<PAGE>
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
Filed by the Registrant |X|
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Check the appropriate box:
|_| Preliminary Proxy Statement
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|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
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 16, 1998
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 16, 1998 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 approve the Company's Senior Executive Warrant-Based Long-Term
Incentive Plan.
3. To approve an amendment to the Company's 1995 Long-Term Stock
Incentive Plan.
4. To ratify the appointment of Arthur Andersen LLP as independent
accountants for the Company for the fiscal year ending March 31, 1999.
5. 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, 1998
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,
New York, New York Alan L. Langus
July 28, 1998 Secretary
<PAGE>
CONTIFINANCIAL CORPORATION
277 Park Avenue
New York, New York 10172
-----------------------
PROXY STATEMENT
----------------------
ANNUAL MEETING OF STOCKHOLDERS
Meeting Date: September 16, 1998
This Proxy Statement is being sent on or about July 29, 1998 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 1998 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 16, 1998 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, 1998 (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 (a) the nominees for election
as directors as set forth in this Proxy Statement, (b) the approval of the
Company's Senior Executive Warrant-Based Long-Term Incentive Plan, (c) the
approval of an amendment (the "Amendment") to the Company's 1995 Long-Term Stock
Incentive Plan, (d) the ratification of the appointment of Arthur Andersen LLP
as independent accountants for the Company and (e) other matters 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, 1998,
including financial statements, was distributed on June 29, 1998 to stockholders
of record as of June 1, 1998. For those stockholders who were not stockholders
as of June 1, 1998 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.
<PAGE>
VOTING SECURITIES
At the Record Date, there were 46,749,435 shares of Common Stock
outstanding. The presence, either in person or by proxy, of persons entitled to
vote a majority of the Company's 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 Company's Senior Executive Warrant-Based Incentive Plan,
the Amendment to the Company's 1995 Long-Term Stock Incentive Plan and 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, 1998 by (a) each person who is known by the Company
to own beneficially more than 5% of Common Stock, (b) each Director (which
includes the three nominees for Director), (c) each of the executive officers
named in the Summary Compensation Table appearing below (the "Summary
Compensation Table") and (d) 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.
<TABLE>
<CAPTION>
Name of Beneficial Owner Shares of Common Stock Percentage
------------------------ ---------------------- ----------
<S> <C> <C>
Continental Grain Company (a) 35,918,421 76.8%
James E. Moore (b) 681,632 1.5%
Robert A. Major (b) 258,690 (c)
Glenn S. Goldman (b) 253,069 (c)
Scott M. Mannes (b) 254,069 (c)
Robert J. Babjak (b) 210,746 (c)
James J. Bigham (d) 15,000 (c)
Paul J. Fribourg (a) (d) (e) 12,000 (c)
John W. Spiegel 10,000 (c)
Donald L. Staheli 25,000 (c)
John P. Tierney 6,000 (c)
Lawrence G. Weppler (d) 1,000 (c)
Michael J. Zimmerman (d) 2,000 (c)
All directors and executive officers as a 2,490,898 5.3%
group (23 persons) (f)
</TABLE>
2
<PAGE>
(a) Michel Fribourg, members of his family and trusts and partnerships 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) Included for Messrs. Moore, 298,100 shares; Goldman, 127,355 shares;
Mannes, 128,355 shares; and Babjak, 82,905 shares of "restricted"
Common Stock and for Messrs. Moore, 383,532 shares; Major, 255,690
shares; Goldman, 125,714 shares; Mannes, 125,714 shares and Babjak,
127,841 shares of Common Stock issuable upon exercise of options. Does
not include 459,639 shares of Common Stock issuable upon the exercise
of options held by such officers not exercisable within 60 days of the
date hereof.
(c) Represents less than 1% of the Common Stock outstanding at July 9,
1998.
(d) Messrs. Bigham, Fribourg, Weppler and Zimmerman are officers of
Continental Grain Company.
(e) 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.
(f) Includes 1,019,180 shares of "restricted" Common Stock and 1,382,018
shares of Common Stock issuable upon the exercise of options. Does not
include 646,252 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 76% 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,
"FOR" the approval of the Company's Senior Executive Warrant-Based Long-Term
Incentive Plan, "FOR" the approval of the Amendment to the Company's 1995
Long-Term Stock Incentive Plan 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 III Directors for a term of three years expiring in 2001 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
3
<PAGE>
stockholders following the end of the Company's fiscal year ending March 31,
1999 and the term of the Class II Directors expires at the annual meeting of the
Company's stockholders following the end of the Company's fiscal year ending
March 31, 2000, 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 James J.
Bigham, John P. Tierney and Michael J. Zimmerman. The Class III 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.
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 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 and Chief Financial Officer since August 1989. He has been a Director of
Continental Grain since 1989 and a Director of ContiMortgage since 1990. He was
Executive Vice President of Continental Grain from August 1989 to August 1997.
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 Charter One
Financial, Inc. (a holding company for Charter One Bank, Charter Michigan
Bancorp and Rochester Community Savings Bank, consumer banks offering a variety
of financial services) and Dollar Thrifty Automotive Group, Inc. (operator of
two separate car rental companies, Dollar and Thrifty).
Michael J. Zimmerman. Mr. Zimmerman has been a Director of the Company
since February 1997. He also has been 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.
4
<PAGE>
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 the 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 of Continental Grain. He has been a Director of
Continental Grain since 1988. Mr. Staheli serves currently 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 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 had held the position of 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. He is also a Director of Loews Corporation (a diversified
holding company the main interest of which is insurance). 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 Board of Directors of Rock-Tenn Company (a
manufacturer of paperboard products).
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.
5
<PAGE>
Meetings and Committees
The Company has an Executive Committee, a Compensation Committee, an
Audit Committee, an Independent Directors Committee, a 1995 Stock Plan Committee
(the "Stock Plan Committee") (which also serves as the Section 162(m) Plan
Committee) and a Special Pricing 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 Stock Plan Committee, currently comprised of
Messrs. Spiegel and Tierney, administers the ContiFinancial Corporation 1995
Long-Term Stock Incentive Plan (the "Stock Plan") and any other Section 162(m)
compensation awards. The Special Pricing Committee was formed to authorize the
price to be received by the Company from the sale of its shares in the Company's
primary offering of common stock.
During the year ended March 31, 1998, there were five meetings of the
Board of Directors, no meetings of the Executive Committee, five meetings of the
Compensation Committee, two meetings of the Audit Committee, no meetings of the
Independent Directors Committee, six meetings of the Stock Plan Committee and
one meeting of the Special Pricing Committee. No Director attended fewer than
75% of the total number of meetings of the Board and committees on which he
served.
