SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
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CONTIFINANCIAL CORPORATION
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<PAGE>
CONTIFINANCIAL CORPORATION
277 Park Avenue
New York, New York 10172
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON
SEPTEMBER 17, 1997
TO OUR STOCKHOLDERS:
The Annual Meeting of the stockholders of ContiFinancial Corporation, a
Delaware corporation (the "Company"), will be held in New York City at the
Rihga Royal Hotel, 54th Floor, 151 West 54th Street, September 17, 1997 at
9:00 a.m. to consider and vote on the following matters described in this
notice and the accompanying Proxy Statement:
1. To elect three directors to serve for the ensuing three years and
until their successors are duly elected and qualified.
2. To ratify the appointment of Arthur Andersen LLP as independent
accountants for the Company for the fiscal year ending March 31, 1998.
3. To transact such other business as may properly come before the
meeting or any adjournments thereof.
The Board of Directors has fixed the close of business on July 22, 1997
as the record date for determination of stockholders entitled to vote at the
Annual Meeting, or any adjournments thereof, and only record holders of the
Company's common stock at the close of business on that day will be entitled
to vote.
TO ASSURE REPRESENTATION AT THE ANNUAL MEETING, STOCKHOLDERS ARE URGED
TO SIGN AND RETURN THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE IN THE
POSTAGE-PREPAID ENVELOPE ENCLOSED FOR THAT PURPOSE. Any stockholder
attending the Annual Meeting may vote in person even if he or she previously
returned a proxy.
If you do plan to attend the Annual Meeting in person, we would
appreciate your response by indicating at the appropriate place on the proxy
card enclosed.
By Order of the Board of Directors,
/s/ Alan L. Langus
New York, New York Alan L. Langus
July 28, 1997 Secretary
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CONTIFINANCIAL CORPORATION
277 Park Avenue
New York, New York 10172
------------------------
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
Meeting Date: September 17, 1997
This Proxy Statement is being sent on or about July 29, 1997 in
connection with the solicitation of proxies by the Board of Directors of
ContiFinancial Corporation, a Delaware corporation (the "Company"). The
proxies are for use at the 1997 Annual Meeting of the Stockholders of the
Company, which will be held in New York City at the Rihga Royal Hotel, 54th
Floor, 151 West 54th Street, September 17, 1997 at 9:00 a.m., and at any
meetings held upon adjournment thereof (the "Annual Meeting"). The record
date for the Annual Meeting is the close of business on July 22, 1997 (the
"Record Date"). Only holders of record of the Company's common stock, $0.01
par value per share (the "Common Stock"), on the Record Date are entitled to
notice of the Annual Meeting and to vote at the Annual Meeting and at any
meetings held upon adjournment thereof.
A proxy card is enclosed. Whether or not you plan to attend the Annual
Meeting in person, please date, sign and return the enclosed proxy card as
promptly as possible, in the postage-prepaid envelope provided, to ensure
that your shares will be voted at the Annual Meeting. Any stockholder who
returns a proxy in such form has the power to revoke it at any time prior to
its effective use by filing an instrument revoking it or a duly executed
proxy bearing a later date with the Secretary of the Company or by attending
the Annual Meeting and voting in person. Unless contrary instructions are
given, any such proxy, if not revoked, will be voted at the Annual Meeting
for (i) the nominees for election as directors as set forth in this Proxy
Statement, (ii) the ratification of the appointment of Arthur Andersen LLP as
independent accountants for the Company and (iii) as recommended by the Board
of Directors, in its discretion, with regard to all other matters which may
properly come before the Annual Meeting. The Company does not currently know
of any such other matters.
An Annual Report to Stockholders for the year ended March 31,1997,
including financial statements, was distributed on June 27, 1997 to stockholders
of record as of June 9, 1997. For those stockholders who were not stockholders
as of June 9, 1997 but who were stockholders as of the Record Date, an Annual
Report is being mailed to them concurrently with this Proxy Statement. The date
of this Proxy Statement is the approximate date on which the Proxy Statement and
form of proxy were first sent or given to stockholders.
VOTING SECURITIES
At the Record Date, there were 47,623,984 shares of Common Stock
outstanding. The presence, either in person or by proxy, of persons entitled to
vote a majority of the Company's
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outstanding Common Stock is necessary to constitute a quorum for the transaction
of business at the Annual Meeting. Abstentions and broker non-votes are counted
for purposes of determining a quorum, but are not considered as having voted for
purposes of determining the outcome of a vote. No other voting securities of the
Company were outstanding at the Record Date. Holders of Common Stock have one
vote for each share on any matter that may be presented for consideration and
action by the stockholders at the Annual Meeting. The ratification of the
appointment of the independent accountants must be approved by a majority vote
of the stockholders present in person or represented by proxy at the Annual
Meeting and each Director will be elected by a plurality of the votes cast by
the stockholders present in person or represented by proxy at the Annual
Meeting.
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth security ownership information regarding
Common Stock as of July 9, 1997 by (i) each person who is known by the
Company to own beneficially more than 5% of Common Stock, (ii) each Director
(which includes the three nominees for Director), (iii) each of the executive
officers named in the Summary Compensation Table appearing below (the
"Summary Compensation Table") and (iv) all directors and executive officers
as a group. Unless otherwise indicated, the address of each beneficial owner
is in care of ContiFinancial Corporation, 277 Park Avenue, New York, New York
10172.
Name of Beneficial Owner Shares of Common Stock Percentage
- ------------------------ ---------------------- ----------
Continental Grain Company (a) 35,918,421 75.4%
Pilgrim Baxter & Associates (b) 2,528,900 5.7%
James E. Moore (c) 638,407 1.3%
Robert A. Major (c) 226,729 (d)
Glenn S. Goldman (c) 237,401 (d)
A. John Banu (c) 237,001 (d)
Scott M. Mannes (c) 238,401 (d)
James J. Bigham (e) 5,000 (d)
Paul J. Fribourg (a) (e) (f) 5,000 (d)
John W. Spiegel 5,000 (d)
Donald L. Staheli 20,000 (d)
John P. Tierney 3,000 (d)
Lawrence G. Weppler (e) 1,000 (d)
Michael J. Zimmerman (e) 0 (d)
All Directors and Executive
Officers as a Group (20 persons) 2,423,703 5.1%
(g)
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(a) Michel Fribourg, members of his family and trusts for their benefit
beneficially own substantially all of the issued and outstanding voting
stock of Continental Grain Company. Paul J. Fribourg is the son of
Michel Fribourg.
(b) This information was obtained from a Schedule 13G filing dated February
14, 1997 on behalf of Pilgrim Baxter & Associates.
(c) Included for Messrs. Moore, 292,715 shares; Banu, 126,400 shares,
Goldman, 126,400 shares and Mannes, 126,400 shares of "restricted"
Common Stock and for Messrs. Moore, 335,592 shares; Major, 223,729
shares; Banu, 110,001 shares; Goldman, 110,001 shares; and Mannes,
110,001 shares of Common Stock issuable upon exercise of options. Does
not include 381,146 shares of Common Stock issuable upon the exercise
of options not exercisable within 60 days of the date hereof.
(d) Represents less than 1% of the Common Stock outstanding at July 9, 1997.
(e) Messrs. Bigham, Fribourg, Weppler and Zimmerman are officers of
Continental Grain Company.
(f) By virtue of his position as Chairman, President and Chief Executive
Officer of Continental Grain Company, Mr. Fribourg may be deemed to
have beneficial ownership of the shares of the Company owned by
Continental Grain Company. Mr. Fribourg disclaims beneficial ownership
of such shares.
