Indenture--Distributions" in this prospectus supplement.
The indenture trustee or its custodian will hold each original contract or
promissory note, as well as copies of documents and instruments relating to
that contract and evidencing the security interest securing the contract.
Payments and recoveries in respect of principal and interest on the contracts
will be paid into a separate trust account maintained at an eligible
institution, initially [Indenture Trustee], in the name of the indenture
trustee, no later than one business day after receipt. The indenture trustee
will, on the fifteenth day of each month or, if such day is not a business day,
the next succeeding business day, deposit funds from the collection account
into the note distribution account and the certificate distribution account.
Payments on deposit in the note distribution account will be applied by the
indenture trustee on each payment date to make the distributions to the
noteholders as of the immediately preceding record date and payments on deposit
in the certificate distribution account will be applied by the owner trustee on
each payment date to make the distributions to the certificateholders as of the
immediately preceding record date, all as described under "Description of the
Securities--Distributions on the Securities."
Following the transfer of the loans from Conseco Finance to Conseco
Securitizations, and then by Conseco Securitizations to the trust, Conseco
Finance's obligations are limited to:
(1) its obligations as servicer to service the contracts;
(2) representations and warranties in the sale and servicing agreement as
described under "Description of the -- " in this prospectus
supplement;
(3) indemnities and the payment of trustees' fees; and
(4) the Class B-2 limited guaranty.
Conseco Finance is obligated under the sale and servicing agreement to
repurchase any loan on the first payment date which is more than 90 days after
Conseco Finance becomes aware, or receives written notice from the indenture
trustee or the owner trustee, of any breach of any representation and warranty
in the sale and servicing agreement that materially and adversely affects the
securityholders' interest in the loan if the breach has not been cured prior to
that date. The sale and servicing agreement also provides that Conseco Finance
is obligated to repurchase loans and to indemnify the indenture trustee or the
owner trustee and the securityholders about other matters. Conseco Finance is
also obligated to pay fees of the owner trustee and indenture trustee.
THE CONTRACT POOL
General
This prospectus supplement contains information regarding a portion of the
contracts to be included in the pool as of the closing date. These initial
contracts were originated through
S-16
<PAGE>
, 2000 and will be transferred to the trust by Conseco Securitizations 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 $ . 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
$ . 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 the representations and
warranties in the sale and servicing agreement.
Conseco Finance purchased all of the contracts from dealers who regularly
originate and sell such contracts to it, or the contracts were originated by
Conseco Finance directly.
Certain Other Characteristics
The initial contracts:
(1) had a remaining maturity, as of the cutoff date, of at least
months, but not more than months,
(2) had an original maturity of at least five months, but not more than
months,
(3) had an original principal balance of at least $ and not more
than $ ,
(4) had a remaining principal balance as of the cutoff date of at least
$ and not more than $ and
(5) had a contractual rate of interest of at least % and not more than
%.
Neither Conseco Securitizations nor Conseco Finance 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... % $ % $ % %
Motorcycles.............
Marine Products.........
---- --- ------------ ---- ---------- --- --- ----- ---
Total.................. 100% $ 100% $ % %
==== === ============ ==== ========== === === ===== ===
</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-17
<PAGE>
Geographic Concentration of Initial Contracts
<TABLE>
<CAPTION>
% of
Aggregate 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................. % $ %
Alaska..................
Arizona.................
Arkansas................
California..............
Colorado................
Connecticut.............
Delaware................
District of Columbia....
Florida.................
Georgia.................
Hawaii..................
Idaho...................
Illinois................
Indiana.................
Iowa....................
Kansas..................
Kentucky................
Louisiana...............
Maine...................
Maryland................
Massachusetts...........
Michigan................
Minnesota...............
Mississippi.............
Missouri................
Montana.................
Nebraska................
Nevada..................
New Hampshire...........
New Jersey..............
New Mexico..............
New York................
North Carolina..........
North Dakota............
Ohio....................
Oklahoma................
Oregon..................
Pennsylvania............
Rhode Island............
South Carolina..........
South Dakota............
Tennessee...............
Texas...................
Utah....................
Vermont.................
Virginia................
Washington..............
West Virginia...........
Wisconsin...............
Wyoming.................
----- ------ -------------- ------
Total................. 100.00% $ 100.00%
===== ====== ============== ======
</TABLE>
The state concentrations described in this table are based on the billing
address of the obligor listed in Conseco Finance's records.
S-18
<PAGE>
Distribution of 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........... $ %
Between $10,000 and
$19,999....................
Between $20,000 and
$29,999....................
Between $30,000 and
$39,999....................
Between $40,000 and
$49,999....................
Between $50,000 and
$59,999....................
Between $60,000 and
$69,999....................
Between $70,000 and
$79,999....................
Between $80,000 and
$89,999....................
Between $90,000 and
$99,999....................
Between $100,000 and
$109,999...................
Between $110,000 and
$119,000...................
Between $120,000 and
$129,999...................
Between $130,000 and
$139,999...................
Between $140,000 and
$149,999...................
Between $150,000 and
$159,999...................
Between $160,000 and
$169,999...................
Between $170,000 and
$179,999...................
Between $180,000 and
$189,999...................
Between $190,000 and
$199,999...................
Between $200,000 and
$249,999...................
Between $250,000 and
$299,999...................
Between $300,000 and
$349,999...................
Between $350,000 and
$399,999...................
Between $400,000 and
$449,999...................
Between $450,000 and
$499,999...................
Between $500,000 and
$549,999...................
Between $550,000 and
$599,999...................
Between $600,000 and
$649,999...................
Between $650,000 and
$699,999...................
Between $700,000 and
$749,999...................
Between $750,000 and
$799,999...................
Between $800,000 and
$849,999...................
Between $850,000 and
$899,999...................
Between $900,000 and
$949,999...................
Between $950,000 and
$999,999...................
Over $999,999...............
----- ------------- ------
Total..................... $ 100.00%
===== ============= ======
</TABLE>
S-19
<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>
1986................... $ %
1987...................
1988...................
1989...................
1990...................
1991...................
1992...................
1993...................
1994...................
1995...................
1996...................
1997...................
1998...................
1999...................
2000...................
----- ------------ ------
Total................ $ 100.00%
===== ============ ======
Distribution of 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%...........
From 61 to 65%..........
From 66 to 70%..........
From 71 to 75%..........
From 76 to 80%..........
From 81 to 85%..........
From 86 to 90%..........
From 91 to 95%..........
Over 95%................
----- ------------ ------
Total................. $ 100.00%
===== ============ ======
</TABLE>
S-20
<PAGE>
Initial Contract Rates
<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 7.001%.......... $ %
7.001% to 8.000%.........
8.001% to 9.000%.........
9.001% to 10.000%........
10.001% to 11.000%........
11.001% to 12.000%........
12.001% to 13.000%........
13.001% to 14.000%........
14.001% to 15.000%........
15.001% to 16.000%........
16.001% to 17.000%........
Over 17.000%..............
----- ------------ ------
Total................... $ 100.00%
===== ============ ======
Remaining Months to Maturity of Initial Contracts
<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............. $ %
31 to 60................
61 to 90................
91 to 120................
121 to 150................
151 to 180................
181 to 210................
211 to 240................
----- ------------ ------
Total................... $ 100.00%
===== ============ ======
</TABLE>
S-21
<PAGE>
CONSECO FINANCE CORP.
The following information supplements and if inconsistent supersedes, the
information in the prospectus under the heading "Conseco Finance Corp." Conseco
Finance Corp. was previously named 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 Marine Products,
Motorcycles and Recreational Vehicles contracts it has purchased and continues
to service, including the contracts which do not meet the criteria for
selection as a contract. Conseco Finance began originating installment sales
contracts for recreational vehicles in 1985 and for motorcycles in 1988, but
has less extensive underwriting and servicing experience with contracts for
marine products. Accordingly, the delinquency, loan loss and repossession
experience presented below largely represents experience only with recreational
vehicle and motorcycle contracts. In addition, because of the rapid growth of
our portfolio of consumer product and recreational products contracts, the
experience shown in more recent periods may not be indicative of the experience
to be expected from a more seasoned portfolio.
Delinquency Experience
<TABLE>
<CAPTION>
At December 31, At
---------------------------------------- March 31,
1995 1996 1997 1998 1999 2000
------ ------ ------ ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Number of Contracts
Outstanding (1)........... 33,081 64,710 98,678 129,786 133,851 132,569
Number of Contracts
Delinquent (2)
30-59 Days............... 391 766 981 982 1,780 1,499
60-89 Days............... 132 281 398 348 573 346
90 Days or More.......... 245 509 804 955 1,056 955
------ ------ ------ ------- ------- -------
Total Contracts
Delinquent................ 768 1,556 2,183 2,285 3,409 2,800
====== ====== ====== ======= ======= =======
Delinquencies as a
Percentage of Contracts
Outstanding (3)........... 2.32% 2.40% 2.21% 1.76% 2.55% 2.11%
</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-22
<PAGE>
Loan Loss/Repossession Experience
(Dollars in Thousands)
<TABLE>
<CAPTION>
Three Months
Year Ended December 31, Ended
------------------------------------------------------ March 31,
1995 1996 1997 1998 1999 2000
-------- -------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Number of Contracts
Serviced (1)........... 33,258 65,102 99,327 130,371 134,755 133,247
Principal Balance of
Contracts (1).......... $266,130 $689,336 $1,193,552 $1,746,781 $1,785,735 $1,624,101
Contract Liquidations:
Units................... 279 1,177 2,122 3,190 2,949 1,324
Percentage (2).......... 0.84% 1.81% 2.14% 2.45% 2.19% 0.99%
Net Losses:
Dollars (3)............. $ 936 $ 3,179 $ 6,159 $ 10,868 $ 16,225 $ 6,015
Percentage (4).......... 0.35% 0.46% 0.52% 0.62% 0.91% 0.37%
</TABLE>
--------
(1) As of period end. Includes contracts already in repossession.
(2) As a percentage of the total number of contracts being serviced as of
period end.
(3) The calculation of net loss includes unpaid interest to the date of
repossession and all expenses of repossession and liquidation.
(4) As a percentage of the principal balance of contracts being serviced as of
period end.
There can be no assurance that the delinquency, loan loss or repossession
experience of the trust for the contracts will be better than, worse than or
comparable to the experience described above. See "Risk Factors--Delinquency,
Loan Loss and Repossession Experience" in this prospectus supplement.
Ratio of Earnings to Fixed Charges for Conseco Finance
The table below shows our ratios of earnings (losses) to fixed charges for
the past five years and the three months ended March 31, 2000. For the purposes
of compiling these ratios, earnings (losses) consist of earnings (losses)
before both income taxes and fixed charges. Fixed charges consist of interest
expense and the interest portion of rent expense.
<TABLE>
<CAPTION>
Three
Months
Year Ended December 31, Ended
------------------------ March 31,
1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ---------
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings (Losses) to Fixed Charges 7.90 5.44 3.94 .62*
</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 Green Tree Financial
Corporation's merger with Conseco, Inc.
Recent Developments
On March 31, 2000, Conseco Inc. announced its plan to explore the sale of
Conseco Finance. We can give you no assurance regarding the timing, price or
other terms related to the possible sale of Conseco Finance.
Following Conseco Inc.'s March 31 announcement of its plan to explore the
sale of Conseco Finance, rating agencies lowered their ratings of the debt
obligations of Conseco Finance and placed some ratings of Conseco Finance's
debt obligations on review as the
S-23
<PAGE>
rating agencies analyze the impact of the developing events. The uncertainty
surrounding the ultimate outcome of Conseco Inc.'s plan has made it more
difficult for Conseco Finance to complete new public securitization
transactions.
Conseco Finance has been served with various lawsuits in the United States
District Court for the District of Minnesota. These lawsuits were generally
filed as purported class actions on behalf of persons or entities who purchased
common stock or options to purchase common stock of Conseco Finance during
alleged class periods that generally run from February 1995 to January 1998.
One of these lawsuits did not include class action claims. In addition to
Conseco Finance, some of Conseco Finance's 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 Conseco Finance's common stock and the other relating to an
alleged class of traders in options for Conseco Finance's common stock. In
addition to these two complaints, a separate non-class action lawsuit
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 Conseco Finance and the other
defendants violated federal securities laws by making false and misleading
statements about Conseco Finance's current state and Conseco Finance's future
prospects, particularly about prepayment assumptions and performance of some of
our loan portfolios, which allegedly rendered Conseco Finance's financial
statements false and misleading. Conseco Finance filed motions to dismiss these
lawsuits. On August 24, 1999, Conseco Finance's motions to dismiss were granted
with prejudice. The plaintiffs subsequently appealed the decision to the U.S.
Court of Appeals for the 8th Circuit, and the appeal is currently pending.
Conseco Finance believes that the lawsuits are without merit and intends to
defend the lawsuits vigorously. However, the ultimate outcome of these lawsuits
cannot be predicted with certainty.
S-24
<PAGE>
YIELD AND PREPAYMENT CONSIDERATIONS
The following information supplements the information in the prospectus under
the heading "Yield and Prepayment Considerations."
Conseco Securitizations and Conseco Finance each have the option to purchase
from the trust all remaining contracts, and thereby effect early redemption of
the notes and early retirement of the certificates, on any distribution date
when the pool scheduled principal balance is 10% or less of the cutoff date
pool principal balance. In addition, if neither we nor the servicer has
exercised such repurchase option, then on the third distribution date as of
which the pool scheduled principal balance is 10% or less of the cutoff date
pool principal balance, the indenture trustee, or the owner trustee, if the
notes have been paid in full must solicit bids for the purchase of the
contracts remaining in the trust. 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 the 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>
Marine Products........................................... %(1)
Motorcycles............................................... % CPR
Recreational Vehicles..................................... % CPR
</TABLE>
--------
(1) As a percentage of the prepayment assumption for contracts secured by
marine products.
The models used in this prospectus supplement are the constant prepayment
rate (CPR) and the prepayment assumption for contracts secured by marine
products.
S-25
<PAGE>
The CPR represents an assumed constant rate of prepayment each month,
expressed as a per annum percentage of the outstanding principal balance of the
contracts secured by all products other than marine products.
The 100% prepayment assumption for contracts secured by marine products
assumes a constant prepayment of 0% per annum of the then outstanding principal
balance of such loans in the first month of the life of such loans and an
additional 1.27% precisely, 14/11% per annum in each month thereafter until the
twelfth month. Beginning in the twelfth month and in each month thereafter
during the life of such loans, the 100% prepayment assumption for contracts
secured by marine products assumes a constant prepayment rate of 14% 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 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 have been assumed to have a
prepayment rate equal to 24% CPR and 36% CPR. NEITHER CPR NOR THE MARINE
PRODUCT PREPAYMENT ASSUMPTION PURPORTS TO BE AN 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 $ 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 ;
(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 ; and
(7) the securities are issued on .
S-26
<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>
Marine Products......... $ %
Motorcycles.............
Recreational Vehicles...
------------ ----- --- ---
Total................. $ %
============ ===== === ===
</TABLE>
Based on the foregoing assumptions, the following tables indicate the
projected weighted average lives of each class of notes and the Class B-1
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-27
<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%
[Month] 15, 2000....................................
Weighted Average Life (Years).......................
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%
[Month] 15, 2000....................................
[Month] 15, 2001....................................
Weighted Average Life (Years).......................
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%
[Month] 15, 2000....................................
[Month] 15, 2001....................................
[Month] 15, 2002....................................
Weighted Average Life (Years).......................
</TABLE>
S-28
<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%
[Month] 15, 2000...................................
[Month] 15, 2001...................................
[Month] 15, 2002...................................
[Month] 15, 2003...................................
Weighted Average Life (Years)......................
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%
[Month] 15, 2000...................................
[Month] 15, 2001...................................
[Month] 15, 2002...................................
[Month] 15, 2003...................................
[Month] 15, 2004...................................
[Month] 15, 2005...................................
Weighted Average Life (Years)......................
</TABLE>
S-29
<PAGE>
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%
[Month] 15, 2000....................................
[Month] 15, 2001....................................
[Month] 15, 2002....................................
[Month] 15, 2003....................................
[Month] 15, 2004....................................
[Month] 15, 2005....................................
[Month] 15, 2006....................................
[Month] 15, 2007....................................
Weighted Average Life (Years).......................
Percentage of the Original Principal Balance of the Class A-7
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%
[Month] 15, 2000....................................
[Month] 15, 2001....................................
[Month] 15, 2002....................................
[Month] 15, 2003....................................
[Month] 15, 2004....................................
[Month] 15, 2005....................................
[Month] 15, 2006....................................
[Month] 15, 2007....................................
Weighted Average Life (Years).......................
</TABLE>
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%
[Month] 15, 2000....................................
[Month] 15, 2001....................................
[Month] 15, 2002....................................
[Month] 15, 2003....................................
[Month] 15, 2004....................................
[Month] 15, 2005....................................
[Month] 15, 2006....................................
[Month] 15, 2007....................................
Weighted Average Life (Years).......................
</TABLE>
S-30
<PAGE>
DESCRIPTION OF THE NOTES
The following information supplements and, if inconsistent supersedes, the
information in the prospectus under "The Notes," "Information Regarding the
Securities," and "Description of the Trust Documents."
General
The notes will be issued under to 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. Indenture Trustee, a national banking
association headquartered in [city, state], will be the indenture trustee.
Distributions
Noteholders will be entitled to receive distributions of interest and
principal on each distribution date commencing in , to the extent that
sufficient funds available. Distributions on the notes generally will be made
from funds available first in respect on 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 notes will accrue from
, 2000, 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 for this purpose will be the
original principal balance of that class minus all amounts previously
distributed to the noteholders of that class in respect of principal.
Interest on the Class A-1 and Class A-2 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.
Interest will be paid on the senior 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
senior notes, the funds available will be applied pro rata to each class of
senior 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.
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<PAGE>
Interest will be paid on the Class A-6 notes on each distribution date, to
the extent of the remaining funds available on that distribution date after
payment of:
(1) all interest accrued on the senior notes and
(2) the first priority principal distribution amount, as described under
"--Principal" below.
In the event the remaining funds available are not sufficient to make a full
distribution of interest on the Class A-6 notes, the remaining funds available
will be applied to the payment of interest on the Class A-6 notes and the
amount of the shortfall will be added to the amount of interest payable on the
Class A-6 notes on the next distribution date. Any amount so carried forward
will bear interest at the Class A-6 interest rate, to the extent legally
permissible.
Interest will be paid on the Class A-7 notes on each distribution date, to
the extent of the remaining funds available on that distribution date after
payment of:
(1) all interest accrued on the senior notes,
(2) any first priority principal distribution amount,
(3) all interest accrued on the Class A-6 notes, and
(4) any second priority principal distribution amount, as described under
"--Principal" below.
In the event the remaining funds available are not sufficient to make a full
distribution of interest on the Class A-7 notes, the remaining funds available
will be applied to the payment of interest on the Class A-7 notes and the
amount of the shortfall will be added to the amount of interest payable on the
Class A-7 notes on the next distribution date. Any amount so carried forward
will bear interest at the Class A-7 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 total principal distribution amount, described in the second
paragraph below, for that distribution date. This amount will 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 A-7 notes have been paid
in full.
To the extent not paid in full prior to such date, the outstanding principal
amount of each class of notes will be payable on the following final scheduled
distribution date for such class:
Class A-1:
Class A-2:
S-32
<PAGE>
Class A-3:
Class A-4:
Class A-5:
Class A-6:
Class A-7:
Total Principal Distribution Amount
The total principal distribution amount for any distribution date will equal:
(1) the formula principal distribution amount for that distribution date,
plus
(2) the aggregate of all formula principal shortfalls, if any, for prior
distribution dates, plus
(3) the first priority principal distribution amount, if any (described
in the subsection below), the second priority principal distribution
amount, if any (described in the subsection below), the third priority
principal distribution amount, if any (described in the subsection below),
and the fourth priority principal distribution amount, if any (described in
the subsection below), for such distribution date, minus
(4) all amounts actually paid on the notes and certificates on prior
distribution dates in respect of a first priority principal distribution
amount, second priority principal distribution amount, third priority
principal distribution amount, or fourth priority principal distribution
amount.
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,
(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 or warranty,
(3) all partial principal prepayments applied and all principal
prepayments in full received on contracts during the related monthly
period,
(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,
S-33
<PAGE>
(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.
A monthly period for a distribution date is the calendar month immediately
preceding the month in which that distribution date occurs; provided that the
monthly period for the first distribution date is the two calendar months
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 such deficiency the formula principal shortfall for such
distribution date will be added to the total principal distribution amount for
the next distribution date.
First Priority Principal Distribution Amount
In the unlikely event that on any distribution date,
(A) the aggregate principal balance of the senior notes
is greater than
(B) the pool scheduled principal balance as of the immediately preceding
distribution date, minus the aggregate scheduled principal balance of all
defaulted contracts,
the amount of such deficiency the first priority principal distribution amount
will be payable as an additional payment of principal on the class of notes
then entitled to receive the total principal distribution amount, from funds
available for distribution on that distribution date after the payment of all
interest then payable on the senior notes but before the payment of interest
then payable on the Class A-6 notes.
The pool scheduled principal balance as of any distribution date is the
aggregate scheduled principal balance of all contracts. A defaulted contract is
any contract as to which the servicer has commenced repossession procedures or
assigned that contract to a third party for repossession or other enforcement,
but which has not become a liquidated contract.
S-34
<PAGE>
Second Priority Principal Distribution Amount
Similarly, in the event that on any distribution date,
(A) the aggregate principal balance of the senior notes, plus the
principal balance of the Class A-6 notes, minus the amount of any first
priority principal distribution amount paid on such distribution date,
is greater than
(B) the pool scheduled principal balance as of the immediately preceding
distribution date, minus the aggregate scheduled principal balance of all
defaulted contracts,
the amount of such deficiency, the second priority principal distribution
amount will be payable as an additional payment of principal on the class of
notes then entitled to receive the total principal distribution amount, from
funds available for distribution on that distribution date after the payment of
all interest then payable on the senior notes, the first priority principal
distribution amount and all interest then payable on the Class A-6 notes, but
prior to the payment of interest then payable on the Class A-7 notes.
Third Priority Principal Distribution Amount
Similarly, in the event that on any distribution date,
(A) the aggregate principal balance of the notes, minus the amount of any
first priority principal distribution amount paid on such distribution
date, and minus the amount of any second priority principal distribution
amount paid on such distribution date,
is greater than
(B) the pool scheduled principal balance as of the immediately preceding
distribution date, minus the aggregate scheduled principal balance of all
defaulted contracts,
the amount of such deficiency, the third priority principal distribution amount
will be payable as an additional payment of principal on the class of notes
then entitled to receive the total principal distribution amount, from funds
available for distribution on that distribution date after the payment of all
interest then payable on the senior notes, the first priority principal
distribution amount, all interest then payable on the Class A-6 notes, the
second priority principal distribution amount and all interest then payable on
the Class A-7 notes, but prior to the payment of interest then payable on the
Class B-1 certificates.
Fourth Priority Principal Distribution Amount
Similarly, in the event that on any distribution date,
(A) the aggregate principal balance of the notes, plus the principal
balance of the Class B-1 certificates, minus the amount of any first
priority principal distribution amount paid on that distribution date,
minus the amount of any second priority principal
S-35
<PAGE>
distribution amount paid on that distribution date, and minus the amount of
any third priority principal distribution amount paid on that distribution
date,
is greater than
(B) the pool scheduled principal balance as of the immediately preceding
distribution date, minus the aggregate scheduled principal balance of all
defaulted contracts,
the amount of such deficiency the fourth priority principal distribution amount
will be payable as an additional payment of principal on the class of
securities then entitled to receive the total principal distribution amount,
from funds available for distribution on that distribution date after the
payment of all interest then payable on the senior notes, the first priority
principal distribution amount, all interest then payable on the Class A-6
notes, the second priority principal distribution amount, all interest then
payable on the Class A-7 notes, the third priority principal distribution
amount and all interest then payable on the Class B-1 certificates, but prior
to the payment of the formula principal distribution amount.
Subordination of Class A-6 and Class A-7 Notes
Notwithstanding the events of default described in the prospectus under the
caption "The Notes--The Indenture--Events of Default; Rights Upon Event of
Default," until the senior notes have been paid in full, the failure to pay
interest due on the Class A-6 or Class A-7 notes will not be an event of
default. Upon the occurrence and during the continuation of an event of default
that has resulted in an acceleration of the notes or following an insolvency
event or dissolution with respect to the general partner, no distributions of
principal and interest on the Class A-6 or Class A-7 notes will be made until
payment in full of principal and interest on the senior notes.
Similarly, if the senior notes have been paid in full but the Class A-6 notes
have not been paid in full, the failure to pay interest due on the Class A-7
notes will not be an event of default. Upon the occurrence and during the
continuation of an event of default that has resulted in an acceleration of the
notes or following an insolvency event or dissolution with respect to the
general partner, no distributions of principal and interest on the Class A-7
notes will be made until payment in full of principal and interest on the Class
A-6 notes.
Book-Entry Registration
Holders of the notes may hold through DTC in the United States or CEDEL or
Euroclear in Europe if they are participants of these systems, or indirectly
through organizations that are participants in these systems.
Cede & Co., as nominee for DTC, will hold the notes. CEDEL and Euroclear will
hold omnibus positions in the notes on behalf of the CEDEL Participants and the
Euroclear participants, through customers' securities accounts in CEDEL's and
Euroclear's names on the books of their respective depositaries, which in turn
will hold such positions in customers' securities accounts in the depositaries'
names on the books of DTC.
S-36
<PAGE>
Transfers between DTC's participating organizations will occur in accordance
with DTC rules. Transfers between CEDEL participants and Euroclear participants
will occur in the ordinary way according to their applicable rules and
operating procedures.
Cross-market transfers between persons holding directly or indirectly through
DTC, on the one hand, and directly or indirectly through CEDEL participants or
Euroclear participants, on the other, will be effected in DTC according to DTC
rules on behalf of the relevant European international clearing system by its
depositary; however, such cross-market transactions will require delivery of
instructions to the relevant European international clearing system by the
counterparty in such system according to its rules and procedures and within
its established deadlines, European time. The relevant European international
clearing system will, if the transaction meets its settlement requirements,
deliver instructions to its depositary to take action to effect final
settlement on its behalf by delivering or receiving securities in DTC, and
making or receiving payment according to normal procedures for same-day funds
settlement applicable to DTC. CEDEL participants and Euroclear participants may
not deliver instructions directly to the depositaries.
Because of time-zone differences, credits of securities in CEDEL or Euroclear
for a transaction with a participant will be made during the subsequent
securities settlement processing, dated the business day following the DTC
settlement date, and these credits or any transactions in the securities
settled during the processing will be reported to the relevant CEDEL
participant or Euroclear participant on the business day. Cash received in
CEDEL or Euroclear for sales of securities by or through a CEDEL participant or
a Euroclear participant to a participant will be received with value on the DTC
settlement date but will be available in the relevant CEDEL or Euroclear cash
account only as of the business day following settlement in DTC.
For a description of transfers between persons holding directly or indirectly
through DTC, see "Information Regarding the Securities--Book-Entry
Registration" in the prospectus.
Cedel Bank, is incorporated under the laws of Luxembourg as a professional
depository. CEDEL holds securities for its participating organizations and
facilitates the clearance and settlement of securities transactions between
CEDEL participants through electronic book-entry changes in accounts of CEDEL
participants, thereby eliminating the need for physical movement of
certificates. Transactions may be settled in CEDEL in any of 28 currencies,
including United States dollars. CEDEL provides to its CEDEL participants,
among other things, services for safekeeping, administration, clearance and
settlement of internationally traded securities and securities lending and
borrowing. CEDEL interfaces with domestic markets in several countries. As a
professional depository, CEDEL is subject to regulation by the Luxembourg
Monetary Institute. CEDEL participants are recognized financial institutions
around the world, including underwriters, securities brokers and dealers,
banks, trust companies, clearing corporations and certain other organizations
and may include the Underwriters. Indirect access to CEDEL is also available to
others, such as banks, brokers,
S-37
<PAGE>
dealers and trust companies that clear through or maintain a custodial
relationship with a CEDEL Participant, either directly or indirectly.
The Euroclear System was created in 1968 to hold securities for participants
of the Euroclear System and to clear and settle transactions between Euroclear
participants through simultaneous electronic book-entry delivery against
payment, thereby eliminating the need for physical movement of certificates and
any risk from lack of simultaneous transfers of securities and cash.
Transactions may now be settled in Euroclear in any of 32 currencies, including
United States dollars. The Euroclear System includes various other services,
including securities lending and borrowing, and interfaces with domestic
markets in several countries generally similar to the arrangements for cross-
market transfers with DTC described in Annex I hereto. The Euroclear System is
operated by Morgan Guaranty Trust Company of New York, Brussels, Belgium
office, under contract with Euroclear Clearance System, S.C., a Belgian
cooperative corporation. All operations are conducted by the Euroclear
Operator, and all Euroclear securities clearance accounts and Euroclear cash
accounts are accounts with the Euroclear Operator, not the Cooperative. The
Cooperative establishes policy for the Euroclear System on behalf of Euroclear
participants. Euroclear participants include banks, including central banks,
securities brokers and dealers and other professional financial intermediaries
and may include the underwriters. Indirect access to the Euroclear System is
also available to other firms that clear through or maintain a custodial
relationship with a Euroclear participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it
is regulated and examined by the Board of Governors of the Federal Reserve
System and the New York State Banking Department, as well as the Belgian
Banking Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System and applicable Belgian
law, collectively, the terms and conditions. The terms and conditions govern
transfers of securities and cash within the Euroclear System, withdrawal of
securities and cash from the Euroclear System, and receipts of payments with
respect to securities in the Euroclear System. All securities in the Euroclear
System are held on a fungible basis without attribution of specific
certificates to specific securities clearance accounts. The Euroclear Operator
acts under the terms and conditions only on behalf of Euroclear participants
and has no record of or relationship with persons holding through Euroclear
participants.
Distributions with respect to notes held through CEDEL or Euroclear will be
credited to the cash accounts of CEDEL participants or Euroclear participants
in accordance with the relevant system's rules and procedures, to the extent
received by its depositary. Such distributions will be subject to tax reporting
in accordance with relevant United States tax laws and regulations. See
"Certain Federal Income Tax Consequences" in the prospectus and "Global
Clearance, Settlement and Tax Documentation Procedures" in Annex I to this
prospectus supplement. CEDEL or the Euroclear Operator, as the case may be,
will take any other action permitted to be taken by a noteholder under the
Indenture on behalf of a CEDEL
S-38
<PAGE>
participant or Euroclear participant only in accordance with its relevant rules
and procedures and subject to its depositary's ability to effect such actions
on its behalf through DTC.
Although DTC, CEDEL and Euroclear have agreed to the foregoing procedures in
order to facilitate transfers of notes among participants of DTC, CEDEL and
Euroclear, they are under no obligation to perform or continue to perform the
procedures and the procedures may be discontinued at any time.
DESCRIPTION OF THE CERTIFICATES
The following information supplements, and, if inconsistent, supersedes, the
information contained in the prospectus under "The Certificates," "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.
The following summary supplements, and to the extent inconsistent therewith
replaces, the description of the general terms and provisions of the
certificates of any given series and the related trust agreement described in
the prospectus, to which description reference is made.
Distributions
Certificateholders will be entitled to receive on each distribution date
commencing in , to the extent that funds available together with the
guaranty payment described below are sufficient therefor, distributions of
interest and principal in the manner and order of priority described below.
To the extent not paid in full prior to such date, the outstanding principal
amount of each class of certificates will be payable on the following final
scheduled distribution date for the class:
Class B-1:
Class B-2:
Class B-1 Interest
Interest on the principal balance of the Class B-1 certificates will accrue
from , 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.
S-39
<PAGE>
Interest will be paid on the Class B-1 certificates on each distribution date
to the extent of funds available on such distribution date, after payment of:
(1) interest on the notes,
(2) the first priority principal distribution amount,
(3) the second priority principal distribution amount and
(4) the third priority principal distribution amount.
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 payment of interest and the amount of the
shortfall will be carried forward and added to the amount of interest payable
on the next distribution date. Any amount so carried forward will bear interest
at the Class B-1 interest rate to the extent legally permissible. See
"Description of the Certificates."
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
total principal distribution amount for such distribution date, to the extent
of funds available on that distribution date after payment of interest on the
Class B-1 certificates. The total 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 , or from the most recent distribution date, to but excluding the
following distribution date, at the Class B-2 interest rate. 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 will be paid on the Class B-2 certificates on each distribution date
to the extent of funds available on such distribution date, after payment of
all interest and principal then payable 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 and the amount of the
shortfall will be carried forward and added to the amount of interest payable
on the next distribution date. Any amount so carried forward will bear interest
at the Class 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 Class B-1 certificates have been paid in full, except for any
Class B-2 principal liquidation
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<PAGE>
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 total principal distribution amount for such distribution date, to
the extent of funds available on that distribution date after payment of
interest on the Class B-2 certificates. The total 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 total
principal distribution amount for that distribution date, less, on the
distribution date on which the Class B-1 certificates are paid in full, the
portion thereof 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.
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 will be equal to the amount available
remaining after payment of the Class B-2 distributable amount.
Optional Prepayment
If the Class C certificateholder exercises its option to purchase the
contracts when the pool scheduled principal balance declines to 20% 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 and Indenture--Purchase Option; Auction Sale; Additional Principal
Distributions" in the prospectus.
Transfers of Certificates
Certificateholders, other than individuals or entities holding certificates
through a broker who reports sales of securities on Form 1099-B, are required
under the trust agreement to notify the owner trustee of any transfer of their
certificates in a taxable sale or exchange within 30 days of such transfer.
S-41
<PAGE>
Overcollateralization
For any remittance date, the overcollateralization amount will be the excess
if any, of (a) the sum of the aggregate principal balance of the manufactured
housing contracts immediately following that remittance date and the amount on
deposit in the pre-funding account, if any, over (b) the aggregate principal
balances of the Class A notes and Class B certificates as of that remittance
date (after taking into account principal payments). As of the closing date,
the sum of the aggregate principal balance of the contracts as of the cut-off
date and the original pre-funded amount will exceed the aggregate original
principal balances of the certificates by an amount equal to approximately
$ , which represents approximately 1.5% of the aggregate cut-off date
principal balance of the contracts included in the trust as of the closing date
plus the amount on deposit in the pre-funding account on the closing date.
Losses on Liquidated Contracts
As described in the paragraphs above, the distribution of principal to the
securities is intended to equal the total principal distribution amount. 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 the
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 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. Securityholders would, however, be entitled to receive such
unpaid amount as part of the total principal distribution amount prior to any
payment of the monthly servicing and guaranty fee to us on any subsequent
distribution date.
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.
S-42
<PAGE>
Accounts
The servicer will establish and maintain one or more accounts, in the name of
the indenture trustee on behalf of the noteholders and the certificateholders,
into which all payments made on or for the contracts will be deposited, the
collection account. The servicer will establish and maintain an account, in the
name of the indenture trustee on behalf of the noteholders, in which amounts
released from the collection account for distribution to noteholders will be
deposited and from which all distributions to noteholders will be made, which
we call the note distribution account. The servicer will also establish and
maintain an account, in the name of the owner trustee on behalf of the
certificateholders, in which amounts released from the collection account for
distribution to certificateholders will be deposited and from which all
distributions to certificateholders will be made. 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 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 prior monthly period.
(3) to the note distribution account, all accrued interest on the senior
notes.
(4) to the note distribution account, the first priority principal
distribution amount.
(5) to the note distribution account, all accrued interest on the Class
A-6 notes.
(6) to the note distribution account, the second priority principal
distribution amount.
(7) to the note distribution account, all accrued interest on the Class
A-7 notes.
(8) to the note distribution account, the third priority principal
distribution amount.
(9) to the certificate distribution account, all accrued interest on the
Class B-1 certificates;
(10) to the note distribution account or, if all the notes have been paid
in full, to the certificate distribution account, the fourth priority
principal distribution amount, if any.
(11) to the note distribution account or, if all the notes have been paid
in full, to the certificate distribution account, the remaining total
principal distribution amount.
(12) to the certificate distribution account, all accrued interest on the
Class B-2 certificates.
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(13) to the certificate distribution account, the remaining total
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.
(14) any remaining amount of the monthly servicing and guaranty fee to
us.
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 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 , 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;
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(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;
(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 for
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" in this prospectus
supplement and "Reports to Securityholders" and "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 "Federal Income Tax Consequences" in this
prospectus supplement.
Purchase Option; Auction Sale; Additional Principal Distributions
Beginning on the payment date when the pool scheduled principal balance is
less than 20% of the cut-off date pool principal balance, the holder of the
Class C certificates will have the right to repurchase or arrange for the
repurchase of all outstanding contracts at a price equal to the greater of:
(1)the sum of:
(a) 100% of the scheduled principal balance of each contract, other
than any contract as to which the related equipment has been
repossessed and whose fair market value is included to clause
below as of the final remittance date, and
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(b) the fair market value of any acquired property, as determined by
the servicer; and
(2) the aggregate fair market value, as determined by the servicer of
all of the assets of the trust, plus, in each case, any unpaid
interest at the applicable interest rate on each class of
securities, as well as one month's interest at the applicable
contract rate on the scheduled principal balance of each contract.
This amount will be distributed on the distribution date occurring in the
month following the date of repurchase.
If the holder of the Class C certificates does not exercise this purchase
option on or before the following remittance date, then on the next remittance
date the indenture trustee will begin an auction process to sell the contracts
and the other trust assets at the highest possible price, but the trustee
cannot sell the trust assets and liquidate the trust unless at least two bids
are received and the highest bid would be sufficient to pay the aggregate
unpaid principal balance of the certificates plus all accrued and unpaid
interest. If the first auction of the trust property is not successful because
the highest bid received was too low, then the trustee will conduct an auction
of the contracts every third month after that, until an acceptable bid is
received for the trust property. We cannot assure you that the first auction or
any subsequent auction will be successful. The holder of the Class C
certificates may exercise its purchase option on any remittance date after the
first remittance date described above, unless the trustee has accepted a
qualifying bid for the trust property.
If the first auction of the trust property is not successful because the
highest bid received was too low, then on each remittance date after that the
securities will be entitled to receive, pro rata based on the principal balance
of those classes of securities, the "Additional Principal Distribution Amount"
for that distribution date, which will be equal to the remaining amount
available after paying all interest and principal then due on the securities
and payment of the monthly servicing fee.
Administrator
Conseco 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.
FEDERAL AND STATE INCOME TAX CONSEQUENCES
The following is a general discussion of 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
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federal and state income tax consequences, see "Federal Income Tax
Consequences--Owner Trust Series" and "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.
ERISA CONSIDERATIONS
Section 406 of the Employee Retirement Income Security Act of 1974, and
Section 4975 of the IRS 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 IRS 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 IRS 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 IRS 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 IRS 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
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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;
. 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 IRS 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
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under Section 401(a) of the IRS code and exempt from taxation under Section
501(a) of the IRS code, the prohibited transaction rules set forth in Section
503 of the IRS code.
A plan fiduciary considering the purchase of notes should consult its tax
and/or legal advisors regarding whether the assets of the trust would be
considered plan assets, the possibility of exemptive relief from the prohibited
transaction rules and other issues and their potential consequences.
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UNDERWRITING
The underwriters have agreed, subject to the terms and conditions of the
underwriting agreement, to purchase from Conseco Securitizations the respective
principal amounts of notes and Class B-1 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>
[Underwriters].................... $ $ $ $
[Underwriters]....................
[Underwriters]....................
[Underwriters]....................
---------- ---------- ---------- ----------
Totals.......................... $ $ $ $
========== ========== ========== ==========
<CAPTION>
Class A-5 Class A-6 Class A-7 Class B-1
Notes Notes Notes Certificates
---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
[Underwriters].................... $ $ $ $
[Underwriters]....................
[Underwriters]....................
[Underwriters]....................
---------- ---------- ---------- ----------
Totals.......................... $ $ $ $
========== ========== ========== ==========
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all of the securities offered in this prospectus, if any of such
offered securities are purchased.
Conseco Securitizations 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 this price 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 respective amounts listed in the table below to certain other dealers.
<TABLE>
<CAPTION>
Selling Reallowance
Class Concession Discount
----- ---------- -----------
<S> <C> <C>
A-1................................................. % %
A-2................................................. % %
A-3................................................. % %
A-4................................................. % %
A-5................................................. % %
A-6................................................. % %
A-7................................................. % %
B-1................................................. % %
</TABLE>
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
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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 Conseco Finance, Conseco Securitizations 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 Conseco Finance, Conseco
Securitizations 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 Conseco Finance, Conseco
Securitizations 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.
Each of the underwriters has represented, warranted and agreed that:
(1) it has not offered or sold and, prior to the expiration of the period
of six months from the closing date, will not offer or sell any notes to
persons in the United Kingdom except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments,
as principal or agent for the purposes of their businesses or otherwise in
circumstances which have not resulted and will not result in an offer to
the public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995;
(2) it has complied and will comply with all applicable provisions of the
Financial Services Act 1986 with respect to anything done by it in relation
to the notes in, from or otherwise involving the United Kingdom; and
(3) it has only issued or passed on and will only issue or pass on in the
United Kingdom any document received by it in connection with the issue of
the notes to a person who is of a kind described in Article 11(3) of the
Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order
1995 or is a person to whom such document may otherwise lawfully be issued
or passed on.
The notes have not been and will not be registered under the Securities and
Exchange Law of Japan and each of the underwriters has agreed that it will not
offer or sell any of the notes, directly or indirectly, in Japan or to, or for
the benefit of, any resident of Japan, which term means any person resident in
Japan, including any corporation or other entity organized
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under the laws of Japan, except under an exemption from the registration
requirements of, and otherwise in compliance with, the Securities and Exchange
Law of Japan and any other applicable laws, regulations and ministerial
guidelines of Japan.
Conseco Finance and Conseco Securitizations do not intend to apply for
listing of the offered securities on a national securities exchange, but has
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 and the underwriters will
promptly deliver, or cause to be delivered, without charge, a paper copy of the
prospectus supplement and prospectus.
LEGAL MATTERS
The legality of the notes and certificates and consequences of the federal
and Minnesota income tax matters discussed under "Federal and State Income Tax
Consequences" will be passed upon for Conseco Finance and Conseco
Securitizations by [counsel to Conseco Finance]. The validity of the notes and
certificates will be passed upon for the underwriters by Brown & Wood LLP, New
York, New York.
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ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the notes will be available only in
book-entry form, which are called global notes. Investors in the global notes
may hold such global notes through any of DTC, CEDEL or Euroclear. The global
securities will be tradeable as home market instruments in both the European
and U.S. domestic markets. Initial settlement and all secondary trades will
settle in same-day funds.
Secondary market trading between investors holding global notes through CEDEL
and Euroclear will be conducted in the ordinary way in accordance with their
normal rules and operating procedures and according to conventional eurobond
practice for example, seven calendar day settlement.
Secondary market trading between investors holding global notes through DTC
will be conducted according to the rules and procedures applicable to U.S.
corporate debt obligations.
Secondary cross-market trading between CEDEL or Euroclear and DTC
participants holding notes will be effected on a delivery-against-payment basis
through the respective Depositaries of CEDEL and Euroclear, in such capacity
and DTC participants.
Non-U.S. holders of global notes will be subject to U.S. withholding taxes
unless the holders meet certain requirements and deliver appropriate U.S. tax
documents to the securities clearing organizations or their participants.
Initial Settlement
All global notes will be held in book-entry form by DTC in the name of Cede &
Co. as nominee of DTC. Investors' interests in the global notes will be
represented through financial institutions acting on their behalf as direct and
indirect participants in DTC. As a result, CEDEL and Euroclear will hold
positions on behalf of their participants through their respective
depositaries, which in turn will hold such positions in accounts as DTC
participants.
Investors electing to hold their global notes through DTC will follow the
settlement practices applicable to United States corporate debt obligations.
Investors securities custody accounts will be credited with their holdings
against payment in same-day funds on the settlement date.
Investors electing to hold their global notes through CEDEL or Euroclear
accounts will follow the settlement procedures applicable to conventional
eurobonds, except that there will be no temporary global security and no lock-
up or restricted period. Global notes will be credited to the securities
custody accounts on the settlement date against payments in same-day funds.
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Secondary Market Trading
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to be sure that settlement can be made on the desired
value date.
Trading between DTC participants. Secondary market trading between DTC
participants will be settled using the procedures applicable to book-entry
securities in same-day funds.
Trading between CEDEL and/or Euroclear participants. Secondary market trading
between CEDEL participants or Euroclear participants will be settled using the
procedures applicable to conventional eurobonds in same-day funds.
Trading between DTC seller and CEDEL or Euroclear purchaser. When global
notes are to be transferred from the account of a DTC participant to the
account of a CEDEL participant or a Euroclear participant, the purchaser will
send instructions to CEDEL or Euroclear through a CEDEL participant or
Euroclear participant at least one business day prior to settlement. CEDEL or
Euroclear, as applicable, will instruct its depositary to receive the global
notes against payment. Payment will include interest accrued on the global
notes from and including the last coupon payment date to and excluding the
settlement date. Payment will then be made by such depositary to the DTC
participant's account against delivery of the global notes. After settlement
has been completed, the global notes will be credited to the applicable
clearing system and by the clearing system, in accordance with its usual
procedures, to the CEDEL participant's or Euroclear participant's account. The
global notes credit will appear the next day European time and the cash debit
will be back-valued to, and the interest on the global notes will accrue from,
the value date, which would be the preceding day when settlement occurred in
New York. If settlement is not completed on the intended value date, for
example, the trade fails, the CEDEL or Euroclear cash debit will be valued
instead as of the actual settlement date.
CEDEL participants and Euroclear participants will need to make available to
the respective clearing systems the funds necessary to process same-day funds
settlement. The most direct means of doing so is to pre-position funds for
settlement, either from cash on hand or existing lines of credit, as they would
for any settlement occurring within CEDEL or Euroclear. Under this approach,
they may take on credit exposure to CEDEL or Euroclear until the global
securities are credited to their accounts one day later.
As an alternative, if CEDEL or Euroclear has extended a line of credit to
them, CEDEL participants or Euroclear participants can elect not to pre-
position funds and allow that credit line to be drawn upon the finance
settlement. Under this procedure, CEDEL participants or Euroclear participants
purchasing global notes would incur overdraft charges for one day, assuming
they cleared the overdraft when the global notes were credited to their
accounts. However, interest on the global notes would accrue from the value
date. Therefore, in many cases the investment income on the global notes earned
during that one-day period may
A-2
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substantially reduce or offset the amount of such overdraft charges, although
this result will depend on each CEDEL participant's or Euroclear participant's
particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
participants can employ their usual procedures for sending global notes to the
respective Depositary for the benefit of CEDEL participants or Euroclear
participants. The sale proceeds will be available to the DTC seller on the
settlement date. Thus, to the DTC participant a cross-market transaction will
settle no differently than a trade between two DTC participants.
Trading between CEDEL or Euroclear seller and DTC purchaser. Due to time zone
differences in their favor, CEDEL participants and Euroclear participants may
employ their customary procedures for transactions in which global notes are to
be transferred by the respective clearing systems, through their respective
depositaries, to a DTC participant. The seller will send instructions to CEDEL
or Euroclear through a CEDEL participant or Euroclear participant at least one
business day prior to settlement. In these cases, CEDEL or Euroclear will
instruct their respective depositaries, as appropriate, to deliver the notes to
the DTC participant's account against payment. Payment will include interest
accrued on the global notes from and including the last coupon payment date to
and excluding the settlement date. The payment will then be reflected in the
account of the CEDEL participant or Euroclear participant the following day,
and receipt of the cash proceeds in the CEDEL participant's or Euroclear
participant's account would be back-valued to the value date, which would be
the preceding day, when settlement occurred in New York. Should the CEDEL
participant or Euroclear participant have a line of credit with its clearing
system and elect to be in debit in anticipation of receipt of the sale proceeds
in its account, the bank-valuation will extinguish any overdraft charges
incurred over that one-day period. If settlement is not completed on the
intended value date, for example the trade fails, receipt of the cash proceeds
in the CEDEL participant's or Euroclear participant's account would instead be
valued as of the actual settlement date. Finally, day traders that use CEDEL or
Euroclear and that purchase global notes from DTC participants for delivery to
CEDEL participants or Euroclear participants should note that these trades
would automatically fail on the sale side unless affirmative action were taken.
At least three techniques should be readily available to eliminate this
potential problem:
(a) borrowing through CEDEL or Euroclear for one day, until the purchase
side of the day trade is reflected in their CEDEL or Euroclear accounts in
accordance with the clearing system's customary procedures;
(b) borrowing the global notes in the U.S. from a DTC participant no
later than one day prior to settlement, which would give the global notes
sufficient time to be reflected in their CEDEL or Euroclear account in
order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade so
that the value date for the purchase from the DTC participant is at least
one day prior to the value date for the sale to the CEDEL participant or
Euroclear participant.
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U.S. Federal Income Tax Documentation Requirements
A beneficial owner of global notes holding securities through CEDEL or
Euroclear, or through DTC if the holder has an address outside the U.S. will be
subject to the 30% U.S. withholding tax that generally applies to payments of
interest, including original issue discount on registered debt issued by U.S.
persons, unless
(1) each clearing system, bank or other financial institution that holds
customers' securities in the ordinary course of its trade or business in
the chain of intermediaries between such beneficial owner and the U.S.
entity required to withhold tax complies with applicable certification
requirements and
(2) such beneficial owner takes one of the following steps to obtain an
exemption or reduced tax rate:
Exemption of non-U.S. Persons (Form W-8). Beneficial owners of notes that
are non-U.S. persons generally can obtain a complete exemption from the
withholding tax by filing a signed Form W-8 Certificate of Foreign Status
and a certificate under penalties of perjury, the Tax Certificate that such
beneficial owner is,
. not a controlled foreign corporation within the meaning of Section
957(a) of the IRS code that is related, within the meaning of
Section 864(d)(4) of the code) to the trust or the Transferor and
. not a 10 percent shareholder within the meaning of Section
871(h)(3)(B) of the IRS code of the trust or the transferor. If the
information shown on Form W-8 or the Tax Certificate changes, a new
Form W-8 or Tax Certificate, as the case may be, must be filed
within 30 days of such change.
Exemption for non-U.S. person with effectively connected income (Form
4224). A non-U.S. person, including a non-U.S. corporation or bank with a
U.S. branch, for which the interest income is effectively connected with
its conduct of a trade or business in the United States can obtain an
exemption from the withholding tax by filing Form 4224, Exemption from
Withholding of Tax on Income Effectively Connected with the Conduct of a
Trade or Business in the United States.
