SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
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CONTIFINANCIAL CORPORATION
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<PAGE>
CONTIFINANCIAL CORPORATION
277 Park Avenue
New York, New York 10172
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON
SEPTEMBER 14, 1999
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 14, 1999 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 two directors to serve for the ensuing three years and until
their successors are duly elected and qualified.
2. To approve an amendment to the Company's 1995 Long-Term Stock Incentive
Plan regarding maximum limits on individual grants thereunder.
3. To approve an amendment to the Company's 1995 Long-Term Stock Incentive
Plan regarding an increase in the number of shares which may be issued
thereunder.
4. To approve an amendment to the Company's 1995 Long-Term Stock Incentive
Plan to add a performance-based goal which will determine whether certain
options to purchase the Company's common stock become exercisable by the
President and Chief Executive Officer.
5. To approve an amendment to the Company's Section 162(m) Performance
Based Executive Bonus Plan to add certain performance-based goals under which
compensation may be paid.
6. To ratify the appointment of Arthur Andersen LLP as independent
accountants for the Company for the fiscal year ending March 31, 2000.
7. 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, 1999 as
the record date for determination of stockholders entitled to vote at the Annual
Meeting, or any adjournments thereof, and only record holders of the Company's
common stock at the close of business on that day will be entitled to vote.
TO ASSURE REPRESENTATION AT THE ANNUAL MEETING, STOCKHOLDERS ARE URGED TO
SIGN AND RETURN THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE IN THE
POSTAGE-PREPAID ENVELOPE ENCLOSED FOR THAT PURPOSE. Any stockholder attending
the Annual Meeting may vote in person even if he or she previously returned a
proxy.
If you do plan to attend the Annual Meeting in person, we would appreciate
your response by indicating at the appropriate place on the proxy card enclosed.
By Order of the Board of Directors,
/s/ Alan L. Langus
New York, New York Alan L. Langus
August 25, 1999 Secretary
<PAGE>
CONTIFINANCIAL CORPORATION
277 Park Avenue
New York, New York 10172
---------------
PROXY STATEMENT
---------------
ANNUAL MEETING OF STOCKHOLDERS
Meeting Date: September 14, 1999
This Proxy Statement is being sent on or about August 25, 1999 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 1999 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 14, 1999 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, 1999 (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 an
amendment to the Company's 1995 Long-Term Stock Incentive Plan regarding maximum
limits on individual grants thereunder (the "Limits Amendment"), (c) the
approval of an amendment to the Company's 1995 Long-Term Stock Incentive Plan
regarding an increase in the number of shares which may be issued thereunder
(the "Share Amendment"), (d) the approval of an amendment to the Company's 1995
Long-Term Stock Incentive Plan to add a performance-based goal (the "Stock Plan
Performance-Based Goal") which will determine whether certain options to
purchase the Common Stock become exercisable by the President and Chief
Executive Officer, (e) the approval of an amendment to the Company's Section
162(m) Performance Based Executive Bonus Plan to add certain performance-based
goals (the "Section 162(m) Plan Performance-Based Goals") under which
compensation may be paid, (f) the ratification of the appointment of Arthur
Andersen LLP as independent accountants for the Company and (g) 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.
<PAGE>
An Annual Report on Form 10-K/A for the year ended March 31, 1999 was
distributed on or about July 26, 1999 to stockholders of record as of June 1,
1999. For those stockholders who were not stockholders as of June 1, 1999 but
who were stockholders as of the Record Date, an Annual Report on Form 10-K/A is
being mailed to them concurrently with this Proxy Statement. A Form 10-K/A No. 2
was filed with the Securities and Exchange Commission on or about July 29, 1999.
The date of this Proxy Statement is the approximate date on which the Proxy
Statement and form of proxy were first sent or given to stockholders.
VOTING SECURITIES
At the Record Date, there were 46,747,370 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.
Except as noted below, 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. With respect to votes concerning
amendments to the 1995 Long-Term Stock Incentive Plan and the Section 162(m)
Performance Based Executive Bonus Plan, an abstention will have the same effect
as a vote against the proposal and broker non-votes will not be votes for or
against the proposal and will not be counted as entitled to vote. The Limits
Amendment, the Share Amendment, the Stock Plan Performance-Based Goal, the
Section 162(m) Plan Performance-Based Goals 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. 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 August 19, 1999 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 two 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.
Name of Beneficial Owner Shares of Common Stock Percentage
- ------------------------ ---------------------- ----------
ContiGroup Companies, Inc. (a) 36,283,421 77.6%
Alan H. Fishman (b) 1,500,000 3.2%
James E. Moore (b) 713,175 1.5%
2
<PAGE>
Name of Beneficial Owner Shares of Common Stock Percentage
- ------------------------ ---------------------- ----------
Robert A. Major (b) 327,652 (c)
Glenn S. Goldman (b) 303,450 (c)
Scott M. Mannes (b) 304,450 (c)
Daniel J. Willett (b) 70,446 (c)
Mark R. Baker (d) 0 N/A
Paul J. Fribourg (a) (d) (e) 37,000 (c)
John W. Spiegel 10,000 (c)
Donald L. Staheli 45,000 (c)
John P. Tierney 6,000 (c)
Lawrence G. Weppler (d) 1,000 (c)
Michael J. Zimmerman (d) 3,000 (c)
All directors and executive officers
as a group (22 persons) (f) 4,324,695 9.3%
(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 ContiGroup Companies, Inc. Paul J. Fribourg is
the son of Michel Fribourg.
(b) Included for Messrs. Moore, 238,100 shares; Goldman, 127,355 shares;
Mannes, 128,355 shares; and Willett, 9,155 shares of "restricted" Common
Stock and for Messrs. Fishman, 1,500,000 shares; Moore, 474,975 shares;
Major, 324,652 shares; Goldman, 176,095 shares; Mannes, 176,095; and
Willett, 59,791 shares of Common Stock issuable upon exercise of options.
Does not include 1,974,308 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 August 19,
1999.
(d) Messrs. Baker, Fribourg, Weppler and Zimmerman are officers of ContiGroup
Companies, Inc.
(e) By virtue of his position as Chairman, President and Chief Executive
Officer of ContiGroup Companies, Inc., Mr. Fribourg may be deemed to have
beneficial ownership of the shares of the Company owned by ContiGroup
Companies, Inc. Mr. Fribourg disclaims beneficial ownership of such
shares.
(f) Includes 927,097 shares of "restricted" Common Stock and 3,321,220 shares
of Common Stock issuable upon the exercise of options. Does not include
2,231,721 shares of Common Stock issuable upon the exercise of options not
exercisable within 60 days of the date hereof.
