<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 14, 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. 1
/X/
POST-EFFECTIVE AMENDMENT NO.
/ /
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
/X/
AMENDMENT NO. 1
/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. / /
--------------------------
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF SECURITIES BEING OFFERING PRICE AGGREGATE OFFERING REGISTRATION
BEING REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE
<S> <C> <C> <C> <C>
STRYPES representing shares of beneficial
interest....................................... 3,220,000 shares $34.13 $109,898,600.00 $33,303.00(3)
</TABLE>
(1) Includes an aggregate of 420,000 shares that (i) may be issued in connection
with the exercise of an over-allotment option and (ii) were subscribed for
and purchased by an affiliate of Merrill Lynch, Pierce, Fenner & Smith
Incorporated in connection with the formation of ContiFinancial STRYPES
Trust.
(2) Estimated solely for the purpose of calculating the registration fee.
(3) A registration fee in the amount of $3,448.28 was paid with the original
filing; a registration fee in the amount of $29,854.72 is being paid
herewith.
------------------------
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
3. Fee Table and Synopsis................................ Prospectus Summary; Fee Table
4. Financial Highlights.................................. Not Applicable
5. Plan of Distribution.................................. Front Cover Page; Prospectus Summary; 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 Restrictions; Investment Objective and
Policies; Risk Factors
9. Management............................................ Trustees; Management Arrangements
10. Capital Stock, Long-Term Debt and Other Securities.... Description of 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....................... The Trust
17. Investment Objective and Policies..................... Investment Objective and Policies; Investment
Restrictions
18. Management............................................ Trustees and Officers; Management Arrangements
19. Control Persons and Principal Holders of Securities... Management Arrangements
20. Investment Advisory and Other Services................ Management Arrangements
21. Brokerage Allocation and Other Practices.............. Investment Objective and Policies
22. Tax Status............................................ Certain United States Federal Income Tax
Considerations
</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>
23. Financial Statements.................................. 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 FEBRUARY 14, 1997
2,800,000 STRYPES-SM-
CONTIFINANCIAL STRYPES TRUST
(EXCHANGEABLE FOR SHARES OF COMMON STOCK OF CONTIFINANCIAL CORPORATION,
PAR VALUE $0.01 PER SHARE)
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, or a combination of cash and Reference Property,
with an equal value) upon conclusion of the term of the Trust on ,
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 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 , ,
and , commencing , 1997. The STRYPES are not subject to
redemption.
The Trust is a newly organized 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, or a combination of cash and Reference Property, 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 immediately prior to 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 or in part, by
delivering to the Trust immediately prior to the Exchange Date, in lieu of the
portion of the Reference Property otherwise deliverable in respect of which an
election to exercise the cash settlement option is made, 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, or a combination of cash and Reference Property, 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)
---------------------------
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) Before deducting estimated expenses of $ payable by the Trust.
(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)
SEE "RISK FACTORS," BEGINNING ON PAGE 22 OF THIS PROSPECTUS, FOR CERTAIN
CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE STRYPES.
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 a consolidation or merger 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.
Application will be made to list the STRYPES on the American Stock Exchange
(the "AMEX"). 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.
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE STRYPES OR THE
CONTIFINANCIAL COMMON STOCK AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL
IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE AMERICAN STOCK
EXCHANGE (WITH RESPECT TO THE STRYPES), THE NEW YORK STOCK EXCHANGE (WITH
RESPECT TO THE CONTIFINANCIAL COMMON STOCK), IN THE OVER-THE-COUNTER MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<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 organized 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 , 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, or a combination of cash and Reference
Property, 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 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 immediately prior to 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 or
in part, by delivering to the Trust immediately prior to the Exchange Date, in
lieu of the portion of the Reference Property otherwise deliverable in respect
of which an election to exercise the cash settlement option is made, 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, or a combination of cash and Reference Property, 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
, , and (or, if any such date is not a
Business Day (as defined herein), on the next succeeding Business Day) to
Holders of record as of each , , and ,
respectively. The first distribution (in respect of the period from ,
1997 until , 1997) will be payable on , 1997 to Holders of
record as of , 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, or
a combination of cash and Reference Property, 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
4
<PAGE>
PRICE PAID FOR THE STRYPES, IN WHICH CASE AN INVESTMENT IN STRYPES WILL RESULT
IN A LOSS. In the event of a consolidation or merger 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 accelarate 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 immediately prior to 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 the Contract
or, at the election of the Contracting Stockholder, by substitute collateral
consisting of U.S. Government obligations. 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.