Exemption or reduced rate for non-U.S. persons resident in treaty
countries (Form 1001).Non-U.S. persons that are beneficial owners of notes
residing in a country that has a tax treaty with the United States can
obtain an exemption or reduced tax rate, depending on the treaty terms by
filing Form 1001, Ownership, Exemption or Reduced Rate Certificate. If the
treaty provides only for a reduced rate, withholding tax will be imposed at
that rate unless the filer alternatively files Form W-8. Form 1001 may be
filed by the beneficial owner of notes or such owner's agent.
Exemption for U.S. Persons (Form W-9). U.S. persons can obtain a complete
exemption from the withholding tax by filing Form W-9 Payer's Request for
Taxpayer Identification Number and Certification.
U.S. Federal Income Tax Reporting Procedure. The beneficial owner of a
global security or, in the case of a Form 1001 or a Form 4224 filer, the
owner's agent, files by
A-4
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submitting the appropriate form to the person through whom it holds the
security, the clearing agency, in the case of persons holding directly on
the books of the clearing agency. Form W-8 and Form 1001 are effective for
three calendar years and Form 4224 is effective for one calendar year.
A U.S. person is:
(1) a citizen or resident of the United States,
(2) a corporation or partnership organized in or under the laws of the
United States or any political subdivision thereof, or
(3) an estate or trust the income of which is includible in gross income
for United States tax purposes, regardless of its source.
This summary does not deal with all aspects of U.S. federal income tax
withholding that may be relevant to foreign holders of the global notes. You
are advised to consult your own tax advisors for specific tax advice concerning
your holding and disposing of global notes.
A-5
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+Information contained in this prospectus is not complete and may be changed. +
+We may not sell these securities until the registration statement filed with +
+the Securities and Exchange Commission is effective. This prospectus is not +
+an offer to sell these securities, and it is not soliciting an offer to buy +
+these securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
[Conseco Logo]
PROSPECTUS
(BASE PROSPECTUS--Marine Products, Motorcycles and Recreational Vehicles)
Conseco Finance Corp.
Servicer
Conseco Finance Securitizations Corp.
Seller
Conseco Finance Recreational Enthusiast Consumer Trusts
Asset-Backed Certificates
Asset-Backed Notes
------------
We are offering asset-backed certificates and asset-backed notes under this
prospectus and a prospectus supplement. A prospectus supplement will be
prepared separately for each series of securities offered. A prospectus
supplement may offer asset-backed certificates, or asset-backed notes, or both.
Conseco Finance Securitizations Corp. will form a trust for each series and
deposit a pool of contracts in the trust, and the trust will issue the
securities of that series. Payments of principal and interest on the securities
of any series will depend primarily on payments made on the related pool of
contracts. The securities of any series may comprise several different classes.
A trust may also issue one or more other classes of certificates or notes that
will not be offered under this prospectus.
The right of each class of securities within a series to receive payments may
be senior or subordinate to the rights of one or more of the other classes of
securities. In addition, a series of securities may include one or more classes
which on the one hand are subordinated to one or more classes of securities,
while on the other hand are senior to one or more classes of securities. The
rate of principal and interest payment on the securities of any class will
depend on the priority of payment of that class and the rate and timing of
payments on the contracts owned by that trust.
------------
The securities will represent interests in, or obligations of, the related
trust and will not represent any interest in or obligation of Conseco Finance
Corp., Conseco Finance Securitizations Corp. or any of their affiliates, except
as specified in the prospectus supplement.
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.
------------
This prospectus may not be used to consummate sales of any securities unless
accompanied by a prospectus supplement for that series.
Prospectus date is , 2000.
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS AND THE ACCOMPANYING PROSPECTUS SUPPLEMENT
We tell you about the securities in two separate documents that progressively
provide more detail: (1) this prospectus, which provides general information,
some of which may not apply to a particular series of securities, including
your series; and (2) the prospectus supplement for the particular terms of your
series of securities.
If the terms of your series of securities described in the prospectus
supplement varies from this prospectus, you should rely on the information in
your prospectus supplement.
You should rely only on the information contained in this document or
information to which we have referred you. We have not authorized anyone to
provide you with information that is different. This document may only be used
where it is legal to sell these securities.
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To understand all of the terms of the certificates, read this entire
prospectus and the accompanying prospectus supplement. We have also defined
terms in the "Glossary" section at the back of this prospectus.
THE TRUSTS
For each series of securities, Conseco Securitizations will establish a trust
under either (1) a pooling and servicing agreement among Conseco Finance as
servicer, Conseco Securitizations, as seller, and a trustee specified in the
prospectus supplement, the trustee, or (2) a trust agreement between Conseco
Finance, as depositor, and a trustee specified in the related prospectus
supplement, the owner trustee, and a related sale and servicing agreement among
Conseco Securitizations, as seller, Conseco Finance, as servicer, and the
trust. For any trust, the related pooling and servicing agreement, or the
related trust agreement and sale and servicing agreement, as applicable, are
referred to herein as the related trust documents. Before the sale and
assignment of the related contracts under 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 property
of each trust will include:
(1) a contract pool, as described in "The Contracts";
(2) all monies paid or payable thereon on or after the cutoff date;
(3) such amounts as from time to time may be held in the collection
account, including all investments in the collection account and all
income from the investment of funds and all proceeds and certain
other accounts, as described in "Description of the Trust Documents--
Collections";
(4) an assignment of our security interests in the products securing the
related contracts, as described in "The Contracts";
(5) an assignment of the right to receive proceeds from claims on some
insurance policies covering the products or obligors; and
(6) specific other rights under the related trust documents.
The trust property will also include, if so specified in the 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 Conseco Securitizations 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 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.
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<PAGE>
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 we specify otherwise in the prospectus supplement,
Conseco Finance, 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. In order to protect the trust's ownership
interest in the contracts, we will file a UCC-1 financing statement in
Minnesota and Delaware to give notice of such trust's ownership of the related
contracts and the related trust property.
The Trustee
The trustee or owner trustee, as applicable, for each trust will be specified
in the 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 prospectus supplement and will not become effective until acceptance of the
appointment by the successor trustee.
THE CONTRACTS
Each pool of contracts in a trust will consist of retail installment sales
contracts and promissory notes to finance the purchase of products to the types
described in the next paragraph. The contracts will be originated or purchased
by us on an individual basis in the ordinary course of business. Except as we
specify otherwise in the prospectus supplement, the contracts will be fully
amortizing and will bear interest at a fixed or variable rate.
The products financed by the contracts included in a contract pool described
in this prospectus and the related prospectus supplement will include
motorcycles; marine products, including boats, boat trailers and outboard
motors and recreational vehicles. Any trust whose securities are offered under
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 prospectus
supplement. Because we have less extensive experience in underwriting and
servicing retail installment sales contracts for items such as the products, we
have no basis upon which to distinguish the expected delinquency, default or
prepayment experience of contracts secured by different types of products.
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CONSECO FINANCE CORP.
General
Conseco Finance Corp. was formerly known as Green Tree Financial Corporation.
It is a Delaware corporation that, as of December 31, 1998, had stockholders'
equity of approximately $2.2 billion. Through its various divisions, it
purchases, pools, sells and services retail conditional sales contracts for
manufactured housing and retail installment sales contracts for home
improvements, a variety of consumer products and equipment finance, and home
equity loans. Conseco Finance is the largest servicer of government-insured
manufactured housing contracts and conventional manufactured housing contracts
in the United States. Servicing functions are performed through Conseco Finance
Servicing Corp., its wholly owned subsidiary. Through its principal offices in
St. Paul, Minnesota, and service centers throughout the United States, it
serves all 50 states. It began financing FHA-insured home improvement loans in
April 1989 and conventional home improvement loans in September 1992. It also
purchases, pools and services installment sales contracts for various consumer
products. Its principal executive offices are located at 1100 Landmark Towers,
St. Paul, Minnesota 55102-1639 (telephone (651) 293-3400). Its annual report on
Form 10-K for the year ended December 31, 1998 and, when available, subsequent
quarterly and annual reports are available upon written request.
The SEC allows Conseco Finance to incorporate by reference some of the
information it files with it, which means that it can disclose important
information to you by referring you to those documents. The information that it
incorporates by reference is considered to be part of this prospectus, and
later information filed with the SEC will automatically update and supersede
this information. Conseco Finance is incorporating by reference the following
documents into this prospectus and the prospectus supplement:
. Conseco Finance Corp.'s annual report on Form 10-K for the year ended
December 31, 1999.
. Conseco Finance Corp.'s quarterly report on Form 10Q for the quarter
ended March 31, 2000.
Conseco Finance will provide you, upon your written or oral request, a copy
of any or all of the documents incorporated by reference in this prospectus,
exhibits to those documents. Please direct your requests for copies to John
Dolphin, Director of Investor Relations, 11825 Pennsylvania Street, Carmel,
Indiana 46032, telephone number (317) 817-6100.
All documents filed by the servicer, on behalf of any trust, under Section
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, after the
date of this prospectus and before the termination of the offering of the
securities issued by that trust, will be incorporated by reference into this
prospectus.
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Federal securities law requires the filing of information with the
Securities and Exchange Commission, including annual, quarterly and special
reports and other information. You can read and copy these documents at the
public reference facility maintained by the SEC at Judiciary Plaza, 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549. You can also read and copy
such reports, proxy statements and other information at the following regional
offices of the SEC:
New York Regional Office Chicago Regional Office
Seven World Trade Center Citicorp Center
Suite 1300 500 West Madison Street, Suite
New York, NY 10048 1400
Chicago, IL 60661
Please call the SEC at 1-800-SEC-0330 for more information about the public
reference rooms or visit the SEC's web site at http://www.sec.gov to access
available filings.
Purchase of Contracts
Conseco Finance arranges to purchase qualifying contracts originated by
dealers located throughout the United States. Conseco Finance's personnel
contact dealers and explain Conseco Finance's available financing plans,
terms, prevailing rates and credit and financing policies. If the dealer
wishes to utilize Conseco Finance's available customer financing, the dealer
must make an application for dealer approval.
Currently, Conseco Finance's consumer finance division finances 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; and recreational
vehicles. The products financed by contracts included in any trust whose
securities are offered pursuant to this prospectus will include only
motorcycles, marine products and recreational vehicles.
All contracts that Conseco Finance purchases are written on forms provided
or approved by Conseco Finance and are purchased on an individually approved
basis in accordance with Conseco Finance's guidelines. The dealer submits the
customer's credit application and purchase order to Conseco Finance'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. Conseco
Finance'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 other items. Generally, 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. Management may revise these guidelines
from time to time,
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and the underwriting guidelines may be exceeded in some cases with the approval
of Conseco Finance's management. Accordingly, some of the contracts included in
a trust may not conform in all respects to the criteria described above.
Conseco Finance 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 our
guidelines and the credit is approved, we purchase the contract when the
customer accepts delivery of the product.
Loss and Delinquency Information
Each prospectus supplement will include loss and delinquency experience for
our entire servicing portfolio of consumer product contracts. However, there
can be no assurance that the experience will be indicative of the performance
of the contracts included in a particular contract pool.
CONSECO FINANCE SECURITIZATIONS CORP.
Conseco Securitizations is a wholly owned subsidiary of Conseco Finance. It
was formed on September 10, 1999. Conseco Securitizations may only engage in
the business of acquiring pools of loans from Conseco Finance and transferring
those loans to trusts such as the trusts described in this prospectus, and
activities incidental or related thereto. The principal executive offices of
Conseco Securitizations are located at 300 Landmark Towers, St. Paul, Minnesota
55102-1639 and its telephone number is (651) 293-3400.
Conseco Securitizations has taken and will take steps in conducting its
business that are intended to make it unlikely that a bankruptcy of Conseco
Finance would result in the consolidation of the assets and liabilities of
Conseco Finance and Conseco Securitizations. These steps include the creation
of Conseco Securitizations as a separate, limited-purpose corporation pursuant
to a certification of incorporation containing restrictions on the permissible
business activities of Conseco Securitizations, requiring that Conseco
Securitizations have on its board of directors at least two directors who are
independent of Conseco Finance, and requiring that all business transactions or
corporate actions outside of the ordinary course of business be approved by the
independent directors.
YIELD AND PREPAYMENT CONSIDERATIONS
The remittance rates and the weighted average contract rate of the contracts
for each series of certificates are listed in the prospectus supplement.
Unless Conseco Finance specifies otherwise in the 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
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<PAGE>
allocable to interest for the period will be less than if the payment had been
made on the due date, the portion of the payment applied to reduce the
principal balance will be correspondingly greater, and the principal balance
will be amortized more rapidly than scheduled. Conversely, if an obligor pays
an installment after its due date, the portion of the payment allocable to
interest will be greater than if the payment had been made on the due date, the
portion of the payment applied to reduce the principal balance will be
correspondingly less, and the principal balance will be amortized slower than
scheduled, in which case a larger portion of the principal balance may be due
on the final scheduled payment date. Any interest shortfalls resulting from
early payment or prepayment of a contract will be funded by collections on
other contracts or, to the extent collections are insufficient, by payments
under the applicable form of credit enhancement, if any, described in the
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 us due to breach of a representation or
warranty, or as a result of our 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 pool factor for each class of certificates will be an eight-digit decimal
which the servicer will compute indicating the principal balance for the
certificates as of each distribution date, after giving effect to all
distributions of principal made on each distribution date, as a fraction of the
original principal balance of for the certificates. The 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 for the 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 the class of notes. Each pool factor will initially be
1.00000000; after that, the pool factor will decline to reflect reductions in
the outstanding principal balance of the applicable class of certificates or
notes, as the case may be. The amount of a certificateholder's pro rata share
of the principal balance for the related class of certificates can be
determined by multiplying the original denomination of the certificateholder's
certificate by the then applicable 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 pool factor.
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For each trust, on each distribution date, the related certificateholders and
noteholders will receive periodic reports from the trustee stating the pool
factor and containing various other items of information. Unless and until
definitive certificates or definitive notes are issued, the 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 prospectus supplement. See "Information
Regarding the Securities--Statements to Securityholders."
USE OF PROCEEDS
Unless we specify otherwise in the 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 us 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 prospectus supplement. The net proceeds to be received by us
will be used to pay our warehouse loans, and any additional proceeds will be
added to our general funds and used for general corporate purposes.
THE CERTIFICATES
General
For each trust, one or more classes of certificates of a given series will be
issued under the trust documents to be entered into among Conseco
Securitizations, as seller, Conseco Finance, as servicer, and the trustee,
forms of which have been filed as exhibits to the registration statement of
which this prospectus forms a part. Where particular provisions of or terms
used in the trust documents are referred to, the actual provisions are
incorporated by reference as part of this summary.
Unless we specify otherwise in the 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 Conseco Securitizations, the depository. See "Information Regarding
the Securities--Book-Entry Registration." Unless we specify otherwise in the
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 we specify otherwise in
the prospectus supplement, the trustee will initially be designated as the
registrar for the certificates.
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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, for principal only or
interest only on the certificates of any series will be described in the
prospectus supplement. Distributions of interest on the certificates will be
made on the dates specified in the related prospectus supplement and, unless we
specify otherwise in the prospectus supplement, will be made prior to
distributions with respect to principal. A series may include one or more
classes of stripped certificates entitled to:
(1) distributions in respect of principal with disproportionate, nominal
or no interest distribution, or
(2) 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 these. The
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 we specify otherwise in the prospectus
supplement, interest on the certificates will be calculated on the basis of a
360-day year consisting of twelve 30-day months. Unless we specify otherwise in
the prospectus supplement, distributions for the certificates will be
subordinate to payments for the notes, if any, as more fully described in the
prospectus supplement. Distributions for 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 described in the prospectus supplement.
THE NOTES
General
For each series of securities, one or more classes of notes issued under 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 we specify
otherwise in the prospectus supplement, no notes will be issued as a part of
any series. The following summary is not 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 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.
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Unless we specify otherwise in the 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 we specify otherwise in the prospectus
supplement, notes will be available for purchase in denominations of $1,000 and
integral multiples of $1,000. Notes may be transferred or exchanged without the
payment of any service charge other than any tax or governmental charge payable
for such transfer or exchange. Unless we provide otherwise in the prospectus
supplement, the indenture trustee will initially be designated as the registrar
for the notes.
Principal and Interest on the Notes
The timing and priority of payment, seniority, allocations of loss, interest
rate and amount of or method of determining payments of principal and interest
on the notes will be described in the 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
prospectus supplement. A series may include one or more classes of stripped
notes entitled to:
(1) principal payments with disproportionate, nominal or no interest
payment, or
(2) 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 some classes of
notes, or any combination of these. The 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 prospectus
supplement.
Unless we specify otherwise in the prospectus supplement, payments for
interest to noteholders of all classes within a series will have the same
priority. Under some circumstances, the amount available for these payments
could be less than the amount of interest payable on the notes on any of the
dates we specify for payments in the prospectus supplement, 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 for principal and interest,
and any schedule or formula or other provisions applicable to the
determination, of each class will be described in the prospectus supplement.
Unless we specify otherwise in the 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 the class.
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The indenture
A form of indenture has been filed as an exhibit to the registration
statement of which this prospectus forms a part. Conseco Finance will provide a
copy of the applicable indenture, without exhibits, upon request to a holder of
notes issued under the indenture.
Modification of Indenture Without Noteholder Consent. Each trust and related
indenture trustee, on behalf of the trust, may, without consent of the
noteholders, enter into one or more supplemental indentures for any of the
following purposes:
(1) to correct or amplify the description of the collateral or add
additional collateral;
(2) to provide for the assumption of the note and the indenture
obligations by a permitted successor to the trust;
(3) to add additional covenants for the benefit of the applicable
noteholders;
(4) to convey, transfer, assign, mortgage or pledge any property to or
with the indenture trustee;
(5) to cure any ambiguity or correct or supplement any provision in the
indenture or in any supplemental indenture;
(6) 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;
(7) to modify, eliminate or add to the provisions of the indenture in
order to comply with the Trust Indenture Act of 1939; and
(8) 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 the indenture; provided that any action specified in this
clause (8) shall not, as evidenced by an opinion of counsel, adversely
affect in any material respect the interests of any noteholder unless
noteholder consent is otherwise obtained as described below.
Modifications of Indenture With Noteholder Consent. Each trust, with the
consent of the holders representing a majority of the principal balance of the
outstanding 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 indenture, or modify in any manner the
rights of the noteholders.
Without the consent of the holder of each outstanding note affected, no
supplemental indenture may:
(1) 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 or change the manner of
calculating any payment, any place of payment where, or the coin or
currency in which any note or any interest is payable;
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(2) impair the right to institute suit for the enforcement of certain
provisions of the indenture regarding payment;
(3) reduce the percentage of the aggregate amount of the outstanding
notes the consent of the holders of which is required for any the
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;
(4) modify or alter the provisions of the indenture regarding the voting
of notes held by the trust, any other obligor on the notes, Conseco
Securitizations, Conseco Finance or an affiliate of any of them;
(5) 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;
(6) 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 other applicable agreements; or
(7) permit the creation of any lien ranking prior to or on a parity with
the lien of the indenture for 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 of the collateral or deprive the holder of
any note of the security afforded by the lien of the indenture.
Events of Default; Rights Upon Event of Default. For each trust, unless we
specify otherwise in the prospectus supplement, events of default under the
indenture will consist of:
(1) a default for five days or more in the payment of any interest on any
note;
(2) a default in the payment of the principal of or any installment of
the principal of any note when the note becomes due and payable;
(3) a default in the observance or performance in any material way 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 under the indenture or in connection with the
indenture 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
(4) 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
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determined by amounts available to be deposited in the note distribution
account for such distribution date.
Therefore, unless we specify otherwise in the 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 the class of notes has a final
scheduled payment date, and then not until such final scheduled payment date
for the class of notes.
Unless we specify otherwise in the prospectus supplement, if an event of
default should occur and be continuing for 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 we specify otherwise in the prospectus supplement, if the notes of any
series have been declared due and payable following an event of default, 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 the
contracts and continue to apply collections on the contracts as if there had
been no declaration of acceleration. Unless we specify otherwise in the
prospectus supplement, the indenture trustee, however, will be prohibited from
selling the related contracts following an event of default, unless:
(1) the holders of all the outstanding related notes consent to such
sale;
(2) 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
(3) 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,
(1) Note owners will be entitled to ratable repayment of principal on the
basis of their respective unpaid principal balances and
(2) repayment in full of the accrued interest on and unpaid principal
balances of the notes will be made prior to any further payment of interest
or principal on the certificates.
Subject to the provisions of the indenture relating to the duties of the
indenture trustee, if an event of default occurs and is continuing with respect
to a series of notes, the indenture trustee will be under no obligation to
exercise any of the rights or powers under the indenture at the request or
direction of any of the holders of such notes, if the indenture trustee
reasonably believes it will not be adequately indemnified against the costs,
expenses and liabilities which might be incurred by it in complying with such
request. Subject to the
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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:
. that holder previously has given to the indenture trustee written
notice of a continuing event of default,
. 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,
. such holder or holders have offered the indenture trustee reasonable
indemnity,
. the indenture trustee has for 60 days failed to institute such
proceeding, and
. 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 the 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 notes, 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 Conseco Securitizations, Conseco Finance 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, Conseco
Securitizations, Conseco Finance, nor any of their respective owners,
beneficiaries, agents, officers, directors, employees, affiliates, successors
or assigns will, in the absence of an express agreement to the contrary, be
personally liable for the payment of the notes or for any agreement or covenant
of the trust contained in the indenture.
Covenants. Each indenture will provide that the trust may not consolidate
with or merge into any other entity, unless:
(1) the entity formed by or surviving such consolidation or merger is
organized under the laws of the United States or any state,
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(2) 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,
(3) no event of default shall have occurred and be continuing immediately
after the merger or consolidation,
(4) 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 the merger or
consolidation,
(5) the trustee has received an opinion of counsel stating that the
consolidation or merger would have no material adverse tax consequence to
the trust or to any related note owner or certificate owner.
Each trust may not:
(1) 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,
(2) claim any credit on or make any deduction from the principal and
interest payable on the notes, other than amounts withheld under the IRS
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,
(3) dissolve or liquidate in whole or in part,
(4) permit the validity or effectiveness of the related indenture to be
impaired or permit any person to be released from any covenants or
obligations for the related notes under the indenture except as may be
expressly permitted thereby, or
(5) 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 may incur,
assume or guarantee any indebtedness other than indebtedness incurred pursuant
to the notes and the 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
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held by the indenture trustee and any action taken by it that materially
affects the notes and that has not been previously reported. Note owners may
receive reports upon written request, together with a certification that they
are note owners and payment of reproduction and postage expenses associated
with the distribution of such reports, from the indenture trustee at the
address specified in the 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
prospectus supplement. The indenture trustee may resign at any time, and
Conseco Securitizations as the seller will be obligated to appoint a successor
trustee. We may also remove the indenture trustee if the indenture trustee
ceases to be eligible to continue under the indenture or if the indenture
trustee becomes insolvent. In such circumstances, We 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 prospectus supplement and
will not become effective until acceptance of the appointment by a successor
trustee.
INFORMATION REGARDING THE SECURITIES
Book-Entry Registration
Unless we provide otherwise in the 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 and
facilitates the clearance and settlement of securities transactions between
participants in such securities through electronic book-entry changes in
accounts of participants, 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.
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
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participants. Certificate owners and note owners will not receive or be
entitled to receive certificates representing their respective interests in the
securities, except under the limited circumstances described below and specific
other circumstances, if any, as may be specified in the 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.
For 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, 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.
For any series of securities, unless we specify otherwise in the prospectus
supplement, certificates and notes will be issued in registered form to
certificate owners and note owners or their nominees, rather than to DTC, the
certificates and notes being referred to in this prospectus as definitive
certificates and definitive notes, respectively, only if:
(1) 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,
(2) the seller or the administrator 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
(3) 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, the certificates or notes will be transferable directly,
and not exclusively on a book-
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entry basis and registered holders will deal directly with the trustee or the
indenture trustee, as the case may be, for transfers, notices and
distributions.
DTC has advised the seller that, unless and until definitive certificates or
definitive notes are issued, DTC will take any action permitted to be taken by
a certificateholder or a noteholder under the related trust documents or
indenture only at the direction of one or more participants to whose DTC
accounts the certificates or notes are credited. DTC has advised us that DTC
will take the action for any fractional interest of the certificates or the
notes only at the direction of and on behalf of the participants beneficially
owning a corresponding fractional interest of the certificates or the notes.
DTC may take actions, at the direction of the related participants, for some
certificates or notes which conflict with actions taken for 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 before each distribution date, the servicer will prepare and provide to
the trustee a statement to be delivered to the related certificateholders on
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 the distribution date. These statements will be based on
the information in the related servicer's certificate setting forth information
required under the trust documents. Unless otherwise specified in the
prospectus supplement, each statement to be delivered to certificateholders
will include the following information for the certificates on that
distribution date or the period since the previous distribution date, as
applicable, and each statement to be delivered to noteholders will include the
following information as to the notes on the distribution date or the period
since the previous distribution date:
(1) the amount of the distribution allocable to interest on or for each
class of securities;
(2) the amount of the distribution allocable to principal on or for each
class of securities;
(3) the principal balance and the pool factor for each class of
certificates and the aggregate outstanding principal balance and the pool
factor for each class of notes, after giving effect to all payments
reported under (2) above on that date;
(4) the amount of the servicing fee paid to the servicer for the related
monthly period or periods, as the case may be;
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(5) the pass-through rate or interest rate for the next period for any
class of certificates or notes with variable or adjustable rates;
(6) the amount of advances made by the servicer for the distribution
date, and the amount paid to the servicer on that distribution date as
reimbursement of advances made on previous distribution dates;
(7) the amount, if any, distributed to certificateholders and noteholders
applicable to payments under the related form of credit enhancement, if
any; and
(8) any other information as may be specified in the prospectus
supplement.
Each amount set forth under subclauses (1), (2), (4) and (6) for certificates
or notes will be expressed as a dollar amount per $1,000 of the initial
principal balance of the certificates or notes, as applicable.
Unless and until definitive certificates or definitive notes are issued, the
reports for 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 the 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 the reports, from the trustee or the indenture trustee, as
applicable. See "Reports to Securityholders" and "--Book-Entry Registration" in
this prospectus.
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
the information to their related indirect participants in accordance with
arrangements among DTC and the participants. Certificate owners and note owners
may receive the 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 the information, from the
trustee, for certificate owners, or from the indenture trustee, for note
owners, at the addresses specified in the prospectus supplement. See "Federal
Income Tax Consequences."
Lists of Securityholders
Unless we provide otherwise in the prospectus supplement, for each series of
certificates, at that 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 principal balance of the certificate 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 prospectus supplement, the trust documents will not provide
for holding any annual or other meetings of certificateholders.
Unless we provide otherwise in the prospectus supplement, for each series of
notes, if any, at that 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 about their rights under the indenture. Unless otherwise specified
in the prospectus supplement, the indenture will not provide for holding any
annual or other meetings of noteholders.
DESCRIPTION OF THE TRUST DOCUMENTS
Except as we specify otherwise in the prospectus supplement, the following
summary describes certain terms of the transfer agreement between Conseco
Finance and Conseco Securitizations, and of either the pooling and servicing
agreements or the sale and servicing agreements and the trust agreements--in
either case collectively referred to as the trust documents--pursuant to which
Conseco Securitizations will sell and assign contracts to a trust and the
servicer will agree to service those 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. We will provide a copy of the
agreements, without exhibits upon request to a holder of securities. This
summary is not 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 that summary.
Sale and Assignment of the Contracts
On the closing date, Conseco Finance will sell and assign to Conseco
Securitizations, without recourse, its entire interest in the related contracts
and the proceeds thereof, including its security interests in the related
products, and Conseco Securitizations will immediately re-transfer the
contracts and related assets to the trust. Each contract transferred by Conseco
Securitizations to the trust will be identified in a schedule appearing as an
exhibit to the trust documents. At the same time as such sale and assignment,
the trustee will execute and deliver the 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 our order.
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Except as we specify otherwise in the prospectus supplement, Conseco Finance
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 us as an additional insured
party;
(f) each contract has been originated by a dealer or us in the ordinary
course of such dealer's, or our business and, if originated by a dealer,
was purchased by us 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 us in the product covered thereby and such security
interest has been assigned by us 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 us to the trustee, We 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 the 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 the contract, and
we have not waived any of the these;
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(n) as of the closing date there were, to the best of our 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 the 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.
Our warranties 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.
Conseco Finance is obligated to repurchase for the repurchase price any
contract on the first business day after the first determination date which is
more than 90 days after Conseco Finance becomes aware, or should have become
aware, or its receipt of written notice from the trustee or the servicer, of a
breach of any representation or warranty by Conseco Finance in the trust
documents that materially adversely affects the trust's interest in any
contract if the breach has not been cured. The repurchase price for any
contract will be the remaining principal amount outstanding on the 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 for any other breach of Conseco Finance's obligations under
the trust documents.
Upon our purchase of a contract due to a breach of a representation or
warranty, the trustee will convey the contract and the related trust property
to us.
Custody of Contract Files
Unless we specify otherwise specified in the prospectus supplement, Conseco
Finance initially will be appointed to act as custodian for the contract files
of each trust. Prior to the appointment of any custodian other than Conseco
Finance, the trust and institution specified in the prospectus supplement shall
enter into a custodian agreement pursuant to which the 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 Conseco
Finance's possession. UCC financing statements will be filed in Minnesota
reflecting the sale and
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assignment of the contracts by Conseco Finance to Conseco Securitizations, and
by Conseco Securitizations to the trustee, and our accounting records and
computer systems will also reflect such sale and assignment. In addition, the
contracts that are in our possession will be stamped or otherwise marked to
indicate that the 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 the contracts in
the ordinary course of its business and took possession of the 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 "Legal Aspects of the
Contracts--Rights in the Contracts."
Collections
For 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 we so specify in the prospectus supplement, the
trustee will establish and maintain for each series an account, in the name of
the trustee on behalf of the related certificateholders, in which amounts
released from the collection account and any pre-funding account and any
amounts received from any source of credit enhancement for distribution to the
certificateholders will be deposited and from which all distributions to such
certificateholders will be made the certificate distribution account. For 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, are referred to
collectively as the designated accounts. Any other accounts to be established
with respect to a trust will be described in the 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:
(1) an account maintained with an eligible institution;
(2) 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;
(3) 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
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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
(4) 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 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 day after receipt.
Notwithstanding the foregoing and unless otherwise provided in the 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 the rating agency of the rating(s)
then assigned to the securities. We 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 are called
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
the investments will not be sold or disposed of prior to their maturity.
Unless we specify otherwise in the 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 before a distribution date will be applied first to any outstanding
monthly advances made by the servicer for that
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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 "Legal Aspects of the Contracts." The servicer
will be entitled to recover all reasonable expenses incurred by it in
connection therewith. The proceeds of such realization, net of such expenses
will be deposited in the collection account at the time and in the manner
described above under "--Collections."
The trust documents will provide that the servicer will indemnify and defend
the trustee, the indenture trustee, the trust and the securityholders against,
among other things, any and all costs, expenses, losses, damages, claims and
liabilities, including reasonable fees and expenses of counsel and expenses of
litigation, or in respect of any action taken or failed to be taken by the
servicer with respect to any portion of the trust property in violation of the
provisions of the trust documents. The servicer's obligations to indemnify the
trustee, the indenture trustee, the trust and the securityholders for the
servicer's actions or omissions will survive the removal of the servicer but
will not apply to any action or omission of a successor servicer.
Servicing Compensation
Unless we specify otherwise in the prospectus supplement, for 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 of the certificate 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 we provide
otherwise in the 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 we are 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 we are no longer the servicer, the servicing fee and any
additional
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servicing compensation will be paid out of collections on or with respect to
the contracts prior to distributions to certificateholders and noteholders.
Unless we specify otherwise in the prospectus supplement, a monthly period for
any distribution date is the calendar month immediately preceding the month in
which the distribution date occurs.
Conseco Finance, 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
For each trust, beginning on the distribution date specified in the
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 described in the prospectus supplement.
Unless we specify otherwise in the prospectus supplement, on the third
business day prior to each distribution 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 we specify otherwise in the
prospectus supplement, the amount available for any distribution date will be
equal to:
(1) the funds on deposit in the collection account at the close of
business on the last day of the related monthly period, plus
(2) any advances to be made by the servicer with respect to delinquent
payments, plus
(3) any repurchase amounts to be deposited by us for contracts to be
repurchased due to a breach of a representation or warranty, minus
(4) 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, minus
(5) any amounts incorrectly deposited in the collection account.
Unless we specify otherwise in the 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 we are is no longer the
servicer, to pay the servicing fee to the successor servicer, and second, to
reimburse the servicer, including us 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.
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Enhancement
The amounts and types of enhancement arrangements and the provider thereof,
if applicable, for each class of securities will be described in the prospectus
supplement. If and to the extent provided in the prospectus supplement,
enhancement may be in the form of a financial guaranty insurance policy, letter
of credit, we guaranty, cash reserve fund, derivative product, or other form of
enhancement, or any combination thereof, as may be described in the prospectus
supplement. If specified in the 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 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 prospectus supplement,
the enhancement for a class of securities will not provide protection against
all risks of loss and will not guarantee repayment of the entire principal and
interest thereon. If losses occur which exceed the amount covered by any
enhancement or which are not covered by any enhancement, securityholders will
bear their allocable share of deficiencies. In addition, if a form of
enhancement covers more than one class of securities of a series,
securityholders of any such class will be subject to the risk that the
enhancement will be exhausted by the claims of securityholders of other
classes.
Advances
Unless otherwise specified in the 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, (1) when
the delinquent payment is recovered by the trust, or (2) 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
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servicing has been conducted in compliance with the applicable trust documents,
except for any exceptions described in that report. A copy of the statement may
be obtained by any certificate owner or note owner upon compliance with the
requirements described above. See "Information Regarding the Securities--
Statements to Securityholders" above.
Matters Regarding the Servicer
Unless we provide otherwise in the prospectus supplement, our appointment as
servicer under the trust documents will continue until such time as we resign
or are terminated, or until such time, if any, as a servicer termination event
shall have occurred under the trust documents. The 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 the 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 trust documents.
Unless otherwise provided in the prospectus supplement, any corporation or
other entity into which the servicer may be merged or consolidated, resulting
from any merger or consolidation to which the servicer is a party, which
acquires by conveyance, transfer or lease substantially all of the assets of
the servicer or succeeds to all or substantially all the business of the
servicer, where the servicer is not the surviving entity, which corporation or
other entity assumes every obligation of the servicer under each trust
document, will be the successor to the servicer under the related trust
documents; provided, that:
(1) such entity is an eligible servicer, and
(2) 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 we specify otherwise in the 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.
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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.
Servicer Termination Events
Except as we specify otherwise in the prospectus supplement, servicer
termination events under the trust documents will include:
(1) 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;
(2) 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;
(3) 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;
(4) certain events of insolvency, readjustment of debt, marshalling of
assets and liabilities or similar proceedings regarding the servicer; and
(5) the servicer is no longer an eligible servicer, as defined in the
trust documents. Notice shall mean notice to the servicer by the trustee,
the indenture trustee, if any, or us, or notice to us, the servicer, the
indenture trustee, if any, and the trustee by the holders of securities
representing interests aggregating not less than 25% of the outstanding
principal balance of the securities issued by the trust.
Unless we specify otherwise in the prospectus supplement, if a servicer
termination event occurs and is continuing, the trustee, the indenture trustee,
or the holders of at least 25% in aggregate principal balance of the
outstanding securities issued by the 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 the notice, and, in
the case of a successor servicer other than the trustee, the acceptance by the
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 prospectus supplement, the
backup servicer, will be the successor in all respects to the servicer and will
be subject to all the responsibilities,
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restrictions, duties and liabilities of the servicer under the trust documents;
provided, however, that the successor servicer shall have no liability 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 the termination, the servicer
shall be entitled to payment of amounts payable to it prior to the termination,
for services rendered prior to the termination. No termination will affect in
any manner Conseco Finance's obligation to repurchase 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
to act, it may appoint, or petition to a court of competent jurisdiction for
the appointment of a servicer. Pending the appointment, the trustee is
obligated to act in the capacity. The trustee and the 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
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 we provide otherwise in the prospectus supplement, the trust documents
may be amended by us, 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, provided that the action
will not, in the opinion of counsel, which may be our internal counsel or the
servicer reasonably satisfactory to the trustee and the indenture trustee,
materially and adversely affect the interests of the securityholders. The trust
documents may also be amended by us, the servicer and the trustee and the
indenture trustee, and a certificate majority and a note majority, if
applicable, for the purpose of adding any provisions to or changing or
eliminating any of the provisions of the trust documents or of modifying the
rights of the certificateholders or the noteholders. No amendment may, (1)
increase or reduce 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 interest
rate, or (2) 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 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:
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(1) 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
(2) 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 we provide otherwise in the prospectus supplement, for each series of
securities, in order to avoid excessive administrative expense, we 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 pool schedule principal balance is equal to or less than 10%,
or other percentage as may be specified in the 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 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 prospectus supplement, unless we specify
otherwise in the 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 the series agree in writing to the
continuation of the business of the trust and to the appointment of a successor
to the former general partner, and the owner trustee is able to obtain an
opinion of counsel to the effect that the trust will not thereafter be an
association, or publicly traded partnership, taxable as a corporation for
federal income tax purposes.
Unless we specify otherwise in the prospectus supplement, for each series of
securities, the trustee will give written notice of the final distribution for
the certificates to each certificateholder of record and the indenture trustee
will give written notice of the final payment for 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 the holder's certificate or note at the office or agency of the
trustee, for certificates, or of the indenture trustee, for 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 the 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 for the funds.
The Trustee
The trustee or owner trustee, as applicable, for each trust will be specified
in the 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
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consent of the servicer, shall have the power to appoint co-trustees or
separate trustees of all or any part of the trust. In the event of the
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 the separate trustee or co-trustee jointly, or, in any
jurisdiction where the trustee is incompetent or unqualified to perform certain
acts, singly upon the separate trustee or co-trustee who shall exercise and
perform the 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 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
prospectus supplement, or, if no 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 those circumstances, the general
partner, if any, specified in the related prospectus supplement or, if no
general partner is specified, the servicer will be obligated to appoint a
successor trustee. Any resignation or removal of the trustee and appointment of
a successor trustee will not become effective until acceptance of the
appointment by the successor trustee.
Duties of the Trustee
The trustee will make no representation as to the validity or sufficiency of
any trust document, the certificates or the notes, other than its execution of
the certificates and the notes, the contracts or any related documents, and
will not be accountable for the use or application by the servicer of any funds
paid to the servicer in respect of the certificates, the notes or the contracts
prior to deposit in the related collection account.
The trustee will be required to perform only those duties specifically
required of it under the trust documents. Generally, those duties will be
limited to the receipt of the various certificates, reports or other
instruments required to be furnished by the servicer to the trustee under the
trust documents, in which case it will only be required to examine the
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 the
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 for the trust documents,
unless the 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 the proceeding in its own name as
trustee and have
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offered to the trustee reasonable indemnity, and the trustee for 30 days after
the receipt of the notice, request and offer to indemnify has neglected or
refused to institute any proceedings.
Administrator
If an administrator is specified in the prospectus supplement, the
administrator will enter into an agreement, the administration agreement,
pursuant to which such administrator will agree, to the extent provided in the
administration agreement, to provide the notices and to perform other
administrative obligations required by the related indenture and the trust
agreement.
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 Conseco
Securitizations 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. Conseco Finance will warrant in the trust documents
for the contracts held by the related trust and the trustee will pledge the
right to enforce the warranty to the indenture trustee as collateral for the
notes, if any, that, as of the closing date, the contracts have not been sold,
pledged or assigned by it to any other person, and that it has good and
indefeasible title and is the sole owner free of any liens and that,
immediately upon the transfer of the contracts to the 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 the warranties in the trust documents that materially
and adversely affects the related trust's, certificateholders' or noteholders'
interest in any contract, a repurchase event, we will be obligated to
repurchase the contract.
Unless we provide otherwise in the prospectus supplement, Conseco Finance
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 our possession. UCC financing
statements will be filed in Minnesota reflecting the sale and assignment of the
contracts to the trustee, and our accounting records and computer systems will
also reflect the sale and assignment. In addition, the contracts will be
stamped or otherwise marked to indicate that the 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 the
security interest in any of the contracts in the ordinary course of its
business and took possession of the contracts, the purchaser, or secured party
would acquire an interest in
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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 the trust's interest. See "Description of
the Trust Documents--Custody of Contract Files."
Security Interests in the Products
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 us 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 we have advanced the purchase price of the goods.
It is our practice to take 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, actions may not
have been taken for a product and the 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 we did not file a UCC financing statement
because its security interest was perfected as a purchase money security
interest in consumer goods;
(1) such security interest may be deemed not to be perfected if the
product were ultimately determined not to be consumer goods, and
(2) a subsequent purchaser of the product may acquire the product free of
our security interest.
The events would, however, give rise to a repurchase event and obligate us to
repurchase the affected contract if the interests of the related
certificateholders, noteholders or trust were materially and adversely
affected.
Under the related trust document, we 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 Conseco Securitizations, Conseco Finance or the trustee 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, we 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 on the certificate of title or the UCC financing statement
should be sufficient to protect the related trust against the rights of
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subsequent purchasers of a product or subsequent lenders who take a security
interest in the related product. However, in the absence of an amendment, the
security interest of the related trust in the related products might be
defeated by, among others, the trustee in our bankruptcy or the obligor.
However, failure would give rise to a repurchase event and obligate us 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 the 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 our practice to effect the 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, we must surrender
possession of the certificate of title or receive notice as a result of its
lien noted thereon and accordingly should have an opportunity to require
satisfaction of the related contract before release of the lien.
Under the laws of most states, liens for repairs performed on a product and
liens for unpaid taxes take priority over even a perfected security interest in
a product. Conseco Finance will represent, in the related trust document that,
immediately prior to the sale, assignment and transfer to the related trust,
each contract held by such trust was secured by a valid, subsisting and
enforceable first priority perfected security interest in its favor, 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 that a lien or confiscation
arises, and if the lien arises or confiscation occurs after the date of
issuance of any series of certificates and notes, neither we nor the servicer
will be required to repurchase or purchase the related contract.
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
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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 the means
would constitute a breach of the peace. Self-help repossession is the method
employed by us in most cases and is accomplished simply by taking possession of
the product. In the event of default by the obligor, some jurisdictions require
that the obligor be notified of the default and be given a time period within
which the obligor may cure the default prior to repossession. In cases where
the obligor objects or raises a defense to repossession, or if otherwise
required by applicable state law, a court order must be obtained from the
appropriate state court, and the product must then be repossessed in accordance
with that order. If a breach of the peace cannot be avoided, judicial action is
required. A secured party may be held responsible for damages caused by a
wrongful repossession of a product, including a wrongful repossession conducted
by an agent of the secured party. In many states, a product may be repossessed
without notice to the obligor, but only if the repossession can be accomplished
without a breach of the peace.
Notice of Sale; Redemption Rights
The UCC and various other state laws require a secured party who has
repossessed the collateral securing an obligation to provide an obligor with
reasonable notice of the date, time and place of any public sale and/or the
date after which any private sale of the collateral may be held. The obligor
has the right to redeem the collateral prior to actual sale by paying the
secured party the entire unpaid time balance of the obligation, less any
unaccrued finance charges plus accrued default charges, reasonable expenses for
repossessing, holding and preparing the collateral for disposition and
arranging for its sale, plus, to the extent provided in the financing
documents, reasonable attorneys' fees, or in some states, by payment of
delinquent installments or the unpaid principal balance of the related
obligation.
Deficiency Judgments and Excess Proceeds
The proceeds of resale of products generally will be applied first to the
expenses of repossession and resale and then to the satisfaction of the related
contract. While some states impose prohibitions or limitations on deficiency
judgments if the net proceeds from resale do not cover the full amount of the
indebtedness, a deficiency judgment can be sought in other states that do not
prohibit or limit such judgments, subject to satisfaction of statutory
procedural requirements by the holder of the obligation. However, any
deficiency judgment would be a personal judgment against the obligor for the
shortfall, and a defaulting obligor can be expected to have very little capital
or sources of income available following repossession. 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. We 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 for the product, if proper
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notification of demand for proceeds is received prior to distribution, or, if
no 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 those 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 the 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 the court determines the
obligation of the 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 that
obligation will not be liable for performance.
Consumer Protection Laws
Numerous Federal and state consumer protection laws and related regulations
impose substantive and disclosure requirements upon lenders and servicers
involved in consumer finance. Some of the Federal laws and regulations include
the Truth-in-Lending Act, the Equal Credit Opportunity Act, the Federal Trade
Commission Act, the Fair Credit Reporting Act, the Fair Debt Collection
Practices Act, the Magnuson-Moss Warranty Act, and the Federal Reserve Board's
Regulations B and Z.
In addition to Federal law, state consumer protection statutes regulate,
among other things, the terms and conditions of retail installment contracts
and promissory notes pursuant to which purchasers finance the acquisition of
consumer products. These laws place finance charge ceilings on the amount that
a creditor may charge in connection with financing the purchase of a consumer
product. These laws also impose other restrictions on consumer transactions and
require contract disclosures in addition to those required under federal law.
These requirements impose specific statutory liabilities upon creditors who
fail to comply. In some cases, this liability could affect the ability of an
assignee, such as the related trust, to enforce consumer finance contracts such
as the contracts. The credit practices rule of the 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
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event of a successful claim is limited to amounts paid by the purchaser under
the consumer credit contract. 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, that the purchaser of the related product may assert against the
seller of the 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.
We 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 the
trust's interest in a contract were materially and adversely affected by a
violation of any law, the violation would constitute a repurchase event and
would obligate us to repurchase the contract unless the breach were cured. See
"Description of the Trust Documents--Sale and Assignment of the Contracts."
Other Limitations
In addition to the laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including federal bankruptcy laws and
related state laws, may interfere with or affect the ability of a lender to
realize upon collateral or enforce a deficiency judgment. For example, in a
proceeding under Chapter 13 of the U.S. Bankruptcy Code of 1978, as amended, a
court may prevent a lender from repossessing collateral, and, as part of the
rehabilitation plan, reduce the amount of the secured indebtedness to the
market value of the collateral at the time of bankruptcy, as determined by the
court, leaving the party providing financing as a general unsecured creditor
for the remainder of the indebtedness. A bankruptcy court may also reduce the
monthly payments due under a contract, change the rate of interest and time of
repayment of the indebtedness or substitute collateral securing the
indebtedness.
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, 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 for the federal, state, local, and any other tax consequences of the
purchase, ownership, and disposition of the securities.
[Counsel for Conseco Finance], our counsel, has delivered an opinion
regarding federal income tax matters discussed below. Counsel to the seller
identified in the prospectus supplement will deliver an opinion regarding tax
matters applicable to each series of
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securities. The opinion, however, is not binding on the IRS or the courts. The
opinion of counsel will specifically address only those issues specifically
identified below as being covered by the opinion; however, the opinion of
counsel also will state that the additional discussion set forth below
accurately describes counsel's advice for material tax issues. No ruling on any
of the issues discussed below will be sought from the IRS.
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 that 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 that series will be treated as a partnership or as a grantor
trust. The following discussion deals first with series for which the trust has
been structured as an owner trust treated as a partnership, and then with
series for which the trust has been structured as a grantor trust.
Owner Trust Series
Tax Status of the Trust
For 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, 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 the 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 some publicly traded partnerships are taxable as corporations. There
are no cases or IRS 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 IRS 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 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.
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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 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 the OID in income, on a pro rata basis, as
principal payments are made on the note.
While it is not anticipated that the notes will be issued with more than de
minimis OID, it is possible that they will be so issued or will be deemed to be
issued with OID. This deemed OID could arise, for example, if interest payments
on the notes are not deemed to be qualified stated interest because the notes
do not provide for default remedies ordinarily available to holders of debt
instruments or do not contain terms and conditions that make the likelihood of
late payment or nonpayment a remote contingency. Based upon existing authority,
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 for the notes in advance of
the receipt of cash attributable to that 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
IRS code. In general, these rules provide that if a noteholder purchases the
note at a market discount, for example, a discount from its original issue
price plus any accrued original issue discount that exceeds a de minimis amount
specified in the IRS code, and thereafter recognizes gain upon a disposition,
the lesser of the gain or 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 the payments does not exceed the accrued market
discount. Generally, the accrued market
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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 IRS.
Limitations imposed by the IRS 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 the noteholder makes such an
election, is exempt from this rule. The adjusted basis of a note subject to the
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 election to include market discount in gross income as it
accrues shall apply to all debt instruments held by the noteholder at the
beginning of the first taxable year to which the election applies or thereafter
acquired and is irrevocable without the consent of the IRS.
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), the noteholder will be considered to have purchased the note with
amortizable bond premium equal to the amount of the excess. The noteholder may
elect to deduct the amortizable bond premium as it accrues under a constant-
yield method over the remaining term of the note. The noteholder's tax basis in
the note will be reduced by the amount of the amortizable bond premium
deducted. Amortizable bond premium for a note will be treated as an offset to
interest income on that note, and a noteholder's deduction for amortizable bond
premium that a note will be limited in each year to the amount of interest
income derived for that Note for that 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 IRS. 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 that noteholder in income for the note and
decreased by principal payments previously received by that noteholder and the
amount of bond premium previously amortized for the note. Any 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
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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 will be exempt from the 30% withholding tax. The
noteholder will be entitled to receive interest payments on the notes free of
United States federal income tax provided that the 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 the
noteholder is not a United States person and providing the name and address of
that noteholder and will not be subject to federal income tax on gain from the
disposition of a note unless the noteholder is an individual who is present in
the United States for 183 days or more during the taxable year in which the
disposition takes place and some other requirements are met.
Tax Administration and Reporting. The indenture trustee will furnish to each
noteholder with each distribution a statement showing the amount of the
distribution allocable to principal and to interest. Reports will be made
annually to the IRS and to holders of record that are not excepted from the
reporting requirements regarding the information as may be required for the
interest and original issue discount, 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 their social security number or other taxpayer
identification number to the indenture trustee. Backup withholding may apply,
under some 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 some 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 for a note.
On October 6, 1997, the treasury department issued new regulations which make
some 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 some transition
rules. You are urged to consult your own tax advisors regarding the new
regulations.
