NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To the Stockholders of WARRANTECH CORPORATION:
The annual meeting of stockholders of Warrantech Corporation (the
"Company") will be held at the Company's offices located at 150 Westpark Way,
Euless, Texas 76040 on November 7, 1996 at 10:00 A.M., for the following
purposes:
1. To elect five directors to serve until the next annual meeting and
until their successors are duly elected and qualified.
2. To approve an amendment to the Company's 1988 Employee Incentive
Stock Option Plan to increase the maximum aggregate number of shares which
may be issued under options under the Plan from 300,000 shares of Common
Stock to 600,000 shares of Common Stock.
3. To transact such other business as may properly be brought before
the meeting or any adjournments thereof.
Only stockholders of record at the close of business on October 1, 1996
are entitled to notice of and to vote at the annual meeting or any adjournments
thereof.
Your attention is called to the Proxy Statement on the following pages.
Please review it carefully. We hope that you will attend the meeting. If you
do not plan to attend, please sign, date and mail the enclosed proxy in
the enclosed envelope, which requires no postage if mailed in the United States.
By order of the Board of Directors,
DESIREE KIM CABAN
Secretary
October __, 1996
<PAGE>
WARRANTECH CORPORATION
=========================================
PROXY STATEMENT
=========================================
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of Warrantech Corporation (the "Company") of proxies
in the enclosed form for use at the annual meeting of stockholders to be held
on November 7, 1996 and at any adjournments thereof. Any proxy given pursuant
to such solicitation and received in time for the meeting will be noted with
respect to all shares represented by it and will be voted in accordance with
the instructions, if any, given in such proxy. If no instructions are
specified,proxies will be voted FOR the election of the nominees named in the
table on the following page and the amendment of the Company's 1988 Employee
Incentive Stock Option Plan. Any proxy may be revoked by written notice
received by the Secretary of the Company at any time prior to the voting.
The affirmative vote of the majority of the votes cast by stockholders present
in person or represented by proxy at the meeting and entitled to vote is
required in order to elect each of the director nominees.
Only stockholders of record at the close of business on October 1, 1996 will
be entitled to notice of and to vote at the annual meeting. On October 1, 1996
the Company had outstanding 13,082,181 shares of Common Stock. Each
share of Common Stock entitles the record holder thereof to one vote.
<PAGE>
ELECTION OF DIRECTORS (Item 1 on Proxy Card)
A Board of Directors consisting of five directors is to be elected by the
stockholders, to hold office until the next annual meeting and until their
successors are duly elected and qualified. The nominees are listed in the
table below. While the Board of Directors has no reason to believe that any of
those named will not be available as a candidate, should such a situation arise,
the proxy may be voted for the election of other persons as directors.
Director
Name Age Positions with Company Since
Joel San Antonio 43 Chairman of the Board, Chief 1983
Executive Officer and Director
Michael J. Salpeter, D.M.D. 44 President and Director 1993
William Tweed 56 Vice President and Director 1983
Jeff J. White 45 Director 1983
Lawrence Richenstein 43 Director 1993
No family relationships exist among any of the Company's executive officers
or directors, except that Randall San Antonio, President of Warrantech Direct,
Inc. is the brother of Joel San Antonio.
The business experience of each of the Company's directors and nominees for
election to the Board of Directors is as follows:
Joel San Antonio, 43, one of the Company's founders, was a Director, Chief
Executive Officer and President of the Company from incorporation through
February 1988. Since February 1988 Mr. San Antonio has been a Director, Chief
Executive Officer and Chairman of the Board of Directors and since October 27,
1989, he has also been Chairman and Chief Executive Officer of the Company's
principal operating subsidiaries, Warrantech Consumer Product Services, Inc.
("WCPS") and Warrantech Automotive, Inc. In 1975, Mr. San Antonio founded and,
thereafter through August, 1982, served as President of Little Lorraine, Ltd.,
a company engaged in the manufacturing of women's apparel. Mr. San Antonio is
currently a member of the Southwestern Connecticut Area Commerce & Industry
Association, the World Forum, the Connecticut Business and Industry Association,
the Metropolitan Museum of Art, and the Young Presidents' Organization, Inc.
Michael J. Salpeter, D.M.D., 44, has been a Director since 1993 and
effective April 1, 1996 became the Company's President. Prior to April 1996, Dr.
Salpeter co-founded Fulton Health Associates, P.C. ("Fulton Group"), a full
scope dental health center, in July 1979. Between July 1979 and April 1996, in
addition to establishing multiple centers, Dr.Salpeter served as the Fulton
Group's Principal Partner and maintained a full-time practice in general
dentistry. Dr. Salpeter also served as a management and marketing officer of
Knowlton & Associates, a consulting firm involved in health policy and practice
management and as the President and Managing Officer of Lifetyme Care, Inc., a
managed care dental program.
William Tweed, 56, one of the Company's founders, was a Director, Vice
President and Secretary of the Company from incorporation through February 1988.
From February 1988 until April 1, 1996, Mr. Tweed was a Director and President
of the Company. Effective April 1, 1996, Mr. Tweed relinquished his title of
President and became Vice President of the Company, focusing on
international operations. From July 1976 through August 1982, he was Vice
President of Little Lorraine, Ltd. Mr. Tweed served as a Director of Nationwide
Extended Warranty Service, Inc. from on or about October 1981 through on or
about January 1983.
