UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
[NO FEE REQUIRED] for the transition period
from _______ to _______
Commission File No. 0-13084
WARRANTECH CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 13-3178732
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
300 Atlantic Street, Stamford, Connecticut 06901
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (203) 975-1100
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of each Exchange on which registered
Common Stock $.007 par value NASDAQ National Market
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.007 par value
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(Title of Class)
Indicate by checkmark whether the Registrant (1) has filed all reports
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes__X__ No_______
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this form 10-K or any
amendment to this form 10-K [ ].
-------------------------------
The number of shares outstanding of the Registrant's common stock is
13,082,181 as of (June 21, 1996).
The aggregate market value of the voting stock held by nonaffiliates of
the Registrant is $35,756,096 (as of June 21, 1996).
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Definitive Proxy Statement for its 1996 Annual
Meeting of Shareholders to be filed pursuant to Regulation 14A promulgated under
the Securities Exchange Act of 1934, as amended are incorporated by reference in
Part III.
Index to Exhibits is on page 45.
<PAGE>
PART I
Warrantech Corporation ("Warrantech" or the "Company") maintains
executive offices at 300 Atlantic Street, Stamford, Connecticut 06901, operating
facilities at 150 Westpark Way and, 1441 West Airport Freeway, Euless, Texas
76040, as well as other Texas locations. The telephone number of the executive
offices is (203) 975-1100.
Item 1. Business
Warrantech, through its wholly-owned subsidiaries, Warrantech
Automotive, Inc., Warrantech Consumer Product Services, Inc., Warrantech Direct,
Inc., Warrantech Home Service Company and Warrantech International, Inc. markets
and administers service contract programs for retailers, distributors and
manufacturers of automobiles, recreational vehicles, automotive components,
homes, home appliances, home entertainment products, computers and peripherals,
and office and communication equipment in the United States, Puerto Rico,
Mexico, Canada, and the United Kingdom. Additionally, third-party administrative
services are provided to manufacturers of consumer and automotive products and
other business entities requiring such services. The predominant terms of the
contracts and manufacturer's warranties range from twelve (12) to eighty-four
(84) months.
The Company assists dealer-clients in obtaining insurance coverage that
indemnifies the clients against losses resulting from service contract claims
and protects the consumer by ensuring that their claims will be paid.
Additionally, the Company and the insurers have agreements that provide
eligibility for the Company to participate in the profits generated by the
programs in return for providing administrative services to the insurer with
regard to the programs.
Service programs benefit consumers with expanded and/or extensions of
product coverage for a specified period of time (or mileage in the case of
automobiles and recreational vehicles), similar to that provided by the
manufacturer under the terms of their product warranty(ies). Such coverage
generally provides for the repair or replacement of the product, or a component
thereof, in the event of its failure.
From a marketing perspective, the Company's products and services
enhance the perceived value of the retailers', distributors', manufacturers' or
financial institutions' products.
Warrantech Automotive, Inc.
Warrantech Automotive, Inc. ("WAI") has operated as a wholly-owned
subsidiary since November, 1989. Through this subsidiary, the Company markets
and administers vehicle service contract ("VSC") programs, credit life and other
related automotive after-sale products, all of which enhance the profitability
of the sale of automobiles, recreational vehicles and automotive components.
These products are sold by franchised and independent automobile dealers,
leasing companies, repair facilities and retail stores.
Additionally, WAI has expanded its efforts in the automotive field to
provide administrative expertise and secure the placement of insurance coverage
to other parties requiring such services on either VSC's or similar products.
The VSC is a contract between the dealer/lessor (and in some states
WAI) and the vehicle purchaser/lessee that offers coverage that runs from one to
eighty-four months and 1,000 to 100,000 miles. Coverage is afforded in the event
of the failure of a broad range of mechanical components that occurs during the
term of the VSC.
The programs marketed and administered by WAI require that the dealer
enter into an agreement whereby WAI is the provider of services to the dealer.
Among these services is the development and distribution of marketing materials,
processing of dealer produced VSC's, and the administration and payment of
claims filed by contract holders under the terms of their VSC.
WAI utilizes the services of independent agents to call on dealers to
solicit their use of the VSC programs. At this time, Warrantech Automotive is
represented by more than 60 agents in 46 states as well as Puerto Rico and
Canada.
With respect to the VSC programs which Warrantech and WAI market and
administer, liability is borne by insurers who have issued insurance policies to
assume this risk in exchange for the payment of agreed upon premiums and fees.
Effective March 1, 1993, insurance for the WAI VSC programs is provided by the
New Hampshire Insurance Company and other American International Group, Inc.
("AIG") member companies.
Essential to the success of WAI is its ability to capture, maintain,
track and analyze all relevant data regarding a VSC. To support this function,
this subsidiary operates proprietary software developed internally and consists
of custom designed relational databases with interactive capabilities. This
configuration provides ample capacity and processing speed for current
requirements as well as the ability to support significant future growth in this
area.
Warrantech Consumer Product Services, Inc.
Warrantech Consumer Product Services, Inc. ("WCPS"), a wholly-owned
subsidiary, was formed in 1990 and, at that time, assumed the parent company's
efforts to develop, market and administer consumer product extended service
contract programs.
The programs marketed and administered by WCPS require that the selling
dealer, distributor or manufacturer enter into an agreement with WCPS that
outlines the duties of each party. Those duties specifically assumed by WCPS
include the development and distribution of marketing materials, sales and
motivational training, processing of service contracts, and adjustment and
payment of claims. WCPS has also entered into service center agreements with
consumer product repair centers located throughout North America, South America,
Mexico and the Caribbean.
In exchange for agreed upon premiums and fees from the insured,
liability for claims incurred by service contracts issued by a dealer,
distributor or manufacturer has in the past been assumed by Houston General
Insurance Company, a wholly-owned subsidiary of Tokyo Marine & Fire Insurance
Company, the world's largest insurance organization. At the present time, in
addition to Houston General, certain programs offered by the Company are being
insured by Virginia Surety Company, Inc, a member of Aon Insurance Company, and
AIG member companies.
It is also essential to the success of WCPS that it be able to capture,
maintain, and analyze all relevant information about its service contracts. To
support this function, WCPS has internally developed application programs that
allow the tracking of a database of hundreds of millions of service contracts.
This also allows for the development of current and historical statistical data
which is used to monitor its service contract program's performance, and also
will support significant growth of WCPS's business.
During fiscal 1995, WCPS commenced a program to enhance its products
and services to solidify its position in the industry and broaden its market
base. This is a continuing effort that seeks to identify opportunities, weigh
their potential and develop programs and/or services to meet the needs of these
new venues. In connection with this effort WCPS has upgraded existing service
contract programs including the Repair Master Service contract program. Special
attention was given to the office products category with the emphasis on the
personal computer segment of the industry which is rapidly expanding. This
effort, which has continued in fiscal 1996, has resulted in increased market
share in this segment during the current year.
The Company has two significant customers that accounted for
approximately 19% of consolidated gross revenues for the year ended March 31,
1996 and one customer that accounted for approximately 10% and 11% of
consolidated gross revenues for the years ended March 31, 1995 and 1994.
Warrantech Direct, Inc.
Warrantech Direct, Inc. ("WDI") is uniquely positioned to integrate the
customer, service and product resources of Warrantech, its subsidiaries and
their retail dealers and manufacturers, in order to fully exploit new business
opportunities in merchandising through data-base marketing to the end-user
consumer.
This subsidiary, which was formed in 1992, utilizes state-of-the-art
telemarketing and direct mail equipment and techniques to obtain second effort
sales and renewals of service contracts.
WDI's efforts are conducted on behalf of (i) the dealer/retailers,
distributors and manufacturers who utilize the service contract programs
marketed and administered by WAI and WCPS, and (ii) a growing list of other
vendors who wish to utilize WDI resources to enhance their own service contract
sales efforts. Second effort marketing consists of contacting product purchasers
who did not buy a service contract and offering them this opportunity prior to
the expiration of the manufacturer warranty. Renewal marketing consists of the
effort to renew service contracts on eligible products upon the expiration of
their current service contract coverage.
Warrantech Home Service Company
The Company has recently formed Warrantech Home Service Company, a
wholly-owned subsidiary, as the vehicle to develop, market and administer
service contract programs in the United States covering mechanical breakdowns of
the working systems and components in homes (eg., furnaces, electrical and
plumbing systems, and major appliances).
Warrantech International, Inc.
In July, 1993, the Company through Warrantech International, Inc., and
AIG formed a joint venture, Techmark Services Ltd. ("Techmark" or the "Joint
Venture") owned fifty-one percent (51%) by AIG and forty-nine percent (49%) by
the Company.
In conjunction with the foregoing alliance, in October, 1993, AIG
purchased, for a price of $6,430,000, options and a special issue of preferred
stock which was convertible into an issue of new shares of common stock which,
subsequent to its issuance, would be equivalent to twenty percent (20%) of the
Company's issued and outstanding common stock. Under the terms of the purchase
agreement, AIG had the right to purchase an increased interest in the Company,
to a maximum of thirty percent (30%) of the Company's issued and outstanding
common stock, if certain operating goals were achieved by the Company.
In April, 1996, the Company and AIG agreed to terminate the joint
venture effective January 1, 1996. Under the terms of the agreement, AIG agreed
to purchase the Company's forty-nine percent (49%) investment in the joint
venture for approximately $3.8 million and to sell back to the Company the
3,234,697 shares of convertible preferred stock held by AIG for its original
redemption value of $6,430,000 and further relinquish their rights to other
options under the original agreement. The balance due AIG of $2,395,960 for the
preferred stock is in the form of a three year, non-interest bearing note
payable. In the event of default by the Company with respect to this note
payable, the Company would be required to reissue to AIG preferred stock for the
remaining amount due at the default date. AIG also agreed to continue to insure
certain extended warranty programs of the Company.
In July, 1995, Warrantech International, Inc., acquired Home Guarantee
Corporation PLC (subsequently renamed Warrantech Europe Plc.), a British company
which markets home warranty products in the United Kingdom covering mechanical
breakdowns of the working systems and components in homes (e.g., furnaces,
electrical and plumbing systems, and major appliances). In addition to home
warranty products, Warrantech Europe's business will be expanded to include
extended warranties on a wide range of products including automobiles, business
equipment, office and home computers, mobile telephones, and major appliances as
well as credit card enhancement programs similar to those marketed in the United
States. This subsidiary will also provide full database management, marketing,
training, brokerage services, and customer care service for clients in the
automotive, financial, manufacturing, retail and service sectors.
In June 1996, Warrantech International, Inc., signed a master
distributor agreement with a major U.S. exporter of consumer electronics and
appliances to market extended warranty products throughout Central and South
America. Management believes that the expansion into these additional areas
should enable Warrantech's overall revenues from its Latin American operations
to exceed $10 million in the next twelve months and expect this program to
commence in September 1996. This projection is based on an analysis of the fact
that this distributor has already been marketing extended warranties in the area
and is based on information available to the company on market penetration of
other companies in this area. While the Company reasonably believes it can
achieve these results, there can be no assurances that these results will be
attained.
<PAGE>
Sales and Marketing
The sales and marketing activities of the Warrantech subsidiary
companies are managed by each subsidiary's own sales and marketing personnel. In
certain circumstances, the subsidiaries have entered into marketing agreements
with independent organizations that solicit dealers at their own expense,
receiving a commission on all service contracts sold by such dealers.
The Warrantech subsidiary companies foster awareness of their
respective programs through cooperative advertising programs, which may be
jointly funded by the subsidiary and the dealer or independent agent.
Sales training and motivational programs are a primary form of
specialized assistance provided by WAI and WCPS to retailers/dealers,
distributors and manufacturers, to assist them in increasing the effectiveness
and profitability of their service contract program sales efforts. The Company
develops materials and conducts educational seminars. These seminars are
conducted either at the client's place of business or at the Company's
state-of-the-art training facility at its Euless, Texas administrative offices.
This facility features the latest in audio/video technology that enhances the
training and learning experience.
Competition
The Warrantech subsidiary companies compete with a number of
independent administrators, divisions of distributors and manufacturers,
financial institutions and insurance companies. While the Company believes that
it occupies a preeminent position among its competitors in its field, it may not
be the largest marketer and administrator of service contracts and limited
warranties, and some competitors may have greater operating experience, more
employees and/or greater financial resources. Further, many manufacturers,
particularly those producing motor vehicles, market and administer their own
service contract programs for and through their dealers.
Insurance Coverage
Liability for performance under the terms of service contracts and
limited warranties issued by dealers/retailers, distributors or manufacturers is
assumed by the insurer in return for the payment of the agreed-upon premium for
the assumption of the risk from the insured. This coverage provides
indemnification against loss resulting from service contract claims and protects
the consumer by ensuring that their claim will be paid.
The insurance protection is provided for the WAI programs by the New
Hampshire Insurance Company and other AIG member companies. These companies are
all rated A++ (Superior) by the A.M. Best Company. WCPS and its clients are
protected by insurance afforded by Houston General Insurance Company, a member
of the Tokyo Marine & Fire Insurance Company, Virginia Surety Company, Inc., a
member of Aon Insurance Company, and certain AIG member companies. Houston
General is rated Excellent by A.M. Best Company.
<PAGE>
In accordance with the insurance arrangements with these insurers, a
fixed amount is remitted for each service contract or limited warranty sold. The
amount is based upon actuarial analysis of data collected and maintained for
each type of coverage and contract term. In no event is the insured, the Company
or its subsidiaries obligated to the insurer if claims exceed the premium
remitted.
Additionally, agreements between the Company and the insurers, contain
profit-sharing features that permit the Company to share in the profits earned
by the service contract programs. The amounts to be received, if any, are
determined in accordance with certain specified formulas by the type of program
and by policy year. Certain of these agreements require interim calculations and
distributions for various programs, with final calculations being made as
contracts expire by term. During the latter part of fiscal 1996, the Company
renegotiated certain of its profit sharing arrangements with its insurers. The
changes to these agreements resulted in a charge of $1,300,000 in the fourth
quarter of fiscal 1996 to reflect the estimated ultimate realization of the
profit sharing through expiration of the underlying contracts. During the 1996
fiscal year, the Company received profit sharing advances amounting to
approximately $2.0 million.
Federal and State Regulation
The service contract programs developed and marketed by the Company's
subsidiaries, and their related operations with regard to service contracts and
limited warranties, are regulated by federal law and the statutes of a
significant number of states. The Company continually reviews all existing and
proposed statutes and regulations to ascertain their applicability to its
existing operations, as well as new programs that are developed by the Company.
Generally speaking, these statutes concern the scope of service
contract coverage and content of the service contract or limited warranty
document. In such instances, the state statute will require that specific
wording be included in the service contract or limited warranty expressly
stating the consumer's rights in the event of a claim, how the service contract
may be canceled and identification of the insurance company that indemnifies the
dealers, distributors or manufacturers against loss for performance under the
terms of the service contract.
Statutes in some states have sought to interpret the consumer product
service contract, or certain items covered under the contract as a form of
insurance, requiring that the issuer be a duly licensed and chartered insurance
company. The Company and its subsidiaries do not believe that they are insurers
and have no intention of filing the documents and meeting the capital and
surplus requirements that are necessary to obtain such a license.
In many instances, the applicability of statutes and regulations to
programs marketed and administered by the Company, and compliance therewith,
involve issues of interpretation. The Company uses its best efforts to comply
with applicable statutes and regulations but it cannot assure that its
interpretations, if challenged, would be upheld by a court or regulatory body.
In any situation in which the Company has been specifically notified by any
regulatory bodies that its methods of doing business were not in compliance with
state regulation, the Company has taken the steps necessary to comply.
<PAGE>
If the Company's right to operate in any state is challenged
successfully, the Company may be required to cease operations in the state and
the state might also impose financial sanctions against the Company. These
actions, should they occur, could have materially adverse consequences and could
affect the Company's ability to continue operating. However, within the
framework of currently known statutes, the Company does not feel that this is a
present concern.
Trademarks
The Company holds numerous registered United States trademarks, the
most important of which are the "WARRANTECH" and its stylized "W" logo service
marks. The registration for all service marks are kept current by the Company
and its trademark counsel. Additional service marks are registered covering
subsidiary names and product names and descriptions.
Employees
The Company and its subsidiaries currently employ approximately 400
individuals, an increase of approximately 120 over the preceding fiscal year.
The increase is directly attributable to the expansion of customer service and
claims representatives to meet the needs of the Company's expanding business.
None of the Company's employees are covered by a collective bargaining
agreement. The Company considers its relations with its employees to be good.
Item 2. Properties
The Company's executive offices are located in leased premises at 300
Atlantic Street, Stamford Connecticut. These premises, consisting of
approximately 24,854 square feet, are leased pursuant to a lease agreement (the
"Lease") which became effective on March 1, 1989 and expires on February 28,
1999. The annual base rent ranges from $490,074 to $412,796 during the term of
the Lease.
The operating facilities of WCPS are located in leased premises at 150
Westpark Way, Euless, Texas. The premises, consisting of approximately 24,000
square feet, are leased pursuant to a lease agreement (the "Texas Lease") which
was favorably renegotiated effective on March 1, 1993 and expires on July 31,
2003. The Texas Lease provides for annual base rent payments ranging from
$252,598 to $332,789 during the term of the lease.
The Company has recently leased an additional 36,814 square feet at
1441 West Airport Freeway, Euless, Texas to accommodate the operations of WAI
which moved June 1, 1996 from the Westpark Way facility due to the expansion of
the WCPS operations at that location. These premises are being leased pursuant
to a lease agreement that expires March 31, 2004. The lease provides for annual
base rent payments ranging from $404,954 to $441,768 during the term of the
lease.
<PAGE>
Additional facilities that support the operations of WAI and WCPS, as
well as, those that house WDI, are located at 1441 West Airport Freeway, Euless,
Texas (approximately 13,000 square feet) and 7630-7632 Pebble Drive, Building
#28, (approximately 6,000 square feet), Fort Worth, Texas. These premises are
leased under the terms of leases (the "Other Leases") that were effective on
December 1, 1994 and March 1, 1996, respectively. The Other Leases provide
for annual base rent payments ranging from $163,056 and $174,762, respectively.
Item 3. Legal Proceedings
A. The Oak Agency, Inc. and The Oak Financial Services, Inc. vs. Warrantech
Dealer Based Services, Inc. (WDBS)
This is a suit brought in the U.S. District Court, Northern
District of Illinois, by the Oak companies against WDBS (now known as
Warrantech Automotive, Inc.). Oak, a former agent of WDBS, alleges breach
of contract between the parties. The suit alleges that WDBS contracted to
pay agent commissions even after the contract was terminated. Oak seeks a
declaratory judgment and monetary damages from WDBS arising from the
termination of the agency agreement with Oak.
Oak's complaint does not specify the dollar amount of its alleged
damages, but Oak retained an expert witness who estimates that Oak's
damages exceed $9,000,000.00. Recently, the District Court ruled that the
report from Oak's damages expert was not admissible at trial. This ruling
would preclude Oak's damages expert from offering trial testimony based
on legal theories contained in his report. WDBS has vigorously defended
the case, and has retained its own economic expert, who will directly
refute the opinions of Oak's financial expert regarding the magnitude of
Oak's alleged damages. WDBS' expert has concluded that the maximum amount
recoverable by Oak, if any, is less than $1,000,000.00 after allowance of
all appropriate offsets. WDBS's principal defenses in the case concern
Oak's conduct as a sales agent. WDBS contends, in part, that Oak
performed poorly and breached its duty of loyalty as an agent of WDBS.
However, the district court granted a partial summary judgment to Oak
that will preclude WDBS from presenting evidence at the non-jury trial of
Oak's breach of its duty of loyalty owed to WDBS. No trial date has been
set as yet.
The Complaint is attached hereto as an exhibit.
B. The Oak Agency, Inc., et al. v. Warrantech, Inc., et al., Case No. 96
C 1106, filed in the United States District Court for the Northern
District of Illinois.
In February 1996, Oak filed this lawsuit in Federal District Court in the
Northern District of Illinois against WDBS, as well as against Warrantech
Corporation, Joel San Antonio, the Corporation's Chairman, and William
Tweed, the Corporation's President. Oak filed the new suit after the
Illinois District Court in Oak's original action against WDBS had denied
Oak's motion seeking leave to add these three parties as additional
Defendants in that case.
In its new lawsuit, Oak alleges that the Defendants tortuously interfered
with Oak's business relationships with automobile dealers after WDBS
terminated Oak as a sales agent. Oak seeks to recover sales commissions
that it contends it would have earned if WDBS had not precluded Oak from
serving WDBS' dealership accounts after Oak's termination. In the
complaint, the Plaintiff has stated $8 million in compensatory damages.
Oak also seeks to recover punitive damages in the amount of $24 million.
C. In the Matter of the Arbitration Between David Robertson, Claimant, and
Warrantech Corporation and Warrantech Automotive, Respondents.
David Robertson, a former officer and director of the Company,
commenced this action on or about December 10, 1993 and the matter is
currently pending before the American Arbitration Association in
Connecticut. Robertson has alleged that the Company wrongfully terminated
an employment agreement between Robertson and WDBS, and that the Company
engaged in tortuous interference and fraud. Robertson has requested
damages ranging from $450,000 to $5 million which includes his request
for punitive damages. The Company has denied all material allegations in
the claims. The Company has asserted a counterclaim in the amount of
approximately $340,000 for reimbursement of attorneys' fees advanced by
it on behalf of Robertson in connection with certain other actions.
Management intends to vigorously defend against Robertson's claims and to
vigorously prosecute its counterclaims. No hearing is presently scheduled
on this matter.
Item 4. Submission of Matters to Vote of Security Holders
No matters were submitted to a vote of the Company's
shareholders, through the solicitation of proxies or otherwise, during
the fourth quarter of the Company's fiscal year ended March 31, 1996.
<PAGE>
PART II
Item 5. Market for Company's Common Equity and Related Stockholder Matters
The Company's Common Stock has been reported in the National
Association of Securities Dealers Automated Quotation System ("NASDAQ"), and
currently is reported on NASDAQ's National Market System ("NMS"), under the
trading symbol "WTEC".
As of June 21, 1996, there were 13,082,181 Common Shares outstanding. On that
date, the closing bid price for the Company's common stock, as reported by
NASDAQ was $4.31.
Following is a summary of the price range of the Company's Common Stock during
its 1996 and 1995 fiscal years:
Common Stock
Quarter of Fiscal 1996 High & Low Bid
--------------
First $5.75 $4.81
Second $6.13 $4.13
Third $6.44 $4.13
Fourth $5.06 $3.50
Quarter of Fiscal 1995 High & Low Bid
--------------
First $5.13 $3.88
Second $6.25 $3.63
Third $6.13 $5.00
Fourth $5.38 $4.63
The number of shareholders of record of the Company's Common Stock as of June
21, 1996 was 1,206.
Dividends
No cash dividends have been paid to holders of Common Stock since inception of
the Company. The Company anticipates that, in the foreseeable future, earnings,
if any, will be retained for use in the business or for other corporate purposes
and it is not anticipated that cash dividends will be paid.
<PAGE>
Item 6 - SELECTED FINANCIAL DATA
The Selected Financial Data should be read in conjunction with the consolidated
financial statements and related notes included elsewhere in this filing.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED MARCH 31,
----------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
--------------- -------------- --------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Gross revenue $110,246,219 $ 71,239,070 $ 46,970,763 $43,841,017 $50,692,389
Net (increase)decrease
in deferred revenue (a) (1,165,495) (699,745) (316,290) 314,931 822,856
--------------- -------------- --------------- -------------- -------------
Net revenue (a) 109,080,724 70,539,325 46,654,473 44,155,948 51,515,245
--------------- -------------- --------------- -------------- -------------
Income before
cumulative effect of
change in accounting
principle 2,394,862 2,895,788 703,591 1,061,471 1,336,968
Accounting change - - - - (117,581)
--------------- -------------- --------------- -------------- ------------
Net income $ 2,394,862 $ 2,895,788 $ 703,591 $ 1,061,471 $ 1,219,387
=============== ============== =============== ============== ============
Earnings per
common share:
Income before
cumulative effect
of change in
accounting principle $0.16 $0.19 $0.05 $0.08 $0.11
Accounting change (a) - - - - (0.01)
-------------- ------------- --------------- ------------- -------------
Net income $0.16 $0.19 $0.05 $0.08 $0.10
============== ============= =============== ============= =============
Cash dividend declared NONE NONE NONE NONE NONE
============== ============= =============== ============= =============
Total assets (a) $56,613,710 $41,858,546 $ 33,828,572 $24,646,791 $25,548,186
============== ============= =============== ============= =============
Long-term debt and
capital lease
obligations $ 1,124,015 $ 293,648 $ 476,875 $ 853,101 $ 315,697
============== ============= =============== ============= =============
Convertible
exchangeable
preferred stock $ 6,420,363 $ 6,396,795 $ 6,343,614 - -
============== ============= =============== ============= =============
Common stockholders'
equity $19,656,931 $17,443,763 $14,300,322 $13,427,311 $12,161,683
============== ============= ================ ============= =============
Working capital $13,221,212 $11,067,983 $ 9,768,580 $ 4,982,608 $ 4,355,183
============== ============= ================ ============= =============
</TABLE>
(a) The Company changed its revenue recognition policy, effective April 1,
1991, to the "proportional performance method" which recognizes revenues
in direct proportion to the costs incurred in providing the service
contract programs to its clients. Only revenues in an amount sufficient
to meet future administrative costs and reasonable gross profit thereon
are deferred. The new method of recognizing revenues more accurately
conforms to the Company's operations and properly matches the incurring
of costs with revenues.
This change in revenue recognition policy as of April 1, 1991, resulted
in a one time cumulative effect charge to operations, net of taxes, in
the amount of $117,581.
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
The Company, through its WCPS, WAI, Warrantech Direct, Warrantech Home
Service Company, and Warrantech International subsidiaries, provides marketing
and administrative services to over 3,000 retailers, distributors and
manufacturers of automobiles, recreational vehicles, automotive components,
homes, home appliances, home entertainment products, computers and peripherals,
office and communications equipment. The Company's administrative services
pertain primarily to extended service contracts and limited warranties, issued
by the retailer, distributor or manufacturer to the purchaser/lessee of the
consumer product. Additionally, the Company maintains administrative facilities
for, and provides administrative services to, insurance companies and financial
institutions for other types of insurance products such as credit card
enhancement programs like "purchase protection" and "unemployment" coverages.
Results of Operations
Gross Revenues
Fiscal 1996 vs. 1995
Gross revenues for the fiscal years ended March 31, 1996 and 1995 were
$110,246,219 and $71,239,070, respectively, representing an increase of 55% in
the current fiscal year. The increase is the result of the Company's efforts in
expanding its market penetration in the personal computer industry as well as
continued market penetration in the other consumer products and automotive
products market segments. The gross revenues attributable to consumer product
and automotive programs increased approximately $37 million as a direct result
of approximately $20 million related to new business, approximately $14 million
related to volume increases with existing customers, and one time gains of
approximately $3 million resulting from the accession of service contract
portfolios from new customers. The balance of the increase is the result of
increased efforts with respect to renewals and second effort sales. Revenues of
Warrantech Europe (formerly Home Guarantee Corporation Plc acquired July 1995)
were insignificant to consolidated gross revenues during the current fiscal
year.
For the three month periods ended March 31, 1996 and 1995,
respectively, gross revenues were $31,481,357 and $19,554,126, an increase of
61%. The principal reason for this increase is the volume of business with new
customers during the fiscal quarter in both the automotive and consumer products
businesses.
Fiscal 1995 vs. 1994
Gross revenues for the fiscal years ended March 31, 1995 and 1994 were
$71,239,070 and $46,970,763, respectively. This increase is the result of a 52%
increase in gross revenues attributable to electronic, household and other
non-automotive related consumer product programs reflecting increases in market
share and penetration and favorable product mix and pricing. Automotive related
program revenues increased 43% during this period as a result of new programs
and increased volumes resulting from the recovery in the overall automotive
industry.
For the three month periods ended March 31, 1995 and 1994,
respectively, gross revenues were $19,554,126 and $11,417,813, an increase of
71%. The principal reason for this increase was continued growth in the consumer
product related revenues and to a lesser degree an increase in automotive
related revenues.
Net Increase in Deferred Revenues
The Company recognizes revenues in direct proportion to the costs
incurred in providing the service contract programs to its clients. Only
revenues in an amount sufficient to meet future administrative costs and a
reasonable gross profit thereon are deferred. The amounts of gross revenues
deferred and earned from period to period are effected by (i) the mix of
automotive and consumer product contract volumes, (ii) the relationship of gross
contract revenues generated by shorter term extended service contracts to total
gross revenues, and (iii) administration contract revenues which are recognized
over a short term period.
Fiscal 1996 vs. 1995
The net increase in deferred revenues for the year ended March 31, 1996
amounted to $1,165,495 as compared with $699,745 for the same period a year ago.
For the three month period ended March 31, 1996, the net increase in deferred
revenues amounted to $209,311 as compared with $175,353 for the same period a
year ago. These increases are directly attributable to the increased number of
service contracts sold with a service period greater than one year during the
current year and three month periods ended March 31, 1996 and 1995 and amounts
deferred with respect to the accession of service contract portfolios from new
customers in the second and third quarter periods of fiscal 1996 offset in part
by the amounts earned on expiring contracts during the same periods.
Fiscal 1995 vs. 1994
The net increase in deferred revenues amounted to $699,745 and $316,290
as of March 31, 1995 and 1994, respectively, and was the result of an increase
in the number of service contracts in force at the end of March 31, 1995 with a
service period greater than one year.
Direct Costs
Direct costs are those costs directly related to the production and
acquisition of service contracts. These costs are insurance premium and
commission expenses.
Fiscal 1996 vs. 1995
Direct costs for the fiscal year ended March 31, 1996 were $74,013,324
as compared with $46,140,548 for the fiscal year ended March 31, 1995. Direct
costs for the three month periods ended March 31, 1996 and 1995 amounted to
$21,656,315 and $11,457,907, respectively. The increases in direct costs for the
year and three month period ended March 31, 1996 are principally the result of
volume increases in contracts sold and to a lesser extent a higher level of
premium reflecting improved coverage on selected programs.
Fiscal 1995 vs. 1994
Direct costs for the fiscal year ended March 31, 1995 were $46,140,548
as compared to $30,350,722 for the fiscal year ended March 31, 1994. Direct
costs for the three months ended March 31, 1995 were $11,457,907, as compared to
$6,516,238 for the same period in fiscal 1994. The increase in direct costs for
both the year and the quarter ended March 31, 1995 as compared with the
comparable periods for the preceding year is primarily attributable to the
proportionate increase in revenues during the year.
Service, Selling and General and Administrative Expenses
Fiscal 1996 vs. 1995
Service, selling and general and administrative expenses for the fiscal
year ended March 31, 1996 were $27,362,214 as compared to $20,716,655 for the
fiscal year ended March 31, 1995. For the three month period ended March 31,
1996, service, selling and general and administrative expenses amounted to
$8,661,694 as compared to $6,617,117 for the same period last year. The relative
dollar increase in both the current fiscal year and quarter is directly
attributable to increases in sales related costs and payroll and payroll related
costs arising from continued increases in head count to meet the service
requirements associated with the increased number of service contracts being
sold. In addition, service, selling and general and administrative expenses
include approximately $1.2 million and $.6 million of expenses for the fiscal
year and quarter ended March 31, 1996, respectively, related to Warrantech
Europe which was acquired in July 1995. As a percentage of gross revenues,
service, selling and general and administrative expenses have decreased 4% and
6% in the current fiscal year and quarter ended March 31, 1996, respectively,
which is indicative of the improved functional expense controls implemented by
management during fiscal 1996.
Fiscal 1995 vs. 1994
Service, selling, general and administrative expenses for the fiscal
year ended March 31, 1995 were $20,716,655 as compared to $14,674,158 for the
fiscal year ended March 31, 1994. The increase is directly attributable to
increases in sales related costs, payroll and payroll related costs arising from
an increase in head count to meet volume increases experienced during that year
as well as increased levels of commissions, and incentive compensation. Service,
selling and general and administrative expenses as a percentage of gross
revenues remained relatively consistent with fiscal 1994.
Provision for Bad Debt Expense
For all years presented, the provision for bad debt expense results
from the write-off of accounts considered uncollectible. The higher level of
expense in fiscal 1995 resulted from the settlement of certain litigation that
year.
<PAGE>
Depreciation and Amortization
Fiscal 1996 vs. 1995
Depreciation and amortization amounted to $1,700,285 and $785,584 for
the fiscal year and three month period ended March 31, 1996, respectively. The
increase over the same periods a year ago reflect a higher level of depreciation
during the year resulting from an approximately $5.1 million increase in assets
placed in service during the current fiscal year. This increase in assets is
directly attributable to an ongoing upgrade of the Company's information
systems.
Fiscal 1995 vs. 1994
In fiscal 1995, as part of an Internal Revenue Service agent review of
the Company's 1992 and 1993 tax returns, certain adjustments were identified,
the most significant of which related to revenues originally recorded as
deferred revenues in connection with the 1989 acquisition of Dealer Based
Services, Inc., which should not have been included in taxable income for those
years subsequent to the acquisition. As a result, the Company reduced the amount
of remaining goodwill at April 1, 1994 that arose as part of this asset
acquisition by the estimated tax refund in the amount of $1,310,575. This
reduced the amount of the goodwill amortization recorded in fiscal 1995. The
amount of the estimated refund, including interest was received in full during
fiscal 1996.
Operations of Equity Joint Venture
In April 1996, the Company and its joint venture partner, AIG, agreed
to terminate the joint venture, Techmark Services Ltd, effective January 1,
1996. Under the terms of the agreement, AIG agreed to purchase the Company's
forty-nine percent (49%) investment in the joint venture for $3,762,154. As of
March 31,1996, the Company's carrying value of the joint venture investment
amounted to $1,885,674 which will result in a gain on the sale of the investment
of $1,876,480 to be recognized in the first quarter of fiscal 1997. The losses
in operations of the equity joint venture amounting to $957,748 represent the
Company's share of the joint venture losses from the beginning of the fiscal
year through the effective date of the transaction.
Other Income/(Expense)
Other Income/(expense) includes amounts recognized with respect to the
Company's profit sharing arrangements. During fiscal 1996, the Company
renegotiated certain of its profit sharing arrangements with its insurers. The
principal effect of this modification was to change the nature of profit sharing
to more long-term in nature. The changes to these contracts and a reexamination
of experience affecting the estimated ultimate realization of the profit sharing
through expiration of the underlying contracts resulted in a charge of
$1,300,000 in the fourth quarter of fiscal 1996 and a charge of $865,000 during
the current year as compared to income recorded in fiscal 1995 and 1994 for
profit sharing of $2,676,001 and $1,364,089, respectively. Also included in
other income/(expenses) is a charge of $222,845 relating to a residual amount
due the Company from the sale of a business in prior years.
<PAGE>
Income Taxes
The income tax provision for fiscal 1996 differs from the statutory
rate due primarily to a tax benefit of $1.1 million recognized with respect
to foreign losses. Management expects to realize this tax benefit, which
has an indefinite carryforward period, against the gain on the sale of
the joint venture to be recognized in the first quarter of fiscal 1997 and
other future foreign income.
Net Income
Fiscal 1996 vs. 1995
Net income for the fiscal year and three month period ended March 31,
1996 amounted to $2,394,862 and ($489,910) or $.16 and ($.04) per primary share,
respectively as compared to $2,895,788 and $704,627 or $.19 and $.04 per primary
share, respectively for the comparable period in fiscal 1995. The decrease in
net income and per share amounts for the fiscal year is directly attributable to
the Techmark losses, losses associated with Warrantech Europe and a profit
sharing charge of $1,300,000 recognized in the fourth quarter of the current
year to reflect contractual changes made to these agreements and a
reexamination of experience related to the underlying contracts which
offset the profit increases resulting from the increase in business and
the one time gains associated with the accession of two portfolios from new
customers.
Fiscal 1995 vs. 1994
Net income for the fiscal year and three month period ended March 31,
1995 amounted to $2,895,788 and $704,627 or $.19 and $.04 per primary share,
respectively as compared to $703,591 and $608,894 or $.05 and $.04, respectively
for the comparable periods in fiscal 1994. The increase in fiscal year 1995 is
attributable to the increases in revenues in those respective periods, an
increase in profit sharing recognized, offset by start-up losses amounting to
approximately $580,000 of the Japanese operations of the Company's Techmark
joint venture.
Liquidity and Capital Resources
The primary source of liquidity during the current year was cash
generated by operations, including a federal tax refund, plus interest, related
to a Revenue Agent Review of prior year tax returns amounting to approximately
$1.7 million. Funds were utilized for working capital expenditures, capital
expenditures relating to the upgrading of the Company's information systems and
the purchase of Home Guarantee Plc during the second quarter of fiscal 1996.
On December 12, 1995, the Company completed the sale/leaseback of
certain computer equipment resulting in proceeds of $1,146,642. The Company has
an ongoing relationship with an equipment financing company and intends to
continue financing certain future equipment needs through leasing transactions.