6
<PAGE>
MANAGEMENT
Executive Officers and Directors
The directors and executive officers of the Company and their
respective ages and positions are as follows:
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
James E. Moore 51 President, Chief Executive Officer and Director
Robert A. Major 51 Executive Vice President of the Company and President and Chief
Executive Officer of ContiMortgage
Glenn S. Goldman 36 Executive Vice President of the Company and Co-President and Managing
Director of ContiFinancial Services
Scott M. Mannes 39 Executive Vice President of the Company and Co-President and Managing
Director of ContiFinancial Services
Peter Abeles 43 Senior Vice President of the Company and Managing Director of
ContiFinancial Services
Robert J. Babjak 55 Senior Vice President of the Company and Executive Vice President and
Chief Operating Officer of ContiMortgage
A. John Banu 43 Senior Vice President of the Company and Senior Managing Director of
ContiFinancial Services
Daniel J. Egan 43 Senior Vice President of the Company and Senior Vice President
and Chief Financial Officer of ContiMortgage
Michael J. Festo 46 Senior Vice President, Human Resources
Alan L. Langus 51 Senior Vice President, Chief Counsel and Secretary
Jerome M. Perelson 59 Senior Vice President of the Company and Managing Director and Chief
Credit Officer of ContiFinancial Services
Daniel J. Willett 48 Senior Vice President and Chief Financial Officer of the Company and
Managing Director of ContiFinancial Services
Frank W. Baier 33 Vice President and Treasurer
Marc E. Halbreich 51 Vice President-Taxes
Debra J. Huddleston 42 Vice President - Internal Audit
Dennis G. Sullivan 42 Vice President and Controller
James J. Bigham 60 Director and Chairman of the Board
Paul J. Fribourg 44 Director
John W. Spiegel 57 Director
Donald L. Staheli 66 Director
John P. Tierney 66 Director
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Lawrence G. Weppler 53 Director
Michael J. Zimmerman 47 Director
</TABLE>
Set forth below are the biographies of the executive officers:
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.
8
<PAGE>
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.
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
Vice President and Treasurer of Continental Grain from March 1990 to January
1997.
Frank W. Baier. Mr. Baier has been Vice President and Treasurer of the
Company since September 1997. Previously he had held the position of Director of
Corporate Finance since joining the Company in September 1996. Prior to joining
the Company, Mr. Baier had been employed at RJR Nabisco Inc. since June 1987
where he had a variety of positions in the accounting and treasury functions
most recently as Director, Corporate Finance, the position he held from March
1995 through September 1996. He was Manager, Corporate Finance of RJR Nabisco
Inc. from January 1991 through March 1995.
Marc E. Halbreich. Mr. Halbreich joined the Company in April 1998 as
Vice President - Taxes. He previously had worked for Continental Grain since
August 1987 where he held a number of corporate tax positions including
Assistant Vice President - International Taxes, the position he held from April
1990 through April 1998.
9
<PAGE>
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 had held
the position of Controller-Government Securities and Foreign Exchange Division
of Continental Grain since 1991.
Dennis G. Sullivan. Mr. Sullivan has been Vice President and Controller
of the Company since January 1998. Prior to joining the Company, Mr. Sullivan
had been employed at Salomon Brothers since June 1989 where he held a number of
positions in the accounting function. From April 1997 through January 1998, he
was Deputy Corporate Controller. From December 1993 through April 1997, he was
Director of Financial Reporting and Accounting Standards and from November 1992
through December 1993, he was Director of S.E.C. Reporting and Compliance.
10
<PAGE>
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 OTHER (c)
---- ---- ------- --------- --------- ------- ------- ---------
$ $ $ # $ $
<S> <C> <C> <C> <C> <C> <C> <C>
James E. Moore 1998 275,000 2,380,000 ---- 50,000 ---- 331,400
President and Chief 1997 250,000 2,000,000 ---- ---- ---- 719,500
Executive Officer 1996 243,333 2,400,000 7,683,768 479,420 ---- 354,500
Robert A. Major 1998 225,000 1,600,000 ---- 40,000 ---- 5,867
Executive Vice 1997 220,883 1,500,000 ---- ---- ---- ----
President/
Chief Executive 1996 141,666 2,000,000 ---- 319,615 ---- ----
Officer, ContiMortgage
Glenn S. Goldman 1998 183,250 1,540,000 ---- 40,000 ---- 431,400
Executive Vice 1997 164,667 1,160,000 ---- ---- ---- 674,500
President/
Co-President and 1996 158,667 1,375,000 3,318,000 157,145 ---- 729,500
Managing Director,
ContiFinancial Services
Scott M. Mannes 1998 183,250 1,540,000 ---- 40,000 ---- 431,400
Executive Vice 1997 164,667 1,160,000 ---- ---- ---- 674,500
President/
Co-President and 1996 158,667 1,375,000 3,318,000 157,145 ---- 254,500
Managing Director,
ContiFinancial Services
Robert J. Babjak 1998 176,250 1,300,000 ---- 35,000 ---- ----
Senior Vice President/ 1997 150,000 1,115,300 182,400 ---- ---- ----
Chief Operating Officer, 1996 111,400 1,750,000 2,008,256 159,805 ---- ----
ContiMortgage
</TABLE>
(a) Includes accrued and/or deferred bonuses for fiscal year
ending March 31, 1998 under the Company's Named Executive
162(m) Bonus Plan (as defined in the Joint Report of
Compensation Committee and Stock Plan Committee herein). For
Messrs. Moore, Goldman and Mannes, a portion of the 1998 bonus
was deferred in the form of restricted shares totaling 15,385,
9,955 and 9,955, respectively, which vest 50% on March 31,
1999 and 50% on March 31, 2000. Messrs. Major and Babjak,
respectively, had 40% of the bonus amount deferred in cash.
These amounts will be paid out over three years beginning May
1999.
(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 except for the 1997
grant to Mr. Babjak. The number and value of the unvested
restricted stock holdings at March 31, 1998 for each person
named is as follows: Mr. Moore, 117,087 shares with a market
value of $3,571,153, Messrs. Goldman and Mannes, 50,560 shares
each with a market value of $1,542,080 each and Mr. Babjak,
38,737 shares with a market value of $1,181,478. The
restricted shares have vested or will, subject to the
reporting person's continued employment with the Company, 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 except for Mr. Babjak whose grant
vests one third in each year beginning May 1998 and ending May
2000. In addition, the
11
<PAGE>
restricted shares will vest upon a change of control, as
defined in the 1995 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) 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 1998 for Messrs. Moore, Goldman and
Mannes, $6,400 each and Mr. Major, $5,867 and payments made
pursuant to the ContiFinancial Services Long-Term Incentive
Compensation Plan in 1998 for Messrs. Moore, $325,000,
Goldman, $425,000 and Mannes, $425,000. The ContiFinancial
Services Long-Term Incentive Compensation Plan provides for
incentive awards based on the value of 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, which awards are
paid by Continental Grain to participants.
Aggregated Option Exercises in Fiscal Year 1998
and Fiscal Year 1998 Option Value (a)
The following table provides information as to options exercised by
each of the named executive officers of the Company during fiscal 1998. 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, 1998 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 ----- ----- 383,532 145,888 3,599,569 1,180,170
Robert A. Major ----- ----- 255,690 103,925 2,399,733 822,347
Glenn S. Goldman ----- ----- 125,714 71,431 1,179,871 517,380
Scott M. Mannes ----- ----- 125,714 71,431 1,179,871 517,380
Robert J. Babjak ----- ----- 127,841 66,964 1,199,836 491,903
</TABLE>
(a) The 1998 year end value of the Company's Common Stock was $30.50. The dollar
value shown in the table is calculated by determining the difference between the
year end value of the Company's Common Stock and the exercise price of the
option exercisable at year end.