Jeff J. White, 45, one of the Company's founders, has been a Director of the
Company from its inception. Mr. White was Vice President of the Company from
its inception until June 1988 and Treasurer of the Company from its inception
until October 1990. In September 1982, Mr. White, with two partners,established
Marchon Eyewear, Inc. an international distributor of eyewear and sunwear,
including such well known collections as Calvin Klein, Fendi, Disney, and
Flexon. He is Co-President of Marchon and is responsible for internal
operations, information systems, and interfacing with counsel on patent,
trademark, and general legal matters. Mr. White is also an associate trustee of
the North Shore University Hospital Health System.
Lawrence Richenstein, 43, has been President and Chief Executive Officer of
Peak Ventures, Inc., since May, 1996. Peak Ventures, Inc., located in
Farmingdale, New York, provides services to the consumer electronics industry.
Mr. Richenstein also has been a managing member of Longhall Technologies, L.L.C.
since 1994. Longhall Technologies, L.L.C. is a consumer electronics company
located in Farmingdale, New York. From 1985 until July, 1996, Mr. Richenstein
was President and Chief Executive Officer of Lonestar Technologies, Ltd., a
consumer electronics company located in Hicksville, New York. Lonestar
Technologies, Ltd. filed for Chapter 11 bankruptcy protection on January 22,
1996. The proceeding was subsequently converted to a Chapter 7 bankruptcy
liquidation effective July 2, 1996. In addition to having sales and marketing
experience, Mr. Richenstein is involved in product development. Mr. Richenstein
is an attorney admitted to practice in New York who has, in the past, served as
a director of two public companies, both of which were involved in the
electronics industry.
Other Executive Officers And Key Employees
Bernard J. White, 51, has been Vice President-Finance, Treasurer and Chief
Financial Officer since February 1994. From 1992 to February 1994, Mr. White
was Executive Vice President of Finance and Administration/Chief Financial
Officer at ENTEX Information Services, Inc., a reseller of computer hardware,
LAN and WAN designs and services. From 1972 to 1992, Mr. White was employed
by Smith Corona Corporation (SCM Corporation and Hanson Industries, Inc.
following its acquisition of SCM Corporation) in various financial capacities,
ultimately serving from 1979 as Vice President Finance-Controller, overseeing
both domestic and international operations.
Michael A. Basone, 38, has been Vice President and Chief Information Officer
since joining the Company in August 1994. From 1986 to 1994 Mr. Basone held
various systems positions with Pepsi-Cola International, ultimately serving
as Director of Management Information Systems.
Desiree Kim Caban, 31, has been Secretary of the Company since July 1993
and in March 1996 became Director of Human Resources. Prior to March 1996 and
since 1989, Ms. Caban served as the Executive Assistant to the Chairman and the
Office Services Manager for the Company. She has been employed by the Company
since May 1986. Ms. Caban is currently a member of the National Association for
Female Executives and a member of the Society for Human Resource Professionals.
Jeanine Folz, 31, has been Assistant Secretary of the Company since January
of 1995. Since joining the Company in 1987, she has held various customer
service and project analyst positions including Director of Insurance Services
and most recently as Vice President of Insurance Services. She is currently
a member of the Risk and Insurance Management Society and the National
Association for Female Executives.
Ronald Glime, 51, has been President of Warrantech Automotive, Inc. since
October 1992. Prior thereto he was Regional Sales Manager for Warrantech
Automotive, Inc. (then known as Warrantech Dealer Based Services, Inc.) from
February 1991 through October 1992. From 1983 through February 1991, Mr. Glime
was an independent insurance agent for various insurance companies. From 1978
through 1982, Mr. Glime served in various capacities including President of
American Warranty Corp., a company in the warranty administration business.
From 1977 through 1978, Mr. Glime was an agent for Life Investors Insurance Co.
of America, a subsidiary of Life Investors, Inc. Prior thereto, from 1966 until
1977, Mr. Glime was Vice President in charge of the credit life accident and
health division of Life Investors Insurance Co.of America.
Richard Rodriguez, 42, has been Chief Operating Officer of the Company's
Euless, Texas facilities since February 1992. He has been with the Company
since March 1987 and has held the positions of National Service Manager, Vice
President of Operations and Senior Vice President of Operations for WCPS. From
December 1986 through March 1987 he was Manufacturing/Production Manager for
Crown, Cork & Seal. Mr. Rodriguez was a service consultant from June 1984
through October 1986 specializing in the areas of warranty administration,
quality control and parts warehousing and distribution to manufacturers of
consumer electronic products.
Kevin Rupkey, 38, has been President of WCPS since April 1994. Prior
thereto, he was Manager, National Accounts for GE Consumer Marketing from June
1990 where he was responsible for sales and marketing of GE's Service
Protection Plus Program. From 1980 until 1990 Mr. Rupkey held various sales
and marketing positions with GE, including District Sales Manager for GE
Appliances.
Randall San Antonio, 42, has been President of Warrantech Direct, Inc.
since June 1996 and from May 1994 to June 1996 served as that subsidiary's
Vice President and General Manager. Prior thereto he was Vice President of
Finance of Castle Hill Productions Inc. from June 1984.
None of the Company's directors or executive officers is a director of any
other public company.
During the 1996 fiscal year, four of the Company's Directors left the
Board under varying circumstances.