3
<PAGE>
The shares of Common Stock beneficially owned by ContiGroup Companies,
Inc. (formerly known as Continental Grain Company) ("ContiGroup") constitute
approximately 78% of the shares of Common Stock entitled to vote at the Annual
Meeting. ContiGroup 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 Limits Amendment,
"FOR" the approval of the Share Amendment, "FOR" the approval of the Stock Plan
Performance-Based Goal, "FOR" the approval of the Section 162(m) Plan
Performance-Based Goals and "FOR" the ratification of the appointment of Arthur
Andersen LLP as independent accountants for the Company.
4
<PAGE>
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 stockholders will
elect two Class I Directors for a term of three years expiring in 2002 and until
their respective successors shall have been duly elected and qualified. 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 and the term of the Class III Directors expires at the annual meeting of
the Company's stockholders following the end of the Company's fiscal year ending
March 31, 2001, 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 Mark R.
Baker and Alan H. Fishman. The Class I 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 I Directors
Mark R. Baker. Mr. Baker has been a Director and non-executive Chairman of
the Board of Directors of the Company since July 1999. He has been Senior Vice
President and Chief Legal Officer of ContiGroup since August 1997. Prior to
joining ContiGroup, Mr. Baker was a partner with the law firm of Dewey
Ballantine LLP.
Alan H. Fishman. Mr. Fishman has been President, Chief Executive Officer
and a Director of the Company since July 1999. Mr. Fishman is also a founder and
managing partner of Columbia Financial Partners, L.P., an investment firm
specializing in the financial services industry. Prior to founding Columbia
Financial Partners, L.P., Mr. Fishman had an extensive career in the financial
services industry, serving at various times as Chief Financial Officer of
Chemical Bank, Senior Executive Vice President in charge of Chemical Bank's
worldwide investment banking operations, and President of American International
Group's financial services division. Mr. Fishman is a Director of Keyspan Energy
Corporation, Chairman and Director of Affinity Technology Group, Inc. and Vice
Chairman of the Brooklyn Academy of Music.
5
<PAGE>
Continuing Class I Director
Donald L. Staheli. Mr. Staheli has been a Director of the Company since
October 1995. He was Chairman of the Board of Directors of ContiGroup from June
1994 until July 1997 and from 1988 until his retirement in April 1997, he was
Chief Executive Officer of ContiGroup. From 1988 until June 1994, Mr. Staheli
served as President of ContiGroup. He has been a Director of ContiGroup since
1988. Mr. Staheli serves currently as a Director of Prudential Life Insurance
Company of America (a property and life insurance company). Mr. Staheli is not
standing for reelection.
Continuing Class II and Class III Directors
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 ContiGroup
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 ContiGroup since June 1994. From April 1990 to June 1994 Mr. Fribourg
served as Executive Vice President of the Bulk Commodities Group of ContiGroup.
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 Boards of Directors of Rock-Tenn Company (a
manufacturer of paperboard products) and Suburban Lodges of America (an extended
stay hotelier).
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
ContiGroup since April 1993. From 1980 to April 1993, Mr. Weppler served as
Deputy General Counsel of ContiGroup.
Class III Directors
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).
6
<PAGE>
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 ContiGroup since May 1996. From January 1985 to April 1996, Mr.
Zimmerman was a Managing Director at Salomon Brothers.
Section 16(a) Beneficial Ownership Reporting Compliance
Under Securities and Exchange Commission rules relating to reporting of
changes of beneficial ownership of the Common Stock, Forms 4 reporting
Continental Grain's October 1998 purchases of the Common Stock were to have been
filed by ContiGroup and Mr. Fribourg on or before November 10, 1998. The Forms 4
were filed November 19, 1998.
Meetings and Committees
The Company has an Executive Committee, a Compensation Committee, an Audit
Committee, an Independent Directors Committee, and a 1995 Stock Plan Committee
(the "Stock Plan Committee") (which also serves as the Section 162(m) Plan
Committee). The Special Pricing Committee, which 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, was disbanded effective September 16, 1998 by
unanimous vote of the Board of Directors. There is no standing nominating
committee.
The Executive Committee, currently comprised of Messrs. Baker, Fishman,
Fribourg, 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. Baker, 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
ContiGroup (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.
During the year ended March 31, 1999, there were eight meetings of the
Board of Directors, no meetings of the Executive Committee, six meetings of the
Compensation Committee, five meetings of the Audit Committee, two meetings of
the Independent Directors Committee and seven meetings of the Stock Plan
Committee. No Director attended fewer than 75% of the total number of meetings
of the Board of Directors and committees on which he served.
7
<PAGE>
MANAGEMENT
Executive Officers and Directors
The directors and executive officers of the Company and their respective
ages and positions are as follows:
Name Age Position
- ---- --- --------
Alan H. Fishman ....... 53 President, Chief Executive Officer and Director
Robert A. Major ....... 53 Executive Vice President of the Company and
President and Chief Executive Officer of
ContiMortgage
Glenn S. Goldman ...... 37 Executive Vice President of the Company and
Co-President and Managing Director of ContiFinancial
Services
Scott M. Mannes ....... 40 Executive Vice President of the Company and
Co-President and Managing Director of ContiFinancial
Services
Peter Abeles .......... 44 Senior Vice President of the Company and
Managing Director of ContiFinancial Services
Robert J. Babjak ...... 57 Senior Vice President of the Company and
Executive Vice President and Chief Operating
Officer of ContiMortgage
Frank W. Baier ........ 34 Senior Vice President, Chief Financial Officer
and Treasurer
A. John Banu .......... 44 Senior Vice President of the Company and
Senior Managing Director of ContiFinancial Services
Michael J. Festo ...... 47 Senior Vice President, Human Resources
Alan L. Langus ........ 52 Senior Vice President, Chief Counsel and Secretary
Jerome M. Perelson .... 60 Senior Vice President of the Company and Managing
Director and Chief Credit Officer of ContiFinancial
Services
Marc E. Halbreich ..... 52 Vice President-Taxes
Debra J. Huddleston ... 43 Vice President - Internal Audit
Mark R. Baker ......... 45 Director and Chairman of the Board
Paul J. Fribourg ...... 45 Director
John W. Spiegel ....... 58 Director
Donald L. Staheli ..... 67 Director
John P. Tierney ....... 68 Director
Lawrence G. Weppler ... 54 Director
Michael J. Zimmerman .. 48 Director
Set forth below are the biographies of the executive officers:
8
<PAGE>
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.
Frank W. Baier. Mr. Baier has been Senior Vice President, Chief Financial
Officer and Treasurer of the Company since June 1999. Previously he held the
position of Vice President and Treasurer from September 1997 to May 1999. Mr.
Baier joined the Company in September 1996 as Director of Corporate Finance.
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.
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
9
<PAGE>
appointed Managing Director of ContiFinancial Services in August 1992 and Senior
Managing Director in July 1997.