(g) Includes 1,043,555 shares of "restricted" Common Stock and 1,331,348
shares of Common Stock issuable upon the exercise of options. Does not
include 592,742 shares of Common Stock issuable upon the exercise of
options not exercisable within 60 days of the date hereof.
The shares of Common Stock beneficially owned by Continental Grain
Company ("Continental Grain") constitute approximately 75% of the shares of
Common Stock entitled to vote at the Annual Meeting. Continental Grain has
indicated to the Company that it intends to vote all such shares of Common
Stock "FOR" the election of Directors of each of the Company's nominees named
below and "FOR" the ratification of the appointment of Arthur Andersen LLP as
independent accountants for the Company.
ELECTION OF DIRECTORS
The Company's Board of Directors currently consists of eight members
and is divided into three Classes serving staggered terms, the term of one
Class of Directors to expire each year. At the Annual Meeting, the
shareholders will elect three Class II Directors for a term of three years
expiring in 2000 and until their respective successors shall have been duly
elected and qualified. The term of the Class I Directors expires at the
annual meeting of the Company's stockholders following the end of the
Company's fiscal year ending March 31, 1999 and the term of the Class III
Directors expires at the first annual meeting of the Company's stockholders
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following the end of the Company's fiscal year ending March 31, 1998, at
which times Directors of the appropriate Class will be elected for three-year
terms. All nominees are presently serving as Directors of the Company. If
no direction to the contrary is given, all proxies received by the Board of
Directors will be voted "FOR" the election as Directors of Paul J. Fribourg,
John W. Spiegel and Lawrence G. Weppler. The Class II Directors will be
elected by a plurality of the votes cast. In the event that any nominee is
unable or declines to serve, the proxy solicited herewith may be voted for
the election of another person in his stead at the discretion of the
proxies. The Board of Directors knows of no reason to anticipate that this
will occur.
The Company is currently searching for an additional independent
Director. This additional Director will not be affiliated with the Company or
any of its principal stockholders.
Biographical information follows for each person nominated and each
person whose term of office continues after the meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE NOMINEES
NAMED BELOW. UNLESS OTHERWISE INSTRUCTED, SIGNED PROXIES WHICH ARE RETURNED
IN A TIMELY MANNER WILL BE VOTED IN FAVOR OF SUCH NOMINEES.
Nominees
Class II Directors
Paul J. Fribourg. Mr. Fribourg has been a Director of the Company
since October 1995. He has been President and Chief Executive Officer of
Continental Grain since April 1997 and Chairman of its Board of Directors
since July 1997. Previously, Mr. Fribourg was President and Chief Operating
Officer of Continental Grain since June 1994. From April 1990 to June 1994
Mr. Fribourg served as Executive Vice President of the Bulk Commodities Group
of Continental Grain. Mr. Fribourg is the son of Michel Fribourg.
John W. Spiegel. Mr. Spiegel has been a Director of the Company and
Chairman of the Audit Committee since February 1996. Mr. Spiegel has been
Executive Vice President and Chief Financial Officer of SunTrust Banks, Inc.
since 1985 and Treasurer of Trust Company of Georgia since 1978. Mr. Spiegel
also is currently a member of the Boards of Directors of Rock-Tenn Company (a
manufacturer of paperboard products) and Student Loan Marketing Association
(a non-bank finance company).
Lawrence G. Weppler. Mr. Weppler has been a Director of the Company
since October 1995. He also has been Vice President and General
Counsel-Corporate of Continental Grain since April 1993. From 1980 to April
1993, Mr. Weppler served as Deputy General Counsel of Continental Grain.
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Continuing Directors
Class I Directors
James E. Moore. Mr. Moore has been President, Chief Executive Officer
and a Director of the Company since October 1995. He has been a Managing
Director of ContiFinancial Services Corporation ("ContiFinancial Services")
since 1988 and was its President until July 1997. He has been Chairman of
ContiMortgage Corporation ("ContiMortgage") since 1990. Mr. Moore joined
ContiFinancial Services in 1983 as an investment banker. (ContiMortgage and
ContiFinancial Services are wholly-owned subsidiaries of the Company.) He is
also a Director of Student Loan Marketing Association (a non-bank finance
company).
Donald L. Staheli. Mr. Staheli has been a Director of the Company
since October 1995. He was Chairman of the Board of Directors of Continental
Grain from June 1994 until July 1997 and from 1988 until his retirement in
April 1997, he was Chief Executive Officer of Continental Grain. From 1988
until June 1994, Mr. Staheli served as President and a Director of
Continental Grain. Mr. Staheli serves as a Director of Prudential Life
Insurance Company of America (a property and life insurance company) and
Bankers Trust Company (a bank holding company). Mr. Staheli also serves as a
member of the Supervisory Board of Directors of Fresenius Medical Care A.G (a
foreign medical device manufacturing company).
Class III Directors
James J. Bigham. Mr. Bigham has been a Director of the Company since
October 1995. Mr. Bigham has been Vice Chairman of Continental Grain since
April 1997. He also has been a Director, Executive Vice President and Chief
Financial Officer of Continental Grain since August 1989 and a Director of
ContiMortgage since 1990.
John P. Tierney. Mr. Tierney has been a Director of the Company and
Chairman of the Independent Directors' Committee since February 1996. From
1987 until his retirement in December 1994, Mr. Tierney was the Chairman of
the Board and Chief Executive Officer of Chrysler Financial Corporation (a
non-bank finance company). Mr. Tierney is also currently a Director of RCSB
Financial, Inc. (a holding company for Rochester Community Savings Bank, a
consumer banking and lending company).
Michael J. Zimmerman. Mr. Zimmerman has been a Director of the Company
since February 1997. He also has been a Senior Vice President-Investments
and Strategy of Continental Grain since May 1996. From January 1985 to April
1996, Mr. Zimmerman was a managing director at Salomon Brothers. Mr.
Zimmerman is also currently a member of the Board of Directors of U.S. Can
Corporation (a manufacturing company).
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Section 16(a) Reporting Delinquencies
An initial Form 3 was to have been filed within 10 days of Mr.
Zimmerman becoming a Director of the Company. He became a Director on
February 12, 1997. The related Form 3 was filed on April 25, 1997.
Meetings and Committees
The Company has an Executive Committee, a Compensation Committee, an
Audit Committee, an Independent Directors Committee and a 1995 Stock Plan
Committee (which also serves as the Section 162(m) Plan Committee). There is
no standing nominating committee.
The Executive Committee, currently comprised of Messrs. Bigham, Fribourg,
Moore, and Zimmerman is authorized and empowered, to the extent of Delaware law,
to exercise all functions of the Board of Directors in the interval between
meetings of the Board of Directors. The functions of the Compensation Committee,
currently comprised of Messrs. Bigham, Fribourg, Spiegel, Staheli and Tierney,
include reviewing compensation of the executive officers of the Company. The
Audit Committee, currently comprised of Messrs. Spiegel and Tierney, assists the
Board of Directors in overseeing the financial reporting and the internal
operating control of the Company. The role of the Independent Directors
Committee, currently comprised of Messrs. Spiegel and Tierney, encompasses
reviewing and passing on the fairness of all future material agreements and
material transactions between the Company (or any of its subsidiaries) and
Continental Grain (or any of its subsidiaries other than the Company and its
subsidiaries). The 1995 Stock Plan Committee, currently comprised of Messrs.
Spiegel and Tierney, administers the ContiFinancial Corporation 1995 Long Term
Stock Incentive Plan (the "1995 Stock Plan") and any other Section 162(m)
compensation awards.