In November 1995, Ms. Jo Ann Duarte, who originally was elected to the
Board as a designee of American International Group, Inc. ("AIG") pursuant to
the terms of the Securities Purchase Agreement among the Company, AIG, and
certain Company shareholders, resigned from the Company's Board of Directors in
connection with her departure from the employ of AIG and was replaced in this
AIG designated position by Mr. Joseph Umansky. In April 1996, Messrs. Umansky
and Schwamberger, the other AIG designee, resigned from the Company's Board of
Directors as part of an agreement between the Company and AIG to terminate
AIG's interest in the Company, among other things. At the time of these
resignations, the Company was not notified of any disagreements with these
Board of Director members.
In June 1996, Mr. William Rueger, who had served the Company as a Director
since 1983, passed away.
Information Concerning Meetings of the Board of Directors
During the fiscal year ended March 31, 1996, the Board of Directors held
five meetings. All such meetings were fully attended except two at which Jeff J.
White was not present and one at which William Rueger and Kurt R. Schwamberger
were not present. The Company has an Audit Committee, which consisted of Messrs.
Rueger and White and Ms. Duarte, who was replaced by Mr. Joseph Umansky for the
February 1996 meeting. Such committee met twice during the 1996 fiscal year.
The Company has a Compensation Committee which consisted of Messrs. Rueger,
Salpeter and White. This committee met four times during the last fiscal year.
<PAGE>
Security Ownership Of Certain Beneficial Owners and Management
The following table sets forth information concerning shares of Common
Stock, par value $.007 per share, the Company's only voting securities, owned
beneficially by each of the Company's Directors and nominees for the Board of
Directors, by each person who is known by the Company to own beneficially more
than 5% of the outstanding voting securities of the Company and by the
Company's executive officers and directors as a group.
Name and Address of Beneficial Owner Amount and Nature of Percent
Beneficial Ownership of Class
Joel San Antonio 3,174,472 shares(1) 22.4%
300 Atlantic Street
Stamford, Connecticut 06901
William Tweed 2,528,987 shares(2) 18.2%
300 Atlantic Street
Stamford, Connecticut 06901
Jeff J. White 1,753,576 shares(3) 12.7%
19 Foxwood Road
Kings Point, New York 11024
Michael Salpeter 779,305 shares(4) 6.0%
300 Atlantic Street
Stamford, CT 06901
Lawrence Richenstein 4,500 shares 0.0%
920 South Oyster Bay Road
Hicksville, New York 11801
All Directors and Executive Officers
as a group (14 persons) 8,398,497 shares(1,2,3,4,5) 52.8%
- - - ------------------
(1) Includes 5,000 shares held by Mr. San Antonio as custodian for two
minor children. Includes 10,800 shares owned by Mr. San Antonio's wife as
to which he disclaims beneficial ownership. Does not include 19,800
shares owned by Mr. San Antonio's brother and sister-in-law and 3,400
shares owned by his mother as to which he disclaims any beneficial
interest. Includes an aggregate of 200,000 shares held in trusts for his
children, of which Mr. San Antonio's wife is a trustee as to which Mr.
San Antonio disclaims beneficial ownership. Includes options to purchase
120,408 shares which became exercisable on October 22, 1993, 120,408
shares which became exercisable on October 22, 1994, 120,408 shares which
became exercisable on October 22, 1996 and 722,448 shares which became
exercisable on October 22, 1995. Does not include options to purchase
120,408 shares which become exercisable on October 22, 1997.
(2) Includes 48,000 shares held by Mr. Tweed as custodian for one child.
Does not include an aggregate of 12,500 shares held by Mr. Tweed's mother
and sister. Includes 1,500 shares held by Mr. Tweed's wife, and 25,000
shares held in trust for the benefit of Mr. Tweed's granddaughter, of
which Mr. Tweed's wife is the trustee, as to which he disclaims any
beneficial interest. Includes options to purchase 93,878 shares which
became exercisable on October 22, 1993, 93,878 shares which became
exercisable on October 22, 1994, 93,878 shares which became exercisable
on October 22, 1996 and 563,265 shares which became exercisable on
October 22, 1995. Does not include options to purchase 93,878 shares
which become exercisable on October 22, 1997. Includes 487,000 shares
held by Mr.Tweed subject to a purchase option agreement with Dr. Michael
Salpeter, effective April 1, 1996.
(3) Does not include an aggregate of 90,000 shares owned by Mr. White's
mother and sister as to which he disclaims any beneficial interest.
Includes options to purchase 85,715 shares which became exercisable on
October 22, 1993, 85,715 shares which became exercisable on October 22,
1994, 85,715 shares which became exercisable October 22, 1996 and
514,291 shares which became exercisable on October 22, 1995. Does not
include options to purchase 85,713 shares which become exercisable on
October 22, 1997.
(4) Includes 7,800 shares held in an IRA in the name of Dr. Salpeter, 7,100
shares held by Dr. Salpeter in trust or as custodian for his daughters,
Nicole and Whitney, 20,000 shares held in a company pension plan of which
Dr. Salpeter serves as a trustee, 200,000 shares held as trustee of
trusts for the benefit of Jonathan and Brandon San Antonio. Includes
2,950 shares held by Dr. Salpeter's wife as to which he disclaims
beneficial ownership. Includes 487,000 shares held by Mr. Tweed subject
to a purchase option agreement with Dr. Salpeter, effective April 1, 1996.