The total amount financed through leasing transactions during fiscal 1996
amounted to $1,640,060. In addition, on December 21, 1995 the Company completed
an agreement to increase its line of credit with a bank from $1 million to $10
million, $6.5 million committed and $3.5 million standby. The line of credit is
secured by certain accounts receivable and expires on July 31, 1996. It is
anticipated that the line of credit will be extended to July 1997. At March 31,
1996, the Company did not have any borrowings under the line of credit.
In connection with the sale of the Company's joint venture interest to
AIG, the Company agreed to repurchase 3,234,697 shares of convertible
exchangeable preferred stock held by AIG at their redemption value of
$6,430,000. This amount will be offset by the amount due the Company for the
sale of its investment, with the net amount due AIG of $2,395,960 resulting in a
three year, non-interest bearing note payable. The note is payable in 11 equal
quarterly installments of $205,000 commencing June 30, 1996, with a final
installment of $140,960 due March 1999. Also, as part of the agreement, AIG
agreed to pay the Company $1,480,000 related to amounts due the Company under
its profit sharing arrangement. In connection with this payment, the Company
issued an irrevocable letter of credit to the benefit of AIG through December
31, 2002 which can be drawn against by AIG in the event that the ultimate profit
sharing amount due the Company is less than the amount paid. It is anticipated
that no amounts will be due AIG under this letter of credit.
The Company believes that internally generated funds will be sufficient
to finance its current operation for at least the next twelve months.
The effect of inflation has not been significant to the Company since
its formation.
<PAGE>
Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page No.
Report of Independent Accountants.......................... 20-21
Consolidated Financial Statements:
Balance Sheets as of March 31, 1996 and 1995... 22
Statements of Operations For the Years Ended
March 31, 1996, 1995 and 1994................. 23
Statements of Common Stockholders' Equity
For the Years Ended March 31, 1996, 1995 and 1994 24
Statements of Cash Flows
For the Years Ended March 31, 1996, 1995 and 1994.... 25-26
Notes to Consolidated Financial Statements................. 27-40
Consolidated Financial Statement Schedule
Schedule VIII - Valuation and Qualifying Accounts. 41
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Warrantech Corporation:
We have audited the consolidated financial statements and the financial
statement schedule of Warrantech Corporation and subsidiaries (the "Company") as
of March 31, 1996 and 1995, and for the years then ended as listed in the
accompanying index on page 19. These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on the 1996 and 1995 financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of the
Company as of March 31, 1996 and 1995, and the consolidated results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles. In addition, in our opinion, the
financial statement schedule as of and for the years ended March 31, 1996 and
1995, when considered in relation to the basic 1996 and 1995 consolidated
financial statements taken as a whole, present fairly, in all material respects
the information required to be included therein.
As discussed in Note 9 to the consolidated financial statements, the
Company is a defendant in certain litigation. The ultimate outcome of this
litigation cannot presently be determined. Accordingly, no provision for any
loss that may result upon resolution of these matters has been made in the
accompanying consolidated financial statements.
Coopers & Lybrand L.L.P.
Stamford, Connecticut
June 27, 1996
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Warrantech Corporation
We have audited the consolidated balance sheet of Warrantech
Corporation (the "Company") and subsidiaries as of March 31, 1994 (not
separately shown herein), and the related consolidated statements of
operations, common stockholders 'equity, and cash flows for the year then
ended. Our audit also included the financial statement schedule for the
year ended March 31, 1994 listed in the Index on page 19. These financial
statements and financial statement schedules are the responsibility
of the Company's management. Our responsibility is to express an
opinion on the 1994 financial statements 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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of the Company as of March 31,
1994, and the results of its operations and its cash flows for the year ended
March 31, 1994 in conformity with generally accepted accounting principles.
Also, in our opinion, such financial statement schedule for the year ended
March 31, 1994, when considered in relation to the basic 1994 consolidated
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
As discussed in Note 9 to the consolidated financial statements, the
Company is a defendant in certain litigation. The ultimate outcome of this
litigation cannot presently be determined. Accordingly, no provision for any
loss that may result upon resolution of these matters has been made in the
accompanying financial statements.
As discussed in Note 8 to the consolidated financial statements,
the Company changed its method of accounting for income taxes to conform
with Statement of Financial Accounting Standards No. 109 in 1994.
Deloitte & Touche LLP
Stamford, Connecticut
June 29, 1994
<PAGE>
================================================================================
WARRANTECH CORPORATION AND SUBSIDIARIES
================================================================================
CONSOLIDATED BALANCE SHEETS
A S S E T S
----------
<TABLE>
<CAPTION>
March 31,
-------------------------------
------------- --------------
1996 1995
------------- --------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 11,859,487 $ 3,039,361
Investments in marketable securities 824,648 472,344
Accounts receivable,
(net of allowances of $450,092
and $126,115, respectively) 16,160,209 12,705,664
Other receivables, net 8,610,919 8,599,198
Prepaid expenses, prepaid income taxes
and other current assets 988,936 1,065,062
------------- ------------
Total Current Assets 38,444,199 25,881,629
------------- ------------
Property and Equipment - Net 6,802,798 2,865,910
------------- -------------
Other Assets:
Excess of cost over fair value of assets
acquired (net of accumulated amortization
of $3,170,089 and $2,723,429, respectively) 4,118,544 3,850,724
Investment in and advances to joint venture 1,885,674 2,880,921
Deferred income taxes 2,031,535 1,029,083
Investments in marketable securities 1,363,047 2,671,507
Certificates of deposit and cash trust fund -
restricted 700,000 500,000
Split dollar life insurance policies 683,893 698,338
Receivable from insurance company - long term - 505,606
Notes receivable - long-term 87,760 290,125
Collateral security fund 199,389 199,389
Other assets 296,871 485,314
------------- -------------
Total Other Assets 11,366,713 13,111,007
------------- --------------
Total Assets $56,613,710 $41,858,546
============= =============
LIABILITIES, PREFERRED STOCK AND
COMMON STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt and capital
lease obligations $ 648,650 $ 205,200
Insurance premiums payable 16,247,247 9,230,377
Income taxes payable 1,795,018 1,010,878
Accounts and commissions payable 4,809,527 2,641,843
Accrued expenses and other current liabilities 1,722,545 1,725,348
------------- ------------
Total Current Liabilities 25,222,987 14,813,646
------------- ------------
Deferred Revenues 3,654,794 2,470,449
------------- ------------
Long-Term Debt and Capital Lease Obligations 1,124,015 293,648
------------- ------------
Deferred Rent Payable 534,620 440,245
------------- ------------
Commitments and Contingencies (See Note 9)
Convertible Exchangeable Preferred Stock
- $.0007 par value
Authorized, 15,000,000 shares
Issued and outstanding - 3,234,697 shares at
March 31, 1996 and 1995
(Redemption value - $6,430,000) 6,420,363 6,396,795
------------- ------------
Common Stockholders' Equity:
Common stock - $.007 par value
Authorized - 30,000,000 shares
Issued and outstanding - 13,082,181 shares
at March 31, 1996 and 13,045,302 shares at
March 31, 1995 89,375 89,117
Additional paid-in-capital 12,212,641 12,097,507
Net unrealized loss on investments, net of income
taxes of $4,389 (15,031) (42,370)
Accumulated translation adjustments (10,520) -
Retained earnings 7,843,332 5,472,039
------------ ------------
20,119,797 17,616,293
Less: Deferred compensation (70,116) (23,438)
Treasury stock - at cost, 93,000 shares
at March 31, 1996 and 41,000 shares at
March 31, 1995 (392,750) (149,092)
------------ ------------
Total Common Stockholders' Equity 19,656,931 17,443,763
------------ ------------
Total Liabilities, Preferred Stock
and Stockholders' Equity $56,613,710 $41,858,546
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
WARRANTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
For the Years Ended March 31,
-------------------------------------------------------------
1996 1995 1994
----------------- ----------------- -----------------
<S> <C> <C> <C>
Gross revenues $110,246,219 $71,239,070 $46,970,763
Net increase in deferred revenues 1,165,495 699,745 316,290
----------------- ----------------- -----------------
----------------- ----------------- -----------------
Net revenues 109,080,724 70,539,325 46,654,473
----------------- ----------------- -----------------
Costs and expenses:
Direct costs 74,013,324 46,140,548 30,350,722
Service, selling, and general and administrative 27,362,214 20,716,655 14,674,158
Provision for bad debt expense 363,179 427,483 10,955
Depreciation and amortization 1,700,285 1,259,604 1,503,866
----------------- ----------------- -----------------
Total costs and expenses 103,439,002 68,544,290 46,539,701
----------------- ----------------- -----------------
Income from operations 5,641,722 1,995,035 114,772
----------------- ----------------- -----------------
Equity in operations of joint venture (957,748) (298,272) (538,385)
Other income/(expense) (651,620) 3,107,561 1,426,860
----------------- ----------------- -----------------
Income before provision for income taxes 4,032,354 4,804,324 1,003,247
Provision for income taxes 1,637,492 1,908,536 299,656
----------------- ----------------- -----------------
Net Income $ 2,394,862 $2,895,788 $ 703,591
================= ================= =================
Earnings per share:
Primary $.16 $.19 $.05
================= ================= =================
Fully Diluted $.15 $.17 $.04
================= ================= =================
Weighted average number of shares outstanding:
Primary 15,152,043 15,588,145 14,569,479
================= ================= =================
Fully Diluted 16,465,833 16,894,351 16,748,075
================= ================= =================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
WARRANTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY
<CAPTION>
Net Total
Common Stock Additional Unrealized Accumulated Deferred Common
----------------- Paid-In Loss on Translation Retained Compen- Treasury Stock Stockholders
Shares Par Value Capital Investments Adjustments Earnings sation Shares Amount Equity
------------------ ----------- ---------- ---------- ---------- --------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at April 1,1993 $12,916,802 $88,218 $11,638,418 $1,925,840 $(57,891) (46,000) $(167,274) $13,427,311
Issuance of common stock
through exercise of
common stock options 40,500 283 87,454 87,737
Issuance of common stock 8,000 56 22,564 22,620
Issuance of treasury stock 4,318 5,000 18,182 22,500
Amortization of deferred 36,563 36,563
compensation
Net income 703,591 703,591
---------- ------ ------------ -------- ----------- ---------- --------- -------- ---------- ------------
Balance at March 31,1994 12,965,302 88,557 11,752,754 2,629,431 (21,328) (41,000) (149,092) 14,300,322
Issuance of common stock
through exercise of 75,000 525 321,350 321,875
common stock options
Issuance of common stock 5,000 35 23,403 (23,438) -
Net unrealized loss on (42,370) (42,370)
investments
Amortization of deferred
compensation 21,328 21,328
Imputed interest
on preferred stock (53,180) (53,180)
Net income 2,895,788 2,895,788
---------- ------ ----------- --------- ----------- ---------- --------- -------- ---------- -----------
Balance at March 31,1995 13,045,302 89,117 12,097,507 (42,370) 5,472,039 (23,438) (41,000) (149,092) 17,443,763
Issuance of common stock
through exercise of 25,000 175 62,325 62,500
common stock options
Issuance of common stock 11,879 83 52,809 (42,142) 10,750
Purchase of treasury shares (56,000) (260,538) (260,538)
Issuance of treasury shares (16,880) 4,000 16,880 -
Net unrealized loss on 27,339 27,339
investments
Translation adjustments (10,520) (10,520)
Amortization of deferred
compensation 12,344 12,344
Imputed interest on (23,569) (23,569)
Preferred Stock
Net income 2,394,862 2,394,862
========== ======= =========== ========= =========== ========== ========= ======== ========= ============
Balance at March 31,1996 $13,082,181 $89,375 $12,212,641 $(15,031) $(10,520) $7,843,332 $(70,116) (93,000) $(392,750) $19,656,931
========== ======= =========== ========= =========== ========== ========= ======== ========= ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
WARRANTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended March 31,
------------------ -- ------------------ -- ------------------
1996 1995 1994
------------------ ------------------ ------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 2,394,862 $ 2,895,788 $ 703,591
------------------ ------------------ ------------------
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 1,712,431 1,259,604 1,503,866
Deferred income taxes (1,002,452) (296,601) (688,387)
Increase in deferred rent payable 94,375 76,796 65,674
Loss from equity joint venture 957,748 298,272 538,385
Elimination of intercompany profits with joint venture - (28,038) 176,400
Other (2,822) 116,150 57,301
Increase (decrease) in cash flows as a result of
changes in asset and liability balances:
Accounts receivable (3,450,088) (4,744,974) (1,267,393)
Other receivable 5,090 (3,391,088) (3,802,436)
Prepaid expenses, prepaid income taxes and
other current assets 97,536 557,043 (530,854)
Collateral security fund - - (18,566)
Split dollar life insurance policies 14,445 (102,550) (142,779)
Other assets and receivable from insurance company 681,981 423,100 (48,995)
Insurance premiums payable 7,016,870 2,117,103 2,249,239
Income taxes payable 784,140 1,010,878 (459,681)
Accounts and commissions payable 2,102,284 343,073 104,112
Accrued expenses and other current liabilities (18,002) 919,370 154,356
Deferred revenues 1,184,345 699,744 316,291
------------------ ------------------ ------------------
Total adjustments 10,177,881 (742,118) (1,793,467)
------------------ ------------------ ------------------
Net cash provided by (used in) operating activities 12,572,743 2,153,670 (1,089,876)
------------------ ------------------ ------------------
Cash flows from investing activities:
Proceeds from sale of property and equipment - 23,396 24,000
Purchase of property and equipment (3,489,974) (1,539,093) (449,720)
Net cash paid for acquired company (735,984) - -
Certificates of deposit - 27,000 71,707
Purchase of marketable securities (948,602) (1,038,543) (1,800,000)
Certificates of deposit and cash trust fund - restricted - 157,602 (330,602)
Proceeds from sales redemptions and maturities of
marketable securities 1,730,612 500,000 -
Investment in and advances to joint venture 37,499 (2,123,440) (1,715,000)
------------------ ------------------ ------------------
Net cash used in investing activities $(3,406,449) $(3,993,078) $(4,199,615)
------------------ ------------------ ------------------
</TABLE>
(Continued)
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
WARRANTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
<CAPTION>
For the Years Ended March 31,
-------------- ---- ----------------- ---- ----------------
1996 1995 1994
-------------- ---- ----------------- ---- ----------------
<S> <C> <C> <C>
Cash flows from financing activities:
Decrease in notes receivable $ 202,365 $ 600 $ 34,394
Proceeds from exercise of common stock options 62,500 187,500 87,737
Purchase treasury stock (243,658) - -
Proceeds from the sale of preferred stock, net
of underwriting costs - - 6,343,614
Loan payable - officer - - ( 118,383)
Proceeds from borrowings - - 1,500,000
Repayments of borrowings (367,375) ( 333,613) ( 1,846,458)
-------------- --------------- ----------------
Net cash provided by (used in) financing activities (346,168) ( 145,513) 6,000,904
-------------- --------------- ----------------
Net increase (decrease) in cash and cash equivalents 8,820,126 ( 1,984,921) 711,413
Cash and cash equivalents at beginning of year 3,039,361 5,024,282 4,312,869
-------------- -------------- ----------------
Cash and cash equivalents at end of year $11,859,487 $ 3,039,361 $ 5,024,282
============== ============== ================
Supplemental Cash Flow Information:
Cash payments for:
Interest $ 127,616 $ 74,815 $ 137,702
============== ============== ================
Income taxes $ 1,644,950 $ 1,071,363 $ 1,506,739
============== ============== ================
Non-Cash Investing Activities:
Property and equipment financed through capital leases $ 1,640,060 $ - $ -
============== =============== ================
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
WARRANTECH CORPORATION AND SUBSIDIARIES
- -------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business - Warrantech Corporation ("Warrantech"or the
"Company"), through its wholly-owned subsidiaries, Warrantech
Automotive, Inc., Warrantech Consumer Product Services, Inc.,
Warrantech Direct, Inc., Warrantech Home Service Company and Warrantech
International, Inc. markets and administers service contract programs
for retailers, distributors and manufacturers of automobiles,
recreational vehicles, automotive components, homes, home appliances,
home entertainment products, computers and peripherals, and office and
communication equipment in the United States, Puerto Rico, Mexico,
Canada, and the United Kingdom. Additionally, third-party
administrative services are provided to manufacturers of consumer and
automotive products and other business entities requiring such
services. The predominant terms of the contracts and manufacturer's
warranties range from one (1) to eighty-four (84) months.
Basis of Presentation and Principles of Consolidation - The
accompanying consolidated financial statements have been prepared on
the basis of generally accepted accounting principles ("GAAP"). These
consolidated financial statements include the accounts of Warrantech
Corporation and its wholly-owned subsidiaries. All intercompany
accounts and transactions have been eliminated in consolidation.
Amounts representing the Company's percentage interest in the
underlying net assets of less than majority-owned companies, in which a
significant equity ownership interest is held, are included in
"investment and advances." The Company's share of the results of
operations of these companies is included in the Consolidated
Statements of Operations caption "Equity in operations of joint
venture."
Risks and Uncertainties - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions which affect the reporting
of assets and liabilities as of the dates of the financial statements
and revenues and expenses during the reporting period. Actual results
could differ from these estimates.
Revenue Recognition Policy - The Company's revenue recognition policy
is based on the proportional performance method which recognizes
revenues in direct proportion to the costs incurred in providing the
service contract programs to the Company's clients. Only revenues in an
amount sufficient to meet future administrative costs and a reasonable
gross profit thereon are deferred.
Direct Costs - Direct costs are those costs directly related to
the production and acquisition of service contracts. Those costs are
insurance premium and commission expenses.
Profit Sharing Arrangement - Pursuant to agreements with its insurers,
the Company is eligible to share a portion of the insurers' profits on
the Company's service contract programs. The amounts to be received, if
any, are determined by loss experience, by the type of program and by
policy year. The amounts recorded are based on contractual arrangements
and management's best estimate of the Company's expected ultimate loss
experience. Any adjustments to those estimates will be reflected in
income, when known.
Provision for Bad Debts Expense - An allowance for doubtful accounts is
provided when accounts are determined to be uncollectible. The
provision for bad debt expense results from the write-off of accounts
considered uncollectible.
Earnings Per Share - Earnings per share is calculated by dividing net
income less imputed interest on preferred stock, where applicable, by
the weighted average number of common shares outstanding and common
share equivalents outstanding during the period.
Cash and Cash Equivalents - Cash and cash equivalents for the purpose
of reporting cash flows for all periods presented include cash on
deposit and highly liquid debt instruments purchased with a maturity of
three months or less.
Investments in Marketable Securities - Effective March 31, 1995, the
Company adopted Statement of Financial Accounting Standards No. 115
("SFAS 115"), Accounting for Certain Investments in Debt and Equity
Securities. As a result, all investments have been classified as
available-for-sale and are carried at fair value with changes in
unrealized gains and losses being reflected as a separate component of
Stockholders' Equity, net of tax.
Property and Equipment - Property and equipment are stated at cost.
Depreciation is provided using a straight-line method over the
estimated useful lives of the assets ranging between 3 to 7 years.
Excess of Cost Over Fair Value of Assets Acquired - The excess of cost
over fair value of the assets acquired is a result of the purchases of
Dealer Based Services, Inc. in 1989, and Home Guarantee Corporation,
PLC in July 1995 and is being amortized on a straight-line basis over
fifteen and ten years, respectively. Amortization expense charged to
operations for the years ended March 31, 1996, 1995 and 1994 amounted
to $458,728, $401,815 and $525,648, respectively.
Deferred Compensation - Certain operating officers have been issued
shares of the Company's common stock as part of their compensation
under their employment agreements. Such compensation is to be earned by
the officers and charged to operations over five years, the term of the
employment agreements. In addition, certain employees have been issued
restricted shares of the Company's common stock as compensation. Such
compensation is amortized over the restriction period which is
generally two years.
Income Taxes - Effective April 1, 1993, the Company adopted Statement
of Financial Accounting Standards No. 109 ("SFAS 109"), Accounting for
Income Taxes. Under SFAS 109, the deferred taxes are determined under
the liability method. Under this method, deferred tax assets and
liabilities are recognized for the expected tax effect of temporary
differences between the financial statement carrying amount and the tax
basis of assets and liabilities using presently enacted tax rates in
effect for the years in which the differences are expected to reverse.
Foreign Currency Translation -Financial statement accounts expressed in
foreign currencies are translated into U.S. dollars in accordance with
Statement of Financial Accounting Standards No. 52 "Foreign Currency
Translation". The functional currency for the Company's United Kingdom
operations is the British pound. Transaction gains and losses are
reflected in operations, while translation gains and losses are
reflected as a separate component of equity.
Reclassification - Certain amounts from the prior years have been
reclassified to conform with the current year's presentation.
2. CERTIFICATES OF DEPOSIT AND CASH TRUST FUND - RESTRICTED
At March 31, 1996 $700,000 is on deposit with a Florida regulatory
agency to comply with its state insurance laws. These funds are
classified as non-current.
<PAGE>
3. INVESTMENTS IN MARKETABLE SECURITIES
At March 31, 1996, investments in marketable securities are comprised
of the following:
<TABLE>
<CAPTION>
Amortized Gross Unrealized Aggregate Fair Carrying Amount
Cost Gains (Losses) Value Short Term Long Term
<S> <C> <C> <C> <C> <C> <C>
Municipal Bonds $1,880,633 $2,660 $(13,913) $1,869,380 $506,333 $1,363,047
Common Stock 330,880 - (12,565) 318,315 318,315 -
------------- ------------- ------------- ------------- ------------- -------------
Total Investments
in Marketable
Securities $2,211,513 $2,660 $(26,478) $2,187,695 $824,648 $1,363,047
============= ============= ============= ============= ============= =============
</TABLE>
At March 31, 1995, investments in marketable securities are comprised of
the following:
<TABLE>
<CAPTION>
Amortized Gross Unrealized Aggregate Fair Carrying Amount
Cost Gains (Losses) Value Short Term Long Term
<S> <C> <C> <C> <C> <C> <C>
Corporate Bonds $ 336,325 $ 962 $ (606) $ 336,681 $ 272,344 $ 64,337
Municipal Bonds 2,676,985 221 (70,036) 2,607,170 - 2,607,170
Callable Preferred
Stock 200,000 - - 200,000 200,000 -
-------------- -------------- ------------- -------------- -------------- -------------
Total Investments
in Marketable
Securities $ 3,213,310 $ 1,183 $ (70,642) $3,143,851 $ 472,344 $2,671,507
============== ============== ============= ============== ============== =============
</TABLE>
As discussed in Note 1, the Company adopted SFAS 115 as of March 31,
1995. All of the above investments are considered "available for sale".
The resultant differences between cost and fair value, net of taxes,
have been reflected as a separate component of Stockholders' Equity.
The amortized cost and estimated fair value of marketable securities, by
contractual maturity date, are listed below. Expected maturities may
differ from contracted maturities because borrowers may have the right
to call or prepay obligations with or without penalties.
Amortized Aggregate
Cost Fair Value
--------------- ---------------
Investments available for sale:
Due in one year or less $ 506,679 $ 506,633
Due after one year through five years 1,373,954 1,363,047
Due after five years through ten - -
years
Due after ten years - -
=============== ===============
$1,880,633 $1,869,380
=============== ===============
<PAGE>
4. PROPERTY AND EQUIPMENT
Property and equipment is summarized as follows:
<TABLE>
<CAPTION>
March 31,
--------------------------------------------
1996 1995
<S> <C> <C>
Automobiles $ 97,811 $ 16,901
Equipment, furniture and fixtures 8,101,861 4,725,444
Leasehold improvements 382,938 300,272
-------------------- -------------------
8,582,610 5,042,617
Less: Accumulated depreciation
and amortization 3,550,346 2,639,234
-------------------- -------------------
5,032,264 2,403,383
-------------------- -------------------
Assets under capital leases:
Cost 3,300,093 1,657,220
Less: Accumulated amortization 1,529,559 1,194,693
-------------------- -------------------
1,770,534 462,527
-------------------- -------------------
Total Property and Equipment, net $ 6,802,798 $ 2,865,910
==================== ===================
</TABLE>
Amortization expense on assets under capital leases for the years ended
March 31, 1996, 1995 and 1994 was $334,866, $289,765, and $357,370,
respectively. Depreciation expense on property and equipment other than
under capital leases for the years ended March 31, 1996, 1995 and 1994
was $911,112, $515,596, and $584,285, respectively.
During fiscal 1996, the Company capitalized $2,918,076 related to the
development and implementation of its proprietary relational database
and interactive operating software. The Company is amortizing the cost
of this software over its estimated useful life not to exceed five
years.
5. COLLATERAL SECURITY FUND
At March 31, 1996 and 1995, a former insurance carrier of the Company,
is holding $199,389 in escrow accounts as collateral for the
performance of the administrative runoff of outstanding contracts. Such
amounts are returnable to the Company when the contracts expire under
this policy.
6. SPLIT DOLLAR LIFE INSURANCE POLICIES
As of March 31, 1996 and 1995, the Company made payments on split
dollar insurance policies on the lives of five officers of the Company.
Included in other assets non-current is the cash surrender value of
these policies totaling $683,893 and $698,338, as of March 31, 1996 and
1995 respectively. The Company will receive a refund of all
split-dollar premiums advanced. The Company is the beneficiary of any
proceeds of the policies up to the amount of premiums paid and interest
earned thereon.
<PAGE>
7. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt and capital lease obligations consists of the following:
<TABLE>
<CAPTION>
March 31,
------------------------------------------
1996 1995
<S> <C> <C>
Capital lease obligations - for property and
equipment payable monthly with interest
rates ranging from 9.1% to 13.4% through 2001 $ 1,768,475 $ 490,343
Installment note - secured by equipment with an undepreciated cost of
$5,164 payable in equal monthly installments of $393 including
interest at 5.44% through
February, 1997. 4,190 8,505
-------------------- ------------------
1,772,665 498,848
Less: Current maturities 648,650 205,200
-------------------- ------------------
Long-term portion $ 1,124,015 $ 293,648
==================== ==================
</TABLE>
The aggregate amounts of maturities at March 31, 1996 were as follows:
Fiscal Year Installment Note Minimum Future
Lease Payments
1997 $ 4,190 $ 806,507
1998 - 657,842
1999 - 384,195
2000 - 187,932
2001 - 53,105
Thereafter - -
------------------------ --------------
4,190 2,089,581
Less amount representing
interest - 321,106
======================== ==============
Net $ 4,190 $1,768,475
======================== ==============
The capital lease obligations are collateralized by the property and
equipment related to the underlying leases.
<PAGE>
8. INCOME TAXES
A reconciliation of the income tax provision to the amount computed
using the federal statutory rate is as follows:
<TABLE>
<CAPTION>
March 31,
-------------------------------- -- ---------------------------- --- ------------------------------
1996 1995 1994
-------------------------------- -- ---------------------------- --- ------------------------------
<S> <C> <C> <C> <C> <C> <C>
Federal statutory rate $ 1,411,324 35.0% $ 1,681,513 35.0% $ 351,000 35.0%
State and local income
taxes net of federal tax
benefit 123,728 3.0 101,141 2.1 70,000 6.9
Amortization of excess cost
over net assets acquired 90,647 2.3 90,648 1.9 - -
Other
(323,419) (8.0) (69,161) (1.5) 2,656 0.2
Benefit for recognition of
tax deductibility of prior
years' amortization of
acquired customer list - - - - (312,000) (31.0)
Loss of foreign joint venture 335,212 8.3 104,395 2.2 188,000 18.7
------------- ----------- ------------- ------------ ------------ ------------
Provision for income taxes $1,637,492 40.6% $ 1,908,536 39.7% $299,656 29.8%
============= =========== ============= ============ ============ ============
</TABLE>
The components of tax expense are as follows:
For the Year Ended 3/31/96:
<TABLE>
<CAPTION>
Current Deferred Provision
----------------- ----------------- ----------------
<S> <C> <C> <C>
Federal $ 2,479,759 $ (966,087) $ 1,513,672
State 160,185 ( 36,365) 123,820
----------------- ----------------- ----------------
Total $ 2,639,944 $ (1,002,452) $ 1,637,492
================= ================= ================
For the Year Ended 3/31/95:
Current Deferred Provision
-------------- ----------------- ----------------
Federal $ 2,076,907 $ (242,100) $ 1,834,807
State 101,141 ( 27,412) 73,729
-------------- ----------------- ----------------
Total $ 2,178,048 $ (269,512) $ 1,908,536
============== ================= ================
For the Year Ended 3/31/94:
Current Deferred Provision
-------------- ----------------- ----------------
Federal $ 527,656 $ (294,000) $ 233,656
State 99,000 (33,000) 66,000
-------------- ----------------- ----------------
Total $ 626,656 $ (327,000) $ 299,656
============== ================= ================
</TABLE>
In accordance with SFAS 109, deferred income tax assets and liabilities reflect
the impact of temporary differences between values recorded as assets and
liabilities for financial reporting purposes and values utilized for
remeasurement in accordance with tax laws. The components of the net deferred
asset are as follows:
<TABLE>
<CAPTION>
March 31,
------------------- -- -------------------
1996 1995
<S> <C> <C>
Deferred Tax Assets:
Deferred revenue $ 1,418,018 $ 963,475
Deferred rent 169,857 171,696
Provision for doubtful accounts 156,000 -
Reserve for customer refunds 159,327 -
Unrealized loss on securities 4,389 27,089
Foreign loss benefit 1,111,804 -
Other 60,959 55,283
------------------- -------------------
------------------- -------------------
Total assets 3,080,354 1,217,543
------------------- -------------------
Deferred Tax Liabilities:
Excess of tax over book depreciation 44,500 102,659
Section 174 expense 1,004,319
Installment sales - 85,801
------------------- -------------------
Total liabilities 1,048,819 188,460
------------------- -------------------
Net deferred tax assets $ 2,031,535 $ 1,029,083
=================== ===================
</TABLE>
Management believes that it is more likely than not that the deferred tax assets
will be realized and therefore no valuation allowance is considered necessary.
Management expects to realize the foreign loss benefit, which has an indefinite
carryforward period, against the gain on the sale of its foreign joint venture
interest to be recognized in the first quarter of fiscal 1997 (see Note 12) and
other future foreign income.
As discussed in Note 1, the Company adopted SFAS No. 109, during the fiscal
year ended March 31, 1994. The effect of adopting SFAS No. 109 did not have a
material impact on the Company's financial position or results of operations
for the year ended March 31, 1994.
<PAGE>
9. COMMITMENTS AND CONTINGENCIES
Operating Lease Commitments - The Company leases office and warehouse
space under noncancellable operating leases. These leases include
scheduled rent increases over their respective terms. The accompanying
consolidated statements of operations reflect rent expense on a
straight-line basis over the lease terms, which differ from the cash
payments required. Rent expense charged to operations for the years
ended March 31, 1996, 1995 and 1994 was $1,371,446, $894,121, and
$730,917, respectively.
Future minimum lease commitments as at March 31, 1996 are as follows:
1997 $1,476,552
1998 1,483,001
1999 1,432,358
2000 1,081,294
2001 972,757
Thereafter through 2004 2,538,208
================
$8,984,170
================
Employment Contracts - The Company entered into employment agreements
with its officers and certain key employees which will provide for
aggregate annual salaries of approximately $1,752,150. Certain
agreements call for (i) annual increases (ii) cost of living increases,
and (iii) additional compensation, but only if certain defined
performance levels are attained. This additional compensation is to be
paid in the form of cash and or Company common stock.
Bonus Incentive Plans - The Company has bonus incentive plans designed
to reward key management personnel with bonuses based on the attainment
of specified operating goals. Total bonuses under the bonus incentive
plans for the years ended March 31, 1996, 1995 and 1994, were $
405,948, $1,413,057, and $46,669, respectively.
Profit Sharing Arrangement - For the fiscal years ended March 31, 1996,
1995 and 1994 the Company accrued for profit sharing in the
amounts of $(865,000), $2,676,001, and $1,364,089, respectively.
Such amounts are included in the financial statements in other
income/(expense). (refer to Note 11)The accrued profit sharing due
the Company as of March 31, 1996 and 1995 is $1,820,791 and
$4,467,104, and such amounts are included in other receivables.
Bank Line of Credit - The Company has a revolving credit agreement with
a bank which provides for a maximum aggregate borrowing up to
$10,000,000 with interest at the bank's prime rate or LIBOR plus 2%. As
of March 31, 1996 the Company had no outstanding borrowings under this
agreement.
Letters of Credit - At March 31, 1996, the Company was contingently
liable for letters of credit which are as follows:
(i) Standby letter of credit in the amount of $42,623 issued to
the landlord in lieu of a rent security deposit.
(ii) Standby letter of credit in the amount of $16,339 issued to
a lessor on certain equipment leased. The Company has
pledged funds in a certificate of deposit as collateral for
the letter of credit.
Litigation -
(i) In 1989, a lawsuit was filed in an Illinois court against a
subsidiary of the Company by a former agent alleging breach of
contract. While the complaint does not specify the dollar
amounts of its alleged damages, the Plaintiff retained an
expert witness who estimates the Plaintiff's damages in excess
of $9 million. Recently, the District Court ruled that the
report from Plaintiff's damage expert was not admissible at
trial. This ruling would preclude Plaintiff's expert from
offering trial testimony based on legal theories contained in
his report. The Company has retained its own economic expert
who will directly refute the magnitude of the plaintiff's
damages. The Company's expert has concluded that the maximum
amount recoverable by the Plaintiff, if any, is less than $1
million after allowances of all appropriate offsets. The
Company intends to vigorously defend this lawsuit. No trial
date has been set as yet.
In February 1996, the Plaintiff in this matter filed another
lawsuit in an Illinois court against a subsidiary of the
Company, the parent Company, the parent Company's Chairman and
the parent Company's President alleging that the Defendants
tortuously interfered with the Plaintiff's business
relationships after the Plaintiff was terminated as an agent.
The Plaintiff seeks to recover commissions that it contends it
would have earned if the Defendants had not precluded the
Plaintiff from servicing certain accounts after the
Plaintiff's termination. In the Complaint the Plaintiff is
seeking $8 million in compensatory damages. The Plaintiff also
seeks to recover punitive damages in the amount of $24
million. All of the Defendants deny and dispute Plaintiff's
claims against them in this case, and they intend to
vigorously defend and oppose those claims.
(ii) In December 1993, a lawsuit was filed by a former officer and
director of the Company, David Robertson ,against the Company
and one of its subsidiaries in a Texas Court. The matter is
currently pending before the American Arbitration Association
in Connecticut. Robertson has alleged that the Company
wrongfully terminated an employment agreement between
Robertson and WDBS, and that the Company engaged in tortuous
interference and fraud. Robertson has requested damages
ranging from $450,000 to $5 million which includes his request
for punitive damages. The Company has denied all material
allegations in the claims. The Company has asserted a
counterclaim in the amount of approximately $340,000 for
reimbursement of attorneys' fees advanced by it on behalf of
Robertson in connection with certain other actions. Management
intends to vigorously defend against Robertson's claims and to
vigorously prosecute its counterclaims. No hearing is
presently scheduled on this matter.
Management believes that the ultimate outcome of these matters
will not have a substantial impact on the operations of the
company.
<PAGE>
10. CAPITAL STOCK
Stock Options and Stock Option Plan - Under the Employee Incentive
Stock Option Plan (the "Plan"), there are 300,000 shares of the
Company's common stock reserved for issuance to employees (including
officers). The options are to be granted at an exercise price not less
than 100% of the fair market value of the Company's common stock at
date of grant. The number of shares granted, terms of exercise, and
expiration dates are to be decided at the date of grant of each option
by the Company's Board of Directors. The Plan will terminate in
November 1998 unless sooner terminated by the Board of Directors.
On April 16, 1992 the Company's Board of Directors and subsequently on
October 22, 1992 the shareholders of the Company at the annual meeting
voted to approve stock options to three directors (two of whom are
officers and one is a former officer of the Company). The stock options
entitle the three Directors to purchase an aggregate of 3,000,000
shares of the Company's common stock at an exercise price of $2.6875
per share; the market price at the date of grant.
The term of the options is five (5) years from the date on which they
become exercisable or thirty days after termination of employment,
whichever occurs earlier. Of the total options granted, fifty percent
(50%) may be exercised beginning one year following October 22, 1992 in
increments of 10% per year for a five-year period.
The portions of the options that are based upon the Company's earnings,
consisting of fifty percent (50%) of the total options
granted, became exercisable on October 22, 1995.
Stock options granted during the years ended March 31, are as follows:
<TABLE>
<CAPTION>
March 31,
----------------- -- ------------------ -- ---------------------
1996 1995 1994
<S> <C> <C> <C>
Options outstanding at beginning of
year - shares 3,233,500 3,237,833 3,214,500
Options granted 9,524 91,667 121,833
Options canceled - (21,000) (58,000)
Options exercised (25,000) (75,000) (40,500)
----------------- ------------------ ---------------------
Options outstanding
at end of year 3,218,024 3,233,500 3,237,833
================= ================== =====================
Exercise price options outstanding $1.63-$6.38 $1.63-$6.38 $1.63-$6.38
================= ================== =====================
Exercise price of options exercised $2.50 $2.50 $1.63-$2.50
================= ================== =====================
</TABLE>
In October 1995 the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 123, Accounting
for Stock-Based Compensation. This statement establishes new financial
accounting and reporting standards for stock-based employee
compensation plans, including stock option and stock purchase plans.