12
<PAGE>
Option Grants in Fiscal Year 1998
The following table shows all grants of options during the fiscal year
ending March 31, 1998 to the executives of the Company named in the Summary
Compensation Table for fiscal 1998. The options were granted under the Company's
1995 Long-Term Stock Incentive Plan (the "Stock Plan"). Pursuant to Securities
and Exchange Commission rules, the table also shows the value of the options
granted at the end of the option terms (ten years) if the stock price were to
appreciate annually by 5% and 10%, respectively. There is no assurance that the
stock price will appreciate at the rates shown in the table.
<TABLE>
<CAPTION>
Potential Realizable Value at
Individual Grants Assumed Annual Rates of
------------------------------------------------------------------------ Stock Price Appreciation
% of Total Options for Option Term (b)
# of Options Granted to Exercise Price Expiration -----------------------------
Name Granted (a) Employees in FY 1998 ($ per share) Date 5% ($) 10% ($)
- -------- -------------- -------------------- --------------- ---------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
James E. Moore 50,000 6.2% $24.94 02/25/08 784,200 1,987,400
Robert A. Major 40,000 4.9% $24.94 02/25/08 627,400 1,589,900
Glenn S. Goldman 40,000 4.9% $24.94 02/25/08 627,400 1,589,900
Scott M. Mannes 40,000 4.9% $24.94 02/25/08 627,400 1,589,900
Robert J. Babjak 35,000 4.3% $24.94 02/25/08 548,900 1,391,200
</TABLE>
(a) Granted on February 25, 1998. These options have a ten-year term and
will be subject to reporting person's continued employment with the
Company, and vest as follows: 25% as of February 25, 1999, 25% as of
February 25, 2000, 25% as of February 25, 2001, and 25% as of February
25, 2002. In addition, the options will vest upon a Change of Control,
as defined in the Stock Plan.
(b) These values were calculated assuming a 5% and 10% annual appreciation
of the price of the security at the time of the grant over the ten-year
term of the option. The grant was made at an exercise price of $24.94
per share.
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 supplemented by
the Continental Grain Supplemental Employee Retirement Plan (the "Supplemental
Plan"), each as described below:
13
<PAGE>
<TABLE>
<CAPTION>
Estimated Annual Benefits at Retirement with
Highest Consecutive Indicated Years of Credited Service (a) (b)
Five Year Average ----------------------------------------------
Direct Base Salary Years of Service
------------------- ----------------------------------------------
5 10 15 20 25
- -- -- -- --
<S> <C> <C> <C> <C> <C>
$100,000 $ 7,018 $14,037 $21,055 $ 28,074 $35,092
$150,000 $10,893 $21,787 $32,680 $ 43,574 $54,467
$200,000 $14,768 $29,537 $44,305 $ 59,074 $73,842
$250,000 $18,643 $37,287 $55,930 $ 74,547 $93,217
$300,000 $22,518 $45,037 $67,555 $ 90,074 $112,592
$350,000 $26,393 $52,787 $79,180 $105,574 $131,967
$400,000 $30,268 $60,537 $90,805 $121,074 $151,342
</TABLE>
- -------------------
(a) Estimated retirement benefits described above include benefits under
Continental Grain's tax-qualifed 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 payable under the Salaried
Retirement Plan would be based on average compensation of $239,750, $219,244,
$158,300, $157,862 and $118,097 as of March 31, 1998, and 14.6 years, 1.6 years,
6.9 years, 6.5 years and 5.7 years of service as of March 31, 1998 for each of
Messrs.
14
<PAGE>
Moore, Major, Goldman, Mannes and Babjak, respectively. Effective July 1, 1998
the Company has terminated participation in this plan and has adopted its own
Employee Savings/401(k) Plan. Certain officers also participate in a separate
Supplemental Employee Retirement Program.
JOINT REPORT OF COMPENSATION COMMITTEE AND STOCK PLAN COMMITTEE
Introduction
The Compensation Committee and the 1995 Stock Plan Committee of the
Company's Board of Directors (respectively, the "Compensation Committee" and
"Stock Plan Committee", 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. Spiegel, Mr. Staheli and Mr. Tierney.
The Stock Plan Committee is responsible (a) 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 (b) 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 Section 162(m) Annual Bonus Plan for executive officers who are or are
likely to be named executive officers ("NEOs") (the "NEO Bonus Plan"), so that
annual bonus awards made under such Plan 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 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 Company's
business strategies and objectives to the forms and levels of 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
15
<PAGE>
in the Company's best interest. Consistent with that policy, the Stock Plan
Committee administers the Company's Stock Plan and, within the first 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 and also determines the actual amounts payable
following year end under such plan.
Annual Cash Compensation
The Committees believe that the Company's practices with respect to
cash compensation should emphasize pay for performance by (a) generally setting
base salaries at levels that are conservative when compared to estimated market
rates, based on available survey, proxy and other data, and (b) 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, 1998, 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 ContiMortgage Corporation ("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 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, 1998, the Company maintained
several different annual bonus plans, including the 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 CMC, and separate plans for certain other segments of
the Company's operations. For the fiscal year ending March 31, 1998, 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, 1998, 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
16
<PAGE>
CF-NY, the bonus opportunities under the NEO Bonus Plan for the fiscal year
ending March 31, 1998 were based on CF-NY's adjusted net profits (net pretax
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, 1998 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, 1998 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.
In this connection, the Stock Plan Committee considered a variety of factors
including those referred to below in connection with the discussion of Mr.
Moore's annual bonus for the fiscal year ending in March 1998.
The bonus pools under the CF-NY and CMC General Annual Bonus Plans for
the fiscal year ending March 31, 1998 were also based on targets relating to
adjusted net profits, with certain adjustments in the total size of the pools to
reflect the 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 competitive with, or somewhat
above, the median to 75th percentile range of practice, consistent with CF-NY's
and CMC's relative levels of performance.
The peer group used in the Performance Graph on page 22 consists of the
23 publicly-traded mortgage/asset finance companies identified in the discussion
accompanying such Performance Graph. Of these 23 companies, eight (generally
representing the larger companies in the group) were included in the
mortgage/asset finance company comparative 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
approximately 20 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, 1998:
(a) the Company's performance was excellent when compared to that of other
comparative companies in terms of growth in, and relative size of,
gross revenues, net pretax profits and net income, and in terms of
absolute and relative rates of return;
17
<PAGE>
(b) the Company continues to generally have conservative head counts in its
various operations relative to its competitors, while still performing
well on an absolute and relative basis, when compared to such
competitors; and
(c) the Company's total compensation and benefits costs, when compared to
gross revenues net of interest expense, continue to generally compare
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.