During the year ended March 31, 1997, there were five meetings of the
Board of Directors, six meetings of the Executive Committee, six meetings of
the Compensation Committee, three meetings of the Audit Committee, two
meetings of the Independent Directors Committee and two meetings of the 1995
Stock Plan Committee. Each Director attended each meeting of the Board and
each meeting held by all committees on which he served.
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MANAGEMENT
Executive Officers and Directors
The directors and executive officers of the Company and their
respective ages and positions are as follows:
Name Age Position
- ---- --- --------
James E. Moore 50 President, Chief Executive Officer and Director
Robert A. Major 50 Executive Vice President of the Company and
President and Chief Executive Officer of
ContiMortgage
Glenn S. Goldman 35 Executive Vice President of the Company and
Co-President of ContiFinancial Services
Scott M. Mannes 38 Executive Vice President of the Company and
Co-President of ContiFinancial Services
Peter Abeles 42 Senior Vice President of the Company and
Managing Director of ContiFinancial
Services
Robert J. Babjak 54 Senior Vice President of the Company and
Executive Vice President and Chief Operating
Officer of ContiMortgage
A. John Banu 42 Senior Vice President of the Company and Senior
Managing Director of ContiFinancial Services
Daniel J. Egan 42 Senior Vice President of the Company and Senior
Vice President and Chief Financial Officer
of ContiMortgage
Michael J. Festo 45 Senior Vice President, Human Resources
Alan L. Langus 50 Senior Vice President, Chief Counsel and
Secretary
Jerome M. Perelson 58 Senior Vice President of the Company and
Managing Director and Chief Credit Officer of
ContiFinancial Services
Daniel J. Willett 47 Senior Vice President and Chief Financial
Officer of the Company and Managing Director of
ContiFinancial Services
Debra J. Huddleston 41 Vice President - Internal Audit
Susan E. O'Donovan 36 Vice President and Controller
James J. Bigham 59 Director and Chairman of the Board
Paul J. Fribourg 43 Director
John W. Spiegel 56 Director
Donald L. Staheli 65 Director
John P. Tierney 65 Director
Lawrence G. Weppler 52 Director
Michael J. Zimmerman 46 Director
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Robert A. Major. Mr. Major has been Executive Vice President of the
Company since October 1995, President and a Director of ContiMortgage since
July 1995 and Chief Executive Officer of ContiMortgage since June 1996.
Prior to becoming Chief Executive Officer, Mr. Major was the Chief Operating
Officer, a position he had held since July 1995. From February 1993 to July
1995, Mr. Major was Chief Operating Officer for NationsCredit Corporation (a
diversified financial services company). From April 1990 to February 1993,
Mr. Major was Chief Executive Officer of Chrysler First (a consumer finance
company acquired by NationsBank Corporation in February 1993).
Glenn S. Goldman. Mr. Goldman has been Executive Vice President of the
Company since July 1997, prior to which he had been Senior Vice President
since October 1995. He joined ContiFinancial Services in April 1990 and was
appointed Managing Director of ContiFinancial Services in August 1992 after
holding the position of Vice President, Corporate Finance. He was appointed
Co-President of ContiFinancial Services in July 1997.
Scott M. Mannes. Mr. Mannes has been Executive Vice President of the
Company since July 1997, prior to which he had been Senior Vice President
since October 1995. He joined ContiFinancial Services in September 1990 and
was appointed Managing Director of ContiFinancial Services in August 1992
after holding the position of Vice President, Corporate Finance. He was
appointed Co-President of ContiFinancial Services in July 1997.
Peter Abeles. Mr. Abeles has been Senior Vice President of the Company
since October 1995. He joined ContiFinancial Services in 1989 and was
appointed Managing Director of ContiFinancial Services in August 1992 after
serving as Vice President, Corporate Finance from October 1989 to August 1992.
Robert J. Babjak. Mr. Babjak has been Senior Vice President of the
Company since October 1995. He was appointed Executive Vice President and
Chief Operating Officer of ContiMortgage in June 1996 prior to which he was
Senior Vice President, Chief Credit Officer, a position he had held since
October 1995 when he was also appointed as a Director of ContiMortgage.
Prior to October 1995 he was Vice President, Chief Credit Officer of
ContiMortgage, a position he had held since April 1992. Mr. Babjak joined
ContiMortgage in June 1991 as Chief Credit Officer.
A. John Banu. Mr. Banu has been Senior Vice President of the Company
since October 1995. He joined ContiFinancial Services in 1984 as Vice
President, Debt Placement and was appointed Managing Director of
ContiFinancial Services in August 1992 and Senior Managing Director in July
1997.
Daniel J. Egan. Mr. Egan has been Senior Vice President of the Company
since October 1995. He was appointed Senior Vice President, Chief Financial
Officer and a Director of ContiMortgage in 1995, prior to which he was Vice
President, Chief Financial Officer of ContiMortgage, a position he had held
since April 1991. From October 1990 to April 1991, Mr. Egan was Controller
of ContiMortgage.
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Michael J. Festo. Mr. Festo has been Senior Vice President, Human
Resources of the Company since September 1996, prior to which he held the
position of Vice President, Human Resources of the Company from October
1995. He was appointed Vice President, Human Resources of ContiTrade
Services Corporation in July 1990. Mr. Festo held a number of staff and
executive human resources positions within Continental Grain since joining
Continental Grain in 1974.
Alan L. Langus. Mr. Langus has been Senior Vice President, Chief
Counsel and Secretary of the Company since September 1996, prior to which he
held the position of Vice President, Chief Counsel and Secretary of the
Company from October 1995. He was Vice President and Chief Counsel of
ContiTrade Services Corporation between December 1989 and October 1995.
Jerome M. Perelson. Mr. Perelson has been Senior Vice President of the
Company since February 1997 prior to which he held the position of Senior
Vice President and Chief Financial Officer of the Company from October
1995. He has been Managing Director and Chief Credit Officer of
ContiFinancial Services since September 1995. Mr. Perelson joined
Continental Grain in 1971. He was appointed Managing Director and Chief
Credit Officer of ContiTrade Services Corporation in August 1989 and
President in November 1993, after serving as Corporate Deputy Treasurer of
Continental Grain.
Daniel J. Willett. Mr. Willett has been Senior Vice President and
Chief Financial Officer of the Company since February 1997. He was also a
Director of the Company from October 1995 until January 1997. He has been a
Managing Director of ContiFinancial Services since January 1997. Mr. Willett
also was a Vice President and Treasurer of Continental Grain from March 1990
to January 1997.
Debra J. Huddleston. Ms. Huddleston has been Vice President - Internal
Audit of the Company since May 1997. She was appointed Vice President -
Internal Audit of ContiMortgage in July 1992. Prior to that, Ms. Huddleston
also held the position of Controller - Government Securities and Foreign
Exchange Division of Continental Grain since 1991.
Susan E. O'Donovan. Ms. O'Donovan has been Vice President and
Controller of the Company since October 1995. She joined ContiFinancial
Services as Controller in April 1991. From August 1983 until March 1991, Ms.
O'Donovan was an auditor at Price Waterhouse LLP.
