<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 28, 1997
SECURITIES ACT FILE NO. 333-1787
INVESTMENT COMPANY ACT FILE NO. 811-7565
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM N-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
/X/
PRE-EFFECTIVE AMENDMENT NO. 3
/X/
POST-EFFECTIVE AMENDMENT NO.
/ /
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
/X/
AMENDMENT NO. 3
/X/
(CHECK APPROPRIATE BOX OR BOXES)
--------------------------
CONTIFINANCIAL STRYPES TRUST
(Exact Name of Registrant as Specified in Charter)
C/O PUGLISI & ASSOCIATES
850 LIBRARY AVENUE
SUITE 204
NEWARK, DELAWARE 19715
(Address of Principal Executive Offices)
------------------------------
Registrant's Telephone Number, including Area Code: (302) 738-6680
DONALD J. PUGLISI
PUGLISI & ASSOCIATES
850 LIBRARY AVENUE
SUITE 204
NEWARK, DELAWARE 19715
(Name and Address of Agent for Service)
------------------------------
COPIES TO:
NORMAN D. SLONAKER, ESQ. MATTHEW NIMETZ, ESQ.
Brown & Wood LLP Paul, Weiss, Rifkind, Wharton &
One World Trade Center Garrison
New York, New York 10048-0557 1285 Avenue of the Americas
New York, New York 10019-6064
--------------------------
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after the
effective date of this Registration Statement.
--------------------------
If any securities being registered on this form will be offered on a delayed
or continuous basis in reliance on Rule 415 under the Securities Act of 1933, as
amended, other than securities offered in connection with a dividend
reinvestment plan, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CROSS-REFERENCE SHEET*
<TABLE>
<CAPTION>
ITEM NUMBER IN FORM N-2 CAPTION IN PROSPECTUS
- ----------------------------------------------------------------- ------------------------------------------------------
<S> <C> <C>
PART A--INFORMATION REQUIRED IN A PROSPECTUS
1. Outside Front Cover................................... Front Cover Page
2. Inside Front and Outside Back
Cover Page.......................................... Front Cover Page; Inside Front Cover Page;
Underwriting
3. Fee Table and Synopsis................................ Prospectus Summary; Fee Table
4. Financial Highlights.................................. Not Applicable
5. Plan of Distribution.................................. Front Cover Page; Prospectus Summary; Net Asset Value;
Underwriting
6. Selling Shareholders.................................. Not Applicable
7. Use of Proceeds....................................... Use of Proceeds; Investment Objective and Policies
8. General Description of the Registrant................. Front Cover Page; Prospectus Summary; The Trust;
Investment Objective and Policies; Investment
Restrictions; Risk Factors; Dividends and
Distributions; Additional Information
9. Management............................................ Trustees; Management Arrangements
10. Capital Stock, Long-Term Debt and Other Securities.... Description of the STRYPES
11. Defaults and Arrears on Senior Securities............. Not Applicable
12. Legal Proceedings..................................... Not Applicable
13. Table of Contents of the Statement of Additional
Information......................................... Not Applicable
PART B--INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
14. Cover Page............................................ Not Applicable
15. Table of Contents..................................... Not Applicable
16. General Information and History....................... Not Applicable
17. Investment Objective and Policies..................... Prospectus Summary; Investment Objective and Policies;
Investment Restrictions
18. Management............................................ Trustees and Officers; Management Arrangements
19. Control Persons and Principal Holders of Securities... Management Arrangements; Underwriting; Legal Matters;
Experts
20. Investment Advisory and Other Services................ Management Arrangements
</TABLE>
- ------------------------
* PURSUANT TO THE GENERAL INSTRUCTIONS TO FORM N-2, ALL INFORMATION REQUIRED
TO BE SET FORTH IN PART B: STATEMENT OF ADDITIONAL INFORMATION HAS BEEN
INCLUDED IN PART A: THE PROSPECTUS.
<PAGE>
<TABLE>
<CAPTION>
ITEM NUMBER IN FORM N-2 CAPTION IN PROSPECTUS
- ----------------------------------------------------------------- ------------------------------------------------------
<S> <C> <C>
21. Brokerage Allocation and Other Practices.............. Investment Objective and Policies
22. Tax Status............................................ Certain United States Federal Income Tax
Considerations
23. Financial Statements.................................. Experts; Independent Auditors' Report; Statement of
Assets, Liabilities and Capital
</TABLE>
PART C--OTHER INFORMATION
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
<PAGE>
PROSPECTUS SUBJECT TO COMPLETION
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
(CONTINUED FROM PREVIOUS PAGE)
PRELIMINARY PROSPECTUS DATED MARCH 28, 1997
2,800,000 STRYPES-SM-
CONTIFINANCIAL STRYPES TRUST
(EXCHANGEABLE FOR SHARES OF COMMON STOCK OF CONTIFINANCIAL CORPORATION)
-------------------
Each of the Structured Yield Product Exchangeable for Stock-SM- (the
"STRYPES") of ContiFinancial STRYPES Trust (the "Trust") offered hereby
represents a proportionate share of beneficial interest in the Trust, which
entitles the holder to receive an annual distribution of $ , and will be
exchanged for between % and 100% of each type of Reference Property (or, in
certain circumstances, cash with an equal value) upon conclusion of the term of
the Trust on May 15, 2000 (the "Exchange Date"). The term "Reference Property"
means initially one share of Common Stock, par value $0.01 per share (the
"ContiFinancial Common Stock"), of ContiFinancial Corporation (the "Company")
and shall be subject to adjustment from time to time prior to the Business Day
(as defined herein) immediately preceding the Exchange Date to reflect the
addition or substitution of any cash, securities and/or other property resulting
from the application of the adjustment provisions described herein. The annual
distribution of $ per STRYPES is payable quarterly on each February 15,
May 15, August 15 and November 15, commencing May 15, 1997. The STRYPES are not
subject to redemption.
The Trust is a newly created Delaware business trust established to purchase
and hold (i) a series of zero-coupon U.S. Government securities ("U.S. Treasury
Securities") maturing on a quarterly basis through the Exchange Date and (ii) a
forward purchase contract (the "Contract") with an existing stockholder (the
"Contracting Stockholder") of the Company relating to the Reference Property.
The Trust's investment objective is to distribute to holders of STRYPES on a
quarterly basis $ per STRYPES and, on the Exchange Date, a percentage of
each type of Reference Property (or, in certain circumstances, cash with an
equal value) per STRYPES equal to the Exchange Amount. The Exchange Amount is
equal to: (a) if the Reference Property Value (as defined herein) is greater
than or equal to $ (the "Threshold Appreciation Price"), % of each
type of Reference Property, (b) if the Reference Property Value is less than the
Threshold Appreciation Price but greater than the Initial Price, a percentage of
each type of Reference Property, allocated as proportionately as practicable, so
that the aggregate value thereof equals the Initial Price and (c) if the
Reference Property Value is less than or equal to the Initial Price, 100% of
each type of Reference Property. The "Initial Price" is $ , which amount
is equal to the last reported sale price of the ContiFinancial Common Stock on
the New York Stock Exchange ("NYSE") on , 1997. Holders otherwise
entitled to receive fractional units or interests of any type of Reference
Property in respect of their aggregate holdings of STRYPES will receive cash in
lieu thereof. Pursuant to the terms of the Contract, the Contracting Stockholder
is obligated to deliver to the Trust on the Business Day immediately preceding
the Exchange Date the Reference Property required by the Trust in order to
exchange all of the STRYPES on the Exchange Date in accordance with the Trust's
investment objective. To the extent permitted by applicable law, the obligation
of the Contracting Stockholder to deliver Reference Property under the Contract
may be cash settled, at the option of the Contracting Stockholder, in whole but
not in part, by delivering to the Trust on the Business Day immediately
preceding the Exchange Date, in lieu of the Reference Property otherwise
deliverable, cash in an amount equal to the value of such Reference Property
immediately prior to the Exchange Date (the "Cash Settlement Option"). In the
event that the Contracting Stockholder elects to exercise the Cash Settlement
Option, holders of the STRYPES will receive cash on the Exchange Date. AS
DESCRIBED HEREIN, THE REFERENCE PROPERTY VALUE WILL REPRESENT A DETERMINATION OF
THE VALUE OF THE REFERENCE PROPERTY IMMEDIATELY PRIOR TO THE EXCHANGE DATE.
ACCORDINGLY, THERE CAN BE NO ASSURANCE THAT THE AMOUNT RECEIVABLE BY HOLDERS OF
THE STRYPES ON THE EXCHANGE DATE WILL BE EQUAL TO OR GREATER THAN THE ISSUE
PRICE OF THE STRYPES. IF THE REFERENCE PROPERTY VALUE IS LESS THAN THE INITIAL
PRICE, SUCH AMOUNT RECEIVABLE ON THE EXCHANGE DATE WILL BE LESS THAN THE ISSUE
PRICE PAID FOR THE STRYPES, IN WHICH CASE AN INVESTMENT IN STRYPES WILL RESULT
IN A LOSS. See "Investment Objectives and Policies--General" and "--The
Contract."
(CONTINUED ON FOLLOWING PAGE)
SEE "RISK FACTORS," BEGINNING ON PAGE 23 OF THIS PROSPECTUS, FOR CERTAIN
CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE STRYPES.
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<TABLE>
<CAPTION>
PRICE TO SALES PROCEEDS TO
PUBLIC LOAD(1) TRUST(2)
<S> <C> <C> <C>
Per STRYPES.................................... $ $ $
Total(3)....................................... $ $ $
</TABLE>
(1) Each of the Company and the Contracting Stockholder has agreed to indemnify
the Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933, as amended. See "Underwriting."
(2) Expenses of the offering, which are payable by the Contracting Stockholder,
are estimated to be approximately $ .
(3) The Trust has granted the Underwriters an option, exercisable for 30 days
from the date hereof, to purchase up to an additional 420,000 STRYPES
(subject to decrease as a result of the issuance and sale of STRYPES in
connection with the formation of the Trust) to cover over-allotments, if
any. If all such STRYPES are purchased, the total Price to Public, Sales
Load and Proceeds to Trust will be $ , $ and $ ,
respectively. See "Underwriting."
---------------------------
The STRYPES are offered by the several Underwriters, subject to prior sale,
when, as and if issued to and accepted by them, and subject to approval of
certain legal matters by counsel for the Underwriters and certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
such offer and to reject orders in whole or in part. It is expected that
delivery of the STRYPES will be made through the facilities of The Depository
Trust Company on or about , 1997.
- ------------
- -SM- Service mark of Merrill Lynch & Co., Inc.
- ------------------------
MERRILL LYNCH & CO. BEAR, STEARNS & CO. INC.
- -------------
The date of this Prospectus is , 1997.
<PAGE>
(CONTINUED FROM PREVIOUS PAGE)
The Contract provides that, from and after a Tax Event Date (as defined
herein), the Contracting Stockholder's obligations thereunder may be
accelerated, at the option of the Contracting Stockholder, in whole but not in
part, at the Tax Event Acceleration Price (as defined herein). In such event,
the U.S. Treasury Securities will be sold by the Trust, and the proceeds
therefrom will be distributed along with the Tax Event Acceleration Price
received under the Contract after providing for any expenses of the Trust. See
"Investment Objective and Policies--The Contract--Acceleration Upon Tax Event."
In the event of certain consolidations or mergers of the Company or any
successor thereto into another entity, or the liquidation of the Company or any
such successor, or certain related events, in the event that the Contracting
Stockholder exercises its option to accelerate the Contract upon the occurrence
of a Tax Event or upon the occurrence of certain defaults by the Contracting
Stockholder under the Contract or the collateral arrangements described herein,
the Contract would be accelerated, the Trust's assets (other than assets
received pursuant to the Contract) would be liquidated, the net assets of the
Trust would be distributed PRO RATA to the holders of the STRYPES and the term
of the Trust would expire. See "Investment Objective and Policies--The
Contract--Reorganization Events Causing a Dissolution of the Trust,"
"--Acceleration Upon Tax Event" and "--Collateral Arrangements; Acceleration."
Reference is made to the accompanying prospectus of the Company with respect
to the shares of ContiFinancial Common Stock which may be received by a holder
of STRYPES on the Exchange Date or upon earlier dissolution of the Trust. The
Company is not affiliated with the Trust, will not receive any of the proceeds
from the sale of the STRYPES and will have no obligations with respect to the
STRYPES.
The STRYPES have been approved for listing on the American Stock Exchange
(the "AMEX") under the symbol "CFT", subject to official notice of issuance.
Prior to the offering there has been no public market for the STRYPES. Shares of
closed-end investment companies have in the past frequently traded at a discount
from their net asset values and initial public offering prices. The risks
associated with this characteristic of closed-end investment companies may be
greater for investors expecting to sell shares of a closed-end investment
company soon after the completion of an initial public offering.
The STRYPES are designed to provide investors with a current distribution
yield (the Company has not paid any dividends on the ContiFinancial Common Stock
since its initial public offering), while also providing the opportunity for
investors to share in the appreciation, if any, of the value of the Reference
Property above the Threshold Appreciation Price. However, the opportunity for
equity appreciation afforded by an investment in the STRYPES is less than that
afforded by a direct investment in the Reference Property because the amount
receivable by a holder of a STRYPES upon exchange on the Exchange Date will only
exceed the issue price of such STRYPES if the Reference Property Value exceeds
the Threshold Appreciation Price, which represents an appreciation of % over
the Initial Price. In addition, because each STRYPES will entitle the holder to
receive only % of each type of Reference Property if the Reference Property
Value exceeds the Threshold Appreciation Price, holders of the STRYPES will be
entitled to receive upon exchange only % of any appreciation of the value of
the Reference Property above the Threshold Appreciation Price. Holders of
STRYPES will realize the entire decline in value if the Reference Property Value
is less than the Initial Price. There can be no assurance that the distribution
yield on the STRYPES will be higher than the dividend yield on the
ContiFinancial Common Stock over the term of the Trust.
The STRYPES may be a suitable investment for investors who are able to
understand the unique nature of the Trust and the economic characteristics of
the Contract and the U.S. Treasury Securities held by the Trust.
The Trust has adopted a fundamental policy that the Contract may not be
disposed of during the term of the Trust and that, except under limited
circumstances, the U.S. Treasury Securities may not be disposed of prior to
their respective maturities. As a result, the Trust will continue to hold the
Contract despite any significant decline in the value of the Reference Property,
including the ContiFinancial Common Stock, or adverse changes in the financial
condition of the issuer of any Reference Security (as defined herein), including
the Company. The Trust will not be managed like a typical closed-end investment
company. The Trust will be treated as a grantor trust for United States Federal
income tax purposes and each holder of STRYPES will be treated as the owner of
its PRO RATA portion of the Contract and the U.S. Treasury Securities. The U.S.
Treasury Securities held by the Trust will be treated for United States Federal
income tax purposes as having original issue discount and holders of STRYPES
will be required to recognize currently as income their PRO RATA portion of such
original issue discount as it accrues over the term of the Trust. The quarterly
cash distributions paid to the holders of STRYPES, which distributions are
anticipated to exceed the currently includable original issue discount, will be
treated as a tax-free return of the holders' costs of the U.S. Treasury
Securities and any previously included original issue discount, and therefore
will not be considered current income to holders upon receipt thereof for United
States Federal income tax purposes. Although under current law holders of
STRYPES should not recognize income, gain or loss with respect to the Contract
over its term, holders will recognize taxable gain or loss upon receipt of cash,
if any, upon dissolution of the Trust. For a discussion of certain United States
Federal income tax considerations for holders of the STRYPES, see "Certain
United States Federal Income Tax Considerations."
This Prospectus concisely sets forth information about the Trust that a
prospective investor ought to know before investing and should be read and
retained for future reference.
------------------------
Certain persons participating in this Offering may engage in transactions
that stabilize, maintain or otherwise affect the price of the STRYPES or the
ContiFinancial Common Stock. Such transactions may include stabilizing, the
purchase of STRYPES to cover syndicate short positions and the imposition of
penalty bids. For a description of these activities, see "Underwriting."
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY SHOULD BE READ IN CONJUNCTION WITH THE MORE DETAILED
INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED,
THE INFORMATION CONTAINED IN THIS PROSPECTUS ASSUMES THAT THE UNDERWRITERS'
OVER-ALLOTMENT OPTION IS NOT EXERCISED. UNLESS THE CONTEXT OTHERWISE REQUIRES,
THE FOLLOWING SUMMARY ASSUMES THAT ON THE EXCHANGE DATE THE REFERENCE PROPERTY
CONSISTS ONLY OF SHARES OF CONTIFINANCIAL COMMON STOCK. AS USED IN THIS
PROSPECTUS, THE "COMPANY" REFERS TO CONTIFINANCIAL CORPORATION.
THE TRUST
ContiFinancial STRYPES Trust (the "Trust") is a newly created Delaware
business trust that will be registered as a non-diversified closed-end
management investment company under the Investment Company Act of 1940, as
amended (the "Investment Company Act"). The term of the Trust will expire on or
shortly after May 15, 2000 (the "Exchange Date"), except that the Trust may be
dissolved prior to such date under certain limited circumstances. The Trust will
be treated as a grantor trust for United States Federal income tax purposes.
THE OFFERING
The Trust is offering 2,800,000 STRYPES, each representing a proportionate
share of beneficial interest in the Trust, at an initial public offering price
of $ per STRYPES (which is equal to the last reported sale price of the
ContiFinancial Common Stock on the NYSE on , 1997, the date of the
offering (the "Offering")). The Underwriters have been granted an option,
exercisable for 30 days from the date of this Prospectus, to purchase up to an
aggregate of 420,000 additional STRYPES (subject to decrease as a result of the
issuance and sale of STRYPES in connection with the formation of the Trust) to
cover over-allotments, if any. See "Underwriting."
THE COMPANY
The Company engages in the consumer and commercial finance business by
originating and servicing home equity loans and providing financing and asset
securitization structuring and placement services to originators of a broad
range of loans, leases and receivables. Securitization provides significant
benefits, including greater operating leverage and reduced costs of funds, in
the financing of assets such as non-conforming home equity loans, equipment
leases, home improvement loans, franchise loans, commercial/ multi-family loans,
non-prime and sub-prime auto loans and leases and timeshare loans. Through
ContiMortgage Corporation, the Company is a leading originator, purchaser,
seller and servicer of home equity loans made to borrowers whose borrowing needs
may not be met by traditional financial institutions due to credit exceptions or
other factors. Loans are made to borrowers primarily for debt consolidation,
home improvements, education or refinancing and are primarily secured by first
mortgages on one-to-four family residential properties.
Reference is made to the accompanying prospectus of the Company with respect
to the shares of ContiFinancial Common Stock which may be received by a holder
of STRYPES on the Exchange Date or upon earlier dissolution of the Trust. The
Company is not affiliated with the Trust, will not receive any of the proceeds
from the sale of the STRYPES and will have no obligations with respect to the
STRYPES. THE PROSPECTUS OF THE COMPANY IS BEING ATTACHED HERETO AND DELIVERED TO
PROSPECTIVE PURCHASERS OF STRYPES TOGETHER WITH THIS PROSPECTUS FOR CONVENIENCE
OF REFERENCE ONLY. THE PROSPECTUS OF THE COMPANY DOES NOT CONSTITUTE A PART OF
THIS PROSPECTUS, NOR IS IT INCORPORATED BY REFERENCE HEREIN.
INVESTMENT OBJECTIVE AND POLICIES
The Trust will purchase and hold a series of zero-coupon U.S. Government
securities ("U.S. Treasury Securities") maturing on a quarterly basis through
the Exchange Date and a forward purchase contract (the "Contract") with an
existing stockholder (the "Contracting Stockholder") of the Company relating to
3
<PAGE>
the Reference Property. The Trust's investment objective is to distribute to
holders of the STRYPES ("Holders") on a quarterly basis $ per STRYPES
(which amount equals the PRO RATA portion of the fixed quarterly distributions
from the proceeds of the maturing U.S. Treasury Securities held by the Trust)
and, on the Exchange Date, a percentage of each type of Reference Property (or,
under certain circumstances, cash with an equal value) per STRYPES equal to the
Exchange Amount. The Exchange Amount is equal to: (i) if the Reference Property
Value (as defined herein) is greater than or equal to $ (the "Threshold
Appreciation Price"), % of each type of Reference Property, (ii) if the
Reference Property Value is less than the Threshold Appreciation Price but
greater than $ (the "Initial Price"), a percentage of each type of
Reference Property, allocated as proportionately as practicable, so that the
aggregate value thereof is equal to the Initial Price and (iii) if the Reference
Property Value is less than or equal to the Initial Price, 100% of each type of
Reference Property. The term "Reference Property" means initially one share of
ContiFinancial Common Stock and shall be subject to adjustment from time to time
prior to the Business Day (as defined herein) immediately preceding the Exchange
Date to reflect the addition or substitution of any cash, securities and/or
other property resulting from the application of the adjustment provisions
described herein. As more fully described under "Investment Objective and
Policies--The Contract--Reference Property Adjustments," upon application of
such adjustment provisions, in the future the Reference Property may include, in
addition to or in lieu of ContiFinancial Common Stock, other securities
(including rights or warrants) of the Company, securities of another issuer,
cash or other property. Holders otherwise entitled to receive fractional units
or interests of any type of Reference Property in respect of their aggregate
holdings of STRYPES will receive cash in lieu thereof. See "Investment Objective
and Policies--General" and "--Fractional Interests."
Pursuant to the terms of the Contract, the Contracting Stockholder is
obligated to deliver to the Trust on the Business Day immediately preceding the
Exchange Date the Reference Property required by the Trust in order to exchange
all of the STRYPES (including any STRYPES issued pursuant to the over-allotment
option granted by the Trust to the Underwriters and STRYPES issued in connection
with the formation of the Trust) on the Exchange Date in accordance with the
Trust's investment objective. To the extent permitted by applicable law, the
obligation of the Contracting Stockholder to deliver Reference Property under
the Contract may be cash settled, at the option of the Contracting Stockholder,
in whole but not in part, by delivering to the Trust on the Business Day
immediately preceding the Exchange Date, in lieu of the Reference Property
otherwise deliverable, cash in an amount equal to the value of such Reference
Property immediately prior to the Exchange Date (the "Cash Settlement Option").
In the event that the Contracting Stockholder elects to exercise the Cash
Settlement Option, Holders will receive cash on the Exchange Date. See
"Investment Objective and Policies--The Contract."
Holders of the STRYPES will receive distributions at the rate per STRYPES of
$ per annum, or $ per quarter, payable quarterly on each
February 15, May 15, August 15 and November 15 (or, if any such date is not a
Business Day, on the next succeeding Business Day) to Holders of record as of
each February 1, May 1, August 1 and November 1, respectively. The first
distribution (in respect of the period from April , 1997 until May 14, 1997)
will be payable on May 15, 1997 to Holders of record as of May 1, 1997, and will
equal $ per STRYPES. See "Investment Objective and Policies--Trust
Assets."
On the Exchange Date, each outstanding STRYPES will be exchanged for between
% and 100% of each type of Reference Property (or, in the event that the
Contracting Stockholder elects to exercise the Cash Settlement Option, cash with
an equal value), depending on the Reference Property Value. AS DESCRIBED HEREIN,
THE REFERENCE PROPERTY VALUE WILL REPRESENT A DETERMINATION OF THE VALUE OF THE
REFERENCE PROPERTY IMMEDIATELY PRIOR TO THE EXCHANGE DATE. ACCORDINGLY, THERE
CAN BE NO ASSURANCE THAT THE AMOUNT RECEIVABLE BY HOLDERS OF THE STRYPES ON THE
EXCHANGE DATE WILL BE EQUAL TO OR GREATER THAN THE ISSUE PRICE OF THE STRYPES.
IF THE REFERENCE PROPERTY VALUE IS LESS THAN THE INITIAL PRICE, SUCH AMOUNT
RECEIVABLE ON THE EXCHANGE DATE WILL BE LESS THAN THE ISSUE PRICE PAID FOR THE
STRYPES, IN WHICH CASE AN INVESTMENT IN STRYPES WILL RESULT IN A LOSS. In the
event of certain consolidations or mergers of the Company or any
4
<PAGE>
successor thereto into another entity, or the liquidation of the Company or any
such successor, or certain related events, in the event that the Contracting
Stockholder exercises its option to accelerate the Contract upon the occurrence
of a Tax Event or upon the occurrence of certain defaults by the Contracting
Stockholder under the Contract or the collateral arrangements described herein,
the Contract would be accelerated, the Trust's assets (other than assets
received pursuant to the Contract) would be liquidated, the net assets of the
Trust would be distributed PRO RATA to the Holders of the STRYPES and the term
of the Trust would expire. See "Investment Objective and Policies--The
Contract--Reorganization Events Causing a Dissolution of the Trust,"
"--Acceleration Upon Tax Event" and "--Collateral Arrangements; Acceleration."
TRUST ASSETS
The Trust's assets will consist of: (i) a series of zero-coupon U.S.
Treasury Securities with face amounts and maturities corresponding to the
amounts and payment dates of the distributions payable with respect to the
STRYPES, comprising approximately % of the initial assets of the Trust, and
(ii) the Contract with the Contracting Stockholder relating to the Reference
Property, comprising approximately % of the initial assets of the Trust.
Pursuant to the terms of the Contract, the Contracting Stockholder is
obligated to deliver to the Trust on the Business Day immediately preceding the
Exchange Date an aggregate number or amount of each type of Reference Property
equal to the product of the Exchange Amount and the aggregate number of STRYPES
then outstanding, subject to the Contracting Stockholder's Cash Settlement
Option.
The Contract provides that, from and after a Tax Event Date (as defined
herein), the Contracting Stockholder's obligations thereunder may be
accelerated, at the option of the Contracting Stockholder, in whole but not in
part, at the Tax Event Acceleration Price (as defined herein). In such event,
the U.S. Treasury Securities will be sold by the Trust, and the proceeds
therefrom will be distributed along with the Tax Event Acceleration Price
received under the Contract after providing for any expenses of the Trust. See
"Investment Objective and Policies--The Contract--Acceleration Upon Tax Event."
The purchase price under the Contract is equal to $ in the aggregate
(assuming the Underwriters' over-allotment option is not exercised) and is
payable to the Contracting Stockholder by the Trust on or about ,
1997. No other consideration is payable by the Trust to the Contracting
Stockholder in connection with its acquisition of the Contract or the
performance of the Contract by the Contracting Stockholder. See "Investment
Objective and Policies--The Contract."
The obligations of the Contracting Stockholder under the Contract initially
will be secured by a pledge of the maximum number of shares of ContiFinancial
Common Stock deliverable by the Contracting Stockholder pursuant to the
Contract. See "Investment Objective and Policies--The Contract--Collateral
Arrangements; Acceleration."
RELATIONSHIP TO CONTIFINANCIAL COMMON STOCK
Holders of the STRYPES will receive distributions at the rate of % of the
issue price per annum. The Company has not paid any dividends on the
ContiFinancial Common Stock since its initial public offering and has stated
that it has no current intention to pay dividends on the ContiFinancial Common
Stock. As a holding company, the ability of the Company to pay dividends is
dependent upon the receipt of dividends or other payments from its subsidiaries.
Any future determination as to the payment of dividends will be at the
discretion of the Company's Board of Directors and will depend upon the
Company's operating results, financial condition and capital requirements,
contractual restrictions, general business conditions and such other factors as
the Company's Board of Directors deems relevant. Furthermore, covenants in
certain debt agreements of the Company restrict the payment of dividends by the
Company. Holders of STRYPES will not be entitled to receive any future dividends
on the ContiFinancial Common Stock unless and until such time, if any, as the
Trust shall have delivered ContiFinancial Common Stock in
5
<PAGE>
exchange for STRYPES on the Exchange Date or upon earlier dissolution of the
Trust, and unless the applicable record date for determining stockholders
entitled to receive such dividends occurs after such delivery. See "Risk
Factors--No Stockholder Rights."
The opportunity for equity appreciation afforded by an investment in the
STRYPES is less than that afforded by a direct investment in the ContiFinancial
Common Stock because the amount receivable by a Holder of a STRYPES upon
exchange on the Exchange Date will only exceed the issue price of such STRYPES
if the Reference Property Value exceeds the Threshold Appreciation Price (which
represents an appreciation of % over the Initial Price). Moreover, each
STRYPES will entitle the Holder to receive on the Exchange Date only % (the
percentage equal to the Initial Price divided by the Threshold Appreciation
Price) of any appreciation of the value of Reference Property above the
Threshold Appreciation Price. Holders of STRYPES will realize the entire decline
in value if the Reference Property Value is less than the Initial Price. See
"Risk Factors--Limitations on Opportunity for Equity Appreciation; Potential
Losses."
DILUTION; TRADING PRICES
The percentage of each type of Reference Property (or the amount of cash)
that Holders of STRYPES are entitled to receive upon exchange on the Exchange
Date will not be adjusted for certain events, such as offerings of
ContiFinancial Common Stock by the Company for cash or in connection with
acquisitions. The Contracting Stockholder currently owns approximately 81% of
the outstanding ContiFinancial Common Stock. Concurrently with the offering of
the STRYPES, the Company is separately offering 2,800,000 shares of
ContiFinancial Common Stock (3,220,000 shares if the underwriters'
over-allotment options are exercised in full) (the "ContiFinancial Offering").
Upon completion of the ContiFinancial Offering, the Contracting Stockholder will
own approximately 76% of the outstanding ContiFinancial Common Stock
(approximately 75% if the underwriters' over-allotment options are exercised in
full). ContiFinancial is not restricted from issuing additional shares of
ContiFinancial Common Stock during the term of the Trust and, because the
Contracting Stockholder will continue to exercise a controlling influence over
the business and affairs of the Company upon completion of the ContiFinancial
Offering, any such decision to issue additional shares of ContiFinancial Common
Stock will be influenced by the Contracting Stockholder. In addition, the
Contracting Stockholder is not precluded from selling shares of ContiFinancial
Common Stock, either pursuant to Rule 144 under the Securities Act of 1933, as
amended (the "Securities Act"), or by causing the Company to register such
shares. Neither the Company nor the Contracting Stockholder has any obligation
to consider the interests of the Holders of the STRYPES for any reason.
Additional issuances or sales may materially and adversely affect the price of
the ContiFinancial Common Stock and, because of the relationship of the
percentage of the Reference Property (or the amount of cash) to be received on
the Exchange Date to the price of the ContiFinancial Common Stock, such other
events may materially and adversely affect the trading price of the STRYPES.
There can be no assurance that the Company will not take any of the foregoing
actions, or that it will not make offerings of, or that major shareholders
(including the Contracting Stockholder) will not sell any, ContiFinancial Common
Stock in the future, or as to the amount of any such offerings or sales. See
"Risk Factors--Reference Property Adjustments."
TERM OF THE TRUST
The Trust will dissolve on or shortly after the Exchange Date, except if
dissolved earlier under certain limited circumstances. Promptly after the
Exchange Date, the Reference Property or cash to be exchanged for the STRYPES
and any other remaining Trust assets, net of any remaining Trust expenses, if
any, will be distributed PRO RATA to Holders. In the event that a Company
Reorganization Event (as defined below) shall have occurred, the Contracting
Stockholder exercises its option to accelerate the Contract upon the occurrence
of a Tax Event or certain defaults shall have occurred with respect to the
Contracting Stockholder under the Contract or the collateral arrangements
described herein, the Contract would
6
<PAGE>
accelerate, the Trust's assets (other than assets received pursuant to the
Contract) would be liquidated, the net assets of the Trust would be distributed
PRO RATA to the Holders and the term of the Trust would expire. See "Investment
Objective and Policies--The Contract," "--Acceleration upon Tax Event" and
"--Trust Dissolution," and "Risk Factors--Limited Term."
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The Trust will be taxable as a grantor trust for United States Federal
income tax purposes. Accordingly, each Holder will be treated for United States
Federal income tax purposes as the owner of its PRO RATA portion of the U.S.
Treasury Securities and the Contract, and income received (including original
issue discount treated as received) by the Trust will generally be treated as
income of the Holders. See "Certain United States Federal Income Tax
Considerations."
The U.S. Treasury Securities held by the Trust will be treated for United
States Federal income tax purposes as having "original issue discount" which
will accrue over the term of the U.S. Treasury Securities. It is currently
anticipated that each quarterly cash distribution to the Holders will be treated
as a tax-free return of the Holders' costs of the U.S. Treasury Securities and
any previously included original issue discount, and therefore will not be
considered current income to Holders upon receipt thereof for United States
Federal income tax purposes. However, a Holder (whether on the cash or accrual
method of tax accounting) must recognize currently as income original issue
discount on the U.S. Treasury Securities as it accrues. See "Certain United
States Federal Income Tax Considerations."
Under existing law, a Holder should not recognize income, gain or loss upon
the Trust's entry into the Contract or over the term of the Contract. In
general, the delivery of Reference Property pursuant to the Contract will not be
taxable to the Holders. A Holder will have taxable gain or loss upon receipt of
cash, if any, upon dissolution of the Trust or to the extent that the
Contracting Stockholder elects to exercise the Cash Settlement Option or the Tax
Event Cash Settlement Option (as defined herein) and satisfies its obligations
under the Contract with cash. In general, each Holder's initial tax basis in any
Reference Property received from the Trust on the Exchange Date or upon earlier
dissolution of the Trust will be equal to its basis in its PRO RATA portion of
the Contract less the portion of such basis allocable to any fractional units of
any Reference Security, fractional interests of any Reference Property for which
cash is received and any Reference Property consisting of cash. See "Certain
United States Federal Income Tax Considerations."
MANAGEMENT ARRANGEMENTS
The Trust will be internally managed and will not have an investment
adviser. The Trust's portfolio will not be actively managed. The administration
of the Trust will be overseen by the Trustees. The day-to-day administration of
the Trust will be carried out by The Chase Manhattan Bank (or its successor) as
trust administrator (the "Administrator"). The Chase Manhattan Bank (or its
successor) will also act as custodian for the Trust's assets (the "Custodian").
ChaseMellon Shareholder Services, L.L.C. will act as paying agent, transfer
agent and registrar (the "Paying Agent") with respect to the STRYPES. Except as
aforesaid, and except for The Chase Manhattan Bank's role as collateral agent
under the Trust's Security and Pledge Agreement (see "Investment Objective and
Policies--The Contract--Collateral Arrangements; Acceleration"), neither The
Chase Manhattan Bank nor ChaseMellon Shareholder Services, L.L.C. has any other
affiliation with, or is engaged in any other transaction with, the Trust. For
their services, the Contracting Stockholder will pay each of the Administrator,
the Custodian and the Paying Agent at the closing of the Offering a one-time,
up-front amount in respect of its fee. See "Management Arrangements."
7
<PAGE>
RISK FACTORS
The Trust has adopted a fundamental policy that the Contract may not be
disposed of during the term of the Trust and that, unless the Trust dissolves
prior to the Exchange Date due to the occurrence of a "Company Reorganization
Event," in the event that the Contracting Stockholder exercises its option to
accelerate the Contract upon the occurrence of a Tax Event or in the event of a
"Default" by the Contracting Stockholder, the U.S. Treasury Securities may not
be disposed of prior to their respective maturities. The Trust will continue to
hold the Contract despite any significant decline in the value of the Reference
Property, including the ContiFinancial Common Stock, or adverse changes in the
financial condition of the issuer of any Reference Security (as defined herein),
including the Company.
Although the STRYPES will provide the Holders with a current distribution
yield (the Company has not paid any dividends on the ContiFinancial Common Stock
since its initial public offering), there is no assurance that the distribution
yield on the STRYPES will be higher than the dividend yield on the
ContiFinancial Common Stock over the term of the Trust. In addition, the
opportunity for equity appreciation afforded by an investment in the STRYPES is
less than that afforded by a direct investment in the ContiFinancial Common
Stock. The value of the Reference Property receivable by a Holder of a STRYPES
upon exchange on the Exchange Date will only exceed the issue price of such
STRYPES if the Reference Property Value exceeds the Threshold Appreciation
Price, which represents an appreciation of % over the Initial Price.
Moreover, because each STRYPES will entitle the Holder to receive only % of
each type of Reference Property if the Reference Property Value exceeds the
Threshold Appreciation Price, Holders of the STRYPES will be entitled to receive
upon exchange only % of any appreciation of the value of the Reference
Property above the Threshold Appreciation Price. AS DESCRIBED HEREIN, THE
REFERENCE PROPERTY VALUE WILL REPRESENT A DETERMINATION OF THE VALUE OF THE
REFERENCE PROPERTY IMMEDIATELY PRIOR TO THE EXCHANGE DATE. ACCORDINGLY, THERE
CAN BE NO ASSURANCE THAT THE AMOUNT RECEIVABLE BY HOLDERS OF THE STRYPES ON THE
EXCHANGE DATE WILL BE EQUAL TO OR GREATER THAN THE ISSUE PRICE OF THE STRYPES.
IF THE REFERENCE PROPERTY VALUE IS LESS THAN THE INITIAL PRICE, SUCH AMOUNT
RECEIVABLE ON THE EXCHANGE DATE WILL BE LESS THAN THE ISSUE PRICE PAID FOR THE
STRYPES, IN WHICH CASE AN INVESTMENT IN STRYPES WILL RESULT IN A LOSS.
The Trust is classified as a "non-diversified" investment company under the
Investment Company Act. Consequently, the Trust is not limited by the Investment
Company Act in the proportion of its assets that may be invested in the
securities of a single issuer. Since the only securities held by the Trust will
be the U.S. Treasury Securities and the Contract, the Trust may be subject to
greater risk than would be the case for an investment company with more
diversified investments.
The trading prices of the STRYPES in the secondary market will be directly
affected by the trading prices of the ContiFinancial Common Stock in the
secondary market. It is impossible to predict whether the price of
ContiFinancial Common Stock will rise or fall. Trading prices of ContiFinancial
Common Stock will be influenced by the Company's operating results and prospects
and by economic, financial and other factors and market conditions.
Holders of STRYPES will not be entitled to any rights with respect to the
ContiFinancial Common Stock (including, without limitation, voting rights and
rights to receive any dividends or other distributions in respect thereof)
unless and until such time, if any, as the Trust shall have delivered shares of
ContiFinancial Common Stock in exchange for STRYPES on the Exchange Date or upon
earlier dissolution of the Trust, and unless the applicable record date, if any,
for the exercise of such rights occurs after such delivery.
The bankruptcy of the Contracting Stockholder could adversely affect the
timing of exchange or, as a result, the amount received by the Holders of the
STRYPES. See "Risk Factors--Risk Relating to Bankruptcy of the Contracting
Stockholder."
8
<PAGE>
Holders will experience a taxable event upon receipt of cash, if any, upon
dissolution of the Trust or to the extent that the Contracting Stockholder
elects to exercise the Cash Settlement Option or the Tax Event Cash Settlement
Option and satisfy its obligations under the Contract with cash. Because of an
absence of authority as to the proper character of any gain or loss resulting
from such a taxable event, the ultimate tax consequences to Holders as a result
of the Contracting Stockholder electing to exercise the Cash Settlement Option
or the Tax Event Cash Settlement Option is uncertain. See "Risk Factors."
LISTING
The STRYPES have been approved for listing on the AMEX under the symbol
"CFT", subject to official notice of issuance.
FEE TABLE
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load (as a percentage of offering price)............% (a)
Automatic Dividend Reinvestment Plan Fees......................... Not Applicable
ANNUAL EXPENSES (AS A PERCENTAGE OF NET ASSETS)
Management Fees(b)................................................%
Other Expenses(c).................................................%
---------------
TOTAL ANNUAL EXPENSES(C)..............................................%
---------------
---------------
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS
- ------------------------------------------------------------------------------------------ ---------- ----------
<S> <C> <C>
An investor would pay the following expenses on a $1,000 investment, including the maximum
sales load of $ and assuming (1) no annual expenses and (2) a 5% annual return
throughout the periods:................................................................. $ $
</TABLE>
- ------------------------
(a) See the cover page of this Prospectus and "Underwriting."
(b) See "Management Arrangements." The Trust will be internally managed;
consequently there is no separate investment advisory fee paid by the Trust.
The Chase Manhattan Bank will act as the administrator of the Trust.
(c) The organization costs of the Trust in the amount of $ , the costs
associated with the initial registration and offering of the STRYPES
estimated to be approximately $ , and approximately $ in
respect of anticipated ongoing expenses over the term of the Trust will be
paid by the Contracting Stockholder. Any unanticipated operating expenses of
the Trust will be paid by Merrill Lynch & Co., Inc., which will be
reimbursed by the Contracting Stockholder. See "Management
Arrangements--Estimated Expenses." Absent such arrangements, the Trust's
"Other Expenses" and "Total Annual Expenses" would be approximately % of
the Trust's net assets.
The foregoing Fee Table is intended to assist investors in understanding the
costs and expenses that a shareholder in the Trust will bear directly or
indirectly. The Example set forth above assumes reinvestment of all dividends
and distributions and utilizes a 5% annual rate of return as mandated by
Securities and Exchange Commission regulations. THE EXAMPLE SHOULD NOT BE
CONSIDERED A REPRESENTATION OF FUTURE EXPENSES OR ANNUAL RATES OF RETURN, AND
ACTUAL EXPENSES OR ANNUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE ASSUMED
FOR PURPOSES OF THE EXAMPLE.
9
<PAGE>
THE TRUST
ContiFinancial STRYPES Trust is a newly created Delaware business trust and
will be registered as a closed-end management investment company under the
Investment Company Act. The Trust was formed on March 14, 1996 pursuant to a
Trust Agreement dated as of such date (as amended and restated as of March 26,
1997, the "Declaration of Trust"). The term of the Trust will expire on or
shortly after May 15, 2000, except that the Trust may be dissolved prior to such
date under certain limited circumstances. The Trust will be treated as a grantor
trust for United States Federal income tax purposes. The Trust's principal
office is located at 850 Library Avenue, Suite 204, Newark, Delaware 19715 and
its telephone number is (302) 738-6680.
USE OF PROCEEDS
The net proceeds of the Offering will be approximately $ (or
approximately $ , if the Underwriters' over-allotment option is
exercised in full), after payment of the sales load. At the time of the closing
of the Offering, or shortly thereafter, the net proceeds of the Offering will be
used to purchase a fixed portfolio comprised of a series of zero-coupon U.S.
Treasury Securities with face amounts and maturities corresponding to the
amounts and payment dates of the distributions payable with respect to the
STRYPES and to pay the purchase price under the Contract to the Contracting
Stockholder.
INVESTMENT OBJECTIVE AND POLICIES
UNLESS THE CONTEXT OTHERWISE REQUIRES, THE FOLLOWING DISCUSSION ASSUMES THAT
ON THE EXCHANGE DATE THE REFERENCE PROPERTY CONSISTS ONLY OF SHARES OF
CONTIFINANCIAL COMMON STOCK.
GENERAL
The Trust will purchase and hold (i) a series of zero-coupon U.S. Treasury
Securities maturing on a quarterly basis through the Exchange Date and (ii) the
Contract with the Contracting Stockholder relating to the Reference Property.
The Trust's investment objective is to distribute to Holders on a quarterly
basis $ per STRYPES (which amount equals the PRO RATA portion of the
fixed quarterly distributions from the proceeds of the maturing U.S. Treasury
Securities held by the Trust) and, on the Exchange Date, a percentage of the
number or amount of each type of Reference Security and other property
constituting part of the Reference Property (or, in certain circumstances, cash
with an equal value) per STRYPES equal to the Exchange Amount. The Exchange
Amount is equal to: (i) if the Reference Property Value is greater than or equal
to the Threshold Appreciation Price, % of the number or amount of each type
of Reference Security and other property constituting part of the Reference
Property, (ii) if the Reference Property Value is less than the Threshold
Appreciation Price but greater than the Initial Price, a percentage of the
number or amount of each type of Reference Security and other property
constituting part of the Reference Property, allocated as proportionately as
practicable, so that the aggregate value thereof is equal to the Initial Price
and (iii) if the Reference Property Value is less than or equal to the Initial
Price, 100% of the number or amount of each type of Reference Security and other
property constituting part of the Reference Property. THERE CAN BE NO ASSURANCE
THAT THE VALUE OF THE REFERENCE PROPERTY RECEIVABLE BY HOLDERS OF THE STRYPES ON
THE EXCHANGE DATE WILL BE EQUAL TO OR GREATER THAN THE ISSUE PRICE OF THE
STRYPES. IF THE REFERENCE PROPERTY VALUE IS LESS THAN THE INITIAL PRICE, THE
VALUE OF THE REFERENCE PROPERTY RECEIVABLE ON THE EXCHANGE DATE WILL BE LESS
THAN THE ISSUE PRICE PAID FOR THE STRYPES, IN WHICH CASE AN INVESTMENT IN
STRYPES WILL RESULT IN A LOSS. Holders otherwise entitled to receive fractional
units or interests of any Reference Security or other property constituting part
of the Reference Property in respect of their aggregate holdings of STRYPES will
receive cash in lieu thereof. See "-- Fractional Interests."
The term "Reference Property" initially means one share of ContiFinancial
Common Stock and shall be subject to adjustment from time to time prior to the
Business Day immediately preceding the Exchange
10
<PAGE>
Date to reflect the addition or substitution of any cash, securities and/or
other property resulting from the application of the adjustment provisions
described below under "--The Contract--Reference Property Adjustments." As more
fully described below, upon application of such adjustment provisions, in the
future the Reference Property may include, in addition to or in lieu of
ContiFinancial Common Stock, other securities (including rights or warrants) of
the Company, securities of another issuer, cash or other property. The term
"Reference Security" means, at any time, any security (as defined in Section
2(1) of the Securities Act) then constituting part of the Reference Property.
The term "Reference Property Value" means, subject to the adjustment provisions
described below, the sum, determined as of 10:00 A.M. (New York City time) on
the second Business Day preceding the Exchange Date, of (a) for any portion of
the Reference Property consisting of cash, the amount of such cash, (b) for any
portion of the Reference Property consisting of property other than cash or
Reference Securities, the fair market value (as determined by a nationally
recognized independent investment banking firm retained for this purpose by the
Administrator) as of 10:00 A.M. (New York City time) on the third Business Day
preceding the Exchange Date of such property, and (c) for any portion of the
Reference Property consisting of a Reference Security, an amount equal to the
average Closing Price per unit of such Reference Security on the 20 Trading Days
immediately prior to, but not including, the second Trading Day preceding the
Exchange Date multiplied by the number of units of such Reference Security
constituting part of the Reference Property. The "Closing Price" of any
Reference Security on any date of determination means the closing sale price
(or, if no closing price is reported, the last reported sale price) of such
Reference Security on the NYSE on such date or, if such Reference Security is
not listed for trading on the NYSE on any such date, as reported in the
composite transactions for the principal United States securities exchange on
which such Reference Security is so listed, or, if such Reference Security is
not listed on a United States national or regional securities exchange, as
reported by the National Association of Securities Dealers, Inc. Automated
Quotation System, or, if such Reference Security is not so reported, the last
quoted bid price for such Reference Security in the over-the-counter market as
reported by the National Quotation Bureau or similar organization, or, if such
bid price is not available, the market value of such Reference Security on such
date as determined by a nationally recognized independent investment banking
firm retained for this purpose by the Administrator. A "Trading Day" is defined
as a day on which the Reference Security the Closing Price of which is being
determined (A) is not suspended from trading on any national or regional
securities exchange or association or over-the-counter market at the close of
business and (B) has traded at least once on the national or regional securities
exchange or association or over-the-counter market that is the primary market
for the trading of such Reference Security. The term "Business Day" means any
day that is not a Saturday, a Sunday or a day on which the New York Stock
Exchange, The NASDAQ National Market, or banking institutions or trust companies
in The City of New York are authorized or obligated by law or executive order to
close.
Pursuant to the terms of the Contract, the Contracting Stockholder is
obligated to deliver to the Trust on the Business Day immediately preceding the
Exchange Date the aggregate number or amount of each type of Reference Security
and other property constituting part of the Reference Property required by the
Trust in order to exchange all of the STRYPES (including any STRYPES issued
pursuant to the over-allotment option granted by the Trust to the Underwriters
and STRYPES issued in connection with the formation of the Trust) on the
Exchange Date in accordance with the Trust's investment objective. To the extent
permitted by applicable law, the obligation of the Contracting Stockholder to
deliver Reference Property under the Contract may be cash settled, at the option
of the Contracting Stockholder, in whole but not in part, by delivering to the
Trust on the Business Day immediately preceding the Exchange Date, in lieu of
the number or amount of each type of Reference Property otherwise deliverable,
cash in an amount equal to the value of such Reference Property immediately
prior to the Exchange Date (the "Cash Settlement Option"). In the event that the
Contracting Stockholder elects to exercise the Cash Settlement Option, Holders
will receive cash on the Exchange Date. On or prior to the sixth Business Day
preceding the Exchange Date, the Administrator will notify The Depository Trust
Company (the "Depositary") and publish a notice in THE WALL STREET JOURNAL or
another daily newspaper of national circulation stating
11
<PAGE>
whether the applicable percentage of the number or amount of each type of
Reference Security and other property constituting part of the Reference
Property or cash will be delivered in exchange for the STRYPES on the Exchange
Date. At the time such notice is published, the Reference Property Value will
not have been determined. If the Contracting Stockholder elects to deliver
Reference Property, Holders will be responsible for the payment of any and all
brokerage costs upon the subsequent sale thereof.
The Trust has adopted a fundamental policy as required by the Declaration of
Trust to invest at least 65% of its portfolio in the Contract. The Contract will
comprise approximately % of the Trust's initial assets. The Trust has also
adopted a fundamental policy that the Contract may not be disposed of during the
term of the Trust and that, unless the Trust dissolves prior to the Exchange
Date due to the occurrence of a "Company Reorganization Event," in the event
that the Contracting Stockholder exercises its option to accelerate the Contract
upon the occurrence of a Tax Event or in the event of a "Default" by the
Contracting Stockholder, the U.S. Treasury Securities may not be disposed of
prior to their respective maturities. The foregoing fundamental policies of the
Trust may not be changed without the vote of 100% in interest of the Holders.
TRUST ASSETS
The Trust's assets primarily will consist of: (i) U.S. Treasury Securities
and (ii) the Contract. The Trust may also make certain temporary investments.
See "--Temporary Investments." For illustrative purposes only, the following
table shows the number of shares of ContiFinancial Common Stock that a Holder
would receive for each STRYPES at various Reference Property Values. The table
assumes that there will be no Reference Property adjustments as described below
under "--The Contract--Reference Property Adjustments" and, accordingly, that on
the Exchange Date the Reference Property will consist of one share of
ContiFinancial Common Stock. There can be no assurance that the Reference
Property Value will be within the range set forth below. Given the Initial Price
of $ and the Threshold Appreciation Price of $ , a Holder would
receive on the Exchange Date the following number of shares of ContiFinancial
Common Stock or amount of cash (in the event that the Contracting Stockholder
elects to exercise the Cash Settlement Option and satisfies its obligations
under the Contract with cash) per STRYPES:
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
REFERENCE PROPERTY CONTIFINANCIAL
VALUE COMMON STOCK AMOUNT OF CASH
- ------------------------------------ ------------------------------------ ------------------------------------
<S> <C> <C>
</TABLE>
The following table sets forth information regarding the distributions to be
received on the U.S. Treasury Securities, the portion of each year's
distributions that will constitute a return of capital for United States Federal
income tax purposes and the amount of original issue discount accruing, assuming
a yield-to-maturity accrual election, on the U.S. Treasury Securities with
respect to a Holder who acquires its
12
<PAGE>
STRYPES at the issue price from an Underwriter pursuant to the Offering. See
"Certain United States Federal Income Tax Considerations."
<TABLE>
<CAPTION>
ANNUAL GROSS ANNUAL
DISTRIBUTIONS INCLUSION OF
ANNUAL GROSS FROM U.S. ORIGINAL
DISTRIBUTIONS TREASURY ANNUAL RETURN ISSUE
FROM U.S. SECURITIES OF CAPITAL DISCOUNT IN
TREASURY PER PER INCOME PER
YEAR SECURITIES STRYPES STRYPES STRYPES
- ------------------------------------------------- ------------ ----------------- ------------- -------------
<S> <C> <C> <C> <C>
1997............................................. $ $ $ $
1998.............................................
1999.............................................
2000.............................................
</TABLE>
The annual distribution of $ per STRYPES is payable quarterly on
each February 15, May 15, August 15 and November 15, commencing May 15, 1997.
Quarterly distributions on the STRYPES will consist of the cash received from
the proceeds of the maturing U.S. Treasury Securities held by the Trust. The
Trust will not be entitled to any future dividends that may be declared on the
ContiFinancial Common Stock. See "Dividends and Distributions."
ENHANCED YIELD; LESS POTENTIAL FOR EQUITY APPRECIATION THAN CONTIFINANCIAL
COMMON STOCK; NO DEPRECIATION PROTECTION
Although the STRYPES will provide the Holders with a current distribution
yield (the Company has not paid any dividends on the ContiFinancial Common Stock
since its initial public offering), there is no assurance that the distribution
yield on the STRYPES will be higher than the dividend yield on the
ContiFinancial Common Stock over the term of the Trust. In addition, the
opportunity for equity appreciation afforded by an investment in the STRYPES is
less than that afforded by a direct investment in the ContiFinancial Common
Stock. The value of the Reference Property receivable by a Holder of a STRYPES
on the Exchange Date will only exceed the issue price of such STRYPES if the
Reference Property Value exceeds the Threshold Appreciation Price, which
represents an appreciation of % of the Initial Price. Moreover, because each
STRYPES will entitle the Holder to receive only % of the number or amount of
each type of Reference Security and other property constituting part of the
Reference Property if the Reference Property Value exceeds the Threshold
Appreciation Price, Holders of the STRYPES will be entitled to receive upon
exchange only % (the percentage equal to the Initial Price divided by the
Threshold Appreciation Price) of any appreciation of the value of the Reference
Property above the Threshold Appreciation Price. Holders of STRYPES will realize
the entire decline in value if the Reference Property Value is less than the
Initial Price.
THE COMPANY
The Company engages in the consumer and commercial finance business by
originating and servicing home equity loans and providing financing and asset
securitization structuring and placement services to originators of a broad
range of loans, leases and receivables. Securitization provides significant
benefits, including greater operating leverage and reduced costs of funds, in
the financing of assets such as non-conforming home equity loans, equipment
leases, home improvement loans, franchise loans, commercial/ multi-family loans,
non-prime and sub-prime auto loans and leases and timeshare loans. Through
ContiMortgage Corporation, the Company is a leading originator, purchaser,
seller and servicer of home equity loans made to borrowers whose borrowing needs
may not be met by traditional financial institutions due to credit exceptions or
other factors. Loans are made to borrowers primarily for debt consolidation,
home improvements, education or refinancing and are primarily secured by first
mortgages on one-to-four family residential properties.
13
<PAGE>
The ContiFinancial Common Stock is traded publicly on the NYSE under the
symbol "CFN". The following table sets forth the quarterly intra-day high and
low sales prices of the ContiFinancial Common Stock as reported by the NYSE
during the periods indicated.
<TABLE>
<CAPTION>
QUARTER HIGH LOW
- ------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
1996
First (from February 9, 1996).......................................... $31 1/2 $ 25 1/8
Second................................................................. 33 28
Third.................................................................. 30 3/8 22 3/4
Fourth................................................................. 39 1/4 28 5/8
1997
First (through March 7, 1997).......................................... $39 3/8 $ 33 3/8
</TABLE>
As of February 28, 1997, there were approximately 88 holders of record of
the ContiFinancial Common Stock including Cede & Co., a nominee of the
Depositary, which holds shares of ContiFinancial Common Stock on behalf of an
indeterminate number of beneficial holders. On March 7, 1997, the last price
reported on the NYSE for the ContiFinancial Common Stock was $36 7/8 per share.
The Company has not paid any dividends on the ContiFinancial Common Stock
since its initial public offering and has stated that it has no current
intention to pay cash dividends on the ContiFinancial Common Stock. As a holding
company, the ability of the Company to pay dividends is dependent upon the
receipt of dividends or other payments from its subsidiaries. Any future
determination as to the payment of dividends will be at the discretion of the
Company's Board of Directors and will depend upon the Company's operating
results, financial condition and capital requirements, contractual restrictions,
general business conditions and such other factors as the Company's Board of
Directors deems relevant. Furthermore, covenants in certain debt agreements of
the Company restrict the payment of dividends by the Company. There can be no
assurance that the Company will have earnings sufficient to pay a dividend on
ContiFinancial Common Stock or that, even if there are sufficient earnings,
dividends will be permitted under applicable law.
Holders of STRYPES will not be entitled to receive any future dividends on
the ContiFinancial Common Stock unless and until such time, if any, as the Trust
shall have delivered ContiFinancial Common Stock in exchange for STRYPES on the
Exchange Date or upon earlier dissolution of the Trust, and unless the
applicable record date for determining stockholders entitled to receive such
dividends occurs after such delivery. See "Risk Factors--No Stockholder Rights."
The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Accordingly, the Company
files reports, proxy and information statements and other information with the
Securities and Exchange Commission (the "Commission"). Copies of such material
can be inspected and copied at the public reference facilities maintained by the
Commission at the address specified under "Additional Information."
THE COMPANY IS NOT AFFILIATED WITH THE TRUST, WILL NOT RECEIVE ANY OF THE
PROCEEDS FROM THE SALE OF THE STRYPES AND WILL HAVE NO OBLIGATIONS WITH RESPECT
TO THE STRYPES. THIS PROSPECTUS RELATES ONLY TO THE STRYPES OFFERED HEREBY AND
DOES NOT RELATE TO THE COMPANY OR THE CONTIFINANCIAL COMMON STOCK. THE COMPANY
HAS FILED A REGISTRATION STATEMENT ON FORM S-3 WITH THE COMMISSION WITH RESPECT
TO THE SHARES OF CONTIFINANCIAL COMMON STOCK THAT MAY BE RECEIVED BY A HOLDER OF
STRYPES ON THE EXCHANGE DATE OR UPON EARLIER DISSOLUTION OF THE TRUST. THE
PROSPECTUS OF THE COMPANY (THE "CONTIFINANCIAL PROSPECTUS") CONSTITUTING A PART
OF SUCH REGISTRATION STATEMENT INCLUDES INFORMATION RELATING TO THE COMPANY AND
THE CONTIFINANCIAL COMMON STOCK, INCLUDING CERTAIN RISK FACTORS RELEVANT TO AN
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INVESTMENT IN CONTIFINANCIAL COMMON STOCK. THE CONTIFINANCIAL PROSPECTUS IS
BEING ATTACHED HERETO AND DELIVERED TO PROSPECTIVE PURCHASERS OF STRYPES
TOGETHER WITH THIS PROSPECTUS FOR CONVENIENCE OF REFERENCE ONLY. THE
CONTIFINANCIAL PROSPECTUS DOES NOT CONSTITUTE A PART OF THIS PROSPECTUS, NOR IS
IT INCORPORATED BY REFERENCE HEREIN.
THE CONTRACT
GENERAL. Pursuant to the terms of the Contract, the Contracting Stockholder
is obligated to deliver to the Trust on the Business Day immediately preceding
the Exchange Date an aggregate number or amount of each type of Reference
Security and other property constituting part of the Reference Property equal to
the product of the Exchange Amount and the aggregate number of STRYPES then
outstanding.
To the extent permitted by applicable law, the obligation of the Contracting
Stockholder to deliver Reference Property under the Contract may be cash
settled, at the option of the Contracting Stockholder, in whole but not in part,
by delivering to the Trust on the Business Day immediately preceding the
Exchange Date, in lieu of the aggregate number or amount of each type of
Reference Security and other property otherwise deliverable, cash in an amount
(calculated to the nearest 1/100th of a dollar or, if there is not a nearest
1/100th of a dollar, then to the next higher 1/100th of a dollar) equal to the
sum, determined as of 10:00 A.M. (New York City time) on the Business Day
immediately preceding the Exchange Date, of (a) for any portion of such
Reference Property consisting of cash, the amount of such cash, without interest
thereon, (b) for any portion of such Reference Property consisting of property
other than cash or Reference Securities, the fair market value (as determined by
a nationally recognized independent investment banking firm retained for this
purpose by the Administrator) as of the third Business Day preceding the
Exchange Date of such property, and (c) for any portion of such Reference
Property consisting of a Reference Security (except as described under
"Reference Property Adjustments" below), an amount equal to the average Closing
Price per unit of such Reference Security on the 20 Trading Days immediately
prior to, but not including, the second Trading Day preceding the Exchange Date
multiplied by the number of units of such Reference Security constituting part
of the Reference Property.
REFERENCE PROPERTY ADJUSTMENTS. The Reference Property is subject to
adjustment if an issuer of a Reference Security shall: (i) subdivide or split
the outstanding units of such Reference Security into a greater number of units;
(ii) combine the outstanding units of such Reference Security into a smaller
number of units; (iii) issue by reclassification of units of such Reference
Security any units of another security of such issuer; (iv) issue rights or
warrants to all holders of such Reference Security entitling them, for a period
expiring prior to the fifteenth calendar day following the Exchange Date, to
subscribe for or purchase any of its securities or other property (other than
rights to purchase units of such Reference Security pursuant to a plan for the
reinvestment of dividends or interest); or (v) pay a dividend or make a
distribution to all holders of such Reference Security of cash, securities or
other property (excluding any cash dividend on any Reference Security consisting
of capital stock that does not constitute an Extraordinary Cash Dividend (as
defined below), excluding any payment of interest on any Reference Security
consisting of an evidence of indebtedness and excluding any dividend or
distribution referred to in clause (i), (ii), (iii) or (iv) above) or issue to
all holders of such Reference Security rights or warrants to subscribe for or
purchase any of its securities or other property (other than rights to purchase
units of such Reference Security pursuant to a plan for the reinvestment of
dividends or interest and rights referred to in clause (iv) above) (any of the
foregoing cash, securities or other property or rights or warrants are referred
to as the "Distributed Assets") (any such event described in clause (i), (ii),
(iii), (iv) or (v), a "Dilution Event").
In the case of the Dilution Events referred to in clauses (i), (ii) and
(iii) above, the Reference Property shall be adjusted to include the number of
units of such Reference Security and/or security of such issuer which a holder
of units of such Reference Security would have owned or been entitled to receive
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immediately following any such event had such holder held, immediately prior to
such event, the number of units of such Reference Security constituting part of
the Reference Property immediately prior to such event. Each such adjustment
shall become effective immediately after the effective date for such
subdivision, split, combination or reclassification, as the case may be. Each
such adjustment shall be made successively.
In the case of the Dilution Event referred to in clause (iv) above, the
Reference Property shall be adjusted to include an amount in cash equal to the
fair market value (determined as described below), as of the fifth Business Day
(except as provided below) following the date on which such rights or warrants
are received by securityholders entitled thereto (the "Receipt Date"), of each
such right or warrant multiplied by the product of (A) the number of such rights
or warrants issued for each unit of such Reference Security and (B) the number
of units of such Reference Security constituting part of the Reference Property
on the date of issuance of such rights or warrants, immediately prior to such
issuance, without interest thereon. For purposes of the foregoing, the fair
market value of each such right or warrant shall be the quotient of (x) the
highest net cash bid, as of approximately 10:00 A.M., New York City time, on the
fifth Business Day following the Receipt Date for settlement three Business Days
later, by a recognized securities dealer in The City of New York selected by or
on behalf of the Administrator from three (or such fewer number of dealers as
may be providing such bids) such recognized dealers selected by or on behalf of
the Administrator), for the purchase by such quoting dealer of the number of
rights or warrants (the "Aggregate Number") that a holder of such Reference
Security would receive if such holder held, as of the record date for
determination of stockholders entitled to receive such rights or warrants, a
number of units of such Reference Security equal to the product of (1) the
aggregate number of outstanding STRYPES as of such record date and (2) the
number of units of such Reference Security constituting part of the Reference
Property, divided by (y) the Aggregate Number. Each such adjustment shall become
effective on the fifth Business Day following the Receipt Date of such rights or
warrants. If for any reason the Administrator is unable to obtain the required
bid on the fifth Business Day following the Receipt Date, it shall attempt to
obtain such bid at successive intervals of three months thereafter and on the
third Business Day prior to the Exchange Date until it is able to obtain the
required bid or, if earlier, until the third Business Day prior to the Exchange
Date. From the date of issuance of such rights or warrants until the required
bid is obtained or those efforts end on the third Business Day prior to the
Exchange Date, the Reference Property shall include the number of such rights or
warrants issued for each unit of such Reference Security multiplied by the
number of units of such Reference Security constituting part of the Reference
Property on the date of issuance of such rights or warrants, immediately prior
to such issuance, and such rights or warrants constituting part of the Reference
Property shall be deemed for all purposes to have a fair market value of zero.
In the case of the Dilution Event referred to in clause (v) above, the
Reference Property shall be adjusted to include, from and after such dividend,
distribution or issuance, (x) in respect of that portion, if any, of the
Distributed Assets consisting of cash, the amount of such Distributed Assets
consisting of cash received for each unit of such Reference Security multiplied
by the number of units of such Reference Security constituting part of the
Reference Property on the date of such dividend, distribution or issuance,
immediately prior to such dividend, distribution or issuance, without interest
thereon, plus (y) in respect of that portion, if any, of the Distributed Assets
which are other than cash, the number or amount of each type of Distributed
Assets other than cash received with respect to each unit of such Reference
Security multiplied by the number of units of such Reference Security
constituting part of the Reference Property on the date of such dividend,
distribution or issuance, immediately prior to such dividend, distribution or
issuance.
An "Extraordinary Cash Dividend" means, with respect to any consecutive
12-month period, the amount, if any, by which the aggregate amount of all cash
dividends on any Reference Security consisting of capital stock occurring in
such 12-month period (or, if such Reference Security was not outstanding at the
commencement of such 12-month period, occurring in such shorter period during
which such
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Reference Security was outstanding) exceeds on a per share basis 10% of the
average of the Closing Prices per share of such Reference Security over such
12-month period (or such shorter period during which such Reference Security was
outstanding); provided that, for purposes of the foregoing definition, the
amount of cash dividends paid on a per share basis will be appropriately
adjusted to reflect the occurrence during such period of any stock dividend or
distribution of shares of capital stock of the issuer of such Reference Security
or any subdivision, split, combination or reclassification of shares of such
Reference Security.
In the event of (A) any consolidation or merger of an issuer of a Reference
Security with or into another entity (other than a merger or consolidation in
which such issuer is the continuing corporation and in which the Reference
Security outstanding immediately prior to the consolidation or merger is not
exchanged for cash, securities or other property of such issuer or another
entity), (B) any sale, transfer, lease or conveyance to another corporation of
the property of an issuer of a Reference Security as an entirety or
substantially as an entirety, (C) any statutory exchange of securities of an
issuer of a Reference Security with another entity (other than in connection
with a merger or acquisition) or (D) any liquidation, dissolution, winding up or
bankruptcy of an issuer of a Reference Security (excluding any distribution in
such Dilution Event referred to in clause (v) above) (any such event described
in clause (A), (B), (C) or (D), a "Reorganization Event"), the Reference
Property shall be adjusted to include, from and after the effective date for
such Reorganization Event, in lieu of the number of units of such Reference
Security constituting part of the Reference Property immediately prior to the
effective date for such Reorganization Event, the amount or number of any cash,
securities and/or other property owned or received in such Reorganization Event
with respect to each unit of such Reference Security multiplied by the number of
units of such Reference Security constituting part of the Reference Property
immediately prior to the effective date for such Reorganization Event.
The Administrator is required, within ten Business Days following the
occurrence of an event that requires an adjustment to the Reference Property (or
if the Administrator is not aware of such occurrence, as soon as practicable
after becoming so aware), to provide written notice to the Holders of the
occurrence of such event and a statement in reasonable detail setting forth the
amount or number of each type of Reference Security and other property then
constituting part of the Reference Property.
No adjustments to the Reference Property will be made for certain other
events, such as offerings of ContiFinancial Common Stock by the Company for cash
or in connection with acquisitions. Likewise, no adjustments to the Reference
Property will be made for any sales of ContiFinancial Common Stock by the
Contracting Stockholder.
REORGANIZATION EVENTS CAUSING A DISSOLUTION OF THE TRUST. Notwithstanding
anything to the contrary contained in the Contract, if any Reorganization Event
with respect to the Company, or any surviving entity or subsequent surviving
entity of the Company (a "Company Successor") other than a statutory merger
effected solely for the purpose of changing the state of incorporation of the
Company or a Company Successor (a "Company Reorganization Event"), occurs, the
Contracting Stockholder's obligations under the Contract shall be automatically
accelerated and the Contracting Stockholder shall be obligated to deliver to the
Trust, on the tenth Business Day after the effective date for such
Reorganization Event (the "Early Settlement Date"), the aggregate number or
amount of each type of Reference Security and other property constituting part
of the Reference Property that would be required to be delivered on such date
under the Contract if the Exchange Date were redefined to be the Early
Settlement Date.
IF A COMPANY REORGANIZATION EVENT OCCURS, THE TRUST'S ASSETS (OTHER THAN
ASSETS RECEIVED PURSUANT TO THE CONTRACT) WILL BE LIQUIDATED, THE NET ASSETS OF
THE TRUST WILL BE DISTRIBUTED PRO RATA TO THE HOLDERS AND THE TERM OF THE TRUST
WILL EXPIRE. In such event, the U.S. Treasury Securities will be sold by the
Trust, and the proceeds therefrom will be distributed along with Reference
Property received under the Contract on the Early Settlement Date after
providing for any expenses of the Trust.
ACCELERATION UPON TAX EVENT. Pursuant to the terms of the Contract, the
Contracting Stockholder's obligations under the Contract may be accelerated, at
the option of the Contracting Stockholder, in whole
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but not in part, at any time from and after the date (the "Tax Event Date") on
which a Tax Event (as defined below) shall occur at a price per STRYPES (the
"Tax Event Acceleration Price") equal to (a) an amount of cash equal to the sum
of (i) all accumulated and unpaid distributions on such STRYPES to the date
fixed for acceleration (the "Tax Event Acceleration Date"), (ii) the sum of all
distributions on such STRYPES due after the Tax Event Acceleration Date and on
or prior to the Exchange Date and (iii) $ (equal to the distributions
payable on such STRYPES for one year), minus (b) the Liquidation Value (as
defined below), plus (c) at the option of the Contracting Stockholder either (i)
a number or amount of each type of Reference Security and other property
constituting part of the Reference Property that would be required to be
delivered on such date under the Contract if the Exchange Date were redefined
for all purposes to be the Tax Event Acceleration Date or (ii) to the extent
permitted by applicable law, in lieu of the Reference Property otherwise
deliverable, cash in an amount equal to the value of such Reference Property
immediately prior to the Tax Event Acceleration Date (the "Tax Event Cash
Settlement Option").
