IN ACCORDANCE WITH RULE 201 OF REGULATION S-T, THIS PROXY STATEMENT IS BEING
FILED IN PAPER PURSUANT TO A TEMPORARY HARDSHIP EXEMPTION.
THIS DOCUMENT IS A COPY OF THE PROXY STATEMENT FILED ON JULY 30, 1997 PURSUANT
TO A RULE 201 TEMPORARY HARDSHIP EXEMPTION.
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 Companys offices located at 150 Westpark
Way, Euless, Texas 76040, October 28, 1997 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 amend the Companys By-Laws to (1) divide the Board of
Directors into three classes of directors, as nearly equal in number as
possible, serving staggered three year terms; (2) provide that the size of
the Board of Directors shall not be less than five, nor more than eighteen
directors, with the Board determining the exact number of directors and (3)
provide that the directors may only be removed for cause.
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 September 17,
1997 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
Corporate Secretary
July 31, 1997
IN ACCORDANCE WITH RULE 201 OF REGULATION S-T. THIS PROXY
STATEMENT IS BEING FILED IN PAPER PURSUANT TO A
TEMPORARY HARDSHIP EXEMPTION
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 October 28, 1997 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 FOR the proposed
amendments to the Companys By-Laws. 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.
The affirmative vote of the holders of eighty percent (80%) of the issued and
outstanding shares entitled to vote is required in order to approve the
proposed amendment to the Companys By-Laws.
Only stockholders of record at the close of business on
September 23, 1997 will be entitled to notice of and to vote at the annual
meeting. On September 23, 1997 the Company had outstanding _________
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.
<TABLE>
<S> <C> <C> <C>
Director
Name Age Positions with Company Since
Joel San Antonio 44 Chairman of the Board, Chief Executive 1983
Officer and Director
Michael J. Salpeter, D.M.D.45 President and Director 1993
William Tweed 57 Vice President and Director 1983
Jeff J. White 46 Director 1983
Lawrence Richenstein 44 Director 1993
</TABLE>
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, 44, 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. 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.
<PAGE>
Michael J. Salpeter, D.M.D., 45, has been a director of the
Company since 1993 and effective April 1, 1996 became the Companys 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, 57, 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, 46, one of the Companys 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, 44, has been a director of the Company since
1993. Mr. Richenstein 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 and has, in the past, served as a
director of two public companies, both of which were involved in the
electronics industry.
<PAGE>
Other Executive Officers And Key Employees
Bernard J. White, 52, has been Senior Vice President-Finance and
Treasurer, focusing on mergers and acquisitions since June 30, 1997. From
February 1994 until June 30, 1997 Mr. White was Vice President-Finance,
Treasurer and Chief Financial Officer. 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, 39, has been Vice President and Chief
Information Officer since joining the Company in August 1994 and Chief
Operating Officer since January 1997. 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, 32, 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, 32, has been the Vice President of Insurance Services
since October, 1995 and has been Assistant Secretary of the Company since
January, 1995. Having joined the Company in 1987 Ms. Folz has, prior to 1995,
served as Director of Insurance Services and various customer service and
project analyst positions. She is currently a member of the Risk and
Insurance Management Society and the National Association of Female
Executives.
Ronald Glime, 52, 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 was employed by American
Warranty Corp., a company in the warranty administration business.
He resigned as its President in 1982.
Joseph Melendez, 37, has been the President of Warrantech Home
Service Company 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.
Harris Miller, 60, has been Chief Financial Officer since June 1997
and also held that position during the period June, 1990 through February,
1994. During the period of March 1994 through June 1997, Mr. Miller held
various Senior Executive positions with the Company. Prior to June 1990,
he was Vice President-Finance for Warrantech Dealer Based Services, Inc., a
Delaware corporation and wholly-owned subsidiary of the Company (WDBS),
and Vice President -Finance of Dealer Based Services, Inc. from April 1988
through October 1989. From July 1986 through April 1988, Mr. Miller was a
private consultant to service contract administration organizations,
insurance companies and other entities specializing in issues relating to
administration of automotive service contracts. Prior thereto, from
January 1982 through June 1986, Mr. Miller was Executive Vice President for
New Car Dealer Associates, Inc., a vehicle service contract administrator
located in Oakland, California.