Possible Alternative Treatment of the Notes. If, contrary to the opinion of
counsel, the IRS 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
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because it would meet some qualifying income tests. Nonetheless, treatment of
the notes as equity interests in that type of partnership could have adverse
tax consequences to some holders. For example, income to foreign holders
generally would be subject to federal tax and federal tax return filing and
withholding requirements, income to some tax-exempt entities would be unrelated
business taxable income, and individual holders might be subject to some
limitations on their ability to deduct their share of trust expenses.
Tax Consequences to Certificateholders
Treatment of the Trust as a Partnership. We, the general partner and the
owner trustee will agree, and the certificateholders will agree by their
purchase of certificates, to treat the trust as a partnership for purposes of
federal and state income tax, franchise tax and any other tax measured in whole
or in part by income, with the assets of the partnership being the assets held
by the trust, the partners of the partnership being the certificateholders and
the general partner, and the notes being debt of the partnership. The proper
characterization of the arrangement involving the trust, the certificates, the
notes, the general partner, Green Tree and the servicer, however, is not
certain because there is no authority on transactions closely comparable to
that contemplated herein.
A variety of alternative characterizations are possible. For example, because
the certificates have certain features characteristic of debt, the certificates
might be considered debt of the trust. This 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 as
discussed in the following paragraphs. 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. Each certificateholder will be required to separately take
into account the 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 for 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 IRS 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:
(1) the interest that accrues on the certificates according to their terms
for that month, including interest accruing at the pass-through rate
for that month and interest on amounts previously due on the
certificates but not yet distributed;
(2) 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;
(3) prepayment premium payable to the certificateholders for that month;
and
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(4) any other amounts of income payable to the certificateholders for that
month.
Although it is not anticipated that the certificates will be issued at a price
which exceeds their principal amount, allocations of trust income to the
certificateholders will be reduced by any amortization by the trust of premium
on contracts that corresponds to any 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
IRS would not require a greater amount of income to be allocated to
certificateholders. Even under this method of allocation, certificateholders
may be allocated income equal to the entire pass-through rate plus the other
items described above even though the trust might not have sufficient cash to
make current cash distributions of that amount. 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 these 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 the holder under the IRS 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 the expenses under
Section 212 of the IRS code only to the extent that, in the aggregate and
combined with specific other itemized deductions, they exceed 2% of the
adjusted gross income of the certificateholder. In addition, Section 68 of the
IRS code provides that the amount of itemized deductions, including those
provided for in Section 212 of the IRS code otherwise allowable for the taxable
year for an individual whose adjusted gross income exceeds a threshold amount
determined under the IRS code ($121,000 in 1997, in the case of a joint return)
will be reduced by the lesser of:
(1) 3% of the excess of adjusted gross income over the specified
threshold amount; or
(2) 80% of the amount of itemized deductions otherwise allowable for the
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 that income. Certificateholders may deduct any loss on disposition of the
contracts to the extent permitted under the IRS code.
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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 premium against interest income on the contracts or to include any
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 this premium deduction or market discount income
may be allocated to certificateholders.
Distributions to Certificateholders. Certificateholders generally will not
recognize gain or loss for distributions from the trust. A certificateholder
will recognize gain, to the extent that any money distributed exceeds the
certificateholder's adjusted basis in its certificates as described below under
"Disposition of Certificates" immediately before the distribution. A
certificateholder will recognize loss upon termination of the trust or
termination of the certificateholder's interest in the trust if the trust only
distributes money to the certificateholder and the amount distributed is less
than the certificateholder's adjusted basis in the certificates. This 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 IRS 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 a termination occurs, the trust
will be considered to have contributed the assets of the trust the old
partnership to a new partnership in exchange for interests in the new
partnership. The interests would be deemed distributed to the partners of the
old partnership in liquidation, 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 the 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 these
certificates, and, upon sale or other disposition of some of these
certificates, allocate a portion of the 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
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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 special reporting requirements. 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 in the paragraphs above over the life of the certificates that
exceeds the aggregate cash distributions, the excess generally will give rise
to a capital loss upon the retirement of the certificates.
Allocations Between Transferors and Transferees. In general, the trust's
taxable income and losses will be determined monthly, and the tax items for a
particular calendar month will be apportioned among the certificateholders in
proportion to the principal amount of certificates owned by them as of the
close of the related record date. As a result, a certificateholder purchasing a
certificate may be allocated tax items, which will affect the
certificateholder's tax liability and tax basis attributable to periods before
the certificateholder actually owns the certificate. The use of this 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 IRS 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 that 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. Under an 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. The 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 IRS 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 IRS on Schedule K-1. The trust will provide the
Schedule K-1 information to nominees that fail to provide the trust with
specific required information statements relating to identification of
beneficial owners of certificates and the nominees will be required to forward
the information to the 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 IRS
of any inconsistencies.
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We or our subsidiaries as identified in the prospectus supplement will be
designated as the tax matters partner in the trust agreement and, will be
responsible for representing the certificateholders in any dispute with the
IRS. The IRS 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 specific circumstances, a certificateholder
may be precluded from separately litigating a proposed adjustment to the items
of the trust. An adjustment could also result in an audit of a
certificateholder's returns and adjustments of items not related to the income
and losses of the trust.
Tax Consequences to Foreign Certificateholders. It is not clear whether the
trust will be considered to be engaged in a trade or business in the United
States for purposes of federal withholding taxes for non-U.S. persons because
there is no clear authority dealing with that issue under facts substantially
similar to those described in this prospectus. Although it is not expected that
the trust will be engaged in a trade or business in the United States for those
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 under Section 1446 of the IRS code,
as if the 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 IRS 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 IRS a claim for refund for the 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 IRS may assert that
additional taxes are due, and no assurance can be given as to the appropriate
amount of tax liability.
Backup Withholding. Under specific circumstances, a certificateholder may be
subject to backup withholding at a 31% rate. See the discussion above under
"Tax Consequences to Noteholders--Backup Withholding."
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Grantor Trust Series
Tax Status of the Trust
For the series of securities which includes only certificates, unless we
specify otherwise in the 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 we are considered to
retain an interest in the contracts, as discussed below. While a retained
interest might be viewed as a second class of beneficial interest in the trust
and Treasury Regulations Section 301.7701-4(c) generally provides that an
investment trust with more than one class of ownership interest will be
classified as an association taxable as a corporation or a partnership, that
regulation would treat the trust as a grantor trust because there will be no
power under the pooling and servicing agreement to vary the investment of the
certificateholders, the purpose of the trust will be to facilitate direct
investment in the contracts, and the existence of multiple classes of ownership
interests in the trust will be incidental to that purpose.
Tax Consequences to Certificateholders
Because the trust will be classified as a grantor trust, each
certificateholder, including any holder of a subordinated certificate will, in
the opinion of counsel, be treated for federal income tax purposes as the owner
of an undivided interest in the contracts and other trust property.
Accordingly, subject to the discussion below of certain limitations on
deductions and the stripped bond rules of the IRS 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 the 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. 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 IRS code described
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below. If the contracts are subject to the stripped bond rules of the IRS 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:
(1) received as distributions their full share of such receipts;
(2) paid over to the senior certificateholders an amount equal to the
shortfall amount; and
(3) retained the right to reimbursement of those amounts to the extent
available from future collections on the contracts.
Under this analysis, (a) subordinated certificateholders would be required to
accrue as current income any interest or OID income of the trust that was a
component of the shortfall amount, even though the 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
the shortfall amount became worthless, and (c) reimbursement of the shortfall
amount prior to a claim of worthlessness would not be taxable income to
subordinated certificateholders because the 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.
The character and timing of loss deductions is unclear.
Under current IRS interpretations of applicable treasury regulations, we
would be able to sell or otherwise dispose of any subordinated certificates.
Accordingly, we may offer subordinated certificates for sale to investors.
Stripped Certificates. Some classes of certificates may be subject to the
stripped bond rules of Section 1286 of the IRS 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:
(1) if any servicing compensation is deemed to exceed a reasonable
amount;
(2) 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
(3) 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
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issue discount. Original issue discount for a stripped certificate, 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 the accrual of income may be in advance of the
receipt of any cash attributable to the 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 IRS 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 for the stripped certificate whether or not
denominated as interest. The amount of original issue discount for 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 (1) the amount of
original issue discount for the certificate was treated as zero under the
original issue discount de minimis rule when the certificate was stripped; or
(2) 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 the 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 IRS may take a contrary position for some or all of
the foregoing tax consequences. For example, a holder of a stripped certificate
may be treated as the owner of:
(1) as many stripped bonds or stripped coupons as there are scheduled
payments of principal and/or interest on each contract, or
(2) a separate installment obligation for each contract representing the
stripped certificate's pro rata share of principal and/or interest payments
to be made.
In addition, if a trust issues more than one class of certificates with
different pass-through rates, a holder of the certificate may be treated as the
owner of a stripped bond with a rate equal to the lowest pass-through rate and
a stripped coupon representing the excess of the pass-through rate on that
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, provided for a series of certificates may be questioned by the IRS
for some certificates or contracts as exceeding a reasonable fee for the
services being performed in exchange therefor, and a portion of the 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 under
the contracts. In this event, a certificate might be treated as a
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stripped certificate subject to the stripped bond rules of Section 1286 of the
IRS 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 showing the amount of the distribution allocable to principal and to
interest. In addition, the trustee will furnish, within a reasonable time after
the end of each calendar year, to each certificateholder who was a
certificateholder at any time during that year, information regarding the
amount of servicing compensation received by the servicer and the other factual
information as we deem necessary to enable certificateholders to prepare their
tax returns. Reports will be made annually to the IRS and to holders of record
that are not excepted from the reporting requirements regarding information as
may be required for the interest and original issue discount for the
certificates.
Backup Withholding
Under some 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."
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, 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 this tax
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solely because of their ownership of the notes. Noteholders already subject to
income or franchise taxation in Minnesota could, however, be required to pay
that 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
would not be subject to Minnesota taxation. Certificateholders that are not
otherwise subject to Minnesota income or franchise taxation would not become
subject to this 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 this 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. Under 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 this 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 this 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 the 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 that 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 for 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, and
Section 4975 of the IRS code prohibit a pension, profit sharing or other
employee benefit plan, the benefit plan from engaging in some transactions
involving plan assets with persons that are parties in interest under ERISA or
disqualified persons under the IRS code for the benefit plan. ERISA also
imposes some duties and some prohibitions on persons who are fiduciaries of
plans subject to ERISA. Under ERISA, generally any person who exercises any
authority
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or control for the management or disposition of the assets of a benefit plan is
considered to be a fiduciary of the plan. A violation of these prohibited
transaction rules may generate excise tax and other liabilities under ERISA and
the IRS code for those persons.
Some transactions involving the related trust might be deemed to constitute
prohibited transactions under ERISA and the IRS code for 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 IRS code only
if the benefit plan acquired an equity interest in the trust and none of the
exceptions contained in the plan assets regulation was applicable. An equity
interest is defined under the plan assets regulation as an interest other than
an instrument which is treated as indebtedness under applicable local law and
which has no substantial equity features. The likely treatment of notes and
certificates will be discussed in the related prospectus supplement.
Employee benefit plans that are governmental plans, as defined in Section
3(32) of ERISA and some 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 described in an underwriting agreement for each
trust, we will agree to sell to each of the underwriters named and in the
prospectus supplement, and each of the underwriters will severally agree to
purchase from the seller, the principal amount of each class of securities of
the related series described and in the prospectus supplement.
In each underwriting agreement, the several underwriters will agree, subject
to the terms and conditions set forth, to purchase all the securities described
which are offered and by the prospectus supplement of the securities are
purchased. In the event of a default by any underwriter, each underwriting
agreement will provide that, in some circumstances, purchase commitments of the
nondefaulting underwriters may be increased, or the underwriting agreement may
be terminated.
Each prospectus supplement will either:
(1) set forth the price at which each class of securities being offered
will be offered to the public and any concessions that may be offered to
some dealers participating in the offering of the securities; or
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(2) 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 the sale.
After the initial public offering of any securities, the public offering price
and the concessions may be changed.
Each underwriting agreement will provide that we will indemnify the
underwriters against some liabilities, including liabilities under the
Securities Act.
The indenture trustee 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 will be conditioned on the closing of the sale of all other classes.
The place and time of delivery for the securities for which this prospectus
is delivered will be described in the related prospectus supplement.
LEGAL MATTERS
Some matters relating to validity of the certificates and the notes will be
passed upon by our counsel as identified in the prospectus supplement. The
validity of the certificates and the notes will be passed upon for the
underwriters named in the prospectus supplement by the counsel for the
underwriters identified in the prospectus supplement.
EXPERTS
The consolidated financial statements of Conseco Finance as of December 31,
1999 and for each of the years in the two-year period ended December 31, 1999
are incorporated by reference in this prospectus in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given upon their authority
as experts in accounting and auditing.
The consolidated financial statements of Conseco Finance, formerly known as
Green Tree Financial Corporation, as of December 31, 1997 and for the year
ended December 31, 1997 are incorporated by reference in this prospectus and in
the registration statement in reliance upon the report of KPMG LLP, independent
certified public accountants, incorporated by reference in this prospectus, and
upon the authority of KPMG LLP as experts in accounting and auditing.
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GLOSSARY
For the purposes of this prospectus and the prospectus supplement, the
following terms will have the following meanings:
"Amount available" with respect to any distribution date, means generally the
sum of payments on the contracts due and received during the preceding month,
prepayments and other unscheduled collections received during the preceding
month, any amounts deposited in respect of purchased contracts, any interest
rate cap payment, any guaranty payment, and all earnings from the investment of
funds in the collection account.
"Certificateholders' distributable amount" means, for any distribution date,
the sum of the certificateholders' interest distributable amount and the
certificateholders' principal distributable amount.
"Certificateholders' interest carryover shortfall" means, for any
distribution date, the excess of the certificateholders' monthly interest
distributable amount for the preceding distribution date and any outstanding
certificateholders' interest carryover shortfall on the preceding distribution
date, over the amount in respect of interest at the pass-through rate that is
actually deposited in the certificate distribution account on such preceding
distribution date, plus interest on such excess, to the extent permitted by
law, at the pass-through rate from such preceding distribution date to but
excluding the current distribution date.
"Certificateholders' interest distributable amount" means, for any
distribution date, the sum of the certificateholders' monthly interest
distributable amount for such distribution date and the certificateholders'
interest carryover shortfall for such distribution date.
"Certificateholders' monthly interest distributable amount" means, for any
distribution date, interest accrued at the pass-through rate on:
(1) the certificate principal balance and
(2) the aggregate unreimbursed certificate principal liquidation losses on
each prior distribution date, in each case after giving effect to all
payments of principal to the certificateholders on the immediately
preceding distribution date.
"Certificateholders' monthly principal distributable amount" means, for any
distribution date prior to the distribution date on which the notes are paid in
full, zero; and with respect to any distribution date commencing on the
distribution date on which the notes are paid in full, the formula principal
distribution amount, less, on the distribution date on which the notes are paid
in full, the portion thereof payable on the notes.
"Certificate principal balance" equals, initially, approximately $ and,
after that, equals the original certificate principal balance, reduced by all
amounts allocable to principal previously distributed to certificateholders
minus any unreimbursed certificate principal liquidation losses.
"Certificateholders' principal distributable amount" means, for any
distribution date, the sum of the certificateholders' monthly principal
distributable amount for such distribution
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date and the certificateholders' unpaid principal shortfall as of the close of
the preceding distribution date; provided, however, that the
certificateholders' principal distributable amount shall not exceed the
certificate principal balance plus any unreimbursed certificate principal
liquidation losses. In addition, on the final scheduled distribution date, the
principal required to be deposited into the certificate distribution account
shall not be less than the amount that is necessary, after giving effect to the
other amounts to be deposited in the certificate distribution account on such
distribution date and allocable to principal, to reduce to zero the certificate
principal balance plus the unreimbursed certificate principal liquidation
losses.
"Certificate principal liquidation loss" means, for any distribution date,
the amount by which the aggregate principal balance of the notes and the
certificate principal balance exceeds the pool scheduled principal balance,
after giving effect to all distributions of principal on such distribution
date.
"Certificateholders' unpaid principal shortfall" means, as of the close of
any distribution date, the excess of the certificateholders' monthly principal
distributable amount and any outstanding certificateholders' unpaid principal
shortfall from the preceding distribution date, over the amount in respect of
principal that is actually deposited in the certificate distribution account.
The "formula principal distribution amount" for any distribution date (but
subject to the last sentence of this definition) will generally be equal to the
sum of the following amounts with respect to the 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,
(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 or warranty,
(3) all partial principal prepayments applied and all principal
prepayments in full received on contracts during the related monthly
period,
(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,
(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
57
<PAGE>
(6) the amount, if any, included in the formula principal distribution
amount for the preceding distribution date by virtue of clause (5) above.
The formula principal distribution amount for the distribution date in
2029, will be the sum of the note principal balance and the certificate
principal balance.
"Liquidated contract" means any defaulted contract as to which the servicer
has determined that all amounts which it expects to recover from or on account
of such contract through the date of disposition of the real property have been
recovered; provided that any defaulted contract in respect of which the real
property has been realized upon and disposed of and proceeds of such
disposition have been received shall be deemed to be a liquidated contract.
"Noteholders' distributable amount" means, for any distribution date, the sum
of the noteholders' interest distributable amount and the noteholders'
principal distributable amount.
"Noteholders' interest carryover shortfall" means, for any distribution date,
the excess of the noteholders' monthly interest distributable amount for the
preceding distribution date and any outstanding noteholders' interest carryover
shortfall on such preceding distribution date, over the amount in respect of
interest that is actually deposited in the note distribution account on the
preceding distribution date, plus interest on the amount of interest due but
not paid to noteholders on the preceding distribution date, to the extent
permitted by law, at the respective interest rate for each class of notes for
the applicable monthly interest period.
"Noteholders' interest distributable amount" means, for any distribution
date, the sum of the noteholders' monthly interest distributable amount for
such distribution date and the noteholders' interest carryover shortfall for
the distribution date.
"Noteholders' monthly interest distributable amount" means, for any
distribution date, interest accrued for the monthly interest period on each
class of notes at the respective interest rate for such class on:
(1) the outstanding principal balance of the notes of such class and
(2) the aggregate unreimbursed principal liquidation losses of the class
on each prior distribution date, in each case after giving effect to
all payments of principal to the noteholders of the class on the
immediately preceding distribution date.
"Noteholders' monthly principal distributable amount" means, for any
distribution date, the noteholders' percentage of the formula principal
distribution amount plus the aggregate unreimbursed principal liquidation
losses of each class of notes.
"Noteholders' percentage" means, 100% until and including the distribution
date on which the aggregate principal balance of the notes are paid in full and
0% thereafter.
"Noteholder's principal distributable amount" means, for any distribution
date, the sum of the noteholders' monthly principal distributable amount for
the distribution date and the noteholders' unpaid principal shortfall as of the
close of the preceding distribution date;
58
<PAGE>
provided, however, that the noteholders' principal distributable amount shall
not exceed the outstanding principal balance of the notes, and provided
further, that the noteholders' principal distributable amount on the final
scheduled distribution date shall not be less than the amount that is
necessary, after giving effect to other amounts to be deposited in the note
distribution account on such distribution date and allocable to principal, to
reduce the outstanding principal balances, including all unreimbursed principal
liquidation losses, of all classes of notes to zero.
"Noteholders' unpaid principal shortfall" means, as of the close of any
distribution date, the excess of the noteholders' monthly principal
distributable amount and any outstanding noteholders' unpaid principal
shortfall from the preceding distribution date over the amount in respect of
principal that is actually deposited in the note distribution account on such
distribution date.
"Principal balance" means, with respect to any determination date and any
class of notes, the original principal balance of a class minus all amounts
previously distributed in respect of principal of the class and minus any
unreimbursed principal liquidation losses of such class.
"Purchased contract" means a contract that:
. we have become obligated to repurchase (or, under specified
circumstances, has elected to repurchase) as a result of an uncured
breach by us of a representation or warranty made by us for that
contract or
. the servicer has become obligated to repurchase, or, under specific
circumstances, has elected to repurchase, as a result of an uncured
breach of the covenants made by it with respect to such contract.
"Principal liquidation loss" means, for any distribution date and any class
of notes, the amount by which the aggregate principal balance of the class and
each junior class and the certificate principal balance, after giving effect to
any principal liquidation losses imposed on such junior classes and
certificates, exceeds the pool scheduled principal balance, after giving effect
to all distributions of principal on such distribution date.
59
<PAGE>
[CONSECO LEGO]
[$ ]
(Approximate)
Conseco Finance Recreational Enthusiast Consumer Trust 2000-
Conseco Finance Securitizations Corp. Seller
Conseco Finance Corp. Servicer
-------------------------
Prospectus Supplement
-------------------------
[Underwriters]
[Date]
For 90 days after the date of this prospectus supplement, all dealers that
effect transactions in these securities, whether or not participating in this
offering, may be required to deliver a prospectus. This is in addition to the
dealers' obligation to deliver a copy of this prospectus supplement and the
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The Information contained in this prospectus supplement is not complete and +
+may be changed. We may not sell these securities until the registration +
+statement filed with the Securities and Exchange Commission is effective. +
+This prospectus supplement is not an offer to sell these securities, and it +
+is not soliciting an offer to buy these securities in any state where the +
+offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
[Conseco Logo]
Subject to completion, dated .
PROSPECTUS SUPPLEMENT
(Prospectus Supplement to Trucks Only Base)
(To Prospectus dated , 2000)
$ (Approximate)
Conseco Finance Corp.
Servicer
Conseco Finance Securitizations Corp.
Seller
Conseco Finance Recreational Enthusiast Consumer Trust 2000-
Floating Rate Asset-Backed Notes
-----------
The trust will issue three classes of securities, two of which are offered
under this prospectus supplement.
<TABLE>
<CAPTION>
Approximate Interest Underwriting Proceeds to
Class Principal Amount Rate Price to Public Discount Seller
----- ---------------- -------- --------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Class A
Notes.... (1)
Class M
Notes.... (2)
</TABLE>
-----
(1) One-month LIBOR plus %, except as described more fully in this prospectus
supplement.
(2) One-month LIBOR plus %, except as described more fully in this prospectus
supplement.
The approximate principal amount of the classes of notes listed above may
vary plus or minus 5%. The price to public will be the percentage total in the
table above plus any accrued interest beginning on , 2000.
Consider carefully the risk factors beginning on page S-9 in this prospectus
supplement.
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.
[Bank legend--not deposit liabilities?]
These notes will be delivered on or about , 2000.
The underwriters named below will offer the notes to the public at the
offering price listed on this cover page and they will receive the discount
listed above. See "Underwriting" on page S-39 in this prospectus supplement and
"Plan of Distribution" on page 54 in the prospectus.
-----------
[Underwriters]
The date of this prospectus supplement is , 2000.
<PAGE>
TABLE OF CONTENTS
Prospectus Supplement
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary of the Terms of the Notes........................................ S-4
Risk Factors............................................................. S-9
The Trust................................................................ S-13
The Trust Property....................................................... S-14
The Contract Pool........................................................ S-15
Conseco Finance Corp..................................................... S-21
Yield and Prepayment Considerations...................................... S-24
Description of the Notes................................................. S-27
Description of the Trust Documents and Indenture......................... S-34
Federal and State Income Tax Consequences................................ S-37
ERISA Considerations..................................................... S-38
Underwriting............................................................. S-40
Legal Matters............................................................ S-41
Annex I.................................................................. A-1
Prospectus
Important Notice about Information Presented in this Prospectus and the
Prospectus Supplement................................................... 2
The Trusts............................................................... 3
The Contracts............................................................ 4
Conseco Finance Corp..................................................... 5
Conseco Finance Securitizations Corp..................................... 7
Yield and Prepayment Considerations...................................... 7
Pool Factor.............................................................. 8
Use of Proceeds.......................................................... 9
The Certificates......................................................... 9
The Notes................................................................ 10
Information Regarding the Securities..................................... 17
Description of the Trust Documents....................................... 21
Legal Aspects of the Contracts........................................... 34
Federal Income Tax Consequences.......................................... 39
State Income Tax Consequences............................................ 52
ERISA Considerations..................................................... 53
Plan of Distribution..................................................... 54
Legal Matters............................................................ 55
Experts.................................................................. 55
Glossary................................................................. 56
</TABLE>
You should rely only on the information contained in this prospectus
supplement and prospectus. Conseco Finance and Conseco Securitizations 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. Conseco Finance and Conseco Securitizations 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 Conseco Finance, about its
recreational consumer lending business, and about any series of asset-backed
securities secured by a pool of recreational, equipment and consumer loans that
we may wish to sell. This prospectus
S-2
<PAGE>
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 prospectus in
an electronic format, and if the legal prospectus delivery period has not
expired, you may obtain a paper copy of this prospectus supplement and
prospectus from Conseco Finance, Conseco Securitizations or an underwriter by
asking for it.
No prospectus regarding these securities has been or will be prepared in the
United Kingdom pursuant to the United Kingdom Public Offers of Securities
Regulation 1995. These securities may not be offered or sold, or re-offered or
re-sold, to persons in the United Kingdom, except (1) to persons whose ordinary
activities involve them in acquiring, holding, managing and disposing of
investments (as principal or agent) for the purpose of their businesses, or (2)
in circumstances that will not constitute or result in an offer to the public
in the United Kingdom within the meaning of the United Kingdom Public Offers of
Securities Regulation 1995. You may not pass this prospectus supplement and
prospectus, or any other document inviting applications or offers to purchase
securities or offering securities for purchase, to any person in the United
Kingdom who (1) does not fall within article 11 (3) of the Financial Services
Act 1986 (Investment Advisements) (Exemptions) Order 1996 or (2) is not
otherwise a person to whom passing this prospectus supplement and prospectus
would be lawful.
S-3
<PAGE>
SUMMARY OF THE TERMS OF THE NOTES
This summary highlights selected information regarding the notes, and does
not contain all of the information that you need to consider in making your
investment decision. To understand all of the terms of the notes, read this
entire prospectus supplement and the accompanying prospectus. 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 two classes of notes 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 [commercial trucks].
<TABLE>
<CAPTION>
Interest Approximate S&P Fitch
Class Rate Principal Amount Rating Rating
----- -------- ---------------- ------ ------
<S> <C> <C> <C> <C>
Class A Notes........................... (1) A-1+ F1+
Class M Notes........................... (2) A-1+ F1+
Class B Certificates.................... -- -- -- --
</TABLE>
--------
(1) One-month LIBOR plus %, but in no case more than %.
(2) One-month LIBOR plus %, but in no case more than %.
Conseco Securitizations will not issue or sell the notes unless S&P and Fitch
assign each class the rating listed above.
The rating of each class of notes by S&P addresses the likelihood of timely
receipt of interest and ultimate receipt of principal. The rating of each class
of notes by 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 notes are based in
part on an assessment of Credit Suisse First Boston's ability to purchase notes
following the exercise of a noteholder's rights under the note purchase
agreement.
The Class B 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 Certificates.
Seller........................ Conseco Finance Securitizations Corp.
Servicer...................... Conseco Finance Corp. Conseco Finance Corp. was
previously named Green Tree Financial
Corporation.
Indenture Trustee............. U.S. Bank Trust National Association, St. Paul,
Minnesota, will be the indenture trustee. For a
more
S-4
<PAGE>
complete description of the indenture trustee's
responsibilities, see "The Notes--The Indenture
Trustee" in the prospectus.
Owner Trustee................. Wilmington Trust Company, Wilmington, Delaware.
For a more complete description of the owner
trustee's responsibilities, see "Description of
the Trust Documents--The Trustee" in the
prospectus.
Note Purchase Agreement
Counterparty..................
Credit Suisse First Boston, New York Branch.
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 on January 15, 200 .
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.
Distributions on the Distributions on the notes on any distribution
Securities.................... 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 the
following order of priority:
(1) Interest on the Class A notes;
(2) Interest on the Class M notes;
(3) Principal on the Class A notes;
(4) Principal on the Class M notes; and
(5) Any remaining amount available will be
distributed to the Class B
certificateholders.
No principal will be paid on the Class M notes
until the Class A notes have been retired. See
"Description of the Trust Documents and
Indenture--Distributions" for a more detailed
description of the amounts that will constitute
the amount available for any distribution date.
S-5
<PAGE>
Note Purchase Agreement and
Call Option...................
On January 5, 200 , each noteholder will have
the right to require Credit Suisse First
Boston, New York Branch to purchase that
noteholder's note for a price equal to the
unpaid principal balance of that note plus all
accrued and unpaid interest thereon. CSFB and
the holder of the Class B certificates will
have the option to purchase all of the
outstanding notes on the same terms and at the
same price on January 5, 200 and on each
distribution date thereafter.
You will be notified of your right to exercise
your option at least 45 days before January 5,
200 . If you intend to sell your note to CSFB,
you must give written notice to the servicer of
your intention no later than [10] days prior to
January 5, 200 .
Clean-Up Option; Auction
Sale; Additional Principal Beginning on the distribution date when the
Distributions................. pool scheduled principal balance of the
contracts is less than 20% of the cut-off date
pool principal balance of the contracts, the
holder of the Class B certificates will have
the right to repurchase all of the outstanding
contracts, at a price sufficient to pay the
aggregate unpaid principal balance of the notes
plus all accrued and unpaid interest.
If the holder of the Class B certificates does
not exercise this purchase option, then on the
next distribution date the indenture trustee
will begin an auction process to sell the
contracts and the other trust assets, but the
indenture trustee cannot sell the trust assets
and liquidate the trust unless the proceeds of
that sale are sufficient to pay the aggregate
unpaid principal balance of the notes plus all
accrued and unpaid interest. If the first
auction of the trust property is not successful
because the highest bid received was too low,
then the indenture trustee will conduct an
auction of the contracts every third month
after that, unless and until an acceptable bid
is received for the trust property.
If the first auction of the trust property is
not successful because the highest bid received
was too
S-6
<PAGE>
low, then on each remittance date after that
the noteholders will be entitled to receive an
additional principal distribution amount equal
to the remaining amount available after paying
all interest and principal then due on the
notes and payment of the monthly servicing fee.
This additional principal distribution amount
will be paid [sequentially/pro rata]. See
"Description of the Trust Documents and
Indenture--Purchase Option; Auction Sale;
Additional Principal Distribution Amount."
The Contracts................. The contracts are retail installment sales
contracts and promissory notes for the purchase
of a variety of [commercial trucks]. Conseco
Finance and Conseco Securitizations provide
more information about the contracts and the
trucks they financed in "The Contract Pool."
Tax Status.................... In the opinion of Conseco Securitization's
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 publicly traded
partnership, taxable as a corporation. By
purchasing a note, you will agree to treat the
notes as debt. See "Federal Income Tax
Consequences" in this prospectus supplement and
"Federal Income Tax Consequences" and "State
Income Tax Consequences" in the prospectus.
[Pre-Funding Account.......... If the aggregate principal balance of the
contracts that Conseco Securitizations
transfers to the trust on the closing date is
less than $ , the indenture trustee will
deposit that difference in a pre-funding
account, and the trust will use those funds to
purchase contracts from time to time until
, 2000. If those funds are not completely
used by , 2000, the remaining funds will be
distributed as principal on the Class A notes
on the 2000 distribution date.]
Money Market Eligibility...... The notes will be eligible securities for
purchase by money market funds under Rule 2a-7
under the
S-7
<PAGE>
Investment Company Act of 1940. A fund should
consult with its advisor regarding the
eligibility of the 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.
Reports to Holders of the
Securities....................
Conseco Finance will provide to the holders of
the notes monthly and annual reports about the
notes and the trust. For a more complete
description of the reports you will receive,
please read the section entitled "Description
of the Trust Documents and Indenture--
Statements to Noteholders."
S-8
<PAGE>
RISK FACTORS
You should consider the following risk factors in deciding whether to
purchase the notes.
Conseco Inc. is exploring the sale of Conseco Finance Corp.
On March 31, 2000, Conseco Inc. announced that it plans to explore the
possible sale of Conseco Finance Corp. No assurance can be provided as to the
timing or the terms of any such sale, including whether Conseco Finance would
be sold in its entirety to a single purchaser or whether Conseco Finance would
be divided along asset lines and sold to a number of different purchasers.
Moreover, no assurance can be given that any agreement will actually be reached
for a sale of all or any part of Conseco Finance if a purchaser is not found.
Although the transaction that is the subject of this prospectus supplement is
structured as a sale of contracts by Conseco Finance, Conseco Finance, as
seller, will retain a number of significant obligations, including the
obligation to deliver subsequent contracts and the obligation to repurchase any
contract for breaches of any of the related representations and warranties. In
addition, Conseco Finance acts as servicer of the contracts, and disruptions or
delays in collections could occur if a replacement servicer is appointed.
Conseco Finance may not be able to originate and deliver all of the subsequent
contracts.
This prospectus supplement describes the pool of initial contracts, which
have a principal balance as of the cut-off date of approximately
$257,322,602.31. Conseco Finance will transfer additional contracts to Conseco
Securitizations, which will then transfer them to the trust, on the closing
date. If the total amount of contracts delivered to the trust on the closing
date is less than $280,000,000, the amount of that difference will be deposited
in the pre-funding account and Conseco Finance will be obligated to deliver
subsequent contracts with a principal balance equal to that amount, and meeting
the criteria specified in the pooling and servicing agreement, on or before
August 14, 2000. We cannot assure you that Conseco Finance will be able to
originate enough subsequent contracts. See "Conseco Inc. is exploring the sale
of Conseco Finance Corp." above. Any funds remaining in the pre-funding account
on August 14, 2000 will be distributed as an additional payment of principal on
the Class A-1 notes on the August 2000 distribution date. If the amount
remaining in the pre-funding account is greater than the remaining principal
balance of the Class A-1 notes, any additional amounts shall be distributed as
an additional payment of principal on the Class A-2, Class A-3, Class M-1,
Class M-2 and Class B notes sequentially until each class is retired.
The trust has limited assets.
Holders of the notes 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.
S-9
<PAGE>
The Class M notes 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. This makes it more likely that the Class M
notes might not receive timely distributions of interest and principal, or may
not receive all the amounts due them.
Conseco Finance has limited delinquency, loan loss and repossession experience.
Conseco Finance began originating installment sales contracts for commercial
trucks in 1994. Although Conseco Finance has calculated and presented its
delinquency and net loss experience for its servicing portfolio of truck loans,
you must not assume that the information presented will reflect actual
experience for the contracts owned by the trust. In addition, you must not
assume that the future delinquency, loan loss or repossession experience of the
trust for the contracts will be better or worse than those described for our
servicing portfolio. See "The Contract Pool--Delinquency, Loan Loss and
Repossession Information." 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.
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 notes 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. If an
obligor defaults on a contract, then the trust will be relying on the
servicer's ability to repossess and resell the related truck.
You should consider these risks that might cause higher than expected
delinquencies, defaults or losses:
. Geographic concentration of the [initial] contracts increases your exposure
to local economic conditions.
As of the cutoff date, the obligors on approximately % and % of the
[initial] contracts, based on principal balance and billing address of the
obligor, were located in and , 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 Conseco Finance originated each contract, it required the customer
to grant Conseco Finance a security interest in the financed truck. When
Conseco Finance assigns the contracts to Conseco Securitizations, it will
also assign its security interests in the financed trucks. Because of the
administrative burden and expense, the documents reflecting the security
interest in the trucks will not be amended to reflect the
S-10
<PAGE>
assignment of the security interest. As a result, there is a risk that the
trust will not have a perfected security interest in the trucks. If
Conseco Finance 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 truck 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.
Conseco Finance 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 Conseco Finance's possession. Conseco Finance will file UCC financing
statements reflecting the assignment of the contracts by Conseco Finance to
Conseco Securitizations, and by Conseco Securitizations to the trust, and its
accounting records and computer systems will also reflect that assignment.
Conseco Finance 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 prevailing interest rates. The prepayment experience on
similar contracts varies greatly and may affect the average life of the notes.
You must not assume that the contracts will prepay at any particular rate, or
at a constant rate. If any noteholders exercise the put option, or CSFB
exercises its clean-up option, or the Class B certificateholder exercises its
purchase option, these actions would shorten the weighted average life of your
investment, thereby affecting the effective yield to maturity. For more
information, see "Yield and Prepayment Considerations."
There may be no secondary market for the notes, which means you may have
trouble selling them when you want to.
We cannot assure to you that a secondary market will develop for the notes
or, if a secondary market does develop, that it will provide the holders of any
of the notes 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 notes.
If Conseco Finance becomes insolvent, you may suffer delays or reductions in
distributions on your notes.
Conseco Finance intends that each transfer of contracts to Conseco
Securitizations will constitute a sale, rather than a pledge of the contracts
to secure indebtedness. However, if
S-11
<PAGE>
Conseco Finance were to become a debtor under the federal bankruptcy code, it
is possible that its creditors, a bankruptcy trustee or Conseco Finance as
debtor-in-possession, may argue that the sale of the contracts 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 notes.
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 Conseco Finance 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 notes could experience a delay
or reduction in distributions.
If CSFB becomes insolvent, your yield to maturity may be lowered.
If CSFB, the note purchase agreement counterparty, becomes insolvent and is
unable to purchase your note when you exercise your option, you will retain
your note and will continue to be entitled to receive payments of interest and
principal in the manner described in this prospectus supplement. But if you
purchase a note and calculate your anticipated yield to maturity expecting to
exercise your option, CSFB's inability to timely purchase your note may result
in an actual yield to maturity that is lower than your anticipated yield.
Other rating agencies could provide unsolicited ratings on the notes that could
be lower than the requested ratings.
Although Conseco Finance has not requested a rating of the notes from any
rating agencies other than S&P and Fitch, other rating agencies may rate the
notes. These ratings could be higher or lower than the ratings S&P and Fitch
initially give to the notes. There is a risk that a lower rating of your notes
from another rating agency could reduce the market value or liquidity of your
notes.
S-12
<PAGE>
We have defined terms in the "Glossary" section at the back of the prospectus.
THE TRUST
The following information supplements the information in the prospectus. You
should consider, in addition to the information below, the information under
"The Trusts" in the prospectus.
General
Conseco Finance Recreational Enthusiast Consumer Trust 1999-B 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; and
(4) engaging in other activities that are necessary, suitable or convenient
to accomplish the above or are incidental or connected to those
activities.
The trust will initially be capitalized with equity of approximately
$ from the sale of the notes. The Class B certificates will be sold
to Conseco Finance or its affiliate. The equity of the trust will be used by
the trust to purchase the contracts from Conseco Securitizations under the sale
and servicing agreement among Conseco Securitizations, Conseco Finance and the
trust.
The trust's principal offices are in Wilmington, Delaware, at the address
listed below under "--The Owner Trustee."
Capitalization of the Trust
The following table illustrates the capitalization of the trust as of the
cutoff date, as if the issuance and sale of the notes and certificates had
taken place on that date:
<TABLE>
<S> <C>
Class A notes................................................. $
Class M notes.................................................
Class B certificates..........................................
-----------
Total....................................................... $
===========
</TABLE>
The Owner Trustee
Wilmington Trust Company is the owner trustee under the trust agreement.
Wilmington Trust Company is a Delaware banking corporation and its principal
offices are located at Rodney Square North, 1100 North Market Street,
Wilmington, Delaware 19890-0001. The
S-13
<PAGE>
owner trustee will perform limited administrative functions under the trust
agreement, including making distributions from the certificate distribution
account. The owner trustee's liability in connection with the issuance and sale
of the certificates and the notes is limited solely to the express obligations
of the owner trustee described in the trust agreement.
THE TRUST PROPERTY
The trust property will consist of:
(1) the contracts;
(2) all rights to receive payments due thereon on or after the cutoff date,
excluding certain insurance premiums, late fees and other servicing
charges;
(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 Conseco Finance in the
trucks securing the related contracts;
(5) an assignment of the right to receive proceeds from claims on certain
insurance policies covering the trucks and the obligors; and
(6) all other rights under the trust documents.
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."
Conseco Finance, 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. To protect the trust's ownership interest in the contracts, we will
file UCC-1 financing statements in Minnesota to give notice of the trust's
ownership of the contracts and the related trust property.
Under the indenture, the trust will grant a security interest in favor of the
indenture trustee in the trust property, the rights of the trust under the sale
and servicing agreement, and the collection account and note distribution
account. Any proceeds of the property will be distributed according to the
trust. See "Description of the Trust Documents and Indenture--Distributions" in
this prospectus supplement.
S-14
<PAGE>
Payments and recoveries in respect of principal and interest on the contracts
will be paid into a separate trust account maintained at an eligible
institution, initially U.S. Bank National Association, in the name of the
indenture trustee, no later than one business day after receipt. The indenture
trustee will, on the fifteenth day of each month or, if such day is not a
business day, the next succeeding business day, deposit funds from the
collection account into the note distribution account and the certificate
distribution account. Payments on deposit in the note distribution account will
be applied by the indenture trustee on each payment date to make the
distributions to the noteholders as of the immediately preceding record date
and payments on deposit in the certificate distribution account will be applied
by the owner trustee on each payment date to make the distributions to the
certificateholders as of the immediately preceding record date, all as
described under "Description of the Trust Documents and Indenture--
Distributions."
Following the transfer of the contracts from Conseco Finance to Conseco
Securitizations, and then by Conseco Securitizations to the trust, Conseco
Finance's obligations are limited to:
(1) its obligations as servicer to service the contracts;
(2) representations and warranties in the sale and servicing agreement as
described under "Description of the Trust Documents--Sale and
Assignment of the Contracts" in the prospectus; and
(3) indemnities and the payment of trustees' fees.
Conseco Finance is obligated under the sale and servicing agreement to
repurchase any contract on the first payment date which is more than 90 days
after Conseco Finance becomes aware, or receives written notice from the
indenture trustee or the owner trustee, of any breach of any representation and
warranty in the sale and servicing agreement that materially and adversely
affects the securityholders' interest in the contract if the breach has not
been cured prior to that date. The sale and servicing agreement also provides
that Conseco Finance is obligated to repurchase contracts and to indemnify the
indenture trustee or the owner trustee and the securityholders about other
matters. Conseco Finance is also obligated to pay fees of the owner trustee and
indenture trustee.
THE CONTRACT POOL
General
This prospectus supplement contains information regarding a portion of the
contracts to be included in the pool as of the closing date. These initial
contracts were originated through , and will be transferred to the
trust by Conseco Securitizations 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
$ . 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 $ . Although
S-15
<PAGE>
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 the representations and warranties in the sale and servicing
agreement.
Conseco Finance purchased all of the contracts from dealers who regularly
originate and sell such contracts to it, or the contracts were originated by
Conseco Finance directly.
Certain Other Characteristics
The initial contracts:
(1) had a remaining maturity, as of the cutoff date, of at least
months, but not more than months,
(2) had an original maturity of at least five months, but not more than
months,
(3) had an original principal balance of at least $ and not more
than $ ,
(4) had a remaining principal balance as of the cutoff date of at least
$ and not more than $ ,
(5) had a contractual rate of interest of at least % and not more than
%, and
(6) all financed the purchase of a [commercial truck].
Neither Conseco Securitizations nor Conseco Finance 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
Contracts Pool Balance Balance Balance (1)(2) Term (2) Rate Ratio
--------- -------- ------------ --------- ---------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
% $ % $ % %
---- --- ------------ ---- ---------- --- --- ----- ---
Total.................. 100% $ 100% $ % %
==== === ============ ==== ========== === === ===== ===
</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-16
<PAGE>
Geographic Concentration of Initial Contracts
<TABLE>
<CAPTION>
% of
Aggregate 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................. 418 5.06% $ 28,514,905.30 4.93%
Alaska.................. 11 0.13 567,247.40 0.10
Arizona................. 146 1.77 7,740,275.66 1.34
Arkansas................ 201 2.43 12,293,325.63 2.13
California.............. 1,307 15.81 76,080,124.91 13.15
Colorado................ 54 0.65 3,661,508.62 0.63
Connecticut............. 24 0.29 2,362,166.22 0.41
Delaware................ 4 0.05 220,932.87 0.04
District of Columbia.... 1 0.01 54,683.37 0.01
Florida................. 939 11.36 56,354,017.84 9.74
Georgia................. 358 4.33 22,227,144.23 3.84
Idaho................... 58 0.70 2,427,296.39 0.42
Illinois................ 100 1.21 9,053,972.03 1.57
Indiana................. 59 0.71 7,009,019.99 1.21
Iowa.................... 33 0.40 2,418,514.09 0.42
Kansas.................. 61 0.74 5,675,527.08 0.98
Kentucky................ 62 0.75 3,735,481.78 0.65
Louisiana............... 196 2.37 13,907,409.48 2.40
Maine................... 15 0.18 1,376,202.19 0.24
Maryland................ 75 0.91 6,382,649.96 1.10
Massachusetts........... 25 0.30 2,640,392.14 0.46
Michigan................ 98 1.19 16,483,566.17 2.85
Minnesota............... 103 1.25 11,483,616.92 1.99
Mississippi............. 281 3.40 20,498,716.11 3.54
Missouri................ 129 1.56 11,948,630.73 2.07
Montana................. 13 0.16 489,316.51 0.08
Nebraska................ 9 0.11 438,249.27 0.08
Nevada.................. 71 0.86 4,037,597.72 0.70
New Hampshire........... 11 0.13 1,108,347.66 0.19
New Jersey.............. 76 0.92 11,874,946.75 2.05
New Mexico.............. 68 0.82 4,386,981.37 0.76
New York................ 100 1.21 12,847,543.20 2.22
North Carolina.......... 145 1.75 10,729,687.08 1.85
North Dakota............ 1 0.01 19,677.33 0.00
Ohio.................... 279 3.37 23,642,922.33 4.09
Oklahoma................ 128 1.55 7,903,588.07 1.37
Oregon.................. 87 1.05 4,270,539.11 0.74
Pennsylvania............ 113 1.37 9,142,303.03 1.58
Rhode Island............ 7 0.08 592,583.79 0.10
South Carolina.......... 219 2.65 13,939,386.54 2.41
South Dakota............ 35 0.42 2,684,121.50 0.46
Tennessee............... 283 3.42 24,640,187.27 4.26
Texas................... 1,302 15.75 84,536,976.22 14.62
Utah.................... 178 2.15 10,067,511.57 1.74
Vermont................. 6 0.07 719,487.81 0.12
Virginia................ 90 1.09 6,883,002.99 1.19
Washington.............. 177 2.14 11,942,738.12 2.06
West Virginia........... 32 0.39 1,731,252.68 0.30
Wisconsin............... 55 0.67 3,356,065.85 0.58
Wyoming................. 25 0.30 1,318,502.31 0.23
----- ------ --------------- ------
Total................. 8,268 100.00% $578,420,843.19 100.00%
===== ====== =============== ======
</TABLE>
The state concentrations described in this table are based on the billing
address of the obligor listed in Conseco Finance's records.
S-17
<PAGE>
Distribution of 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......... 38 $ 216,293.37 .04%
Between $10,000 and
$19,999.................. 674 9,205,636.07 1.59
Between $20,000 and
$29,999.................. 1,051 22,533,018.90 3.90
Between $30,000 and
$39,999.................. 807 24,043,238.26 4.16
Between $40,000 and
$49,999.................. 944 37,498,331.30 6.48
Between $50,000 and
$59,999.................. 641 31,051,888.02 5.37
Between $60,000 and
$69,999.................. 471 27,199,724.17 4.70
Between $70,000 and
$79,999.................. 471 31,680,263.91 5.48
Between $80,000 and
$89,999.................. 716 55,424,753.05 9.58
Between $90,000 and
$99,999.................. 846 73,629,111.49 12.73
Between $100,000 and
$109,999................. 701 67,529,451.29 11.67
Between $110,000 and
$119,000................. 233 24,248,829.25 4.19
Between $120,000 and
$129,999................. 101 11,514,294.53 1.99
Between $130,000 and
$139,999................. 46 5,566,070.44 .96
Between $140,000 and
$149,999................. 33 4,180,373.67 .72
Between $150,000 and
$159,999................. 41 5,787,790.20 1.00
Between $160,000 and
$169,999................. 36 5,287,220.41 .91
Between $170,000 and
$179,999................. 47 7,530,439.46 1.30
Between $180,000 and
$189,999................. 33 5,482,532.22 .95
Between $190,000 and
$199,999................. 24 4,382,108.79 .76
Between $200,000 and
$249,999................. 73 13,923,999.53 2.41
Between $250,000 and
$299,999................. 50 12,004,085.75 2.08
Between $300,000 and
$349,999................. 45 13,512,737.62 2.34
Between $350,000 and
$399,999................. 27 9,007,678.74 1.56
Between $400,000 and
$449,999................. 34 12,979,298.49 2.24
Between $450,000 and
$499,999................. 15 6,431,472.52 1.11
Between $500,000 and
$549,999................. 10 4,988,028.59 .86
Between $550,000 and
$599,999................. 11 5,727,107.43 .99
Between $600,000 and
$649,999................. 4 2,291,812.32 .40
Between $650,000 and
$699,999................. 9 5,646,895.21 .98
Between $700,000 and
$749,999................. 5 3,158,190.27 .55
Between $750,000 and
$799,999................. 2 1,377,780.56 .24
Between $800,000 and
$849,999................. 4 3,060,343.92 .53
Between $850,000 and
$899,999................. 3 2,478,949.21 .43
Between $900,000 and
$949,999................. 2 1,640,202.79 .28
Between $950,000 and
$999,999................. 5 4,378,136.16 .76
Over $999,999............. 15 21,822,755.28 3.77
----- --------------- ------
Total................... 8,268 $578,420,843.19 100.00%
===== =============== ======
</TABLE>
S-18
<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>
1997................... 1 $ 54,848.92 .01%
1998................... 1,730 113,576,439.48 19.64
1999................... 6,537 464,789,554.79 80.35
----- --------------- ------
Total................ 8,268 $578,420,843.19 100.00%
===== =============== ======
Distribution of 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%........... 73 $ 2,229,533.83 .39%
From 61 to 65%.......... 48 1,941,600.91 .34
From 66 to 70%.......... 87 2,913,706.90 .50
From 71 to 75%.......... 127 4,919,801.11 .85
From 76 to 80%.......... 371 15,001,551.83 2.59
From 81 to 85%.......... 672 33,410,433.45 5.78
From 86 to 90%.......... 1,511 80,855,711.17 13.98
From 91 to 95%.......... 2,290 146,446,736.65 25.32
Over 95%................ 3,089 290,701,767.34 50.26
----- --------------- ------
Total................. 8,268 $578,420,843.19 100.00%
===== =============== ======
</TABLE>
S-19
<PAGE>
Initial Contract Rates
<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 7.001%.......... 8 $ 705,525.01 .12%
7.001% to 8.000%......... 211 48,184,144.20 8.33
8.001% to 9.000%......... 841 99,132,887.64 17.14
9.001% to 10.000%........ 1,518 117,524,165.22 20.32
10.001% to 11.000%........ 1,421 95,336,408.21 16.48
11.001% to 12.000%........ 1,402 86,384,304.50 14.93
12.001% to 13.000%........ 1,063 57,089,240.99 9.87
13.001% to 14.000%........ 686 30,157,267.58 5.21
14.001% to 15.000%........ 556 22,795,126.60 3.94
15.001% to 16.000%........ 308 11,679,653.09 2.02
16.001% to 17.000%........ 152 6,045,707.54 1.05
Over 17.000%.............. 102 3,386,412.61 .59
----- --------------- ------
Total................... 8,268 $578,420,843.19 100.00%
===== =============== ======
Remaining Months to Maturity of Initial Contracts
<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 15............. 142 $ 1,847,018.53 .32%
15 to 30................ 1,310 42,601,529.98 7.37
31 to 45................ 2,414 142,199,539.74 24.58
46 to 60................ 4,062 321,689,996.17 55.62
61 to 75................ 265 33,372,791.68 5.77
76 to 90................ 31 12,501,317.98 2.16
91 to 105................ 6 4,864,662.43 .84
106 to 120................ 37 16,962,918.57 2.93
121 to 135................ 0 .00 .00
136 to 150................ 1 2,381,068.11 .41
----- --------------- ------
Total................... 8,268 $578,420,843.19 100.00%
===== =============== ======
</TABLE>
S-20
<PAGE>
CONSECO FINANCE CORP.