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 ContiGroup since joining ContiGroup 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.
Marc E. Halbreich. Mr. Halbreich joined the Company in April 1998 as Vice
President - Taxes. He previously had worked for ContiGroup 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.
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
ContiGroup since 1991.
Changes in Management and Board of Directors
Several changes in the senior management and the Board of Directors of the
Company have occurred since the end of fiscal year 1999. In June 1999, Daniel J.
Willett resigned his position as Senior Vice President and Chief Financial
Officer; Mr. Willett was replaced by Frank W. Baier, who now holds the titles of
Senior Vice President, Chief Financial Officer and Treasurer. James E. Moore
resigned as President, Chief Executive Officer and a Director of the Company in
July 1999; Mr. Moore was replaced by Alan H. Fishman, who now holds those
titles. James J. Bigham resigned as Chairman of the Board of Directors in July
1999; he was replaced by Mark R. Baker.
10
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------- ----------------------
AWARDS PAYOUTS
------ -------
FISCAL RESTRICTED STOCK LTIP
NAME YEAR SALARY BONUS STOCK OPTIONS PAYOUTS OTHER
- ---- ---- ------ ----- ----- ------- ------- -----
$ $ $ # $ $
<S> <C> <C> <C> <C> <C> <C> <C>
James E. Moore(a) 1999 275,000 0 -- 93,000 -- 6,195 (e)
President and Chief 1998 275,000 2,380,000 -- 50,000 -- 331,400
Executive Officer 1997 250,000 2,000,000 -- -- -- 719,500
Robert A. Major 1999 245,833 0 -- 81,000 -- 6,266 (e)
Executive Vice 1998 225,000 1,600,000 -- 40,000 -- 5,867
President/Chief Executive 1997 220,883 1,500,000 -- -- -- --
Officer, ContiMortgage
Glenn S. Goldman 1999 190,000 0 -- 74,000 -- 4,833 (e)
Executive Vice 1998 183,250 1,540,000 -- 40,000 -- 431,400
President/Co-President and 1997 164,667 1,160,000 -- -- -- 674,500
Managing Director,
ContiFinancial Services
Scott M. Mannes 1999 190,000 0 -- 74,000 -- 4,833 (e)
Executive Vice 1998 183,250 1,540,000 -- 40,000 -- 431,400
President/Co-President and 1997 164,667 1,160,000 -- -- -- 674,500
Managing Director,
ContiFinancial Services
Daniel J. Willett (b) 1999 211,666 0 -- 50,000 -- 5,820 (e)
Senior Vice President and 1998 205,000 300,000(c) 213,780(d) 35,000 -- N/A(e)
Chief Financial Officer 1997 34,160 -- -- -- -- N/A(e)
</TABLE>
(a) Mr. Moore resigned his position as President, Chief Executive
Officer and Director effective July 20, 1999.
(b) Mr. Willett resigned his position as Senior Vice President and Chief
Financial Officer effective June 1, 1999 and received a separation
payment of $440,000.
(c) Represents Mr. Willett's accrued and/or deferred bonus 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). A portion of Mr.
Willett's bonus was deferred in the form of 3,155 restricted shares
of the Common Stock which vested prior to or at the time of his
resignation in June 1999.
(d) Grant of 6,000 shares of restricted Common Stock to Mr. Willett
under the ContiFinancial Corporation 1995 Long-Term Stock Incentive
Plan which vested prior to or at the time of his resignation in June
1999. Represents the value of such stock on the date the grant was
made. The value of these 6,000 shares at March 31, 1999 was $42,780.
(e) Represents the Company's matching contributions under the
ContiFinancial Savings Plan, a defined contribution plan established
under Section 401(k) of the Internal Revenue Code of 1986.
11
<PAGE>
Information on the Company's matching contributions for Mr. Willett
in fiscal years 1997 and 1998 is not available due to a change in
trustees for the ContiFinancial Savings Plan.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1999
AND FISCAL YEAR 1999 OPTION VALUE (a)
The following table provides information as to options exercised by each
of the named executive officers of the Company during fiscal 1999. 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, 1999 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 -- -- 474,975 147,445 35,030 70,060
Robert A. Major -- -- 324,652 115,963 30,510 61,020
Glenn S. Goldman -- -- 176,095 95,050 27,872 55,747
Scott M. Mannes -- -- 176,095 95,050 27,872 55,747
Daniel J. Willett -- -- 59,791 52,709 14,666 29,333
</TABLE>
(a) The 1999 year end value of the Common Stock was $7.13. The dollar value
shown in the table is calculated by determining the difference between the year
end value of the Company's Common Stock and the exercise price of the option
exercisable at year end.
12
<PAGE>
OPTION GRANTS IN FISCAL YEAR 1999
The following table shows all grants of options during the fiscal year
ending March 31, 1999 to the executives of the Company named in the Summary
Compensation Table for fiscal 1999. The options were granted under the Company's
1995 Long-Term Stock Incentive Plan (the "Stock Plan"). Pursuant to Securities
and Exchange Commission rules, the table also shows the value of the options
granted at the end of the option terms (ten years) if the stock price were to
appreciate annually by 5% and 10%, respectively. There is no assurance that the
stock price will appreciate at the rates shown in the table.
<TABLE>
<CAPTION>
Potential Realizable Value at
Individual Grants Assumed Annual Rates of
--------------------------------------------------------------- Stock Price Appreciation
% of Total Options for Option Term (b)
# of Options Granted to Exercise Price Expiration -----------------------------
Name Granted (a) Employees in ($ per share) Date 5% ($) 10% ($)
Fiscal Year 1999 -----------------------------
<S> <C> <C> <C> <C> <C> <C>
James E. Moore 93,000 12.4% $6.00 12/10/08 350,920 889,300
Robert A. Major 81,000 10.8% $6.00 12/10/08 305,370 774,360
Glenn S. Goldman 74,000 9.8% $6.00 12/10/08 278,980 707,440
Scott M. Mannes 74,000 9.8% $6.00 12/10/08 278,980 707,440
Daniel J. Willett 50,000 6.6% $6.25 12/18/08 196,500 498,000
</TABLE>
(a) Granted on December 10, 1998 to Messrs. Moore, Mannes, Major and
Goldman and on December 18, 1998 to Mr. Willett. These options have
a ten-year term, are subject to the individual's continued
employment with the Company, and vest as follows: for Messrs. Moore,
Mannes, Major and Goldman, 1/3 as of December 10, 1998, 1/3 as of
December 10, 1999 and 1/3 as of December 10, 2000; and for Mr.
Willett, 1/3 as of December 18, 1998, 1/3 as of December 18, 1999
and 1/3 as of December 18, 2000.
(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 $6.00 per share to Messrs. Moore, Major, Mannes
and Goldman and $6.25 per share to Mr. Willett.