A "Tax Event" means that the Contracting Stockholder shall have delivered to
the Trust an opinion (the "Tax Event Opinion") from a nationally recognized
independent tax counsel experienced in such matters to the effect that, as a
result of (a) any amendment to, or change in the laws (or any regulations
thereunder) of the United States or any taxing authority thereof or therein or
(b) any amendment to, or change in, an interpretation or application of such
laws or regulations by any legislative body, court, governmental agency or
regulatory authority, enacted or promulgated, or which interpretation is issued
or which action is taken, on or after the date of this Prospectus, there is more
than an insubstantial risk that, by reason of the Contracting Stockholder having
entered into the Contract, the Contracting Stockholder would be required to
recognize gain for United States Federal income tax purposes with respect to
shares of ContiFinancial Common Stock deliverable under the Contract on a date
that is prior to the day immediately preceding the Exchange Date.
The "Liquidation Value" is defined as the amount of the aggregate proceeds
received by the Trust from the sale of the U.S. Treasury Securities allocable to
one STRYPES, which shall be determined by the Trustees on the basis of
quotations from independent dealers. Upon receipt of any notice from the
Contracting Stockholder that it is exercising its option to accelerate the
Contract following the occurrence of a Tax Event, the Trustees on the second
Business Day immediately preceding the Tax Event Acceleration Date shall solicit
cash bids, for settlement on the Business Day immediately preceding the Tax
Event Acceleration Date, from three (or such fewer number of dealers as may be
providing such bids) of the United States government securities primary dealers
in The City of New York selected by the Trustees after consultation with the
Contracting Stockholder (which may include the Administrator or its affiliates
or any affiliate of Merrill Lynch & Co., Inc.) for the purchase by the quoting
dealer of all U.S. Treasury Securities then held by the Trust. If for any reason
the Trustees are unable to obtain the required bid on the second Business Day
preceding the Tax Event Acceleration Date, the Trustees shall attempt to obtain
such bid daily until they are able to obtain the required bid. The Trustees
shall accept the highest bid received that will result in the greatest amount of
proceeds from the sale of the U.S. Treasury Securities then held by the Trust
and shall sell all such U.S. Treasury Securities at that highest bid.
On February 6, 1997, the Clinton Administration proposed a series of tax law
changes as part of its Fiscal 1998 Budget proposal. These proposed tax law
changes would, among other things, require taxpayers (including corporations) to
recognize gain (but not loss) upon entering into a "constructive sale" of any
appreciated position in stock. For these purposes, a taxpayer would be treated
as making a "constructive sale" of an appreciated position in stock when the
taxpayer (or, in limited circumstances, a person related to the taxpayer)
substantially eliminates risk of loss and opportunity for gain by entering into
one or more positions with respect to the same or substantially identical
property. The proposal would apply to constructive sales entered into after
January 12, 1996, and before the date of enactment of the proposal if the
transaction resulting in the "constructive sale" remains open 30 days after the
date of enactment of the proposal. Under the proposal, the "constructive sale"
would be deemed to occur with
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respect to such pre-enactment transactions on the date that is 30 days after the
date of enactment. In addition, on February 26, 1997, Rep. Barbara Kennelly
introduced a bill proposing certain tax law changes that are similar to the
Clinton Administration's proposal. However, under Rep. Kennelly's proposal, a
taxpayer would be treated as making a "constructive sale" of an appreciated
position in stock when the taxpayer (or, in limited circumstances, a person
related to the taxpayer) enters into a forward contract (including a fully or
partially prepaid forward contract) to deliver the same or substantially
identical property. The effective dates contained in Rep. Kennelly's proposal
are substantially the same as the effective dates contained in the Clinton
Administration's proposal. Thus, if either of these proposals are ultimately
adopted in their current form on a date that is 32 or more days prior to the
Exchange Date, such enactment could result in a Tax Event. Furthermore, if there
are future legislative developments such that as a result thereof one of these
proposals or a provision with similar effect is adopted and effective for
transactions or positions entered into on or prior to the Exchange Date, such
legislative developments could result in a Tax Event. It cannot be predicted
whether or not these proposed tax law changes (or a provision with similar
effect) will ultimately become law. Moreover, it cannot be predicted whether or
not any other future change in the tax law will occur which could give rise to a
Tax Event, nor can it be predicted whether the Contracting Stockholder will
elect to cause a Tax Event by delivering the Tax Event Opinion to the Trust in
the event that a change in the tax law occurs which could give rise to a Tax
Event.
The Administrator will provide notice of the Contracting Stockholder's
election to exercise its acceleration option to Holders of record of the STRYPES
not less than calendar days ( calendar days if the Tax Event Cash
Settlement Option is elected) nor more than calendar days prior to the
related Tax Event Acceleration Date. Such notice will state the following and
may contain such other information as the Administrator deems advisable: (a) the
Tax Event Acceleration Date, (b) whether the Contracting Stockholder has elected
to exercise the Tax Event Cash Settlement Option, and, if so, the method by
which the cash value of the Reference Property will be determined, and (c) that
distributions will cease to accumulate on the STRYPES on the Tax Event
Acceleration Date. Any such notice will be provided by mail, sent to each Holder
of record at such Holder's address as it appears on the register for the
STRYPES, first class, postage prepaid. At or prior to the mailing of such notice
of acceleration, the Administrator will publish a public announcement in THE
WALL STREET JOURNAL or another daily newspaper of national circulation. At the
time such announcement is published, neither the Reference Property Value nor
the Liquidation Value will have been determined.
COLLATERAL ARRANGEMENTS; ACCELERATION. Pursuant to a Security and Pledge
Agreement among the Contracting Stockholder, the Trust and The Chase Manhattan
Bank, as collateral agent (the "Collateral Agent"), the Contracting
Stockholder's obligations under the Contract will be secured by a security
interest in the maximum number or amount of each type of Reference Security and
other property constituting part of the Reference Property (initially shares of
ContiFinancial Common Stock) deliverable by the Contracting Stockholder under
the Contract. The Collateral Agent will promptly pay over to the Contracting
Stockholder any dividends, interest, principal or other payments received by the
Collateral Agent in respect of any collateral pledged by the Contracting
Stockholder, unless the Contracting Stockholder is in "Default" or unless such
dividends, interest, principal or other payments constitute part of the
Reference Property. The Contracting Stockholder shall have the right to vote any
pledged units of any Reference Security for so long as such units are owned by
it and pledged under the Security and Pledge Agreement, unless the Contracting
Stockholder is in "Default."
A "Collateral Event of Default" under the Security and Pledge Agreement
shall mean, at any time, failure of the collateral pledged by the Contracting
Stockholder to consist of at least the maximum number or amount of each type of
Reference Security and other property constituting part of the Reference
Property deliverable by the Contracting Stockholder under the Contract.
The occurrence of a Collateral Event of Default under the Security and
Pledge Agreement or the bankruptcy or insolvency of the Contracting Stockholder
(each such event, a "Default") will cause an automatic acceleration of the
Contracting Stockholder's obligations under the Contract. In any such event,
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the Contracting Stockholder will become obligated to deliver a number or amount
of each type of Reference Security and other property constituting part of the
Reference Property, allocated as proportionately as practicable, having an
aggregate value equal to the "Aggregate Acceleration Value" of the Contract. The
Aggregate Acceleration Value will be based on an "Acceleration Value" determined
by the Administrator on the basis of quotations from independent dealers. Each
quotation will be for an amount that would be paid to the relevant dealer in
consideration of an agreement between the Trust and such dealer that would have
the effect of preserving the Trust's rights to receive the number or amount of
each type of Reference Security and other property constituting part of the
Reference Property under a portion of the Contract that corresponds to 1,000 of
the STRYPES offered hereby. The Administrator will request quotations from four
nationally recognized independent dealers on or as soon as reasonably
practicable following the date of acceleration. If four quotations are provided,
the Acceleration Value will be the arithmetic mean of the two quotations
remaining after disregarding the highest and the lowest quotations. If two or
three quotations are provided, the Acceleration Value will be the arithmetic
mean of such quotations. If one quotation is provided, the Acceleration Value
will be such quotation. The Aggregate Acceleration Value will be computed by
dividing the Acceleration Value by 1,000 and multiplying the quotient by the
aggregate number of STRYPES then outstanding, except that, if no quotations are
provided, the Aggregate Acceleration Value will be the value of the aggregate
number or amount of each type of Reference Security and other property
constituting part of the Reference Property that would be required to be
delivered on such date under the Contract if the Exchange Date were redefined
for all purposes to be the acceleration date. Upon the occurrence of a Default,
the number or amount of each type of Reference Security and other property
constituting part of the Reference Property deliverable for each STRYPES will be
based solely on the Aggregate Acceleration Value described above for the
Contract.
For purposes of the Security and Pledge Agreement, unless otherwise
specifically provided, the value of a number or amount of any type of Reference
Property shall be (a) for any Reference Property consisting of cash, the amount
of such cash at the time of valuation, (b) for any Reference Property consisting
of property other than cash or Reference Securities, the fair market value (as
determined by a nationally recognized independent banking firm retained for this
purpose by the Collateral Agent) as of the time of valuation of such property,
and (c) for any Reference Property consisting of a Reference Security, an amount
equal to the market price of a unit of such Reference Security at the time of
valuation multiplied by the number of units of such Reference Security then
being valued.
The Collateral Agent is a "financial institution" for purposes of Sections
555 and 101(22) of Title 11 of the United States Code (the "Bankruptcy Code").
The Trust believes that the Collateral Agent will be the agent and custodian for
the Trust such that the Trust will be a "financial institution" as defined in
Section 101(22) of the Bankruptcy Code. Upon any acceleration, the Collateral
Agent will be required to deliver to the Trust, for distribution PRO RATA to the
Holders, the Aggregate Acceleration Value in the form of Reference Property then
pledged. See "--Trust Dissolution."
FRACTIONAL INTERESTS. No fractional units of any Reference Security will be
delivered to the Trust if the Contracting Stockholder satisfies its obligations
under the Contract by delivering Reference Property. In lieu of any fractional
unit otherwise deliverable to the Trust in respect of the Contracting
Stockholder's obligations under the Contract, the Trust shall be entitled to
receive an amount in cash equal to the value of such fractional unit based on
the average Closing Price per unit of such Reference Security on the 20 Trading
Days immediately prior to, but not including, the second Trading Day preceding
the Exchange Date.
To the extent practicable, the Contracting Stockholder will deliver to the
Trust fractional interests of any Reference Property other than cash or a
Reference Security if the Contracting Stockholder satisfies its obligations
under the Contract by delivering Reference Property. If such delivery is not
practicable, in lieu of delivering any such fractional interest otherwise
deliverable in respect of the Contracting Stockholder's obligations under the
Contract, the Trust shall be entitled to receive an amount in cash equal to the
value of such fractional interest based on the fair market value (as determined
by a nationally recognized
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independent investment banking firm retained for this purpose by the
Administrator) as of 10:00 A.M. (New York City time) on the third Business Day
preceding the Exchange Date of such Reference Property other than cash or a
Reference Security.
DESCRIPTION OF CONTRACTING STOCKHOLDER. The Contracting Stockholder is
Continental Grain Company. Specific information regarding the holdings of
ContiFinancial Common Stock by the Contracting Stockholder is included in the
accompanying prospectus of the Company with respect to the shares of
ContiFinancial Common Stock which may be received by a Holder of STRYPES on the
Exchange Date or upon earlier dissolution of the Trust.
PURCHASE PRICE. The purchase price under the Contract is equal to
$ in the aggregate and is payable to the Contracting Stockholder by the
Trust on or about , 1997. No other consideration is payable by the
Trust to the Contracting Stockholder in connection with its acquisition of the
Contract or the performance of the Contract by the Contracting Stockholder.
The Contract will be valued by the Trust at fair value as determined in good
faith at the direction of the Trustees (if necessary, through consultation with
accountants, bankers and other specialists). See "Net Asset Value."
THE U.S. TREASURY SECURITIES
The Trust will purchase and hold a series of zero-coupon U.S. Treasury
Securities with face amounts and maturities corresponding to the amounts and
payment dates of the distributions payable with respect to the STRYPES. Up to
% of the Trust's total assets may be invested in these U.S. Treasury
Securities. In the event that the Contract is accelerated as described under
"--Reorganization Event Causing a Dissolution of the Trust," "--Acceleration
Upon Tax Event" or "--Collateral Arrangements; Acceleration," then any such U.S.
Treasury Securities then held in the Trust shall be liquidated by the
Administrator and distributed PRO RATA to the Holders, together with amounts
distributed upon acceleration.
TEMPORARY INVESTMENTS
To the extent necessary to enable the Paying Agent to make the next
succeeding quarterly distribution, any moneys deposited with or received by the
Trust will be invested by the Paying Agent in short-term obligations of the U.S.
Government maturing no later than the Business Day preceding the next following
distribution date.
TRUST DISSOLUTION
The Trust will dissolve on or shortly after the Exchange Date, except if
dissolved earlier under certain limited circumstances. Although the Trust has
adopted a fundamental policy that it will not dispose of the Contract prior to
the Exchange Date, under certain circumstances the Contract may terminate prior
to the Exchange Date. In the event that the Company or any Company Successor is
the subject of a Reorganization Event, the Contracting Stockholder exercises its
option to accelerate the Contract upon the occurrence of a Tax Event or a
Default shall have occurred with respect to the Contracting Stockholder, the
Trust's assets (other than assets received pursuant to the Contract) would be
liquidated, the net assets of the Trust would be distributed PRO RATA to the
Holders and the term of the Trust would expire. See "--The
Contract--Reorganization Events Causing a Dissolution of the Trust,"
"--Acceleration Upon Tax Event" and "--Collateral Arrangements; Acceleration."
Written notice of any dissolution shall be sent to Holders specifying the
record date for the distribution to Holders, the amount distributable
(including, if applicable, the number or amount of each type of Reference
Security and other property constituting part of the Reference Property) with
respect to each STRYPES and the time of dissolution as determined by the
Trustees. Any such notice will be provided by mail, sent to each Holder at such
Holder's address as it appears on the register for the
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STRYPES, first class, postage prepaid not less than days prior to the date on
which such distribution is to be made. At or prior to the mailing of such
notice, the Administrator shall publish a public announcement in THE WALL STREET
JOURNAL or another daily newspaper of national circulation.
FRACTIONAL INTERESTS
No fractional units of any Reference Security, or fractional interests of
any Reference Property other than cash or a Reference Security, will be
distributed by the Trust to Holders of STRYPES on the Exchange Date or upon
earlier dissolution of the Trust. All fractional units or interests to which
Holders of STRYPES would otherwise be entitled on the Exchange Date or upon
earlier dissolution of the Trust will be aggregated and liquidated by the
Administrator and, in lieu of the fractional unit or interest to which a Holder
would otherwise have been entitled in respect of the total number of STRYPES
held by such Holder, such Holder will receive its PRO RATA portion of the
proceeds from such liquidation (net of any brokerage or related expenses).
INVESTMENT RESTRICTIONS
The Trust has adopted a fundamental policy that the Trust may not purchase
any securities or instruments other than the U.S. Treasury Securities, the
Contract and any Reference Security received pursuant to the Contract and, for
cash management purposes, short-term obligations of the U.S. Government; issue
any securities or instruments except for the STRYPES; make short sales or
purchase securities on margin; write put or call options; borrow money;
underwrite securities; purchase or sell real estate, commodities or commodities
contracts; or make loans. The Trust has adopted a fundamental policy to invest
at least 65% of its portfolio in the Contract. The Trust has also adopted a
fundamental policy that the Contract may not be disposed of during the term of
the Trust and that, unless the Trust dissolves prior to the Exchange Date due to
the occurrence of a Reorganization Event with respect to the Company or any
Company Successor, in the event that the Contracting Stockholder exercises its
option to accelerate the Contract upon the occurrence of a Tax Event or in the
event of a Default by the Contracting Stockholder, the U.S. Treasury Securities
may not be disposed of prior to their respective maturities.
Because of the foregoing limitations, the Trust's investments will be
concentrated initially in the consumer and commercial finance industry, which is
the industry in which the Company currently operates. However, to the extent
that in the future the Company diversifies its operations into one or more other
industries, or the Reference Property includes a Reference Security of an issuer
which operates in another industry, the Trust's investments will be less
concentrated in the consumer and commercial finance industry.
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RISK FACTORS
NO ACTIVE PORTFOLIO MANAGEMENT
It is a fundamental policy of the Trust that the Contract may not be
disposed of during the term of the Trust and that, unless the Trust dissolves
prior to the Exchange Date due to the occurrence of a Company Reorganization
Event, in the event that the Contracting Stockholder exercises its option to
accelerate the Contract upon the occurrence of a Tax Event or in the event of a
Default by the Contracting Stockholder, the U.S. Treasury Securities may not be
disposed of prior to their respective maturities. As a result, the Trust will
continue to hold the Contract despite any significant decline in the value of
the Reference Property, including the ContiFinancial Common Stock, or adverse
changes in the financial condition of the issuer of any Reference Security,
including the Company. The Trust will not be managed like a typical closed-end
investment company.
ABSENCE OF TRADING HISTORY; MARKETABILITY; POSSIBILITY OF THE STRYPES TRADING AT
A DISCOUNT FROM NET ASSET VALUE
The STRYPES have no trading history and it is not possible to predict how
they will trade in the secondary market. The trading price of the STRYPES may
vary considerably prior to the Exchange Date due to, among other things,
fluctuations in trading prices of the ContiFinancial Common Stock (which may
occur due to changes in the Company's financial condition, results of operations
or prospects, or because of complex and interrelated political, economic,
financial and other factors that can affect the capital markets generally, the
stock exchanges or quotation systems on which the ContiFinancial Common Stock is
traded and the market segment of which the Company is a part) and fluctuations
in interest rates and other factors that are difficult to predict and beyond the
Trust's control.
The Underwriters currently intend, but are not obligated, to make a market
in the STRYPES. There can be no assurance that a secondary market will develop
or, if a secondary market does develop, that it will provide the Holders of the
STRYPES with liquidity of investment or that it will continue for the life of
the STRYPES. The STRYPES have been approved for listing on the AMEX, subject to
official notice of issuance. There can be no assurance that the STRYPES will not
later be delisted or that trading in the STRYPES on the AMEX will not be
suspended. In the event of a delisting or suspension of trading, the Trust will
apply for listing of the STRYPES on another national securities exchange or for
quotation on another trading market. If the STRYPES are not listed or traded on
any securities exchange or trading market, or if trading of the STRYPES is
suspended, pricing information for the STRYPES may be more difficult to obtain,
and the price and liquidity of the STRYPES may be adversely affected.
The Trust is a newly organized closed-end investment company with no
previous operating history. Shares of closed-end investment companies frequently
trade at a discount from their net asset value, which is a risk separate and
distinct from the risk that the Trust's net asset value will decrease. The Trust
cannot predict whether the STRYPES will trade at, below or above their net asset
value. The risk of purchasing investments that might trade at a discount is more
pronounced for investors who wish to sell their investments in a relatively
short period of time after completion of the Trust's initial public offering
because for those investors realization of a gain or loss on their investments
is likely to be more dependent upon the existence of a premium or discount than
upon portfolio performance. The STRYPES are not subject to redemption.
REFERENCE PROPERTY ADJUSTMENTS
The Reference Property (or, in the event that the Contracting Stockholder
elects to exercise the Cash Settlement Option or Tax Event Cash Settlement
Option, the amount of cash) that the Trust is entitled to receive pursuant to
the Contract is subject to adjustment for certain events arising from, among
others, a merger or consolidation in which the Company is not the surviving or
resulting corporation and the
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liquidation, dissolution, winding up or bankruptcy of the Company, as well as
stock splits and combinations, stock dividends and certain other actions of the
Company that modify its capital structure. See "Investment Objective and
Policies--The Contract--Reference Property Adjustments." Such Reference Property
(or the amount of cash) to be received by the Trust pursuant to the Contract
immediately prior to the Exchange Date will not be adjusted for other events,
such as offerings of ContiFinancial Common Stock for cash or in connection with
acquisitions.
The Contracting Stockholder currently owns approximately 81% of the
outstanding ContiFinancial Common Stock. Concurrently with the offering of the
STRYPES, the Company is separately offering 2,800,000 shares of ContiFinancial
Common Stock (3,220,000 shares if the underwriters' over-allotment options are
exercised in full) (the "ContiFinancial Offering"). Upon completion of the
ContiFinancial Offering, the Contracting Stockholder will own approximately 76%
of the outstanding ContiFinancial Common Stock (approximately 75% if the
underwriters' over-allotment options are exercised in full). ContiFinancial is
not restricted from issuing additional shares of ContiFinancial Common Stock
during the term of the Trust and, because the Contracting Stockholder will
continue to exercise a controlling influence over the business and affairs of
the Company upon completion of the ContiFinancial Offering, any such decision to
issue additional shares of ContiFinancial Common Stock will be influenced by the
Contracting Stockholder. In addition, the Contracting Stockholder is not
precluded from selling shares of ContiFinancial Common Stock, either pursuant to
Rule 144 under the Securities Act or by causing the Company to register such
shares. Neither the Company nor the Contracting Stockholder has any obligation
to consider the interests of the Holders of the STRYPES for any reason.
Additional issuances or sales may materially and adversely affect the price of
the ContiFinancial Common Stock and, because of the relationship of the
percentage of the Reference Property (or the amount of cash) to be received on
the Exchange Date to the price of the ContiFinancial Common Stock, such other
events may materially and adversely affect the trading price of the STRYPES.
There can be no assurance that the Company will not take any of the foregoing
actions, or that it will not make offerings of, or that major shareholders
(including the Contracting Stockholder) will not sell any, ContiFinancial Common
Stock in the future, or as to the amount of any such offerings or sales.
LIMITED TERM
The term of the Trust will expire on or shortly after the Exchange Date,
unless the Trust is dissolved earlier under certain limited circumstances. On or
shortly after the Exchange Date, the Trust will distribute the Reference
Property or cash received by the Trust pursuant to the Contract and other net
assets held by the Trust PRO RATA to the Holders and dissolve shortly
thereafter. In the event that a Company Reorganization Event shall have
occurred, the Contracting Stockholder exercises its option to accelerate the
Contract upon the occurrence of a Tax Event or a Default shall have occurred
with respect to the Contracting Stockholder, the Trust's assets (other than
assets received pursuant to the Contract) would be liquidated, the net assets of
the Trust would be distributed PRO RATA to the Holders and the term of the Trust
would expire.
NON-DIVERSIFIED PORTFOLIO
The Trust's assets will consist almost entirely of the Contract and the U.S.
Treasury Securities. As a result, investments in the Trust may be subject to
greater risk than would be the case for a company with a more diversified
portfolio of investments.
COMPARISON TO OTHER EQUITY SECURITIES; RELATIONSHIP TO CONTIFINANCIAL COMMON
STOCK
The terms of the STRYPES are similar to those of ordinary equity securities
in that the value of the Reference Property (or, in the event that the
Contracting Stockholder elects to exercise the Cash Settlement Option or the Tax
Event Cash Settlement Option, the amount of cash) that a Holder of a STRYPES
will receive on the Exchange Date is not fixed, but is based on the Reference
Property Value
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(see "Investment Objective and Policies--General" and "--The Contract"). THERE
CAN BE NO ASSURANCE THAT SUCH AMOUNT RECEIVABLE BY THE HOLDER ON THE EXCHANGE
DATE WILL BE EQUAL TO OR GREATER THAN THE ISSUE PRICE PAID FOR THE STRYPES. IF
THE REFERENCE PROPERTY VALUE IS LESS THAN THE INITIAL PRICE, SUCH AMOUNT
RECEIVABLE ON THE EXCHANGE DATE WILL BE LESS THAN THE ISSUE PRICE PAID FOR THE
STRYPES, IN WHICH CASE AN INVESTMENT IN STRYPES WILL RESULT IN A LOSS.
ACCORDINGLY, A HOLDER OF STRYPES ASSUMES THE RISK THAT THE MARKET VALUE OF THE
CONTIFINANCIAL COMMON STOCK MAY DECLINE AND THAT SUCH DECLINE COULD BE
SUBSTANTIAL. REFERENCE IS MADE TO THE ACCOMPANYING PROSPECTUS OF THE COMPANY,
INCLUDING THE INFORMATION UNDER THE CAPTION "RISK FACTORS" THEREIN.
The trading prices of the STRYPES in the secondary market will be affected
by the trading prices of the ContiFinancial Common Stock in the secondary
market. It is impossible to predict whether the price of ContiFinancial Common
Stock will rise or fall. Trading prices of ContiFinancial Common Stock will be
influenced by the Company's operating results and prospects and by economic,
financial and other factors and market conditions that can affect the capital
markets generally, including the level of, and fluctuations in, the trading
prices of stocks generally and sales of substantial amounts of ContiFinancial
Common Stock in the market subsequent to the offering of the STRYPES or the
perception that such sales could occur.
LIMITATIONS ON OPPORTUNITY FOR EQUITY APPRECIATION; POTENTIAL LOSSES
The opportunity for equity appreciation afforded by an investment in the
STRYPES is less than the opportunity for equity appreciation afforded by a
direct investment in the ContiFinancial Common Stock because the amount
receivable by a Holder of a STRYPES on the Exchange Date will only exceed the
issue price of such STRYPES if the Reference Property Value exceeds the
Threshold Appreciation Price (which represents an appreciation of % over the
Initial Price). Moreover, each STRYPES will entitle the Holder to receive on the
Exchange Date only % (the percentage equal to the Initial Price divided by
the Threshold Appreciation Price) of any appreciation of the value of the
Reference Property above the Threshold Appreciation Price. See "Investment
Objective and Policies--The Contract." Because the price of the Reference
Property is subject to market fluctuations, the value of the Reference Property
(or, in the event that the Contracting Stockholder elects the Cash Settlement
Option, the amount of cash) received by the Trust on the Business Day
immediately preceding the Exchange Date, determined as described herein, may be
more or less than the issue price paid for the STRYPES.
NO STOCKHOLDER RIGHTS
Holders of the STRYPES will not be entitled to any rights with respect to
the Reference Property (including, without limitation, voting rights and rights
to receive any dividends or other distributions in respect of any Reference
Security) unless and until such time, if any, as the Trust shall have delivered
the Reference Property in exchange for STRYPES on the Exchange Date or upon
earlier dissolution of the Trust, and unless the applicable record date, if any,
for the exercise of such rights occurs after such delivery. For example, in the
event that an amendment is proposed to the Restated Certificate of Incorporation
or By-Laws of the Company and the record date for determining the stockholders
of record entitled to vote on such amendment occurs prior to such delivery,
Holders of the STRYPES will not be entitled to vote on such amendment.
The Contracting Stockholder is not responsible for the determination or
calculation of the amount receivable by Holders of the STRYPES on the Exchange
Date or upon earlier dissolution of the Trust. The Contract between the Trust
and the Contracting Stockholder is a commercial transaction and does not create
any rights in, or for the benefit of, any third party, including any Holder of
STRYPES.
RISK RELATING TO BANKRUPTCY OF CONTRACTING STOCKHOLDER
The Trust believes that the Contract will constitute a "securities contract"
for purposes of the Bankruptcy Code, performance of which would not under
Section 555 of the Bankruptcy Code be subject
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to the automatic stay provisions of the Bankruptcy Code in the event of
bankruptcy of the Contracting Stockholder. It is, however, possible that the
Contract will be determined not to qualify as a "securities contract" or other
protected transaction under Sections 556 and 560 of the Bankruptcy Code for this
purpose (or that there will be a delay while the bankruptcy court considers such
issue), in which case the bankruptcy of the Contracting Stockholder may cause a
delay in settlement of the Contract with the Contracting Stockholder, or
otherwise subject the Contract to the bankruptcy proceedings, which could
adversely affect the time of exchange or, as a result, the amount received by
the Holders in respect of the STRYPES.
ACCELERATION UPON TAX EVENT
The Contract provides that, from and after a Tax Event Date, the Contracting
Stockholder's obligations thereunder may be accelerated, at the option of the
Contracting Stockholder, in whole but not in part, at the Tax Event Acceleration
Price. In such event, the U.S. Treasury Securities will be sold by the Trust,
and the proceeds therefrom will be distributed along with the Tax Event
Acceleration Price received under the Contract after providing for any expenses
of the Trust. On February 6, 1997, the Clinton Administration proposed a series
of tax law changes as part of its Fiscal 1998 Budget proposal. These proposed
tax law changes would, among other things, require taxpayers (including
corporations) to recognize gain (but not loss) upon entering into a
"constructive sale" of any appreciated position in stock. For these purposes, a
taxpayer would be treated as making a "constructive sale" of an appreciated
position in stock when the taxpayer (or, in limited circumstances, a person
related to the taxpayer) substantially eliminates risk of loss and opportunity
for gain by entering into one or more positions with respect to the same or
substantially identical property. The proposal would apply to constructive sales
entered into after January 12, 1996, and before the date of enactment of the
proposal if the transaction resulting in the "constructive sale" remains open 30
days after the date of enactment of the proposal. Under the proposal, the
"constructive sale" would be deemed to occur with respect to such pre-enactment
transactions on the date that is 30 days after the date of enactment. In
addition, on February 26, 1997, Rep. Barbara Kennelly introduced a bill
proposing certain tax law changes that are similar to the Clinton
Administation's proposal. However, under Rep. Kennelly's proposal, a taxpayer
would be treated as making a "constructive sale" of an appreciated position in
stock when the taxpayer (or, in limited circumstances, a person related to the
taxpayer) enters into a forward contract (including a fully or partially prepaid
forward contract) to deliver the same or substanially identical property. The
effective dates contained in Rep. Kennelly's proposal are substantially the same
as the effective dates contained in the Clinton Administration's proposal. Thus,
if either of these proposals are ultimately adopted in their current form on a
date that is 32 or more days prior to the Exchange Date, such enactment could
result in a Tax Event. Furthermore, if there are future legislative developments
such that as a result thereof one of these proposals or a provision with similar
effect is adopted and effective for transactions or positions entered into on or
prior to the Exchange Date, such legislative developments could result in a Tax
Event. It cannot be predicted whether or not these proposed tax law changes (or
a provision with similar effect) will ultimately become law. Moreover, it cannot
be predicted whether or not any other future change in the tax law will occur
which could give rise to a Tax Event, nor can it be predicted whether the
Contracting Stockholder will elect to cause a Tax Event by delivering the Tax
Event Opinion to the Trust in the event that a change in the tax law occurs
which could give rise to a Tax Event.
TAX MATTERS
Holders will experience a taxable event upon the exchange of STRYPES to the
extent that the Contracting Stockholder elects to exercise the Cash Settlement
Option or the Tax Event Cash Settlement Option. Because of an absence of
authority as to the proper character of any gain or loss resulting from such a
taxable event, the ultimate tax consequences to Holders as a result of an
election to exercise the Cash Settlement Option or the Tax Event Cash Settlement
Option is uncertain. Accordingly, prospective investors in the STRYPES should
consult their own tax advisers in this regard. Investors should also
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consult their own tax advisers concerning the proper treatment of their PRO RATA
share of the Trust's fees and expenses, and the application of the United States
Federal income tax laws to their particular situations as well as any
consequences of the purchase, ownership and disposition of the STRYPES arising
under the laws of any other taxing jurisdiction. The tax consequences of
investing in the STRYPES are described in greater detail under "Certain United
States Federal Income Tax Considerations."
DESCRIPTION OF THE STRYPES
Each STRYPES represents a proportionate share of beneficial interest in the
Trust, and a total of 2,800,000 STRYPES will be issued in the Offering, assuming
no exercise of the Underwriters' over-allotment option. Upon liquidation of the
Trust, Holders are entitled to share PRO RATA in the net assets of the Trust
available for distribution. STRYPES have no preemptive, redemption or conversion
rights. The STRYPES, when issued and outstanding, will be fully paid and
nonassessable.
Holders are entitled to one vote for each STRYPES held on all matters to be
voted on by Holders and are not able to cumulate their votes in the election of
Trustees. The Trust intends to hold annual meetings as required by the rules of
the AMEX. The Holders have the right, upon the declaration in writing or vote of
more than two-thirds of the outstanding STRYPES, to remove a Trustee. The
Trustees will call a meeting of Holders to vote on the removal of a Trustee upon
the written request of the record Holders of 10% of the STRYPES or to vote on
other matters upon the written request of the record Holders of 51% of the
STRYPES (unless substantially the same matter was voted on during the preceding
12 months).
BOOK-ENTRY SYSTEM
The STRYPES will be issued in the form of one or more global securities (the
"Global Securities") deposited with the Depositary and registered in the name of
a nominee of the Depositary.
The Depositary has advised the Trust and the Underwriters as follows: The
Depositary is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code and a
"clearing agency" registered pursuant to Section 17A of the Exchange Act. The
Depositary was created to hold securities of persons who have accounts with the
Depositary ("participants") and to facilitate the clearance and settlement of
securities transactions among its participants in such securities through
electronic book-entry changes in accounts of the participants, thereby
eliminating the need for physical movement of certificates. Such participants
include securities brokers and dealers, banks, trust companies and clearing
corporations. Indirect access to the Depositary's book-entry system is also
available to others, such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a participant, either
directly or indirectly.
Upon the issuance of a Global Security, the Depositary or its nominee will
credit the respective STRYPES represented by such Global Security to the
accounts of participants. The accounts to be credited shall be designated by the
Underwriters. Ownership of beneficial interests in such Global Securities will
be limited to participants or persons that may hold interests through
participants. Ownership of beneficial interests by participants in such Global
Securities will be shown on, and the transfer of those ownership interests will
be effected only through, records maintained by the Depositary or its nominee
for such Global Securities. Ownership of beneficial interests in such Global
Securities by persons that hold through participants will be shown on, and the
transfer of that ownership interest within such participant will be effected
only through, records maintained by such participant. The laws of some
jurisdictions require that certain purchasers of securities take physical
delivery of such securities in definitive form. Such limits and such laws may
impair the ability to transfer beneficial interests in a Global Security.
So long as the Depositary for a Global Security, or its nominee, is the
registered owner of such Global Security, such Depositary or such nominee, as
the case may be, will be considered the sole owner or holder of the STRYPES.
Except as set forth below, owners of beneficial interests in such Global
Securities will not
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be entitled to have the STRYPES registered in their names and will not receive
or be entitled to receive physical delivery of the STRYPES in definitive form
and will not be considered the owners or Holders thereof.
Payment of Reference Property or amounts payable or other consideration
deliverable on exchange of, and any quarterly distributions on, STRYPES
registered in the name of or held by the Depositary or its nominee will be made
to the Depositary or its nominee, as the case may be, as the registered owner or
the holder of the Global Security. None of the Trust, any Trustee, the
Administrator, the Paying Agent or the Custodian for the STRYPES will have any
responsibility or liability for any aspect of the records relating to, or
payments made on account of, beneficial ownership interests in a Global Security
or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
The Trust expects that the Depositary, upon receipt of any payment in
respect of a Global Security, will credit immediately participants' accounts
with payments in amounts proportionate to their respective beneficial interests
in the principal amount of such Global Security as shown on the records of the
Depositary. The Trust also expects that payments by participants to owners of
beneficial interests in such Global Security held through such participants will
be governed by standing instructions and customary practices, as is now the case
with securities held for the accounts of customers in bearer form or registered
in "street name," and will be the responsibility of such participants.
A Global Security may not be transferred except as a whole by the Depositary
to a nominee or a successor of the Depositary. If the Depositary is at any time
unwilling or unable to continue as depositary and a successor depositary is not
appointed by the Trust within ninety days, the Trust will issue STRYPES in
definitive registered form in exchange for the Global Security representing such
STRYPES. In addition, the Trust may at any time and in its sole discretion
determine not to have any STRYPES represented by one or more Global Securities
and, in such extent, will issue STRYPES in definitive form in exchange for all
of the Global Securities representing the STRYPES. Further, if the Trust so
specifies with respect to the STRYPES, an owner of a beneficial interest in a
Global Security representing STRYPES may, on terms acceptable to the Trust and
the Depositary for such Global Security, receive STRYPES in definitive form. In
any such instance, an owner of a beneficial interest in a Global Security will
be entitled to physical delivery in definitive form of STRYPES represented by
such Global Security equal in number to that represented by such beneficial
interest and to have such STRYPES registered in its name.
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TRUSTEES
The Trustees of the Trust consist of three individuals, none of whom is an
"interested person" of the Trust as defined in the Investment Company Act. The
Trustees of the Trust are responsible for the overall supervision of the
operations of the Trust and perform the various duties imposed on the trustees
of management investment companies by the Investment Company Act.
The Trustees of the Trust are:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME, AGE AND ADDRESS TITLE DURING PAST FIVE YEARS
- ------------------------------------------ ----------------------- ------------------------------
<S> <C> <C>
Donald J. Puglisi, 50 Managing Trustee Professor of Finance
Department of Finance University of Delaware
University of Delaware
Newark, DE 19716
William R. Latham III, 51 Trustee Professor of Economics
Department of Economics University of Delaware
University of Delaware
Newark, DE 19716
James B. O'Neill, 57 Trustee Professor of Economics
Center for Economic University of Delaware
Education & Entrepreneurship
University of Delaware
Newark, DE 19716
</TABLE>
COMPENSATION OF TRUSTEES
Each unaffiliated Trustee will be paid by the Contracting Stockholder, in
respect of its annual fees and anticipated out-of-pocket expenses, a one-time,
up-front fee of $10,800. The Trust's Managing Trustee will also receive an
additional up-front fee of $3,600 for serving in that capacity. The Trustees
will not receive, either directly or indirectly, any compensation, including any
pension or retirement benefits, from the Trust. None of the Trustees receives
any compensation for serving as a trustee or director of any other affiliated
investment company.
MANAGEMENT ARRANGEMENTS
PORTFOLIO MANAGEMENT AND ADMINISTRATION
The Trust will be internally managed and will not have an investment
adviser. The Trust's portfolio will not be actively managed. The Trustees of the
Trust will authorize the purchase of the Contract and the U.S. Treasury
Securities as directed by the Declaration of Trust. It is a fundamental policy
of the Trust that the Contract may not be disposed of during the term of the
Trust and that, unless the Trust dissolves prior to the Exchange Date due to the
occurrence of a Company Reorganization Event, a Tax Event or a Default by the
Contracting Stockholder, the U.S. Treasury Securities may not be disposed of
prior to their respective maturities.
The Contracting Stockholder will pay all expenses incurred in the operation
of the Trust, including, among other things, accounting services, expenses for
legal and auditing services, taxes, costs of printing proxies, listing fees, if
any, stock certificates and shareholder reports, charges of the Custodian (as
defined below) and the Paying Agent (as defined below), expenses of registering
the STRYPES under Federal and state securities laws, Commission fees, fees and
expenses of Trustees, accounting and pricing costs, insurance, interest,
brokerage costs, litigation and other extraordinary or non-recurring expenses,
mailing and other expenses properly payable by the Trust. See "--Estimated
Expenses."
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ADMINISTRATOR
The day-to-day affairs of the Trust will be managed by The Chase Manhattan
Bank, as trust administrator pursuant to an Administration Agreement. Under the
Administration Agreement, the Trustees have delegated most of their operational
duties to the Administrator, including without limitation, the duties to: (i)
pay, or cause to be paid, all expenses incurred by the Trust; (ii) with the
approval of the Trustees, engage legal and other professional advisors (other
than the independent public accountants for the Trust); (iii) instruct the
Paying Agent to pay distributions on STRYPES as described herein; (iv) cause the
legal and other professional advisors engaged by it to prepare and mail, file or
publish all notices, proxies, reports, tax returns and other communications and
documents for the Trust and keep all books and records for the Trust; (v) at the
direction of the Trustees, and upon being furnished with reasonable security and
indemnity as the Administrator may require, institute and prosecute legal and
other appropriate proceedings to enforce the rights and remedies of the Trust;
and (vi) make, or cause to be made, all necessary arrangements with respect to
meetings of Trustees and any meetings of Holders of STRYPES. The Administrator
will not, however, select the independent public accountants for the Trust or
sell or otherwise dispose of the Trust assets (except in connection with an
acceleration of the Contract as described under "Investment Objective and
Policies--The Contract--Reorganization Events Causing a Dissolution of the
Trust," "--Acceleration Upon Tax Event," and "--Collateral Arrangements;
Acceleration," or the settlement of the Contract on the Business Day immediately
preceding the Exchange Date).
The Administration Agreement may be terminated by either the Trust or the
Administrator upon 60 days prior written notice, except that no termination
shall become effective until a successor Administrator has been chosen and has
accepted the duties of the Administrator.
Except for the roles of The Chase Manhattan Bank as Administrator and
Custodian of the Trust and as Collateral Agent under the Security and Pledge
Agreement and for the roles of ChaseMellon Shareholder Services, L.L.C. as
Paying Agent, registrar and transfer agent of the Trust, neither The Chase
Manhattan Bank nor ChaseMellon Shareholder Services, L.L.C. has any other
affiliation with, or is engaged in any other transaction with, the Trust.
The address of the Administrator and the Paying Agent is 450 West 33rd
Street, 15th Floor, New York, New York 10001-2697.
CUSTODIAN
The Trust's custodian (the "Custodian") is The Chase Manhattan Bank pursuant
to a custodian agreement (the "Custodian Agreement"). In the event of any
termination of the Custodian Agreement by the Trust or the resignation of the
Custodian, the Trust must engage a new Custodian to carry out the duties of the
Custodian as set forth in the Custodian Agreement. Pursuant to the Custodian
Agreement, all net cash received by the Trust will be invested by the Custodian
in short-term U.S. Government securities maturing on or shortly before the next
quarterly distribution date. The Custodian will also act as Collateral Agent
under the Security and Pledge Agreement and will hold a perfected security
interest in the Reference Property or other assets consistent with the terms of
the Contract pledged thereunder.
PAYING AGENT
The transfer agent, registrar and paying agent (the "Paying Agent") for the
STRYPES is ChaseMellon Shareholder Services, L.L.C. pursuant to a paying agent
agreement (the "Paying Agent Agreement"). In the event of any termination of the
Paying Agent Agreement by the Trust or the resignation of the Paying Agent, the
Trust will use its best efforts to engage a new Paying Agent to carry out the
duties of the Paying Agent.
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INDEMNIFICATION
The Trust will indemnify each Trustee, the Administrator, the Paying Agent
and the Custodian with respect to any claim, liability or loss or expense which
it may incur in acting as Trustee, Administrator, Paying Agent or Custodian, as
the case may be, and any reasonable expense incurred in connection with any such
claim, liability or loss (including the reasonable costs and expenses of the
defense against any claim or liability) except in the case of willful
misfeasance, bad faith, gross negligence or reckless disregard of their
respective duties. Subject to the satisfaction of certain conditions, Merrill
Lynch & Co., Inc. has agreed to reimburse the Trust for any amounts it may be
required to pay as indemnification to any Trustee, the Administrator, the Paying
Agent or the Custodian and Merrill Lynch & Co., Inc. will in turn be reimbursed
by the Contracting Stockholder for all such reimbursements paid by it.
ESTIMATED EXPENSES
At the closing of the Offering, the Contracting Stockholder will pay to each
of the Administrator, the Custodian and the Paying Agent a one-time, up-front
amount in respect of its fee and, in the case of the Administrator, certain
anticipated ongoing expenses of the Trust over the term of the Trust. The
anticipated Trust expenses to be borne by the Contracting Stockholder include,
among other things, expenses for legal and independent accountants' services,
costs of printing proxies, STRYPES certificates and Holder reports and stock
exchange fees. Organization costs of the Trust in the amount of $ and
estimated costs of the Trust in connection with the initial registration and
public offering of the STRYPES in the amount of approximately $ will be
paid by the Contracting Stockholder.
The amount payable to the Administrator in respect of the anticipated
ongoing expenses of the Trust was determined based on expense estimates made in
good faith on the basis of information currently available to the Trust,
including estimates furnished by the Trust's agents. Merrill Lynch & Co., Inc.
will pay any unanticipated operating expenses of the Trust. Merrill Lynch & Co.,
Inc. will be reimbursed by the Contracting Stockholder for all fees and expenses
of the Trust paid by it.
DIVIDENDS AND DISTRIBUTIONS
The Trust intends to distribute to Holders on a quarterly basis the proceeds
of the U.S. Treasury Securities held by the Trust. The first distribution, in
respect of the period from April , 1997 until May 14, 1997, will be made on
May 15, 1997 to Holders of record as of May 1, 1997, and will equal $
per STRYPES. Thereafter, distributions will be made on August 15, November 15,
February 15 and May 15 of each year to Holders of record as of each August 1,
November 1, February 1 and May 1, respectively. Upon dissolution of the Trust as
described in "Investment Objective and Policies-- Trust Dissolution," each
Holder will share PRO RATA in any remaining net assets of the Trust.
NET ASSET VALUE
The net asset value of the STRYPES will be calculated by the Trust no less
frequently than quarterly by dividing the value of the net assets of the Trust
(the value of its assets less its liabilities) by the total number of STRYPES
outstanding. The Trust's net asset value will be published semi-annually as part
of the Trust's semi-annual report to Holders and at such other times as the
Trustees may determine. The U.S. Treasury Securities held by the Trust will be
valued at the mean between the last current bid and asked prices or, if
quotations are not available, as determined in good faith by the Trust under the
direction of the Trustees. Short-term investments having a maturity of 60 days
or less are valued at cost with accrued interest or discount earned included in
interest receivable. The Contract will be valued at the mean of the bid prices
received by the Trust from at least three independent broker-dealer firms
unaffiliated with the Trust who are in the business of making bids on financial
instruments similar to the Contract and with terms comparable thereto.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
Set forth in full below is the opinion of Brown & Wood LLP, counsel to the
Trust, as to certain United States Federal income tax consequences of the
purchase, ownership and disposition of the STRYPES. Such opinion is based upon
laws, regulations, rulings and decisions now in effect, all of which are subject
to change (including retroactive changes) or possible differing interpretations.
The discussion below deals only with STRYPES held as capital assets and does not
purport to deal with persons in special tax situations, such as financial
institutions, insurance companies, regulated investment companies, dealers in
securities or currencies, tax-exempt entities, or persons holding STRYPES as a
hedge against currency risks or as a position in a "straddle" for tax purposes.
It also does not deal with Holders of STRYPES other than original purchasers
thereof (except where otherwise specifically noted herein). Moreover, the
discussion below does not address the tax consequences of ownership of the
Reference Property. The following discussion also does not address the tax
consequences of investing in the STRYPES arising under the laws of any state,
local or foreign jurisdiction. Persons considering the purchase of the STRYPES
should consult their own tax advisors concerning the application of the United
States Federal income tax laws to their particular situations as well as any
consequences of the purchase, ownership and disposition of the STRYPES arising
under the laws of any other taxing jurisdiction.
As used herein, the term "U.S. Holder" means a beneficial owner of STRYPES
that is for United States Federal income tax purposes (i) a citizen or resident
of the United States, (ii) a corporation, a partnership or other entity created
or organized in or under the laws of the United States or of any political
subdivision thereof, (iii) an estate that is described in Section 7701(a)(30)(D)
of the Internal Revenue Code of 1986, as amended (the "Code") or (iv) a trust
that is described in Section 7701(a)(30)(E) of the Code. As used herein, the
term "non-U.S. Holder" means a beneficial owner of STRYPES that is not a U.S.
Holder. Unless otherwise specifically provided, the following opinion of Brown &
Wood LLP assumes that on the Exchange Date and the Tax Event Acceleration Date
the Reference Property consists only of shares of ContiFinancial Common Stock.
CLASSIFICATION OF THE TRUST
The Trust will be classified as a grantor trust under subpart E, Part I of
subchapter J of the Code. As such, Holders of the STRYPES will be treated for
United States Federal income tax purposes as owners of a PRO RATA undivided
interest in the Trust's assets which will consist of the U.S. Treasury
Securities and the Contract. Accordingly, each Holder will be required to report
on its United States Federal income tax return its PRO RATA share of the entire
income on the Trust's assets in accordance with such Holder's regular method of
tax accounting.
U.S. HOLDERS
As previously discussed, each U.S. Holder will be considered the owner of
its PRO RATA portion of the U.S. Treasury Securities and the Contract held by
the Trust. The cost to a U.S. Holder of its STRYPES will be allocated among such
U.S. Holder's PRO RATA portion of the U.S. Treasury Securities and the Contract
(in proportion to the relative fair market values thereof on the date on which
the U.S. Holder acquires its STRYPES) in order to determine the U.S. Holder's
initial tax basis in the U.S. Holder's PRO RATA portion of the U.S. Treasury
Securities and the Contract. It is currently anticipated that approximately %
and approximately % of the net proceeds of the Offering will be used by the
Trust to purchase the U.S. Treasury Securities and as payments under the
Contract, respectively.
The U.S. Treasury Securities held by the Trust will be treated for United
States Federal income tax purposes as having original issue discount which will
accrue over the term of the U.S. Treasury Securities. In general, a U.S. Holder
will be treated as having purchased each U.S. Treasury Security held by the
Trust with original issue discount in an amount equal to the excess of the U.S.
Holder's PRO RATA portion of the amount payable on such U.S. Treasury Security
over the Holder's initial tax basis therefor as discussed
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above. A U.S. Holder (whether on the cash or accrual method of tax accounting)
will be required to include such original issue discount in income for United
States Federal income tax purposes as it accrues in accordance with a constant
yield method. Because it is expected that % or more of the Holders of STRYPES
will be accrual basis taxpayers, original issue discount on any short-term U.S.
Treasury Securities (I.E., any U.S. Treasury Security with a maturity of one
year or less from the date it is purchased by the Trust) held by the Trust will
also be currently includable in income by U.S. Holders as it accrues on a
straight-line basis (unless a U.S. Holder elects to accrue such original issue
discount on a constant yield basis). A U.S. Holder's tax basis in its PRO RATA
portion of a U.S. Treasury Security will be increased by the amount of any
original issue discount included in income by the U.S. Holder with respect to
such U.S. Treasury Security (as described above).
Each U.S. Holder will also be treated as having entered into a PRO RATA
portion of the Contract. Under current law, a U.S. Holder should not be required
to recognize any income, gain or loss with respect to the Contract until the
earlier of the Exchange Date or the Tax Event Acceleration Date. On the Exchange
Date or the Tax Event Acceleration Date, if the Contracting Stockholder delivers
Reference Property pursuant to the Contract, a U.S. Holder will generally not
realize any taxable gain or loss upon the receipt of such Reference Property.
However, a U.S. Holder will generally be required to recognize taxable gain or
loss with respect to any cash received in lieu of fractional units of any
Reference Security, fractional interests of any Reference Property other than
cash, and any Reference Property consisting of cash. The amount of such gain or
loss recognized by a U.S. Holder will be equal to the difference, if any,
between the amount of cash received by the U.S. Holder and the portion of the
U.S. Holder's tax basis in the Contract that is allocable to the fractional
units of any Reference Security, fractional interests of any Reference Property
other than cash, and any Reference Property consisting of cash. Any such taxable
gain or loss attributable to cash received in lieu of fractional units of any
Reference Security and fractional interests of any Reference Property other than
cash will be treated as short-term capital gain or loss and, because the matter
is uncertain, any such taxable gain or loss attributable to any Reference
Property consisting of cash could be treated as short-term capital gain or loss,
as long-term capital gain or loss (depending upon the U.S. Holder's holding
period for the STRYPES), or as ordinary income or loss. A U.S. Holder will have
an initial tax basis in any Reference Property (as allocated among the Reference
Property in accordance with the relative fair market values thereof, as
determined on the Exchange Date) received thereby on the Exchange Date or the
Tax Event Acceleration Date (other than cash received in lieu of fractional
units, fractional interests and any Reference Property consisting of cash) in an
amount equal to the U.S. Holder's tax basis in the Contract less the portion of
such tax basis that is allocable to any fractional units of any Reference
Security, fractional interests of any Reference Property and any Reference
Property consisting of cash (as described above) and will realize taxable gain
or loss with respect to any such Reference Property received thereby on the
Exchange Date or the Tax Event Acceleration Date only upon the subsequent sale
or disposition by the U.S. Holder of such Reference Property. In addition, a
U.S. Holder's holding period for any Reference Property received by such U.S.
Holder on the Exchange Date or the Tax Event Acceleration Date will begin on the
day immediately following the Exchange Date or the Tax Event Acceleration Date
and will not include the period during which the U.S. Holder held the related
STRYPES.
Alternatively, if the Contracting Stockholder satisfies the Contract in cash
on the Exchange Date or the Tax Event Acceleration Date, a U.S. Holder will
recognize taxable gain or loss on the Exchange Date or the Tax Event
Acceleration Date with respect to the Contract in an amount equal to the
difference, if any, between the total amount of cash received by such U.S.
Holder on the Exchange Date or the Tax Event Acceleration Date and an amount
equal to the U.S. Holder's tax basis in the Contract. It is uncertain whether
such gain or loss would be treated as capital or ordinary. If such gain or loss
is properly treated as capital, then such gain or loss will be treated as
long-term capital gain or loss if the STRYPES has been held by the U.S. Holder
for more than one year as of the Exchange Date or the Tax Event Acceleration
Date. If such gain or loss is properly treated as ordinary gain or loss, it is
possible that the deductibility of any loss recognized on the Exchange Date or
the Tax Event Acceleration Date with respect to the Contract
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<PAGE>
by a U.S. Holder who is an individual could be subject to the limitations
applicable to miscellaneous itemized deductions provided for under Section 67(a)
of the Code. In general, Section 67(a) of the Code provides that an individual
may only deduct miscellaneous itemized deductions for a particular taxable year
to the extent that the aggregate amount of the individuals's miscellaneous
itemized deductions for such taxable year exceed two percent of the individual's
adjusted gross income for such taxable year (the miscellaneous itemized
deductions and other itemized deductions allowable to high-income individuals,
however, are generally subject to further limitations under Section 68 of the
Code). Prospective investors in the STRYPES who are individuals should also be
aware that miscellaneous itemized deductions are not allowable in computing the
United States Federal alternative minimum tax imposed by Section 55 of the Code.
Prospective investors in the STRYPES are urged to consult their own tax advisors
concerning the character of any gain or loss realized on the Exchange Date or
the Tax Event Acceleration Date with respect to the Contract in the event that
either (i) the Reference Property consists of cash, Reference Securities (other
than ContiFinancial Common Stock) or other property or (ii) the Contracting
Stockholder elects to satisfy its obligations under the Contract in cash on the
Exchange Date or the Tax Event Acceleration Date as well as the deductibility of
any such loss.
Upon the sale or other disposition of a STRYPES prior to the Exchange Date
or the Tax Event Acceleration Date, a U.S. Holder generally will be required to
allocate the total amount realized by such U.S. Holder upon such sale or other
disposition between the U.S. Holder's PRO RATA portion of the U.S. Treasury
Securities and the Contract based upon their relative fair market values (as
determined on the date of disposition). A U.S. Holder will generally be required
to recognize taxable gain or loss with respect to each such component (I.E., the
U.S. Holder's PRO RATA portion of the U.S. Treasury Securities and the Contract)
in an amount equal to the difference, if any, between the amount realized with
respect to each such component upon the sale or disposition of the STRYPES (as
determined in the manner described above) and the U.S. Holder's adjusted tax
basis in each such component. Any such gain or loss will generally be treated as
long-term capital gain or loss if the U.S. Holder has held the STRYPES for more
than one year at the time of disposition.
The proper treatment of the payment by the Contracting Stockholder or
Merrill Lynch & Co., Inc. of various costs and expenses associated with the
organization and operation of the Trust is uncertain. It is possible that there
will be no United States Federal income tax consequences to U.S. Holders as a
result of any such payments. However, it is possible that the Internal Revenue
Service ("IRS") could assert that any such payments consititute income to U.S.
Holders. If the IRS were to prevail in treating such payments as income, then an
individual U.S. Holder who itemizes deductions could possibly amortize and
deduct over the term of the Trust (subject to any applicable limitations such as
Section 67(a) of the Code) its PRO RATA portion of the one-time, up-front fees
paid to the Administrator, the Custodian and the Paying Agent, and could
possibly deduct (subject to any applicable limitations such as those in Section
67(a) of the Code) its PRO RATA portion of the other expenses described under
"Management Arrangements--Estimated Expenses" incurred by the Trust resulting
from its ongoing operations (including the fees payable to the Trustees) as such
expenses are incurred. Brown & Wood LLP, counsel to the Trust, believes that a
U.S. Holder's PRO RATA portion of the expenses directly incurred by a U.S.
Holder in connection with the organization of the Trust, underwriting discounts
and commissions and other offering expenses should be includable in the cost to
the U.S. Holder of the STRYPES. However, there can be no assurance that the
Internal Revenue Service (the "IRS") will not take a contrary view. If the IRS
were to prevail in treating such expenses as excludible from a U.S. Holder's
cost of the STRYPES, such expenses would not be includable in the basis of the
assets of the Trust and should instead, subject to the limitations provided for
under Section 67(a) of the Code, be amortizable and deductible over the term of
the Trust.
POSSIBLE ALTERNATIVE CHARACTERIZATIONS OF THE CONTRACT
Brown & Wood LLP, counsel to the Trust, believes the Contract should be
treated for United States Federal income tax purposes as a prepaid forward
contract for the purchase of a variable number of shares
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of ContiFinancial Common Stock. The IRS could conceivably take the view that the
Contract should be treated as a loan to the Contracting Stockholder in exchange
for a contingent payment debt obligation of the Contracting Stockholder. If the
IRS were to prevail in making such an assertion, a U.S. Holder might be required
to include original issue discount in income over the term of the STRYPES based
on the excess of the anticipated value of the ContiFinancial Common Stock to be
received in respect of the Contract over the amount paid for the Contract. In
addition, a U.S. Holder would be required to include interest (rather than
capital gain) in income on the Exchange Date or the Tax Event Acceleration Date
in an amount equal to the excess, if any, of the value of the ContiFinancial
Common Stock received on the Exchange Date or the Tax Event Acceleration Date
(or the proceeds from prior disposition of the Contract) over the aggregate of
the basis of the Contract and any interest on the Contract previously included
in income (or might be entitled to an ordinary deduction to the extent of
interest previously included in income and not ultimately received). The IRS
could also conceivably take the view that a U.S. Holder should simply include in
income as interest the amount of cash actually received each year in respect of
the STRYPES.
MISCELLANEOUS TAX MATTERS
Special tax rules may apply to persons holding STRYPES as part of a
"synthetic security" or other integrated investment, or as part of a straddle,
hedging transaction or other combination of offsetting positions. For instance,
Section 1258 of the Code may possibly require certain U.S. Holders of the
STRYPES who enter into hedging transactions or offsetting positions with respect
to the STRYPES to treat all or a portion of any gain realized on the STRYPES as
ordinary income in instances where such gain may have otherwise been treated as
capital gain. U.S. Holders hedging their positions with respect to the STRYPES
or otherwise holding their STRYPES in a manner described above should consult
their own tax advisors regarding the applicability of Section 1258 of the Code,
or any other provision of the Code, to their investment in the STRYPES.
PROPOSED TAX LAW CHANGES
On February 6, 1997, the Clinton Administration proposed a series of tax law
changes as part of its Fiscal 1998 Budget proposal. These proposed tax law
changes would, among other things, require taxpayers (including corporations) to
recognize gain (but not loss) upon entering into a "constructive sale" of any
appreciated position in stock. For these purposes, a taxpayer would be treated
as making a "constructive sale" of an appreciated position in stock when the
taxpayer (or, in limited circumstances, a person related to the taxpayer)
substantially eliminates risk of loss and opportunity for gain by entering into
one or more positions with respect to the same or substantially identical
property. The proposal would apply to constructive sales entered into after
January 12, 1996, and before the date of enactment of the proposal if the
transaction resulting in the "constructive sale" remains open 30 days after the
date of enactment of the proposal. Under the proposal, the "constructive sale"
would be deemed to occur with respect to such pre-enactment transactions on the
date that is 30 days after the date of enactment. In addition, on February 26,
1997, Rep. Barbara Kennelly introduced a bill proposing certain tax law changes
that are similar to the Clinton Administration's proposals. However, under Rep.
Kennelly's proposal, a taxpayer would be treated as making a "constructive sale"
of an appreciated position in stock when the taxpayer (or, in limited
circumstances, a person related to the taxpayer) enters into a forward contract
(including a fully or partially prepaid forward contract) to deliver the same or
substantially identical property. The effective dates contained in Rep.
Kennelly's proposal are substantially the same as the effective dates contained
in the Clinton Administration's proposal. Thus, if either of these proposals are
ultimately adopted in their current form on a date that is 32 or more days prior
to the Exchange Date, such enactment could result in a Tax Event. Furthermore,
if there are future legislative developments such that as a result thereof one
of these proposals or a provision with similar effect is adopted and effective
for transactions or positions entered into on or prior to the Exchange Date,
such legislative developments could result in a Tax Event. It cannot be
predicted whether or not these proposed tax law changes (or a
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provision with similar effect) will ultimately become law. Moreover, it cannot
be predicted whether or not any other future change in the tax law will occur
which could give rise to a Tax Event, nor can it be predicted whether the
Contracting Stockholder will elect to cause a Tax Event by delivering the Tax
Event Opinion to the Trust in the event that a change in the tax law occurs
which could give rise to a Tax Event.
NON-U.S. HOLDERS
Subject to the discussion below concerning income that is effectively
connected with a trade or business conducted by a non-U.S. Holder in the United
States, payments of interest (including original issue discount) made with
respect to the U.S. Treasury Securities will not be subject to United States
withholding tax, provided that such non-U.S. Holder complies with applicable
certification requirements. In general, for a non-U.S. Holder to qualify for
this exemption from taxation, the last United States payor in the chain of
payment prior to payment to a non-U.S. Holder (the "Withholding Agent") must
have received in the year in which a payment of interest or principal occurs, or
in either of the two preceding calendar years, a statement that (i) is signed by
the beneficial owner of the U.S. Treasury Securities under penalties of perjury,
(ii) certifies that such owner is not a U.S. Holder and (iii) provides the name
and address of the beneficial owner. The statement may be made on an IRS Form
W-8 or a substantially similar form, and the beneficial owner must inform the
Withholding Agent of any change in the information on the statement within 30
days of such change. If STRYPES are held through a securities clearing
organization or certain other financial institutions, the organization or
institution may provide a signed statement to the Withholding Agent. However, in
such case, the signed statement must be accompanied by a copy of the IRS Form
W-8 or the substitute form provided by the beneficial owner to the organization
or institution.
Any capital gain realized in respect of STRYPES by a non-U.S. Holder will
generally not be subject to United States Federal income tax if (i) such gain is
not effectively connected with a United States trade or business of such
non-U.S. Holder and (ii) in the case of an individual non-U.S. Holder, such
individual is not present in the United States for 183 days or more in the
taxable year of the sale or other disposition, or the gain is not attributable
to a fixed place of business maintained by such individual in the United States
and such individual does not have a "tax home" (as defined for United States
Federal income tax purposes) in the United States.
If any interest or gain realized by a non-U.S. Holder is effectively
connected with the non-U.S. Holder's conduct of a trade or business in the
United States, such interest or gain will be subject to regular United States
Federal income tax in the same manner as if the non-U.S. Holder were a U.S.
Holder. In addition, in such event, if such non-U.S. Holder is a foreign
corporation, such interest or gain may be included in the earnings and profits
of such non-U.S. Holder in determining such non-U.S. Holder's United States
branch profits tax liability.
BACKUP WITHHOLDING AND INFORMATION REPORTING
A beneficial owner of STRYPES may be subject to information reporting and to
backup withholding at a rate of 31 percent of certain amounts paid to the
beneficial owner unless such beneficial owner provides proof of an applicable
exemption or a correct taxpayer identification number, and otherwise complies
with applicable requirements of the backup withholding rules.
Any amounts withheld under the backup withholding rules from a payment to a
beneficial owner would be allowed as a refund or a credit against such
beneficial owner's United States Federal income tax provided the required
information is furnished to the IRS.
PROSPECTIVE INVESTORS IN THE STRYPES SHOULD BE AWARE THAT THERE IS NO
AUTHORITY DIRECTLY ADDRESSING THE PROPER UNITED STATES FEDERAL INCOME TAX
TREATMENT OF THE STRYPES OR SECURITIES WITH TERMS SUBSTANTIALLY THE SAME AS THE
STRYPES, AND THAT NO RULING HAS BEEN REQUESTED FROM THE IRS WITH RESPECT
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TO THE STRYPES. ACCORDINGLY, THERE CAN BE NO ASSURANCE THAT THE IRS WILL AGREE
WITH THE FOREGOING DISCUSSION AND THAT THE IRS WILL NOT ASSERT A CONTRARY
POSITION AS TO THE PROPER UNITED STATES FEDERAL INCOME TAX TREATMENT OF THE
STRYPES WHICH MIGHT CAUSE THE CHARACTER AND TIMING OF INCOME, GAIN OR LOSS
RECOGNIZED WITH RESPECT TO A STRYPES TO DIFFER SIGNIFICANTLY FROM SUCH CHARACTER
AND TIMING DISCUSSED ABOVE. PROSPECTIVE INVESTORS IN THE STRYPES ARE THEREFORE
URGED TO CONSULT WITH THEIR OWN TAX ADVISERS PRIOR TO MAKING AN INVESTMENT IN
THE STRYPES.
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UNDERWRITING
Subject to the terms and conditions set forth in a purchase agreement (the
"Purchase Agreement"), the Trust has agreed to sell to each of the underwriters
named below (the "Underwriters"), and each of the Underwriters, for whom Merrill
Lynch, Pierce, Fenner & Smith Incorporated and Bear, Stearns & Co. Inc. are
acting as representatives (the "Representatives"), has severally agreed to
purchase, the aggregate number of STRYPES set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER STRYPES
- ---------------------------------------------------------------------------------------- ------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated..................................................................
Bear, Stearns & Co. Inc. ...............................................................
------------
Total......................................................................... 2,800,000
------------
------------
</TABLE>
In the Purchase Agreement, the several Underwriters have agreed,
respectively, subject to the terms and conditions set forth in the Purchase
Agreement, to purchase all of the STRYPES being sold pursuant to the Purchase
Agreement if any of the STRYPES are purchased. In the event of a failure to
close, any funds debited from any investor's account maintained with an
Underwriter will be credited to such account and any funds received by such
Underwriter by check or money order from any investor will be returned to such
investor by check.
The Underwriters have each advised the Trust that they propose initially to
offer the STRYPES to the public at the public offering price set forth on the
cover page of this Prospectus. The Underwriters have also advised the Trust that
they propose to offer STRYPES to certain dealers at the initial public offering
price less a concession not in excess of $ per STRYPES. Such
Underwriters may allow, and such dealers may reallow, a discount not in excess
of $ per STRYPES to certain other dealers. After the initial public
offering, the public offering price, concession and discount may be changed. The
sales load of $ per STRYPES is equal to % of the initial public
offering price. Investors must pay for any STRYPES purchased in the initial
public offering on or before , 1997.
The Trust has granted the Underwriters an option, exercisable for 30 days
from the date of this Prospectus to purchase up to an aggregate of 420,000
additional STRYPES (subject to decrease by the number of STRYPES resulting from
the split of the initial STRYPES described below) to cover over-allotments, if
any, at the initial public offering price less the sales load. To the extent the
Underwriters exercise such option, the Underwriters will have a firm commitment,
subject to certain conditions, to purchase a number of additional STRYPES.
Prior to the Offering, there has been no public market for the STRYPES. The
STRYPES have been approved for listing on the AMEX under the symbol "CFT",
subject to official notice of issuance.
The Company, certain members of management of the Company and the
Contracting Stockholder have agreed not to offer, sell, contract to sell or
otherwise dispose of, directly or indirectly, or cause to be filed a
registration statement under the Securities Act with respect to, any shares of
ContiFinancial Common Stock, securities convertible into, exchangeable for or
repayable with such shares or rights or warrants to acquire such shares, for a
period of 90 days after the date of this Prospectus without the prior written
consent of Merrill Lynch, subject to certain exceptions.
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Each of the Company and the Contracting Stockholder has agreed to indemnify
the Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments the Underwriters may be required to
make in respect thereof.
In connection with the formation of the Trust, each of ML IBK Positions,
Inc., an affiliate of Merrill Lynch, Pierce, Fenner & Smith Incorporated, and
Bear, Stearns & Co. Inc. has subscribed for and purchased one STRYPES for an
aggregate purchase price of $100,000. Prior to the Offering, the initial STRYPES
will be split into the smallest whole number of STRYPES that would result in the
per STRYPES amount recorded as capital, after effecting the split, not exceeding
the public offering price per STRYPES. Under the Contract, the Contracting
Stockholder will be obligated to deliver to the Trust on the Business Day
immediately preceding the Exchange Date a number or amount of each type of
Reference Property (or, in certain circumstances, cash with an equal value) in
respect of such STRYPES on the same terms as the STRYPES offered hereby.
Until the distribution of the STRYPES is completed, rules of the Commission
may limit the ability of the Underwriters and any selling group members to bid
for and purchase the STRYPES. As an exception to these rules, the
Representatives are permitted to engage in certain transactions that stabilize
the price of the STRYPES or the ContiFinancial Common Stock. Such transactions
consist of bids or purchases for the purpose of pegging, fixing or maintaining
the price of the STRYPES or the ContiFinancial Common Stock.
If the Underwriters create a short position in the STRYPES in connection
with the Offering, I.E., if they sell more STRYPES than are set forth on the
cover page of this Prospectus, the Representatives may reduce that short
position by purchasing STRYPES in the open market. The Representatives may also
elect to reduce any short position by exercising all or part of the
over-allotment option described above.
The Representatives may also impose a penalty bid on certain Underwriters
and selling group members. This means that if the Representatives purchase
STRYPES in the open market to reduce the Underwriters' short position or to
stabilize the price of the STRYPES, they may reclaim the amount of the selling
concession from the Underwriters and any selling group members who sold those
STRYPES as part of the Offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security.
Neither the Trust nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the STRYPES or the ContiFinancial
Common Stock. In addition, neither the Trust nor any of the Underwriters makes
any representation that the Representatives will engage in such transactions or
that such transactions, once commenced, will not be discontinued without notice.
Certain of the Underwriters render investment banking and other financial
services to the Company from time to time.
LEGAL MATTERS
Certain legal matters will be passed upon for the Trust and for the
Underwriters by their counsel, Brown & Wood LLP, New York, New York. Certain
matters of Delaware law will be passed upon for the Trust by Richards, Layton &
Finger, Wilmington, Delaware.