5
<PAGE>
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 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 or
combination of cash and Reference Property) 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 or combination of
cash and Reference Property) 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 and/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 the
Company or any successor thereto is the
6
<PAGE>
subject of a Reorganization Event (as defined below), 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 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 and
satisfies its obligations under the Contract in whole or in part with cash. 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 shares of Reference Property for which cash is
received. 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 (or its successor) as trust
administrator (the "Administrator"). (or its successor) will also act
as custodian for the Trust's assets (the "Custodian") and as paying agent,
registrar and transfer agent (the "Paying Agent") with respect to the STRYPES.
Except as aforesaid, and except for its role as Collateral Agent under the
Trust's Security and Pledge Agreement (see "Investment Objective and
Policies--The Contract--Collateral Arrangements; Acceleration"), has no
other affiliation with, and is not engaged in any other transaction with, the
Trust. For their services, the Trust will pay each of the Custodian and the
Paying Agent a one-time, up-front amount in respect of its fee. See "Management
Arrangements."
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 "Reorganization Event"
with respect to the Company or any successor thereto or in the event of a
7
<PAGE>
"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."
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 and satisfy its obligations under
the Contract in whole or in part 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 is uncertain. See
"Risk Factors."
8
<PAGE>
LISTING
Application will be made to list the STRYPES on the AMEX.
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....................................................%
---------------
TOTAL ANNUAL EXPENSES.................................................%
---------------
---------------
</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) total annual expenses of % 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.
will act as the administrator of the Trust.
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 expenses set forth under "Management Fees" and "Other Expenses"
in the Fee Table above are based on estimated amounts through the end of the
Trust's first fiscal year on an annualized basis and prorated on a straight-line
basis over the term of the Trust, including the one-time up-front fee payable to
the Administrator, the Custodian and the Paying Agent. 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 organized 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
, 1997, the "Declaration of Trust"). The term of the Trust will
expire on or shortly after , 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 and organizational and
offering costs. 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,
or a combination of cash, Reference Securities and other property, 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
Exchange Date to reflect the addition or
10
<PAGE>
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." 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 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 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, 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 immediately prior to 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 or in part, by delivering to the Trust
immediately prior to the Exchange Date, in lieu of the portion of the number or
amount of each type of Reference Security and other property otherwise
deliverable in respect of which an election to exercise the cash settlement
option is made, cash in an amount equal to the value of such Reference
Securities and other 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, or a combination
of cash, Reference Securities and/or other property, on the Exchange Date. On or
prior to , 2000, 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 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, or a combination
thereof, 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
11
<PAGE>
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 "Reorganization Event" with respect to the
Company or any successor thereto 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, in whole, 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 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 , , and , commencing ,
1997. Quarterly distributions on the
12
<PAGE>
STRYPES will consist solely 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.
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 February 13, 1997)......................................... $ 39 3/8 $ 33 3/8
</TABLE>
As of December 31, 1996, there were approximately 87 holders of record of
the ContiFinancial Common Stock. On February 13, 1997, the last price reported
on the NYSE for the ContiFinancial Common Stock was $35 1/4 per share.
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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
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 immediately prior to 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 or in part, by
delivering to the Trust immediately prior to the Exchange Date, in lieu of the
portion of the aggregate number or amount of each type of Reference Security and
other property otherwise deliverable in respect of which an election to exercise
the Cash Settlement Option is made, 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,
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<PAGE>
then to the next higher 1/100th of a dollar) equal to the sum of (a) for any
portion of such Reference Property consisting of cash in respect of which an
election to exercise the Cash Settlement Option is made, 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 in respect of
which an election to exercise the Cash Settlement Option is made, 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) in respect of which an
election to exercise the Cash Settlement Option is made, 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 those 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
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 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
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<PAGE>
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 Trading Day prior to the Exchange Date until it is able to
obtain the required bid. From the date of issuance of such rights or warrants
until the required bid is obtained, the Reference Property shall include the
number of such rights or warrants issued for each unit of such 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 hereof 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 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.