Compensation resulting from the award of stock-based compensation must
be determined based on the fair value of consideration received or fair
value of the equity instrument issued, whichever is more reliably
measurable. Such compensation expense, net of income taxes, may be
recognized in the Statement of Operations over the service period of
the employee (generally the vesting period). In lieu of recording such
compensation expense, entities are permitted to disclose its pro-forma
impact, net of income taxes, on reported net income and earnings per
share. Entities choosing such disclosure will continue to measure
compensation expense from stock-based compensation in the Statement of
Operations based on the intrinsic value method prescribed in Accounting
Principles Board No. 25, Accounting for Stock Issued to Employee.
Management is evaluating the effect of the new pronouncement on its
stock option plans and has not determined which option will be utilized when
implemented.
11. OTHER INCOME/(EXPENSE)
Other income/(expense) is comprised of the following:
<TABLE>
<CAPTION>
March 31,
-------------------------------------------------------------
1996 1995 1994
<S> <C> <C> <C>
Interest and dividend income $622,873 $519,592 $209,301
Interest expense (182,523) (88,032) (146,530)
Profit sharing (refer to Note 9) (865,000) 2,676,001 1,364,089
Write-off note receivable (222,845) - -
Miscellaneous (4,125) - -
------------------ ----------------- -----------------
$(651,620) $3,107,561 $1,426,860
================== ================= =================
</TABLE>
Profit Sharing amounts were reflected as a component of Direct Costs in prior
years' financial statements.
12. JOINT VENTURE AGREEMENT AND SALE
In July, 1993, the Company and American International Group Inc.
("AIG") formed a corporate joint venture, Techmark Services Ltd.
("Techmark" or the "Joint Venture") owned fifty-one percent (51%) by
AIG and forty-nine percent (49%) by the Company.
In conjunction with the foregoing alliance, in October, 1993, AIG
purchased, for a price of $6,430,000, options and a special issue of
preferred stock which was convertible into an issue of new shares of
common stock which, subsequent to its issuance, would be equivalent to
twenty percent (20%) of the Company's issued and outstanding common
stock. Under the terms of the purchase agreement, AIG had the right to
purchase an increased interest in the Company, to a maximum of thirty
percent (30%) of the Company's issued and outstanding common stock, if
certain operating goals were achieved by the Company.
On April 18, 1996, the Company and AIG consumated an agreement for the
termination of the Techmark Joint Venture (the "Agreement"). Under the
terms of the Agreement, AIG agreed to purchase the Company's forty-nine
(49%) interest in the joint venture for approximately $3.8 million and
for the Company to repurchase the 3,234,697 shares of convertible
preferred stock held by AIG for its original redemption value of
$6,430,000 and further relinquish their rights to other options under
the original agreement. As a result of this transaction, the Company no
longer has any investment in or liability to the Joint Venture and will
no longer record any equity in the operations of the Joint Venture. The
redemption value will be offset by the amount due the Company from the
sale of its investment, with the net amount due AIG of $2,395,960
resulting in a three year, non-interest bearing note payable in 11
equal quarterly installments of $205,000 commencing June 30, 1996 with
a final installment of $140,960 due March 1999. In the event of default
by the Company under the note payable, the Company would be required to
reissue to AIG preferred stock for the remaining amount due at the
default date.
At March 31, 1996, the Company's carrying value of its investment
amounted to $1,885,674 which will result in a gain on the sale of the
investment of $1,876,480, the excess of the proceeds over the carrying
value, to be recognized in the first quarter of fiscal 1997.
Also, as part of the agreement, AIG paid the Company $1,480,000 related
to amounts due the Company as of March 31, 1996, under its profit
sharing arrangement. In connection with this payment, the Company
issued an irrevocable letter of credit to the benefit of AIG through
December 2002 which can be drawn upon by AIG in the event the ultimate
profit sharing amount due the Company is less than the amount
previously paid. It is anticipated that no amounts will be due AIG
under the letter of credit.
13. ACQUISITION
In July of 1995, Warrantech International, Inc., acquired Home
Guarantee Corporation Plc (subsequently renamed Warrantech Europe Plc.)
a British Company, which markets home warranty products, as well as,
other warranty products similar to those marketed by the Company in the
United States. The acquisition was accounted for as a purchase and the
resultant goodwill amounting to $695,800 is being amortized over a 10
year period.
14. SIGNIFICANT CUSTOMERS
The Company has two significant customers that accounted for
approximately 19% of consolidated gross revenues for the year ended
March 31, 1996 and one customer that accounted for approximately 10%
and 11% of consolidated gross revenues for the years ended March 31,
1995 and 1994, respectively.
15. RELATED PARTY TRANSACTION
During the years ended March 31, 1996 and 1995 the Company recognized
net insurance expense of $27,774,163, $15,893,173, respectively for
insurance coverage provided by AIG for certain service contract
programs. At March 31, 1996 and 1995 the Company had a receivable for
accrued profit sharing from AIG of $1,480,000 and $1,524,920,
respectively.
<PAGE>
================================================================================
16. Quarterly Financial Data (Unaudited)
================================================================================
The following fiscal 1996 quarterly financial information for each of
the three month periods ended June 30, September 30, December 31, 1995
and 1994 and March 31, 1996 and 1995 is unaudited. However, in the
opinion of management, all adjustments (consisting of normal recurring
adjustments) necessary to present fairly the results of operations for
such periods, have been made for a fair presentation of the results
shown.
<TABLE>
<CAPTION>
Quarter Ended Quarter Ended Quarter Ended Quarter Ended
June 30, September 30, December 31, March 31,
-------- ------------- ------------ ---------
1995 1994 1995 1994 1995 1994 1996 1995
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues $19,994,221 $13,939,184 $23,417,612 $17,018,432 $34,396,845 $20,202,935 $31,272,046 $19,378,774
Income from
operations 1,487,194 52,333 1,410,907 289,917 2,780,482 678,391 (36,861) 974,394
Income
before provision
for income taxes 1,390,502 968,155 1,095,485 834,275 3,016,148 1,271,041 (1,469,781)(1) 1,730,853
Net income $650,460 $ 618,813 $607,503 $539,652 $1,626,809 $1,032,696 $ (489,910)(2)$ 704,627(3)
Earnings per
share:
Primary $.04 $.04 $.04 $.04 $.10 $.07 ($.04) $.04
Fully Diluted $.04 $.04 $.04 $.03 $.09 $.06 ($.03) $.04
</TABLE>
(1) As a result of renegotiation of the Company's profit sharing agreements,
and a reexamination of it's current experience, the Company recorded a
charge of $1,300,000 during the fourth quarter of fiscal 1996. In
addition, the Company reserved for the potential uncollectability of a
note receivable in the amount of $222,845 related to a prior year's sale
of a business.
(2) Based on the agreement to sell the Techmark Joint Venture (see Note 12),
which will result in a gain to be recorded in fiscal 1997, a tax benefit
of $627,000 was recorded in the fourth quarter related to equity losses
of Techmark recognized by the Company.
(3) As a result of reviews with its insurers of profit sharing
calculations, the Company increased its profit sharing income by
approximately $700,000 in the fourth quarter of fiscal 1995.
<PAGE>
================================================================================
================================================================================
<TABLE>
WARRANTECH CORPORATION AND SUBSIDIARIES
FINANCIAL STATEMENT SCHEDULE
SCHEDULE VIII-VALUATION AND QUALIFYING ACCOUNTS
<CAPTION>
- ------------------------------------------------------------------------------ --------------------------------------------------
Column Column Column Column Column
A B C D E
- ------------------------------------------------------------------------------ --------------------------------------------------
- ------------------------------------------------------ ----------------------- --------------------------------------------------
Balance at Additions Deductions Balance at
Description Beginning Charged to Costs Charged to Other End of
of Year and Expense (a) Accounts-Describe Describe (b) Year
- ------------------------------------------------------------------------------------------------------ --------------------------
<S> <C> <C> <C> <C> <C>
Year Ended March 31, 1996:
Allowance for doubtful accounts $ 126,115 $ 363,179 $ - $ 39,202 $ 450,092
Year Ended March 31, 1995:
Allowance for doubtful accounts - 427,483 - 301,368 126,115
Year Ended March 31, 1994:
Allowance for doubtful accounts 5,000 10,995 - 15,995 -
</TABLE>
(a) Bad debt expense charged to operations pertaining to accounts receivable.
(b) Amount of write-offs during the year.
<PAGE>
Item 9. Disagreements on Accounting and Financial Disclosures
The Company's independent public accountants for the fiscal year ended
March 31, 1994 were Deloitte & Touche. On August 11, 1994 the Company's Board of
Directors authorized the dismissal of Deloitte & Touche as its independent
accountants. The Board of Directors of the Company and its audit committee
participated in and approved the decision to dismiss Deloitte & Touche as
independent accountants for the Company.
The report of Deloitte & Touche on the financial statements of the Company
for the fiscal year ended March 31, 1994 contained no adverse opinion or
disclaimer of opinion and was not qualified or modified as to uncertainty, audit
scope or accounting principles, except that reference was made to certain
litigation and to a change in the Company's accounting for income taxes to
conform with Statement of Financial Accounting Standards No. 109 in fiscal 1994.
The Company believes that in connection with its audit of the fiscal year
ended March 31, 1994 and through August 11, 1994, there were no disagreements
with Deloitte & Touche on any matter of accounting principles or practices,
financial disclosure or auditing scope or procedure, which disagreements if not
resolved to the satisfaction of Deloitte & Touche would have caused them to make
reference thereto in their report on the financial statements for the fiscal
year ended March 31, 1994. In discussions with Deloitte & Touche in connection
with the preparation of the Form 8-K, announcing their dismissal as independent
accountants, Deloitte & Touche informed the Company that there were three issues
raised during the course of their audit of the Company's financial statements
for the fiscal year ended March 31, 1994, which they believe constituted
disagreements. All of these issues were, however, resolved to Deloitte &
Touche's satisfaction in the presentation of the financial statements. The
issues raised by Deloitte & Touche were as follows:
- Profit sharing recognition methodology, whereby Deloitte & Touche
evaluated the Company's methodology for the recognition of profit sharing
which is based on a calculation of profits as determined in accordance
with contractual agreements between the Company and certain insurance
companies, and concluded that the profit sharing calculation methodology
should instead be based on an estimate of ultimate profit, if any, to be
earned under the contractual agreements (contractually stipulated maximum
allowable losses less actuarial estimate of ultimate losses) multiplied by
the ratio of losses paid to date to the actuarial estimate of ultimate
losses to be incurred under the contractual agreements.
- Restriction on auditing scope and procedures, arising out of the
Company's reluctance to have Deloitte & Touche perform an actuarial study
of its profit sharing calculations, because the Company did not believe
that actuarial consultants, unfamiliar with the Company's industry and
business, could properly perform such a study, taking into consideration
all the factors necessary to make an informed judgment in the time
permitted. Nevertheless, the Company acceded to Deloitte & Touche's
request to have such study performed and accepted the findings of the
study as presented to it by Deloitte & Touche.
- Capitalization of start-up costs with respect to the Company's joint
venture, Techmark Services Ltd., formed in July 1993, whereby the Company
inquired as to the appropriateness of the deferral of certain start-up
costs of the joint venture. While there were several discussions relating
to the accounting for such costs, the determination by Deloitte & Touche
that deferral of such costs would be inappropriate was agreed to by the
Company and no adjustment ever was proposed, insisted upon or required by
the Company.
- Consolidation of the Company's joint venture, Techmark Services Ltd.,
whereby the Company requested Deloitte & Touche to consider the
appropriateness of consolidating this significant joint venture. It should
be noted that the Company's interest in such joint venture has from
inception and continues to be accounted for by the Company under the
equity method of accounting approved by Deloitte & Touche and the
Company's request to Deloitte & Touche was a theoretical one, in
contemplation of certain proposed changes in ownership of the joint
venture that have not occurred.
Management and Deloitte & Touche discussed these issues during the course
of the audit and the Board of Directors of the Company was made aware of these
discussions by management. Deloitte & Touche informed the audit committee of its
position on these issues, and the audit committee determined that all of the
issues were resolved to the satisfaction of Deloitte & Touche in the
presentation of all matters included in the financial statements as filed in the
Company's Form 10-K for the fiscal year ended March 31, 1994.
Upon filing a report on Form 8-K with the SEC relating to the dismissal of
Deloitte & Touche, the Company requested that Deloitte & Touche furnish it with
a letter addressed to the Securities and Exchange Commission (the "Commission")
stating whether or not it agreed with the statements contained therein. A copy
of Deloitte & Touche's letter, dated September 30, 1994, is filed as an exhibit
to the amendment filed October 4, 1994 to the Company's report on Form 8-K dated
August 18, 1994.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
Incorporated by Reference to the Company's Definitive Proxy
Statement for its 1996 Annual Meeting of Shareholders to be filed pursuant to
regulation 14A promulgated under the Securities and Exchange Act of 1934, as
amended (the "Proxy Statement").
Item 11. Executive Compensation
Incorporated by Reference to the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Incorporated by Reference to the Proxy Statement.
Item 13. Certain Relationships and Related Transactions
Incorporated by Reference to the Proxy Statement.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) 1. and 2. Financial Statements and Financial Statement Schedules: see
accompanying Index to Financial Statements and Financial Statement Schedule,
page 19.
(b) Reports on Form 8-K during the last quarter: None.
(c) Exhibits
3(a) - Certificate of Incorporation filed June 22, 1983. Incorporated by
reference to the Company's Registration Statement on Form S-18,
filed on November 23, 1983, Registration No. 2-88097-NY.
(b) - Certificate of Amendment of Certificate of Incorporation filed
October 24, 1983. Incorporated by reference to the Company's
Registration Statement on Form S-18, filed on November 23,
1983, Registration No. 2-88097-NY.
(c) - Certificate of Amendment of Certificate of Incorporation dated
June 29, 1987. Incorporated by reference to the Company's Form
8 Amendment to the Company's Annual Report on Form 10-K for
the fiscal year ended March 31, 1987, file no. 0-13084.
(d) - Certificate of Designation of the Company with respect to the
Preferred Stock as filed with the Secretary of State of Delaware on
October 12, 1993. Incorporated by reference to the Company's Report
on Form 10- K for the fiscal year ended March 31, 1994.
(e) - By-laws of the Company, as amended. Incorporated by reference
to the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended September 10, 1988, file no. 0-13084.
10(a) - Form of Sales Distributor Agreement. Incorporated by reference to
the Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1985, file no. 0-13084.
(b) - Form of Service Center Agreement. Incorporated by reference to
the Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1985, file no. 0-13084.
(c) - Form of Dealer Agreement. Incorporated by reference to the
Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1985, file no. 0-13084.
(d) - Form of Sales Agent Agreement. Incorporated by reference to the
Company's Registration Statement on Form S-1, filed on September 5,
1986, Registration No. 3-8517.
(e) - 1988 Employee Incentive Stock Option Plan of the Company.
(f) - Employment Agreement dated April 1, 1996, between the Company and
Michael J. Salpeter.
(g) - Insurance policy between the Company and Houston General
Insurance Company pertaining to service contracts issued by
Inacom Corporation. Incorporated by reference to the Company's
Report on Form 10-K for the fiscal year ended March 31, 1992, file
no. 0-13084.
(h) - Insurance policy between the Company and Houston
General Insurance Company pertaining to service
contracts issued by Damark Inc. Incorporated by
reference to the Company's Report on Form 10-K for
the fiscal year ended March 31, 1992, file no.
0-13084.
(i) - Insurance policy between the Company and Houston
General Insurance Company pertaining to service
contracts written in all states except Florida.
(j) - Insurance policy between the Company and Houston General Insurance
Company pertaining to service contracts issued by CompUSA.
(k) - Insurance policy between the Company and Houston General Insurance
company pertaining to service contracts written by WCPS of Florida,
Inc.(excluding Inacom Corporation).
(l) - Insurance policy between the Company and Houston General Insurance
company pertaining to service contracts written by WCPS of Florida,
Inc. through CompUSA.
(m) - Settlement and Runoff Agreement between the Company, its
wholly owned subsidiaries Warrantech Dealer Based Services, Inc.
and Warrantech Consumer Product Services, Inc. and American
Hardware Mutual Insurance Company ("AHM") regarding
termination of insurance coverage by AHM. (This document has
been omitted and accorded confidential treatment by the Securities
and Exchange Commission pursuant to an Order Granting
Application Pursuant to Rule 24b-2 Under the Securities Exchange
Act of 1934, As Amended, Respecting Confidential Treatment of
Exhibits 10(v) and 10(w) Contained in Registrant's Form 10-K for
the fiscal year ended March 31, 1992, issued by the Division of
Corporation Finance.)
(n)- Revolving Loan Agreement between the Company and Peoples Bank.
(o)- Administrator Agreement - Consumer Products,
between Houston General Insurance Company and
Warrantech Consumer Product Services, Inc. (This
document has been omitted and has been filed
separately with the Securities and Exchange
Commission pursuant to a confidential Treatment
Request.)
(p)- General Agency Agreement between American International Group, Inc.
and Warrantech Automotive. Inc. (This document has been omitted and
has been filed separately with the Securities and Exchange Commission
pursuant to a Confidential Treatment Request.)
(q)- Master Agreement between American International Group, Inc. and the
Company (Section 1.6 of this document has been omitted and has been
filed separately with the Securities and Exchange Commission pursuant
to a Confidential Treatment Request.)
11 - Statements re: computation of per share earnings.
21 - Subsidiaries of the Company.
27 - Financial Data Schedule.
28 - Stipulation and Consent Order of Illinois. Incorporated by
reference to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended December 31, 1988, file no. 0-13084.
99(a)- Complaint in Action entitled David Robertson v. Warrantech
Corporation and Warrantech Automotive Incorporated by reference
to the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended December 31, 1993; file no. 0-13084.
(b)- Amended Complaint in Action entitled The Oak Agency, Inc. and The
Oak Financial Services,Inc. vs. Warrantech Dealer Based Services,
Inc., Case No. 91 C 6677, filed in the United States District Court for
the Northern District of Illinois.
(c)- Complaint in Action entitled The Oak Agency, Inc., et al. v.
Warrantech, Inc., et al., Case No. 96 C 1106, filed in the United
States District Court for the Northern District of Illinois.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereto duly authorized.
WARRANTECH CORPORATION
Dated: June 28, 1996 By: Joel San Antonio
------------------------------
Joel San Antonio
Chairman of The Board and
Principal Executive Officer
Dated: June 28, 1996 By: Bernard J. White
-------------------------------
Bernard J. White, Vice President, Finance
& Treasurer/ Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
Signature Title Date
Joel San Antonio Principal Executive Officer, June 28, 1996
Chairman of the Board and Director
- ------------------------------------------------
(Joel San Antonio)
William Tweed Vice Chairman and Director June 28, 1996
- ------------------------------------------------
(William Tweed)
Michael Salpeter President and Director June 28, 1996
- ------------------------------------------------
(Michael Salpeter)
Desiree Kim Caban Secretary June 28, 1996
- ------------------------------------------------
(Desiree Kim Caban)
Jeffrey J. White Director June 28, 1996
- ------------------------------------------------
(Jeffrey J. White)
Lawrence Richenstein Director June 28, 1996
- ------------------------------------------------
(Lawrence Richenstein)
</TABLE>
Exhibit List
3(a)- Certificate of Incorporation filed June 22, 1983. Incorporated by
reference to the Company's Registration Statement on Form S-18,
filed on November 23, 1983, Registration No. 2-88097-NY.
(b) - Certificate of Amendment of Certificate of Incorporation filed
October 24, 1983. Incorporated by reference to the Company's
Registration Statement on Form S-18, filed on November 23,
1983, Registration No. 2-88097-NY.
(c) - Certificate of Amendment of Certificate of Incorporation dated
June 29, 1987. Incorporated by reference to the Company's Form
8 Amendment to the Company's Annual Report on Form 10-K for
the fiscal year ended March 31, 1987, file no. 0-13084.
(d)- Certificate of Designation of the Company with
respect to the Preferred Stock as filed with the
Secretary of State of Delaware on October 12, 1993.
Incorporated by reference to the Company's Report on
Form 10-K for the fiscal year ended March 31, 1994.
(e)- By-laws of the Company, as amended. Incorporated by reference
to the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended September 10, 1988, file no. 0-13084.
10(a)- Form of Sales Distributor Agreement. Incorporated by reference to
the Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1985, file no. 0-13084.
(b)- Form of Service Center Agreement, Incorported by reference to the
Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1985, file no. 0-13084.
(c)- Form of Dealer Agreement. Incorporated by reference to the
Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1985, file no. 0-13084.
(d)- Form of Sales Agent Agreement. Incorporated by reference to the
Company's Registration Statement on Form S-1, filed on
September 5, 1986, Registration No. 3-8517.
(e)- 1988 Employee Incentive Stock Option Plan of the Company.
(f)- Employment Agreement dated April 1, 1996, between
the Company and Michael J. Salpeter.
<PAGE>
(g)- Insurance policy between the Company and Houston General
Insurance Company pertaining to service contracts issued by
Inacom Corporation. Incorporated by reference to the Company's
Report on Form 10-K for the fiscal year ended March 31, 1992, file
no. 0-13084.
(h)-Insurance policy between the Company and Houston
General Insurance Company pertaining to service
contracts issued by Damark Inc. Incorporated by
reference to the Company's Report on Form 10-K for
the fiscal year ended March 31, 1992, file no.
0-13084
(i)-Insurance policy between the Company and Houston
General Insurance Company pertaining to service
contracts written in all states except Florida.
(j)-Insurance policy between the Company and Houston General Insurance
Company pertaining to service contracts issued by CompUSA.
(k)-Insurance policy between the Company and Houston General Insurance
company pertaining to service contracts written by WCPS of Florida,Inc.
(excluding Inacom Corporation).
(l)-Insurance policy between the Company and Houston General Insurance
company pertaining to service contracts written by WCPS of Florida,Inc.
through CompUSA.
(m)-Settlement and Runoff Agreement between the Company, its
wholly owned subsidiaries Warrantech Dealer Based Services, Inc.
and Warrantech Consumer Product Services, Inc. and American
Hardware Mutual Insurance Company ("AHM") regarding
termination of insurance coverage by AHM. (This document has
been omitted and accorded confidential treatment by the Securities
and Exchange Commission pursuant to an Order Granting
Application Pursuant to Rule 24b-2 Under the Securities Exchange
Act of 1934, As Amended, Respecting Confidential Treatment of
Exhibits 10(v) and 10(w) Contained in Registrant's Form 10-K for
the fiscal year ended March 31, 1992, issued by the Division of
Corporation Finance.)
(n)-Revolving Loan Agreement between the Company and Peoples Bank.
(o)-Administrator Agreement - Consumer Products,
between Houston General Insurance Company and
Warrantech Consumer Product Services, Inc. (This
document has been omitted and has been filed
separately with the Securities and Exchange
Commission pursuant to a confidential Treatment
Request.)
(p)-General Agency Agreement between American International Group, Inc.
and Warrantech Automotive. Inc. (This document has been omitted and
has been filed separately with the Securities and Exchange Commission
pursuant to a Confidential Treatment Request.)
(q)- Master Agreement between American International Group, Inc. and the
Company (Section 1.6 of this document has been omitted and has been
filed separately with the Securities and Exchange Commission pursuant
to a Confidential Treatment Request.)
11 - Statements re: computation of per share earnings.
21 - Subsidiaries of the Company.
27 - Financial Data Schedule
28 - Stipulation and Consent Order of Illinois. Incorporated by
reference to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended December 31, 1988, file no. 0-13084.
99(a) - Complaint in Action entitled David Robertson v. Warrantech
Corporation and Warrantech Automotive Incorporated by reference
to the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended December 31, 1993; file no. 0-13084.
(b)- Amended Complaint in Action entitled The Oak Agency, Inc. and The
Oak Financial Services,Inc. vs. Warrantech Dealer Based Services,
Inc., Case No. 91 C 6677, filed in the United States District Court for
the Northern District of Illinois.
(c)- Complaint in Action entitled The Oak Agency, Inc., et al. v.
Warrantech, Inc., et al., Case No. 96 C 1106, filed in the United States
District Court for the Northern District of Illinois.
WARRANTECH CORPORATION AND SUBSIDIARIES
EXHIBIT 11
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Years Ended March 31,
---------------------- --- ----------------------- ------------------------
<S> <C> <C> <C>
1996 1995 1994
Earnings:
Net Income $ 2,394,862 $ 2,895,788 $ 703,591
===================== ====================== ====================
Weighted average shares outstanding
Primary (A):
Common shares 12,998,547 12,951,514 12,895,905
Assumed exercise of stock options 721,387 725,730 779,175
Assumed conversion of preferred
stock 1,432,109 1,910,900 894,399
====================== ====================== ====================
15,152,043 15,588,144 14,569,479
====================== ====================== ====================
Fully diluted (B)
Common shares 12,998,547 12,951,514 12,895,905
Assumed exercise of stock options 2,002,990 1,993,893 1,916,401
Assumed conversion of preferred
stock 1,464,296 1,948,944 1,935,769
====================== ====================== ====================
16,465,833 16,894,351 16,748,075
====================== ====================== ====================
Earnings Per Common Share:
Primary (A) $0.16 $0.19 $0.05
Fully Diluted (B) $0.15 $0.17 0.04
</TABLE>
(A) The treasury method was used in the calculation of primary earnings per
share for all periods presented.
(B) The modified treasury method was used in the calculation of fully
diluted earnings per share for the years ended March 31,1996,1995 and 1994.
EXHIBIT 21
LIST OF SUBSIDIARIES OF WARRANTECH CORPORATION
1. WARRANTECH CONSUMER PRODUCT SERVICES, INC.
a Connecticut corporation
2. WCPS OF FLORIDA, INC.
a Florida corporation
3. WARRANTECH DEALER BASED SERVICES, INC.
a Delaware corporation
4. WARRANTECH AUTOMOTIVE, INC.
a Connecticut corporation
5. WDBS OF CALIFORNIA INSURANCE SERVICES, INC.
a California corporation
6. WARRANTECH AUTOMOTIVE RISK PURCHASING GROUP, INC.
a Michigan corporation
7. DEALER 400 RISK PURCHASING GROUP, INC.
a Michigan corporation
8. WARRANTECH AUTOMOTIVE OF FLORIDA, INC.
a Florida corporation
9. WARRANTECH DIRECT, INC.
a Texas corporation
10. WARRANTECH (UK) LIMITED
company incorporated in England
11. WARRANTECH OF PUERTO RICO, INC.
a Puerto Rico corporation
12. WARRANTECH INTERNATIONAL, INC.
a Delaware corporation
13. WCPS OF CANADA, INC.
a Connecticut corporation
14. WARRANTECH AUTOMOTIVE OF CANADA, INC.
a Connecticut corporation
15. WARRANTECH EUROPE PLC
a company incorporated in England
16. WARRANTECH REINSURANCE COMPANY, LTD
a company incorporated in the Cayman Islands
17. WARRANTECH ADDITIVE, INC.
a Texas corporation
18. WARRANTECH HOME SERVICE COMPANY
a Connecticut corporation
19. WARRANTECH DEL CARIBE, INC.
a Puerto Rico corporation
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 11,859,487
<SECURITIES> 824,648
<RECEIVABLES> 24,771,128
<ALLOWANCES> 450,092
<INVENTORY> 0
<CURRENT-ASSETS> 38,444,199
<PP&E> 11,882,704
<DEPRECIATION> 5,079,906
<TOTAL-ASSETS> 56,613,710
<CURRENT-LIABILITIES> 25,222,987
<BONDS> 0
<COMMON> 89,375
0
6,420,363
<OTHER-SE> 19,567,556
<TOTAL-LIABILITY-AND-EQUITY> 56,613,710
<SALES> 0
<TOTAL-REVENUES> 110,246,219
<CGS> 0
<TOTAL-COSTS> 103,439,002
<OTHER-EXPENSES> 469,097
<LOSS-PROVISION> 363,179
<INTEREST-EXPENSE> 182,523
<INCOME-PRETAX> 4,032,354
<INCOME-TAX> 1,637,492
<INCOME-CONTINUING> 2,394,862
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,394,862
<EPS-PRIMARY> .16
<EPS-DILUTED> .15
</TABLE>
EXHIBIT 3 (f)
EMPLOYMENT AGREEMENT
Agreement made as of the 1st day of April, 1996,
between WARRANTECH CORPORATION, (the "Company"), a Delaware
corporation having its principal office at 300 Atlantic
Street, Stamford Connecticut 06901, and Michael J. Salpeter
(the "Executive"), an individual residing at 7034 Highfield
Road, Fayetteville, New York 13066.
W I T N E S S E T H:
WHEREAS, the Company believes that Executive's services
would be of great value to it and desires to retain his
services, and Executive has indicated his willingness to
enter into an agreement upon the terms and conditions set
forth; and
WHEREAS, the execution by the Company of this Agreement
has been duly authorized and approved;
IT IS, THEREFORE, AGREED AS FOLLOWS;
1. Duties.
The Company hereby employs the Executive as President
of the Company. Executive shall have responsibility for the
management and operations of the Company and all corporations
controlled by the Company, now or hereafter acquired,
performing all such services as shall be consistent with
his position as determined from time to time by the Chairman
of the Company. If Executive shall serve as an officer,
director or employee of any affiliate of the Company, he shall
not receive any additional compensation, unless otherwise
mutually agreed upon. The Executive shall devote his full
time and efforts to the business and affairs of the Company,
shall use his best efforts to promote its interests and
shall perform his duties on a full-time basis primarily at
either the Company's offices in Stamford, Connecticut or the
Company's offices in Euless, Texas, or otherwise as necessary.
2. Salary and Other Compensation.
A. The Company shall pay the Executive during
the term of this Agreement a base salary at the annual rate
of $285,000 during the first 12 months of this Agreement,
which base salary shall automatically increase by 10%
annually thereafter during the term of this Agreement. Such
base compensation shall be payable in accordance with the
Company's payroll practices as in effect from time to time.
B. The Company, for the benefit of the Executive,
also shall maintain in full force and effect up to a premium
payment of $25,000 the split dollar life insurance policy
annexed here as Exhibit A.
3. Expenses.
It is contemplated that in performing services under
this Agreement the Executive will be required to incur
expenses on behalf of and in furtherance of company business.
The Executive is authorized to incur such reasonable
expenses in performing his duties including, but not limited
to, expenses for travel, transportation, entertainment,
gifts and similar items, which expenses shall be paid by the
Company. At the end of each month and upon submission of
appropriate bills or vouchers, the Company shall pay all
such expenses incurred by the Executive during that month.
Such payment may be made either directly to the payees named
in such bills or vouchers or, to the extent paid by the
Executive, by reimbursement to him. The Executive agrees to
maintain adequate records of all expenses to be reimbursed
by the Company.
4. Automobile.
It is contemplated that to perform the services
required by this Agreement the Executive shall obtain and
remain fully responsible for the maintenance and repair of
an automobile, for which the Company shall provide the
Executive with an expense allowance of $500 per month.
5. Vacations.
The Executive shall be entitled to 5 weeks of vacation
time per year in accordance with such policies as are from
time to time adopted by the Company's Board of Directors.
6. Moving Expenses.
The Executive shall be entitled to a moving expense
allowance in the sum of $10,000.
7. Disability.
A. For purposes of this Agreement, disability shall
mean physical or mental illness or condition rendering the
Executive incapable of performing substantially all of his
normal duties with the Company ("Disability").
B. In the event the Executive becomes disabled, for a
continuous period of twelve months or sooner if there has
been a determination of Disability under any disability
insurance policy provided by the Company for the benefit of
the Executive, the Company, at its option and upon at least
thirty days written notice to the Executive or his personal
representative (but before the Executive has recovered from
such disability), may terminate the Executive's employment.
C. In the event of the Executive's disability
hereunder, and from the date thereof, the Company shall
continue to pay the Executive his salary and other
compensation (pursuant to paragraph 2) for a period not to
exceed twelve months at the rate provided for on the date of
the commencement of such Disability. The Executive shall be
entitled to annual increases and cost of living adjustments
pursuant to paragraph 2 if otherwise applicable. If the
Executive shall receive any disability payments from any
insurance company under a Company sponsored disability plan,
as provided for below, the salary payable to the Executive
under this sub-paragraph shall be reduced accordingly,
dollar for dollar. Should the Company's obligation to pay
the disabled Executive's salary expire as provided for
herein for any reason whatsoever, the Executive shall be
entitled to receive and retain all disability insurance
proceeds of such disability plan.
D. Subject to insurability, the Company shall
purchase and maintain group disability insurance for its
senior executives including the Executive pursuant to the
Disability Income Policy annexed hereto as Exhibit B.
8. Additional Benefits.
A. The Executive also shall be eligible to receive such
bonuses and awards as the Board of Directors or Compensation
Committee of the Board of Directors may from time to time
grant to him, and he also shall be eligible and shall be
entitled to participate in any stock option plan, bonus
participation or extra compensation plan, pension, group
insurance or other benefits which the Company may, in its
sole discretion, provide for its senior executive employees
generally.
B. The Company shall obtain, and maintain in full
force and effect, a comprehensive major medical,
hospitalization Blue Cross-Blue Shield group plan (or the
equivalent) with dental coverage for the benefit of the
Executive and his immediate family. The nature and scope of
the coverage will be identical to that provided to all other
senior executives.
9. Restrictive Covenants.
A. During the term of this Agreement and for two
years following its termination for any reason, the
Executive shall not, directly or indirectly, participate in
the ownership, management, control, employ, or serve as an
agent or render any services to, any company which competes
with any part of the business of the Company, its
subsidiaries or affiliates, without the prior written
consent of the Company's Board of Directors.
B. During the term of this Agreement and thereafter,
Executive will not, directly or indirectly, disclose or use
any confidential information, records, trade secrets or any
other secret or confidential matter relating to the clients,
employees, business, products or services of the Company,
whether or not it is identified as secret or confidential,
without first obtaining the prior written consent of the
Company. This covenant includes, but is not limited to:
disclosing or using information concerning Company
customers, customer requirements, trade secrets, markets,
costs, products; product development, marketing and business
plans or strategies; divulging the identity of Company
clients or employees; or soliciting Company clients or
employees.
C. Executive agrees that this paragraph constitutes
an independent and severable covenant, which shall be
enforceable notwithstanding any rights or remedies that the
Company may have under any other provision of this Agreement
or otherwise, that the remedy at law for any breach hereof
will be inadequate and that the Company shall be entitled to
temporary and permanent injunctive relief without the
necessity of proving damages. Additionally, if Executive
should breach these covenants, Executive agrees to indemnify
the Company for any loss, damage, or expense which the
Company may incur, including but not limited to, attorney's
fees and disbursements resulting from any such breach by
Executive.
D. If any of the covenants contained hereinabove, or
any part thereof, is hereafter construed to be invalid or
unenforceable, the same shall not affect the remainder of
the covenant or covenants, which shall be given full
effect, without regard to the invalid portions.
E. If any of the covenants contained hereinabove, or
any part thereof, is held to be unenforceable because of the
duration of such provision or the area covered thereby, the
parties agree that the court making such determination shall
have the power to reduce the duration and/or area of such
provisions and, in its reduced form, said provision shall
then be enforceable.
10. Duration.
This Agreement shall be in full force and effect for
the period commencing as of April 1, 1996, and ending March
31, 1998 (hereinafter referred to as the "term of this
Agreement"). Thereafter, this Agreement shall continue in
full force and effect for additional one year periods,
provided, however, that either party may terminate this
Agreement by giving prior written notice at least 180 days
prior to the end of the term hereof or any renewal term.
This Agreement may be terminated before the end of its term
by agreement of the parties or upon the death or disability
of the Executive, or in the event of termination as provided
in paragraphs 11 or 12 hereof. This Agreement also will
automatically terminate upon execution of another Agreement
between the parties that explicitly supersedes this Agreement.
11. Termination for Cause by the Company.
The Company may terminate the Executive's employment at
any time with cause upon thirty (30) days prior written
notice to the Executive. Notice of termination for cause
must specify with particularity the actions or inactions
constituting such cause.
Cause shall exist upon the occurrence of any of the
following:
(i) the Executive's conviction for any crime
involving the Company which constitutes a felony in the
jurisdiction involved;
(ii) the Executive's willful failure or refusal to
substantially perform his duties as required by this
Agreement;
(iii) misappropriation of Company money or
property or other dishonest act relating to the
Company, its assets or operations;
(iv) the material breach by the Executive of any
of the terms, conditions or covenants of this Agreement;
(v) activities by the Executive of a publice nature
failing to conform to the community standard of generally
accepted personal or business conduct which may
reasonably be expected to reflect badly upon the
Company's public image;
(vi) attempting to obtain personal profit from any
transaction in which the Company has an interest without
the prior written consent of the Company; or
(vii) any other acts or omissions which constitute
cause under the laws of the State of New York.