13
<PAGE>
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. Baker, Mr. Fribourg, Mr. Spiegel, Mr. Staheli and Mr. Tierney.
Mr. Bigham was a member of the Compensation Committee during the fiscal year
ended March 31, 1999.
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 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
14
<PAGE>
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, 1999, 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 a 1998 analysis of survey and proxy data for various companies in
the investment banking and mortgage/asset finance company sectors, and on the
advice of the independent executive compensation consultants regarding such
data, the Compensation Committee believes that the base salaries for the
Company's current executive officers and other key employees for the fiscal year
ending March 31, 1999 were 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, 1999, 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, 1999, 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 CMC General Annual Bonus Plan.
The bonus opportunities under the NEO Bonus Plan for the fiscal year
ending March 31, 1999 were based on achieving target levels of adjusted net
profits (net pretax profit before bonus payouts but after taking into account
interest expenses and various other direct and allocated expenses). Based on the
Company's performance for the fiscal year ending March 31, 1999, and in
accordance with the terms of the NEO Bonus Plan, the Stock Plan Committee
determined in June 1999 that no amounts would be payable to any participant
under that plan for such year.
The bonus pools under the CF-NY and CMC General Annual Bonus Plans for the
fiscal year ending March 31, 1999 were also based on targets relating to
adjusted net profits. Based on the Company's performance for the fiscal year
ending March 31, 1999, and in accordance with
15
<PAGE>
the terms of those plans, the Compensation Committee determined in June 1999
that no amounts would be payable to any participants under those plans for such
year.
As a result of the above-described bonus actions, the Committees believe
that the combined salary and annual bonus compensation levels of the Company's
executive officers for the fiscal year ending March 31, 1999 were generally
below the levels competitive with historical median practice among comparator
companies.
Special Stay-Put Bonus or Severance Arrangements
During the fiscal year ending March 31, 1999, the Company entered into
certain "stay-put" bonus or severance arrangements with certain executive
officers and other key employees in an effort to retain those employees while
the Company dealt with the difficulties that it began encountering starting in
the second quarter of such fiscal year. With certain limited exceptions, the
amounts payable under these arrangements generally became payable in June 1999.
As reflected in the Summary Compensation Table above, the only named executive
officer for the fiscal year ending March 31, 1999 to receive any type of
stay-put arrangement during such year was Mr. Willett.
In June 1999 the Company entered into special cash stay put arrangements
with certain but not all Executive Officers and other employees of the Company.
These awards are payable in February 2000 contingent upon the Executive
Officers' and key employees' continued employment.
Also in June 1999, separate arrangements were developed for Mr. Goldman
and Mr. Mannes. These arrangements are contingent upon a number of factors, one
of which is employment through September 1999, and could result in maximum
payments of $1.25 million to Mr. Goldman and $900,000 to Mr. Mannes.
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.
In December 1998, the Stock Plan Committee made stock option grants
(priced at 100% of market at grant) to a select group of the Company's executive
officers and key employees. Based on then available data, the Committee believes
that the 1999 grants made to executive officers were generally consistent with,
or more conservative than, median grant levels based on then 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 have been eligible to receive separate
incentive awards that are based on the net amounts realized (if any), after
certain adjustments, 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. No such amounts were realized under either the pre-IPO plan
or
16
<PAGE>
the post-IPO plan during the fiscal year ending March 31, 1999, and, as a
result, no payouts were made to any officers or other employees under those
plans with respect to amounts realized during the fiscal year ending March 31,
1999.
CEO Compensation
Based on a 1998 analysis of 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, 1999 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.
As a result of the Company's poor performance for the fiscal year ending
March 31, 1999, Mr. Moore was not awarded any annual bonus for such fiscal year
- - in contrast to the large bonus awards made to him for the fiscal years ending
in 1997 and 1998. As a result, the Committees believe that Mr. Moore's resulting
total cash compensation for the fiscal year ended March 31, 1999, was well below
the estimated historical median target total cash compensation level for
comparable positions.
A stock option grant for 93,000 shares, priced at 100% of market at grant,
was made to Mr. Moore in December 1998. The Committee believes that that grant
was modest in size compared to market practices for CEO grants, but reasonable
in view of the size of and vesting status for his prior option and restricted
stock grants.
No payouts were made to Mr. Moore under the pre-IPO and post-IPO
warrant-based long-term incentive plans with respect to amounts realized during
the fiscal year ending March 31, 1999, and Mr. Moore was not covered by a
stay-put arrangement as of March 31, 1999 or as of June 30, 1999.
Conclusion
Because of the poor performance of the Company, the Committee feels that
below market total cash compensation paid to the Company's Chief Executive
Officer and other Executive Officers for the fiscal year ending March 31, 1999
is supported. In addition, the Stock Plan Committee felt that the December 1998
option grants would provide some incentive to retain key employees as the
Company refocuses itself.
Compensation Committee Stock Plan Committee
Mark R. Baker John W. Spiegel
Paul J. Fribourg John P. Tierney
John W. Spiegel
Donald L. Staheli
John P. Tierney
17
<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 ContiGroup) 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 ContiGroup will transfer any fees paid to them to
ContiGroup in accordance with ContiGroup'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, 1999, none had been issued.
18
<PAGE>
PERFORMANCE GRAPH
Set forth below is a graph comparing the total stockholder returns
(assuming reinvestment of dividends) of the Company from February 14, 1996 (the
month in which the Common Stock became registered under Section 12 of the
Securities Exchange Act of 1934, as amended) through March 31, 1999, 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 (merged with Household Financial in July 1998),
Countrywide Credit Industries, Inc., Credit Depot Corporation, Doral Financial
Corp. (formerly First Financial Caribbean Corp.), First Mortgage Corporation
(California), White Mountain Insurance Group (formerly Fund American Enterprises
Holdings, Inc.), Green Tree Financial Corp. (merged with Conseco Inc. in July
1998), Hamilton Financial Services, Imperial Credit Industries Inc., Litchfield
Financial Corp., Lomas Financial Corp., The Money Store Inc. (acquired by First
Union Corp. in July 1998), North American Mortgage Co. (acquired by Dime
Financial Corp. in July 1998), Paragon Mortgage Corp. and Resource Bancshares
Mortgage Group, Inc.
[GRAPHIC OMITTED]
19
<PAGE>
CERTAIN TRANSACTIONS
ContiGroup is the Company's largest stockholder, currently owning
approximately 78% of the Company's outstanding Common Stock. ContiGroup
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 ContiGroup and such directors constitute a majority of the Board of
Directors.
ContiGroup 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 ContiGroup (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 ContiGroup and its affiliates will be reviewed and passed on for
fairness by the Independent Directors Committee.
Indemnification Agreement
ContiGroup 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
ContiGroup and its other subsidiaries with ContiGroup. Under the Indemnification
Agreement, each of ContiGroup 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 1999.