(5) Includes options held by executive officers of the Company to purchase an
aggregate of 88,292 shares which are presently exercisable.
.
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table provides information for the years ended March 31,1996,
1995 and 1994, concerning the annual and long-term compensation of the chief
executive officer and each executive officer whose total annual salary plus
bonuses exceeded $100,000 for the fiscal year ended March 31, 1996.
<TABLE>
<CAPTION>
Long Term Compensation
Annual Compensation Awards(1)
----------------------------------------------- ------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Other Annual Restricted Stock Stock Option All Other
Name and Principal Positions Year Salary Bonus Compensation (2) Awards (Shares) Awards(3) Compensation
--------------- -----------------------------------------------------------------------------------
Joel San Antonio 1996 $450,000 $ 96,974 $20,389 - - -
Chairman of the Board 1995 269,398 576,957 14,329 - - -
and Chief Executive Officer 1994 216,580 20,408 10,794 - 1,204,080 -
William Tweed 1996 350,000 49,097 20,897 - - -
President (5) 1995 265,721 577,773 20,760 - - -
1994 212,109 19,592 14,481 - 938,775 -
Kevin P. Rupkey 1996 150,000 76,689 5,283 - - -
President of Warrantech 1995 90,000 72,010 12,979 4,563 15,000 -
Consumer Product Services, 1994 - - - - - -
Inc.
Michael A. Basone 1996 143,443 22,948 4,800 8,440 9,524 -
Vice President and Chief 1995 74,038 33,537 - 5,063 - -
Information Officer 1994 - - - - - -
Ronald Glime 1996 129,443(4) 11,550 21,483 - - -
President of Warrantech 1995 129,132(4) 7,868 37,489 - 46,667 -
Automotive, Inc. 1994 108,234(4) - - - 20,000 -
<FN>
(1) Its 1988 Stock Option Plan is its only long-term incentive plan.
(2) Included in Other Annual Compensation are auto allowances given to each officer except Glime, life insurance premiums for
Messrs. San Antonio, Tweed, and Rupkey, living expenses paid Ronald Glime in fiscal 1995 and 1996, and relocation expenses
paid Rupkey in fiscal 1995.
(3) All options reflect the 1-for-10 reverse stock split of the Company's shares on August 1, 1990.
(4) Consisting of $125,000 in base salary and $4,443 of commissions in fiscal 1996, $76,668 in base salary and $52,464 of
commissions in fiscal 1995 and $69,058 in base salary and $39,176 of commissions in fiscal 1994.
(5) Effective April 1, 1996, Mr. Tweed became Vice President and Michael J. Salpeter, D.M.D. became President.
</FN>
</TABLE>
<PAGE>
Stock Options
No stock options were granted to any individuals named in the Summary
Compensation Table during fiscal 1996 except Mr. Basone. Mr. Basone was
granted options to purchase 9,524 shares in November 1995 at an exercise price
of $5.25 per share. Such options become exercisable 20% annually over a five
year period. Such options represented 100% of all options granted to employees
during fiscal 1996. The potential realizable value of such options during the
option term is $13,810, assuming a 5% annual rate of stock appreciation and
$30,572, assuming stock price appreciation at an annual rate of 10%. The
Company does not have any outstanding stock appreciation rights.
Options Exercised and Holdings
The following table sets forth information with respect to the individuals
listed in the Summary Compensation Table above, concerning unexercised options
held as of the end of the 1996 fiscal year.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Shares Acquired on Value Number of Unexercised Options at Fiscal Value of Unexercised In-the-Money Options
Name Exercise Realized Year-End(#) at Fiscal Year-End ($)(1)
- - - -----------------------------------------------------------------------------------------------------------------------------------
Exercisable Unexercisable Exercisable Unexercisable
-------------------------------------------------------------------------------
Joel San Antonio - - 1,083,672 120,408 $2,235,074 $248,342
William Tweed - - 844,896 93,878 1,742,598 193,623
Kevin Rupkey - - 10,000 5,000 - -
Michael Basone - - 3,810 5,714 - -
Ronald Glime - - 43,316 59,684 58,333 8,867
(1) Based on the closing price of common stock as reported on the NASDAQ National Market Systems for July 25, 1996.
</TABLE>
<PAGE>
.
Employment Agreements
Effective April 1, 1995 the Company entered into a three-year employment
agreement with Mr. Joel San Antonio, under the terms of the agreement, Mr. San
Antonio's base compensation will be $450,000 per annum, commencing with the
beginning of fiscal 1996, subject to an increase of 10% per annum for the next
three years. Mr. San Antonio is entitled to be reimbursed for all ordinary,
reasonable and necessary expenses incurred by him in the performance of his
duties, including an automobile allowance of $12,000 per annum. The Company
provides Mr. San Antonio with a comprehensive medical-dental insurance policy
as well as disability coverage and a life insurance-death benefit policy in
excess of $1,000,000. Mr. San Antonio is entitled to an incentive bonus equal
to 4% of the net after tax profits of the Company.
Effective April 1, 1996, the Company entered into a two-year employment
agreement with Michael J. Salpeter, to serve as the Company's President. Under
the terms of the agreement, Mr. Salpeter's base salary will be $285,000 per
annum, subject to increases of 10% annually. Mr Salpeter is entitled to be
reimbursed for all ordinary and necessary expenses incurred by him in the
performance of his duties, including an automobile allowance of $6,000 annually.
