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 Landmark Club located at One Landmark Square,
Twenty-second floor, Stamford, Connecticut 06901 on November 25, 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 25, 1996
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 25, 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 13,083,588 shares of Common
Stock. Each share of Common Stock entitles the record holder thereof to one
vote.
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 Executive 1983
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.
Joseph Melendez, 36, has been the President of Warrantech Home
Service, Co. since joining the Company in February 1996. From September
1994 to August 1995, Mr. Melendez served as President of Sierra Home Service
Companies, Inc., a California provider of home warranties. From January
1989 to September 1994, Mr. Melendez served as President of Melnel, Inc.,
an investment banking and financial consulting firm. From September 1994
to February 1996, in addition to his service with Sierra Home Service
Companies, Inc., Mr. Melendez continued to serve as Chairman of Melnel,
Inc. From 1981 to 1989, Mr. Melendez held various positions with investment
banking firms in New York.
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, 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 Joseph Umansky. In April 1996,
Messrs. Umansky and Kurt 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, 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 Messrs. Rueger and
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. 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.
================================================================================
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) 7,711,497 shares(1,2,3,4,5) 48.5%
__________________
(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.
================================================================================
================================================================================
<TABLE>
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.
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 $ 96,994 $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 -
(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.
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 $30,572, assuming stock price appreciation at an
annual rate of 10%. The Company does not have any outstanding stock
appreciation rights.
Options Exercised and Holdings
The following table sets forth information with respect to the
individuals listed in the Summary Compensation Table above, concerning
unexercised options held as of the end of the 1996 fiscal year.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Shares Acquired on Number of Unexercised Options at Fiscal Value of Unexercised In-the-Money Options
Name Exercise Value Realized Year-End(#) at Fiscal Year-End ($)(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>
Employment Agreements
Effective April 1, 1995 the Company entered into a three-year employment
agreement with 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 William 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 9,524 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.
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 Monday November 25, 1996, at 10:00 a.m. Eastern Time and at any
adjournment or adjournments thereof, hereby revoking any proxies heretofore
given, located at One Landmark Square, Twenty-second floor, Stamford,
Connecticut 06901 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 to vote for Nominees: Joel San Antonio
indicated below) nominees listed William Tweed
below) Michael Salpeter
1.ELECTION Jeffrey J. White
OF / / / / Lawrence Richenstein
DIRECTORS
(INSTRUCTIONS: To withhold authority
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
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.)
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
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.