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EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------- ----------------------
AWARDS PAYOUTS
------ -------
FISCAL RESTRICTED STOCK LTIP
NAME YEAR SALARY BONUS(a) STOCK(b) OPTIONS PAYOUTS(c) OTHER(d)
- ---- ---- ------ -------- -------- ------- ---------- --------
$ $ $ # $ $
<S> <C> <C> <C> <C> <C> <C> <C>
James E. Moore 1997 250,000 2,000,000 ---- ---- ---- 719,500
Chief Executive Officer 1996 243,333 2,400,000 7,683,768 479,420 ---- 354,500
1995 230,000 1,000,000 ---- ---- 80,000 4,500
Robert A. Major 1997 220,883 1,500,000 ---- ---- ---- ----
Executive Vice 1996 141,666 2,000,000 ---- 319,615 ---- ----
President/
Chief Executive 1995 ---- ---- ---- ---- ---- ----
Officer, ContiMortgage
Glenn S. Goldman 1997 164,667 1,160,000 ---- ---- ---- 674,500
Executive Vice 1996 158,667 1,375,000 3,318,000 157,145 ---- 729,500
President/
Co-President, 1995 152,000 710,000 ---- ---- ---- 4,500
ContiFinancial Services
Scott M. Mannes 1997 164,667 1,160,000 ---- ---- ---- 674,500
Executive Vice 1996 158,667 1,375,000 3,318,000 157,145 ---- 254,500
President/
Co-President, 1995 152,000 710,000 ---- ---- ---- 4,500
ContiFinancial Services
A. John Banu 1997 147,500 1,160,000 ---- ---- ---- 481,362
Senior Vice President/ 1996 140,000 1,395,000 3,318,000 157,145 ---- 254,200
Senior Managing 1995 130,000 710,000 ---- ---- ---- 3,900
Director,
ContiFinancial Services
</TABLE>
(a) Includes amounts paid, accrued or deferred bonuses pursuant to
the Company's Named Executive Bonus Plan (as defined in the Joint
Report of Compensation Committee and Stock Plan Committee (the
"Report") herein).
(b) Restricted stock awards shown were granted in connection with the
Company's initial public offering and are valued at the Company's
initial public offering price. The number and value of the
unvested restricted stock holdings at March 31, 1997 for each
person named is as follows: Mr. Moore, 175,630 shares with a
market value of $5,444,530, Messrs. Banu, Goldman and Mannes,
75,840 shares each with a market value of $2,351,040 each. The
restricted shares have vested or will, subject to reporting
person's continued employment with ContiFinancial Corporation,
vest as follows: 15% as of the date of grant; 25% as of March
31, 1997; 20% as of March 31, 1998; 20% as of March 31, 1999; and
20% as of March 31, 2000. In addition, the restricted shares
have vested or will vest upon a change of control, as defined in
the Long Term Stock Incentive Plan and are subject to accelerated
vesting in the event of termination of the reporting person's
employment for certain reasons.
(c) Includes payments made pursuant to awards granted under a
Continental Grain Performance Incentive Plan, which has been
terminated and does not apply to the Company.
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(d) Represents the Company matching contributions under the
Continental Grain Savings Plan, a defined contribution plan
established under Section 401(k) of the Internal Revenue Code of
1986, as amended, in 1997 for Messrs. Moore, Goldman and Mannes,
$4,500 each and Mr. Banu, $4,362 and payments made pursuant to
the ContiFinancial Services Long Term Incentive Compensation
Plan in 1997 for Messrs. Moore, $715,000; Goldman, $670,000;
Mannes, $670,000 and Mr. Banu, $477,000. The ContiFinancial
Services Long Term Incentive Compensation Plan provides for
incentive awards based on the value on the sale or deemed sale
of certain shares of stock, warrants, rights or other equity
participation arrangements obtained by subsidiaries of the
Company which are owned by Continental Grain and paid by
Continental Grain to participants.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1997
AND FISCAL YEAR 1997 OPTION VALUE (a)
The following table provides information as to options exercised by
each of the named executive officers of the Company during fiscal 1997. The
table also sets forth the value of options held by such officers at year end
measured in terms of the reported last sale price of the Common Stock on the
New York Stock Exchange on March 31, 1997 and the option exercise price. No
stock appreciation rights ("SARs") have ever been granted to executive
officers.
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS IN THE MONEY
AT FISCAL YEAR END OPTIONS AT FISCAL YEAR END (a)
------------------ ------------------------------
SHARES
ACQUIRED
IN VALUE
EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
-------- -------- ----------- ------------- ----------- -------------
# # $ $
<S> <C> <C> <C> <C> <C> <C>
James E. Moore ----- ----- 95,883 383,537 947,836 3,791,369
Robert A. Major ----- ----- 63,922 255,693 631,896 2,527,593
Glenn S. Goldman ----- ----- 31,429 125,716 310,688 1,242,738
Scott M. Mannes ----- ----- 31,429 125,716 310,688 1,242,738
A. John Banu ----- ----- 31,429 125,716 310,688 1,242,738
</TABLE>
(a) The 1997 year end value of the Company's Common Stock was $31.00. The
dollar value shown in the table is calculated by determining the difference
between the year end value of the Company's Common Stock and the exercise
price of the option exercisable at year end.
No grants were made to the Named Executive Officers (as defined in the
Report) in the fiscal year ending March 31, 1997.
Continental Grain Salaried Employee Retirement Plan
The following table shows the estimated annual retirement benefits
payable at normal retirement age (65) to a person retiring with the indicated
highest consecutive five year average direct base salary and years to
credited service, on a straight life annuity basis, under the Continental
Grain Salaried Employee Retirement Plan (the "Salaried Retirement Plan"), as
12
<PAGE>
supplemented by the Continental Grain Supplemental Employee Retirement Plan
(the "Supplemental Plan"), each as described below:
<TABLE>
<CAPTION>
Estimated Annual Benefits at Retirement With
Indicated Years of Credited Service(a)(b)
-----------------------------------------
Highest Consecutive
Five Year Average
Direct Base Salary Years of Service
------------------ ----------------
5 10 15 20 25
- -- -- -- --
<S> <C> <C> <C> <C> <C> <C>
$100,000 $ 7,061 $14,123 $21,184 $ 28,245 $ 35,307
$150,000 $10,936 $21,873 $32,809 $ 43,745 $ 54,682
$200,000 $14,811 $29,623 $44,434 $ 59,245 $ 74,057
$250,000 $18,686 $37,373 $56,059 $ 74,745 $ 93,432
$300,000 $22,561 $45,123 $67,684 $ 90,245 $112,807
$350,000 $26,436 $52,873 $79,309 $105,745 $132,182
$400,000 $30,311 $60,623 $90,934 $121,245 $151,557
</TABLE>
(a) Estimated retirement benefits described above include benefits under
Continental Grain's tax-qualified retirement plan and under the
related non-qualified excess benefit plan but do not include a
refund of (pre-1974) employee contributions, if any, and any cost of
living adjustments provided under the plans.
(b) Estimated benefits assume retirement at age 65.
The Company participates in the Salaried Retirement Plan covering
salaried employees of Continental Grain and participating subsidiaries
(including the Company and its subsidiaries) which is intended to meet the
requirements of Section 401(a) of the Internal Revenue Code of 1986, as
amended (the "Code"). Generally, under the Salaried Retirement Plan
participants with five years of service become entitled to receive a basic
retirement benefit upon retirement at age 65 equal to a percentage of final
average earnings (both above and below the social security wage base)
multiplied by years of service with the employers participating in the plan.