The Company will provide Mr. Salpeter with a comprehensive medical-dental
insurance policy and will maintain a life insurance-death benefit policy in an
amount in excess of $1,000,000. In the event of disability, Mr. Salpeter will
be entitled to his then base salary for a period not to exceed twelve months.
Mr. Salpeter is entitled to receive an incentive bonus equal to 2% of the net
after tax profits of the Company.
Effective April 1, 1996, the Company entered into a two-year employment
agreement with Mr. Tweed, to serve as Vice President. Under the terms
of the agreement, Mr. Tweed is entitled to base compensation of $100,000 per
annum, subject to increases of 10% annually. Mr. Tweed is entitled to be
reimbursed for all ordinary, reasonable and necessary expenses incurred by him
in the performance of his duties, including an automobile allowance of $6,000
per annum. The Company provides Mr. Tweed with a comprehensive medical-dental
insurance policy as well as disability coverage and a life insurance-death
benefit policy in excess of $1,000,000.
Effective April 4, 1994, the Company entered into an "at will" employment
agreement with Kevin Rupkey, President of Warrantech Consumer Product Services,
Inc. ("WCPS"). Pursuant to such agreement, Mr. Rupkey receives a base salary
initially at a rate of $7,500 per month, subject to review each year with a
minimum cost of living adjustment of 5% or an amount equal to the increased cost
of living for the lower State of Connecticut as measured by the appropriate
index, whichever is greater at the time of each such review. Under the terms of
such agreement, Mr. Rupkey is entitled to receive annual bonuses equal to 50% of
his base salary if certain operating goals for WCPS are attained. Mr. Rupkey
receives an automobile expense allowance comparable to that provided the
Company's other executive officers but in no event less than $400 per month.
The Company also provides Mr. Rupkey with comparable medical/dental and other
insurance coverage to that provided to its other executive officers. The
Company also reimburses all ordinary, reasonable and necessary expenses
incurred by Mr. Rupkey in the performance of his duties. Mr. Rupkey is entitled
to participate in the profit sharing, bonus, pension and other employee benefit
plans that the Company has in effect from time to time.
Effective October 17, 1992, Warrantech Automotive, Inc. entered into a
five-year employment agreement with Ronald Glime, its President. Pursuant to
such agreement, Mr. Glime receives a base salary of $6,389 per month, adjusted
annually. Under the terms of such agreement, Mr. Glime receives monthly bonuses
based upon the number of vehicle service contracts processed by Warrantech
Automotive, Inc. In fiscal 1996, this bonus arrangement was amended. Under an
amended agreement, Mr. Glime is entitled to receive an incentive bonus equal to
a percentage of his current base salary upon the attainment of certain
operating goals established for Warrantech Automotive, Inc. in lieu of his
prior monthly bonuses. In addition, under such agreement, Mr. Glime was
granted options to purchase an aggregate of 100,000 shares of the Company's
common stock under its Incentive Stock Option Plan.
Other Incentives and Compensation
The Company provides executives equity-based long-term incentives through
its 1988 Employee Incentive Stock Option Plan, described elsewhere herein which
is designed to award key management personnel and other employees of the
Company, with bonuses and stock options based on the Company's and the
employee's performance.
The Company's directors and officers receive no other forms of
compensation except for officers who receive distributions under the Company's
Bonus Incentive Plan and except for directors who are reimbursed for actual
expenses incurred by them in connection with the Company's business.
Compliance With Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires that the
Company's executive officers and directors and persons who own more than 10% of
a registered class of the Company's equity securities file reports of ownership
and changes in ownership with the Securities and Exchange Commission (the
"Commission"). Officers, directors and greater than 10% shareholders are
required by Commission regulation to furnish the Company with copies of all
Section 16(a) forms they file. Based on a review of the reports, during the
fiscal year ended March 31, 1996, all Section 16 filing requirements applicable
to its officers, directors and greater than 10% beneficial owners were complied
with except that one report covering two transactions was filed late by Desiree
Kim Caban.
Non-Management Directors' Compensation
Each non-employee director is entitled to receive compensation of $1,000
for each meeting attended in person and $250 for each meeting attended by
telephone. During fiscal 1996, the following fees were paid:
Jeff J. White $4,250.00
William Rueger 3,500.00
Michael J. Salpeter 3,500.00
Kurt R. Schwamberger 3,250.00
Jo Ann Duarte 2,250.00
Lawrence Richenstein 4,500.00
Joseph Umansky 2,500.00
No directors' fees are payable to employees of the Company who serve as
directors.
Performance Graph
The following graph tracks an assumed investment of $100 on March 31, 1991 in
the Common Stock of the Company, The Russell 2000 Index and a peer group
comprised of four companies whose principal operations are similar to those of
the Company, assuming full reinvestment of dividends and no payment of
brokerage or other commissions or fees. Past performance is not necessarily
indicative of future performance.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN AS OF MARCH 31
AMONG WARRANTECH CORPORATION, THE RUSSELL 2000 INDEX AND A PEER GROUP
Measurement Period Warrantech The Russell Peer
(Fiscal Year Covered) Corporation 2000 Index Group
1991 100 100 100
1992 173 121 174
1993 190 139 141
1994 233 154 191
1995 270 163 137
1996 215 211 186
The peer group consists of Unico American Corp., Automobile Protection Corp.,
Harris & Harris Group, Inc. and Homeowners Group, Inc.