The following information supplements and if inconsistent supersedes, the
information in the prospectus under the heading "Conseco Finance Corp." Conseco
Finance Corp. was previously named 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 truck contracts
it has purchased and continues to service, including the contracts which do not
meet the criteria for selection as a contract. Conseco Finance began
originating installment sales contracts for [commercial trucks] in 1994.
Accordingly, the delinquency, loan loss and repossession experience presented
below may not be indicative of the experience to be expected from a more
seasoned portfolio.
Delinquency Experience
<TABLE>
<CAPTION>
At December 31, At
--------------------------------------- September 30,
1994 1995 1996 1997 1998 1999
------ ------ ------- ------- ----- -------------
<S> <C> <C> <C> <C> <C> <C>
Number of Contracts
Outstanding (1)........
Number of Contracts
Delinquent (2)
30-59 Days............
60-89 Days............
90 Days or More.......
------ ------ ------- ------- ----- -----
Total Contracts
Delinquent.............
====== ====== ======= ======= ===== =====
Delinquencies as a
Percentage of Contracts
Outstanding (3)........ % % % % % %
</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-21
<PAGE>
Loan Loss/Repossession Experience
(Dollars in Thousands)
<TABLE>
<CAPTION>
Nine Months
Year Ended December 31, Ended
-------------------------------------------- September 30,
1994 1995 1996 1997 1998 1999
------ ------ ------- ------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Number of Contracts
Serviced (1)...........
Principal Balance of
Contracts (1).......... $ $ $ $ $ $
Contract Liquidations:
Units...................
Percentage (2).......... % % % % % %
Net Losses:
Dollars (3)............. $ $ $ $ $ $
Percentage (4).......... % % % % % %
</TABLE>
--------
(1) As of period end. Includes contracts already in repossession.
(2) As a percentage of the total number of contracts being serviced as of
period end.
(3) The calculation of net loss includes unpaid interest to the date of
repossession and all expenses of repossession and liquidation.
(4) As a percentage of the principal balance of contracts being serviced as of
period end.
There can be no assurance that the delinquency, loan loss or repossession
experience of the trust for the contracts will be better than, worse than or
comparable to the experience described above. See "Risk Factors--Delinquency,
Loan Loss and Repossession Experience" in this prospectus supplement.
Recent Developments
On March 31, 2000, Conseco Inc. announced its plan to explore the sale of
Conseco Finance. We can give you no assurance regarding the timing, price or
other terms related to the possible sale of Conseco Finance.
Following Conseco Inc.'s March 31 announcement of its plan to explore the
sale of Conseco Finance, rating agencies lowered their ratings of the debt
obligations of Conseco Finance and placed some ratings of Conseco Finance's
debt obligations on review as the rating agencies analyze the impact of the
developing events. The uncertainty surrounding the ultimate outcome of Conseco
Inc.'s plan has made it more difficult for Conseco Finance to complete new
public securitization transactions.
Conseco Finance has been served with various lawsuits in the United States
District Court for the District of Minnesota. These lawsuits were generally
filed as purported class actions on behalf of persons or entities who purchased
common stock or options to purchase common stock of Conseco Finance during
alleged class periods that generally run from February 1995 to January 1998.
One of these lawsuits did not include class action claims. In addition to
Conseco Finance, some of Conseco Finance's 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 Conseco Finance's common stock and the other relating to an
alleged class of traders in options for Conseco Finance's common stock. In
addition to these two complaints, a separate non-class
S-22
<PAGE>
action lawsuit 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 Conseco Finance and
the other defendants violated federal securities laws by making false and
misleading statements about Conseco Finance's current state and Conseco
Finance's future prospects, particularly about prepayment assumptions and
performance of some of our loan portfolios, which allegedly rendered Conseco
Finance's financial statements false and misleading. Conseco Finance filed
motions to dismiss these lawsuits. On August 24, 1999, Conseco Finance's
motions to dismiss were granted with prejudice. The plaintiffs subsequently
appealed the decision to the U.S. Court of Appeals for the 8th Circuit, and the
appeal is currently pending. Conseco Finance believes that the lawsuits are
without merit and intends to defend the lawsuits vigorously. However, the
ultimate outcome of these lawsuits cannot be predicted with certainty.
S-23
<PAGE>
YIELD AND PREPAYMENT CONSIDERATIONS
The following information supplements the information in the prospectus under
the heading "Yield and Prepayment Considerations."
Weighted Average Life of the Notes
The following information is given solely to illustrate the effect of
prepayments on the contracts on the weighted average life of the notes under
the stated assumptions and is not a prediction of the prepayment rate that
might actually be experienced by the contracts.
Weighted average life refers to the average amount of time from the date of
issuance of a security until each dollar of principal of such security will be
repaid to the investor. The weighted average life of the notes will be
influenced by the rate at which principal on the 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 Conseco Finance management's best estimate
of the prepayment rates that may be experienced on the contracts. Because
Conseco Finance began originating and servicing contracts for trucks only
recently, such estimate is based in part on industry experience with similar
contracts rather than Conseco Finance's 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.
The model used in this prospectus supplement is the Absolute Prepayment Model
("ABS"), which represents an assumed rate of prepayment each month relative to
the original number of contracts in the contract pool. The base case prepayment
model used here is % ABS.
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
have been assumed to have a prepayment rate equal to 1.12% ABS and 1.68% ABS.
ABS DOES NOT PURPORT TO BE AN 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;
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<PAGE>
(2) no noteholder requires the Note Purchase Counterparty to purchase the
notes, and the Note Purchase Counterparty does not exercise its clean-
up option, as described under "Description of the Trust Documents and
Indenture--Note Purchase Agreement";
(3) the Class B certificateholder exercises its right to purchase the
contracts, as described under "Description of the Trust Documents and
Indenture--Purchase Option; Auction Sale; Additional Principal
Distributions.";
(4) the aggregate principal balance of the initial contracts as of the
cutoff date is $ and the initial contracts have the
characteristics described under "The Contract Pool";
(5) 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 ;
(6) no interest shortfalls will arise in connection with prepayments in
full of the contracts;
(7) distributions are made on the notes on the 15th day of each month
commencing in ;
(8) the securities are issued on ; and
(9) one-month LIBOR is %.
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>
$ %
------------ ----- --- ---
Total................. $ %
============ ===== === ===
</TABLE>
Based on the foregoing assumptions, the following tables indicate the
projected weighted average lives of each class of notes 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.
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<PAGE>
Percentage of the Original Principal Balance of the Class A
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%
December 15, 2000...................................
Weighted Average Life (Years).......................
Percentage of the Original Principal Balance of the Class M
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%
December 15, 2000...................................
December 15, 2001...................................
Weighted Average Life (Years).......................
</TABLE>
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<PAGE>
DESCRIPTION OF THE NOTES
The following information supplements and, if inconsistent supersedes, the
information in the prospectus under "The Notes," "Information Regarding the
Securities," and "Description of the Trust Documents."
General
The notes will be issued under to 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 of interest and
principal on each distribution date commencing in January 2000, to the extent
that sufficient funds available. Distributions on the notes generally will be
made from funds available first in respect of interest on the Class A notes,
then in respect of interest on the Class M notes, then in respect of principal
on the Class A notes and then in respect of principal on the Class M notes, in
the manner and order of priority described in the next two sections.
Class A Interest
Interest on the principal balance of the Class A notes will accrue from
December 15, , or from the most recent distribution date on which interest
has been paid, to but excluding the following distribution date, at the Class A
interest rate. The principal balance of the Class A notes as of any
distribution date for this purpose will be the original principal balance of
that class minus all amounts previously distributed to the noteholders of that
class in respect of principal.
Interest on the Class A notes will be calculated on the basis of the actual
number of days elapsed in a 360-day year.
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 amount of the shortfall will be carried forward and added to
the amount of interest payable on the next distribution date. Any amount so
carried forward will bear interest at the Class A interest rate, to the extent
legally permissible. The Class A interest rate for any distribution date prior
to January 5, 2001 (the "Note Purchase Date") will be LIBOR plus %, but in no
case more than %. If LIBOR plus % exceeds % for any distribution date,
then the positive difference
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<PAGE>
between LIBOR plus % and %, multiplied by the principal balance of the
Class A notes, which we refer to as the "Class A LIBOR Carryforward Amount" for
that distribution date, will be payable from the remaining amount available
after payment of all interest and principal on the notes. Any Class A LIBOR
Carryforward Amount not paid on that distribution date will be payable on the
following distribution date, plus interest thereon at the Class A interest
rate.
After the Note Purchase Date, the Class A interest rate will be %, except
[to be added]
"LIBOR" ("London Interbank Offered Rate") with respect to any distribution
date will be established by the calculation agent appointed by the Trust (the
"Calculation Agent") and will equal the offered rate for United States dollar
deposits for one month that appears on Telerate Page 3750 as of 11:00 A.M.,
London time, on the second LIBOR Business Day prior to such [monthly interest
period] (a "LIBOR Determination Date"). "Telerate Page 3750" means the display
page so designated on the Dow Jones Telerate Service (or such other page as may
replace that page on that service, or such other service as may be designated
by the Calculation Agent as the information vendor, for the purpose of
displaying London interbank offered rates of major banks). If such rate appears
on Telerate Page 3750, LIBOR will be such rate. "LIBOR Business Day" as used
herein means a day that is both a Business Day and a day on which banking
institutions in the City of London, England are not required or authorized by
law to be closed. If on any LIBOR Determination Date the offered rate does not
appear on Telerate Page 3750, the Calculation Agent will request each of the
reference banks (which shall be major banks that are engaged in transactions in
the London interbank market selected by the Calculation Agent) to provide the
Calculation Agent with its offered quotation for United States dollar deposits
for one month to prime banks in the London interbank market as of 11:00 A.M.,
London time, on such date. If at least two reference banks provide the
Calculation Agent with such offered quotations, LIBOR on such date will be the
arithmetic mean, rounded upwards, if necessary, to the nearest 1/100,000 of 1%
(.00001%), with five one-millionths of a percentage point rounded upward, of
all such quotations. If on such date fewer than two of the reference banks
provide the Calculation Agent with such offered quotations, LIBOR on such date
will be the arithmetic mean, rounded upwards, if necessary, to the nearest
1/100,000 of 1% (.00001%), with five one-millionths of a percentage point
rounded upward, of the offered per annum rates that one or more leading banks
in New York City selected by the Calculation Agent are quoting as of 11:00
A.M., New York City time, on such date to leading European banks for United
States dollar deposits for one month; provided, however, that if such banks are
not quoting as described above, LIBOR for such date will be LIBOR applicable to
the monthly interest period immediately preceding such monthly interest period.
The "Calculation Agent" will initially be the Indenture Trustee.
Class M Interest
Interest on the principal balance of the Class M notes will accrue from
December 15, , or from the most recent distribution date on which interest
has been paid, to but excluding the following distribution date, at the Class M
interest rate. The principal balance of the Class M notes as of any
distribution date for this purpose will be the original principal
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<PAGE>
balance of that class minus all amounts previously distributed to the
noteholders of that class in respect of principal.
Interest on the Class M notes will be calculated on the basis of the actual
number of days elapsed in a 360-day year.
Interest will be paid on the Class M notes on each distribution date to the
extent of the amount available on that distribution after payment of all
interest due on the Class A notes. In the event the funds available are not
sufficient to make a full distribution of interest on the Class M notes, the
amount of the shortfall will be carried forward and added to the amount of
interest payable on the next distribution date. Any amount so carried forward
will bear interest at the Class M interest rate, to the extent legally
permissible. The Class M interest rate for any distribution date prior to the
Note Purchase Date will be LIBOR plus %, but in no case more than %. After
the Note Purchase Date, the Class M interest rate will be %.
If LIBOR plus % exceeds % for any distribution date, then the positive
difference between LIBOR plus % and %, multiplied by the principal balance
of the Class M notes, which we refer to as the "Class M LIBOR Carryforward
Amount" for that distribution date, will be payable from the remaining amount
available after payment of interest and principal on the notes and after
payment of any Class A LIBOR Carryforward Amount. Any Class M LIBOR
Carryforward Amount not paid on that distribution date will be payable on the
following distribution date, plus interest thereon at the Class M interest
rate.
Principal on the Notes
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 below, for that
distribution date. Principal will be paid on the Class A notes until the Class
A principal balance has been reduced to zero, and then principal will be paid
on the Class M notes.
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,
(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 or warranty,
(3) all partial principal prepayments applied and all principal
prepayments in full received on contracts during the related monthly
period,
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<PAGE>
(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,
(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.
A monthly period for a distribution date is the calendar month immediately
preceding the month in which that distribution date occurs; provided that the
monthly period for the first distribution date is the two calendar months
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 such deficiency--the formula principal shortfall for such
distribution date--will be added to the formula principal distribution amount
for the next distribution date.
Subordination of Class M Notes
Notwithstanding the events of default described in the prospectus under the
caption "The Notes--The Indenture--Events of Default; Rights Upon Event of
Default," until the Class A notes have been paid in full, the failure to pay
interest due on the Class M notes will not be an event of default. Upon the
occurrence and during the continuation of an event of default that has resulted
in an acceleration of the notes or following an insolvency event or dissolution
with respect to the general partner, no distributions of principal and interest
on the Class M notes will be made until payment in full of principal and
interest on the Class A notes.
Note Purchase Agreement and Call Option
On the Note Purchase Date, each noteholder will have the option to require
Credit Suisse First Boston, New York Branch, to purchase that noteholder's note
for a price equal to the unpaid principal balance of that note plus all accrued
and unpaid interest thereon, plus any LIBOR carryforward amount. CSFB and the
Class B certificateholders will have the
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<PAGE>
option to purchase all of the outstanding notes on the same terms and at the
same price on the Note Purchase Date and on each subsequent distribution date.
The indenture trustee will mail a notice to each registered noteholder of its
right to exercise this option at least 45 days before January 5, 200 . If you
intend to put your note to CSFB, you must give written notice to the servicer
of your intention no later than [10] days prior to the put date on which you
wish CSFB to purchase your note.
The obligations of CFSB with respect to the Note Purchase Agreement will be
general unsecured obligations of CFSB and will not be guaranteed by or
enforceable against any other entity.
Noteholders will, however, be entitled to exercise their rights under the
Note Purchase Agreement immediately following any failure by CFSB to pay the
purchase price for any notes as to which the option has been validly exercised.
In such event, the noteholders [, or the Indenture Trustee on their behalf,]
may pursue such other remedies as may be available at law or in equity on
account of CFSB's default of its obligations with respect to the Note Purchase
Agreement.
The noteholders' rights under the Note Purchase Agreement will lapse if:
. the trust becomes insolvent;
. there is a payment default on the notes; or
. [other standard events of default occur].
Book-Entry Registration
Holders of the notes may hold through DTC in the United States or CEDEL or
Euroclear in Europe if they are participants of these systems, or indirectly
through organizations that are participants in these systems.
Cede & Co., as nominee for DTC, will hold the notes. CEDEL and Euroclear will
hold omnibus positions in the notes on behalf of the CEDEL Participants and the
Euroclear participants, through customers' securities accounts in CEDEL's and
Euroclear's names on the books of their respective depositaries, which in turn
will hold such positions in customers' securities accounts in the depositaries'
names on the books of DTC.
Transfers between DTC's participating organizations will occur in accordance
with DTC rules. Transfers between CEDEL participants and Euroclear participants
will occur in the ordinary way according to their applicable rules and
operating procedures.
Cross-market transfers between persons holding directly or indirectly through
DTC, on the one hand, and directly or indirectly through CEDEL participants or
Euroclear participants, on the other, will be effected in DTC according to DTC
rules on behalf of the relevant European international clearing system by its
depositary; however, such cross-market transactions will require delivery of
instructions to the relevant European international clearing system by the
counterparty in such system according to its rules and
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<PAGE>
procedures and within its established deadlines, European time. The relevant
European international clearing system will, if the transaction meets its
settlement requirements, deliver instructions to its depositary to take action
to effect final settlement on its behalf by delivering or receiving securities
in DTC, and making or receiving payment according to normal procedures for
same-day funds settlement applicable to DTC. CEDEL participants and Euroclear
participants may not deliver instructions directly to the depositaries.
Because of time-zone differences, credits of securities in CEDEL or Euroclear
for a transaction with a participant will be made during the subsequent
securities settlement processing, dated the business day following the DTC
settlement date, and these credits or any transactions in the securities
settled during the processing will be reported to the relevant CEDEL
participant or Euroclear participant on the business day. Cash received in
CEDEL or Euroclear for sales of securities by or through a CEDEL participant or
a Euroclear participant to a participant will be received with value on the DTC
settlement date but will be available in the relevant CEDEL or Euroclear cash
account only as of the business day following settlement in DTC.
For a description of transfers between persons holding directly or indirectly
through DTC, see "Information Regarding the Securities--Book-Entry
Registration" in the prospectus.
Cedel Bank, is incorporated under the laws of Luxembourg as a professional
depository. CEDEL holds securities for its participating organizations and
facilitates the clearance and settlement of securities transactions between
CEDEL participants through electronic book-entry changes in accounts of CEDEL
participants, thereby eliminating the need for physical movement of
certificates. Transactions may be settled in CEDEL in any of 28 currencies,
including United States dollars. CEDEL provides to its CEDEL participants,
among other things, services for safekeeping, administration, clearance and
settlement of internationally traded securities and securities lending and
borrowing. CEDEL interfaces with domestic markets in several countries. As a
professional depository, CEDEL is subject to regulation by the Luxembourg
Monetary Institute. CEDEL participants are recognized financial institutions
around the world, including underwriters, securities brokers and dealers,
banks, trust companies, clearing corporations and certain other organizations
and may include the Underwriters. Indirect access to CEDEL is also available to
others, such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a CEDEL Participant, either directly
or indirectly.
The Euroclear System was created in 1968 to hold securities for participants
of the Euroclear System and to clear and settle transactions between Euroclear
participants through simultaneous electronic book-entry delivery against
payment, thereby eliminating the need for physical movement of certificates and
any risk from lack of simultaneous transfers of securities and cash.
Transactions may now be settled in Euroclear in any of 32 currencies, including
United States dollars. The Euroclear System includes various other services,
including securities lending and borrowing, and interfaces with domestic
markets in several countries generally similar to the arrangements for cross-
market transfers with DTC described in Annex I hereto. The Euroclear System is
operated by Morgan Guaranty Trust
S-32
<PAGE>
Company of New York, Brussels, Belgium office, under contract with Euroclear
Clearance System, S.C., a Belgian cooperative corporation. All operations are
conducted by the Euroclear Operator, and all Euroclear securities clearance
accounts and Euroclear cash accounts are accounts with the Euroclear Operator,
not the Cooperative. The Cooperative establishes policy for the Euroclear
System on behalf of Euroclear participants. Euroclear participants include
banks, including central banks, securities brokers and dealers and other
professional financial intermediaries and may include the underwriters.
Indirect access to the Euroclear System is also available to other firms that
clear through or maintain a custodial relationship with a Euroclear
participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it
is regulated and examined by the Board of Governors of the Federal Reserve
System and the New York State Banking Department, as well as the Belgian
Banking Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System and applicable Belgian
law, collectively, the terms and conditions. The terms and conditions govern
transfers of securities and cash within the Euroclear System, withdrawal of
securities and cash from the Euroclear System, and receipts of payments with
respect to securities in the Euroclear System. All securities in the Euroclear
System are held on a fungible basis without attribution of specific
certificates to specific securities clearance accounts. The Euroclear Operator
acts under the terms and conditions only on behalf of Euroclear participants
and has no record of or relationship with persons holding through Euroclear
participants.
Distributions with respect to notes held through CEDEL or Euroclear will be
credited to the cash accounts of CEDEL participants or Euroclear participants
in accordance with the relevant system's rules and procedures, to the extent
received by its depositary. Such distributions will be subject to tax reporting
in accordance with relevant United States tax laws and regulations. See
"Certain Federal Income Tax Consequences" in the prospectus and "Global
Clearance, Settlement and Tax Documentation Procedures" in Annex I to this
prospectus supplement. CEDEL or the Euroclear Operator, as the case may be,
will take any other action permitted to be taken by a noteholder under the
Indenture on behalf of a CEDEL participant or Euroclear participant only in
accordance with its relevant rules and procedures and subject to its
depositary's ability to effect such actions on its behalf through DTC.
Although DTC, CEDEL and Euroclear have agreed to the foregoing procedures in
order to facilitate transfers of notes among participants of DTC, CEDEL and
Euroclear, they are under no obligation to perform or continue to perform the
procedures and the procedures may be discontinued at any time.
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<PAGE>
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 one or more accounts, in the name of
the indenture trustee on behalf of the noteholders and the certificateholders,
into which all payments made on or for the contracts will be deposited, the
collection account. The servicer will establish and maintain an account, in the
name of the indenture trustee on behalf of the noteholders, in which amounts
released from the collection account for distribution to noteholders will be
deposited and from which all distributions to noteholders will be made, which
we call the note distribution account. The servicer will also establish and
maintain an account, in the name of the owner trustee on behalf of the
certificateholders, in which amounts released from the collection account for
distribution to certificateholders will be deposited and from which all
distributions to certificateholders will be made. 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 the following
order of priority:
(1) if Conseco Finance or an 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 prior monthly period.
(3) to the note distribution account, all accrued interest on the Class A
notes.
(4) to the note distribution account, the formula principal distribution
amount, or the Class A principal balance, if less.
(5) to the note distribution account, all accrued interest on the Class M
notes.
(6) to the note distribution account, the formula principal distribution
amount, or the Class M principal balance, if less.
(7) to the certificate distribution account, the remaining amount
available.
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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 in
payment on the Class B certificates.
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 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 January 2000, 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 Noteholders
On or before each distribution date, the servicer will prepare and provide to
the indenture trustee a statement to be delivered to the noteholders 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, 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;
(2) the amount of the distribution allocable to principal on or with
respect to each class of notes;
(3) the aggregate outstanding principal balance and the pool factor for
each class of notes after giving effect to all payments reported under (2)
above on such date;
(4) the interest shortfall, if any, for each class of notes, and the
change in such amounts from the preceding statement;
(5) the number and aggregate principal balances of delinquent contracts,
the number of trucks repossessed, the number of repossessed trucks
remaining in inventory and the number of contracts that became liquidated
contracts with respect to the immediately preceding monthly period; and
(6) the aggregate amount of servicer advances made by the servicer for
such distribution date, and the aggregate amount paid to the servicer as
reimbursement of servicer advances made on prior distribution dates.
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<PAGE>
Each amount shown under subclauses (1) through (4) will be expressed as a
dollar amount per $1,000 of the initial principal amount of the notes.
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 Noteholders" in this prospectus supplement
and "Reports to Securityholders" and "Information Regarding the Securities" in
the prospectus.
Within the required period of time after the end of each calendar year, the
indenture trustee, will furnish to each person who at any time during the
calendar year was a noteholder, a statement as to the aggregate amounts of
interest and principal paid to such noteholder, information regarding the
amount of servicing compensation received by the servicer and other information
as we deem necessary to enable the noteholder to prepare its tax returns. See
"Federal Income Tax Consequences" in this prospectus supplement.
Clean-Up Option; Auction Sale; Additional Principal Distributions
Beginning on the distribution date when the pool scheduled principal balance
is less than 20% of the cut-off date pool principal balance, the holder of the
Class B certificates will have the right to repurchase or arrange for the
repurchase of all outstanding contracts at a price equal to the greater of:
(1)the sum of:
(a) 100% of the scheduled principal balance of each contract, other
than any contract as to which the related equipment has been
repossessed and whose fair market value is included in clause (b)
below as of the final distribution date, and
(b) the fair market value of any acquired property, as determined by
the servicer; and
(2) the aggregate fair market value, as determined by the servicer of
all of the assets of the trust, plus, in each case, any unpaid
interest at the applicable interest rate on each class of notes,
as well as one month's interest at the applicable contract rate on
the scheduled principal balance of each contract.
This amount will be distributed on the distribution date occurring in the
month following the date of repurchase.
If the holder of the Class B certificates does not exercise this purchase
option on or before the following distribution date, then on the next
distribution date the indenture trustee will begin an auction process to sell
the contracts and the other trust assets at the highest possible price, but the
indenture trustee cannot sell the trust assets and liquidate the trust unless
at least two bids are received and the highest bid would be sufficient to pay
the aggregate unpaid principal balance of the notes plus all accrued and unpaid
interest. If the first auction of the trust property is not successful because
the highest bid received was too
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<PAGE>
low, then the indenture trustee will conduct an auction of the contracts every
third month after that, until an acceptable bid is received for the trust
property. We cannot assure you that the first auction or any subsequent auction
will be successful. The holder of the Class B certificates may exercise its
purchase option on any distribution date after the first distribution date
described above, unless the indenture trustee has accepted a qualifying bid for
the trust property.
If the first auction of the trust property is not successful because the
highest bid received was too low, then on each remittance date after that the
noteholders will be entitled to receive, pro rata based on the principal
balance of each class of notes, the "Additional Principal Distribution Amount"
for that distribution date, which will be equal to the remaining amount
available after paying all interest and principal then due on the notes and
payment of the monthly servicing fee.
Administrator
Conseco 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 Conseco Finance, will enter into an
administration agreement with the trust and the indenture trustee describing
its duties and obligations as administrator.
FEDERAL AND STATE INCOME TAX CONSEQUENCES
The following is a general discussion of 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 "Federal Income Tax
Consequences--Owner Trust Series" and "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.
The notes will not be issued with original issue discount.
S-37
<PAGE>
ERISA CONSIDERATIONS
Section 406 of the Employee Retirement Income Security Act of 1974, and
Section 4975 of the IRS 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 IRS 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 IRS 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 IRS 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 IRS 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;
. PTCE 84-14, regarding transactions effected by qualified professional
asset managers; and
. PTCE 96-23, regarding transactions effected by in-house asset
managers.
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 IRS code and
exempt from taxation under Section 501(a) of the IRS code, the prohibited
transaction rules set forth in Section 503 of the IRS code.
S-38
<PAGE>
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-39
<PAGE>
UNDERWRITING
The underwriter has agreed, subject to the terms and conditions of the
underwriting agreement, to purchase the Class A and Class M notes from Conseco
Securitizations.
The underwriting agreement provides that the underwriter is obligated to
purchase all of the notes, if any of such notes are purchased.
Conseco Securitizations have been advised by the underwriter that they
propose initially to offer the notes to the public at the respective offering
prices shown on the cover page of this prospectus supplement and to certain
dealers at this price 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 underwriter may allow and dealers may reallow a discount not in excess of
the respective amounts listed in the table below to certain other dealers.
<TABLE>
<CAPTION>
Selling Reallowance
Class Concession Discount
----- ---------- -----------
<S> <C> <C>
A................................................... % %
M................................................... % %
</TABLE>
Until the distribution of the notes is completed, rules of the SEC may limit
the ability of the underwriter and certain selling group members to bid for and
purchase the notes. As an exception to these rules, the underwriter is
permitted to engage in certain transactions that stabilize the price of the
notes. These transactions consist of bids or purchases for the purpose of
pegging, fixing or maintaining the price of the notes.
If the underwriter creates a short position in the notes in connection with
the offering, for example, if they sell more notes than are set forth on the
cover page of this prospectus supplement, the underwriter may reduce that short
position by purchasing notes 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 Conseco Finance, Conseco Securitizations nor the underwriter makes
any representation or prediction as to the direction or magnitude of any effect
that the transactions described above may have on the prices of the notes. In
addition, neither Conseco Finance, Conseco Securitizations nor the underwriter
makes any representation that the underwriter will engage in transactions or
that transactions, once commenced, will not be discontinued without notice.
The underwriting agreement provides that Conseco Finance, Conseco
Securitizations will indemnify the underwriter against certain liabilities,
including liabilities under the Securities Act of 1933 or will contribute to
payments the underwriter may be required to make.
S-40
<PAGE>
The underwriter has represented, warranted and agreed that:
(1) it has not offered or sold and, prior to the expiration of the period
of six months from the closing date, will not offer or sell any notes to
persons in the United Kingdom except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments,
as principal or agent for the purposes of their businesses or otherwise in
circumstances which have not resulted and will not result in an offer to
the public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995;
(2) it has complied and will comply with all applicable provisions of the
Financial Services Act 1986 with respect to anything done by it in relation
to the notes in, from or otherwise involving the United Kingdom; and
(3) it has only issued or passed on and will only issue or pass on in the
United Kingdom any document received by it in connection with the issue of
the notes to a person who is of a kind described in Article 11(3) of the
Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order
1995 or is a person to whom such document may otherwise lawfully be issued
or passed on.
The notes have not been and will not be registered under the Securities and
Exchange Law of Japan and the underwriter has agreed that it will not offer or
sell any of the notes, directly or indirectly, in Japan or to, or for the
benefit of, any resident of Japan, which term means any person resident in
Japan, including any corporation or other entity organized under the laws of
Japan, except under an exemption from the registration requirements of, and
otherwise in compliance with, the Securities and Exchange Law of Japan and any
other applicable laws, regulations and ministerial guidelines of Japan.
Conseco Finance and Conseco Securitizations do not intend to apply for
listing of the notes on a national securities exchange, but has been advised by
the underwriter that the underwriter currently intends to make a market in the
notes, as permitted by applicable laws and regulations. The underwriter is not
obligated, however, to make a market in the notes and any such market may be
discontinued at any time at the sole discretion of the underwriter.
Accordingly, no assurance can be given as to the liquidity of, or trading
markets for, the notes.
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 and the underwriter will
promptly deliver, or cause to be delivered, without charge, a paper copy of the
prospectus supplement and prospectus.
LEGAL MATTERS
The legality of the notes and consequences of the federal and Minnesota
income tax matters discussed under "Federal and State Income Tax Consequences"
will be passed upon for Conseco Finance and Conseco Securitizations by Dorsey &
Whitney LLP. The validity of the notes will be passed upon for the underwriter
by Brown & Wood LLP, New York, New York.
S-41
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+Information contained in this prospectus is not complete and may be changed. +
+We may not sell these securities until the registration statement filed with +
+the Securities and Exchange Commission is effective. This prospectus is not +
+an offer to sell these securities, and it is not soliciting an offer to buy +
+these securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
[Conseco Logo]
PROSPECTUS (BASE PROSPECTUS--TRUCKS ONLY)
Conseco Finance Corp.
Servicer
Conseco Finance Securitizations Corp.
Seller
Conseco Finance Recreational Enthusiast Consumer Trusts
Asset-Backed Certificates
Asset-Backed Notes
------------
We are offering asset-backed certificates and asset-backed notes under this
prospectus and a prospectus supplement. A prospectus supplement will be
prepared separately for each series of securities offered. A prospectus
supplement may offer asset-backed certificates, or asset-backed notes, or both.
Conseco Finance Securitizations Corp. will form a trust for each series and
deposit a pool of contracts in the trust, and the trust will issue the
securities of that series. Payments of principal and interest on the securities
of any series will depend primarily on payments made on the related pool of
contracts. The securities of any series may comprise several different classes.
A trust may also issue one or more other classes of certificates or notes that
will not be offered under this prospectus.
The right of each class of securities within a series to receive payments may
be senior or subordinate to the rights of one or more of the other classes of
securities. In addition, a series of securities may include one or more classes
which on the one hand are subordinated to one or more classes of securities,
while on the other hand are senior to one or more classes of securities. The
rate of principal and interest payment on the securities of any class will
depend on the priority of payment of that class and the rate and timing of
payments on the contracts owned by that trust.
------------
The securities will represent interests in, or obligations of, the related
trust and will not represent any interest in or obligation of Conseco Finance
Corp., Conseco Finance Securitizations Corp. or any of their affiliates, except
as specified in the prospectus supplement.
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.
------------
This prospectus may not be used to consummate sales of any securities unless
accompanied by a prospectus supplement for that series.
Prospectus date is , 2000.
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS AND THE ACCOMPANYING PROSPECTUS SUPPLEMENT
We tell you about the securities in two separate documents that progressively
provide more detail: (1) this prospectus, which provides general information,
some of which may not apply to a particular series of securities, including
your series; and (2) the prospectus supplement for the particular terms of your
series of securities.
If the terms of your series of securities described in the prospectus
supplement varies from this prospectus, you should rely on the information in
your prospectus supplement.
You should rely only on the information contained in this document or
information to which we have referred you. We have not authorized anyone to
provide you with information that is different. This document may only be used
where it is legal to sell these securities.
2
<PAGE>
To understand all of the terms of the certificates, read this entire
prospectus and the accompanying prospectus supplement. We have also defined
terms in the "Glossary" section at the back of this prospectus.
THE TRUSTS
For each series of securities, Conseco Securitizations will establish a trust
under either (1) a pooling and servicing agreement among Conseco Finance as
servicer, Conseco Securitizations, as seller, and a trustee specified in the
prospectus supplement, the trustee, or (2) a trust agreement between Conseco
Finance, as depositor, and a trustee specified in the related prospectus
supplement, the owner trustee, and a related sale and servicing agreement among
Conseco Securitizations, as seller, Conseco Finance, as servicer, and the
trust. For any trust, the related pooling and servicing agreement, or the
related trust agreement and sale and servicing agreement, as applicable, are
referred to herein as the related trust documents. Before the sale and
assignment of the related contracts under 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 property
of each trust will include:
(1) a contract pool, as described in "The Contracts";
(2) all monies paid or payable thereon on or after the cutoff date;
(3) such amounts as from time to time may be held in the collection
account, including all investments in the collection account and all
income from the investment of funds and all proceeds and certain
other accounts, as described in "Description of the Trust Documents--
Collections";
(4) an assignment of our security interests in the products securing the
related contracts, as described in "The Contracts";
(5) an assignment of the right to receive proceeds from claims on some
insurance policies covering the products or obligors; and
(6) specific other rights under the related trust documents.
The trust property will also include, if so specified in the 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 Conseco Securitizations 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 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.
3
<PAGE>
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 we specify otherwise in the prospectus supplement,
Conseco Finance, 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. In order to protect the trust's ownership
interest in the contracts, we will file a UCC-1 financing statement in
Minnesota and Delaware to give notice of such trust's ownership of the related
contracts and the related trust property.
The Trustee
The trustee or owner trustee, as applicable, for each trust will be specified
in the 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 prospectus supplement and will not become effective until acceptance of the
appointment by the successor trustee.
THE CONTRACTS
Each pool of contracts in a trust will consist of retail installment sales
contracts and promissory notes to finance the purchase of products to the types
described in the next paragraph. The contracts will be originated or purchased
by us on an individual basis in the ordinary course of business. Except as we
specify otherwise in the prospectus supplement, the contracts will be fully
amortizing and will bear interest at a fixed or variable rate.
The products financed by the contracts included in a contract pool will
include only trucks. Any trust whose securities are offered under this
prospectus will include only contracts secured by trucks. The types of products
securing a contract pool and the relative concentrations of each such type will
be specified in the prospectus supplement. Because we have less extensive
experience in underwriting and servicing retail installment sales contracts for
items such as the products, we have no basis upon which to distinguish the
expected delinquency, default or prepayment experience of contracts secured by
different types of products.
4
<PAGE>
CONSECO FINANCE CORP.
General
Conseco Finance Corp. was formerly known as Green Tree Financial Corporation.
It is a Delaware corporation that, as of December 31, 1998, had stockholders'
equity of approximately $2.2 billion. Through its various divisions, it
purchases, pools, sells and services retail conditional sales contracts for
manufactured housing and retail installment sales contracts for home
improvements, a variety of consumer products and equipment finance, and home
equity loans. Conseco Finance is the largest servicer of government-insured
manufactured housing contracts and conventional manufactured housing contracts
in the United States. Servicing functions are performed through Conseco Finance
Servicing Corp., its wholly owned subsidiary. Through its principal offices in
St. Paul, Minnesota, and service centers throughout the United States, it
serves all 50 states. It began financing FHA-insured home improvement loans in
April 1989 and conventional home improvement loans in September 1992. It also
purchases, pools and services installment sales contracts for various consumer
products. Its principal executive offices are located at 1100 Landmark Towers,
St. Paul, Minnesota 55102-1639 (telephone (651) 293-3400). Its annual report on
Form 10-K for the year ended December 31, 1998 and, when available, subsequent
quarterly and annual reports are available upon written request.
The SEC allows Conseco Finance to incorporate by reference some of the
information it files with it, which means that it can disclose important
information to you by referring you to those documents. The information that it
incorporates by reference is considered to be part of this prospectus, and
later information filed with the SEC will automatically update and supersede
this information. Conseco Finance is incorporating by reference the following
documents into this prospectus and the prospectus supplement:
. Conseco Finance Corp.'s annual report on Form 10-K for the year ended
December 31, 1998.
. Conseco Finance Corp.'s quarterly report on Form 10Q for the quarter
ended June 30, 1999.
Conseco Finance will provide you, upon your written or oral request, a copy
of any or all of the documents incorporated by reference in this prospectus,
exhibits to those documents. Please direct your requests for copies to John
Dolphin, Director of Investor Relations, 11825 Pennsylvania Street, Carmel,
Indiana 46032, telephone number (317) 817-6100.
All documents filed by the servicer, on behalf of any trust, under Section
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, after the
date of this prospectus and before the termination of the offering of the
securities issued by that trust, will be incorporated by reference into this
prospectus.
Federal securities law requires the filing of information with the Securities
and Exchange Commission, including annual, quarterly and special reports and
other
5
<PAGE>
information. You can read and copy these documents at the public reference
facility maintained by the SEC at Judiciary Plaza, 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549. You can also read and copy such reports,
proxy statements and other information at the following regional offices of
the SEC:
New York Regional Office Chicago Regional Office
Seven World Trade Center Citicorp Center
Suite 1300 500 West Madison Street, Suite
New York, NY 10048 1400
Chicago, IL 60661
Please call the SEC at 1-800-SEC-0330 for more information about the public
reference rooms or visit the SEC's web site at http://www.sec.gov to access
available filings.
Purchase of Contracts
Conseco Finance arranges to purchase qualifying contracts originated by
dealers located throughout the United States. Conseco Finance's personnel
contact dealers and explain Conseco Finance's available financing plans,
terms, prevailing rates and credit and financing policies. If the dealer
wishes to utilize Conseco Finance's available customer financing, the dealer
must make an application for dealer approval.
Currently, Conseco Finance's consumer finance division finances 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; 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.
All contracts that Conseco Finance purchases are written on forms provided
or approved by Conseco Finance and are purchased on an individually approved
basis in accordance with Conseco Finance's guidelines. The dealer submits the
customer's credit application and purchase order to Conseco Finance'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. Conseco
Finance'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 other items. Generally, 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. Management may revise these guidelines
from time to time,
6
<PAGE>
and the underwriting guidelines may be exceeded in some cases with the approval
of Conseco Finance's management. Accordingly, some of the contracts included in
a trust may not conform in all respects to the criteria described above.
Conseco Finance 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 our
guidelines and the credit is approved, we purchase the contract when the
customer accepts delivery of the product.
Loss and Delinquency Information
Each prospectus supplement will include loss and delinquency experience for
our entire servicing portfolio of consumer product contracts. However, there
can be no assurance that the experience will be indicative of the performance
of the contracts included in a particular contract pool.
CONSECO FINANCE SECURITIZATIONS CORP.
Conseco Securitizations is a wholly owned subsidiary of Conseco Finance. It
was formed on September 10, 1999. Conseco Securitizations may only engage in
the business of acquiring pools of loans from Conseco Finance and transferring
those loans to trusts such as the trusts described in this prospectus, and
activities incidental or related thereto. The principal executive offices of
Conseco Securitizations are located at 300 Landmark Towers, St. Paul, Minnesota
55102-1639 and its telephone number is (651) 293-3400.
Conseco Securitizations has taken and will take steps in conducting its
business that are intended to make it unlikely that a bankruptcy of Conseco
Finance would result in the consolidation of the assets and liabilities of
Conseco Finance and Conseco Securitizations. These steps include the creation
of Conseco Securitizations as a separate, limited-purpose corporation pursuant
to a certification of incorporation containing restrictions on the permissible
business activities of Conseco Securitizations, requiring that Conseco
Securitizations have on its board of directors at least two directors who are
independent of Conseco Finance, and requiring that all business transactions or
corporate actions outside of the ordinary course of business be approved by the
independent directors.
YIELD AND PREPAYMENT CONSIDERATIONS
The remittance rates and the weighted average contract rate of the contracts
for each series of certificates are listed in the prospectus supplement.
Unless Conseco Finance specifies otherwise in the 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
7
<PAGE>
allocable to interest for the period will be less than if the payment had been
made on the due date, the portion of the payment applied to reduce the
principal balance will be correspondingly greater, and the principal balance
will be amortized more rapidly than scheduled. Conversely, if an obligor pays
an installment after its due date, the portion of the payment allocable to
interest will be greater than if the payment had been made on the due date, the
portion of the payment applied to reduce the principal balance will be
correspondingly less, and the principal balance will be amortized slower than
scheduled, in which case a larger portion of the principal balance may be due
on the final scheduled payment date. Any interest shortfalls resulting from
early payment or prepayment of a contract will be funded by collections on
other contracts or, to the extent collections are insufficient, by payments
under the applicable form of credit enhancement, if any, described in the
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 us due to breach of a representation or
warranty, or as a result of our 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 pool factor for each class of certificates will be an eight-digit decimal
which the servicer will compute indicating the principal balance for the
certificates as of each distribution date, after giving effect to all
distributions of principal made on each distribution date, as a fraction of the
original principal balance of for the certificates. The 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 for the 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 the class of notes. Each pool factor will initially be
1.00000000; after that, the pool factor will decline to reflect reductions in
the outstanding principal balance of the applicable class of certificates or
notes, as the case may be. The amount of a certificateholder's pro rata share
of the principal balance for the related class of certificates can be
determined by multiplying the original denomination of the certificateholder's
certificate by the then applicable 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 pool factor.
8
<PAGE>
For each trust, on each distribution date, the related certificateholders and
noteholders will receive periodic reports from the trustee stating the pool
factor and containing various other items of information. Unless and until
definitive certificates or definitive notes are issued, the 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 prospectus supplement. See "Information
Regarding the Securities--Statements to Securityholders."
USE OF PROCEEDS
Unless we specify otherwise in the 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 us 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 prospectus supplement. The net proceeds to be received by us
will be used to pay our warehouse loans, and any additional proceeds will be
added to our general funds and used for general corporate purposes.
THE CERTIFICATES
General
For each trust, one or more classes of certificates of a given series will be
issued under the trust documents to be entered into among Conseco
Securitizations, as seller, Conseco Finance, as servicer, and the trustee,
forms of which have been filed as exhibits to the registration statement of
which this prospectus forms a part. Where particular provisions of or terms
used in the trust documents are referred to, the actual provisions are
incorporated by reference as part of this summary.
Unless we specify otherwise in the 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 Conseco Securitizations, the depository. See "Information Regarding
the Securities--Book-Entry Registration." Unless we specify otherwise in the
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 we specify otherwise in
the prospectus supplement, the trustee will initially be designated as the
registrar for the certificates.
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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, for principal only or
interest only on the certificates of any series will be described in the
prospectus supplement. Distributions of interest on the certificates will be
made on the dates specified in the related prospectus supplement and, unless we
specify otherwise in the prospectus supplement, will be made prior to
distributions with respect to principal. A series may include one or more
classes of stripped certificates entitled to:
(1) distributions in respect of principal with disproportionate, nominal
or no interest distribution, or
(2) 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 these. The
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 we specify otherwise in the prospectus
supplement, interest on the certificates will be calculated on the basis of a
360-day year consisting of twelve 30-day months. Unless we specify otherwise in
the prospectus supplement, distributions for the certificates will be
subordinate to payments for the notes, if any, as more fully described in the
prospectus supplement. Distributions for 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 described in the prospectus supplement.
THE NOTES
General
For each series of securities, one or more classes of notes issued under 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 we specify
otherwise in the prospectus supplement, no notes will be issued as a part of
any series. The following summary is not 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 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.
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Unless we specify otherwise in the 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 we specify otherwise in the prospectus
supplement, notes will be available for purchase in denominations of $1,000 and
integral multiples of $1,000. Notes may be transferred or exchanged without the
payment of any service charge other than any tax or governmental charge payable
for such transfer or exchange. Unless we provide otherwise in the prospectus
supplement, the indenture trustee will initially be designated as the registrar
for the notes.
Principal and Interest on the Notes
The timing and priority of payment, seniority, allocations of loss, interest
rate and amount of or method of determining payments of principal and interest
on the notes will be described in the 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
prospectus supplement. A series may include one or more classes of stripped
notes entitled to:
(1) principal payments with disproportionate, nominal or no interest
payment, or
(2) 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 some classes of
notes, or any combination of these. The 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 prospectus
supplement.
Unless we specify otherwise in the prospectus supplement, payments for
interest to noteholders of all classes within a series will have the same
priority. Under some circumstances, the amount available for these payments
could be less than the amount of interest payable on the notes on any of the
dates we specify for payments in the prospectus supplement, 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 for principal and interest,
and any schedule or formula or other provisions applicable to the
determination, of each class will be described in the prospectus supplement.
Unless we specify otherwise in the 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 the class.
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The indenture
A form of indenture has been filed as an exhibit to the registration
statement of which this prospectus forms a part. Conseco Finance will provide a
copy of the applicable indenture, without exhibits, upon request to a holder of
notes issued under the indenture.
Modification of Indenture Without Noteholder Consent. Each trust and related
indenture trustee, on behalf of the trust, may, without consent of the
noteholders, enter into one or more supplemental indentures for any of the
following purposes:
(1) to correct or amplify the description of the collateral or add
additional collateral;
(2) to provide for the assumption of the note and the indenture
obligations by a permitted successor to the trust;
(3) to add additional covenants for the benefit of the applicable
noteholders;
(4) to convey, transfer, assign, mortgage or pledge any property to or
with the indenture trustee;
(5) to cure any ambiguity or correct or supplement any provision in the
indenture or in any supplemental indenture;
(6) 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;
(7) to modify, eliminate or add to the provisions of the indenture in
order to comply with the Trust Indenture Act of 1939; and
(8) 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 the indenture; provided that any action specified in this
clause (8) shall not, as evidenced by an opinion of counsel, adversely
affect in any material respect the interests of any noteholder unless
noteholder consent is otherwise obtained as described below.
Modifications of Indenture With Noteholder Consent. Each trust, with the
consent of the holders representing a majority of the principal balance of the
outstanding 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 indenture, or modify in any manner the
rights of the noteholders.
Without the consent of the holder of each outstanding note affected, no
supplemental indenture may:
(1) 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 or change the manner of
calculating any payment, any place of payment where, or the coin or
currency in which any note or any interest is payable;
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(2) impair the right to institute suit for the enforcement of certain
provisions of the indenture regarding payment;
(3) reduce the percentage of the aggregate amount of the outstanding
notes the consent of the holders of which is required for any the
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;
(4) modify or alter the provisions of the indenture regarding the voting
of notes held by the trust, any other obligor on the notes, Conseco
Securitizations, Conseco Finance or an affiliate of any of them;
(5) 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;
(6) 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 other applicable agreements; or
(7) permit the creation of any lien ranking prior to or on a parity with
the lien of the indenture for 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 of the collateral or deprive the holder of
any note of the security afforded by the lien of the indenture.
Events of Default; Rights Upon Event of Default. For each trust, unless we
specify otherwise in the prospectus supplement, events of default under the
indenture will consist of:
(1) a default for five days or more in the payment of any interest on any
note;
(2) a default in the payment of the principal of or any installment of
the principal of any note when the note becomes due and payable;
(3) a default in the observance or performance in any material way 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 under the indenture or in connection with the
indenture 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
(4) 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
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determined by amounts available to be deposited in the note distribution
account for such distribution date.
Therefore, unless we specify otherwise in the 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 the class of notes has a final
scheduled payment date, and then not until such final scheduled payment date
for the class of notes.
Unless we specify otherwise in the prospectus supplement, if an event of
default should occur and be continuing for 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 we specify otherwise in the prospectus supplement, if the notes of any
series have been declared due and payable following an event of default, 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 the
contracts and continue to apply collections on the contracts as if there had
been no declaration of acceleration. Unless we specify otherwise in the
prospectus supplement, the indenture trustee, however, will be prohibited from
selling the related contracts following an event of default, unless:
(1) the holders of all the outstanding related notes consent to such
sale;
(2) 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
(3) 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,
(1) Note owners will be entitled to ratable repayment of principal on the
basis of their respective unpaid principal balances and
(2) repayment in full of the accrued interest on and unpaid principal
balances of the notes will be made prior to any further payment of interest
or principal on the certificates.
Subject to the provisions of the indenture relating to the duties of the
indenture trustee, if an event of default occurs and is continuing with respect
to a series of notes, the indenture trustee will be under no obligation to
exercise any of the rights or powers under the indenture at the request or
direction of any of the holders of such notes, if the indenture trustee
reasonably believes it will not be adequately indemnified against the costs,
expenses and liabilities which might be incurred by it in complying with such
request. Subject to the
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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:
. that holder previously has given to the indenture trustee written
notice of a continuing event of default,
. 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,
. such holder or holders have offered the indenture trustee reasonable
indemnity,
. the indenture trustee has for 60 days failed to institute such
proceeding, and
. 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 the 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 notes, 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 Conseco Securitizations, Conseco Finance 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, Conseco
Securitizations, Conseco Finance, nor any of their respective owners,
beneficiaries, agents, officers, directors, employees, affiliates, successors
or assigns will, in the absence of an express agreement to the contrary, be
personally liable for the payment of the notes or for any agreement or covenant
of the trust contained in the indenture.