Compensation under the plan generally includes base salary and deferrals
under any Code Section 401(k) savings plan or Code Section 125 cafeteria
plan, and are subject to limits imposed by the Code, including Code Section
401(a)(17) (generally, limiting compensation to $160,000 per year, as
indexed). Payments are made in the form of a joint and survivor annuity or
single life annuity, unless otherwise elected by the participant in
accordance with the terms of the plan. The plan contains provisions for
early retirement payments, payments upon disability, cost-of-living
adjustments for benefits earned prior to September of 1985 and spousal death
benefits. As permitted by ERISA, Continental Grain adopted the Supplemental
Plan which provides payments by Continental Grain of certain amounts which
eligible employees would have received under the Salaried Retirement Plan, if
eligible compensation were not limited to $160,000 in 1997 and there were no
restrictions under the Code. The estimated annual benefits
13
<PAGE>
payable under the Salaried Retirement Plan would be based on average
compensation of $227,749, $215,180, $149,499, $147,916 and $127,550 as of March
31, 1997, and 13.6 years, 0.6 years, 5.9 years, 5.5 years and 11.5 years of
service as of March 31, 1997 for each of Messrs. Moore, Major, Goldman, Mannes
and Banu, respectively.
Joint Report of Compensation Committee and Stock Plan Committee
Introduction
The Compensation Committee and the Stock Plan Committee of the
Company's Board of Directors (respectively, the "Compensation Committee" and
"Stock Plan Committee", and collectively the "Committees") were formed upon
consummation of the Company's initial public offering ("IPO") in February
1996. The Stock Plan Committee is composed of Mr. Spiegel and Mr. Tierney,
the Company's two independent outside directors. The Compensation Committee
is composed of Mr. Bigham, Mr. Fribourg, Mr. Staheli, Mr. Spiegel and Mr.
Tierney.
The Stock Plan Committee is responsible (i) for establishing the
general policies that apply with respect to stock option, restricted stock,
stock appreciation right, performance award and other stock-based award
grants to current and newly hired officers and other key employees under the
Company's 1995 Long Term Stock Incentive Plan (the "Stock Plan"), and (ii)
for determining the size and terms of any actual grants under the Stock Plan.
The Stock Plan Committee is also responsible for making all annual bonus
determinations under the Named Executive Officers ("NEO") Bonus Plan (the
"NEO Bonus Plan"), so that annual bonus awards made under such plans to
covered named executive officers of the Company may qualify as "performance
based compensation" for purposes of Internal Revenue Code Section 162(m).
Except for the Stock Plan award and the NEO Bonus Plan award
determinations handled by the Stock Plan Committee, the Compensation
Committee is responsible for establishing and administering the overall
compensation policies applicable to the Company's officers and other key
executives, and for determining any other compensation matters relating to
the Company's senior management.
The Committees' primary goal is to have the Company's officer and key
employee compensation programs structured and implemented in a manner that
recognizes the Company's need to retain and attract the caliber of senior
executives and other key employees needed for the Company to compete in the
highly competitive businesses in which it operates, while linking the
organization's business strategy and objectives to the compensation paid and
emphasizing the importance and value of achieving targeted performance
objectives at both the operating unit and Company level.
Section 162(m)
The Committees have adopted a general policy of paying senior executive
compensation that complies with the requirements of Internal Revenue Code
Section 162(m), while reserving the right to exceed the Section 162(m) limits
where the Committees believe such action(s) to be
14
<PAGE>
in the Company's best interest. Consistent with that policy, the Stock Plan
Committee within the first ninety (90) days of each fiscal year sets the
performance targets for, determines the participants in, and specifies the
individual bonus opportunities under the Company's NEO Bonus Plan for such year.
Annual Cash Compensation
The Committees believe that the Company's practices with respect to
cash compensation should emphasize pay for performance by (i) generally
setting base salaries at levels that are conservative when compared to
estimated market rates, based on available survey, proxy and other data, and
(ii) establishing annual bonus opportunities that provide for competitive
levels of total cash compensation for good performance and 75th percentile or
higher levels of total cash compensation for excellent to outstanding
performance, while also taking into account the basis for, and value of
long-term incentive awards.
Base Salary Levels
For the fiscal year ended March 31, 1997, salary determinations with
respect to executive officers and other key executives were made jointly by
the Chairman and the Chief Executive Officer of the Company (after taking
into account, in the case of CMC executives, the recommendations of the
President of CMC), subject to the approval of the Compensation Committee in
the case of executive officers.
Based on survey data for the investment banking and mortgage/asset
finance company sectors in which the Company competes, and available
1996-1997 proxy data for various publicly traded mortgage lenders and finance
companies, and on the advice of the independent executive compensation
consultants advising the Committee regarding such data, the Compensation
Committee believes that the base salaries for the Company's current executive
officers and other key employees are generally competitive at the median
level, when compared to the range of practice for comparable companies.
Annual Bonus Awards
For the fiscal year ending March 31, 1997, the Company maintained
several different annual bonus plans, including an NEO Bonus Plan for certain
executive officers likely to be subject to Internal Revenue Code Section 162(m),
General Annual Bonus Plans for ContiFinancial Services Investment Banking
Group-N.Y. ("CF-NY") and ContiMortgage Corporation ("CMC"), and separate
plans for certain other segments of the Company's operations. For the fiscal
year ending March 31, 1997, the executive officers of the Company who were
not covered by the NEO bonus Plan were covered by the CF-NY General Annual
Bonus Plan or the ContiMortgage General Annual Bonus Plan.
For the fiscal year ending March 31, 1997, the NEO Bonus Plan covered
six executive officers, including the five executive officers named in the
Summary Compensation Table above as well as one other senior executive. In
the case of the covered executive officers employed by
15
<PAGE>
CF-NY, the bonus opportunities under the NEO Bonus Plan for the fiscal year
ending March 31, 1997 were based on CF-NY's adjusted net profits (net pre-tax
profit before bonus payouts but after taking into account interest expenses and
various other direct and allocated expenses). In the case of the covered
executives employed by CMC, the bonus opportunities under the NEO Bonus Plan for
the fiscal year ending March 31, 1997 were based on CMC's adjusted net profits.
In accordance with the terms of the NEO Bonus Plan, the Stock Plan
Committee set the performance goals and individual bonus opportunities for
the fiscal year ending March 31, 1997 within the first 90 days of the fiscal
year, and, following the completion of such year, certified the extent of
performance goal achievement for such year, determined the maximum amount of
bonus payable to each individual participant and then determined the final
amounts payable, applying negative discretion as and where it deemed such
adjustment appropriate.
The bonus pools under the CF-NY and CMC General Annual Bonus Plans for
the fiscal year ending March 31, 1997 were also based on targets relating to
adjusted net profits, with certain adjustments in the total size of the pools
to reflect the outstanding performance of CF-NY and CMC and competitive
market conditions. In accordance with the terms of the plans, the
Compensation Committee certified the size of each of the bonus pools, and
reviewed and approved the participants, the bonus allocations and the form of
payment.
Based on recent survey data for the investment banking and
mortgage/asset finance company sectors and recent proxy data for publicly
held mortgage lenders and finance companies, and the advice of the
independent executive compensation consultants advising the Committees
regarding such data, the Committees believe that the combined salary and
annual bonus compensation of the Company's executive officers was generally
targeted to be competitive with, or somewhat above, the median to 75th
percentile range of practice, consistent with CF-NY's and CMC's targeted
levels of performance.
The peer group used in the Performance Graph on page 20 consists of the
twenty-two publicly-traded mortgage/asset finance companies identified in the
discussion accompanying such Performance Graph. Five of these twenty-two
companies (generally representing the larger companies in the group) were
included in the mortgage/asset finance company comparator group looked at in
connection with the executive officer compensation review process. That
review process also took into account data on the mortgage/asset finance
investment banking operations at more than twenty-one major investment
banking firms, some of which are not publicly-traded and none of which are
included in the Performance Graph peer group.