Report of Compensation Committee on Executive Compensation
The Compensation Committee of the Board of Directors of the Company (the
"Committee") was formed in February 1994. The Committee is responsible for
setting and administering the compensation policies which govern annual
compensation, long-term compensation, and stock option and ownership programs
for the Company's executive officers as well as the other employees of the
Company and its subsidiaries. The Committee, during fiscal 1996, consisted of
three outside directors, Jeff J. White, William Rueger and Michael J. Salpeter.
The policies and decisions of the committee are designed to achieve the
following goals:
oReflect a pay-for-performance relationship where a portion of total
compensation is at risk.
oAttract and retain key management personnel critical to the Company's
long-term success.
The Committee met extensively during fiscal 1996 and solicited and
evaluated information from independent sources to review the reasonableness of
compensation paid to senior executive officers of the Company, by comparison to
compensation paid by competing companies, companies of similar size, and the
Company's performance, taking into account activities that have special value to
the Company but have no immediate impact on operating results and the increased
level of revenues and income of the Company.
As a result of these deliberations, the Committee made recommendations to
the Board of Directors to change the senior executive compensation agreements
to reflect an increase in base compensation, terminate the Senior Executive
Bonus Plan, and set in lieu of such Plan a reduced incentive bonus equal to 4%
and 2% of the after tax profits of the Company for the Chief Executive Officer
and the President, respectively. Having duly considered the recommendations of
the Committee, the Board of Directors approved these changes at its November 14,
1995 meeting.
In addition, the Committee evaluated the Company's bonus incentive plans
which are designed to reward other key executive officers of the Company with
bonuses based on the Company's attaining certain operating goals. Under these
plans, each eligible participant becomes entitled to an incentive bonus payment
equal to an agreed upon percentage of his then current salary base adjusted
proportionately if net operating revenues and operating income goals are met.
The committee also monitors the Company's Employee Incentive Stock Option
Plan (the "ISOP"). The ISOP, as amended has been in effect since 1988. As of
March 31, 1996, options to purchase an aggregate of 262,454 shares of Common
Stock have been granted under the ISOP of which 2,954 were granted during the
fiscal year ended March 31, 1996. The Committee is of the opinion that the ISOP
is an extremely effective means of attracting and retaining key executives and
employees of the Company and its subsidiaries and motivating them to improve
the Company's financial performance.
Section 162(m) of the Internal Revenue Code (the "Code"), enacted in 1993
and effective for taxable years beginning after January 1, 1994, generally
limits to $1 million per individual per year the federal income tax deduction
for compensation paid by a publicly held company to the Company's chief
executive officer and its other four highest paid executive officers.
Compensation that qualifies as performance-based compensation for purposes of
Section 162(m) is not subject to the $1 million deduction limitation. The
Committee currently does not anticipate that any executive officer will be paid
compensation from the Company in excess of $1 million in any year (including
amounts that do not qualify as performance-based compensation under the Code),
and accordingly, the Committee anticipates that all amounts paid as executive
compensation will be deductible by the Company for federal income tax purposes.
Summary of Chief Executive Officer Compensation
During the fiscal year ended March 31, 1996, Mr. San Antonio received
$450,000 in base salary and $96,994 in bonuses. Mr. San Antonio's total
compensation during the 1996 fiscal year, and the terms of his employment
agreement, which includes a base salary of $450,000 per year adjusted annually,
was designed to reward Mr. San Antonio for his diligent efforts overseeing the
Company's development of overseas markets, upgrading of systems, introduction
of a range of new programs and pursuit of major new customers, each of which
impacts current results for the long-term benefit of the Company, and
achievement of record operating results.
COMPENSATION COMMITTEE*
Jeff J. White
Michael J. Salpeter
* Messrs. White, Salpeter and Rueger were members of the Compensation
Committee throughout the Company's 1996 fiscal year. Mr. Rueger passed away
subsequent to the end of the fiscal year and prior to the delivery of the
preceding Report. In addition, since the end of the fiscal year, Mr. Salpeter
was appointed President of the Company and simultaneously resigned from the
Compensation Committee.
<PAGE>
AMENDMENT TO 1988 EMPLOYEE INCENTIVE STOCK OPTION PLAN
(Item 2 on the Proxy Card)
The Company has adopted a 1988 Employee Incentive Stock Option Plan (the
"1988 Plan"). Under the 1988 Plan, the maximum aggregate number of shares which
may be issued under options is 300,000 shares of Common Stock. The aggregate
fair market value (determined at the time the option is granted) of the shares
for which incentive stock options are exercisable for the first time under the
terms of the 1988 Plan by any eligible employee during any calendar year shall
not exceed $100,000. The option price of the stock covered by each option shall
be 100% of the fair market value of such stock on the date the option is
granted, except that no option shall be granted to any employee who, at the
time the option is granted, owns stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company or any subsidiary
unless (a) at the time the option is granted the option exercise price is at
least 110% of the fair market value of the shares of Common Stock subject to
the option and (b) the option by its terms is not exercisable after the
expiration of five years from the date such option is granted. Shares subject
to options which for any reason expire or terminate without being exercised
become available for other options under the 1988 Plan. Shares issued on
exercise of options may be authorized but unissued shares, or shares reacquired
and held in the Company's treasury. The 1988 Plan terminates on November 7,
1998, unless sooner terminated by the Board of Directors. However, termination
will not adversely affect options previously granted.