Richard Rodriguez, 43, has been Vice President and Managing Director
of Warrantech International, Inc., a wholly owned subsidiary of the Company,
since December 1996. From February, 1992 until December, 1996, Mr. Rodriguez
served as Chief Operating Officer of the Companys Texas operating
facilities. Having been with the Company since 1987, he has served in various
executive positions during the interim period. Prior to 1987, Mr. Rodriguez
served as an executive with, and consultant to, retailers and
manufacturers of consumer electronic products.
Kevin Rupkey, 39, 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, 43, 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.
Judy Thomas, 43, has been President of Help Desk, Inc. (HDI),
a wholly-owned subsidiary of the Company, since April 1997. From 1993
until her employment with HDI, Ms. Thomas was President of Unlimited
Business Services, Inc., a consulting company which specialized in
the improvement of operational, financial and revenue streams of
major retailers, including the development and implementation of
service contract programs. From 1970 until 1993 Ms. Thomas was employed
by Highland Superstores, holding various positions during her tenure,
ending her employment with that Company as Corporate Vice President-Operations.
James Morganteen, 47, has been General Counsel for the Company
since April 1997. Mr. Morganteen most recently served as a Vice President
on Bankers Trust of New York with responsibility for counseling its OTC risk
management operations. Previously, from 1987 through 1994, Mr. Morganteen
served as Senior Counsel to Xerox Corporation with responsibility for the
management of the legal function of Xerox Credit Corporation, the financial
services unit of Xerox Corporation.
None of the Company's directors or executive officers is a director of
any other public company.
Information Concerning Meetings of the Board of Directors
During the fiscal year ended March 31, 1997, the Board of
Directors held three meetings. All such meetings were fully attended.
The Company has an Audit Committee, which consisted of Messrs.
Richenstein and White. Such committee met twice during the 1997 fiscal
year. The Company has a Compensation Committee which consisted of Messrs.
Richenstein and White. This committee did not meet 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.
<TABLE>
<CAPTION>
Name and Address of Beneficial Owner Amount and Nature of Percent
Beneficial Ownership of Class
<S> <C> <C>
Joel San Antonio 3,194,880 shares(1) 22.2%
300 Atlantic Street
Stamford, Connecticut 06901
William Tweed 2,522,865 shares(2) 17.9%
300 Atlantic Street
Stamford, Connecticut 06901
Jeff J. White 1,756,489 shares(3) 12.5%
19 Foxwood Road
Kings Point, New York 11024
Michael Salpeter 763,011 shares(4) 5.8%
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 ( 16 persons) 7,720,001 shares(1,2,3,4,5) 47.5%
</TABLE>
__________________
(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 10,800
shares owned by Mr. San Antonio's brother and sister-in-law and 1,000
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, 722,448
shares which became exercisable on October 22, 1995 and 120,408
shares which became exercisable on October 22, 1996 and 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, 563,265 shares
which became exercisable on October 22, 1995, 93,878 shares which became
exercisable on October 22, 1996, and 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.
(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, 514,291 shares which became exercisable October 22,
1995, 85,715 shares which became exercisable on October 22, 1996 and
85,713 shares which become exercisable on October 22, 1997.
(4) Includes 13,006 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 and 200,000 shares held as trustee of trusts for the
benefit of Joel San Antonio's children. 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. Does not
include options to purchase 100,000 shares, the vesting of which
would be dependent on the achievement of certain criteria.
(5) Includes options held by executive officers of the Company to purchase
an aggregate of 91,310 shares which are presently exercisable.
Certain Relationships and Related Transactions
On April 1, 1996 Michael Salpeter, President and Director of the
Company, and William Tweed, former President of the Company entered into an
Agreement whereby Mr. Tweed granted to Mr. Salpeter an option to purchase
487,000 shares of common stock owned by Mr. Tweed. The options are
exercisable at various prices in whole or in part, and expire on October 22,
2000.