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<PAGE>
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"), 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 REORGANIZATION EVENT WITH RESPECT TO THE COMPANY OR ANY COMPANY
SUCCESSOR 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 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) 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 to
be the Tax Event Acceleration Date.
A "Tax Event" means that the Contracting Stockholder shall have delivered to
the Trust an opinion (the "Tax Event Opinion") from 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 proceeds received by the Trust
from the sale of the U.S. Treasury Securities upon the occurrence of a Tax
Event.
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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. Thus, if this proposal is
ultimately adopted in its 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 this
proposal 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 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 and (b) 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 Custodian, as
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. Unless the Contracting Stockholder
is in default in its obligations under the Security and Pledge Agreement, the
Contracting Stockholder will be permitted to substitute for the pledged
Reference Property collateral consisting of short-term, direct obligations of
the U.S. Government. Any U.S. Government obligations pledged as substitute
collateral will be required to have an aggregate market value at the time of
substitution and at daily mark-to-market valuations thereafter of not less than
150% (or, from and after any Insufficiency Determination that shall not be cured
by the close of business on the third Business Day thereafter, as described
below, 200%) of the aggregate value of the number or amount of each type of
Reference Security and other property constituting part of the Reference
Property for which such obligations are being substituted at the time of each
valuation. 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, including any substitute collateral, unless the Contracting
Stockholder is in default of its obligations under the Security and Pledge
Agreement, or unless the payment of such amount to the Contracting Stockholder
would cause
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the collateral to become insufficient under the Security and Pledge Agreement.
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.
If the Collateral Agent shall determine (an "Insufficiency Determination")
that U.S. Government obligations pledged by the Contracting Stockholder as
substitute collateral shall fail to meet the foregoing requirements at any
valuation, and such failure shall not be cured by the close of business on the
third Business Day after such determination, then, unless a Collateral Event of
Default (as defined below) under the Security and Pledge Agreement shall have
occurred and be continuing, the Collateral Agent shall, if practicable, commence
(i) sales of the collateral pledged by the Contracting Stockholder consisting of
U.S. Government obligations and (ii) purchases, using the proceeds of such
sales, of each type of Reference Security and other property then constituting
part of the Reference Property, in such numbers or amounts sufficient to cause
the collateral pledged by the Contracting Stockholder to meet the requirements
of the Security and Pledge Agreement. The Collateral Agent shall discontinue
such sales and purchases if at any time a Collateral Event of Default under the
Security and Pledge Agreement shall have occurred and be continuing. A
"Collateral Event of Default" under the Security and Pledge Agreement shall
mean, with respect to the Contracting Stockholder at any time, (A) if no U.S.
Government obligations shall be pledged as substitute collateral at such 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; and (B) if any U.S. Government
obligations shall be pledged by the Contracting Stockholder as substitute
collateral for Reference Property at such time, failure of such U.S. Government
obligations to have a market value at such time of at least 105% of the
difference between (x) the aggregate value of 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
and (y) the aggregate value of the number or amount of each type of Reference
Security and other property constituting part of the Reference Property pledged
by the Contracting Stockholder as collateral at such time.
The occurrence of a Collateral Event of Default with respect to the
Contracting Stockholder 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, 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 to
be the acceleration date. Upon the occurrence of a Collateral Event
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<PAGE>
of Default or the bankruptcy or insolvency of the Contracting Stockholder, 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 Administrator) 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.
Upon any acceleration, the Collateral Agent will distribute to the Trust,
for distribution PRO RATA to the Holders, the Aggregate Acceleration Value in
the form of Reference Property then pledged, or cash generated from the
liquidation of the U.S. Government obligations then pledged, or a combination
thereof. In addition, in the event that by the Exchange Date any substitute
collateral has not been replaced by Reference Property sufficient to meet the
obligations of the Contracting Stockholder under the Contract, the Collateral
Agent will distribute to the Trust for distribution PRO RATA to the Holders the
aggregate value of the Reference Property to be delivered by the Contracting
Stockholder thereunder, in the form of Reference Property then pledged by the
Contracting Stockholder plus cash generated from the liquidation of U.S.
Government obligations then pledged by the Contracting Stockholder. See "--Trust
Dissolution."