39
<PAGE>
EXPERTS
The statement of assets, liabilities and capital included in this Prospectus
has been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and is included herein in
reliance upon the authority of said firm as experts in giving said report.
ADDITIONAL INFORMATION
The Trust has filed with the Commission, Washington D.C. 20549, a
Registration Statement under the Securities Act with respect to the STRYPES
offered hereby. Further information concerning the STRYPES and the Trust may be
found in the Registration Statement, of which this Prospectus constitutes a
part. The Registration Statement may be inspected without charge at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and copies of all or any part thereof may
be obtained from such office after payment of the fees prescribed by the
Commission. The Commission maintains a Web site at http://www.sec.gov containing
reports, proxy and information statements and other information regarding
registrants, such as the Trust, that file electronically with the Commission.
40
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Trustees and Shareholders of ContiFinancial STRYPES Trust:
We have audited the accompanying statement of assets, liabilities and
capital of ContiFinancial STRYPES Trust as of March 27, 1997. This financial
statement is the responsibility of the Trust's management. Our responsibility is
to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of assets, liabilities and
capital is free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the statement of
assets, liabilities and capital. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the statement of assets, liabilities and capital referred to
above presents fairly, in all material respects, the financial position of
ContiFinancial STRYPES Trust, as of March 27, 1997, in conformity with generally
accepted accounting principles.
Arthur Andersen LLP
New York, New York
March 27, 1997
41
<PAGE>
CONTIFINANCIAL STRYPES TRUST
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
MARCH 27, 1997
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Cash.............................................................................. $ 100,000
---------
Total Assets................................................................ $ 100,000
---------
---------
<CAPTION>
LIABILITIES
<S> <C>
Total Liabilities................................................................. $ 0
---------
---------
NET ASSETS........................................................................ $ 100,000
---------
---------
CAPITAL
STRYPES, par value $.10 per STRYPES; 2 STRYPES issued and outstanding (Note
3)............................................................................ $ 100,000
---------
---------
</TABLE>
- ------------------------
(1) The Trust was created as a Delaware business trust on March 14, 1996 and has
had no operations other than matters relating to its organization and
registration as a non-diversified, closed-end management investment company
under the Investment Company Act of 1940, as amended. Costs incurred in
connection with the organization of the Trust and ongoing administrative
expenses will be paid by the Contracting Stockholder.
(2) Offering expenses will be payable upon completion of the Offering and also
will be paid by the Contracting Stockholder.
(3) On March 27, 1997, the Trust issued one STRYPES to ML IBK Positions, Inc.,
an affiliate of Merrill Lynch, Pierce, Fenner & Smith Incorporated, and one
STRYPES to Bear, Stearns & Co. Inc. in consideration for the purchase price
of $50,000 per STRYPES.
The Declaration of Trust provides that prior to the Offering, the Trust will
split each of the outstanding STRYPES to be effected on the date that the
price and underwriting discount of the STRYPES being offered to the public
is determined, but prior to the sale of the STRYPES to Underwriters. The two
outstanding STRYPES will be split into the smallest whole number of STRYPES
that would result in the per STRYPES amount recorded as capital, after
effecting the split, not exceeding the public offering price per STRYPES.
42
<PAGE>
THE FOLLOWING PROSPECTUS OF CONTIFINANCIAL CORPORATION IS ATTACHED AND DELIVERED
FOR CONVENIENCE OF REFERENCE ONLY. THE PROSPECTUS OF CONTIFINANCIAL CORPORATION
DOES NOT CONSTITUTE A PART OF THE FOREGOING PROSPECTUS OF CONTIFINANCIAL STRYPES
TRUST, NOR IS IT INCORPORATED BY REFERENCE THEREIN.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE TRUST OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFERING OF ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT
RELATES OR AN OFFER TO ANY PERSON IN ANY STATE OR JURISDICTION OF THE UNITED
STATES OR ANY COUNTRY WHERE SUCH OFFER WOULD BE UNLAWFUL. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE FACTS SET FORTH IN
THIS PROSPECTUS OR IN THE AFFAIRS OF THE TRUST SINCE THE DATE HEREOF OR SINCE
THE DATES AS OF WHICH INFORMATION IS SET FORTH HEREIN. IN THE EVENT THAT ANY
SUCH CHANGE SHALL OCCUR DURING THE PERIOD IN WHICH APPLICABLE LAW REQUIRES
DELIVERY OF THIS PROSPECTUS, THIS PROSPECTUS WILL BE AMENDED OR SUPPLEMENTED
ACCORDINGLY.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary.............................. 3
Fee Table....................................... 9
The Trust....................................... 10
Use of Proceeds................................. 10
Investment Objective and Policies............... 10
Investment Restrictions......................... 22
Risk Factors.................................... 23
Description of the STRYPES...................... 27
Trustees........................................ 29
Management Arrangements......................... 29
Dividends and Distributions..................... 31
Net Asset Value................................. 31
Certain United States Federal Income Tax
Considerations................................ 32
Underwriting.................................... 38
Legal Matters................................... 39
Experts......................................... 40
Additional Information.......................... 40
Report of Independent Public Accountants........ 41
Statement of Assets, Liabilities and Capital.... 42
Prospectus relating to Common Stock
of ContiFinancial Corporation
</TABLE>
------------------------
UNTIL , 1997 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING), ALL
DEALERS EFFECTING TRANSACTIONS IN THE STRYPES, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
2,800,000 STRYPES-SM-
CONTIFINANCIAL STRYPES TRUST
EXCHANGEABLE FOR SHARES OF
COMMON STOCK OF
CONTIFINANCIAL CORPORATION
---------------------
PROSPECTUS
---------------------
MERRILL LYNCH & CO.
BEAR, STEARNS & CO. INC.
, 1997
-SM- SERVICE MARK OF MERRILL LYNCH & CO., INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
<TABLE>
<C> <C> <S> <C>
1. FINANCIAL STATEMENTS
Independent Auditors' Report
Statement of Assets, Liabilities and Capital as of March 27, 1997
2. EXHIBITS
(a) (1) Trust Agreement*
(2) Form of Amended and Restated Trust Agreement
(3) Certificate of Trust*
(4) Restated Certificate of Trust
(b) Not applicable
(c) Not applicable
(d) (1) Form of Specimen certificate for STRYPES (included in Exhibit 2(a)(2))
(2) Portions of the Declaration of Trust of the Registrant defining the rights
of Holders of STRYPES (included in Exhibit 2(a)(2))
(e) Not applicable
(f) Not applicable
(g) Not applicable
(h) (1) Form of Purchase Agreement
(2) Form of Registration Agreement
(i) Not applicable
(j) Form of Custodian Agreement
(k) (1) Form of Administration Agreement
(2) Form of Paying Agent Agreement
(3) Form of Forward Purchase Contract
(4) Form of Security and Pledge Agreement
(5) Form of Fund Expense Agreement
(6) Form of Fund Indemnity Agreement
(l) Opinion and Consent of Brown & Wood LLP, counsel to the Trust
(m) Not applicable
(n) (1) Tax Opinion and Consent of Brown & Wood LLP, counsel to the Trust
(2) Consent of Arthur Andersen LLP, independent public accountants for the Trust
(o) Not applicable
(p) Form of Subscription Agreement
(q) Not applicable
(r) Financial Data Schedule
</TABLE>
- ------------------------
* Previously filed.
ITEM 25. MARKETING ARRANGEMENTS
See Exhibits (h)(1) and (h)(2) to this Registration Statement.
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses to be incurred in connection with the offering described in
this Registration Statement will be paid by the Contracting Stockholder.
C-1
<PAGE>
ITEM 27. PERSON CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
The Trust will be internally managed and will not have an investment
adviser. The information in the Prospectus under the caption "Management
Arrangements" is incorporated herein by reference.
ITEM 28. NUMBER OF HOLDERS OF SECURITIES
There will be one record holder of the STRYPES as of the effective date of
this Registration Statement.
ITEM 29. INDEMNIFICATION
Section 7.6 of the Amended and Restated Trust Agreement, Section 6 of the
Purchase Agreement and Section 4 of the Registration Agreement provide for
indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "1933 Act"), may be permitted to trustees, officers and
controlling persons of the Registrant, pursuant to the foregoing provisions or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission (the "Commission") such indemnification is against
public policy as expressed in the 1933 Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a trustee, officer
or controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such trustee, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the 1933 Act
and will be governed by the final adjudication of such issue.
ITEM 30. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
The Trust is internally managed and does not have an investment adviser.
ITEM 31. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books and other documents required to be maintained by Section
31(a) of the Investment Company Act of 1940, as amended, and the rules
promulgated thereunder are maintained at the offices of the Registrant (850
Library Avenue, Suite 204, Newark, Delaware 19715), its custodian (450 West 33rd
Street, 15th Floor, New York, New York 10001-2697) and its paying agent (450
West 33rd Street, 15th Floor, New York, New York 10001-2697).
ITEM 32. MANAGEMENT SERVICES
Not applicable.
ITEM 33. UNDERTAKINGS
(a) The Registrant hereby undertakes to suspend the offering of the shares
covered hereby until it amends its prospectuses contained herein if (1)
subsequent to the effective date of this Registration Statement, its net asset
value per share declines more than 10 percent from its net asset value per share
as of the effective date of the Registration Statement or (2) the net asset
value per share increases to an amount greater than its net proceeds as stated
in the prospectuses contained herein.
(b) The Registrant hereby undertakes that (i) for purpose of determining any
liability under the 1933 Act, the information omitted from the form of
prospectuses filed as part of this Registration Statement in reliance upon Rule
430A and contained in a form of prospectus filed by the registrant under Rule
497(h) under the 1933 Act shall be deemed to be part of this registration
statement as of the time it
C-2
<PAGE>
was declared effective; (ii) for the purpose of determining any liability under
the 1933 Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of the securities at that time shall be deemed
to be the initial bona fide offering thereof.
C-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Pre-Effective Amendment to its Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Newark, State of
Delaware, on the 28th day of March, 1997.
CONTIFINANCIAL STRYPES TRUST
(REGISTRANT)
By: /s/ DONALD J. PUGLISI
-----------------------------------------
Donald J. Puglisi
MANAGING TRUSTEE
Pursuant to the requirements of the Securities Act of 1933, this
Pre-Effective Amendment to the Registrant's Registration Statement has been
signed below by the following persons, in the capacities and on the date
indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ DONALD J. PUGLISI
- ------------------------------ Managing Trustee March 28, 1997
(Donald J. Puglisi)
WILLIAM R. LATHAM III*
- ------------------------------ Trustee
(William R. Latham III)
JAMES B. O'NEILL*
- ------------------------------ Trustee
(James B. O'Neill)
<TABLE>
<S> <C> <C> <C>
/s/ DONALD J. PUGLISI
------------------------------------------ March 28, 1997
*By: (Donald J. Puglisi, Attorney-in-fact)
</TABLE>
<PAGE>
Exhibit (a)(2)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
AMENDED AND RESTATED
TRUST AGREEMENT
CONSTITUTING
CONTIFINANCIAL STRYPES TRUST
Dated as of March 26, 1997
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I
DEFINITIONS
SECTION 1.1 DEFINITIONS................................................... 2
ARTICLE II
TRUST DECLARATION; PURPOSES, POWERS
AND DUTIES OF THE TRUSTEES; ADMINISTRATION
SECTION 2.1 NAME.......................................................... 7
SECTION 2.2 OFFICE........................................................ 7
SECTION 2.3 RATIFICATION AND APPROVAL OF ACTION OF EITHER OR BOTH OF THE
DEPOSITOR AND THE INITIAL TRUSTEE............................. 7
SECTION 2.4 DECLARATION OF TRUST; PURPOSES OF THE TRUST................... 7
SECTION 2.5 GENERAL POWERS AND DUTIES OF THE TRUSTEES..................... 7
SECTION 2.6 PORTFOLIO ACQUISITION......................................... 9
SECTION 2.7 PORTFOLIO ADMINISTRATION...................................... 9
SECTION 2.8 MANNER OF SALES............................................... 12
SECTION 2.9 LIMITATIONS ON TRUSTEES' POWERS............................... 13
ARTICLE III
ACCOUNTS AND PAYMENTS
SECTION 3.1 THE TRUST ACCOUNT............................................. 13
SECTION 3.2 DISTRIBUTIONS TO HOLDERS...................................... 14
SECTION 3.3 SEGREGATION................................................... 14
SECTION 3.4 INVESTMENTS................................................... 14
ARTICLE IV
REDEMPTION
SECTION 4.1 REDEMPTION.................................................... 14
ARTICLE V
ISSUANCE OF CERTIFICATES;
REGISTRY; TRANSFER OF STRYPES
SECTION 5.1 FORM OF CERTIFICATE........................................... 15
i
<PAGE>
SECTION 5.2 TRANSFER OF STRYPES; ISSUANCE, TRANSFER AND INTERCHANGE OF
CERTIFICATES.................................................. 15
SECTION 5.3 REPLACEMENT OF CERTIFICATES................................... 16
SECTION 5.4 LIMITATION ON LIABILITY....................................... 16
SECTION 5.5 GENERAL PROVISIONS REGARDING THE STRYPES...................... 16
ARTICLE VI
EXECUTION OF THE CONTRACT
SECTION 6.1 EXECUTION OF THE CONTRACT..................................... 17
ARTICLE VII
TRUSTEES
SECTION 7.1 TRUSTEES...................................................... 17
SECTION 7.2 VACANCIES..................................................... 17
SECTION 7.3 POWERS........................................................ 17
SECTION 7.4 MEETINGS...................................................... 18
SECTION 7.5 RESIGNATION AND REMOVAL....................................... 18
SECTION 7.6 LIABILITY..................................................... 18
SECTION 7.7 COMPENSATION.................................................. 19
ARTICLE VIII
MISCELLANEOUS
SECTION 8.1 MEETINGS OF HOLDERS........................................... 19
SECTION 8.2 BOOKS AND RECORDS; REPORTS.................................... 20
SECTION 8.3 DISSOLUTION................................................... 20
SECTION 8.4 AMENDMENT AND WAIVER.......................................... 21
SECTION 8.5 ACCOUNTANTS................................................... 22
SECTION 8.6 NATURE OF HOLDER'S INTEREST................................... 23
SECTION 8.7 DELAWARE LAW TO GOVERN........................................ 23
SECTION 8.8 NOTICES....................................................... 23
SECTION 8.9 SEVERABILITY.................................................. 24
SECTION 8.10 COUNTERPARTS.................................................. 24
SECTION 8.11 SUCCESSORS AND ASSIGNS........................................ 24
ii
<PAGE>
AMENDED AND RESTATED TRUST AGREEMENT
This Amended and Restated Trust Agreement, dated as of March 26, 1997 (the
"Trust Agreement"), by and among ML IBK Positions, Inc. and Bear, Stearns & Co.
Inc., as sponsors (the "Sponsors"), Donald J. Puglisi, William R. Latham III and
James B. O'Neill, as trustees (the "Trustees"), and the Holders (as defined
herein), constituting ContiFinancial STRYPES Trust (the "Trust").
W I T N E S S E T H:
WHEREAS, Paul A. Pepe, as depositor (the "Depositor") and Douglas R.
Robinson, as trustee (the "Initial Trustee"), have previously entered into a
Trust Agreement dated as of March 14, 1996 (the "Original Agreement"), creating
XYZ STRYPES Trust;
WHEREAS, the Depositor has transferred his interest in XYZ STRYPES Trust to
the Sponsors;
WHEREAS, the Trustees hereby ratify and approve the transfer of the
interest of the Depositor in XYZ STRYPES Trust to the Sponsors;
WHEREAS, pursuant to an Instrument of Appointment, Acceptance, and
Resignation, dated as of February __, 1997 (the "Instrument"), the Initial
Trustee appointed the Trustees as successor trustees to the Initial Trustee, the
Trustees accepted such appointment, and the Initial Trustee thereupon resigned
as trustee of the Trust;
WHEREAS, the Sponsors hereby waive the thirty (30) day notice requirement
of Section 5 of the Original Agreement and ratify and approve the actions taken
pursuant to the Instrument;
WHEREAS, the parties hereto desire to amend and restate the Original
Agreement in certain respects; and
WHEREAS, the Trust has previously issued one STRYPES to each of the
Sponsors in consideration of the aggregate purchase price therefor of $100,000,
or $50,000 per STRYPES, in satisfaction of the requirements of Section 14(a)(1)
under the Investment Company Act (as hereinafter defined);
NOW, THEREFORE, the parties hereto agree to amend and restate the Original
Agreement as provided herein. Upon the execution and delivery of counterpart
signature pages hereto by the parties hereto, the Original Agreement will be
automatically amended and restated in its entirety to read as provided herein.
<PAGE>
ARTICLE I
DEFINITIONS
SECTION 1.1 DEFINITIONS. Whenever used in this Trust Agreement, the
following words and phrases shall have the meanings listed below. Any reference
to any agreement shall be a reference to such agreement as supplemented or
amended from time to time.
"ACCELERATION AMOUNT NOTICE" - An Acceleration Amount Notice as defined in
the Contract.
"ACCELERATION VALUE" - The Acceleration Value as defined in the Contract.
"ADMINISTRATION AGREEMENT" - The Administration Agreement between the
Administrator and the Trust, substantially in the form of Exhibit E hereto, and
any substitute agreement therefor entered into pursuant to Section 2.5(a)
hereof.
"ADMINISTRATOR" - The Chase Manhattan Bank or its successor as permitted
under Section 6.1 of the Administration Agreement or appointed pursuant to
Section 2.5(a) hereof.
"AGGREGATE ACCELERATION VALUE" - The Aggregate Acceleration Value as
defined in the Contract.
"BUSINESS DAY" - Any day that is not a Saturday, a Sunday or a day on which
the New York Stock Exchange, The NASDAQ National Market, or banking institutions
or trust companies in The City of New York are authorized or obligated by law or
executive order to close.
"CASH SETTLEMENT OPTION" - The option of the Contracting Stockholder
described in Section 2.5 of the Contract to settle the Contract for a cash
payment on the Settlement Date.
"CERTIFICATE" - Any certificate evidencing the ownership of STRYPES
substantially in the form of Exhibit A hereto.
"CLOSING DATE" - The Closing Date as defined in the Contract.
"CODE" - The Internal Revenue Code of 1986, as amended from time to time;
each reference herein to any section of the Code or any regulation thereunder
shall constitute a reference to any successor provision thereto.
"COLLATERAL AGENT" - The Chase Manhattan Bank or its successor as permitted
under the Security and Pledge Agreement.
"COMMENCEMENT DATE" - The day on which the Purchase Agreement is executed.
2
<PAGE>
"COMMISSION" - The United States Securities and Exchange Commission, as
from time to time constituted, created under the Exchange Act, or if at any time
after the execution of this Trust Agreement such Commission is not existing or
performing the duties now assigned to it, then the body performing such duties
on such date.
"COMPANY" - ContiFinancial Corporation, a Delaware corporation.
"COMPANY REORGANIZATION EVENT" - A Reorganization Event with respect to the
Company or any Company Successor (other than a statutory merger effected solely
for the purpose of changing, and the sole effect of which is to so change, the
state of incorporation of the Company or such Company Successor).
"COMPANY SUCCESSOR" - Any surviving entity or subsequent surviving entity
of the Company.
"CONTRACT" - The Forward Purchase Contract among the Trust, the Collateral
Agent, as agent and custodian for and on behalf of the Trust, and the
Contracting Stockholder, substantially in the form of Exhibit C hereto.
"CONTRACT CONSIDERATION" - The Contract Consideration as defined in the
Contract.
"CONTRACTING STOCKHOLDER" - The person named as "Seller" in the Contract.
"CUSTODIAN" - The Chase Manhattan Bank or its successor as permitted under
paragraph 11 of the Custodian Agreement or appointed pursuant to Section 2.5(a)
hereof.
"CUSTODIAN AGREEMENT" - The Custodian Agreement, dated as of March 26,
1997, between the Custodian and the Trust, and any substitute agreement therefor
entered into pursuant to Section 2.5(a) hereof.
"DATE OF DELIVERY" - A Date of Delivery as defined in the Contract.
"DEPOSITARY" - The Depository Trust Company, or any successor thereto.
"DISTRIBUTION DATE" - Each February 15, May 15, August 15 and November 15
of each year, commencing May 15, 1997, to and including May 15, 2000 (or if any
such date is not a Business Day, then the first Business Day thereafter).
"EARLY SETTLEMENT DATE" - The Early Settlement Date as defined in the
Contract.
"EVENT OF DEFAULT" - An Event of Default as defined in the Security and
Pledge Agreement.
3
<PAGE>
"EXCHANGE" - The delivery by the Trustees to the Holders of Reference
Property (or, if the Contracting Stockholder elects to exercise the Cash
Settlement Option under the Contract, the amount of cash with an equal value, as
specified in the Contract as payable in respect thereof) in mandatory exchange
for the STRYPES on the Exchange Date.
"EXCHANGE ACT" - The Securities Exchange Act of 1934, as amended from time
to time; each reference herein to any section of such Act or any rule or
regulation thereunder shall constitute a reference to any successor provision
thereto.
"EXCHANGE DATE" - May 15, 2000.
"FIRM CONSIDERATION AMOUNT" - The Firm Consideration Amount as defined in
the Contract.
"FIRM PAYMENT DATE" - The Firm Payment Date as defined in the Contract.
"HOLDER" - The registered owner of any STRYPES as recorded on the books of
the Paying Agent.
"INDEMNITY AGREEMENT" - The Fund Indemnity Agreement among the Trust,
Merrill Lynch and the Contracting Stockholder, substantially in the form of
Exhibit D hereto.
"INDEPENDENT DEALERS" - Independent Dealers as defined in the Contract.
"INVESTMENT COMPANY ACT" - The Investment Company Act of 1940, as amended
from time to time; each reference herein to any section of such Act or any rule
or regulation thereunder shall constitute a reference to any successor provision
thereto.
"LIQUIDATION VALUE" - The aggregate proceeds received by the Trust from the
sale of the U.S. Treasury Securities pursuant to Section 2.8(a) hereof.
"MANAGING TRUSTEE" - The Trustee designated the Managing Trustee by
resolution of the Trustees.
"MERRILL LYNCH" - Merrill Lynch & Co., Inc.
"OPTION CONSIDERATION AMOUNT" - The Option Consideration Amount as defined
in the Contract.
"ORIGINAL AGREEMENT" - The meaning specified in the recitals hereof.
"PARTICIPANT" - A Person having an account with the Depositary.
"PAYING AGENT" - ChaseMellon Shareholder Services, L.L.C. or its successor
as permitted under Section 6.6 of the Paying Agent Agreement or appointed
pursuant to Section 2.5(a) hereof.
4
<PAGE>
"PAYING AGENT AGREEMENT" - The Paying Agent Agreement between the Paying
Agent and the Trust, substantially in the form of Exhibit F hereto, and any
substitute agreement therefor entered into pursuant to Section 2.5(a) hereof.
"PERSON" - An individual, partnership, corporation (including a business
trust), limited liability company, joint stock company, trust, unincorporated
association, joint venture or other entity, or a government or any political
subdivision or agency or instrumentality thereof.
"PROSPECTUS" - The prospectus of the Trust relating to the offering of the
STRYPES and constituting a part of the Registration Statement, as first filed
with the Commission pursuant to Rule 497(b) or (h) under the Securities Act, and
as subsequently amended or supplemented by the Trust.
"PURCHASE AGREEMENT" - The Purchase Agreement among the Trust, the
Contracting Stockholder and the Underwriters relating to the issue and sale of
the STRYPES, as described in the Prospectus.
"QUARTERLY DISTRIBUTION" - $______ (or, in the case of the period from
and including April __, 1997 to and including May 14, 1997, $_______).
"RECORD DATE" - Each February 1, May 1, August 1, and November 1 of each
year, commencing May 1, 1997.
"REFERENCE PROPERTY" - The Reference Property as defined in the Contract.
"REFERENCE SECURITY" - A Reference Security as defined in the Contract.
"REGISTRATION STATEMENT" - The Registration Statement on Form N-2
(Registration Nos. 333-1787; 811-7565) of the Trust, as amended.
"REORGANIZATION EVENT" - A Reorganization Event as defined in the Contract.
"SECURITIES ACT" - The Securities Act of 1933, as amended from time to
time; each reference herein to any section of such Act or any rule or regulation
thereunder shall constitute a reference to any successor provision thereto.
"SECURITY AND PLEDGE AGREEMENT" - The Security and Pledge Agreement among
the Collateral Agent, the Contracting Stockholder and the Trust, securing the
obligations of the Contracting Stockholder under the Contract, substantially in
the form of Exhibit B hereto.
"SETTLEMENT DATE" - The Settlement Date as defined in the Contract.
"STRYPES" - Structured Yield Product Exchangeable for Stock-SM-
representing a proportionate share of beneficial ownership in the Trust
evidencing a Holder's undivided
5
<PAGE>
interest in the Trust and right to receive a pro rata distribution upon
liquidation of the Trust Estate.
"TAX EVENT" - A Tax Event as defined in the Contract.
"TAX EVENT ACCELERATION AMOUNT" - The Tax Event Acceleration Amount as
defined in the Contract.
"TAX EVENT ACCELERATION DATE" - A Tax Event Acceleration Date as defined in
the Contract.
"TAX EVENT CASH SETTLEMENT OPTION" - The Tax Event Cash Settlement Option
as defined in the Contract to settle the Contract for a cash payment on the
Tax Event Acceleration Date.
"TEMPORARY INVESTMENTS" - Direct short-term U.S. government obligations, as
specified from time to time by the Trustees or through standing instructions
from the Trustees to the Administrator or the Paying Agent.
"TRANSFER AGENT AND REGISTRAR" - With respect to any Reference Security at
any time, the Person then acting as Transfer Agent and Registrar for such
Reference Security.
"TRUST ACCOUNT" - The account created pursuant to Section 3.1 hereof.
"TRUST ESTATE" - The Contract and the U.S. Treasury Securities held at any
time by the Trust, together with any Temporary Investments held at any time
pursuant to Section 3.4 hereof, and any proceeds thereof or therefrom and any
other moneys held at any time in the Trust Account.
"UNDERWRITERS" - The several Underwriters named in the Purchase Agreement.
"U.S. TREASURY SECURITIES" - The meaning specified in Section 2.6(b)
hereof.
__________________
(SM)Service mark of Merrill Lynch & Co., Inc.
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ARTICLE II
TRUST DECLARATION; PURPOSES, POWERS
AND DUTIES OF THE TRUSTEES; ADMINISTRATION
SECTION 2.1 NAME. The Trust is named "ContiFinancial STRYPES Trust," as
such name may be modified from time to time by the Trustees following written
notice to the Holders. The Trust's activities may be conducted under the name
of the Trust or any other name deemed advisable by the Trustees.
SECTION 2.2 OFFICE. The address of the principal office of the Trust is
c/o Puglisi & Associates, 850 Library Avenue, Suite 204, Newark, Delaware 19715.
On ten Business Days written notice to the Holders the Trustees may designate
another principal office.
SECTION 2.3 RATIFICATION AND APPROVAL OF ACTION OF EITHER OR BOTH OF THE
DEPOSITOR AND THE INITIAL TRUSTEE. The Sponsors and the Trustees hereby ratify
and approve any and all actions taken by either or both of the Depositor and the
Initial Trustee on behalf of the Trust on or prior to the date hereof in
connection with the registration of the Trust under the Investment Company Act,
in connection with the registration of the offer and sale of the STRYPES under
the Securities Act, or otherwise incident to, or connected with, or necessary to
accomplish, the foregoing or the offer and sale of the STRYPES by the
Underwriters and the operation of the Trust as described in the Prospectus.
SECTION 2.4 DECLARATION OF TRUST; PURPOSES OF THE TRUST. The Sponsors
hereby create the Trust in order that it may acquire the U.S. Treasury
Securities, enter into the Contract, issue and sell to the Sponsors and the
several Underwriters the STRYPES, hold the Trust Estate in trust for the use and
benefit of all present and future Holders and otherwise carry out the terms and
conditions of this Trust Agreement, all for the purpose of achieving the
investment objectives set forth in the Prospectus. The Trustees hereby declare
that they will accept and hold the Trust Estate in trust for the use and benefit
of all present and future Holders. The Depositor has heretofore deposited with
the Initial Trustee the sum of $1 to accept and hold in trust hereunder until
the issuance and sale of the STRYPES to the several Underwriters, whereupon such
sum shall be donated to an organization satisfying the requirements of Section
170(c)(2) of the Code selected by unanimous consent of the Trustees.
SECTION 2.5 GENERAL POWERS AND DUTIES OF THE TRUSTEES. In furtherance
of the provisions of Section 2.4 hereof, the Sponsors authorize and direct the
Trustees, on behalf of the Trust:
(a) to enter into and perform (and, in accordance with Section 8.4(a)
hereof, amend), the Contract, the Security and Pledge Agreement, the
Purchase Agreement, the Indemnity Agreement, the Custodian Agreement, the
Administration Agreement and the Paying Agent Agreement and to perform all
obligations of the
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Trustees (including the obligation to provide indemnity hereunder and
thereunder) and enforce all rights and remedies of the Trust under each of
such agreements; and if any of the Custodian Agreement, the Administration
Agreement, the Security and Pledge Agreement and the Paying Agent Agreement
terminates, or the agent of the Trust thereunder resigns or is discharged,
to appoint a substitute agent and enter into a new agreement with such
substitute agent containing provisions substantially similar to those
contained in the agreement being terminated; provided that in any such new
agreement (i) the Custodian and the Paying Agent shall each be a commercial
bank or trust company organized and existing under the laws of the United
States of America or any state therein, shall have full trust powers and
shall have minimum capital, surplus and retained earnings of not less than
$100,000,000; and (ii) the Administrator and the Collateral Agent shall
each be a reputable financial institution eligible and qualified in all
respects to carry out its obligations under the Administration Agreement or
the Security and Pledge Agreement, as the case may be;
(b) to hold the Trust Estate in trust, to create and administer the
Trust Account, to direct payments received by the Trust to the Trust
Account and to make payments out of the Trust Account as set forth in
Article III hereof;
(c) to issue and sell to the Underwriters an aggregate of up to
3,220,000 STRYPES (including those STRYPES subject to the over-allotment
option of the several Underwriters provided for in the Purchase Agreement)
pursuant to the Purchase Agreement and as contemplated by the Prospectus;
provided, however, that subsequent to the determination of the public
offering price per STRYPES and related underwriting discount for the
STRYPES to be sold to the several Underwriters but prior to the sale of the
STRYPES to the several Underwriters, the STRYPES originally issued to the
Sponsors shall be split into a greater number of STRYPES so that
immediately following such split the value of each STRYPES held by the
Sponsors will equal the aforesaid public offering price per STRYPES;
(d) to select independent public accountants and, subject to the
provisions of Section 8.5 hereof, to engage such independent public
accountants;
(e) to engage legal counsel and, to the extent required by Section
2.7 hereof, to engage professional advisors and pay reasonable compensation
thereto;
(f) to defend any action commenced against the Trustees or the Trust
and to prosecute any action which the Trustees deem necessary to protect
the Trust and the rights and interests of Holders, and to pay the costs
thereof;
(g) to delegate any or all of its powers and duties hereunder as
contemplated by the Custodian Agreement, the Paying Agent Agreement and the
Administration Agreement, to the extent permitted by applicable law; and
(h) to adopt the fundamental policies set forth in the Prospectus, to
adopt and amend a code of regulations, and take any and all such other
actions as necessary or advisable to carry out the purposes of the Trust,
subject
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to the provisions hereof and applicable law, including, without limitation,
the Investment Company Act.
SECTION 2.6 PORTFOLIO ACQUISITION. In furtherance of the provisions of
Section 2.4 hereof, the Sponsors further specifically authorize and direct the
Trustees, acting on behalf of the Trust:
(a) to enter into the Contract with respect to the Reference Property
with the Contracting Stockholder on the Commencement Date for settlement on
the date or dates provided thereunder and, subject to satisfaction of the
conditions set forth in the Contract, to pay to the Contracting Stockholder
the Firm Consideration Amount and any Option Consideration Amount
thereunder with the proceeds of the sale of the STRYPES, net of (1) the
underwriting discount, (2) the purchase price paid for the U.S. Treasury
Securities as provided in paragraph (b) below, and (3) an amount in cash
equal to the difference between the aggregate amount of all Quarterly
Distributions to be made on the STRYPES and the aggregate proceeds to be
received from the U.S. Treasury Securities upon maturity; and, subject to
the adjustments and exceptions set forth in the Contract, the Contract
shall entitle the Trust to receive from the Contracting Stockholder on the
Settlement Date a specified number or amount of each type of Reference
Security and other property constituting part of the Reference Property
(or, if the Contracting Stockholder elects to exercise the Cash Settlement
Option under the Contract, an amount of cash with an equal value) so that
the Trust may execute the Exchange with the Holders; and
(b) to purchase for settlement on the Firm Payment Date, and on any
Date of Delivery, as appropriate, with the proceeds of the sale the
STRYPES, net of the underwriting discount, U.S. Treasury securities from
such brokers or dealers as the Trustees shall designate in writing to the
Administrator having the terms set forth on Schedule I hereto ("U.S.
Treasury Securities").
SECTION 2.7 PORTFOLIO ADMINISTRATION. In furtherance of the provisions
of Section 2.4 hereof, the Sponsors further specifically authorize and direct
the Trustees:
(a) DETERMINATION OF REFERENCE PROPERTY ADJUSTMENTS. Upon receipt of
any notice pursuant to Section 6.4(a) of the Contract of an event requiring
an adjustment to the Reference Property, or upon otherwise acquiring
knowledge of such an event, to calculate the required adjustment and
furnish notice thereof to the Collateral Agent and the Administrator or to
request from the Administrator such further information as may be necessary
to calculate or effect the required adjustment;
(b) SELECTION OF SECURITIES DEALERS; INDEPENDENT INVESTMENT BANK. At
such times and for such purposes provided in the Contract, (i) to select
three recognized securities dealers in The City of New York to provide net
bids for the purchase of rights or warrants referred to in Section 3.1(b)
of
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the Contract and to deliver notice to the Collateral Agent pursuant to
Section 4(a) of the Security and Pledge Agreement identifying such firms,
and (ii) to select and retain a nationally recognized investment banking
firm to determine the market value of any Reference Property as provided in
the Contract, including, without limitation, Reference Property consisting
of property other than cash or Reference Securities, and to deliver to the
Contracting Stockholder notice pursuant to Section 8.1 of the Contract
identifying the firm proposed to be selected and retained, and to consult
with the Contracting Stockholder on such selection and retention as
provided in such Section 8.1;
(c) ACCELERATION UPON EVENT OF DEFAULT. Upon receipt of any notice
pursuant to Section 6.4(b) of the Contract that an Event of Default has
occurred, or upon otherwise acquiring notice that an Event of Default has
occurred, to request quotations from Independent Dealers, compute the
Acceleration Value and the Aggregate Acceleration Value and deliver an
Acceleration Amount Notice, in each case with respect to the Contract, all
as described in Section 7.1 of the Contract;
(d) SALE OF U.S. TREASURY SECURITIES UPON TAX EVENT ACCELERATION.
Upon receipt of any notice from the Contracting Stockholder that it is
exercising its option pursuant to Section 7.3 of the Contract to accelerate
the settlement of its obligations thereunder following the occurrence of a
Tax Event, (i) to select three United States government securities primary
dealers in The City of New York to provide bids for the purchase of the
U.S. Treasury Securities then held by the Trust as provided in Section
2.8(a) hereof, (ii) to sell the U.S. Treasury Securities then held by the
Trust at the highest bid received as provided in Section 2.8(a) hereof and
(iii) to provide notice to the Collateral Agent and the Contracting
Stockholder of the Liquidation Value and the Tax Event Acceleration Amount,
all as described in Section 7.3 of the Contract;
(e) DETERMINATION OF CONTRACT CONSIDERATION. To calculate, at such
times and in such manner as provided in the Contract, the aggregate number
or amount of each type of Reference Security and other property
constituting part of the Reference Property (or, if the Cash Settlement
Option under the Contract is exercised, the amount of cash with an equal
value) required to be delivered by the Contracting Stockholder under
Sections 2.1, 2.3, 2.4 and 2.5 of the Contract or, if a Company
Reorganization Event shall have occurred, the aggregate number or amount of
each type of Reference Security and other property constituting part of the
Reference Property that would be required to be delivered by the
Contracting Stockholder under the Contract if the Exchange Date were
redefined for all purposes of the Contract (including, without limitation,
for purposes of Section 2.4 thereof) to be the Early Settlement Date, all
as provided in Section 7.2 of the Contract or, if the Contracting
Stockholder shall have exercised its option to accelerate the settlement of
its obligations under the Contract upon the occurrence of a Tax Event, the
amount of cash and the aggregate number or amount of each type of Reference
Security and other property constituting part of the Reference Property
(or, if the Tax Event Cash Settlement Option under the Contract is
exercised, the amount of cash with an equal value) required to be delivered
by the Contracting Stockholder on the Tax Event Acceleration Date, all as
provided in
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Section 7.3 of the Contract, and to furnish notice of the amounts so
determined to the Collateral Agent and the Contracting Stockholder; and
(f) DISTRIBUTION OF CONTRACT CONSIDERATION ON EXCHANGE DATE. Unless
an Event of Default or a Company Reorganization Event shall have occurred
or the Contracting Stockholder shall have exercised its option to
accelerate the settlement of its obligations under the Contract upon the
occurrence of a Tax Event (in which events distribution of the Contract
Consideration shall be governed by Section 8.3 below) or the Contracting
Stockholder elects to exercise the Cash Settlement Option with respect to
the Reference Property otherwise deliverable under the Contract (in which
event the cash received in respect thereof shall be distributed pro rata to
the Holders of STRYPES on the Exchange Date):
(i) DETERMINATION OF FRACTIONAL UNITS OR INTERESTS. To
determine, on the Exchange Date: (A) for each Holder of STRYPES, such
Holder's pro rata share of the total amount of each type of Reference
Security and other property constituting part of the Reference
Property delivered to the Trust on the Settlement Date under the
Contract; and (B) the amount of the fractional units or interests of
any type of Reference Property, if any, allocable to each Holder and
in the aggregate;
(ii) CASH FOR FRACTIONAL UNITS OR INTERESTS. To sell, in the
principal market therefor, on the Exchange Date, an aggregate number
or amount of each type of Reference Security and other property
constituting part of the Reference Property (other than cash) equal to
the aggregate number of fractional units or interests of such type of
Reference Property, if any, determined pursuant to clause (i)(B)
above;
(iii) DELIVERY OF REFERENCE SECURITIES. To deliver the remaining
units of any Reference Security to the Transfer Agent and Registrar on
the Exchange Date, with instructions that such units be re-registered
and re-issued as follows:
(A) for and in the name of each Holder (other than the
Depositary) who holds STRYPES in definitive form, the Transfer
Agent and Registrar shall be instructed to issue definitive
certificates representing a number of units of such Reference
Security equal to such Holder's pro rata share of the total
number of units of such Reference Security delivered to the Trust
on the Settlement Date under the Contract, rounded down to the
nearest integral number; and
(B) the Transfer Agent and Registrar shall be instructed to
transfer all remaining units of such Reference Security to the
account of the Custodian held through the Depositary, who shall
then be instructed to transfer and credit such units of such
Reference Security to each Participant who holds STRYPES, with
each Participant receiving its
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pro rata share of the total number of units of such Reference
Security delivered to the Trust on the Settlement Date under the
Contract, reduced by the aggregate cash value of any fractional
units of such Reference Security allocable to such Participant;
(iv) DELIVERY OF OTHER REFERENCE PROPERTY. To distribute on
the Exchange Date to each Holder of STRYPES such Holder's pro rata
share of the total number or amount of each type of Reference Property
consisting of cash or property other than cash or a Reference Security
delivered to the Trust on the Settlement Date under the Contract
rounding down to the nearest integral number in respect of any such
property;
(v) DISTRIBUTION OF CASH IN RESPECT OF FRACTIONAL UNITS OR
INTERESTS. To distribute on the Exchange Date to each Holder of
STRYPES to which a fractional unit or interest of any particular type
of Reference Property is allocable as determined pursuant to clause
(i)(B) above such Holder's pro rata portion of the proceeds obtained
from the liquidation of all fractional units or interests of such type
of Reference Property pursuant to clause (ii) above (net of any
brokerage or related expenses); and
(vi) RECORD DATE. The distributions described in this
paragraph (f) shall be made to Holders of record as of the close of
business on the Business Day preceding the Exchange Date.
SECTION 2.8 MANNER OF SALES. (a) Upon receipt of any notice from the
Contracting Stockholder that it is exercising its option pursuant to Section 7.3
of the Contract to accelerate the settlement of its obligations thereunder
following the occurrence of a Tax Event, the Trustees on the second Business Day
immediately preceding the Tax Event Acceleration Date shall solicit cash bids,
for settlement on the Business Day immediately preceding the Tax Event
Acceleration Date, from three (or such fewer number of dealers as may be
providing such bids) of the United States government securities primary dealers
in The City of New York listed on Schedule 2.8(a) hereto selected by the
Trustees after consultation with the Contracting Stockholder (which may include
the Administrator or its affiliates or any affiliate of Merrill Lynch) for the
purchase by the quoting dealer of all U.S. Treasury Securities then held by the
Trust. If for any reason the Trustees are unable to obtain the required bid on
the second Business Day preceding the Tax Event Acceleration Date, the Trustees
shall attempt to obtain such bid daily until they are able to obtain the
required bid. The Trustees shall accept the highest bid received that will
result in the greatest amount of proceeds from the sale of the U.S. Treasury
Securities then held by the Trust and shall sell all such U.S. Treasury
Securities at that highest bid and the proceeds from such sale shall be held by
the Paying Agent in the Trust Account. The Trustees shall not be held liable in
any way for failure to obtain such required bid in accordance with this Section
2.8(a).
(b) Any sale of Trust property permitted under Section 8.3(c) hereof shall
be made through such executing brokers or to such dealers as the Trustees,
seeking best price and execution for the Trust, shall designate in writing to
the Paying Agent, taking into account
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such factors as price, commission, size of order, difficulty of execution and
brokerage skill required.
SECTION 2.9 LIMITATIONS ON TRUSTEES' POWERS. The Trustees, acting on
behalf of the Trust, are not permitted:
(a) to purchase or hold any securities or instruments except for the
U.S. Treasury Securities, the Contract, any Reference Security
received pursuant to the Contract, and the Temporary Investments
contemplated by Section 3.4 hereof;
(b) to dispose of the Contract prior to the Exchange Date;
(c) to issue any securities or instruments except for the STRYPES, or
to issue any STRYPES other than the STRYPES sold to the Sponsors
and the STRYPES to be sold pursuant to the Purchase Agreement and
until such STRYPES have been so purchased and paid for in full;
(d) to make short sales or purchases on margin;
(e) to write put or call options;
(f) to borrow money;
(g) to underwrite securities;
(h) to purchase or sell real estate, commodities or commodities
contracts;
(i) to purchase restricted securities;
(j) to make loans; or
(k) to take any action, or direct or permit the Administrator, the
Paying Agent or the Custodian to take any action, that would vary
the investment of the Holders within the meaning of Treasury
Regulation Section 301.7701-4(c), or otherwise take any action or
direct or permit any action to be taken that would or could cause
the Trust not to be a "grantor trust" under the Code.
ARTICLE III
ACCOUNTS AND PAYMENTS
SECTION 3.1 THE TRUST ACCOUNT. The Trustees shall, upon issuance of the
STRYPES, establish with the Paying Agent an account to be called the "Trust
Account". All moneys received by the Trustees in respect of the Contract, the
U.S. Treasury Securities
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and any Temporary Investments held pursuant to Section 3.4 hereof, all moneys
received from the sale of the STRYPES to the Sponsors, and any proceeds from the
sale of the STRYPES to the Underwriters after the purchase of the Contract and
the U.S. Treasury Securities shall be credited to the Trust Account.
SECTION 3.2 DISTRIBUTIONS TO HOLDERS On or shortly after each
Distribution Date the Trustees shall distribute to each Holder of record at the
close of business on the preceding Record Date, at the post office address of
the Holder appearing on the books of the Trust or Paying Agent or by any other
means mutually agreed upon by the Holder and the Trustees, an amount equal to
such Holder's pro rata share of the Quarterly Distribution computed as of the
close of business on such Distribution Date.
SECTION 3.3 SEGREGATION. All moneys and other assets deposited or
received by the Trustees hereunder shall be held by them in trust as part of the
Trust Estate until required to be disbursed or otherwise disposed of in
accordance with the provisions of this Trust Agreement, and the Trustees shall
handle such moneys and other assets in such manner as shall constitute the
segregation and holding in trust within the meaning of the Investment Company
Act.
SECTION 3.4 INVESTMENTS To the extent necessary to enable the Paying
Agent to make the next succeeding Quarterly Distribution, any moneys deposited
with or received by the Trustees in the Trust Account shall be invested as soon
as possible by the Paying Agent in Temporary Investments maturing no later than
the Business Day preceding the next following Distribution Date. Except as
otherwise specifically provided herein or in the Paying Agent Agreement, the
Paying Agent shall not have the power to sell, transfer or otherwise dispose of
any Temporary Investment prior to the maturity thereof, or to acquire additional
Temporary Investments. The Paying Agent shall hold any Temporary Investment to
its maturity and shall apply the proceeds thereof upon maturity to the payment
of the next succeeding Quarterly Distribution. All such Temporary Investments
shall be selected from time to time by the Trustees or pursuant to standing
instructions from the Trustees to the Administrator, and the Administrator
and/or Paying Agent shall have no liability to the Trust or any Holder or any
other Person with respect to any such Temporary Investment. Any interest or
other income received on any moneys in the Trust Account shall, upon receipt
thereof, be deposited into the Trust Account. Notwithstanding the foregoing,
not more than 5% of the assets of the Trust may be held at any time in the form
of cash and Temporary Investments, and the Trustees shall distribute cash, or
liquidate Temporary Investments and distribute the proceeds thereof, if, when
and to the extent needed to maintain compliance with the foregoing restriction.
ARTICLE IV
REDEMPTION
SECTION 4.1 REDEMPTION. The Trustees shall have no right or obligation
to redeem STRYPES.
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ARTICLE V
ISSUANCE OF CERTIFICATES;
REGISTRY; TRANSFER OF STRYPES
SECTION 5.1 FORM OF CERTIFICATE. Each Certificate evidencing STRYPES
shall be countersigned manually or in facsimile by the Managing Trustee and
executed manually by the Paying Agent in substantially the form of Exhibit A
hereto with the blanks appropriately filled in, shall be dated the date of
execution and delivery by the Paying Agent and shall represent a fractional
undivided interest in the Trust, the numerator of which fraction shall be the
number of STRYPES set forth on the face of such Certificate and the denominator
of which shall be the total number of STRYPES outstanding at that time. All
STRYPES shall be issued in registered form and shall be numbered serially.
Pending the preparation of definitive Certificates, the Trustees may execute and
the Paying Agent shall authenticate and deliver temporary Certificates (printed,
lithographed, typewritten or otherwise reproduced, in each case in form
satisfactory to the Paying Agent). Temporary Certificates shall be issuable as
registered Certificates substantially in the form of the definitive Certificates
but with such omissions, insertions and variations as may be appropriate for
temporary Certificates, all as may be determined by the Trustees with the
concurrence of the Paying Agent. Every temporary Certificate shall be executed
by the Managing Trustee and be authenticated by the Paying Agent upon the same
conditions and in substantially the same manner, and with like effect, as the
definitive Certificates. Without unreasonable delay the Managing Trustee shall
execute and shall furnish definitive Certificates and thereupon temporary
Certificates may be surrendered in exchange therefor without charge at each
office or agency of the Paying Agent and the Paying Agent shall authenticate and
deliver in exchange for such temporary Certificates definitive Certificates for
a like aggregate number of STRYPES. Until so exchanged, the temporary
Certificates shall be entitled to the same benefits hereunder as definitive
Certificates.
SECTION 5.2 TRANSFER OF STRYPES; ISSUANCE, TRANSFER AND INTERCHANGE OF
CERTIFICATES. STRYPES may be transferred by the Holder thereof by presentation
and surrender of properly endorsed Certificates at the office of the Paying
Agent, accompanied by such documents executed by the Holder or his authorized
attorney as the Paying Agent deems necessary to evidence the authority of the
person making the transfer. Certificates issued pursuant to this Trust
Agreement are interchangeable for one or more other Certificates evidencing an
equal aggregate number of STRYPES and all Certificates issued as may be
requested by the Holder and deemed appropriate by the Paying Agent shall be
issued in denominations of one STRYPES or any multiple thereof. The Paying
Agent may deem and treat the person in whose name any STRYPES shall be
registered upon the books of the Paying Agent as the owner of such STRYPES for
all purposes hereunder and the Paying Agent shall not be affected by any notice
to the contrary. The transfer books maintained by the Paying Agent for the
purposes of this Section 5.2 shall include the name and address of the record
owners of the STRYPES and shall be closed in connection with the dissolution of
the Trust pursuant to Section 8.3 hereof. A sum sufficient to cover any tax or
other governmental charge that may be imposed in connection with any such
transfer shall be paid to the Paying Agent by the Holder. A Holder may be
required to pay a fee for each new Certificate to be issued pursuant to the
preceding paragraph in such
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amount as may be specified by the Paying Agent and approved by the Trustees.
All Certificates cancelled pursuant to this Trust Agreement may be voided by the
Paying Agent in accordance with the usual practice of the Paying Agent or in
accordance with the instructions of the Trustees; provided, however, that the
Paying Agent shall not be required to destroy cancelled Certificates. The
Paying Agent may adopt other reasonable rules and regulations for the
registration, transfer and tender of STRYPES as it may, in its discretion, deem
necessary.
SECTION 5.3 REPLACEMENT OF CERTIFICATES In case any Certificate shall
become mutilated or be destroyed, stolen or lost, the Paying Agent shall execute
and deliver a new Certificate in exchange and substitution therefor upon the
Holder's furnishing the Paying Agent with proper identification and satisfactory
indemnity, complying with such other reasonable regulations and conditions as
the Paying Agent may prescribe and paying such expenses and charges, including
any bonding fee, as the Paying Agent may incur or reasonably impose; provided
that if the Trust has dissolved or is in the process of dissolving, the Paying
Agent, in lieu of issuing such new Certificate, may, upon the terms and
conditions set forth herein, make the distributions set forth in Section 8.3(c)
hereof. Any mutilated Certificate shall be duly surrendered and cancelled
before any duplicate Certificate shall be issued in exchange and substitution
therefor. Upon issuance of any duplicate Certificate pursuant to this Section
5.3, the original Certificate claimed to have been lost, stolen or destroyed
shall become null and void and of no effect, and any bona fide purchaser thereof
shall have only such rights as are afforded under Article 8 of the Uniform
Commercial Code to a Holder presenting a Certificate for transfer in the case of
an overissue.
SECTION 5.4 LIMITATION ON LIABILITY. Pursuant to Section 3803(a) of the
Delaware Business Trust Act, 12 Del. C. Section 3801, et seq., the Holders of
the STRYPES shall be entitled to the same limitation of personal liability
extended to stockholders of private corporations for profit organized under the
General Corporation Law of the State of Delaware.
SECTION 5.5 GENERAL PROVISIONS REGARDING THE STRYPES.
(A) The consideration received by the Trust for the issuance of the
STRYPES shall constitute a contribution to the capital of the Trust and shall
not constitute a loan to the Trust.
(B) Upon issuance of the STRYPES as provided in this Trust Agreement,
the STRYPES so issued shall be deemed to be validly issued, fully paid and
non-assessable.
(C) Every person, by virtue of having become a Holder in accordance
with the terms of this Trust Agreement, shall be deemed to have expressly
assented and agreed to the terms of, and shall be bound by, this Trust
Agreement.
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ARTICLE VI
EXECUTION OF THE CONTRACT
SECTION 6.1 EXECUTION OF THE CONTRACT. The Contract shall be
countersigned manually or in facsimile by the Managing Trustee and executed
manually by each of the Contracting Stockholder and the Collateral Agent and
shall be dated the date of execution and delivery by the Contracting
Stockholder.
ARTICLE VII
TRUSTEES
SECTION 7.1 TRUSTEES. The Trust shall have three Trustees who shall
initially be elected by the Initial Trustee. One Trustee shall be the Managing
Trustee and, as such, is authorized to execute documents and instruments on
behalf of the Trust. The Managing Trustee will be appointed by resolution of
the Trustees. Each Trustee shall serve until the next regular annual or special
meeting of Holders called for the purpose of electing Trustees and, then, until
such Trustee's successor is duly elected and qualified. Holders may not
cumulate their votes in the election of Trustees. Each Trustee shall not be
considered to have qualified for the office unless such Trustee shall agree to
be bound by the terms of this Trust Agreement and shall evidence his consent by
executing this Trust Agreement or a supplement hereto.
SECTION 7.2 VACANCIES. Any vacancy in the office of a Trustee may be
filled in compliance with Sections 10 and 16 of the Investment Company Act by
the vote, within 30 days, of the remaining Trustees; provided that if required
by Section 16 of the Investment Company Act, the Trustees shall forthwith cause
to be held as promptly as possible and in any event within 60 days (unless the
Commission by order shall extend such period) a meeting of Holders for the
purpose of electing Trustees in compliance with Sections 10 and 16 of the
Investment Company Act. Until a vacancy in the office of any Trustee is filled
as provided above, the remaining Trustees in office, regardless of their number,
shall have the powers granted to the Trustees and shall discharge all the duties
imposed upon the Trustees by this Trust Agreement. Election shall be by the
affirmative vote of Holders of a majority of the STRYPES entitled to vote
present in person or by proxy at a special meeting of Holders called for the
purpose of electing any Trustee. Each individual Trustee shall be at least 21
years of age and shall not be under any legal disability. No Trustee who is an
"interested person", as defined in the Investment Company Act, may assume office
if it would cause the composition of the Trustees of the Trust not to be in
compliance with the percentage limitations on interested persons in Section 10
of the Investment Company Act. Trustees need not be Holders. Notice of the
appointment or election of a successor Trustee shall be mailed promptly after
acceptance of such appointment by the successor Trustee to each Holder.
SECTION 7.3 POWERS. The Trust will be managed solely by the Trustees,
who will, subject to the provisions of Article II hereof, have complete and
exclusive control over the management, conduct and operation of the Trust's
business, and shall have the rights, powers and authority of a board of
directors of a corporation organized under Delaware law. The Trustees shall
have
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fiduciary responsibility for the safekeeping and use of all funds and assets of
the Trust and shall not employ, or permit another to employ, such funds or
assets in any manner except for the exclusive benefit of the Trust and except in
accordance with the terms of this Trust Agreement. Subject to the continuing
supervision of the Trustees and as permitted by applicable law, the functions of
the Trust shall be performed by the Custodian, the Paying Agent, the
Administrator and such other entities engaged to perform such functions as the
Trustees may determine, including, without limitation, any or all administrative
functions.
SECTION 7.4 MEETINGS. Meetings of the Trustees shall be held from time
to time upon the call of any Trustee on not less than 48 hours notice (which may
be waived by any or all of the Trustees in writing either before or after such
meeting or by attendance at the meeting unless the Trustee attends the meeting
for the express purpose of objecting to the transaction of any business on the
ground that the meeting has not been lawfully called or convened). The Trustees
shall act either by majority vote of the Trustees present at a meeting at which
at least a majority of the Trustees then in office are present or by a unanimous
written consent of the Trustees without a meeting. Except as otherwise required
under the Investment Company Act, all or any of the Trustees may participate in
a meeting of the Trustees by means of a conference telephone call or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to such
communications equipment shall constitute presence in person at such meeting.
SECTION 7.5 RESIGNATION AND REMOVAL. Any Trustee may resign and be
discharged of the trust created by the Trust Agreement by executing an
instrument in writing resigning as Trustee, filing the same with the
Administrator and sending notice thereof to the remaining Trustees, and such
resignation shall become effective immediately unless otherwise specified
therein. Any Trustee may be removed in the event of incapacity by vote of the
remaining Trustees and for any reason by written declaration or vote of the
Holders of more than 66 2/3% of the outstanding STRYPES, notice of which vote
shall be given to the remaining Trustees and the Administrator. The
resignation, removal or failure to reelect any Trustee shall not cause the
termination of the Trust.
SECTION 7.6 LIABILITY. The Trustees shall not be liable to the Trust or
any Holder for any action taken or for refraining from taking any action except
in the case of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties of their office. Specifically, without limitation, the
Trustees shall not be responsible for or in respect of the recitals herein or
the validity or sufficiency of this Trust Agreement or for the due execution
hereof by any other Person, or for or in respect of the validity or sufficiency
of STRYPES or Certificates representing STRYPES and shall in no event assume or
incur any liability, duty or obligation to any Holder or to any other Person,
other than as expressly provided for herein. The Trustees may employ agents,
attorneys, administrators, accountants and auditors, and shall not be answerable
for the default or misconduct of any such Persons if such Persons shall have
been selected with reasonable care. Action in good faith may include action
taken in good faith in accordance with an opinion of counsel. In no event
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shall any Trustee be personally liable for any expenses with respect to the
Trust. Each Trustee shall be indemnified by the Trust with respect to any
claim, liability or loss arising out of or in connection with such Trustee's
acting as Trustee of the Trust and with respect to all reasonable costs and
expenses (including the reasonable costs of investigation, preparation for and
defense of legal and/or administrative proceedings relating to a claim against
such Trustee and reasonable attorneys' fees and disbursements) incurred in
connection with any such claim, liability or loss, except in the case of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties of
his office. Notwithstanding the foregoing, it is understood that the Trust
shall not, in respect of the legal expenses of any Trustee in connection with
any proceeding or related proceedings in the same jurisdiction, be liable for
the fees and expenses of more than one separate firm (in addition to any local
counsel).
SECTION 7.7 COMPENSATION. Each Trustee, other than a Trustee who is a
director, officer or employee of the Sponsors, any Underwriter, or the
Administrator or any affiliate thereof, shall receive a one-time, up-front fee
of $10,800, in respect of its annual fee and anticipated out-of-pocket expenses.
In addition, the Managing Trustee shall receive an additional one-time, up-front
fee of $3,600 for serving in such capacity. The Trustees will not receive any
pension or retirement benefits. In the event of the resignation or removal of a
Trustee, such Trustee shall remit to the Trust the portion of its fee ratable
for the period from the day of such resignation or removal through the Exchange
Date.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.1 MEETINGS OF HOLDERS. The Trustees shall not hold annual
or regular meetings of Holders except as set forth herein. A special meeting
may be called at any time by the Trustees or upon petition of Holders of not
less than 51% of the STRYPES outstanding (unless substantially the same
matter was voted on during the preceding 12 months), and shall be called as
required by the Investment Company Act and the rules and regulations
thereunder, including, without limitation, when requested by the Holders of
not less than 10% of the STRYPES outstanding for the purposes of voting upon
the question of the removal of any Trustee or Trustees. The Trustees shall
establish, and notify the Holders in writing of, the record date for each
such meeting which shall be not less than 10 nor more than 50 days before the
meeting date. Holders at the close of business on the record date will be
entitled to vote at the meeting. The Administrator shall, as soon as possible
after any such record date (or prior to such record date if appropriate),
mail by first class mail to each Holder a notice of meeting and a proxy
statement and form of proxy in the form approved by the Trustees and
complying with the Investment Company Act and the rules and regulations
thereunder. Except as otherwise specified herein, in the Prospectus
(including, without limitation, changes to the Trust's fundamental policies
set forth in the Prospectus) or in any provision of the Investment Company
Act and the rules and regulations thereunder, any action may be taken by vote
of Holders of a majority of the STRYPES outstanding present in person or by
proxy if Holders of a majority of STRYPES outstanding on the record date are
so represented. Each STRYPES shall have one vote and may be voted in person
or by duly executed proxy. Any proxy may be revoked by notice in writing, by
a
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subsequently dated proxy or by voting in person at the meeting, and no proxy
shall be valid after eleven months following the date of its execution.
SECTION 8.2 BOOKS AND RECORDS; REPORTS. (a) The Trustees shall keep a
certified copy or duplicate original of this Trust Agreement on file at the
office of the Trust and the office of the Administrator available for inspection
at all reasonable times during its usual business hours by any Holder. The
Trustees shall keep proper books of record and account for all the transactions
under this Trust Agreement at the office of the Trust and the office of the
Administrator, and such books and records shall be open to inspection by any
Holder at all reasonable times during usual business hours. The Trustees shall
retain all books and records in compliance with Section 31 of the Investment
Company Act and the rules and regulations thereunder.
(b) With each payment to Holders the Paying Agent shall set forth, either
in the instruments by means of which payment is made or in a separate statement,
the amount being paid from the Trust Account expressed as a dollar amount per
STRYPES and the other information required under Section 19 of the Investment
Company Act and the rules and regulations thereunder. The Trustees shall
prepare and file or distribute reports as required by Section 30 of the
Investment Company Act and the rules and regulations thereunder. The Trustees
shall prepare and file such reports as may from time to time be required to be
filed or distributed to Holders under any applicable state or Federal statute or
rule or regulation thereunder, and shall file such tax returns as may from time
to time be required under any applicable state or Federal statute or rule or
regulation thereunder. One of the Trustees shall be designated by resolution of
the Trustees to make the filings and give the notices required by Rule 17g-1
under the Investment Company Act.
(c) In calculating the net asset value of the Trust as required by the
Investment Company Act, (i) the U.S. Treasury Securities will be valued at the
mean between the last current bid and asked prices or, if quotations are not
available, as determined in good faith by the Trustees, (ii) short-term
investments having a maturity of 60 days or less will be valued at cost with
accrued interest or discount earned included in interest receivable and (iii)
the Contract will be valued at the mean of the bid prices received by the
Administrator from at least three independent broker-dealer firms unaffiliated
with the Trust to be named by the Trustees who are in the business of making
bids on financial instruments similar to the Contract and with terms comparable
thereto.
SECTION 8.3 DISSOLUTION. (a) The Trust created hereby shall dissolve,
and its affairs be wound up, upon the earliest of (i) the date 90 days after the
execution of this Trust Agreement if (x) the STRYPES have not theretofore been
issued or (y) the net worth of the Trust is not at least $100,000 at such time,
(ii) the date five Business Days after the Closing Date, and (iii) the date
which is 21 years less 91 days after the death of the last survivor of all of
the descendants of Joseph P. Kennedy living on the date hereof. The Trust is
irrevocable, the Sponsors have no right to withdraw any assets constituting a
portion of the Trust Estate, and the dissolution of the Sponsors shall not
operate to dissolve the Trust. The death or incapacity of any Holder shall not
operate to terminate this Trust Agreement, nor entitle his legal representatives
or heirs to claim an accounting or to take any action or
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proceeding in any court for a partition or winding up of the Trust, and shall
not otherwise affect the rights, obligations and liabilities of the parties
hereto.
(b) Written notice of any dissolution shall be sent to Holders specifying
the record date for any distribution to Holders, the amount distributable
(including, if applicable, the number or amount of each type of Reference
Security and other property constituting part of the Reference Property) with
respect to each STRYPES and the time of dissolution as determined by the
Trustees, upon which the books maintained by the Paying Agent pursuant to
Section 5.2 hereof shall be closed. Any such notice shall be provided by mail,
sent to each Holder at such Holder's address as it appears on the books of the
Paying Agent, first class, postage prepaid not less than __ days prior to the
date on which such distribution is to be made. At or prior to the mailing of
such notice, the Administrator shall publish a public announcement in THE WALL
STREET JOURNAL or another daily newspaper of national circulation.
(c) Subject to any applicable provisions of law, for purposes of
dissolution under Sections 8.3(a)(ii), and (iii) hereof, within five Business
Days after such dissolution, the Trustees shall effect the sale of any
remaining property of the Trust (other than any Reference Property received
pursuant to the Contract and cash), and the Paying Agent shall distribute pro
rata as soon as practicable thereafter to each Holder, upon surrender for
cancellation of its Certificates, its interest in the Trust Estate. Together
with the distribution to the Holders, the Trustees shall furnish the Holders
with a final statement as of the date of the distribution of the amount
distributable with respect to each STRYPES.
(d) Notwithstanding anything to the contrary contained herein, no
fractional units of any Reference Security, or fractional interests of any
Reference Property other than cash or a Reference Security, will be distributed
to Holders pursuant to Section 8.3(c) hereof upon dissolution of the Trust. All
fractional units or interests to which Holders would otherwise be entitled upon
dissolution of the Trust will be aggregated and liquidated by the Trustees and,
in lieu of the fractional unit or interest to which a Holder would otherwise
have been entitled in respect of the total number of STRYPES held by such
Holder, such Holder will receive its PRO RATA portion of the proceeds from such
liquidation (net of any brokerage or related expenses).
SECTION 8.4 AMENDMENT AND WAIVER. (a) This Trust Agreement may be
amended from time to time by the Trustees for any purpose prior to the issuance
and sale to the Underwriters of the STRYPES and thereafter without the consent
of any of the Holders (i) to cure any ambiguity or to correct or supplement any
provision contained herein or therein which may be defective or inconsistent
with any other provision contained herein or therein; (ii) to change any
provision hereof or thereof as may be required by applicable law or the
Commission or any successor governmental agency exercising similar authority; or
(iii) to make such other provisions in regard to matters or questions arising
hereunder or thereunder as shall not materially adversely affect the interests
of the Holders (as determined in good faith by the Trustees, who may rely on an
opinion of counsel).
(b) This Trust Agreement may also be amended from time to time by the
Trustees (or the performance of any of the provisions of the Trust Agreement may
be waived) with
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the consent by the required vote of the Holders in accordance with Section 8.1
hereof; provided that this Trust Agreement may not be amended (i) without the
consent by vote of the Holders of all STRYPES then outstanding, so as to
increase the number of STRYPES issuable hereunder above the number of STRYPES
specified in Section 2.5(c) hereof or such lesser number as may be outstanding
at any time during the term of this Trust Agreement, (ii) to reduce the interest
in the Trust represented by STRYPES without the consent of the Holders of such
STRYPES, (iii) if such amendment is prohibited by the Investment Company Act or
other applicable law or (iv) without the consent by vote of the Holders of all
STRYPES then outstanding, if such amendment would effect a change in Section
2.4 or 2.9 hereof in the voting requirements set forth in Section 8.1 hereof
or this Section 8.4.
(c) Any of the agreements referred to in Section 2.5(a) hereof may be
amended from time to time by the Trustees and the other parties thereto for
any purpose without the consent of any of the Holders.
(d) Promptly after the execution of any amendment, the Trustees shall
furnish written notification of the substance of such amendment to each Holder.
(e) Notwithstanding subsections (a) and (b) of this Section 8.4, no
amendment hereof shall permit the Trust, the Trustees, the Administrator, the
Paying Agent or the Custodian to take any action or direct or permit any Person
to take any action that (i) would vary the investment of Holders within the
meaning of Treasury Regulation Section 301.7701-4(c), or (ii) would or could
cause the Trust, or direct or permit any action to be taken that would or could
cause the Trust, not to be a "grantor trust" under the Code.
SECTION 8.5 ACCOUNTANTS (a) The Trustees shall, in accordance with
Section 30 of the Investment Company Act, file annually with the Commission such
information, documents and reports as investment companies having securities
registered on a national securities exchange are required to file annually
pursuant to Section 13(a) of the Exchange Act and the rules and regulations
issued thereunder. The Trustees shall transmit to the Holders, at least
semi-annually, the reports required by Section 30(d) of the Investment Company
Act and the rules and regulations thereunder, including, without limitation, a
balance sheet accompanied by a statement of the aggregate value of investments
on the date of such balance sheet, a list showing the amounts and values of such
investments owned on the date of such balance sheet, and a statement of income
for the period covered by the report. Financial statements contained in such
annual reports shall be accompanied by a certificate of independent public
accounts based upon an audit not less in scope or procedures than that which
independent public accountants would ordinarily make for the purpose of
complying with generally accepted auditing standards and shall contain such
information as the Commission may prescribe. Each such report shall state that
such independent public accountants have verified investments owned, either by
actual examination or by receipt of a certificate from the Custodian.
(b) The independent public accountants referred to in subsection (a) above
shall be selected at a meeting held within 30 days before or after the beginning
of the fiscal year by
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the vote, cast in person, of a majority of the Trustees who are not "interested
persons" as defined in the Investment Company Act and such selection shall be
submitted for ratification at the first meeting of Holders to be held as set
forth in Section 8.1 hereof, and thereafter as required by the Investment
Company Act and the rules and regulations thereunder. The employment of any
independent public accountant for the Trust shall be conditioned upon the right
of the Holders by a vote of the lesser of (i) 67% or more of the STRYPES present
at a special meeting of Holders, if Holders of more than 50% of STRYPES
outstanding are present or represented by proxy at such meeting or (ii) more
than 50% of the STRYPES outstanding to terminate such employment at any time
without penalty.
(c) The foregoing provisions of this Section 8.5 are in addition to any
applicable requirements of the Investment Company Act and the rules and
regulations thereunder.
SECTION 8.6 NATURE OF HOLDER'S INTEREST. Each Holder holds at any given
time a beneficial interest in the Trust Estate, but does not have any right to
take title or possession of any portion of the Trust Estate. Each Holder
expressly waives any right he may have under any rule of law, or the provisions
of any statute, or otherwise, to require the Trustees at any time to account, in
any manner other than as expressly provided in this Trust Agreement, for the
Reference Property, the Contract, the U.S. Treasury Securities or other assets
or moneys from time to time received, held and applied by the Trustees
hereunder. No Holder shall have any right except as provided herein to control
or determine the operation and management of the Trust or the obligations of the
parties hereto. Nothing set forth herein or in the Certificates representing
STRYPES shall be construed to constitute the Holders from time to time as
partners or members of an association.
SECTION 8.7 DELAWARE LAW TO GOVERN. This Trust Agreement is executed and
delivered in the State of Delaware, and all laws or rules of construction of the
State of Delaware, without regard to principles of conflict of laws, shall
govern the rights of the parties hereto and the Holders and the construction,
validity and effect of the provisions hereof.
SECTION 8.8 NOTICES Any notice, demand, direction or instruction to be
given to the Sponsors hereunder shall be in writing and shall be duly given if
mailed or delivered to ML IBK Positions, Inc. at World Financial Center, North
Tower, New York, New York 10281 and to Bear, Stearns & Co. Inc. at 245 Park
Avenue, New York, New York 10167, or at such other address as shall be specified
by the Sponsors to the other parties hereto in writing. Any notice, demand,
direction or instruction to be given to the Trust and the Trustees hereunder
shall be in writing and shall be duly given if mailed or delivered to the Trust
c/o The Chase Manhattan Bank at 450 West 33rd Street, 15th Floor, New York, New
York 10001-2697, and to each Trustee at such Trustee's address set forth beneath
its signature below, or such other address as shall be specified to the other
parties hereto by such party in writing. Any notice to be given to a Holder
shall be duly given if mailed, first class postage prepaid, or by such other
substantially equivalent means as the Trustees may deem appropriate, or
delivered to such Holder at the address of such Holder appearing on the registry
of the Paying Agent.