During the fiscal year ending March 31, 1998, the Stock Option
Committee made stock option grants (priced at 100% of market at grant) to all of
the Company's executive officers plus a selected group of other key employees.
Based on available proxy and survey data and the advice of the independent
compensation consultants regarding such data, the Committee believes that the
1998 grants made to executive officers were generally consistent with, or more
conservative than, median grant levels based on current market practices.
Special Warrant-Based Incentives
Pursuant to separate pre-IPO and post-IPO long-term incentive plans,
various key employees of the Company 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. The payouts made to
executive officers under the pre-IPO plan during the fiscal year ending March
31, 1998 are described in the Summary Compensation Table above; no payouts were
made under the post-IPO plan during the fiscal year ending March 31, 1998.
CEO Compensation
Based on available survey and proxy data and the advice of the
Company's outside executive compensation consultants regarding such data, the
Compensation Committee believes that Mr. Moore's base salary rate for the fiscal
year ended March 31, 1998 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.
Based on the Company's and his outstanding performance for the fiscal
year, Mr. Moore was awarded an annual bonus of $2,380,000 for the fiscal year
ended March 31, 1998 - 80% of which was paid in the form of cash and 20% of
which was paid in the form of 15,385 shares of
18
<PAGE>
restricted stock. The Committees believe that this award was appropriate in view
of (a) the substantial increases in gross revenues, net pretax profits and net
income both in absolute dollars and relative to the fiscal years ending in 1996
and 1997 at CF-NY and at CMC, as well as on a Company-wide basis; (b) CF-NY's
continued success in maintaining and building on its position as a premier
participant in both the private and public mortgage-backed and asset-backed
securities finance markets; (c) CMC's continued success in building its position
as a major participant 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 (d) the successful execution of the
Company's strategic plan.
In particular, the Committees took note of the Company's continued
growth and diversification during the year as evidenced by (a) the expansion of
its commercial real estate operations, (b) the addition of new small-ticket
leasing, charged-off receivables and high-loan-to-value businesses, (c) the
continued expansion of its home equity origination platform (through its retail
acquisition strategy), (d) continued growth in its servicing portfolio, (e) the
ongoing development of new securitizable product lines, and (f) the continuing
quality of its access to, and executed transactions in, the debt and equity
markets, as well as the establishment of a commercial paper program.
Based on the Committee's assessment of (a) the Company's high level of
overall performance during the fiscal year ended March 31, 1998, (b) Mr. Moore's
efforts and contributions during such year, and (c) survey and proxy data 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, 1998, was
competitive with the estimated 75th percentile total cash compensation levels
for comparable positions.
A stock option grant for 50,000 shares, priced at 100% of market at
grant, was made to Mr. Moore in fiscal year 1998. The Committee believes that
that grant was modest in size compared to market practices for CEO grants, but
notes that, as a result of the size and vesting schedules of prior option and
restricted stock grants, Mr. Moore continues to have 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 genuine mutuality of
interests with those of the Company's stockholders and provides an effective
balance vis-a-vis Mr. Moore's annual salary, bonus and other incentive
opportunities.
The payout made to Mr. Moore under the pre-IPO warrant-based long-term
incentive plan during the fiscal year ending March 31, 1998 is described in the
Summary Compensation Table above; as noted above, no payouts were made under the
post-IPO warrant-based long-term incentive plan (described at page 27 below)
during the fiscal year ending March 31, 1998.
Conclusion
The Committees feel that the total cash compensation paid to the
Company's Chief Executive Officer and other executive officers for the fiscal
year ending March 31, 1998 was
19
<PAGE>
competitive and reasonable in light of the Company's continued high levels of
performance and its continued success in growing and diversifying the businesses
in which it operates.
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
20
<PAGE>
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 per diem meeting fee. 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
(a) a stock unit account to which earnings are credited based on dividends
payable with respect to shares of Common Stock, or (b) 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 (a) death, (b) disability or
(c) 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 approval has been obtained. The aggregate
number of shares authorized for issuance under the Directors Plan is 50,000. As
of July 22, 1998, none had been issued.
21
<PAGE>
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 31, 1998,
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
<TABLE>
<CAPTION>
Date ContiFinancial Corporation S & P 500 Index Peer Group
- ---- -------------------------- --------------- ----------
<S> <C> <C> <C>
2-14-96 $100.00 $100.00 $100.00
3-31-96 $148.81 $98.63 $109.56
3-31-97 $147.62 $118.18 $95.68
3-31-98 $145.24 $174.91 $130.18
</TABLE>
22
<PAGE>
CERTAIN TRANSACTIONS
Continental Grain is the Company's largest stockholder, currently
owning approximately 76% of the Company's outstanding Common Stock. 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 1998.
Tax Sharing Agreement
Effective June 4, 1997, upon the completion of the Company's primary
offering of common stock, Continental Grain's percentage ownership of the
Company was reduced from approximately 81% to approximately 75%. Consequently,
from that date, the Company was no longer included in Continental Grain's
consolidated U.S. Federal tax return. With respect to the periods prior to the
June 4, 1997 offering, the Company's Federal taxes were determined in accordance
with the tax sharing agreement (the "Tax Sharing Agreement") between the Company
and Continental Grain. On February 14, 1996 the Company and Continental Grain
entered into the Tax Sharing Agreement which (a) defined their respective rights
and obligations with respect to Federal, state, local and all other taxes for
all taxable periods both prior to and
23
<PAGE>
after the IPO and (b) governed the conduct of all audits and other tax
controversies relating to the Company.
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. Under
the Tax Sharing Agreement, the Company accrued a $9 million Federal tax
receivable from Continental Grain in fiscal 1998. This amount was paid by
Continental Grain prior to the end of fiscal 1998.
Employee Benefit Allocation Agreement
As of April 1, 1998, the Company ceased participating in Continental
Grain's employee health and welfare plans and established its own. Prior to
April 1, 1998, employees of the Company were eligible to participate in
Continental Grain employee benefit plans including health and welfare 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
continues to provide payroll and compensation administration, including access
to Continental Grain's licensed personnel software, to the Company. The Company
expects to cease using Continental Grain's payroll and compensation
administration in the fall of 1998 at which time an outside party will be hired
to administer such matters. 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 $465,000 to Continental Grain under its employee
benefit allocation arrangements in fiscal 1998.
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. The costs for services provided
pursuant to the Services Agreement are based on Continental Grain's costs for
providing such services attributable to the Company. The Company paid or accrued
$2.1 million for such services (which does not include the guarantee fees
described in the next paragraph) in fiscal 1998.
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 (a) 0.05% of
the daily average of the utilized sale capacity
24
<PAGE>
under any loan or purchase and sale facility guaranteed by Continental Grain;
(b) 0.25% of the (i) 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;
(ii) daily average amount of the outstanding debt under any loan agreements or
other debt instruments guaranteed by Continental Grain; and (iii) 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 (i) and
(ii) of this sub-clause (b); (c) 0.005% of the amount of proceeds received by
the Company in any underwriting agreement guaranteed by Continental Grain; and
(d) with respect to any other indemnification and performance obligations
guaranteed by Continental Grain, 0.25% of the lesser of (i) the daily average of
the maximum amount payable by the Company under such indemnity or performance
obligation and (ii) 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 $338,300 in guarantee fees for such
services in fiscal 1998.