Tax Sharing Agreement
Effective June 4, 1997, upon the completion of the Company's primary
offering of Common Stock, ContiGroup'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. The Company continues to file certain consolidated or
combined state returns with ContiGroup. 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 ContiGroup. On February 14, 1996 the Company and ContiGroup 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 after the IPO and (b) governed the conduct of all
audits and other tax controversies relating to the Company.
20
<PAGE>
Pursuant to the Tax Sharing Agreement, the Company was charged or
credited, as applicable, for its state and Federal income tax liabilities or
refunds that would have been payable or received by the Company for such year,
or portion thereof, determined as if the Company had filed separate state and
Federal income tax returns computed in accordance with prevailing state and
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 $8.7
million tax payable due to ContiGroup in fiscal 1999. The Company paid this
amount to ContiGroup subsequent to the end of fiscal year 1999.
Employee Benefit Allocation Agreement
On February 14, 1996, ContiGroup and the Company entered into an employee
benefits allocation agreement (the "Employee Benefits Allocation Agreement")
which permitted the Company's employees to continue to participate in the
ContiGroup employee benefit plans. The cost of the Company's employees'
participation in these programs was allocated to the Company based on the actual
cost of benefit accruals and an allocated cost of administration of the plans
and overhead. Effective April 1, 1998, the Company discontinued its
participation in the ContiGroup health care plan and obtained independent
coverage, and effective July 1, 1998, the Company discontinued participation in
the ContiGroup pension plan.
Services Agreement
Pursuant to an agreement between ContiGroup and the Company (the "Services
Agreement"), ContiGroup provides the Company certain corporate services,
including 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 ContiGroup'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 1999.
The Services Agreement also provides that ContiGroup may, but is not
obligated to, provide guarantees of obligations due third parties. For these
guarantees, the Company will pay ContiGroup annual fees of (a) 0.05% of the
daily average of the utilized sale capacity under any loan or purchase and sale
facility guaranteed by ContiGroup; (b) 0.25% of the (i) daily average amount at
risk to ContiGroup 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 ContiGroup; (ii) daily average amount of the outstanding debt
under any loan agreements or other debt instruments guaranteed by ContiGroup;
and (iii) annual average amount remaining to be paid by the Company under any
leases and other payment obligations guaranteed by ContiGroup 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
ContiGroup; and (d) with respect to any other indemnification and performance
obligations guaranteed by ContiGroup, 0.25% of the lesser of
21
<PAGE>
(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 $164,500 in guarantee fees
for such services in fiscal 1999.
Pursuant to the Services Agreement, the Company has agreed that if, and at
such time when, ContiGroup owns less than 20% of the voting stock of the
Company, the Company will, at the request of ContiGroup, change the names of the
Company and its subsidiaries to names that are not the same as, or confusingly
similar to, ContiGroup's current corporate name, including eliminating the term
"Conti" from such names.
Finally, the Services Agreement provides that the Company may request
ContiGroup to provide such other corporate services as it routinely provides to
other subsidiaries and divisions.
Subservicing Agreement
On November 1, 1998, the Company's largest home equity lending subsidiary,
ContiMortgage Corporation ("ContiMortgage"), and two other subsidiaries of the
Company entered into a subservicing agreement (the "Subservicing Agreement")
with ContiGroup and Manufacturers and Traders Trust Company (the "Trustee").
Pursuant to the Subservicing Agreement, ContiGroup, as subservicer, agrees to
advance to the Trustee on each monthly remittance date an amount equal to the
delinquency advance, if any, that is required to be made by ContiMortgage under
certain agreements relating to ContiMortgage's securitizations, but not in
excess of $85 million of aggregate outstanding advances. ContiMortgage is
obligated to pay a subservicing fee to ContiGroup as compensation for this
service, which subservicing fee totaled $582,000 in fiscal 1999.
In May 1999, ContiGroup extended a short-term warehouse financing facility
to the Company for a maximum amount of $60 million. Availability under the
facility is subject to a combined maximum amount of $85 million of this facility
and the servicer advances facility under the Subservicing Agreement. The May
1999 short-term warehouse financing facility was terminated on August 3, 1999.
Sublease
The Company and ContiGroup have entered into a sublease agreement (the
"Sublease") pursuant to which the Company subleases from ContiGroup office space
at 277 Park Avenue, New York, New York. The Company occupies approximately one
and a third floors of space leased from ContiGroup. Under the terms of the
Sublease, the Company pays ContiGroup its costs for the office space. As a
subtenant, the Company assumes its proportionate share of the additional rental
expenses paid by ContiGroup as a lessee under the terms of its lease. The term
of the Sublease extends through February 28, 2000. The Company paid $1.3 million
to ContiGroup under its sublease arrangements in fiscal 1999.
22
<PAGE>
Registration Rights
Under a Common Stock Registration Rights Agreement (the "Common Stock
Registration Rights Agreement") between the Company and ContiGroup, the Company
has granted ContiGroup the right to require the Company to register shares of
Common Stock held by ContiGroup for sale in accordance with ContiGroup's
intended method of disposition thereof (a "demand registration"). ContiGroup may
require up to six such demand registrations, with no more than one every six
months. Additionally, the Company has granted to ContiGroup 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 ContiGroup in connection with the demand
and piggy-back registrations. Subject to certain limitations specified in the
Common Stock Registration Rights Agreement, ContiGroup'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 ContiGroup 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 $60,000. It includes
the largest aggregate amount of the loan outstanding at any time during fiscal
year 1999 and the amount of the loan outstanding or committed as of June 30,
1999. Interest charged on each loan is equal to one-month LIBOR plus 1.25%.
Loans were made on March 14, 1996, March 14, 1997, March 31, 1997, March 31,
1998 and March 31, 1999.
23
<PAGE>
<TABLE>
<CAPTION>
Largest Amount
Outstanding During Amount Outstanding as
Name Title Fiscal Year 1999 ($) of June 30, 1999 ($)
- ---- ----- -------------------- --------------------
<S> <C> <C> <C>
James E. Moore President, Chief Executive 857,858 857,858
Officer and Director
Glenn S. Goldman Executive Vice President 456,610 456,610
Scott M. Mannes Executive Vice President 600,109 0
Peter Abeles Senior Vice President 189,093 189,093
Robert J. Babjak Senior Vice President 177,245 177,245
A. John Banu Senior Vice President 303,552 303,552
Michael J. Festo Senior Vice President - 60,000 60,000
Human Resources
Jerome M. Perelson Senior Vice President 121,819 0
Debra J. Huddleston Vice President - Internal 119,918 119,918
Audit
</TABLE>
President and Chief Executive Officer Employment Arrangement
On July 20, 1999 the Company negotiated with Mr. Fishman an agreement
outlining the terms and conditions of his employment. Included in that agreement
was a signing bonus of $1,000,000 and an annual base salary of $750,000. Mr.