FRACTIONAL INTERESTS. No fractional units of any Reference Security will be
delivered if the Contracting Stockholder satisfies its obligations under the
Contract in whole or in part by delivering Reference Property. In lieu of any
fractional unit 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 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
fractional interests of any Reference Property other than cash or a Reference
Security if the Contracting Stockholder satisfies its obligations under the
Contract in whole or in part 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 independent investment banking firm retained for this
purpose by the Administrator) as of 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.
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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" 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
For cash management purposes, the Trust may invest the proceeds of the U.S.
Treasury Securities and any other cash held by the Trust 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 Trust may dissolve prior to
the Exchange Date. In the event that the Company or any successor thereto 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."
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.
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<PAGE>
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 or 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.
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 Reorganization Event or 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. Application will be made to list the STRYPES on the AMEX. There can
be no assurance that such application will be accepted or that, if accepted, 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.
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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, the amount of cash or combination
of cash and Reference Property) 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 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 or combination of
cash and Reference Property) 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 or combination of
cash and Reference Property) 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 and/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 the Company or any successor thereto is the
subject of a Reorganization Event, the Contracting Stockholder exercises its
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<PAGE>
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, the
amount of cash or combination of cash and Reference Property) that a Holder of a
STRYPES will receive on the Exchange Date is not fixed, but is based on the
Reference Property Value (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 immediately prior to 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
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<PAGE>
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 Title 11 of the United States Code (the "Bankruptcy Code"),
performance of which would not be subject 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" for this purpose, 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. Thus, if
this proposal is ultimately adopted in its 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 this proposal 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.
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<PAGE>
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. 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 is
uncertain. Accordingly, prospective investors in the STRYPES should consult
their own tax advisers in this regard. Investors should also 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 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 Trustees of the Trust have been selected initially by ML IBK
Positions, Inc., as the initial holder of the Trust. 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
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<PAGE>
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 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.
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.
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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 Education University of Delaware
& Entrepreneurship
University of Delaware
Newark, DE 19716
</TABLE>
COMPENSATION OF TRUSTEES
The Trust will pay each unaffiliated Trustee a fee of $ per year
plus $ per meeting attended and will pay all Trustees' actual
out-of-pocket expenses relating to attendance at meetings; the Trust will also
pay an annual fee of $ to members of its audit committee and will pay
all Trustees' actual out-of-pocket expenses relating to attendance at audit
committee meetings. The Trustees will not receive 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 Managing
Trustee will negotiate the terms of the Contract and select the U.S. Treasury
Securities proposed for purchase by the Trust in accordance with and subject to
the terms of the Declaration of Trust. 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 Reorganization
Event or a Default by the Contracting Stockholder, the U.S. Treasury Securities
may not be disposed of prior to their respective maturities.
The Trust 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."
ADMINISTRATOR
The day-to-day affairs of the Trust will be managed by , 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) receive
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invoices for and 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) prepare and mail, file or publish all notices, proxies, reports, tax
returns and other communications and documents, and keep all books and records,
for the Trust; (v) at the direction of the Trustees, institute and prosecute
legal and other appropriate proceedings to enforce the rights and remedies of
the Trust; and (vi) make 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" and
"--Collateral Arrangements; Acceleration," or the settlement of the Contract at
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 its roles as Administrator, custodian, paying agent, registrar
and transfer agent of the Trust, and except for its role as Collateral Agent
under the Security and Pledge Agreement, has no other affiliation
with, and is not engaged in any other transactions with, the Trust.
The address of the Administrator is .
CUSTODIAN
The Trust's custodian (the "Custodian") is 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 and U.S. Government obligations 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 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.
INDEMNIFICATION
The Trust will indemnify each Trustee, the Administrator, the Paying Agent
and the Custodian with respect to any claim, liability, loss or expense
(including the costs and expenses of the defense against any claim or liability)
which it may incur in acting as Trustee, Administrator, Paying Agent or
Custodian, as the case may be, except in the case of willful misfeasance, bad
faith, gross negligence or reckless disregard of their respective duties or
where applicable law prohibits such indemnification. Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("Merrill Lynch") 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. Merrill Lynch will in turn be
reimbursed by the Contracting Stockholder for all such reimbursements paid by
it.
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ESTIMATED EXPENSES
The Trust will pay at its inception to each of the Administrator, the
Custodian and the Paying Agent a one-time, up-front amount in respect of its
fee. The Trust will also pay anticipated expenses over the term of the Trust.