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 $1.6 million under the Sublease to
Continental Grain under its sublease arrangements in fiscal 1998.
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
25
<PAGE>
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.
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 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.
The following list sets forth those directors and executive officers of
the Company who have received such loans in amounts over $60,000. It includes
the largest aggregate amount of the loan outstanding at any time during fiscal
year 1998 and the amount of the loan outstanding or committed as of June 30,
1998. Interest charged on each loan is equal to one-month LIBOR plus 1.25%.
Loans were made on March 14, 1996, March 14, 1997, March 31, 1997, and March 31,
1998.
<TABLE>
<CAPTION>
Largest Amount Amount Outstanding as
Name Title Outstanding During of June 30, 1998 ($)
---- ----- Fiscal Year 1998 ($) ------------------------
---------------------
<S> <C> <C> <C>
James E. Moore President, Chief Executive 998,073 674,730
Officer and Director
Glenn S. Goldman Executive Vice President 600,086 350,580
Scott M. Mannes Executive Vice President 600,109 0
Peter Abeles Senior Vice President 143,935 142,456
Robert J. Babjak Senior Vice President 275,063 136,584
A. John Banu Senior Vice President 600,440 264,686
</TABLE>
26
<PAGE>
<TABLE>
<S> <C> <C> <C>
Daniel J. Egan Senior Vice President 217,266 0
Michael J. Festo Senior Vice President - 126,496 55,000
Human Resources
Jerome M. Perelson Senior Vice President 142,901 121,819
Debra J. Huddleston Vice President - Internal 121,485 98,324
Audit
</TABLE>
APPROVAL OF SENIOR EXECUTIVE
WARRANT-BASED LONG-TERM INCENTIVE PLAN
In June 1997, the Board of Directors adopted the Company's Senior
Executive Warrant-Based Long-Term Incentive Plan (the "Senior LTIP"), subject to
approval by the Company's shareholders no later than the first annual
shareholders' meeting occurring after March 31, 1998. The time delay permitted
the Company to seek and obtain an IRS private letter tax ruling on certain
aspects of the Senior LTIP. No payments will be made under the Senior LTIP
unless and until the Company's shareholders approve the Senior LTIP.
The purpose of the Senior LTIP is to enable selected senior executive
officers of the Company to participate in the values realized, actually or on a
deemed basis, by the Company in connection with certain warrant positions taken
by the Company after its 1996 initial public offering (the "IPO") in connection
with various strategic alliances and otherwise. The Company also maintains a
similar but separate plan with respect to post-IPO warrant positions that
applies to selected other key employees. A third plan sponsored by Continental
Grain Company applies to certain warrant positions created prior to the IPO.
A summary of the Senior LTIP follows, but this summary is qualified in
its entirety by reference to the full text of the Senior LTIP, which is attached
as Exhibit A to this Proxy Statement.
Administration
The Senior LTIP is administered by the Stock Plan Committee, a
committee of the Board, consisting of two or more "outside directors" within the
meaning of Section 162(m) of the Internal Revenue Code of 1986 as amended (the
"Code"). Within the first 90 days of each fiscal year beginning on or after
March 31, 1997, the Stock Plan Committee designates (a) the executive officers
eligible to participate in the Senior LTIP for such year, (b) which warrant
positions taken by the Company or a subsidiary after its IPO shall be treated as
"Designated Warrant Positions" for such year, and (c) the percentage (which may
vary by participant) of the total net sales proceeds occurring within such year
of shares acquired with respect to such Designated Warrant Positions that each
participant will be eligible to receive upon the achievement of a specified
minimum Adjusted Net Profits ("ANP", as defined in the Senior
27
<PAGE>
LTIP) or other income-based performance goal set by the Stock Plan Committee for
such fiscal year.
Designated Warrant Position Determinations
As noted above, the Stock Plan Committee makes a determination each
year as to which warrant positions are to be treated as Designated Warrant
Positions under the Senior LTIP for such year. Once so designated, a Designated
Warrant Position will generally remain such for each subsequent fiscal year
until the shares relating to such Designated Warrant Position have been sold or
deemed sold.
Eligibility; Participation
Participation in the Senior LTIP for a given fiscal year is limited to
executive officers whose annual cash compensation may exceed $1 million for such
year, who may be subject to the limitations in Section 162(m) of the Code, and
who are designated by the Stock Plan Committee as participants in the Senior
LTIP for such year.
Performance Goal Determinations
As noted above, the Senior LTIP performance goal for any fiscal year
shall be specified by the Stock Plan Committee no later than the 90th day of
such fiscal year, and shall be a minimum profitability goal measured by the
Company's ANP for the year or any other financial performance measure specified
by the Stock Plan Committee that is based on pretax or after-tax income or
operating income. The performance goal may be expressed as achieving a minimum
dollar amount or as achieving a minimum percentage of the ANP (or any other
applicable performance measure) achieved in a prior year or other period. Unless
otherwise determined by the Stock Plan Committee no later than the 90th day of
such fiscal year, such financial performance shall be determined without regard
to extraordinary events (as determined by the Company's independent public
accountants) and without regard to changes in accounting.
Individual Award Opportunities
The amount payable to any participant for any fiscal year in which the
applicable performance goal is met shall be equal to such participant's
designated percentage multiplied by the total net proceeds from actual sales (or
sales that may be deemed to have occurred) within such fiscal year of shares
acquired (or deemed acquired) with respect to the Designated Warrant Positions
for such fiscal year. The net proceeds from any such actual or deemed sale shall
equal the sales price minus the sum of any actual or deemed exercise price, and
any brokerage or other sales costs incurred in such disposition of shares, and
any reduction in sales price deemed appropriate by the Stock Plan Committee
based upon post-exercise, pre-sale cash infusion or other transactions that
increase the Company's (or, if applicable, a subsidiary's) tax basis in the
shares sold or deemed sold.
28
<PAGE>
Impact of Acquisition of Controlling Interest
If the Company or a subsidiary acquires a controlling interest in an
entity in which it has a Designated Warrant Position, the Stock Plan Committee
may provide that such Designated Warrant Position shall be valued and deemed to
be disposed of on a deemed sale date occurring at least three years after the
acquisition of such controlling interest. The Stock Plan Committee shall
establish objective valuation methodologies in writing for purposes of
determining the deemed sales price to be applied in such cases (a) at least 12
months before the beginning of the fiscal year in which such deemed sale occurs
and within (i) 180 days after the acquisition date of such controlling interest
for any acquisitions occurring after the adoption of the Senior LTIP, or (ii) 90
days after the adoption of the Senior LTIP for any acquisition occurring on or
prior to the date of the adoption of the Senior LTIP. The Stock Plan Committee
shall have the power to reduce, but not increase, the amount determined to be
payable upon any such deemed sale.