Covenants. Each indenture will provide that the trust may not consolidate
with or merge into any other entity, unless:
(1) the entity formed by or surviving such consolidation or merger is
organized under the laws of the United States or any state,
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(2) 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,
(3) no event of default shall have occurred and be continuing immediately
after the merger or consolidation,
(4) 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 the merger or
consolidation,
(5) the trustee has received an opinion of counsel stating that the
consolidation or merger would have no material adverse tax consequence to
the trust or to any related note owner or certificate owner.
Each trust may not:
(1) 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,
(2) claim any credit on or make any deduction from the principal and
interest payable on the notes, other than amounts withheld under the IRS
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,
(3) dissolve or liquidate in whole or in part,
(4) permit the validity or effectiveness of the related indenture to be
impaired or permit any person to be released from any covenants or
obligations for the related notes under the indenture except as may be
expressly permitted thereby, or
(5) 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 may incur,
assume or guarantee any indebtedness other than indebtedness incurred pursuant
to the notes and the 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
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held by the indenture trustee and any action taken by it that materially
affects the notes and that has not been previously reported. Note owners may
receive reports upon written request, together with a certification that they
are note owners and payment of reproduction and postage expenses associated
with the distribution of such reports, from the indenture trustee at the
address specified in the 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
prospectus supplement. The indenture trustee may resign at any time, and
Conseco Securitizations as the seller will be obligated to appoint a successor
trustee. We may also remove the indenture trustee if the indenture trustee
ceases to be eligible to continue under the indenture or if the indenture
trustee becomes insolvent. In such circumstances, We 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 prospectus supplement and
will not become effective until acceptance of the appointment by a successor
trustee.
INFORMATION REGARDING THE SECURITIES
Book-Entry Registration
Unless we provide otherwise in the 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 and
facilitates the clearance and settlement of securities transactions between
participants in such securities through electronic book-entry changes in
accounts of participants, 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.
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
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participants. Certificate owners and note owners will not receive or be
entitled to receive certificates representing their respective interests in the
securities, except under the limited circumstances described below and specific
other circumstances, if any, as may be specified in the 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.
For 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, 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.
For any series of securities, unless we specify otherwise in the prospectus
supplement, certificates and notes will be issued in registered form to
certificate owners and note owners or their nominees, rather than to DTC, the
certificates and notes being referred to in this prospectus as definitive
certificates and definitive notes, respectively, only if:
(1) 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,
(2) the seller or the administrator 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
(3) 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, the certificates or notes will be transferable directly,
and not exclusively on a book-
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entry basis and registered holders will deal directly with the trustee or the
indenture trustee, as the case may be, for transfers, notices and
distributions.
DTC has advised the seller that, unless and until definitive certificates or
definitive notes are issued, DTC will take any action permitted to be taken by
a certificateholder or a noteholder under the related trust documents or
indenture only at the direction of one or more participants to whose DTC
accounts the certificates or notes are credited. DTC has advised us that DTC
will take the action for any fractional interest of the certificates or the
notes only at the direction of and on behalf of the participants beneficially
owning a corresponding fractional interest of the certificates or the notes.
DTC may take actions, at the direction of the related participants, for some
certificates or notes which conflict with actions taken for 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 before each distribution date, the servicer will prepare and provide to
the trustee a statement to be delivered to the related certificateholders on
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 the distribution date. These statements will be based on
the information in the related servicer's certificate setting forth information
required under the trust documents. Unless otherwise specified in the
prospectus supplement, each statement to be delivered to certificateholders
will include the following information for the certificates on that
distribution date or the period since the previous distribution date, as
applicable, and each statement to be delivered to noteholders will include the
following information as to the notes on the distribution date or the period
since the previous distribution date:
(1) the amount of the distribution allocable to interest on or for each
class of securities;
(2) the amount of the distribution allocable to principal on or for each
class of securities;
(3) the principal balance and the pool factor for each class of
certificates and the aggregate outstanding principal balance and the pool
factor for each class of notes, after giving effect to all payments
reported under (2) above on that date;
(4) the amount of the servicing fee paid to the servicer for the related
monthly period or periods, as the case may be;
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(5) the pass-through rate or interest rate for the next period for any
class of certificates or notes with variable or adjustable rates;
(6) the amount of advances made by the servicer for the distribution
date, and the amount paid to the servicer on that distribution date as
reimbursement of advances made on previous distribution dates;
(7) the amount, if any, distributed to certificateholders and noteholders
applicable to payments under the related form of credit enhancement, if
any; and
(8) any other information as may be specified in the prospectus
supplement.
Each amount set forth under subclauses (1), (2), (4) and (6) for certificates
or notes will be expressed as a dollar amount per $1,000 of the initial
principal balance of the certificates or notes, as applicable.
Unless and until definitive certificates or definitive notes are issued, the
reports for 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 the 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 the reports, from the trustee or the indenture trustee, as
applicable. See "Reports to Securityholders" and "--Book-Entry Registration" in
this prospectus.
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
the information to their related indirect participants in accordance with
arrangements among DTC and the participants. Certificate owners and note owners
may receive the 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 the information, from the
trustee, for certificate owners, or from the indenture trustee, for note
owners, at the addresses specified in the prospectus supplement. See "Federal
Income Tax Consequences."
Lists of Securityholders
Unless we provide otherwise in the prospectus supplement, for each series of
certificates, at that 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 principal balance of the certificate 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 prospectus supplement, the trust documents will not provide
for holding any annual or other meetings of certificateholders.
Unless we provide otherwise in the prospectus supplement, for each series of
notes, if any, at that 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 about their rights under the indenture. Unless otherwise specified
in the prospectus supplement, the indenture will not provide for holding any
annual or other meetings of noteholders.
DESCRIPTION OF THE TRUST DOCUMENTS
Except as we specify otherwise in the prospectus supplement, the following
summary describes certain terms of the transfer agreement between Conseco
Finance and Conseco Securitizations, and of either the pooling and servicing
agreements or the sale and servicing agreements and the trust agreements--in
either case collectively referred to as the trust documents--pursuant to which
Conseco Securitizations will sell and assign contracts to a trust and the
servicer will agree to service those 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. We will provide a copy of the
agreements, without exhibits upon request to a holder of securities. This
summary is not 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 that summary.
Sale and Assignment of the Contracts
On the closing date, Conseco Finance will sell and assign to Conseco
Securitizations, without recourse, its entire interest in the related contracts
and the proceeds thereof, including its security interests in the related
products, and Conseco Securitizations will immediately re-transfer the
contracts and related assets to the trust. Each contract transferred by Conseco
Securitizations to the trust will be identified in a schedule appearing as an
exhibit to the trust documents. At the same time as such sale and assignment,
the trustee will execute and deliver the 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 our order.
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Except as we specify otherwise in the prospectus supplement, Conseco Finance
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 us as an additional insured
party;
(f) each contract has been originated by a dealer or us in the ordinary
course of such dealer's, or our business and, if originated by a dealer,
was purchased by us 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 us in the product covered thereby and such security
interest has been assigned by us 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 us to the trustee, We 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 the 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 the contract, and
we have not waived any of the these;
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(n) as of the closing date there were, to the best of our 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 the 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.
Our warranties 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.
Conseco Finance is obligated to repurchase for the repurchase price any
contract on the first business day after the first determination date which is
more than 90 days after Conseco Finance becomes aware, or should have become
aware, or its receipt of written notice from the trustee or the servicer, of a
breach of any representation or warranty by Conseco Finance in the trust
documents that materially adversely affects the trust's interest in any
contract if the breach has not been cured. The repurchase price for any
contract will be the remaining principal amount outstanding on the 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 for any other breach of Conseco Finance's obligations under
the trust documents.
Upon our purchase of a contract due to a breach of a representation or
warranty, the trustee will convey the contract and the related trust property
to us.
Custody of Contract Files
Unless we specify otherwise specified in the prospectus supplement, Conseco
Finance initially will be appointed to act as custodian for the contract files
of each trust. Prior to the appointment of any custodian other than Conseco
Finance, the trust and institution specified in the prospectus supplement shall
enter into a custodian agreement pursuant to which the 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 Conseco
Finance's possession. UCC financing statements will be filed in Minnesota
reflecting the sale and
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assignment of the contracts by Conseco Finance to Conseco Securitizations, and
by Conseco Securitizations to the trustee, and our accounting records and
computer systems will also reflect such sale and assignment. In addition, the
contracts that are in our possession will be stamped or otherwise marked to
indicate that the 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 the contracts in
the ordinary course of its business and took possession of the 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 "Legal Aspects of the
Contracts--Rights in the Contracts."
Collections
For 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 we so specify in the prospectus supplement, the
trustee will establish and maintain for each series an account, in the name of
the trustee on behalf of the related certificateholders, in which amounts
released from the collection account and any pre-funding account and any
amounts received from any source of credit enhancement for distribution to the
certificateholders will be deposited and from which all distributions to such
certificateholders will be made the certificate distribution account. For 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, are referred to
collectively as the designated accounts. Any other accounts to be established
with respect to a trust will be described in the 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:
(1) an account maintained with an eligible institution;
(2) 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;
(3) 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
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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
(4) 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 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 day after receipt.
Notwithstanding the foregoing and unless otherwise provided in the 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 the rating agency of the rating(s)
then assigned to the securities. We 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 are called
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
the investments will not be sold or disposed of prior to their maturity.
Unless we specify otherwise in the 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 before a distribution date will be applied first to any outstanding
monthly advances made by the servicer for that
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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 "Legal Aspects of the Contracts." The servicer
will be entitled to recover all reasonable expenses incurred by it in
connection therewith. The proceeds of such realization, net of such expenses
will be deposited in the collection account at the time and in the manner
described above under "--Collections."
The trust documents will provide that the servicer will indemnify and defend
the trustee, the indenture trustee, the trust and the securityholders against,
among other things, any and all costs, expenses, losses, damages, claims and
liabilities, including reasonable fees and expenses of counsel and expenses of
litigation, or in respect of any action taken or failed to be taken by the
servicer with respect to any portion of the trust property in violation of the
provisions of the trust documents. The servicer's obligations to indemnify the
trustee, the indenture trustee, the trust and the securityholders for the
servicer's actions or omissions will survive the removal of the servicer but
will not apply to any action or omission of a successor servicer.
Servicing Compensation
Unless we specify otherwise in the prospectus supplement, for 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 of the certificate 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 we provide
otherwise in the 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 we are 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 we are no longer the servicer, the servicing fee and any
additional
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servicing compensation will be paid out of collections on or with respect to
the contracts prior to distributions to certificateholders and noteholders.
Unless we specify otherwise in the prospectus supplement, a monthly period for
any distribution date is the calendar month immediately preceding the month in
which the distribution date occurs.
Conseco Finance, 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
For each trust, beginning on the distribution date specified in the
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 described in the prospectus supplement.
Unless we specify otherwise in the prospectus supplement, on the third
business day prior to each distribution 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 we specify otherwise in the
prospectus supplement, the amount available for any distribution date will be
equal to:
(1) the funds on deposit in the collection account at the close of
business on the last day of the related monthly period, plus
(2) any advances to be made by the servicer with respect to delinquent
payments, plus
(3) any repurchase amounts to be deposited by us for contracts to be
repurchased due to a breach of a representation or warranty, minus
(4) 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, minus
(5) any amounts incorrectly deposited in the collection account.
Unless we specify otherwise in the 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 we are is no longer the
servicer, to pay the servicing fee to the successor servicer, and second, to
reimburse the servicer, including us 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.
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Enhancement
The amounts and types of enhancement arrangements and the provider thereof,
if applicable, for each class of securities will be described in the prospectus
supplement. If and to the extent provided in the prospectus supplement,
enhancement may be in the form of a financial guaranty insurance policy, letter
of credit, we guaranty, cash reserve fund, derivative product, or other form of
enhancement, or any combination thereof, as may be described in the prospectus
supplement. If specified in the 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 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 prospectus supplement,
the enhancement for a class of securities will not provide protection against
all risks of loss and will not guarantee repayment of the entire principal and
interest thereon. If losses occur which exceed the amount covered by any
enhancement or which are not covered by any enhancement, securityholders will
bear their allocable share of deficiencies. In addition, if a form of
enhancement covers more than one class of securities of a series,
securityholders of any such class will be subject to the risk that the
enhancement will be exhausted by the claims of securityholders of other
classes.
Advances
Unless otherwise specified in the 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, (1) when
the delinquent payment is recovered by the trust, or (2) 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
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servicing has been conducted in compliance with the applicable trust documents,
except for any exceptions described in that report. A copy of the statement may
be obtained by any certificate owner or note owner upon compliance with the
requirements described above. See "Information Regarding the Securities--
Statements to Securityholders" above.
Matters Regarding the Servicer
Unless we provide otherwise in the prospectus supplement, our appointment as
servicer under the trust documents will continue until such time as we resign
or are terminated, or until such time, if any, as a servicer termination event
shall have occurred under the trust documents. The 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 the 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 trust documents.
Unless otherwise provided in the prospectus supplement, any corporation or
other entity into which the servicer may be merged or consolidated, resulting
from any merger or consolidation to which the servicer is a party, which
acquires by conveyance, transfer or lease substantially all of the assets of
the servicer or succeeds to all or substantially all the business of the
servicer, where the servicer is not the surviving entity, which corporation or
other entity assumes every obligation of the servicer under each trust
document, will be the successor to the servicer under the related trust
documents; provided, that:
(1) such entity is an eligible servicer, and
(2) 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 we specify otherwise in the 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.
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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.
Servicer Termination Events
Except as we specify otherwise in the prospectus supplement, servicer
termination events under the trust documents will include:
(1) 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;
(2) 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;
(3) 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;
(4) certain events of insolvency, readjustment of debt, marshalling of
assets and liabilities or similar proceedings regarding the servicer; and
(5) the servicer is no longer an eligible servicer, as defined in the
trust documents. Notice shall mean notice to the servicer by the trustee,
the indenture trustee, if any, or us, or notice to us, the servicer, the
indenture trustee, if any, and the trustee by the holders of securities
representing interests aggregating not less than 25% of the outstanding
principal balance of the securities issued by the trust.
Unless we specify otherwise in the prospectus supplement, if a servicer
termination event occurs and is continuing, the trustee, the indenture trustee,
or the holders of at least 25% in aggregate principal balance of the
outstanding securities issued by the 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 the notice, and, in
the case of a successor servicer other than the trustee, the acceptance by the
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 prospectus supplement, the
backup servicer, will be the successor in all respects to the servicer and will
be subject to all the responsibilities,
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restrictions, duties and liabilities of the servicer under the trust documents;
provided, however, that the successor servicer shall have no liability 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 the termination, the servicer
shall be entitled to payment of amounts payable to it prior to the termination,
for services rendered prior to the termination. No termination will affect in
any manner Conseco Finance's obligation to repurchase 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
to act, it may appoint, or petition to a court of competent jurisdiction for
the appointment of a servicer. Pending the appointment, the trustee is
obligated to act in the capacity. The trustee and the 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
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 we provide otherwise in the prospectus supplement, the trust documents
may be amended by us, 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, provided that the action
will not, in the opinion of counsel, which may be our internal counsel or the
servicer reasonably satisfactory to the trustee and the indenture trustee,
materially and adversely affect the interests of the securityholders. The trust
documents may also be amended by us, the servicer and the trustee and the
indenture trustee, and a certificate majority and a note majority, if
applicable, for the purpose of adding any provisions to or changing or
eliminating any of the provisions of the trust documents or of modifying the
rights of the certificateholders or the noteholders. No amendment may, (1)
increase or reduce 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 interest
rate, or (2) 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 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:
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(1) 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
(2) 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 we provide otherwise in the prospectus supplement, for each series of
securities, in order to avoid excessive administrative expense, we 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 pool schedule principal balance is equal to or less than 10%,
or other percentage as may be specified in the 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 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 prospectus supplement, unless we specify
otherwise in the 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 the series agree in writing to the
continuation of the business of the trust and to the appointment of a successor
to the former general partner, and the owner trustee is able to obtain an
opinion of counsel to the effect that the trust will not thereafter be an
association, or publicly traded partnership, taxable as a corporation for
federal income tax purposes.
Unless we specify otherwise in the prospectus supplement, for each series of
securities, the trustee will give written notice of the final distribution for
the certificates to each certificateholder of record and the indenture trustee
will give written notice of the final payment for 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 the holder's certificate or note at the office or agency of the
trustee, for certificates, or of the indenture trustee, for 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 the 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 for the funds.
The Trustee
The trustee or owner trustee, as applicable, for each trust will be specified
in the 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
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consent of the servicer, shall have the power to appoint co-trustees or
separate trustees of all or any part of the trust. In the event of the
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 the separate trustee or co-trustee jointly, or, in any
jurisdiction where the trustee is incompetent or unqualified to perform certain
acts, singly upon the separate trustee or co-trustee who shall exercise and
perform the 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 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
prospectus supplement, or, if no 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 those circumstances, the general
partner, if any, specified in the related prospectus supplement or, if no
general partner is specified, the servicer will be obligated to appoint a
successor trustee. Any resignation or removal of the trustee and appointment of
a successor trustee will not become effective until acceptance of the
appointment by the successor trustee.
Duties of the Trustee
The trustee will make no representation as to the validity or sufficiency of
any trust document, the certificates or the notes, other than its execution of
the certificates and the notes, the contracts or any related documents, and
will not be accountable for the use or application by the servicer of any funds
paid to the servicer in respect of the certificates, the notes or the contracts
prior to deposit in the related collection account.
The trustee will be required to perform only those duties specifically
required of it under the trust documents. Generally, those duties will be
limited to the receipt of the various certificates, reports or other
instruments required to be furnished by the servicer to the trustee under the
trust documents, in which case it will only be required to examine the
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 the
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 for the trust documents,
unless the 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 the proceeding in its own name as
trustee and have
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offered to the trustee reasonable indemnity, and the trustee for 30 days after
the receipt of the notice, request and offer to indemnify has neglected or
refused to institute any proceedings.
Administrator
If an administrator is specified in the prospectus supplement, the
administrator will enter into an agreement, the administration agreement,
pursuant to which such administrator will agree, to the extent provided in the
administration agreement, to provide the notices and to perform other
administrative obligations required by the related indenture and the trust
agreement.
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 Conseco
Securitizations 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. Conseco Finance will warrant in the trust documents
for the contracts held by the related trust and the trustee will pledge the
right to enforce the warranty to the indenture trustee as collateral for the
notes, if any, that, as of the closing date, the contracts have not been sold,
pledged or assigned by it to any other person, and that it has good and
indefeasible title and is the sole owner free of any liens and that,
immediately upon the transfer of the contracts to the 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 the warranties in the trust documents that materially
and adversely affects the related trust's, certificateholders' or noteholders'
interest in any contract, a repurchase event, we will be obligated to
repurchase the contract.
Unless we provide otherwise in the prospectus supplement, Conseco Finance
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 our possession. UCC financing
statements will be filed in Minnesota reflecting the sale and assignment of the
contracts to the trustee, and our accounting records and computer systems will
also reflect the sale and assignment. In addition, the contracts will be
stamped or otherwise marked to indicate that the 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 the
security interest in any of the contracts in the ordinary course of its
business and took possession of the contracts, the purchaser, or secured party
would acquire an interest in
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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 the trust's interest. See "Description of
the Trust Documents--Custody of Contract Files."
Security Interests in the Products
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 us 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 we have advanced the purchase price of the goods.
It is our practice to take 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, actions may not
have been taken for a product and the 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 we did not file a UCC financing statement
because its security interest was perfected as a purchase money security
interest in consumer goods;
(1) such security interest may be deemed not to be perfected if the
product were ultimately determined not to be consumer goods, and
(2) a subsequent purchaser of the product may acquire the product free of
our security interest.
The events would, however, give rise to a repurchase event and obligate us to
repurchase the affected contract if the interests of the related
certificateholders, noteholders or trust were materially and adversely
affected.
Under the related trust document, we 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 Conseco Securitizations, Conseco Finance or the trustee 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, we 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 on the certificate of title or the UCC financing statement
should be sufficient to protect the related trust against the rights of
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subsequent purchasers of a product or subsequent lenders who take a security
interest in the related product. However, in the absence of an amendment, the
security interest of the related trust in the related products might be
defeated by, among others, the trustee in our bankruptcy or the obligor.
However, failure would give rise to a repurchase event and obligate us 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 the 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 our practice to effect the 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, we must surrender
possession of the certificate of title or receive notice as a result of its
lien noted thereon and accordingly should have an opportunity to require
satisfaction of the related contract before release of the lien.
Under the laws of most states, liens for repairs performed on a product and
liens for unpaid taxes take priority over even a perfected security interest in
a product. Conseco Finance will represent, in the related trust document that,
immediately prior to the sale, assignment and transfer to the related trust,
each contract held by such trust was secured by a valid, subsisting and
enforceable first priority perfected security interest in its favor, 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 that a lien or confiscation
arises, and if the lien arises or confiscation occurs after the date of
issuance of any series of certificates and notes, neither we nor the servicer
will be required to repurchase or purchase the related contract.
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
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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 the means
would constitute a breach of the peace. Self-help repossession is the method
employed by us in most cases and is accomplished simply by taking possession of
the product. In the event of default by the obligor, some jurisdictions require
that the obligor be notified of the default and be given a time period within
which the obligor may cure the default prior to repossession. In cases where
the obligor objects or raises a defense to repossession, or if otherwise
required by applicable state law, a court order must be obtained from the
appropriate state court, and the product must then be repossessed in accordance
with that order. If a breach of the peace cannot be avoided, judicial action is
required. A secured party may be held responsible for damages caused by a
wrongful repossession of a product, including a wrongful repossession conducted
by an agent of the secured party. In many states, a product may be repossessed
without notice to the obligor, but only if the repossession can be accomplished
without a breach of the peace.
Notice of Sale; Redemption Rights
The UCC and various other state laws require a secured party who has
repossessed the collateral securing an obligation to provide an obligor with
reasonable notice of the date, time and place of any public sale and/or the
date after which any private sale of the collateral may be held. The obligor
has the right to redeem the collateral prior to actual sale by paying the
secured party the entire unpaid time balance of the obligation, less any
unaccrued finance charges plus accrued default charges, reasonable expenses for
repossessing, holding and preparing the collateral for disposition and
arranging for its sale, plus, to the extent provided in the financing
documents, reasonable attorneys' fees, or in some states, by payment of
delinquent installments or the unpaid principal balance of the related
obligation.
Deficiency Judgments and Excess Proceeds
The proceeds of resale of products generally will be applied first to the
expenses of repossession and resale and then to the satisfaction of the related
contract. While some states impose prohibitions or limitations on deficiency
judgments if the net proceeds from resale do not cover the full amount of the
indebtedness, a deficiency judgment can be sought in other states that do not
prohibit or limit such judgments, subject to satisfaction of statutory
procedural requirements by the holder of the obligation. However, any
deficiency judgment would be a personal judgment against the obligor for the
shortfall, and a defaulting obligor can be expected to have very little capital
or sources of income available following repossession. 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. We 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 for the product, if proper
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notification of demand for proceeds is received prior to distribution, or, if
no 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 those 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 the 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 the court determines the
obligation of the 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 that
obligation will not be liable for performance.
Consumer Protection Laws
Numerous Federal and state consumer protection laws and related regulations
impose substantive and disclosure requirements upon lenders and servicers
involved in consumer finance. Some of the Federal laws and regulations include
the Truth-in-Lending Act, the Equal Credit Opportunity Act, the Federal Trade
Commission Act, the Fair Credit Reporting Act, the Fair Debt Collection
Practices Act, the Magnuson-Moss Warranty Act, and the Federal Reserve Board's
Regulations B and Z.
In addition to Federal law, state consumer protection statutes regulate,
among other things, the terms and conditions of retail installment contracts
and promissory notes pursuant to which purchasers finance the acquisition of
consumer products. These laws place finance charge ceilings on the amount that
a creditor may charge in connection with financing the purchase of a consumer
product. These laws also impose other restrictions on consumer transactions and
require contract disclosures in addition to those required under federal law.
These requirements impose specific statutory liabilities upon creditors who
fail to comply. In some cases, this liability could affect the ability of an
assignee, such as the related trust, to enforce consumer finance contracts such
as the contracts. The credit practices rule of the 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
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event of a successful claim is limited to amounts paid by the purchaser under
the consumer credit contract. 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, that the purchaser of the related product may assert against the
seller of the 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.
We 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 the
trust's interest in a contract were materially and adversely affected by a
violation of any law, the violation would constitute a repurchase event and
would obligate us to repurchase the contract unless the breach were cured. See
"Description of the Trust Documents--Sale and Assignment of the Contracts."
Other Limitations
In addition to the laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including federal bankruptcy laws and
related state laws, may interfere with or affect the ability of a lender to
realize upon collateral or enforce a deficiency judgment. For example, in a
proceeding under Chapter 13 of the U.S. Bankruptcy Code of 1978, as amended, a
court may prevent a lender from repossessing collateral, and, as part of the
rehabilitation plan, reduce the amount of the secured indebtedness to the
market value of the collateral at the time of bankruptcy, as determined by the
court, leaving the party providing financing as a general unsecured creditor
for the remainder of the indebtedness. A bankruptcy court may also reduce the
monthly payments due under a contract, change the rate of interest and time of
repayment of the indebtedness or substitute collateral securing the
indebtedness.
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, 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 for the federal, state, local, and any other tax consequences of the
purchase, ownership, and disposition of the securities.
[Counsel for Conseco Finance], our counsel, has delivered an opinion
regarding federal income tax matters discussed below. Counsel to the seller
identified in the prospectus supplement will deliver an opinion regarding tax
matters applicable to each series of
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securities. The opinion, however, is not binding on the IRS or the courts. The
opinion of counsel will specifically address only those issues specifically
identified below as being covered by the opinion; however, the opinion of
counsel also will state that the additional discussion set forth below
accurately describes counsel's advice for material tax issues. No ruling on any
of the issues discussed below will be sought from the IRS.
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 that 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 that series will be treated as a partnership or as a grantor
trust. The following discussion deals first with series for which the trust has
been structured as an owner trust treated as a partnership, and then with
series for which the trust has been structured as a grantor trust.
Owner Trust Series
Tax Status of the Trust
For 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, 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 the 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 some publicly traded partnerships are taxable as corporations. There
are no cases or IRS 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 IRS 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 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.
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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 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 the OID in income, on a pro rata basis, as
principal payments are made on the note.
While it is not anticipated that the notes will be issued with more than de
minimis OID, it is possible that they will be so issued or will be deemed to be
issued with OID. This deemed OID could arise, for example, if interest payments
on the notes are not deemed to be qualified stated interest because the notes
do not provide for default remedies ordinarily available to holders of debt
instruments or do not contain terms and conditions that make the likelihood of
late payment or nonpayment a remote contingency. Based upon existing authority,
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 for the notes in advance of
the receipt of cash attributable to that 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
IRS code. In general, these rules provide that if a noteholder purchases the
note at a market discount, for example, a discount from its original issue
price plus any accrued original issue discount that exceeds a de minimis amount
specified in the IRS code, and thereafter recognizes gain upon a disposition,
the lesser of the gain or 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 the payments does not exceed the accrued market
discount. Generally, the accrued market
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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 IRS.
Limitations imposed by the IRS 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 the noteholder makes such an
election, is exempt from this rule. The adjusted basis of a note subject to the
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 election to include market discount in gross income as it
accrues shall apply to all debt instruments held by the noteholder at the
beginning of the first taxable year to which the election applies or thereafter
acquired and is irrevocable without the consent of the IRS.
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), the noteholder will be considered to have purchased the note with
amortizable bond premium equal to the amount of the excess. The noteholder may
elect to deduct the amortizable bond premium as it accrues under a constant-
yield method over the remaining term of the note. The noteholder's tax basis in
the note will be reduced by the amount of the amortizable bond premium
deducted. Amortizable bond premium for a note will be treated as an offset to
interest income on that note, and a noteholder's deduction for amortizable bond
premium that a note will be limited in each year to the amount of interest
income derived for that Note for that 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 IRS. 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 that noteholder in income for the note and
decreased by principal payments previously received by that noteholder and the
amount of bond premium previously amortized for the note. Any 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
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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 will be exempt from the 30% withholding tax. The
noteholder will be entitled to receive interest payments on the notes free of
United States federal income tax provided that the 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 the
noteholder is not a United States person and providing the name and address of
that noteholder and will not be subject to federal income tax on gain from the
disposition of a note unless the noteholder is an individual who is present in
the United States for 183 days or more during the taxable year in which the
disposition takes place and some other requirements are met.
Tax Administration and Reporting. The indenture trustee will furnish to each
noteholder with each distribution a statement showing the amount of the
distribution allocable to principal and to interest. Reports will be made
annually to the IRS and to holders of record that are not excepted from the
reporting requirements regarding the information as may be required for the
interest and original issue discount, 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 their social security number or other taxpayer
identification number to the indenture trustee. Backup withholding may apply,
under some 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 some 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 for a note.
On October 6, 1997, the treasury department issued new regulations which make
some 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 some transition
rules. You are urged to consult your own tax advisors regarding the new
regulations.
Possible Alternative Treatment of the Notes. If, contrary to the opinion of
counsel, the IRS 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
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because it would meet some qualifying income tests. Nonetheless, treatment of
the notes as equity interests in that type of partnership could have adverse
tax consequences to some holders. For example, income to foreign holders
generally would be subject to federal tax and federal tax return filing and
withholding requirements, income to some tax-exempt entities would be unrelated
business taxable income, and individual holders might be subject to some
limitations on their ability to deduct their share of trust expenses.
Tax Consequences to Certificateholders
Treatment of the Trust as a Partnership. We, the general partner and the
owner trustee will agree, and the certificateholders will agree by their
purchase of certificates, to treat the trust as a partnership for purposes of
federal and state income tax, franchise tax and any other tax measured in whole
or in part by income, with the assets of the partnership being the assets held
by the trust, the partners of the partnership being the certificateholders and
the general partner, and the notes being debt of the partnership. The proper
characterization of the arrangement involving the trust, the certificates, the
notes, the general partner, Green Tree and the servicer, however, is not
certain because there is no authority on transactions closely comparable to
that contemplated herein.
A variety of alternative characterizations are possible. For example, because
the certificates have certain features characteristic of debt, the certificates
might be considered debt of the trust. This 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 as
discussed in the following paragraphs. 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. Each certificateholder will be required to separately take
into account the 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 for 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 IRS 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:
(1) the interest that accrues on the certificates according to their terms
for that month, including interest accruing at the pass-through rate
for that month and interest on amounts previously due on the
certificates but not yet distributed;
(2) 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;
(3) prepayment premium payable to the certificateholders for that month;
and
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(4) any other amounts of income payable to the certificateholders for that
month.
Although it is not anticipated that the certificates will be issued at a price
which exceeds their principal amount, allocations of trust income to the
certificateholders will be reduced by any amortization by the trust of premium
on contracts that corresponds to any 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
IRS would not require a greater amount of income to be allocated to
certificateholders. Even under this method of allocation, certificateholders
may be allocated income equal to the entire pass-through rate plus the other
items described above even though the trust might not have sufficient cash to
make current cash distributions of that amount. 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 these 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 the holder under the IRS 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 the expenses under
Section 212 of the IRS code only to the extent that, in the aggregate and
combined with specific other itemized deductions, they exceed 2% of the
adjusted gross income of the certificateholder. In addition, Section 68 of the
IRS code provides that the amount of itemized deductions, including those
provided for in Section 212 of the IRS code otherwise allowable for the taxable
year for an individual whose adjusted gross income exceeds a threshold amount
determined under the IRS code ($121,000 in 1997, in the case of a joint return)
will be reduced by the lesser of:
(1) 3% of the excess of adjusted gross income over the specified
threshold amount; or
(2) 80% of the amount of itemized deductions otherwise allowable for the
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 that income. Certificateholders may deduct any loss on disposition of the
contracts to the extent permitted under the IRS code.
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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 premium against interest income on the contracts or to include any
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 this premium deduction or market discount income
may be allocated to certificateholders.
Distributions to Certificateholders. Certificateholders generally will not
recognize gain or loss for distributions from the trust. A certificateholder
will recognize gain, to the extent that any money distributed exceeds the
certificateholder's adjusted basis in its certificates as described below under
"Disposition of Certificates" immediately before the distribution. A
certificateholder will recognize loss upon termination of the trust or
termination of the certificateholder's interest in the trust if the trust only
distributes money to the certificateholder and the amount distributed is less
than the certificateholder's adjusted basis in the certificates. This 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 IRS 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 a termination occurs, the trust
will be considered to have contributed the assets of the trust the old
partnership to a new partnership in exchange for interests in the new
partnership. The interests would be deemed distributed to the partners of the
old partnership in liquidation, 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 the 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 these
certificates, and, upon sale or other disposition of some of these
certificates, allocate a portion of the 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
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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 special reporting requirements. 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 in the paragraphs above over the life of the certificates that
exceeds the aggregate cash distributions, the excess generally will give rise
to a capital loss upon the retirement of the certificates.
Allocations Between Transferors and Transferees. In general, the trust's
taxable income and losses will be determined monthly, and the tax items for a
particular calendar month will be apportioned among the certificateholders in
proportion to the principal amount of certificates owned by them as of the
close of the related record date. As a result, a certificateholder purchasing a
certificate may be allocated tax items, which will affect the
certificateholder's tax liability and tax basis attributable to periods before
the certificateholder actually owns the certificate. The use of this 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 IRS 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 that 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. Under an 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. The 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 IRS 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 IRS on Schedule K-1. The trust will provide the
Schedule K-1 information to nominees that fail to provide the trust with
specific required information statements relating to identification of
beneficial owners of certificates and the nominees will be required to forward
the information to the 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 IRS
of any inconsistencies.
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We or our subsidiaries as identified in the prospectus supplement will be
designated as the tax matters partner in the trust agreement and, will be
responsible for representing the certificateholders in any dispute with the
IRS. The IRS 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 specific circumstances, a certificateholder
may be precluded from separately litigating a proposed adjustment to the items
of the trust. An adjustment could also result in an audit of a
certificateholder's returns and adjustments of items not related to the income
and losses of the trust.
Tax Consequences to Foreign Certificateholders. It is not clear whether the
trust will be considered to be engaged in a trade or business in the United
States for purposes of federal withholding taxes for non-U.S. persons because
there is no clear authority dealing with that issue under facts substantially
similar to those described in this prospectus. Although it is not expected that
the trust will be engaged in a trade or business in the United States for those
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 under Section 1446 of the IRS code,
as if the 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 IRS 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 IRS a claim for refund for the 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 IRS may assert that
additional taxes are due, and no assurance can be given as to the appropriate
amount of tax liability.
Backup Withholding. Under specific circumstances, a certificateholder may be
subject to backup withholding at a 31% rate. See the discussion above under
"Tax Consequences to Noteholders--Backup Withholding."
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Grantor Trust Series
Tax Status of the Trust
For the series of securities which includes only certificates, unless we
specify otherwise in the 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 we are considered to
retain an interest in the contracts, as discussed below. While a retained
interest might be viewed as a second class of beneficial interest in the trust
and Treasury Regulations Section 301.7701-4(c) generally provides that an
investment trust with more than one class of ownership interest will be
classified as an association taxable as a corporation or a partnership, that
regulation would treat the trust as a grantor trust because there will be no
power under the pooling and servicing agreement to vary the investment of the
certificateholders, the purpose of the trust will be to facilitate direct
investment in the contracts, and the existence of multiple classes of ownership
interests in the trust will be incidental to that purpose.
Tax Consequences to Certificateholders
Because the trust will be classified as a grantor trust, each
certificateholder, including any holder of a subordinated certificate will, in
the opinion of counsel, be treated for federal income tax purposes as the owner
of an undivided interest in the contracts and other trust property.
Accordingly, subject to the discussion below of certain limitations on
deductions and the stripped bond rules of the IRS 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 the 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. 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 IRS code described
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below. If the contracts are subject to the stripped bond rules of the IRS 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:
(1) received as distributions their full share of such receipts;
(2) paid over to the senior certificateholders an amount equal to the
shortfall amount; and
(3) retained the right to reimbursement of those amounts to the extent
available from future collections on the contracts.
Under this analysis, (a) subordinated certificateholders would be required to
accrue as current income any interest or OID income of the trust that was a
component of the shortfall amount, even though the 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
the shortfall amount became worthless, and (c) reimbursement of the shortfall
amount prior to a claim of worthlessness would not be taxable income to
subordinated certificateholders because the 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.
The character and timing of loss deductions is unclear.
Under current IRS interpretations of applicable treasury regulations, we
would be able to sell or otherwise dispose of any subordinated certificates.
Accordingly, we may offer subordinated certificates for sale to investors.
Stripped Certificates. Some classes of certificates may be subject to the
stripped bond rules of Section 1286 of the IRS 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:
(1) if any servicing compensation is deemed to exceed a reasonable
amount;
(2) 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
(3) 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
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issue discount. Original issue discount for a stripped certificate, 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 the accrual of income may be in advance of the
receipt of any cash attributable to the 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 IRS 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 for the stripped certificate whether or not
denominated as interest. The amount of original issue discount for 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 (1) the amount of
original issue discount for the certificate was treated as zero under the
original issue discount de minimis rule when the certificate was stripped; or
(2) 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 the 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 IRS may take a contrary position for some or all of
the foregoing tax consequences. For example, a holder of a stripped certificate
may be treated as the owner of:
(1) as many stripped bonds or stripped coupons as there are scheduled
payments of principal and/or interest on each contract, or
(2) a separate installment obligation for each contract representing the
stripped certificate's pro rata share of principal and/or interest payments
to be made.
In addition, if a trust issues more than one class of certificates with
different pass-through rates, a holder of the certificate may be treated as the
owner of a stripped bond with a rate equal to the lowest pass-through rate and
a stripped coupon representing the excess of the pass-through rate on that
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, provided for a series of certificates may be questioned by the IRS
for some certificates or contracts as exceeding a reasonable fee for the
services being performed in exchange therefor, and a portion of the 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 under
the contracts. In this event, a certificate might be treated as a
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stripped certificate subject to the stripped bond rules of Section 1286 of the
IRS 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 showing the amount of the distribution allocable to principal and to
interest. In addition, the trustee will furnish, within a reasonable time after
the end of each calendar year, to each certificateholder who was a
certificateholder at any time during that year, information regarding the
amount of servicing compensation received by the servicer and the other factual
information as we deem necessary to enable certificateholders to prepare their
tax returns. Reports will be made annually to the IRS and to holders of record
that are not excepted from the reporting requirements regarding information as
may be required for the interest and original issue discount for the
certificates.
Backup Withholding
Under some 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."
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, 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 this tax
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solely because of their ownership of the notes. Noteholders already subject to
income or franchise taxation in Minnesota could, however, be required to pay
that 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
would not be subject to Minnesota taxation. Certificateholders that are not
otherwise subject to Minnesota income or franchise taxation would not become
subject to this 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 this 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. Under 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 this 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 this 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 the 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 that 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 for 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, and
Section 4975 of the IRS code prohibit a pension, profit sharing or other
employee benefit plan, the benefit plan from engaging in some transactions
involving plan assets with persons that are parties in interest under ERISA or
disqualified persons under the IRS code for the benefit plan. ERISA also
imposes some duties and some prohibitions on persons who are fiduciaries of
plans subject to ERISA. Under ERISA, generally any person who exercises any
authority
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or control for the management or disposition of the assets of a benefit plan is
considered to be a fiduciary of the plan. A violation of these prohibited
transaction rules may generate excise tax and other liabilities under ERISA and
the IRS code for those persons.
Some transactions involving the related trust might be deemed to constitute
prohibited transactions under ERISA and the IRS code for 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 IRS code only
if the benefit plan acquired an equity interest in the trust and none of the
exceptions contained in the plan assets regulation was applicable. An equity
interest is defined under the plan assets regulation as an interest other than
an instrument which is treated as indebtedness under applicable local law and
which has no substantial equity features. The likely treatment of notes and
certificates will be discussed in the related prospectus supplement.
Employee benefit plans that are governmental plans, as defined in Section
3(32) of ERISA and some 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 described in an underwriting agreement for each
trust, we will agree to sell to each of the underwriters named and in the
prospectus supplement, and each of the underwriters will severally agree to
purchase from the seller, the principal amount of each class of securities of
the related series described and in the prospectus supplement.
In each underwriting agreement, the several underwriters will agree, subject
to the terms and conditions set forth, to purchase all the securities described
which are offered and by the prospectus supplement of the securities are
purchased. In the event of a default by any underwriter, each underwriting
agreement will provide that, in some circumstances, purchase commitments of the
nondefaulting underwriters may be increased, or the underwriting agreement may
be terminated.
Each prospectus supplement will either:
(1) set forth the price at which each class of securities being offered
will be offered to the public and any concessions that may be offered to
some dealers participating in the offering of the securities; or
54
<PAGE>
(2) 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 the sale.
After the initial public offering of any securities, the public offering price
and the concessions may be changed.
Each underwriting agreement will provide that we will indemnify the
underwriters against some liabilities, including liabilities under the
Securities Act.
The indenture trustee 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 will be conditioned on the closing of the sale of all other classes.
The place and time of delivery for the securities for which this prospectus
is delivered will be described in the related prospectus supplement.
LEGAL MATTERS
Some matters relating to validity of the certificates and the notes will be
passed upon by our counsel as identified in the prospectus supplement. The
validity of the certificates and the notes will be passed upon for the
underwriters named in the prospectus supplement by the counsel for the
underwriters identified in the prospectus supplement.
EXPERTS
The consolidated financial statements of Conseco Finance as of December 31,
1998 and for the year ended December 31, 1998 are incorporated by reference in
this prospectus in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given upon their authority as experts in accounting
and auditing.
The consolidated financial statements of Conseco Finance, formerly known as
Green Tree Financial Corporation, as of December 31, 1997 and for each of the
years in the two-year period ended December 31, 1997 incorporated by reference
in this prospectus and in the registration statement in reliance upon the
report of KPMG LLP, independent certified public accountants, incorporated by
reference in this prospectus, and upon the authority of KPMG LLP as experts in
accounting and auditing.
55
<PAGE>
GLOSSARY
For the purposes of this prospectus and the prospectus supplement, the
following terms will have the following meanings:
"Amount available" with respect to any distribution date, means generally the
sum of payments on the contracts due and received during the preceding month,
prepayments and other unscheduled collections received during the preceding
month, any amounts deposited in respect of purchased contracts, any interest
rate cap payment, any guaranty payment, and all earnings from the investment of
funds in the collection account.
"Certificateholders' distributable amount" means, for any distribution date,
the sum of the certificateholders' interest distributable amount and the
certificateholders' principal distributable amount.
"Certificateholders' interest carryover shortfall" means, for any
distribution date, the excess of the certificateholders' monthly interest
distributable amount for the preceding distribution date and any outstanding
certificateholders' interest carryover shortfall on the preceding distribution
date, over the amount in respect of interest at the pass-through rate that is
actually deposited in the certificate distribution account on such preceding
distribution date, plus interest on such excess, to the extent permitted by
law, at the pass-through rate from such preceding distribution date to but
excluding the current distribution date.
"Certificateholders' interest distributable amount" means, for any
distribution date, the sum of the certificateholders' monthly interest
distributable amount for such distribution date and the certificateholders'
interest carryover shortfall for such distribution date.
"Certificateholders' monthly interest distributable amount" means, for any
distribution date, interest accrued at the pass-through rate on:
(1) the certificate principal balance and
(2) the aggregate unreimbursed certificate principal liquidation losses on
each prior distribution date, in each case after giving effect to all
payments of principal to the certificateholders on the immediately
preceding distribution date.
"Certificateholders' monthly principal distributable amount" means, for any
distribution date prior to the distribution date on which the notes are paid in
full, zero; and with respect to any distribution date commencing on the
distribution date on which the notes are paid in full, the formula principal
distribution amount, less, on the distribution date on which the notes are paid
in full, the portion thereof payable on the notes.
"Certificate principal balance" equals, initially, approximately $ and,
after that, equals the original certificate principal balance, reduced by all
amounts allocable to principal previously distributed to certificateholders
minus any unreimbursed certificate principal liquidation losses.
"Certificateholders' principal distributable amount" means, for any
distribution date, the sum of the certificateholders' monthly principal
distributable amount for such distribution
56
<PAGE>
date and the certificateholders' unpaid principal shortfall as of the close of
the preceding distribution date; provided, however, that the
certificateholders' principal distributable amount shall not exceed the
certificate principal balance plus any unreimbursed certificate principal
liquidation losses. In addition, on the final scheduled distribution date, the
principal required to be deposited into the certificate distribution account
shall not be less than the amount that is necessary, after giving effect to the
other amounts to be deposited in the certificate distribution account on such
distribution date and allocable to principal, to reduce to zero the certificate
principal balance plus the unreimbursed certificate principal liquidation
losses.
"Certificate principal liquidation loss" means, for any distribution date,
the amount by which the aggregate principal balance of the notes and the
certificate principal balance exceeds the pool scheduled principal balance,
after giving effect to all distributions of principal on such distribution
date.
"Certificateholders' unpaid principal shortfall" means, as of the close of
any distribution date, the excess of the certificateholders' monthly principal
distributable amount and any outstanding certificateholders' unpaid principal
shortfall from the preceding distribution date, over the amount in respect of
principal that is actually deposited in the certificate distribution account.
The "formula principal distribution amount" for any distribution date (but
subject to the last sentence of this definition) will generally be equal to the
sum of the following amounts with respect to the 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,
(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 or warranty,
(3) all partial principal prepayments applied and all principal
prepayments in full received on contracts during the related monthly
period,
(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,
(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
57
<PAGE>
(6) the amount, if any, included in the formula principal distribution
amount for the preceding distribution date by virtue of clause (5) above.
The formula principal distribution amount for the distribution date in
2029, will be the sum of the note principal balance and the certificate
principal balance.
"Liquidated contract" means any defaulted contract as to which the servicer
has determined that all amounts which it expects to recover from or on account
of such contract through the date of disposition of the real property have been
recovered; provided that any defaulted contract in respect of which the real
property has been realized upon and disposed of and proceeds of such
disposition have been received shall be deemed to be a liquidated contract.
"Noteholders' distributable amount" means, for any distribution date, the sum
of the noteholders' interest distributable amount and the noteholders'
principal distributable amount.
"Noteholders' interest carryover shortfall" means, for any distribution date,
the excess of the noteholders' monthly interest distributable amount for the
preceding distribution date and any outstanding noteholders' interest carryover
shortfall on such preceding distribution date, over the amount in respect of
interest that is actually deposited in the note distribution account on the
preceding distribution date, plus interest on the amount of interest due but
not paid to noteholders on the preceding distribution date, to the extent
permitted by law, at the respective interest rate for each class of notes for
the applicable monthly interest period.
"Noteholders' interest distributable amount" means, for any distribution
date, the sum of the noteholders' monthly interest distributable amount for
such distribution date and the noteholders' interest carryover shortfall for
the distribution date.
"Noteholders' monthly interest distributable amount" means, for any
distribution date, interest accrued for the monthly interest period on each
class of notes at the respective interest rate for such class on:
(1) the outstanding principal balance of the notes of such class and
(2) the aggregate unreimbursed principal liquidation losses of the class
on each prior distribution date, in each case after giving effect to
all payments of principal to the noteholders of the class on the
immediately preceding distribution date.
"Noteholders' monthly principal distributable amount" means, for any
distribution date, the noteholders' percentage of the formula principal
distribution amount plus the aggregate unreimbursed principal liquidation
losses of each class of notes.
"Noteholders' percentage" means, 100% until and including the distribution
date on which the aggregate principal balance of the notes are paid in full and
0% thereafter.
"Noteholder's principal distributable amount" means, for any distribution
date, the sum of the noteholders' monthly principal distributable amount for
the distribution date and the noteholders' unpaid principal shortfall as of the
close of the preceding distribution date;
58
<PAGE>
provided, however, that the noteholders' principal distributable amount shall
not exceed the outstanding principal balance of the notes, and provided
further, that the noteholders' principal distributable amount on the final
scheduled distribution date shall not be less than the amount that is
necessary, after giving effect to other amounts to be deposited in the note
distribution account on such distribution date and allocable to principal, to
reduce the outstanding principal balances, including all unreimbursed principal
liquidation losses, of all classes of notes to zero.
"Noteholders' unpaid principal shortfall" means, as of the close of any
distribution date, the excess of the noteholders' monthly principal
distributable amount and any outstanding noteholders' unpaid principal
shortfall from the preceding distribution date over the amount in respect of
principal that is actually deposited in the note distribution account on such
distribution date.
"Principal balance" means, with respect to any determination date and any
class of notes, the original principal balance of a class minus all amounts
previously distributed in respect of principal of the class and minus any
unreimbursed principal liquidation losses of such class.
"Purchased contract" means a contract that:
. we have become obligated to repurchase (or, under specified
circumstances, has elected to repurchase) as a result of an uncured
breach by us of a representation or warranty made by us for that
contract or
. the servicer has become obligated to repurchase, or, under specific
circumstances, has elected to repurchase, as a result of an uncured
breach of the covenants made by it with respect to such contract.
"Principal liquidation loss" means, for any distribution date and any class
of notes, the amount by which the aggregate principal balance of the class and
each junior class and the certificate principal balance, after giving effect to
any principal liquidation losses imposed on such junior classes and
certificates, exceeds the pool scheduled principal balance, after giving effect
to all distributions of principal on such distribution date.
59
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The Information contained in this prospectus supplement is not complete and +
+may be changed. We may not sell these securities until the registration +
+statement filed with the Securities and Exchange Commission is effective. +
+This prospectus supplement is not an offer to sell these securities, and it +
+is not soliciting an offer to buy these securities in any state where the +
+offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
[Conseco Logo]
PROSPECTUS SUPPLEMENT
(Prospectus Supplement to All Assets--Base)
(To Prospectus dated , 2000)
$ (Approximate)
Conseco Finance Corp.
Servicer
Conseco Finance Securitizations Corp.
Seller
Conseco Finance Recreational Enthusiast Consumer Trust 2000-
-----------
The securities will consist of classes, of which are offered under
this prospectus supplement.
<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..........
Class A-2
Notes..........
Class A-3
Notes..........
Class A-4
Notes..........