In this connection, the Committees also note that, for the fiscal year
ending March 31, 1997:
(i) the Company's performance was outstanding when compared to that of
other comparator companies in terms of growth in, and size of, gross
profits, net pre-tax profits and net income, and in terms of absolute
and relative rates of return;
16
<PAGE>
(ii) the Company as a whole and the CFS and CMC operations separately
continue to have conservative headcounts relative to their competitors,
while still performing well on an absolute and relative basis, when
compared to such competitors; and
(iii) the total compensation and benefits costs for CFS and the Company as a
whole when compared to gross revenues net of interest expense, net
pre-tax profits and net income continue to compare very favorably to
such data for a number of other publicly traded companies in the
mortgage lender/finance company and investment banking sectors.
Stock-Based Incentive Awards
The Stock Plan authorizes the Stock Plan Committee to grant executive
officers and other key employees incentive stock options, non-qualified stock
options, stock appreciation rights, restricted stock and/or restricted stock
unit awards, performance awards, and/or other stock-based awards.
Executive officers and certain other key employees were granted
non-qualified stock options and restricted stock awards at the time of the
Company's IPO in early 1996 - awards which the Stock Plan Committee believes
create a substantial and appropriate stake in the Company's longer-term
success. During the fiscal year ending March 31, 1997, one newly appointed
executive officer not listed in the Summary Compensation table (above) was
granted stock options and a restricted stock award. In light of the size and
timing of the IPO-related grants, no other grants were made under the Plan in
the fiscal year ending March 31, 1997.
Special Warrant-Based Incentives
Pursuant to a pre-IPO plan, various key employees of CF-NY are eligible
to receive separate incentive awards that are based on the net amounts
realized on the actual or deemed sale of certain securities acquired by
exercising designated warrant positions acquired in the normal course of
CF-NY's operations.
CEO Compensation
Based on the Committee's assessment of (i) the Company's level of
performance during fiscal year ended March 31,1997, (ii) Mr. Moore's efforts
and performance during that year, and (iii) 1996 survey and 1996-1997 proxy
data and the advice of the Company's outside executive compensation
consultants regarding such data, the Compensation Committee believes that Mr.
Moore's $250,000 salary rate for the fiscal year ended March 31, 1997 was
generally competitive with median practice for the heads of
mortgage-backed/asset-backed securities finance operations, and was otherwise
conservative when compared to the proxy data for chief executive officers at
publicly traded companies in the mortgage lender/finance company sector.
Mr. Moore was awarded an annual bonus of $2,000,000 for the fiscal year
ended March 31, 1997, based on the Company's and his outstanding performance
for the fiscal year -- an award which the Committees believe was appropriate
in view of (i) the very substantial increases
17
<PAGE>
in gross profits, net pre-tax profits and net income both in absolute dollars
and relative to the preceding fiscal year at CFS, at CMC and on a Company-wide
basis; (ii) CFS' continued success in building its portfolio of strategic
alliances and in maintaining its position as a major player in both the private
and public mortgage-backed/asset backed securities finance markets; (iii) CMC's
continued success in building its position as a major player in the home equity
lending market, as evidenced by the increased volume, and dollar value, of CMC's
loan production and the increased size of its servicing portfolio; and (iv) the
successful execution of the Company's strategic plan resulting in the
acquisition of three retail home equity loan originators and one non-prime auto
loan origination and servicing company.
Based on the survey and proxy data considered and the advice of the
Company's outside executive compensation consultants regarding such data, the
Committees believe that this annual bonus payout, and Mr. Moore's resulting
total cash compensation for the fiscal year ended March 31, 1997, was
competitive with the estimated median to 75th percentile total cash
compensation levels for comparable positions.
No stock options were granted to Mr. Moore in fiscal year 1997. The
Committee notes that, as a result of size and vesting schedules of prior
grants, Mr. Moore has a substantial stake in the longer term success of the
Company as measured by the price of the Company's stock -- a stake that the
Committee believes creates a very real mutuality of interests with those of
the Company's stockholders and provides effective balance vis-a-vis Mr.
Moore's annual bonus opportunities.
Prior to the IPO, Continental Grain Company established a Long Term
Incentive Plan to compensate Mr. Moore, among other executives, for
performance related to strategic alliances and Continental Grain's successful
exercise of certain designated warrant positions and the subsequent sale of
the securities acquired. Mr. Moore received $715,000 from this plan in the
fiscal year ending March 31, 1997.
Conclusion
The Committees feel that the total cash compensation paid to the
Company's Chief Executive Officer and executive officers for the fiscal year
ending March 31, 1997 was competitive and reasonable in light of the
Company's continued excellent performance and its ability to manage its
general and administrative costs at significantly more efficient levels than
comparable companies. Prospectively, the Company intends to continue to pay
total compensation at or above the 75th percentile levels for excellent to
outstanding performance. The Committees intend to maximize the deductibility
of compensation paid to executive officers but will also consider other
factors affecting compensation that are in the best interests of the Company
and its stockholders which may preclude it from preserving the tax
deductibility of certain compensation payments.
18
<PAGE>
Compensation Committee Stock Plan Committee
James J. Bigham John W. Spiegel
Paul J. Fribourg John P. Tierney
John W. Spiegel
Donald L. Staheli
John P. Tierney
DIRECTOR COMPENSATION
The Company's policy is not to pay any additional compensation to
directors who are also employees of the Company and its subsidiaries.
Non-employee directors of the Company (including officers of Continental
Grain) receive a $23,000 annual fee for serving as a member of the Board of
Directors, a $9,000 annual fee for attending all meetings of the Board of
Directors in any fiscal year, a $3,000 annual fee for acting as a chairperson
of a committee of the Board of Directors and a $1,000 committee chair per
diem meeting fee for acting as chairperson. All non-employee directors who
are employees of Continental Grain will transfer any fees paid to them to
Continental Grain in accordance with Continental Grain's corporate policy.
Under the Directors Retainer Fee Plan (the "Directors Plan"), a
Director who is not an employee of the Company or an affiliate (an "Eligible
Director") may elect to receive payment of all or any portion of his or her
annual cash retainer and meeting fees (including fees for chairing
committees) either currently, in cash or shares of Common Stock, or may elect
to defer receipt of any such payment. Any deferral election must be made
pursuant to an irrevocable election made six months in advance of the
deferral.
Deferrals are invested, at the election of the Eligible Director, in
(i) a stock unit account to which earnings are credited based on dividends
payable with respect to shares of Common Stock, or (ii) a cash account to
which interest is credited annually at the prime rate as published in The
Wall Street Journal prior to the beginning of each fiscal year of the
Company. As elected by the Eligible Director, distributions are made on the
first day of the month following the earliest to occur of the Director's (i)
death, (ii) disability or (iii) termination of service or retirement.
Distributions made from an Eligible Director's stock unit account will be
paid in a single payment in the form of shares of Common Stock (and cash
representing any fractional share); distributions from an Eligible Director's
cash account will be paid in a single cash payment or in up to 15 annual
installments, at the election of the Eligible Director.
The Directors Plan is administered by the Board of Directors. No
rights granted under the Directors Plan are transferable other than pursuant
to the laws of descent or distribution. The Directors Plan may be amended or
terminated by the Board of Directors, provided that no amendment or
termination may adversely affect any rights accrued prior to the date of
amendment or termination and provided that any amendment for which
stockholder approval is required by law or in order to maintain continued
qualification of the Directors Plan under Rule 16b-3 promulgated under the
Securities Exchange Act of 1934, shall not be effective until such
19
<PAGE>
approval has been obtained. The aggregate number of shares authorized for
issuance under the Directors Plan is 50,000. As of July 22, 1997, none had been
issued.