Application of Negative Discretion
The Stock Plan Committee may exercise negative discretion to reduce the
amount payable to any participant for any fiscal year by up to 100%, and the
maximum amount payable to any participant for any single fiscal year may not
exceed $15 million.
Award Determination Process
Except in the event of a Change in Control (as defined in the Senior
LTIP), no payments will be made under the Senior LTIP in respect of any fiscal
year unless the applicable performance goal for such year has been satisfied,
and payments under the Senior LTIP will only be made after the Stock Plan
Committee has certified the amounts payable based on the audited financial
results of the Company for the applicable fiscal year and after factoring in any
negative discretion adjustments deemed appropriate by the Stock Plan Committee.
Form of Payouts
The Stock Plan Committee may defer up to 50% of any award payout for a
given fiscal year and pay such amount over a period of up to three years (with a
market rate of interest determined by the Stock Plan Committee). In addition,
the Stock Plan Committee may defer up to 100% of any award for a given fiscal
year if the Stock Plan Committee determines that such deferral is necessary to
comply with Section 162(m) of the Code, and pay such amount (with a market rate
of interest determined by the Stock Plan Committee) not later than 30 days after
the end of the fiscal year in which the participant's employment with the
Company terminates. Participants may also elect to defer all or part of any
payment if and to the extent so permitted under the Company's Key Employee
Deferred Compensation Plan.
Other Plans
A portion of the total net proceeds (if any) relating to the Designated
Warrant Positions for each fiscal year not paid to participants in the Senior
LTIP may be paid to selected other key employees under a separate warrant-based
incentive plan maintained by the Company.
29
<PAGE>
Amendment; Termination
The Board may at any time amend or terminate the Senior LTIP provided
that no amendment that would adversely affect compliance with Section 162(m) of
the Code shall be made without the approval of the Company's shareholders, and
no such amendment or termination shall change the terms of any award payment
opportunities created with respect to any Designated Warrant positions in
existence prior to any such amendment or termination without the written consent
of the participants affected.
Reapproval
It is presently anticipated that the Senior LTIP will be submitted to
the shareholders for reapproval in the year 2002 or 2003. If the Senior LTIP is
submitted for reapproval in the year 2002, the Stock Plan Committee may provide,
subject to the terms of the Senior LTIP, that, if such reapproval is sought but
not obtained and if the performance goal for such year is achieved, the Senior
LTIP will be terminated at the end of such year by deeming all shares acquired
or deemed acquired in respect of Designated Warrant Positions to have been sold
as of the last day of such fiscal year for a deemed sales price based on
objective valuation methodologies established by the Stock Plan Committee no
later than the 90th day of such year. If the Senior LTIP is reapproved by the
shareholders in the year 2002 or 2003, it will continue in effect thereafter,
subject to reapproval by the shareholders in every fourth or fifth subsequent
year in the same manner, until amended or terminated.
Federal Income Tax Aspects
Award payouts under the Senior LTIP will generally be taxed as ordinary
income to the participant when received, and will generally be deductible by the
Company in the year taxable to the participant, unless the payout is timely
deferred in which case the payout will generally be taxed and deductible in the
year actually paid.
New Plan Benefits
It is not possible to determine the size of the award payouts (if any)
that will in the future be paid out under the Senior LTIP to any particular
individual or to the participant group as a whole. Set forth below are the
payouts made to the named executive referred to in the Summary Compensation
Table above that have occurred since the IPO under the separate warrant-based
incentive plan maintained by Continental Grain Company with respect to warrant
positions created prior to the IPO which provides in the aggregate for
substantially larger payouts (based on a higher percentage of the amounts
realized on warrant positions) than what is contemplated under the Senior LTIP.
30
<PAGE>
<TABLE>
<CAPTION>
Name and Position Fiscal Year 1996 Fiscal Year 1997 Fiscal Year 1998
----------------- -------------------- -------------------- ----------------
($) ($) ($)
<S> <C> <C> <C>
James E. Moore - President and 350,000 715,000 325,000
Chief Executive Officer
Glenn S. Goldman - Executive Vice 725,000 670,000 425,000
President/ Co-President and Managing
Director of ContiFinancial Services
Scott M. Mannes - Executive Vice President/ 250,000 670,000 425,000
Co-President and Managing Director of
ContiFinancial Services
Robert A. Major - Executive Vice President/ 0 0 0
Chief Executive Officer of ContiMortgage
Robert J. Babjak - Senior Vice President/ 0 0 0
Chief Operating Officer of ContiMortgage
</TABLE>
Vote Required
The affirmative vote of a majority of the shares represented at the
Annual Meeting and entitled to vote is required to approve the Senior LTIP.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS APPROVAL OF THE PROPOSED
SENIOR EXECUTIVE WARRANT-BASED LONG-TERM INCENTIVE PLAN BY THE STOCKHOLDERS.
UNLESS OTHERWISE INSTRUCTED, SIGNED PROXIES WHICH ARE RETURNED IN A TIMELY
MANNER WILL BE VOTED IN FAVOR OF THIS PLAN.
APPROVAL OF AMENDMENT TO THE 1995
LONG-TERM STOCK INCENTIVE PLAN
Purpose of Amendment
The Company is proposing to amend its 1995 Long-Term Stock Incentive
Plan (the "Stock Plan") to authorize an additional 3,500,000 shares of Common
Stock that may be issued under the Stock Plan in connection with stock option,
restricted stock grants and other awards under the Stock Plan. No other
amendments are being proposed at this time for the Stock Plan. The Board of
Directors, acting on the recommendation of the Stock Plan Committee and the
Compensation Committee, has approved this amendment, subject to stockholder
approval at the Annual Meeting.
31
<PAGE>
Background
The principal purpose of the Stock Plan is to provide incentives for
officers, key employees and consultants of the Company and its subsidiaries
through stock option, restricted stock grants and certain types of stock-based
grants under the Stock Plan, thereby motivating such individuals to achieve
longer-range performance goals and enabling them to participate in the long-term
growth and financial success of the Company.
When adopted in 1995, the Stock Plan authorized the issuance of
4,437,895 shares of Common Stock in connection with stock option, restricted
stock grants and other awards granted thereunder, provided that, if any shares
covered by stock option, restricted stock or other awards under the Stock Plan,
or to which such an award relates, are forfeited, or if any such award has
expired, terminated or been canceled for any reason whatsoever (other than by
reason of exercise or vesting) and in either case the participant in question
has received no benefits of ownership with respect to the forfeited shares or
the shares to which such expired, terminated or canceled award relates (other
than voting and dividends or dividend equivalents that were forfeited in
connection with such forfeiture, expiration, termination or cancellation), then
the shares covered by such award shall, to the maximum extent permitted under
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"),
again be, or shall become, shares with respect to which awards may be granted
under the Stock Plan. In addition, the number of shares of Common Stock that may
be issued under the Stock Plan pursuant to options and other awards, as it may
be increased pursuant to the proposed amendment, is subject to adjustment in the
case of stock split, stock dividend, reclassification or certain other events.