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SECTION 8.9 SEVERABILITY. If any one or more of the covenants,
agreements, provisions or terms of this Trust Agreement shall be for any reason
whatsoever held invalid, then such covenants, agreements, provisions or terms
shall be deemed severable from the remaining covenants, agreements, provisions
and terms of this Trust Agreement and shall in no way affect the validity or
enforceability of the other provisions of this Trust Agreement or of the
Certificates, or the rights of the Holders thereof.
SECTION 8.10 COUNTERPARTS This Trust Agreement may be executed in
several counterparts, each of which shall be an original and all of which shall
constitute but one and the same instrument.
SECTION 8.11 SUCCESSORS AND ASSIGNS. Whenever in this Trust Agreement
any of the parties hereto is named or referred to, the successors and assigns of
such party shall be deemed to be included, and all covenants and agreements in
this Trust Agreement by the Sponsors and Trustees shall bind and inure to the
benefit of their respective successors and assigns, whether or not so expressed.
24
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Trust Agreement to
be duly executed.
ML IBK POSITIONS, INC.
By___________________________
Name:
Title:
BEAR, STEARNS & CO. INC.
By___________________________
Name:
Title:
TRUSTEES:
___________________________________
Name: Donald J. Puglisi
Address: 850 Library Avenue, Suite 204
Newark, Delaware 19715
___________________________________
Name: William R. Latham III
Address: 850 Library Avenue, Suite 204
Newark, Delaware 19715
___________________________________
Name: James B. O'Neill
Address: 850 Library Avenue, Suite 204
Newark, Delaware 19715
25
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Schedule I
U.S. TREASURY SECURITIES
All terms specified are for stripped principal or interest components of
U.S. Treasury debt obligations.
Maturity Par Amount CUSIP No.
- ------------ ------------- ------------------------
26
<PAGE>
EXHIBIT A
CONTIFINANCIAL STRYPES TRUST
NO. ____________________ STRYPES(SM) CUSIP NO. _______
THIS CERTIFIES THAT ________ IS THE RECORD OWNER OF _______ FULLY PAID AND
NON-ASSESSABLE STRYPES, PAR VALUE $.10 PER STRYPES, OF CONTIFINANCIAL STRYPES
TRUST CONSTITUTING FRACTIONAL UNDIVIDED BENEFICIAL INTERESTS IN CONTIFINANCIAL
STRYPES TRUST, A TRUST CREATED UNDER THE LAWS OF THE STATE OF DELAWARE PURSUANT
TO AN AMENDED AND RESTATED TRUST AGREEMENT (THE "TRUST AGREEMENT") BETWEEN ML
IBK POSITIONS, INC., BEAR, STEARNS & CO. INC. AND THE TRUSTEES NAMED THEREIN AND
THE HOLDERS (AS DEFINED THEREIN). THIS CERTIFICATE IS ISSUED UNDER AND IS
SUBJECT TO THE TERMS, PROVISIONS AND CONDITIONS OF THE TRUST AGREEMENT, AS THE
SAME MAY BE AMENDED FROM TIME TO TIME, TO WHICH THE HOLDER OF THIS CERTIFICATE
BY VIRTUE OF THE ACCEPTANCE HEREOF ASSENTS AND IS BOUND, A COPY OF WHICH TRUST
AGREEMENT IS AVAILABLE AT THE OFFICE OF THE TRUST'S PAYING AGENT, CHASEMELLON
SHAREHOLDER SERVICES, L.L.C., 450 WEST 33RD STREET, 15TH FLOOR, NEW YORK, NEW
YORK 10001-2697. THIS CERTIFICATE IS TRANSFERABLE AND INTERCHANGEABLE BY THE
REGISTERED OWNER IN PERSON OR BY HIS DULY AUTHORIZED ATTORNEY AT THE OFFICE OF
THE PAYING AGENT UPON SURRENDER OF THIS CERTIFICATE PROPERLY ENDORSED OR
ACCOMPANIED BY A WRITTEN INSTRUMENT OF TRANSFER AND ANY OTHER DOCUMENTS THAT THE
PAYING AGENT MAY REQUIRE FOR TRANSFER, IN FORM SATISFACTORY TO THE PAYING AGENT
AND PAYMENT OF THE FEES AND EXPENSES PROVIDED IN THE TRUST AGREEMENT.
THIS CERTIFICATE IS NOT VALID UNLESS MANUALLY COUNTERSIGNED BY THE PAYING
AGENT.
WITNESS THE FACSIMILE SIGNATURE OF THE MANAGING TRUSTEE.
DATED:
CONTIFINANCIAL STRYPES TRUST
By______________________________
Donald J. Puglisi
Managing Trustee
COUNTERSIGNED:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
as Paying Agent
By ______________________________
Authorized Signature
______________________________
(SM) Service Mark of Merrill Lynch & Co., Inc.
A-1
<PAGE>
THIS CERTIFICATE IS ISSUED UNDER AND IS SUBJECT TO THE TERMS, PROVISIONS AND
CONDITIONS OF THE AMENDED AND RESTATED TRUST AGREEMENT BETWEEN ML IBK POSITIONS,
INC., BEAR, STEARNS & CO. INC. AND THE TRUSTEES NAMED THEREIN AND THE HOLDERS
(AS DEFINED THEREIN) TO WHICH THE HOLDER OF THIS CERTIFICATE BY VIRTUE OF THE
ACCEPTANCE HEREOF ASSENTS AND IS BOUND.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM--as tenants in common UNIF GIFT MIN ACT--___Custodian___
TEN ENT--as tenants by the entireties (Cust) (Minor)
JT TEN-- as joint tenants with right under Uniform Gifts to
of survivorship and not as Minors Act _________
tenants in common (State)
Additional abbreviations also may be used though not in the above list.
For value received, _______________________ hereby sell, assign and transfer
unto
Please insert social securities or
other identifying number of assignee
- --------------------------------
- --------------------------------
(Please Print or Typewrite Name and Address, Including Zip Code, of Assignee)
_________ STRYPES of fractional undivided beneficial interest represented by
the within Certificate, and do hereby irrevocably constitute and appoint
_________ Attorney to transfer the said STRYPES on the books of the within-named
Trust with full power of substitution in the premises.
Dated: ______________________
_________________________________
NOTICE: The Signature to this assignment must correspond with the name as
written upon the face of the Certificate in every particular,
without alteration or enlargement or any change whatever.
Signature Guaranteed:_________________________________
The Signature(s) should be guaranteed by an eligible guarantor
institution (banks, stockbrokers, savings and loan associations
and credit unions with membership in an approved signature
guarantee medallion program), pursuant to S.E.C. Rule 17Ad-15.
<PAGE>
EXHIBIT (a)(4)
RESTATED
CERTIFICATE OF TRUST OF XYZ STRYPES TRUST
This Restated Certificate of Trust of XYZ STRYPES Trust (the "Trust"),
dated as of February 14, 1997, is being duly executed and filed by the
undersigned Trustees of the Trust to amend and restate the original Certificate
of Trust of XYZ STRYPES Trust which was filed on March 14, 1996, with the
Secretary of State of the State of Delaware under the Delaware Business Trust
Act (12 Del. C. Section 3801, et seq.).
1. NAME. The name of the business trust is ContiFinancial STRYPES
Trust.
2. REGISTERED OFFICE; REGISTERED AGENT. The business address of the
registered office of the Trust in the State of Delaware is One Rodney Square,
10th Floor, Tenth and King Streets in the City of Wilmington, County of New
Castle, 19801. The name of the Trust's registered agent at such address is RL&F
Service Corp.
3. EFFECTIVE DATE. This Certificate of Trust shall be effective upon the
date and time of filing.
IN WITNESS WHEREOF, the undersigned trustees of the Trust have executed
this Restated Certificate of Trust as of the date first above-written.
By: /s/ Donald J. Puglisi
----------------------------------
Donald J. Puglisi, as Managing Trustee
By: /s/ William R. Latham III
----------------------------------
William R. Latham III, as Trustee
By: /s/ James B. O'Neill
----------------------------------
James B. O'Neill, as Trustee
<PAGE>
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
CONTIFINANCIAL STRYPES TRUST
(a Delaware business trust)
PURCHASE AGREEMENT
Dated: __________ __, 1997
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
SECTION 1. Representations and Warranties.................................................... 4
(a) Representations and Warranties by the Trust....................................... 4
(i) Compliance with Registration Requirements.................................... 4
(ii) Independent Accountants............................................. 5
(iii) Financial Statement................................................. 5
(iv) No Material Adverse Change in Business.............................. 5
(v) Good Standing of the Trust; No Subsidiaries......................... 5
(vi) Registration Under the 1940 Act..................................... 6
(vii) Outstanding STRYPES................................................. 6
(viii) Authorization of Agreement.......................................... 6
(ix) Authorization and Description of the Securities..................... 6
(x) Authorization of Fundamental Agreements............................. 6
(xi) Compliance with Acts................................................ 7
(xii) Description of Trust Agreement and Fundamental
Agreements.......................................................... 7
(xiii) Absence of Defaults and Conflicts................................... 7
(xiv) Absence of Proceedings.............................................. 8
(xv) No Investment Restrictions, etc..................................... 8
(xvi) Exhibits............................................................ 8
(xvii) Absence of Further Requirements..................................... 8
(xviii) Title to Property................................................... 8
(b) Representations and Warranties by Continental Grain............................... 9
(i) Authority........................................................... 9
(ii) Delivery of ContiFinancial Common Stock............................. 9
(iii) Authorization of Agreement.......................................... 9
(iv) Authorization of the Forward Purchase Contract and
the Security and Pledge Agreement................................... 9
(v) Absence of Defaults and Conflicts................................... 10
(vi) Absence of Further Requirements..................................... 10
(vii) Trust Registration Statement and Prospectus......................... 11
(viii) ContiFinancial Registration Statement and
Prospectus.......................................................... 11
(ix) Security and Pledge Agreement....................................... 12
(c) Officer's Certificates............................................................ 12
SECTION 2. Sale and Delivery to Underwriters; Closing........................................ 12
(a) Initial Securities................................................................ 12
(b) Option Securities................................................................. 12
(c) Payment........................................................................... 13
(d) Denominations; Registration....................................................... 13
SECTION 3. Covenants......................................................................... 13
(a) Covenants of the Trust............................................................ 13
(i) Compliance with Securities Regulations and
Commission Requests................................................. 13
i
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(ii) Filing of Amendments................................................ 14
(iii) Delivery of Trust Registration Statements........................... 14
(iv) Delivery of Trust Prospectuses...................................... 14
(v) Continued Compliance with Securities Laws........................... 15
(vi) Blue Sky Qualifications............................................. 15
(vii) Rule 158............................................................ 16
(viii) Use of Proceeds..................................................... 16
(ix) Listing............................................................. 16
(x) Reporting Requirements.............................................. 16
(b) Covenants of Continental Grain.................................................... 16
(i) Restriction on Sale of Securities................................... 16
(ii) Purpose Statement................................................... 16
SECTION 4. Payment of Expenses............................................................... 16
(a) Expenses Payable by Continental Grain............................................. 16
(b) Termination of Agreement.......................................................... 17
(c) Allocation of Expenses............................................................ 17
SECTION 5. Conditions........................................................................ 17
(a) Conditions of Underwriters' Obligations........................................... 17
(i) Effectiveness of Trust Registration Statement....................... 17
(ii) Effectiveness of ContiFinancial Registration
Statement........................................................... 18
(iii) Opinion of Counsel for Underwriters and Trust....................... 18
(iv) Opinion of Special Delaware Counsel for the
Trust............................................................... 18
(v) Opinions of Counsel for ContiFinancial.............................. 18
(vi) Opinions of Counsel for Continental Grain........................... 18
(vii) Managing Trustee's Certificate...................................... 19
(viii) ContiFinancial Officers' Certificate................................ 19
(ix) Continental Grain Officers' Certificate............................. 19
(x) ContiFinancial Accountant's Comfort Letter.......................... 20
(xi) ContiFinancial Accountant's Bring-down Comfort
Letter.............................................................. 20
(xii) Approval of Listing................................................. 20
(xiii) No Objection........................................................ 20
(xiv) Lock-up Agreements.................................................. 20
(xv) Fundamental Agreements.............................................. 20
(xvi) Conditions to Purchase of Option Securities......................... 20
(xvii) Additional Documents................................................ 20
(b) Termination of Agreement.......................................................... 22
SECTION 6. Indemnification................................................................... 22
(a) Indemnification of the Underwriters and the Trust by
Continental Grain................................................................. 22
(b) Indemnification of the Trust and Continental Grain................................ 24
(c) Actions against Parties; Notification............................................. 24
(d) Settlement without Consent if Failure to Reimburse................................ 25
SECTION 7. Contribution...................................................................... 25
ii
<PAGE>
SECTION 8. Representations, Warranties and Agreements to Survive
Delivery.......................................................................... 26
SECTION 9. Termination of Agreement.......................................................... 27
(a) Termination; General.............................................................. 27
(b) Liabilities....................................................................... 27
SECTION 10. Default by One or More of the Underwriters........................................ 27
SECTION 11. Notices........................................................................... 28
SECTION 12. Parties........................................................................... 28
SECTION 13. GOVERNING LAW AND TIME............................................................ 28
SECTION 14. Effect of Headings................................................................ 29
SCHEDULE A List of Underwriters..........................................................Sch A-1
SCHEDULE B Price of STRYPES..............................................................Sch B-1
SCHEDULE C List of persons and entities
subject to lock-up............................................................Sch C-1
EXHIBIT A Form of Lock-up Letter............................................................A-1
</TABLE>
iii
<PAGE>
CONTIFINANCIAL STRYPES Trust
(a Delaware business trust)
STRYPES(SM)
Exchangeable for Shares of Common Stock of ContiFinancial Corporation
PURCHASE AGREEMENT
_________ __, 1997
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Bear, Stearns & Co. Inc.
as Representatives of the several Underwriters
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Ladies and Gentlemen:
ContiFinancial STRYPES Trust (such trust and the trustees thereof
acting in their capacities as such being referred to herein as the "Trust"), a
business trust organized pursuant to the Business Trust Act (the "Delaware Act")
of the State of Delaware (Chapter 38, Title 12, of the Delaware Code, 12 Del. C.
(Sections 3801 et seq.)), and Continental Grain Company, a Delaware corporation
("Continental Grain"), confirm their respective agreements with Merrill Lynch &
Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), Bear,
Stearns & Co. Inc. and each of the other Underwriters named in Schedule A hereto
(collectively, the "Underwriters", which term shall also include any underwriter
substituted as provided in Section 10 hereof), for whom Merrill Lynch and Bear,
Stearns & Co. Inc. are acting as representatives (in such capacity, the
"Representatives"), with respect to (i) the issue and sale by the Trust and the
purchase by the Underwriters, acting severally and not jointly, of the
respective numbers of the Trust's STRYPESSM (each, a "STRYPES") set forth in
Schedule A
- --------
SM Service mark of Merrill Lynch & Co., Inc.
1
<PAGE>
hereto, and (ii) the grant by the Trust to the Underwriters, acting severally
and not jointly, of the option described in Section 2(b) hereof to purchase all
or any part of [420,000] additional STRYPES to cover over-allotments, if any.
The aforesaid 2,800,000 STRYPES (the "Initial Securities") to be purchased by
the Underwriters pursuant to this Agreement and all or any part of the [420,000]
STRYPES subject to the option described in Section 2(b) hereof (the "Option
Securities") are hereinafter called, collectively, the "Securities." The
Securities are to be issued pursuant to an Amended and Restated Trust Agreement,
dated as of March 26, 1997, among the trustees of the Trust (the "Trustees") and
ML IBK Positions, Inc. and Bear, Stearns & Co. Inc., as Sponsors (the "Trust
Agreement").
The STRYPES will be exchanged for the Reference Property (as defined in
the Trust Agreement) or, in certain circumstances, cash with an equal value,
upon the conclusion of the term of the Trust on May 15, 2000 (the "Exchange
Date"). The Trust, ContiFinancial Corporation, a Delaware corporation
("ContiFinancial"), and the Underwriters are concurrently entering into an
agreement, dated the date hereof (the "Registration Agreement"), relating to the
registration of shares of common stock, par value $.01 per share (the
"ContiFinancial Common Stock"), of ContiFinancial deliverable upon exchange of
the STRYPES.
The Trust and Continental Grain understand that the Underwriters
propose to make a public offering of the Securities as soon as the
Representatives deem advisable after this Agreement has been executed and
delivered.
The Trust has filed with the Securities and Exchange Commission (the
"Commission") (i) a notification on Form N-8A (the "Notification") of
registration of the Trust as an investment company; and (ii) a registration
statement on Form N-2 (No. 333-1787 and 811-7565) for the registration of the
Securities under the Securities Act of 1933, as amended (the "1933 Act"), and
Pre-Effective Amendments No. 1, No. 2 and No. 3 thereto, including a preliminary
prospectus relating to the offering of the Securities. Promptly after execution
and delivery of this Agreement, the Trust will either (i) prepare and file a
prospectus in accordance with the provisions of Rule 430A ("Rule 430A") of the
rules and regulations of the Commission under the 1933 Act (the "1933 Act
Regulations") and paragraph (h) of Rule 497 ("Rule 497(h)") of the 1933 Act
Regulations or (ii) if the Trust has elected to rely upon Rule 434 ("Rule 434")
of the 1933 Act Regulations, prepare and file a term sheet (a "Trust Term
Sheet") in accordance with the provisions of Rule 434 and Rule 497(h). The
information included in such prospectus or in such Trust Term Sheet, as the case
may be, that was omitted from such registration statement (as so amended) at the
time it became effective but that is deemed to be part of such registration
statement (as so amended) at the time it became effective (i) pursuant to
paragraph (b) of Rule 430A is referred to as "Rule 430A Information" or (ii)
pursuant to paragraph (d) of Rule 434 is referred to as "Rule 434 Information."
Any prospectus relating to the offering of the Securities used before such
registration statement (as so amended) became effective, and any prospectus
relating to the offering of the Securities that omitted, as applicable, the Rule
430A Information or the Rule 434 Information, that was used after such
effectiveness and prior to the execution and delivery of this Agreement, in each
case excluding any ContiFinancial preliminary prospectus (as defined below)
attached thereto, is herein called a "Trust preliminary prospectus." Such
registration statement (as so amended), including the exhibits thereto and the
schedules thereto, if any, at the time it became effective and including the
Rule 430A Information and the
2
<PAGE>
Rule 434 Information, as applicable, is herein called the "Trust Registration
Statement." Any registration statement filed by the Trust pursuant to Rule
462(b) of the 1933 Act Regulations is herein referred to as the "Trust Rule
462(b) Registration Statement," and after such filing the term "Trust
Registration Statement" shall include the Trust Rule 462(b) Registration
Statement. The final prospectus relating to the offering of the Securities,
excluding any ContiFinancial Prospectus (as defined below) attached thereto, in
the form first furnished to the Underwriters for use in connection with the
offering of the Securities is referred to herein as the "Trust Prospectus." If
Rule 434 is relied on, the term "Trust Prospectus" shall refer to the Trust
preliminary prospectus dated March 11, 1997 together with the Trust Term Sheet
and all references in this Agreement to the date of the Trust Prospectus shall
mean the date of the Trust Term Sheet. For purposes of this Agreement, all
references to the Trust Registration Statement, any Trust preliminary
prospectus, the Trust Prospectus or any Trust Term Sheet or any amendment or
supplement to any of the foregoing shall be deemed (i) to include the copy filed
with the Commission pursuant to its Electronic Data Gathering, Analysis and
Retrieval system ("EDGAR") and (ii) to exclude the Trust premilinary prospectus
dated , 1996.
ContiFinancial has filed with the Commission a registration statement
on Form S-3 (No. 333-21839) covering the registration of the shares of
ContiFinancial Common Stock deliverable by the Trust on the Exchange Date under
the 1933 Act, including the related preliminary prospectus or prospectuses. Each
prospectus used before such registration statement became effective is herein
called a "ContiFinancial preliminary prospectus." Such registration statement,
including the exhibits thereto, the schedules thereto, if any, and the documents
incorporated by reference therein pursuant to Item 12 of Form S-3 under the 1933
Act, at the time it became effective, is herein called the "ContiFinancial
Registration Statement." Any registration statement filed by ContiFinancial
pursuant to Rule 462(b) of the 1933 Act Regulations is herein referred to as the
"ContiFinancial Rule 462(b) Registration Statement," and after such filing the
term "ContiFinancial Registration Statement" shall include the ContiFinancial
Rule 462(b) Registration Statement. The final prospectus, including the
documents incorporated by reference therein pursuant to Item 12 of Form S-3
under the 1933 Act, in the form first furnished to the Underwriters for use in
connection with the offering of the Securities is herein called the
"ContiFinancial Prospectus." For purposes of this Agreement, all references to
the ContiFinancial Registration Statement, any ContiFinancial preliminary
prospectus, the ContiFinancial Prospectus or any amendment or supplement to any
of the foregoing shall be deemed (i) to include the copy filed with the
Commission pursuant to EDGAR and (ii) to exclude any prospectus or other portion
of ContiFinancial's registration statement on Form S-3 (No. 333-21839) relating
to the offer and sale by ContiFinancial of up to 3,220,000 shares of
ContiFinancial Common Stock in concurrent U.S. and international offerings.
All references in this Agreement to financial statements and schedules
and other information which is "contained," "included" or "stated" in the
ContiFinancial Registration Statement, any ContiFinancial preliminary prospectus
or the ContiFinancial Prospectus (or other references of like import) shall be
deemed to mean and include all such financial statements and schedules and other
information which is incorporated by reference in the ContiFinancial
Registration Statement, any ContiFinancial preliminary prospectus or the
ContiFinancial Prospectus, as the case may be; and all references in this
Agreement to amendments or supplements to the ContiFinancial Registration
Statement, any ContiFinancial preliminary
3
<PAGE>
prospectus or the ContiFinancial Prospectus shall be deemed to mean and include
the filing of any document under the Securities Exchange Act of 1934, as amended
(the "1934 Act"), which is incorporated by reference in the ContiFinancial
Registration Statement, such ContiFinancial preliminary prospectus or the
ContiFinancial Prospectus, as the case may be.
Prior to the closing under this Agreement, the Trust, Continental Grain
and The Chase Manhattan Bank ("Chase"), as collateral agent, will enter into a
forward purchase contract (the "Forward Purchase Contract"), pursuant to which
Continental Grain will agree to sell and the Trust will agree to purchase,
immediately prior to the Exchange Date, the Reference Property required by the
Trust to exchange all of the Securities on the Exchange Date as described in the
Trust Prospectus, subject to Continental Grain's right to satisfy its
obligations thereunder through a cash payment based on the value of such
Reference Property (the "Forward Purchase"). Continental Grain's obligations
under the Forward Purchase Contract will be secured by a pledge of collateral
pursuant to the terms of a security and pledge agreement (the "Security and
Pledge Agreement") among Continental Grain, the Trust and Chase, as collateral
agent (the "Collateral Agent").
SECTION 1. Representations and Warranties.
(a) Representations and Warranties by the Trust. The Trust represents
and warrants to each Underwriter as of the date hereof, as of the Closing Time
referred to in Section 2(c) hereof, and as of each Date of Delivery (if any)
referred to in Section 2(b) hereof, and agrees with each Underwriter, as
follows:
(i) Compliance with Registration Requirements. Each of the
Trust Registration Statement and any Trust Rule 462(b) Registration
Statement has become effective under the 1933 Act and no stop order
suspending the effectiveness of the Trust Registration Statement or any
Trust Rule 462(b) Registration Statement pursuant to Section 8(d) of
the 1933 Act, or order pursuant to Section 8(e) of the Investment
Company Act of 1940, as amended (the "1940 Act"), has been issued and
no proceedings for either such purpose have been instituted or are
pending or, to the knowledge of the Trust, are contemplated by the
Commission, and any request on the part of the Commission for
additional information has been complied with.
At the respective times the Trust Registration Statement, any
Trust Rule 462(b) Registration Statement and any post-effective
amendments thereto became effective and at the Closing Time (and, if
any Option Securities are purchased, at the Date of Delivery), the
Notification, the Trust Registration Statement, the Trust Rule 462(b)
Registration Statement and any amendments and supplements thereto
complied and will comply in all material respects with the requirements
of the 1933 Act and the 1933 Act Regulations and the 1940 Act and the
rules and regulations of the Commission under the 1940 Act (the "1940
Act Regulations"), and did not and will not contain an untrue statement
of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading. Neither the Trust Prospectus nor any amendments or
supplements thereto, at the time the Trust Prospectus or any such
amendment or supplement was issued and at the Closing Time (and, if any
Option
4
<PAGE>
Securities are purchased, at the Date of Delivery), included or will
include an untrue statement of a material fact or omitted or will omit
to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading. If Rule 434 is used, the Trust will comply with the
requirements of Rule 434. The representations and warranties in this
subsection shall not apply to statements in or omissions from the Trust
Registration Statement (or any amendments or supplements thereto) or
the Trust Prospectus (or any amendments or supplements thereto) made in
reliance upon and in conformity with information furnished to the Trust
in writing by any Underwriter through the Representatives expressly for
use in the Trust Registration Statement (or any amendments or
supplements thereto) or Trust Prospectus (or any amendments or
supplements thereto).
Each of the Trust preliminary prospectus dated February 14,
1997, the Trust preliminary prospectus dated March 11, 1997 and the
Trust preliminary prospectus dated March 28, 1997, and the prospectus
relating to the offering of the Securities filed pursuant to Rule 497
under the 1933 Act, complied when so filed in all material respects
with the 1933 Act Regulations and the 1940 Act Regulations, and, if
applicable, each such Trust preliminary prospectus and the Trust
Prospectus delivered to the Underwriters for use in connection with the
offering of the Securities was identical to the electronically
transmitted copies thereof filed with the Commission pursuant to EDGAR,
except to the extent permitted by Regulation S-T.
(ii) Independent Accountants. The accountants who certified
certain financial statements and supporting schedules included in the
Trust Registration Statement are independent public accountants as
required by the 1933 Act and the 1933 Act Regulations.
(iii) Financial Statement. The statement of assets,
liabilities and capital included in the Trust Registration Statement
and the Trust Prospectus, together with the notes thereto, present
fairly the financial position of the Trust at the date indicated; said
financial statement has been prepared in conformity with generally
accepted accounting principles in the United States.
(iv) No Material Adverse Change in Business. Since the
respective dates as of which information is given in the Trust
Registration Statement and the Trust Prospectus, except as otherwise
stated therein, (A) there has been no material adverse change in the
condition, financial or otherwise, or in the earnings, business
affairs, investment objectives or investment policies of the Trust,
whether or not arising in the ordinary course of business (a "Material
Adverse Effect") and (B) there have been no transactions entered into
by the Trust, other than those in the ordinary course of business,
which are material with respect to the Trust.
(v) Good Standing of the Trust; No Subsidiaries. The Trust has
been duly created and is validly existing as a business trust in good
standing under the Delaware Act with power and authority to own its
properties and to conduct its business as described in the Trust
Prospectus and to enter into and perform its obligations under this
5
<PAGE>
Agreement, the Trust Agreement and the Forward Purchase Contract; the
Trust is and will, under current law, be classified for United States
federal income tax purposes as a grantor trust and not as an
association taxable as a corporation; and the Trust has no
subsidiaries.
(vi) Registration Under the 1940 Act. The Trust is registered
with the Commission as a non-diversified, closed-end management
investment company under the 1940 Act. No order of suspension or
revocation of such registration has been issued or proceedings therefor
initiated or, to the knowledge of the Trust, threatened by the
Commission. No person is serving or acting as an officer or trustee of
the Trust, except in accordance with the provisions of the 1940 Act.
(vii) Outstanding STRYPES. All of the outstanding STRYPES have
been duly and validly authorized and issued and are fully paid and
non-assessable undivided beneficial interests in the assets of the
Trust; and the form of certificate used to evidence the STRYPES is in
due and proper form and complies in all material respects with all
provisions of applicable law.
(viii) Authorization of Agreement. This Agreement has been
duly authorized, executed and delivered by the Trust.
(ix) Authorization and Description of the Securities. The
Securities have been duly authorized by the Trust for issuance and sale
to the Underwriters pursuant to this Agreement and, when issued and
delivered by the Trust pursuant to this Agreement against payment of
the purchase price therefor as provided herein, will be validly issued
and fully paid and non-assessable undivided beneficial interests in the
assets of the Trust; the STRYPES conform in all material respects to
all statements relating thereto contained in the Trust Prospectus and
such description conforms in all material respects to the rights set
forth in the instruments defining the same; no holder of the Securities
will be subject to personal liability by reason of being such a holder;
and the issuance of the Securities is not subject to the preemptive or
other similar rights of any securityholder of the Trust.
(x) Authorization of Fundamental Agreements. Each of the
Forward Purchase Contract, the Security and Pledge Agreement, the
Administration Agreement, to be dated April __, 1997, between the Trust
and Chase (the "Administration Agreement"), the Custodian Agreement,
dated as of March 26, 1997, between the Trust and Chase (the "Custodian
Agreement"), the Paying Agent Agreement, dated as of March 26, 1997,
between the Trust and ChaseMellon Shareholder Services, L.L.C. (the
"Paying Agent Agreement"), and the Fund Indemnity Agreement, to be
dated April __, 1997, among the Trust, Merrill Lynch & Co., Inc. and
Continental Grain (the "Fund Indemnity Agreement") (the Forward
Purchase Contract, the Security and Pledge Agreement, the
Administration Agreement, the Custodian Agreement, the Paying Agent
Agreement and the Fund Indemnity Agreement are collectively referred to
herein as the "Fundamental Agreements"), has been duly authorized by
the Trust and, at the Closing Time, will have been duly executed and
delivered by the Trust and (assuming the due
6
<PAGE>
authorization, execution and delivery by the other parties thereto)
will constitute a valid and binding agreement of the Trust, enforceable
against the Trust in accordance with its terms, except as the
enforcement thereof may be limited by bankruptcy, insolvency
(including, without limitation, all laws relating to fraudulent
transfers), reorganization, moratorium or similar laws affecting
enforcement of creditors' rights generally and except as enforcement
thereof is subject to general principles of equity (regardless of
whether enforcement is considered in a proceeding in equity or at law).
(xi) Compliance with Acts. The Trust Agreement and the
Fundamental Agreements comply in all material respects with all
applicable provisions of the 1933 Act and the 1940 Act, and all
approvals of such documents required under the 1940 Act by the holders
of the STRYPES and the Trustees have been obtained and are in full
force and effect.
(xii) Description of Trust Agreement and Fundamental
Agreements. The Trust Agreement and the Fundamental Agreements will
conform in all material respects to the respective statements relating
thereto contained in the Trust Prospectus and, to the extent forms
thereof were filed as exhibits to the Trust Registration Statement,
will be in substantially the respective forms so filed.
(xiii) Absence of Defaults and Conflicts. The execution,
delivery and performance by the Trust of this Agreement and each
Fundamental Agreement and the consummation of the transactions
contemplated herein, therein and in the Trust Registration Statement
(including the issuance and sale of the Securities and the delivery of
shares of ContiFinancial Common Stock pursuant thereto, the
consummation of the Forward Purchase and the use of the proceeds from
the sale of the Securities as described in the Trust Prospectus under
the caption "Use of Proceeds") and compliance by the Trust with its
obligations hereunder, under the Securities and under each Fundamental
Agreement do not and will not, whether with or without the giving of
notice or passage of time or both, conflict with or constitute a breach
of, or default or Repayment Event (as defined below) under, or result
in the creation or imposition of any lien, charge or encumbrance upon
any property or assets of the Trust pursuant to, any contract,
indenture, mortgage, deed of trust, loan or credit agreement, note,
lease or other agreement or instrument to which the Trust is a party or
by which it may be bound, or to which any of the property or assets of
the Trust is subject (collectively, "Agreements and Instruments")
(except for such conflicts, breaches or defaults or liens, charges or
encumbrances that would not result in a Material Adverse Effect), nor
will such action result in any violation of the provisions of the Trust
Agreement or the Restated Trust Certificate of the Trust filed with the
State of Delaware on February __, 1997 or any applicable law, statute,
rule or regulation (other than any state securities or "blue sky" law,
statute, rule or regulation, as to which no representation or warranty
is made), or any applicable judgment, order, writ or decree of any
government, government instrumentality or court, domestic or foreign,
having jurisdiction over the Trust or any of its assets or properties
(except for such violations of law, statute, rule, regulation,
judgment, order, writ or decree that would not result in a Material
Adverse Effect). As used herein, a "Repayment Event" means any event
or condition which gives the holder of any note, debenture or other
evidence of indebtedness of the Trust (or any person acting on such
holder's behalf) the right to require the
7
<PAGE>
repurchase, redemption or repayment of all or a portion of such
indebtedness by the Trust.
(xiv) Absence of Proceedings. There is no action, suit,
proceeding, inquiry or investigation before or brought by any court or
governmental agency or body, domestic or foreign, now pending with
respect to which the Trust has received service of process, or, to the
knowledge of the Trust, threatened, against or affecting the Trust,
which is required to be disclosed in the Trust Registration Statement
(other than as disclosed therein), or which might, individually or in
the aggregate, reasonably be expected to result in a Material Adverse
Effect, or which might, individually or in the aggregate, reasonably be
expected to materially and adversely affect the properties or assets
thereof or the consummation of the transactions contemplated in this
Agreement or the Fundamental Agreements (including the issuance and
sale of the Securities and the delivery of shares of ContiFinancial
Common Stock pursuant thereto and the consummation of the Forward
Purchase) or the performance by the Trust of its obligations hereunder
or thereunder; the aggregate of all pending legal or governmental
proceedings (with respect to which the Trust has received service of
process) to which the Trust is a party or of which any of its property
or assets is the subject which are not described in the Trust
Registration Statement, including ordinary routine litigation
incidental to the business, could not reasonably be expected to result
in a Material Adverse Effect.
(xv) No Investment Restrictions, etc. There are no material
restrictions, limitations or regulations with respect to the ability of
the Trust to invest its assets as described in the Trust Prospectus,
other than as described therein.
(xvi) Exhibits. There are no contracts or documents which are
of a character required to be described in the Trust Registration
Statement or the Trust Prospectus or to be filed as exhibits thereto
which have not been so described or filed as required.
(xvii) Absence of Further Requirements. No declaration or
filing with, or authorization, approval, consent, license, order,
registration, qualification or decree of, any court or governmental
authority or agency is necessary or required for the Trust to own and
use its assets and to conduct its business in the manner described in
the Trust Prospectus or for the performance by the Trust of its
obligations under this Agreement, the Trust Agreement or any
Fundamental Agreement or the consummation by the Trust of the
transactions contemplated herein or therein (including the issuance and
sale of the Securities and the delivery of shares of ContiFinancial
Common Stock pursuant thereto and the consummation of the Forward
Purchase), except such as have been already obtained or as may be
required under the 1933 Act or the 1933 Act Regulations or the 1940 Act
or the 1940 Act Regulations or state securities laws.
(xviii) Title to Property. The Trust has good title to all
properties owned by it, in each case, free and clear of all mortgages,
pledges, liens, security interests, claims, restrictions or
encumbrances of any kind except such as (A) are described in the Trust
Prospectus or (B) do not, singly or in the aggregate, materially affect
the value of such
8
<PAGE>
property and do not interfere with the use made and proposed to be made
of such property by the Trust.
(b) Representations and Warranties by Continental Grain. Continental
Grain represents and warrants to each of the Underwriters and the Trust as of
the date hereof, as of the Closing Time referred to in Section 2(c) hereof, and
as of each Date of Delivery (if any) referred to in Section 2(b) hereof, and
agrees with each of the Underwriters and the Trust, as follows:
(i) Authority. Continental Grain has the corporate power and
authority to enter into this Agreement, the Forward Purchase Contract
and the Security and Pledge Agreement, to pledge and assign the shares
of ContiFinancial Common Stock to be pledged and assigned by
Continental Grain pursuant to the Security and Pledge Agreement, and to
sell, transfer and deliver the shares of ContiFinancial Common Stock to
be sold by Continental Grain pursuant to the Forward Purchase Contract.
(ii) Delivery of ContiFinancial Common Stock. Continental
Grain is the sole registered owner of and has, and at the Closing Time
(and, if any Option Securities are purchased, at the Date of Delivery)
will have, all rights in and to the shares of ContiFinancial Common
Stock to be pledged and assigned pursuant to the Security and Pledge
Agreement, free and clear of any security interest, mortgage, pledge,
lien, encumbrance, claim or equity, other than those created pursuant
to the Security and Pledge Agreement. If immediately prior to the
Exchange Date Continental Grain delivers to the Trust shares of
ContiFinancial Common Stock pursuant to the Forward Purchase Contract,
upon delivery by Continental Grain to the Trust of the shares of
ContiFinancial Common Stock to be sold by Continental Grain pursuant to
the Forward Purchase Contract, then assuming the Trust purchased for
value in good faith and without notice of any adverse claim, the Trust
will have acquired all rights in and to such shares of ContiFinancial
Common Stock, free and clear of any security interest, mortgage,
pledge, lien, encumbrance, claim or equity (except for any security
interest, mortgage, pledge, lien, encumbrance, claim or equity created
by the Trust or Chase, as Collateral Agent). The sale, transfer and
delivery of shares of ContiFinancial Common Stock by Continental Grain
to the Trust as contemplated by the Forward Purchase Contract is not,
and at the time of delivery of such shares will not be, subject to any
right of first refusal or similar rights of any person pursuant to any
contract to which Continental Grain or any subsidiary of Continental
Grain is a party or by which any of them is bound.
(iii) Authorization of Agreement. This Agreement has
been duly authorized, executed and delivered by Continental Grain.
(iv) Authorization of the Forward Purchase Contract and the
Security and Pledge Agreement. Each of the Forward Purchase Contract
and the Security and Pledge Agreement has been duly authorized by
Continental Grain and, at the Closing Time, will have been duly
executed and delivered by Continental Grain and (assuming the due
authorization, execution and delivery by the other parties thereto)
will constitute a valid and binding agreement of Continental Grain,
enforceable against Continental Grain in accordance with its terms,
except as the enforcement thereof may be limited by
9
<PAGE>
bankruptcy, insolvency (including, without limitation, all laws
relating to fraudulent transfers), reorganization, moratorium or
similar laws affecting enforcement of creditors' rights generally and
except as enforcement thereof is subject to general principles of
equity (regardless of whether enforcement is considered in a proceeding
in equity or at law). Amounts received by Continental Grain at Closing
Time and at each Date of Delivery, if any, pursuant to the Forward
Purchase Contract will not be used by Continental Grain for the
purpose, whether immediate, incidental or ultimate, of buying or
carrying a margin stock, as such terms are defined in Regulation G
promulgated by the Board of Governors of the Federal Reserve System.
(v) Absence of Defaults and Conflicts. The execution, delivery
and performance by Continental Grain of this Agreement, the Forward
Purchase Contract and the Security and Pledge Agreement and the
consummation by Continental Grain of the transactions contemplated
herein and therein and compliance by Continental Grain with its
obligations hereunder and thereunder do not and will not, whether with
or without the giving of notice or passage of time or both, conflict
with or constitute a breach of, or default or Continental Grain
Repayment Event (as defined below) under, or result in the creation or
imposition of any lien, charge or encumbrance upon any property or
assets of Continental Grain or any subsidiary of Continental Grain
pursuant to, any other contract, indenture, mortgage, deed of trust,
loan or credit agreement, note, lease or any other agreement or
instrument to which Continental Grain or any subsidiary of Continental
Grain is a party or by which it or any of them may be bound, or to
which any of the property or assets of Continental Grain or any
subsidiary of Continental Grain is subject (except for such conflicts,
breaches or defaults or liens, charges or encumbrances that would not,
singly or in the aggregate, materially and adversely affect the ability
of Continental Grain to perform its obligations under this Agreement,
the Forward Purchase Contract or the Security and Pledge Agreement),
nor will such action result in any violation of any applicable law,
statute, rule or regulation of any government or government
instrumentality having jurisdiction over Continental Grain or any
subsidiary of Continental Grain or any of their assets, properties or
operations (other than any state securities or "blue sky" law, statute,
rule or regulation, as to which no representation and warranty is
made), or any applicable judgment, order, writ or decree of any
government, government instrumentality or domestic court having
jurisdiction over Continental Grain or any subsidiary of Continental
Grain or any of their assets, properties or operations (except in all
cases for such violations that would not, singly or in the aggregate,
materially and adversely affect the ability of Continental Grain to
perform its obligations under this Agreement, the Forward Purchase
Contract or the Security and Pledge Agreement). As used herein, a
"Continental Grain Repayment Event" with respect to Continental Grain
means any event or condition which gives the holder of any note,
debenture or other evidence of indebtedness (or any person acting on
such holder's behalf) the right to require the repurchase, redemption
or repayment of all or a portion of such indebtedness by Continental
Grain or any subsidiary of Continental Grain.
(vi) Absence of Further Requirements. No declaration or
filing with, or authorization, approval, consent, license, order,
registration, qualification or decree of,
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any court or governmental authority or agency is necessary or required
for the execution, delivery or performance by Continental Grain of this
Agreement, the Forward Purchase Contract or the Security and Pledge
Agreement or the consummation by Continental Grain of the transactions
contemplated herein or therein, except such as have been already
obtained or as may be required under the 1933 Act or the 1933 Act
Regulations or state securities laws.
(vii) Trust Registration Statement and Prospectus. At the
respective times the Trust Registration Statement, any Trust Rule
462(b) Registration Statement and any post-effective amendments thereto
became effective and at the Closing Time (and, if any Option Securities
are purchased, at the Date of Delivery), the Notification, the Trust
Registration Statement, the Trust Rule 462(b) Registration Statement
and any amendments and supplements thereto complied and will comply in
all material respects with the requirements of the 1933 Act and the
1933 Act Regulations and the 1940 Act and the 1940 Act Regulations, and
did not and will not contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading. Neither the
Trust Prospectus nor any amendments or supplements thereto, at the time
the Trust Prospectus or any such amendment or supplement was issued and
at the Closing Time (and, if any Option Securities are purchased, at
the Date of Delivery), included or will include an untrue statement of
a material fact or omitted or will omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The
representations and warranties in this subsection shall not apply to
statements in or omissions from the Trust Registration Statement (or
any amendments or supplements thereto) or the Trust Prospectus (or any
amendments or supplements thereto) made in reliance upon and in
conformity with information furnished to the Trust in writing by any
Underwriter through the Representatives expressly for use in the Trust
Registration Statement (or any amendments or supplements thereto) or
Trust Prospectus (or any amendments or supplements thereto).
Each of the Trust preliminary prospectus dated February 14,
1997, the Trust preliminary prospectus dated March 11, 1997 and the
Trust preliminary prospectus dated March 28, 1997, and the prospectus
relating to the offering of the Securities filed pursuant to Rule 497
under the 1933 Act, complied when so filed in all material respects
with the 1933 Act Regulations and the 1940 Act Regulations.
(viii) ContiFinancial Registration Statement and Prospectus.
The ContiFinancial Registration Statement, any ContiFinancial Rule
462(b) Registration Statement or any post-effective amendments thereto,
at the respective times the ContiFinancial Registration Statement, any
ContiFinancial Rule 462(b) Registration Statement or any post-effective
amendments thereto became effective, did not contain an untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading. The ContiFinancial Prospectus or any amendment or
supplement thereto, at the time the ContiFinancial Prospectus was
issued, at the time any such amended or supplemented prospectus was
issued or at the Closing Time (and, if any Option Securities are
purchased, at the Date
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of Delivery), did not and will not include an untrue statement of a
material fact and did not and will not omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The
representations and warranties in this subsection shall apply only to
statements in or omissions from the ContiFinancial Registration
Statement (or any amendment thereto) or the ContiFinancial Prospectus
(or any amendment or supplement thereto) made in reliance upon and in
conformity with information furnished to ContiFinancial in writing by
Continental Grain expressly for use in the ContiFinancial Registration
Statement (or any amendment thereto) or the ContiFinancial Prospectus
(or any amendment or supplement thereto).
(ix) Security and Pledge Agreement. The representations and
warranties of Continental Grain set forth in Section 8(a) of the
Security and Pledge Agreement are true and correct on and as of the
date hereof with the same effect as though such representations and
warranties had been set forth in full in this Agreement.
(c) Officer's Certificates. Any certificate signed by any Trustee of
the Trust and delivered to the Representatives or counsel for the Underwriters
shall be deemed a representation and warranty by the Trust to each Underwriter
as to the matters covered thereby. Any certificate signed by any duly authorized
officer of Continental Grain and delivered to the Representatives or counsel to
the Underwriters or to the Trust or counsel to the Trust shall be deemed a
representation and warranty by Continental Grain to the Underwriters or the
Trust, as the case may be, as to the matters covered thereby.
SECTION 2. Sale and Delivery to Underwriters; Closing.
(a) Initial Securities. On the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the Trust agrees to sell to each Underwriter, severally and not jointly,
and each Underwriter, severally and not jointly, agrees to purchase from the
Trust, at the price per STRYPES set forth in Schedule B, the number of Initial
Securities set forth in Schedule A opposite the name of such Underwriter, plus
any additional number of Initial Securities which such Underwriter may become
obligated to purchase pursuant to the provisions of Section 10 hereof.
(b) Option Securities. In addition, on the basis of the representations
and warranties herein contained and subject to the terms and conditions herein
set forth, the Trust hereby grants an option to the Underwriters, severally and
not jointly, to purchase up to an additional [420,000] STRYPES at the price per
STRYPES set forth in Schedule B. The option hereby granted will expire 30 days
after the date hereof and may be exercised in whole or in part from time to time
only for the purpose of covering over-allotments which may be made in connection
with the offering and distribution of the Initial Securities upon notice by the
Representatives to the Trust setting forth the number of Option Securities as to
which the several Underwriters are then exercising the option and the time and
date of payment and delivery for such Option Securities. Any such time and date
of delivery (a "Date of Delivery") shall be determined by the Representatives,
but shall not be later than seven full business days after the exercise of said
option, nor in any event prior to the Closing Time, as hereinafter defined. If
the option is
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exercised as to all or any portion of the Option Securities, each of the
Underwriters, acting severally and not jointly, will purchase that proportion of
the total number of Option Securities then being purchased which the number of
Initial Securities set forth in Schedule A opposite the name of such Underwriter
bears to the total number of Initial Securities, subject in each case to such
adjustments as the Representatives in their discretion shall make to eliminate
any sales or purchases of fractional shares.
(c) Payment. Payment of the purchase price for, and delivery of
certificates for, the Initial Securities shall be made at the offices of Brown &
Wood LLP, One World Trade Center, New York, New York 10048, or at such other
place as shall be agreed upon by the Representatives and the Trust, at 9:00 A.M.
(Eastern time) on the third (fourth, if the pricing occurs after 4:30 P.M.
(Eastern time) on any given day) business day after the date hereof, or such
other time not later than ten business days after such date as shall be agreed
upon by the Representatives and the Trust (such time and date of payment and
delivery being herein called "Closing Time"). In addition, in the event that any
or all of the Option Securities are purchased by the Underwriters, payment of
the purchase price for, and delivery of certificates for, such Option Securities
shall be made at the above-mentioned offices, or at such other place as shall be
agreed upon by the Representatives and the Trust, on each Date of Delivery as
specified in the notice from the Representatives to the Trust.
Payment shall be made to the Trust by wire transfer of immediately
available funds to a bank account designated by the Trust, against delivery to
the Representatives for the respective accounts of the Underwriters of
certificates for the Securities to be purchased by them. It is understood that
each Underwriter has authorized the Representatives, for its account, to accept
delivery of, receipt for, and make payment of the purchase price for, the
Securities which it has agreed to purchase. Merrill Lynch, individually and not
as representative of the Underwriters, may (but shall not be obligated to) make
payment of the purchase price for the Initial Securities or the Option
Securities, if any, to be purchased by any Underwriter whose funds have not been
received by the Closing Time or the relevant Date of Delivery, as the case may
be, but such payment shall not relieve such Underwriter from its obligations
hereunder.
(d) Denominations; Registration. Certificates for the Initial
Securities and the Option Securities, if any, shall be in such denominations and
registered in such names as the Representatives may request in writing at least
one full business day before the Closing Time or the relevant Date of Delivery,
as the case may be. The certificates for the Initial Securities and the Option
Securities, if any, will be made available for examination and packaging by the
Representatives in The City of New York not later than 10:00 A.M. (Eastern time)
on the business day prior to the Closing Time or the relevant Date of Delivery,
as the case may be.
SECTION 3. Covenants.
(a) Covenants of the Trust. The Trust covenants with each
Underwriter as follows:
(i) Compliance with Securities Regulations and
Commission Requests. The Trust, subject to Section 3(a)(ii), will
comply with the requirements of Rule 430A or Rule 434, as applicable,
and will notify the Representatives immediately, and confirm
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the notice in writing, (A) when any post-effective amendment to the
Trust Registration Statement shall become effective, or any supplement
to the Trust Prospectus or any amended Trust Prospectus shall have been
filed, (B) of the receipt of any comments from the Commission, (C) of
any request by the Commission for any amendment to the Trust
Registration Statement or any amendment or supplement to the Trust
Prospectus or for additional information, and (D) of the issuance by
the Commission of any stop order suspending the effectiveness of the
Trust Registration Statement or of any order preventing or suspending
the use of any Trust preliminary prospectus or any order pursuant to
Section 8(e) of the 1940 Act, or of the suspension of the qualification
of the Securities for offering or sale in any jurisdiction, or of the
initiation or threatening of any proceedings for any of such purposes.
The Trust will promptly effect the filings necessary pursuant to Rule
497(h) and will take such steps as it deems necessary to ascertain
promptly whether the form of prospectus transmitted for filing under
Rule 497(h) was received for filing by the Commission and, in the event
that it was not, it will promptly file such prospectus. The Trust will
make every reasonable effort to prevent the issuance of any stop order
pursuant to Section 8(d) of the 1933 Act or any order pursuant to
Section 8(e) of the 1940 Act and, if any such order is issued, to
obtain the lifting thereof at the earliest possible moment.
(ii) Filing of Amendments. The Trust will give the
Representatives notice of its intention to file or prepare any
amendment to the Trust Registration Statement (including any filing
under Rule 462(b)), any Trust Term Sheet or any amendment, supplement
or revision to either the prospectus relating to the offering of the
Securities included in the Trust Registration Statement at the time it
became effective or to the Trust Prospectus, whether pursuant to the
1933 Act, the 1940 Act or otherwise, will furnish the Representatives
with copies of any such documents a reasonable amount of time prior to
such proposed filing or use, as the case may be, and will not file or
use any such document to which the Representatives or counsel for the
Underwriters shall reasonably object in a timely manner.
(iii) Delivery of Trust Registration Statements. The Trust has
furnished or will deliver to the Representatives and counsel for the
Underwriters, without charge, signed copies of the Trust Registration
Statement as originally filed and of each amendment thereto (including
exhibits filed therewith or incorporated by reference therein) and
signed copies of all consents and certificates of experts, and will
also deliver to the Representatives, without charge, a conformed copy
of the Trust Registration Statement as originally filed and of each
amendment thereto (without exhibits) for each of the Underwriters. If
applicable, the copies of the Trust Registration Statement and each
amendment thereto furnished to the Underwriters will be identical to
the electronically transmitted copies thereof filed with the Commission
pursuant to EDGAR, except to the extent permitted by Regulation S-T.
(iv) Delivery of Trust Prospectuses. The Trust has delivered
to each Underwriter, without charge, as many copies of each Trust
preliminary prospectus as such Underwriter reasonably requested, and
the Trust hereby consents to the use of such copies for purposes
permitted by the 1933 Act. The Trust will furnish to each
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Underwriter, without charge, during the period when the Trust
Prospectus is required to be delivered under the 1933 Act or the 1934
Act, such number of copies of the Trust Prospectus (as amended or
supplemented) as such Underwriter may reasonably request. If
applicable, the Trust Prospectus and any amendments or supplements
thereto furnished to the Underwriters will be identical to the
electronically transmitted copies thereof filed with the Commission
pursuant to EDGAR, except to the extent permitted by Regulation S-T.
(v) Continued Compliance with Securities Laws. The Trust will
comply with the 1933 Act and the 1933 Act Regulations, the 1934 Act and
the 1934 Act Regulations, and the 1940 Act and the 1940 Act Regulations
so as to permit the completion of the distribution of the Securities as
contemplated in this Agreement and in the Trust Prospectus. If at any
time prior to the expiration of nine months after the time of issuance
of the Trust Prospectus a prospectus is required by the 1933 Act to be
delivered in connection with sales of the Securities, and if at such
time any event shall occur or condition shall exist as a result of
which it is necessary, in the opinion of counsel for the Underwriters
or for the Trust, to amend the Trust Registration Statement or amend or
supplement the Trust Prospectus in order that the Trust Prospectus will
not include any untrue statements of a material fact or omit to state a
material fact necessary in order to make the statements therein not
misleading in the light of the circumstances existing at the time it is
delivered to a purchaser, or if it shall be necessary, in the opinion
of either such counsel, at any such time to amend the Trust
Registration Statement or amend or supplement the Trust Prospectus in
order to comply with the requirements of the 1933 Act or the 1933 Act
Regulations or the 1940 Act or the 1940 Act Regulations, the Trust will
promptly prepare and file with the Commission, subject to Section
3(a)(ii), such amendment or supplement as may be necessary to correct
such statement or omission or to make the Trust Registration Statement
or the Trust Prospectus comply with such requirements, and the Trust
will furnish to the Underwriters such number of copies of such
amendment or supplement as the Underwriters may reasonably request.
(vi) Blue Sky Qualifications. The Trust will use its best
efforts, in cooperation with the Underwriters, to qualify the
Securities for offering and sale under the applicable securities laws
of such states and other jurisdictions of the United States as the
Representatives may designate and to maintain such qualifications in
effect for a period of not less than one year from the later of the
effective date of the Trust Registration Statement and any Trust Rule
462(b) Registration Statement; provided, however, that the Trust shall
not be obligated to file any general consent to service of process or
to qualify as a foreign trust or association or as a dealer in
securities in any jurisdiction in which it is not so qualified or to
subject itself to taxation in respect of doing business in any
jurisdiction in which it is not otherwise so subject. In each
jurisdiction in which the Securities have been so qualified, the Trust
will file such statements and reports as may be required by the laws of
such jurisdiction to continue such qualification in effect for a period
of not less than one year from the effective date of the Trust
Registration Statement and any Trust Rule 462(b) Registration
Statement.
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(vii) Rule 158. The Trust will timely file such reports
pursuant to the 1934 Act as are necessary in order to make generally
available to its securityholders as soon as practicable an earnings
statement for the purposes of, and to provide the benefits contemplated
by, the last paragraph of Section 11(a) of the 1933 Act.
(viii) Use of Proceeds. The Trust will use the net
proceeds received by it from the sale of the Securities in the manner
specified in the Trust Prospectus under "Use of Proceeds."
(ix) Listing. The Trust will use its best efforts to effect
and maintain the quotation of the Securities on the American Stock
Exchange (the "AMEX").
(x) Reporting Requirements. The Trust, during the period when
the Trust Prospectus is required to be delivered under the 1933 Act or
the 1934 Act, will file all documents required to be filed with the
Commission pursuant to the 1934 Act within the time periods required by
the 1934 Act and the 1934 Act Regulations and all documents required to
be filed with the Commission pursuant to the 1940 Act within the time
periods required by the 1940 Act and the 1940 Act Regulations.
(b) Covenants of Continental Grain. Continental Grain covenants
with each Underwriter and the Trust as follows:
(i) Restriction on Sale of Securities. During a period of 90
days from the date of the Trust Prospectus, Continental Grain will not,
without the prior written consent of the Merrill Lynch, (x) offer,
sell, contract to sell or otherwise dispose of, directly or indirectly,
any shares of ContiFinancial Common Stock, securities convertible into,
exchangeable for or repayable with shares of ContiFinancial Common
Stock, or rights or warrants to acquire shares of ContiFinancial Common
Stock, or (y) cause to be filed any registration statement under the
1933 Act with respect to any shares of ContiFinancial Common Stock,
securities convertible into, exchangeable for or repayable with shares
of ContiFinancial Common Stock, or rights or warrants to acquire shares
of ContiFinancial Common Stock. The foregoing sentence shall not apply
to the execution and delivery by Continental Grain of the Forward
Purchase Contract or the consummation by Continental Grain of the
transactions contemplated therein.
(ii) Purpose Statement. At or prior to Closing Time,
Continental Grain will deliver to the Trust a duly executed purpose
statement on Form F. R. G-3 of the Board of Governors of the Federal
Reserve System.
SECTION 4. Payment of Expenses.
(a) Expenses Payable by Continental Grain. Continental Grain will pay
all expenses incident to the performance by the Trust and Continental Grain of
their respective obligations under this Agreement and the Registration
Agreement, including (i) the preparation, printing and filing of the
Notification and the Trust Registration Statement (including financial
statements and exhibits) as originally filed and of each amendment thereto, (ii)
the printing and delivery to the
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Underwriters of this Agreement, the Forward Purchase Contract and such other
documents as may be required in connection with the offering, purchase, sale,
issuance or delivery of the Securities, (iii) the preparation, issuance and
delivery of the certificates for the Securities to the Underwriters, (iv) the
fees and disbursements of the Trust's counsel, (v) the fees and disbursements of
Continental Grain's counsel and other advisors, (vi) the qualification of the
Securities under securities laws in accordance with the provisions of Section
3(a)(vi) hereof, including filing fees and the reasonable fees and disbursements
of the counsel for the Underwriters in connection therewith and in connection
with the preparation of the Blue Sky Survey and any supplement thereto, (vii)
the printing and delivery to the Underwriters of copies of each Trust
preliminary prospectus, any Trust Term Sheets and of the Trust Prospectus and
any amendments or supplements thereto, (viii) the printing and delivery to the
Underwriters of copies of the Blue Sky Survey and any supplement thereto, (ix)
the fees and expenses of any transfer agent or registrar for the Securities, (x)
the filing fees incident to, and the reasonable fees and disbursements of
counsel to the Underwriters in connection with, securing any required review by
the National Association of Securities Dealers, Inc. (the "NASD") of the terms
of the sale of the Securities and (xi) the fees and expenses incurred in
connection with the listing of the Securities on the AMEX.
(b) Termination of Agreement. If this Agreement is terminated by the
Representatives in accordance with the provisions of Section 5 or Section
9(a)(i) hereof, Continental Grain shall reimburse the Underwriters for all of
their reasonable out-of-pocket expenses, including the reasonable fees and
disbursements of counsel for the Underwriters.
(c) Allocation of Expenses. The provisions of this Section 4 shall not
affect any agreement that Continental Grain may make for the sharing of the
costs and expenses to be borne by it pursuant to this Section 4.
SECTION 5. Conditions.
(a) Conditions of Underwriters' Obligations. The obligations of the
several Underwriters hereunder are subject to the accuracy of the
representations and warranties of the Trust and Continental Grain contained in
Sections 1(a) and 1(b) hereof, respectively, to the accuracy of the
representations and warranties of ContiFinancial contained in the Registration
Agreement, to the accuracy of the statements in certificates of any Trustee of
the Trust, any officer of ContiFinancial or Continental Grain delivered pursuant
to the provisions hereof, to the performance by the Trust and Continental Grain
of their respective covenants and other obligations hereunder, to the
performance by ContiFinancial of its covenants and other obligations under the
Registration Agreement, and to the following further conditions:
(i) Effectiveness of Trust Registration Statement. The Trust
Registration Statement, including any Trust Rule 462(b) Registration
Statement, has become effective and at Closing Time no stop order
suspending the effectiveness of the Trust Registration Statement
pursuant to Section 8(d) of the 1933 Act, or order pursuant to Section
8(e) of the 1940 Act, shall have been issued and no proceedings
therefor shall have been initiated or threatened by the Commission, and
any request on the part of the Commission for additional information
shall have been complied with to the reasonable satisfaction of
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counsel to the Underwriters. A prospectus containing the Rule 430A
Information shall have been filed with the Commission in accordance
with Rule 497(h) (or a post-effective amendment providing such
information shall have been filed and declared effective in accordance
with the requirements of Rule 430A) or, if the Trust has elected to
rely upon Rule 434, a Trust Term Sheet shall have been filed with the
Commission in accordance with Rule 497(h).
(ii) Effectiveness of ContiFinancial Registration Statement.
The ContiFinancial Registration Statement, including any ContiFinancial
Rule 462(b) Registration Statement, has become effective and at Closing
Time no stop order suspending the effectiveness of the ContiFinancial
Registration Statement shall have been issued under the 1933 Act or
proceedings therefor initiated or threatened by the Commission, and any
request on the part of the Commission for additional information shall
have been complied with to the reasonable satisfaction of counsel to
the Underwriters.
(iii) Opinion of Counsel for Underwriters and Trust. At
Closing Time, the Representatives shall have received the favorable
opinion, dated as of Closing Time, of Brown & Wood LLP, counsel for the
Underwriters and the Trust, together with signed or reproduced copies
of such letter for each of the other Underwriters, with respect to such
matters as the Representatives may reasonably request. In giving such
opinion such counsel may rely, as to all matters governed by the laws
of jurisdictions other than the law of the State of New York and the
federal law of the United States, upon the opinions of counsel
satisfactory to the Representatives. Such counsel may also state that,
insofar as such opinion involves factual matters, they have relied, to
the extent they deem proper, upon certificates of public officials.
(iv) Opinion of Special Delaware Counsel for the Trust. At
Closing Time, the Representatives shall have received the favorable
opinion, dated as of Closing Time, of Richards, Layton & Finger,
special Delaware counsel for the Trust, in form and substance
reasonably satisfactory to counsel for the Underwriters, together with
signed or reproduced copies of such letter for each of the other
Underwriters.
(v) Opinions of Counsel for ContiFinancial. At Closing Time,
the Representatives shall have received (1) the favorable opinion,
dated as of Closing Time, of Dewey Ballantine, counsel for
ContiFinancial, in form and substance reasonably satisfactory to
counsel for the Underwriters, together with signed or reproduced copies
of such letter for each of the other Underwriters, and (2) the
favorable opinion, dated as of Closing Time, of Alan L. Langus, Esq.,
Chief Counsel for ContiFinancial, in form and substance reasonably
satisfactory to counsel for the Underwriters, together with signed or
reproduced copies of such letter for each of the other Underwriters.
(vi) Opinions of Counsel for Continental Grain. At Closing
Time, the Representatives shall have received (1) the favorable
opinion, dated as of Closing Time, of Paul, Weiss, Rifkind, Wharton &
Garrison, counsel for Continental Grain, in form and substance
reasonably satisfactory to counsel for the Underwriters, together with
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signed or reproduced copies of such letter for each of the other
Underwriters, and (2) the favorable opinion, dated as of Closing Time,
of Lawrence G. Weppler, Esq., Vice President and General
Counsel-Corporate of Continental Grain, in form and substance
reasonably satisfactory to counsel for the Underwriters, together with
signed or reproduced copies of such letter for each of the other
Underwriters.
(vii) Managing Trustee's Certificate. At Closing Time, there
shall not have been, since the date hereof or since the respective
dates as of which information is given in the Trust Prospectus, any
material adverse change in the condition, financial or otherwise, or in
the earnings, business affairs, investment objectives or investment
policies of the Trust, whether or not arising in the ordinary course of
business, and the Representatives shall have received a certificate of
the Managing Trustee, dated as of Closing Time, to the effect that (i)
there has been no such material adverse change, (ii) the
representations and warranties in Section 1(a) hereof are true and
correct with the same force and effect as though expressly made at and
as of Closing Time, (iii) the Trust has complied with all agreements
and satisfied all conditions on its part to be performed or satisfied
at or prior to Closing Time, and (iv) no stop order suspending the
effectiveness of the Trust Registration Statement pursuant to Section
8(d) of the 1933 Act, or order pursuant to Section 8(e) of the 1940
Act, has been issued and no proceedings for that purpose have been
instituted or, to the best of his knowledge, are pending or are
contemplated by the Commission.
(viii) ContiFinancial Officers' Certificate. At Closing Time,
there shall not have been, since the date hereof or since the
respective dates as of which information is given in the ContiFinancial
Prospectus, any material adverse change in the condition, financial or
otherwise, or in the earnings, operations or business of ContiFinancial
and its subsidiaries considered as one enterprise, whether or not
arising in the ordinary course of business, and the Representatives
shall have received a certificate of the President or a Vice President
of ContiFinancial and of the chief financial or chief accounting
officer of ContiFinancial, dated as of Closing Time, to the effect that
(i) there has been no such material adverse change, (ii) the
representations and warranties of ContiFinancial contained in Section
1(a) of the Registration Agreement are true and correct with the same
force and effect as though expressly made at and as of Closing Time,
(iii) ContiFinancial has complied with all agreements and satisfied all
conditions on its part to be performed or satisfied at or prior to
Closing Time pursuant to the Registration Agreement, and (iv) no stop
order suspending the effectiveness of the ContiFinancial Registration
Statement has been issued and no proceedings for that purpose have been
instituted or, to the best of their knowledge, are pending or are
contemplated by the Commission.
(ix) Continental Grain Officers' Certificate. At Closing Time,
the Representatives shall have received a certificate of the President,
a Vice President or an Assistant Treasurer of Continental Grain, dated
as of Closing Time, to the effect that (i) the representations and
warranties of Continental Grain contained in Section 1(b) hereof are
true and correct with the same force and effect as though expressly
made at and as of Closing Time and (ii) Continental Grain has complied
with all agreements and satisfied
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all conditions on its part to be performed or satisfied at or prior to
Closing Time pursuant to this Agreement and the transactions
contemplated hereby.
(x) ContiFinancial Accountant's Comfort Letter. At the time of
the execution of this Agreement, the Representatives shall have
received from Arthur Andersen LLP a letter dated such date, in form and
substance satisfactory to counsel for the Underwriters, together with
signed or reproduced copies of such letter for each of the other
Underwriters, containing statements and information of the type
ordinarily included in accountants' "comfort letters" to underwriters
with respect to the financial statements and certain financial
information contained in the ContiFinancial Registration Statement and
the ContiFinancial Prospectus.
(xi) ContiFinancial Accountant's Bring-down Comfort Letter. At
Closing Time, the Representatives shall have received from Arthur
Andersen LLP a letter, dated as of Closing Time, to the effect that
they reaffirm the statements made in the letter furnished by them
pursuant to Section 5(a)(x) hereof, except that the "specified date"
referred to shall be a date not more than three business days prior to
Closing Time.
(xii) Approval of Listing. At Closing Time, the Securities
shall have been approved for inclusion on the AMEX, subject only to
official notice of issuance.
(xiii) No Objection. The NASD shall not have raised any
objection with respect to the fairness and reasonableness of the
underwriting terms and arrangements.
(xiv) Lock-up Agreements. At the date of this Agreement, the
Representatives shall have received an agreement substantially in the
form of Exhibit A hereto signed by each of the persons and entities
listed on Schedule C hereto.
(xv) Fundamental Agreements. Each Fundamental Agreement shall
have been executed and delivered by all parties thereto, and
Continental Grain shall have delivered to the Collateral Agent the
number of shares of ContiFinancial Common Stock required by the
Security and Pledge Agreement to be initially pledged and assigned by
Continental Grain thereunder in accordance with the requirements of the
Security and Pledge Agreement.
(xvi) Conditions to Purchase of Option Securities. In the
event that the Underwriters exercise their option provided in Section
2(b) hereof to purchase all or any portion of the Option Securities,
the representations and warranties of the Trust and Continental Grain
contained herein, the representations and warranties of ContiFinancial
contained in the Registration Agreement and the statements in any
certificates furnished by the Trust, ContiFinancial or Continental
Grain hereunder shall be true and correct as of each Date of Delivery
and, at the relevant Date of Delivery, the Representatives shall have
received:
(A) Managing Trustee's Certificate. A
certificate, dated such Date of
Delivery, of the Managing Trustee confirming that the
certificate delivered at
20
<PAGE>
Closing Time pursuant to Section 5(a)(vii) hereof is true and
correct as of such Date of Delivery.
(B) ContiFinancial Officers' Certificate. A
certificate, dated such Date of Delivery, of the President or
a Vice President of ContiFinancial and of the chief financial
or chief accounting officer of ContiFinancial confirming that
the certificate delivered at Closing Time pursuant to Section
5(a)(viii) hereof is true and correct as of such Date of
Delivery.
(C) Continental Grain Officers' Certificate. A
certificate, dated such Date of Delivery, of the President, a
Vice President or an Assistant Treasurer of Continental Grain
confirming that the certificate delivered at Closing Time
pursuant to Section 5(a)(ix) hereof is true and correct as of
such Date of Delivery.
(D) Opinion of Counsel for Underwriters and Trust.
The favorable opinion of Brown & Wood LLP, counsel for the
Underwriters and the Trust, in form and substance reasonably
satisfactory to the Representatives, dated such Date of
Delivery, relating to the Option Securities to be purchased on
such Date of Delivery and otherwise to the same effect as the
opinion required by Section 5(a)(iii) hereof.
(E) Opinion of Special Delaware Counsel for the
Trust. The favorable opinion of Richards, Layton & Finger,
special Delaware counsel for the Trust, in form and substance
reasonably satisfactory to counsel for the Underwriters, dated
such Date of Delivery, relating to the Option Securities to be
purchased on such Date of Delivery and otherwise to the same
effect as the opinion required by Section 5(a)(iv) hereof.
(F) Opinions of Counsel for ContiFinancial. The
favorable opinions of (1) Dewey Ballantine, counsel for
ContiFinancial, and (2) Alan L. Langus, Esq., Chief Counsel
for ContiFinancial, in form and substance reasonably
satisfactory to counsel for the Underwriters, dated such Date
of Delivery, to the same effect as the opinion required by
Section 5(a)(v) hereof.
(G) Opinions of Counsel for Continental Grain. The
favorable opinions of (1) Paul, Weiss, Rifkind, Wharton &
Garrison, counsel for Continental Grain, and (2) Lawrence G.
Weppler, Esq., Vice President and General Counsel-Corporate of
Continental Grain, in form and substance reasonably
satisfactory to counsel for the Underwriters, dated such Date
of Delivery, to the same effect as the opinion required by
Section 5(a)(vi) hereof.