The anticipated Trust expenses include, among other things, expenses for legal
and independent accountants' services, costs of printing proxies, STRYPES
certificates and Holder reports, expenses of the Trustees and stock exchange
fees. Organization costs of the Trust in the amount of $ , offering
costs estimated to be $ , and the aggregate of the one-time, up-front
payments described above in the amount of $ , will be paid from the
proceeds of the offering of the STRYPES.
A portion of the initial assets of the Trust will be used to purchase U.S.
Treasury Securities with face amounts and maturities corresponding to the
anticipated expenses over the term of the Trust. The portfolio of U.S. Treasury
Securities to be purchased in respect of the anticipated expenses of the Trust
will be 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. Any unanticipated expenses will be paid by Merrill Lynch.
Merrill Lynch 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, net of any Trust expenses.
The first distribution, reflecting the Trust's operations from the date of the
Offering, will be made on , 1997 to Holders of record as of
, 1997, and will equal $ per STRYPES. Thereafter,
distributions will be made on , , and of
each year to Holders of record as of each , and
, 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.
30
<PAGE>
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 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 (net of its PRO RATA portion
of the one-time fees payable to the Administrator, the Custodian and the Paying
Agent) 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
31
<PAGE>
amount payable on such U.S. Treasury Security over the Holder's initial tax
basis therefor as discussed 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
Exchange Date. On the Exchange 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 in the Exchange Date) received thereby on the Exchange 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 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 will begin on the day immediately following the Exchange
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
entirely in cash on the Exchange Date, a U.S. Holder will recognize taxable gain
or loss on the Exchange 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 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. 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 with respect to the Contract 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
32
<PAGE>
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 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 as well as the deductibility of any such loss.
In the event that the Contracting Stockholder satisfies its obligations
under the Contract with a combination of Reference Property and cash, a U.S.
Holder would be required to apply the foregoing rules to the STRYPES held
thereby on a PRO RATA basis in proportion to the amount of Reference Property
and cash received thereby.
Upon the sale or other disposition of a STRYPES prior to the Exchange 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.
An individual U.S. Holder who itemizes deductions may 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 by the Trust to the Administrator, the Custodian and the Paying Agent, and
may 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 by the Trust. Counsel believes that a U.S. Holder's PRO
RATA portion of the expenses incurred 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 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
33
<PAGE>
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 in an amount equal to the excess,
if any, of the value of the ContiFinancial Common Stock received on the Exchange
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. Thus, if this proposal is
ultimately adopted in its 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 this
proposal 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.
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.
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<PAGE>
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 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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<PAGE>
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, 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.
Application will be made to list the STRYPES on the AMEX.
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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<PAGE>
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, ML IBK Positions, Inc., an
affiliate of Merrill Lynch, Pierce, Fenner & Smith Incorporated, has subscribed
for and purchased one STRYPES for a 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 shareholders'
equity, 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 immediately prior to the Exchange Date a number or amount
of each type of Reference Property (or, in certain circumstances, cash, or a
combination of cash and Reference Property, with an equal value) in respect of
such STRYPES on the same terms as the STRYPES offered hereby.
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.
EXPERTS
The statement of assets, liabilities and capital included in this Prospectus
has been audited by , independent auditors, as stated in their opinion
appearing herein, and has been included in reliance upon such opinion given on
the authority of said firm as experts in auditing and accounting.
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.
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<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees and Shareholder of ContiFinancial STRYPES Trust:
We have audited the accompanying statement of assets, liabilities and
capital of ContiFinancial STRYPES Trust as of , 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 financial
statement. An audit also includes assessing the accounting principles used and
significant estimates made by the Trust's management, as well as evaluating the
overall financial statement presentation. We believe that our audit of the
financial statement provides a reasonable basis for our opinion.
In our opinion, the financial statement referred to above presents fairly,
in all material respects, the financial position of ContiFinancial STRYPES
Trust, as of , 1997 in conformity with generally accepted accounting
principles.
New York, New York
, 1997
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<PAGE>
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
, 1997
<TABLE>
<S> <C>
ASSETS
Cash.............................................................................. $ 100,000
Deferred organization and offering costs (Note 1).................................