Fishman will also be entitled to receive an annual incentive bonus to be
determined by the Compensation Committee of the Company's Board of Directors.
Such bonus will be equal to a minimum of $750,000 and a maximum of three times
Mr. Fishman's annual base salary. Mr. Fishman was also granted an option to
purchase 3,000,000 shares of Common Stock at $1.25 per share. The option to
purchase 1,000,000 shares vested immediately upon the grant, the option to
purchase 500,000 shares vested on August 20, 1999 and the option to purchase
1,500,000 shares will vest on December 31, 1999, provided, however, that option
to purchase the 2,000,000 shares that did not immediately vest is subject to
stockholder approval and such vesting is also subject to certain performance
goals described herein. The agreement also contains a severance provision which
entitles Mr. Fishman to three times his previous year's compensation (base
salary and bonus) if terminated not for cause or if he leaves for a "good
reason". "Good reason" is defined as a change of control; failure to be
reelected or otherwise continue in the office of President and
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<PAGE>
Chief Executive Officer, as a member of the Board of Directors or as a member of
the Executive Committee; the diminishment of Mr. Fishman's duties without his
consent; or the Company's material breach of any of the terms of Mr. Fishman's
employment agreement. His options will vest if severance is paid. ContiGroup has
entered into a guarantee with respect to Mr. Fishman's employment agreement,
under which it would be required to pay up to two years of base pay and annual
incentives, severance payments and/or certain expense reimbursements, to the
extent such amounts were not paid by the Company.
Columbia Financial Partners, L.P.
Mr. Fishman, President and Chief Executive Officer of the Company, is also
Managing Partner of Columbia Financial Partners, L.P. ("Columbia"). The Company
executed a Consulting Agreement with Columbia as of July 20, 1999 under which
Columbia provides to the Company financial and general business consulting
services. The term of the Consulting Agreement is for a period of up to two
years at a rate of payment equal to $100,000 per month. ContiGroup has
guaranteed payment of the fees due under the Consulting Agreement in the event
the Company fails to pay such amounts.
APPROVAL OF AMENDMENTS TO THE 1995
LONG-TERM STOCK INCENTIVE PLAN
Purpose of Amendments
The Company is proposing to amend its 1995 Long-Term Stock Incentive Plan
(the "Stock Plan") (a) to (i) increase 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 from 1,000,000 shares to
3,000,000 shares and (ii) increase 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 Internal Revenue Code of 1986, as amended (the
"Code") from 1,000,000 shares to 3,000,000 shares (or if the award is paid in
cash, the cash equivalent value of 3,000,000 shares), (b) to authorize an
additional 3,000,000 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 and (c) to add a performance-based goal which will
determine whether certain options to purchase the Common Stock become
exercisable by the President and Chief Executive Officer. 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 these amendments, subject to stockholder approval at the
Annual Meeting.
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
25
<PAGE>
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
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.
The Stock Plan was amended, and such amendment was approved by the
Company's stockholders at the September 16, 1998 Annual Meeting, to increase the
number of shares which could be issued under the Stock Plan by an additional
3,500,000 shares. The proposed Share Amendment will increase the number of
shares which can be issued under the Stock Plan by an additional 3,000,000
shares.
As of June 30, 1999, 3,752,122 shares have already been issued under the
Stock Plan in connection with stock option exercises and restricted stock
awards, and another 5,482,217 shares are reserved for issuance pursuant to
outstanding stock options, including 3,000,000 shares relating to stock options
granted earlier in 1999 that were granted subject to stockholder 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 of Directors, 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 of Directors.
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<PAGE>
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 and/or restricted stock or certain other types of stock-based
grants. As of June 30, 1999, there were 16 executive officers and approximately
150 other key employees who were eligible for grants under the Stock Plan, and
approximately 57 current key employees who had received option and/or restricted
stock grants under the Stock Plan during the fiscal year ending in March 1999.
Maximum Limits on Individual Grants
The Stock Plan currently 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 proposed Limits Amendment will change the 1,000,000
share caps described above to 3,000,000.
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 or 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 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.
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<PAGE>
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 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".
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
As stated above, the Company granted to Mr. Fishman the option to purchase
3,000,000 shares of Common Stock. The option to purchase 2,000,000 of these
shares of Common Stock is conditioned upon stockholder approval. Other than the
award to Mr. Fishman, 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 1999 to the executive officers
named in the Summary Compensation Table, all executive officers as a group and
all employees as a group. On August 20, 1999, the closing price for a share of
the Common Stock was $2.00.
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<PAGE>
Grants Made During Fiscal Year Ending March 31, 1999
<TABLE>
<CAPTION>
Restricted
Name and Position Option Grants (a) Stock Grants (b)
- ----------------- ----------------- ----- ----------
<S> <C> <C>
James E. Moore - President and 93,000 0
Chief Executive Officer
Robert A. Major - Executive Vice President/
Chief Executive Officer of ContiMortgage 81,000 0
Glenn S. Goldman - Executive Vice President/
Co-President and Managing Director 74,000 0
of ContiFinancial Services Corp.
Scott M. Mannes - Executive Vice President/
Co-President and Managing Director 74,000 0
of ContiFinancial Services Corp.
Daniel J. Willett - Senior Vice President and
Chief Financial Officer 50,000 0
All executive officers as a group (16) (c) 581,000 56,205
All participating employees as a group (132) (d) 230,400 43,200
</TABLE>
(a) See footnotes to the Option Grants in Fiscal Year 1999 table for
additional information.
(b) See footnotes to the Summary Compensation Table for additional
information.
(c) Includes five named executive officers identified above plus 8 other
executive officers.
(d) Includes all executive officers plus 44 other employees. The average
option exercise price per share of Common Stock granted was $6.00.
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.
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<PAGE>
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 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
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<PAGE>
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.
Plan Amendments
The Board of Directors 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 for Limits Amendment
The affirmative vote of a majority of the shares represented at the Annual
Meeting and entitled to vote is required to approve the Limits Amendment to the
Stock Plan. The Board of Directors is of the opinion that the approval of the
Limits Amendment to the Stock Plan is advisable and in the best interests of the
Company. 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 (i) increase 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 from 1,000,000 shares to 3,000,000 shares
and (ii) increase 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 Internal Revenue Code of 1986, as amended from 1,000,000 shares to
3,000,000 shares (or if the award is paid in cash, the cash equivalent value of
3,000,000 shares).
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS APPROVAL OF THIS PROPOSED
AMENDMENT TO 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.