(H) ContiFinancial Accountant's Bring-down Comfort
Letter. A letter from Arthur Andersen LLP, in form and
substance satisfactory to counsel for the Underwriters and
dated such Date of Delivery, substantially the same in form
and substance as the letter furnished to the Underwriters
pursuant to Section 5(a)(xi)
21
<PAGE>
hereof, except that the "specified date" in the letter
furnished pursuant to this paragraph shall be a date not more
than five days prior to such Date of Delivery.
(xvii) Additional Documents. At Closing Time and at each Date
of Delivery, counsel for the Underwriters shall have been furnished
with such documents and opinions as they may reasonably require for the
purpose of enabling them to pass upon the issuance and sale of the
Securities as herein contemplated, or in order to evidence the accuracy
of any of the representations or warranties, or the fulfillment of any
of the conditions, contained herein or in the Registration Agreement;
and all proceedings taken by the Trust in connection with the issuance
and sale of the Securities as herein contemplated shall be reasonably
satisfactory in form and substance to the Representatives and counsel
for the Underwriters.
(b) Termination of Agreement. If any condition specified in subsection
(a) of this Section shall not have been fulfilled when and as required to be
fulfilled, this Agreement, or, in the case of any condition to the purchase of
Option Securities on a Date of Delivery which is after the Closing Time, the
obligations of the Underwriters to purchase the relevant Option Securities, may
be terminated by the Representatives by notice to the Trust and Continental
Grain at any time at or prior to Closing Time or such Date of Delivery, as the
case may be, and such termination shall be without liability of any party to any
other party except as provided in Section 4 and except that Sections 6 and 7
shall survive any such termination and remain in full force and effect.
SECTION 6. Indemnification.
(a) Indemnification of the Underwriters and the Trust by Continental
Grain. Continental Grain agrees to indemnify and hold harmless each Underwriter,
the Trust and each person, if any, who controls any Underwriter or the Trust
within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act
as follows:
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement or
alleged untrue statement of a material fact contained in the Trust
Registration Statement (or any amendment thereto), including the Rule
430A Information and the Rule 434 Information, if applicable, or the
omission or alleged omission therefrom of a material fact required to
be stated therein or necessary to make the statements therein not
misleading or arising out of any untrue statement or alleged untrue
statement of a material fact contained in any Trust preliminary
prospectus or the Trust Prospectus (or any amendment or supplement
thereto), or the omission or alleged omission therefrom of a material
fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement or
alleged untrue statement of a material fact contained in the
ContiFinancial Registration Statement (or any amendment thereto), or
the omission or alleged omission therefrom of a material fact
22
<PAGE>
required to be stated therein or necessary to make the statements
therein not misleading or arising out of any untrue statement or
alleged untrue statement of a material fact contained in any
ContiFinancial preliminary prospectus or the ContiFinancial Prospectus
(or any amendment or supplement thereto), or the omission or alleged
omission therefrom of a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading;
(iii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount
paid in settlement of any litigation, or any investigation or
proceeding by any governmental agency or body, commenced or threatened,
or of any claim whatsoever based upon any such untrue statement or
omission, or any such alleged untrue statement or omission, referred to
under (i) or (ii) above; provided that (subject to Section 6(d) below)
any such settlement is effected with the written consent of Continental
Grain; and
(iv) against any and all expense whatsoever, as incurred
(including the fees and disbursements of counsel chosen by the
Representatives), reasonably incurred in investigating, preparing or
defending against any litigation, or any investigation or proceeding by
any governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omission, or any
such alleged untrue statement or omission, referred to under (i) or
(ii) above, to the extent that any such expense is not paid under (i),
(ii) or (iii) above;
provided, however, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with (A) written information furnished to the Trust by
any Underwriter through Merrill Lynch expressly for use in the Trust
Registration Statement (or any amendment thereto), including the Rule 430A
Information and the Rule 434 Information, if applicable, or any Trust
preliminary prospectus or the Trust Prospectus (or any amendment or supplement
thereto) or (B) written information furnished to ContiFinancial by any
Underwriter through Merrill Lynch expressly for use in the ContiFinancial
Registration Statement (or any amendment thereto) or any ContiFinancial
preliminary prospectus or the ContiFinancial Prospectus (or any amendment or
supplement thereto); provided, further, however, that the foregoing indemnity
with respect to any untrue statement contained in an omission from a Trust
preliminary prospectus or a ContiFinancial preliminary prospectus, as the case
may be, shall not inure to the benefit of any Underwriter (or any person
controlling such Underwriter) from whom such person asserting any such loss,
liability, claim, damage or expense purchased any of the Securities which are
the subject thereof, if such person was not sent or given a copy of the Trust
Prospectus (as amended or supplemented) or the ContiFinancial Prospectus (or the
ContiFinancial Prospectus as amended or supplemented), as the case may be, at or
prior to the written confirmation of the sale of such Securities to such person
and the untrue statement contained in or omission from the Trust Prospectus (as
amended or supplemented) or the ContiFinancial preliminary prospectus, as the
case may be, was corrected in the Trust Prospectus (or the Trust Prospectus as
amended or supplemented) or the ContiFinancial Prospectus (or the ContiFinancial
Prospectus as amended or supplemented), as the case may be.
23
<PAGE>
In the event that any claim for indemnification under Section
6(a)(ii), (iii) or (iv) or contribution under Section 7 hereof is made against
Continental Grain and such indemnified parties seek indemnification or
contribution hereunder against any loss, liability, claim, damage or expense
arising out of any untrue statement or omission, or alleged untrue statement or
omission, referred to under (ii) above (each such circumstance or event, a
"Loss") such indemnified parties shall first seek to satisfy the Loss in full
from ContiFinancial by making a written demand upon ContiFinancial for such
satisfaction, and shall copy Continental Grain on each such written demand.
Only if such Loss shall remain unsatisfied in whole or in part 90 days
following the date of receipt by ContiFinancial of the relevant demand shall
any such indemnified party have the right to take action to satisfy such Loss
by making demand directly on Continental Grain (but only if and to the extent
that ContiFinancial has not already satisfied (and does not thereafter satisfy)
such Loss, whether by settlement, release or otherwise). Continental Grain
shall not be responsible for payment of any amount pursuant to this Section
6(a) or Section 7 in respect of any Loss which exceeds 60% of the sum of (X)
the Firm Consideration Amount (as defined in the Forward Purchase Contract) and
(Y) each Option Consideration Amount (as defined in the Forward Purchase
Contract).
(b) Indemnification of the Trust and Continental Grain. Each
Underwriter severally agrees to indemnify and hold harmless the Trust,
Continental Grain and each person, if any, who controls the Trust or Continental
Grain within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934
Act, against any and all loss, liability, claim, damage and expense described in
the indemnity contained in subsection (a) of this Section, as incurred, but only
with respect to (A) untrue statements or omissions, or alleged untrue statements
or omissions, made in the Trust Registration Statement (or any amendment
thereto), including the Rule 430A Information and the Rule 434 Information, if
applicable, or any Trust preliminary prospectus or the Trust Prospectus (or any
amendment or supplement thereto) in reliance upon and in conformity with written
information furnished to the Trust by such Underwriter through Merrill Lynch
expressly for use in the Trust Registration Statement (or any amendment thereto)
or such Trust preliminary prospectus or the Trust Prospectus (or any amendment
or supplement thereto) or (B) untrue statements or omissions, or alleged untrue
statements or omissions, made in the ContiFinancial Registration Statement (or
any amendment thereto) or any ContiFinancial preliminary prospectus or the
ContiFinancial Prospectus (or any amendment or supplement thereto) in reliance
upon and in conformity with written information furnished to ContiFinancial by
such Underwriter through Merrill Lynch expressly for use in the ContiFinancial
Registration Statement (or any amendment thereto) or any ContiFinancial
preliminary prospectus or the ContiFinancial Prospectus (or any amendment or
supplement thereto).
(c) Actions against Parties; Notification. Each indemnified party shall
give notice as promptly as reasonably practicable to each indemnifying party of
any action commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying party shall not relieve such
indemnifying party from any liability hereunder which it may have otherwise than
on account of this indemnity agreement. In the case of parties indemnified
pursuant to Section 6(a) above, counsel to the indemnified parties shall be
selected by Merrill Lynch, and, in the case of parties indemnified pursuant to
Section 6(b) above, counsel to the indemnified parties shall be selected by
Continental Grain. An indemnifying party may participate at its own expense in
the defense of any such action; provided, however, that counsel
24
<PAGE>
to the indemnifying party shall not (except with the consent of the indemnified
party) also be counsel to the indemnified party. In no event shall the
indemnifying parties be liable for fees and expenses of more than one counsel
(in addition to any local counsel) separate from their own counsel for all
indemnified parties in connection with any one action or separate but similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances. No indemnifying party shall, without the prior
written consent of the indemnified parties, settle or compromise or consent to
the entry of any judgment with respect to any litigation, or any investigation
or proceeding by any governmental agency or body, commenced or threatened, or
any claim whatsoever in respect of which indemnification or contribution could
be sought under this Section 6 or Section 7 hereof (whether or not the
indemnified parties are actual or potential parties thereto), unless such
settlement, compromise or consent (i) includes an unconditional release of each
indemnified party from all liability arising out of such litigation,
investigation, proceeding or claim and (ii) does not include a statement as to
or an admission of fault, culpability or a failure to act by or on behalf of any
indemnified party.
(d) Settlement without Consent if Failure to Reimburse. If at any time
an indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel, such indemnifying party
agrees that it shall be liable for any settlement of the nature contemplated by
Section 6(a)(iii) effected without its written consent if (i) such settlement is
entered into more than 45 days after receipt by such indemnifying party of the
aforesaid request, (ii) such indemnifying party shall have received notice of
the terms of such settlement at least 30 days prior to such settlement being
entered into and (iii) such indemnifying party shall not have reimbursed such
indemnified party in accordance with such request prior to the date of such
settlement for all such fees and expenses counsel, other than such fees and
expenses of counsel which are being contested in good faith by an indemnifying
party.
SECTION 7. Contribution. If the indemnification provided for in Section
6 is for any reason unavailable to or insufficient to hold harmless an
indemnified party in respect of any losses, liabilities, claims, damages or
expenses referred to therein, then each indemnifying party shall contribute to
the aggregate amount of such losses, liabilities, claims, damages and expenses
incurred by such indemnified party, as incurred, (i) in such proportion as is
appropriate to reflect the relative benefits received by the Trust and
Continental Grain on the one hand and the Underwriters on the other hand from
the offering of the Securities pursuant to this Agreement or (ii) if the
allocation provided by clause (i) is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the Trust and Continental
Grain on the one hand and of the Underwriters on the other hand in connection
with the statements or omissions which resulted in such losses, liabilities,
claims, damages or expenses, as well as any other relevant equitable
considerations.
The relative benefits received by the Trust and Continental Grain on
the one hand and the Underwriters on the other hand in connection with the
offering of the Securities pursuant to this Agreement shall be deemed to be such
that the Underwriters shall be responsible for that portion of the aggregate
amount of such losses, liabilities, claims, damages and expenses represented by
the percentage that the total underwriting discount received by the Underwriters
as set forth on the cover of the Trust Prospectus, or, if Rule 434 is used, the
corresponding
25
<PAGE>
location on the Trust Term Sheet, bears to the aggregate initial public offering
price of the Securities as set forth on such cover and Continental Grain shall
be responsible for the balance. The relative fault of the Trust and Continental
Grain on the one hand and the Underwriters on the other hand shall be determined
by reference to, among other things, whether any such untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a material
fact relates to information supplied by the Trust or Continental Grain on the
one hand or by the Underwriters on the other hand and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
The Trust, Continental Grain and the Underwriters agree that it would
not be just and equitable if contribution pursuant to this Section 7 were
determined by pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to above in this Section
7. The aggregate amount of losses, liabilities, claims, damages and expenses
incurred by an indemnified party and referred to above in this Section 7 shall
be deemed to include any legal or other expenses reasonably incurred by such
indemnified party in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever based upon any such
untrue or alleged untrue statement or omission or alleged omission.
Notwithstanding the provisions of this Section 7, no Underwriter shall
be required to contribute any amount in excess of the amount by which the total
price at which the Securities underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of any such untrue or
alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 7, each person, if any, who controls an
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act shall have the same rights to contribution as such Underwriter, and
each person, if any, who controls the Trust or Continental Grain within the
meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have
the same rights to contribution as the Trust or Continental Grain, as the case
may be. The Underwriters' respective obligations to contribute pursuant to this
Section 7 are several in proportion to the number of Securities set forth
opposite their respective names in Schedule A hereto and not joint.
SECTION 8. Representations, Warranties and Agreements to Survive
Delivery. All representations, warranties and agreements contained in this
Agreement or contained in certificates of the Trust, ContiFinancial or
Continental Grain submitted pursuant hereto, shall remain operative and in full
force and effect, regardless of any investigation made by or on behalf of any
Underwriter or controlling person, or by or on behalf of the Trust or
Continental Grain, and shall survive delivery of the Securities to the
Underwriters.
26
<PAGE>
SECTION 9. Termination of Agreement.
(a) Termination; General. The Representatives may terminate this
Agreement, by notice to the Trust and Continental Grain, at any time at or prior
to Closing Time (i) if there has been, since the time of execution of this
Agreement or since the respective dates as of which information is given in the
Trust Prospectus, any material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs, investment objectives or
investment policies of the Trust, whether or not arising in the ordinary course
of business, or (ii) if there has been, since the time of execution of this
Agreement, or since the respective dates as of which information is given in the
ContiFinancial Prospectus, any material adverse change in the condition,
financial or otherwise, or in the earnings, operations or business of
ContiFinancial and its subsidiaries considered as one enterprise, whether or not
arising in the ordinary course of business, or (iii) if there has occurred any
material adverse change in the financial markets in the United States, any
outbreak of hostilities or escalation thereof or other calamity or crisis or any
change or development involving a prospective change in national or
international political, financial or economic conditions, in each case the
effect of which is such as to make it, in the judgment of the Representatives,
impracticable to market the Securities or to enforce contracts for the sale of
the Securities, or (iv) if trading in the Securities or in the ContiFinancial
Common Stock has been suspended or limited by the Commission or the New York
Stock Exchange, or if trading generally on the American Stock Exchange or the
New York Stock Exchange or in the Nasdaq National Market has been suspended or
limited, or minimum or maximum prices for trading have been fixed, or maximum
ranges for prices have been required, by any of said exchanges or by such system
or by order of the Commission, the NASD or any other governmental authority, or
(v) if a banking moratorium has been declared by either federal or New York
authorities.
(b) Liabilities. If this Agreement is terminated pursuant to this
Section 9, such termination shall be without liability of any party to any other
party except as provided in Section 4 hereof, and provided further that Sections
6 and 7 shall survive such termination and remain in full force and effect.
SECTION 10. Default by One or More of the Underwriters. If one or more
of the Underwriters shall fail at Closing Time or a Date of Delivery to purchase
the Securities which it or they are obligated to purchase under this Agreement
(the "Defaulted Securities"), the Representatives shall have the right, within
24 hours thereafter, to make arrangements for one or more of the non-defaulting
Underwriters, or any other underwriters, to purchase all, but not less than all,
of the Defaulted Securities in such amounts as may be agreed upon and upon the
terms herein set forth; if, however, the Representatives shall not have
completed such arrangements within such 24-hour period, then:
(a) if the number of Defaulted Securities does not exceed 10%
of the number of Securities to be purchased on such date, each of the
non-defaulting Underwriters shall be obligated, severally and not
jointly, to purchase the full amount thereof in the proportions that
their respective underwriting obligations hereunder bear to the
underwriting obligations of all non-defaulting Underwriters, or
27
<PAGE>
(b) if the number of Defaulted Securities exceeds 10% of the
number of Securities to be purchased on such date, this Agreement or,
with respect to any Date of Delivery which occurs after the Closing
Time, the obligation of the Underwriters to purchase and of the Trust
to sell the Option Securities to be purchased and sold on such Date of
Delivery, shall terminate without liability on the part of any
non-defaulting Underwriter.
No action taken pursuant to this Section 10 shall relieve any
defaulting Underwriter from liability in respect of its default.
In the event of any such default which does not result in a termination
of this Agreement or, in the case of a Date of Delivery which is after the
Closing Time, which does not result in a termination of the obligation of the
Underwriters to purchase and the Trust to sell the relevant Option Securities,
as the case may be, either the Representatives or the Trust shall have the right
to postpone Closing Time or the relevant Date of Delivery, as the case may be,
for a period not exceeding seven days in order to effect any required changes in
the Trust Registration Statement or Trust Prospectus or in any other documents
or arrangements. As used herein, the term "Underwriter" includes any person
substituted for an Underwriter under this Section 10.
SECTION 11. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the
Underwriters shall be directed to the Representatives at North Tower, World
Financial Center, New York, New York 10281, attention Mark J. Schulte; notices
to the Trust shall be directed to it at c/o Puglisi & Associates, 1850 Library
Avenue, Suite 204, Newark, Delaware 19715, attention of Donald J. Puglisi and
notices to Continental Grain shall be directed to it at 277 Park Avenue, New
York, New York 10172, attention of the Treasurer, with a copy to the Vice
President and General Counsel-Corporate, at the address specified for
Continental Grain herein.
SECTION 12. Parties. This Agreement shall each inure to the benefit of
and be binding upon the Underwriters, the Trust and Continental Grain and their
respective successors. Nothing expressed or mentioned in this Agreement is
intended or shall be construed to give any person, firm or corporation, other
than the parties hereto and their respective successors and the controlling
persons referred to in Sections 6 and 7 and their heirs and legal
representatives, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision herein contained. This Agreement and
all conditions and provisions hereof are intended to be for the sole and
exclusive benefit of the parties hereto and their respective successors, and
said controlling persons and their heirs and legal representatives, and for the
benefit of no other person, firm or corporation. No purchaser of Securities from
any Underwriter shall be deemed to be a successor by reason merely of such
purchase.
SECTION 13. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK. SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY
TIME.
28
<PAGE>
SECTION 14. Effect of Headings. The Article and Section
headings herein and the Table of Contents are for convenience only and shall
not affect the construction hereof.
29
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Trust and Continental Grain a
counterpart hereof, whereupon this instrument, along with all counterparts, will
become a binding agreement among the Underwriters, the Trust and Continental
Grain in accordance with its terms.
Very truly yours,
CONTIFINANCIAL STRYPES TRUST
By _________________________________
Name:
Title:
CONTINENTAL GRAIN COMPANY
By _________________________________
Name:
Title:
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
BEAR, STEARNS & CO. INC.
By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By__________________________________
Authorized Signatory
For themselves and as Representatives of the other Underwriters named in
Schedule A hereto.
30
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Initial
Name of Underwriter Securities
------------------- ----------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated....................................................................
Bear, Stearns & Co. Inc.....................................................................
---------
Total ............................................................................ 2,800,000
=========
</TABLE>
Sch A - 1
<PAGE>
SCHEDULE B
CONTIFINANCIAL STRYPES TRUST
STRYPES(SM)
1. The initial public offering price of the Securities
shall be $ per STRYPES.
2. The purchase price for the Securities to be paid by the
Underwriters shall be $ per STRYPES, being an amount equal to
the initial public offering price set forth above less $ per
STRYPES.
3. The "Threshold Appreciation Price" with respect to
the Securities shall be $ .
- --------------------------
SM Service mark of Merrill Lynch & Co., Inc.
Sch B - 1
<PAGE>
SCHEDULE C
James E. Moore
Robert A. Major
Peter Abeles
Robert J. Babjak
A. John Banu
Daniel J. Egan
Glenn S. Goldman
Scott M. Mannes
Daniel J. Willett
Jerome M. Perelson
Michael J. Festo
Alan L. Langus
Susan E. O'Donovan
James J. Bigham
Michel Fribourg
Paul J. Fribourg
Donald L. Staheli
Lawrence G. Weppler
John W. Spiegel
John P. Tierney
Michael J. Zimmerman
Sch C - 1
<PAGE>
Exhibit A
[Form of lock-up from Directors, Officers or other
stockholders pursuant to Section 5(a)(xiv)]
_______ __, 1997
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Bear, Stearns & Co. Inc.
as Representatives of the several Underwriters
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Re: Proposed Public Offering of STRYPES by the Underwriters
Ladies and Gentlemen:
The undersigned, a stockholder [and an officer and/or director] of
ContiFinancial Corporation, a Delaware corporation (the "Company"), understands
that Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch") and Bear, Stearns & Co. Inc. propose to enter into a Purchase
Agreement (the "Purchase Agreement") with CONTIFINANCIAL STRYPES Trust, a
Delaware business trust (the "Trust"), and Continental Grain Company providing
for the public offering of the Trust's STRYPES(SM), which are exchangeable on
May 15, 2000 for shares of the Company's Common Stock, par value $.01 per share
(the "ContiFinancial Common Stock"). For good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the undersigned
agrees with each underwriter to be named in the Purchase Agreement that, during
a period of 90 days from the date of the Purchase Agreement, the undersigned
will not, without the prior written consent of Merrill Lynch, offer, sell,
contract to sell or otherwise dispose of, directly or indirectly, any shares of
ContiFinancial Common Stock or any securities convertible into, exchangeable
for or repayable with shares of ContiFinancial Common Stock, whether now owned
or hereafter acquired by the undersigned or with respect to which the
undersigned has or hereafter acquires the power of disposition, or cause to be
filed any registration statement under the Securities Act of 1933, as amended,
with respect to any of the foregoing.
Very truly yours,
Signature:_____________________
Print Name:____________________
A-1
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CONTIFINANCIAL CORPORATION
(a Delaware corporation)
REGISTRATION AGREEMENT
Dated: __________, 1997
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<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
REGISTRATION AGREEMENT.......................................................................................... 1
SECTION 1. Representations and Warranties.................................................... 3
(a) Representations and Warranties by the Company..................................... 3
(i) Compliance with Registration Requirements........................... 3
(ii) Incorporated Documents.............................................. 4
(iii) Independent Accountants............................................. 5
(iv) Financial Statements................................................ 5
(v) No Material Adverse Change in Business.............................. 5
(vi) Good Standing of the Company........................................ 5
(vii) Good Standing of Subsidiaries....................................... 5
(viii) Capitalization...................................................... 6
(ix) Description of Common Stock......................................... 6
(x) Authorization of Agreement.......................................... 6
(xi) Absence of Defaults and Conflicts................................... 6
(xii) Absence of Labor Dispute............................................ 7
(xiii) Absence of Proceedings.............................................. 7
(xiv) Accuracy of Exhibits................................................ 7
(xv) Possession of Intellectual Property................................. 7
(xvi) Absence of Further Requirements..................................... 8
(xvii) Possession of Licenses and Permits.................................. 8
(xviii) Title to Property................................................... 8
(xix) Investment Company Act.............................................. 9
(xx) Environmental Laws.................................................. 9
(xxi) Compliance with Laws................................................ 9
(xxii) Registration Rights................................................. 9
(xxiii) Options and Warrants................................................ 9
(xxiv) Taxes............................................................... 10
(xxv) Insurance........................................................... 10
(xxvi) Accounting Control.................................................. 10
(xxvii) Restriction on Sale of Securities................................... 10
(xxviii) Accuracy of Information............................................. 10
(b) Officer's Certificates............................................................ 11
SECTION 2. Covenants of the Company.......................................................... 11
(a) Compliance with Securities Regulations and Commission
Requests.......................................................................... 11
(b) Filing of Amendments.............................................................. 11
(c) Delivery of ContiFinancial Registration Statements................................ 11
(d) Delivery of ContiFinancial Prospectuses........................................... 12
(e) Continued Compliance with Securities Laws......................................... 12
(f) Blue Sky Qualifications........................................................... 12
(g) Rule 158.......................................................................... 13
(h) Restriction on Sale of Securities................................................. 13
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(i) Reporting Requirements............................................................ 13
SECTION 3. Payment of Expenses............................................................... 13
(a) Expenses.......................................................................... 13
(b) Allocation of Expenses............................................................ 14
SECTION 4. Indemnification................................................................... 14
(a) Indemnification of Underwriters and the Trust..................................... 14
(b) Indemnification of Company, Directors and Officers................................ 15
(c) Actions against Parties; Notification............................................. 15
(d) Settlement without Consent if Failure to Reimburse................................ 16
SECTION 5. Contribution...................................................................... 16
SECTION 6. Representations, Warranties and Agreements to Survive
Delivery.......................................................................... 18
SECTION 7. Termination....................................................................... 18
SECTION 8. Notices........................................................................... 18
SECTION 9. Parties........................................................................... 18
SECTION 10. GOVERNING LAW..................................................................... 18
SECTION 11. Effect of Headings................................................................ 19
SCHEDULE A List of Underwriters........................................................Sch A - 1
SCHEDULE B List of Subsidiaries....................................................... Sch B - 1
SCHEDULE C List of Persons Subject to Lock-up......................................... Sch C - 1
</TABLE>
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CONTIFINANCIAL CORPORATION
(a Delaware corporation)
REGISTRATION AGREEMENT
__________ __, 1997
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
BEAR, STEARNS & CO. INC.
as Representatives of the several Underwriters
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
CONTIFINANCIAL STRYPES TRUST
c/o Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Ladies and Gentlemen:
ContiFinancial Corporation, a Delaware corporation (the "Company"),
confirms its agreement with ContiFinancial STRYPES Trust, a Delaware business
trust (the "Trust"), and with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner
& Smith Incorporated ("Merrill Lynch"), Bear, Stearns & Co. Inc. and each of the
other Underwriters named in Schedule A hereto (collectively, the "Underwriters",
which term shall also include any underwriter substituted as provided in Section
10 of the Purchase Agreement (as defined below)), for whom Merrill Lynch and
Bear, Stearns & Co. Inc. are acting as representatives (in such capacity, the
"Representatives"), in connection with the proposed issue and sale by the Trust
to the Underwriters, acting severally and not jointly, pursuant to a purchase
agreement, dated the
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date hereof (the "Purchase Agreement"), among the Trust, Continental Grain
Company, a Delaware corporation ("Continental Grain"), and the Underwriters, of
an aggregate of 2,800,000 the Trust's STRYPESSM (each, a "STRYPES"),
exchangeable for shares of common stock, par value $.01 per share (the
"ContiFinancial Common Stock"), of the Company upon conclusion of the term of
the Trust on May 15, 2000 (the "Exchange Date"), and, at the option of the
Underwriters, all or any part of [420,000] additional STRYPES to cover
over-allotments, if any. The aforesaid 2,800,000 STRYPES (the "Initial
Securities") to be purchased by the Underwriters and all or any part of the
[420,000] STRYPES subject to the option described in Section 2(b) of the
Purchase Agreement (the "Option Securities") are hereinafter called,
collectively, the "Securities." Capitalized terms used herein and not otherwise
defined shall have the meanings ascribed to them in the Purchase Agreement.
The Company understands that the Underwriters propose to make a public
offering of the Securities as soon as the Representatives deem advisable after
this Agreement and the Purchase Agreement have been executed and delivered. The
Company acknowledges that it has been advised that the execution and delivery of
this Agreement is a condition to the execution and delivery of the Purchase
Agreement by the Underwriters and the Trust, and the Company acknowledges that
it is required to enter into this Agreement by the terms of Section 2 of the
Common Stock Registration Rights Agreement (the "Common Stock Registration
Rights Agreement") between the Company and Continental Grain and that, in
consideration of the Company's obligations under Section 2 of the Common Stock
Registration Rights Agreement and the execution and delivery of the Purchase
Agreement by the Underwriters and the Trust, the Company is willing to make the
representations, warranties and covenants herein contained.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-3 (No. 333-21839) covering the
registration of the shares of ContiFinancial Common Stock deliverable upon
exchange of the Securities under the Securities Act of 1933, as amended (the
"1933 Act"), including the related preliminary prospectus or prospectuses. Each
prospectus used before such registration statement became effective is herein
called a "ContiFinancial preliminary prospectus." Such registration statement,
including the exhibits thereto, the schedules thereto, if any, and the documents
incorporated by reference therein pursuant to Item 12 of Form S-3 under the 1933
Act, at the time it became effective, is herein called the "ContiFinancial
Registration Statement." Any registration statement filed pursuant to Rule
462(b) of the rules and regulations of the Commission under the 1933 Act (the
"1933 Act Regulations") is herein referred to as the "ContiFinancial Rule 462(b)
Registration Statement," and after such filing the term "ContiFinancial
Registration Statement" shall include the ContiFinancial Rule 462(b)
Registration Statement. The final prospectus, including the documents
incorporated by reference therein pursuant to Item 12 of Form S-3 under the 1933
Act, in the form first furnished to the Underwriters for use in connection with
the offering of the Securities is herein called the "ContiFinancial Prospectus."
For purposes of this Agreement, all references to the ContiFinancial
Registration Statement, any ContiFinancial preliminary prospectus, the
ContiFinancial Prospectus or any amendment or supplement to any of the
- --------
SM Service mark of Merrill Lynch & Co., Inc.
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foregoing shall be deemed to include the copy filed with the Commission pursuant
to its Electronic Data Gathering, Analysis and Retrieval system ("EDGAR").
All references in this Agreement to financial statements and schedules
and other information which is "contained," "included" or "stated" in the
ContiFinancial Registration Statement, any ContiFinancial preliminary prospectus
or the ContiFinancial Prospectus (or other references of like import) shall be
deemed to mean and include all such financial statements and schedules and other
information which is incorporated by reference in the ContiFinancial
Registration Statement, any ContiFinancial preliminary prospectus or the
ContiFinancial Prospectus, as the case may be; and all references in this
Agreement to amendments or supplements to the ContiFinancial Registration
Statement, any ContiFinancial preliminary prospectus or the ContiFinancial
Prospectus shall be deemed to mean and include the filing of any document under
the Securities Exchange Act of 1934, as amended (the "1934 Act"), which is
incorporated by reference in the ContiFinancial Registration Statement, such
ContiFinancial preliminary prospectus or the ContiFinancial Prospectus, as the
case may be.
Prior to the closing under the Purchase Agreement, the Trust will enter
into a forward purchase contract (the "Forward Purchase Contract") with
Continental Grain pursuant to which Continental Grain will agree to sell and the
Trust will agree to purchase, immediately prior to the Exchange Date, the
Reference Property (as defined in the Forward Purchase Contract) required by the
Trust to exchange all of the Securities on the Exchange Date as described in the
Trust Prospectus, subject to Continental Grain's right[, to the extent permitted
by applicable law,] to satisfy its obligations thereunder through a cash payment
based on the value of such Reference Property.
SECTION 1. Representations and Warranties.
(a) Representations and Warranties by the Company. The Company
represents and warrants to each Underwriter and to the Trust as of the date
hereof, as of the Closing Time referred to in Section 2(c) of the Purchase
Agreement, and agrees with each Underwriter and the Trust as follows:
(i) Compliance with Registration Requirements. The Company
meets the requirements for the use of Form S-3 under the 1933 Act. Each
of the ContiFinancial Registration Statement and any ContiFinancial
Rule 462(b) Registration Statement has become effective under the 1933
Act and no stop order suspending the effectiveness of the
ContiFinancial Registration Statement or any ContiFinancial Rule 462(b)
Registration Statement has been issued under the 1933 Act and no
proceedings for that purpose have been instituted or are pending or, to
the knowledge of the Company, are contemplated by the Commission, and
any request on the part of the Commission for additional information
has been complied with.
At the respective times the ContiFinancial Registration
Statement, any ContiFinancial Rule 462(b) Registration Statement and
any post-effective amendments
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thereto became effective and at the Closing Time (and, if any Option
Securities are purchased, at the Date of Delivery), the ContiFinancial
Registration Statement, the ContiFinancial Rule 462(b) Registration
Statement and any amendments and supplements thereto complied and will
comply in all material respects with the requirements of the 1933 Act
and the 1933 Act Regulations and did not and will not contain an untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading. Neither the ContiFinancial Prospectus nor any amendments or
supplements thereto, at the time the ContiFinancial Prospectus or any
such amendment or supplement was issued and at the Closing Time (and,
if any Option Securities are purchased, at the Date of Delivery),
included or will include an untrue statement of a material fact or
omitted or will omit to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading. The representations and
warranties in this subsection shall not apply to statements in or
omissions from the ContiFinancial Registration Statement or
ContiFinancial Prospectus made in reliance upon and in conformity with
(x) information furnished to the Company in writing by any Underwriter
through the Representatives expressly for use in the ContiFinancial
Registration Statement or ContiFinancial Prospectus and (y) information
furnished to the Company in writing by the Trust expressly for use in
the ContiFinancial Registration Statement or ContiFinancial Prospectus.
Each ContiFinancial preliminary prospectus and the
ContiFinancial Prospectus filed as part of the ContiFinancial
Registration Statement as originally filed or as part of any amendment
thereto, or filed pursuant to Rule 424 under the 1933 Act, complied
when so filed in all material respects with the 1933 Act Regulations
and, if applicable, each ContiFinancial preliminary prospectus and the
ContiFinancial Prospectus delivered to the Underwriters for use in
connection with the offering of the Securities was identical to the
electronically transmitted copies thereof filed with the Commission
pursuant to EDGAR, except to the extent permitted by Regulation S-T.
(ii) Incorporated Documents. The documents incorporated or
deemed to be incorporated by reference in the ContiFinancial
Registration Statement and the ContiFinancial Prospectus, when they
became effective or at the time they were or hereafter are filed with
the Commission, complied and will comply in all material respects with
the requirements of the 1933 Act and the 1933 Act Regulations or the
1934 Act and the rules and regulations of the Commission thereunder
(the "1934 Act Regulations"), as applicable, and, when read together
with the other information in the ContiFinancial Prospectus, at the
time the ContiFinancial Registration Statement became effective, at the
time the ContiFinancial Prospectus was issued and at the Closing Time
(and if any Option Securities are purchased, at the Date of Delivery),
did not and will not contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading.
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(iii) Independent Accountants. The accountants who certified
the financial statements and supporting schedules of the Company
included in the ContiFinancial Registration Statement are independent
public accountants as required by the 1933 Act and the 1933 Act
Regulations.
(iv) Financial Statements. The financial statements of the
Company included in the ContiFinancial Registration Statement and the
ContiFinancial Prospectus, together with the related schedules and
notes, present fairly the financial position of the Company and its
consolidated subsidiaries at the dates indicated and the statement of
operations, stockholders' equity and cash flows of the Company and its
consolidated subsidiaries for the periods specified; said financial
statements have been prepared in conformity with generally accepted
accounting principles ("GAAP") in the United States applied on a
consistent basis throughout the periods involved except for changes in
GAAP during such periods. The supporting schedules, if any, included in
the ContiFinancial Registration Statement present fairly in accordance
with GAAP the information required to be stated therein. The selected
financial data and the summary financial information included in the
ContiFinancial Prospectus present fairly the information shown therein
and have been compiled on a basis consistent with that of the audited
financial statements included in the ContiFinancial Registration
Statement.
(v) No Material Adverse Change in Business. Since the
respective dates as of which information is given in the ContiFinancial
Registration Statement and the ContiFinancial Prospectus, except as
otherwise stated therein, (A) there has been no material adverse change
in the condition, financial or otherwise, or in the earnings,
operations or business of the Company and its subsidiaries considered
as one enterprise, whether or not arising in the ordinary course of
business (a "Material Adverse Effect"), (B) there have been no
transactions entered into by the Company or any of its subsidiaries,
other than those in the ordinary course of business, which are material
with respect to the Company and its subsidiaries considered as one
enterprise, and (C) there has been no dividend or distribution of any
kind declared, paid or made by the Company on any class of its capital
stock.
(vi) Good Standing of the Company. The Company has been duly
organized and is validly existing as a corporation in good standing
under the laws of the State of Delaware and has corporate power and
authority to own, lease and operate its properties and to conduct its
business as described in the ContiFinancial Prospectus and to enter
into and perform its obligations under this Agreement; and the Company
is duly qualified as a foreign corporation to transact business and is
in good standing in each other jurisdiction in which such qualification
is required, whether by reason of the ownership or leasing of property
or the conduct of business, except where the failure so to qualify or
to be in good standing would not result in a Material Adverse Effect.
(vii) Good Standing of Subsidiaries. Each "significant
subsidiary" of the Company (as such term is defined in Rule 1-02 of
Regulation S-X) (each, a "Subsidiary"
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and, collectively, the "Subsidiaries") has been duly organized and is
validly existing as a corporation in good standing under the laws of
the jurisdiction of its incorporation, has corporate power and
authority to own, lease and operate its properties and to conduct its
business as described in the ContiFinancial Prospectus and is duly
qualified as a foreign corporation to transact business and is in good
standing in each jurisdiction in which such qualification is required,
whether by reason of the ownership or leasing of property or the
conduct of business, except where the failure so to qualify or to be in
good standing would not result in a Material Adverse Effect; except as
otherwise disclosed in the ContiFinancial Registration Statement, all
of the issued and outstanding capital stock of each such Subsidiary has
been duly authorized and validly issued, is fully paid and
non-assessable and is owned by the Company, directly or through
subsidiaries, free and clear of any security interest, mortgage,
pledge, lien, encumbrance, claim or equity; none of the outstanding
shares of capital stock of any Subsidiary was issued in violation of
the preemptive or similar rights of any securityholder of such
Subsidiary. The only subsidiaries of the Company are the subsidiaries
listed on Schedule B hereto.
(viii) Capitalization. The shares of outstanding capital stock
of the Company have been duly authorized and validly issued and are
fully paid and non-assessable; none of the outstanding shares of
capital stock of the Company was issued in violation of the preemptive
or other similar rights of any securityholder of the Company.
(ix) Description of Common Stock. The ContiFinancial
Common Stock conforms to the statements relating thereto contained in
the ContiFinancial Prospectus.
(x) Authorization of Agreement. This Agreement has
been duly authorized, executed and delivered by the Company.
(xi) Absence of Defaults and Conflicts. Neither the Company
nor any of its subsidiaries is in violation of its charter or bylaws or
limited liability company agreement or in default in the performance or
observance of any obligation, agreement, covenant or condition
contained in any contract, indenture, mortgage, deed of trust, loan or
credit agreement, note, lease or other agreement or instrument to which
the Company or any of its subsidiaries is a party or by which it or any
of them may be bound, or to which any of the property or assets of the
Company or any subsidiary is subject (collectively, "Agreements and
Instruments") except for such defaults that would not result in a
Material Adverse Effect; and the execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated
herein and compliance by the Company with its obligations hereunder
have been duly authorized by all necessary corporate action and do not
and will not, whether with or without the giving of notice or passage
of time or both, conflict with or constitute a breach of, or default or
Repayment Event (as defined below) under, or result in the creation or
imposition of any lien, charge or encumbrance upon any property or
assets of the Company or any subsidiary pursuant to, the Agreements and
Instruments (except for such conflicts, breaches or defaults or liens,
charges or encumbrances that would not result in a Material Adverse
Effect), nor will
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such action result in any violation of the provisions of the charter or
bylaws or limited liability company agreement of the Company or any
subsidiary or any applicable law, statute, rule, regulation, judgment,
order, writ or decree of any government, government instrumentality or
court, domestic or foreign, having jurisdiction over the Company or any
subsidiary or any of their assets, properties or operations (except for
such violations of law, statute, rule regulation, judgment, order writ
or decree that would not result in a Material Adverse Effect). As used
herein, a "Repayment Event" means any event or condition which gives
the holder of any note, debenture or other evidence of indebtedness of
the Company or any subsidiary (or any person acting on such holder's
behalf) the right to require the repurchase, redemption or repayment of
all or a portion of such indebtedness by the Company or any subsidiary.
As used herein, a "subsidiary" means a subsidiary more than a majority
of whose outstanding securities representing the right, other than as
affected by events of default, to vote for the election of directors of
such subsidiary or to direct or cause the direction of the management
and policies of such subsidiary, is owned, directly or indirectly, by
the Company.
(xii) Absence of Labor Dispute. No labor dispute with the
employees of the Company or any Subsidiary exists or, to the knowledge
of the Company, is imminent, and the Company is not aware of any
existing or imminent labor disturbance by the employees of any of its
or any Subsidiary's principal suppliers, manufacturers, customers or
contractors, which, in either case, may reasonably be expected to
result in a Material Adverse Effect.
(xiii) Absence of Proceedings. There is no action, suit,
proceeding, or, to the knowledge of the Company, any inquiry or
investigation before or brought by any court or governmental agency or
body, domestic or foreign, now pending with respect to which the
Company has received service of process, or, to the knowledge of the
Company, threatened, against or affecting the Company or any
subsidiary, which is required to be disclosed in the ContiFinancial
Registration Statement (other than as disclosed therein), or which
might, individually or in the aggregate, reasonably be expected to
result in a Material Adverse Effect, or which might, individually or in
the aggregate, reasonably be expected to materially and adversely
affect the properties or assets thereof or the performance by the
Company of its obligations hereunder; the aggregate of all pending
legal or governmental proceedings (with respect to which the
Company has received service of process) to which the Company or any
subsidiary is a party or of which any of their respective property or
assets is the subject which are not described in the ContiFinancial
Registration Statement, including ordinary routine litigation
incidental to the business, could not reasonably be expected to result
in a Material Adverse Effect.
(xiv) Accuracy of Exhibits. There are no contracts or
documents which are required to be described in the ContiFinancial
Registration Statement, the ContiFinancial Prospectus or the documents
incorporated by reference therein or to be filed as exhibits thereto
which have not been so described or filed as required.
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(xv) Possession of Intellectual Property. The Company and its
subsidiaries own or possess, or can acquire on reasonable terms,
adequate patents, patent rights, licenses, inventions, copyrights,
know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or
procedures), trademarks, service marks, trade names or other
intellectual property (collectively, "Intellectual Property") necessary
to carry on the business now operated by them, and neither the Company
nor any of its subsidiaries has received any notice or is otherwise
aware of any infringement of or conflict with asserted rights of others
with respect to any Intellectual Property or of any facts or
circumstances which would render any Intellectual Property invalid or
inadequate to protect the interest of the Company or any of its
subsidiaries therein, and which infringement or conflict (if the
subject of any reasonably likely unfavorable decision, ruling or
finding) or invalidity or inadequacy, singly or in the aggregate, would
result in a Material Adverse Effect.
(xvi) Absence of Further Requirements. No filing with, or
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or
agency is necessary or required for the performance by the Company of
its obligations hereunder, except such as has been already obtained or
as may be required under the 1933 Act or the 1933 Act Regulations or
the 1934 Act or the 1934 Act Regulations or state securities laws.
(xvii) Possession of Licenses and Permits. The Company and its
subsidiaries possess such permits, licenses, approvals, consents and
other authorizations (collectively, "Governmental Licenses") issued by
the appropriate federal, state, local or foreign regulatory agencies or
bodies necessary to conduct the business now operated by them, except
where the failure to possess any such Governmental Licenses would not,
singly or in the aggregate, result in a Material Adverse Effect; the
Company and its subsidiaries are in compliance with the terms and
conditions of all such Governmental Licenses, except where the failure
so to comply would not, singly or in the aggregate, have a Material
Adverse Effect; all of the Governmental Licenses are valid and in full
force and effect, except where the invalidity of such Governmental
Licenses or the failure of such Governmental Licenses to be in full
force and effect would not have a Material Adverse Effect; and neither
the Company nor any of its subsidiaries has received any notice of
proceedings relating to the revocation or modification of any such
Governmental Licenses which, singly or in the aggregate, if the subject
of any reasonably likely unfavorable decision, ruling or finding, would
result in a Material Adverse Effect.
(xviii) Title to Property. The Company and its subsidiaries
have good and marketable title to all real property owned by the
Company and its subsidiaries and good title to all other properties
owned by them, in each case, free and clear of all mortgages, pledges,
liens, security interests, claims, restrictions or encumbrances of any
kind except such as (a) are described in the ContiFinancial Prospectus
or (b) do not, singly or in the aggregate, materially affect the value
of such property and do not interfere with the use made and proposed to
be made of such property by the Company or any of its
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subsidiaries; and all of the leases and subleases material to the
business of the Company and its subsidiaries, considered as one
enterprise, and under which the Company or any of its subsidiaries
holds properties described in the ContiFinancial Prospectus, are in
full force and effect, and neither the Company nor any subsidiary has
any notice of any material claim of any sort that has been asserted by
anyone adverse to the rights of the Company or any subsidiary under any
of the leases or subleases mentioned above, or affecting or questioning
the rights of the Company or such subsidiary to the continued
possession of the leased or subleased premises under any such lease or
sublease.
(xix) Investment Company Act. The Company is not an
"investment company" as such term is defined in the Investment
Company Act of 1940, as amended.
(xx) Environmental Laws. Except as described in the
ContiFinancial Registration Statement and except as would not, singly
or in the aggregate, result in a Material Adverse Effect, (A) neither
the Company nor any of its subsidiaries is in violation of any federal,
state, local or foreign statute, law, rule, regulation, ordinance,
code, policy or rule of common law or any judicial or administrative
interpretation thereof, including any judicial or administrative order,
consent, decree or judgment, relating to pollution or protection of
human health, the environment (including, without limitation, ambient
air, surface water, groundwater, land surface or subsurface strata) or
wildlife, including, without limitation, laws and regulations relating
to the release or threatened release of chemicals, pollutants,
contaminants, wastes, toxic substances, hazardous substances, petroleum
or petroleum products (collectively, "Hazardous Materials") or to the
manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials (collectively,
"Environmental Laws"), (B) the Company and its subsidiaries have all
permits, authorizations and approvals required under any applicable
Environmental Laws and are each in compliance with their requirements,
(C) to the Company's knowledge, there are no pending (with respect to
which the Company has received service of process) or threatened
administrative, regulatory or judicial actions, suits, demands, demand
letters, claims, liens, notices of noncompliance or violation,
investigation or proceedings relating to any Environmental Law against
the Company or any of its subsidiaries and (D) to the Company's
knowledge, there are no events or circumstances that might reasonably
be expected to form the basis of an order for clean-up or remediation,
or an action, suit or proceeding by any private party or governmental
body or agency, against or affecting the Company or any of its
subsidiaries relating to Hazardous Materials or any Environmental Laws.
(xxi) Compliance with Laws. Except as set forth in the
ContiFinancial Registration Statement or the ContiFinancial Prospectus,
the Company and its Subsidiaries are in compliance in all material
respects with all applicable laws, statutes, ordinances, rules or
regulations, the enforcement of which, individually or in the
aggregate, would be reasonably expected to result in a Material Adverse
Effect.
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(xxii) Registration Rights. Except as set forth in the
ContiFinancial Registration Statement or the ContiFinancial Prospectus,
there are no persons with registration or other similar rights to have
any securities registered pursuant to the ContiFinancial Registration
Statement or otherwise registered by the Company under the 1933 Act.
(xxiii) Options and Warrants. Except as disclosed in the
ContiFinancial Registration Statement or the ContiFinancial Prospectus,
there are no outstanding options, warrants, or other rights calling for
the issuance of, and no commitments, plans or arrangements to issue,
any shares of capital stock of the Company or any of its Subsidiaries
or any security convertible into or exchangeable for capital stock of
the Company or any of its Subsidiaries.
(xxiv) Taxes. The Company and its Subsidiaries have filed all
federal, state, local and foreign tax returns that are required to be
filed or have duly requested extensions thereof and have paid all taxes
required to be paid by any of them and any related assessments, fines
or penalties, except for any such tax, assessment, fine or penalty that
is being contested in good faith and by appropriate proceedings; and
adequate charges, accruals and reserves have been provided for in the
financial statements referred to in Section 1 (a)(iv) above in respect
of all federal, state, local and foreign taxes for all periods as to
which the tax liability of the Company or any of its Subsidiaries has
not been finally determined or remains open to examination by
applicable taxing authorities.
(xxv) Insurance. The Company and its Subsidiaries carry or are
entitled to the benefits of insurance in such amounts and covering such
risks as is, in the Company's opinion, reasonably adequate for its
purposes.
(xxvi) Accounting Control. The Company and its Subsidiaries
maintain a system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance
with management's general and specific authorizations; (ii)
transactions are recorded as necessary to permit preparations of
financial statements in conformity with GAAP and to maintain
accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorizations; and
(iv) the recorded accountability for assets is compared with the
existing assets at reasonable intervals and appropriate action is taken
with respect to any differences.
(xxvii) Restriction on Sale of Securities. The Company has
obtained and delivered to the Representatives the agreements of the
persons and entities named in Schedule C annexed hereto to the effect
that each such person will not, for a period of 90 days from the date
hereof and except as otherwise provided therein, without the prior
written consent of Merrill Lynch directly or indirectly, offer to sell,
grant any option for the sale of, or otherwise dispose of, any shares
of ContiFinancial Common Stock or any
10
<PAGE>
securities convertible into or exercisable for ContiFinancial Common
Stock owned by such person or entity or with respect to which such
person has the power of disposition.
(xxviii) Accuracy of Information. The information in the
ContiFinancial Prospectus regarding delinquencies and foreclosures,
loan losses, the value of the servicing portfolios and Excess Spread
Receivables (as such term is defined in the ContiFinancial Registration
Statement) is accurate and complete in all material respects.
(b) Officer's Certificates. Any certificate signed by any officer of
the Company and delivered to the Representatives or counsel for the Underwriters
or to the Trust or counsel for the Trust in connection with the offering of the
Securities shall be deemed a representation and warranty by the Company to each
Underwriter and to the Trust, as the case may be, as to the matters covered
thereby.
SECTION 2. Covenants of the Company. The Company covenants
with each Underwriter and with the Trust as follows:
(a) Compliance with Securities Regulations and Commission Requests. The
Company, subject to Section 2(b), will notify the Representatives and the Trust
immediately, and confirm the notice in writing, (i) when any post-effective
amendment to the ContiFinancial Registration Statement shall become effective,
or any supplement to the ContiFinancial Prospectus or any amended ContiFinancial
Prospectus shall have been filed, (ii) of the receipt of any comments from the
Commission, (iii) of any request by the Commission for any amendment to the
ContiFinancial Registration Statement or any amendment or supplement to the
ContiFinancial Prospectus or for additional information, and (iv) of the
issuance by the Commission of any stop order suspending the effectiveness of the
ContiFinancial Registration Statement or of any order preventing or suspending
the use of any ContiFinancial preliminary prospectus, or of the suspension of
the qualification of the shares of ContiFinancial Common Stock deliverable upon
exchange of the Securities for offering or sale in any jurisdiction, or of the
initiation or threatening of any proceedings for any of such purposes. The
Company will promptly effect the filings necessary pursuant to Rule 424(b) and
will take such steps as it deems necessary to ascertain promptly whether the
form of prospectus transmitted for filing under Rule 424(b) was received for
filing by the Commission and, in the event that it was not, it will promptly
file such prospectus. The Company will make every reasonable effort to prevent
the issuance of any stop order and, if any stop order is issued, to obtain the
lifting thereof at the earliest possible moment.
(b) Filing of Amendments. The Company will give the Representatives and
the Trust notice of its intention to file or prepare any amendment to the
ContiFinancial Registration Statement (including any filing under Rule 462(b))
or any amendment, supplement or revision to either the prospectus included in
the ContiFinancial Registration Statement at the time it became effective or to
the ContiFinancial Prospectus, whether pursuant to the 1933 Act, the 1934 Act or
otherwise, will furnish the Representatives and the Trust with copies of any
such documents a reasonable amount of time prior to such proposed filing or use,
as the case may be,
11
<PAGE>
and will not file or use any such document to which the Representatives or
counsel for the Underwriters or the Trust or counsel for the Trust shall
reasonably object in a timely manner.
(c) Delivery of ContiFinancial Registration Statements. The Company has
furnished or will deliver to the Representatives, counsel for the Underwriters,
the Trust and counsel for the Trust, without charge, signed copies of the
ContiFinancial Registration Statement as originally filed and of each amendment
thereto (including exhibits filed therewith or incorporated by reference therein
and documents incorporated or deemed to be incorporated by reference therein)
and signed copies of all consents and certificates of experts. If applicable,
the copies of the ContiFinancial Registration Statement and each amendment
thereto furnished to the Underwriters and the Trust will be identical to the
electronically transmitted copies thereof filed with the Commission pursuant to
EDGAR, except to the extent permitted by Regulation S-T or Rule 430A of the 1933
Act Regulations.
(d) Delivery of ContiFinancial Prospectuses. The Company has delivered
to each Underwriter, without charge, as many copies of each ContiFinancial
preliminary prospectus as such Underwriter reasonably requested, and the Company
hereby consents to the use of such copies for purposes permitted by the 1933
Act. The Company will furnish to each Underwriter, without charge, during the
period when the ContiFinancial Prospectus is required to be delivered under the
1933 Act or the 1934 Act, such number of copies of the ContiFinancial Prospectus
(as amended or supplemented) as such Underwriter may reasonably request. If
applicable, the ContiFinancial Prospectus and any amendments or supplements
thereto furnished to the Underwriters and the Trust will be identical to the
electronically transmitted copies thereof filed with the Commission pursuant to
EDGAR, except to the extent permitted by Regulation S-T.
(e) Continued Compliance with Securities Laws. The Company will comply
with the 1933 Act and the 1933 Act Regulations so as to permit the completion of
the distribution of the Securities as contemplated in the Purchase Agreement. If
at any time when a prospectus is required by the 1933 Act to be delivered in
connection with sales of the Securities, any event shall occur or condition
shall exist as a result of which it is necessary, in the opinion of counsel for
the Underwriters, counsel for the Trust or counsel for the Company, to amend the
ContiFinancial Registration Statement or amend or supplement the ContiFinancial
Prospectus in order that the ContiFinancial Prospectus will not include any
untrue statements of a material fact or omit to state a material fact necessary
in order to make the statements therein not misleading in the light of the
circumstances existing at the time it is delivered to a purchaser, or if it
shall be necessary, in the opinion of any such counsel, at any such time to
amend the ContiFinancial Registration Statement or amend or supplement the
ContiFinancial Prospectus in order to comply with the requirements of the 1933
Act or the 1933 Act Regulations, the Company will promptly prepare and file with
the Commission, subject to Section 2(b), such amendment or supplement as may be
necessary to correct such statement or omission or to make the ContiFinancial
Registration Statement or the ContiFinancial Prospectus comply with such
requirements, and the Company will furnish to the Underwriters and the Trust
such number of copies of such amendment or supplement as the Underwriters and
the Trust may reasonably request.
12
<PAGE>
(f) Blue Sky Qualifications. The Company will use its best efforts, in
cooperation with the Underwriters, to qualify the shares of ContiFinancial
Common Stock deliverable upon exchange of the Securities for offering and sale
under the applicable securities laws of such states and other jurisdictions
(domestic or foreign) as the Representatives may designate and to maintain such
qualifications in effect through the Exchange Date; provided, however, that the
Company shall not be obligated to file any general consent to service of process
or to qualify as a foreign corporation or as a dealer in securities in any
jurisdiction in which it is not so qualified or to subject itself to taxation in
respect of doing business in any jurisdiction in which it is not otherwise so
subject. In each jurisdiction in which the shares of ContiFinancial Common Stock
deliverable at maturity of the Securities have been so qualified, the Company
will file such statements and reports as may be required by the laws of such
jurisdiction to continue such qualification in effect through the Exchange Date.
(g) Rule 158. The Company will timely file such reports pursuant to the
1934 Act as are necessary in order to make generally available to its
securityholders as soon as practicable an earnings statement for the purposes
of, and to provide the benefits contemplated by, the last paragraph of Section
11(a) of the 1933 Act.
(h) Restriction on Sale of Securities. During a period of 90 days from
the date of the ContiFinancial Prospectus, the Company will not, without the
prior written consent of Merrill Lynch, (i) offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option right or warrant to purchase or otherwise transfer or
dispose of, directly or indirectly, any share of ContiFinancial Common Stock or
any securities convertible into or exercisable or exchangeable for
ContiFinancial Common Stock or file any registration statement under the 1933
Act with respect to any of the foregoing or (ii) enter into any swap or any
other agreement or any transaction that transfers, in whole or in part, directly
or indirectly, the economic consequence of ownership of the ContiFinancial
Common Stock, whether any such swap or transaction described in clause (i) or
(ii) above is to be settled by delivery of ContiFinancial Common Stock or such
other securities, in cash or otherwise. The foregoing sentence shall not apply
to (A) the ContiFinancial Common Stock deliverable upon exchange of the
Securities, (B) any shares of ContiFinancial Common Stock issued by the Company
upon the exercise of an option or warrant or the conversion of a security
outstanding on the date hereof, (C) any shares of ContiFinancial Common Stock
issued or options to purchase ContiFinancial Common Stock issued or options to
purchase ContiFinancial Common Stock granted pursuant to existing employee
benefit plans of the Company or (D) any shares of ContiFinancial Common Stock
issued pursuant to any non-employee director stock plan or dividend reinvestment
plan.
(i) Reporting Requirements. The Company, during the period when the
ContiFinancial Prospectus is required to be delivered under the 1933 Act or the
1934 Act, will file all documents required to be filed with the Commission
pursuant to the 1934 Act within the time periods required by the 1934 Act and
the 1934 Act Regulations.
SECTION 3. Payment of Expenses.
13
<PAGE>
(a) Expenses. The Company will pay all expenses incident to the
performance of its obligations under this Agreement, including (i) the
printing and filing of the ContiFinancial Registration Statement
(including financial statements and exhibits) as originally filed and of each
amendment thereto, (ii) the preparation, printing and delivery to the
Underwriters and the Trust of this Agreement, (iii) the fees and disbursements
of the Company's counsel, accountants and other advisors, (iv) the qualification
of the shares of ContiFinancial Common Stock deliverable upon exchange of the
Securities under securities laws in accordance with the provisions of Section
2(f) hereof, including filing fees and the reasonable fees and disbursements of
counsel for the Underwriters in connection therewith and in connection with the
preparation of the Blue Sky Survey and any supplement thereto, (v) the printing
and delivery to the Underwriters of copies of each ContiFinancial preliminary
prospectus and of the ContiFinancial Prospectus and any amendments or
supplements thereto, (vi) the preparation, printing and delivery to the
Underwriters of copies of the Blue Sky Survey and any supplement thereto, and
(vii) the filing fees incident to, and the reasonable fees and disbursements of
counsel to the Underwriters in connection with, the review by the National
Association of Securities Dealers, Inc. of the terms of the offering and sale of
the shares of ContiFinancial Common Stock deliverable upon exchange of the
Securities.
(b) Allocation of Expenses. The provisions of this Section 3 shall not
affect any agreement that the Company and Continental Grain may make for the
sharing of such costs and expenses.
SECTION 4. Indemnification.
(a) Indemnification of Underwriters and the Trust. The Company agrees
to indemnify and hold harmless each Underwriter, the Trust and each person, if
any, who controls any Underwriter or the Trust within the meaning of Section 15
of the 1933 Act or Section 20 of the 1934 Act, as follows:
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement or
alleged untrue statement of a material fact contained in the
ContiFinancial Registration Statement (or any amendment thereto) or the
omission or alleged omission therefrom of a material fact required to
be stated therein or necessary to make the statements therein not
misleading or arising out of any untrue statement or alleged untrue
statement of a material fact contained in any ContiFinancial
preliminary prospectus or the ContiFinancial Prospectus (or any
amendment or supplement thereto), or the omission or alleged omission
therefrom of a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading;
(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount
paid in settlement of any litigation, or any investigation or
proceeding by any governmental agency or body, commenced or threatened,
or of any claim whatsoever based upon any such untrue
14
<PAGE>
statement or omission, or any such alleged untrue statement or
omission, referred to under (i) above; provided that (subject to
Section 4(d) below) any such settlement is effected with the written
consent of the Company; and
(iii) against any and all expense whatsoever, as incurred
(including the fees and disbursements of counsel chosen by the
Underwriters or the Trust, as the case may be), reasonably incurred in
investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body,
commenced or threatened, or any claim whatsoever based upon any such
untrue statement or omission, or any such alleged untrue statement or
omission, referred to under (i) above, to the extent that any such
expense is not paid under (i) or (ii) above;
provided, however, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with (A) written information furnished to the Company by
any Underwriter through Merrill Lynch expressly for use in the ContiFinancial
Registration Statement (or any amendment thereto), or any ContiFinancial
preliminary prospectus or the ContiFinancial Prospectus (or any amendment or
supplement thereto) or (B) written information furnished to the Company by the
Trust expressly for use in the ContiFinancial Registration Statement (or any
amendment thereto), or any ContiFinancial preliminary prospectus or the
ContiFinancial Prospectus (or any amendment or supplement thereto); provided,
further, however, that the foregoing indemnity with respect to any untrue
statement contained in or omission from a ContiFinancial preliminary prospectus
shall not inure to the benefit of any Underwriter (or any person controlling
such Underwriter) from whom such person asserting any such loss, liability,
claim, damage or expense purchased any of the Securities which are the subject
thereof, if such person was not sent or given a copy of the ContiFinancial
Prospectus (or the ContiFinancial Prospectus as amended or supplemented) at or
prior to the written confirmation of the sale of such Securities to such person
and the untrue statement contained in or omission from the ContiFinancial
preliminary prospectus was corrected in the ContiFinancial Prospectus (or the
ContiFinancial Prospectus as amended or supplemented).
(b) Indemnification of Company, Directors and Officers. Each
Underwriter severally agrees to indemnify and hold harmless the Company, its
directors, each of its officers who signed the ContiFinancial Registration
Statement, and each person, if any, who controls the Company within the meaning
of Section 15 of the 1933 Act or Section 20 of the 1934 Act against any and all
loss, liability, claim, damage and expense described in the indemnity contained
in subsection (a) of this Section, as incurred, but only with respect to untrue
statements or omissions, or alleged untrue statements or omissions, made in the
ContiFinancial Registration Statement (or any amendment thereto), or any
ContiFinancial preliminary prospectus or the ContiFinancial Prospectus (or any
amendment or supplement thereto) in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through Merrill Lynch
expressly for use in the ContiFinancial Registration Statement (or any amendment
thereto) or such ContiFinancial preliminary prospectus or the ContiFinancial
Prospectus (or any amendment or supplement thereto).
15
<PAGE>
(c) Actions against Parties; Notification. Each indemnified party shall
give notice as promptly as reasonably practicable to each indemnifying party of
any action commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying party shall not relieve such
indemnifying party from any liability hereunder to the extent it is not
materially prejudiced as a result thereof and in any event shall not relieve it
from any liability which it may have otherwise than on account of this indemnity
agreement. In the case of parties indemnified pursuant to Section 4(a) above,
counsel to the indemnified parties shall be selected by Merrill Lynch; and, in
the case of parties indemnified pursuant to Section 4(b) above, counsel to the
indemnified parties shall be selected by the Company. An indemnifying party may
participate at its own expense in the defense of any such action; provided,
however, that counsel to the indemnifying party shall not (except with the
consent of the indemnified party) also be counsel to the indemnified party. In
no event shall the indemnifying parties be liable for fees and expenses of more
than one counsel (in addition to any local counsel) separate from their own
counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances. No indemnifying party shall,
without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever in respect of which
indemnification or contribution could be sought under this Section 4 or Section
5 hereof (whether or not the indemnified parties are actual or potential parties
thereto), unless such settlement, compromise or consent (i) includes an
unconditional release of each indemnified party from all liability arising out
of such litigation, investigation, proceeding or claim and (ii) does not include
a statement as to or an admission of fault, culpability or a failure to act by
or on behalf of any indemnified party.
(d) Settlement without Consent if Failure to Reimburse. If at any time
an indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel, such indemnifying party
agrees that it shall be liable for any settlement of the nature contemplated by
Section 4(a)(ii) effected without its written consent if (i) such settlement is
entered into more than 45 days after receipt by such indemnifying party of the
aforesaid request, (ii) such indemnifying party shall have received notice of
the terms of such settlement at least 30 days prior to such settlement being
entered into and (iii) such indemnifying party shall not have reimbursed such
indemnified party in accordance with such request prior to the date of such
settlement for all such fees and expenses of counsel, other than such fees and
expenses of counsel which are being contested in good faith by the indemnifying
party.
SECTION 5. Contribution. If the indemnification provided for in Section
4 hereof is for any reason unavailable to or insufficient to hold harmless an
indemnified party in respect of any losses, liabilities, claims, damages or
expenses referred to therein, then the Company on the one hand and the
Underwriters and the Trust on the other hand shall contribute to the aggregate
amount of such losses, liabilities, claims, damages and expenses incurred by
such indemnified party, as incurred, (i) in such proportion as is appropriate to
reflect the relative benefits received by the Company on the one hand and the
Underwriters and the Trust on the
16
<PAGE>
other hand from the offering of the Securities pursuant to the Purchase
Agreement or (ii) if the allocation provided by clause (i) is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Company on the one hand and of the Underwriters and the Trust on the other
hand in connection with the statements or omissions which resulted in such
losses, liabilities, claims, damages or expenses, as well as any other relevant
equitable considerations.
The relative benefits received by the offering of the Securities
pursuant to the Purchase Agreement shall be deemed to be such that the
Underwriters and the Trust shall be responsible for that portion of the
aggregate amount of such losses, liabilities, claims, damages and expenses
represented by the percentage that the total underwriting discount received by
the Underwriters, as set forth on the cover of the Trust Prospectus, or, if Rule
434 is used, the corresponding location on the Trust Term Sheet, bears to the
aggregate initial public offering price of the Securities as set forth on such
cover and the Company shall be responsible for the balance.
The relative fault of the Company on the one hand and the Underwriters
and the Trust on the other hand shall be determined by reference to, among other
things, whether any such untrue or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact relates to information
supplied by the Company or Continental Grain on the one hand or by the
Underwriters or the Trust on the other hand and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
The Company, the Underwriters and the Trust agree that it would not be
just and equitable if contribution pursuant to this Section 5 were determined by
pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to above in this Section 5. The
aggregate amount of losses, liabilities, claims, damages and expenses incurred
by an indemnified party and referred to above in this Section 5 shall be deemed
to include any legal or other expenses reasonably incurred by such indemnified
party in investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged untrue
statement or omission or alleged omission.
Notwithstanding the provisions of this Section 5, the Underwriters and
the Trust shall not be required to contribute any amount in excess of the amount
by which the total price at which the Securities underwritten by the
Underwriters and distributed to the public were offered to the public exceeds
the amount of any damages which the Underwriters and the Trust have otherwise
been required to pay by reason of any such untrue or alleged untrue statement or
omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
17
<PAGE>
For purposes of this Section 5, each person, if any, who controls an
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act shall have the same rights to contribution as such Underwriter;
each person, if any, who controls the Trust within the meaning of Section 15 of
the 1933 Act shall have the same rights to contribution as the Trust; and each
director of the Company, each officer of the Company who signed the
ContiFinancial Registration Statement, and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act or Section 20 of the
1934 Act shall have the same rights to contribution as the Company. The
Underwriters' respective obligations to contribute pursuant to this Section 5
are several in proportion to the number of Securities set forth opposite their
respective names on Schedule A hereto and not joint.
SECTION 6. Representations, Warranties and Agreements to Survive
Delivery. All representations, warranties and agreements contained in this
Agreement or contained in certificates of officers of the Company submitted
pursuant to the Purchase Agreement, shall remain operative and in full force and
effect, regardless of any investigation made by or on behalf of any Underwriter
or controlling person, or by or on behalf of the Trust or controlling persons or
by or on behalf of the Company, and shall survive delivery of the Securities to
the Underwriters pursuant to the Purchase Agreement.
SECTION 7. Termination. In the event that the Underwriters terminate
the Purchase Agreement as provided in Section 5, Section 9 or Section 10
thereof, this Agreement shall simultaneously terminate, except that the
provisions of Section 3, the indemnity agreements set forth in Section 4, the
contribution provisions set forth in Section 5, and the provisions of Section 6
shall remain in effect.
SECTION 8. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the
Underwriters shall be directed to the Representatives at Merrill Lynch & Co.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated, North Tower, World Financial
Center, New York, New York 10281-1209, attention of Mark J. Schulte; notices to
the Trust shall be directed to it at c/o Puglisi & Associates, 850 Library
Avenue, Suite 204, Newark, Delaware 19715, attention of Donald J. Puglisi;
notices to the Company shall be directed to it at 277 Park Avenue, New York, New
York 10172, attention of Alan L. Langus, Esq., Chief Counsel.
SECTION 9. Parties. This Agreement shall inure to the benefit of and be
binding upon the Underwriters, the Trust and the Company and their respective
successors. Nothing expressed or mentioned in this Agreement is intended or
shall be construed to give any person, firm or corporation, other than the
Underwriters, the Trust and the Company and their respective successors and the
controlling persons and officers and directors referred to in Sections 4 and 5
and their heirs and legal representatives, any legal or equitable right, remedy
or claim under or in respect of this Agreement or any provision herein
contained. This Agreement and all conditions and provisions hereof are intended
to be for the sole and exclusive benefit of the Underwriters, the Trust and the
Company and their respective successors, and said controlling
18
<PAGE>
persons and officers and directors and their heirs and legal representatives,
and for the benefit of no other person, firm or corporation. No purchaser of
Securities from any Underwriter shall be deemed to be a successor by reason
merely of such purchase.
SECTION 10. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK.
SECTION 11. Effect of Headings. The Article and Section headings
herein and the Table of Contents are for convenience only and shall not affect
the construction hereof.
19
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof, whereupon
this instrument, along with all counterparts, will become a binding agreement
among the Underwriters, the Trust and the Company in accordance with its terms.
Very truly yours,
CONTIFINANCIAL CORPORATION
By
-------------------------------
Name:
Title:
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
BEAR, STEARNS & CO. INC.
By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By
- ----------------------------------------
Authorized Signatory
For themselves and as Representatives of the other Underwriters named in
Schedule A hereto.
CONTIFINANCIAL STRYPES TRUST
By
- ----------------------------------------
Name:
Title:
20
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE A
Number of
Initial
Name of Underwriter Securities
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................................................................
Bear, Stearns & Co. Inc....................................................................
---------
Total...................................................................................... 2,800,000
=========
</TABLE>
Sch A - 1
<PAGE>
SCHEDULE B
List of Subsidiaries
ContiMortgage Corporation
ContiWest Corporation
ContiTrade Services L.L.C.
ContiFinancial Services Corporation
ContiSecurities Asset Funding Corp.
ContiSecurities Asset Funding Corp. II
ContiSecurities Asset Funding L.L.C.
ContiSecurities Asset Funding II, L.L.C.
ContiSecurities Asset Funding Corp. III
ContiSecurities Asset Funding Corp. IV
ContiFunding Corporation
Royal Mortgage Partners, L.P. d/b/a Royal MortgageBanc
California Lending Group, Inc. d/b/a United Lending Group
Triad Financial Corporation
Resource One Consumer Discount Company, Inc.