Class A-5
Notes..........
Class A-6
Notes..........
Class A-7
Notes..........
Class B-1
Certificates...
</TABLE>
The approximate principal amount of the classes of securities listed above
may vary plus or minus 5%. The price to public will be the percentage total in
the table above plus any accrued interest beginning on , 2000.
Consider carefully the risk factors beginning on page S-9 in this prospectus
supplement.
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 , 2000.
The underwriters named below will offer classes of notes listed in the
table above to the public at the offering price listed on this cover page and
they will receive the discount listed above. [There is currently no
underwriting arrangement for the other class of offered notes.] See
"Underwriting" on page S-49 in this prospectus supplement and "Plan of
Distribution" on page 54 in the prospectus.
-----------
[Underwriters]
The date of this prospectus supplement is , 2000.
<PAGE>
TABLE OF CONTENTS
Prospectus Supplement
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary of the Terms of the Offered Securities........................... S-4
Risk Factors............................................................. S-10
The Trust................................................................ S-14
The Trust Property....................................................... S-15
The Contract Pool........................................................ S-16
Conseco Finance Corp..................................................... S-22
Yield and Prepayment Considerations...................................... S-25
Description of the Notes................................................. S-31
Description of the Certificates.......................................... S-39
Description of the Trust Documents and Indenture......................... S-42
Federal and State Income Tax Consequences................................ S-46
ERISA Considerations..................................................... S-47
Underwriting............................................................. S-50
Legal Matters............................................................ S-52
Annex I.................................................................. A-1
Prospectus
Important Notice about Information Presented in this Prospectus and the
Prospectus Supplement................................................... 2
The Trusts............................................................... 3
The Contracts............................................................ 4
Conseco Finance Corp..................................................... 5
Conseco Finance Securitizations Corp..................................... 7
Yield and Prepayment Considerations...................................... 7
Pool Factor.............................................................. 8
Use of Proceeds.......................................................... 9
The Certificates......................................................... 9
The Notes................................................................ 10
Information Regarding the Securities..................................... 17
Description of the Trust Documents....................................... 21
Legal Aspects of the Contracts........................................... 34
Federal Income Tax Consequences.......................................... 39
State Income Tax Considerations.......................................... 52
ERISA Considerations..................................................... 53
Plan of Distribution..................................................... 54
Legal Matters............................................................ 55
Experts.................................................................. 55
</TABLE>
You should rely only on the information contained in this prospectus
supplement and prospectus. Conseco Finance and Conseco Securitizations 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. Conseco Finance and Conseco Securitizations 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 Conseco Finance, about its
recreational consumer lending business, and about any series of asset-backed
securities secured by a pool of recreational, equipment and consumer loans that
we may wish to sell. This prospectus
S-2
<PAGE>
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 prospectus in
an electronic format, and if the legal prospectus delivery period has not
expired, you may obtain a paper copy of this prospectus supplement and
prospectus from Conseco Finance, Conseco Securitizations or an underwriter by
asking for it.
No prospectus regarding these securities has been or will be prepared in the
United Kingdom pursuant to the United Kingdom Public Offers of Securities
Regulation 1995. These securities may not be offered or sold, or re-offered or
re-sold, to persons in the United Kingdom, except (1) to persons whose ordinary
activities involve them in acquiring, holding, managing and disposing of
investments (as principal or agent) for the purpose of their businesses, or (2)
in circumstances that will not constitute or result in an offer to the public
in the United Kingdom within the meaning of the United Kingdom Public Offers of
Securities Regulation 1995. You may not pass this prospectus supplement and
prospectus, or any other document inviting applications or offers to purchase
securities or offering securities for purchase, to any person in the United
Kingdom who (1) does not fall within article 11 (3) of the Financial Services
Act 1986 (Investment Advisements) (Exemptions) Order 1996 or (2) is not
otherwise a person to whom passing this prospectus supplement and prospectus
would be lawful.
S-3
<PAGE>
SUMMARY OF THE TERMS OF THE 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
accompanying 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 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 and equipment.
<TABLE>
<CAPTION>
Interest Approximate S&P Fitch
Class Rate Principal Amount Rating Rating
----- -------- ---------------- ------ ------
<S> <C> <C> <C> <C>
Class A-1 Notes........................
Class A-2 Notes........................
Class A-3 Notes........................
Class A-4 Notes........................
Class A-5 Notes........................
Class A-6 Notes........................
Class A-7 Notes........................
Class B-1 Certificates.................
Class B-2 Certificates.................
Class C Certificates...................
</TABLE>
Conseco Securitizations 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 addresses the likelihood of
timely receipt of interest and ultimate receipt of principal. The rating of
each class of securities by 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.
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........................
Conseco Finance Securitizations Corp.
Servicer...................... Conseco Finance Corp.
S-4
<PAGE>
Indenture Trustee.............
[Indenture Trustee], 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................. [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 on 15, 2000.
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
Certificates.................. The trust will issue the certificates pursuant
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 the following order of priority:
(1) Interest on the Class A-1, Class A-2,
Class A-3, Class A-4 and Class A-5
notes, which we refer to as the senior
notes;
(2) An amount of principal will be due on
the senior notes, if the performance of
the contracts is far worse than we
expect, to the senior notes;
S-5
<PAGE>
(3) Interest on the Class A-6 notes;
(4) An amount of principal will be due on
the notes, if the performance of the
contracts is worse than we expect;
(5) Interest on the Class A-7 notes;
(6) An amount of principal will be due on
the notes, if the performance of the
contracts is worse than we expect;
(7) Interest on the Class B-1 certificates;
(8) An amount of principal will be due on
the notes or the Class B-1
certificates, if the performance of the
contracts is worse than we expect;
(9) A formula principal amount to be paid
on the notes or the Class B-1
certificates;
(10) Interest on the Class B-2
certificates; and
(11) The formula principal amounts 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 constitute
the amount available for any distribution date.
Class B-2 Limited Guaranty....
Conseco Finance 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.
Initial The sum of the aggregate cut-off date principal
Overcollateralization......... balance of the contracts included in the trust
as of the closing date plus the amount on
deposit in the pre-funding account on the
closing date will exceed the aggregate
principal balance of the securities on the
closing date by approximately $ , which
represents approximately 1.5% of the aggregate
cut-off date principal balance of the contracts
included in
S-6
<PAGE>
the trust as of the closing date plus the
amount on deposit in the pre-funding account on
the closing date.
Repurchase Option............. After the aggregate principal balance of the
contracts is less than 10% of their aggregate
principal balance at the time Conseco
Securitizations transferred them to the trust,
Conseco Finance 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.
Purchase Option; Auction
Sale; Additional Principal Beginning on the remittance date when the pool
Distributions................. scheduled principal balance of the contracts is
less than 20% of cut-off date pool principal
balance of the contracts, the holder of the
Class C certificates will have the right to
repurchase all of the outstanding contracts, at
a price sufficient to pay the aggregate unpaid
principal balance of the certificates plus all
accrued and unpaid interest.
If the holder of the Class C certificates does
not exercise this purchase option, then on the
next remittance date the trustee will begin an
auction process to sell the contracts and the
other trust assets, but the trustee cannot sell
the trust assets and liquidate the trust unless
the proceeds of that sale are sufficient to pay
the aggregate unpaid principal balance of the
notes plus all accrued and unpaid interest. If
the first auction of the trust property is not
successful because the highest bid received was
too low, then the trustee will conduct an
auction of the contracts every third month
after that, unless and until an acceptable bid
is received for the trust property.
If the first auction of the trust property is
not successful because the highest bid received
was too low, then on each remittance date after
that the Class B-1 and Class B-2 certificates
will be entitled to receive, pro rata based on
the then outstanding principal balance of those
classes of certificates, an additional
principal distribution amount equal to the
S-7
<PAGE>
remaining amount available after paying all
interest and principal then due on the
certificates and payment of the monthly
servicing fee. See "Description of the Trust
Documents and Indenture--Purchase Option;
Auction Sale; Additional Principal Distribution
Amount."
The Contracts................. The contracts are retail installment sales
contracts and promissory notes for the purchase
of a variety of consumer products and
equipment. Conseco Finance and Conseco
Securitizations provide more information about
the contracts and the products they financed in
"The Contract Pool."
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 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 "Federal Income Tax
Consequences" in this prospectus supplement and
"Federal Income Tax Consequences" and "State
Income Tax Consequences" in the prospectus.
Pre-Funding Account........... If the aggregate principal balance of the
contracts that Conseco Securitizations
transfers to the trust on the closing date is
less than $ , the indenture trustee will
deposit that difference in a pre-funding
account, and the trust will use those funds to
purchase contracts from time to time until
, 2000. If those funds are not completely
used by , 2000, the remaining funds will be
distributed as principal on the Class A-1 notes
on the 2000 distribution date.
Money Market Eligibility...... The Class A-1 notes will have a final maturity
of , 200 . The Class A-1 notes will be
eligible securities for purchase by money
market funds under
S-8
<PAGE>
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....................
Conseco Finance will provide to the holders of
the securities of each series 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 "Information Regarding the
Securities--Statements to Securityholders."
S-9
<PAGE>
RISK FACTORS
You should consider the following risk factors in deciding whether to
purchase the securities.
The more subordinate classes of securities have a greater risk of loss from
delinquency and defaults on the contracts.
Conseco Inc. is exploring the sale of Conseco Finance Corp.
On March 31, 2000, Conseco Inc. announced that it plans to explore the
possible sale of Conseco Finance Corp. No assurance can be provided as to the
timing or the terms of any such sale, including whether Conseco Finance would
be sold in its entirety to a single purchaser or whether Conseco Finance would
be divided along asset lines and sold to a number of different purchasers.
Moreover, no assurance can be given that any agreement will actually be reached
for a sale of all or any part of Conseco Finance if a purchaser is not found.
Although the transaction that is the subject of this prospectus supplement is
structured as a sale of contracts by Conseco Finance, Conseco Finance, as
seller, will retain a number of significant obligations, including the
obligation to deliver subsequent contracts and the obligation to repurchase any
contract for breaches of any of the related representations and warranties. In
addition, Conseco Finance acts as servicer of the contracts, and disruptions or
delays in collections could occur if a replacement servicer is appointed.
Conseco Finance may not be able to originate and deliver all of the subsequent
contracts.
This prospectus supplement describes the pool of initial contracts, which
have a principal balance as of the cut-off date of approximately
$257,322,602.31. Conseco Finance will transfer additional contracts to Conseco
Securitizations, which will then transfer them to the trust, on the closing
date. If the total amount of contracts delivered to the trust on the closing
date is less than $280,000,000, the amount of that difference will be deposited
in the pre-funding account and Conseco Finance will be obligated to deliver
subsequent contracts with a principal balance equal to that amount, and meeting
the criteria specified in the pooling and servicing agreement, on or before
August 14, 2000. We cannot assure you that Conseco Finance will be able to
originate enough subsequent contracts. See "Conseco Inc. is exploring the sale
of Conseco Finance Corp." above. Any funds remaining in the pre-funding account
on August 14, 2000 will be distributed as an additional payment of principal on
the Class A-1 notes on the August 2000 distribution date. If the amount
remaining in the pre-funding account is greater than the remaining principal
balance of the Class A-1 notes, any additional amounts shall be distributed as
an additional payment of principal on the Class A-2, Class A-3, Class M-1,
Class M-2 and Class B notes sequentially until each class is retired.
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,
S-10
<PAGE>
any significant assets or sources of funds other than the contracts and, for
payment of losses absorbed by the Class B-2 certificates, the limited guaranty
of Conseco Finance.
The Class A-6 and Class A-7 notes and the certificates are subordinated.
Distributions of interest and principal on the Class A-6 and Class A-7 notes
will be subordinated to the rights of the holders of the senior 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 A-6 and Class A-7 notes and the certificates might not receive timely
distributions of interest and principal, or may not receive all the amounts due
then.
Conseco Finance has limited delinquency, loan loss and repossession experience.
Conseco Finance 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 Conseco Finance has calculated and
presented its delinquency and net loss experience for its servicing portfolio
of consumer contracts, you must not assume that the information presented will
reflect actual experience for the contracts owned by the trust. In addition,
you must not assume that the future delinquency, loan loss or repossession
experience of the trust for the contracts will be better or worse than those
described for our servicing portfolio. See "The Contract Pool--Delinquency,
Loan Loss and Repossession Information." 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.
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.
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 % and % of the
initial contracts, based on principal balance and billing address of the
obligor were located in and , 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
S-11
<PAGE>
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 Conseco Finance originated each contract, it required the customer
to grant Conseco Finance a security interest in the financed product. When
Conseco Finance assigns a pool of contracts to Conseco Securitizations, it
will also assign its security interests in the financed products. Because
of the administrative burden and expense, the documents reflecting the
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
Conseco Finance 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.
Conseco Finance 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. Conseco Finance will file UCC financing statements
reflecting the assignment of the contracts to the trustee, and its accounting
records and computer systems will also reflect that assignment. Conseco Finance
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 trustee. 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 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 which means you may have
trouble selling them when you want to.
We cannot assure to 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.
S-12
<PAGE>
If Conseco Finance becomes insolvent, you may suffer delays or reductions in
distributions on your securities.
Conseco Finance intends that each transfer of contracts to the related trust
will constitute a sale, rather than a pledge of the contracts to secure our
indebtedness. However, if Conseco Finance were to become a debtor under the
federal bankruptcy code, it is possible that its creditors, a bankruptcy
trustee or Conseco Finance as debtor-in-possession, may argue its the sale of
the contracts 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 Conseco Finance 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 certificates could experience a
delay or reduction in distributions.
Other rating agencies could provide unsolicited ratings on the certificates
that could be lower than the requested ratings.
Although Conseco Finance has not requested a rating of the securities from
any rating agencies other than S&P and Fitch, other rating agencies may rate
the certificates. 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. There is a risk that a lower rating of your
securities from another rating agency could reduce the market value on
liquidity of your securities.
S-13
<PAGE>
We have defined terms in the "Glossary" section at the back of the prospectus.
THE TRUST
The following information supplements the information in the prospectus. You
should consider, in addition to the information below, the information under
"The Trusts" in the prospectus.
General
Conseco Finance Recreational Enthusiast Consumer Trust 2000- 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; and
(4) engaging in other activities that are necessary, suitable or convenient
to accomplish the above or are incidental or connected to those
activities.
The trust will initially be capitalized with equity of approximately
$ from the sale of the certificates. The Class B-2 certificates will
be sold to Conseco Finance or its affiliate and the Class B-1 certificates will
be sold to third party investors that is not affiliated with Conseco Finance or
its affiliates. The equity of the trust, together with the proceeds of the
initial sale of the notes, will be used by the trust to purchase the contracts
from Conseco Securitizations under the sale and servicing agreement among
Conseco Securitizations, Conseco Finance and the trust.
The trust's principal offices are in [City, State], at the address listed
below under""--The Owner Trustee."
Capitalization of the Trust
The following table illustrates the capitalization of the trust as of the
cutoff date, as if the issuance and sale of the notes and certificates had
taken place on that date:
<TABLE>
<S> <C>
Class A-1 notes............................................... $
Class A-2 notes...............................................
Class A-3 notes...............................................
Class A-4 notes...............................................
Class A-5 notes...............................................
Class A-6 notes...............................................
Class A-7 notes...............................................
Class B-1 certificates........................................
Class B-2 certificates........................................
Class C certificates..........................................
-----------
Total....................................................... $
===========
</TABLE>
S-14
<PAGE>
The Owner Trustee
[Owner Trustee] is the owner trustee under the trust agreement. [Owner
Trustee] is a Delaware banking corporation and its principal offices are
located at [Address]. The owner trustee will perform limited administrative
functions under the trust agreement, including making distributions from the
certificate distribution account. The owner trustee's liability in connection
with the issuance and sale of the certificates and the notes is limited solely
to the express obligations of the owner trustee described in the trust
agreement.
THE TRUST PROPERTY
The trust property will consist of:
(1) the contracts;
(2) all rights to receive payments due thereon on or after the cutoff date,
excluding certain insurance premiums, late fees and other servicing
charges;
(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; and
(6) all other rights under the trust documents.
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."
Conseco Finance, 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.
To protect the trust's ownership interest in the contracts, we will file a
UCC-1 financing statement in Minnesota and Delaware to give notice of the
trust's ownership of the contracts and the related trust property.
Under the indenture, the trust will grant a security interest in favor of the
indenture trustee in the trust property, the rights of the trust under the sale
and servicing agreement, and the collection account and note distribution
account. Any proceeds of the property will
S-15
<PAGE>
be distributed according to the trust. See "Description of the Trust Documents
and Indenture--Distributions" in this prospectus supplement.
The indenture trustee or its custodian will hold each original contract or
promissory note, as well as copies of documents and instruments relating to
that contract and evidencing the security interest securing the contract.
Payments and recoveries in respect of principal and interest on the contracts
will be paid into a separate trust account maintained at an eligible
institution, initially [Indenture Trustee], in the name of the indenture
trustee, no later than one business day after receipt. The indenture trustee
will, on the fifteenth day of each month or, if such day is not a business day,
the next succeeding business day, deposit funds from the collection account
into the note distribution account and the certificate distribution account.
Payments on deposit in the note distribution account will be applied by the
indenture trustee on each payment date to make the distributions to the
noteholders as of the immediately preceding record date and payments on deposit
in the certificate distribution account will be applied by the owner trustee on
each payment date to make the distributions to the certificateholders as of the
immediately preceding record date, all as described under "Description of the
Securities--Distributions on the Securities."
Following the transfer of the loans from Conseco Finance to Conseco
Securitizations, and then by Conseco Securitizations to the trust, Conseco
Finance's obligations are limited to:
(1) its obligations as servicer to service the contracts;
(2) representations and warranties in the sale and servicing agreement as
described under "Description of the -- " in this prospectus
supplement;
(3) indemnities and the payment of trustees' fees; and
(4) the Class B-2 limited guaranty.
Conseco Finance is obligated under the sale and servicing agreement to
repurchase any loan on the first payment date which is more than 90 days after
Conseco Finance becomes aware, or receives written notice from the indenture
trustee or the owner trustee, of any breach of any representation and warranty
in the sale and servicing agreement that materially and adversely affects the
securityholders' interest in the loan if the breach has not been cured prior to
that date. The sale and servicing agreement also provides that Conseco Finance
is obligated to repurchase loans and to indemnify the indenture trustee or the
owner trustee and the securityholders about other matters. Conseco Finance is
also obligated to pay fees of the owner trustee and indenture trustee.
THE CONTRACT POOL
General
This prospectus supplement contains information regarding a portion of the
contracts to be included in the pool as of the closing date. These initial
contracts were originated through
S-16
<PAGE>
, 1999 and will be transferred to the trust by Conseco Securitizations 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 $ . 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
$ . 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 the representations and
warranties in the sale and servicing agreement.
Conseco Finance purchased all of the contracts from dealers who regularly
originate and sell such contracts to it, or the contracts were originated by
Conseco Finance directly.
Certain Other Characteristics
The initial contracts:
(1) had a remaining maturity, as of the cutoff date, of at least
months, but not more than months,
(2) had an original maturity of at least five months, but not more than
months,
(3) had an original principal balance of at least $ and not more
than $ ,
(4) had a remaining principal balance as of the cutoff date of at least
$ and not more than $ and
(5) had a contractual rate of interest of at least % and not more than
%.
Neither Conseco Securitizations nor Conseco Finance 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... % $ % $ % %
Motorcycles.............
Keyboard Instruments....
Marine Products.........
Horsetrailers...........
Sport Vehicles..........
Trucks..................
---- --- ------------ ---- ---------- --- --- ----- ---
Total.................. 100% $ 100% $ % %
==== === ============ ==== ========== === === ===== ===
</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-17
<PAGE>
Geographic Concentration of Initial Contracts
<TABLE>
<CAPTION>
% of
Aggregate 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................. % $ %
Alaska..................
Arizona.................
Arkansas................
California..............
Colorado................
Connecticut.............
Delaware................
District of Columbia....
Florida.................
Georgia.................
Hawaii..................
Idaho...................
Illinois................
Indiana.................
Iowa....................
Kansas..................
Kentucky................
Louisiana...............
Maine...................
Maryland................
Massachusetts...........
Michigan................
Minnesota...............
Mississippi.............
Missouri................
Montana.................
Nebraska................
Nevada..................
New Hampshire...........
New Jersey..............
New Mexico..............
New York................
North Carolina..........
North Dakota............
Ohio....................
Oklahoma................
Oregon..................
Pennsylvania............
Rhode Island............
South Carolina..........
South Dakota............
Tennessee...............
Texas...................
Utah....................
Vermont.................
Virginia................
Washington..............
West Virginia...........
Wisconsin...............
Wyoming.................
----- ------ -------------- ------
Total................. 100.00% $ 100.00%
===== ====== ============== ======
</TABLE>
The state concentrations described in this table are based on the billing
address of the obligor listed in Conseco Finance's records.
S-18
<PAGE>
Distribution of 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........... $ %
Between $10,000 and
$19,999....................
Between $20,000 and
$29,999....................
Between $30,000 and
$39,999....................
Between $40,000 and
$49,999....................
Between $50,000 and
$59,999....................
Between $60,000 and
$69,999....................
Between $70,000 and
$79,999....................
Between $80,000 and
$89,999....................
Between $90,000 and
$99,999....................
Between $100,000 and
$109,999...................
Between $110,000 and
$119,000...................
Between $120,000 and
$129,999...................
Between $130,000 and
$139,999...................
Between $140,000 and
$149,999...................
Between $150,000 and
$159,999...................
Between $160,000 and
$169,999...................
Between $170,000 and
$179,999...................
Between $180,000 and
$189,999...................
Between $190,000 and
$199,999...................
Between $200,000 and
$249,999...................
Between $250,000 and
$299,999...................
Between $300,000 and
$349,999...................
Between $350,000 and
$399,999...................
Between $400,000 and
$449,999...................
Between $450,000 and
$499,999...................
Between $500,000 and
$549,999...................
Between $550,000 and
$599,999...................
Between $600,000 and
$649,999...................
Between $650,000 and
$699,999...................
Between $700,000 and
$749,999...................
Between $750,000 and
$799,999...................
Between $800,000 and
$849,999...................
Between $850,000 and
$899,999...................
Between $900,000 and
$949,999...................
Between $950,000 and
$999,999...................
Over $999,999...............
----- ------------- ------
Total..................... $ 100.00%
===== ============= ======
</TABLE>
S-19
<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>
1986................... $ %
1987...................
1988...................
1989...................
1990...................
1991...................
1992...................
1993...................
1994...................
1995...................
1996...................
1997...................
1998...................
----- ------------ ------
Total................ $ 100.00%
===== ============ ======
Distribution of 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%...........
From 61 to 65%..........
From 66 to 70%..........
From 71 to 75%..........
From 76 to 80%..........
From 81 to 85%..........
From 86 to 90%..........
From 91 to 95%..........
Over 95%................
----- ------------ ------
Total................. $ 100.00%
===== ============ ======
</TABLE>
S-20
<PAGE>
Initial Contract Rates
<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 7.001%.......... $ %
7.001% to 8.000%.........
8.001% to 9.000%.........
9.001% to 10.000%........
10.001% to 11.000%........
11.001% to 12.000%........
12.001% to 13.000%........
13.001% to 14.000%........
14.001% to 15.000%........
15.001% to 16.000%........
16.001% to 17.000%........
Over 17.000%..............
----- ------------ ------
Total................... $ 100.00%
===== ============ ======
Remaining Months to Maturity of Initial Contracts
<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............. $ %
31 to 60................
61 to 90................
91 to 120................
121 to 150................
151 to 180................
181 to 210................
211 to 240................
----- ------------ ------
Total................... $ 100.00%
===== ============ ======
</TABLE>
S-21
<PAGE>
CONSECO FINANCE CORP.
The following information supplements and if inconsistent supersedes, the
information in the prospectus under the heading "Conseco Finance Corp." Conseco
Finance Corp. was previously named 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
and equipment contracts it has purchased and continues to service, including
the contracts which do not meet the criteria for selection as a contract.
Conseco Finance began originating installment sales contracts for recreational
vehicles in 1985 and for motorcycles in 1988, but has less extensive
underwriting and servicing experience with other types of consumer products and
recreational products financed by the contracts. Accordingly, the delinquency,
loan loss and repossession experience presented below largely represents
experience only with recreational vehicle and motorcycle contracts. In
addition, because of the rapid growth of our portfolio of consumer product and
recreational products contracts, the experience shown in more recent periods
may not be indicative of the experience to be expected from a more seasoned
portfolio.
Delinquency Experience
<TABLE>
<CAPTION>
At December 31, At
--------------------------------------- March 31,
1994 1995 1996 1997 1998 1999
------ ------ ------- ------- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
Number of Contracts
Outstanding (1)............ 21,137 49,998 104,698 158,418
Number of Contracts
Delinquent (2)
30-59 Days................ 181 643 1,390 1,613
60-89 Days................ 50 219 494 692
90 Days or More........... 134 350 934 1,532
------ ------ ------- ------- ----- -----
Total Contracts Delinquent.. 365 1,212 2,818 3,837
====== ====== ======= ======= ===== =====
Delinquencies as a
Percentage of Contracts
Outstanding (3)............ 1.73% 2.42% 2.69% 2.42% % %
</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-22
<PAGE>
Loan Loss/Repossession Experience
(Dollars in Thousands)
<TABLE>
<CAPTION>
Three Months
Year Ended December 31, Ended
------------------------------------------------------ Marchr 31,
1994 1995 1996 1997 1998 1999
-------- -------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Number of Contracts
Serviced (1)........... 21,283 50,265 105,369 159,496
Principal Balance of
Contracts (1).......... $148,734 $506,459 $1,350,964 $2,352,141 $ $
Contract Liquidations:
Units................... 145 379 1,968 3,601
Percentage (2).......... 0.68% 0.75% 1.87% 2.26% % %
Net Losses:
Dollars (3)............. $ 884 $ 1,907 $ 9,249 $ 15,050 $ $
Percentage (4).......... 0.59% 0.38% 0.68% 0.64% % %
</TABLE>
--------
(1) As of period end. Includes contracts already in repossession.
(2) As a percentage of the total number of contracts being serviced as of
period end.
(3) The calculation of net loss includes unpaid interest to the date of
repossession and all expenses of repossession and liquidation.
(4) As a percentage of the principal balance of contracts being serviced as of
period end.
There can be no assurance that the delinquency, loan loss or repossession
experience of the trust for the contracts will be better than, worse than or
comparable to the experience described above. See "Risk Factors--Delinquency,
Loan Loss and Repossession Experience" in this prospectus supplement.
Ratio of Earnings to Fixed Charges for Conseco Finance
The table below shows our ratios of earnings (losses) to fixed charges for
the past five years and the six months ended June 30, 1999. For the purposes of
compiling these ratios, earnings (losses) consist of earnings (losses) before
both income taxes and fixed charges. Fixed charges consist of interest expense
and the interest portion of rent expense.
<TABLE>
<CAPTION>
Six
Months
Ended
Year Ended December 31, June 30,
------------------------ --------
1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings (Losses) to Fixed Charges 7.98 7.90 5.44 3.94 .62* 4.32
</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 Green Tree Financial
Corporation's merger with Conseco, Inc.
Recent Developments
On March 31, 2000, Conseco Inc. announced its plan to explore the sale of
Conseco Finance. We can give you no assurance regarding the timing, price or
other terms related to the possible sale of Conseco Finance.
Following Conseco Inc.'s March 31 announcement of its plan to explore the
sale of Conseco Finance, rating agencies lowered their ratings of the debt
obligations of Conseco
S-23
<PAGE>
Finance and placed some ratings of Conseco Finance's debt obligations on review
as the rating agencies analyze the impact of the developing events. The
uncertainty surrounding the ultimate outcome of Conseco Inc.'s plan has made it
more difficult for Conseco Finance to complete new public securitization
transactions.
Conseco Finance has been served with various lawsuits in the United States
District Court for the District of Minnesota. These lawsuits were generally
filed as purported class actions on behalf of persons or entities who purchased
common stock or options to purchase common stock of Conseco Finance during
alleged class periods that generally run from February 1995 to January 1998.
One of these lawsuits did not include class action claims. In addition to
Conseco Finance, some of Conseco Finance's 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 Conseco Finance's common stock and the other relating to an
alleged class of traders in options for Conseco Finance's common stock. In
addition to these two complaints, a separate non-class action lawsuit
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 Conseco Finance and the other
defendants violated federal securities laws by making false and misleading
statements about Conseco Finance's current state and Conseco Finance's future
prospects, particularly about prepayment assumptions and performance of some of
our loan portfolios, which allegedly rendered Conseco Finance's financial
statements false and misleading. Conseco Finance filed motions to dismiss these
lawsuits. On August 24, 1999, Conseco Finance's motions to dismiss were granted
with prejudice. The plaintiffs subsequently appealed the decision to the U.S.
Court of Appeals for the 8th Circuit, and the appeal is currently pending.
Conseco Finance believes that the lawsuits are without merit and intends to
defend the lawsuits vigorously. However, the ultimate outcome of these lawsuits
cannot be predicted with certainty.
S-24
<PAGE>
YIELD AND PREPAYMENT CONSIDERATIONS
The following information supplements the information in the prospectus under
the heading "Yield and Prepayment Considerations."
Conseco Securitizations and Conseco Finance each have the option to purchase
from the trust all remaining contracts, and thereby effect early redemption of
the notes and early retirement of the certificates, on any distribution date
when the pool scheduled principal balance is 10% or less of the cutoff date
pool principal balance. In addition, if neither we nor the servicer has
exercised such repurchase option, then on the third distribution date as of
which the pool scheduled principal balance is 10% or less of the cutoff date
pool principal balance, the indenture trustee, or the owner trustee, if the
notes have been paid in full must solicit bids for the purchase of the
contracts remaining in the trust. 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 the 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, Sport Vehicles, Keyboard Instruments
and Recreational Vehicles............................. % CPR
Marine Products........................................ %(1)
Motorcycles............................................ % CPR
Trucks................................................. % ABS
</TABLE>
--------
(1) As a percentage of the prepayment assumption for contracts secured by
marine products.
S-25
<PAGE>
The models used in this prospectus supplement are the constant prepayment
rate (CPR) and the prepayment assumption for contracts secured by marine
products.
The CPR represents an assumed constant rate of prepayment each month,
expressed as a per annum percentage of the outstanding principal balance of the
contracts secured by all products other than marine products and trucks.
The 100% prepayment assumption for contracts secured by marine products
assumes a constant prepayment of 0% per annum of the then outstanding principal
balance of such loans in the first month of the life of such loans and an
additional 1.27% precisely, 14/11% per annum in each month thereafter until the
twelfth month. Beginning in the twelfth month and in each month thereafter
during the life of such loans, the 100% prepayment assumption for contracts
secured by marine products assumes a constant prepayment rate of 14% 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, sport vehicles, keyboard instruments and
recreational vehicles have been assumed to have a prepayment rate equal to
14.4% CPR and 21.6% CPR, respectively; contracts related to marine products
have been assumed to have a prepayment rate equal to 80% and 120%,
respectively, of the prepayment assumption for contracts secured by marine
products; and contracts related to motorcycles have been assumed to have a
prepayment rate equal to 24% CPR and 36% CPR, and contracts related to trucks
have been assumed to have a prepayment rate equal to 1.12% ABS and 1.68% ABS.
NEITHER CPR NOR ABS PURPORTS TO BE AN 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 $ 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 ;
(5) no interest shortfalls will arise in connection with prepayments in
full of the contracts;
S-26
<PAGE>
(6) distributions are made on the notes and the certificates on the 15th
day of each month commencing in ; and
(7) the securities are issued on .
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.......... $ %
Marine Products.........
Motorcycles.............
Sport Vehicles..........
Keyboard Instruments....
Recreational Vehicles...
Trucks..................
------------ ----- --- ---
Total................. $ %
============ ===== === ===
</TABLE>
Based on the foregoing assumptions, the following tables indicate the
projected weighted average lives of each class of notes and the Class B-1
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-27
<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%
[Month] 15, 2000....................................
Weighted Average Life (Years).......................
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%
[Month] 15, 2000....................................
[Month] 15, 2001....................................
Weighted Average Life (Years).......................
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%
[Month] 15, 2000....................................
[Month] 15, 2001....................................
[Month] 15, 2002....................................
Weighted Average Life (Years).......................
</TABLE>
S-28
<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%
[Month] 15, 2000...................................
[Month] 15, 2001...................................
[Month] 15, 2002...................................
[Month] 15, 2003...................................
Weighted Average Life (Years)......................
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%
[Month] 15, 2000...................................
[Month] 15, 2001...................................
[Month] 15, 2002...................................
[Month] 15, 2003...................................
[Month] 15, 2004...................................
[Month] 15, 2005...................................
Weighted Average Life (Years)......................
</TABLE>
S-29
<PAGE>
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%
[Month] 15, 2000....................................
[Month] 15, 2001....................................
[Month] 15, 2002....................................
[Month] 15, 2003....................................
[Month] 15, 2004....................................
[Month] 15, 2005....................................
[Month] 15, 2006....................................
[Month] 15, 2007....................................
Weighted Average Life (Years).......................
Percentage of the Original Principal Balance of the Class A-7
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%
[Month] 15, 2000....................................
[Month] 15, 2001....................................
[Month] 15, 2002....................................
[Month] 15, 2003....................................
[Month] 15, 2004....................................
[Month] 15, 2005....................................
[Month] 15, 2006....................................
[Month] 15, 2007....................................
Weighted Average Life (Years).......................
</TABLE>
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%
[Month] 15, 2000....................................
[Month] 15, 2001....................................
[Month] 15, 2002....................................
[Month] 15, 2003....................................
[Month] 15, 2004....................................
[Month] 15, 2005....................................
[Month] 15, 2006....................................
[Month] 15, 2007....................................
Weighted Average Life (Years).......................
</TABLE>
S-30
<PAGE>
DESCRIPTION OF THE NOTES
The following information supplements and, if inconsistent supersedes, the
information in the prospectus under "The Notes," "Information Regarding the
Securities," and "Description of the Trust Documents."
General
The notes will be issued under to 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. Indenture Trustee, a national banking
association headquartered in [city, state], will be the indenture trustee.
Distributions
Noteholders will be entitled to receive distributions of interest and
principal on each distribution date commencing in , to the extent that
sufficient funds available. Distributions on the notes generally will be made
from funds available first in respect on 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 notes will accrue from
, 2000, 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 for this purpose will be the
original principal balance of that class minus all amounts previously
distributed to the noteholders of that class in respect of principal.
Interest on the Class A-1 and Class A-2 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.
Interest will be paid on the senior 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
senior notes, the funds available will be applied pro rata to each class of
senior 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.
S-31
<PAGE>
Interest will be paid on the Class A-6 notes on each distribution date, to
the extent of the remaining funds available on that distribution date after
payment of:
(1) all interest accrued on the senior notes and
(2) the first priority principal distribution amount, as described under
"--Principal" below.
In the event the remaining funds available are not sufficient to make a full
distribution of interest on the Class A-6 notes, the remaining funds available
will be applied to the payment of interest on the Class A-6 notes and the
amount of the shortfall will be added to the amount of interest payable on the
Class A-6 notes on the next distribution date. Any amount so carried forward
will bear interest at the Class A-6 interest rate, to the extent legally
permissible.
Interest will be paid on the Class A-7 notes on each distribution date, to
the extent of the remaining funds available on that distribution date after
payment of:
(1) all interest accrued on the senior notes,
(2) any first priority principal distribution amount,
(3) all interest accrued on the Class A-6 notes, and
(4) any second priority principal distribution amount, as described under
"--Principal" below.
In the event the remaining funds available are not sufficient to make a full
distribution of interest on the Class A-7 notes, the remaining funds available
will be applied to the payment of interest on the Class A-7 notes and the
amount of the shortfall will be added to the amount of interest payable on the
Class A-7 notes on the next distribution date. Any amount so carried forward
will bear interest at the Class A-7 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 total principal distribution amount, described in the second
paragraph below, for that distribution date. This amount will 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 A-7 notes have been paid
in full.
To the extent not paid in full prior to such date, the outstanding principal
amount of each class of notes will be payable on the following final scheduled
distribution date for such class:
Class A-1:
Class A-2:
S-32
<PAGE>
Class A-3:
Class A-4:
Class A-5:
Class A-6:
Class A-7:
Total Principal Distribution Amount
The total principal distribution amount for any distribution date will equal:
(1) the formula principal distribution amount for that distribution date,
plus
(2) the aggregate of all formula principal shortfalls, if any, for prior
distribution dates, plus
(3) the first priority principal distribution amount, if any (described
in the subsection below), the second priority principal distribution
amount, if any (described in the subsection below), the third priority
principal distribution amount, if any (described in the subsection below),
and the fourth priority principal distribution amount, if any (described in
the subsection below), for such distribution date, minus
(4) all amounts actually paid on the notes and certificates on prior
distribution dates in respect of a first priority principal distribution
amount, second priority principal distribution amount, third priority
principal distribution amount, or fourth priority principal distribution
amount.
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,
(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 or warranty,
(3) all partial principal prepayments applied and all principal
prepayments in full received on contracts during the related monthly
period,
(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,
S-33
<PAGE>
(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.
A monthly period for a distribution date is the calendar month immediately
preceding the month in which that distribution date occurs; provided that the
monthly period for the first distribution date is the two calendar months
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 such deficiency the formula principal shortfall for such
distribution date will be added to the total principal distribution amount for
the next distribution date.
First Priority Principal Distribution Amount
In the unlikely event that on any distribution date,
(A) the aggregate principal balance of the senior notes
is greater than
(B) the pool scheduled principal balance as of the immediately preceding
distribution date, minus the aggregate scheduled principal balance of all
defaulted contracts,
the amount of such deficiency the first priority principal distribution amount
will be payable as an additional payment of principal on the class of notes
then entitled to receive the total principal distribution amount, from funds
available for distribution on that distribution date after the payment of all
interest then payable on the senior notes but before the payment of interest
then payable on the Class A-6 notes.
The pool scheduled principal balance as of any distribution date is the
aggregate scheduled principal balance of all contracts. A defaulted contract is
any contract as to which the servicer has commenced repossession procedures or
assigned that contract to a third party for repossession or other enforcement,
but which has not become a liquidated contract.
S-34
<PAGE>
Second Priority Principal Distribution Amount
Similarly, in the event that on any distribution date,
(A) the aggregate principal balance of the senior notes, plus the
principal balance of the Class A-6 notes, minus the amount of any first
priority principal distribution amount paid on such distribution date,
is greater than
(B) the pool scheduled principal balance as of the immediately preceding
distribution date, minus the aggregate scheduled principal balance of all
defaulted contracts,
the amount of such deficiency, the second priority principal distribution
amount will be payable as an additional payment of principal on the class of
notes then entitled to receive the total principal distribution amount, from
funds available for distribution on that distribution date after the payment of
all interest then payable on the senior notes, the first priority principal
distribution amount and all interest then payable on the Class A-6 notes, but
prior to the payment of interest then payable on the Class A-7 notes.
Third Priority Principal Distribution Amount
Similarly, in the event that on any distribution date,
(A) the aggregate principal balance of the notes, minus the amount of any
first priority principal distribution amount paid on such distribution
date, and minus the amount of any second priority principal distribution
amount paid on such distribution date,
is greater than
(B) the pool scheduled principal balance as of the immediately preceding
distribution date, minus the aggregate scheduled principal balance of all
defaulted contracts,
the amount of such deficiency, the third priority principal distribution amount
will be payable as an additional payment of principal on the class of notes
then entitled to receive the total principal distribution amount, from funds
available for distribution on that distribution date after the payment of all
interest then payable on the senior notes, the first priority principal
distribution amount, all interest then payable on the Class A-6 notes, the
second priority principal distribution amount and all interest then payable on
the Class A-7 notes, but prior to the payment of interest then payable on the
Class B-1 certificates.
Fourth Priority Principal Distribution Amount
Similarly, in the event that on any distribution date,
(A) the aggregate principal balance of the notes, plus the principal
balance of the Class B-1 certificates, minus the amount of any first
priority principal distribution amount paid on that distribution date,
minus the amount of any second priority principal
S-35
<PAGE>
distribution amount paid on that distribution date, and minus the amount of
any third priority principal distribution amount paid on that distribution
date,
is greater than
(B) the pool scheduled principal balance as of the immediately preceding
distribution date, minus the aggregate scheduled principal balance of all
defaulted contracts,
the amount of such deficiency the fourth priority principal distribution amount
will be payable as an additional payment of principal on the class of
securities then entitled to receive the total principal distribution amount,
from funds available for distribution on that distribution date after the
payment of all interest then payable on the senior notes, the first priority
principal distribution amount, all interest then payable on the Class A-6
notes, the second priority principal distribution amount, all interest then
payable on the Class A-7 notes, the third priority principal distribution
amount and all interest then payable on the Class B-1 certificates, but prior
to the payment of the formula principal distribution amount.
Subordination of Class A-6 and Class A-7 Notes
Notwithstanding the events of default described in the prospectus under the
caption "The Notes--The Indenture--Events of Default; Rights Upon Event of
Default," until the senior notes have been paid in full, the failure to pay
interest due on the Class A-6 or Class A-7 notes will not be an event of
default. Upon the occurrence and during the continuation of an event of default
that has resulted in an acceleration of the notes or following an insolvency
event or dissolution with respect to the general partner, no distributions of
principal and interest on the Class A-6 or Class A-7 notes will be made until
payment in full of principal and interest on the senior notes.
Similarly, if the senior notes have been paid in full but the Class A-6 notes
have not been paid in full, the failure to pay interest due on the Class A-7
notes will not be an event of default. Upon the occurrence and during the
continuation of an event of default that has resulted in an acceleration of the
notes or following an insolvency event or dissolution with respect to the
general partner, no distributions of principal and interest on the Class A-7
notes will be made until payment in full of principal and interest on the Class
A-6 notes.
Book-Entry Registration
Holders of the notes may hold through DTC in the United States or CEDEL or
Euroclear in Europe if they are participants of these systems, or indirectly
through organizations that are participants in these systems.
Cede & Co., as nominee for DTC, will hold the notes. CEDEL and Euroclear will
hold omnibus positions in the notes on behalf of the CEDEL Participants and the
Euroclear participants, through customers' securities accounts in CEDEL's and
Euroclear's names on the books of their respective depositaries, which in turn
will hold such positions in customers' securities accounts in the depositaries'
names on the books of DTC.
S-36
<PAGE>
Transfers between DTC's participating organizations will occur in accordance
with DTC rules. Transfers between CEDEL participants and Euroclear participants
will occur in the ordinary way according to their applicable rules and
operating procedures.
Cross-market transfers between persons holding directly or indirectly through
DTC, on the one hand, and directly or indirectly through CEDEL participants or
Euroclear participants, on the other, will be effected in DTC according to DTC
rules on behalf of the relevant European international clearing system by its
depositary; however, such cross-market transactions will require delivery of
instructions to the relevant European international clearing system by the
counterparty in such system according to its rules and procedures and within
its established deadlines, European time. The relevant European international
clearing system will, if the transaction meets its settlement requirements,
deliver instructions to its depositary to take action to effect final
settlement on its behalf by delivering or receiving securities in DTC, and
making or receiving payment according to normal procedures for same-day funds
settlement applicable to DTC. CEDEL participants and Euroclear participants may
not deliver instructions directly to the depositaries.
Because of time-zone differences, credits of securities in CEDEL or Euroclear
for a transaction with a participant will be made during the subsequent
securities settlement processing, dated the business day following the DTC
settlement date, and these credits or any transactions in the securities
settled during the processing will be reported to the relevant CEDEL
participant or Euroclear participant on the business day. Cash received in
CEDEL or Euroclear for sales of securities by or through a CEDEL participant or
a Euroclear participant to a participant will be received with value on the DTC
settlement date but will be available in the relevant CEDEL or Euroclear cash
account only as of the business day following settlement in DTC.
For a description of transfers between persons holding directly or indirectly
through DTC, see "Information Regarding the Securities--Book-Entry
Registration" in the prospectus.
Cedel Bank, is incorporated under the laws of Luxembourg as a professional
depository. CEDEL holds securities for its participating organizations and
facilitates the clearance and settlement of securities transactions between
CEDEL participants through electronic book-entry changes in accounts of CEDEL
participants, thereby eliminating the need for physical movement of
certificates. Transactions may be settled in CEDEL in any of 28 currencies,
including United States dollars. CEDEL provides to its CEDEL participants,
among other things, services for safekeeping, administration, clearance and
settlement of internationally traded securities and securities lending and
borrowing. CEDEL interfaces with domestic markets in several countries. As a
professional depository, CEDEL is subject to regulation by the Luxembourg
Monetary Institute. CEDEL participants are recognized financial institutions
around the world, including underwriters, securities brokers and dealers,
banks, trust companies, clearing corporations and certain other organizations
and may include the Underwriters. Indirect access to CEDEL is also available to
others, such as banks, brokers,
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dealers and trust companies that clear through or maintain a custodial
relationship with a CEDEL Participant, either directly or indirectly.
The Euroclear System was created in 1968 to hold securities for participants
of the Euroclear System and to clear and settle transactions between Euroclear
participants through simultaneous electronic book-entry delivery against
payment, thereby eliminating the need for physical movement of certificates and
any risk from lack of simultaneous transfers of securities and cash.
Transactions may now be settled in Euroclear in any of 32 currencies, including
United States dollars. The Euroclear System includes various other services,
including securities lending and borrowing, and interfaces with domestic
markets in several countries generally similar to the arrangements for cross-
market transfers with DTC described in Annex I hereto. The Euroclear System is
operated by Morgan Guaranty Trust Company of New York, Brussels, Belgium
office, under contract with Euroclear Clearance System, S.C., a Belgian
cooperative corporation. All operations are conducted by the Euroclear
Operator, and all Euroclear securities clearance accounts and Euroclear cash
accounts are accounts with the Euroclear Operator, not the Cooperative. The
Cooperative establishes policy for the Euroclear System on behalf of Euroclear
participants. Euroclear participants include banks, including central banks,
securities brokers and dealers and other professional financial intermediaries
and may include the underwriters. Indirect access to the Euroclear System is
also available to other firms that clear through or maintain a custodial
relationship with a Euroclear participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it
is regulated and examined by the Board of Governors of the Federal Reserve
System and the New York State Banking Department, as well as the Belgian
Banking Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System and applicable Belgian
law, collectively, the terms and conditions. The terms and conditions govern
transfers of securities and cash within the Euroclear System, withdrawal of
securities and cash from the Euroclear System, and receipts of payments with
respect to securities in the Euroclear System. All securities in the Euroclear
System are held on a fungible basis without attribution of specific
certificates to specific securities clearance accounts. The Euroclear Operator
acts under the terms and conditions only on behalf of Euroclear participants
and has no record of or relationship with persons holding through Euroclear
participants.
Distributions with respect to notes held through CEDEL or Euroclear will be
credited to the cash accounts of CEDEL participants or Euroclear participants
in accordance with the relevant system's rules and procedures, to the extent
received by its depositary. Such distributions will be subject to tax reporting
in accordance with relevant United States tax laws and regulations. See
"Certain Federal Income Tax Consequences" in the prospectus and "Global
Clearance, Settlement and Tax Documentation Procedures" in Annex I to this
prospectus supplement. CEDEL or the Euroclear Operator, as the case may be,
will take any other action permitted to be taken by a noteholder under the
Indenture on behalf of a CEDEL
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participant or Euroclear participant only in accordance with its relevant rules
and procedures and subject to its depositary's ability to effect such actions
on its behalf through DTC.
Although DTC, CEDEL and Euroclear have agreed to the foregoing procedures in
order to facilitate transfers of notes among participants of DTC, CEDEL and
Euroclear, they are under no obligation to perform or continue to perform the
procedures and the procedures may be discontinued at any time.
DESCRIPTION OF THE CERTIFICATES
The following information supplements, and, if inconsistent, supersedes, the
information contained in the prospectus under "The Certificates," "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.
The following summary supplements, and to the extent inconsistent therewith
replaces, the description of the general terms and provisions of the
certificates of any given series and the related trust agreement described in
the prospectus, to which description reference is made.
Distributions
Certificateholders will be entitled to receive on each distribution date
commencing in , to the extent that funds available together with the
guaranty payment described below are sufficient therefor, distributions of
interest and principal in the manner and order of priority described below.
To the extent not paid in full prior to such date, the outstanding principal
amount of each class of certificates will be payable on the following final
scheduled distribution date for the class:
Class B-1:
Class B-2:
Class B-1 Interest
Interest on the principal balance of the Class B-1 certificates will accrue
from , 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.
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Interest will be paid on the Class B-1 certificates on each distribution date
to the extent of funds available on such distribution date, after payment of:
(1) interest on the notes,
(2) the first priority principal distribution amount,
(3) the second priority principal distribution amount and
(4) the third priority principal distribution amount.
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 payment of interest and the amount of the
shortfall will be carried forward and added to the amount of interest payable
on the next distribution date. Any amount so carried forward will bear interest
at the Class B-1 interest rate to the extent legally permissible. See
"Description of the Certificates."
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
total principal distribution amount for such distribution date, to the extent
of funds available on that distribution date after payment of interest on the
Class B-1 certificates. The total 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 , or from the most recent distribution date, to but excluding the
following distribution date, at the Class B-2 interest rate. 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 will be paid on the Class B-2 certificates on each distribution date
to the extent of funds available on such distribution date, after payment of
all interest and principal then payable 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 and the amount of the
shortfall will be carried forward and added to the amount of interest payable
on the next distribution date. Any amount so carried forward will bear interest
at the Class 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 Class B-1 certificates have been paid in full, except for any
Class B-2 principal liquidation
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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 total principal distribution amount for such distribution date, to
the extent of funds available on that distribution date after payment of
interest on the Class B-2 certificates. The total 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 total
principal distribution amount for that distribution date, less, on the
distribution date on which the Class B-1 certificates are paid in full, the
portion thereof 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.
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 will be equal to the amount available
remaining after payment of the Class B-2 distributable amount.
Optional Prepayment
If the Class C certificateholder exercises its option to purchase the
contracts when the pool scheduled principal balance declines to 20% 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 and Indenture--Purchase Option; Auction Sale; Additional Principal
Distributions" in the prospectus.
Transfers of Certificates
Certificateholders, other than individuals or entities holding certificates
through a broker who reports sales of securities on Form 1099-B, are required
under the trust agreement to notify the owner trustee of any transfer of their
certificates in a taxable sale or exchange within 30 days of such transfer.