If termination under this section occurs, the Company
shall pay to the Executive all amounts due under this
Agreement which are then accrued but unpaid within fifteen
(15) days after date of the notice of termination.
12. Termination Without Cause.
A. The Company shall have no right to terminate this
Agreement except as expressly set forth above. Any other
termination of this Agreement by the Company shall
constitute wrongful termination. Except as provided below,
in the event of any wrongful termination, the Company shall
pay the Executive an amount equal to the lesser of $285,000
or the base salary payable hereunder through the end of the
term or any renewal term. Such payment shall be made within
30 days of termination and shall be deemed liquidated
damages for the Executive's loss of salary but shall not
preclude, diminish or in any way affect the Executive's
right to pursue whatever additional remedies may be
available to him with respect to damages suffered other than
for loss of salary. The liquidated damages provided above
shall be payable regardless of whether or not the Executive
mitigates or attempts to mitigate his damages.
B. If within two years following a Change In Control
(as hereinafter defined) of the Company, the Company shall
terminate the Executive's employment other than by reason of
the Executive's disability or for cause (as defined above) or
the Executive shall terminate his employment by the Company
for Good Reason (as hereinafter defined) then (1) on or
before the Executive's last day of employment with the
Company, the Company shall pay to the Executive as
compensation for services rendered to the Company a lump sum
cash amount (subject to applicable payroll or other taxes
required to be withheld computed at the rate for
supplemental payments) equal to three times the Executive's
actual base salary for the 12 month period preceding such
termination date, and (2) the Company shall not recover its
contributions under the split dollar life insurance policy
until the expiration of the term of this Agreement and the
Company shall be required to continue making its
contributions to the Executive's split dollar life insurance
policy and other benefits until the expiration of the term
of the Agreement.
C. "Change In Control" means (1) the acquisition by
any person, directly or indirectly, of the beneficial
ownership of securities of the Company entitled to cast 40%
or more or the total vote to which all the Company's
outstanding securities are then entitled to cast in the
election of directors unless the Executive is such person or
an affiliate of such person or (2) a change in the
composition of the board of directors of the Company which
results in a majority of the members thereof being persons
who were not elected by, or nominated for election as
directors by, the board of directors of the Company as the
same was constituted, immediately prior to such change in
the composition thereof.
D. "Good Reason" shall mean any of the following
which occurs following a Change of Control; a significant
reduction or alteration of the Executive's duties, authority
or responsibility; removal of the Executive from the highest
corporate office held by him prior to such Change In
Control; any modification of the compensation terms of this
Agreement adverse to the Executive; any material reduction
in perquisites, benefits or support facilities previously
available to the Executive in order to perform his
obligations under this Agreement.
E. In the event Executive's employment is terminated
pursuant to Paragraph 12A or 12B hereof, the Executive shall
be entitled to immediate vesting of any and all stock options
issued by the Company pursuant to its incentive stock option
plan and to any and all other options, warrants, or shares
under substantially the terms as to which the Executive was
entitled before such termination.
13. Assignment.
This Agreement shall inure to the benefit of and be
binding upon the Company, its successors and assigns, and
the Executive, his heirs and personal representatives.
However, the Executive's rights under this Agreement are
personal and shall not be voluntarily or involuntarily
assigned or otherwise transferred.
14. Notices.
Any notice required or permitted to be given under this
Agreement shall be in writing and delivered by hand or by
receipted overnight express to the Executive at his
residence set forth above or to the Company at its principal
office set forth above.
15. Arbitration.
Any disagreement, controversy or claim arising out of,
or relating to this Agreement, or the breach thereof, if not
involving the need for equitable relief, shall be settled by
arbitration in Fairfield County, State of Connecticut in
accordance with the rules then existing of the American
Arbitration Association and judgment upon the award rendered
may be entered and enforced in any court having jurisdiction
thereof. Nothing contained herein shall prevent either
party from seeking equitable relief from the appropriate
court, if such relief would not be available in Arbitration.
16. Attorney Fees.
If any action or proceeding whether at law, in equity,
or in arbitration, is commenced to enforce or interpret the
terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, arbitrator's fees,
costs and necessary disbursements in addition to any other
relief to which it may be entitled.
17. Governing Law.
This Agreement shall be governed by and construed in
accordance with the laws of the State of Connecticut.
18. Entire Agreement.
This instrument contains the entire agreement of the
parties. It may not be modified orally; it may be modified
only by an agreement in writing signed by the party against
whom enforcement of any waiver, modification or discharge is
sought.
IN WITNESS WHEREOF, the parties have set their hands
and seal to this Agreement on the day and year first above
written.
Attest: WARRANTECH CORPORATION
By: Joel San Antonio
Michael J. Salpeter
EXHIBIT 3(i)
CONTRACTUAL LIABILITY POLICY DECLARATION
Policy No: 05CIM9477269-00 (Issued for reporting of
CompUSA-Florida business only)
NAMED INSURED: WCPS of Florida, Inc.
ADDRESS: c/o 150 Westpark Way
Euless, TX 76040
POLICY PERIOD: From January 1, 1996
continuous until cancelled
COUNTERSIGNED AT: Intercontinental Brokerage,Inc.
BY: ______________
DATE: May 3, 1996
Note: THIS IS NOT A VALID INSURANCE POLICY
UNLESS AND UNTIL A DULY SIGNED
NUMBERED DECLARATIONS PAGE IS
ATTACHED
A. INSURING AGREEMENT
Houston General Insurance company (herein called
the "Company", "us" or "we") agree to pay WCPS
OF FLORIDA, INC. (herein called "you") for all
costs incurred in fulfilling your obligations
under each service agreement issued during the
policy term according to terms and conditions
of such service agreements. In the event such
costs are incurred by another party's
performance of repair or replacement services
as a result of such obligations, payment may
be made directly to such other party on your
behalf.
In the event you become bankrupt, impaired or
insolvent (as defined in Section 634.011,
Florida Statutes), dissolved, or if you go out
of business, or fail to pay documented claims
we will pay losses and unearned premium
refunds, if any, directly to the person making
a claim under the service agreement or
cancelling the service agreement.
This policy insures all service agreements
issued by you while this policy is in effect.
B. DEFINITIONS
(1) CONTRACTUAL OBLIGATION means your
obligation to properly repair or replace
covered parts or to pay for the cost of
property repair or replacement of covered
parts.
(2) INSURED means the person or organization
named in the Declaration, also referred
to as "you".
(3) SERVICE AGREEMENT means either a motor
vehicle service agreement, home warranty
or service warranty (as defined in
Chapter 634, Florida Statutes).
(4) SERVICE AGREEMENT HOLDER means the
original purchaser of a service agreement
or someone to whom the service agreement
has been transferred under the terms of
the service agreement.
(5) SERVICE AGREEMENT HOLDER CLAIM means a
claim by a service agreement holder or a
claim on the behalf of a service
Agreement Holder which forms a
Contractual Obligation.
(6) LOSS means expense actually incurred by
you or on your behalf in the performance
of a contractual obligation.
(7) REPAIR FACILITY means a person or
organization authorized by you or on your
behalf to perform service under a service
agreement.
(8) INSURED CLAIM means your claim for
benefits under this policy based on a
contractual obligation.
(9) PREMIUM means the amount paid by the
service agreement Holder.
C. EXCLUSIONS
The policy does not apply to:
(1) liability for any consequential damages,including
but not limited to, punitive or extra-contractual
damages, arising from your actions, or any repair
facility under a service agreement;
(2) any and all obligations and liabilities
arising out of your actions or anyone else's
actions under a service agreement;
(3) any and all obligations and liabilities extending
to anyone other than the service agreement holder;
(4) any duty to defend you in any law suit or other
judicial or administrative proceeding;
(5) labor performed by you or on your behalf
arising out of work or any portion thereof, or out of
material, parts or equipment, as a result of recall by
the manufacturer.
D. CONDITIONS
(1) SALE OF SERVICE AGREEMENT: You must report the
sale of a service agreement within 30 days of
its issue date on the forms provided by us
and send us or our authorized agent the
proper premium. All premiums will be computed
in accordance with the rules, rates, rating
plans, premiums and minimum premiums which
apply to the insurance afforded by this
policy.
(2) PREMIUMS: The premium for each service agreement
is shown in the rate schedule. These rates shall
remain in effect until we change them and until
they have been approved by the Department of
Insurance. You will be given 45 days written
notice prior to any change.
(3) NOTICE OF INSURED CLAIM: You should provide
us full details of a claim prior to starting any work
specified with a contractual obligation in excess of
$150.00 by the service agreement giving full details of
the claim.
(4) PROOF OF LOSS: Written proof of loss must be
given within 30 days after a loss occurs, giving
full details on the nature an extent of the loss.
Proof of loss shall be given on forms furnished by
us unless we fail to furnish such forms within 15
days after we receive a notice of claim.
(5) INSPECTION AND AUDIT: At any reasonable time, we
have the right to inspect your premises, books and
records as they pertain to coverage under this
policy. This right exists so long as service
agreements are outstanding. Neither the right to
inspect or the conduct of an inspection will serve
as a warranty that such property or operations are
safe or health free or in compliance with any law.
(6) CHAPTER 634, FLORIDA STATUTES APPLICABILITY:
In the event you are no longer able to fulfill your
obligations and we are acting in your stead, we shall
be subject to the provision of Chapter 634, Florida
Statutes.
(7) We shall assume full responsibility for the
administration of claims in the event of your
inability to do so.
E. GENERAL PROVISIONS
(1) REPRESENTATIONS: By accepting this policy, you
agree that the statements in the Declarations are
your representations and warranties and that this
policy is issued based on those representations.
Should you misrepresent these Declarations, the
company may cancel this contract in accordance
with the Cancellation Endorsement. Service
agreements issued during the term of this policy shall
continue to be insured. This policy is the entire
contract between you and the company.
(2) SUBROGATION: If any payment under this
policy is made by us, we reserve all rights
of recovery against any person or
organization in connection with such claim.
You will execute and deliver all papers
necessary to secure such rights. You may do
nothing to prejudice such rights.
(3) ASSIGNMENT: Assignment of interest or
liability under this policy shall not be
binding on us unless the policy has been
countersigned by our authorized agent and
approved by the Department of Insurance of
Florida.
(4) CHANGES IN THE POLICY: No change in the
policy will be effective until approved by our
authorized representative and the Department of
Insurance of Florida. The approval must be
noted on or attached to this policy. No agent
may change this policy or waive any of its provisions.
(5) RECOVERIES: All amounts recovered by you
for which you received benefits under this
policy belong to us and shall be paid to
us.
(6) RENEWAL: This policy is issued as stated in
the Declaration and is continuous until
cancelled in accordance with Item (1) of the
Service Warranty Endorsement.
SERVICE WARRANTY ENDORSEMENT
(1) CANCELLATION, TERMINATION, OR NON RENEWAL:
You may cancel or terminate this policy at
any time by notifying us in writing.
Coverage will end 60 days after written
notice of such cancellation, termination
or non renewal has been mailed, via
certified mail, by us to the Insurance
Department of Florida. We may cancel,
terminate or not renew this policy by
written notice, mailed via certified mail,
to you and the Florida Department of
Insurance at least 60 days prior to such
cancellation, termination or non renewal.
(2) UNEARNED PREMIUM REFUND: The unearned
premium refund shall be subject to the
cancellation fee provisions of Section
634.414(3), Florida Statutes. The salesman or
agent shall refund to the contractual liability
policy issuer, the unearned pro rata
commission.
EXHIBIT 3(j)
Houston General Insurance Company
4055 International Plaza
Fort Worth, Texas 76109
DECLARATIONS PAGE
SERVICE PLAN CERTIFICATE
CONTRACTUAL INSURANCE POLICY
Policy No.: 5CIM9477268-00
Prior No.: NEW
Named Insured: Warrantech Consumer Products Services, Inc.
Mailing Address: 300 Atlantic Street
Stamford, Connecticut 06901
Policy Period: From January 1, 1996 continuous until
canceled
Authorized
Representative: Intercontinental Brokerage Incorporated
445 Livernois, Suite 333
Rochester Hills, Michigan 48307
Agent Code: 75-4490
Business
Description: Consumer Products offered exclusively by
CompUSA as described in the schedule of
approved products on file with the
Company and the Named Insured, not to
include service contracts assumed from
Virginia Surety as outlined in the
Insurance Assumption Agreement dated
December 29, 1995 and Policy No.
05CIM9477265-00
Premium: Per Premium Reporting Form reported to
the Company
Countersigned by: ___________________________
(Authorized Representative)
NOTE: THIS IS NOT A VALID INSURANCE POLICY UNLESS AND UNTIL
A DULY SIGNED NUMBERED DECLARATIONS PAGE IS ATTACHED.
SERVICE PLAN CERTIFICATE
CONTRACTUAL INSURANCE POLICY
TABLE OF CONTENTS
I Insuring Agreement
II Definitions
III Duties of the Company
IV Duties of the Named Insured
V Exclusions
VI Premiums and Rates
VII Limits and Liability
VIII Policy Term
IX Cancellation
X Policy Period and Territory
XI General Provisions
The Insurance Company shown on the Declarations Page
(hereafter referred to as the Company), in consideration of
the payment of the premium and subject to all the provisions
of the policy contained herein, agrees with the Named
Insured as Follows:
1. INSURING AGREEMENT
The Company agrees to pay to the Named Insured or on
behalf of the Named Insured, to reimburse repair facilities
which are authorized to perform repairs on behalf of the
Named Insured all sums which the Named Insured by reason of
contractual liability assumed under a written contract
designated in the Business Description on the Declarations
page, shall become legally obligated to pay as claims under
valid Service Plan Certificates issued by the Named Insured
while this Policy is in force and which are payable under
the terms of the Policy.
II. DEFINITIONS
a. NAMED INSURED; The person(s) and/or
organization(s) named as the Named Insured on the
Declarations Page which is attached to this
policy.
b. SERVICE PLAN CERTIFICATE: Service Plan
Certificate, or Service Plan Extension Certificate
issued by the Named Insured (copies of which are
on file with the Company);
i. While this policy is in force;
ii. On a form approved in writing by the Company;
or its Authorized Administrator
iii. For which the premium has been paid to the
Company or its authorized representative; and
iv. As described in the Business Description
shown on the Declaration Page.
c. SERVICE PLAN CERTIFICATE HOLDER: Any person or
other legal entity who acquires the rights to a
valid Service Plan Certificate as defined in
Section 11.b.
d. INSURED'S CONTRACTUAL OBLIGATIONS TO SERVICE PLAN
CERTIFICATE HOLDER.
i. The duty or liability of the Named Insured to
a Service Plan Certificate Holder to repair
or replace covered parts; or
ii. To reimburse for the reasonable cost of
repair or replacement of such covered parts.
e. SERVICE PLAN CERTIFICATE HOLDER CLAIM: A claim
made by a Service Plan Certificate Holder in
accordance with the terms of the Service Plan
Certificate.
f. INSURED'S CLAIM: A claim by the Named Insured for
payment under this policy based on the named
Insured's Contractual Obligations as stated in the
Service Plan Certificate.
g. LOSS: Expenses necessarily incurred by the Named
Insured or on behalf of the named Insured in the
performance of Contractual Obligations as stated
in the Service Plan Certificate.
h. POLICY PERIOD: Begins at 12:01 A.M. Standard time
at the address of the Named Insured shown on the
Declaration Page.
III. DUTIES OF THE COMPANY
The Company, subject to the terms and conditions of
this policy, agrees to reimburse the Named Insured all sums
for which the Named Insured is obligated to pay under the
Named Insured's Contractual Obligations to a Service Plan
Certificate Holder, as provided for under a valid Service
Plan Certificate.
IV. DUTIES OF THE INSURED
The named Insured agrees to the following:
a. ISSUE OF SERVICE PLAN CERTIFICATE: The Named
Insured will report monthly records evidencing
issuance of a Service Plan Certificates to the
Company in the care of its Authorized
Representative.
b. PAYMENT OF PREMIUMS: Within sixty (60) days from
the last day of each month in which any Service
Plan Certificate is issued, the Named insured
shall pay the full premium due for such Service
Plan Certificates. The payment of premiums are
due the Company and are to be sent to its
Authorized Representative.
c. COMMENCEMENT OF COVERAGE: Named Insured agrees
that the Company shall have no obligation under
this policy until:
i. Named Insured has issued a Service Plan
Certificate; and
ii. The Company or its Authorized Representative
has received the premium for same.
d. NOTICE OF CLAIM; When a Service Plan Certificate
Holder presents a Service Plan Certificate claim,
the named Insured shall process the claim per the
agreement stated in the Service Plan Certificate.
e. PROOF OF LOSS: The Named Insured shall give
written proof of claim to the Company or its
Authorized Representative. Such proof shall be
made monthly evidencing the Service Plan number
and total amount of claims paid by item. The
Named Insured agrees to submit to examination
under oath by any person named by the Company as
often as may be required to verify proof of loss.
V. EXCLUSIONS
This policy provides coverage only for the Named
Insured's Contractual Obligation under a valid Service Plan
Certificate, and does not apply to any:
a. Liability for damages caused by repair work or
failure to perform repair work by the Named
Insured, its agents or employees, or any other
repair facility, its agents or employees;
b. Duties or liabilities which arise and/or may arise
by virtue of the Named Insured's sale of the
product which is the subject of a Service Plan
Certificate, or any part of such product;
c. Liability for negligence;
d. Liability for defective products and/or
workmanship;
e. Duty or liability to anyone other than the Service
Plan Certificate Holder;
f. Duties, liabilities or claims arising from any
acts of fraud, or other dishonest or criminal acts
of the Named Insured, its agents or employees.
g. Loss of use of tangible property which has not
been physically injured or destroyed resulting
from:
i. A delay in or lack of performance by or on
behalf of the Named Insured of any contract
or agreement other than as assumed under a
Service Plan Certificate, or
ii. The failure of the Named Insured's products
or work performed by or on behalf of the
Named Insured to meet the level of
Performance, quality, fitness or durability
warranted or represented by the Named
Insured; other than as assumed under a
Service Plan Certificate.
h. Damages claimed for the withdrawal, inspection,
repair, replacement, or loss of use of the Named
Insured's products or work completed by or for the
Named Insured or of any property of which such
products or work form a part, if such products,
work or property are withdrawn from the market or
from use because of any known or suspected defect
of deficiency therein.
i. Liability for any service plan certificate issued
on a product, not on the Company's schedule of
approval products on file with the Company and
Named Insured.
VI. PREMIUMS AND RATES
a. Premium charges for each Service Plan Certificate
will be made per the Company's rates and rules in
effect at the time each Service Plan Certificate
is issued.
b. The Company from time to time may effect changes
in the Rate Schedule applicable to this Policy.
Such changes will be made by endorsement
to the Policy stating the date such changes are
effective.
VII. LIMITS OF LIABILITY
The limit of the Company's liability is the lesser of
the following:
a. SINGLE CLAIM LIMIT OF LIABILITY: The Company's
limit of liability, with respect to any one claim,
shall not exceed the actual cash value of the
product prior to the event giving rise to the
Service Plan Certificate Holder Claim. "Actual
Cash Value" means the amount which it would cost
to repair or replace damaged property with a
material of like kind and quality, less allowance
for deterioration and depreciation.
b. AGGREGATE LIMIT OF LIABILITY PER SERVICE PLAN
CERTIFICATE: The Company's total limit of
liability for any one Service Plan Certificate or
extension thereof shall not exceed the purchase
price of the product paid by the Service Plan
Certificate Holder.
VIII. POLICY TERM
The policy is issued and goes into effect at the Date
and Time shown on the Declaration Page. This policy shall
remain in effect until canceled or until the Expiration Date
shown on the Declaration Page.
IX. POLICY CANCELLATION
a. BY THE COMPANY: The Company shall have the right
to cancel the policy without cause by giving
ninety (90) days written notice to the Named
Insured. Also, the Company shall have the right
to cancel the policy by giving thirty (30) days
written notice:
i. If required to do so by any regulatory body;
ii. In the event the Named Insured does not make
premium payment as required;
iii. In the event of any act of fraud by the Named
Insured;
iv. In the event of any material violation of any
of the terms of this policy, however, in the
event the Named Insured is able to show
within thirty (30) days to the satisfaction
of the Company that the material violation
has been corrected then the policy shall be
reinstated.
b. If the Company cancels or non-renews the Named
Insured or this policy, the Named Insured or
Company will send at least sixty (60) days advance
notice of our intention not to renew, by
registered mail, certified mail, or by mail
evidenced by a certificate of mailing or delivery
to the Insurance Commissioner specifying the
reason for the non-renewal.
c. BY THE INSURED: The Named Insured has the right
to cancel this policy:
i. By sending the Company or its Authorized
Representative written notice of its intent
to cancel the policy showing the date
cancellation is to be effective;
ii. By returning the original policy or a signed
Lost Policy Release to the Company or its
Authorized Representative showing the date
cancellation is to be effective.
d. EFFECT OF CANCELLATION: Cancellation of this
policy shall not affect the duties of the Named
Insured or the Company, as set forth in this
policy, as respects Service Plan Certificates
issued before the effective date of cancellation.
X. POLICY PERIOD AND TERRITORY
This Policy applies only to claims on Service Plan
Certificates that were issued during the Policy Period and
that occur within the United States of America.
XI. GENERAL PROVISIONS
a. INSURED'S REPRESENTATIONS: By acceptance of this
policy, the Named Insured agrees that all
statements contained in the application for this
policy and on the Declarations Page attached
hereto are correct. This policy is issued relying
upon the truth of such statements and includes all
agreements between the Named Insured and the
Company.
b. INSPECTION AND AUDIT: The Company and/or its
designated representative shall have the right to
inspect the Named Insured's premises, books and
records as they pertain to coverage provided under
this policy. This right shall extend until one
(1) year after Named Insured's Service Plan
Certificates are no longer in effect.
c. SUBROGATION AND RECOVERIES:
i. In the event of any payment by the Company
under the policy, the Company shall be
entitled to all of the Named Insured's rights
of recovery against any person or entity.
The Named Insured shall execute and deliver
instruments and papers and do whatever is
necessary to secure such rights. The Named
Insured shall do nothing to interfere with
such rights.
ii. After a payment of loss by the Company, all
amounts recovered by the Named Insured for
which the Named Insured has been indemnified
shall become the property of and be forwarded
to the Company by the Named Insured up to the
total amount of loss paid by the Company.
iii. The Company shall not be entitled to any
subrogation proceeds unless and until the
Named Insured has been fully reimbursed for
his loss.
d. NO BENEFIT TO BAILEE: The insurance afforded by
this Policy shall not inure directly or
indirectly to the benefit of any carrier or other
Bailee for loss covered by a Service Plan
Certificate.
e. CHANGES/AMENDMENT: No waiver or change of the
terms of this policy shall be made except when
done so in writing, signed by an authorized
representative of the Company. Written changes
must be attached to and form a part of this
policy.
f. ASSIGNMENT BY INSURED: Assignment of interest
under this Policy shall not bind the Company until
its consent is endorsed hereon.
g. INSOLVENCY OR BANKRUPTCY OF INSURED: The
insolvency or bankruptcy of the Named Insured
shall not relieve the Company of its obligations
under this Policy. Should a judgment be rendered
against an insolvent or bankrupt insured, the
Company shall be liable for the amount of such
judgment not to exceed the applicable limit of
liability under the Policy.
h. ACTION AGAINST COMPANY: No action shall lie
against the Company unless, as a condition
precedent thereto:
i. The Named Insured shall have fully complied
with all terms and Conditions of this Policy;
ii. The amount of the Named Insured's obligation
to pay shall have been finally determined
either by judgment against the Named Insured
(after actual trial) or by written agreement
of the Named Insured, Claimant and Company;
and
iii. Unless commenced within twelve (12) months of
the date of the loss.
i. POLICY TERMS: The terms of this policy which are
in conflict with the statutes of the state wherein
this policy is issued are hereby amended to
conform to such statutes.
Any repair facility authorized by the Named Insured to
perform repairs on behalf of the Named Insured or the legal
representatives thereof who has secured such judgment or
written agreement shall thereafter be entitled to recover
under this Policy to the extent of the insurance afforded
under this Policy. No person or organization shall have any
right under this Policy to join the Company as a party to
any action against the Named Insured to determine the Named
Insured's liability. The Company shall also not be
impleaded by the Named Insured or his legal representatives.
The Named Insured warrants that this is the only insurance
applicable to Service Plan Certificate Holder claims arising
out of the Business Description shown in the Declarations
Page.
IN WITNESS WHEREOF, the Company has caused this Policy to be
executed and attested. However, this Policy shall not be
valid unless countersigned by a duly authorized agent of the
Company.
THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT
CAREFULLY
GENERAL CHANGE ENDORSEMENT
This endorsement changes the policy effective on the
inception date of the policy unless another date is
indicated below.
Endorsement effective: 1-1-96 Policy No. 05CIM9477268-00
Named Insured: Warrantech Consumer Product Services, Inc.
Endorsement No. 01 (page 1 of 2)
Additional Premium: N/A
Return Premium: N/A
Countersigned by: Intercontinental Brokerage, Inc.
It is understood and agreed that the following applies to
the policy to which this endorsement is attached:
1. In consideration of the premium charged, it is agreed
that such insurance as is afforded by the policy to the
Named Insured, Warrantech Consumer Product Services,
Inc. (WCPS), also applies to the Additional Named
Insured, CompUSA Inc., 14951 North Dallas Parkway,
Dallas, TX 75240 ("Additional Named Insured").
2. The Business Description on the Declarations Page is
amended to read as follows:
Consumer Products offered exclusively by CompUSA as
described in the schedule of approved products on file
with the Company and the Named Insured, however not to
include the portfolio assumed from Virginia Surety as
outlined in the Insurance Assumption Agreement dated
December 29, 1995 and Policy No. 05CIM9477265-00.
3. Article III. DUTIES OF THE COMPANY, is amended to add
the following:
The policy is in place to provide protection to the
Service Plan Certificate Holder(s) and the Insured(s),
so in the event that WCPS should cease operations, the
Company shall provide for the administration of such
claims without seeking additional contributions or
payment from CompUSA.
4. Payment of premium by CompUSA to WCPS shall be deemed
payment to the Company.
5. Article VI.b. PREMIUMS AND RATES, is amended to add:
In the event the Company elects to make a change in
rates for the CompUSA Service Plan Certificates, it
will notify the Named Insured with at least ninety (90)
days written notice of a change in the rates for retail
Service Plan Certificates and thirty (30) days written
notice of a change in the rates for corporate Service
Plan Certificates.
6. Article VII. LIMITS OF LIABILITY, is replaced with the
following:
The Limit of the Company's liability for CompUSA Service
Plan Certificates is as follows:
SINGLE CLAIM LIMIT OF LIABILITY: The Company's limit of
liability with respect to any one claim shall not exceed
the actual cash value of the product immediately prior to
the event giving rise to the Service Plan Certificate
Holder's Claim. "Actual Cash Value" means the amount
which it would cost to replace the damaged product with a
product of like kind and quality.
7. Article IX.a. POLICY CANCELLATION, is amended to read:
a. BY THE COMPANY: The Company shall have the right
to cancel the policy without cause by giving one
hundred twenty (120) days written notice to the Named
Insured and Additional Named Insured. Also, the
Company shall have the right to cancel the policy by
giving thirty(30) days written notice.
i. If required to do so by any regulatory body;
ii: In the event the Named Insured or the Additional
Named Insured does not make premium payment as
required;
iii. In the event of any act of fraud by the Named
Insured or the Additional Named Insured;
iv. In the event of any material violation of any of
the terms of this policy by either the Named Insured or
the Additional Named Insured; however, in the event
either the Named Insured or the Additional Named
Insured is able to show within thirty (30) days to the
satisfaction of the Company that the material violation
has been corrected, then the policy shall be
reinstated.
8. Article X. POLICY PERIOD AND TERRITORY, shall be
amended to read as follows:
This policy applies only to claims on Service Plan
Certificates that were issued in the United States during
the policy period and that meet the terms and conditions
of the Service Plan Certificate.
GENERAL ENDORSEMENT
This endorsement changes the policy effective on the
inception date of the policy unless another date is
indicated below
Endorsement effective: 1-1-96
Policy No. 05CIM9477268-00
Named Insured: Warrantech Consumer Product Services
Endorsement No. 02
Additional Premium: N/A
Return Premium: N/A
Countersigned By: Intercontinental Brokerage, Inc.
It is understood and agreed that the following applies to
the policy to which this endorsement is attached:
Article VII LIMITS OF LIABILITY, Section b., AGGREGATE
LIMIT OF LIABILITY PER SERVICE PLAN CERTIFICATE is deleted
in its entirety.
EXHIBIT 3(k)
CONTRACTUAL LIABILITY POLICY
DECLARATION
Policy No: 05CGL9416243-00
NAMED INSURED: WCPS of Florida, Inc.
ADDRESS: c/o 150 Westpark Way
Euless, TX 76040
POLICY PERIOD: From 06-01-92 continuous until cancelled
COUNTERSINGED AT: Boca Raton, Florida
BY: __________________
DATE: October 15, 1992
SERVICE WARRANTY ENDORSEMENT
(1) CANCELLATION, TERMINATION, OR NONRENEWAL: You may cancel or
terminate this policy at any time by notifying us in writing.
Coverage will end 60 days after written notice of such cancellation,
termination or nonrenewal has been mailed, via certified mail, by us
to the Insurance Department of Florids. We may cancel, terminate or
not renew this policy by written notice, mailed via certified mail,
to you and the Florida Department of Insurance at least 60 days prior
to such cancellation, termination or nonrenewal.
(2) UNEARNED PREMIUM REFUND: The unearned premium refund shall be
subject to the cancellation fee provisions of Section 634.414(3),
Florida Statutes. The salesman or agent shall refund to the
Contractual Liability Policy issuer, the unearned pro rata commission.
THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY.
GENERAL CHANGE ENDORSEMENT
This endorsement changes the policy effective on the inception date of the
policy unless another date is indicated below.
Endorsement effective: 1/1/93 Policy Number: 5CGL9416243-01
Named Insured: WCPS of Florida, Inc.
Countersigned by: Intercontinental Brokerage, Inc.
It is agreed that the policy is amended to expire 4/1/93
EXHIBIT 3(k)
Note: THIS IS NOT A VALID INSURANCE POLICY UNLESS AND
UNTIL A DULY SIGNED, NUMBERED DECLARATIONS PAGE IS ATTACHED.
A. INSURING AGREEMENT
Houston General Insurance Company (herein called the
"Company", "us" or "we") agrees to pay WCPS OF FLORIDA, INC.
(herein called "you") for all costs incurred in fulfilling
your obligations under each service agreement issued during
the Policy Term according to terms and conditions of such
Service Agreements. In the event such costs are incurred by
another party's performance of repair or replacement
services as a result of such obligations, payment may be
made directly to such other party on your behalf.
In the event you become bankrupt, impaired or insolvent (as
defined in Section 634.011, Florida Statutes), dissolved, or
if you go out of business, or fail to pay documented claims
we will pay Losses and unearned premiums refunds, if any,
directly to the person making a claim under the Service
Agreement or canceling the Service Agreements.
This policy insures all Service Agreements issued by you
while this policy is in effect.
B. Definitions
(1) Contractual Obligation means your obligation to
properly repair or replace covered parts or to pay
for the cost of property repair or replacement of
covered parts.
(2) INSURED means the person or organization named in
the Declaration, also referred to as "You".
(3) SERVICE AGREEMENT means either a motor vehicle
service agreement, home warranty or service
warranty (as defined in Chapter 634, Florida
Statutes).
(4) SERVICE AGREEMENT HOLDER means the original
purchaser of a Service Agreement or someone to
whom the Service Agreement has been transferred
under the terms of the Service Agreement.
(5) SERVICE AGREEMENT HOLDER CLAIM means a claim by a
Service Agreement Holder or a claim on the behalf
of a Service Agreement Holder which forms a
Contractual Obligation.
(6) LOSS means expense actually incurred by you or on
your behalf in the performance of a Contractual
Obligation.
(7) REPAIR FACILITY means a person or organization
authorized by you or on your behalf to perform
service under a Service Agreement.
(8) INSURED CLAIM means your claim for benefits under
this policy based on a Contractual Obligation.
(9) PREMIUM means the amount paid by the Service
Agreement Holder.
C. EXCLUSIONS
The policy does not apply to:
(1) liability for any consequential damages, including
but not limited to, punitive or extra-contractual
damages, arising from your actions, or any Repair
Facility under a Service Agreement;
(2) any and all obligations and liabilities arising
out of your actions or anyone else's actions under
a Service Agreement;
(3) any and all obligations and liabilities extending
to anyone other than the Service Agreement Holder;
(4) any duty to defend you in any law suit or other
judicial or administrative proceeding;
(5) labor performed by you or on your behalf arising
out of work or any portion thereof, or out of
material, parts or equipment, as a result of
recall by the manufacturer.
D. CONDITIONS
(1) SALE OF SERVICE AGREEMENT: You must report the
sale of a Service Agreement within 30 days of its
issue date on the forms provided by us and send us
or our authorized agent the proper premium. All
premiums will be computed in accordance with the
rules, rates, rating plans, premiums and minimum
premiums which apply to the insurance afforded by
this policy.
(2) PREMIUMS: The premium for each Service Agreement
is shown in the rate schedule. These rates shall
remain in effect until we change them and until
they have been approved by the Department of
Insurance. You will be given 45 days written
notice prior to any change.
(3) NOTICE OF INSURED CLAIM: You should provide us
full details of a claim prior to starting any work
specified with a Contractual Obligation in excess
of $150.00 by the Service Agreement giving full
details of the claim.
(4) PROOF OF LOSS: Written proof of loss must be
given within 30 days after a loss occurs, giving
full details on the nature an extent of the loss.
Proof of loss shall be given on forms furnished by
us unless we fail to furnish such forms within 15
days after we receive a notice of claim.
(5) INSPECTION AND AUDIT: At any reasonable time, we
have the right to inspect your premises, books and
records as they pertain to coverage under this
policy. This right exists so long as Service
Agreements are outstanding. Neither the right to
inspect or the conduct of an inspection will serve
as a warranty that such property or operations are
safe or health free or in compliance with any law.
(6) CHAPTER 634, FLORIDA STATUTES APPLICABILITY: In
the event you are no longer able to fulfill your
obligations and we are acting in your stead, we
shall be subject to the provisions of chapter 634,
Florida Statutes.
(7) We shall assume full responsibility for the
administration of claims in the event of your
inability to do so.
E. GENERAL PROVISIONS
(1) REPRESENTATIONS: By accepting this policy, you
agree that the statements in the Declarations are
your representations and warranties and that this
policy is issued based on those representations.
Should you misrepresent these declarations, the
company may cancel this contract in accordance
with the Cancellation Endorsement. Service
Agreements issued during the term of this policy
shall continue to be insured. This policy is the
entire contract between you and the company.
(2) SUBROGATION: If any payment under this policy is
made by us, we reserve all rights of recovery
against any person or organization in connection
with such claim. You will execute and deliver all
papers necessary to secure such rights. You may
do nothing to prejudice such rights.
(3) ASSIGNMENT: Assignment of interest or liability
under this policy shall not be binding on us
unless the policy has been countersigned by our
authorized agent and approved by the Department of
Insurance of Florida.
(4) CHANGES IN THE POLICY: No change in the policy
will be effective until approved by our authorized
representative and the Department of Insurance of
Florida. The approval must be noted on or
attached to this policy. No agent may change this
policy or waive any of its provisions.
(5) RECOVERIES: All amounts recovered by you for
which you received benefits under this policy
belong to us and shall be paid to us.
(6) RENEWAL: This policy is issued as stated in the
Declaration and is continuous until cancelled in
accordance with Item (1) of the Service Warranty
Endorsement.
EXHIBIT 3 (l)
Houston General Insurance Company
4055 International Plaza
Fort Worth, Texas 76109
DECLARATIONS PAGE
SERVICE PLAN CERTIFICATE CONTRACTUAL
INSURANCE POLICY
Policy No.: 5CIM9471816-00
Prior No.: NEW
Named Insured: Warrantech Consumer Product Services,
Inc.
Mailing Address: 300 Atlantic Street
Stamford, Connecticut 06901
Policy Period: From April 1, 1996 continuous until
cancelled
Authorized
Representative: Intercontinental Brokerage Incorporated
445 Livernois, Suite 333
Rochester Hills, Michigan 48307
Agent Code: 75-4490
Business
Description: Consumer products as described in the
schedule of approved products on file
with the Company and the Named Insured.
Premium: Per Premium Reporting Form reported to
the Company.
Countersigned by: ___________________________
(Authorized Representative)
NOTE: THIS IS NOT A VALID INSURANCE POLICY UNLESS AND
UNTIL A DULY SIGNED NUMBERED DECLARATIONS PAGE
IS ATTACHED.