<PAGE>
===============================================================================
==============================================================================
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table provides information for the years ended March 31
1997, 1996 and 1995, concerning the annual and long-term compensation of the
chief executive officer and the next four highest paid executive officers of
the Company for the fiscal year ended March 31, 1997.
<TABLE>
<CAPTION>
Long Term Compensation
Annual Compensation Awards(1)
------------------------------------------------------------------------------------------------
Other Annual Restricted Stock Stock Option All Other
Name and Principal Positions Year Salary Bonus Compensation (2) Awards (Shares) Awards Compensation
---------------- ---------------- -----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Joel San Antonio 1997 $ 507,150 $ 193,089 $ 26,525 - - -
Chairman of the Board 1996 $ 450,000 $ 96,994 $ 20,389 - - -
and Chief Executive Officer 1995 $ 269,398 $ 576,957 $ 14,329 - - -
Michael Salpeter 1997 $ 285,000 $ 95,894 $ 14,500 - 100,000 -
President 1996 - - - - - -
1995 - - - - - -
Kevin P. Rupkey
President of Warrantech 1997 $ 184,434 $ 52,100 $ 43,711 $ 5,625 20,000 -
Consumer Product Services, 1996 $ 150,000 $ 76,689 $ 5,283 - - -
Inc. 1995 $ 90,000 $ 72,010 $ 12,979 $ 4,563 15,000 -
Michael A. Basone
Vice President and Chief 1997 $ 159,940 $ 25,100 $ 15,343 - 11,600 -
Information Officer and 1996 $ 143,443 $ 22,948 $ 4,800 $ 8,440 9,524 -
Chief Operating Officer 1995 $ 74,038 $ 33,537 - $ 5,063 - -
Ronald Glime
President of Warrantech 1997 $ 137,404 $ 60,500 $ 4,034 - 24,749 -
Automotive, Inc. 1996 $ 129,443 (3) $ 11,550 $ 21,483 - - -
1995 $ 129,132 (3) $ 7,868 $ 37,489 - 46,667 -
</TABLE>
(1) The 1988 Stock Option Plan is the Company's only long-term
incentive plan.
(2) Included in Other Annual Compensation are auto allowances given
to each officer except Glime in fiscal 1995, 1996 and 1997, life
insurance premiums for Messrs. San Antonio, Salpeter and Rupkey for
the years 1995, 1996 and 1997, living expenses paid Glime in
fiscal 1995 and 1996, relocation expenses paid Rupkey in 1995 and
1997, and Basone in fiscal 1997, and club memberships paid
Messrs. Salpeter in fiscal 1997 and Glime in fiscal 1995
and 1996.
(3) Consisting of $125,000 in base salary and $4,443 of commissions in
fiscal 1996, $76,668 in base salary and $52,464 of commissions in
fiscal 1995.
<PAGE>
- ----------------------------------------------------------------------------
- ---------------------------------------------------------------------------
Option Grants In Last Fiscal Year
The following table sets forth certain information with respect to
options to purchase Common Stock granted during the fiscal year ended March 31,
1997 to each of the named executive officers.
<TABLE>
<CAPTION>
Potential Realizable Value
At Assumed Annual Rates
Of Stock Price Appreciation
__________________________________Individual Grants__________________________ For Option Term
Number of % of Total
Securities Options SARs
Underlying granted to Exercise or
Options/SARs Employee in Base Price Expiration
Granted Fiscal Year Per Share Date 5% ($) 10% ($)
<S> <C> <C> <C> <C> <C> <C>
Joel San Antonio - 0.0% - - - -
Michael Salpeter 100,000 (2) 36.8% 5.00 7/22/01 1,148,653 1,449,459
Kevin Rupkey 20,000 (2) 7.4% 4.3125 7/22/01 229,731 289,892
Michael Basone ( 11,600 (2) 4.3% 4.3125 3/31/99 120,856 138,956
Ronald Glime 24,749 (2) 9.1% 4.56 7/22/01 284,280 358,727
</TABLE>
1. Computed based upon the Company's price per share of $9.00, as reported on
NASDAQ National Market System on March 31, 1997.