ContiAuto Asset Funding Corp.
Sch B - 1
<PAGE>
SCHEDULE C
James E. Moore
Robert A. Major
Peter Abeles
Robert J. Babjak
A. John Banu
Daniel J. Egan
Glenn S. Goldman
Scott M. Mannes
Daniel J. Willett
Jerome M. Perelson
Michael J. Festo
Alan L. Langus
Susan E. O'Donovan
James J. Bigham
Michel Fribourg
Paul J. Fribourg
Donald L. Staheli
Lawrence G. Weppler
John W. Spiegel
John P. Tierney
Michael J. Zimmerman
Sch C - 1
<PAGE>
Exhibit (j)
CUSTODIAN AGREEMENT
This CUSTODIAN AGREEMENT dated as of this 26th day of March, 1997, by and
between The Chase Manhattan Bank, a New York banking corporation (the
"Custodian"), and ContiFinancial STRYPES Trust (such trust and the trustees
thereof acting in their capacity as such being referred to herein as the
"Trust"), a business trust organized pursuant to the Business Trust Act of the
State of Delaware (Chapter 38, Title 12, of the Delaware Code, 12 Del.C.
(Sections 3801 et seq.)), under and by virtue of an Amended and Restated Trust
Agreement, dated as of March 26, 1997 (the "Trust Agreement").
W I T N E S S E T H
WHEREAS, the Trust is a non-diversified, closed-end management investment
company, as defined in the Investment Company Act of 1940, as amended (the
"Investment Company Act"), formed to purchase and hold certain zero-coupon
U.S. Government securities (the "U.S. Treasury Securities"), to enter into
and hold a forward purchase contract (the "Contract") with The Chase
Manhattan Bank, as agent and custodian for and on behalf of the Trust, and
Continental Grain Company, a majority stockholder of ContiFinancial
Corporation, and to issue Structured Yield Product Exchangeable for
Stock(ServiceMark) (the "STRYPES") in accordance with the terms and
conditions of the Trust Agreement;
WHEREAS, the Trust desires to engage the services of the Custodian to
perform certain custodial duties for the Trust; and
WHEREAS, the Custodian is willing to assume such duties, on the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties agree as follows:
1. DEFINITIONS. Capitalized terms not otherwise defined herein shall
have the respective meanings specified in the Trust Agreement.
______________
(SM) Service mark of Merrill Lynch & Co., Inc.
<PAGE>
2. APPOINTMENT OF CUSTODIAN; TRANSFER OF ASSETS. The Trust hereby
constitutes and appoints the Custodian, and the Custodian accepts such
appointment, as agent of the Trust and as custodian of all of the property,
including but not limited to, the Contract, the U.S. Treasury Securities, the
Temporary Investments, any cash and any other property at any time owned or held
by the Trust (collectively, the "Assets"). The Trust hereby deposits the Assets
with the Custodian and the Custodian hereby accepts such into its custody, and
the Trust shall deliver to the Custodian all of the Assets, including all
monies, securities and other property received by the Trust at any time during
the period of this Agreement, subject to the following terms and conditions.
The Custodian hereby agrees that it shall hold the Assets in a segregated
custody account, separate and distinct from all other accounts, in accordance
with Section 17(f) of, and in such manner as shall constitute the segregation
and holding in trust within the meaning of, the Investment Company Act and the
rules and regulations thereunder. The Trust authorizes the Custodian, for any
Assets held hereunder, to use the services of any United States securities
depository permitted to perform such services for registered investment
companies and their custodians under Rule 17f-4 under the Investment Company Act
and which has been approved by the Trust, including but not limited to, The
Depository Trust Company and the Federal Reserve Book Entry System. The
Custodian shall be under no duty or obligation to inspect, review or examine any
Assets to determine that they are genuine, enforceable, or appropriate for the
represented purpose or that they are other than what they purport to be on their
face.
3. ASSET DISPOSITION; EXAMINATIONS. The Custodian shall have no power or
authority to assign, hypothecate, pledge or otherwise dispose of the Assets,
except pursuant to a written direction in accordance with paragraph 4 below and
then only for the account of the Trust. The Assets shall be subject to no lien
or charge of any kind in favor of the Custodian for itself or for any other
Person claiming through the Custodian. The Custodian shall permit actual
examination of the Assets by the Trust's independent public accountant at the
end of each annual and semi-annual fiscal period of the Trust and at least one
other time during the fiscal year of the Trust chosen by such independent public
accountant and shall permit the inspection of the Assets by the Commission
through its employees or agents during the normal business hours of the
Custodian upon reasonable request.
4. AUTHORIZED ACTIONS. The Custodian shall take such reasonable actions
with respect to the Assets as directed in writing by the Trust or by any officer
of the Administrator duly authorized by the Trustees to give written
instructions on behalf of the Trust and named in such certified resolutions of
the Trustees, as may be received by the Custodian from time to time.
5. CUSTODIAN'S ACTIONS TAKEN IN GOOD FAITH. In connection with the
performance of its duties under this Agreement, the Custodian shall have no
duties or obligations other than those specifically set forth herein or in the
Trust Agreement or as may subsequently be agreed in writing by the parties
hereto and shall be under no liability to the Trust or any Holder for any action
taken in good faith in reliance on any paper, order,
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certification, list, demand, request, consent, affidavit, notice, opinion,
direction, endorsement, assignment, resolution, draft or other document, prima
facie properly executed, or for the disposition of the Assets pursuant to the
Trust Agreement or in respect of any action taken or suffered under the Trust
Agreement in good faith, in accordance with an opinion of counsel or at the
direction of the Trust pursuant hereto; provided that this provision shall not
protect the Custodian against any liability to which it would otherwise be
subject by reason of its willful misfeasance or gross negligence in the
performance of its duties, or its reckless disregard of its obligations and
duties hereunder.
Notwithstanding any other provision of this Agreement, the Custodian shall
under no circumstances be liable for any punitive, exemplary, indirect or
consequential damages.
6. TRUST AGREEMENT VALIDITY. The Custodian shall not be responsible for
the validity or sufficiency of the Trust Agreement or the due execution thereof,
or for the form, character, genuineness, sufficiency, value or validity of any
of the Assets and the Custodian shall in no event assume or incur any liability,
duty or obligation to any Holder or to the Trust, other than as expressly
provided for herein. The Custodian shall not be responsible for or in respect
of the validity of any signature by or on behalf of the Trust.
7. LITIGATION OBLIGATIONS, COSTS AND INDEMNITY. The Custodian shall not
be under any obligation to appear in, prosecute or defend any action which in
its opinion may involve it in expense or liability, unless it shall be furnished
with such reasonable security and indemnity against such expense or liability as
it may require, and any reasonable pecuniary costs of the Custodian from such
actions shall be expenses which are reimbursable pursuant to paragraph 13
hereof.
8. TAXES; TRUST EXPENSES. In no event shall the Custodian be personally
liable for any taxes or other governmental charges imposed upon or in respect of
the Assets or upon the monies, securities or other properties included therein.
The Custodian shall be reimbursed and indemnified by the Trust for all such
taxes and charges, for any tax or charge imposed against the Trust and for any
reasonable expenses, including reasonable counsel fees, interest, penalties and
additions to tax which the Custodian may sustain or incur with respect to such
taxes or charges.
9. CUSTODIAN RESIGNATION, SUCCESSION. (a) The Custodian may resign by
executing an instrument in writing resigning as Custodian and delivering the
same to the Trust, not less than 60 days before the date specified in such
instrument when, subject to clause (b) of this paragraph 9, such resignation is
to take effect. Upon receiving such notice of resignation, the Trust shall use
its reasonable efforts promptly to appoint a successor Custodian in the manner
and meeting the qualifications provided in the Trust Agreement, by written
instrument or instruments delivered to the resigning Custodian and the successor
Custodian.
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(b) In case no successor Custodian shall have been appointed within 30
days after notice of resignation has been received by the Trust, the resigning
Custodian may forthwith apply to a court of competent jurisdiction for the
appointment of a successor Custodian. Such court may thereupon, after such
notice, if any, as it may deem proper and prescribed, appoint a successor
Custodian.
10. CUSTODIAN REMOVAL. The Trust may remove the Custodian upon 60 days
prior written notice to the Custodian and appoint a successor Custodian. In
case at any time the Custodian shall not meet the requirements set forth in the
Trust Agreement or shall become incapable of acting or if a court having
jurisdiction shall enter a decree or order for relief in respect of the
Custodian in an involuntary case, or the Custodian shall commence a voluntary
case, under any applicable bankruptcy, insolvency, or other similar law now or
hereafter in effect, or any receiver, liquidator, assignee, custodian, trustee,
sequestrator (or similar official) for the Custodian or for any substantial part
of its property shall be appointed, or the Custodian shall make any general
assignment for the benefit of creditors, or shall generally fail to pay its
debts as they become due, the Trust may remove the Custodian immediately and
appoint a successor Custodian. The termination of the Administration Agreement
or the Paying Agent Agreement shall cause the removal of the Custodian
simultaneously therewith.
11. TRANSFERS TO SUCCESSOR CUSTODIAN. Upon the request of any successor
Custodian, the Custodian hereunder shall, upon payment of all amounts due it,
execute and deliver an instrument acknowledged by it transferring to such
successor Custodian all the rights and powers of the resigning Custodian; and
the resigning Custodian shall transfer, deliver and pay over to the successor
Custodian the Assets at the time held by it hereunder, if any, together with all
necessary instruments of transfer and assignment or other documents properly
executed necessary to effect such transfer and such of the records or copies
thereof maintained by the resigning Custodian in the administration hereof as
may be requested by the successor Custodian, and shall thereupon be discharged
from all duties and responsibilities hereunder. Any resignation or removal of
the Custodian shall become effective upon such acceptance of appointment by the
successor Custodian. The indemnification of the resigning Custodian provided
for hereunder shall survive any resignation, discharge or removal of the
Custodian hereunder.
12. CUSTODIAN MERGER, CONSOLIDATION. Any corporation into which the
Custodian may be merged or converted or with which it may be consolidated, or
any corporation resulting from any merger, conversion or consolidation to which
the Custodian shall be a party, shall be the successor Custodian hereunder and
under the Trust Agreement without the execution or filing of any paper,
instrument or further act to be done on the part of the parties hereto, provided
that such corporation meets the requirements set forth in the Trust Agreement.
13. COMPENSATION; EXPENSES. The Custodian shall receive compensation for
performing the usual, ordinary, normal and recurring services under this
Custodian
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Agreement and, with the prior written approval of the Trust, reimbursement for
any and all reasonable expenses and disbursements incurred hereunder, as
provided in Section 3.1 of the Administration Agreement.
14. SECTION 17(f) QUALIFICATION. The Custodian hereby represents that it
is qualified to act as a custodian under Section 17(f) of the Investment Company
Act.
15. INDEMNIFICATION. The Trust shall indemnify and hold the Custodian
harmless from and against any loss, damages, liability or claim incurred by
reason of any inaccuracy in information furnished to the Custodian by the Trust,
or any act or omission in the course of, connected with or arising out of any
services to be rendered hereunder, and any reasonable cost or expense (including
the reasonable costs of investigation, preparation for and defense of legal
and/or administrative proceedings related to a claim against it and reasonable
attorneys' fees and disbursements) incurred in connection with any such loss,
damages, liability or claim, provided that the Custodian shall not be
indemnified and held harmless from and against any such loss, damages,
liability, claim or reasonable cost or expense arising from its willful
misfeasance, bad faith or gross negligence in the performance of its duties, or
its reckless disregard of its duties and obligations hereunder. Notwithstanding
the foregoing, it is understood that (i) the Trust shall not, in respect of the
legal expenses of the Custodian in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the fees and expenses of
more than one separate firm (in addition to any local counsel) and (ii) the
Trust shall not be liable for any settlement of any proceeding effected without
the written consent of the Trust, but if settled with such consent or if there
be a final judgment for the third party claimant, the Trust agrees to indemnify
the Custodian from and against any loss or liability by reason of such
settlement or judgment. Neither the Federal Reserve Book Entry System nor The
Depository Trust Company shall be deemed to be agents of the Custodian.
16. RIGHTS OF SET-OFF; BANKER'S LIEN. The Custodian hereby waives all
rights of set-off or banker's lien it may have with respect to the Assets held
by it as Custodian hereunder.
17. TERMINATION. This Agreement shall terminate upon the earlier of the
dissolution of the Trust or the appointment of a successor Custodian.
18. CHOICE OF LAW. This Agreement shall be governed by and construed and
interpreted in accordance with the laws of the State of New York applicable to
agreements made and to be performed wholly within such State.
19. NOTICES. All notices and other communications given by any party
under this Agreement shall be directed as follows (or to such other address for
a particular party as shall be specified by such party in a like notice given
pursuant to this Section 19):
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The Trust: ContiFinancial STRYPES Trust
c/o Puglisi & Associates
850 Library Avenue, Suite 204
Newark, Delaware 19716
Telephone: (302) 738-6680
Telecopier: (302) 738-7210
The Custodian: The Chase Manhattan Bank
450 West 33rd Street
15th Floor
New York, New York 10001-2697
Attn: Structured Products Group, Robert Goodwin
Telephone: (212) 946-7544
Telecopier: (212) 946-3240
Except as otherwise specifically provided herein, all notices and other
communications provided for hereunder shall be in writing and shall be deemed to
have been duly given if either (i) personally delivered (including delivery by
courier service or by Federal Express or any other nationally recognized
overnight delivery service for next day delivery) to the offices set forth
above, in which case they shall be deemed received on the first Business Day by
which delivery shall have been made to said offices, (ii) transmitted by any
standard form of telecommunication to the offices set forth above, in which case
they shall be deemed received on the first Business Day by which a standard
confirmation that such transmission occurred is received by the transmitting
party (unless such confirmation states that such transmission occurred after
5:00 P.M. on such first Business Day, in which case delivery shall be deemed to
have been received on the immediately succeeding Business Day), or (iii) sent by
certified or registered mail, return receipt requested to the offices set forth
above, in which case they shall be deemed received when receipted for unless
acknowledgment of receipt is refused (in which case delivery shall be deemed to
have been received on the first Business Day on which such acknowledgment is
refused).
20. NO THIRD PARTY BENEFICIARIES. Nothing herein, express or implied,
shall give to any Person, other than the Trust, the Custodian and their
respective successors and assigns, any benefit of any legal or equitable right,
remedy or claim hereunder.
21. AMENDMENTS; TRUST AGREEMENT CHANGES; WAIVER. This Agreement shall not
be deemed or construed to be modified, amended, rescinded, cancelled or waived,
in whole or in part, except by a written instrument signed by a duly authorized
representative of the party to be charged. The Trust shall notify the Custodian
of any change in the Trust Agreement prior to the effective date of any such
change. Failure of either party hereto to exercise any right or remedy
hereunder in the event of a breach hereof by the other party shall not
constitute a waiver of any such right or remedy with respect to any subsequent
breach.
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22. EXECUTION IN COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be an original and all of which shall
constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
CONTIFINANCIAL STRYPES TRUST
By__________________________
Donald J. Puglisi,
as Managing Trustee
THE CHASE MANHATTAN BANK
By__________________________
Name:
Title:
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Exhibit (k)(1)
ADMINISTRATION AGREEMENT
This ADMINISTRATION AGREEMENT dated as of this ____ day of April, 1997, by
and between The Chase Manhattan Bank, a New York banking corporation (the
"Administrator"), and ContiFinancial STRYPES Trust (such trust and the trustees
thereof acting in their capacity as such being referred to herein as the
"Trust"), a business trust organized pursuant to the Business Trust Act of the
State of Delaware (Chapter 38, Title 12, of the Delaware Code, 12 Del.C.
(Sections 3801 et seq.)), under and by virtue of an Amended and Restated Trust
Agreement, dated as of March 26, 1997 (the "Trust Agreement").
W I T N E S S E T H
WHEREAS, the Trust is a non-diversified, closed-end management investment
company, as defined in the Investment Company Act of 1940, as amended (the
"Investment Company Act"), formed to purchase and hold certain zero-coupon
U.S. Government securities (the "U.S. Treasury Securities"), to enter into
and hold a forward purchase contract (the "Contract") with The Chase
Manhattan Bank, as agent and custodian for and on behalf of the Trust, and
Continental Grain Company (the "Contracting Stockholder"), a majority
stockholder of ContiFinancial Corporation, and to issue Structured Yield
Product Exchangeable for Stock(ServiceMark) (the "STRYPES") in accordance
with the terms and conditions of the Trust Agreement;
WHEREAS, the Trust desires to engage the services of the Administrator to
assume certain duties and responsibilities of the Trustees under the Trust
Agreement and the Investment Company Act and to undertake certain services on
behalf of and subject to the supervision of the Trust as provided herein; and
WHEREAS, the Administrator is qualified and willing to assume such duties
and responsibilities and to undertake to render such services, subject to the
supervision of the Trust, on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties agree as follows:
_______________________________________
(SM) Service mark of Merrill Lynch & Co., Inc.
<PAGE>
ARTICLE I.
DEFINITIONS
1.1 DEFINITIONS. Capitalized terms not otherwise defined herein shall
have the respective meanings specified in the Trust Agreement.
ARTICLE II.
ENGAGEMENT OF ADMINISTRATOR
2.1 ENGAGEMENT. The Trust hereby engages the Administrator, and the
Administrator hereby agrees to be so engaged, to provide or cause the provision
of the services hereinafter enumerated.
2.2 SERVICES OF ADMINISTRATOR. Subject to the supervision of the Trust,
the Administrator shall on behalf of the Trust take the actions set forth
in Sections 2.6, 2.7 and 2.8 of the Trust Agreement, to the extent such
responsibilities can lawfully be delegated to the Administrator; provided,
however, that the Administrator shall not (i) render investment advisory
services to the Trust as defined in the Investment Company Act or the Investment
Advisers Act of 1940, as amended; (ii) have the power of the Trustees to sell
the U.S. Treasury Securities except as provided in Section 2.8 of the Trust
Agreement; or (iii) have the power to select the independent public accountants
for the Trust. Additionally, the Administrator shall be responsible for
rendering the following services to the Trust:
(a) pay, or cause the Paying Agent to pay, out of moneys paid to the
Administrator pursuant to the Fund Expense Agreement, dated as of April __,
1997, among the Contracting Stockholder, Merrill Lynch & Co., Inc. ("Merrill
Lynch") and the Administrator (the "Fund Expense Agreement"), but in no event
out of the Trust Estate, the fees and expenses of the Trust incurred in
connection with the offering of the STRYPES as specified in Schedule I hereto;
(b) pay, or cause the Paying Agent to pay, out of moneys paid to the
Administrator pursuant to the Fund Expense Agreement, but in no event out of the
Trust Estate, the fees and expenses of the Trust incurred in connection with the
organization of the Trust as specified in Schedule II hereto;
(c) instruct the Paying Agent on behalf of the Trust to take the
actions set forth in Sections 2.6, 2.7 and 2.8 of the Trust Agreement and to
otherwise perform the duties of the Paying Agent referred to in the Trust
Agreement;
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(d) with the approval of the Trustees, engage legal and other
professional advisors, other than the Trust's independent accountants as
provided in clause 2.2 (iii) above, to perform services on behalf of the Trust;
(e) pay all demands, bills and invoices for expenses incurred by or
on behalf of the Trust, or cause the Paying Agent to pay the same, out of moneys
paid to the Administrator pursuant to the Fund Expense Agreement, but in no
event out of the Trust Estate and give notice to Merrill Lynch and the
Contracting Stockholder pursuant to the fund indemnity agreement dated as of
April , 1997 (the "Fund Indemnity Agreement"), among the Trust, the
Contracting Stockholder, and Merrill Lynch of any claim for Indemnification
Expenses (as defined in the Fund Indemnity Agreement) or any threatened claim
for Indemnification Expenses;
(f) (i) cause the legal and other professional advisors engaged
pursuant to Section 2.2(d) to prepare and mail, file or publish, or, as
appropriate, direct the Paying Agent to prepare and mail, file or publish, any
notices, proxies, reports, statements and other communications required to be
mailed or published pursuant to the Trust Agreement and the Investment Company
Act,
(ii) keep (or cause to be kept) all the books and records of the
Trust (other than those to be kept by the Paying Agent), and
(iii) cause the legal and other professional advisors engaged
pursuant to Section 2.2(d) to prepare and, as necessary, file any and all
reports, returns and other documents as required under the Investment Company
Act, the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or
the Internal Revenue Code of 1986, as amended, or, as reasonably requested by
the Trustees, under any other applicable laws, rules or regulations or
otherwise; provided, however, that responsibility for the adequacy and accuracy
of any such reports, returns and other documents shall be that of the Trustees
and provided, further, that the Administrator shall have no liability for the
adequacy or accuracy of such reports, returns and other documents;
(g) at the request of the Trust and upon being furnished with such
reasonable security and indemnity against any related expense or liability as
the Administrator may require, institute and prosecute, in accordance with the
instructions of the Trust, legal or other appropriate proceedings to enforce any
and all rights and remedies of the Trust;
(h) review on behalf of the Trust all notices, reports, certificates
and other documents regarding the Contract and the U.S. Treasury Securities;
(i) make or cause to be made all necessary arrangements with respect
to meetings of Trustees and meetings of Holders, including, without limitation,
the preparation of notices, proxies and minutes, subject to the approval of the
Trust;
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(j) in conjunction with the Trust, determine and publish (or cause to
be determined and published), in such manner as the Trust shall direct in
writing, the Trust's net asset value in accordance with Section 8.2(c) of the
Trust Agreement and the Trust's policy as set forth in the Prospectus;
(k) on or prior to the sixth Business Day preceding the Exchange
Date, or on or prior to the _____ Business Day preceding the Tax Event
Acceleration Date, notify the Depositary and publish (or cause to be
published) a notice in THE WALL STREET JOURNAL or another daily newspaper of
national circulation stating whether the applicable percentage of the number
or amount of each type of Reference Security and other property constituting
part of the Reference Property or cash will be delivered in exchange for the
STRYPES on the Exchange Date or the Tax Event Acceleration Date, as the case
maybe; and
(l) within ten Business Days following the occurrence of an event
that requires an adjustment to the Reference Property (or if the Administrator
is not aware of such occurrence, as soon as practicable after becoming so
aware), to provide written notice to the Holders of the occurrence of such event
and a statement in reasonable detail setting forth the amount or number of each
type of Reference Security and other property then constituting part of the
Reference Property.
2.3 CERTAIN RIGHTS OF THE ADMINISTRATOR. In connection with the
performance of its duties under this Agreement, the Administrator shall not
be liable to the Trust, the Trustees or any Holder (i) for any action taken
or for refraining from taking any action hereunder except in the case of its
willful misfeasance, bad faith, gross negligence or the reckless disregard of
its duties hereunder, (ii) with respect to any action taken or omitted to be
taken by it in good faith in accordance with the directions of the Trust or
of any Trustee or (iii) in connection with the performance of its duties
under Section 2.2(j) hereof, for good faith reliance upon information
furnished by third parties selected by the Administrator with due care. The
Administrator shall under no circumstances be liable for any punitive,
exemplary, indirect or consequential damages. The Administrator may consult
with counsel and the written advice of such counsel shall be full and
complete authorization and protection in respect of any action taken,
suffered or omitted by it hereunder in good faith and in reliance thereon.
The Administrator may perform its duties and exercise its rights hereunder
either directly or by or through agents or attorneys appointed with due care
by it but shall be liable for the acts and omissions of such persons to the
same extent as if the functions had been performed by the Administrator
itself (except to the extent that the Trustees shall have directed the
Administrator to retain such persons in which event the Administrator shall
not be liable for such persons' acts or omissions). The Administrator shall
not be liable and shall be fully protected in acting upon any writing or
document reasonably believed by it to be genuine and to have been given,
signed or made by the proper person or persons and shall not be held to have
any notice of any change of authority of any person until receipt of written
notice thereof from a Trustee. Without limiting the generality of the
preceding sentence, the Administrator (i) may select and employ independent
accountants acceptable to the Trustees (other than the independent public
accountants referred to in clause (iii) of the first sentence of Section 2.2
of this Agreement and Section 2.5(d) of the Trust Agreement) to keep the
financial books and records of the Trust, to prepare the financial statements
of the Trust and to prepare Trust tax returns, and (ii) may select and engage
attorneys acceptable to the Trustees to prepare annual, semi-annual and
periodical reports, notices of meetings and proxy statements, annual reports
to
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holders of STRYPES and other documents required under the Investment Company Act
or the Exchange Act.
2.4 POWER OF ATTORNEY. The Trust hereby appoints the Administrator,
acting through any duly appointed officer, its attorney-in-fact and agent for
the purpose of performing the duties prescribed in Sections 2.2(f)(iii) and
2.2(i).
2.5 DELIVERY OF CERTAIN DOCUMENTS. The Trust will deliver to the
Administrator, promptly following the execution hereof: (a) a complete
conformed copy of the registration statement of the Trust under the Securities
Act and the Investment Company Act, including all amendments, exhibits and
schedules thereto; and (b) the EDGAR access codes (Central Index Key, CIK
Confirmation Code, Password and Password Modification Access Code) employed to
file such registration statement.
ARTICLE III.
COMPENSATION OF ADMINISTRATOR
3.1 COMPENSATION. For services to be rendered by the Administrator
pursuant to this Agreement, as custodian under the Custodian Agreement, dated as
of April __, 1997, between the Administrator, as custodian, and the Trust, and
as collateral agent under the Security and Pledge Agreement, dated as of April
__, 1997, among the Administrator, as collateral agent, the Contracting
Stockholder and the Trust, for services to be rendered by ChaseMellon
Shareholder Services, L.L.C. (the "Paying Agent"), as paying agent, transfer
agent and registrar under the Paying Agent Agreement, dated as of April __,
1997, between the Paying Agent and the Trust, and for the payment of Trust
expenses pursuant to Section 2.2(a), (b) and (e) hereof, the Administrator shall
receive only such fees and expenses as shall be paid to it pursuant to the terms
of the Fund Expense Agreement and shall have no recourse to the Trust Estate for
the payment of any such amounts.
3.2 ADDITIONAL SERVICES. If and to the extent that the Trust shall
request the Administrator to render services for the Trust, other than those to
be rendered by the Administrator hereunder, and if the Administrator agrees to
render such services, such additional services shall be compensated separately
on terms to be agreed upon between the Administrator and the Trust from time to
time.
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ARTICLE IV.
TERMINATION
4.1 TERMINATION.
(a) This Agreement shall terminate immediately upon written notice of
termination from the Trust to the Administrator if any of the following events
shall occur:
(i) If the Administrator shall violate any provision of this
Agreement, the Trust Agreement, or the Investment Company Act, and after notice
of such violation, shall not cure such violation within 30 days; or
(ii) If the Administrator shall be adjudged bankrupt or insolvent
by a court of competent jurisdiction, or an order shall be made by a court of
competent jurisdiction for the appointment of a receiver, liquidator, or trustee
of the Administrator, or of all or substantially all of its property by reason
of the foregoing, or approving any petition filed against the Administrator for
its reorganization, and such adjudication or order shall remain in force or
unstayed for a period of 30 days; or
(iii) If the Administrator shall institute proceedings for
voluntary bankruptcy, or shall file a petition seeking reorganization under the
Federal bankruptcy laws, or for relief under any law for the relief of debtors,
or shall consent to the appointment of a receiver of the Administrator or of all
or substantially all of its property, or shall make a general assignment for the
benefit of its creditors, or shall admit in writing its inability to pay its
debts generally as they become due; or
(iv) Upon the voluntary or involuntary dissolution of the
Administrator, or unless the Trust shall have given its prior written consent
thereto, the merger or consolidation of the Administrator with any other entity.
If any of the events specified in clauses (ii), (iii) or (iv) of this
Section 4.1(a) shall occur, the Administrator shall give immediate written
notice thereof to the Trust.
(b) Notwithstanding anything to the contrary contained herein, this
Agreement shall terminate immediately (i) upon termination of the Trust
Agreement, (ii) upon termination of the Paying Agent Agreement, (iii) upon
termination of the Security and Pledge Agreement, (iv) upon termination of the
Custodian Agreement or (v) upon the resignation or removal of the Custodian.
(c) The Trust may remove the Administrator, or the Administrator may
resign, and thereby terminate this Agreement without penalty upon 60 days prior
written notice to the other party hereto; provided that neither party hereto may
terminate this Agreement pursuant to this Section 4.1(c) unless a successor
Administrator shall have been appointed
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and shall have accepted the duties of the Administrator. If, within 30 days
after notice by the Administrator to the Trust of termination of this Agreement,
no successor Administrator shall have been selected and accepted the duties of
the Administrator, the Administrator may apply to a court of competent
jurisdiction for the appointment of a successor Administrator.
4.2 EFFECT OF TERMINATION. The Administrator shall forthwith upon
termination of this Agreement deliver to the Trust any records or other property
of the Trust then in the possession or custody of the Administrator. Any
obligation to indemnify the Administrator pursuant to Section 6.6 shall survive
the termination of this Agreement.
ARTICLE V.
RECORDS AND REPORTS
5.1 BOOKS AND RECORDS; INSPECTION AND COPYING. The Administrator shall
keep, or cause to be kept, appropriate, and reasonably detailed and accurate,
books and records of all its activities pursuant to this Agreement. The Trust
shall have the right to inspect such books and records during the
Administrator's normal business hours upon reasonable request, and to make
copies of the same at the expense of the Trust.
5.2 ACCESS TO INFORMATION. The Administrator shall make available to the
Trust all information it receives and compiles with respect to the Contract and
the U.S. Treasury Securities, the moneys available to the Trust, the financial
condition of the Trust and all other relevant matters concerning the Trust.
ARTICLE VI.
MISCELLANEOUS
6.1 BINDING EFFECT; SUCCESSORS AND ASSIGNS. Any corporation into which
the Administrator may be merged or converted or with which it may be
consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Administrator shall be a party, shall be the
successor Administrator hereunder and under the Trust Agreement without the
execution or filing of any paper, instrument or further act to be done on the
part of the parties hereto, provided that such corporation meets the
requirements set forth in the Trust Agreement. This Agreement shall be binding
on and inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
6.2 ENTIRE AGREEMENT. This Agreement contains the entire agreement
between the parties with respect to the matters contained herein and supersedes
all prior agreements or understandings, whether oral or written. This Agreement
shall not be
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amended, changed, modified, or discharged, in whole or in part, except by an
instrument in writing signed by both parties hereto, or their respective
successors or permitted assigns.
6.3 NOTICES. All notices, demands, reports, statements, approvals or
consents given by any party under this Agreement shall be directed as follows
(or to such other address for a particular party as shall be specified by such
party in a like notice given pursuant to this Section 6.3):
The Trust: ContiFinancial STRYPES Trust
c/o Puglisi & Associates
850 Library Avenue, Suite 204
Newark, Delaware 19716
Telephone: (302) 738-6680
Telecopier: (302) 738-7210
The Administrator: The Chase Manhattan Bank
450 West 33rd Street
15th Floor
New York, New York 10001-2697
Attn: Structured Products Group, Robert Goodwin
Telephone: (212) 946-7544
Telecopier: (212) 946-3240
Except as otherwise specifically provided herein, all notices, reports and
other communications provided for hereunder shall be in writing and, unless some
other method of giving such notice, report or other communication is accepted by
the party to whom it is to be given or is required by the Trust Agreement or the
Investment Company Act, shall be deemed to have been duly given if either (i)
personally delivered (including delivery by courier service or by Federal
Express or any other nationally recognized overnight delivery service for next
day delivery) to the offices set forth above, in which case they shall be deemed
received on the first Business Day by which delivery shall have been made to
said offices, (ii) transmitted by any standard form of telecommunication to the
offices set forth above, in which case they shall be deemed received on the
first Business Day by which a standard confirmation that such transmission
occurred is received by the transmitting party (unless such confirmation states
that such transmission occurred after 5:00 P.M. on such first Business Day, in
which case delivery shall be deemed to have been received on the immediately
succeeding Business Day), or (iii) sent by certified or registered mail, return
receipt requested to the offices set forth above, in which case they shall be
deemed received when receipted for unless acknowledgment of receipt is refused
(in which case delivery shall be deemed to have been received on the first
Business Day on which such acknowledgment is refused).
8
<PAGE>
6.4 APPLICABLE LAW. This Agreement shall be governed by and construed and
interpreted in accordance with the laws of the State of New York applicable to
agreements made and to be performed wholly within such State.
6.5 NON-ASSIGNABILITY. This Agreement and the rights and obligations of
the parties hereunder may not be assigned or delegated by either party without
the prior written consent of the other party.
6.6 INDEMNIFICATION. The Trust shall indemnify and hold the Administrator
harmless from and against any loss, damages, cost, liability or claim incurred
by reason of any inaccuracy in information furnished to the Administrator by the
Trustees, or any act or omission in the course of, connected with or arising out
of any services to be rendered hereunder, and any reasonable expense (including
the reasonable costs of investigation, preparation for and defense of legal
and/or administrative proceedings related to a claim against it and reasonable
attorneys' fees and disbursements) incurred in connection with any such loss,
damages, cost, liability or claim, provided that the Administrator shall not be
indemnified and held harmless from and against any such loss, damages, cost,
liability, claim or reasonable expense incurred by reason of its willful
misfeasance, bad faith, or gross negligence in the performance of its duties, or
its reckless disregard of its duties and obligations hereunder. Notwithstanding
the foregoing, it is understood that (i) the Trust shall not, in respect of the
legal expenses of the Administrator in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the fees and expenses of
more than one separate firm (in addition to any local counsel) and (ii) the
Trust shall not be liable for any settlement of any proceeding effected without
the written consent of the Trust, but if settled with such consent or if there
be a final judgment for the third party claimant, the Trust agrees to indemnify
the Administrator from and against any loss or liability by reason of such
settlement or judgment.
6.7 PROVISIONS OF LAW TO CONTROL. This Agreement shall be subject to the
applicable provisions of the Investment Company Act and the rules and
regulations of the Commission thereunder. To the extent that any provisions
herein contained conflict with any applicable provisions of the Investment
Company Act or such rules and regulations, the latter shall control.
6.8 COUNTERPARTS. This Agreement may be executed in several counterparts,
each of which shall be an original and all of which shall constitute but one and
the same instrument.
9
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IN WITNESS WHEREOF the parties have hereunto executed this Administration
Agreement as of the day and year first above written.
CONTIFINANCIAL STRYPES TRUST
By:____________________________
Donald J. Puglisi,
as Managing Trustee
THE CHASE MANHATTAN BANK
By:_________________________
Name:
Title:
10
<PAGE>
SCHEDULE I
ITEM AMOUNT
SEC Registration Fees $
AMEX Listing Fees
NASD Fees
Printing (other than STRYPES Certificates)
Legal Fees
Blue Sky Fees
Miscellaneous
Total
11
<PAGE>
SCHEDULE II
ITEM AMOUNT
STRYPES Certificates $
Fees and Expenses of Special Delaware
Counsel to the Trust
Total
12
<PAGE>
Exhibit (K)(2)
PAYING AGENT AGREEMENT
This PAYING AGENT AGREEMENT dated as of this 26th day of March, 1997, by
and between ChaseMellon Shareholder Services, L.L.C., a New Jersey limited
liability company (the "Paying Agent"), and ContiFinancial STRYPES Trust (such
trust and the trustees thereof acting in their capacity as such being referred
to herein as the "Trust"), a business trust organized pursuant to the Business
Trust Act (the "Delaware Act") of the State of Delaware (Chapter 38, Title 12,
of the Delaware Code, 12 Del. C. (Sections 3801 et seq.)) under and by virtue of
an Amended and Restated Trust Agreement, dated as of March 26, 1997 (the "Trust
Agreement").
W I T N E S S E T H
WHEREAS, the Trust is a non-diversified, closed-end management investment
company, as defined in the Investment Company Act of 1940, as amended (the
"Investment Company Act"), formed to purchase and hold certain zero-coupon U.S.
Government securities (the "U.S. Treasury Securities"), to enter into and hold a
forward purchase contract with The Chase Manhattan Bank, as agent and custodian
for and on behalf of the Trust, and Continental Grain Company, a majority
stockholder of ContiFinancial Corporation, and to issue Structured Yield Product
Exchangeable for Stock-SM- (the "STRYPES") to the public in accordance with the
terms and conditions of the Trust Agreement;
WHEREAS, the Trust desires to engage the services of the Paying Agent to
assume certain responsibilities and to perform certain duties as the paying
agent, transfer agent and registrar with respect to the STRYPES upon the terms
and conditions of this Agreement; and
WHEREAS, the Paying Agent is qualified and willing to assume such
responsibilities and to perform such duties, subject to the supervision of the
Trust, on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties agree as follows:
__________
(SM) Service mark of Merrill Lynch & Co., Inc.
<PAGE>
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS. Capitalized terms not otherwise defined herein shall
have the respective meanings specified in the Trust Agreement.
ARTICLE II
PAYING AGENT
2.1 APPOINTMENT OF PAYING AGENT AND ACCEPTANCE. The Trust Agreement
provides that ChaseMellon Shareholder Services, L.L.C. shall act as the initial
Paying Agent. The Chase Manhattan Bank accepts such appointment and agrees to
act in accordance with its standard procedures and the provisions of the Trust
Agreement and the provisions set forth in this Article II as Paying Agent with
respect to the STRYPES. Without limiting the generality of the foregoing, The
Chase Manhattan Bank, as Paying Agent, agrees that it shall establish and
maintain the Trust Account, subject to the provisions of Section 2.3 hereof.
2.2 CERTIFICATES AND NOTICES. The Trust shall deliver to the Paying Agent
the certificates and notices required to be delivered to the Paying Agent
pursuant to the Trust Agreement, and the Paying Agent shall mail or publish such
certificates or notices as required by the Trust Agreement, but the Paying Agent
shall have no responsibility to confirm or verify the accuracy of certificates
or notices of the Trust so delivered.
2.3 PAYMENTS AND INVESTMENTS. The Paying Agent shall make payments out of
the Trust Account as provided for in Section 3.2 of the Trust Agreement. The
Paying Agent on behalf of the Trust shall take the actions set forth in Sections
2.6, 2.7, 2.8, 3.4 and 8.3 of the Trust Agreement upon instructions to do so
from the Administrator (except that with respect to its obligations under
Section 8.3 of the Trust Agreement, the Paying Agent shall act without
instructions from the Administrator) and shall invest moneys on deposit in the
Trust Account in Temporary Investments in accordance with Section 3.4 of the
Trust Agreement. Except as otherwise specifically provided herein or in the
Trust Agreement, the Paying Agent shall not have the power to sell, transfer or
otherwise dispose of any Temporary Investment prior to the maturity thereof, or
to acquire additional Temporary Investments. The Paying Agent shall hold any
Temporary Investment to its maturity and shall apply the proceeds thereof paid
upon maturity to the payment of the next succeeding Quarterly Distribution. All
such Temporary Investments shall be selected by the Trust from time to time or
pursuant to standing instructions from the Trust, and the Paying Agent shall
have no liability to the Trust or any Holder or any other Person with respect to
any such Temporary Investment.
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<PAGE>
2.4 INSTRUCTIONS FROM ADMINISTRATOR. The Paying Agent shall receive and
execute all instructions from the Administrator, except to the extent they
conflict with or are contrary to the terms of the Trust Agreement or this
Agreement.
ARTICLE III
TRANSFER AGENT AND REGISTRAR
3.1 ORIGINAL ISSUE OF CERTIFICATES. On the date the STRYPES sold pursuant
to the Purchase Agreement are originally issued, certificates for the STRYPES
shall be issued by the Trust, and, at the written request of the Trust,
registered in such names and such denominations as the Underwriters shall have
previously requested of the Trust, executed manually or in facsimile by the
Managing Trustee and countersigned by the Paying Agent. At no time shall the
aggregate number of STRYPES represented by such countersigned certificates
exceed the number of then outstanding STRYPES.
3.2 REGISTRY OF HOLDERS. The Paying Agent shall maintain a registry of
the Holders of the STRYPES.
3.3 REGISTRATION OF TRANSFER OF THE STRYPES. The STRYPES shall be
registered for transfer or exchange, and new certificates shall be issued, in
the name of the designated transferee or transferees, upon surrender of the old
certificates in form deemed by the Paying Agent properly endorsed for transfer
with (a) all necessary endorsers' signatures guaranteed in such manner and form
as the Paying Agent may require by a guarantor reasonably believed by the Paying
Agent to be responsible, (b) such assurances as the Paying Agent shall deem
necessary or appropriate to evidence the genuineness and effectiveness of each
necessary endorsement and (c) satisfactory evidence of compliance with all
applicable laws relating to the collection of taxes or funds necessary for the
payment of such taxes.
3.4 LOST CERTIFICATES. If there shall be delivered to the Paying Agent
(i) evidence to its satisfaction of the destruction, loss or theft of any
certificate for a STRYPES and (ii) such security or indemnity as may be required
by it to hold it and any of its agents harmless, then, in the absence of notice
to the Paying Agent that such certificate has been acquired by a bona fide
purchaser, the Managing Trustee shall execute and upon its request the Paying
Agent shall countersign and deliver, in lieu of any such destroyed, lost or
stolen certificate, a new security of like tenor, and bearing a number not
contemporaneously outstanding. Any request by the Managing Trustee to the
Paying Agent to issue a replacement or new certificate pursuant to this Section
3.4 shall be deemed to be a representation and warranty by the Trust to the
Paying Agent that such issuance will comply with provisions of law, the Trust
Agreement and the resolutions adopted by the Trustees with respect to lost
securities. If after the delivery of such new certificate, a bona fide
purchaser of the original certificate in lieu of which such new certificate was
issued presents for
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payment such original certificate, the Trust and the Paying Agent shall be
entitled to recover such new certificate from the person to whom it was
delivered or any transferee thereof, except a bona fide purchaser, and shall be
entitled to recover upon the security or indemnity provided therefor to the
extent of any loss, damage, cost or expense incurred by the Trust or the Paying
Agent in connection therewith. Upon the issuance of any new certificate under
this Section 3.4, the Trust and the Paying Agent may require the payment of a
sum sufficient to cover any tax or other governmental charge that may be imposed
in relation thereto and any other expenses (including the fees and expenses of
the Paying Agent) connected therewith.
3.5 TRANSFER BOOKS. The Paying Agent shall maintain the transfer books
listing the Holders of the STRYPES. In case of any written request or demand
for the inspection of the transfer books of the Trust or any other books in the
possession of the Paying Agent, the Paying Agent will notify the Trust and
secure instructions as to permitting or refusing such inspection. The Paying
Agent reserves the right, however, to exhibit the transfer books or other books
to any person in case it is advised by its counsel that its failure to do so
would be unlawful.
3.6 DISPOSITION OF CANCELLED CERTIFICATES; RECORDS. The Paying Agent
shall retain certificates which have been cancelled in transfer or in exchange
and accompanying documentation in accordance with applicable rules and
regulations of the Securities and Exchange Commission (the "Commission") for
six calendar years from the date of such cancellation, and shall make such
records available during this period at any time, or from time to time, for
reasonable periodic, special, or other examinations by representatives of the
Commission and the Board of Governors of the Federal Reserve System. In case
of any request or demand for the inspection of the register of the Trust or any
other books in the possession of the Paying Agent, the Paying Agent will notify
the Trust and seek to secure instructions as to permitting or refusing such
inspection. The Paying Agent reserves the right, however, to exhibit the
register or other records to any person in case it is advised by its counsel
that its failure to do so would (i) be unlawful, or (ii) expose it to
liability, unless the Trust shall have offered indemnification satisfactory to
the Paying Agent.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE TRUST
The Trust represents and warrants to the Paying Agent that:
(a) the Trust is a validly existing business trust under the Delaware
Act and has full power under the Trust Agreement to execute and deliver this
Agreement and to authorize, create and issue the STRYPES;
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<PAGE>
(b) this Agreement has been duly and validly authorized, executed and
delivered by the Trust and constitutes the valid and binding agreement of the
Trust, enforceable against the Trust in accordance with its terms, subject as to
such enforceability to bankruptcy, insolvency, reorganization and other laws of
general applicability relating to or affecting creditors' rights and to general
equitable principles;
(c) the form of the certificate evidencing the STRYPES complies with
all applicable laws of the State of Delaware and the State of New York;
(d) the STRYPES have been duly and validly authorized, executed and
delivered by the Trust and are validly issued;
(e) the offer and sale of the STRYPES subject to the Purchase
Agreement has been registered under the Securities Act and the Trust has been
registered under the Investment Company Act and no further action by or before
any governmental body or authority of the United States or of any state thereof
is required in connection with the execution and delivery of this Agreement or
the issuance of the STRYPES;
(f) the execution and delivery of this Agreement and the issuance and
delivery of the STRYPES do not and will not conflict with, violate, or result in
a breach of, the terms, conditions or provisions of, or constitute a default
under, the Trust Agreement, any law or regulation, any order or decree of any
court or public authority having jurisdiction over the Trust, or any mortgage,
indenture, contract, agreement or undertaking to which the Trust is a party or
by which it is bound; and
(g) no taxes are payable upon or in respect of the execution of this
Agreement or the issuance of the STRYPES.
ARTICLE V
DUTIES AND RIGHTS
5.1 DUTIES. (a) The Paying Agent is acting solely as agent for the
Trust hereunder and owes no fiduciary duties to any other Person by reason of
this Agreement.
(b) In the absence of bad faith, gross negligence or willful misfeasance
on its part in the performance of its duties hereunder or its reckless disregard
of its duties and obligations hereunder, the Paying Agent shall not be liable
for any action taken, suffered, or omitted in the performance of its duties
under this Agreement or in accordance with any direction or request of the
Managing Trustee not inconsistent with the provisions of this Agreement. The
Paying Agent shall under no circumstances be liable for any punitive, exemplary,
indirect or consequential damages hereunder.
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<PAGE>
5.2 RIGHTS. (a) The Paying Agent may rely and shall be protected in
acting or refraining from acting upon any communication authorized hereby and
upon any written instruction, notice, request, direction, consent, report,
certificate, share certificate or other instrument, paper or document reasonably
believed by it to be genuine. The Paying Agent shall not be liable for acting
upon any telephone communication authorized hereby which the Paying Agent
believes in good faith to have been given by the Managing Trustee.
(b) The Paying Agent may consult with legal counsel and the advice of
such counsel shall be full and complete authorization and protection in respect
of any action taken, suffered or omitted by it hereunder in good faith and in
reliance thereon.
(c) The Paying Agent shall not be required to advance, expend or risk
its own funds or otherwise incur or become exposed to financial liability in the
performance of its duties hereunder.
(d) The Paying Agent may perform its duties and exercise its rights
hereunder either directly or by or through agents or attorneys appointed with
due care by it hereunder but shall be liable for the acts and omissions of such
persons to the same extent as if the functions had been performed by the Paying
Agent itself.
5.3 DISCLAIMER. The Paying Agent makes no representation as to (a) the
first two recitals of this Agreement or (b) the validity, sufficiency,
marketability or adequacy of the STRYPES.
5.4 COMPENSATION, EXPENSES AND INDEMNIFICATION. (a) The Paying Agent
shall receive for all services rendered by it under this Agreement and, upon the
prior written approval of the Trust, for all reasonable expenses, disbursements
and advances incurred or made by the Paying Agent in accordance with any
provision of this Agreement (including the reasonable compensation and the
reasonable expenses and disbursements of its agents and counsel), the
compensation set forth in Section 3.1 of the Administration Agreement.
(b) The Trust shall indemnify the Paying Agent for and hold it
harmless against any loss, liability or claim arising out of or in connection
with the performance of its obligations under this Agreement and any reasonable
cost or expense (including the reasonable costs of investigation, preparation
for and defense of legal and/or administrative proceedings relating to a claim
against it and reasonable attorneys' fees and disbursements) incurred in
connection with any such loss, liability or claim, provided such loss,
liability, claim or reasonable cost or expense is not the result of gross
negligence, willful misfeasance or bad faith on its part in the performance of
its duties hereunder or its reckless disregard of its duties or obligations
hereunder. Notwithstanding the foregoing, it is understood that (i) the Trust
shall not, in respect of the legal expenses of the Paying Agent in connection
with any proceeding or related proceedings in the same jurisdiction, be liable
for the fees and expenses of more than one separate firm (in addition to any
local counsel) and (ii) the Trust
6
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shall not be liable for any settlement of any proceeding effected without the
written consent of the Trust, but if settled with such consent or if there be a
final judgment for the third party claimant, the Trust agrees to indemnify the
Paying Agent from and against any loss or liability by reason of such settlement
or judgment. The indemnification provided by this Section 5.4(b) shall survive
the termination of this Agreement.
ARTICLE VI
MISCELLANEOUS
6.1 TERM OF AGREEMENT. (a) The term of this Agreement is unlimited unless
terminated as provided in this Section 6.1 or unless the Trust is dissolved, in
which case this Agreement shall terminate ten days after the date of dissolution
of the Trust. This Agreement may be terminated by either party hereto without
penalty upon 60 days prior written notice to the other party hereto; provided
that neither party hereto may terminate this Agreement pursuant to this Section
6.1(a) unless a successor Paying Agent shall have been appointed and shall have
accepted the duties of the Paying Agent. Notwithstanding the foregoing, the
termination of the Trust Agreement, the Collateral Agreement, the Administration
Agreement or the Custodian Agreement or the resignation or removal of the
Custodian shall cause the termination of this Agreement simultaneously
therewith. If, within 30 days after notice by the Paying Agent of termination
of this Agreement, no successor Paying Agent shall have been selected and
accepted the duties of the Paying Agent, the Paying Agent may apply to a court
of competent jurisdiction for the appointment of a successor Paying Agent.
(b) The respective rights and duties of the Trust and the Paying
Agent under this Agreement shall cease upon termination of this Agreement,
except as otherwise provided in this paragraph (b) and except that Section 5.4
hereof shall survive the termination of this Agreement. Upon termination of
this Agreement, the Paying Agent shall, at the Trust's request, promptly deliver
to the Trust or to any successor Paying Agent as requested by the Trust (i)
copies of all books and records maintained by it and (ii) any funds deposited
with the Paying Agent by the Trust.
6.2 COMMUNICATIONS. All notices, requests and other communications given
by any party under this Agreement shall be directed as follows (or to such other
address for a particular party as shall be specified by such party in a like
notice given pursuant to this Section 6.2):
7
<PAGE>
The Trust: ContiFinancial STRYPES Trust
c/o Puglisi & Associates
850 Library Avenue
Suite 204
Newark, Delaware 19715
Telephone: (302) 738-6680
Telecopier: (302) 738-7210
The Paying Agent: ChaseMellon Shareholder Services, L.L.C.
450 West 33rd Street
15th Floor
New York, New York 10001-2697
Attn: Stacey Ramos
Telephone: (212) 273-8061
Telecopier: (212) 273-8160
A copy of any notice, request or other communication given by any party
under this Agreement shall be directed to the Administrator if the duties of the
Administrator are being performed by a Person other than the Person performing
the obligations of the Paying Agent. Except for communications authorized to be
made by telephone pursuant to this Agreement, each such notice, request or
communication shall be in writing and shall be deemed to have been duly given if
either (i) personally delivered (including delivery by courier service or by
Federal Express or any other nationally recognized overnight delivery service
for next day delivery) to the offices set forth above, in which case they shall
be deemed received on the first Business Day by which delivery shall have been
made to said offices, (ii) transmitted by any standard form of telecommunication
to the offices set forth above, in which case they shall be deemed received on
the first Business Day by which a standard confirmation that such transmission
occurred is received by the transmitting party (unless such confirmation states
that such transmission occurred after 5:00 P.M. on such first Business Day, in
which case delivery shall be deemed to have been received on the immediately
succeeding Business Day), or (iii) sent by certified mail, return receipt
requested to the offices set forth above, in which case they shall be deemed
received when receipted for unless acknowledgment of receipt is refused (in
which case delivery shall be deemed to have been received on the first Business
Day on which such acknowledgment is refused). Communications shall be given by
the Trust (or by the Administrator, provided that the Trust shall not have
delivered to the Paying Agent an instrument in writing revoking the
authorization of the Administrator to act for it pursuant hereto) and on behalf
of the Paying Agent by a Relationship Manager.
6.3 ENTIRE AGREEMENT. This Agreement contains the entire agreement
between the parties relating to the subject matter hereof, and there are no
other representations, endorsements, promises, agreements or understandings,
oral, written or inferred, between the parties relating to the subject matter
hereof.
8
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6.4 NO THIRD PARTY BENEFICIARIES. Nothing herein, express or implied,
shall give to any Person, other than the Trust, the Paying Agent and their
respective successors and assigns, any benefit of any legal or equitable right,
remedy or claim hereunder.
6.5 AMENDMENT; WAIVER. (a) This Agreement shall not be deemed or
construed to be modified, amended, rescinded, cancelled or waived, in whole or
in part, except by a written instrument signed by a duly authorized
representative of the party to be charged. The Trust shall notify the Paying
Agent of any change in the Trust Agreement prior to the effective date of any
such change.
(b) Failure of either party hereto to exercise any right or remedy
hereunder in the event of a breach hereof by the other party shall not
constitute a waiver of any such right or remedy with respect to any subsequent
breach.
6.6 SUCCESSORS AND ASSIGNS. Any corporation into which the Paying Agent
may be merged or converted or with which it may be consolidated, or any
corporation resulting from any merger, conversion or consolidation to which the
Paying Agent shall be a party, shall be the successor Paying Agent hereunder and
under the Trust Agreement without the execution or filing of any paper,
instrument or further act to be done on the part of the parties hereto, provided
that such corporation meets the requirements set forth in the Trust Agreement,
provided further that the Trust has given its prior written consent to the
Paying Agent with respect to any such merger, conversion or consolidation. This
Agreement shall be binding upon, inure to the benefit of, and be enforceable by,
the respective successors of each of the Trust and the Paying Agent. This
Agreement shall not be assignable by either the Trust or the Paying Agent,
without the prior written consent of the other party.
6.7 SEVERABILITY. If any clause, provision or section hereof shall be
ruled invalid or unenforceable by any court of competent jurisdiction, the
invalidity or unenforceability of such clause, provision or section shall not
affect any of the remaining clauses, provisions or sections hereof.
6.8 EXECUTION IN COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be an original and all of which shall
constitute but one and the same instrument.
6.9 GOVERNING LAW. This Agreement shall be governed by and construed and
interpreted in accordance with the laws of the State of New York applicable to
agreements made and to be performed wholly within such State.
9
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the date first above written.
CONTIFINANCIAL STRYPES TRUST
By: __________________________
Donald J. Puglisi,
as Managing Trustee
THE CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
By: __________________________
Name:
Title:
10
<PAGE>
EXHIBIT (k)(3)
______________________________________________________________________________
______________________________________________________________________________
CONTIFINANCIAL STRYPES TRUST
FORWARD PURCHASE CONTRACT
Dated: April __, 1997
______________________________________________________________________________
______________________________________________________________________________
<PAGE>
TABLE OF CONTENTS
I. DEFINITIONS........................................................ 2
1.1. Definitions................................................... 2
"ACCELERATION AMOUNT"......................................... 2
"ACCELERATION AMOUNT NOTICE".................................. 2
"ACCELERATION DATE"........................................... 2
"ACCELERATION VALUE".......................................... 2
"ADMINISTRATOR"............................................... 2
"AGREEMENT"................................................... 3
"AGGREGATE ACCELERATION VALUE"................................ 3
"AGGREGATE NUMBER"............................................ 3
"BANKRUPTCY CODE"............................................. 3
"BUSINESS DAY"................................................ 3
"CASH PAYMENT AMOUNT"......................................... 3
"CLOSING"..................................................... 3
"CLOSING DATE"................................................ 3
"CLOSING PRICE"............................................... 3
"COLLATERAL AGENT"............................................ 3
"CONTIFINANCIAL" ............................................. 3
"CONTIFINANCIAL COMMON STOCK" ................................ 3
"CONTIFINANCIAL SUCCESSOR" ................................... 3
"CONTRACT COMMITMENT"......................................... 3
"CONTRACT CONSIDERATION"...................................... 4
"DATE OF DELIVERY"............................................ 4
"DISTRIBUTED ASSETS".......................................... 4
"EARLY SETTLEMENT DATE"....................................... 4
"EVENT OF DEFAULT"............................................ 4
"EXCHANGE AMOUNT"............................................. 4
"EXCHANGE DATE"............................................... 4
"EXTRAORDINARY CASH DIVIDEND"................................. 4
"FIRM CONSIDERATION AMOUNT"................................... 5
"FIRM CONTRACT COMMITMENT".................................... 5
"FIRM PAYMENT DATE"........................................... 5
"INDEPENDENT DEALERS"......................................... 5
"INITIAL PRICE"............................................... 5
"INITIAL STRYPES"............................................. 5
"LIQUIDATION VALUE"........................................... 5
"MAXIMUM CONTRACT CONSIDERATION".............................. 5
"NYSE"........................................................ 5
"OPTION CONSIDERATION AMOUNT"................................. 5
"OPTION CONTRACT COMMITMENT".................................. 5
"OPTION STRYPES".............................................. 6
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"PERSON"...................................................... 6
"PURCHASE AGREEMENT".......................................... 6
"PURCHASER"................................................... 6
"PURCHASER REPAYMENT EVENT"................................... 6
"RECEIPT DATE"................................................ 6
"REFERENCE PROPERTY".......................................... 6
"REFERENCE PROPERTY VALUE".................................... 6
"REFERENCE SECURITY".......................................... 6
"REORGANIZATION EVENT"........................................ 6
"SECURITIES ACT".............................................. 6
"SECURITY AND PLEDGE AGREEMENT"............................... 7
"SELLER"...................................................... 7
"SELLER REPAYMENT EVENT"...................................... 7
"SETTLEMENT DATE"............................................. 7
"STRYPES"..................................................... 7
"TAX EVENT"................................................... 7
"TAX EVENT ACCELERATION AMOUNT"............................... 7
"TAX EVENT ACCELERATION DATE"................................. 7
"TAX EVENT DATE".............................................. 7
"THRESHOLD APPRECIATION PRICE"................................ 7
"TRADING DAY"................................................. 7
"TRUST AGREEMENT"............................................. 7
"UNDERWRITERS"................................................ 8
II. CONTRACT CONSIDERATION OR CASH SETTLEMENT.......................... 8
2.1. Sale and Purchase............................................. 8
2.2. Consideration................................................. 8
2.3. Delivery of Contract Consideration............................ 9
2.4. No Fractional Interests....................................... 9
2.5. Cash Settlement Option........................................ 10
2.6. Conditions to Purchaser's Obligations......................... 11
III. REFERENCE PROPERTY ADJUSTMENTS..................................... 11
3.1. (a) Adjustment for Subdivisions, Splits, Combinations or
Reclassifications......................................... 11
(b) Adjustment for Issuance of Certain Rights or Warrants..... 12
(c) Adjustment for Distributions.............................. 13
(d) Adjustment for Consolidation, Merger or Other
Reorganization Event...................................... 13
IV. REPRESENTATIONS AND WARRANTIES OF THE SELLER....................... 14
V. REPRESENTATIONS AND WARRANTIES OF PURCHASER........................ 16
VI. COVENANTS.......................................................... 17
6.1. Collateral.................................................... 17
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6.2. Taxes......................................................... 17
6.3. Tax Treatment................................................. 18
6.4. Certain Notices............................................... 18
6.5. Limitations on Trading During Certain Days.................... 19
6.6. Further Assurances............................................ 19
VII. ACCELERATION OF DELIVERY........................................... 19
7.1. Liquidation of Agreement Upon Event of Default................ 19
7.2. ContiFinancial Reorganization Event; Delivery................. 20
7.3. Acceleration Upon Tax Event................................... 20
VIII. MISCELLANEOUS................................................. 21
8.1. Adjustments to Reference Property; Selection of
IndependentFirm............................................... 21
8.2. Notices....................................................... 22
8.3. Governing Law; Consent to Jurisdiction........................ 22
8.4. WAIVER OF JURY TRIAL.......................................... 22
8.5. Headings; Entire Agreement.................................... 23
8.6. Amendments; Waivers........................................... 23
8.7. Termination................................................... 23
8.8. Successors, Assigns........................................... 23
8.9. No Third Party Rights......................................... 23
8.10.Application of Bankruptcy Code................................ 24
8.11.Counterparts.................................................. 24
iii
<PAGE>
FORWARD PURCHASE CONTRACT
This Forward Purchase Contract is made as of this ____ day of April __,
1997 among ContiFinancial STRYPES Trust, a business trust organized pursuant to
the Business Trust Act of the State of Delaware (Chapter 38, Title 12, of the
Delaware Code, 12 Del. C. (Sections 3801 et seq.)) (such trust and the trustees
thereof acting in their capacity as such being referred to herein as the
"Purchaser"), The Chase Manhattan Bank, a New York banking corporation, as agent
and custodian for and on behalf of the Purchaser (the "Collateral Agent") and as
Administrator (as defined herein), and Continental Grain Company, a Delaware
corporation (the "Seller").
WHEREAS, the Purchaser has filed with the Securities and Exchange
Commission a registration statement on Form N-2 (File Nos. 333-1787 and
811-7565) and Pre-Effective Amendments No. 1, No. 2 and No. 3 thereto
contemplating the offering of up to 3,220,000 of its Structured Yield Product
Exchangeable for Stock(Service mark) (the "STRYPES"), the terms of which
contemplate that, on May 15, 2000 (the "Exchange Date"), each such STRYPES
will be mandatorily exchanged for a specified number or amount of each type
of Reference Security (as defined herein) and other property constituting
part of the Reference Property (as defined herein) (or, in certain
circumstances, cash with an equal value).
WHEREAS, the Purchaser has agreed, pursuant to a purchase agreement dated
the date hereof (the "Purchase Agreement") among the Purchaser, the Seller and
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Bear, Stearns & Co. Inc. and
each of the other Underwriters named in Schedule A thereto (collectively, the
"Underwriters", which term shall also include any underwriter substituted as
provided in Section 10 of the Purchase Agreement), for which Merrill Lynch,
Pierce, Fenner & Smith Incorporated and Bear, Stearns & Co. Inc. are acting as
representatives, to issue and sell to the Underwriters, acting severally and not
jointly, an aggregate of 2,800,000 STRYPES (the "Initial STRYPES") and, at the
Underwriters' option, all or any part of [420,000] additional STRYPES (the
"Option STRYPES") to cover over-allotments, if any.
WHEREAS, the STRYPES are to be issued pursuant to an Amended and Restated
Trust Agreement, dated as of March 26, 1997 (the "Trust Agreement"), among the
trustees of the Purchaser and ML IBK Positions, Inc. and Bear, Stearns & Co.
Inc., as Sponsors.
WHEREAS, in exchange for certain consideration to be paid by the Purchaser
hereunder, the Purchaser and the Seller desire to provide for the future
acquisition, sale and delivery of the aggregate number or amount of each type of
Reference Security and other property constituting part of the Reference
Property required by the Purchaser in order to exchange all of the STRYPES on
the Exchange Date, at the price established under this Agreement.
- --------------------------
(SM) Service mark of Merrill Lynch & Co., Inc.
<PAGE>
WHEREAS, the Seller owns at least 3,220,000 shares of the Common Stock, par
value $0.01 per share (the "ContiFinancial Common Stock"), of ContiFinancial
Corporation, a Delaware corporation ("ContiFinancial").
WHEREAS, pursuant to a Security and Pledge Agreement to be dated as of
April __, 1997 (the "Security and Pledge Agreement"), among the Purchaser, the
Seller, and the Collateral Agent, an aggregate of shares of
ContiFinancial Common Stock initially will be delivered to the Collateral Agent
in order to insure that the Seller's delivery and other obligations hereunder
will be satisfied.
WHEREAS, the Seller and the Purchaser desire that ownership of the Contract
Consideration (as defined herein) (including, without limitation, voting rights
and rights to receive any dividends, interest, distributions and other payments
in respect thereof) remain in the Seller unless and until such Contract
Consideration is delivered to the Purchaser pursuant to the provisions of this
Agreement and the Security and Pledge Agreement; provided, however, that
dividends, interest, distributions and other payments and the proceeds of any
sale required by the provisions hereof shall be retained by the Collateral Agent
in accordance with the provisions of this Agreement and the Security and Pledge
Agreement to the extent such dividends, interest, distributions and other
payments or proceeds constitute part of the Reference Property.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants herein contained, the parties hereto, intending to be legally bound,
hereby mutually covenant and agree as follows:
I.
DEFINITIONS
1.1. DEFINITIONS. For all purposes of this Agreement, except as otherwise
expressly provided or unless the context otherwise requires, the following
terms, when used herein, shall have the following meanings:
"ACCELERATION AMOUNT" has the meaning specified in Section 7.1 hereof.
"ACCELERATION AMOUNT NOTICE" has the meaning specified in Section 7.1
hereof.
"ACCELERATION DATE" means the date on which an Event of Default shall
have occurred.
"ACCELERATION VALUE" has the meaning specified in Section 7.1 hereof.
"ADMINISTRATOR" means The Chase Manhattan Bank, the Administrator for
the Purchaser under the Administration Agreement to be dated as of April
__, 1997, or any successor thereto.
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<PAGE>
"AGREEMENT" means this Forward Purchase Contract and any schedules and
exhibits hereto.
"AGGREGATE ACCELERATION VALUE" has the meaning specified in Section
7.1 hereof.
"AGGREGATE NUMBER" has the meaning specified in Section 3.1(b) hereof.
"BANKRUPTCY CODE" means title 11 of the United States Code.
"BUSINESS DAY" means any day that is not a Saturday, a Sunday or a day
on which the NYSE, The Nasdaq National Market, or banking institutions or
trust companies in The City of New York are authorized or obligated by law
or executive order to close.
"CASH PAYMENT AMOUNT" has the meaning specified in Section 2.5 hereof.
"CLOSING" has the meaning specified in Section 2.3 hereof.
"CLOSING DATE" means the date of the Closing.
"CLOSING PRICE" means, with respect to any Reference Security on any
date of determination, the closing sale price (or, if no closing price is
reported, the last reported sale price) of such Reference Security on the
NYSE on such date or, if such Reference Security is not listed for trading
on the NYSE on any such date, as reported in the composite transactions for
the principal United States securities exchange on which such Reference
Security is so listed, or, if such Reference Security is not listed on a
United States national or regional securities exchange, as reported by the
National Association of Securities Dealers, Inc. Automated Quotation
System, or, if such Reference Security is not so reported, the last quoted
bid price for such Reference Security in the over-the-counter market as
reported by the National Quotation Bureau or similar organization, or, if
such bid price is not available, the market value of such Reference
Security on such date as determined by a nationally recognized independent
investment banking firm retained for this purpose by the Administrator.
"COLLATERAL AGENT" means the financial institution identified as such
in the introductory paragraph of this Agreement, or any successor thereto.
"CONTIFINANCIAL" has the meaning specified in the fifth recital in
this Agreement.
"CONTIFINANCIAL COMMON STOCK" has the meaning specified in the fifth
recital in this Agreement.
"CONTIFINANCIAL SUCCESSOR" means any surviving entity or subsequent
surviving entity of ContiFinancial.
"CONTRACT COMMITMENT" initially means the Firm Contract Commitment and
shall be increased by each Option Contract Commitment as provided in
Section 2.1(b) hereof.
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<PAGE>
"CONTRACT CONSIDERATION" means (i) in the case of a Closing under
Section 2.1 hereof, the aggregate number or amount of each type of
Reference Security and other property constituting part of the Reference
Property deliverable by the Seller on the Settlement Date as provided in
Section 2.1, assuming that the Seller has not elected to exercise the
option contained in Section 2.5 to deliver cash in lieu of Reference
Property; (ii) in the case of a Closing under Section 7.1 hereof, the
aggregate number or amount of each type of Reference Security and other
property constituting part of the Reference Property deliverable by the
Seller on the Acceleration Date as provided in Section 7.1 hereof; (iii) in
the case of a Closing under Section 7.2 hereof, the aggregate number or
amount of each type of Reference Security and other property constituting
part of the Reference Property deliverable by the Seller on the Early
Settlement Date as provided in Section 7.2 hereof; and (iv) in the case of
a Closing under Section 7.3 hereof, the amount of cash and the aggregate
number or amount of each type of Reference Security and other property
constituting part of the Reference Property deliverable by the Seller on
the Tax Event Acceleration Date as provided in Section 7.3 hereof, assuming
that the Seller has not elected to exercise the option contained in
Section 2.5 to deliver cash in lieu of Reference Property.
"DATE OF DELIVERY" has the meaning specified in Section 2.1(b) hereof.
"DISTRIBUTED ASSETS" has the meaning specified in Section 3.1(c)
hereof.
"EARLY SETTLEMENT DATE" has the meaning specified in Section 7.2
hereof.
"EVENT OF DEFAULT" means an Event of Default as defined in the
Security and Pledge Agreement.
"EXCHANGE AMOUNT" means the number or amount of each type of Reference
Security and other property constituting part of the Reference Property
determined as of 10:00 A.M. (New York City time) on the second Business Day
preceding the Exchange Date as follows: (i) if the Reference Property
Value is greater than or equal to the Threshold Appreciation Price, ____%
of the number or amount of each type of Reference Security and other
property constituting part of the Reference Property, (ii) if the Reference
Property Value is less than the Threshold Appreciation Price but is greater
than the Initial Price, a percentage of the number or amount of each type
of Reference Security and other property constituting part of the Reference
Property, allocated as proportionately as practicable, so that the
aggregate value thereof is equal to the Initial Price and (iii) if the
Reference Property Value is less than or equal to the Initial Price, 100%
of the number or amount of each type of Reference Security and other
property constituting part of the Reference Property.
"EXCHANGE DATE" has the meaning specified in the first recital in this
Agreement.
"EXTRAORDINARY CASH DIVIDEND" means, with respect to any consecutive
12-month period, the amount, if any, by which the aggregate amount of all
cash dividends on any Reference Security consisting of capital stock
occurring in such 12-month period (or, if such Reference Security was not
outstanding at the commencement of such 12-month period, occurring in such
shorter period during which such Reference Security was
4
<PAGE>
outstanding) exceeds on a per share basis 10% of the average of the Closing
Prices per share of such Reference Security over such 12-month period (or
such shorter period during which such Reference Security was outstanding);
provided that, for purposes of the foregoing definition, the amount of cash
dividends paid on a per share basis shall be appropriately adjusted to
reflect the occurrence during such period of any stock dividend or
distribution of shares of capital stock of the issuer of such Reference
Security or any subdivision, split, combination or reclassification of
shares of such Reference Security.