SERVICE PLAN CERTIFICATE
CONTRACTUAL INSURANCE POLICY
TABLE OF CONTENTS
I Insuring Agreement
II Definitions
III Duties of the Company
IV Duties of the Named Insured
V Exclusions
VI Premiums and Rates
VII Limits of Liability
VIII Policy Term
IX Cancellation
X Policy Period and Territory
XI General Provisions
The Insurance Company shown on the Declarations Page
(hereafter referred to as the Company), in consideration of
the payment of the premium and subject to all the provisions
of the policy contained herein, agrees with the Named
Insured as follows:
1. INSURING AGREEMENT
The Company agrees to pay to the Named Insured or on
behalf of the Named Insured, to reimburse repair facilities
which are authorized to perform repairs on behalf of the
Named Insured all sums which the Named Insured by reason of
contractual liability assumed under a written contract
designated in the Business Description on the Declarations
Page, shall become legally obligated to pay as claims under
valid Service Plan Certificates issued by the Named Insured
while this Policy is in force and which are payable under
the terms of the Policy.
II. DEFINITIONS
a. NAMED INSURED: The person(s) and/or
organization(s) named as the Named Insured on the
Declarations Page which is attached to this
policy.
b. SERVICE PLAN CERTIFICATE: Service Plan
Certificate, or Service Plan Extension
Certificate issued by the Named Insured
(copies of which are on file with the
Company):
i. While this policy is in force;
ii. On a form approved in writing by the Company; or
its Authorized Administrator
iii. For which the premium has been paid to the
Company or its authorized representative; and iv.
As described in the Business Description
shown on the Declaration Page.
c. SERVICE PLAN CERTIFICATE HOLDER: Any person or
other legal entity who acquires the rights to a valid
Service Plan Certificate as defined in Section II.b.
d. INSURED'S CONTRACTUAL OBLIGATIONS TO SERVICE PLAN
CERTIFICATE HOLDER:
i. The duty or liability of the Named Insured to
a Service Plan Certificate Holder to repair or
replace covered parts; or
ii. To reimburse for the reasonable cost of
repair or replacement of such covered parts.
No other duties or liabilities, either express or
implied, which may arise from a Service Plan Certificate
are insured in this policy
e. SERVICE PLAN CERTIFICATE HOLDER CLAIM: A claim
made by a Service Plan Certificate Holder in accordance
with the terms of the Service Plan Certificate.
f. INSURED'S CLAIM: A claim by the Named Insured for
payment under this policy based on the Named Insured's
Contractual Obligations as stated in the Service Plan
Certificate.
g. LOSS: Expenses necessarily incurred by the Named
Insured or on behalf of the named Insured in the
performance of Contractual Obligations as stated in the
Service Plan Certificate.
h. POLICY PERIOD: Begins at 12:01 A.M. Standard time
at the address of the Named Insured shown on the
Declaration Page.
III. DUTIES OF THE COMPANY
The Company, subject to the terms and conditions of
this policy, agrees to reimburse the Named Insured all sums
for which the Named Insured is obligated to pay under the
Named Insured's Contractual Obligations to a Service Plan
Certificate Holder, as provided for under a valid Service
Plan Certificate.
IV. DUTIES OF THE INSURED
The named Insured agrees to the following:
a. ISSUE OF SERVICE PLAN CERTIFICATE: The Named
Insured will report monthly records evidencing
issuance of a Service Plan Certificates to the
Company in the care of its Authorized
Representative.
b. PAYMENT OF PREMIUMS: Within sixty (60) days from
the last day of each month in which any Service
Plan Certificate is issued, the Named insured
shall pay the full premium due for such Service
Plan Certificates. The payment or premiums are
due the Company and are to be sent to its
Authorized Representative.
c. COMMENCEMENT OF COVERAGE: Named Insured agrees
that the Company shall have no obligation under
this policy until:
i. Named Insured has issued a Service Plan
Certificate; and
ii. The Company or its Authorized Representative
has received the premium for same.
d. NOTICE OF CLAIM; When a Service Plan Certificate
Holder presents a Service Plan Certificate claim,
the Named Insured shall process the claim per the
agreement stated in the Service Plan Certificate.
e. PROOF OF LOSS: The Named Insured shall give
written proof of claim to the Company or its
Authorized Representative. Such proof shall be
made monthly evidencing the Service Plan number
and total amount of claims paid by item. The
Named Insured agrees to submit to examination
under oath by any person named by the Company as
often as may be required to verify proof of loss.
V. EXCLUSIONS
This policy provides coverage only for the Named
Insured's Contractual Obligation under a valid Service Plan
Certificate, and does not apply to any:
a. Liability for damages caused by repair work or
failure to perform repair work by the Named
Insured, its agents or employees, or any other
repair facility, its agents or employees;
b. Duties or liabilities which arise and/or may arise
by virtue of the Named Insured's sale of the
product which is the subject of a Service Plan
Certificate, or any part of such product;
c. Liability for negligence;
d. Liability for defective products and/or
workmanship;
e. Duty or liability to anyone other than the Service
Plan Certificate Holder;
f. Duties, liabilities or claims arising from any
acts of fraud, or other dishonest or criminal acts
of the Named Insured, its agents or employees.
g. Loss of use of tangible property which has not
been physically injured or destroyed resulting
from:
i. A delay in or lack of performance by or on
behalf of the Named Insured of any contract or
agreement other than as assumed under a
Service Plan Certificate, or
ii. The failure of the Named Insured's products or
work performed by or on behalf of the Named
Insured to meet the level of Performance,
quality, fitness or durability warranted or
represented by the Named Insured; other than
as assumed under a Service Plan Certificate.
h. Damages claimed for the withdrawal, inspection,
repair, replacement, or loss of use of the Named
Insured's products or work completed by or for the
Named Insured or of any property of which such
products or work form a part, if such products,
work or property are withdrawn from the market or
from use because of any known or suspected defect
of deficiency therein.
i. Liability for any service plan certificate issued
on a product, not on the Company's schedule of
approval products on file with the Company and
Named Insured.
VI. PREMIUMS AND RATES
a. Premium charges for each Service Plan Certificate
will be made per the Company's rates and rules in
effect at the time each Service Plan Certificate is
issued.
b. The Company from time to time may effect changes
in the Rate Schedule applicable to this Policy.
Such changes will be made by endorsement
to the Policy stating the date such changes are
effective.
VII. LIMITS OF LIABILITY
The limit of the Company's liability is the lesser of
the following:
a. SINGLE CLAIM LIMIT OF LIABILITY: The Company's
limit of liability, with respect to any one claim,
shall not exceed the actual cash value of the
product prior to the event giving rise to the
Service Plan Certificate Holder Claim. "Actual
Cash Value" means the amount which it would cost to
repair or replace damaged property with a material
of like kind and quality, less allowance for
deterioration and depreciation.
b. AGGREGATE LIMIT OF LIABILITY PER SERVICE PLAN
CERTIFICATE: The Company's total limit of
liability for any one Service Plan Certificate or
extension thereof shall not exceed the purchase
price of the product paid by the Service Plan
Certificate Holder.
VIII. POLICY TERM
The policy is issued and goes into effect at the Date
and Time shown on the Declaration Page. This policy shall
remain in effect until cancelled or until the Expiration Date
shown on the Declaration Page.
IX. POLICY CANCELLATION
a. BY THE COMPANY: The Company shall have the right
to cancel the policy without cause by giving ninety
(90) days written notice to the Named Insured.
Also, the Company shall have the right to cancel
the policy by giving thirty (30) days written
notice:
i. If required to do so by any regulatory body;
ii. In the event the Named Insured does not make
premium payment as required;
iii. In the event of any act of fraud by the Named
Insured;
iv. In the event of any material violation of any
of the terms of this policy, however, in the
event the Named Insured is able to show within
thirty (30) days to the satisfaction of the
Company that the material violation has been
corrected then the policy shall be reinstated.
b. If the Company cancels or non-renews the Named
Insured or this policy, the Named Insured or
Company will send at least sixty (60) days advance
notice of our intention not to renew, by registered
mail, certified mail, or by mail evidenced by a
certificate of mailing or delivery to the Insurance
Commissioner specifying the reason for the non-
renewal.
c. BY THE INSURED: The Named Insured has the right
to cancel this policy:
i. By sending the Company or its Authorized
Representative written notice of its intent to
cancel the policy showing the date
cancellation is to be effective;
ii. By returning the original policy or a signed
Lost Policy Release to the Company or its
Authorized Representative showing the date
cancellation is to be effective.
d. EFFECT OF CANCELLATION: Cancellation of this
policy shall not affect the duties of the Named
Insured or the Company, as set forth in this
policy, as respects Service Plan Certificates
issued before the effective date of cancellation.
X. POLICY PERIOD AND TERRITORY
This Policy applies only to claims on Service
Plan Certificates that were issued during the Policy
Period and that occur within the United States of
America.
XI. GENERAL PROVISIONS
a. INSURED'S REPRESENTATIONS: By acceptance of
this policy, the Named Insured agrees that all
statements contained in the application for
this policy and on the Declarations Page
attached hereto are correct. This policy is
issued relying upon the truth of such
statements and includes all agreements
between the Named Insured an the Company.
b. INSPECTION AND AUDIT: The Company and/or
its designated representative shall have the
right to inspect the Named Insured's
premises, books and records as they pertain
to coverage provided under this policy.
This right shall extend until one (1) year
after Named Insured's Service Plan
Certificates are no longer in effect.
c. SUBROGATION AND RECOVERIES:
i. In the event of any payment by the
Company under the policy, the Company
shall be entitled to all of the Named
Insured's rights of recovery against
any person or entity. The Named Insured
shall execute and deliver instruments and
papers and do whatever is necessary to
secure such rights. The Named Insured
shall do nothing to interfere with such
rights.
ii. After a payment of loss by the Company, all
amounts recovered by the Named Insured for
which the Named Insured has been indemnified
shall become the property of and be
forwarded to the Company by the Named
Insured up to the total amount of loss paid
by the Company.
iii. The Company shall not be entitled to any
subrogation proceeds unless and until the
Named Insured has been fully reimbursed for
his loss.
d. NO BENEFIT TO BAILEE: The insurance afforded by
this Policy shall not inure directly or
indirectly to the benefit of any carrier or other
Bailee for loss covered by a Service Plan
Certificate.
e. CHANGES/AMENDMENT: No waiver or change of the
terms of this policy shall be made except when
done so in writing, signed by an authorized
representative of the Company. Written changes
must be attached to and form a part of this
policy.
f. ASSIGNMENT BY INSURED: Assignment of interest
under this Policy shall not bind the Company
until its consent is endorsed hereon.
g. INSOLVENCY OR BANKRUPTCY OR INSURED: The
insolvency or bankruptcy of the Named Insured
shall not relieve the Company of its obligations
under this Policy. Should a judgment be rendered
against an insolvent or bankrupt insured, the
Company shall be liable for the amount of such
judgment not to exceed the applicable limit of
liability under the Policy.
h. ACTION AGAINST COMPANY: No action shall lie
against the Company unless, as a condition
precedent thereto:
i. The Named Insured shall have fully
complied with all terms and Conditions
of this Policy;
ii. The amount of the Named Insured's
obligation to pay shall have been
finally determined either by judgment
against the Named Insured (after actual
trial) or by written agreement of the
Named Insured, Claimant and Company;
and
iii. Unless commenced within twelve (12)
months of the date of the loss.
i. POLICY TERMS: The terms of this policy which are
in conflict with the statutes of the state wherein
this policy is issued are hereby amended to conform to
such statutes. Any repair facility authorized by the
Named Insured to perform repairs on behalf of the
Named Insured or the legal representatives thereof who
has secured such judgment or written agreement shall
thereafter be entitled to recover under this Policy to
the extent of the insurance afforded under this
Policy. No person or organization shall have any
right under this Policy to join the Company as a party
to any action against the Named Insured to determine
the Named Insured's liability. The Company shall also
not be impleaded by the Named Insured or his legal
representatives. The Named Insured warrants that this
is the only insurance applicable to Service Plan
Certificate Holder claims arising out of the Business
Description shown in the Declarations Page.
IN WITNESS WHEREOF, the Company has caused this Policy
to be executed and attested. However, this Policy
shall not be valid unless countersigned by a duly
authorized agent of the Company.
THIS ENDORSEMENT CHANGES THE POLICY, PLEASE READ IT
CAREFULLY
GENERAL CHANGE ENDORSEMENT
This endorsement changes the policy effective on the
inception date of the policy unless another date is
indicated below.
Endorsement effective: Policy Number:
4-1-95 05CIM9471816-
00
Named Insured Endorsement
Number
Warrantech Consumer Product Services 03 (page 1 of
2)
Additional Premium: Return Premium: Countersigned by:
$ N/A $ N/A
Intercontinental
Brokerage,
Inc.
TEXAS CHANGES - CANCELLATION AND NONRENEWABLE
a. Section IX. Policy Cancellation is deleted and
replaced by the following:
IX. Policy Cancellation. This policy may
be canceled by the Named Insured by surrender thereof to
the Company or any of its authorized agents or by
mailing to the Company written notice stating when
thereafter the cancellation shall be effective. This
policy may be canceled by the Company by mailing or
delivering to the Named Insured written notice of
cancellation, stating the reason for cancellation, at
least 10 days before the effective date of
cancellation.
If this policy has been in effect for
60 or fewer days, the Company may cancel for any
reason.
If this policy has been in effect for
more than 60 days, the Company may cancel only for one
or more of the following reasons:
(a) Fraud in obtaining coverage;
(b) Failure to pay premiums when due;
(c) An increase in hazard within the
control of the insured which would
produce an increase in rate;
(d) Loss of our reinsurance coverage
all or part of the risk covered
by the policy; or
(e) If the Company has been placed in
supervision, conservatorship, or
receivership and the cancellation
is approved or directed by the
supervisor, conservator, or
receiver.
THIS ENDORSEMENT CHANGES THE POLICY, PLEASE READ
IT CAREFULLY
GENERAL CHANGE ENDORSEMENT
This endorsement changes the policy effective on the
inception date of the policy unless another date is
indicated below.
Endorsement effective: Policy Number:
4-1-95 05CIM9471816-
00
Named Insured Endorsement
Number
Warrantech Consumer Product Services 03 (page 1 of
2)
Additional Premium: Return Premium: Countersigned
by:
$ N/A $ N/A
Intercontinental
Brokerage,
Inc.
B. The following condition is added and supersedes
any
provision to the contrary:
NONRENEWAL
a. The Company may elect not to renew this
policy by mailing or delivering to the first
Named Insured, at the last mailing address
known to us, written notice of nonrenewal,
stating the reason for nonrenewal at least
60 days before the expiration date. If
notice is mailed or delivered less than 60
days before the expiration date, this policy
will remain in effect until the 61st day
after the date on which the notice is mailed
or delivered. Earned premium for any period
of coverage that extends beyond the
expiration date will be computed prorata
based on the previous year's premium.
It is agreed that the following endorsements
are applicable as of the inception date of
the policy.
IL0017 Common Policy conditions
IL0021 Nuclear Energy Liability Exclusion
Endorsement
750-0015 Important Notice
EXHIBIT 3 (n)
AGREEMENT dated as of December 21, 1995, among WARRANTECH
CORPORATION, a Delaware corporation with an office located at 300
Atlantic Street, Stamford, Connecticut 06901; WARRANTECH
AUTOMOTIVE, INC., a Connecticut corporation with an office
located at 300 Atlantic Street, Stamford, Connecticut 06901 and
an office located at 150 Westpark Way, Euless, Texas 76040;
WARRANTECH CONSUMER PRODUCT SERVICES, INC., a Connecticut
corporation with an office located at 300 Atlantic Street,
Stamford, Connecticut 06901; and WARRANTECH DIRECT, INC., a Texas
corporation with an office located at 1441 West Airport Freeway,
Suite 300, Euless, Texas 76040 (the "Borrowers") and PEOPLE'S
BANK, a banking organization with an office located at 350
Bedford Street, Stamford, Connecticut 06901 (the "Lender").
Recitals
A. The Borrowers have requested that the Lender extend to
the Borrowers the following loan facilities: (a) a $6,500,000
revolving loan facility and (b) a $3,500,000 demand loan
facility.
B. The proceeds of the loan facilities shall be used for
the following purposes: (a) the revolving loan proceeds shall be
used for general working capital requirements to support trading
assets and working capital; and (b) the demand loan proceeds
shall be used to support working capital requirements and to
finance acquisitions.
C. The Lender is willing to extend the loan facilities to
the Borrowers, subject to the terms and conditions contained
herein.
Agreement
In consideration of the Recitals, which are incorporated by
reference, the terms and conditions contained herein and other
good and valuable consideration, the receipt and sufficiency of
which are acknowledged, the Borrowers and the Lender, intending
to be bound legally, agree as follows:
I. DEFINITIONS.
1.01 Defined Terms. As used herein the following terms shall
have the following meanings:
(a) "Account" shall have the meaning set forth in Article
VII.
(b) "Acceptable Account" shall mean an Account arising from
the sale of goods or the performing of services by Warrantech
Corporation and Warrantech Automotive, Inc. in the ordinary
course of their businesses which is deemed acceptable to the
Lender in its reasonable discretion or any other Account deemed
acceptable to the Lender in its reasonable discretion.
(c) "Adjusted Libor Rate" means with respect to any
Eurodollar Loan Interest Period, the rate per annum at which
deposits in dollars are offered by the Lender to prime commercial
banks in the London interbank market at approximately 11:00 A.M.
(Eastern Standard time) two Business Days before the first day of
such Interest Period in an amount approximately equal to the
principal amount of the Eurodollar Loan to which such Interest
Period is to apply and for a period of time comparable to such
Interest Period divided by one minus the Eurodollar Reserve
Percentage.
(d) "Affiliate", as applied to any Person, means any other
Person directly or indirectly through one or more intermediaries
controlling, controlled by, or under common control with, that
Person. For the purposes of this definition, "control"
(including with correlative meanings, the terms "controlling",
"controlled by" and "under common control with"), as applied to
any Person, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and
policies of the Person, whether through the ownership of voting
securities or by contract or otherwise.
(e) "Agreement" shall mean this Commercial Revolving Loan,
Demand Loan and Security Agreement, as the same from time to time
may be amended, supplemented or modified.
(f) "Business Day" shall mean a day on which commercial
banks in the State of Connecticut are not required or permitted
by law to remain closed and on which dealings are carried on in
the London interbank market.
(g) "Change of Control" shall mean the transfer, sale,
assignment, or pledge, in any manner whatsoever, which has the
effect of transferring more than fifty percent (50%) of the
voting stock of any of the Borrowers to any Person who is not a
shareholder of the Borrowers as of the date of this Agreement.
(h) "Collateral" shall mean the property of Warrantech
Corporation and Warrantech Automotive, Inc. described in Article
VII below.
(i) "Contractual Obligations" shall mean as to any Person,
any provision of any security issued by such Person or of any
agreement, instrument or undertaking to which such Person is a
party or by which it or any of its property is bound.
(j) "Default(s)" shall mean any of the events specified in
Section 8.01 below, whether or not any requirement for the giving
of notice, the lapse of time, or both, has been satisfied.
(k) "Demand Loan" shall mean a Loan made pursuant to
Section 2.02 below.
(l) "Demand Note" shall mean the Note referred to in
Section 2.02 below.
(m) "Dollars" and "$" shall mean lawful currency of the
United States of America.
(n) "Environmental Laws" shall mean all present and future
laws, statutes, ordinances, rules, regulations, orders, codes,
licenses, permits, decrees, judgments, directives or the
equivalent of or by any Governmental Authority relating to or
addressing the protection of the environment or human health.
(o) "ERISA" shall mean the Employee Retirement Income
Security Act of 1974 and all rules and regulations promulgated
pursuant thereto, as amended from time to time.
(p) "Eurodollar Loans" shall mean Loans hereunder that bear
interest for the Interest Period applicable thereto at a rate of
interest for Revolving Loans and Demand Loans equal to the
Adjusted Libor Rate plus two percent (2.0%).
(q) "Eurodollar Reserve Percentage" means for any day, that
percentage (expressed as a decimal) which is in effect on such
day, as prescribed by the Board of Governors of the Federal
Reserve System (or any successor) for determining the maximum
reserve requirement for a member bank of the Federal Reserve
System in respect of "Eurocurrency liabilities" (or in respect of
any other category of liabilities which includes deposits by
reference to which the interest rate on Eurodollar Loans is
determined or any category of extensions of credit or other
assets which includes loans by a non-United States office of the
Lender to United States residents). The Adjusted Libor Rate
shall be adjusted automatically on and as of the effective date
of any change in the Eurodollar Reserve Percentage.
(r) "Event(s) of Default" shall mean any of the events
specified in Section 8.01 below, provided that any requirement
for the giving of notice, the lapse of time, or both, or any
other condition, has been satisfied.
(s) "Fixed Rate Loan(s)" shall mean any Eurodollar Loan(s).
(t) "GAAP" shall mean generally accepted accounting
principles in the United States of America in effect from time to
time.
(u) "Governmental Authority" shall mean any nation or
government, any state or other political subdivision thereof, any
entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government, and any
corporation or other entity owned or controlled (through stock or
capital ownership or otherwise) by any of the foregoing.
(v) "Hazardous Materials" shall mean any material or
substance that, whether by its nature or use, is now or hereafter
defined as hazardous waste, hazardous substance, pollutant or
contaminant under any Environmental Laws which is toxic,
explosive, corrosive, flammable, infectious, radioactive,
carcinogenic, mutagenic or otherwise hazardous and which is now
or hereafter regulated under any Environmental Laws, or which is
or contains petroleum, gasoline, diesel fuel or another petroleum
hydrocarbon product.
(w) "Indebtedness" shall mean all obligations that in
accordance with GAAP should be classified as liabilities upon the
Borrowers' balance sheet or to which reference should be made by
footnotes thereto.
(x) "Intangible Assets" shall mean on a consolidated basis
assets that in accordance with GAAP are properly classifiable as
intangible assets, including, but not limited to, goodwill,
franchises, licenses, patents, trademarks, trade names and
copyrights.
(y) "Interest Period" shall mean any period during which a
Loan bears interest at the Adjusted Libor Rate as elected by the
Borrowers in accordance with the terms of this Agreement.
(i) If any Interest Period would otherwise end on
a day which is not a Business Day, that Interest Period shall be
extended to the next succeeding Business Day unless the result of
such extension would be to extend such Interest Period into
another calendar month, in which event such Interest Period shall
end on the immediately preceding Business Day.
(ii) Any Interest Period that would otherwise
extend beyond the Maturity Date shall end on the Maturity Date
or, if the Maturity Date shall not be a Business Day, on the next
preceding Business Day.
(z) "Lien" shall mean any mortgage, pledge, security
interest, hypothecation, assignment, deposit arrangement,
encumbrance, or preference, priority or other security agreement
or preferential arrangement of any kind or nature whatsoever
(including, without limitation, any conditional sale or other
title retention agreement, any financing lease having
substantially the same economic effect as any of the foregoing,
and the filing of any financing statement under the Uniform
Commercial Code or comparable law or any jurisdiction).
(aa) "Loan(s)" shall mean any loan made by the Lender to the
Borrowers hereunder, whether a Revolving Loan or the Demand Loan.
(bb) "Loan Document(s)" shall mean this Agreement, the Notes
and all other documents or agreements executed in connection
herewith, together with any amendments, supplements or
modifications hereto or thereto.
(cc) "Maturity Date" shall mean July 31, 1996.
(dd) "Note(s)" shall mean the Revolving Loan Note and the
Demand Note.
(ee) "Obligations" shall mean and include all loans,
advances, interest, indebtedness, liabilities, obligations,
guaranties, covenants and duties at any time owing by the
Borrowers to the Lender of every kind and description, whether or
not evidenced by any note or other instrument, whether or not for
the payment of money, whether direct or indirect, absolute or
contingent, due or to become due, now existing or hereafter
arising, including but not limited to the indebtedness,
liabilities and obligations arising under this Agreement, the
Notes and the other Loan Documents, and all reasonable costs,
expenses, fees, charges, expenses and reasonable attorneys',
paralegals' and professionals' fees incurred in connection with
any of the foregoing, or in any way connected with, involving or
related to the preservation, enforcement, protection and defense
of this Agreement, the Notes, the other Loan Documents, any
related agreement, document or instrument, any Lien, the
Collateral and the rights and remedies hereunder or thereunder.
(ff) "Person" shall mean any individual, corporation,
partnership, joint venture, trust, unincorporated organization or
any other juridical entity, or a government or state or any
agency or political subdivision thereof.
(gg) "Plan" shall mean any plan of a type described in
Section 4021(a) of ERISA in respect of which the Borrowers is an
"employer" as defined in Section 3(5) of ERISA.
(hh) "Post Default Rate" shall mean at any time a rate of
interest equal to 2.0% per annum in excess of the rate that would
then be applicable to Prime Rate Loans whether or not any such
Prime Rate Loans are then outstanding.
(ii) "Prime Rate Loans" shall mean Loans hereunder that bear
interest at a rate of interest per annum equal to the Prime Rate.
(jj) "Prime Rate" shall mean the rate of interest
established from time to time by the Lender as its "prime rate".
Any change in the interest rate shall be effective immediately
without notice on the date of the change in the Prime Rate.
(kk) "Reportable Event" shall mean any of the events set
forth in Section 4043(b) of ERISA or the regulations thereunder.
(ll) "Revolving Loan" shall mean a Loan made pursuant to
Section 2.01 below.
(mm) "Revolving Loan Note" shall mean the Note referred to
in Section 2.01 below.
(nn) "Revolving Loan Commitment" shall mean the obligation
of the Lender to make Revolving Loans to the Borrowers during the
Revolving Loan Commitment Period pursuant to the terms hereof as
such Commitment is described in Section 2.01 below.
(oo) "Revolving Loan Commitment Period" shall mean the
period from the date hereof until the Maturity Date.
(pp) "Subsidiary or Subsidiaries" of any Person shall mean
any corporation or corporations of which the Person or one or
more of its Subsidiaries, owns, directly or indirectly, at least
a majority of the securities having ordinary voting power for the
election of directors.
(qq) "Tangible Net Worth" shall mean the excess of the
Borrowers' Total Assets minus (i) their Intangible Assets and
(ii) their Total Liabilities.
(rr) "Total Assets" shall mean total assets determined on a
consolidated basis in accordance with GAAP.
(ss) "Total Liabilities" shall mean the sum of, on a
consolidated basis, (i) total liabilities, (ii)long term debt
and capital lease obligations, (iii) deferred rent payable and
(iv) commitments and contingencies (only to the extent recorded
as liabilities on the Borrowers' balance sheet) as more
particularly set forth in Warrantech Corporation's SEC Forms 10K
and 10Q from time to time.
1.02 Accounting Terms. Except as otherwise specifically
set forth in this Agreement, each accounting term used in this
Agreement shall have the meaning given to it under GAAP. Any
dispute or disagreement between the Borrowers and the Lender
relating to the determination of GAAP shall, in the absence of
manifest error, be conclusively resolved for all purposes hereof
by the written opinion with respect thereto, delivered to the
Lender, of independent accountants selected by the Borrowers and
approved by the Lender in its reasonable discretion for the
purposes of auditing the periodic financial statements of the
Borrowers.
II. LOAN FACILITIES.
2.01 Revolving Loans. Subject to the terms and
conditions, and relying upon the representations and warranties
set forth in this Agreement, the Lender agrees, in its sole
discretion, to make revolving loans (individually a "Revolving
Loan" and, collectively, the "Revolving Loans") to the Borrowers
at any time until terminated as provided in Section 3.02(a) below
or the Maturity Date if not terminated earlier, in the principal
amount which shall not exceed $6,500,000 at any one time (the
"Revolving Loan Commitment"). In addition to this Agreement, the
Revolving Loans shall be evidenced by the Commercial Revolving
Promissory Note of this date, a copy of which is attached hereto
as Exhibit "A" (the "Revolving Loan Note").
(a) Procedure For Revolving Loan Borrowing. Provided
that the Revolving Loan Commitment has not been terminated as
provided in Section 3.02(a) below, during the Revolving Loan
Commitment Period, the Borrowers may borrow under the Revolving
Loan Commitment by giving the Lender irrevocable notice of a
request for a Revolving Loan hereunder (i) in the case of
Eurodollar Loans three (3) Business Days before a proposed
borrowing or continuation or conversion and (ii) in the case of
Prime Rate Loans on or before the date such borrowing or
continuation or conversion is to be made but in no event more
than five (5) Business Days before a proposed borrowing or
continuation or conversion, such irrevocable notice setting forth
(A) the amount of the Loan requested, which shall not be less
than $50,000, (B) the requested borrowing date or Interest Period
commencement date, as the case may be, (C) whether the borrowing
or Interest Period is to be for a Eurodollar Loan or a Prime Rate
Loan, and (D) if a Eurodollar Loan, the length of the Interest
Period therefor, which shall be 30, 60 or 90 days. As used in
this Section 2.01(a) "conversion" shall mean the conversion from
one interest rate to another interest rate as more fully
described in Section 2.01(b) below. Such notice must be written
(including, without limitation, via facsimile transmission) and
shall be sufficient if received by or before 11:00 a.m. (Eastern
Standard Time) on the date on which such notice is to be given.
Unless notification is otherwise furnished by the Borrowers to
the Lender (in a manner consistent with the requirements of this
Section 2.01(a), Revolving Loans will be made by credits to the
Borrowers' Revolving Loan Account maintained with the Lender. If
the Borrowers furnish such notice, but no election is made as to
the type of Revolving Loan or the Interest Period to be
applicable thereto, the Revolving Loan will automatically then be
made as a Prime Rate Loan until such required information is
furnished pursuant to the terms hereof.
(b) Continuation and Conversion of Revolving Loans.
With respect to Revolving Loans, the Borrowers shall have the
right at any time on prior irrevocable written notice to the
Lender as specified in Section 9.06 below to (i) continue any
Eurodollar Loan into a subsequent Interest Period, (ii) convert
any Eurodollar Loan into a Prime Rate Loan, and (iii) convert any
Prime Rate Loan into a Eurodollar Loan (specifying the Interest
Period to be applicable thereto), subject to the following:
(A) in the case of a conversion of less than
all of the outstanding Revolving Loans, the aggregate
principal amount of Revolving Loans converted shall not
be less than $50,000;
(B) no Eurodollar Loan shall be converted at
any time other than at the end of an Interest Period
applicable thereto; and
(C) any portion of a Revolving Loan maturing
or required to be prepaid in less than one month may
not be converted into or continued as a Eurodollar
Loan.
In the event that the Borrowers shall not give notice to continue
any Eurodollar Loan into a subsequent Interest Period or convert
any such Revolving Loan into a Revolving Loan of another type, on
the last day of the Interest Period thereof, such Revolving Loan
(unless prepaid) shall automatically be converted into a Prime
Rate Loan. The Interest Period applicable to any Eurodollar Loan
resulting from a conversion or continuation shall be specified by
the Borrowers in the irrevocable notice delivered by the
Borrowers pursuant to this Section 2.01(b) and Section 9.06
below; provided, however, that, if such notice does not specify
either the type of Revolving Loan or the Interest Period to be
applicable thereto, the Revolving Loan shall automatically be
converted into, or continued as, as the case may be, a Prime Rate
Loan until such required information is furnished pursuant to the
terms hereof. Notwithstanding anything to the contrary contained
above, if an Event of Default shall have occurred and is
continuing, no Eurodollar Loan may be continued into a
subsequent Interest Period and no Prime Rate Loan may be
converted into a Eurodollar Loan.
(c) Ability to Borrow and Reborrow. Within the limits
of the Revolving Loan Commitment, so long as the Borrowers are in
compliance with all the terms and condition of this Agreement and
are not in Default hereunder or under any of the Loan Documents,
and so long as the Lender has not demanded payment or accelerated
payment of any of the then outstanding Revolving Loans due to an
Event of Default, the Borrowers may borrow, repay, and reborrow
Revolving Loan funds.
(d) Revolving Demand Loan Account. Insofar as the
Borrowers may request and the Lender shall make Revolving Loan
advances hereunder, the Lender shall enter such advances as
debits on the Revolving Loan Account. The Lender shall also
record in the Revolving Loan Account, in accordance with
customary accounting procedures, (i) all other charges, expenses
and other liens properly chargeable to the Borrowers, (ii) all
payments made by the Borrowers on account of indebtedness
evidenced by the Revolving Loan Account, (iii) all proceeds of
Collateral which are finally paid to the Lender in its own office
in cash or solvent credits, and (iv) other appropriate debits and
credits. The Revolving Loan Account shall reflect the amount of
the Borrowers' indebtedness to the Lender from time to time by
reason of the Revolving Loan and other appropriate charges
hereunder, including debits for any interest and principal not
paid to the Lender when due and owing pursuant to the terms of
the Notes. On a monthly basis, the Lender shall render a
statement for the Revolving Loan Account, which statement shall
be considered correct and accepted by and conclusively binding
upon the Borrowers unless the Borrowers notify the Lender of the
contrary within 60 days of the receipt of the statement by the
Borrowers. The Lender shall have the right to debit the
Revolving Loan Account for any interest payments and principal
due under the Revolving Loan.
2.02 Demand Loans. Subject to the terms and conditions, and
relying upon the representations and warranties set forth in this
Agreement, the Lender agrees, in its sole discretion, to make
Demand Loans (individually a "Demand Loan" and, collectively, the
"Demand Loans") to the Borrowers at any time until terminated as
provided in Section 3.02(c) below, in the principal amount which
shall not exceed $3,500,000 at any one time. In addition to this
Agreement, the Demand Loans shall be evidenced by the Commercial
Demand Promissory Note of this date, a copy of which is attached
hereto as Exhibit "B" (the "Demand Note"). The Borrower
acknowledges and agrees that the Lender shall have no obligation
to extend any advances hereunder and that any such advances shall
be made in its sole and absolute discretion. The Borrowers
further acknowledge and agree that the Lender shall have no
obligation to fund any acquisition of the Borrowers for any
reason. Upon the request of the Lender, the Borrowers shall
provide the Lender with any information and documentation as is
requested in connection with any advance to be used for an
acquisition.
(a) Procedure For Demand Loan Borrowing. Provided
that the Demand Loan facility has not been terminated as provided
in Section 3.02(c) below or payment has not been demanded, the
Borrowers may borrow under the Demand Loan facility by giving the
Lender irrevocable notice of a request for a Demand Loan
hereunder (i) in the case of Eurodollar Loans three (3) Business
Days before a proposed borrowing or continuation or conversion
and (ii) in the case of Prime Rate Loans two (2) Business Days
before a proposed borrowing or continuation or conversion, but in
no event more than five (5) Business Days before a proposed
borrowing or continuation or conversion, such irrevocable notice
setting forth (A) the amount of the Loan requested, which shall
not be less than $50,000, (B) the requested borrowing date or
Interest Period commencement date, as the case may be, (C)
whether the borrowing or Interest Period is to be for a
Eurodollar Loan or a Prime Rate Loan or a combination thereof,
and (D) if entirely or partially a Eurodollar Loan, the length of
the Interest Period therefor, which shall be 30, 60 or 90 days.
As used in this Section 2.02(a) "conversion" shall mean the
conversion from one interest rate to another interest rate as
more fully described in Section 2.02(b) below. Such notice must
be written (including, without limitation, via facsimile
transmission) and shall be sufficient if received by or before
11:00 a.m. (Eastern Standard Time) on the date on which such
notice is to be given. Unless notification is otherwise
furnished by the Borrowers to the Lender (in a manner consistent
with the requirements of this Section 2.02(a), Demand Loan(s)
will be made by credits to the Borrowers' demand deposit account
maintained with the Lender. If the Borrowers furnish such notice
but no election is made as to the type of Demand Loan or the
Interest Period to be applicable thereto, the Demand Loan will
automatically then be made as a Prime Rate Loan until such
required information is furnished pursuant to the terms hereof.
(b) Continuation and Conversion of Demand Loans. With
respect to Demand Loans, the Borrowers shall have the right at
any time on prior irrevocable written notice to the Lender as
specified in Section 9.06 below to (i) continue any Eurodollar
Loan into a subsequent Interest Period, (ii) convert any
Eurodollar Loan into a Prime Rate Loan, and (iii) convert any
Prime Rate Loan into a Eurodollar Loan (specifying the Interest
Period to be applicable thereto), subject to the following:
(A) in the case of a conversion of less than
all of the outstanding Line of Demand Loans, the
aggregate principal amount of Demand Loans converted
shall not be less than $50,000;
(B) no Eurodollar Loan shall be converted at
any time other than at the end of an Interest Period
applicable thereto; and
(C) any portion of a Demand Loan maturing or
required to be prepaid in less than one month may not
be converted into or continued as a Eurodollar Loan.
In the event that the Borrowers shall not give notice to continue
any Eurodollar Loan into a subsequent Interest Period or convert
any such Demand Loan into a Demand Loan of another type, on the
last day of the Interest Period thereof, such Demand Loan (unless
prepaid) shall automatically be converted into a Prime Rate Loan.
The Interest Period applicable to any Eurodollar Loan resulting
from a conversion or continuation shall be specified by the
Borrowers in the irrevocable notice delivered by the Borrowers
pursuant to this Section 2.02(b) and Section 9.06 below;
provided, however, that, if such notice does not specify either
the type of Demand Loan or the Interest Period to be applicable
thereto, the Demand Loan shall automatically be converted into,
or continued as, as the case may be, a Prime Rate Loan until such
required information is furnished pursuant to the terms hereof.