As of June 30, 1998, 1,481,014 shares have already been issued under
the Stock Plan in connection with stock option exercises and restricted stock
awards, and another 3,404,813 shares are reserved for issuance pursuant to
outstanding stock options, including 805,000 shares relating to stock options
granted earlier in 1998 that were granted subject to shareholder approval of the
Stock Plan, pursuant to this Proposal, to increase the number of shares
available for grant under the Stock Plan.
Description of Stock Plan
Administration
The Stock Plan is currently administered by the Stock Plan Committee of
the Board, each member of which is intended to qualify as a "disinterested
person" and "outside director" as defined, respectively, by federal securities
regulations and the Code as required by the Stock Plan. If, at any time, the
Committee does not exist, the Stock Plan would be administered by the Board.
Eligibility
Under the Stock Plan, the Stock Plan Committee may grant key employees
and consultants non-qualified and incentive stock options to purchase shares of
Common Stock
32
<PAGE>
and/or restricted stock or certain other types of stock-based grants. As of June
30, 1998, there were 16 executive officers and approximately 200 other key
employees who were eligible for grants under the Stock Plan, and approximately
132 current key employees who had received option and/or restricted stock grants
under the Stock Plan during the fiscal year ending in March 1998. No consultant
grants have yet been made under the Stock Plan.
Maximum Limits on Individual Grants
The Stock Plan limits the maximum number of shares with respect to
which stock options and stock appreciation rights may be granted to any key
employee during any single fiscal year of the Company to 1,000,000, and also
limits to 1,000,000 shares (or if the award is paid in cash, the cash equivalent
value of 1,000,000 shares) the maximum number of shares which may be paid to any
participant under the Stock Plan with respect to any single performance period
in connection with any "performance compensation award" under the Stock Plan
that is intended to qualify as "performance-based" compensation under Section
162(m) of the Code.
The Stock Plan provides for the granting of "incentive stock options"
as defined in Section 422 of the Code and for the granting of "non-qualified
stock options" which do not meet the requirements of Section 422 of the Code.
Options granted under the Stock Plan shall be subject to such terms and
conditions, including, without limitation, provisions relating to exercise price
and the conditions and timing of exercise, as may be determined by the Stock
Plan Committee, in its sole discretion, and specified in the applicable award
agreement for thereafter, provided that options intended to qualify as
"incentive stock options" under Section 422 of the Code shall be subject to such
terms and conditions as may be needed to comply with the applicable rules under
Section 422. Payment of the exercise price of an option granted under the Stock
Plan may be made in cash, or its equivalent, or, if and to the extent permitted
by the Stock Plan Committee, by exchanging shares of Common Stock owned by the
optionee (subject to certain restrictions), or by a combination of the
foregoing, provided that the combined value of all cash and cash equivalents and
fair market value of shares so tendered is at least equal to the aggregate
exercise price of the option being exercised.
Restricted Stock Awards
Restricted stock awards under the Stock Plan consist of a grant of
shares of the Company's Common Stock, which generally are subject to forfeiture
if the recipient leaves the employ of the Company, other than upon death,
disability or retirement, during the restricted period specified in the award
agreement. The shares may not be sold, pledged or otherwise transferred until
the applicable restricted period of the award has lapsed.
Restricted stock awards granted under the Stock Plan shall be subject
to such terms and conditions, including, without limitation, the duration of the
period during which, and the conditions under which, the restricted stock may be
forfeited to the Company, as may be determined by the Stock Plan Committee in
its sole discretion. Dividends paid on any shares of restricted stock may be
paid directly to the participant, withheld by the Company subject to the
33
<PAGE>
vesting of the shares pursuant to the applicable award agreement, or deemed
reinvested in additional shares of restricted stock or as restricted stock
units, as determined by the Stock Plan Committee in its sole discretion.
Other Types of Awards Permitted
The Stock Plan also permits the Stock Plan Committee to grant stock
appreciation rights, restricted stock units, performance awards and "other
stock-based awards", but the Stock Plan Committee has not yet made any such
awards.
Stock appreciation rights, performance awards and restricted stock
units granted under the Stock Plan shall be subject to such terms and
conditions, including, without limitation, provisions relating to exercise price
and the conditions and timing of vesting and exercise, as may be determined by
the Stock Plan Committee, in its sole discretion, and specified in the
applicable award agreement or thereafter, provided that stock appreciation
rights may not be exercisable earlier than six months after the date of grant.
The Stock Plan Committee also has the authority to grant "other
stock-based awards" consisting of any right which is not a stock option, stock
appreciation right, restricted stock or restricted stock unit award or
performance award, and which is an award of shares of Common Stock, or an award
denominated or payable in, valued in whole or in part by reference to, or
otherwise based on or related to, shares of Common Stock (including, without
limitation, securities convertible into shares of Common Stock) as may be deemed
by the Stock Plan Committee to be consistent with the purpose of the Stock Plan,
provided that any such rights must comply, to the extent deemed desirable by the
Stock Plan Committee, with Rule 16b-3 under the Securities Exchange Act of 1934,
as amended, and applicable law. Subject to the terms of the Stock Plan and any
applicable award agreement, the Stock Plan Committee shall determine the terms
and conditions of any such "other stock-based award", including the price (if
any) at which securities may be purchased pursuant to any such award.
Benefits
The amount of options and other awards that will be granted in the
future under the Stock Plan are not readily determinable. The following table
sets forth information respecting options and restricted stock granted during
the fiscal year ending in March 1998 to the executive officers named in the
Summary Compensation Table, all executive officers as a group and all employees
as a group.
<TABLE>
<CAPTION>
Grants Made During Fiscal Year Ending March 31, 1998
----------------------------------------------------
Restricted
Name and Position Option Grants (a) Stock Grants (b)
- ----------------- ----------------- ----------------
<S> <C> <C>
James E. Moore - President and 50,000 0
Chief Executive Officer
</TABLE>
34
<PAGE>
<TABLE>
<S> <C> <C>
Robert A. Major - Executive Vice President/
Chief Executive Officer of ContiMortgage 40,000 0
Glenn S. Goldman - Executive Vice President/
Co-President and Managing Director 40,000 0
of ContiFinancial Services Corp.
Scott M. Mannes - Executive Vice President/
Co-President and Managing Director 40,000 0
of ContiFinancial Services Corp.
Robert J. Babjak - Senior Vice President/
Chief Operating Officer of ContiMortgage 35,000 0
All executive officers as a group (16) (c) 339,000 55,495
All participating employees as a group (132) (d) 1,059,500 135,805
</TABLE>
(a) See footnotes to the Option Grants in Fiscal Year 1998 table
(at page 13) for additional information.
(b) See footnotes to the Summary Compensation Table (at page 11)
for additional information.
(c) Includes five named executive officers identified above plus
11 other executive officers.
(d) Includes all executive officers plus 116 other employees.
Federal Income Tax Consequences
Options
The grant of a non-qualified stock option or an incentive stock option
will not result in income for the participant or in a deduction for the Company.