"FIRM CONSIDERATION AMOUNT" has the meaning specified in Section
2.2(a) hereof.
"FIRM CONTRACT COMMITMENT" has the meaning specified in Section 2.1(a)
hereof.
"FIRM PAYMENT DATE" has the meaning specified in Section 2.2(a)
hereof.
"INDEPENDENT DEALERS" has the meaning specified in Section 7.1 hereof.
"INITIAL PRICE" means $__________.
"INITIAL STRYPES" has the meaning specified in the second recital in
this Agreement.
"LIQUIDATION VALUE" means the aggregate proceeds received by the
Purchaser from the sale of zero-coupon U.S. Government securities pursuant
to Section 2.8(a) of the Trust Agreement upon receipt of notice from the
Contracting Stockholder that it is exercising its option contained in
Section 7.3 hereof to accelerate the settlement of its obligation
hereunder.
"MAJORITY-OWNED SUBSIDIARY" means, with respect to any Person, a
subsidiary more than a majority of whose outstanding securities
representing the right, other than as affected by events of default, to
vote for the election of directors of such subsidiary or to direct or cause
the direction of the management and policies of such subsidiary, is owned
by such Person and or one or more of such Person's other Majority-Owned
Subsidiaries.
"MAXIMUM CONTRACT CONSIDERATION" has the meaning specified in Section
6.1(a) hereof.
"NYSE" means the New York Stock Exchange, Inc.
"OPTION CONSIDERATION AMOUNT" has the meaning specified in Section
2.2(b) hereof.
"OPTION CONTRACT COMMITMENT" has the meaning specified in Section
2.1(b) hereof.
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<PAGE>
"OPTION STRYPES" has the meaning specified in the second recital in
this Agreement.
"PERSON" means an individual, partnership, corporation (including a
business trust), limited liability company, joint stock company, trust,
unincorporated association, joint venture or other entity, or a government
or any political subdivision or agency or instrumentality thereof.
"PURCHASE AGREEMENT" has the meaning specified in the second recital
in this Agreement.
"PURCHASER" has the meaning specified in the introductory paragraph of
this Agreement.
"PURCHASER REPAYMENT EVENT" means any event or condition which gives
the holder of any note, debenture or other evidence of indebtedness (or any
Person acting on such holder's behalf) the right to require the repurchase,
redemption or repayment of all or a portion of such indebtedness by the
Purchaser.
"RECEIPT DATE" has the meaning specified in Section 3.1(b) hereof.
"REFERENCE PROPERTY" initially means one share of ContiFinancial
Common Stock and shall be subject to adjustment from time to time prior to
the Closing Date to reflect the addition or substitution of any cash,
securities and/or other property resulting from the application of the
provisions of Section 3.1 hereof.
"REFERENCE PROPERTY VALUE" means, subject to the provisions of Section
3.1(b), the sum, determined as of 10:00 A.M. (New York City time) on the
second Business Day preceding the Exchange Date, or the Tax Event
Acceleration Date, as the case may be, of (i) for any portion of
the Reference Property consisting of cash, the amount of such cash, (ii)
for any portion of the Reference Property consisting of property other than
cash or Reference Securities, the fair market value of such property (as
determined by a nationally recognized independent investment banking firm
retained for this purpose by the Administrator) as of 10:00 A.M. (New York
City time) on the third Business Day preceding the Exchange Date, or the
Tax Event Acceleration Date, as the case may be, and (iii)
for any portion of the Reference Property consisting of a Reference
Security (including ContiFinancial Common Stock), an amount equal to the
average Closing Price per unit of such Reference Security on the 20 Trading
Days immediately prior to, but not including, the second Trading Day
preceding the Exchange Date or the Tax Event Acceleration Date, as the
case may be, multiplied by the number of units of such
Reference Security constituting part of the Reference Property.
"REFERENCE SECURITY" means, at any time, any security (as defined in
Section 2(1) of the Securities Act) then constituting part of the Reference
Property.
"REORGANIZATION EVENT" has the meaning specified in Section 3.1(d)
hereof.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
6
<PAGE>
"SECURITY AND PLEDGE AGREEMENT" has the meaning specified in the sixth
recital in this Agreement.
"SELLER" has the meaning specified in the introductory paragraph of
this Agreement.
"SELLER REPAYMENT EVENT" means any event or condition which gives the
holder of any note, debenture or other evidence of indebtedness (or any
Person acting on such holder's behalf) the right to require the repurchase,
redemption or repayment of all or a portion of such indebtedness by the
Seller or any Majority-Owned Subsidiary of the Seller.
"SETTLEMENT DATE" has the meaning specified in Section 2.3 hereof.
"STRYPES" has the meaning specified in the first recital in this
Agreement.
"TAX EVENT" means that the Seller shall have delivered to the
Purchaser an opinion from a nationally recognized independent tax counsel
experienced in such matters to the effect that, as a result of (a) any
amendment to, or change in the laws (or any regulations thereunder) of the
United States or any taxing authority thereof or therein or (b) any
amendment to, or change in, an interpretation or application of such laws
or regulations by any legislative body, court, governmental agency or
regulatory authority, enacted or promulgated, or which interpretation is
issued or which action is taken, on or after , 1997, there is more
than an insubstantial risk that, by reason of the Seller having entered
into this Agreement, the Seller would be required to recognize gain for
United States Federal income tax purposes with respect to shares of
ContiFinancial Common Stock deliverable hereunder on a date that is prior
to the date of Closing.
"TAX EVENT ACCELERATION AMOUNT" has the meaning specified in Section
7.3 hereof.
"TAX EVENT ACCELERATION DATE" has the meaning specified in Section 7.3
hereof.
"TAX EVENT CASH SETTLEMENT OPTION" has the meaning specified in
Section 2.5 hereof.
"TAX EVENT DATE" has the meaning specified in Section 7.3 hereof.
"THRESHOLD APPRECIATION PRICE" means $__________.
"TRADING DAY" means, with respect to any Reference Security the
Closing Price of which is being determined, a day on which such Reference
Security (i) is not suspended from trading on any national or regional
securities exchange or association or over-the-counter market at the close
of business and (ii) has traded at least once on the national or regional
securities exchange or association or over-the-counter market that is the
primary market for the trading of such Reference Security.
"TRUST AGREEMENT" has the meaning specified in the third recital in
this Agreement.
7
<PAGE>
"UNDERWRITERS" has the meaning specified in the second recital in this
Agreement.
II.
CONTRACT CONSIDERATION OR CASH SETTLEMENT
2.1. SALE AND PURCHASE. (a) On the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the Seller agrees to sell, assign, transfer, convey and deliver to the
Purchaser on the Settlement Date, and the Purchaser agrees to acquire from the
Seller on the Settlement Date, the aggregate number or amount of each type of
Reference Security and other property constituting part of the Reference
Property equal to the product of the Exchange Amount and _________________ (the
"Firm Contract Commitment").
(b) In addition, on the basis of the representations and warranties herein
contained and subject to the terms and conditions herein set forth, the Seller
hereby grants an option to the Purchaser to purchase on the Settlement Date up
to an additional number or amount of each type of Reference Security and other
property then constituting part of the Reference Property equal to the product
of the Exchange Amount and ______________. The option granted hereby will
expire 30 days after the date hereof and may be exercised in whole or in part
from time to time for the sole purpose of obtaining the aggregate number or
amount of each type of Reference Security and other property constituting part
of the Reference Property that would be required to be delivered by the
Purchaser upon exchange of any Option STRYPES issued by the Purchaser upon
exercise by the Underwriters of the option described in Section 2(b) of the
Purchase Agreement. The Purchaser may exercise the option granted hereby by
delivering to the Seller, upon receipt by the Purchaser of notice that the
Underwriters are exercising their option to purchase Option STRYPES, prompt
notice of such exercise by the Underwriters, stating the number of Option
STRYPES as to which the Underwriters are then exercising the option and the time
and date of payment and delivery for such Option STRYPES (any such time and date
of delivery, a "Date of Delivery"). Upon delivery of any such notice as
aforesaid, the Seller's Contract Commitment shall be increased automatically by
a number (an "Option Contract Commitment") equal to the total number of Option
STRYPES then being purchased by the Underwriters.
2.2. CONSIDERATION. (a) The consideration to be paid by the Purchaser for
the Seller's obligation hereunder to deliver (or cause to be delivered) the
Contract Consideration in respect of the Seller's Firm Contract Commitment shall
be an amount in cash (the "Firm Consideration Amount") equal to $___________.
Upon the terms and subject to the conditions of this Agreement, the Purchaser
shall deliver the Firm Consideration Amount to the Seller at the offices of
Brown & Wood LLP, One World Trade Center, New York, New York 10048, or at such
other place as shall be agreed upon by the Purchaser and the Seller, at 9:00
A.M. (New York City time) on the third (fourth, if the pricing of the STRYPES
offering occurs after 4:30 P.M. (New York City time) on any given day) Business
Day after the date hereof, or such other time not later than ten Business Days
after such date as shall be agreed upon by the Purchaser and the Seller (such
time and date of payment being herein called the "Firm Payment Date").
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<PAGE>
(b) The consideration to be paid by the Purchaser for the Seller's
obligation hereunder to deliver (or cause to be delivered) the Contract
Consideration in respect of any Option Contract Commitment shall be an amount in
cash (the "Option Consideration Amount") equal to the product of such Option
Contract Commitment and the Option Unit Consideration set forth in an Option
Unit Pricing Agreement substantially in the form of Exhibit A hereto. The
Option Unit Pricing Agreement may take the form of an exchange of any standard
form of written telecommunication among the Purchaser and the Seller. From and
after the date of execution and delivery of any Option Unit Pricing Agreement,
this Agreement shall be deemed to incorporate such Option Unit Pricing
Agreement. Upon the terms and subject to the conditions of this Agreement, the
Purchaser shall deliver the Option Consideration Amount to the Seller on the
related Date of Delivery at the offices of Brown & Wood LLP, One World Trade
Center, New York, New York 10048, or at such other place as shall be agreed upon
by the Purchaser and the Seller.
(c) Payment of the Firm Consideration Amount and the Option Consideration
Amount to the Seller shall be made by Fedwire transfer of immediately available
funds to an account designated by the Seller, or such other form of payment
specified by the Seller, against delivery by the Seller to the Collateral Agent
of the number of shares of ContiFinancial Common Stock and/or cash, securities
and other property necessary to comply with the Seller's obligations under
Section 6.1 hereof.
2.3. DELIVERY OF CONTRACT CONSIDERATION. Consummation of the acquisition,
sale and delivery of the Contract Consideration to be sold, assigned,
transferred, conveyed and delivered by the Seller, and acquired by the
Purchaser, pursuant to this Agreement (the "Closing") shall take place (i) in
the case of an acquisition, sale and delivery pursuant to Section 2.1 hereof, on
the Business Day immediately preceding the Exchange Date (the "Settlement
Date"), (ii) in the case of an acquisition, sale and delivery pursuant to
Section 7.1 hereof, upon delivery of the Reference Property to the Purchaser
pursuant to Section 6(a) of the Security and Pledge Agreement, (iii) in the case
of an acquisition, sale and delivery pursuant to Section 7.2 hereof, on the
Early Settlement Date and (iv) in the case of an acquisition, sale and delivery
pursuant to Section 7.3 hereof, on the Tax Event Acceleration Date. Delivery of
the Contract Consideration shall be made at the offices of the Administrator at
450 West 33rd Street, 15th Floor, New York, New York 10001-2697, or at such
other place as shall be agreed upon by the Purchaser and the Seller.
Certificates representing Reference Securities in registered form that are part
of the Contract Consideration shall be registered in the Purchaser's name or in
the name of a depositary or a nominee of a depositary as requested by the
Purchaser, unless such Reference Securities are represented by one or more
global certificates registered in the name of a depositary or a nominee of a
depositary or are book entry securities, in which event the Purchaser's interest
in such securities shall be noted in a manner reasonably satisfactory to the
Purchaser and its counsel. Other property that is a part of the Contract
Consideration delivered to the Purchaser shall be transferable by the Purchaser,
following receipt from the Seller, without any restrictions not generally
applicable to all holders of such other property (other than restrictions
created by the Purchaser or the Collateral Agent).
2.4. NO FRACTIONAL INTERESTS. No fractional units or scrip representing
fractional units of any Reference Security shall be delivered on the Settlement
Date. Instead of any fractional
9
<PAGE>
unit of any such Reference Security which would otherwise be deliverable by the
Seller on the Settlement Date, the Seller shall make a cash payment in respect
of such fractional unit in an amount equal to the value of such fractional unit
based upon the average Closing Price per unit of such Reference Security on the
20 Trading Days immediately prior to, but not including, the second Trading Day
preceding the Exchange Date. To the extent practicable, the Seller will deliver
fractional interests of any Reference Property other than cash or a Reference
Security on the Settlement Date. If such delivery is not practicable, in lieu
of any fractional interest of any Reference Property other than cash or a
Reference Security which would otherwise be deliverable on the Settlement Date,
the Seller shall make a cash payment in respect of such fractional interest in
an amount equal to the value of such fractional interest based on the fair
market value (as determined by a nationally recognized independent investment
banking firm retained for this purpose by the Administrator) as of 10:00 A.M.
(New York City time) on the third Business Day preceding the Exchange Date of
such Reference Property other than cash or a Reference Security.
2.5. CASH SETTLEMENT OPTION. (a) Notwithstanding the provisions of
Sections 2.1, 2.2, 2.3, 2.4 and 7.3 hereof but subject to the provisions of
Section 7.1 hereof, [to the extent permitted by applicable law,] the Seller
shall have the option, exercisable in its sole discretion by notice given to
the Purchaser not more than thirty nor less than six Business Days prior to
the Settlement Date, or the Tax Event Acceleration Date, as the case may be,
to settle its obligations contained therein, in whole but not in part,
through a cash payment on the Settlement Date or the Tax Event Acceleration
Date, as the case may be, in lieu of delivery of the Contract Consideration.
The amount of such cash settlement payment (the "Cash Payment Amount") to be
made by the Seller shall be equal to the sum, determined as of 10:00 A.M.
(New York City time) on the Settlement Date, or the Tax Event Acceleration
Date, as the case may be, of (i) for any portion of the Contract
Consideration otherwise deliverable on the Settlement Date or the Tax Event
Acceleration Date, as the case may be, consisting of cash, the amount of such
cash, without interest thereon, (ii) for any portion of the Contract
Consideration otherwise deliverable on the Settlement Date or the Tax Event
Acceleration Date, as the case may be, consisting of property other than cash
or Reference Securities, the fair market value of such property (as
determined by a nationally recognized independent investment banking firm
retained for this purpose by the Administrator) as of 10:00 A.M. (New York
City time) on the third Business Day preceding the Exchange Date, or the Tax
Event Acceleration Date, as the case may be, and (iii) for any portion of the
Contract Consideration otherwise deliverable on the Settlement Date or the
Tax Event Acceleration Date, as the case may be, consisting of a Reference
Security (including ContiFinancial Common Stock) (except as provided in
Section 3.1(b)), an amount equal to the average Closing Price per unit of
such Reference Security on the 20 Trading Days immediately prior to, but not
including, the second Trading Day preceding the Exchange Date or the Tax
Event Acceleration Date, as the case may be, multiplied by the number of
units of such Reference Security constituting part of the Contract
Consideration otherwise deliverable on the Settlement Date or the Tax Event
Acceleration Date, as the case may be, .
(b) If the Contract Consideration otherwise deliverable on the
Settlement Date or the Tax Event Acceleration Date, as the case may be,
includes securities and/or other property other than ContiFinancial Common
Stock, the Seller's right to deliver (or cause to be delivered) to the
Purchaser hereunder such securities and/or other property shall be
conditioned upon such securities and/or other property to be so delivered
being transferable by the Purchaser, following receipt from the Seller,
without any restrictions not generally applicable to all holders of such
securities and/or other property (other than restrictions created by the
Purchaser or the Collateral Agent). If the condition set forth in the
preceding sentence shall not be satisfied with respect to the securities
and/or other property to be delivered by the Seller, then, notwithstanding
any other provisions hereof, the Seller's obligations
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contained in Sections 2.1, 2.2, 2.3, 2.4 and 7.3 hereof shall be settled, in
whole, through a cash payment on the Settlement Date or the Tax Event
Acceleration Date, as the case may be, as provided in Section 2.5(a) in lieu
of delivery of the Contract Consideration.
2.6. CONDITIONS TO PURCHASER'S OBLIGATIONS. (a) The Purchaser's obligation
to deliver the Firm Consideration Amount on the Firm Payment Date is conditioned
upon (x) the representations and warranties of the Seller contained in
paragraphs (i), (iii)(b), (iv), (v) and (vi) of Article IV hereof being true and
correct as of the Firm Payment Date and (y) the Security and Pledge Agreement
having been executed by the parties thereto and the delivery of the Collateral
thereunder having been made.
(b) The Purchaser's obligation to deliver any Option Consideration Amount
on any Date of Delivery is conditioned upon (x) the purchase and sale of the
related Option STRYPES pursuant to the Purchase Agreement having been
consummated as contemplated therein, (y) the representations and warranties of
the Seller contained in paragraphs (i), (iii)(b), (iv), (v) and (vi) of Article
IV hereof being true and correct as of such Date of Delivery and (z) the
Security and Pledge Agreement having been executed by the parties thereto and
the delivery of the Collateral thereunder having been made.
(c) If any condition specified in this Section 2.6 shall not have been
fulfilled when and as required to be fulfilled, this Agreement, or in the case
of any condition to the delivery of any Option Consideration Amount on a Date of
Delivery which is after the Firm Payment Date, the obligation of the Purchaser
to deliver such Option Consideration Amount on such Date of Delivery (and
obligations of the Purchaser and the Seller with respect to the future
acquisition, sale and delivery of the aggregate number or amount of each type of
Reference Security and other Reference Property in respect of the related Option
Contract Commitment), may be terminated by the Purchaser by notice to the Seller
at any time at or prior to the Firm Payment Date or such Date of Delivery, as
the case may be, and such termination shall be without liability of any party to
any other party, except that Sections 8.3 and 8.4 shall survive any such
termination and remain in full force and effect.
III.
REFERENCE PROPERTY ADJUSTMENTS
3.1. (a) ADJUSTMENT FOR SUBDIVISIONS, SPLITS, COMBINATIONS OR
RECLASSIFICATIONS. If an issuer of a Reference Security shall:
(A) subdivide or split the outstanding units of such Reference
Security into a greater number of units;
(B) combine the outstanding units of such Reference Security
into a smaller number of units; or
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(C) issue by reclassification of units of such Reference
Security any units of another security of such issuer;
then, in any such event, the Reference Property shall be adjusted to include the
number of units of such Reference Security and/or other security of such issuer
which a holder of units of such Reference Security would have owned or been
entitled to receive immediately following any event described above had such
holder held, immediately prior to such event, the number of units of such
Reference Security constituting part of the Reference Property immediately prior
to such event. Each such adjustment shall become effective immediately after
the effective date for such subdivision, split, combination or reclassification,
as the case may be. Each such adjustment shall be made successively.
(b) ADJUSTMENT FOR ISSUANCE OF CERTAIN RIGHTS OR WARRANTS. If an issuer
of a Reference Security shall issue rights or warrants to all holders of such
Reference Security entitling them, for a period expiring prior to the fifteenth
calendar day following the Exchange Date, to subscribe for or purchase any of
its securities or other property (other than rights to purchase units of such
Reference Security pursuant to a plan for the reinvestment of dividends or
interest), then in each such case, the Reference Property shall be adjusted to
include an amount in cash equal to the fair market value (determined as
described below), as of the fifth Business Day following the date on which such
rights or warrants are received by securityholders entitled thereto (the
"Receipt Date"), of each such right or warrant multiplied by the product of (A)
the number of such rights or warrants issued for each unit of such Reference
Security and (B) the number of units of such Reference Security constituting
part of the Reference Property on the date of issuance of such rights or
warrants, immediately prior to such issuance, without interest thereon. For
purposes of this subsection (b), the fair market value of each such right or
warrant shall be determined by the Administrator and shall be the quotient of
(x) the highest net cash bid, as of approximately 10:00 A.M., New York City
time, on the fifth Business Day following the Receipt Date for settlement three
Business Days later, by a recognized securities dealer in The City of New York
selected by or on behalf of the Administrator (from three (or such fewer number
of dealers as may be providing such bids) of the recognized dealers listed on
Schedule 3.1(b) hereto selected by or on behalf of the Administrator), for the
purchase by such quoting dealer of the number of rights or warrants (the
"Aggregate Number") that a holder of such Reference Security would receive if
such holder held, as of the record date for determination of stockholders
entitled to receive such rights or warrants, a number of units of such Reference
Security equal to the product of (1) the aggregate number of outstanding STRYPES
as of such record date and (2) the number of units of such Reference Security
constituting part of the Reference Property, divided by (y) the Aggregate
Number. Each such adjustment shall become effective on the fifth Business Day
following the Receipt Date of such rights or warrants. If for any reason the
Administrator is unable to obtain the required bid on the fifth Business Day
following the Receipt Date, it shall attempt to obtain such bid at successive
intervals of three months thereafter and on the third Business Day prior to the
Exchange Date until it is able to obtain the required bid, or, if earlier, until
the third Business Day prior to the Exchange Date. From the date of issuance of
such rights or warrants until the required bid is obtained or those efforts end
on that Business Day, the Reference Property shall include the number of such
rights or warrants issued for each unit of such Reference Security multiplied by
the number of units of such Reference Security constituting part
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of the Reference Property on the date of issuance of such rights or warrants,
immediately prior to such issuance, and such rights or warrants constituting
part of the Reference Property shall be deemed for purposes of the definition
of Reference Property Value and Sections 2.5 and 6.1 hereof to have a fair
market value of zero. The Administrator shall not be held liable in any way
for failure to obtain a required bid solicited by the Administrator in
accordance with this Section 3.1(b).
(c) ADJUSTMENT FOR DISTRIBUTIONS. If an issuer of a Reference Security
shall pay a dividend or make a distribution to all holders of such Reference
Security of cash, securities or other property (excluding any cash dividend on
any Reference Security consisting of capital stock that does not constitute an
Extraordinary Cash Dividend, excluding any payment of interest on any Reference
Security consisting of an evidence of indebtedness and excluding any dividend or
distribution described in subsection (a) or (b) above) or shall issue to all
holders of such Reference Security rights or warrants to subscribe for or
purchase any of its securities or other property (excluding any rights to
purchase units of such Reference Security pursuant to a plan for the
reinvestment of dividends or interest and any rights or warrants referred to in
subsection (b) above) (any of the foregoing being referred to herein as
"Distributed Assets"), then in each such case, the Reference Property shall be
adjusted to include, from and after such dividend, distribution or issuance, (x)
in respect of that portion, if any, of the Distributed Assets consisting of
cash, the amount of such Distributed Assets consisting of cash received for each
unit of such Reference Security multiplied by the number of units of such
Reference Security constituting part of the Reference Property on the date of
such dividend, distribution or issuance, immediately prior to such dividend,
distribution or issuance, without interest thereon, plus (y) in respect of that
portion, if any, of the Distributed Assets which are other than cash, the number
or amount of each type of Distributed Assets other than cash received with
respect to each unit of such Reference Security multiplied by the number of
units of such Reference Security constituting part of the Reference Property on
the date of such dividend, distribution or issuance, immediately prior to such
dividend, distribution or issuance.
(d) ADJUSTMENT FOR CONSOLIDATION, MERGER OR OTHER REORGANIZATION EVENT.
In the event of (i) any consolidation or merger of an issuer of a Reference
Security with or into another entity (other than a consolidation or merger in
which such issuer is the continuing corporation and in which the Reference
Security outstanding immediately prior to the consolidation or merger is not
exchanged for cash, securities or other property of such issuer or another
entity), (ii) any sale, transfer, lease or conveyance to another corporation of
the property of an issuer of a Reference Security as an entirety or
substantially as an entirety, (iii) any statutory exchange of securities of an
issuer of a Reference Security with another entity (other than in connection
with a merger or acquisition) or (iv) any liquidation, dissolution, winding up
or bankruptcy of an issuer of a Reference Security (excluding any distribution
in such event referred to in subsection (c) above) (any such event described in
clause (i), (ii), (iii) or (iv), a "Reorganization Event"), the Reference
Property shall be adjusted to include, from and after the effective date for
such Reorganization Event, in lieu of the number of units of such Reference
Security constituting part of the Reference Property immediately prior to the
effective date for such Reorganization Event, the amount or number of any cash,
securities and/or other property owned or received in such Reorganization Event
with respect to each unit of such Reference Security
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multiplied by the number of units of such Reference Security constituting part
of the Reference Property immediately prior to the effective date for such
Reorganization Event.
IV.
REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller represents and warrants to the Purchaser as of the date hereof,
as of the Firm Payment Date, as of each Date of Delivery (if any) and as of the
Closing Date as follows:
(i) The Seller has the full right, power and authority
to enter into and perform its obligations under this Agreement and the
Security and Pledge Agreement, including, without limitation, to pledge and
assign the shares of ContiFinancial Common Stock and/or cash, securities and
other property to be pledged and assigned by the Seller pursuant to the
Security and Pledge Agreement, and to sell, transfer and deliver the Contract
Consideration to be sold by the Seller pursuant to this Agreement.
(ii) This Agreement and the Security and Pledge Agreement
have been duly authorized, executed and delivered by the Seller and (assuming
the due authorization, execution and delivery by the other parties thereto)
constitute valid and binding agreements of the Seller, enforceable against
the Seller in accordance with their respective terms, except as the
enforcement hereof and thereof may be limited by bankruptcy, insolvency
(including, without limitation, all laws relating to fraudulent transfers),
reorganization, moratorium or similar laws affecting enforcement of
creditors' rights generally and except as enforcement hereof and thereof is
subject to general principles of equity (regardless of whether enforcement is
considered in a proceeding in equity or at law). Neither the Firm
Consideration Amount received by the Seller on the Firm Payment Date nor any
Option Consideration Amount received by the Seller on any Date of Delivery
will be used by the Seller for the purpose, whether immediate, incidental or
ultimate, of buying or carrying a margin stock, as such terms are defined in
Regulation G promulgated by the Board of Governors of the Federal Reserve
System.
(iii) (a) At the date hereof, the Seller is the registered
owner of and has all rights in and to the shares of ContiFinancial Common
Stock to be delivered, pledged and assigned by the Seller pursuant to the
Security and Pledge Agreement, free and clear of any security interest,
mortgage, pledge, lien, encumbrance, claim or equity and (b) to the extent
the Seller elects to deliver the Contract Consideration at Closing, upon
delivery of such Contract Consideration against payment therefor pursuant to
this Agreement, assuming the Purchaser purchased for value in good faith and
without notice of any adverse claim, the Purchaser will have acquired all
rights in and to such Contract Consideration, free and clear of any security
interest, mortgage, pledge, lien, encumbrance, claim or equity (except for
any security interest, mortgage, pledge, lien, encumbrance, claim or equity
created by the Purchaser or the Collateral Agent). The sale, transfer and
delivery of the Contract Consideration by the Seller as contemplated by this
Agreement is not, and at the time of delivery of such Contract Consideration
will not be, subject to any right of first refusal or similar rights of any
person
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pursuant to any contract to which the Seller or any Majority-Owned Subsidiary of
the Seller is a party or by which any of them is bound.
(iv) No declaration or filing with, or authorization,
approval, consent, license, order, registration, qualification or decree of,
any court or governmental authority or agency is necessary or required for
the execution, delivery or performance by the Seller of this Agreement or the
Security and Pledge Agreement or the consummation by the Seller of the
transactions contemplated herein and therein, except such as have been
already obtained or as may be required under the Securities Act or the rules
and regulations promulgated thereunder or state securities laws.
(v) The execution, delivery and performance by the
Seller of this Agreement and the Security and Pledge Agreement and the
consummation by the Seller of the transactions contemplated herein and
therein and compliance by the Seller with its obligations hereunder and
thereunder do not and will not, whether with or without the giving of notice
or passage of time or both, conflict with or constitute a breach of, or
default or Seller Repayment Event under, or result in the creation or
imposition of any lien, charge or encumbrance upon any property or assets of
the Seller or any Majority-Owned Subsidiary of the Seller pursuant to, any
other contract, indenture, mortgage, deed of trust, loan or credit agreement,
note, lease or any other agreement or instrument to which the Seller or any
Majority-Owned Subsidiary of the Seller is a party or by which it or any of
them is bound, or to which any of the property or assets of the Seller or any
Majority-Owned Subsidiary of the Seller is subject (except for such
conflicts, breaches or defaults or liens, charges or encumbrances that would
not, singly or in the aggregate, materially and adversely affect the ability
of the Seller to perform its obligations under this Agreement or the Security
and Pledge Agreement), nor will such action result in any violation of the
provisions of any applicable law, statute, rule or regulation of any
government or government instrumentality having jurisdiction over the Seller
or any Majority-Owned Subsidiary of the Seller or any of their assets,
properties or operations (other than any state securities or "blue sky" law,
statute, rule or regulation, as to which no representation and warranty is
made), or any applicable judgment, order, writ or decree of any government,
government instrumentality or domestic court having jurisdiction over the
Seller or any Majority-Owned Subsidiary of the Seller or any of their assets,
properties or operations (except in all cases for violations that would not,
singly or in the aggregate, materially and adversely affect the ability of
the Seller to perform its obligations under this Agreement or the Security
and Pledge Agreement).
(vi) The Seller is not an "investment company" within the
meaning of the Investment Company Act of 1940, as amended, required to be
registered thereunder.
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V.
REPRESENTATIONS AND WARRANTIES OF PURCHASER
The Purchaser represents and warrants to the Seller as of the date hereof,
as of the Firm Payment Date, as of each Date of Delivery (if any) and, with
respect to the representations and warranties contained in paragraph (i) and
(ii) below only, as of the Closing Date, as follows:
(i) The Purchaser has been duly created and is validly
existing as a business trust in good standing under the laws of the State of
Delaware with power and authority to enter into and perform its obligations
under this Agreement and the Security and Pledge Agreement. Through the date
hereof, the Purchaser's activities have been limited to (a) registering the
Purchaser under the Investment Company Act of 1940, as amended, (b)
registering the offer and sale of the STRYPES under the Securities Act and
(c) such other activities that are necessarily incident to, or connected
with, or necessary to accomplish, the foregoing and the offer and sale of the
STRYPES and the operation of the Purchaser as described in the Purchaser's
Prospectus dated April __, 1997, relating to the STRYPES.
(ii) This Agreement and the Security and Pledge Agreement
have been duly authorized, executed and delivered by the Purchaser and
(assuming the due authorization, execution and delivery by the other parties
thereto) constitute valid and binding agreements of the Purchaser,
enforceable against the Purchaser in accordance with their respective terms,
except as the enforcement hereof and thereof may be limited by bankruptcy,
insolvency (including, without limitation, all laws relating to fraudulent
transfers), reorganization, moratorium or similar laws affecting enforcement
of creditors' rights generally and except as enforcement hereof and thereof
is subject to general principles of equity (regardless of whether enforcement
is considered in a proceeding in equity or at law).
(iii) No declaration or filing with, or authorization,
approval, consent, license, order, registration, qualification or decree of,
any court or governmental authority or agency is necessary or required for
the execution, delivery or performance by the Purchaser of this Agreement or
the Security and Pledge Agreement or the consummation by the Purchaser of the
transactions contemplated herein and therein, except such as have been
already obtained or as may be required under the Securities Act or the rules
and regulations promulgated thereunder or state securities laws.
(iv) The execution, delivery and performance by the
Purchaser of this Agreement and the Security and Pledge Agreement and the
consummation by the Purchaser of the transactions contemplated herein and
therein and compliance by the Purchaser with its obligations hereunder and
thereunder do not and will not, whether with or without the giving of notice
or passage of time or both, conflict with or constitute a breach of, or
default or Purchaser Repayment Event under, or result in the creation or
imposition of any lien, charge or encumbrance upon any property or assets of
the Purchaser pursuant to, any contract, indenture, mortgage, deed of trust,
loan or credit agreement, note, lease or any other agreement or instrument to
which the Purchaser is a party or by which the Purchaser is bound, or to
which any of the property or assets of the Purchaser is subject (except for
such conflicts, breaches or
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defaults or liens, charges or encumbrances that would not, singly or in the
aggregate, materially and adversely affect the ability of the Purchaser to
perform its obligations under this Agreement or the Security and Pledge
Agreement), nor will such action result in any violation of the provisions of
the Trust Agreement of the Purchaser, or any applicable law, statute, rule, or
regulation of any government or government instrumentality having jurisdiction
over the Purchaser or any of its assets or properties (other than any state
securities or "blue sky" law, statute, rule or regulation, as to which no
representation and warranty is made), or any applicable judgment, order, writ or
decree of any government, government instrumentality or domestic court having
jurisdiction over the Purchaser or any of its assets, properties or operations
(except in all cases for violations that would not, singly or in the aggregate,
materially and adversely affect the ability of the Purchaser to perform its
obligations under this Agreement or the Security and Pledge Agreement).
VI.
COVENANTS
6.1. COLLATERAL. (a) The Seller shall cause to be held by the Collateral
Agent at all times during the term of this Agreement an aggregate number of
shares of ContiFinancial Common Stock and/or cash, securities and/or other
property at least equal to the maximum number or amount of each type of
Reference Security and other property constituting part of the Reference
Property that may be required to be delivered by the Seller on the Settlement
Date pursuant to Section 2.1 hereof, assuming that (x) the fair market value of
any Reference Property consisting of rights or warrants described in Section
3.1(b) hereof is the value determined pursuant to the last sentence of such
Section 3.1(b) and (y) the Seller has not elected to exercise its option to
settle its obligations hereunder through cash payment on the Settlement Date
pursuant to Section 2.5 hereof (such aggregate number of shares of
ContiFinancial Common Stock and/or cash, securities and/or other property being
referred to herein as the "Maximum Contract Consideration").
(b) The Seller hereby directs the Collateral Agent to sell (as provided in
Section 4(a) of the Security and Pledge Agreement) any rights or warrants
described in Section 3.1(b) hereof at the net bid received by the Collateral
Agent in accordance with the procedures specified in Section 4(a) of the
Security and Pledge Agreement and to hold during the term of this Agreement the
proceeds from such sale. If the Collateral Agent is unable to consummate such
sale, the rights or warrants shall be held by the Collateral Agent, and neither
the Seller nor the Collateral Agent shall be required to take any action to
sell such rights or warrants other than as specified in such Section 4(a) of the
Security and Pledge Agreement.
6.2. TAXES. The Seller shall pay any and all documentary, stamp, transfer
or similar taxes and charges that may be payable in respect of the execution and
delivery by the Seller of this Agreement and the transfer and delivery by the
Seller of the Contract Consideration pursuant hereto.
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6.3. TAX TREATMENT. The Purchaser and the Seller hereby agree to treat,
for all United States Federal, state and local tax purposes, this Agreement as a
pre-paid forward contract, which does not constitute, in whole or in part,
indebtedness, pursuant to which the Purchaser is obligated to purchase at the
Closing the Contract Consideration which the Seller is obligated to deliver at
that time (subject to the Seller's right to deliver cash in lieu of the Contract
Consideration as provided in Section 2.5 hereof). As used in this Section 6.3,
the term "forward contract" does not mean a "forward contract" as referred to in
Section 101(49)(B)(iii) of the Bankruptcy Code.
6.4. CERTAIN NOTICES. (a) In case at any time while any of the STRYPES are
outstanding the Seller receives written notice in its capacity as a holder of
any Reference Security that:
(i) an issuer of a Reference Security shall declare a
dividend (or any other distribution) on or in respect of such Reference
Security to which Section 3.1(c) hereof shall apply (other than any cash
dividends, if any, paid from time to time by the issuer of such Reference
Security that do not constitute Extraordinary Cash Dividends);
(ii) an issuer of a Reference Security shall authorize
the issuance to all holders of such Reference Security of rights or
warrants to subscribe for or purchase units of such Reference Security or
of any other subscription rights or warrants;
(iii) there shall occur any conversion or
reclassification of any Reference Security (other than a subdivision or
combination of outstanding units of such Reference Security) or any
consolidation, merger or reorganization to which an issuer of a Reference
Security is a party and for which approval of any unitholders of such
issuer is required, or the sale or transfer of all or substantially all of
the assets of an issuer of a Reference Security; or
(iv) there shall occur the voluntary or involuntary
dissolution, liquidation or winding up of an issuer of a Reference Security
or any issuer of a Reference Security shall commence or have commenced
against it a case under the Bankruptcy Code;
then the Seller shall promptly notify the Purchaser and the Administrator of
such fact and of (x) the date, if known by the Seller, on which a record is to
be taken for the purpose of such dividend, distribution or grant of rights or
warrants, or, if a record is not to be taken, the date as of which the holders
of such Reference Security of record to be entitled to such dividend,
distribution or grant of rights or warrants are to be determined, or (y) the
date, if known by the Seller, on which such reclassification, consolidation,
merger, sale, transfer, dissolution, liquidation or winding up has become, or is
expected to become, effective or on which such bankruptcy case was commenced.
(b) Immediately upon the occurrence of any Event of Default, the Seller
shall promptly notify the Purchaser of such occurrence and of all facts relating
to such occurrence of which the Seller is aware.
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6.5. LIMITATIONS ON TRADING DURING CERTAIN DAYS. Each of the Seller and
the Purchaser hereby agrees that it will not, and it will cause each of its
Majority-Owned Subsidiaries not to, buy or sell units of any Reference Security
for their own account during the 20 Trading Days immediately prior to the second
Trading Day preceding the Exchange Date or any Early Settlement Date.
6.6. FURTHER ASSURANCES. From time to time on and after the date hereof
through the Closing Date, each of the Purchaser and the Seller shall use its
reasonable best efforts to take, or cause to be taken, all action and to do, or
cause to be done, all things necessary, proper and advisable to consummate and
make effective as promptly as practicable the transactions contemplated by this
Agreement in accordance with the terms and conditions hereof, including (i)
using reasonable best efforts to remove any legal impediment to the consummation
of such transactions and (ii) the execution and delivery of all such deeds,
agreements, assignments and further instruments of transfer and conveyance
necessary, proper or advisable to consummate and make effective the transactions
contemplated by this Agreement in accordance with the terms and conditions
hereof.
VII.
ACCELERATION OF DELIVERY
7.1. LIQUIDATION OF AGREEMENT UPON EVENT OF DEFAULT. If an Event of
Default shall occur, then (i) an Acceleration Date shall be deemed to have
occurred simultaneously with the occurrence of such Event of Default, (ii) the
Seller's right under Section 2.5(a) shall terminate immediately and (iii) there
shall become immediately deliverable and payable by the Seller (and immediately
deliverable by the Collateral Agent under the Security and Pledge Agreement to
the Purchaser) a number or amount of each type of Reference Security and other
property constituting part of the Reference Property, allocated as
proportionately as practicable, (the "Acceleration Amount") having an aggregate
value (determined in the manner provided in Section 2.5(a) hereof for the Cash
Payment Amount) equal to the Aggregate Acceleration Value. The "Aggregate
Acceleration Value" means the product obtained by multiplying: (i) the quotient
obtained by dividing (A) the Acceleration Value by (B) 1,000 by (ii) the
Seller's Contract Commitment; except that, if no quotations for the
determination of the Acceleration Value are obtained as described below, the
Aggregate Acceleration Value shall be the value of the aggregate number or
amount of each type of Reference Security and other property constituting part
of the Reference Property that would be required to be delivered by the Seller
on such date under this Agreement if the Exchange Date were redefined for all
purposes of this Agreement (including, without limitation, for purposes of
Section 2.4 hereof) to be the Acceleration Date.
The "Acceleration Value" means an amount determined on the basis of
quotations from four of the nationally recognized independent investment banking
firms listed on Schedule 7.1 hereto selected by the Administrator (the
"Independent Dealers") as follows. Each quotation will be for the amount that
would be paid to the relevant Independent Dealer in consideration of an
agreement between the Purchaser and such Independent Dealer that would have the
effect of
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preserving the Purchaser's right to receive the payments and deliveries that the
Purchaser would, but for the occurrence of the Event of Default, have been
entitled to receive after the Acceleration Date under Article II hereof (taking
into account any Reference Property adjustments that may have been effected on
or prior to the Acceleration Date), provided that, for purposes of determining
the payments and deliveries to which the Purchaser is entitled under Article II
hereof, the Seller's Contract Commitment shall be deemed to equal 1,000. On or
as soon as reasonably practicable following the Acceleration Date, the
Administrator will request each Independent Dealer to provide its quotation as
soon as reasonably practicable, but in any event within two Business Days. The
Administrator shall compute the Acceleration Value upon receipt of each
Independent Dealer's quotation, provided that if, at the close of business on
the fourth Business Day following the Acceleration Date, the Administrator shall
have received quotations from fewer than four of the Independent Dealers, the
Administrator shall compute the Acceleration Value using the quotations, if any,
it shall have received at or prior to such time. If four quotations are
provided, the Acceleration Value shall be the arithmetic mean of the two
quotations remaining after disregarding the highest and lowest quotations. (For
this purpose, if more than one quotation has the same highest or lowest value,
then one of such quotations shall be disregarded.) If two or three quotations
are provided, the Acceleration Value shall be the arithmetic mean of such
quotations. If one quotation is provided, the Acceleration Value shall be equal
to such quotation. If no quotations are provided, the Acceleration Value will
not be determined and the Aggregate Acceleration Value shall be determined as
provided above.
As promptly as reasonably practicable after receipt of the quotations on
which the Acceleration Value is based (or, as the case may be, after failure to
receive any such quotations within the time period prescribed above) the
Purchaser shall deliver to the Collateral Agent and the Seller a notice (the
"Acceleration Amount Notice") specifying the Acceleration Amount required to be
delivered by the Seller. The Purchaser and the Seller agree that the Purchaser
will not be entitled to recover any amounts not expressly provided for herein as
a consequence of an Event of Default.
7.2. CONTIFINANCIAL REORGANIZATION EVENT; DELIVERY. Notwithstanding the
provisions of Sections 2.1, 2.3 and 2.5 hereof, if a Reorganization Event with
respect to ContiFinancial or any ContiFinancial Successor (other than a
statutory merger effected solely for the purpose of changing, and the sole
effect of which is to so change, the state of incorporation of ContiFinancial or
such ContiFinancial Successor) shall occur, the Seller's obligations under
Section 2.1 hereof shall be automatically accelerated and the Seller shall
deliver to the Purchaser, on the tenth Business Day after the effective date for
such Reorganization Event (the "Early Settlement Date"), the Contract
Consideration that would be required to be delivered by the Seller under this
Agreement if the Exchange Date were redefined for all purposes of this Agreement
(including, without limitation, for purposes of Section 2.4 hereof) to be the
Early Settlement Date.
7.3. ACCELERATION UPON TAX EVENT. Notwithstanding anything to the contrary
contained herein, the Seller shall have the option, exercisable in its sole
discretion at any time from and after the date (the "Tax Event Date") on which a
Tax Event shall occur, to accelerate the settlement of its obligations
hereunder, in whole but not in part, by delivering to the Purchaser on a date
fixed by the Seller for accelerated settlement (the "Tax Event Acceleration
Date") (x)
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an amount in cash equal to (A) the sum of (i) all accumulated and unpaid
distributions on the STRYPES then outstanding to the Tax Event Acceleration
Date, (ii) the sum of all distributions on the STRYPES then outstanding due
after the Tax Event Acceleration Date and on or prior to the Exchange Date
and (iii) $__________, minus (B) the Liquidation Value, and (y) at the option
of the Seller either (1) a number or amount of each type of Reference
Security and other property constituting part of the Reference Property that
would be required to be delivered by the Seller under this Agreement if the
Exchange Date were redefined for all purposes of this Agreement (including,
without limitation, for purposes of Section 2.4 hereof) to be the Tax Event
Acceleration Date or (2) a Cash Payment Amount determined in the manner
provided in Section 2.5(a) hereof (the amounts described in clauses (x) and
(y) above being collectively referred to as the "Tax Event Acceleration
Amount"). The Seller may exercise the acceleration option contained in this
Section 7.3 by notice to the Purchaser, the Administrator and the Collateral
Agent, given in accordance with Section 8.2 hereof and Section 10(b) of the
Security and Pledge Agreement not more than 30 and not less than 10 calendar
days prior to the Tax Event Acceleration Date, as specified therein; provided
that if the Seller intends to exercise its cash settlement option set forth
in Section 7.3(y)(2), then such notice may be given at least ___ calendar
days prior to the Tax Event Acceleration Date and must specifically state
that the Seller is exercising its cash settlement option. As promptly as
reasonably practicable after receipt of the bid on which the Liquidation
Value is based, the Purchaser shall deliver to the Administrator, the
Collateral Agent and the Seller a notice specifying the Liquidation Value and
the Tax Event Acceleration Amount required to be delivered by the Seller on
the Tax Event Acceleration Date.
VIII.
MISCELLANEOUS
8.1. ADJUSTMENTS TO REFERENCE PROPERTY; SELECTION OF INDEPENDENT FIRM.
The Purchaser shall be responsible for the effectuation and calculation of
any adjustment to the Reference Property and any amount deliverable pursuant
to Sections 2.1, 2.4, 2.5 hereof and Article 7 hereof. The Purchaser shall
provide the Seller reasonable opportunity to review the calculations
pertaining to any adjustment of the Reference Property. As soon as
practicable, but in no event later than 11:30 A.M. (New York City time) on
the Business Day immediately preceding the Closing Date, the Purchaser shall
provide the Seller with a statement showing the Purchaser's calculation of
the Reference Property Value, the Exchange Amount and, assuming no subsequent
adjustments to the Reference Property shall be required pursuant to Article
III hereof, the Contract Consideration or Cash Payment Amount, as applicable.
As soon as practicable, but in no event later than 10:00 A.M. (New York City
time) on the Closing Date, the Purchaser shall provide the Seller with a
statement showing the Purchaser's final calculations of the amounts
deliverable pursuant to Sections 2.1, 2.4, 2.5, 7.2 and 7.3 hereof. If the
Seller disagrees with any such calculation or determination, the Contract
Consideration or any Cash Payment Amount, Arthur Andersen LLP or such other
independent accounting or investment banking firm agreed upon by the Seller
and the Purchaser shall be retained to make such calculation, which shall be
binding upon the Purchaser and the Seller. The fees and expenses of such
firm shall be borne by the Seller. If, pursuant to the terms and conditions
of this Agreement, the Administrator shall be required to retain a nationally
recognized independent investment banking firm for any purpose provided
herein (other than for purposes of determining the Acceleration Value
pursuant to Section 7.1 hereof), such nationally recognized independent
investment banking firm shall be selected and retained by the Administrator
only after giving the Seller 30 days prior notice (or such shorter notice as
may be reasonably practicable) of the
21
<PAGE>
identity of such firm and after consultation with the Seller, and the
Administrator shall not select any firm that is not reasonably acceptable to the
Seller. The fees and expenses of any such nationally recognized independent
investment banking firm retained by the Administrator shall be borne by the
Seller.
8.2. NOTICES. All notices and other communications shall be directed as
follows (or to such other address for a particular party as shall be specified
by such party in a like notice given pursuant to this Section 8.2): notices to
the Purchaser shall be directed to it in care of the Administrator at 450 West
33rd Street, 15th Floor, New York, New York 10001-2697, telecopy number (212)
946-3240, attention of Robert Goodwin, with a copy to Charles Dietzgen, Esq.,
Thacher Proffitt & Wood, 2 World Trade Center, 39th Floor, New York, New York
10048, telecopy number (212) 912-7751; notices to the Seller shall be directed
to it at 277 Park Avenue, 48th Floor, New York, New York 10172, telecopy number
(212) 207-2960, attention of the Treasurer, with a copy to the Vice President
and General Counsel-Corporate, at the address of the Seller specified herein,
telecopy number (212) 207-2980. Except as otherwise specifically provided
herein, all notices and other communications provided for hereunder shall be in
writing and shall be deemed to have been duly given if either (i) personally
delivered (including delivery by courier service or by Federal Express or any
other nationally recognized overnight delivery service for next day delivery) to
the offices specified in the preceding sentence, in which case they shall be
deemed received on the first Business Day by which delivery shall have been made
to said offices; (ii) transmitted by any standard form of telecommunication to
the offices set forth in the preceding sentence, in which case they shall be
deemed received on the first Business Day by which a standard confirmation that
such transmission occurred is received by the transmitting party (unless such
confirmation states that such transmission occurred after 5:00 P.M. on such
first Business Day, in which case delivery shall be deemed to have been received
on the immediately succeeding Business Day), or (iii) sent by certified mail,
return receipt requested, to the offices set forth in the preceding sentence, in
which case they shall be deemed received when receipted for unless
acknowledgment of receipt is refused (in which case delivery shall be deemed to
have been received on the first Business Day on which such acknowledgment is
refused).
8.3. GOVERNING LAW; CONSENT TO JURISDICTION. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK
APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED WHOLLY WITHIN SUCH STATE. For
the purpose of any suit, action or proceeding arising out of or relating to this
Agreement, the parties hereto hereby expressly and irrevocably consent and
submit to the non-exclusive jurisdiction of any United States Federal or New
York State court sitting in the Borough of Manhattan, City and State of New
York, and expressly and irrevocably waive, to the extent permitted under
applicable law, any immunity from the jurisdiction thereof and any claim or
defense in such suit, action or proceeding based on a claim of improper venue,
FORUM NON CONVENIENS or any similar basis to which it might otherwise be
entitled.
8.4. WAIVER OF JURY TRIAL. TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE
PARTIES HERETO HEREBY WAIVE AND COVENANT THAT THEY WILL NOT ASSERT (WHETHER AS
PLAINTIFF, DEFENDANT OR OTHERWISE)
22
<PAGE>
ANY RIGHT TO TRIAL BY JURY IN ANY FORUM IN RESPECT OF ANY ISSUE, CLAIM, DEMAND,
ACTION OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT OR THE
SUBJECT MATTER HEREOF, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING OR
WHETHER IN CONTRACT OR TORT OR OTHERWISE. EACH PARTY HERETO ACKNOWLEDGES THAT
IT HAS BEEN INFORMED BY EACH OTHER PARTY HERETO THAT THE PROVISIONS OF THIS
SECTION CONSTITUTE A MATERIAL INDUCEMENT UPON WHICH SUCH OTHER PARTY HERETO HAS
RELIED, IS RELYING AND WILL RELY IN ENTERING INTO THIS AGREEMENT AND ANY
DOCUMENT RELATED THERETO. EACH PARTY HERETO MAY FILE AN ORIGINAL COUNTERPART OF
THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF ANY OTHER
PARTY HERETO TO THE WAIVER OF ITS RIGHTS TO TRIAL BY JURY.
8.5. HEADINGS; ENTIRE AGREEMENT. The paragraph headings and table of
contents have been inserted as a reference only and are not a part of this
Agreement and shall not affect the meaning or construction of any provisions
hereof. Except as expressly set forth herein, this Agreement and the Security
and Pledge Agreement constitute the entire agreement among the parties with
respect to the subject matter hereof and supersede all prior agreements,
understandings and negotiations, both written and oral, among the parties with
respect to the subject matter hereof.
8.6. AMENDMENTS; WAIVERS. Any provision of this Agreement may be amended
or waived prior to the Closing if, and only if, such amendment or waiver is in
writing and signed, in the case of an amendment, by the Purchaser and the Seller
or, in the case of a waiver, by the party against whom the waiver is to be
effective. No failure or delay by either party in exercising any right, power
or privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
8.7. TERMINATION. Notwithstanding anything to the contrary contained in
this Agreement, if the purchase and sale of the Initial STRYPES pursuant to the
Purchase Agreement is not consummated as contemplated therein, this Agreement
shall automatically terminate, and such termination shall be without liability
of any party to any other party, except that Sections 8.3 and 8.4 shall survive
any such termination and remain in full force and effect.
8.8. SUCCESSORS, ASSIGNS. The provisions of this Agreement shall be
binding upon and accrue to the benefit of the parties hereto and their
respective successors and permitted assigns. Notwithstanding the foregoing,
neither this Agreement nor any right, remedy, obligation or liability arising
hereunder or by reason hereof shall be assignable by any party hereto without
the prior written consent of the other parties hereto.
8.9. NO THIRD PARTY RIGHTS. This Agreement is not intended and shall not
be construed to create any rights in any person other than the Seller and the
Purchaser and no person shall assert any rights as third party beneficiary
hereunder.
23
<PAGE>
8.10. APPLICATION OF BANKRUPTCY CODE. The parties hereto acknowledge
and agree that (i) the Collateral Agent is a "financial institution" within the
meaning of Sections 101(22) and 555 of the Bankruptcy Code, (ii) the Collateral
Agent is acting as agent and custodian for the Purchaser in connection with this
Agreement, and (iii) the Purchaser is a "customer" of the Collateral Agent
within the meaning of said Sections 101(22) and 555. The parties hereto further
acknowledge and agree that this Agreement is a "securities contract", as such
term is defined in Section 741(7) of the Bankruptcy Code, and is entitled to the
protection of Section 555 of the Bankruptcy Code.
8.11. COUNTERPARTS. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
24
<PAGE>
IN WITNESS WHEREOF, the parties have signed this Agreement as of the date
and year first above written.
Purchaser: Seller:
CONTIFINANCIAL STRYPES TRUST CONTINENTAL GRAIN COMPANY
By: ________________________ By: _______________________
Name: Donald J. Puglisi, Name:
as Managing Trustee Title:
Collateral Agent:
THE CHASE MANHATTAN BANK,
as Collateral Agent
By: _________________________
Name:
Title:
Administrator:
THE CHASE MANHATTAN BANK,
as Administrator
By: _________________________
Name:
Title:
25
<PAGE>
Exhibit A
CONTIFINANCIAL STRYPES TRUST
(a Delaware business trust)
OPTION UNIT PRICING AGREEMENT
____________, 1997
CONTINENTAL GRAIN COMPANY
277 Park Avenue
New York, New York 10172
Ladies and Gentlemen:
Reference is made to the Forward Purchase Contract, dated as of April __,
1997 (the "Forward Purchase Contract"), among ContiFinancial STRYPES Trust (the
"Purchaser"), The Chase Manhattan Bank, as agent and custodian for and on behalf
of the Purchaser, and you (the "Seller"), relating to the future purchase by the
Purchaser of the Contract Consideration from the Seller. The Underwriters have
exercised their option, pursuant to Section 2(b) of the Purchase Agreement, to
purchase an aggregate of __________ Option STRYPES. In connection with such
exercise, the Purchaser has agreed to issue and sell to the Underwriters,
severally and not jointly, ______________ Option STRYPES. Payment for and
delivery of such Option STRYPES will be made at ______ on _____, 1997 (the "Date
of Delivery").
Pursuant to subsection (b) of Section 2.1 of the Forward Purchase Contract,
the Purchaser and the Seller hereby agree that the Option Unit Consideration to
be used in calculating the Option Consideration Amount payable by the Purchaser
to the Seller on the Date of Delivery as consideration for the Seller's
obligation to deliver (or cause to be delivered) the Contract Consideration in
respect of the Option Contract Commitment created hereby shall be
$___________.*
- -------------------
* The Option Unit Consideration shall be an amount equal to the initial
public offering price per Option STRYPES, net of (1) the underwriting
discount per Option STRYPES and (2) the cost per Option STRYPES of the
zero-coupon U.S. Government securities to be purchased by the Purchaser to
provide for the quarterly distributions on the Option STRYPES to which this
Option Unit Pricing Agreement relates. The selection of the zero-coupon
U.S. Government securities to be purchased in respect of any Option STRYPES
shall be made in a manner and on a basis consistent with the selection of
the zero-coupon U.S. Government securities purchased in respect of the
Initial STRYPES.
<PAGE>
Capitalized terms used herein and not otherwise defined shall have the
meanings ascribed to them in the Forward Purchase Contract.
If the foregoing is in accordance with our agreement, please sign and
return to Purchaser a counterpart hereof, whereupon this instrument, along with
all counterparts, will become a binding agreement between the Purchaser and the
Seller in accordance with its terms.
Very truly yours,
CONTIFINANCIAL STRYPES TRUST
By: __________________________
Name: Donald J. Puglisi,
as Managing Trustee
CONFIRMED AND ACCEPTED, as of
the date first above written:
CONTINENTAL GRAIN COMPANY
By: __________________________
Name:
Title:
A-2
<PAGE>
EXHIBIT (k)(4)
______________________________________________________________________________
______________________________________________________________________________
CONTIFINANCIAL STRYPES TRUST
SECURITY AND PLEDGE AGREEMENT
Dated: April __, 1997
______________________________________________________________________________
______________________________________________________________________________
<PAGE>
TABLE OF CONTENTS
PAGE
1. Definitions............................................................. 2
(a) This Security and Pledge Agreement................................. 2
Bankruptcy Event................................................... 2
Collateral......................................................... 2
Collateral Agent................................................... 2
Collateral Amount.................................................. 2
Collateral Event of Default........................................ 2
Delivery........................................................... 2
Event of Default................................................... 3
Forward Purchase Contract.......................................... 3
Lien............................................................... 3
Pledgor............................................................ 3
Receipt Date....................................................... 3
Responsible Officer................................................ 3
Secured Amounts.................................................... 3
Securities Account................................................. 3
Securities Intermediary............................................ 3
Security and Pledge Agreement...................................... 4
Security Entitlement............................................... 4
Transfer Restriction............................................... 4
Trust.............................................................. 4
Trustee or Trustees................................................ 4
Uniform Commercial Code............................................ 4
(b) Uniform Commercial Code............................................ 4
(c) Terms Defined in Forward Purchase Contract......................... 4
2. Required Collateral..................................................... 5
(a) Initial Delivery by the Pledgor to Collateral Agent................ 5
(b) Collateral Requirement............................................. 5
3. Grant of Security Interest.............................................. 5
4. Administration of Collateral............................................ 6
(a) Sale of Certain Rights or Warrants................................. 6
(b) Maintenance of Collateral.......................................... 6
(c) Investment of Cash Collateral...................................... 7
(d) Delivery of Contract Consideration................................. 7
5. Distributions in Respect of Collateral.................................. 8
i
<PAGE>
6. Remedies Upon Events of Default......................................... 9
(a) Delivery Upon Event of Default..................................... 9
(b) Power of Attorney.................................................. 9
(c) Waivers by Pledgor................................................. 9
(d) Rights and Remedies Under the Uniform Commercial Code.............. 9
7. Other Provisions Regarding the Collateral............................... 10
(a) No Disposition..................................................... 10
(b) Direction of Transfer Agents....................................... 10
(c) Further Protections................................................ 10
(d) Delay in Enforcement; No Waiver.................................... 10
8. Representations and Warranties.......................................... 10
(a) Representations and Warranties of the Pledgor...................... 10
(b) Representations and Warranties of Collateral Agent................. 12
9. The Collateral Agent.................................................... 12
(a) Appointment of Collateral Agent.................................... 12
(b) Duties of Agent.................................................... 12
(c) Reliance........................................................... 12
(d) Liability of Agent................................................. 13
(e) Risk of Funds...................................................... 13
(f) Use of Sub-Agents or Attorneys..................................... 13
(g) Recitals and Statements............................................ 13
(h) Knowledge.......................................................... 13
(i) Merger............................................................. 14
(j) Resignation of Agent............................................... 14
(k) Removal............................................................ 14
(l) Appointment of Successor........................................... 14
(m) Acceptance by Successor............................................ 14
10. Miscellaneous........................................................... 15
(a) Amendments, Etc.................................................... 15
(b) Notices and Other Communications................................... 15
(c) Waivers............................................................ 16
(d) Non-Assignment..................................................... 16
(e) Waiver of Jury Trial............................................... 16
(f) Governing Law...................................................... 17
(g) Headings........................................................... 17
(h) Entire Agreement................................................... 17
(i) Counterparts....................................................... 17
(j) Force Majeure...................................................... 17
(k) Binding Effect..................................................... 17
(l) Separability....................................................... 17
11. Termination of Security and Pledge Agreement............................ 17
12. Application of Bankruptcy Code.......................................... 18
ii
<PAGE>
13. No Personal Liability of Trustees....................................... 18
iii
<PAGE>
SECURITY AND PLEDGE AGREEMENT
This Security and Pledge Agreement is made as of April __, 1997 among
ContiFinancial STRYPES Trust, a business trust organized pursuant to the
Business Trust Act of the State of Delaware (Chapter 38, Title 12, of the
Delaware Code, 12 Del. C. (Sections 3801 et seq.)) (such trust and the trustees
thereof acting in their capacity as such being referred to herein as the
"Trust"), Continental Grain Company, a Delaware corporation (the "Pledgor"), and
The Chase Manhattan Bank, a New York banking corporation, as agent and custodian
for and on behalf of the Trust (the "Collateral Agent").
WHEREAS, the Trust has filed with the Securities and Exchange Commission
a registration statement on Form N-2 (File Nos. 333-1787 and 811-7565) and
Pre-Effective Amendments No. 1, No. 2 and No. 3 thereto contemplating the
offering of up to 3,220,000 of its Structured Yield Product Exchangeable for
Stock (SM), the terms of which contemplate that, on May 15, 2000, each such
STRYPES will be mandatorily exchanged for a specified number or amount of
each type of Reference Security and other property constituting part of the
Reference Property (or, in certain circumstances, cash with an equal value).
WHEREAS, the STRYPES are to be issued pursuant to an Amended and Restated
Trust Agreement, dated as of March 26, 1997 (the "Trust Agreement"), among the
trustees of the Trust and ML IBK Positions, Inc. and Bear, Stearns & Co. Inc.,
as Sponsors.
WHEREAS, in order to obtain the Reference Property that would be required
by the Trust in order to exchange all of the STRYPES on the Exchange Date, the
Trust has entered into a Forward Purchase Contract, dated as of April __, 1997
(the "Forward Purchase Contract"), with the Collateral Agent and the Pledgor
providing for the future acquisition, sale and delivery of the aggregate number
or amount of each type of Reference Security and other property constituting
part of the Reference Property that would be required by the Trust in order to
exchange all of the STRYPES on the Exchange Date, assuming that the Pledgor has
not elected to exercise its option to deliver cash in lieu of Reference
Property.
WHEREAS, the Trust and the Pledgor desire that ownership of the Contract
Consideration (including, without limitation, voting rights and rights to
receive any dividends, interest, distributions and other payments in respect
thereof) remain in the Pledgor unless and until delivery, if any, of such
Contract Consideration to the Trust pursuant to the provisions hereof and of the
Forward Purchase Contract, provided, however, that any dividends, interest,
distributions and other payments and the proceeds of any sale required by the
provisions of the Forward Purchase Contract shall be retained and held by the
Collateral Agent in accordance with the provisions hereof and of the Forward
Purchase Contract, to the extent such dividends, interest, distributions and
other payments or proceeds constitute part of the Reference Property.
- -----------------------------
(SM) Service mark of Merrill Lynch & Co., Inc.
<PAGE>
WHEREAS, the Pledgor has initially Delivered an aggregate of ________
shares of Common Stock, par value $0.01 per share, of ContiFinancial
Corporation, a Delaware corporation, to the Collateral Agent, which has agreed
to hold such shares pursuant to the terms hereof.
WHEREAS, the Trust and the Pledgor desire that the obligations of the
Pledgor under the Forward Purchase Contract shall be secured pursuant to the
terms hereof.
NOW, THEREFORE, in consideration of the foregoing premises and for other
good and valuable consideration, the receipt and adequacy of which is hereby
acknowledged, the parties hereto hereby agree as follows:
1. DEFINITIONS.
(a) THIS SECURITY AND PLEDGE AGREEMENT. For all purposes of this Security
and Pledge Agreement, except as otherwise expressly provided or unless the
context otherwise requires, the following terms, when used herein, shall have
the following meanings:
"BANKRUPTCY EVENT" has the meaning specified in Schedule A.
"COLLATERAL" means all the cash, securities and other property Delivered to
the Collateral Agent hereunder or pursuant to the Forward Purchase Contract in
respect of the Pledgor's Collateral Amount and held by the Collateral Agent,
including, without limitation, cash, securities or other property obtained by
the Collateral Agent as contemplated in Section 4(a) or purchased with cash
Delivered by the Pledgor pursuant to Section 4(c) or otherwise obtained by the
Collateral Agent in respect of any of the foregoing.
"COLLATERAL AGENT" means the financial institution identified as such in
the introductory paragraph hereof, or any successor appointed in accordance with
Section 9(l).
"COLLATERAL AMOUNT" shall mean the Maximum Contract Consideration.
"COLLATERAL EVENT OF DEFAULT" means, at any time, the failure of the
Collateral to equal the Collateral Amount.
"DELIVERY" means (i) the delivery of cash, securities or other property,
free and clear of all Liens (other than a Lien created or permitted by this
Security and Pledge Agreement or a Lien created by the Collateral Agent or the
Trust), (A) to the Collateral Agent at such location in The City of New York as
it shall direct, in suitable form for delivery and transfer, accompanied by duly
executed instruments of transfer or assignment in blank and accompanied by any
required transfer tax stamps, or (B) to an account of the Collateral Agent in a
clearing system (or with a Securities Intermediary) acceptable to the Collateral
Agent or (ii) with respect to any securities the ownership of which is recorded
in book-entry form by a Federal Reserve Bank, delivery to the Collateral Agent
of (a) a listing of such securities by title (or series), unpaid principal
amount and maturity date and (b) such steps as are necessary for the Collateral
Agent or its Securities Intermediary to become the holder of a Security
Entitlement with respect
2
<PAGE>
to such securities through the Securities Account. The term "Deliver" used as a
verb has a corresponding meaning.
"EVENT OF DEFAULT" means the occurrence of: (i) a Bankruptcy Event or (ii)
a Collateral Event of Default.
"FORWARD PURCHASE CONTRACT" has the meaning specified in the third recital
in this Security and Pledge Agreement.
"LIEN" means any lien, mortgage, security interest, pledge, charge,
encumbrance, claim or equity of any kind.
"PLEDGOR" has the meaning specified in the introductory paragraph of this
Security and Pledge Agreement.
"RECEIPT DATE" has the meaning specified in Section 4(a).
"RESPONSIBLE OFFICER" means, when used with respect to the Collateral
Agent, any vice president, assistant vice president, trust officer, assistant
treasurer or assistant secretary located in the division or department of the
Collateral Agent responsible for performing the obligations of the Collateral
Agent under this Security and Pledge Agreement, or in any other division or
department of the Collateral Agent performing operations substantially
equivalent to those performed by such division or department pursuant hereto, or
any other officer of the Collateral Agent or any successor Collateral Agent
customarily performing functions similar to those performed by any of the
aforesaid officers, and also means, with respect to any matter relating to this
Security and Pledge Agreement or the Collateral, any other officer to whom such
matter is referred because of his knowledge of and familiarity with the
particular subject.
"SECURED AMOUNTS" means the amounts at any time payable or obligations to
be performed by the Pledgor to or for the benefit of the Trust pursuant to
the Forward Purchase Contract and this Security and Pledge Agreement,
including, without limitation, (i) the delivery of the Contract Consideration
on the Closing Date pursuant to Section 2.1, 7.1, 7.2 or 7.3 of the Forward
Purchase Contract or, if the Pledgor has elected to exercise its option to
settle its obligations under Sections 2.1, 2.2, 2.3, 2.4 or 7.3 of the Forward
Purchase Contract through a cash payment by making the cash settlement payment
pursuant to Section 2.5 in lieu of delivering the Contract Consideration of the
Forward Purchase Contract, and (ii) the delivery to the Trust of all or any
portion of the Collateral required to be delivered to the Trust pursuant to
Section 6.1(a) and (b) of the Forward Purchase Contract at the respective times
specified therein.
"SECURITIES ACCOUNT" means the account of the Collateral Agent identified
as such to the Pledgor by notice from the Collateral Agent.
["SECURITIES INTERMEDIARY" has the meaning ascribed thereto in the Uniform
Commercial Code.]
3
<PAGE>
"SECURITY AND PLEDGE AGREEMENT" means this Security and Pledge Agreement
and any schedules and exhibits hereto.
["SECURITY ENTITLEMENT" has the meaning ascribed thereto in the Uniform
Commercial Code.]
"TRANSFER RESTRICTION" means, with respect to any item of Collateral, any
condition to or restriction on the ability of the holder thereof to sell, assign
or otherwise transfer such item of Collateral or to enforce the provisions
thereof or of any document related thereto whether set forth in such item of
Collateral itself or in any document related thereto, including, without
limitation, (i) any requirement that any sale, assignment or other transfer or
enforcement of such item of Collateral be consented to or approved by any
Person, including, without limitation, the issuer thereof or any other obligor
thereon, (ii) any limitations on the type or status, financial or otherwise, of
any purchaser, pledgee, assignee or transferee of such item of Collateral, (iii)
any requirement of the delivery of any certificate, consent, agreement, opinion
of counsel, notice or any other document of any Person to the issuer of, any
other obligor on or any registrar or transfer agent for, such item of
Collateral, prior to the sale, pledge, assignment or other transfer or
enforcement of such item of Collateral and (iv) any registration or
qualification requirement for such item of Collateral pursuant to any federal or
state securities law; provided that (x) the required delivery of any assignment
from the seller, pledgor, assignor or transferor of such item of Collateral,
together with any evidence of the corporate or other authority of such Person,
or (y) any registration or qualification requirement for such item of Collateral
pursuant to any federal or state securities law which is generally applicable to
all holders of such item of Collateral, shall not constitute a "Transfer
Restriction."
"TRUST" has the meaning specified in the introductory paragraph of this
Security and Pledge Agreement.
"TRUSTEE" or "TRUSTEES" means any trustee or trustees of the Trust
identified on the signature pages to the Trust Agreement, or any successor as
such trustee or trustees.
"UNIFORM COMMERCIAL CODE" means the Uniform Commercial Code in effect in
the State of New York or, in connection with Delivery of any security referred
to in clause (ii) of the definition of the term Delivery, deemed to be in effect
pursuant to U.S. law and regulations applicable thereto.
(b) UNIFORM COMMERCIAL CODE. Unless otherwise defined herein or in the
Forward Purchase Contract, all terms defined in Article 8 or Article 9 of the
Uniform Commercial Code are used herein as therein defined.
(c) TERMS DEFINED IN FORWARD PURCHASE CONTRACT. Capitalized words and
phrases used herein and not otherwise defined herein are used herein as defined
in the Forward Purchase Contract.
4
<PAGE>
2. REQUIRED COLLATERAL.
(a) INITIAL DELIVERY BY THE PLEDGOR TO COLLATERAL AGENT. The Pledgor has
Delivered to the Collateral Agent certificates representing ______________
shares of ContiFinancial Common Stock, which represent the Maximum Contract
Consideration as of the date hereof.