---------
Total Assets................................................................ $
---------
---------
LIABILITIES
Deferred organization and offering costs payable (Note 1)......................... $
---------
---------
NET ASSETS........................................................................ $
---------
---------
CAPITAL
STRYPES, par value $.10 per share; shares authorized; 1 share issued and
outstanding (Note 3)............................................................ $
Paid-in Capital in excess of par..................................................
---------
Total Capital-Equivalent of $ net asset value per share of STRYPES (Note
1)......................................................................... $
---------
---------
</TABLE>
- ------------------------
(1) The Trust was established as a Delaware business trust on March 14, 1996 and
is registered as a non-diversified, closed-end management investment company
under the Investment Company Act of 1940, as amended. Costs incurred by the
Trust in connection with its organization, estimated at $ , will be
amortized on a straight-line basis over a three-year period beginning at the
commencement of operations of the Trust.
(2) Offering expenses, estimated at $ , will be payable upon completion
of the offering and will be charged to capital upon the commencement of
operations of the Trust.
(3) On February , 1997, the Trust issued one STRYPES to ML IBK Positions,
Inc., an affiliate of Merrill Lynch, Pierce, Fenner & Smith Incorporated in
consideration for the purchase price of $100,000.
The Declaration of Trust provides that prior to the Offering, the Trust will
split 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 one outstanding
STRYPES will be split into the smallest whole number of STRYPES that would
result in the per STRYPES amount recorded as shareholders' equity, after
effecting the split, not exceeding the public offering price per STRYPES.
39
<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.................................... 22
Description of the STRYPES...................... 26
Trustees........................................ 27
Management Arrangements......................... 28
Dividends and Distributions..................... 30
Net Asset Value................................. 30
Certain United States Federal Income Tax
Considerations................................ 31
Underwriting.................................... 36
Legal Matters................................... 37
Experts......................................... 37
Additional Information.......................... 37
Independent Auditors' Report.................... 38
Statement of Assets, Liabilities and Capital.... 39
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
---------------------
PROSPECTUS
---------------------
MERRILL LYNCH & CO.
BEAR, STEARNS & CO. INC.
, 1997
-SM- SERVICE MARK OF MERRILL LYNCH & CO., INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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.
2
<PAGE>
[ContiFinancial Prospectus]
3
<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 , 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**
(3) Merrill Lynch Standard Dealer 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 , independent auditors for the Trust**
(o) Not applicable
(p) Form of Subscription Agreement**
(q) Not applicable
(r) Financial Data Schedule**
</TABLE>
- ------------------------
* Previously filed.
** To be filed by amendment.
ITEM 25. MARKETING ARRANGEMENTS
See Exhibits (h)(1), (h)(2) and (h)(3) to this Registration Statement.
C-1
<PAGE>
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses to be incurred in
connection with the offering described in this Registration Statement:
<TABLE>
<S> <C>
SEC registration fees........................................... $33,303.00
AMEX listing fee................................................ *
Printing (other than certificates).............................. *
Engraving and printing certificates............................. *
Fees and expenses of qualification under state securities laws
(including fees of counsel)................................... *
Accounting fees and expenses.................................... *
Legal fees and expenses......................................... *
NASD fees....................................................... 11,490
Miscellaneous................................................... *
---------
Total....................................................... $ *
---------
---------
</TABLE>
- ------------------------
* To be furnished by amendment.
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
Article of the Declaration of Trust and the Purchase Agreement and
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.
C-2
<PAGE>
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 ( )
and its paying agent ( ).
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 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 14th day of February, 1997.
CONTIFINANCIAL STRYPES TRUST
(REGISTRANT)
By: /s/ DONALD J. PUGLISI
-----------------------------------------
Donald J. Puglisi
MANAGING TRUSTEE
Each person whose signature appears below hereby authorizes Donald J.
Puglisi, William R. Latham III, or James B. O'Neill, or any of them, as
attorney-in-fact, to sign on his behalf, individually and in each capacity
stated below, any amendment to this Registration Statement (including
post-effective amendments) and to file the same, with all exhibits thereto, with
the Securities and Exchange Commission.
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 February 14, 1997
(Donald J. Puglisi)
/s/ WILLIAM R. LATHAM III
- ------------------------------ Trustee February 14, 1997
(William R. Latham III)
/s/ JAMES B. O'NEILL
- ------------------------------ Trustee February 14, 1997
(James B. O'Neill)