The exercise of a non-qualified stock option will generally result in
compensation income for the participant and a deduction for the Company, in each
case measured by the difference between the option price and the fair market
value of the shares at the time of exercise.
The exercise of an incentive stock option will not result in income to
the participant if the participant (a) does not dispose of the shares within two
years after the date of grant or one year after exercise and (b) is an employee
of the Company from the date of the grant at least until three months before the
exercise or until one year before the exercise in the event of permanent and
total disability. If these requirements are met, the basis of the shares upon
later disposition, in the case of an exercise for cash, will be the option
price, any gain will be taxed to the participant as long-term capital gain, and
the Company will not be entitled to a deduction. The excess of the market value
of the shares on the exercise date over the option price is an item of tax
preference, potentially subject to the alternative minimum tax. If the
participant disposes of
35
<PAGE>
the shares prior to the expiration of either of the holding periods in clause
(a) above, the participant will recognize compensation income, and the Company
will be entitled to a deduction, in an amount equal to the lesser of (x) the
fair market value of the shares on the exercise date minus the option price, or
(y) the amount realized on the disposition minus the option price, and any gain
in excess of the compensation income portion will be treated as long-term or
short-term capital gain. If an optionee ceases to be an employee of the Company
and exercises his option after the expiration of the period described in (b)
above, the option will be deemed a non-qualified stock option for tax purposes.
Restricted Stock
The grant of restricted stock will generally not result in income to
the participant or in a deduction for the Company for federal income tax
purposes at the time of grant, since the shares are subject to restrictions
constituting a "substantial risk of forfeiture" as defined in the Code - unless
the participant timely elects to be taxed at the time he or she receives the
shares. If no such election is timely made, such participant will generally
realize taxable compensation income when the restrictions lapse, based on the
fair market value of the stock at that point in time. If such an election is
timely made, the amount of ordinary income realized by the grantee will be the
fair market value of the shares on the date of grant. Dividends paid on the
shares during any restricted period will also be taxable compensation income to
the participant when received by the participant. The Company generally will be
entitled to a tax deduction to the extent, and at the time, that the participant
realizes compensation income.
Other Awards
Other awards under the plan will generally be taxable to the employee
and deductible by the employer at the time of vesting unless the payout is
deferred for tax purposes until a later date.
Withholding
When required by applicable law, the Company will withhold or collect
from the participant all amounts required to satisfy applicable withholding
taxes with respect to option exercises and other awards. Amounts due on the
distribution of stock or the exercise of an option must be paid by the
participant. In lieu of cash, the participant may elect to provide such required
amount by requesting the Company to withhold from the shares being acquired
shares having a fair market value equal to such amount, or may deliver to the
Company previously acquired shares having such value.
The discussion set forth above does not purport to be a complete
analysis of all potential tax effects relevant to recipients of options or other
awards, or to the Company. It is based on federal income tax law, regulations
and rulings as of the date of this Proxy Statement, which are subject to change
at any time.
36
<PAGE>
Plan Amendments
The Board may, in its discretion, amend the Stock Plan at any time,
subject to certain limitations with respect to already outstanding grants.
Non-Exclusivity
Participation in the Stock Plan is not exclusive and does not prevent
any participant from participating in any other compensation plan of the Company
or from receiving any other compensation from the Company.
Vote Required
The affirmative vote of a majority of the shares represented at the
Annual Meeting and entitled to vote is required to approve the amendment to the
Stock Plan. A vote for the following amendment to the Stock Plan will be
presented at the meeting:
RESOLVED, that the 1995 Long-Term Stock Incentive Plan be, and hereby
is, amended to increase the number of shares of Common Stock which may be issued
under the Plan by an additional 3,500,000 shares.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS APPROVAL OF THE PROPOSED
AMENDMENT OF THE COMPANY'S 1995 LONG-TERM STOCK INCENTIVE PLAN BY THE
STOCKHOLDERS. UNLESS OTHERWISE INSTRUCTED, SIGNED PROXIES WHICH ARE RETURNED IN
A TIMELY MANNER WILL BE VOTED IN FAVOR OF THE AMENDMENT.
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, 1999. 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, 1999. UNLESS OTHERWISE INSTRUCTED, SIGNED
PROXIES WHICH ARE RETURNED IN A TIMELY MANNER WILL BE VOTED IN FAVOR OF SUCH
APPOINTMENT.
37
<PAGE>
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 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
1999 Annual Meeting of Stockholders must be received by the Company on or prior
to March 31, 1999 to be eligible for inclusion in the Company's Proxy Statement
and form of Proxy to be used in connection with the 1999 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,
Alan L. Langus
Secretary
New York, New York
July 28, 1998
38
<PAGE>
CONTIFINANCIAL CORPORATION
Proxy Solicited on Behalf of the Board of Directors of
the Company for Annual Meeting on September 16, 1998
The undersigned hereby appoints ALAN L. LANGUS and MICHAEL R. MAYBERRY, as
Proxies, each with the power to appoint his substitute, and hereby authorizes
each of them to represent and to vote, as designated on the reverse side
hereof, all the shares of common stock of ContiFinancial Corporation which
the undersigned is entitled to vote at the annual meeting of stockholders to
be held at the Rihga Royal Hotel, 54th Floor, 151 West 54th Street, New York,
New York 10019, on September 16, 1998 at 9:00 a.m. local time, or any
adjournment thereof, and in their discretion, upon any other matters which may
properly come before the meeting.
Election of Directors. (Change of Address/Comments)
Nominees: -------------------------------------
James J. Bingham
John P. Tierney -------------------------------------
Michael J. Zimmerman
-------------------------------------
-------------------------------------
(If you have written in the above
space, please mark the corresponding
box on the reverse side of this card)
SEE REVERSE
SIDE
<PAGE>
/X/ Please mark your votes as in this example.
This proxy when properly executed will be voted as specified herein, but
if no direction is given, this Proxy will be voted FOR proposals 1,2,3 and 4.
<TABLE>
<CAPTION>
The Board of Directors recommends a vote FOR Proposals 1, 2, 3, and 4
<S> <C> <C> <C> <C> <C> <C> <C>
1. Election of FOR WITHHELD 2. Proposal to approve the FOR AGAINST ABSTAIN 4. Proposal to ratify FOR AGAINST ABSTAIN
Directors / / / / Company's Senior / / / / / / the appointment / / / / / /
(see reverse) Executive Warrant- of Arthur Andersen
Based Long-Term LLP as independent
For, except vote WITHHELD Incentive Plan. accountants for the
from the following nominee(s) Company for the
3. Proposal to approve / / / / / / fiscal year ending
the Amendment to the March 31, 1999.
Company's 1995
Long-Term Stock Incentive
- ------------------------------- Plan
</TABLE>
I PLAN TO ATTEND MEETING / /
NOTE: Please date and sign
exactly as name appears
on this Proxy. Joint owners
should each sign
personally. When signing
as attorney, executor,
administrator, guardian,
custodian, or corporate
official, sign name and
title.
--------------------------------
--------------------------------
SIGNATURE(S) DATE