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<PAGE>
Vote Required for Share Amendment
The affirmative vote of a majority of the shares represented at the Annual
Meeting and entitled to vote is required to approve the Share Amendment to the
Stock Plan. The Board of Directors is of the opinion that the approval of the
Share Amendment to the Stock Plan is advisable and in the best interests of the
Company. 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 ContiFinancial Corporation common
stock which may be issued under such Plan by an additional 3,000,000 shares.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS APPROVAL OF THIS PROPOSED
AMENDMENT TO 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.
Stock Plan Performance-Based Goal
Although the terms of the Stock Plan provide for certain defined goals, an
additional performance-based goal has been set for Mr. Fishman, as the recently
hired President and Chief Executive Officer, that requires the approval of the
stockholders of the Company. This additional goal which will expand the Stock
Plan is the ability to maintain the Company as a going concern up through August
20, 1999, the date the extension of the Company's bank revolving credit and
letter of credit were set to expire. Mr. Fishman has met this goal. The maximum
number of shares of Common Stock which may be purchased by Mr. Fishman having
met such goal under the option granted to him is 2,000,000.
Vote Required for Stock Plan Performance-Based Goal Amendment
The affirmative vote of a majority of the shares represented at the Annual
Meeting and entitled to vote is required to approve the Stock Plan
Performance-Based Goal amendment. The Board of Directors is of the opinion that
the approval of the Stock Plan Performance-Based Goal amendment is advisable and
in the best interests of the Company. 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 include the following additional performance-based goal: maintenance
of ContiFinancial Corporation as a going concern through August 20, 1999.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS APPROVAL OF THIS PROPOSED
AMENDMENT TO 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.
32
<PAGE>
APPROVAL OF AMENDMENT TO THE
SECTION 162(m) PERFORMANCE BASED EXECUTIVE BONUS PLAN
Background
Section 162(m) of the Internal Revenue Code of 1986, as amended, generally
precludes a publicly traded company from taking a tax deduction for compensation
in excess of $1 million paid to the company's chief executive officer or any of
the company's four next highest paid executive officers, subject to several
exceptions, including an exception for compensation paid under a
shareholder-approved plan that is "performance-based" within the meaning of
Section 162(m).
The Company's Board of Directors, the Compensation Committee and the Stock
Plan Committee of the Board of Directors (in its capacity as administrator of
the Section 162(m) Performance Based Executive Bonus Plan, the Stock Plan
Committee operates as the "Section 162(m) Plan Committee") of such Board believe
that, as a matter of general policy, the Company's annual incentive compensation
plans should be structured to facilitate compliance with Section 162(m), but
that the Section 162(m) Plan Committee should reserve the right to establish
separate annual and other incentive compensation arrangements for otherwise
covered executive officers that may not comply with Section 162(m) if it
determines, in its sole discretion, that doing so would be in the Company's best
interests.
In June 1996, in an effort to take advantage of the Section 162(m)
exception for "performance-based" plans, the Section 162(m) Plan Committee and
the Company's Board of Directors approved the adoption of the Company's Section
162(m) Performance Based Executive Bonus Plan (the "Section 162(m) Bonus Plan"),
which was approved by the Company's stockholders at the Company's 1996 annual
meeting.
The following is a summary of the key features of the Section 162(m) Bonus
Plan.
Purpose
The purpose of the Section 162(m) Bonus Plan is (i) to retain and motivate
key senior executives of the Company who have been designated as participants in
the Section 162(m) Bonus Plan for a given fiscal year, by providing them with
the opportunity to earn annual bonus awards that are based on the extent to
which specified performance goals for such year have been achieved or exceeded
and (ii) to structure annual bonus opportunities in a way that will qualify the
awards made as "performance-based" for purposes of Section 162(m) so that the
Company will be entitled to a tax deduction on the payment of such incentive
awards to such employees.
Bonus eligible executive officers and other key employees not designated
as participants in the Section 162(m) Bonus Plan for any given year will
generally be eligible for coverage under one of the Company's other annual bonus
plans and arrangements.
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<PAGE>
Administration
The Section 162(m) Bonus Plan is administered by the Section 162(m) Plan
Committee, consisting of at least two non-employee directors, each of whom is
intended to qualify as an "outside director" within the meaning of Section
162(m) of the Code. The Section 162(m) Plan Committee has broad administrative
authority to, among other things, designate participants, establish performance
goals, determine the effect of participant termination of employment and change
of control transactions prior to payment of an award, and interpret and
administer the Section 162(m) Bonus Plan.
Participants
The participants in the Section 162(m) Bonus Plan for any given year are
designated by the Section 162(m) Plan Committee, in its sole discretion, within
the first 90 days of such year or of the beginning of a performance period. Such
determinations may vary from year to year and are based primarily on the Section
162(m) Plan Committee's judgment as to which executive officers are likely to be
the named executive officers of the Company for proxy purposes as of the end of
such year.
Participants in the Section 162(m) Bonus Plan for any given fiscal year
may include any key employee of the Company (including any subsidiary, operating
unit or division) who is an executive officer of the Company and who is
designated as a participant in the Section 162(m) Bonus Plan for such year by
the Section 162(m) Plan Committee.
Annual Bonus Opportunities and Awards
Within the first 90 days of each fiscal year, the Section 162(m) Plan
Committee specifies the applicable performance measures and targets to be used
under the Section 162(m) Bonus Plan for such year which may vary from
participant to participant, and may be based on one or more financial
performance measures regarding Company, subsidiary, operating unit or division
performance of the following: adjusted net profits, pre-tax or after-tax net
income, operating income, gross revenue, profit margin, stock price or cash
flows (in each case before or after such objective income and expense
allocations or adjustments as the Section 162(m) Plan Committee may specify
within the first 90 days of the fiscal year), including measures or targets that
(i) are expressed on an absolute or relative basis, (ii) focus on internal
targets, (iii) are based on comparison(s) with prior performance, (iv) are based
on comparison(s) to capital, shareholders' equity, shares outstanding, assets or
net assets and/or (v) are based on comparison(s) to the performance of other
companies. In the event the proposed Section 162(m) Plan Performance-Based Goals
amendment is approved by the stockholder of the Company, the Section 162(m)
Bonus Plan will include the additional targets described below.
The target bonus opportunity for each participant may be expressed as a
dollar-denominated amount or as a percentage share of a bonus pool to be created
under the Section 162(m) Bonus Plan, provided that, if a pool approach is used,
the total bonus opportunities represented by the shares designated for the
participants for such year shall not exceed 100% of the pool.
34
<PAGE>
The actual bonus awarded to any given participant at the end of a given
year shall be based on the extent to which the applicable financial performance
goals for such year are achieved as determined and certified by the Section
162(m) Plan Committee and on such Committee's determinations as to whether and
to what extent to apply a reduction adjustment with respect to the participant
based on various considerations relating to, among other things, the overall
performance of the Company and its operating units and divisions, the individual
participant's impact on and contributions to such performance, and the aggregate
level of annual bonuses to be paid within the Company and its operating units
and divisions based on such performance, provided that no such reduction
adjustment will result in an increase in the amount of compensation otherwise
payable to any other participant in the Section 162(m) Bonus Plan.