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Overcollateralization
For any remittance date, the overcollateralization amount will be the excess
if any, of (a) the sum of the aggregate principal balance of the manufactured
housing contracts immediately following that remittance date and the amount on
deposit in the pre-funding account, if any, over (b) the aggregate principal
balances of the Class A notes and Class B certificates as of that remittance
date (after taking into account principal payments). As of the closing date,
the sum of the aggregate principal balance of the contracts as of the cut-off
date and the original pre-funded amount will exceed the aggregate original
principal balances of the certificates by an amount equal to approximately
$ , which represents approximately 1.5% of the aggregate cut-off date
principal balance of the contracts included in the trust as of the closing date
plus the amount on deposit in the pre-funding account on the closing date.
Losses on Liquidated Contracts
As described in the paragraphs above, the distribution of principal to the
securities is intended to equal the total principal distribution amount. 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 the
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 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. Securityholders would, however, be entitled to receive such
unpaid amount as part of the total principal distribution amount prior to any
payment of the monthly servicing and guaranty fee to us on any subsequent
distribution date.
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.
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Accounts
The servicer will establish and maintain one or more accounts, in the name of
the indenture trustee on behalf of the noteholders and the certificateholders,
into which all payments made on or for the contracts will be deposited, the
collection account. The servicer will establish and maintain an account, in the
name of the indenture trustee on behalf of the noteholders, in which amounts
released from the collection account for distribution to noteholders will be
deposited and from which all distributions to noteholders will be made, which
we call the note distribution account. The servicer will also establish and
maintain an account, in the name of the owner trustee on behalf of the
certificateholders, in which amounts released from the collection account for
distribution to certificateholders will be deposited and from which all
distributions to certificateholders will be made. 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 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 prior monthly period.
(3) to the note distribution account, all accrued interest on the senior
notes.
(4) to the note distribution account, the first priority principal
distribution amount.
(5) to the note distribution account, all accrued interest on the Class
A-6 notes.
(6) to the note distribution account, the second priority principal
distribution amount.
(7) to the note distribution account, all accrued interest on the Class
A-7 notes.
(8) to the note distribution account, the third priority principal
distribution amount.
(9) to the certificate distribution account, all accrued interest on the
Class B-1 certificates;
(10) to the note distribution account or, if all the notes have been paid
in full, to the certificate distribution account, the fourth priority
principal distribution amount, if any.
(11) to the note distribution account or, if all the notes have been paid
in full, to the certificate distribution account, the remaining total
principal distribution amount.
(12) to the certificate distribution account, all accrued interest on the
Class B-2 certificates.
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(13) to the certificate distribution account, the remaining total
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.
(14) any remaining amount of the monthly servicing and guaranty fee to
us.
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 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 , 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;
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(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;
(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 for
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" in this prospectus
supplement and "Reports to Securityholders" and "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 "Federal Income Tax Consequences" in this
prospectus supplement.
Purchase Option; Auction Sale; Additional Principal Distributions
Beginning on the payment date when the pool scheduled principal balance is
less than 20% of the cut-off date pool principal balance, the holder of the
Class C certificates will have the right to repurchase or arrange for the
repurchase of all outstanding contracts at a price equal to the greater of:
(1)the sum of:
(a) 100% of the scheduled principal balance of each contract, other
than any contract as to which the related equipment has been
repossessed and whose fair market value is included to clause
below as of the final remittance date, and
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(b) the fair market value of any acquired property, as determined by
the servicer; and
(2) the aggregate fair market value, as determined by the servicer of
all of the assets of the trust, plus, in each case, any unpaid
interest at the applicable interest rate on each class of
securities, as well as one month's interest at the applicable
contract rate on the scheduled principal balance of each contract.
This amount will be distributed on the distribution date occurring in the
month following the date of repurchase.
If the holder of the Class C certificates does not exercise this purchase
option on or before the following remittance date, then on the next remittance
date the indenture trustee will begin an auction process to sell the contracts
and the other trust assets at the highest possible price, but the trustee
cannot sell the trust assets and liquidate the trust unless at least two bids
are received and the highest bid would be sufficient to pay the aggregate
unpaid principal balance of the certificates plus all accrued and unpaid
interest. If the first auction of the trust property is not successful because
the highest bid received was too low, then the trustee will conduct an auction
of the contracts every third month after that, until an acceptable bid is
received for the trust property. We cannot assure you that the first auction or
any subsequent auction will be successful. The holder of the Class C
certificates may exercise its purchase option on any remittance date after the
first remittance date described above, unless the trustee has accepted a
qualifying bid for the trust property.
If the first auction of the trust property is not successful because the
highest bid received was too low, then on each remittance date after that the
securities will be entitled to receive, pro rata based on the principal balance
of those classes of securities, the "Additional Principal Distribution Amount"
for that distribution date, which will be equal to the remaining amount
available after paying all interest and principal then due on the securities
and payment of the monthly servicing fee.
Administrator
Conseco 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.
FEDERAL AND STATE INCOME TAX CONSEQUENCES
The following is a general discussion of 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
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federal and state income tax consequences, see "Federal Income Tax
Consequences--Owner Trust Series" and "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.
ERISA CONSIDERATIONS
Section 406 of the Employee Retirement Income Security Act of 1974, and
Section 4975 of the IRS 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 IRS 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 IRS 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 IRS 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 IRS 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
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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;
. 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 IRS 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
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under Section 401(a) of the IRS code and exempt from taxation under Section
501(a) of the IRS code, the prohibited transaction rules set forth in Section
503 of the IRS code.
A plan fiduciary considering the purchase of notes should consult its tax
and/or legal advisors regarding whether the assets of the trust would be
considered plan assets, the possibility of exemptive relief from the prohibited
transaction rules and other issues and their potential consequences.
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UNDERWRITING
The underwriters have agreed, subject to the terms and conditions of the
underwriting agreement, to purchase from Conseco Securitizations the respective
principal amounts of notes and Class B-1 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>
[Underwriters].................... $ $ $ $
[Underwriters]....................
[Underwriters]....................
[Underwriters]....................
---------- ---------- ---------- ----------
Totals.......................... $ $ $ $
========== ========== ========== ==========
<CAPTION>
Class A-5 Class A-6 Class A-7 Class B-1
Notes Notes Notes Certificates
---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
[Underwriters].................... $ $ $ $
[Underwriters]....................
[Underwriters]....................
[Underwriters]....................
---------- ---------- ---------- ----------
Totals.......................... $ $ $ $
========== ========== ========== ==========
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all of the securities offered in this prospectus, if any of such
offered securities are purchased.
Conseco Securitizations 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 this price 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 respective amounts listed in the table below to certain other dealers.
<TABLE>
<CAPTION>
Selling Reallowance
Class Concession Discount
----- ---------- -----------
<S> <C> <C>
A-1................................................. % %
A-2................................................. % %
A-3................................................. % %
A-4................................................. % %
A-5................................................. % %
A-6................................................. % %
A-7................................................. % %
B-1................................................. % %
</TABLE>
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
S-50
<PAGE>
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 Conseco Finance, Conseco Securitizations 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 Conseco Finance, Conseco
Securitizations 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 Conseco Finance, Conseco
Securitizations 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.
Each of the underwriters has represented, warranted and agreed that:
(1) it has not offered or sold and, prior to the expiration of the period
of six months from the closing date, will not offer or sell any notes to
persons in the United Kingdom except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments,
as principal or agent for the purposes of their businesses or otherwise in
circumstances which have not resulted and will not result in an offer to
the public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995;
(2) it has complied and will comply with all applicable provisions of the
Financial Services Act 1986 with respect to anything done by it in relation
to the notes in, from or otherwise involving the United Kingdom; and
(3) it has only issued or passed on and will only issue or pass on in the
United Kingdom any document received by it in connection with the issue of
the notes to a person who is of a kind described in Article 11(3) of the
Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order
1995 or is a person to whom such document may otherwise lawfully be issued
or passed on.
The notes have not been and will not be registered under the Securities and
Exchange Law of Japan and each of the underwriters has agreed that it will not
offer or sell any of the notes, directly or indirectly, in Japan or to, or for
the benefit of, any resident of Japan, which term means any person resident in
Japan, including any corporation or other entity organized
S-51
<PAGE>
under the laws of Japan, except under an exemption from the registration
requirements of, and otherwise in compliance with, the Securities and Exchange
Law of Japan and any other applicable laws, regulations and ministerial
guidelines of Japan.
Conseco Finance and Conseco Securitizations do not intend to apply for
listing of the offered securities on a national securities exchange, but has
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 and the underwriters will
promptly deliver, or cause to be delivered, without charge, a paper copy of the
prospectus supplement and prospectus.
LEGAL MATTERS
The legality of the notes and certificates and consequences of the federal
and Minnesota income tax matters discussed under "Federal and State Income Tax
Consequences" will be passed upon for Conseco Finance and Conseco
Securitizations by [counsel to Conseco Finance]. The validity of the notes and
certificates will be passed upon for the underwriters by Brown & Wood LLP, New
York, New York.
S-52
<PAGE>
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the notes will be available only in
book-entry form, which are called global notes. Investors in the global notes
may hold such global notes through any of DTC, CEDEL or Euroclear. The global
securities will be tradeable as home market instruments in both the European
and U.S. domestic markets. Initial settlement and all secondary trades will
settle in same-day funds.
Secondary market trading between investors holding global notes through CEDEL
and Euroclear will be conducted in the ordinary way in accordance with their
normal rules and operating procedures and according to conventional eurobond
practice for example, seven calendar day settlement.
Secondary market trading between investors holding global notes through DTC
will be conducted according to the rules and procedures applicable to U.S.
corporate debt obligations.
Secondary cross-market trading between CEDEL or Euroclear and DTC
participants holding notes will be effected on a delivery-against-payment basis
through the respective Depositaries of CEDEL and Euroclear, in such capacity
and DTC participants.
Non-U.S. holders of global notes will be subject to U.S. withholding taxes
unless the holders meet certain requirements and deliver appropriate U.S. tax
documents to the securities clearing organizations or their participants.
Initial Settlement
All global notes will be held in book-entry form by DTC in the name of Cede &
Co. as nominee of DTC. Investors' interests in the global notes will be
represented through financial institutions acting on their behalf as direct and
indirect participants in DTC. As a result, CEDEL and Euroclear will hold
positions on behalf of their participants through their respective
depositaries, which in turn will hold such positions in accounts as DTC
participants.
Investors electing to hold their global notes through DTC will follow the
settlement practices applicable to United States corporate debt obligations.
Investors securities custody accounts will be credited with their holdings
against payment in same-day funds on the settlement date.
Investors electing to hold their global notes through CEDEL or Euroclear
accounts will follow the settlement procedures applicable to conventional
eurobonds, except that there will be no temporary global security and no lock-
up or restricted period. Global notes will be credited to the securities
custody accounts on the settlement date against payments in same-day funds.
A-1
<PAGE>
Secondary Market Trading
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to be sure that settlement can be made on the desired
value date.
Trading between DTC participants. Secondary market trading between DTC
participants will be settled using the procedures applicable to book-entry
securities in same-day funds.
Trading between CEDEL and/or Euroclear participants. Secondary market trading
between CEDEL participants or Euroclear participants will be settled using the
procedures applicable to conventional eurobonds in same-day funds.
Trading between DTC seller and CEDEL or Euroclear purchaser. When global
notes are to be transferred from the account of a DTC participant to the
account of a CEDEL participant or a Euroclear participant, the purchaser will
send instructions to CEDEL or Euroclear through a CEDEL participant or
Euroclear participant at least one business day prior to settlement. CEDEL or
Euroclear, as applicable, will instruct its depositary to receive the global
notes against payment. Payment will include interest accrued on the global
notes from and including the last coupon payment date to and excluding the
settlement date. Payment will then be made by such depositary to the DTC
participant's account against delivery of the global notes. After settlement
has been completed, the global notes will be credited to the applicable
clearing system and by the clearing system, in accordance with its usual
procedures, to the CEDEL participant's or Euroclear participant's account. The
global notes credit will appear the next day European time and the cash debit
will be back-valued to, and the interest on the global notes will accrue from,
the value date, which would be the preceding day when settlement occurred in
New York. If settlement is not completed on the intended value date, for
example, the trade fails, the CEDEL or Euroclear cash debit will be valued
instead as of the actual settlement date.
CEDEL participants and Euroclear participants will need to make available to
the respective clearing systems the funds necessary to process same-day funds
settlement. The most direct means of doing so is to pre-position funds for
settlement, either from cash on hand or existing lines of credit, as they would
for any settlement occurring within CEDEL or Euroclear. Under this approach,
they may take on credit exposure to CEDEL or Euroclear until the global
securities are credited to their accounts one day later.
As an alternative, if CEDEL or Euroclear has extended a line of credit to
them, CEDEL participants or Euroclear participants can elect not to pre-
position funds and allow that credit line to be drawn upon the finance
settlement. Under this procedure, CEDEL participants or Euroclear participants
purchasing global notes would incur overdraft charges for one day, assuming
they cleared the overdraft when the global notes were credited to their
accounts. However, interest on the global notes would accrue from the value
date. Therefore, in many cases the investment income on the global notes earned
during that one-day period may
A-2
<PAGE>
substantially reduce or offset the amount of such overdraft charges, although
this result will depend on each CEDEL participant's or Euroclear participant's
particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
participants can employ their usual procedures for sending global notes to the
respective Depositary for the benefit of CEDEL participants or Euroclear
participants. The sale proceeds will be available to the DTC seller on the
settlement date. Thus, to the DTC participant a cross-market transaction will
settle no differently than a trade between two DTC participants.
Trading between CEDEL or Euroclear seller and DTC purchaser. Due to time zone
differences in their favor, CEDEL participants and Euroclear participants may
employ their customary procedures for transactions in which global notes are to
be transferred by the respective clearing systems, through their respective
depositaries, to a DTC participant. The seller will send instructions to CEDEL
or Euroclear through a CEDEL participant or Euroclear participant at least one
business day prior to settlement. In these cases, CEDEL or Euroclear will
instruct their respective depositaries, as appropriate, to deliver the notes to
the DTC participant's account against payment. Payment will include interest
accrued on the global notes from and including the last coupon payment date to
and excluding the settlement date. The payment will then be reflected in the
account of the CEDEL participant or Euroclear participant the following day,
and receipt of the cash proceeds in the CEDEL participant's or Euroclear
participant's account would be back-valued to the value date, which would be
the preceding day, when settlement occurred in New York. Should the CEDEL
participant or Euroclear participant have a line of credit with its clearing
system and elect to be in debit in anticipation of receipt of the sale proceeds
in its account, the bank-valuation will extinguish any overdraft charges
incurred over that one-day period. If settlement is not completed on the
intended value date, for example the trade fails, receipt of the cash proceeds
in the CEDEL participant's or Euroclear participant's account would instead be
valued as of the actual settlement date. Finally, day traders that use CEDEL or
Euroclear and that purchase global notes from DTC participants for delivery to
CEDEL participants or Euroclear participants should note that these trades
would automatically fail on the sale side unless affirmative action were taken.
At least three techniques should be readily available to eliminate this
potential problem:
(a) borrowing through CEDEL or Euroclear for one day, until the purchase
side of the day trade is reflected in their CEDEL or Euroclear accounts in
accordance with the clearing system's customary procedures;
(b) borrowing the global notes in the U.S. from a DTC participant no
later than one day prior to settlement, which would give the global notes
sufficient time to be reflected in their CEDEL or Euroclear account in
order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade so
that the value date for the purchase from the DTC participant is at least
one day prior to the value date for the sale to the CEDEL participant or
Euroclear participant.
A-3
<PAGE>
U.S. Federal Income Tax Documentation Requirements
A beneficial owner of global notes holding securities through CEDEL or
Euroclear, or through DTC if the holder has an address outside the U.S. will be
subject to the 30% U.S. withholding tax that generally applies to payments of
interest, including original issue discount on registered debt issued by U.S.
persons, unless
(1) each clearing system, bank or other financial institution that holds
customers' securities in the ordinary course of its trade or business in
the chain of intermediaries between such beneficial owner and the U.S.
entity required to withhold tax complies with applicable certification
requirements and
(2) such beneficial owner takes one of the following steps to obtain an
exemption or reduced tax rate:
Exemption of non-U.S. Persons (Form W-8). Beneficial owners of notes that
are non-U.S. persons generally can obtain a complete exemption from the
withholding tax by filing a signed Form W-8 Certificate of Foreign Status
and a certificate under penalties of perjury, the Tax Certificate that such
beneficial owner is,
. not a controlled foreign corporation within the meaning of Section
957(a) of the IRS code that is related, within the meaning of
Section 864(d)(4) of the code) to the trust or the Transferor and
. not a 10 percent shareholder within the meaning of Section
871(h)(3)(B) of the IRS code of the trust or the transferor. If the
information shown on Form W-8 or the Tax Certificate changes, a new
Form W-8 or Tax Certificate, as the case may be, must be filed
within 30 days of such change.
Exemption for non-U.S. person with effectively connected income (Form
4224). A non-U.S. person, including a non-U.S. corporation or bank with a
U.S. branch, for which the interest income is effectively connected with
its conduct of a trade or business in the United States can obtain an
exemption from the withholding tax by filing Form 4224, Exemption from
Withholding of Tax on Income Effectively Connected with the Conduct of a
Trade or Business in the United States.
Exemption or reduced rate for non-U.S. persons resident in treaty
countries (Form 1001).Non-U.S. persons that are beneficial owners of notes
residing in a country that has a tax treaty with the United States can
obtain an exemption or reduced tax rate, depending on the treaty terms by
filing Form 1001, Ownership, Exemption or Reduced Rate Certificate. If the
treaty provides only for a reduced rate, withholding tax will be imposed at
that rate unless the filer alternatively files Form W-8. Form 1001 may be
filed by the beneficial owner of notes or such owner's agent.
Exemption for U.S. Persons (Form W-9). U.S. persons can obtain a complete
exemption from the withholding tax by filing Form W-9 Payer's Request for
Taxpayer Identification Number and Certification.
U.S. Federal Income Tax Reporting Procedure. The beneficial owner of a
global security or, in the case of a Form 1001 or a Form 4224 filer, the
owner's agent, files by
A-4
<PAGE>
submitting the appropriate form to the person through whom it holds the
security, the clearing agency, in the case of persons holding directly on
the books of the clearing agency. Form W-8 and Form 1001 are effective for
three calendar years and Form 4224 is effective for one calendar year.
A U.S. person is:
(1) a citizen or resident of the United States,
(2) a corporation or partnership organized in or under the laws of the
United States or any political subdivision thereof, or
(3) an estate or trust the income of which is includible in gross income
for United States tax purposes, regardless of its source.
This summary does not deal with all aspects of U.S. federal income tax
withholding that may be relevant to foreign holders of the global notes. You
are advised to consult your own tax advisors for specific tax advice concerning
your holding and disposing of global notes.
A-5
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+Information contained in this prospectus is not complete and may be changed. +
+We may not sell these securities until the registration statement filed with +
+the Securities and Exchange Commission is effective. This prospectus is not +
+an offer to sell these securities, and it is not soliciting an offer to buy +
+these securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
[Conseco Logo]
PROSPECTUS (BASE PROSPECTUS--ALL ASSETS)
Conseco Finance Corp.
Servicer
Conseco Finance Securitizations Corp.
Seller
Conseco Finance Recreational Enthusiast Consumer Trusts
Asset-Backed Certificates
Asset-Backed Notes
------------
We are offering asset-backed certificates and asset-backed notes under this
prospectus and a prospectus supplement. A prospectus supplement will be
prepared separately for each series of securities offered. A prospectus
supplement may offer asset-backed certificates, or asset-backed notes, or both.
Conseco Finance Securitizations Corp. will form a trust for each series and
deposit a pool of contracts in the trust, and the trust will issue the
securities of that series. Payments of principal and interest on the securities
of any series will depend primarily on payments made on the related pool of
contracts. The securities of any series may comprise several different classes.
A trust may also issue one or more other classes of certificates or notes that
will not be offered under this prospectus.
The right of each class of securities within a series to receive payments may
be senior or subordinate to the rights of one or more of the other classes of
securities. In addition, a series of securities may include one or more classes
which on the one hand are subordinated to one or more classes of securities,
while on the other hand are senior to one or more classes of securities. The
rate of principal and interest payment on the securities of any class will
depend on the priority of payment of that class and the rate and timing of
payments on the contracts owned by that trust.
------------
The securities will represent interests in, or obligations of, the related
trust and will not represent any interest in or obligation of Conseco Finance
Corp., Conseco Finance Securitizations Corp. or any of their affiliates, except
as specified in the prospectus supplement.
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.
------------
This prospectus may not be used to consummate sales of any securities unless
accompanied by a prospectus supplement for that series.
Prospectus date is , 1999.
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS AND THE ACCOMPANYING PROSPECTUS SUPPLEMENT
We tell you about the securities in two separate documents that progressively
provide more detail: (1) this prospectus, which provides general information,
some of which may not apply to a particular series of securities, including
your series; and (2) the prospectus supplement for the particular terms of your
series of securities.
If the terms of your series of securities described in the prospectus
supplement varies from this prospectus, you should rely on the information in
your prospectus supplement.
You should rely only on the information contained in this document or
information to which we have referred you. We have not authorized anyone to
provide you with information that is different. This document may only be used
where it is legal to sell these securities.
2
<PAGE>
To understand all of the terms of the certificates, read this entire
prospectus and the accompanying prospectus supplement. We have also defined
terms in the "Glossary" section at the back of this prospectus.
THE TRUSTS
For each series of securities, Conseco Securitizations will establish a trust
under either (1) a pooling and servicing agreement among Conseco Finance as
servicer, Conseco Securitizations, as seller, and a trustee specified in the
prospectus supplement, the trustee, or (2) a trust agreement between Conseco
Finance, as depositor, and a trustee specified in the related prospectus
supplement, the owner trustee, and a related sale and servicing agreement among
Conseco Securitizations, as seller, Conseco Finance, as servicer, and the
trust. For any trust, the related pooling and servicing agreement, or the
related trust agreement and sale and servicing agreement, as applicable, are
referred to herein as the related trust documents. Before the sale and
assignment of the related contracts under 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 property
of each trust will include:
(1) a contract pool, as described in "The Contracts";
(2) all monies paid or payable thereon on or after the cutoff date;
(3) such amounts as from time to time may be held in the collection
account, including all investments in the collection account and all
income from the investment of funds and all proceeds and certain
other accounts, as described in "Description of the Trust Documents--
Collections";
(4) an assignment of our security interests in the products securing the
related contracts, as described in "The Contracts";
(5) an assignment of the right to receive proceeds from claims on some
insurance policies covering the products or obligors; and
(6) specific other rights under the related trust documents.
The trust property will also include, if so specified in the 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 Conseco Securitizations 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 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.
3
<PAGE>
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 we specify otherwise in the prospectus supplement,
Conseco Finance, 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. In order to protect the trust's ownership
interest in the contracts, we will file a UCC-1 financing statement in
Minnesota and Delaware to give notice of such trust's ownership of the related
contracts and the related trust property.
The Trustee
The trustee or owner trustee, as applicable, for each trust will be specified
in the 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 prospectus supplement and will not become effective until acceptance of the
appointment by the successor trustee.
THE CONTRACTS
Each pool of contracts in a trust will consist of retail installment sales
contracts and promissory notes to finance the purchase of products to the types
described in the next paragraph. The contracts will be originated or purchased
by us on an individual basis in the ordinary course of business. Except as we
specify otherwise in the prospectus supplement, the contracts will be fully
amortizing and will bear interest at a fixed or variable rate.
The products financed by the contracts included in a contract pool are
expected to include all the types of consumer products we are financing for
retail customers, subject to the availability of such contracts and subject to
any eligibility criteria specified in the trust documents. Currently, we
provide 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; recreational vehicles; and trucks. Any trust whose securities are
offered under 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
4
<PAGE>
the prospectus supplement. Because we have less extensive experience in
underwriting and servicing retail installment sales contracts for items such as
the products, we have no basis upon which to distinguish the expected
delinquency, default or prepayment experience of contracts secured by different
types of products.
CONSECO FINANCE CORP.
General
Conseco Finance Corp. was formerly known as Green Tree Financial Corporation.
It is a Delaware corporation that, as of December 31, 1998, had stockholders'
equity of approximately $2.2 billion. Through its various divisions, it
purchases, pools, sells and services retail conditional sales contracts for
manufactured housing and retail installment sales contracts for home
improvements, a variety of consumer products and equipment finance, and home
equity loans. Conseco Finance is the largest servicer of government-insured
manufactured housing contracts and conventional manufactured housing contracts
in the United States. Servicing functions are performed through Conseco Finance
Servicing Corp., its wholly owned subsidiary. Through its principal offices in
St. Paul, Minnesota, and service centers throughout the United States, it
serves all 50 states. It began financing FHA-insured home improvement loans in
April 1989 and conventional home improvement loans in September 1992. It also
purchases, pools and services installment sales contracts for various consumer
products. Its principal executive offices are located at 1100 Landmark Towers,
St. Paul, Minnesota 55102-1639 (telephone (651) 293-3400). Its annual report on
Form 10-K for the year ended December 31, 1998 and, when available, subsequent
quarterly and annual reports are available upon written request.
The SEC allows Conseco Finance to incorporate by reference some of the
information it files with it, which means that it can disclose important
information to you by referring you to those documents. The information that it
incorporates by reference is considered to be part of this prospectus, and
later information filed with the SEC will automatically update and supersede
this information. Conseco Finance is incorporating by reference the following
documents into this prospectus and the prospectus supplement:
. Conseco Finance Corp.'s annual report on Form 10-K for the year ended
December 31, 1998.
. Conseco Finance Corp.'s quarterly report on Form 10Q for the quarter
ended June 30, 1999.
Conseco Finance will provide you, upon your written or oral request, a copy
of any or all of the documents incorporated by reference in this prospectus,
exhibits to those documents. Please direct your requests for copies to John
Dolphin, Director of Investor Relations, 11825 Pennsylvania Street, Carmel,
Indiana 46032, telephone number (317) 817-6100.
All documents filed by the servicer, on behalf of any trust, under Section
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, after the
date of this prospectus and before the termination of the offering of the
securities issued by that trust, will be incorporated by reference into this
prospectus.
5
<PAGE>
Federal securities law requires the filing of information with the
Securities and Exchange Commission, including annual, quarterly and special
reports and other information. You can read and copy these documents at the
public reference facility maintained by the SEC at Judiciary Plaza, 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549. You can also read and copy
such reports, proxy statements and other information at the following regional
offices of the SEC:
New York Regional Office Chicago Regional Office
Seven World Trade Center Citicorp Center
Suite 1300 500 West Madison Street, Suite
New York, NY 10048 1400
Chicago, IL 60661
Please call the SEC at 1-800-SEC-0330 for more information about the public
reference rooms or visit the SEC's web site at http://www.sec.gov to access
available filings.
Purchase of Contracts
Conseco Finance arranges to purchase qualifying contracts originated by
dealers located throughout the United States. Conseco Finance's personnel
contact dealers and explain Conseco Finance's available financing plans,
terms, prevailing rates and credit and financing policies. If the dealer
wishes to utilize Conseco Finance's available customer financing, the dealer
must make an application for dealer approval.
Currently, Conseco Finance's consumer finance division finances 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; 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.
All contracts that Conseco Finance purchases are written on forms provided
or approved by Conseco Finance and are purchased on an individually approved
basis in accordance with Conseco Finance's guidelines. The dealer submits the
customer's credit application and purchase order to Conseco Finance'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. Conseco
Finance'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 other items. Generally, 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. Management may revise these guidelines
from time to time,
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and the underwriting guidelines may be exceeded in some cases with the approval
of Conseco Finance's management. Accordingly, some of the contracts included in
a trust may not conform in all respects to the criteria described above.
Conseco Finance 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 our
guidelines and the credit is approved, we purchase the contract when the
customer accepts delivery of the product.
Loss and Delinquency Information
Each prospectus supplement will include loss and delinquency experience for
our entire servicing portfolio of consumer product contracts. However, there
can be no assurance that the experience will be indicative of the performance
of the contracts included in a particular contract pool.
CONSECO FINANCE SECURITIZATIONS CORP.
Conseco Securitizations is a wholly owned subsidiary of Conseco Finance. It
was formed on September 10, 1999. Conseco Securitizations may only engage in
the business of acquiring pools of loans from Conseco Finance and transferring
those loans to trusts such as the trusts described in this prospectus, and
activities incidental or related thereto. The principal executive offices of
Conseco Securitizations are located at 300 Landmark Towers, St. Paul, Minnesota
55102-1639 and its telephone number is (651) 293-3400.
Conseco Securitizations has taken and will take steps in conducting its
business that are intended to make it unlikely that a bankruptcy of Conseco
Finance would result in the consolidation of the assets and liabilities of
Conseco Finance and Conseco Securitizations. These steps include the creation
of Conseco Securitizations as a separate, limited-purpose corporation pursuant
to a certification of incorporation containing restrictions on the permissible
business activities of Conseco Securitizations, requiring that Conseco
Securitizations have on its board of directors at least two directors who are
independent of Conseco Finance, and requiring that all business transactions or
corporate actions outside of the ordinary course of business be approved by the
independent directors.
YIELD AND PREPAYMENT CONSIDERATIONS
The remittance rates and the weighted average contract rate of the contracts
for each series of certificates are listed in the prospectus supplement.
Unless Conseco Finance specifies otherwise in the 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
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allocable to interest for the period will be less than if the payment had been
made on the due date, the portion of the payment applied to reduce the
principal balance will be correspondingly greater, and the principal balance
will be amortized more rapidly than scheduled. Conversely, if an obligor pays
an installment after its due date, the portion of the payment allocable to
interest will be greater than if the payment had been made on the due date, the
portion of the payment applied to reduce the principal balance will be
correspondingly less, and the principal balance will be amortized slower than
scheduled, in which case a larger portion of the principal balance may be due
on the final scheduled payment date. Any interest shortfalls resulting from
early payment or prepayment of a contract will be funded by collections on
other contracts or, to the extent collections are insufficient, by payments
under the applicable form of credit enhancement, if any, described in the
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 us due to breach of a representation or
warranty, or as a result of our 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 pool factor for each class of certificates will be an eight-digit decimal
which the servicer will compute indicating the principal balance for the
certificates as of each distribution date, after giving effect to all
distributions of principal made on each distribution date, as a fraction of the
original principal balance of for the certificates. The 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 for the 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 the class of notes. Each pool factor will initially be
1.00000000; after that, the pool factor will decline to reflect reductions in
the outstanding principal balance of the applicable class of certificates or
notes, as the case may be. The amount of a certificateholder's pro rata share
of the principal balance for the related class of certificates can be
determined by multiplying the original denomination of the certificateholder's
certificate by the then applicable 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 pool factor.
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For each trust, on each distribution date, the related certificateholders and
noteholders will receive periodic reports from the trustee stating the pool
factor and containing various other items of information. Unless and until
definitive certificates or definitive notes are issued, the 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 prospectus supplement. See "Information
Regarding the Securities--Statements to Securityholders."
USE OF PROCEEDS
Unless we specify otherwise in the 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 us 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 prospectus supplement. The net proceeds to be received by us
will be used to pay our warehouse loans, and any additional proceeds will be
added to our general funds and used for general corporate purposes.
THE CERTIFICATES
General
For each trust, one or more classes of certificates of a given series will be
issued under the trust documents to be entered into among Conseco
Securitizations, as seller, Conseco Finance, as servicer, and the trustee,
forms of which have been filed as exhibits to the registration statement of
which this prospectus forms a part. Where particular provisions of or terms
used in the trust documents are referred to, the actual provisions are
incorporated by reference as part of this summary.
Unless we specify otherwise in the 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 Conseco Securitizations, the depository. See "Information Regarding
the Securities--Book-Entry Registration." Unless we specify otherwise in the
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 we specify otherwise in
the prospectus supplement, the trustee will initially be designated as the
registrar for the certificates.
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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, for principal only or
interest only on the certificates of any series will be described in the
prospectus supplement. Distributions of interest on the certificates will be
made on the dates specified in the related prospectus supplement and, unless we
specify otherwise in the prospectus supplement, will be made prior to
distributions with respect to principal. A series may include one or more
classes of stripped certificates entitled to:
(1) distributions in respect of principal with disproportionate, nominal
or no interest distribution, or
(2) 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 these. The
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 we specify otherwise in the prospectus
supplement, interest on the certificates will be calculated on the basis of a
360-day year consisting of twelve 30-day months. Unless we specify otherwise in
the prospectus supplement, distributions for the certificates will be
subordinate to payments for the notes, if any, as more fully described in the
prospectus supplement. Distributions for 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 described in the prospectus supplement.
THE NOTES
General
For each series of securities, one or more classes of notes issued under 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 we specify
otherwise in the prospectus supplement, no notes will be issued as a part of
any series. The following summary is not 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 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.
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Unless we specify otherwise in the 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 we specify otherwise in the prospectus
supplement, notes will be available for purchase in denominations of $1,000 and
integral multiples of $1,000. Notes may be transferred or exchanged without the
payment of any service charge other than any tax or governmental charge payable
for such transfer or exchange. Unless we provide otherwise in the prospectus
supplement, the indenture trustee will initially be designated as the registrar
for the notes.
Principal and Interest on the Notes
The timing and priority of payment, seniority, allocations of loss, interest
rate and amount of or method of determining payments of principal and interest
on the notes will be described in the 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
prospectus supplement. A series may include one or more classes of stripped
notes entitled to:
(1) principal payments with disproportionate, nominal or no interest
payment, or
(2) 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 some classes of
notes, or any combination of these. The 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 prospectus
supplement.
Unless we specify otherwise in the prospectus supplement, payments for
interest to noteholders of all classes within a series will have the same
priority. Under some circumstances, the amount available for these payments
could be less than the amount of interest payable on the notes on any of the
dates we specify for payments in the prospectus supplement, 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 for principal and interest,
and any schedule or formula or other provisions applicable to the
determination, of each class will be described in the prospectus supplement.
Unless we specify otherwise in the 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 the class.
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The indenture
A form of indenture has been filed as an exhibit to the registration
statement of which this prospectus forms a part. Conseco Finance will provide a
copy of the applicable indenture, without exhibits, upon request to a holder of
notes issued under the indenture.
Modification of Indenture Without Noteholder Consent. Each trust and related
indenture trustee, on behalf of the trust, may, without consent of the
noteholders, enter into one or more supplemental indentures for any of the
following purposes:
(1) to correct or amplify the description of the collateral or add
additional collateral;
(2) to provide for the assumption of the note and the indenture
obligations by a permitted successor to the trust;
(3) to add additional covenants for the benefit of the applicable
noteholders;
(4) to convey, transfer, assign, mortgage or pledge any property to or
with the indenture trustee;
(5) to cure any ambiguity or correct or supplement any provision in the
indenture or in any supplemental indenture;
(6) 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;
(7) to modify, eliminate or add to the provisions of the indenture in
order to comply with the Trust Indenture Act of 1939; and
(8) 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 the indenture; provided that any action specified in this
clause (8) shall not, as evidenced by an opinion of counsel, adversely
affect in any material respect the interests of any noteholder unless
noteholder consent is otherwise obtained as described below.
Modifications of Indenture With Noteholder Consent. Each trust, with the
consent of the holders representing a majority of the principal balance of the
outstanding 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 indenture, or modify in any manner the
rights of the noteholders.
Without the consent of the holder of each outstanding note affected, no
supplemental indenture may:
(1) 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 or change the manner of
calculating any payment, any place of payment where, or the coin or
currency in which any note or any interest is payable;
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(2) impair the right to institute suit for the enforcement of certain
provisions of the indenture regarding payment;
(3) reduce the percentage of the aggregate amount of the outstanding
notes the consent of the holders of which is required for any the
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;
(4) modify or alter the provisions of the indenture regarding the voting
of notes held by the trust, any other obligor on the notes, Conseco
Securitizations, Conseco Finance or an affiliate of any of them;
(5) 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;
(6) 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 other applicable agreements; or
(7) permit the creation of any lien ranking prior to or on a parity with
the lien of the indenture for 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 of the collateral or deprive the holder of
any note of the security afforded by the lien of the indenture.
Events of Default; Rights Upon Event of Default. For each trust, unless we
specify otherwise in the prospectus supplement, events of default under the
indenture will consist of:
(1) a default for five days or more in the payment of any interest on any
note;
(2) a default in the payment of the principal of or any installment of
the principal of any note when the note becomes due and payable;
(3) a default in the observance or performance in any material way 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 under the indenture or in connection with the
indenture 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
(4) 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
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determined by amounts available to be deposited in the note distribution
account for such distribution date.
Therefore, unless we specify otherwise in the 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 the class of notes has a final
scheduled payment date, and then not until such final scheduled payment date
for the class of notes.
Unless we specify otherwise in the prospectus supplement, if an event of
default should occur and be continuing for 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 we specify otherwise in the prospectus supplement, if the notes of any
series have been declared due and payable following an event of default, 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 the
contracts and continue to apply collections on the contracts as if there had
been no declaration of acceleration. Unless we specify otherwise in the
prospectus supplement, the indenture trustee, however, will be prohibited from
selling the related contracts following an event of default, unless:
(1) the holders of all the outstanding related notes consent to such
sale;
(2) 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
(3) 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,
(1) Note owners will be entitled to ratable repayment of principal on the
basis of their respective unpaid principal balances and
(2) repayment in full of the accrued interest on and unpaid principal
balances of the notes will be made prior to any further payment of interest
or principal on the certificates.
Subject to the provisions of the indenture relating to the duties of the
indenture trustee, if an event of default occurs and is continuing with respect
to a series of notes, the indenture trustee will be under no obligation to
exercise any of the rights or powers under the indenture at the request or
direction of any of the holders of such notes, if the indenture trustee
reasonably believes it will not be adequately indemnified against the costs,
expenses and liabilities which might be incurred by it in complying with such
request. Subject to the
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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:
. that holder previously has given to the indenture trustee written
notice of a continuing event of default,
. 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,
. such holder or holders have offered the indenture trustee reasonable
indemnity,
. the indenture trustee has for 60 days failed to institute such
proceeding, and
. 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 the 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 notes, 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 Conseco Securitizations, Conseco Finance 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, Conseco
Securitizations, Conseco Finance, nor any of their respective owners,
beneficiaries, agents, officers, directors, employees, affiliates, successors
or assigns will, in the absence of an express agreement to the contrary, be
personally liable for the payment of the notes or for any agreement or covenant
of the trust contained in the indenture.
Covenants. Each indenture will provide that the trust may not consolidate
with or merge into any other entity, unless:
(1) the entity formed by or surviving such consolidation or merger is
organized under the laws of the United States or any state,
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(2) 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,
(3) no event of default shall have occurred and be continuing immediately
after the merger or consolidation,
(4) 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 the merger or
consolidation,
(5) the trustee has received an opinion of counsel stating that the
consolidation or merger would have no material adverse tax consequence to
the trust or to any related note owner or certificate owner.
Each trust may not:
(1) 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,
(2) claim any credit on or make any deduction from the principal and
interest payable on the notes, other than amounts withheld under the IRS
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,
(3) dissolve or liquidate in whole or in part,
(4) permit the validity or effectiveness of the related indenture to be
impaired or permit any person to be released from any covenants or
obligations for the related notes under the indenture except as may be
expressly permitted thereby, or
(5) 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 may incur,
assume or guarantee any indebtedness other than indebtedness incurred pursuant
to the notes and the 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
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held by the indenture trustee and any action taken by it that materially
affects the notes and that has not been previously reported. Note owners may
receive reports upon written request, together with a certification that they
are note owners and payment of reproduction and postage expenses associated
with the distribution of such reports, from the indenture trustee at the
address specified in the 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
prospectus supplement. The indenture trustee may resign at any time, and
Conseco Securitizations as the seller will be obligated to appoint a successor
trustee. We may also remove the indenture trustee if the indenture trustee
ceases to be eligible to continue under the indenture or if the indenture
trustee becomes insolvent. In such circumstances, We 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 prospectus supplement and
will not become effective until acceptance of the appointment by a successor
trustee.
INFORMATION REGARDING THE SECURITIES
Book-Entry Registration
Unless we provide otherwise in the 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 and
facilitates the clearance and settlement of securities transactions between
participants in such securities through electronic book-entry changes in
accounts of participants, 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.
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
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participants. Certificate owners and note owners will not receive or be
entitled to receive certificates representing their respective interests in the
securities, except under the limited circumstances described below and specific
other circumstances, if any, as may be specified in the 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.
For 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, 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.
For any series of securities, unless we specify otherwise in the prospectus
supplement, certificates and notes will be issued in registered form to
certificate owners and note owners or their nominees, rather than to DTC, the
certificates and notes being referred to in this prospectus as definitive
certificates and definitive notes, respectively, only if:
(1) 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,
(2) the seller or the administrator 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
(3) 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, the certificates or notes will be transferable directly,
and not exclusively on a book-
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entry basis and registered holders will deal directly with the trustee or the
indenture trustee, as the case may be, for transfers, notices and
distributions.
DTC has advised the seller that, unless and until definitive certificates or
definitive notes are issued, DTC will take any action permitted to be taken by
a certificateholder or a noteholder under the related trust documents or
indenture only at the direction of one or more participants to whose DTC
accounts the certificates or notes are credited. DTC has advised us that DTC
will take the action for any fractional interest of the certificates or the
notes only at the direction of and on behalf of the participants beneficially
owning a corresponding fractional interest of the certificates or the notes.
DTC may take actions, at the direction of the related participants, for some
certificates or notes which conflict with actions taken for 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 before each distribution date, the servicer will prepare and provide to
the trustee a statement to be delivered to the related certificateholders on
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 the distribution date. These statements will be based on
the information in the related servicer's certificate setting forth information
required under the trust documents. Unless otherwise specified in the
prospectus supplement, each statement to be delivered to certificateholders
will include the following information for the certificates on that
distribution date or the period since the previous distribution date, as
applicable, and each statement to be delivered to noteholders will include the
following information as to the notes on the distribution date or the period
since the previous distribution date:
(1) the amount of the distribution allocable to interest on or for each
class of securities;
(2) the amount of the distribution allocable to principal on or for each
class of securities;
(3) the principal balance and the pool factor for each class of
certificates and the aggregate outstanding principal balance and the pool
factor for each class of notes, after giving effect to all payments
reported under (2) above on that date;
(4) the amount of the servicing fee paid to the servicer for the related
monthly period or periods, as the case may be;
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(5) the pass-through rate or interest rate for the next period for any
class of certificates or notes with variable or adjustable rates;
(6) the amount of advances made by the servicer for the distribution
date, and the amount paid to the servicer on that distribution date as
reimbursement of advances made on previous distribution dates;
(7) the amount, if any, distributed to certificateholders and noteholders
applicable to payments under the related form of credit enhancement, if
any; and
(8) any other information as may be specified in the prospectus
supplement.
Each amount set forth under subclauses (1), (2), (4) and (6) for certificates
or notes will be expressed as a dollar amount per $1,000 of the initial
principal balance of the certificates or notes, as applicable.
Unless and until definitive certificates or definitive notes are issued, the
reports for 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 the 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 the reports, from the trustee or the indenture trustee, as
applicable. See "Reports to Securityholders" and "--Book-Entry Registration" in
this prospectus.
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
the information to their related indirect participants in accordance with
arrangements among DTC and the participants. Certificate owners and note owners
may receive the 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 the information, from the
trustee, for certificate owners, or from the indenture trustee, for note
owners, at the addresses specified in the prospectus supplement. See "Federal
Income Tax Consequences."
Lists of Securityholders
Unless we provide otherwise in the prospectus supplement, for each series of
certificates, at that 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 principal balance of the certificate 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 prospectus supplement, the trust documents will not provide
for holding any annual or other meetings of certificateholders.
Unless we provide otherwise in the prospectus supplement, for each series of
notes, if any, at that 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 about their rights under the indenture. Unless otherwise specified
in the prospectus supplement, the indenture will not provide for holding any
annual or other meetings of noteholders.
DESCRIPTION OF THE TRUST DOCUMENTS
Except as we specify otherwise in the prospectus supplement, the following
summary describes certain terms of the transfer agreement between Conseco
Finance and Conseco Securitizations, and of either the pooling and servicing
agreements or the sale and servicing agreements and the trust agreements--in
either case collectively referred to as the trust documents--pursuant to which
Conseco Securitizations will sell and assign contracts to a trust and the
servicer will agree to service those 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. We will provide a copy of the
agreements, without exhibits upon request to a holder of securities. This
summary is not 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 that summary.
Sale and Assignment of the Contracts
On the closing date, Conseco Finance will sell and assign to Conseco
Securitizations, without recourse, its entire interest in the related contracts
and the proceeds thereof, including its security interests in the related
products, and Conseco Securitizations will immediately re-transfer the
contracts and related assets to the trust. Each contract transferred by Conseco
Securitizations to the trust will be identified in a schedule appearing as an
exhibit to the trust documents. At the same time as such sale and assignment,
the trustee will execute and deliver the 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 our order.
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Except as we specify otherwise in the prospectus supplement, Conseco Finance
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 us as an additional insured
party;
(f) each contract has been originated by a dealer or us in the ordinary
course of such dealer's, or our business and, if originated by a dealer,
was purchased by us 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 us in the product covered thereby and such security
interest has been assigned by us 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 us to the trustee, We 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 the 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 the contract, and
we have not waived any of the these;
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(n) as of the closing date there were, to the best of our 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 the 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.
Our warranties 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.
Conseco Finance is obligated to repurchase for the repurchase price any
contract on the first business day after the first determination date which is
more than 90 days after Conseco Finance becomes aware, or should have become
aware, or its receipt of written notice from the trustee or the servicer, of a
breach of any representation or warranty by Conseco Finance in the trust
documents that materially adversely affects the trust's interest in any
contract if the breach has not been cured. The repurchase price for any
contract will be the remaining principal amount outstanding on the 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 for any other breach of Conseco Finance's obligations under
the trust documents.
Upon our purchase of a contract due to a breach of a representation or
warranty, the trustee will convey the contract and the related trust property
to us.
Custody of Contract Files
Unless we specify otherwise specified in the prospectus supplement, Conseco
Finance initially will be appointed to act as custodian for the contract files
of each trust. Prior to the appointment of any custodian other than Conseco
Finance, the trust and institution specified in the prospectus supplement shall
enter into a custodian agreement pursuant to which the 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 Conseco
Finance's possession. UCC financing statements will be filed in Minnesota
reflecting the sale and
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assignment of the contracts by Conseco Finance to Conseco Securitizations, and
by Conseco Securitizations to the trustee, and our accounting records and
computer systems will also reflect such sale and assignment. In addition, the
contracts that are in our possession will be stamped or otherwise marked to
indicate that the 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 the contracts in
the ordinary course of its business and took possession of the 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 "Legal Aspects of the
Contracts--Rights in the Contracts."
Collections
For 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 we so specify in the prospectus supplement, the
trustee will establish and maintain for each series an account, in the name of
the trustee on behalf of the related certificateholders, in which amounts
released from the collection account and any pre-funding account and any
amounts received from any source of credit enhancement for distribution to the
certificateholders will be deposited and from which all distributions to such
certificateholders will be made the certificate distribution account. For 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, are referred to
collectively as the designated accounts. Any other accounts to be established
with respect to a trust will be described in the 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:
(1) an account maintained with an eligible institution;
(2) 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;
(3) 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
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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
(4) 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 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 day after receipt.
Notwithstanding the foregoing and unless otherwise provided in the 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 the rating agency of the rating(s)
then assigned to the securities. We 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 are called
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
the investments will not be sold or disposed of prior to their maturity.
Unless we specify otherwise in the 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 before a distribution date will be applied first to any outstanding
monthly advances made by the servicer for that
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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 "Legal Aspects of the Contracts." The servicer
will be entitled to recover all reasonable expenses incurred by it in
connection therewith. The proceeds of such realization, net of such expenses
will be deposited in the collection account at the time and in the manner
described above under "--Collections."
The trust documents will provide that the servicer will indemnify and defend
the trustee, the indenture trustee, the trust and the securityholders against,
among other things, any and all costs, expenses, losses, damages, claims and
liabilities, including reasonable fees and expenses of counsel and expenses of
litigation, or in respect of any action taken or failed to be taken by the
servicer with respect to any portion of the trust property in violation of the
provisions of the trust documents. The servicer's obligations to indemnify the
trustee, the indenture trustee, the trust and the securityholders for the
servicer's actions or omissions will survive the removal of the servicer but
will not apply to any action or omission of a successor servicer.
Servicing Compensation
Unless we specify otherwise in the prospectus supplement, for 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 of the certificate 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 we provide
otherwise in the 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 we are 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 we are no longer the servicer, the servicing fee and any
additional
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servicing compensation will be paid out of collections on or with respect to
the contracts prior to distributions to certificateholders and noteholders.
Unless we specify otherwise in the prospectus supplement, a monthly period for
any distribution date is the calendar month immediately preceding the month in
which the distribution date occurs.
Conseco Finance, 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
For each trust, beginning on the distribution date specified in the
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 described in the prospectus supplement.
Unless we specify otherwise in the prospectus supplement, on the third
business day prior to each distribution 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 we specify otherwise in the
prospectus supplement, the amount available for any distribution date will be
equal to:
(1) the funds on deposit in the collection account at the close of
business on the last day of the related monthly period, plus
(2) any advances to be made by the servicer with respect to delinquent
payments, plus
(3) any repurchase amounts to be deposited by us for contracts to be
repurchased due to a breach of a representation or warranty, minus
(4) 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, minus
(5) any amounts incorrectly deposited in the collection account.
Unless we specify otherwise in the 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 we are is no longer the
servicer, to pay the servicing fee to the successor servicer, and second, to
reimburse the servicer, including us 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.
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Enhancement
The amounts and types of enhancement arrangements and the provider thereof,
if applicable, for each class of securities will be described in the prospectus
supplement. If and to the extent provided in the prospectus supplement,
enhancement may be in the form of a financial guaranty insurance policy, letter
of credit, we guaranty, cash reserve fund, derivative product, or other form of
enhancement, or any combination thereof, as may be described in the prospectus
supplement. If specified in the 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 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 prospectus supplement,
the enhancement for a class of securities will not provide protection against
all risks of loss and will not guarantee repayment of the entire principal and
interest thereon. If losses occur which exceed the amount covered by any
enhancement or which are not covered by any enhancement, securityholders will
bear their allocable share of deficiencies. In addition, if a form of
enhancement covers more than one class of securities of a series,
securityholders of any such class will be subject to the risk that the
enhancement will be exhausted by the claims of securityholders of other
classes.