PERFORMANCE GRAPH
Set forth below is a graph comparing the total shareholder returns
(assuming reinvestment of dividends) of the Company from February 14, 1996
(the month in which the Company's Common Stock became registered under
Section 12 of the Securities Exchange Act of 1934, as amended) through March
1997, to the Standard & Poor's 500 Composite Stock Index ("S&P 500") and the
Company's peer group (the "Peer Group"). The companies included in the Peer
Group consist of Advanced Financial, Advanta Corp. (Class A), American Asset
Management Corp., Beneficial Corporation, Cityscape Financial Corp.,
Countrywide Credit Industries, Inc., Credit Depot Corporation, First
Financial Caribbean Corp. , First Mortgage Corporation (California), Fund
American Enterprises Holdings , Inc., Green Tree Financial Corp.,
Hamilton Financial Services, Helmstar Group, Inc., Imperial Credit Industries
Inc., Litchfield Financial Corp., Lomas Financial Corp., Mercury Finance
Co., The Money Store Inc., North American Mortgage Co., Paragon Mortgage
Corp., Resource Bancshares Mortgage Group, Inc., United Companies
Financial Corporation and Westmark Group Holdings Inc.
TOTAL SHAREHOLDER RETURNS
DATE CONTIFINANCIAL CORP S&P 500 INDEX PEER GROUP
- ---- ------------------- ------------- ----------
2/14/96 $100.00 $100.00 $100.00
3/96 148.81 98.63 109.56
3/97 147.62 118.18 95.67
20
<PAGE>
CERTAIN TRANSACTIONS
Continental Grain is the Company's largest stockholder, currently
owning approximately 75% of the Company's outstanding Common Stock after the
Company's recent offering (the "Offering") of 2,800,000 shares of common
stock and an additional 420,000 shares purchased by the underwriters for over
allotments. The Offering was completed on June 4, 1997. Continental Grain
effectively has voting control on all matters submitted to stockholders,
including the election of directors and the approval of extraordinary
corporate transactions. Five of the directors of the Company are current or
former officers of Continental Grain and such directors constitute a majority
of the Board of Directors.
Continental Grain is able to elect all of the directors of the Company
and to determine the outcome of any matter submitted to a vote of the
Company's stockholders for approval.
The following are summaries of the various agreements between the
Company (or one of its wholly-owned subsidiaries) and Continental Grain (or
one of its subsidiaries), which summaries are qualified in their entirety by
reference to such agreements.
The Company has adopted a policy that all material agreements entered
into following the initial public offering in February 1996 (the "IPO")
between the Company and Continental Grain and its affiliates will be reviewed
and passed on for fairness by the Independent Directors Committee.
Indemnification Agreement
Continental Grain and the Company have entered into an indemnification
agreement (the "Indemnification Agreement"). Subject to certain exceptions,
the Indemnification Agreement places financial responsibility for the
liabilities related to the business of the Company and its subsidiaries with
the Company and financial responsibility for the liabilities related to the
business of Continental Grain and its other subsidiaries with Continental
Grain. Under the Indemnification Agreement, each of Continental Grain and
the Company indemnifies the other in the event of certain liabilities,
including liabilities under the Securities Act of 1933 or the Securities
Exchange Act of 1934. The Company is not aware of any material payments that
it will be required to make, or that it may be entitled to receive, under the
Indemnification Agreement. No amounts were paid under the Indemnification
Agreement in fiscal 1997.
Tax Sharing Agreement
As of March 31, 1997, the Company was a member of the Continental Grain
Group which files a consolidated Federal income tax return and combined state
tax returns in certain states. The Company and Continental Grain had entered
into a tax sharing agreement (the "Tax Sharing Agreement") which (i) defined
their respective rights and obligations with respect to Federal, state, local
and all other taxes for all taxable periods both prior to and after the IPO
and (ii) governed the conduct of all audits and other tax controversies
relating to the Company.
21
<PAGE>
Pursuant to the Tax Sharing Agreement, the Company was charged or
credited, as applicable, for its Federal income tax liability or refund that
would have been payable or received by the Company for such year, or portion
thereof, determined as if the Company had filed a separate Federal income tax
return computed in accordance with prevailing Federal income tax laws and
regulations as applied to the Company as if it were a separate taxpayer. The
Company accrued $54 million in Federal taxes payable to Continental Grain
under its tax sharing arrangements in fiscal 1997.
As a result of the sale by the Company of shares in the Offering, which
was completed on June 4, 1997, Continental Grain's percentage ownership of
the Company was reduced from approximately 81% to approximately 75%. A
result of this ownership reduction was the removal of the Company from the
Continental Grain Group for purposes of filing Federal income tax returns and
certain state tax returns. Consequently, beginning on June 4, 1997, the
Company will file its own Federal tax returns.
Employee Benefit Allocation Agreement
Employees of the Company are eligible to participate in Continental
Grain employee benefit plans. Pursuant to an employee benefit allocation
agreement (the "Employee Benefit Allocation Agreement"), the cost of the
Company's employees' participation in these programs is allocated to the
Company based on the actual cost incurred by its employees plus an allocated
cost of administration of the plans and overhead. Under the Employee Benefit
Allocation Agreement, Continental Grain provides payroll and compensation
administration, including access to Continental Grain's licensed personnel
software, to the Company. The Company reimburses Continental Grain for all
actual costs and administrative expenses incurred by Continental Grain in
connection with such services. The Company reimburses Continental Grain for
all costs incurred in connection with pension benefits to employees on a
stand-alone company basis. The Company paid $793,000 to Continental Grain
under its employee benefit allocation arrangements in fiscal 1997.
Services Agreement
Pursuant to an agreement between Continental Grain and the Company (the
"Services Agreement"), Continental Grain provides the Company certain
corporate services, including treasury administration, risk management,
internal audit, Federal and state tax (including payroll) administration,
management information and communications support services, public affairs,
and facilities management through March 31, 1999 and from year to year
thereafter unless terminated by either party upon 90 days' prior written
notice. With 90 days prior written notice, the Company is permitted to
terminate the Services Agreement at March 31, 1998. The costs for services
provided pursuant to the Services Agreement are determined at the beginning
of each fiscal year of the Company, based on Continental Grain's estimate of
the percentage of its annual overall costs for providing such services
attributable to the Company. The Company paid or accrued $1.7 million for
such services (which does not include the guarantee fees described in the
next paragraph) in fiscal 1997.
22
<PAGE>
The Services Agreement also provides that Continental Grain may, but is
not obligated to, provide guarantees of obligations due third parties. For
these guarantees, the Company will pay Continental Grain annual fees of: (i)
0.05% of the daily average of the utilized sale capacity under any loan or
purchase and sale facility guaranteed by Continental Grain; (ii) 0.25% of the
(x) daily average amount at risk to Continental Grain under any excess spread
receivables (which represent interest-only and residual certificates received
upon the completion of a securitization) or similar structured sale of excess
spread receivables guaranteed by Continental Grain; (y) daily average amount
of the outstanding debt under any loan agreements or other debt instruments
guaranteed by Continental Grain; and (z) annual average amount remaining to
be paid by the Company under any leases and other payment obligations
guaranteed by Continental Grain and not described in clauses (x) and (y) of
this sub-clause (ii); (iii) 0.005% of the amount of proceeds received by the
Company in any underwriting agreement guaranteed by Continental Grain; and
(iv) with respect to any other indemnification and performance obligations
guaranteed by Continental Grain, 0.25% of the lesser of (a) the daily average
of the maximum amount payable by the Company under such indemnity or
performance obligation and (b) the amount of proceeds received by the Company
in the related transaction. Any guarantee fee ceases to be payable when the
Company is no longer legally required to make any such indemnification or
performance payment. The Company paid or accrued $472,800 in guarantee fees
for such services in fiscal 1997.