Notwithstanding anything to the contrary contained above, if an
Event of Default shall have occurred and is continuing, no
Eurodollar Loan may be continued into a subsequent Interest
Period and no Prime Rate Loan may be converted into a Eurodollar
Loan.
(c) Ability to Borrow and Reborrow. Provided the
principal amount of all Demand Loans does not exceed $3,500,000
at any one time, so long as the Borrowers are in compliance with
all the terms and conditions of this Agreement and are not in
Default hereunder and so long as the Lender has not demanded
payment or accelerated payment of any of the then outstanding
Demand Loans due to an Event of Default or otherwise, the
Borrowers may borrow, repay, and reborrow Demand Loan funds.
(d) Demand Loan Account. Insofar as the Borrowers may
request and the Lender shall make Demand Loan advances hereunder,
the Lender shall enter such advances as debits on the Demand Loan
Account. The Lender shall also record in the Demand Loan
Account, in accordance with customary accounting procedures, (i)
all other charges, expenses and other liens properly chargeable
to the Borrowers, (ii) all payments made by the Borrowers on
account of indebtedness evidenced by the Demand Loan Account,
(iii) all proceeds of Collateral which are finally paid to the
Lender in its own office in cash or solvent credits, and (iv)
other appropriate debits and credits. The Demand Loan Account
shall reflect the amount of the Borrowers' indebtedness to the
Lender from time to time by reason of the Demand Loan and other
appropriate charges hereunder, including debits for any interest
and principal not paid to the Lender when due and owing pursuant
to the terms of the Notes. On a monthly basis, the Lender shall
render a statement for the Demand Loan Account, which statement
shall be considered correct and accepted by and conclusively
binding upon the Borrowers unless the Borrowers notify the Lender
of the contrary within 60 days of the receipt of the statement by
the Borrowers. The Lender shall have the right to debit the
Demand Loan Account for any interest payments and principal due
under the Demand Note.
(e) Payment on Demand. ALL OBLIGATIONS OF THE
BORROWERS ARISING UNDER THE DEMAND LOANS SHALL BE PAID BY THE
BORROWERS IN FULL UPON DEMAND BY THE LENDER, NOTWITHSTANDING THE
LENDER'S RIGHTS UPON THE OCCURRENCE OF ANY EVENT OF DEFAULT AS
SET FORTH BELOW AND WHETHER OR NOT ANY SUCH EVENT OF DEFAULT HAS
OCCURRED.
2.03 Other Conditions. The Revolving Loans and the Demand
Loans shall be subject to the following:
(a) Account Warranties. Except as otherwise disclosed
by the Borrowers: the Borrower shall be deemed to have warranted
as to each Acceptable Account that each Acceptable Account and
all papers relating thereto are genuine and in all respects are
what they purport to be; that each Acceptable Account is valid
and existing and arises out of a bona fide sale of goods sold and
delivered by the Borrowers to, or in the process of being
delivered to, or out of and for actual services previously
rendered by the Borrowers to the account debtor named in the
Acceptable Account; that the amount of the Acceptable Account
represented as owing is the correct amount and unconditionally
owing except for normal cash discounts and is not disputed, and
except for such normal cash discounts is not subject to any
setoffs, credits or deductions; that the Borrower is the owner
free and clear of all liens, encumbrances and security interest
of any nature whatsoever, except for the liens granted herein and
statutory liens for which appropriate reserves have been
established, and that no surety bond was required or given in
connection with any account or the contract or purchase orders
out of which the same arose.
(b) Absence of Demand, Termination or Default. The
Lender shall not be obligated to make any Revolving Loan or
Demand Loan advances if it demanded payment of, accelerated
payment of, or terminated the Revolving Loans or the Demand Loans
due to any Event of Default, or a Default shall have occurred and
be continuing.
(c) Representations and Warranties Confirmed. All of
the representations and warranties contained herein shall have
continued to be true and in all material respects accurate,
through and including the date of each Revolving Loan and Demand
Loan advance as though made as of such date.
(d) Compliance. The Borrowers shall have complied
with all of the terms and conditions contained in this Agreement
and the other Loan Documents required to be performed by it on or
prior to the date of each Revolving Loan and Demand Loan advance.
(e) Corporate Authority Continued. The corporate
resolutions referred to in Article IV hereof shall be in full
force and effect and have not been amended in any respect as of
the date of each Revolving Loan and Demand Loan advance.
(f) No Adverse Change. There shall have been no
material adverse change in the financial position or business of
the Borrowers in the aggregate between the date hereof and the
date of each Revolving Loan and Demand Loan advance.
(g) Lender Discretion. Nothing contained herein shall
be construed to require the Lender to make Revolving Loan and
Demand Loans and nothing contained herein shall prohibit the
Lender from lending in excess of the maximum principal amount of
the Revolving Loans and Demand Loans. It is agreed that all
loans and advances shall be at the Lender's sole discretion and
shall not establish a pattern or custom binding upon the Lender.
2.04 One Transaction.
(a) The entities which comprise the Borrowers
acknowledge that the Loans will be treated as one overall
financing transaction. The loan proceeds shall be advanced
hereunder solely at the direction of Warrantech Corporation which
is hereby appointed as the agent of the other Borrowers for this
purpose alone. Each entity comprising the Borrowers represents
and acknowledges that (i) the businesses of each Borrower
substantially benefit the businesses and corporate activities of
the other Borrowers, (ii) the Borrowers' financial statements are
prepared on a combined and consolidated basis, and (iii) such
Borrowers have received substantial economic benefit from
entering into this Agreement and shall receive substantial
economic benefit from the application of each advance hereunder,
in each case whether or not such amount is used directly by such
Borrowers.
(b) The Borrowers shall not apply any funds advanced
under the Loan to any affiliate or subsidiary company of any of
the entities comprising the Borrowers if such affiliate or
subsidiary is not a party to this loan transaction.
2.05 Indemnity. The Borrowers will indemnify the Lender
against any reasonable costs or expenses, arising out of
development of deposits, which the Lender may sustain or incur as
a consequence of any default in payment or default in prepayment
of the principal amount of any Loan or any part thereof or
interest accrued thereon, as and when due and payable (at the due
date thereof, by and after notice of prepayment or otherwise), or
the occurrence of any Event of Default. The Lender shall provide
to the Borrowers a statement, signed by an officer of the Lender
and supported where applicable by documentary evidence,
explaining the amount of any such cost or expense.
III. INTEREST, TERMS AND FEES.
3.01 Interest Rate.
(a) The Notes shall bear, and the Borrowers promises
to pay, interest on the indebtedness on the terms and conditions
set forth in each of the Notes.
(b) Lawful Interest. It is the intent of the
parties that the rate of interest and all other charges to the
Borrowers be lawful. If for any reason the payment of a portion
of interest, fees or charges as required by this Agreement would
exceed the limit established by applicable law which a commercial
lender such as the Lender may charge to a commercial borrower
such as the Borrowers, then the obligation to pay interest or
charges shall automatically be reduced to such limit and, if any
amounts in excess of such limits shall be paid, then such amounts
shall be applied to the unpaid principal amount of the
Obligations of the Borrowers to Lender or refunded so that under
no circumstances shall the interest or charges required hereunder
exceed the maximum rate allowed by law.
3.02 Term and Termination.
(a) Revolving Loans. Unless sooner terminated as a
result of the occurrence of an Event of Default, the Revolving
Loan Commitment shall terminate and be due and payable in full on
the Maturity Date. Upon termination of the Revolving Loan
Commitment, the Borrowers shall have no ability to receive, and
the Lender shall have no obligation to make any further advances
under the Revolving Loan Commitment. All of the rights, interest
and remedies of the Lender and Obligations of the Borrowers under
this Agreement and the other Loan Documents shall survive
termination of the Revolving Loan Commitment until all of the
Obligations of the Borrowers are fully satisfied.
(b) Demand Loans. The Demand Loans shall be due and
payable upon demand or after an Event of Default. All rights,
interest and remedies of the Lender and Obligations of the
Borrowers under this Agreement and other Loan Documents shall
survive termination of the Demand Loan facility until all of the
Obligations of the Borrowers are fully satisfied.
3.03 Repayments. Any payments made by the Borrowers to
the Lender shall be credited first to late charges, reasonable
costs and expenses, then to accrued and unpaid interest and then
to the outstanding principal balance due in the inverse order of
maturity.
3.04 Prepayments. Notwithstanding anything contained in
this Agreement or in any other agreement between the Borrowers
and the Lender:
(a) Prime Rate Loans. The Borrowers may prepay any
Prime Rate Loans without any penalty or premium.
(b) Eurodollar Loans. If any principal payment on
any Eurodollar Loan hereunder is made for any reason whatsoever
on a date prior to the last day of the Interest Period for such
Loan, the Borrowers shall: (i) pay to the Lender interest accrued
thereon; and (ii) on demand, indemnify the Lender against all
losses including loss of profit and expenses suffered by it in
liquidating or otherwise employing deposits acquired to fund such
Loan until the last day of the applicable Interest Period. A
certificate of the Lender as to the amount required to be paid by
the Borrowers under this subsection 3.04(b) shall accompany such
demand and shall be final and conclusive, except in the case of
manifest error or bad faith.
3.05 Fees and Facility Fee. As additional consideration for
the Revolving Loan Commitment, the Borrowers shall pay to the
Lender each quarter a non-refundable facility fee commencing on
April 1, 1996 and continuing on the first day of each succeeding
July 1, October 1, January 1 and April 1 and continuing
throughout the Revolving Loan Commitment Period in an amount
equal to one quarter of one percent (0.25%) per annum of the
unused portion of the Revolving Loan Commitment during the
relevant quarter. The above fee shall begin accruing as of
January 1, 1996.
IV. CONDITIONS OF LENDING.
Without limiting the Lender's discretion not to make
Revolving Loans and Demand Loans, the Borrowers agree that the
closing of the initial Loans are subject to fulfillment by the
Borrowers of the following conditions precedent, all in form,
scope and substance satisfactory to the Lender and their counsel
in their sole discretion:
(a) Evidence of Corporate Action. The Lender shall have
received certified copies of all corporate action taken by the
Borrowers to authorize the execution, delivery and performance of
this Agreement, the Notes, the other Loan Documents, and the
borrowings to be made hereunder, together with copies of the
Borrowers' Certificate of Incorporation and Bylaws, all
amendments thereto, and such other papers and documents as the
Lender or its counsel may require.
(b) Notes. The Lender shall have received the duly
executed Notes drawn to its order.
(c) UCC-1 Financing Statements. The Lender shall have
received from the Borrowers duly executed UCC-1 Financing
Statements and such other documents as the Lender deems necessary
or proper to perfect its security interest in the Collateral.
(d) Insurance. The Lender shall have received evidence
of casualty, liability and business interruption insurance in
such amounts and with such companies satisfactory to the Lender.
(e) Opinion of Counsel. The Borrowers shall provide the
Lender with an opinion from counsel in form and content
satisfactory to the Lender opining to, among other things, the
valid, binding and enforceable nature of the Loan Documents and
the authority of the Borrowers to enter into the Loan Documents.
(f) Other. The Lender shall have received such other
documents as the Lender deems necessary.
V. REPRESENTATIONS AND WARRANTIES.
The Borrowers represent and warrant to the Lender that:
(a) Good Standing and Qualification. Warrantech
Corporation is a corporation duly organized, validly existing and
in good standing under the laws of the state of Delaware.
Warrantech Automotive, Inc. is a corporation duly organized,
validly existing and in good standing under the laws of the state
of Connecticut. Warrantech Consumer Product Services, Inc. is a
corporation duly organized, validly existing and in good standing
under the laws of the state of Connecticut. Warrantech Direct,
Inc. is a corporation duly organized, validly existing and in
good standing under the laws of the state of Texas. The
Borrowers have all requisite corporate power and authority to own
and operate their properties and to carry on their businesses as
presently conducted and each is qualified to do business and is
in good standing as a foreign corporation in each jurisdiction
wherein the character of the properties owned or leased by it
therein or in which the transaction of their businesses therein
makes such qualification necessary.
(b) Corporate Authority. Each of the Borrowers has
full corporate power and authority to enter into and perform the
obligations under this Agreement, to make the borrowings
contemplated herein, to execute and deliver the Notes, and the
other Loan Documents and to incur the obligations provided for
herein and therein, all of which have been duly authorized by all
necessary and proper corporate action. No other consent or
approval or the taking of any other action in respect of
shareholders or of any public authority is required as a
condition to the validity or enforceability of this Agreement,
the Notes or any of the other Loan Documents. The execution and
delivery of this Agreement is for valid corporate purposes and
will not violate the Borrowers' certificates of incorporation or
bylaws.
(c) Binding Agreements. This Agreement constitutes,
and the Notes and the other Loan Documents delivered in
connection herewith shall constitute, valid and legally binding
obligations of the Borrowers, enforceable in accordance with
their respective terms, except as enforcement may be limited by
bankruptcy, insolvency or similar laws affecting the enforcement
of creditors' rights generally.
(d) Litigation. Except as set forth in Warrantech
Corporation's SEC Form 10K for the fiscal year ended March 31,
1995, there are no actions, suits, proceedings or investigations
pending or, to the knowledge of the Borrowers, threatened against
the Borrowers before any court or administrative agency, which
either in any case or in the aggregate, if adversely determined,
would materially and adversely affect the financial condition,
assets or operations of the Borrowers, or which question the
validity of this Agreement, the Note, or any of the other Loan
Document, or any action to be taken in connection with the
transaction contemplated hereby.
(e) No Conflicting Law or Agreements. To the best of
the Borrowers' knowledge, the execution, delivery and performance
by the Borrowers of this Agreement, the Notes and the other Loan
Documents (i) do not violate any provision of the Certificates of
Incorporation or Bylaws of each of the Borrowers, (ii) do not
violate any order, decree or judgment, or any provision of any
statute, rule or regulation, (iii) do not violate or conflict
with, result in a breach of or constitute (with notice or lapse
of time, or both) a default under any shareholder agreement,
stock preference agreement, mortgage, indenture or contract to
which any of the Borrowers are a party, or by which any of their
properties are bound, and (iv) do not result in the creation or
imposition of any lien, charge or encumbrance of any nature
whatsoever upon any property or assets of the Borrowers except as
contemplated herein.
(f) Taxes. With respect to all taxable periods of
each of the Borrowers, the Borrowers have filed all tax returns
required to be filed by them and have paid all federal, state,
municipal, franchise and other taxes shown on such filed returns
or has reserved against the same, as required by GAAP, and the
Borrowers know of no unpaid assessments against them.
(g) Financial Statements. The Borrowers have
delivered to the Lender the consolidated certified balance sheet
of the Borrowers as of March 31, 1995, and the certified related
statements of income, retained earnings and cash flows for the
fiscal year then ended. Such statements fairly present the
consolidated financial condition of the Borrowers as of the dates
and for the periods referred to therein and have been prepared in
accordance with GAAP applied on a consistent basis by the
Borrowers throughout the periods involved. There are no
liabilities, direct or indirect, fixed or contingent, of the
Borrowers as of the date of the balance sheet which are not
reflected therein or in the notes thereto, other than liabilities
or obligations not material in amount which are not required to
be reflected in corporate balance sheets prepared in accordance
with GAAP. There has been no material adverse change in the
financial condition, business, operations, affairs or prospects
of the Borrowers since the date of such financial statements.
(h) Existence of Assets and Title Thereto. The
Borrowers have good and marketable title to their properties and
assets, including the properties and assets reflected in the
financial statements referred to above. These properties and
assets are not subject to any mortgage, pledge, lien, lease,
security interest, encumbrance, restriction or charge except
those permitted under the terms of this Agreement or as set forth
in Schedule "5(h)".
(i) Regulations G, T, U and X. The proceeds of the
borrowings hereunder will not be used, directly or indirectly,
for the purposes of purchasing or carrying any margin stock in
contravention of Regulations G, T, U or X promulgated by the
Board of Governors of the Federal Reserve System.
(j) Compliance. Except as set forth on the attached
Schedule "5(j)": the Borrowers are not in default with respect
to or in violation of any order, writ, injunction or decree of
any court or of any federal, state, municipal or other
governmental department, commission, board, bureau, agency,
authority or official, or in violation of any law, statute, rule
or regulation to which they or their properties are subject,
where such default or violation would materially and adversely
affect the financial condition of any of the Borrowers. The
Borrowers represent that they have not received any notice of
such default from any party. The Borrowers are not in default in
the payment or performance of any of their obligations to any
third parties or in the performance of any mortgage, indenture,
lease, contract or other agreement to which they are a party or
by which any of their assets or properties are bound.
(k) Leases. The Borrowers enjoy quiet and
undisturbed possession under all leases under which they are
operating, and all such leases are valid and subsisting and the
Borrowers are not in default under any of their leases.
(l) Pension Plans. To the best of the Borrowers'
knowledge, no fact, including but not limited to any "Reportable
Event", as that term is defined in Section 4043 of ERISA, as the
same may be amended from time to time exists in connection with
any Plan of the Borrowers which might constitute grounds for
termination of any such Plan by the Pension Benefit Guaranty
Corporation or for the appointment by the appropriate United
States District Court of a Trustee to administer any such Plan.
No "Prohibited Transaction" as defined by ERISA exists or will
exist upon the execution and delivery of this Agreement or the
performance by the parties hereto of their respective duties and
obligations hereunder. The Borrowers agree to do all acts
including, but not limited to, making all contributions necessary
to maintain compliance with ERISA and agree not to terminate any
such Plan in a manner or do or fail to do any act which could
result in the imposition of a lien on any property of the
Borrowers pursuant to Section 4068 of ERISA. The Borrowers have
not incurred any withdrawal liability under the Multiemployer
Pension Plan Amendment Act of 1980. The Borrowers have no
unfunded liability in contravention of ERISA.
(m) Places of Business. The Borrowers have no other
chief executive office or location where they keep books and
records with respect to the Collateral, other than those set
forth in the attached Schedule "5(m)".
(n) Contingent Liabilities. Except as set forth on
the attached Schedule "5(n)", the Borrowers are not a party to
any suretyship, guarantyship, or other similar type agreement;
and each has not offered its endorsement to any individual,
concern, corporation or other entity or acted or failed to act in
any manner which would in any way create a contingent liability
that does not appear in the financial statements referred to
above.
(o) Contracts. Except as set forth on the attached
Schedule "5(j)": no contract, governmental or otherwise, to
which any of the Borrowers are a party, is subject to
renegotiation, nor are any of the Borrowers in default of any
material contract.
(p) Union Contracts and Pension Plans. None of the
Borrowers are a party to any collective bargaining, union or
pension plan agreement, except as set forth on the attached
Schedule "5(p)". The union contracts set forth on Schedule
"5(p)" are in full force and effect and are not currently subject
to the renegotiation. The Borrowers are in full compliance with
the terms and conditions of all such union contracts and know of
no threatened work stoppage by any union members.
(q) Licenses. To the best of the Borrowers' knowledge
and subject to Warrantech Corporation's SEC Form 10K for the
fiscal year ended March 31, 1995, each of the Borrowers has all
material licenses, permits, approvals and other authorizations
required by any government, agency or subdivision thereof, or
from any licensing entity necessary for the conduct of their
businesses, all of which the Borrowers represent to be current,
valid and in full force and effect.
(r) Collateral. The Borrowers are and shall
continue to be the sole owners of the Collateral free and clear
of all liens, encumbrances, security interests and claims except
the liens and the security interests granted to the Lender
hereunder and listed on the attached Schedule "5(h)". Except to
the extent that the Lender does not require compliance with the
Assignment of Claims Act, or any federal law relating to security
interests in tax refunds and government receivables, the
Borrowers are fully authorized to sell, transfer, pledge or grant
to the Lender a security interest in each and every item of the
Collateral; all documents and agreements related to the
Collateral shall be true and correct and in all respects what
they purport to be; all signatures and endorsements that appear
thereon shall be genuine and all signatories and endorsers shall
have full capacity to contract; none of the transactions
underlying or giving rise to the Collateral shall violate any
applicable state or federal laws or regulations; all documents
relating to the Collateral shall be legally sufficient under such
laws or regulations and shall be legally enforceable in
accordance with their terms, except to the extent of applicable
bankruptcy, insolvency and other similar laws affecting
creditors' rights generally; and the Borrowers agree to defend
the Collateral against the claims of all persons other than the
Lender.
(s) Financial Information. All financial information
including, but not limited to, information relating to the
Collateral submitted by the Borrowers to the Lender, whether
previously or in the future, is and will be true and correct in
all material respects, and is and will be complete insofar as may
be necessary to give the Lender a true and accurate knowledge of
the subject matter in all material respects.
(t) Environmental Health and Safety Laws. The
Borrowers have not received any notice, order, petition, or
similar document in connection with or arising out of any
violation or possible violation of any environmental health or
safety law, regulation or order, and the Borrowers know of no
basis for any such violation or threat thereof for which any of
them may become liable.
(u) Parent, Affiliate or Subsidiary Corporations.
Except as set forth on the attached Schedule "5(u)", the
Borrowers have no parent corporation and have no domestic or
foreign Affiliate or Subsidiary corporations.
VI. COVENANTS.
6.01 Financial Reporting. The Borrowers covenant and
agree that from the date hereof until payment in full of all
Obligations and the termination of this Agreement, the Borrowers
shall furnish to the Lender the following, all to be prepared on
a consolidated basis and in conformity with GAAP, applied on a
basis consistent with the preceding period:
(a) within one hundred twenty (120) days after the end
of each fiscal year of the Borrowers, audited certified financial
statements of the Borrowers prepared by independent certified
public accountants of recognized standing selected by the
Borrowers and reasonably acceptable to the Lender (the form of
such statements to be reasonably satisfactory to the Lender)(for
purposes hereof, Coopers and Lybrand shall be deemed satisfactory
to the Lender), including a balance sheet, income statement and
statement of cash flows;
(b) within forty-five (45) days after the end of each
of the first three fiscal quarters of the Borrowers of each year,
unaudited financial statements prepared by the Borrowers (the
form of such statements to be reasonably satisfactory to the
Lender), showing the operations and financial condition of the
Borrowers at the close of such fiscal quarters; and
(c) upon the Lender's request, from time to time, the
Borrowers shall deliver to the Lender a Compliance Letter in the
form attached hereto as Exhibit "C", which certificate shall
state, among other things, that (i) the Borrowers have complied,
and are then in compliance, with all the terms, covenants, and
conditions of this Agreement and the other Loan Documents which
are binding upon it; and (ii) there exists no Default or Event of
Default.
(d) promptly upon the Lender's written request from
time to time, such other information about the financial
condition and operations of the Borrowers as the Lender may
reasonably request.
6.02 Affirmative Covenants. The Borrowers covenant and
agree from the date hereof until payment in full of all
obligations and termination of this Agreement, the Borrowers
shall:
(a) Insurance and Endorsement. Keep their
properties and businesses insured against fire and other hazards
(so-called "All Risk" coverage) in amounts and with companies
reasonably satisfactory to the Lender covering such risks as are
herein set forth; maintain public liability coverage, against
claims for personal injuries or death; and maintain all worker's
compensation, employment or similar insurance as may be required
by applicable law. All insurance shall be in amounts reasonably
satisfactory to the Lender and shall contain such terms, be in
such form, be for such periods, and be written by carriers duly
licensed by the state of Connecticut and reasonably satisfactory
to the Lender. Without limiting the generality of the foregoing,
such insurance must provide that it may not be cancelled without
thirty (30) days prior written notice to the Lender. In the
event of failure to provide and maintain insurance as provided
herein, the Lender may, at its option, provide such insurance and
charge the amount thereof to the Revolving Loans or the Demand
Loan.
(b) Taxes and Other Liens. Comply with all statutes
and government regulations and pay all taxes, assessments,
governmental charges or levies, or claims for labor, supplies,
rent and other obligations made against the Borrowers or their
properties which, if unpaid, might become a lien or charge
against any of the Borrowers or their properties, except
liabilities being contested in good faith and against which, if
requested by the Lender, the Borrowers shall set up reserves in
amounts and in form reasonably satisfactory to the Lender.
(c) Place of Business. Maintain their chief places of
business and chief executive offices at the addresses set forth
in the beginning of this Agreement, unless, the Borrowers shall
have given the Lender thirty (30) days prior written notice of
any change in such places of business.
(d) Inspections. Allow the Lender by or through any
of its officers, attorneys, accountants or other agents
designated by the Lender, for the purpose of ascertaining whether
or not each and every provision hereof and of the other Loan
Documents, is being performed, to enter the offices and plants
after reasonable notice during normal business hours of the
Borrowers to examine or inspect any of the properties, books and
records or extracts therefrom, to make copies of such books and
records or extracts therefrom, and to discuss the affairs,
finances and accounts thereof with the Borrowers all at such
times and as often as the Lender or any representatives of the
Lender may reasonably request.
(e) Litigation. Advise the Lender of the
commencement or threat of litigation, including arbitration
proceedings and any proceedings before any governmental agency,
which is instituted against any of the Borrowers and is
reasonably likely to have a material adverse effect upon the
condition, financial, operating or otherwise, of any of the
Borrowers or where the amount involved or claimed is Two Hundred
Thousand and 00/100 Dollars ($200,000), or more.
(f) Maintain Existence. Maintain their corporate
existences and comply with all applicable statutes, rules and
regulations.
(g) Maintain Assets. Maintain their properties in
good repair, working order and operating condition, ordinary wear
and tear excepted. The Borrowers shall immediately notify the
Lender of any event causing material loss in the value of any of
their assets in an amount in excess of $1,000,000.
(h) ERISA. Immediately notify the Lender of any
event which causes any of the Borrowers to become subject to
ERISA and, upon becoming subject thereto, they shall comply in
all material respects with ERISA.
(i) Notice of Certain Events. Give prompt written
notice to the Lender of:
(i) any material dispute that arises between any
of the Borrowers and any governmental regulatory body or law
enforcement agency;
(ii) any labor controversy resulting or likely to
result in a strike or work stoppage against any of the Borrowers;
(iii) any proposal by any public authority to
acquire the assets or business of any of the Borrowers;
(iv) the location of any books or records
concerning the Collateral other than at the Borrowers' places of
business disclosed in this Agreement;
(v) any proposed or actual change of the name,
identity or corporate structure of the Borrowers;
(vi) any other matter which has resulted or is
likely to result in a material adverse change in the financial
condition or operations of any of the Borrowers; and
(vii) any information received by any of the
Borrowers with respect to the Collateral that may materially
affect the value thereof or the rights and remedies of the Lender
with respect thereto.
(j) Defaults. Give prompt written notice to the Lender
upon the occurrence of any Default or Event of Default, signed by
the president or chief financial officer of the Borrowers
describing such occurrence and the steps, if any, being taken to
cure the default.
(k) Account Duties. Comply with any and all
federal, state and local laws affecting their businesses,
including, but not limited to, payment of all federal and state
taxes. The Borrowers agree to indemnify and hold the Lender
harmless from all claims, actions and losses, including
reasonable attorneys' fees and costs actually incurred by the
Lender arising from any contention, that there has been a failure
to comply with such laws.
(l) Collateral Duties. Do whatever the Lender may
reasonably request from time to time by way of obtaining,
executing, delivering and filing financing statements,
assignments, and other notices and amendments and renewals
thereof, and the Borrowers will take any and all steps and
observe such formalities as the Lender may reasonably request in
order to create and maintain a valid and enforceable first lien
upon, pledge of, and first priority security interest in, any and
all of the Collateral. The Collateral in which the Lender does
not have a first lien is set forth on Schedule "5(h)", and with
regard to such Collateral except as otherwise permitted
hereunder, the Borrowers shall maintain the Lender's current
priority. If the Borrowers fail to timely provide financing
statements, the Lender is authorized to file financing statements
without the signature of the Borrowers and to execute and file
such financing statements on behalf of the Borrowers as specified
by the Uniform Commercial Code to perfect or maintain its
security interest in all of the Collateral. All charges,
expenses and reasonable fees which the Lender incurs in filing
any of the foregoing, together with costs and expenses of any
lien search required by the Lender, and any taxes relating
thereto, shall be charged to the balance of the Revolving Loans
or the Demand Loans and added to the Obligations.
(m) Audit by Lender; Fees. Permit the Lender to
audit the books and records of the Borrowers at such times and in
such manner and detail as the Lender deems, in the Lender's sole
discretion, is necessary. The Borrowers shall promptly pay the
Lender all audit fees and any reasonable out-of-pocket expenses
incurred in connection with any such audit after an Event of
Default has occurred and is continuing. Prior to an Event of
Default, the Lender shall be responsible for all audit fees and
any other reasonable out-of-pocket expenses incurred in
connection with any such audit. The Lender may charge any such
audit fees and out-of-pocket expenses to the Borrowers' Revolving
Loan Account or the Demand Loan Account.
(n) Officers and Directors. Promptly notify the
Lender in writing upon any changes or additions to the Borrowers'
officers or directors or the occurrence of a Change of Control.
(o) Compensating Balances. Maintain all checking
accounts with the Lender.
6.03 Negative Covenants. The Borrowers covenant and agree
that from the date hereof until payment in full of all
Obligations and termination of this Agreement, the Borrowers
shall not without the prior written consent of the Lender:
(a) Encumbrances. Incur or permit to exist any lien,
mortgage, charge or other encumbrance against any of their
properties or assets, whether now owned or hereafter acquired,
including the Collateral, except: (i) liens required or expressly
permitted by this Agreement; (ii) pledges or deposits in
connection with or to secure worker's compensation, unemployment
or liability insurance; (iii) tax liens which are being contested
in good faith and in compliance with this Agreement; (iv)
statutory liens for which reserves have been established; and (v)
those listed on the attached Schedule "5(h)".
(b) Limitation on Indebtedness. Except as set forth
on the attached Schedule "6.03(b)", create, incur or guaranty any
indebtedness or obligation for trade debt, borrowed money from,
or issue or sell any obligations of the Borrowers to any lender
or Person other than the Lender.
(c) Contingent Liabilities. Except as set forth on
the attached Schedule "5(n)", assume, guaranty, endorse or
otherwise become liable upon the obligations of any person, firm
or corporation, or enter into any purchase or option agreement or
other arrangement having substantially the same effect as such a
guaranty, except by the endorsement of negotiable instruments for
deposit or collection or similar transactions in the ordinary
course of business.
(d) Sale and Lease of Assets. Sell, lease or
otherwise dispose of any of their assets except for sales of
inventory in the ordinary course of business or replacement of
equipment having an equal or greater value than the equipment
replaced, in the ordinary course of business.
(e) Name Changes. Change their corporate name or
conduct their businesses under any trade name other than as set
forth in this Agreement.
(f) Change of Control. Suffer any Change in Control
of the Borrowers.
(g) Prohibited Transfers. Transfer, in any manner,
either directly or indirectly, any cash, property, or other
assets to any parent or any Affiliate or Subsidiary, other than
sales made in the ordinary course of business and for fair
consideration on terms no less favorable than if such sale had
been an arms-length transaction between any of the Borrowers and
an unaffiliated entity.
(h) Use of Proceeds. Apply any of the proceeds from
the Loans to any Affiliate or Subsidiary if such Affiliate or
Subsidiary is not a party to this loan transaction.
(i) No Management Change. Suffer any change in the
management of the Borrowers which the Lender deems, in its
reasonable discretion, to be a material adverse change.
(j) Business Operations. Engage in any business
other than the business in which each of the Borrowers is
currently engaged or a business reasonably related thereto.
(k) Assignment of Claims Act. Take any action or
fail to take any action, either directly or indirectly, or
cooperate in any way, so as to allow any party, other than the
Lender, to comply with the Federal Assignment of Claims Act. The
Borrowers make no representation in this Agreement that they
and/or the Lender have complied with the Assignment of Claims Act
or any other federal statute relating to security interests or
the perfection of security interests in, tax refunds or
government receivables.
6.04 Financial Covenants. The Borrowers agree and
covenant that from the date hereof until payment in full and
performance of all Obligations, they shall not:
(a) Tangible Net Worth. (i) Permit their consolidated
Tangible Net Worth to be less than $17,500,000 at any time.
(b) Ratio of Debt to Tangible Net Worth. Permit
their ratio of Total Liabilities to Tangible Net Worth to exceed
1.50 to 1.0 at any time.
(c) Borrowing Base. Permit the ratio of total
outstanding Loans to Collateral to be greater than 0.825 to 1.0
at any time. In the event that the ratio shall exceed 0.825 to
1.0 at any time, the Borrowers shall be required within three (3)
business days of the non-compliance to reduce the total
outstanding Loans by an amount necessary to cause the Borrowers
to be in compliance with the ratio.
VII. GRANT OF COLLATERAL.
To secure the prompt payment and performance of the
Obligations, Warrantech Corporation and Warrantech Automotive,
Inc. pledge, assign, transfer and grant to the Lender a
continuing, first priority lien and security interest in the
following property of Warrantech Corporation and Warrantech
Automotive, Inc. (the "Collateral"):
any and all accounts as such term is defined in the
Uniform Commercial Code-Secured Transactions, as in effect in
Connecticut as of the date hereof, including those now existing
and those hereafter arising or coming into existence, and
including, without limitation, all rights of payment for goods
sold or issued or services rendered, rights of payment under
contracts not yet earned by performance and accounts receivable
arising therefrom, and all rights of Warrantech Corporation and
Warrantech Automotive, Inc. in and to the goods represented
thereby including returned and repossessed goods, and all rights
Warrantech Corporation and Warrantech Automotive, Inc. may have
or acquire for securing or enforcing the foregoing, including
without limitation the rights to reserves, deposits or insurance
proceeds, and the products and proceeds (including insurance
proceeds) of the foregoing and all federal and state tax refunds
owed to either Warrantech Corporation or Warrantech Automotive,
Inc. (the "Accounts").
VIII. DEFAULT.
8.01 Events of Default. The Obligations shall, at the
option of the Lender, become immediately due and payable without
notice or demand unless otherwise provided herein upon the
occurrence and during the continuance of any of the following
events (collectively, "Events of Default" and individually, an
"Event of Default"):
(a) failure of the Borrowers to pay any
installment of principal or interest or any other Obligation
arising under this Agreement, the Notes or the other Loan
Documents, including any payment under Section 6.04(c);
(b) breach of any of the Obligations by the
Borrowers, without limitation, any covenant, representation or
warranty contained herein, or the Borrowers' failure to perform
any act, duty or obligation as required by this Agreement or any
of the other Loan Documents within thirty (30) days of the date
such covenant, duty or obligation is required to be performed;
(c) the making by any of the Borrowers of any
material misrepresentation of a material fact to the Lender;
(d) insolvency (failure of any of the Borrowers
to pay their debts as they mature or when the fair value of any
of the Borrowers' assets is less than their liabilities) of the
Borrowers, or business failure, appointment of a receiver or
custodian, or assignment for the benefit of creditors or the
commencement of any proceedings under any bankruptcy or
insolvency law by or against any of the Borrowers; appointment of
a committee of creditors or liquidating banks, or offering of a
composition or extension to creditors by, for or of any of the
Borrowers; however, if an involuntary bankruptcy petition is
filed, an Event of Default shall not occur unless such petition
is not dismissed within sixty (60) days of filing;
(e) the loss, renovation or failure to renew any
license and/or permit now held or hereafter acquired by the
Borrowers which materially affects the ability of the Borrowers
to continue their operations as presently conducted;
(f) an Event of Default in any other Loan
Document or other agreements between the Lender and any of the
Borrowers;
(g) the filing of any lien, voluntary or
involuntary, on or against the Collateral which in the case of an
involuntary lien is not discharged of record within sixty (60)
days of filing;
(h) dissolution of any of the Borrowers;
(i) failure by any of the Borrowers to pay or
perform any other Indebtedness in excess of $100,000, or if any
such other Indebtedness shall be accelerated, or if there shall
exist any default under any instrument, document or agreement
governing, evidencing or securing such other Indebtedness;
Upon the happening of any one or more Events of Default, any
requirements upon the Lender to make further Revolving Loans or
Demand Loans shall terminate. The Borrowers expressly waive any
presentment, demand, protest, notice of protest or other notice
of any kind. The Lender may proceed to enforce the rights of the
Lender whether by suit in equity or by action at law, whether for
specific performance of any covenant or agreement contained in
this Agreement, the Notes or any other Loan Documents, or in aid
of the exercise of any power granted in either this Agreement,
the Notes or the other Loan Documents, or it may proceed to
obtain judgment or any other relief whatsoever appropriate to the
enforcement of such rights, or proceed to enforce any legal or
equitable right which the Lender may have by reason of the
occurrence of any Event of Default hereunder.