(b) COLLATERAL REQUIREMENT. The Pledgor shall Deliver, or cause to be
Delivered, to the Collateral Agent cash, securities and other property such that
the Collateral held by the Collateral Agent is at all times at least equal to
the Collateral Amount. The Collateral Agent shall be under no duty to
investigate or inquire as to whether the Collateral so held by it meets this
requirement. The Collateral Agent shall hold such amounts of cash, securities
and/or other property as from time to time may be Delivered, or caused to be
Delivered, to the Collateral Agent by the Pledgor as Collateral pending delivery
pursuant to the Forward Purchase Contract as expressly provided herein in order
to perfect the continuing first priority security interest in such Collateral
granted to the Collateral Agent, as agent of and for the benefit of the Trust.
3. GRANT OF SECURITY INTEREST.
(a) As security for the prompt and complete payment and performance when
due of the Secured Amounts, the Pledgor hereby pledges, assigns, grants and
conveys unto the Collateral Agent, as agent of and for the benefit of the Trust,
a continuing first priority security interest under the Uniform Commercial Code
or other applicable law in and to, and a general first lien upon and right of
set off against, all of the Pledgor's right, title and interest in and to, the
securities, obligations and other property of the Pledgor which are Delivered to
the Collateral Agent on behalf of the Trust and to any other assets in
possession of the Collateral Agent as security pursuant to and in accordance
with the provisions of this Security and Pledge Agreement, all certificates or
instruments representing or evidencing any or all of the foregoing, and all
principal, interest and payments and distributions or dividends, cash or other
property and proceeds from time to time received, receivable or otherwise
distributed in respect of, or in exchange for, any or all of the foregoing
(whether such proceeds arise before or after the commencement of any proceeding
under any applicable bankruptcy, insolvency or other similar law, by or against
the Pledgor) (except for the cash dividends, interest and payments required to
be distributed to the Pledgor in accordance with Section 5 hereof) and, subject
to Section 5 hereof, all powers and rights of the Pledgor now or hereafter
acquired by the Pledgor, including rights of enforcement, under or with respect
to any or all of the foregoing.
(b) The Pledgor shall, at its expense and in such manner and form as the
Trust or the Collateral Agent may reasonably require, give, execute, deliver,
file and record any financing statement, notice, instrument, document, agreement
or other papers, and shall take all other action, that may be necessary or
desirable in order to create, preserve, perfect, substantiate or validate any
security interest in the Collateral granted by the Pledgor pursuant hereto or to
enable the Collateral Agent to exercise and enforce its rights and the rights of
the Trust hereunder with respect to such security interest. Upon the request of
the Collateral Agent, the Pledgor will execute and deliver to the Collateral
Agent financing statements conforming to the Uniform Commercial Code in effect
in any state or jurisdiction deemed appropriate by the Collateral Agent, and
such other documents as may be required in order to perfect the security
interest, all in a form the Collateral Agent reasonably deems to be acceptable.
Upon the request
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of the Collateral Agent, the Pledgor also agrees to execute and deliver to the
Collateral Agent for filing by the Collateral Agent continuation statements
conforming to the Uniform Commercial Code in effect in any state or jurisdiction
deemed appropriate by the Collateral Agent and in a form the Collateral Agent
reasonably deems to be acceptable. If the Pledgor fails to deliver to the
Collateral Agent financing statements or continuation statements that the
Collateral Agent requests, the Collateral Agent may, to the extent permitted by
law and without limiting its other rights under this Security and Pledge
Agreement, execute and file in the Pledgor's name, as the Pledgor's
attorney-in-fact, such documents and the Pledgor does hereby designate the
Collateral Agent as its attorney-in-fact to execute and file any such financing
statement or continuation statement.
4. ADMINISTRATION OF COLLATERAL.
(a) SALE OF CERTAIN RIGHTS OR WARRANTS. Upon receipt by the Collateral
Agent of any rights or warrants identified in writing to the Collateral Agent by
the Administrator as being those rights or warrants referred to in Section
3.1(b) of the Forward Purchase Contract in respect of the Collateral Amount, the
Collateral Agent shall, through the Administrator, solicit net bids at
approximately 10:00 A.M., New York City Time, on the fifth Business Day
following receipt by the Collateral Agent of such rights or warrants (the
"Receipt Date") for settlement three Business Days later, of three (or such
fewer number of dealers as may be providing such bids) recognized securities
dealers in The City of New York (which may include the Collateral Agent or its
affiliates) selected by the Administrator and so identified in writing to the
Collateral Agent for the purchase by the quoting dealer of all such rights or
warrants. If for any reason the Collateral Agent is unable, through the
Administrator, to obtain the required bid on the fifth Business Day following
the Receipt Date, it shall attempt to obtain such bid at successive intervals of
three months thereafter and on the third Business Day prior to the Exchange Date
until it is able to obtain the required bid, or, if earlier, until the third
Business Day prior to the Exchange Date. The Collateral Agent shall accept the
highest bid that will result in the greatest amount of proceeds from the sale of
all such rights or warrants and shall sell all such rights or warrants at that
highest bid and the proceeds from such sale shall be held by the Collateral
Agent as Collateral in accordance with the provisions of this Security and
Pledge Agreement. If the Collateral Agent, through the Administrator, is unable
to obtain the required bid or otherwise unable to consummate such sale, the
rights or warrants shall be held by the Collateral Agent as Collateral subject
to the provisions of this Security and Pledge Agreement. The Collateral Agent
shall not be held liable in any way for failure to obtain a required bid if
solicited by the Collateral Agent, through the Administrator, in accordance with
this Section 4(a).
(b) MAINTENANCE OF COLLATERAL. The Collateral shall be maintained by
the Collateral Agent in a separate non-commingled account and the Collateral
Agent shall use reasonable care with respect to the custody, safekeeping and
physical preservation of the Collateral in its possession and shall accord
the Collateral treatment substantially equal to that which it accords its own
property, it being understood that the Collateral Agent in its capacity as
such shall not, except as specifically set forth herein or contemplated
hereby, have any responsibility for (a) ascertaining or taking action with
respect to calls, conversions, exchanges, maturities or other matters
relative to any Collateral, whether or not the Collateral Agent has or is
deemed to have knowledge of such matters, (b) taking any necessary steps to
preserve rights against parties with
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respect to any Collateral or (c) investing or reinvesting any of the Collateral.
The Collateral Agent shall have no right of offset against the Collateral with
respect to any amounts owed to the Collateral Agent, whether or not arising
under this Security and Pledge Agreement, and the Collateral Agent hereby waives
any such right of offset that it may otherwise have. Except as specifically
provided in this Security and Pledge Agreement, the Collateral Agent covenants
and agrees that it will not sell, assign, transfer, exchange or otherwise
dispose of, or grant any option with respect to, any of the Collateral, nor will
it create, incur or permit to exist any Lien or Transfer Restriction on or with
respect to any of the Collateral, any interest therein, or any proceeds thereof.
Any securities to be held by the Collateral Agent shall be held by the
Collateral Agent as Delivered, or caused to be Delivered, to it by the Pledgor
(endorsed in blank) or as obtained by the Collateral Agent pursuant to Section
4(a) or 4(c), if applicable.
In the event of any adjustment to the Reference Property resulting from the
application of the provisions of Section 3.1 of the Forward Purchase Contract,
the Collateral Agent shall take all measures reasonably designed to assure that
the Collateral is maintained by the Collateral Agent as provided in this
Security and Pledge Agreement and facilitating the operation of Section 5 of
this Security and Pledge Agreement, including, without limitation, transmitting
certificates representing Reference Securities to the issuer or its transfer
agent for the preparation of new certificates to be returned to the Collateral
Agent and maintained by it as required by this Security and Pledge Agreement.
(c) INVESTMENT OF CASH COLLATERAL. The Collateral Agent shall, in
accordance with the written instructions of the Pledgor, invest and reinvest all
cash Collateral in United States Treasury Bills with maturities of 90 days or
less but in any case maturing not later than the second Business Day prior to
the Exchange Date and all such securities so obtained and amounts obtained in
respect thereof shall be held as Collateral for all purposes hereof.
(d) DELIVERY OF CONTRACT CONSIDERATION. (i) On the Settlement Date, the
Collateral Agent shall deliver to the Trust, in respect of the Pledgor's
obligations under Section 2.1 of the Forward Purchase Contract, an aggregate
number or amount of each type of Reference Security and other property
constituting part of the Reference Property then pledged by the Pledgor and held
by the Collateral Agent hereunder equal to the number or amount of each such
type of Reference Property then required to be delivered by the Pledgor under
Section 2.1 of the Forward Purchase Contract, except to the extent the Pledgor
has made a proper election, pursuant to Section 2.5 thereof, to settle its
obligations under Section 2.1 thereof through a cash payment. Upon such
delivery, the Trust shall hold such Reference Property free and clear of all
Liens (other than Liens created by the Collateral Agent or the Trust) and
Transfer Restrictions (other than Transfer Restrictions created by the
Collateral Agent or the Trust).
(ii) On the Early Settlement Date (if any), the Collateral Agent shall
deliver to the Trust, in respect of the Pledgor's obligations under Section 7.2
of the Forward Purchase Contract, an aggregate number or amount of each type of
Reference Security and other property constituting part of the Reference
Property then pledged by the Pledgor and held by the Collateral Agent hereunder
equal to the number or amount of each such type of Reference Property then
required to be delivered by the Pledgor under Section 7.2 of the Forward
Purchase Contract. Upon such delivery, the Trust shall hold such Reference
Property free and clear of all Liens (other than
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Liens created by the Collateral Agent or the Trust) and Transfer Restrictions
(other than Transfer Restrictions created by the Collateral Agent or the Trust).
(iii) On the Tax Event Acceleration Date (if any), the Collateral Agent
shall deliver to the Trust, in respect of the Pledgor's obligations under
Section 7.3 of the Forward Purchase Contract, an aggregate number or amount
of each type of Reference Security and other property constituting part of
the Reference Property then pledged by the Pledgor and held by the Collateral
Agent hereunder equal to the number or amount of each such type of Reference
Property then required to be delivered by the Pledgor under Section 7.3 of
the Forward Purchase Contract except to the extent the Pledgor had made a
proper election, pursuant to Section 2.5 thereof, to settle its obligations
under Section 7.3 through a cash payment. Upon such delivery, the Trust
shall hold such Reference Property free and clear of all Liens (other than
Liens created by the Collateral Agent or the Trust) and Transfer Restrictions
(other than Transfer Restrictions created by the Collateral Agent or the
Trust).
(iv) If after effecting the delivery, if any, required by subsection (i),
(ii) or (iii) of this Section 4(d), as applicable, all of the obligations of the
Pledgor under Articles II and VII of the Forward Purchase Contract (including
any obligation to pay the Cash Payment Amount pursuant to Section 2.5
thereof) have been discharged or sufficient funds have been deposited with or
set aside by the Administrator for the discharge thereof, any remaining
Reference Property then pledged by the Pledgor and held by the Collateral Agent
shall be released and Delivered to such account or place as the Pledgor shall
have specified by notice to the Collateral Agent.
5. DISTRIBUTIONS IN RESPECT OF COLLATERAL.
(a) Unless an Event of Default has occurred and is continuing, the Pledgor
shall be entitled to receive for its own account all dividends, interest,
distributions and other payments relating to all of the Collateral, unless such
dividends, interest, distributions or other payments constitute part of the
Reference Property. The Collateral Agent agrees to remit to the Pledgor on the
Business Day received or as soon as practicable thereafter all such payments
received by it. At any time when the Pledgor is not entitled to receive any
such payments hereunder, the Collateral Agent shall retain such payments (and
any such payments which are received by the Pledgor shall be received in trust
for the benefit of the Trust, shall be segregated from other funds of the
Pledgor and shall forthwith be paid over to the Collateral Agent), and the
Collateral Agent shall hold all such payments so retained by, or paid over to,
the Collateral Agent as Collateral hereunder. The security interest of the
Collateral Agent shall continue in any such payment so retained by, or paid over
to, the Collateral Agent.
(b) Unless an Event of Default has occurred and is continuing, until
delivery pursuant to Section 4(d) hereof, the Pledgor shall have the right, from
time to time, to vote and to give consents, ratifications and waivers with
respect to the Collateral, and the Collateral Agent shall, upon receiving a
written request from the Pledgor, deliver to the Pledgor or as specified in such
request such proxies, powers of attorney, consents, ratifications and waivers in
respect of any of the Collateral which is registered in the name of the
Collateral Agent or its nominee as shall be specified in such request and be in
form and substance reasonably satisfactory to the Collateral Agent.
If an Event of Default shall have occurred and be continuing, until
delivery pursuant to Section 4(d) hereof, the Collateral Agent may, and at the
direction of the Managing
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Trustee shall, to the extent permitted by law (and the Pledgor shall take all
such action as may be necessary or appropriate to give effect to such right),
vote and give consents, ratifications and waivers, and take any other action
with respect to any or all of the Collateral with the same force and effect as
if the Collateral Agent were the absolute and sole owner thereof.
6. REMEDIES UPON EVENTS OF DEFAULT.
(a) DELIVERY UPON EVENT OF DEFAULT. If an Event of Default shall have
occurred and be continuing, the Collateral Agent shall deliver to the Trust on
the date the Acceleration Amount Notice relating to such Event of Default is
received by the Collateral Agent or as soon as practicable thereafter (the
"Delivery Date") so much of each type of Reference Security and other property
constituting part of the Reference Property then pledged by the Pledgor and held
by the Collateral Agent hereunder equal to the number or amount of such type of
Reference Security or other property then required to be delivered by the
Pledgor under Section 7.1 of the Forward Purchase Contract, whereupon the Trust
shall hold such Reference Property free and clear of all Liens (other than Liens
created by the Collateral Agent or the Trust) and Transfer Restrictions (other
than Transfer Restrictions created by the Collateral Agent or the Trust),
including any equity or right of redemption of the Pledgor which may be waived,
and the Pledgor, to the extent permitted by law, hereby specifically waives all
rights of redemption, stay or appraisal which it has or may have under any law
now existing or hereafter adopted.
(b) POWER OF ATTORNEY. Upon any delivery of all or any part of any
Collateral pledged by the Pledgor made under the power of delivery given
hereunder or under judgment or decree in any judicial proceedings for
foreclosure or otherwise for the enforcement of this Security and Pledge
Agreement, the Collateral Agent is hereby irrevocably appointed the true and
lawful attorney of the Pledgor, in the name and stead of the Pledgor, to make
all necessary deeds, bills of sale and instruments of assignment, transfer or
conveyance of the property thus delivered. For that purpose the Collateral
Agent may execute all such documents and instruments. This power of attorney
shall be deemed coupled with an interest, and the Pledgor hereby ratifies and
confirms all that his attorneys acting under such power, or such attorneys'
successors or agents, shall lawfully do by virtue of this Security and Pledge
Agreement. If so requested by the Collateral Agent or by the Trustees, the
Pledgor shall further ratify and confirm any such delivery by executing and
delivering to the Collateral Agent or to the Trustees at the expense of the
Pledgor all proper deeds, instruments of assignment, conveyance of transfer and
releases as may be designated in any such request.
(c) WAIVERS BY PLEDGOR. The Pledgor waives any presentment, demand,
protest or, to the extent permitted by applicable law, notice in connection with
this Security and Pledge Agreement.
(d) RIGHTS AND REMEDIES UNDER THE UNIFORM COMMERCIAL CODE. In the event
that the Secured Amounts are not paid and performed when due, in addition to all
other rights and remedies provided for herein or otherwise available to the
Collateral Agent and the Trust, the Collateral Agent may, and at the direction
of the Managing Trustee shall, exercise all of the rights and remedies of a
secured party under the Uniform Commercial Code (whether or not the Uniform
Commercial Code applies to the Collateral) and all other applicable law with
respect to all or any part of the Collateral.
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7. OTHER PROVISIONS REGARDING THE COLLATERAL.
Until all obligations of each party under the Forward Purchase Contract
have been performed in full, the parties hereto covenant and agree as follows:
(a) NO DISPOSITION. The Pledgor covenants and agrees that it will not
sell, assign, transfer, exchange or otherwise dispose of, or grant any option
with respect to, any of the Collateral, nor will it create, incur or permit to
exist any Lien on or with respect to any of the Collateral, any interest
therein, or any proceeds thereof, other than Liens created by this Security and
Pledge Agreement and Liens created by the Collateral Agent or the Trust.
(b) DIRECTION OF TRANSFER AGENTS. The Pledgor shall deliver to the
transfer agent for each Reference Security a letter of direction, substantially
in the form of Exhibit A hereto, directing such transfer agent to Deliver, and
shall use its reasonable best efforts to cause such transfer agent to Deliver,
all cash, securities and other property constituting part of the Reference
Property received in respect of such Reference Security directly to the
Collateral Agent. If any such cash, securities or other property constituting
part of the Reference Property shall be delivered to the Pledgor, the Pledgor
shall promptly Deliver the same to the Collateral Agent and until so Delivered,
shall hold the same in trust for the benefit of the Trust and the Collateral
Agent. The Pledgor shall not amend, modify or rescind any letter of direction
delivered pursuant to this Section 7(b) except with the prior written consent of
the Collateral Agent and the Trust. Upon full satisfaction and discharge of the
Pledgor's obligations under Articles II and VII of the Forward Purchase
Contract, the Collateral Agent and the Trust shall, upon request of the Pledgor,
give such consent and take such other action as shall be necessary to modify or
terminate in accordance with such request any standing letter of direction
previously delivered pursuant to this Section 7(b).
(c) FURTHER PROTECTIONS. The Pledgor will pay in a timely fashion all
taxes, assessments, fees or charges of any nature that are imposed in respect of
the Collateral as a result of the Pledgor's ownership thereof or any action or
omission on the part of the Pledgor. The Pledgor will give written notice to
the Trust and the Collateral Agent of, and defend the Collateral against, any
suit, action or proceeding against the Collateral or which could adversely
affect the security interests granted hereunder.
(d) DELAY IN ENFORCEMENT; NO WAIVER. To the extent consistent with the
Uniform Commercial Code and applicable law, the Collateral Agent can choose to
delay or not to enforce any of its rights under this Security and Pledge
Agreement without losing such rights. If the Collateral Agent chooses not to
exercise or enforce any of its rights, the Pledgor agrees that the Collateral
Agent is not waiving the right to enforce such rights at a later time or any of
its other rights. Any waiver of the Collateral Agent's rights under this
Security and Pledge Agreement must be in writing.
8. REPRESENTATIONS AND WARRANTIES.
(a) REPRESENTATIONS AND WARRANTIES OF THE PLEDGOR. On a continuing basis
during the term of this Security and Pledge Agreement, the Pledgor represents
and warrants to the Collateral Agent and to the Trust as follows:
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(i) the Pledgor has full power and authority to execute and deliver
this Security and Pledge Agreement and to perform and observe the
provisions hereof, except as performance may be limited by bankruptcy,
insolvency, reorganization, moratorium, or other similar laws now or
hereafter in effect relating to creditors' rights, and general principles
of equity (regardless of whether the enforceability of such performance is
considered in a proceeding in equity or at law);
(ii) the execution, delivery and performance of this Security and
Pledge Agreement by the Pledgor has been duly authorized by all necessary
action, corporate or otherwise, on the part of the Pledgor and does not
contravene any requirement of law, the Pledgor's charter or by-laws or any
material transactional restriction or material agreement binding on or
affecting the Pledgor or any of its assets;
(iii) this Security and Pledge Agreement has been duly and properly
executed and delivered by the Pledgor and constitutes a legal, valid and
binding agreement of the Pledgor enforceable against the Pledgor in
accordance with its terms, except as the enforcement of rights and remedies
may be limited by bankruptcy, insolvency, reorganization, moratorium, or
other similar laws now or hereafter in effect relating to creditors'
rights, and general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law);
(iv) no Transfer Restrictions (other than Transfer Restrictions
created by this Security and Pledge Agreement and Transfer Restrictions
created by the Collateral Agent or the Trust) exist with respect to or
otherwise apply to the assignment of, or transfer by the Pledgor of
possession of, any items of Collateral to the Collateral Agent hereunder,
or the subsequent sale or transfer of such items of Collateral by the
Collateral Agent pursuant to the terms hereof;
(v) except for the rights of the Trust and of the Collateral Agent on
the Trust's behalf established under this Security and Pledge Agreement and
the Forward Purchase Contract, the Pledgor has good and marketable title to
the Collateral pledged by it under this Security and Pledge Agreement, free
and clear of all Liens (other than the Lien created by this Security and
Pledge Agreement and any Lien created by the Collateral Agent or the Trust)
and Transfer Restrictions (other than Transfer Restrictions created by this
Security and Pledge Agreement and Transfer Restrictions created by the
Collateral Agent or the Trust) and has the right to pledge such Collateral
as provided in this Security and Pledge Agreement;
(vi) the Pledgor is not in default under any agreement by which the
Collateral may be bound and no litigation, arbitration or administrative
proceeding of which the Pledgor has received notice or service of process
is pending, which default, litigation, arbitration or administrative
proceeding is material to the Collateral in the context of this Security
and Pledge Agreement;
(vii) upon Delivery of the Collateral to the Collateral Agent
hereunder, the Collateral Agent will obtain a valid first priority and
perfected and enforceable security interest in, and a first lien on, such
Collateral subject to no other Lien; and none of such Collateral is or
shall be pledged by the Pledgor as collateral for any other purpose; and
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(viii) the Pledgor is presently solvent and able to pay, and paying, its
debts as they come due, and anticipates that it will continue to be able to
pay its debts as they come due for the foreseeable future.
(b) REPRESENTATIONS AND WARRANTIES OF COLLATERAL AGENT. On a continuing
basis during the term of this Security and Pledge Agreement, the Collateral
Agent represents and warrants to the Pledgor and to the Trust as follows:
(i) the Collateral Agent is a banking corporation, duly incorporated,
validly existing and in good standing under the laws of the jurisdiction of
its incorporation and has all corporate powers and all material
governmental licenses, authorizations, consents and approvals required to
enter into, and perform its obligations under, this Security and Pledge
Agreement;
(ii) the execution, delivery and performance by the Collateral Agent
of this Security and Pledge Agreement have been duly authorized by all
necessary corporate action on the part of the Collateral Agent (no action
by the shareholders of the Collateral Agent being required) and do not and
will not violate, contravene or constitute a default under any provision of
applicable law or regulation or of the charter or by-laws of the Collateral
Agent or of any material agreement, judgment, injunction, order, decree or
other instrument binding upon the Collateral Agent; and
(iii) this Security and Pledge Agreement has been duly and properly
executed and delivered by the Collateral Agent and constitutes a legal,
valid and binding agreement of the Collateral Agent enforceable against the
Collateral Agent in accordance with its terms, except as the enforcement of
rights and remedies may be limited by bankruptcy, insolvency,
reorganization, moratorium, or other similar laws now or hereafter in
effect relating to creditors' rights, and general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
9. THE COLLATERAL AGENT.
(a) APPOINTMENT OF COLLATERAL AGENT. The Trust hereby appoints and
designates the Collateral Agent as its agent and custodian for the purposes set
forth herein, and the Collateral Agent does hereby accept such appointment under
the terms and conditions set forth herein.
(b) DUTIES OF AGENT. The Collateral Agent undertakes to perform only such
duties as are expressly set forth herein. The duties and responsibilities of
the Collateral Agent hereunder shall be determined solely by the express
provisions of this Security and Pledge Agreement, and no other or further duties
or responsibilities shall be implied.
(c) RELIANCE. Subject to the limitations, covenants and provisions
hereof, the Collateral Agent may rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon the face of any note,
notice, resolution, consent, certificate, affidavit, letter, telegram,
statement, order or other document furnished to it hereunder by the Trust or the
Pledgor and believed by it to be genuine and to have been signed or presented by
the proper party or parties, and shall have no responsibility for determining
the accuracy thereof.
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(d) LIABILITY OF AGENT. Neither the Collateral Agent nor any of its
directors, officers or employees shall be liable for any action taken or omitted
by it hereunder except in the case of its gross negligence, bad faith, willful
misconduct or its failure to use reasonable care with respect to the custody,
safekeeping and physical preservation of the Collateral in its possession. The
Collateral Agent may consult with counsel of its own choice, including in-house
counsel, and shall have full and complete authorization and protection for any
action taken or omitted by it hereunder in good faith and in accordance with the
opinion of such counsel. The Collateral Agent shall not be liable with respect
to any action taken, suffered or omitted by it in good faith (i) reasonably
believed by it to be authorized or within the discretion or rights or powers
conferred on it by this Security and Pledge Agreement or (ii) in accordance with
any direction or request of the Trustees. In no event shall the Collateral
Agent be personally liable for any taxes or other governmental charges imposed
upon or in respect of (i) the Collateral or (ii) the income or other
distributions thereon. Except as specifically provided herein, the Collateral
Agent shall not be responsible for the validity, sufficiency, collectibility or
marketability of any Collateral Delivered to or held by it hereunder or for the
validity or sufficiency of the Forward Purchase Contract or the Lien (or the
priority thereof) on the Collateral purported to be created hereby. In no event
shall the Collateral Agent be liable for punitive, exemplary, indirect or
consequential damages. Except as specifically set forth herein or contemplated
hereby, the Collateral Agent shall have no duty (a) to see to any recording,
filing or depositing of this Agreement or any agreement referred to herein or
therein or any financing statement or continuation statement evidencing a
security interest, or to see to the maintenance of any such recording or filing
or depositing or to any rerecording, refiling or redepositing of any thereof,
(b) to see to any insurance or (c) to see to the payment or discharge of any
tax, assessment, or other governmental charge or any lien or encumbrance of any
kind owing with respect to, assessed or levied against, any part of the
Collateral. The Collateral Agent shall not be accountable for the use or
application by the Trust of any of the proceeds of the Collateral.
(e) RISK OF FUNDS. No provision of this Security and Pledge Agreement
shall require the Collateral Agent to expend or risk its own funds or otherwise
incur any financial liability in the performance of any of its duties hereunder,
or in the exercise of any of its rights or powers, if it shall have reasonable
grounds for believing that repayment of such funds or adequate indemnity against
such risk or liability is not reasonably assured to it.
(f) USE OF SUB-AGENTS OR ATTORNEYS. The Collateral Agent may perform any
duties hereunder either directly or by or through agents or attorneys, provided
that the Collateral Agent shall remain liable to fulfill all of such duties to
the same extent, and with the same protections, as if the Collateral Agent was
performing them itself. In furtherance thereof, any subsidiary owned or
controlled by the Collateral Agent, or its successors, as agent for the
Collateral Agent, may perform any or all of the duties of the Collateral Agent
relating to the valuation of securities and other instruments and property
constituting Collateral hereunder.
(g) RECITALS AND STATEMENTS. The Collateral Agent shall not be
responsible for the correctness of the recitals and statements herein which are
made by the Trust and the Pledgor or for any statement or certificate delivered
by the Pledgor pursuant hereto.
(h) KNOWLEDGE. The Collateral Agent shall not be deemed to have knowledge
of any Event of Default (except a Collateral Event of Default), unless and until
a Responsible Officer
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of the Collateral Agent shall have actual knowledge thereof or shall have
received written notice thereof.
(i) MERGER. Any corporation or association into which the Collateral
Agent may be converted or merged, or with which it may be consolidated, or to
which it may sell or transfer its agency business and assets as a whole or
substantially as a whole, or any corporation or association resulting from
any such conversion, sale, merger, consolidation or transfer to which it is a
party, anything herein to the contrary notwithstanding, shall be and become a
successor Collateral Agent hereunder and vested with all of the title to the
Collateral and all of the powers, discretions, immunities, privileges and
other matters as was its predecessor without, the execution or filing of any
instrument or any further act, deed or conveyance on the part of any of the
parties hereto, provided that such corporation or association meets the
requirements set forth in Section 9(l)(2) hereof and in the Trust Agreement.
(j) RESIGNATION OF AGENT. The Collateral Agent may resign and be
discharged from its duties or obligations hereunder by giving thirty (30) days
prior notice in writing of such resignation to the Trust and the Pledgor. Such
resignation shall take effect upon the appointment of a successor Collateral
Agent by the Trust. If, within 30 days after notice by the Collateral Agent to
the Trust and the Pledgor of the Collateral Agent's resignation, no successor
Collateral Agent shall have been appointed and accepted the duties of the
Collateral Agent as provided herein, the Collateral Agent may apply to a court
of competent jurisdiction for the appointment of a successor Collateral Agent.
(k) REMOVAL. The Collateral Agent may be removed at any time by an
instrument or concurrent instruments in writing delivered to the Collateral
Agent and to the Pledgor and signed by the Trust.
(l) APPOINTMENT OF SUCCESSOR.
(1) If the Collateral Agent hereunder shall resign or be removed, or
be dissolved or shall be in the course of dissolution or liquidation or
otherwise become incapable of action hereunder, or if it shall be taken
under the control of any public officer or officers or of a receiver
appointed by a court, a successor may be appointed by the Trust by an
instrument or concurrent instruments in writing signed by the Trust or by
its attorneys in fact fully authorized. A copy of such instrument or
concurrent instruments shall be sent by registered mail to the Pledgor.
(2) Every such temporary or permanent successor Collateral Agent
appointed pursuant to the provisions hereof shall be a trust company or
bank in good standing, having a reported capital and surplus of not less
than $100,000,000 and capable of holding the Collateral in the State of New
York, if there be such an institution willing, qualified and able to accept
the duties of the Collateral Agent hereunder upon customary terms.
(m) ACCEPTANCE BY SUCCESSOR. Every temporary or permanent successor
Collateral Agent appointed hereunder shall execute, acknowledge and deliver to
its predecessor and also to the Pledgor an instrument in writing accepting such
appointment hereunder, whereupon such successor, without any further act, deed
or conveyance, shall become fully vested with all the
14
<PAGE>
estates, properties, rights, powers, duties and obligations of its predecessors.
Such predecessor shall, nevertheless, on the written request of its successor or
the Pledgor, execute and deliver an instrument transferring to such successor
all the estates, properties, rights and powers of such predecessor hereunder.
Every predecessor Collateral Agent shall deliver all Collateral held by it as
the Collateral Agent hereunder to its successor. Should any instrument in
writing from the Pledgor be required by a successor Collateral Agent for more
fully and certainly vesting in such successor the estates, properties, rights,
powers, duties and obligations hereby vested or intended to be vested in the
predecessor, any and all such instruments in writing shall, at the request of
the temporary or permanent successor Collateral Agent, be forthwith executed,
acknowledged and delivered by the Pledgor.
10. MISCELLANEOUS.
(a) AMENDMENTS, ETC. Any amendment or modification of any provision of
this Security and Pledge Agreement shall be in writing with the express written
consent of the parties hereto. Any terms and conditions of this Security and
Pledge Agreement may be waived in writing at any time by the party or parties
entitled to the benefits of such terms and conditions. Any waiver shall be
effective only for the specific purpose for which given and for the specific
time period, if any, contemplated therein. A waiver of any of the terms and
conditions of this Security and Pledge Agreement on one occasion shall not
constitute a waiver of the other terms and conditions of this Security and
Pledge Agreement, or of such terms and conditions on any other occasion.
(b) NOTICES AND OTHER COMMUNICATIONS. All notices and other
communications shall be directed as follows (or to such other address for a
particular party as shall be specified by such party in a like notice given
pursuant to this Section 10(b)):
Pledgor: Continental Grain Company
277 Park Avenue
New York, New York 10172
Attention: Treasurer
Telephone: (212) 207-5404
Telecopier: (212) 207-2960
with a copy to the attention of the Vice President and
General Counsel-Corporate, at the address of the Pledgor
specified herein, telecopy number (212) 207-2980.
Collateral Agent: The Chase Manhattan Bank
450 West 33rd Street, 15th Floor
New York, New York 10001-2697
Attention: Structured Products Group, Robert Goodwin
Telephone: (212) 946-7544
Telecopier: (212) 946-3240
15
<PAGE>
Trust: c/o Puglisi & Associates
850 Library Avenue
Suite 204
Newark, Delaware 19715
Attention: Donald J. Puglisi
Telephone: 302-738-6680
Telecopier: 302-738-7210
Except as otherwise specifically provided herein, all notices and other
communications provided for hereunder shall be in writing and shall be deemed to
have been duly given if either (i) personally delivered (including delivery by
courier service or by Federal Express or any other nationally recognized
overnight delivery service for next day delivery) to the offices set forth
above, in which case they shall be deemed received on the first Business Day by
which delivery shall have been made to said offices, (ii) transmitted by any
standard form of telecommunication to the offices set forth above, in which case
they shall be deemed received on the first Business Day by which a standard
confirmation that such transmission occurred is received by the transmitting
party (unless such confirmation states that such transmission occurred after
5:00 P.M. on such first Business Day, in which case delivery shall be deemed to
have been received on the immediately succeeding Business Day), or (iii) sent by
certified mail, return receipt requested to the offices set forth above, in
which case they shall be deemed received when receipted for unless
acknowledgment of receipt is refused (in which case delivery shall be deemed to
have been received on the first Business Day on which such acknowledgment is
refused).
(c) WAIVERS. No failure or delay by any party hereto in exercising any
rights, power or privilege hereunder shall operate as a waiver thereof.
(d) NON-ASSIGNMENT. No party hereto shall have the right to assign their
rights or obligations hereunder to any other person without the other parties'
prior written consent.
(e) WAIVER OF JURY TRIAL. TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE
PARTIES HERETO HEREBY WAIVE AND COVENANT THAT THEY WILL NOT ASSERT (WHETHER AS
PLAINTIFF, DEFENDANT OR OTHERWISE) ANY RIGHT TO TRIAL BY JURY IN ANY FORUM IN
RESPECT OF ANY ISSUE, CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING OUT OF OR
BASED UPON THIS SECURITY AND PLEDGE AGREEMENT OR THE SUBJECT MATTER HEREOF, IN
EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING OR WHETHER IN CONTRACT OR
TORT OR OTHERWISE. EACH PARTY HERETO HEREBY ACKNOWLEDGES THAT IT HAS BEEN
INFORMED THAT THE PROVISIONS OF THIS SECTION CONSTITUTE A MATERIAL INDUCEMENT
UPON WHICH THE OTHER PARTIES HERETO HAVE RELIED, ARE RELYING AND WILL RELY IN
ENTERING INTO THIS SECURITY AND PLEDGE AGREEMENT AND ANY DOCUMENT RELATED
THERETO. EACH PARTY HERETO MAY FILE AN ORIGINAL COUNTERPART OF THIS SECTION
WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE OTHER PARTIES HERETO TO
THE WAIVER OF THEIR RESPECTIVE RIGHTS TO TRIAL BY JURY.
16
<PAGE>
(f) GOVERNING LAW. This Security and Pledge Agreement shall be governed
by and construed in accordance with the laws of the State of New York applicable
to agreements made and to be performed wholly within such State; provided that
as to Collateral located in any jurisdiction other than the State of New York,
the Collateral Agent on behalf of the Trust shall have all of the rights to
which a secured party is entitled under the laws of such other jurisdiction.
For the purpose of any suit, action or proceeding arising out of or relating to
this Security and Pledge Agreement, the parties hereto hereby expressly and
irrevocably consent and submit to the non-exclusive jurisdiction of any United
States Federal or New York State court sitting in the Borough of Manhattan, City
and State of New York, and expressly and irrevocably waive, to the extent
permitted under applicable law, any immunity from the jurisdiction thereof and
any claim or defense in such suit, action or proceeding based on a claim of
improper venue, FORUM NON CONVENIENS or any similar basis to which it might
otherwise be entitled.
(g) HEADINGS. The headings herein are for the convenience of reference
only and shall not affect the meaning or construction of any provision hereof.
(h) ENTIRE AGREEMENT. This Security and Pledge Agreement and the Forward
Purchase Contract contains the entire agreement between the parties relating to
the subject matter hereof and supersede all oral statements and prior writings
with respect thereto.
(i) COUNTERPARTS. This Security and Pledge Agreement may be executed in
any number of counterparts, each of which when so executed and delivered shall
be deemed for all purposes an original, but all such counterparts shall
constitute but one and the same instrument.
(j) FORCE MAJEURE. None of the Pledgor, the Collateral Agent or the Trust
shall be responsible for delays or failures in performance resulting from acts
beyond its control. Such acts shall include but not be limited to acts of God,
strikes, lockouts, riots, acts of war, epidemics, governmental regulations
superimposed after the fact, fire, power failures, earthquakes or other
disasters.
(k) BINDING EFFECT. This Security and Pledge Agreement shall be binding
upon the respective parties hereto and their heirs, executors, successors and
assigns. All the covenants and agreements herein contained by or on behalf of
the Pledgor and the Collateral Agent shall be enforceable by and inure to the
benefit of the Trust and its successors and assigns.
(l) SEPARABILITY. To the extent permitted by law, the unenforceability or
invalidity of any provision or provisions of this Security and Pledge Agreement
shall not render any other provision or provisions herein contained
unenforceable or invalid.
11. TERMINATION OF SECURITY AND PLEDGE AGREEMENT. This Security and Pledge
Agreement and the rights hereby granted by the Pledgor in the Collateral shall
cease, terminate and be void upon fulfillment of all of the obligations of the
Pledgor under Articles II and VII of the Forward Purchase Contract, and the
Pledgor shall have no further liability hereunder upon such termination. Any
Collateral pledged by the Pledgor remaining at the time of such termination
shall be fully released and discharged from the Lien hereof and delivered to the
Pledgor by the Collateral Agent, all at the expense of the Pledgor.
17
<PAGE>
12. APPLICATION OF BANKRUPTCY CODE. The parties hereto acknowledge and agree
that the Collateral Agent is a "financial institution" within the meaning of
Section 101(22) of the Bankruptcy Code and is acting hereunder as agent and
custodian for the Trust in connection with the Forward Purchase Contract and
that the Trust is a "customer" of the Collateral Agent within the meaning of
said Section 101(22). The parties hereto further acknowledge and agree that the
term "forward contract", as such term is used in the Forward Purchase Contract,
does not mean a "forward contract" as referred to in Section 101(49)(B)(iii) of
the Bankruptcy Code.
13. NO PERSONAL LIABILITY OF TRUSTEES. By executing this Security and Pledge
Agreement, none of the Trustees assumes any personal liability hereunder.
18
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Security and Pledge
Agreement to be executed by their respective officers or representatives
thereunto duly authorized as of the day and year first above written.
CONTINENTAL GRAIN COMPANY
By: ___________________________________
Name:
Title:
Tax ID No. _____________________________
THE CHASE MANHATTAN BANK,
as Collateral Agent
By: ___________________________________
Name:
Title:
CONTIFINANCIAL STRYPES TRUST
__________________________________________,
Donald J. Puglisi, as Managing Trustee
<PAGE>
SCHEDULE A
BANKRUPTCY EVENTS
A "Bankruptcy Event" shall have occurred with respect to any Pledgor upon
the occurrence at any time of any of the following events:
1. The Pledgor shall commence a voluntary case or other proceeding
seeking a liquidation, reorganization or other relief with respect to itself or
its debts under the Bankruptcy Code or any other bankruptcy, insolvency or other
similar law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, or shall consent to any such relief or to the
appointment of or taking possession by any such official in an involuntary case
or other proceeding commenced against it, or shall take any corporate action to
authorize any of the foregoing; or
2. An involuntary case or other proceeding shall be commenced against the
Pledgor seeking liquidation, reorganization or other relief with respect to it
or its debts under the Bankruptcy Code or any other bankruptcy, insolvency or
other similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, and such involuntary case or other proceeding
shall remain undismissed and unstayed for a period of 60 days; or all or
substantially all of the Pledgor's assets shall become subject to the
jurisdiction of a bankruptcy court; or an order for relief or similar decree
shall be entered against the Pledgor under the Bankruptcy Code or any other
bankruptcy, insolvency or other similar law now or hereafter in effect.
Sch A-1
<PAGE>
EXHIBIT A
[Date]
[Name and Address of Transfer Agent]
Re: [description of securities]
Owned by Continental Grain Company (the "Pledgor")
Dear Sir/Madam:
Please be advised that as of _______, ____, the Pledgor hereby directs that
you, as transfer agent for the [description of securities], distribute all
future dividends or other distributions in the form of cash, securities or other
property in respect of ______ [units] of the [description of securities] owned
by the Pledgor, which are evidenced by certificate[s] No[s]. ________________ to
The Chase Manhattan Bank at 450 West 33rd Street, New York, New York
10001-2697, ABA No. 021-000-021, Account No. __________, Ref: ContiFinancial
STRYPES Trust.
Very truly yours,
Continental Grain Company
By:_________________________
Name:
Title:
Accepted and Acknowledged:
[Name of Transfer Agent]
Date:
Name:________________________________
Title:_______________________________
Ex A-1
<PAGE>
EXHIBIT (k)(5)
FUND EXPENSE AGREEMENT
Agreement dated as of April __, 1997 among Continental Grain Company (the
"Contracting Stockholder"), Merrill Lynch & Co., Inc. ("Merrill Lynch") and The
Chase Manhattan Bank (the "Service Provider"), in its capacities as
administrator, custodian and collateral agent for ContiFinancial STRYPES Trust
(the "Trust").
WHEREAS, the Trust is a business trust organized pursuant to the Business
Trust Act of the State of Delaware (Chapter 38, Title 12, of the Delaware Code,
12 Del.C. (Sections 3801 et seq.)), under and by virtue of a Trust Agreement
dated as of March 14, 1996, as amended and restated as of March 26, 1997 (the
"Trust Agreement"); and
WHEREAS, the Contracting Stockholder and Merrill Lynch desire to make
provisions for the payment of certain initial and on-going expenses of the
Trust;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained in this Agreement, the parties agree as follows:
1. DEFINITIONS. (a) Capitalized terms used herein and not defined
herein shall have the meanings ascribed thereto in the Trust Agreement.
(b) The following terms shall have the following meanings:
"Additional Expense" means the Ordinary Expense the incurring of which will
require the Service Provider to provide the Additional Expense Notice pursuant
to Section 3(a) hereof and any Ordinary Expense incurred thereafter.
"Additional Expense Notice" means the notice required to be given by the
Service Provider to Merrill Lynch pursuant to Section 3(a) hereof.
"Closing Time" shall have the meaning ascribed thereto in the Purchase
Agreement.
"Offering Expense Amount" means the amount set forth as such on Schedule I
hereto as the fees and expenses of the Trust incurred in connection with the
offering of the STRYPES.
<PAGE>
"Ordinary Expense" of the Trust means any expense of the Trust other than
any expense of the Trust arising under Sections 2.2(g) and 6.6 of the
Administration Agreement, Section 15 of the Custodian Agreement, Section 5.4(b)
of the Paying Agent Agreement and Section 7.6 of the Trust Agreement.
"Organizational Expense Amount" means the amount set forth as such on
Schedule II hereto as the fees and expenses of the Trust incurred in connection
with the organization of the Trust.
"Up-front Fee Amount" means the amount set forth as such on Schedule III
hereto payable as a one-time payment to the Service Provider in respect of its
collective services as Administrator, Custodian, Paying Agent and Collateral
Agent for the entire term of the Trust.
"Up-front Expense Amount" means the amount set forth as such on Schedule IV
hereto payable as a one-time payment to the Service Provider in respect of
Ordinary Expenses anticipated to be incurred by the Administrator on behalf of
the Trust, pursuant to the Administration Agreement, during the term of the
Trust.
2. AGREEMENT TO PAY UP-FRONT FEES AND OFFERING, ORGANIZATIONAL AND UP-
FRONT EXPENSES. The Contracting Stockholder agrees to pay to the Service
Provider in Federal (same day) funds at the Closing Time the Up-front Fee
Amount, the Offering Expense Amount, the Organizational Expense Amount and the
Up-front Expense Amount.
3. AGREEMENT TO PAY ADDITIONAL EXPENSES. (a) Prior to incurring any
Ordinary Expense on behalf of the Trust that, together with all prior Ordinary
Expenses incurred by the Administrator on behalf of the Trust and all Ordinary
Expenses set forth on Schedule IV hereto which are anticipated but have not yet
been incurred by the Administrator on behalf of the Trust, would cause the
aggregate amount of Ordinary Expenses of the Trust to exceed the Up-front
Expense Amount, the Administrator shall provide to Merrill Lynch and the
Contracting Stockholder (i) prompt written notice to the effect that the
aggregate amount of Ordinary Expenses of the Trust will exceed the Up-front
Expense Amount, and (ii) an accounting, in such detail as shall be reasonably
acceptable to Merrill Lynch and the Contracting Stockholder, of all Ordinary
Expenses incurred on behalf of the Trust through the date of the Additional
Expense Notice.
(b) From and after the date of the Additional Expense Notice, the Service
Provider agrees that it will not, without the prior written consent of Merrill
Lynch and the Contracting Stockholder, incur on behalf of the Trust (i) any
single expense in excess of $2,500 or (ii) in any calendar quarter expenses
aggregating in excess of $5,000. Subject to the foregoing, the Service Provider
shall give notice to Merrill Lynch and the Contracting Stockholder in writing
promptly following the incurring of any Additional Expense. Such
2
<PAGE>
notice to Merrill Lynch shall be accompanied by any demand, bill, invoice or
other similar document in respect of such Additional Expense.
(c) Subject to the first sentence of paragraph (b) of this Section 3,
Merrill Lynch agrees to pay to the Service Provider from time to time the amount
of any Additional Expense. Payment by Merrill Lynch of any Additional Expense
shall be made in New York Clearing House (next-day) funds by the later of (i)
five Business Days after the receipt by Merrill Lynch from the Service Provider
of notice of the incurring thereof or (ii) two Business Days prior to the due
date for the payment of such Additional Expense.
(d) The Contracting Stockholder agrees to reimburse Merrill Lynch from
time to time for the amount of any Additional Expense paid by Merrill Lynch
pursuant to paragraph (c) of this Section 3. Merrill Lynch shall be reimbursed
for any such Additional Expense in New York Clearing House (next-day) funds by
the later of (i) five Business Days after the receipt by the Contracting
Stockholder from the Service Provider of notice of the incurring thereof or (ii)
two Business Days prior to the due date for the payment of such Additional
Expense.
(e) Merrill Lynch or the Contracting Stockholder may contest in good faith
the reasonableness of any Additional Expense and the parties shall attempt to
resolve amicably the disagreement; provided that if the parties cannot resolve
the dispute by the due date hereunder with respect to such Additional Expense,
subject to the first sentence of paragraph (b) of this Section 3, Merrill Lynch
shall pay the amount of such Additional Expense, and the Contracting Stockholder
shall reimburse Merrill Lynch for the amount so paid, subject to later
adjustment and credit if such dispute is resolved in favor of Merrill Lynch or
the Contracting Stockholder, as the case may be.
4. CONDITION TO PAYMENT. The obligations of the Contracting Stockholder
under Sections 2 and 3 hereof and the obligations of Merrill Lynch under
Section 3 hereof shall be subject to the condition that the Structured Yield
Product Exchangeable for Stock(Service Mark) (the "STRYPES") issued by the Trust
shall have been issued and paid for at the Closing Time.
5. TRUST DISSOLUTION; REFUND OF UNUSED EXPENSE FUNDS. If at the
dissolution of the Trust in accordance with Section 8.3 of the Trust Agreement
the aggregate amount of Ordinary Expenses incurred by the Service Provider on
behalf of the Trust through the date of dissolution shall be less than the
Up-front Expense Amount, the Service Provider shall, promptly following the date
of such dissolution, pay to the Contracting Stockholder in New York Clearing
House (next-day) funds the amount of such excess.
- ----------------------------
(Service Mark) Service mark of Merrill Lynch & Co., Inc.
3
<PAGE>
6. TERMINATION OF ADMINISTRATION AGREEMENT. In the event of the
termination of the Administration Agreement in accordance with Section 4.1
thereof, the Service Provider shall promptly pay to the Contracting Stockholder
in New York Clearing House (next-day) funds (i) the portion of the Service
Provider's Up-front Fee Amount ratable for the period from the date of the
termination of the Administration Agreement to the Exchange Date and (ii) any
unexpended portion of the Up-front Expense Amount.
7. STATEMENTS AND REPORTS. The Service Provider shall collect and
safekeep all demands, bills, invoices or other written communications received
from third parties in connection with any Ordinary Expenses and Additional
Expenses and shall prepare and maintain (or cause to be prepared and maintained)
adequate books and records showing all receipts and disbursements of funds in
connection therewith. Merrill Lynch and the Contracting Stockholder each shall
have the right to inspect and to copy, at its expense, all such documents, books
and records at all reasonable times and from time to time during the term of
this Agreement.
8. TERM OF CONTRACT. This Agreement shall continue in effect until the
dissolution of the Trust in accordance with Section 8.3 of the Trust Agreement.
9. NO ASSIGNMENT. No party to this Agreement may assign its rights or
delegate its duties hereunder without the prior written consent of the other
parties.
10. AMENDMENTS. The Service Provider agrees that it will not consent to
any amendment of the Administration Agreement, the Custodian Agreement, the
Paying Agent Agreement or the Collateral Agreement without the prior written
consent of Merrill Lynch and the Contracting Stockholder.
11. ENTIRE AGREEMENT. This Agreement contains the entire agreement among
the parties with respect to the matters contained herein and supersedes all
prior agreements or understandings. No amendment or modification of this
Agreement shall be valid unless the amendment or modification is in writing and
is signed by all the parties to this Agreement.
12. NOTICES. All notices, demands, reports, statements, approvals or
consents given by any party under this Agreement shall be directed as follows
(or to such other address for a particular party as shall be specified by such
party in a like notice given pursuant to this Section 9):
The Service Provider: The Chase Manhattan Bank
450 West 33rd Street
15th Floor
New York, New York 10001-2697
Telecopier: (212) 946-3240
Attention: Structured Products Group, Robert Goodwin
4
<PAGE>
Merrill Lynch: Merrill Lynch & Co., Inc.
North Tower
New York, New York 10281-1329
Telecopier: (212) 449-3150
Attention: Douglas W. Squires
The Contracting
Stockholder: Continental Grain Company
277 Park Avenue
New York, New York 10172
Telecopier: (212) 207-2960
Attention: Treasurer
with a copy to the attention of the Vice President and
General Counsel-Corporate, at the address of the
Contracting Stockholder specified herein, telecopy
number (212) 207-2980.
A copy of any communication to Merrill Lynch shall be furnished to Merrill Lynch
& Co., Inc., World Financial Center, North Tower, New York, New York 10281-1334,
telecopier (212) 449-9813, Attention: Associate General Counsel, provided that
the failure to furnish such copy shall not affect the effectiveness of any such
communication. Except as otherwise specifically provided herein, all notices
and other communications provided for hereunder shall be in writing and shall be
deemed to have been duly given if either (i) personally delivered (including
delivery by courier service or by Federal Express or any other nationally
recognized overnight delivery service for next day delivery) to the offices set
forth above, in which case they shall be deemed received on the first Business
Day by which delivery shall have been made to said offices, (ii) transmitted by
any standard form of telecommunication to the offices set forth above, in which
case they shall be deemed received on the first Business Day by which a standard
confirmation that such transmission occurred is received by the transmitting
party (unless such confirmation states that such transmission occurred after
5:00 P.M. on such first Business Day, in which case delivery shall be deemed to
have been received on the immediately succeeding Business Day), or (iii) sent by
certified mail, return receipt requested to the offices set forth above, in
which case they shall be deemed received when receipted for unless
acknowledgment of receipt is refused (in which case delivery shall be deemed to
have been received on the first Business Day on which such acknowledgment is
refused).
13. BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and permitted
assigns.
14. GOVERNING LAW. This Agreement shall be governed by and construed and
interpreted in accordance with the laws of the State of New York applicable to
agreements made and to be performed wholly within such State.
5
<PAGE>
15. COUNTERPARTS. This Agreement may be executed in several counterparts,
each of which shall be an original and all of which shall constitute but one and
the same instrument.
6
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their authorized representatives the date first above written.
CONTINENTAL GRAIN COMPANY
By:___________________________
Name:
Title:
MERRILL LYNCH & CO., INC.
By:___________________________
Name:
Title:
THE CHASE MANHATTAN BANK
By:___________________________
Name:
Title:
7
<PAGE>
SCHEDULE I
ITEM AMOUNT
SEC Registration Fees $
AMEX Listing Fees
NASD Fees
Printing (other than STRYPES Certificates)
Legal Fees
Blue Sky Fees
Miscellaneous __________
Total
8
<PAGE>
SCHEDULE II
ITEM AMOUNT
STRYPES Certificates $
Fees and Expenses of Special Delaware
Counsel to the Trust ________
Total
9
<PAGE>
SCHEDULE III
ITEM AMOUNT
Initial Acceptance Fee $
Administrative Agent Fee ________
Total
Sch-III-1
<PAGE>
SCHEDULE IV
ITEM AMOUNT
Ongoing AMEX Listing Fees $
Administrative Agent's Accountants
Initial and Ongoing Auditor of the Trust
Mailing of Reports to Shareholders
Trustees Fees
Preparation and Filing of Annual Tax
Returns of the Trust
Initial Legal Review
Out of Pocket/Miscellaneous _______
Total
Sch-IV-1
<PAGE>
EXHIBIT (k)(6)
FUND INDEMNITY AGREEMENT
Agreement, dated as of April __, 1997, among Continental Grain Company (the
"Contracting Stockholder"), Merrill Lynch & Co., Inc. ("Merrill Lynch") and
ContiFinancial STRYPES Trust (such trust and the trustees thereof acting in
their capacity as such being referred to herein as the "Trust").
WHEREAS, the Trust is a business trust organized pursuant to the Business
Trust Act of the State of Delaware (Chapter 38, Title 12, of the Delaware Code,
12 Del.C. (Sections 3801 et seq.)), under and by virtue of a Trust Agreement
dated as of March 14, 1996, as amended and restated as of March 26, 1997 (the
"Trust Agreement"); and
WHEREAS, the Contracting Stockholder and Merrill Lynch desire to make
provision for the payment of certain indemnification expenses of the Trust;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained in this Agreement, the parties agree as follows:
1. DEFINITIONS. Capitalized terms used herein and not defined herein
shall have the meanings ascribed thereto in the Trust Agreement.
2. AGREEMENT TO PAY EXPENSES. Merrill Lynch agrees to pay to the Trust,
and hold the Trust harmless from, any expenses of the Trust arising under
Sections 2.2(g) and 6.6 of the Administration Agreement, Section 15 of the
Custodian Agreement, Section 5.4(b) of the Paying Agent Agreement and Section
7.6 of the Trust Agreement (collectively, "Indemnification Expenses").
Notwithstanding the foregoing, it is understood that (i) Merrill Lynch shall
not, in respect of the legal expenses of any indemnified party in connection
with any proceeding or related proceedings in the same jurisdiction, be liable
for the fees and expenses of more than one separate firm (in addition to any
local counsel) and (ii) Merrill Lynch shall not be liable for any settlement of
any proceeding effected without the written consent of Merrill Lynch and the
Contracting Stockholder, but if settled with such consent or if there be a final
judgment for the Claimant (as defined herein), Merrill Lynch agrees to indemnify
the Trustees and the Trust from and against any loss or liability by reason of
such settlement or judgment. Payment hereunder by Merrill Lynch shall be made
in New York Clearing House (next-day) funds no later than five Business Days
after the receipt by Merrill Lynch, pursuant to paragraph 4 hereof, of written
notice of any claim for Indemnification Expenses.
<PAGE>
3. AGREEMENT TO REIMBURSE FOR PAYMENTS MADE. The Contracting Stockholder
agrees to reimburse Merrill Lynch from time to time for the amount of any
Indemnification Expenses paid by Merrill Lynch pursuant to paragraph 2 hereof.
Merrill Lynch shall be reimbursed for any such Indemnification Expenses in New
York Clearing House (next-day) funds no later than five Business Days after the
receipt by the Contracting Stockholder, pursuant to paragraph 4 hereof, of
written notice of any claim for Indemnification Expenses.
4. NOTICE OF RECEIPT OF CLAIM. The Trust shall give notice to, or cause
notice to be given to, Merrill Lynch and the Contracting Stockholder in writing
of any claim for Indemnification Expenses or any threatened claim for
Indemnification Expenses immediately upon the Trust acquiring knowledge thereof.
Such written notice to Merrill Lynch shall be accompanied by any demand, bill,
invoice or other communication received from any third party claimant (a
"Claimant") in respect of such Indemnification Expense.
5. STATEMENTS AND REPORTS. The Trust shall collect and safekeep all
demands, bills, invoices or other written communications received from third
parties in connection with any claim for Indemnification Expenses and shall
prepare and maintain adequate books and records showing all receipts and
disbursements of funds in connection therewith. Merrill Lynch and the
Contracting Stockholder each shall have the right to inspect and to copy, at its
expense, all such documents, books and records at all reasonable times and from
time to time during the term of this Agreement.
6. TERM OF CONTRACT. This Agreement shall continue in effect until the
dissolution of the Trust in accordance with Section 8.3 of the Trust Agreement.
7. NO ASSIGNMENT. No party to this Agreement may assign its rights or
delegate its duties hereunder without the prior written consent of the other
parties, except that the Trust may delegate any and all duties hereunder to the
Administrator to the extent permitted by law.
8. ENTIRE AGREEMENT. This Agreement contains the entire agreement among
the parties with respect to the matters contained herein and supersedes all
prior agreements or understandings. No amendment or modification of this
Agreement shall be valid unless the amendment or modification is in writing and
is signed by all parties to this Agreement.
9. NOTICES. All notices, demands, reports, statements, approvals or
consents given by any party under this Agreement shall be directed as follows
(or to such other address for a particular party as shall be specified by such
party in a like notice given pursuant to this Section 9):
2
<PAGE>
The Trust: ContiFinancial STRYPES Trust
c/o Puglisi & Associates
850 Library Avenue, Suite 204
Newark, Delaware 19716
Telecopier: (302) 738-7210
Attention: Donald J. Puglisi
Merrill Lynch: Merrill Lynch & Co., Inc.
North Tower
New York, New York 10281-1329
Telecopier: (212) 449-3150
Attention: Douglas W. Squires
The Contracting Stockholder: Continental Grain Company
277 Park Avenue
New York, New York 10172
Telecopier: (212) 207-2960
Attention: Treasurer
with a copy to the attention of the Vice
President and General Counsel-Corporate, at
the address of the Contracting Stockholder
specified herein, telecopy number
(212) 207-2980.
A copy of any communication to Merrill Lynch shall be furnished to Merrill Lynch
& Co., Inc., World Financial Center, North Tower, New York, New York 10281-1334,
telecopier (212) 449-9813, Attention: Associate General Counsel, provided that
the failure to furnish such copy shall not affect the effectiveness of any such
communication. Except as otherwise specifically provided herein, all notices
and other communications provided for hereunder shall be in writing and shall be
deemed to have been duly given if either (i) personally delivered (including
delivery by courier service or by Federal Express or any other nationally
recognized overnight delivery service for next day delivery) to the offices set
forth above, in which case they shall be deemed received on the first Business
Day by which delivery shall have been made to said offices, (ii) transmitted by
any standard form of telecommunication to the offices set forth above, in which
case they shall be deemed received on the first Business Day by which a standard
confirmation that such transmission occurred is received by the transmitting
party (unless such confirmation states that such transmission occurred after
5:00 P.M. on such first Business Day, in which case delivery shall be deemed to
have been received on the immediately succeeding Business Day), or (iii) sent by
certified mail, return receipt requested to the offices set forth above, in
which case they shall be deemed received when receipted for unless
acknowledgment of receipt is refused (in which case delivery shall be deemed to
have been received on the first Business Day on which such acknowledgment is
refused).
3
<PAGE>
10. BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and permitted
assigns.
11. GOVERNING LAW. This Agreement shall be governed by and construed and
interpreted in accordance with the laws of the State of New York applicable to
agreements made and to be performed wholly within such State.
12. COUNTERPARTS. This Agreement may be executed in several counterparts,
each of which shall be an original and all of which shall constitute but one and
the same instrument.
4
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their authorized representatives the date first above written.
MERRILL LYNCH & CO., INC.
By_________________________________
Name:
Title:
CONTIFINANCIAL STRYPES TRUST
__________________________________
Donald J. Puglisi, as Managing Trustee
CONTINENTAL GRAIN COMPANY
By_________________________________
Name:
Title:
5
<PAGE>
Exhibit (1)
Brown & Wood LLP
One World Trade Center
New York, New York 10048-0557
Telephone: (212) 839-5300
Facsimile: (212) 839-5599
March 28, 1997
ContiFinancial STRYPES Trust
c/o Puglisi & Associates
850 Library Avenue
Suite 204
Newark, Delaware 19715
Ladies and Gentlemen:
We have acted as counsel for ContiFinancial STRYPES Trust, a Delaware
business trust (the "Trust"), in connection with the registration of 3,220,000
STRYPES, par value $0.10 per STRYPES (the "STRYPES"), under the Securities Act
of 1933, as amended, pursuant to a registration statement on Form N-2 to be
filed with the Securities and Exchange Commission on the date hereof (the
"Registration Statement").
As counsel for the Trust, we are familiar with the proceedings taken by the
Trust in connection with the authorization, issuance and sale of the STRYPES.
In addition, we have examined and are familiar with the Restated Certificate of
Trust of the Trust, the Amended and Restated Trust Agreement of the Trust and
such other documents as we have deemed relevant to the matters referred to in
this opinion.
Based upon the foregoing, we are of the opinion that the STRYPES, upon
issuance and sale in the manner referred to in the Registration Statement for
consideration not less
<PAGE>
than the par value thereof, will be legally issued, fully paid and
non-assessable STRYPES of the Trust.
In rendering this opinion, we have relied as to matters of Delaware law
upon an opinion of Richards, Layton & Finger rendered to the Trust.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name in the Prospectus constituting
a part thereof.
Very truly yours,
/s/ Brown & Wood LLP
<PAGE>
Exhibit (n)(1)
Brown & Wood LLP
One World Trade Center
New York, New York 10048-0557
Telephone: (212) 839-5300
Facsimile: (212) 839-5599
March 28, 1997
ContiFinancial STRYPES Trust
c/o Puglisi & Associates
850 Library Avenue
Suite 204
Newark, Delaware 19715
Re: Registration Statement on Form N-2
Registration Nos. 333-1787 and 811-7565
Ladies and Gentlemen:
We have acted as tax counsel to the ContiFinancial STRYPES Trust (the
"Trust") in connection with the registration of its Structured Yield Product
Exchangeable for Stock (the "STRYPES"). In connection therewith, we have
prepared the discussion set forth under the caption "Certain United States
Federal Income Tax Considerations" (the "Discussion") in the Prospectus (the
"Prospectus") that is part of Amendment No. 3 to the Registration Statement on
Form N-2 (Registration Nos. 333-1787 and 811-7565) filed by the Trust with the
Securities and Exchange Commission on March 28, 1997.
We hereby confirm our opinion as set forth in the Discussion. In rendering
our opinion, we have examined (i) the Amended and Restated Trust Agreement
constituting ContiFinancial STRYPES Trust, (ii) the Contract and (iii) the
Security and Pledge Agreement, each in the form filed as an exhibit to the
Registration Statement, and have assumed that the obligations contemplated
thereunder will be performed in accordance with their terms.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name under the caption "Certain
United States Federal Income Tax Considerations" in the Prospectus. The
issuance of such consent does not concede that we are an "expert" for the
purposes of the Securities Act of 1933.
Very truly yours,
/s/ Brown & Wood LLP
<PAGE>
Exhibit (n)(2)
INDEPENDENT AUDITORS' CONSENT
ContiFinancial STRYPES Trust
We consent to the inclusion in this Pre-Effective Amendment No. 3 to
Registration Statement No. 333-1787 of ContiFinancial STRYPES Trust (the
"Trust") on Form N-2 of our report dated March 27, 1997 relating to the audit of
the statement of assets, liabilities and capital of the Trust and to the
reference to us under the heading "Experts" in the Prospectus, which is a part
of the Registration Statement.
ARTHUR ANDERSEN LLP
New York, New York
March 28, 1997
<PAGE>
EXHIBIT (p)
SUBSCRIPTION AGREEMENT
THIS SUBSCRIPTION AGREEMENT is entered into as of the 26th day of March
1997, between the ContiFinancial STRYPES Trust, a business trust organized
pursuant to the Business Trust Act of the State of Delaware (Chapter 38, Title
12, of the Delaware Code, 12 Del. C. (Sections 3801 et seq.)) (such trust and
the trustees thereof acting in their capacity as such being referred to herein
as the "Trust"), and ML IBK Positions, Inc. and Bear, Stearns & Co. Inc. (each a
"Purchaser" and, collectively the "Purchasers").
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. PURCHASE AND SALE OF THE STRYPES
1.1 SALE AND ISSUANCE OF UNITS. Subject to the terms and conditions of
this Agreement, the Trust agrees to sell to each Purchaser, severally and not
jointly, and each Purchaser, severally and not jointly, agrees to purchase from
the Trust, one Structured Yield Product Exchangeable for Stock(Service Mark),
representing an undivided beneficial interest in the Trust (a "STRYPES"), at a
purchase price per STRYPES of $50,000.
1.2 CLOSING. The purchase and sale of the STRYPES shall take place at the
offices of Brown & Wood LLP, One World Trade Center, New York, New York 10048 at
9:00 a.m., New York City time, on March 27, 1997, or at such other time
("Closing Date") and place as the Trust and the Purchasers mutually agree upon.
At or after the Closing, the Trust shall deliver to each Purchaser a certificate
representing the STRYPES purchased by such Purchaser, registered in the name of
such Purchaser or its nominee. Payment for the STRYPES shall be made on the
Closing Date by each Purchaser by bank wire transfer or by delivery of a
certified or official bank check, in either case in immediately available funds,
of an amount equal to the purchase price of the STRYPES purchased by such
Purchaser.
2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF EACH PURCHASER. Each
Purchaser hereby represents and warrants to, and covenants for the benefit of,
the Trust that:
2.1 PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is made by the
Trust with such Purchaser in reliance upon such Purchaser's representation to
the Trust, which by such Purchaser's execution of this Agreement such Purchaser
hereby
____________
(ServiceMark) Service Mark of Merrill Lynch & Co., Inc
<PAGE>
confirms, that the STRYPES are being acquired for investment for such
Purchaser's own account, and not as a nominee or agent and not with a view to
the resale or distribution by such Purchaser of any of the STRYPES, and that
such Purchaser has no present intention of selling, granting any participation
in, or otherwise distributing the STRYPES, in either case in violation of any
securities registration requirement under applicable law, but subject
nevertheless, to any requirement of law that the disposition of its property
shall at all times be within its control. By executing this Agreement, such
Purchaser further represents that such Purchaser does not have any contract,
undertaking, agreement or arrangement with any person to sell, transfer or grant
participation to such person or to any third person, with respect to any of the
STRYPES.
2.2 INVESTMENT EXPERIENCE. Such Purchaser acknowledges that it can bear
the economic risk of the investment for an indefinite period of time and has
such knowledge and experience in financial and business matters (and
particularly in the business in which the Trust operates) as to be capable of
evaluating the merits and risks of the investment in the STRYPES. Such
Purchaser is an "accredited investor" as defined in Rule 501(a) of Regulation D
under the Securities Act of 1933, as amended (the "Securities Act").
2.3 RESTRICTED SECURITIES. Such Purchaser understands that the STRYPES
are characterized as "restricted securities" under the United States securities
laws inasmuch as they are being acquired from the Trust in a transaction not
involving a public offering and that under such laws and applicable regulations
such STRYPES may be resold without registration under the Securities Act only in
certain circumstances. In this connection, such Purchaser represents that it
understands the resale limitations imposed by the Securities Act and is
generally familiar with the existing resale limitations imposed by Rule 144.
2.4 FURTHER LIMITATIONS ON DISPOSITION. Such Purchaser further agrees not
to make any disposition directly or indirectly of all or any portion of the
STRYPES unless and until:
(a) There is then in effect a registration statement under the
Securities Act covering such proposed disposition and such disposition is
made in accordance with such registration statement; or
(b) Such Purchaser shall have furnished the Trust with an opinion of
counsel, reasonably satisfactory to the Trust, that such disposition will
not require registration of such STRYPES under the Securities Act.
Notwithstanding the provisions of subsections (a) and (b) above, no such
registration statement or opinion of counsel shall be necessary for a transfer
by such Purchaser to any affiliate of such Purchaser, if the transferee agrees
in writing to be subject to the terms hereof to the same extent as if it were an
original Purchaser hereunder.
2
<PAGE>
2.5 LEGENDS. It is understood that the certificate evidencing the STRYPES
may bear either or both of the following legends:
(a) "These securities have not been registered under the Securities
Act of 1933, as amended. They may not be sold, offered for sale, pledged or
hypothecated in the absence of a registration statement in effect with
respect to the securities under such Act or an opinion of counsel
reasonably satisfactory to the Trustees of ContiFinancial STRYPES Trust
that such registration is not required."
(b) Any legend required by the laws of any other applicable
jurisdiction.
Each Purchaser and the Trust agree that the legend contained in the
paragraph (a) above shall be removed at a holder's request when it is no longer
necessary to ensure compliance with federal securities laws.
2.6 SPLIT OF STRYPES. Each Purchaser consents to the split of such
Purchaser's STRYPES. Subsequent to the determination of the public offering
price per STRYPES and related underwriting discount for the STRYPES to be sold
to the Underwriters (as defined in the Amended and Restated Trust Agreement of
the Trust dated as of March 26, 1997, by ML IBK Positions, Inc. and Bear,
Stearns & Co. Inc., as sponsors, and the trustees named therein) but prior to
the sale of the STRYPES to the Underwriters, each STRYPES purchased hereby shall
be split into a greater number of STRYPES so that immediately following such
split the value of each STRYPES held by the Purchasers will equal the aforesaid
public offering price per STRYPES.
2.7 COUNTERPARTS. This Agreement may be executed in several counterparts,
each of which shall be an original and all of which shall constitute but one and
the same instrument.
2.8 GOVERNING LAW. This Agreement shall be governed by and construed and
interpreted in accordance with the laws of the State of New York applicable to
agreements and to be performed wholly within such state.
3
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
CONTIFINANCIAL STRYPES TRUST
By __________________________________
Donald J. Puglisi, as Managing Trustee
ML IBK POSITIONS, INC.
By ___________________________________
Name:
Title:
BEAR, STEARNS & CO. INC.
By ___________________________________
Name:
Title:
4
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0001006194
<NAME> CONTIFINANCIAL STRYPES TRUST
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> MAR-27-1997
<PERIOD-END> MAR-27-1996
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 100,000
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 100,000
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
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<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