Advances
Unless otherwise specified in the 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, (1) when
the delinquent payment is recovered by the trust, or (2) 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
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servicing has been conducted in compliance with the applicable trust documents,
except for any exceptions described in that report. A copy of the statement may
be obtained by any certificate owner or note owner upon compliance with the
requirements described above. See "Information Regarding the Securities--
Statements to Securityholders" above.
Matters Regarding the Servicer
Unless we provide otherwise in the prospectus supplement, our appointment as
servicer under the trust documents will continue until such time as we resign
or are terminated, or until such time, if any, as a servicer termination event
shall have occurred under the trust documents. The 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 the 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 trust documents.
Unless otherwise provided in the prospectus supplement, any corporation or
other entity into which the servicer may be merged or consolidated, resulting
from any merger or consolidation to which the servicer is a party, which
acquires by conveyance, transfer or lease substantially all of the assets of
the servicer or succeeds to all or substantially all the business of the
servicer, where the servicer is not the surviving entity, which corporation or
other entity assumes every obligation of the servicer under each trust
document, will be the successor to the servicer under the related trust
documents; provided, that:
(1) such entity is an eligible servicer, and
(2) 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 we specify otherwise in the 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.
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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.
Servicer Termination Events
Except as we specify otherwise in the prospectus supplement, servicer
termination events under the trust documents will include:
(1) 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;
(2) 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;
(3) 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;
(4) certain events of insolvency, readjustment of debt, marshalling of
assets and liabilities or similar proceedings regarding the servicer; and
(5) the servicer is no longer an eligible servicer, as defined in the
trust documents. Notice shall mean notice to the servicer by the trustee,
the indenture trustee, if any, or us, or notice to us, the servicer, the
indenture trustee, if any, and the trustee by the holders of securities
representing interests aggregating not less than 25% of the outstanding
principal balance of the securities issued by the trust.
Unless we specify otherwise in the prospectus supplement, if a servicer
termination event occurs and is continuing, the trustee, the indenture trustee,
or the holders of at least 25% in aggregate principal balance of the
outstanding securities issued by the 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 the notice, and, in
the case of a successor servicer other than the trustee, the acceptance by the
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 prospectus supplement, the
backup servicer, will be the successor in all respects to the servicer and will
be subject to all the responsibilities,
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restrictions, duties and liabilities of the servicer under the trust documents;
provided, however, that the successor servicer shall have no liability 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 the termination, the servicer
shall be entitled to payment of amounts payable to it prior to the termination,
for services rendered prior to the termination. No termination will affect in
any manner Conseco Finance's obligation to repurchase 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
to act, it may appoint, or petition to a court of competent jurisdiction for
the appointment of a servicer. Pending the appointment, the trustee is
obligated to act in the capacity. The trustee and the 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
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 we provide otherwise in the prospectus supplement, the trust documents
may be amended by us, 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, provided that the action
will not, in the opinion of counsel, which may be our internal counsel or the
servicer reasonably satisfactory to the trustee and the indenture trustee,
materially and adversely affect the interests of the securityholders. The trust
documents may also be amended by us, the servicer and the trustee and the
indenture trustee, and a certificate majority and a note majority, if
applicable, for the purpose of adding any provisions to or changing or
eliminating any of the provisions of the trust documents or of modifying the
rights of the certificateholders or the noteholders. No amendment may, (1)
increase or reduce 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 interest
rate, or (2) 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 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:
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(1) 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
(2) 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 we provide otherwise in the prospectus supplement, for each series of
securities, in order to avoid excessive administrative expense, we 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 pool schedule principal balance is equal to or less than 10%,
or other percentage as may be specified in the 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 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 prospectus supplement, unless we specify
otherwise in the 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 the series agree in writing to the
continuation of the business of the trust and to the appointment of a successor
to the former general partner, and the owner trustee is able to obtain an
opinion of counsel to the effect that the trust will not thereafter be an
association, or publicly traded partnership, taxable as a corporation for
federal income tax purposes.
Unless we specify otherwise in the prospectus supplement, for each series of
securities, the trustee will give written notice of the final distribution for
the certificates to each certificateholder of record and the indenture trustee
will give written notice of the final payment for 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 the holder's certificate or note at the office or agency of the
trustee, for certificates, or of the indenture trustee, for 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 the 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 for the funds.
The Trustee
The trustee or owner trustee, as applicable, for each trust will be specified
in the 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
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consent of the servicer, shall have the power to appoint co-trustees or
separate trustees of all or any part of the trust. In the event of the
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 the separate trustee or co-trustee jointly, or, in any
jurisdiction where the trustee is incompetent or unqualified to perform certain
acts, singly upon the separate trustee or co-trustee who shall exercise and
perform the 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 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
prospectus supplement, or, if no 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 those circumstances, the general
partner, if any, specified in the related prospectus supplement or, if no
general partner is specified, the servicer will be obligated to appoint a
successor trustee. Any resignation or removal of the trustee and appointment of
a successor trustee will not become effective until acceptance of the
appointment by the successor trustee.
Duties of the Trustee
The trustee will make no representation as to the validity or sufficiency of
any trust document, the certificates or the notes, other than its execution of
the certificates and the notes, the contracts or any related documents, and
will not be accountable for the use or application by the servicer of any funds
paid to the servicer in respect of the certificates, the notes or the contracts
prior to deposit in the related collection account.
The trustee will be required to perform only those duties specifically
required of it under the trust documents. Generally, those duties will be
limited to the receipt of the various certificates, reports or other
instruments required to be furnished by the servicer to the trustee under the
trust documents, in which case it will only be required to examine the
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 the
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 for the trust documents,
unless the 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 the proceeding in its own name as
trustee and have
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offered to the trustee reasonable indemnity, and the trustee for 30 days after
the receipt of the notice, request and offer to indemnify has neglected or
refused to institute any proceedings.
Administrator
If an administrator is specified in the prospectus supplement, the
administrator will enter into an agreement, the administration agreement,
pursuant to which such administrator will agree, to the extent provided in the
administration agreement, to provide the notices and to perform other
administrative obligations required by the related indenture and the trust
agreement.
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 Conseco
Securitizations 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. Conseco Finance will warrant in the trust documents
for the contracts held by the related trust and the trustee will pledge the
right to enforce the warranty to the indenture trustee as collateral for the
notes, if any, that, as of the closing date, the contracts have not been sold,
pledged or assigned by it to any other person, and that it has good and
indefeasible title and is the sole owner free of any liens and that,
immediately upon the transfer of the contracts to the 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 the warranties in the trust documents that materially
and adversely affects the related trust's, certificateholders' or noteholders'
interest in any contract, a repurchase event, we will be obligated to
repurchase the contract.
Unless we provide otherwise in the prospectus supplement, Conseco Finance
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 our possession. UCC financing
statements will be filed in Minnesota reflecting the sale and assignment of the
contracts to the trustee, and our accounting records and computer systems will
also reflect the sale and assignment. In addition, the contracts will be
stamped or otherwise marked to indicate that the 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 the
security interest in any of the contracts in the ordinary course of its
business and took possession of the contracts, the purchaser, or secured party
would acquire an interest in
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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 the trust's interest. See "Description of
the Trust Documents--Custody of Contract Files."
Security Interests in the Products
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 us 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 we have advanced the purchase price of the goods.
It is our practice to take 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, actions may not
have been taken for a product and the 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 we did not file a UCC financing statement
because its security interest was perfected as a purchase money security
interest in consumer goods;
(1) such security interest may be deemed not to be perfected if the
product were ultimately determined not to be consumer goods, and
(2) a subsequent purchaser of the product may acquire the product free of
our security interest.
The events would, however, give rise to a repurchase event and obligate us to
repurchase the affected contract if the interests of the related
certificateholders, noteholders or trust were materially and adversely
affected.
Under the related trust document, we 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 Conseco Securitizations, Conseco Finance or the trustee 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, we 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 on the certificate of title or the UCC financing statement
should be sufficient to protect the related trust against the rights of
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subsequent purchasers of a product or subsequent lenders who take a security
interest in the related product. However, in the absence of an amendment, the
security interest of the related trust in the related products might be
defeated by, among others, the trustee in our bankruptcy or the obligor.
However, failure would give rise to a repurchase event and obligate us 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 the 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 our practice to effect the 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, we must surrender
possession of the certificate of title or receive notice as a result of its
lien noted thereon and accordingly should have an opportunity to require
satisfaction of the related contract before release of the lien.
Under the laws of most states, liens for repairs performed on a product and
liens for unpaid taxes take priority over even a perfected security interest in
a product. Conseco Finance will represent, in the related trust document that,
immediately prior to the sale, assignment and transfer to the related trust,
each contract held by such trust was secured by a valid, subsisting and
enforceable first priority perfected security interest in its favor, 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 that a lien or confiscation
arises, and if the lien arises or confiscation occurs after the date of
issuance of any series of certificates and notes, neither we nor the servicer
will be required to repurchase or purchase the related contract.
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
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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 the means
would constitute a breach of the peace. Self-help repossession is the method
employed by us in most cases and is accomplished simply by taking possession of
the product. In the event of default by the obligor, some jurisdictions require
that the obligor be notified of the default and be given a time period within
which the obligor may cure the default prior to repossession. In cases where
the obligor objects or raises a defense to repossession, or if otherwise
required by applicable state law, a court order must be obtained from the
appropriate state court, and the product must then be repossessed in accordance
with that order. If a breach of the peace cannot be avoided, judicial action is
required. A secured party may be held responsible for damages caused by a
wrongful repossession of a product, including a wrongful repossession conducted
by an agent of the secured party. In many states, a product may be repossessed
without notice to the obligor, but only if the repossession can be accomplished
without a breach of the peace.
Notice of Sale; Redemption Rights
The UCC and various other state laws require a secured party who has
repossessed the collateral securing an obligation to provide an obligor with
reasonable notice of the date, time and place of any public sale and/or the
date after which any private sale of the collateral may be held. The obligor
has the right to redeem the collateral prior to actual sale by paying the
secured party the entire unpaid time balance of the obligation, less any
unaccrued finance charges plus accrued default charges, reasonable expenses for
repossessing, holding and preparing the collateral for disposition and
arranging for its sale, plus, to the extent provided in the financing
documents, reasonable attorneys' fees, or in some states, by payment of
delinquent installments or the unpaid principal balance of the related
obligation.
Deficiency Judgments and Excess Proceeds
The proceeds of resale of products generally will be applied first to the
expenses of repossession and resale and then to the satisfaction of the related
contract. While some states impose prohibitions or limitations on deficiency
judgments if the net proceeds from resale do not cover the full amount of the
indebtedness, a deficiency judgment can be sought in other states that do not
prohibit or limit such judgments, subject to satisfaction of statutory
procedural requirements by the holder of the obligation. However, any
deficiency judgment would be a personal judgment against the obligor for the
shortfall, and a defaulting obligor can be expected to have very little capital
or sources of income available following repossession. 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. We 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 for the product, if proper
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notification of demand for proceeds is received prior to distribution, or, if
no 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 those 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 the 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 the court determines the
obligation of the 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 that
obligation will not be liable for performance.
Consumer Protection Laws
Numerous Federal and state consumer protection laws and related regulations
impose substantive and disclosure requirements upon lenders and servicers
involved in consumer finance. Some of the Federal laws and regulations include
the Truth-in-Lending Act, the Equal Credit Opportunity Act, the Federal Trade
Commission Act, the Fair Credit Reporting Act, the Fair Debt Collection
Practices Act, the Magnuson-Moss Warranty Act, and the Federal Reserve Board's
Regulations B and Z.
In addition to Federal law, state consumer protection statutes regulate,
among other things, the terms and conditions of retail installment contracts
and promissory notes pursuant to which purchasers finance the acquisition of
consumer products. These laws place finance charge ceilings on the amount that
a creditor may charge in connection with financing the purchase of a consumer
product. These laws also impose other restrictions on consumer transactions and
require contract disclosures in addition to those required under federal law.
These requirements impose specific statutory liabilities upon creditors who
fail to comply. In some cases, this liability could affect the ability of an
assignee, such as the related trust, to enforce consumer finance contracts such
as the contracts. The credit practices rule of the 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
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event of a successful claim is limited to amounts paid by the purchaser under
the consumer credit contract. 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, that the purchaser of the related product may assert against the
seller of the 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.
We 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 the
trust's interest in a contract were materially and adversely affected by a
violation of any law, the violation would constitute a repurchase event and
would obligate us to repurchase the contract unless the breach were cured. See
"Description of the Trust Documents--Sale and Assignment of the Contracts."
Other Limitations
In addition to the laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including federal bankruptcy laws and
related state laws, may interfere with or affect the ability of a lender to
realize upon collateral or enforce a deficiency judgment. For example, in a
proceeding under Chapter 13 of the U.S. Bankruptcy Code of 1978, as amended, a
court may prevent a lender from repossessing collateral, and, as part of the
rehabilitation plan, reduce the amount of the secured indebtedness to the
market value of the collateral at the time of bankruptcy, as determined by the
court, leaving the party providing financing as a general unsecured creditor
for the remainder of the indebtedness. A bankruptcy court may also reduce the
monthly payments due under a contract, change the rate of interest and time of
repayment of the indebtedness or substitute collateral securing the
indebtedness.
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, 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 for the federal, state, local, and any other tax consequences of the
purchase, ownership, and disposition of the securities.
[Counsel for Conseco Finance], our counsel, has delivered an opinion
regarding federal income tax matters discussed below. Counsel to the seller
identified in the prospectus supplement will deliver an opinion regarding tax
matters applicable to each series of
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securities. The opinion, however, is not binding on the IRS or the courts. The
opinion of counsel will specifically address only those issues specifically
identified below as being covered by the opinion; however, the opinion of
counsel also will state that the additional discussion set forth below
accurately describes counsel's advice for material tax issues. No ruling on any
of the issues discussed below will be sought from the IRS.
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 that 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 that series will be treated as a partnership or as a grantor
trust. The following discussion deals first with series for which the trust has
been structured as an owner trust treated as a partnership, and then with
series for which the trust has been structured as a grantor trust.
Owner Trust Series
Tax Status of the Trust
For 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, 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 the 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 some publicly traded partnerships are taxable as corporations. There
are no cases or IRS 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 IRS 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 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.
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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 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 the OID in income, on a pro rata basis, as
principal payments are made on the note.
While it is not anticipated that the notes will be issued with more than de
minimis OID, it is possible that they will be so issued or will be deemed to be
issued with OID. This deemed OID could arise, for example, if interest payments
on the notes are not deemed to be qualified stated interest because the notes
do not provide for default remedies ordinarily available to holders of debt
instruments or do not contain terms and conditions that make the likelihood of
late payment or nonpayment a remote contingency. Based upon existing authority,
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 for the notes in advance of
the receipt of cash attributable to that 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
IRS code. In general, these rules provide that if a noteholder purchases the
note at a market discount, for example, a discount from its original issue
price plus any accrued original issue discount that exceeds a de minimis amount
specified in the IRS code, and thereafter recognizes gain upon a disposition,
the lesser of the gain or 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 the payments does not exceed the accrued market
discount. Generally, the accrued market
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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 IRS.
Limitations imposed by the IRS 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 the noteholder makes such an
election, is exempt from this rule. The adjusted basis of a note subject to the
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 election to include market discount in gross income as it
accrues shall apply to all debt instruments held by the noteholder at the
beginning of the first taxable year to which the election applies or thereafter
acquired and is irrevocable without the consent of the IRS.
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), the noteholder will be considered to have purchased the note with
amortizable bond premium equal to the amount of the excess. The noteholder may
elect to deduct the amortizable bond premium as it accrues under a constant-
yield method over the remaining term of the note. The noteholder's tax basis in
the note will be reduced by the amount of the amortizable bond premium
deducted. Amortizable bond premium for a note will be treated as an offset to
interest income on that note, and a noteholder's deduction for amortizable bond
premium that a note will be limited in each year to the amount of interest
income derived for that Note for that 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 IRS. 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 that noteholder in income for the note and
decreased by principal payments previously received by that noteholder and the
amount of bond premium previously amortized for the note. Any 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
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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 will be exempt from the 30% withholding tax. The
noteholder will be entitled to receive interest payments on the notes free of
United States federal income tax provided that the 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 the
noteholder is not a United States person and providing the name and address of
that noteholder and will not be subject to federal income tax on gain from the
disposition of a note unless the noteholder is an individual who is present in
the United States for 183 days or more during the taxable year in which the
disposition takes place and some other requirements are met.
Tax Administration and Reporting. The indenture trustee will furnish to each
noteholder with each distribution a statement showing the amount of the
distribution allocable to principal and to interest. Reports will be made
annually to the IRS and to holders of record that are not excepted from the
reporting requirements regarding the information as may be required for the
interest and original issue discount, 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 their social security number or other taxpayer
identification number to the indenture trustee. Backup withholding may apply,
under some 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 some 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 for a note.
On October 6, 1997, the treasury department issued new regulations which make
some 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 some transition
rules. You are urged to consult your own tax advisors regarding the new
regulations.
Possible Alternative Treatment of the Notes. If, contrary to the opinion of
counsel, the IRS 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
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because it would meet some qualifying income tests. Nonetheless, treatment of
the notes as equity interests in that type of partnership could have adverse
tax consequences to some holders. For example, income to foreign holders
generally would be subject to federal tax and federal tax return filing and
withholding requirements, income to some tax-exempt entities would be unrelated
business taxable income, and individual holders might be subject to some
limitations on their ability to deduct their share of trust expenses.
Tax Consequences to Certificateholders
Treatment of the Trust as a Partnership. We, the general partner and the
owner trustee will agree, and the certificateholders will agree by their
purchase of certificates, to treat the trust as a partnership for purposes of
federal and state income tax, franchise tax and any other tax measured in whole
or in part by income, with the assets of the partnership being the assets held
by the trust, the partners of the partnership being the certificateholders and
the general partner, and the notes being debt of the partnership. The proper
characterization of the arrangement involving the trust, the certificates, the
notes, the general partner, Green Tree and the servicer, however, is not
certain because there is no authority on transactions closely comparable to
that contemplated herein.
A variety of alternative characterizations are possible. For example, because
the certificates have certain features characteristic of debt, the certificates
might be considered debt of the trust. This 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 as
discussed in the following paragraphs. 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. Each certificateholder will be required to separately take
into account the 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 for 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 IRS 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:
(1) the interest that accrues on the certificates according to their terms
for that month, including interest accruing at the pass-through rate
for that month and interest on amounts previously due on the
certificates but not yet distributed;
(2) 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;
(3) prepayment premium payable to the certificateholders for that month;
and
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(4) any other amounts of income payable to the certificateholders for that
month.
Although it is not anticipated that the certificates will be issued at a price
which exceeds their principal amount, allocations of trust income to the
certificateholders will be reduced by any amortization by the trust of premium
on contracts that corresponds to any 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
IRS would not require a greater amount of income to be allocated to
certificateholders. Even under this method of allocation, certificateholders
may be allocated income equal to the entire pass-through rate plus the other
items described above even though the trust might not have sufficient cash to
make current cash distributions of that amount. 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 these 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 the holder under the IRS 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 the expenses under
Section 212 of the IRS code only to the extent that, in the aggregate and
combined with specific other itemized deductions, they exceed 2% of the
adjusted gross income of the certificateholder. In addition, Section 68 of the
IRS code provides that the amount of itemized deductions, including those
provided for in Section 212 of the IRS code otherwise allowable for the taxable
year for an individual whose adjusted gross income exceeds a threshold amount
determined under the IRS code ($121,000 in 1997, in the case of a joint return)
will be reduced by the lesser of:
(1) 3% of the excess of adjusted gross income over the specified
threshold amount; or
(2) 80% of the amount of itemized deductions otherwise allowable for the
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 that income. Certificateholders may deduct any loss on disposition of the
contracts to the extent permitted under the IRS code.
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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 premium against interest income on the contracts or to include any
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 this premium deduction or market discount income
may be allocated to certificateholders.
Distributions to Certificateholders. Certificateholders generally will not
recognize gain or loss for distributions from the trust. A certificateholder
will recognize gain, to the extent that any money distributed exceeds the
certificateholder's adjusted basis in its certificates as described below under
"Disposition of Certificates" immediately before the distribution. A
certificateholder will recognize loss upon termination of the trust or
termination of the certificateholder's interest in the trust if the trust only
distributes money to the certificateholder and the amount distributed is less
than the certificateholder's adjusted basis in the certificates. This 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 IRS 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 a termination occurs, the trust
will be considered to have contributed the assets of the trust the old
partnership to a new partnership in exchange for interests in the new
partnership. The interests would be deemed distributed to the partners of the
old partnership in liquidation, 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 the 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 these
certificates, and, upon sale or other disposition of some of these
certificates, allocate a portion of the 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
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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 special reporting requirements. 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 in the paragraphs above over the life of the certificates that
exceeds the aggregate cash distributions, the excess generally will give rise
to a capital loss upon the retirement of the certificates.
Allocations Between Transferors and Transferees. In general, the trust's
taxable income and losses will be determined monthly, and the tax items for a
particular calendar month will be apportioned among the certificateholders in
proportion to the principal amount of certificates owned by them as of the
close of the related record date. As a result, a certificateholder purchasing a
certificate may be allocated tax items, which will affect the
certificateholder's tax liability and tax basis attributable to periods before
the certificateholder actually owns the certificate. The use of this 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 IRS 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 that 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. Under an 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. The 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 IRS 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 IRS on Schedule K-1. The trust will provide the
Schedule K-1 information to nominees that fail to provide the trust with
specific required information statements relating to identification of
beneficial owners of certificates and the nominees will be required to forward
the information to the 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 IRS
of any inconsistencies.
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We or our subsidiaries as identified in the prospectus supplement will be
designated as the tax matters partner in the trust agreement and, will be
responsible for representing the certificateholders in any dispute with the
IRS. The IRS 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 specific circumstances, a certificateholder
may be precluded from separately litigating a proposed adjustment to the items
of the trust. An adjustment could also result in an audit of a
certificateholder's returns and adjustments of items not related to the income
and losses of the trust.
Tax Consequences to Foreign Certificateholders. It is not clear whether the
trust will be considered to be engaged in a trade or business in the United
States for purposes of federal withholding taxes for non-U.S. persons because
there is no clear authority dealing with that issue under facts substantially
similar to those described in this prospectus. Although it is not expected that
the trust will be engaged in a trade or business in the United States for those
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 under Section 1446 of the IRS code,
as if the 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 IRS 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 IRS a claim for refund for the 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 IRS may assert that
additional taxes are due, and no assurance can be given as to the appropriate
amount of tax liability.
Backup Withholding. Under specific circumstances, a certificateholder may be
subject to backup withholding at a 31% rate. See the discussion above under
"Tax Consequences to Noteholders--Backup Withholding."
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Grantor Trust Series
Tax Status of the Trust
For the series of securities which includes only certificates, unless we
specify otherwise in the 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 we are considered to
retain an interest in the contracts, as discussed below. While a retained
interest might be viewed as a second class of beneficial interest in the trust
and Treasury Regulations Section 301.7701-4(c) generally provides that an
investment trust with more than one class of ownership interest will be
classified as an association taxable as a corporation or a partnership, that
regulation would treat the trust as a grantor trust because there will be no
power under the pooling and servicing agreement to vary the investment of the
certificateholders, the purpose of the trust will be to facilitate direct
investment in the contracts, and the existence of multiple classes of ownership
interests in the trust will be incidental to that purpose.
Tax Consequences to Certificateholders
Because the trust will be classified as a grantor trust, each
certificateholder, including any holder of a subordinated certificate will, in
the opinion of counsel, be treated for federal income tax purposes as the owner
of an undivided interest in the contracts and other trust property.
Accordingly, subject to the discussion below of certain limitations on
deductions and the stripped bond rules of the IRS 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 the 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. 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 IRS code described
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below. If the contracts are subject to the stripped bond rules of the IRS 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:
(1) received as distributions their full share of such receipts;
(2) paid over to the senior certificateholders an amount equal to the
shortfall amount; and
(3) retained the right to reimbursement of those amounts to the extent
available from future collections on the contracts.
Under this analysis, (a) subordinated certificateholders would be required to
accrue as current income any interest or OID income of the trust that was a
component of the shortfall amount, even though the 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
the shortfall amount became worthless, and (c) reimbursement of the shortfall
amount prior to a claim of worthlessness would not be taxable income to
subordinated certificateholders because the 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.
The character and timing of loss deductions is unclear.
Under current IRS interpretations of applicable treasury regulations, we
would be able to sell or otherwise dispose of any subordinated certificates.
Accordingly, we may offer subordinated certificates for sale to investors.
Stripped Certificates. Some classes of certificates may be subject to the
stripped bond rules of Section 1286 of the IRS 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:
(1) if any servicing compensation is deemed to exceed a reasonable
amount;
(2) 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
(3) 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
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issue discount. Original issue discount for a stripped certificate, 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 the accrual of income may be in advance of the
receipt of any cash attributable to the 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 IRS 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 for the stripped certificate whether or not
denominated as interest. The amount of original issue discount for 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 (1) the amount of
original issue discount for the certificate was treated as zero under the
original issue discount de minimis rule when the certificate was stripped; or
(2) 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 the 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 IRS may take a contrary position for some or all of
the foregoing tax consequences. For example, a holder of a stripped certificate
may be treated as the owner of:
(1) as many stripped bonds or stripped coupons as there are scheduled
payments of principal and/or interest on each contract, or
(2) a separate installment obligation for each contract representing the
stripped certificate's pro rata share of principal and/or interest payments
to be made.
In addition, if a trust issues more than one class of certificates with
different pass-through rates, a holder of the certificate may be treated as the
owner of a stripped bond with a rate equal to the lowest pass-through rate and
a stripped coupon representing the excess of the pass-through rate on that
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, provided for a series of certificates may be questioned by the IRS
for some certificates or contracts as exceeding a reasonable fee for the
services being performed in exchange therefor, and a portion of the 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 under
the contracts. In this event, a certificate might be treated as a
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<PAGE>
stripped certificate subject to the stripped bond rules of Section 1286 of the
IRS 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 showing the amount of the distribution allocable to principal and to
interest. In addition, the trustee will furnish, within a reasonable time after
the end of each calendar year, to each certificateholder who was a
certificateholder at any time during that year, information regarding the
amount of servicing compensation received by the servicer and the other factual
information as we deem necessary to enable certificateholders to prepare their
tax returns. Reports will be made annually to the IRS and to holders of record
that are not excepted from the reporting requirements regarding information as
may be required for the interest and original issue discount for the
certificates.
Backup Withholding
Under some 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."
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, 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 this tax
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solely because of their ownership of the notes. Noteholders already subject to
income or franchise taxation in Minnesota could, however, be required to pay
that 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
would not be subject to Minnesota taxation. Certificateholders that are not
otherwise subject to Minnesota income or franchise taxation would not become
subject to this 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 this 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. Under 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 this 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 this 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 the 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 that 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 for 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, and
Section 4975 of the IRS code prohibit a pension, profit sharing or other
employee benefit plan, the benefit plan from engaging in some transactions
involving plan assets with persons that are parties in interest under ERISA or
disqualified persons under the IRS code for the benefit plan. ERISA also
imposes some duties and some prohibitions on persons who are fiduciaries of
plans subject to ERISA. Under ERISA, generally any person who exercises any
authority
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or control for the management or disposition of the assets of a benefit plan is
considered to be a fiduciary of the plan. A violation of these prohibited
transaction rules may generate excise tax and other liabilities under ERISA and
the IRS code for those persons.
Some transactions involving the related trust might be deemed to constitute
prohibited transactions under ERISA and the IRS code for 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 IRS code only
if the benefit plan acquired an equity interest in the trust and none of the
exceptions contained in the plan assets regulation was applicable. An equity
interest is defined under the plan assets regulation as an interest other than
an instrument which is treated as indebtedness under applicable local law and
which has no substantial equity features. The likely treatment of notes and
certificates will be discussed in the related prospectus supplement.
Employee benefit plans that are governmental plans, as defined in Section
3(32) of ERISA and some 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 described in an underwriting agreement for each
trust, we will agree to sell to each of the underwriters named and in the
prospectus supplement, and each of the underwriters will severally agree to
purchase from the seller, the principal amount of each class of securities of
the related series described and in the prospectus supplement.
In each underwriting agreement, the several underwriters will agree, subject
to the terms and conditions set forth, to purchase all the securities described
which are offered and by the prospectus supplement of the securities are
purchased. In the event of a default by any underwriter, each underwriting
agreement will provide that, in some circumstances, purchase commitments of the
nondefaulting underwriters may be increased, or the underwriting agreement may
be terminated.
Each prospectus supplement will either:
(1) set forth the price at which each class of securities being offered
will be offered to the public and any concessions that may be offered to
some dealers participating in the offering of the securities; or
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<PAGE>
(2) 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 the sale.
After the initial public offering of any securities, the public offering price
and the concessions may be changed.
Each underwriting agreement will provide that we will indemnify the
underwriters against some liabilities, including liabilities under the
Securities Act.
The indenture trustee 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 will be conditioned on the closing of the sale of all other classes.
The place and time of delivery for the securities for which this prospectus
is delivered will be described in the related prospectus supplement.
LEGAL MATTERS
Some matters relating to validity of the certificates and the notes will be
passed upon by our counsel as identified in the prospectus supplement. The
validity of the certificates and the notes will be passed upon for the
underwriters named in the prospectus supplement by the counsel for the
underwriters identified in the prospectus supplement.
EXPERTS
The consolidated financial statements of Conseco Finance as of December 31,
1998 and for the year ended December 31, 1998 are incorporated by reference in
this prospectus in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given upon their authority as experts in accounting
and auditing.
The consolidated financial statements of Conseco Finance, formerly known as
Green Tree Financial Corporation, as of December 31, 1997 and for each of the
years in the two-year period ended December 31, 1997 incorporated by reference
in this prospectus and in the registration statement in reliance upon the
report of KPMG LLP, independent certified public accountants, incorporated by
reference in this prospectus, and upon the authority of KPMG LLP as experts in
accounting and auditing.
55
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GLOSSARY
For the purposes of this prospectus and the prospectus supplement, the
following terms will have the following meanings:
"Amount available" with respect to any distribution date, means generally the
sum of payments on the contracts due and received during the preceding month,
prepayments and other unscheduled collections received during the preceding
month, any amounts deposited in respect of purchased contracts, any interest
rate cap payment, any guaranty payment, and all earnings from the investment of
funds in the collection account.
"Certificateholders' distributable amount" means, for any distribution date,
the sum of the certificateholders' interest distributable amount and the
certificateholders' principal distributable amount.
"Certificateholders' interest carryover shortfall" means, for any
distribution date, the excess of the certificateholders' monthly interest
distributable amount for the preceding distribution date and any outstanding
certificateholders' interest carryover shortfall on the preceding distribution
date, over the amount in respect of interest at the pass-through rate that is
actually deposited in the certificate distribution account on such preceding
distribution date, plus interest on such excess, to the extent permitted by
law, at the pass-through rate from such preceding distribution date to but
excluding the current distribution date.
"Certificateholders' interest distributable amount" means, for any
distribution date, the sum of the certificateholders' monthly interest
distributable amount for such distribution date and the certificateholders'
interest carryover shortfall for such distribution date.
"Certificateholders' monthly interest distributable amount" means, for any
distribution date, interest accrued at the pass-through rate on:
(1) the certificate principal balance and
(2) the aggregate unreimbursed certificate principal liquidation losses on
each prior distribution date, in each case after giving effect to all
payments of principal to the certificateholders on the immediately
preceding distribution date.
"Certificateholders' monthly principal distributable amount" means, for any
distribution date prior to the distribution date on which the notes are paid in
full, zero; and with respect to any distribution date commencing on the
distribution date on which the notes are paid in full, the formula principal
distribution amount, less, on the distribution date on which the notes are paid
in full, the portion thereof payable on the notes.
"Certificate principal balance" equals, initially, approximately $ and,
after that, equals the original certificate principal balance, reduced by all
amounts allocable to principal previously distributed to certificateholders
minus any unreimbursed certificate principal liquidation losses.
"Certificateholders' principal distributable amount" means, for any
distribution date, the sum of the certificateholders' monthly principal
distributable amount for such distribution
56
<PAGE>
date and the certificateholders' unpaid principal shortfall as of the close of
the preceding distribution date; provided, however, that the
certificateholders' principal distributable amount shall not exceed the
certificate principal balance plus any unreimbursed certificate principal
liquidation losses. In addition, on the final scheduled distribution date, the
principal required to be deposited into the certificate distribution account
shall not be less than the amount that is necessary, after giving effect to the
other amounts to be deposited in the certificate distribution account on such
distribution date and allocable to principal, to reduce to zero the certificate
principal balance plus the unreimbursed certificate principal liquidation
losses.
"Certificate principal liquidation loss" means, for any distribution date,
the amount by which the aggregate principal balance of the notes and the
certificate principal balance exceeds the pool scheduled principal balance,
after giving effect to all distributions of principal on such distribution
date.
"Certificateholders' unpaid principal shortfall" means, as of the close of
any distribution date, the excess of the certificateholders' monthly principal
distributable amount and any outstanding certificateholders' unpaid principal
shortfall from the preceding distribution date, over the amount in respect of
principal that is actually deposited in the certificate distribution account.
The "formula principal distribution amount" for any distribution date (but
subject to the last sentence of this definition) will generally be equal to the
sum of the following amounts with respect to the 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,
(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 or warranty,
(3) all partial principal prepayments applied and all principal
prepayments in full received on contracts during the related monthly
period,
(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,
(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
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(6) the amount, if any, included in the formula principal distribution
amount for the preceding distribution date by virtue of clause (5) above.
The formula principal distribution amount for the distribution date in
2029, will be the sum of the note principal balance and the certificate
principal balance.
"Liquidated contract" means any defaulted contract as to which the servicer
has determined that all amounts which it expects to recover from or on account
of such contract through the date of disposition of the real property have been
recovered; provided that any defaulted contract in respect of which the real
property has been realized upon and disposed of and proceeds of such
disposition have been received shall be deemed to be a liquidated contract.
"Noteholders' distributable amount" means, for any distribution date, the sum
of the noteholders' interest distributable amount and the noteholders'
principal distributable amount.
"Noteholders' interest carryover shortfall" means, for any distribution date,
the excess of the noteholders' monthly interest distributable amount for the
preceding distribution date and any outstanding noteholders' interest carryover
shortfall on such preceding distribution date, over the amount in respect of
interest that is actually deposited in the note distribution account on the
preceding distribution date, plus interest on the amount of interest due but
not paid to noteholders on the preceding distribution date, to the extent
permitted by law, at the respective interest rate for each class of notes for
the applicable monthly interest period.
"Noteholders' interest distributable amount" means, for any distribution
date, the sum of the noteholders' monthly interest distributable amount for
such distribution date and the noteholders' interest carryover shortfall for
the distribution date.
"Noteholders' monthly interest distributable amount" means, for any
distribution date, interest accrued for the monthly interest period on each
class of notes at the respective interest rate for such class on:
(1) the outstanding principal balance of the notes of such class and
(2) the aggregate unreimbursed principal liquidation losses of the class
on each prior distribution date, in each case after giving effect to
all payments of principal to the noteholders of the class on the
immediately preceding distribution date.
"Noteholders' monthly principal distributable amount" means, for any
distribution date, the noteholders' percentage of the formula principal
distribution amount plus the aggregate unreimbursed principal liquidation
losses of each class of notes.
"Noteholders' percentage" means, 100% until and including the distribution
date on which the aggregate principal balance of the notes are paid in full and
0% thereafter.
"Noteholder's principal distributable amount" means, for any distribution
date, the sum of the noteholders' monthly principal distributable amount for
the distribution date and the noteholders' unpaid principal shortfall as of the
close of the preceding distribution date;
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provided, however, that the noteholders' principal distributable amount shall
not exceed the outstanding principal balance of the notes, and provided
further, that the noteholders' principal distributable amount on the final
scheduled distribution date shall not be less than the amount that is
necessary, after giving effect to other amounts to be deposited in the note
distribution account on such distribution date and allocable to principal, to
reduce the outstanding principal balances, including all unreimbursed principal
liquidation losses, of all classes of notes to zero.
"Noteholders' unpaid principal shortfall" means, as of the close of any
distribution date, the excess of the noteholders' monthly principal
distributable amount and any outstanding noteholders' unpaid principal
shortfall from the preceding distribution date over the amount in respect of
principal that is actually deposited in the note distribution account on such
distribution date.
"Principal balance" means, with respect to any determination date and any
class of notes, the original principal balance of a class minus all amounts
previously distributed in respect of principal of the class and minus any
unreimbursed principal liquidation losses of such class.
"Purchased contract" means a contract that:
. we have become obligated to repurchase (or, under specified
circumstances, has elected to repurchase) as a result of an uncured
breach by us of a representation or warranty made by us for that
contract or
. the servicer has become obligated to repurchase, or, under specific
circumstances, has elected to repurchase, as a result of an uncured
breach of the covenants made by it with respect to such contract.
"Principal liquidation loss" means, for any distribution date and any class
of notes, the amount by which the aggregate principal balance of the class and
each junior class and the certificate principal balance, after giving effect to
any principal liquidation losses imposed on such junior classes and
certificates, exceeds the pool scheduled principal balance, after giving effect
to all distributions of principal on such distribution date.
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[CONSECO LEGO]
[$ ]
(Approximate)
Conseco Finance Recreational Enthusiast Consumer Trust 1999-
Conseco Finance Securitizations Corp. Seller
Conseco Finance Corp. Servicer
-------------------------
Prospectus Supplement
-------------------------
[Underwriters]
[Date]
For 90 days after the date of this prospectus supplement, all dealers that
effect transactions in these securities, whether or not participating in this
offering, may be required to deliver a prospectus. This is in addition to the
dealers' obligation to deliver a copy of this prospectus supplement and the
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the expenses to be incurred in connection
with the offering of the asset-backed certificates and the asset-backed notes,
other than underwriting discounts and commissions, described in this
registration statement:
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee............. $ 27,800.00
Printing and Engraving.......................................... 200,000.00
Legal Fees and Expenses......................................... 150,000.00
Blue Sky Filing and Counsel Fees................................ 15,000.00
Accounting Fees and Expenses.................................... 60,000.00
Trustee Fees and Expenses....................................... 66,000.00
Rating Agencies' Fees........................................... 225,000.00
Miscellaneous Expenses.......................................... 4,200.00
-----------
Total....................................................... $748,000.00
===========
</TABLE>
--------
* All fees and expenses, other than the Securities and Exchange Commission
Registration Fee, are estimated.
Item 15. Indemnification of Directors and Officers.
Conseco Finance Corp. is incorporated under the laws of Delaware. Section
145 of the Delaware General Corporation Law provides that a Delaware
corporation may indemnify any persons, including officers and directors, who
are, or are threatened to be made, parties to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of such corporation,
by reason of the fact that such person was an officer, director, employee or
agent of such corporation, or is or was serving at the request of such
corporation as a director, employee or agent of such corporation, or is or was
serving at the request of such corporation as a director, officer, employee or
agent of another corporation or enterprise). The indemnity may include expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding, provided such person acted in good faith and in a manner he
reasonably believed to be in or not opposed to the corporation's best interests
and, for criminal proceedings, had no reasonable cause to believe that his
conduct was illegal. A Delaware corporation may indemnify officers and
directors in an action by or in the right of the corporation under the same
conditions, except that no indemnification is permitted without judicial
approval if the officer or director is adjudged to be liable to the
corporation. Where and officer or director is successful on the merits or
otherwise in the defense of any action referred to above, the corporation must
indemnify him against the expenses which such officer or director actually and
reasonably incurred.
The Certificate of Incorporation and Bylaws of Conseco Finance Corp.
provide, in effect, that, subject to certain limited exceptions, such
corporation will indemnify its officers and directors to the extent permitted
by the Delaware General Corporation Law.
Conseco Finance maintains a directors' and officers' insurance policy.
Pursuant to the form of Underwriting Agreement, the Underwriters will agree,
subject to certain conditions, to indemnify the Company, its directors, certain
of their officers and any persons who control the Company, within the meaning
of the Securities Act of 1933, as amended (the "Securities Act"), against
certain liabilities.
Conseco Finance Securitizations Corp. is incorporated under the laws of
Minnesota. Section 302A.521 of the Minnesota Statutes provides that a
corporation shall indemnify any person made or threatened to be made a
II-1
<PAGE>
party to a proceeding by reason of the former or present official capacity of
such person against judgments, penalties, fines (including, without limitation,
excise taxes assessed against such person with respect to any employee benefit
plan), settlements and reasonable expenses, including attorneys' fees and
disbursements, incurred by such person in connection with the proceeding, if,
with respect to the acts or omissions of such person complained of in the
proceeding, such person (1) has not been indemnified therefor by another
organization or employee benefit plan for the same judgments, penalties or
fines; (2) acted in good faith; (3) received no improper personal benefit and
Section 302A.255 (with respect to director conflicts of interest), if
applicable, has been satisfied; (4) in the case of a criminal proceeding, had
no reasonable cause to believe the conduct was unlawful; and (5) in the case of
acts or omissions in such person's official capacity for the corporation,
reasonably believed that the conduct was in the best interests of the
corporation, or in the case of acts or omissions in such person's official
capacity for other affiliated organizations, reasonably believed that the
conduct was not opposed to the best interests of the corporation. Section
302A.521 also requires payment by a corporation, upon written request, of
reasonable expenses in advance of final disposition of the proceeding in
certain instances. A decision as to required indemnification is made by a
disinterested majority of the Board of Directors present at a meeting at which
a disinterested quorum is present, or by a designated committee of the Board,
by special legal counsel, by the shareholders or by a court.
Provisions regarding indemnification of officers and directors of Conseco
Securitizations to the extent permitted by Section 302A.521 are contained in
its articles of incorporation and bylaws.
Item 16. Exhibits.
The exhibits filed as part of this registration statement are:
<TABLE>
<C> <S>
1.1 --Form of Underwriting Agreement (for Grantor Trusts) (incorporated by reference
to Exhibit 1.1 to the Registrant's Registration Statement No. 33-63575).
1.2 --Form of Underwriting Agreement (for Owner Trusts) (incorporated by reference to
Exhibit 1.2 to the Registrant's Registration Statement No. 33-63575).
3.1 --Restated Certificate of Incorporation of Conseco Finance Corp. (incorporated by
reference to Exhibit 3.2 to the Registrant's Registration Statement No. 333-
85037; 333-85037-01).
3.2 --Restated By-Laws of Conseco Finance Corp. (incorporated by reference to Exhibit
3.4 to the Registrant's Registration Statement No. 333-85037; 333-85037-01).
3.3 --Articles of Incorporation of Conseco Finance Securitizations Corp.
(incorporated by reference to Exhibit 3.3 to the Registrant's Registration
Statement on Form S-3 No. 333-85119; 333-85119-01).
3.4 --By-laws of Conseco Securitizations Corp. (incorporated by reference to Exhibit
3.4 to the Registrant's Registration Statement on Form S-3 No. 333-85119; 333-
85119-01).
4.1 --Form of Pooling and Servicing Agreement (for Grantor Trusts) (incorporated by
reference to Exhibit 4.1 to Registrant's Registration Statement No. 33-63575).
* 4.2 --Form of Sale and Servicing Agreement relating to Owner Trusts.
* 4.3 --Form of Trust Agreement relating to Owner Trusts.
* 4.4 --Form of indenture between the Trust and the indenture Trustee, including form
of Note.
* 4.5 --Form of Transfer Agreement.
* 5.1 --Opinion and consent of Dorsey & Whitney LLP with respect to legality.
* 8.1 --Opinion and consent of Dorsey & Whitney LLP with respect to tax matters.
12.1 --Computation of Ratio of Earnings to Fixed Charges (incorporated by reference to
Exhibit 12.1 to Conseco Finance's Form 10-Q for the period ended September 30,
1999).
*23.1 --Consent of KPMG LLP.
*23.2 --Consent of PricewaterhouseCoopers LLP.
23.3 --Consent of Dorsey & Whitney LLP (included as part of Exhibit 5.1).
23.4 --Consent of Dorsey & Whitney LLP (included as part of Exhibit 8.1).
**25.1 --Form of T-1 Statement of Eligibility under the Trust indenture Act of 1939 of
the indenture Trustee.
99.1 --Form of Prospectus Supplement for Grantor Trusts (incorporated by reference to
Exhibit 99.1 to Registrant's Registration Statement No. 333-02725).
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
99.2 --Form of Prospectus Supplement for Owner Trusts (incorporated by reference to
Exhibit 99.2 to the Registrant's Registration Statement No. 33-63575).
</TABLE>
--------
*Previously filed.
**To be filed subsequently pursuant to section 305(b)(2) of the Trust
Indenture Act of 1939, as amended.
Item 17. Undertakings.
The undersigned registrant on behalf of the trust hereby undertakes that,
for purposes of determining any liability under the Securities Act of 1933,
each filing of the owner trust's annual report pursuant to section 13(a) or
section 15(d) of the Securities Exchange Act of 1934 that is incorporated by
reference in the registration statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of the securities at that time shall be deemed to be the initial bona
fide offering.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that, in the opinion of the SEC, such
indemnification is against public policy as expressed in the act and is
unenforceable. In the event that a claim for indemnification against the
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the act and will be governed by the
final adjudication of the issue.
The undersigned registrant hereby undertakes:
(1) for purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the securities act shall be deemed to be part of this
registration statement as of the time it was declared effective;
(2) for the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) to include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change to such information in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of
II-3
<PAGE>
prospectus filed with the SEC pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in the
Calculation of Registration Fee table in the effective registration
statement;
(iii) to include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change in the information set forth in the registration
statement;
Provided, however, that paragraphs (1)(i) and (1)(ii) do not apply
if the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed by
the registrant pursuant to section 13 or section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in
the registration statement;
(2) that, for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein,
and the offering of the securities at that time shall be deemed to be the
initial bona fide offering thereof;
(3) to remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned registrant hereby undertakes to file an application for
the purpose of determining the eligibility of the trustee to act under
subsection (a) of section 310 of the Trust Indenture Act in accordance with the
rules and regulations prescribed by the SEC under section 305(b)(2) of the
Trust Indenture Act.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has duly caused this Post-Effective Amendment No. 2 to the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Saint Paul, State of Minnesota, on the 22nd day
of June, 2000.
Conseco Finance Corp.
/s/ Phyllis A. Knight
By___________________________________
Phyllis A. Knight
Senior Vice President and
Treasurer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities indicated.
Signature Title Date
Director and President
* (Principal Executive
------------------------------------- Officer)
Thomas J. Kilian
Director, Senior Vice
* President and Chief
------------------------------------- Accounting Officer
James S. Adams (Principal Financial
and Accounting Officer)
Director
*
-------------------------------------
Ngaire E. Cuneo
Director
-------------------------------------
Thomas M. Hagerty
Director
-------------------------------------
William Wesp
*
/s/ Brian F. Corey June 22, 2000
------------------------------------
Attorney-in-Fact
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has duly caused this Post-Effective Amendment No. 2 to the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Saint Paul, State of Minnesota, on the 22nd day
of June, 2000.
Conseco Finance Securitizations
Corp.
/s/ Brian F. Corey
By___________________________________
Brian F. Corey
Senior Vice President and
Secretary
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities indicated.
Signature Title Date
President and
* Director(Principal
------------------------------------- Executive Officer)
Bruce A. Crittenden
/s/ Phyllis A. Knight Senior Vice President
------------------------------------- and Treasurer June 22, 2000
Phyllis A. Knight (Principal Financial
Officer and Principal
Accounting Officer)
Director
*
-------------------------------------
Joel H. Gottesman
Director
*
-------------------------------------
Paul A. Boyum
Director
*
-------------------------------------
Gary P. Mills
*
/s/ Brian F. Corey June 22, 2000
------------------------------------
Attorney-in-Fact
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
1.1 --Form of Underwriting Agreement (for Grantor Trusts)
(incorporated by reference to Exhibit 1.1 to the Registrant's
Registration Statement No. 33-63575).
1.2 --Form of Underwriting Agreement (for Owner Trusts)
(incorporated by reference to Exhibit 1.2 to the Registrant's
Registration Statement No. 33-63575).
3.1 --Restated Certificate of Incorporation of Conseco Finance
Corp. (incorporated by reference to Exhibit 3.2 to the
Registrant's Registration Statement No. 333-85037; 333-85037-
01).
3.2 --Restated By-Laws of Conseco Finance Corp. (incorporated by
reference to Exhibit 3.4 to the Registrant's Registration
Statement No. 333-85037; 333-8503701).
3.3 --Articles of Incorporation of Conseco Finance Securitizations
Corp. (incorporated by reference to Exhibit 3.3 to the
Registrant's Registration Statement on Form S-3 No. 333-
85119; 333-85119-01).
3.4 --By-laws of Conseco Securitizations Corp. (incorporated by
reference to Exhibit 3.4 to the Registrant's Registration
Statement on Form S-3 No. 333-85119; 333-85119-01).
4.1 --Form of Pooling and Servicing Agreement (for Grantor Trusts)
(incorporated by reference to Exhibit 4.1 to Registrant's
Registration Statement No. 333-63575).
* 4.2 --Form of Sale and Servicing Agreement relating to Owner
Trusts.
* 4.3 --Form of Trust Agreement relating to Owner Trusts.
* 4.4 --Form of indenture between the Trust and the indenture
Trustee, including form of Note.
* 4.5 --Form of Transfer Agreement.
* 5.1 --Opinion and consent of Dorsey & Whitney LLP with respect to
legality.
* 8.1 --Opinion and consent of Dorsey & Whitney LLP with respect to
tax matters.
12.1 --Computation of Ratio of Earnings to Fixed Charges
(incorporated by reference to Exhibit 12.1 to Conseco
Finance's Form 10-Q for the period ended September 30, 1999).
*23.1 --Consent of KPMG LLP.
*23.2 --Consent of PricewaterhouseCoopers LLP.
23.3 --Consent of Dorsey & Whitney LLP (included as part of Exhibit
5.1).
23.4 --Consent of Dorsey & Whitney LLP (included as part of Exhibit
8.1).
**25.1 --Form of T-1 Statement of Eligibility under the Trust
indenture Act of 1939 of the indenture Trustee.
99.1 --Form of Prospectus Supplement for Grantor Trusts
(incorporated by reference to Exhibit 99.1 to Registrant's
Registration Statement No. 333-02725).
99.2 --Form of Prospectus Supplement for Owner Trusts (incorporated
by reference to Exhibit 99.2 to the Registrant's Registration
Statement No. 33-63575).
</TABLE>
--------
*Previously filed.
**To be filed subsequently pursuant to section 305(b)(2) of the Trust
Indenture Act of 1939, as amended.