8.02 Declared Default. Upon demand (if a Demand Loan is
outstanding) or the occurrence of an Event of Default, the Lender
shall have in any jurisdiction where enforcement hereof is
sought, in addition to all other rights and remedies which the
Lender may have under law and equity, the following rights and
remedies, all of which may be exercised with or without further
notice to the Borrowers and without a prior judicial or
administrative hearing or notice, which notice and hearing are
expressly waived: (a) to enforce or foreclose the liens and
security interests created under the Loan Documents, this
Agreement or under any other agreement relating to the Collateral
by any available judicial procedure or without judicial process,
(b) to enter any premises where any records of the Collateral may
be located for the purpose of taking possession or removing the
same, (c) to dispose of Collateral or any part thereof upon such
terms as shall be acceptable to the Lender, all at the Lender's
sole option and as the Lender in its sole discretion may deem
advisable.
8.03 Specific Powers. (a) The Lender may at any time,
after demand (if a Demand Loan is outstanding) or the occurrence
of an Event of Default, at the Lender's sole discretion: (i) give
notice of assignment to any account debtor of the Borrowers; (ii)
collect the Collateral directly and charge the collection costs
and expenses to the Borrowers' Revolving Loan or Demand Loan
Account; (iii) settle or adjust disputes and claims directly with
account debtors of the Borrowers for amounts and upon terms which
the Lender considers advisable, and credit the demand deposit
account with the net amounts received in payment of the
Collateral; (iv) exercise all other rights granted in this
Agreement and the other Loan Documents; (v) receive, open and
dispose of all mail addressed to the Borrowers and notify the
Post Office authorities to change the address for delivery of the
Borrowers' mail to an address designated by the Lender; (vi)
endorse the name of the Borrowers on any checks or other evidence
of payment that may come into possession of the Lender and on any
invoice, freight or express bill, bill of lading or other
documents; (vii) in the name of the Borrowers or otherwise,
demand, sue for, collect and give acquittance for any and all
monies due or to become due on the Collateral; (viii) compromise,
prosecute or defend any action, claim or proceeding concerning
the Collateral; and (ix) do any and all things necessary and
proper to carry out the purposes contemplated in this Agreement,
to carry out the purposes contemplated in this Agreement, the
other Loan Documents and any other agreement between the parties.
(b) The Lender and any person acting as its attorney
hereunder shall not be liable for any acts or omissions or for
any error of judgment or mistake of fact or law, except for bad
faith and willful misconduct. The Borrowers agree that the
powers granted hereunder, being coupled with an interest, shall
be irrevocable so long as any Obligation remains unsatisfied.
Notwithstanding the foregoing, it is understood that the Lender
is under no duty to take any of the foregoing actions and that
after having made demand upon the account debtors of the
Borrowers for payment, the Lender shall have no further duty as
to the collection or protection of the Collateral or any income
therefrom and no further duty to preserve any rights pertaining
thereto, other than the safe custody thereof.
8.04 Duties After Default. (a) The Borrowers will, at
the Lender's request, assemble all records concerning the
Collateral and make it available to the Lender at places which
the Lender may reasonably select, and will make available to the
Lender all premises and facilities of the Borrowers for the
purpose of the Lender taking possession of the records concerning
the Collateral. In the event any goods called for in any sales
order, contract, invoice or other instrument or agreement
evidencing or purporting to give rise to any of the Collateral
shall not have been delivered or shall be claimed to be defective
by any customer, the Lender shall have the right in its
discretion to use and deliver to such customer any goods of the
Borrowers to fulfill such order, contract or the like so as to
make good any such Collateral. If any Collateral shall require
repairing, maintenance, preparation, or the like, or is in
process or other unfinished state, the Lender shall have the
right, but shall not be obligated, to do such repairing,
maintenance, preparation, processing or completion of
manufacturing for the purpose of putting the same in such salable
form as the Lender shall deem appropriate, but the Lender shall
have the right to sell or dispose of such Collateral without such
processing.
(b) The net cash proceeds resulting from the
collection or other disposition of the Collateral shall be
applied first to the expenses, including all reasonable
attorneys' and professional fees, of the Lender and then to the
satisfaction of all Obligations, application as to particular
Obligations or against principal or interest to be at the
Lender's sole discretion and the balance of the proceeds, if any,
shall be paid to the Borrowers. The Borrowers shall be liable to
the Lender and shall pay to the Lender on demand any deficiency
which may remain after such collection or other disposition of
the Collateral.
8.05 Borrowers' Indemnification. Except for the willful
misconduct of the Lender, the Lender shall not, under any
circumstances or in any event whatsoever, have any liability for
any error or omission or delay of any kind occurring in the
collection or other disposition of any of the Collateral,
including the settlement, collection or payment of any of the
Collateral or any instrument received in payment thereof, or any
damage resulting therefrom. Except for the willful misconduct of
the Lender, the Borrowers shall indemnify and hold harmless the
Lender against any claim, loss or damage arising out of the
collection or other disposition of any of the Collateral,
including the settlement, collection or payment of any of the
Collateral or any instrument received in payment thereof.
8.06 Cumulative Remedies. The enumeration of the
Lender's rights and remedies set forth in this Article is not
intended to be exhaustive and the exercise by the Lender of any
right or remedy shall not preclude the exercise of any other
rights or remedies, all of which shall be cumulative and shall be
in addition to any other right or remedy given hereunder or under
any other agreement between the parties or which may now or
hereafter exist in law or at equity or by suit or otherwise. No
delay or failure to take action on the part of Lender in
exercising any right, power or privilege shall operate as a
waiver thereof, nor shall any single or partial exercise of any
such right, power or privilege preclude other or further exercise
thereof or the exercise of any other right, power or privilege or
shall be construed to be a waiver of any Event of Default. No
course of dealing between the Borrowers and the Lender or their
employees shall be effective to change, modify or discharge any
provision of this Agreement or to constitute a waiver of any
default.
MISCELLANEOUS.
9.01 Expenses. Whether or not the transaction herein
contemplated shall be consummated, the Borrowers agree to pay all
out-of-pocket expenses (including reasonable fees and expenses of
the Lender's counsel) of the Lender incurred in connection with
the preparation of this Agreement, the Notes, the other Loan
Documents and any amendments or supplements hereto and thereto,
and all expenses (including reasonable fees and expenses of the
Lender or the Lender's counsel) incidental to the collection of
monies due hereunder or under the Notes or the other Loan
Documents and/or the enforcement of the rights (including the
protection thereof) of the Lender under any provisions of this
Agreement, and the Notes and the other Loan Documents. The
Lender agrees that its counsel fees, through the closing, shall
be calculated on an hourly basis.
9.02 Set-off. The Borrowers give the Lender a lien and
right of setoff for all the Obligations upon and against all
their deposits, credits, collateral and property now or hereafter
in the possession or control of the Lender or in transit to it.
The Lender may, upon demand or the occurrence of any Event of
Default, apply or set off the same, or any part thereof, to any
Obligations of the Borrowers to the Lender.
9.03 Covenants to Survive, Binding Agreement. All
covenants, agreements, warranties and representations made
herein, in the Notes, in the other Loan Documents, and in all
certificates or other documents of the Borrowers shall survive
the advances of money made by the Lender to the Borrowers
hereunder and the delivery of the Notes, and the other Loan
Documents. All such covenants, agreements, warranties and
representations shall be binding upon and inure to the benefit of
the Lender and its successors and assigns, whether or not so
expressed.
9.04 Cross-Collateralization. All Collateral which the
Lender may at any time acquire from the Borrowers or from any
other source in connection with Obligations arising under this
Agreement and the other Loan Documents shall constitute
collateral for each and every Obligation, without apportionment
or designation as to particular Obligations. All Obligations,
however and whenever incurred, shall be secured by all Collateral
however and wherever acquired. The Lender shall have the right,
in its sole discretion, to determine the order in which the
Lender's rights in or remedies against any Collateral are to be
exercised and which type of Collateral or which portions of
Collateral are to be proceeded against and the order of
application of proceeds of Collateral as against particular
Obligations.
9.05 Cross-Default. The Loans shall be cross-defaulted with
each other and with current and future financing accommodations
extended or to be extended by the Lender to the Borrowers so that
a default under any loan to the Borrowers shall be an Event of
Default hereunder and under all of the other loans extended by
the Lender.
9.06 Notices. All notices, requests, consents, demands and
other communications hereunder shall be in writing and shall be
mailed by registered or certified first class mail or delivered
by an overnight courier to the respective parties to this
Agreement as follows:
If to the Borrowers:
Warrantech Corporation
300 Atlantic Street
Stamford, Connecticut 06901
Attention: Bernard J. White
With a copy to: Newman Tannenbaum
Helpern, Syracuse & Hirschtritt
900 Third Avenue
New York, New York 10022-4775
Attn.: Arthur Lowenstein, Esq.
If to the Lender: People's Bank
350 Bedford Street
Stamford, CT 06901
Attention: Mr. Jonathan Mills
Its Vice President
With a copy to: Diserio Martin O'Connor & Castiglioni
One Atlantic Street
Stamford, Connecticut 06901
Attention: Kevin T. Katske, Esq.
All notices shall be deemed effective one (1) business day after
dispatch if sent by overnight courier. In all other cases,
notice shall be deemed effective five (5) days after dispatch.
9.07 Transfer of Lender's Interest. The Borrowers agree
that the Lender, in its sole discretion, may freely sell, assign
or otherwise transfer participations, portions, co-lender
interests or other interests in all or any portion of the
indebtedness, liabilities or obligations arising in connection
with or in any way related to the financing transactions of which
this Agreement is a part. In the event of any such transfer, the
transferee may, in the Lender's sole discretion, have and enforce
all the rights, remedies and privileges of the Lender. The
Borrowers consent to the release by the Lender to any potential
transferee, so long as such transferee is a financial
institution, of any and all information including, without
limitation, financial information pertaining to the Borrowers as
the Lender, in its sole discretion, may deem appropriate. If
such transferee so participates with the Lender in making loans
or advances hereunder or under any other agreement between the
Lender and the Borrowers, the Borrowers grant to such transferee
and such transferee shall have and is given a continuing lien and
security interest in any money, securities or other property of
the Borrowers in the custody or possession of such transferee,
including the right of set off, to the extent of such
transferee's participation in the Obligations.
9.08 New Laws. In the event that any law, regulation, treaty
or official directive or the interpretation or application
thereof by any court or governmental authority in each case not
in effect on the date hereof, or the compliance with any
guideline or request of any governmental authority:
(a) subjects the Lender to any tax with respect to any
amounts payable hereunder or under the Notes by the Borrowers or
otherwise with respect to the transactions contemplated
hereunder, except for taxes on the overall net income of the
Lender imposed by the United States of America, the State of
Connecticut, or any central bank or agency thereof, or
(b) imposes, modifies or deems applicable any deposit,
insurance, reserve, special deposit, capital maintenance or
similar requirement against assets held by, or deposits in or for
the account of, or loans or advances or commitments to make the
Revolving Loans, the Demand Loans or advances by the Lender,
other than such requirements the effect of which is included in
the determination of the interest rates for the Revolving Loans,
the Demand Loans or advances made thereunder, or
(c) imposes upon the Lender any other condition with
respect to the Revolving Loans, the Demand Loans or advances to
be made thereunder;
and the result of any of the foregoing is to increase the cost of
the Lender, reduce the income receivable by or return on equity
of the Lender or impose any expense upon the Lender with respect
to the Revolving Loans, the Demand Loans or advances thereunder,
the Lender shall so notify the Borrowers. The Borrowers agree to
pay the Lender the amount of such increases in cost, reduction in
income, reduced return on equity or additional expenses as and
when such cost, reduction in income, reduced return on equity or
additional expense is incurred or determined, plus interest, upon
presentation by the Lender of a statement in the amount and
setting forth the Lender's calculation thereof, in determining
such amount, the Lender may use any reasonable averaging and
attribution methods; which statement shall be deemed true and
correct absent manifest error. Such amount shall be deemed to be
an advance under the Revolving Loan Commitment and the Demand
Loan facility, as the case may be.
9.09 Section Headings, Severability, Entire Agreement.
Section and subsection headings have been inserted herein for
convenience of the Lender only and shall not be construed as part
of this Agreement. Every provision of this Agreement, the Notes
and the other Loan Documents is intended to be severable; if any
term or provision of this Agreement, the Notes, the other Loan
Documents, or any other document delivered in connection herewith
shall be invalid, illegal or unenforceable for any reason
whatsoever, the validity, legality and enforceability of the
remaining provisions hereof or thereof shall not in any way be
affected or impaired thereby. All Exhibits and Schedules to this
Agreement shall be deemed to be part of this Agreement. This
Agreement, the other Loan Documents, and the Exhibits and
Schedules attached hereto and thereto embody the entire agreement
and understanding between the Borrowers and the Lender and
supersede all prior agreements and understandings relating to the
subject matter hereof unless otherwise specifically reaffirmed or
restated herein.
9.10 Counterparts. This Agreement may be executed in any
number of counterparts, each of which, when so executed and
delivered shall be an original, and it shall not be necessary
when making proof of this Agreement to produce or account for
more than one counterpart.
9.11 Governing Law; Consent to Jurisdiction. This Agreement
and the other Loan Documents, and all transactions, assignments
and transfers hereunder and thereunder, and all the rights of the
parties, shall be governed as to validity, construction,
enforcement and in all other respects by the laws of the state of
Connecticut. Each of the Borrowers agrees that the Superior
Court for the Judicial District of Stamford/Norwalk or the United
States District Court for the District of Connecticut at
Bridgeport shall have jurisdiction to hear and determine any
claims or disputes pertaining to the financing transactions of
which this Agreement is a part and/or to any matter arising or in
any way related to this Agreement or any other agreement between
the Lender and each of the Borrowers expressly submits and
consents in advance to such jurisdiction in any action or
proceeding.
9.12 Uniform Commercial Code. The Borrowers shall comply
with, and Lender shall have all the rights and remedies of a
secured party under the Uniform Commercial Code, as enacted in
Connecticut, as amended.
9.13 Further Assurances. At the request of the Lender, the
Borrowers agree that at their expense, it shall promptly execute
and deliver all further instruments and documents, and take all
further action, that may be reasonably necessary or desirable, or
that the Lender may reasonably request, in order to perfect and
protect any security granted or purported to be granted hereby
including, but not limited to UCC-1 financing statements, or to
enable the Lender to exercise and enforce its rights and remedies
hereunder.
9.14 Prejudgment Remedy Waiver; Waivers. EACH OF THE
BORROWERS ACKNOWLEDGES THAT THE LOANS EVIDENCED HEREBY ARE
COMMERCIAL TRANSACTIONS AND EACH WAIVES ITS RIGHT TO NOTICE AND
HEARING UNDER CHAPTER 903A OF THE CONNECTICUT GENERAL STATUTES,
OR AS OTHERWISE ALLOWED BY ANY STATE OR FEDERAL LAW WITH RESPECT
TO ANY PREJUDGMENT REMEDY WHICH THE LENDER MAY DESIRE TO USE, AND
FURTHER WAIVES DILIGENCE, DEMAND, PRESENTMENT FOR PAYMENT, NOTICE
OF NONPAYMENT, PROTEST AND NOTICE OF ANY RENEWALS OR EXTENSIONS.
THE BORROWERS ACKNOWLEDGE THAT EACH MAKES THIS WAIVER KNOWINGLY,
WILLINGLY AND VOLUNTARILY AND WITHOUT DURESS, AND ONLY AFTER
EXTENSIVE CONSIDERATION OF THE RAMIFICATIONS OF THIS WAIVER WITH
ITS ATTORNEYS.
9.15 Jury Trial Waiver. EACH OF THE BORROWERS WAIVES TRIAL
BY JURY IN ANY COURT IN ANY SUIT, ACTION OR PROCEEDING ON ANY
MATTER ARISING IN CONNECTION WITH OR IN ANY WAY RELATED TO THE
FINANCING TRANSACTIONS OF WHICH THIS AGREEMENT IS A PART OR THE
ENFORCEMENT OF ANY OF LENDER'S RIGHTS. EACH OF THE BORROWERS
ACKNOWLEDGES THAT IT MAKES THIS WAIVER KNOWINGLY, WILLINGLY AND
VOLUNTARILY AND WITHOUT DURESS, AND ONLY AFTER EXTENSIVE
CONSIDERATION OF THE RAMIFICATIONS OF THIS WAIVER WITH ITS
ATTORNEYS.
The parties have executed this Agreement as of December 21,
1995.
Signed in the presence of:
Linda McNeil
____________________________ WARRANTECH CORPORATION
Richard Cummings Bernard J. White
____________________________ By____________________________
Its VP Finance, CFO,
Treasurer
Linda McNeil
____________________________ WARRANTECH AUTOMOTIVE, INC.
Richard Cummings Bernard J. White
____________________________ By____________________________
Its Treasurer
Linda McNeil
____________________________ WARRANTECH CONSUMER PRODUCT
SERVICES, INC.
Richard Cummings Bernard J. White
____________________________ By____________________________
Its Treasurer
Linda McNeil
____________________________ WARRANTECH DIRECT, INC.
Bernard J. White Desiree Kim Caban
____________________________ By____________________________
Its Secretary
Kevin Katske
____________________________ PEOPLE'S BANK
Jeffrey T. Bounty Jonathan Mills
____________________________ By____________________________
Its Vice President
EXHIBIT 3 (q)
AGREEMENT
THIS AGREEMENT dated as of January 1, 1996, by and
among WARRANTECH CORPORATION, a Delaware corporation (the
"Corporation"), and AMERICAN INTERNATIONAL GROUP, INC., a
Delaware corporation ("AIG").
WHEREAS, the parties to this Agreement are parties
to that certain Securities Purchase Agreement dated July 19,
1993 (the "Securities Purchase Agreement") and, in
accordance with the terms and conditions hereof, desire to
terminate the Securities Purchase Agreement; and
WHEREAS, the Corporation, AIG Europe (UK)
Limited, a wholly owned subsidiary of AIG incorporated in
England ("AIGE"), Warrantech (UK)Limited, a wholly owned
subsidiary of the Corporation incorporated in England
("Warrantech (UK)"), and Techmark Services Limited, a
company incorporated in England ("Techmark"), are parties to
that certain Joint Venture Agreement dated as of July 26,
1993 (the "Joint Venture Agreement") and, in accordance with
the terms and conditions hereof, the Corporation and AIG
desire to cause the termination of the Joint Venture
Agreement; and
WHEREAS, certain subsidiaries of AIG and
Warrantech Automotive, Inc., a wholly owned subsidiary of
the Corporation, are parties to that certain General Agency
Agreement effective March 1, 1993 (the "General Agency
Agreement").
NOW, THEREFORE, in consideration of the mutual
covenants and promises herein contained and for other good
and valuable consideration, the parties hereto agree as
follows:
ARTICLE I
TRANSACTIONS COVERED BY THIS AGREEMENT;
______EVENTS TO OCCUR AT CLOSING______
1.1 Purchase of Preferred Stock and Options by
the Corporation. Subject to and in reliance upon the
representations, warranties, terms and conditions of this
Agreement, the Corporation agrees to purchase from AIG, and
AIG agrees to sell, (I) 3,234,697 shares of the
Corporation's Convertible Preferred Stock, Series A (par
value $.0007 per share) (the "Preferred Stock"), as
represented by that certain stock certificate (number PA 1)
dated October 18, 1993 (the "Stock Certificate"), and (ii)
the Principal Option and Secondary Option (as those terms
are defined in Sections 5.01(a) and (b) of the Securities
Purchase Agreement) (the "Options"), as represented by that
certain option letter issued by the Corporation and dated
October 18, 1993 (the "Option Letter"). The consideration
payable by the Corporation for the Preferred Stock and the
Options shall be an aggregate of U.S.$6,430,000.
1.2 Purchase of Joint Venture Interest by AIGE.
Subject to and in reliance upon the representations,
warranties, terms and conditions of this Agreement, AIG
agrees to cause AIGE to purchase from the Corporation and
Warrantech (UK), and the Corporation agrees, and agrees to
cause Warrantech (UK), to sell, (i) an aggregate of 8090 B
Ordinary Shares of Techmark (the "Techmark Shares"), as
represented by those certain stock certificates (numbers
004, 006 and 008) dated July 26, 1993, October 25, 1993 and
September 30, 1994, respectively (the "Techmark Share
Certificates"), and (ii) that certain loan of the
Corporation to Techmark in the amount of U.S.$980,122.50
(which is deemed to include all principal and interest
accrued and unpaid thereon through the date hereof) (the
"Techmark Loan"), pursuant to that certain loan agreement
dated September 26, 1994 executed by Techmark in favor of
Warrantech (UK). The consideration payable by AIGE for the
Techmark Shares and the Techmark Loan shall be
U.S.$2,858,317.50 and U.S.$980,122.50, respectively, for an
aggregate of U.S.$3,838,440. In addition, subject to and in
reliance upon the representations, warranties, terms and
conditions of this Agreement, AIG agrees to cause Techmark
to pay to Warrantech (UK) the sum of U.S.$195,600 (the
"Software License Payment") which represents all amounts
which are or may be due and owing to Warrantech (UK) under
the Software License Agreement (as Defined in Section 4.4
hereof) from AIGE and/or Techmark.
1.3 Netting of Payments Under Sections 1.1 and
1.2; Deferred Payment of Balance of Section 1.1 Payments.
(a) At the Closing referred to in Section 1.8 below, the
entire amounts otherwise payable by AIGE pursuant to Section
1.2 shall be netted against the amount payable by the
Corporation under Section 1.1. No cash payments shall be
made at the Closing by either the Corporation or AIGE in
respect of any amounts payable under Section 1.1 or Section
1.2 of this Agreement and Neither party will have any
further obligation after the Closing with respect to such
amounts except for the payment obligations of the
Corporation as set forth in Section 1.3(b) below.
(b) The balance (the "Section 1.1 Balance") of
the amount payable by the Corporation under Section 1.1,
U.S. $2,395,960, shall be paid by wire transfer of
immediately available funds in 11 equal quarterly
installments, without interest, of U.S. $205,000 commencing
on June 30, 1996 and on each September 30, December 31,
March 31 and June 30 thereafter through and including
December 31, 1998 with a final payment of U.S. $140,960 due
and payable on March 31, 1999. In the event that a date on
which a quarterly installment of the Section 1.1 Balance is
not a day on which banks in the City of New York are
generally open to the public (a "business day"), the due
date for such payment shall be the business day immediately
preceding such date. AIG and its affiliates will have no
obligation to notify the Corporation of the due date of any
installment of the Section 1.1 Balance. In the event (I)
the Corporation shall fail to pay all or a portion of any
quarterly installment of the Section 1.1 Balance on or prior
to the due date thereof and shall have failed to make such
payment within five (5) days of written notice of such
failure to pay, (ii) the Corporation commences a voluntary
case or proceeding under Title 11, U.S. Code or any similar
federal or state law for the relief of debtors (a
"bankruptcy law"), or (iii) an involuntary case or
proceeding is commenced under a bankruptcy law which is not
dismissed or withdrawn within 60 days of the commencement of
such involuntary case or proceeding, then in any such event
(each, a "Default Event") and with no further act by AIG or
any of its affiliates, the entire remaining unpaid amount of
the Section 1.1 Balance shall become immediately due and
payable and interest shall accrue on and after such date on
the entire amount thereof at the rate of 12% per annum (the
"Default Rate"). Upon the occurrence of any Default Event,
AIG shall have the option, exercisable in the sole
discretion of AIG, to convert all or a portion of the
remaining unpaid amount of the Section 1.1 Balance, together
with any accrued interest thereon at the Default Rate to the
date of conversion, into an equal aggregate liquidation
preference of convertible preferred stock (the "Default
Stock") of the Corporation having identical terms and
provisions to those of the Preferred Stock as set forth in
the Securities Purchase Agreement and in the certificate of
designation of the Preferred Stock, except that the Default
Stock shall be convertible into the Corporation's common
stock at any time and the conversion terms of the Default
Stock shall have the benefit of the anti-dilution provisions
contained in the Preferred Stock as if the Default Stock had
been issued on the date of this Agreement. The Corporation
will be permitted to prepay all or a portion of the Section
1.1 Balance remaining at any time and any such prepayment,
if less than the full payment of the remaining Section 1.1
Balance, shall be applied against the then remaining amount
of the Section 1.1 Balance in the inverse order of maturity
of the remaining quarterly installments.
1.4 Payment of Contingent commission Funds with
Respect to Subject Business. Subject to and in reliance
upon the representations, warranties, terms and conditions
of this Agreement, AIG agrees to release contingent
commission funds totaling an aggregate of U.S. $1,480,000.00
(the "Contingent Commission Payment Amount"), with respect
to the following four specific books of business for the
1993 and 1994 policy years (March 1, 1993 - February 28,
1994 and March 1, 1994 - April 30, 1995) (the "Subject
Business")and which is comprised of the following amounts:
1993 used vehicle contracts (no U.S $ payment), 1993 new
vehicle contracts (U.S. $927,917.83 payment), 1994 used
vehicle contracts (U.S. $84,203.98 payment and 1994 new
vehicle contracts (U.S. $467,878.19 payment).
1.5 Provision by the Corporation of Letters of Credit.
Subject to and in reliance upon the representations,
warranties, terms and conditions of this Agreement, the
Corporation shall provide to AIG, as agent for each of the
insurance companies subscribing to the General Agency
Agreement (the "Subscribing Companies"), a letter of credit
(the "Letter of Credit") to be in effect initially until
July 31, 1996 and issued by Peoples Bank in an amount equal
to U.S. $1,480,000.00 in the form attached hereto as Exhibit
A-1. In addition, the Corporation shall provide to AIG, as
agent for each of the Subscribing Companies, at least thirty
(30) days prior to the expiration of the Letter of Credit or
any Replacement Letter of Credit (as hereafter defined), a
replacement letter of credit having terms substantially
identical to those of the Letter of Credit and otherwise in
form and substance, and issued by a bank, satisfactory to
AIG (each, a "Replacement Letter of Credit"), except that
the expiration of each Replacement Letter of Credit shall be
at least one year after the date of its issuance. The
Corporation shall have an obligation to provide a Letter of
Credit and Replacement Letters of Credit such that there
will be continually in place from the date of this Agreement
through December 31, 2002, a letter of credit substantially
identical to the Letter of Credit or any Replacement Letter
of Credit. In the event that there remain unresolved claims
at December 31, 2002 with respect to matters covered by the
letter of Credit or any Replacement Letter of Credit, at
AIG's request the Corporation will obtain a letter of credit
from a bank acceptable to AIG comparable to that set forth
as Exhibit A-1 hereto in form and with a termination date
satisfactory to AIG and covering the full amount of the
unresolved claims. The cost of obtaining the Letter of
Credit, each Replacement Letter of Credit and any subsequent
letter of credit (including, but not limited to, commitment
and other fees and fees and expenses of counsel) shall be
borne entirely by the Corporation. The Letter of Credit and
each Replacement Letter of Credit are transferable in AIG's
sole discretion to one or more of its affiliates. For
purposes of the preceding sentence "affiliate" means any
person directly or indirectly controlling or controlled by
or under direct or indirect common control with AIG.
(Paragraph 1.6 has been redacted.)
(Paragraph 1.6 has been redacted.)
(Paragraph 1.6 has been redacted)
(paragraph 1.6 has been redacted)
1.7 Commutation of Houston General Insurance Company
Reinsurance. AIG agrees that it will use its reasonable
efforts after the Closing to attempt to negotiate with
Houston General Insurance company ("Houston General"), on
terms reasonably satisfactory to AIG, the transfer back to
Houston General of the reinsurance portfolio relating to
consumer product extended service contract programs provided
by Warrantech Consumer Product Services, Inc. and other
affiliates of the Corporation and ceded by Houston General
to certain affiliates of AIG; provided, that the
consideration to be paid by AIG in exchange for the release
of liability associated with the commutation and portfolio
transfer shall be either (a) not less than the unearned
premium (net of ceding commission previously paid but
including the risk fee portion of such unearned premium) or
(b) all amounts in excess of the sum of U.S. $1,000,000 and
claims previously paid in conjunction with the reinsurance
agreement; and provided, further, that notwithstanding any
provision of the applicable reinsurance agreement to the
contrary premiums shall be deemed earned on a pro rata basis
over the lives of the ceded policies. It is further agreed
that AIG will not, and will cause its affiliates not to,
advert in the course of marketing to information derived as
a reinsurer of Houston General.
1.8 Closing. The transactions described in Sections
1.1, 1.2, 1.3, 1.4 and 1.5(a) shall take place at a closing
(the "Closing") to be held at the offices of AIG, 70 Pine
Street, New York, New York 10270 on the date of this
Agreement (the "closing Date") or on such other date and at
such time as may be mutually agreed upon. At the Closing,
the Corporation shall do the following: (i) cause
Warrantech (UK) to deliver the Techmark Share Certificates
and assign the Techmark Loan to AIG with all requisite
endorsements for transfer and assignment; (ii) deliver or
cause the delivery of the fully executed Letter of Credit to
AIG; and (iii) deliver to AIG the deeds of resignation of
each of Messrs. Joel San Antonio, William Tweed and Bernard
White, each in the form (but fully completed) set forth as
Exhibit B hereto. At the Closing, AIG shall do the
following: (I) deliver the Stock Certificate and the Option
Letter to the Corporation with all requisite endorsements
for transfer; (ii) cause an amount equal to the Contingent
Commission Payment Amount to be wire transferred to the
order of the Corporation; and (iii) deliver to the
Corporation the letters of resignation of each of Messrs.
Kurt R. Schwamberger and Joseph Umansky, each in the form
(but fully completed) set forth as Exhibit C Hereto. No
transaction shall be deemed to have been completed at the
closing until all transactions to occur at the Closing shall
have been completed.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE CORPORATION
The Corporation represents and warrants to AIG as
follows:
2.1 Organization and Standing of the Corporation
and Warrantech (UK); Corporate Action. Each of the
Corporation and Warrantech (UK) is duly organized, validly
existing and in good standing under the laws of its
jurisdiction of incorporation and has all requisite
corporate power and authority to enter into this Agreement
and to consummate the transactions contemplated hereby. All
necessary actions of the Board of Directors and shareholders
of the corporation, Warrantech (UK) and any other affiliate
of the Corporation required by law or otherwise for the
execution and performance of this Agreement and the
consummation of the transactions contemplated hereby have
been taken. This agreement is a legal, valid and binding
agreement of each of the corporation and the other parties
hereto (other than AIG), enforceable against the corporation
and such other parties in accordance with its terms.
2.2 Consents and Approvals. No authorization,
consent, approval, waiver, license, permit, exemption of or
filing with any court or governmental department,
commission, board, bureau, agency or instrumentality,
domestic or foreign, or other third party, is required to be
obtained by the Corporation or any other party hereto (other
than AIG) or any affiliate of the Corporation to execute and
deliver this Agreement or to consummate the transactions
contemplated hereby.
2.3 Compliance with Other Instruments. Neither
the execution and delivery of this Agreement, nor the
consummation of the transactions contemplated hereby by the
corporation or any of its affiliates, will breach, or result
in a default under (including after notice and passage of
time), or otherwise violate, (i) any mortgage, indenture,
lease, agreement or instrument to which the corporation or
any of its affiliates is, or any of their respective
properties or assets are, bound, (ii) the certificate of
incorporation (or similar organization document) or by-laws
of the Corporation or any of its affiliates or (iii) any
judgment, decree, order, statute, rule or regulation
applicable to the Corporation or any of its affiliates or
any of its or their respective properties and assets.
2.4 Joint Venture Interest. The Techmark Shares
and the Techmark Loan comprise the entire interest of the
Corporation and its affiliates in Techmark, and the transfer
at the Closing of the Techmark Shares and the Techmark Loan
to AIGE in accordance with the terms of this Agreement will
vest good title to same in AIGE, free and clear of any and
all security interests, liens, claims or other encumbrances
and free of any rights of first refusal.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF AIG
AIG represents and warrants to the Corporation as
follows:
3.1 Organization and Standing of AIG and AIGE;
Corporate Action. Each of AIG and AIGE is duly
organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation and has all
requisite corporate power and authority to enter into this
Agreement and to consummate the transactions contemplated
hereby. All necessary actions of the board of Directors and
shareholders of AIG and AIGE and any other affiliate of AIG
required by law or otherwise for the execution and
performance of this Agreement and the consummation of the
transactions contemplated hereby have been taken. This
Agreement is a legal, valid and binding agreement of AIG
enforceable against AIG in accordance with its terms.
3.2 Consents and Approvals. No authorization,
consent, approval, waiver, license, permit, exemption of or
filing with any court or governmental department,
commission, board, bureau, agency or instrumentality,
domestic or foreign, or other third party, is required to be
obtained by AIG or any affiliate of AIG to execute and
deliver this Agreement or to consummate the transactions
contemplated hereby.
3.3 Compliance with Other Instruments. Neither
the execution and delivery of this Agreement, nor the
consummation of the transactions contemplated hereby by AIG
or any of its affiliates, will breach, or result in a
default under (including after notice and passage of time),
or otherwise violate, (i) any mortgage, indenture, lease,
agreement or instrument to which AIG or any of its
affiliates is, or any of their respective properties or
assets are, bound, (ii) the certificate of incorporation (or
similar organization document) or by-laws of AIG or any of
its affiliates or (III) any judgment, decree, order,
statute, rule or regulation applicable to AIG or any of its
affiliates or any of its or their respective properties and
assets.
3.4 Interest in the Corporation. The transfer at
the closing of the Preferred Stock and the Options to the
Corporation in accordance with the terms of this Agreement
will vest good title to same in the corporation, free and
clear of any and all security interests, liens, claims or
other encumbrances and free of any rights of first refusal.
ARTICLE IV
POST-CLOSING AGREEMENTS OF THE PARTIES
4.1 Non-solicitation Agreement by the
Corporation. During the period from and after the Closing
through and including September 30, 1997, the Corporation
will not, and will cause its affiliates not to, (i) solicit
or service any warranty or extended service contract
business from Omni Auto in the United States and Canada
(except for the performance of administrative services on
behalf of AIG and/or its affiliates pursuant to the General
Agency Agreement) and (ii) provide any administrative
services related to any warranty or extended service
contract business from Comet in the United Kingdom except if
an affiliate or affiliates of AIG provide insurance related
to such warranties or extended services contracts. In
connection with soliciting or providing any such
administrative services for Comet-related business in the
United Kingdom during the period referred to in the
preceding sentence, the Corporation shall not, and shall
cause its affiliates not to, in any way hold themselves out
as representing, assisting or otherwise acting in concert
with AIG and/or its affiliates in connection with the
writing of insurance for the Comet program.
4.2 Agreement Not to Compete in Japan. During
the period from and after the Closing, through and including
December 31, 1997, the Corporation and each of the
Management Stockholders will not, and each of the
Corporation and each of the Management Stockholders will
cause its or his respective affiliates and associates not
to, in any way, directly or indirectly (whether in person,
by mail, by telephone or other electronic communication
medium or otherwise), on its or his own behalf or on behalf
of or in conjunction with any other person, partnership,
firm, corporation, business trust, estate, joint venture,
limited liability company, association, trade group, holding
company, insurance company or insurance holding company,
trading company, consortium, conglomerate, bank or bank
holding company, governmental entity or organization or any
other entity, solicit, engage in, participate in, invest in,
make loans to, consult with, provide services relating to,
or otherwise assist in any activity in Japan including,
without limitation, any activity that directly or indirectly
(i) competes with the business of, (ii) would have the
effect of diverting or taking away business from, or (iii)
induces customers or potential customers not to engage in
business with, Techmark or any of its subsidiaries,
presently formed or which may be formed in the future, in
Japan, except that the provisions of this Section 4.2 will
not preclude the Corporation from conducting business with
CompUSA or any of its wholly owned subsidiaries in Japan.
4.3 Continuation of Software License and Support
Agreement. With respect to that certain Software License
and Support Agreement dated July 26, 1993 by and among the
Corporation, Techmark and AIGE (the "Software License
Agreement"), (i) in accordance with the terms of Section
18.2 thereof, the Software License Agreement is hereby
novated as provided in Section 18.2(b) thereof and Sections
18.2 and 18.3 of the Software License Agreement shall
otherwise be complied with, (ii) as a result of the novation
effected by clause (I) of this sentence, the Software
License Agreement shall continue in accordance with its
terms with AIGE as the successor licensee thereunder, except
that the Support Schedule attached to the Software License
Agreement and contemplated by Section 12.1 thereof shall be
terminated effective on the close of business on the Closing
Date, and (iii) the parties hereto agree that, subject to
the payment to Warrantech (UK) referred to in the last
sentence of Section 1.2 hereof, no further sums are due to
Warrantech (UK) from AIGE and/or Techmark under the Software
License Agreement for past or future services or with
respect to any other matter thereunder.