Pursuant to the Services Agreement, the Company has agreed that if, and
at such time when, Continental Grain owns less than 20% of the voting stock
of the Company, the Company will, at the request of Continental Grain, change
the names of the Company and its subsidiaries to names that are not the same
as, or confusingly similar to, Continental Grain's current corporate name,
including eliminating the term "Conti" from such names.
Finally, the Services Agreement provides that the Company may request
Continental Grain to provide such other corporate services as it routinely
provides to other subsidiaries and divisions.
Sublease
The Company and Continental Grain have entered into a sublease
agreement (the "Sublease") pursuant to which the Company subleases from
Continental Grain office space at 277 Park Avenue, New York, New York. The
Company occupies approximately one and a third floors of space leased from
Continental Grain. Under the terms of the Sublease, the Company pays
Continental Grain its costs for the office space. As a subtenant, the
Company assumes its proportionate share of the additional rental expenses
paid by Continental Grain as a lessee under the terms of its lease. The term
of the Sublease extends through February 28, 2000. The Company paid $1.3
million under the Sublease to Continental Grain under its sublease
arrangements in fiscal 1997.
23
<PAGE>
Intercompany Financing
The Company had intercompany financing provided by Continental Grain.
The Company paid $18.6 million of interest under the intercompany financing
during fiscal year 1997. As of March 12, 1997, the intercompany financing
was repaid in full.
Registration Rights
Under a Common Stock Registration Rights Agreement (the "Common Stock
Registration Rights Agreement") between the Company and Continental Grain,
the Company has granted Continental Grain the right to require the Company to
register shares of Common Stock held by Continental Grain for sale in
accordance with Continental Grain's intended method of disposition thereof (a
"demand registration"). Continental Grain may require up to six such demand
registrations, with no more than one every six months. Additionally, the
Company has granted to Continental Grain the right, subject to certain
exceptions, to participate in registrations of Common Stock initiated by the
Company on its own behalf or on behalf of its stockholders (a "piggy-back
registration"). The Company is required to pay expenses (other than
underwriting discounts and commissions) incurred by Continental Grain in
connection with the demand and piggy-back registrations. Subject to certain
limitations specified in the Common Stock Registration Rights Agreement,
Continental Grain's registration rights are assignable to third parties. The
Common Stock Registration Rights Agreement contains indemnification and
contribution provisions by the Company for the benefit of Continental Grain
and permitted assigns and their related persons.
In connection with the Offering, the Company and Continental Grain
planned to enter into a forward purchase contract pursuant to which shares of
Common Stock owned by Continental Grain could have been distributed to
persons who would have been entitled to exchange certain interests for such
Common Stock. Although this forward purchase contract was never executed,
the Company was required to reimburse Continental Grain for $260,000 of costs
associated with the initial preparation of this transaction.
Under an Indenture Note Registration Rights Agreement that existed
between the Company and Continental Grain for its assignees, the Company had
granted Continental Grain the right to demand one registration with respect
to an indenture (the "Indenture Note") (or a portion thereof). The Indenture
Note was paid in full as of March 12, 1997.
WITHHOLDING TAX LOAN PROGRAM
The Company has granted "restricted" Common Stock (the "Restricted
Stock") and options to purchase Common Stock (the "Options") to its key
officers and managers under the 1995 Stock Plan. In order to facilitate the
continued ownership of such Restricted Stock and Options by those key
officers following vesting, the Company implemented a withholding tax loan
program to allow such officers to borrow funds from the Company to pay for a
portion of the withholding taxes due upon the vesting of the Restricted Stock
and Options.
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The following list sets forth those directors and executive officers of
the Company who have received such loans in amounts over $60,000 and the
amount of the loan outstanding or committed as of March 31, 1997. Interest
charged on each loan is equal to one-month LIBOR plus 1.25%. Loans were made
on March 14, 1996, March 14, 1997 and March 31, 1997. The first interest
payment was originally due March 14, 1997 but was extended to November 1,
1997 as a result of lock up requirements imposed in connection with the
Offering.
James E. Moore - President, Chief Executive Officer and Director ($1,038,820)
Robert J. Babjak - Senior Vice President ($775,634)
Scott M. Mannes -Executive Vice President ($645,711)
Glenn S. Goldman - Executive Vice President ($637,974)
A. John Banu - Senior Vice President ($603,774)
Daniel J. Egan - Senior Vice President ($291,422)
Peter Abeles - Senior Vice President ($202,790)
Jerome M. Perelson - Senior Vice President ($142,899)
Michael J. Festo - Senior Vice President, Human Resources ($134,816)
Susan E. O'Donovan - Vice President and Controller ($79,236)
Alan L. Langus - Senior Vice President, Chief Counsel and Secretary ($68,590)
RATIFICATION OF APPOINTMENT OF
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has selected the firm of Arthur Andersen LLP as
the Company's independent certified public accountants for the year ending
March 31, 1998. Ratification of such appointment requires the affirmative
vote of the holders of a majority of the outstanding shares of Common Stock
represented and voting in person or by proxy at the Annual Meeting or any
adjournment thereof.
Representatives of Arthur Andersen LLP are expected to be present at
the Annual Meeting, at which time they will have the opportunity to make a
statement if they desire to do so and to respond to appropriate questions.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS RATIFICATION OF THE
APPOINTMENT OF ARTHUR ANDERSEN LLP AS INDEPENDENT PUBLIC ACCOUNTANTS FOR THE
COMPANY FOR THE YEAR ENDING MARCH 31, 1998. UNLESS OTHERWISE INSTRUCTED,
SIGNED PROXIES WHICH ARE RETURNED IN A TIMELY MANNER WILL BE VOTED IN FAVOR
OF SUCH APPOINTMENT.
OTHER BUSINESS
As of the date of this Proxy Statement, the only business which the
Board of Directors intends to present, and knows that others will present, at
the Annual Meeting is that set forth herein. If any other matter or matters
are properly brought before the Annual Meeting or any
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adjournments thereof, it is the intention of the persons named in the
accompanying form of proxy to vote the proxy on such matter in accordance with
their judgment.
ANNUAL REPORT
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K AS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION, WITHOUT EXHIBITS, WILL BE FURNISHED
WITHOUT CHARGE TO ANY PERSON FROM WHOM THE ACCOMPANYING PROXY IS SOLICITED
UPON WRITTEN REQUEST TO THE COMPANY'S SECRETARY AT CONTIFINANCIAL
CORPORATION, 277 PARK AVENUE, NEW YORK, NEW YORK 10172.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the Company's
1998 Annual Meeting of Stockholders must be received by the Company on or
prior to March 31, 1998 to be eligible for inclusion in the Company's Proxy
Statement and form of Proxy to be used in connection with the 1998 Annual
Meeting.
OTHER INFORMATION
The cost of preparing, assembling, printing and mailing this Proxy
Statement and the accompanying form of proxy, and the cost of soliciting
proxies relating to the Annual Meeting will be borne by the Company.
By order of the Board of Directors,
/s/ Alan L. Langus
Alan L. Langus
Secretary
New York, New York
July 28, 1997
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