The 1988 Plan is administered by the Compensation Committee of the Board
of Directors of the Company. The Board has the power to interpret the 1988 Plan
and to establish rules and regulations for its administration. The Board may
determine the number of shares, if any, optioned in each year, the employees to
whom options are granted, the number of shares optioned to each employee
selected and the term of the option granted.
In the event of any change in the stock subject to the 1988 Plan as a
result of change in par value, combination, split, reverse split,
reclassification, distribution of a dividend payable in stock, or the like,
appropriate adjustments will be made in the number of shares to be issued under
options and the option price per share. The Board may not otherwise, without
prior shareholder approval, amend the 1988 Plan to increase the maximum number
of shares subject to option under such Plan, or modify the limitation on the
maximum aggregate fair market value of stock for which options may be granted
to any eligible employee in any calendar year.
To accept an option under the 1988 Plan, an optionee must enter into a
written Option Agreement which will contain such terms, provisions and
conditions consistent with the 1988 Plan as may be determined by the Board from
time to time. The Board, in its sole discretion, shall determine whether any
particular stock options shall become exercisable in one or more installments,
specify the installment dates, and, within the limitations provided in the 1988
Plan, specify the term during which any stock option is exercisable. Under the
1988 Plan, options expire not later than ten years from the date granted if not
exercised within that period. The Board may permit payment of the option price
for stock purchased under options in cash, in Common Stock or a combination
thereof. A stock option shall not be transferable other than by will or the
laws of descent and distribution and shall be exercisable during the optionee's
lifetime only by the optionee.
The 1988 Plan also provides that if the optionee ceases to be an employee
of the Company for any reason other than death or disability, stock options
which were exercisable prior to the date of termination of employment shall
terminate on the date of termination. If an optionee's employment terminates
because of death or disability, stock options which were exercisable on the last
date of employment may be exercised within one year of optionee's death or, in
the case of a disabled optionee, within one year after such optionee ceases
employment, but only to the extent that the options were exercisable when
employment ceased. In the event an optionee dies while employed by the Company
or any subsidiary, the optionee's estate, or any person to whom the option
passes by will or by the laws of descent and distribution, may exercise the
option.
For federal tax purposes an optionee will not realize income at the time
of exercise of an option if the optionee (i) holds the shares transferred under
the option for a minimum of two years after the date the option is granted and
for a minimum of one year after the shares are transferred to the optionee, and
(ii) remains employed by the Company from the time the option is granted until
three months before it is exercised. If an option is exercised after the death
of an optionee by the estate of the decedent, or by a person to whom the option
has passed under the laws of descent and distribution, no income will be
realized at the time of exercise, regardless of whether or not the above two
conditions are met. When an optionee who has met the two conditions sells or
exchanges the shares issued under an option, the income realized will be taxed
as long-term capital gain. However, when an optionee fails to meet either of the
two conditions, part or all of the income realized will be taxed as ordinary
income in the year of disposition, and the Company will be entitled to a
corresponding deduction in the same year. Neither the Company nor any subsidiary
may take a business deduction at any time with respect to shares transferred
under options if the optionee must consider only the amount actually paid by
the optionee as the amount paid for the stock.
As of July 25, 1996, options to purchase an aggregate of 269,024 shares of
Common Stock have been granted under the 1988 Plan and only 30,976 shares remain
available for issuance under the 1988 Plan. To date, no options granted under
the 1988 Plan have been exercised.
The Board of Directors has reviewed the results of the 1988 Plan and is of
the opinion that the 1988 Plan is an extremely effective means of attracting
and retaining key executives and employees of the Company and its subsidiaries
and in motivating them to improve the Company's financial performance.
Accordingly, the Board of Directors has amended the 1988 Plan, subject to
stockholder approval, to increase the number of shares authorized for issuance
thereunder by 300,000 shares, to an aggregate of 600,000 shares. Assuming
stockholder approval of the proposed increase, an aggregate of 330,976 shares
would be available for additional grants under the 1988 Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE AMENDMENT
OF THE 1988 PLAN.
OTHER INFORMATION FURNISHED PURSUANT TO
REGULATIONS OF THE SECURITIES AND EXCHANGE COMMISSION
Independent Accountants
On October 4, 1994, the Company, as authorized by its Board of Directors,
engaged Coopers & Lybrand L.L.P. ("Coopers & Lybrand") as its new independent
accountants for the fiscal year to end March 31, 1995, replacing Deloitte &
Touche LLP ("Deloitte & Touche"). Coopers & Lybrand have been the independent
accountants of Techmark Services, Ltd. (a significant joint venture of the
Company) from inception. In light of the planned expansion of this joint
venture, the replacement of Deloitte & Touche by Coopers & Lybrand is intended
to allow the Company to benefit from efficiencies resulting from the worldwide
use of Coopers & Lybrand as independent accountants for the Company and its
joint venture. It is anticipated that representatives of Coopers & Lybrand will
attend the annual meeting of shareholders, that they will have the opportunity
to make a statement if they desire to do so, and that they will be available to
respond to appropriate questions.
The Company's independent 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 of 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.