4.4 Survival of General Agency Agreement. The
General Agency Agreement shall remain in full force and
effect on and after the Closing Date in accordance with its
terms (including the terms and provisions of Addendum D
thereto in the form executed by or on behalf of Warrantech
Automotive, Inc., as general agent under the General Agency
Agreement, on November 10, 1995 (the "Effective Addendum
D")); provided, that, (i) Effective Addendum D is deemed
amended consistent with the provisions of paragraph 1.6
above, (ii) Addendum D-2 (regarding "core" business written
after April 30, 1995), Addendum D-3 (regarding "non-core"
business written prior to October 1, 1995), Addendum D-4
(regarding "non-core" business written after September 30,
1995), Addendum E (regarding Warrantech Automotive's
indemnification of Subscribing Companies), and Addendum F
(regarding miscellaneous modifications and amendments to the
General Agency Agreement) which are executed and attached
hereto as Exhibit E shall be in full force and effect, and
(iii) any form of Addendum D which is not specifically
listed in this section, executed and attached as part of
Exhibit E (including, but not limited to, the April 1994
draft), whether in draft or executed by any party, has no
force and effect and shall not be used by any person for any
purpose (including by using any terms or provisions thereof
for the purpose of interpreting the meaning or intent of the
terms and provisions of Effective Addendum D, D-2, D-3 or D-4
as included in Exhibit E).
4.5 Audit Fees. Any amounts payable by any
affiliate of AIG in connection with overrides and/or audit
fees in connection with the writing of domestic automobile
warranty and vehicle service contract business, including
but not limited to amounts pursuant to the agreements
entered into regarding Universal Warranty Corporation and
Mechanical Breakdown Administrators, Inc. production, as
well as any other agreements with any other producers, and
regardless of whether any such agreement was executed, in
draft, verbally agreed or otherwise, are hereby waived and
all such agreements are hereby terminated. No further amounts
are due in conjunction with such payments either for
previously produced business or for business produced after
Closing Date. This paragraph shall not affect fees received
by the Corporation in connection with business produced by
Dimension Holdings Inc. or any other sub-producer of the
Corporation.
ARTICLE V
EFFECT OF THIS AGREEMENT
5.1 Termination of Securities Purchase Agreement.
At the close of business on the closing Date, the Securities
Purchase Agreement shall be terminated and have no further
force and effect, and each party hereto waives entirely any
dispute or claim with or against any other party to this
Agreement in respect of the Securities Purchase Agreement or
any matter governed thereby. Effective at the close of
business on the Closing Date, each party to this Agreement
hereby releases from liability each other party hereto with
respect to the Securities Purchase Agreement or any matter
governed thereby.
5.2 Termination of Joint Venture Agreement. At
the close of business on the Closing Date, the Joint Venture
Agreement shall be terminated as between AIGE on the one
hand, and the Corporation and Warrantech (UK) on the other,
and have no further force and effect as between the two sets
of parties (except that Article XI of the Joint Venture
Agreement shall survive such termination; provided, that
nothing contained herein shall be construed as an admission
or acknowledgment that any party to the Joint Venture
Agreement has received any confidential information from any
other party pursuant to the Joint venture Agreement), and
the Corporation and Warrantech (UK) on the one hand, and AIG
and AIGE on the other, waive entirely any dispute or claim
with or against each other or against Techmark in respect of
the Joint Venture Agreement or any matter governed thereby
(other than the Software License Agreement) which shall
continue as provided in Section 4.3 of this Agreement).
Effective at the close of business on the Closing Date, the
Corporation and Warrantech (UK) on the one hand, and AIG and
AIGE on the other, hereby release from liability each other
party with respect to the Joint Venture Agreement or any
matter governed thereby.
5.3 Resolution of dispute Regarding Subject
Business. The parties hereto agree that this Agreement
resolves all disputes and claims among the parties hereto
relating to the interim payment of contingent commission
funds for the 1993 and 1994 underwriting years with respect
to the Subject Business. The Parties hereto agree that the
Subject Business will be run off in the ordinary course of
business and that this Agreement does not purport to address
or resolve other outstanding issues arising pursuant to the
Corporation's performance under the General Agency Agreement
whether or not any of the Corporation and/or its affiliates
or AIG and/or its affiliates are aware of any such other
issues.
ARTICLE VI
MISCELLANEOUS
6.1 No Waiver; Cumulative Remedies. No failure
or delay on the part of the Corporation or AIG in exercising
any right, power or remedy hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise of
any such right, power or remedy preclude any other or
further exercise thereof or the exercise of any other right,
power or remedy hereunder. The remedies herein provided are
cumulative and not exclusive of any remedies provided by
law, except as may be expressly so provided.
6.2 Amendments, Waivers and Modifications. Any
provision in this Agreement to the contrary notwithstanding,
an amendment in or addition or modification to this
Agreement and/or any Exhibit attached hereto hereof may be
made, and compliance with any covenant or provision
contained therein may be omitted or waived, only by a
written instrument making specific reference to this
Agreement signed by the party against whom any such
amendment, addition, modification or waiver is sought. Any
waiver or consent may be given subject to satisfaction of
conditions stated therein and any waiver or consent shall be
effective only in the specific instance and for the specific
purpose for which given.
6.3 Addresses for Notice, etc. All notices, requests,
demands and other communications provided for hereunder
shall be in writing and mailed, or delivered by overnight
courier, or otherwise actually delivered to the applicable
party at the addresses indicated below:
If to the Corporation, to its principal office at:
Warrantech Corporation
300 Atlantic Street
Stamford, Connecticut 06901
Attention: Joel San Antonio
With a copy to:
Ralph A. Siciliano, Esq.
Newman Tannenbaum Helpern
Syracuse & Hirschtritt LLP
900 Third Avenue
New York, New York 10022
If to AIG, to its principal office at:
American International Group, Inc.
70 Pine Street
New York, New York 10270
Attn: Thomas R. Tizzio
With a copy to:
American International Group, Inc.
70 Pine Street
New York, New York 10270
Attn: General Counsel
All such notices, requests, demands and other communications
shall, if mailed, be effective 10 days after being deposited
in the mails, or if delivered to the overnight courier or
actually delivered, when actually delivered; provided, that
any notice given pursuant to Section 1.3(b)(i) and the last
paragraph of Section 1.6 shall be delivered only by hand or
by overnight courier and shall be deemed effective on the
date received if delivered by hand on the day following the
date of delivery to the overnight courier, whether or not
actually received.
Unless AIG otherwise provides notice to the
Corporation, all wire transfers of quarterly installments
pursuant to Section 1.5(b) hereof or payments of Remittance
Amounts pursuant to Section 1.6 hereof shall be made by the
Corporation to the following account:
Citibank, NY
ABA# 021000089
AIG CP Pool
A/C# 40654308
6.4 Costs and Expenses. Each party hereto shall be
responsible for his or its own costs and expenses (including
legal fees and expenses) incurred in connection with this
Agreement.
6.5 Binding Effect; Assignment. This Agreement shall
be binding upon and inure to the benefit of the Corporation
and AIG and their respective successors and assigns.
6.6 Survival of Representations and Warranties. All
representations and warranties made in this Agreement or any
other instrument or document delivered in connection
herewith shall survive the execution and delivery hereof.
6.7 Prior Agreements. This Agreement, together with
the Exhibits attached hereto, constitutes the entire
agreement among the parties and supersedes any prior
understandings or agreements concerning the specific subject
matter set forth herein, except to the extent expressly
provided for herein.
6.8 Severability. The provisions of this Agreement
are severable, and, in the event that any court of competent
jurisdiction shall determine that any one or more of the
provisions or part of a provision contained in this
Agreement shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other
provision or part of a provision of this Agreement; but the
Agreement shall be reformed and construed as if such invalid
or illegal or unenforceable provision, or part of a
provision, had never been contained herein, and such
provisions or part reformed so that it would be valid, legal
and enforceable to the maximum extent.
6.9 Governing Law. This Agreement shall be governed
by, and construed in accordance with, the laws of the State
of New York, without reference to its conflicts of law
provisions.
6.10 Injunctive Relief. The parties hereto agree
that, in the event of a breach of any provision of this
Agreement, the aggrieved party may be without an adequate
remedy at law. The parties therefore agree that in the event
of a breach of any provision of this Agreement, the
aggrieved party may elect to institute and prosecute
proceedings in any court of competent jurisdiction to
enforce specific performance or to enjoin the continuing
breach of such provision, as well as to obtain damages for
breach of this Agreement. By seeking or obtaining any such
relief, the aggrieved party will not be precluded from
seeking or obtaining any other relief to which it may be
entitled.
6.11 Headings. Article, Section and subsection
headings in this Agreement are included herein for
convenience of reference only and shall not constitute a
part of this Agreement.
6.12 Counterparts. This Agreement may be executed in
any number of counterparts, all of which taken together
shall constitute one and the same instrument, and any of the
parties hereto may execute this Agreement by signing any
such counterpart.
6.13 Further Assurances. From and after the date of
this Agreement, upon the request of AIG or the Corporation,
the Corporation and AIG, as the case may be, shall execute
and deliver to the requesting person at the expense of the
requesting person, such instruments, documents and other
writings as may be reasonably necessary to confirm and carry
out and to effectuate fully the intent and purposes of this
Agreement.
WARRANTECH CORPORATION
BY: _Joel San Antonio___________
AMERICAN INTERNATIONAL GROUP, INC.
BY: _Thomas Tizzio______________
EXHIBIT 99 (b)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
THE OAK AGENCY, INC., an Illinois )
corporation, and OAK FINANCIAL )
SERVICES, INC., an Illinois )
corporation, )
)
Plaintiffs, )
)
v. )
) NO. 91 C 6677
WARRANTECH DEALER BASED SERVICES, )
INC., a Delaware corporation )
) Honorable James B.
) Moran
) Senior District
Defendant. ) Court Judge
AMENDED COMPLAINT
NOW COME, the Plaintiffs, The Oak Agency, Inc., an
Illinois corporation, and Oak Financial Services, Inc., an
Illinois Corporation (collectively, "Oak"), by their attorneys,
Richard W. Hillsberg of Kovitz, Shifrin & Waitzman and
Alexander D. Kerr, Jr., and Jeffrey B. Rose of Tishler & Wald,
Ltd., and for their Complaint against Warrantech Dealer Based
Services, Inc., a Delaware corporation, Warrantech Dealer Based
Service, Inc., a Connecticut Corporation and Warrantech
Automotive, Inc., a Connecticut Corporation (collectively,
"Warrantech"), Defendants herein, state as follows:
GENERAL ALLEGATIONS
PARTIES
1. The Oak Agency, Inc. and Oak Financial Service, Inc.
are Illinois corporations with their Registered Agents and
offices in Cook County, Illinois and principal places of
business in DuPage County, Illinois, all of which are located
within the Northern District of Illinois.
2. Warrantech Dealer Based Services, Inc. ("Warrantech-
I") is a Delaware corporation which had its principal places of
business in Stamford, Connecticut and Euless, Texas. Warrantech
Dealer Based Services, Inc. (Warrantech-II) is a Connecticut
corporation with its principal places of business in Stamford,
Connecticut and Euless, Texas. Warrantech-II is a wholly owned
subsidiary of Warrantech-I. During the summer of 1992
Warrantech-II changed its name to Warrantech Automotive, Inc.
("Warrantech Automotive"). On information and belief,
Warrantech Automotive as a wholly owned subsidiary of
Warrantech-I is thereby an affiliate of Warrantech Corporation,
a Connecticut corporation which is located in Stamford,
Connecticut which, on information and belief, is the parent of
Warrantech-I.
JURISDICTION
3. Jurisdiction of this Court is based on Code Section
1332 of Title 28 of the United States Code in that there is the
diversity of citizenship of the parties and an amount in
controversy which exceeds $50,000 exclusive of interest of
costs.
4. Venue is in this District based upon 28 U.S.C. Code
Section 1391(c) in that Warrantech has a Registered Agent in
Cook County, Illinois and further actually does business in
virtually all counties in the Northern District of Illinois.
CLAIM (BREACH OF CONTRACT)
5. At all times material herein, including but not
limited to December 1, 1985 through the current date,
Warrantech and/or Warrantech's predecessor, Dealer Based
Services, Inc., a Texas corporation which had its principal
place of business in Euless, Texas ("DBS"), was and/or is an
administrator of or controls a manager of certain lines of
insurance which insures dealers of automobiles and other
automotive vehicles including vans, trucks and recreational
vehicles against losses under certain Vehicle Service Contracts
("VSCs") and breakdown insurance policies (collectively, as
"Service Contracts") sold by such dealers to their respective
customers. Warrantech acts on behalf of both the insurance
carrier and such dealers in the administration of Service
Contracts, as set out in various agreements between
Warrantech's predecessor, DBS and as of on or about November 1,
1989 and subsequent thereto, Warrantech and such dealers
(collectively, "Dealer Administration Agreements").
6. At all times material herein, Oak, in the ordinary
course of business, did and does meet with such dealers, any
one of whom may desire to enter into a Dealer Administration
Agreement with Warrantech or Warrantech's predecessor, DBS, or
with such other administrators whose products Oak was
authorized to handle. Pursuant to such Dealer Administration
Agreements, the dealer would then sell such Service Contracts
under the Warrantech label to the dealer's customers and
process the related paperwork from the dealer to Warrantech and
from Warrantech to its insurance carrier.
7. On or about January 1, 1986, Oak and Warrantech's
predecessor, DBS, entered into a certain written agreement (the
"Agreement") wherein DBS granted Oak (a) exclusive authority in
particular geographic areas to solicit dealers on behalf of DBS
and (b) exclusive authority to solicit other agents
(collectively, "Other Agents(s)") who would then meet with
dealers and solicit such dealers to enter into Dealer
Administration Agreements. Each such Other Agent was to enter
into an Agency Agreement (the "Agency Agreement", collectively,
the "Agency Agreements") with Oak whereby Oak would be entitled
to commissions upon Service Contracts sold by dealers solicited
by the Other Agent. A copy of the Oak-DBS Agreement as well as
its amendments is attached to the original Complaint as Exhibit
A, is made a part of the Amended Complaint hereby and are
hereafter collectively referred to as the "Commission
Agreement". Within one year Oak had signed up approximately two
hundred dealers with DBS per the Dealer Administration
Agreement.
8. On or about November 1, 1989, on information and
belief, Warrantech Corporation, located in Stamford
Connecticut, acquired the assets of DBS of Euless, Texas
through Warrantech-I, a wholly owned subsidiary of Warrantech
Corporation. Pursuant to that acquisition, Warrantech
Corporation, Warrantech I, Warrantech II, and Warrantech
Automotive, Inc. assumed the obligations of the Commission
Agreement.
9. At all times, except as herein after set out in this
Complaint, the Commission Agreement, and the Agency Agreements
were in full force and effect and Oak's authority pursuant to
these Agreements was in full force and effect.
10. On or about June 10, 1991, Warrantech issued to Oak a
30-Day Termination Letter ("Termination Letter") pursuant to
the Commission Agreement. Accordingly, the Commission Agreement
was terminated with regard to Oak effectively on July 10, 1991.
11. The Termination Letter transmitted a proposed new
agreement ("New Proposal") which Warrantech specified must be
executed not later than June 20, 1991. The New Proposal would
have eliminated Oak's status as an independent agent by
requiring Oak to carry Warrantech Approved products only. The
New Proposal would have eliminated Oak's right to post-
termination commissions on a book of business defined as
dealers who had executed DBS and/or Warrantech Dealer
Administration Agreement(s) during the effective active term of
Oak's Commission Agreement. The New Proposal also sought to
reduce compensation by eliminating the Agent override
commission. Oak did not execute the New Proposal.
12. The effective active term of the Commission Agreement
was January 1, 1986 - July 10, 1991 (hereinafter referred to as
the "Commission Agreement Active Term").
13. Oak performed services under the terms of the
Commission Agreement from its original execution (January 1,
1986) through receipt of the Termination letter (June 10,
1991). The services were accepted by Warrantech and Warrantech
paid commissions when due and as due pursuant to the Commission
Agreement. Oak made efforts to render services after receipt of
the Termination Letter but was denied supplies from Warrantech
and instructed by Warrantech that continued services were not
to be rendered.
14. Pursuant to paragraph 7 of the Agreement, (a) Oak is
entitled to receive commissions upon contracts sold by any
dealer (solicited by Oak) subsequent to termination, and (b)
Oak is entitled to receive agent override commissions upon all
contracts sold by any dealer (solicited by Oak or by Other
Agents) subsequent to termination.
15. A dealer who was solicited by Oak or by an Other
Agent during the Commission Agreement Term and who signed a
Dealer Administration Agreement during the Commission
Agreement Term is hereinafter referred to as a "Dealer"
(collectively, "Dealers" or "Oak-WDBS book").
16. During the time of the Commission Agreement Active
Term, Oak had solicited more than 195 Dealers who had signed
Dealer Administration Agreements with DBS or its successor,
Warrantech.
17. On or about June 14, 1991, Oak through its attorneys,
transmitted to Warrantech a letter which stated that Oak
expected and demanded that Warrantech pay Oak commissions and
AOC (Additional Override Commission) upon all contracts sold
subsequent to cancellation by any Dealer. A copy of the letter
is marked Exhibit B, attached to the initial Complaint and made
a part of this Amended Complaint hereby.
18. In connection with the termination, Oak received from
Warrantech's attorneys, Haynes and Boone, a letter which states
in pertinent part,
Although the Agreement will termination on July
10, 1991, WDBS will continue to remit commissions to
Oak that become due under paragraph 7 of the
Agreement. Although the Agreement does not provide a
specific time when commissions shall no longer be
accrued, we understand that Illinois law would call
for commissions to be paid after termination, if at
all, only for a time deemed to be reasonable under
the circumstances.
The communication then goes on to say that Warrantech, using
industry standards, has determined that...
commissions are normally paid to agents only on
vehicle service contracts sold before the date of
termination, which usually is thirty days after the
agent has received written notice of termination. To
avoid any dispute with Oak regarding commissions,
WDBS has authorized us to notify your client that
despite the established industry practice, and the
fact that Oak is being paid for commissions accruing
during the 30-day notice period, WDBS will pay Oak
commissions on all vehicle service contracts sold (as
defined in the Agreement) before September 9, 1991 be
dealerships Oak had obtained. This is not required by
the express terms of the Agreement, but is a
reasonable approach that will provide Oak with
commissions on all vehicle service contracts sold for
up to sixty days after the date of termination of
Oak's Agreement with WDBS.
A copy of the Hayes and Boone letter is marked Exhibit C,
attached to the initial complaint and made a part of this
Amended Complaint hereby.
19. In addition to the foregoing, Haynes and Boone letter
also stated:
WDBS will pay commissions to Oak at the rate in
effect on the termination date provided that the
vehicle service contracts are sold by automobile
dealers obtained by Oak and the Dealer Agreements
with WDBS (or with Dealer Based Services, Inc.)
are in effect at the termination date...
20. Oak is entitled to receive commissions upon contracts
sold by the Dealer solicited by Oak notwithstanding that the
contract has been sold subsequent to the Commission Agreement
Active Term July 10, 1991 termination date. Oak is entitled to
commissions upon contracts sold by any Dealer if any such
Dealer's Dealer Administration Agreement becomes effective
subsequent to the termination date, so long as such Dealer
previously entered into a prior Dealer Administration Agreement
during the Commission Agreement Term. Further, Oak is entitled
to override commissions upon all contracts sold by any Dealers
subsequent to the effective July 10, 1991 termination date in
that paragraph 7 of the Agreement expressly provides for the
continued payment of commissions by Warrantech to Oak on
account of Oak's and/or Other Agents' original solicitation of
the Dealers in question which resulted in the execution by
each such Dealer of the Dealer Administration Agreement with
either DBS or thereafter Warrantech during the Commission
Agreement Active Term.
21. Oak and DBS expressly bargained for the post-
termination commission provision. Prior to the Commission
Agreement, Oak had the majority of its book of business (Oak
signed dealers) with another Administrator (MIA) which was
failing and leaving the marketplace. Subsequent to the
execution of the Commission Agreement and throughout the Active
Agency Agreement Term, Oak placed the majority of its MIA book
of business and subsequent new business with Warrantech (the
"Oak-Warrantech book of business"). The effect of the post-
termination commissions provision was to leave the Oak-
Warrantech book of business intact even if the parties ceased
their active relationship. Post-termination, the parties would
compete for new business (dealers) while leaving the Oak-
Warrantech book intact for their mutual benefit.
22. Warrantech breached the Agreement by refusing to pay
out the commissions to which Oak was entitled, post-
termination, Warrantech further breached the Commission
Agreement by preventing Oak from rendering service to dealers
within the pre-termination book, initiating competition for
dealers within the Oak-Warrantech book of business, and causing
the book to split into three parts: first, dealers which placed
their VSC business with Warrantech; second, dealers which
placed their VSC business with Oak: and third, dealers which
placed their VSC business with other VSC programs unconnected
with either Warrantech or Oak, including manufacturers programs
and other independent programs.
23. Oak has performed all obligations required by it to
be performed in accordance with the terms of the Commission
Agreement.
24. Since Warrantech (a) interfered with the contractual
relations pre-termination and post-termination between dealers
within the Oak Warrantech book of business and Oak by, inter
alia, preventing Oak from servicing those dealers and (b)
Warrantech has deprived Oak of the commission income
represented by dealers within the Oak-Warrantech book who
abandoned both Oak and Warrantech, Oak is entitled to
continuing damages per the Agreement.
25. The differing interpretations of the Commission
Agreement results in a wide variance in the amount of the
ultimate commissions which may be due to Oak as a result of
Warrantech's termination of the Commission Agreement and the
continuing breach of the post-termination terms. If Oak's
interpretation is correct, Oak would be entitled to a greater
amount of commissions than if Warrantech's interpretation is
correct. Under any calculation and based on the past experience
of Oak's commission entitlement, the amount at issue is greater
than $50,000.00.
26. Pursuant to Title 28 U.S.C. Code Section 2201 and
Rule 57 of the Federal Rules of Civil Procedure, Oak seeks a
determination of its rights to post-termination commissions
under the Commission Agreement. It seeks a determination that
the said paragraph 7 of the Agreement entitles Oak to be paid
commissions on service contracts sold by any Dealers solicited
by Oak and by any Other Agents (as defined in the Agreement
prior to termination), whether said contracts were sold before
or after July 10, 1991, the Commission Agreement termination
date. It further seeks a determination that said entitlement
extends beyond the September 9, 1991 cutoff date asserted by
Warrantech's attorneys; that said entitlement be calculated on
the entire Oak-Warrantech book of business less commission
earned by Oak post-termination on contracts sold by Dealers
which had been within the Oak-Warrantech book of business and
now remain with Oak.
27. Additionally, Oak has been informed by Warrantech
that Warrantech would not pay and has not paid Oak any
commissions for any period subsequent to September 1, 1991.
Accordingly, Oak seeks commissions that may be due Oak by
Warrantech for contracts sold and which should have been sold
from September, 1991 to the day this Court grants relief in
favor of Oak and an award of those commissions with
prejudgement interest and all fees, costs and expenses
incurred in enforcing its contract entitlement.
WHEREFORE, The Oak Agency, Inc., an Illinois corporation,
and Oak Financial Services, Inc., an Illinois corporation,
Plaintiffs herein, seek:
A. A determination of their rights under the Commission
Agreement attached as Exhibit A to this complaint herein,
resulting in a Declaratory Judgement in its favor against
Warrantech I, II and Warrantech Automotive, Inc., as the
operating successor to Warrantech Dealer Based Services, which
issued the termination letter and initially deprived Oak of its
post-termination commissions that pursuant to the Commission
Agreement, The Oak Agency, Inc. and Oak Financial Services,
Inc. are entitled to commissions and Additional Override
Commission on all Service Contracts sold after July 10, 1991 by
any Dealer solicited by Oak or by any Other Agency as said
terms are defined in the agreement and who entered into or
enters into a Dealer Administration Agreement or similar
Agreement with DBS-or Warrantech.
B. An accounting from Warrantech I, II and Warrantech
Automotive, Inc., and judgement thereon as to all commissions
which may be due Oak through the date of this Court's
determinations of rights and damages in Oak's favor with
interest from the date when each commission payment should have
been made until the date of judgement hereunder.
C. A judgement against Warrantech I, II and Warrantech
Automotive, Inc. for net projected future damages consisting of
commissions calculated on the pre-termination Oak-Warrantech
book of business less the mitigation of damages defined as the
Commissions to be earned by the Oak-Warrantech dealers who
continued to do business with Oak present valued to the date of
judgement in a present value amount not less than
$6,405,088.00.
D. Such other further relief as this Court deems just.
OAK AGENCY, INC., an Illinois
corporation, and OAK
FINANCIAL SERVICES, INC.,
Plaintiffs
By ___A.D. Kerr, Jr._______
One of their attorneys
Alexander D. Kerr, Jr.
TISHLER & WALD, LTD.
200 South Wacker Drive
Suite 2600
Chicago, Illinois 60606
(312) 876-3800
Richard W. Hillsberg
Kovitz, Shifrin & Waitzman
750 Lake Cook Road
Suite 350
Buffalo Grove, IL 60089
(708) 537-0500
CERTIFICATE OF SERVICE
The undersigned, being first duly sworn, upon oath
deposes and states that she served copies of the Plaintiff's
Amended Complaint, upon the following counsel of record:
George E. Bullwinkel, Esq. Ladd A. Hirsch, Esq.
Eric F. Greenberg, Esq. Haynes and Boone, L.L.P.
Thomas D. Laue, Esq. 3100 NationsBank Plaza
Bullwinkel Partners, Ltd. 901 Main Street
19 South LaSalle Street Dallas, Texas 75202-3714
Suite 1300
Chicago, Illinois 60603
by depositing true and correct copies of same into the U.S.
Mail depository located at 200 South Wacker Drive, Chicago,
Illinois, in properly addressed, first-class postage prepaid
envelopes on this 19th day of January, 1996, at or before the
hour of 4:00 p.m.
Susan A. Harris___________
SUSAN A. HARRIS
SUBSCRIBED AND SWORN to
before me this 19th day
of January, 1996.
__Kina A. Wagner-Sutter_______
NOTARY PUBLIC
EXHIBIT 99 (c)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
THE OAK AGENCY, INC., an Illinois )
corporation, and OAK FINANCIAL )
SERVICES, INC., an Illinois )
corporation, )
)
Plaintiffs, )
)
v. )
) NO. 96 C 1106
WARRANTECH CORPORATION, )
a Connecticut corporation, )
JOEL SAN ANTONIO and WILLIAM TWEED,)
)
Defendants. )
COMPLAINT
NOW COME, the Plaintiffs, The Oak Agency, Inc., an
Illinois corporation, and Oak Financial Services, Inc., an
Illinois Corporation (collectively, "Oak"), by their
attorneys, Richard W. Hillsberg of Kovitz, Shifrin &
Waitzman, Alexander D. Kerr, Jr., and Jeffrey B. Rose of
Tishler & Wald, Ltd., and for their Complaint against
Warrantech Corporation, a Connecticut Corporation, Joel San
Antonio and William Tweed, Defendants herein, state as
follows:
GENERAL ALLEGATIONS
PARTIES
1. The Oak Agency, Inc. and Oak Financial Service,
Inc. are Illinois corporations with their Registered Agents
and offices in Cook County, Illinois and principal places of
business in DuPage County, Illinois, all of which are
located within the Northern District of Illinois.
2. Warrantech Dealer Based Services, Inc.
("Warrantech-I") is a Delaware corporation which had its
principal places of business in Stamford, Connecticut and
Euless, Texas. On information and belief, Warrantech
Automotive as a wholly owned subsidiary of Warrantech-I is
thereby an affiliate of Warrantech Corporation
("Warrantech"), a Connecticut corporation which is located
in Stamford, Connecticut which, on information and belief,
is the parent of Warrantech I. Warrantech Dealer Based
Services, Inc. (Warrantech-II) was a Connecticut
corporation with its principal places of business in
Stamford, Connecticut and Euless, Texas. Warrantech-II was
a wholly owned subsidiary of Warrantech-I. During the
summer of 1992, Warrantech-II changed its name to Warrantech
Automotive, Inc., ("Warrantech Automotive").
3. Joel San Antonio is the principal shareholder,
Chairman of the Board, and Chief Executive Officer of
Warrantech Corporation and a resident of Stamford,
Connecticut.
4. William Tweed is a shareholder, member of the
Board, and an officer of Warrantech Corporation. He
served as President of Warrantech Dealer Based Services
for a limited period of time in 1990 and/or 1991. He is a
resident of Stamford, Connecticut.
JURISDICTION
5. Jurisdiction of this Court is based on Section
1332 of Title 28 of the United States Code in that there is
the diversity of citizenship of the parties and an amount in
controversy which exceeds $50,000 exclusive of interest of
costs.
6. Venue is in this District based upon 28 U.S.C.
Section 1391(a) and (c) in that Warrantech has a Registered
Agent in Cook County, Illinois and further actually does
business in virtually all counties in the Northern District
of Illinois. Additional, a substantial part of the tortious
acts hereinafter alleged occurred in the Northern District
of Illinois.
CLAIM
(Interference with Business Relations)
7. At all times material herein, including but not
limited to December 1, 1985 through the current date,
Warrantech and/or Warrantech's predecessor, Dealer Based
Services, Inc., a Texas corporation which had its principal
place of business in Euless, Texas ("DBS"), was and/or is an
administrator of or controls a manager of certain lines of
insurance which insures dealers of automobiles and other
automotive vehicles including vans, trucks and recreational
vehicles against losses under certain Vehicle Service
Contracts ("VSCs") and breakdown insurance policies
(collectively, as "Service Contracts") sold by such dealers
to their respective customers. Warrantech acts on behalf of
both the insurance carrier and such dealers in the
administration of Service Contracts, as set out in various
agreements between Warrantech's predecessor, DBS and as of on
or about November 1, 1989 and subsequent thereto, Warrantech
and such dealers (collectively, "Dealer Administration
Agreements").
8. At all times material herein, Oak, in the ordinary
course of business, did and does meet with such dealers, any
one of whom may desire to enter into a Dealer Administration
Agreement with Warrantech or Warrantech's predecessor, DBS,
or with such other administrators whose products Oak was
authorized to handle. Pursuant to such Dealer
Administration Agreements, the dealer would then sell such
Service Contracts under the Warrantech label to the dealer's
customers and process the related paperwork from the dealer
to Warrantech and from Warrantech to its insurance carrier.
9. On or about January 1, 1986, Oak and Warrantech's
predecessor, DBS, entered into a certain written agreement
(the "Agreement") wherein DBS granted Oak (a) exclusive
authority in particular geographic areas to solicit dealers
on behalf of DBS and (b) exclusive authority to solicit
other agents (collectively, "Other Agents(s)") who would
then meet with dealers and solicit such dealers to enter
into Dealer Administration agreements. Each such Other
Agent was to enter into an Agency Agreement (the "Agency
Agreement" (collectively, the "Agency Agreements") with Oak
whereby Oak would be entitled to commissions upon Service
Contracts sold by dealers solicited by the Other Agent. A
copy of the Oak-DBS Agreement as well as its amendments is
attached as Exhibit A, is made a part of the Complaint
hereby and is hereafter collectively referred to as the
"Commission Agreement". Within one year Oak had signed up
approximately two hundred dealers with DBS.
10. On or about November 1, 1989, on information and
belief, Warrantech Corporation, located in Stamford,
Connecticut, acquired the assets of DBS of Euless, Texas
through Warrantech-I, a wholly owned subsidiary of
Warrantech Corporation. Pursuant to that acquisition,
Warrantech Corporation, Warrantech I, Warrantech II, and
Warrantech Automotive, Inc. assumed the obligations of the
Commission Agreement.
11. At all times, except as herein after set out in
this Complaint, the Commission Agreement, and the Agency
Agreements were in full force and effect and Oak's authority
pursuant to these Agreements was in full force and effect.
12. On or about June 10, 1991, Warrantech issued to
Oak a 30-Day Termination Letter ("Termination Letter")
pursuant to the Commission Agreement. Accordingly, the
Commission Agreement was terminated with regard to Oak
effectively on July 10, 1991. The Termination Letter is
marked Exhibit B, attached hereto and made a part of this
Complaint hereof.
13. The Termination Letter transmitted a proposed new
agreement ("New Proposal") which Warrantech specified must
be executed not later than June 20, 1991. The New Proposal
would have eliminated Oak's status as an independent agent
by requiring Oak to carry Warrantech Approved products only.
The New Proposal would have eliminated Oak's right to post-
termination commissions on a book of business defined as
dealers who had executed DBS and/or Warrantech Dealer
Administration Agreement(s) during the effective active term
of Oak's Commission Agreement. The New Proposal also sought
to reduce compensation by eliminating the Agent override
commission. Oak did not execute the New Proposal.
14. Oak performed services under the terms of the
Commission Agreement from its original execution (January 1,
1986) through receipt of the Termination letter (June 10,
1991). The services were accepted by Warrantech and
Warrantech paid commissions when due and as due pursuant to
the Commission Agreement. Oak made efforts to render
services after receipt of the Termination Letter but was
denied supplies from Warrantech and instructed by Warrantech
that continued services were not to be rendered.
15. By virtue of an as a result of the Commission
Agreement, Oak introduced approximately 450 dealers with
whom it had been doing business from 1981 through 1991 to
Warrantech subsequent to the execution of the Commission
Agreement in 1986.
16. From 1986 through June, 1991, the Oak-WDBS "book
of business" consistently numbered a range of from 200 to
450 number of automobile dealers.
17. That when the Commission Agreement was negotiated
and executed it was understood by the parties that the
Commission Agreement mutually intended that Oak would
deliver the majority of its then book of business consisting
of in excess of two hundred (200) active automobile dealers
to DBS (and thereafter Warrantech) to be signed to Dealer
Administration Agreements.
18. It was further mutually intended that should the
Commission Agreement be terminated, Oak would continue to
service the dealers in the Oak-WDBS book of business with
the expectations that the book of business would remain
intact and that Oak would continue to earn the sales
commissions provided by the Commission Agreement.
19. In April 1991 through June 1991 the defendants and
each of them embarked on a course of conduct designed to
prevent Oak from enjoying the benefit of the Commission
Agreement in the following particulars:
a. Defendants determined that Oak should not be
allowed to represent more than one vehicle
service contract administrator in the vehicle
service contract business.
b. The defendants and each of them determined
that Oak should not be entitled to enjoy the
benefits of the Commission Agreement which
allowed Oak to obtain post-termination
commissions because defendants and each of
them determined it did not want Oak dealing
with Oak's book of business consisting of
dealers which had been signed up to
Warrantech Dealer Administration Agreements.
c. That to achieve the foregoing ends,
defendants and each of them embarked on a
course of conduct designed to separate Oak
from its WDBS book of business and its
prospective business opportunities with the
aforesaid dealers.
20. In order to accomplish this goal, defendants and
each of them directed their subordinates to do the
following:
a. terminate Oak's 1986 contract;
b. hire personnel as WDBS employees to service Oak's
dealers;
c. instruct WDBS staff to decline any Oak request for
information;
d. prevent Oak from obtaining Warrantech Dealer Based
Services supplies and forms;
e. Instruct Oak that it should not service the
dealers who had been signed to WDBS Dealer
Administration Agreements;
f. Further instruct Oak that it should not be in the
dealerships;
g. Prepare and issue new policies and forms without
providing Oak with copies thereof.
21. All of these acts aforesaid were without
justification and were directed towards punishing Oak
because Oak was in communication with G.E. Capital and/or
refused to sign a new "standard" agreement (the "New
Proposal").
22. As a result of the foregoing activities, Oak's
relationship with a substantial number of automobile dealers
was severed during the period June 1991 through December
1991. These dealers either remained with WDBS or went with
third party providers (other independents or manufacturers
programs). The Oak-WDBS active book of business as of
termination is identified in Exhibit C.
23. But for the defendants actions aforesaid, Oak
would have had a reasonable expectancy of entering into
and/or continuing a valid business relationship with inter
alia, all dealers identified in Exhibit C.
24. Defendants and each of the defendants purposely
interfered and defeated this legitimate expectancy thereby
causing harm to the plaintiff.
25. Each of the defendants had knowledge of the
plaintiffs' expectancy in that:
a. they had each discussed the post-termination
commissions provision of the Commission
Agreement with David Robertson, Al Sacko
and/or Gary Traylor.
b. they maintained records of all dealers which
had been signed by Oak to Dealer
Administration Agreement with either DBS or
WDBS at any time prior to Oak's termination.
26. As a result of the aforesaid unjustified acts by
defendants, the plaintiffs incurred damages in excess of
$50,000.00.
WHEREFORE, the Oak Agency, Inc., an Illinois
corporation, and Oak Financial Services, Inc., an Illinois
corporation, plaintiffs herein, seek:
a. Compensatory damages in the present value not
less than $8,043,030.00 in their favor and
against defendants, Warrantech Corporation,
Joel San Antonio, and William Tweed and their
costs of suit.
b. Punitive damages in the amount of
$24,129,040.00 and reasonable attorneys' fees
thereof to punish each of said defendants and
to deter others from conduct similar to that
employed by defendants and each of them in
the instant case.
OAK AGENCY, INC., and Illinois
corporation, and OAK FINANCIAL
SERVICES, INC., Plaintiffs
By:__Alexander D. Kerr________
One of their attorneys
Alexander D. Kerr, Jr.
TISHLER & WALD, LTD.
200 South Wacker Drive
Suite 2600
Chicago, Illinois 60606
(312)876-3800
Richard W. Hillsberg
Kovitz, Shifrin & Waitzman
750 Lake Cook Road
Suite 350
Buffalo Grove, Illinois 60089
(708)537-0500