Benefits
Under its terms, the annual bonus paid under the Section 162(m) Bonus Plan
to any individual participant cannot in any event exceed $4 million for any one
participant.
Amendment and Termination
The Board of Directors may terminate the Section 162(m) Bonus Plan, in
whole or part, and may amend the Section 162(m) Bonus Plan from time to time
provided (i) that, without the participant's written consent, no such amendment
or termination shall adversely affect the annual bonus rights (if any) of any
already designated participant for a given fiscal year once the participant
designations and performance goals for such year have been announced and (ii)
that the Board of Directors shall be authorized to make any amendments necessary
to comply with applicable regulatory requirements (including, without
limitation, Section 162(m)). Section 162(m) Bonus Plan amendments require
stockholder approval only if required under Section 162(m).
Federal Income Tax Consequences
Under present federal income tax law, participants will realize ordinary
income equal to the amount of the award received in the year of receipt. The
Company shall receive a deduction for the amount constituting ordinary income to
the participant, provided that the Section 162(m) Bonus Plan satisfies the
requirements of Section 162(m) which limits the deductibility of non-performance
related compensation paid to certain corporate executives. It is the Company's
intention that the Section 162(m) Bonus Plan be adopted and administered in a
manner that maximizes the deductibility of compensation under Section 162(m) for
the Company.
Section 162(m) Plan Performance-Based Goals
Although the terms of the Section 162(m) Bonus Plan provide for certain
defined goals, additional performance-based goals have been set for Mr. Fishman,
as the recently hired President and Chief Executive Officer, that require the
approval of the stockholders of the Company. These additional goals which will
expand the Section 162(m) Bonus Plan for all participants to include (a) loan
originations, (b) expense reduction, (c) restructuring and/or
35
<PAGE>
extension of the Company's debt, and (d) key employee retention. Mr. Fishman is
eligible to receive, under the Section 162(m) Bonus Plan, an annual incentive
bonus to be determined by the Compensation Committee of the Company's Board of
Directors. The maximum bonus that may be paid to Mr. Fishman upon the
achievement of performance-based goals is $2,250,000, of which $750,000 is
guaranteed and $1,500,000 is "performance-based" for purposes of Section 162(m).
During the fiscal year ended March 31, 1999, no amounts were paid under
the Section 162(m) Bonus Plan.
Vote Required for Section 162(m) Plan Performance-Based Goal Amendment
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 Section
162(m) Bonus Plan. The Board of Directors is of the opinion that the approval of
the amendment to the Section 162(m) Bonus Plan is advisable and in the best
interest of the Company. A vote for the following amendment to the Section
162(m) Bonus Plan will be presented at the meeting:
RESOLVED, that the Section 162(m) Performance Based Executive Bonus Plan
be, and hereby is, amended to include the following additional performance-based
goals: (a) loan originations, (b) expense reduction, (c) restructuring and/or
extension of the ContiFinancial Corporation's debt, and (d) key employee
retention.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS APPROVAL OF THIS PROPOSED
AMENDMENT TO THE SECTION 162(m) BONUS 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,
2000. 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, 2000. UNLESS OTHERWISE INSTRUCTED, SIGNED
PROXIES
36
<PAGE>
WHICH ARE RETURNED IN A TIMELY MANNER WILL BE VOTED IN FAVOR OF SUCH
APPOINTMENT.
OTHER BUSINESS
As of the date of this Proxy Statement, the only business which the Board
of Directors intends to present, and knows that others will present, at the
Annual Meeting is that set forth herein. If any other matter or matters are
properly brought before the Annual Meeting or any 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/A 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 2000
Annual Meeting of Stockholders must be received by the Company not less than 90
days and not more than 120 days prior to the annual meeting of stockholders. A
stockholder proposal under S.E.C. Rule 14a-8 must be received by the Company at
the address listed in the previous paragraph no later that April 27, 2000 to be
eligible for inclusion in the Company's Proxy Statement and form of Proxy to be
used in connection with the Company's 2000 Annual Meeting.
OTHER INFORMATION
The cost of preparing, assembling, printing and mailing this Proxy
Statement and the accompanying form of proxy, and the cost of soliciting proxies
relating to the Annual Meeting will be borne by the Company.
By order of the Board of Directors,
/s/ Alan L. Langus
Alan L. Langus
Secretary
New York, New York
August 25, 1999
37
<PAGE>
- --------------------------------------------------------------------------------
CONTIFINANCIAL CORPORATION
Proxy Solicited on Behalf of the Board of Directors of
the Company for Annual Meeting on September 14, 1999
PROXY
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 14, 1999, 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: ________________________________________
Mark R. Baker ________________________________________
Alan H. Fishman ________________________________________
- ---------------------------- (If you have written in the above space,
please mark the corresponding box on the
reverse side of this card)
-----------
SEE REVERSE
SIDE
-----------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
|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, 4, 5
and 6.
- --------------------------------------------------------------------------------
The Board of Directors recommends a vote FOR Proposals 1, 2, 3, 4, 5 and 6.
- --------------------------------------------------------------------------------
FOR WITHHELD FOR AGAINST ABSTAIN
1. Election of 2. Approval of an
Directors |_| |_| amendment to the
(see reverse) Company's 1995
Long-Term Stock |_| |_| |_|
For, except vote WITHHELD from the Incentive Plan
following nominee(s): regarding maximum
limits on indivi-
___________________________________ dual grants thereunder.
FOR AGAINST ABSTAIN
3. Approval of an amendment to the Company's
1995 Long-Term Stock Incentive Plan regarding |_| |_| |_|
an increase in the number of shares which may
be issued thereunder.
4. Approval of an amendment to the Company's
1995 Long-Term Stock Incentive Plan to add a
performance-based goal which will determine |_| |_| |_|
whether certain options to purchase the Company's
common stock become exercisable by the President
and Chief Executive Officer.
5. Approval of an amendment to the Company's Section
162(m) Performance Based Executive Bonus Plan to |_| |_| |_|
add certain performance-based goals under which
compensation may be paid.
6. Propoal to ratify the appointment of Arthur Andersen
LLP as independent accountants for the Company for the |_| |_| |_|
fiscal year ending March 31, 2000.
- --------------------------------------------------------------------------------
I PLAN TO
ATTEND MEETING |_|
SIGNATURE(S)__________________________________________________DATE______________
NOTE: Please date and sign exactly as name appears on this Proxy. Joint owners
should each sign personally. When signing as attorney, executor, adminstrator,
guardian, custodian, or corporate official, sign name and title.