The Company authorized Deloitte & Touche to respond fully to the inquiries
of Coopers & Lybrand concerning any and all matters related to the Company's
financial statements for the fiscal year ended March 31, 1994. The Company has
not consulted with Coopers & Lybrand on the application of accounting
principles to a specified transaction, either completed or proposed, or the
type of opinion that might be rendered on the Company's financial statements
with respect to such a transaction which consultation resulted in either a
written report or oral advice from Coopers & Lybrand that was an important
factor considered by the Registrant in reaching a decision as to the accounting,
auditing or financial reporting issue or any matter that was either the subject
of a disagreement or a Reportable Event (as defined below).
During the period from the date of engagement of Deloitte & Touche,
October 5, 1993, through August 11, 1994, the date of dismissal, Deloitte &
Touche did not advise the Company of any of the following ("Reportable Events"):
(A) that the internal controls necessary for the Company to develop
reliable financial statements did not exist; or
(B) that information had come to is attention that led it to no longer be
able to rely on management's representations or that made it unwilling to be
associated with the financial statements prepared by management; or
(C) (1) of the need to expand significantly the scope of its audit or that
during such period information had come to its attention that, if further
investigated, may have
(a) had a material impact on the fairness or reliability of
either (i) a previously issued audit report or the underlying financial
statements, or (ii) the financial statements issued or to be issued covering
the fiscal period(s) subsequent to the date of the most recent financial
statements covered by an audit report (including information that may have
prevented it from rendering an unqualified audit report on those financial
statements), or
(b) caused it to be unwilling to rely on management's representations
or be associated with the Company's financial statements, and
(2) due to its dismissal, or for any other reason, it did not so expand
its audit or conduct such further investigation; or
(D) (1) that information had come to is attention that it had concluded had
a material impact on the fairness or reliability of either:
(a) a previously issued audit report or underlying financial
statement, or
(b) the financial statements issued or to be issued covering the
fiscal period(s) subsequent to the date of the most recent financial
statements covered by an audit report (including information that, unless
resolved to its satisfaction, would prevent it from rendering an unqualified
audit report on those financial statements), and
(2) due to its dismissal, or for any other reason, the issue had not
been resolved to its satisfaction prior to its dismissal.
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.
Stockholder Proposals for 1997 Meeting
Proposals of stockholders to be included in the Company's proxy material
for the 1997 annual meeting must be received in writing by the Company at its
executive offices not later than June 30, 1997 in order to be included in the
Company's proxy material relating to that meeting.
Other Matters
The solicitation of proxies in the accompanying form will be made at the
Company's expense, primarily by mail and through brokerage and banking
institutions. Those institutions will be requested to forward soliciting
materials to the beneficial owners of the stock held of record by them and will
be reimbursed for their reasonable forwarding expenses.
The Board of Directors is not aware of any other matters that are to be
presented to stockholders for formal action at the meeting. If, however, any
other matter properly comes before the meeting or any adjournments thereof, it
is the intention of the persons named in the enclosed form of proxy to vote
those proxies in accordance with their judgment on such matter.
By order of the Board of Directors,
DESIREE KIM CABAN
Secretary
<PAGE>
WARRANTECH CORPORATION
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby appoints JOEL SAN ANTONIO, WILLIAM TWEED, JEFF J.
WHITE, and each or any of them with full power of substitution, proxies to vote
at the Annual Meeting of Stockholders of WARRANTECH CORPORATION (the "Company")
to be held on Thursday November 7, 1996, at 10:00 a.m. Eastern Time and at any
adjournment or adjournments thereof, hereby revoking any proxies heretofore
given, at the Company's offices located at 150 Westpark Way, Euless, Texas, for
the purposes shown on the reverse side of this proxy card:
(To be Signed on Reverse Side)
----------------------------------------------------------------
/ X / Please mark your
votes as in this
example.
FOR all nominees WITHHOLD
listed to right AUTHORITY
(except as indicated to vote for all Nominees:Joel San Antonio
below) nominees listed to right William Tweed
1. ELECTION Michael Salpeter
OF / / / / Jeffrey J.White
DIRECTORS Lawrence Richenstein
(INSTRUCTIONS:To withhold authority to vote for
any individual nominee print that nominee's name
on the line provided below:
/ / / /
2.Amendment of 1988 Employee Incentive Stock Option Plan.
For __ Against __ Abstain __
3.In their discretion, the Proxies are authorized
to vote upon such other business as may properly come before the meeting
This proxy, when properly executed, will be
voted in the manner directed by the undersigned
stockholder. If no direction is made this proxy
will be voted FOR proposal 1 and 2.
SIGNATURE ____________ DATE_____ SIGNATURE __________________ DATE _________
Note: (Please sign exactly as name appears stenciled on this Proxy. When
signing as attorney, executor, administrator, trustee, or guardian,
please set forth your full title.)
<PAGE>
Edgar Format Appendix
Pursuant to Rule 304(a) of Regulation S-T, following is a list of all graphic
or image information contained in the paper format version of Warrantech
Corporation's 1996 Notice of Annual Meeting of Stockholders, Proxy Statement
and Form of Proxy:
1. Page 13 contained a line graph, with the horizontal axis labeled in years
from March 1991 through March 1996, and the vertical axis labeled in dollars
from 0 to 200, in increments of 50, on which the data contained in the table
on page 13 of the attached EDGAR format version of the Proxy Statement is
represented by three lines, labeled Warrantech Corporation, Peer Group,and
Russell 2000, respectively. The data represented in the graph and a key to the
lines contained in the graph, is set forth below the graph.