2. Vesting of these options is subject to satisfaction of certain performance
criteria.
Options Exercised and Holdings
The following table sets forth information with respect to the
individuals listed in the Summary Compensation Table above, concerning
unexercised options held as of the end of the 1997 fiscal year.
<TABLE>
<CAPTION>
Shares Acquired Number of Unexercised Options at Value of Unexercised In-the-Money
Name On Exercise Value Realized Fiscal Year-End(#) Options at Fiscal Year-End ($)(1)
- ----------------------- ---------------------- --------------------- ---------------------------------------------- --------------
Exercisable Unexercisable Exercisable Unexercisable
---------------------- ---------------------- ---------------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Joel San Antonio - - 1,204,080 - $ 7,600,755 $ -
Michael Salpeter (2) - - - 100,000 - 500,000
Kevin Rupkey - - 35,000 - 160,350 -
Michael Basone - - 3,810 17,314 14,478 76,088
Ronald Glime - - - 24,749 - 109,886
</TABLE>
(1) Based on the closing price of $ 9.00 of the Company's common stock as
reported on the NASDAQ National Market System on March 31, 1997.
(2) Mr. Salpeter was granted a non-qualified option to purchase an
aggregate of 100,000 shares of the Company's stock at an exercise
price of $5.00 per share, the vesting of which is based upon certain
specified performance criteria. Based upon the performance criteria
50,000 shares have vested to Mr. Salpeter.
<PAGE>
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 initial base compensation was $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 such agreement, Mr. Salpeter's initial base salary was
$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 provides Mr. Salpeter with a comprehensive
medical-dental insurance policy and maintains a life insurance-death benefit
policy in an amount in excess of $1,000,000. In the event of disability,
Mr. Salpeter is 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 October 1, 1996 the Company entered into an employment
agreement with Michael Basone to serve as the Company's Chief Information
Officer and Chief Operating Officer. Under the terms of such Agreement
Mr. Basone is entitled to an initial annual base salary of $160,000,
subject to automatic increases of 5% annually during the term of the
Agreement. Mr. Basone received a $15,000 bonus upon the signing of the
employment agreement. In addition he will be entitled to receive cash bonuses
based upon the Company and its subsidiaries achieving certain revenue and
operating goals. The Company provides Mr. Basone with medical and dental
insurance, an automobile allowance of $6,000 per annum and life insurance
benefits similar to that provided by the Company to certain of its other
executives. The employment agreement may be terminated, without cause, at any
time, upon sixty (60) days written notice.
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 received an initial 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 of which 52,291 were exercised and 47,709 were canceled.
Other Incentives and Compensation
The Company provides executives equity-based long-term incentives
through its 1988 Employee Incentive Stock Option Plan, such 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 provides executive officers with an incentive bonus plan
which provides cash and/or stock bonuses upon meeting certain performance
criteria.
During the last fiscal year the Company initiated an incentive bonus
plan for all employees for the referral of potential new employees for
employment by the Company who are subsequently hired by the Company. The
amount of the bonus is predicated on the skill and professional level of the
new employee.
Additionally, the Company provides an incentive bonus to existing
employees, claims adjusters, for the obtaining and maintaining
certification as professionals in their fields.
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, 1997, all Section 16 filing requirements
applicable to its officers, directors and greater than 10% beneficial owners
were complied with the exception of a Form 4 filed by American International
Group, Inc., which was to have been filed not later than May 10, 1996 but was
filed on May 29, 1996.
Non-Management Directors' Compensation
Effective January 1, 1997, each non-employee director is entitled to
receive compensation of $2,500.00 plus 500 shares of Company stock per calendar
quarter of board service. Committee service is compensated at $500.00 plus
125 shares of Company stock per calendar quarter. Effective January 1, 1998,
quarterly stock compensation shall be 250 shares for board service and 62.5
shares for committee service with the cash components unchanged. Prior to
January 1, 1997, each non-employee director was entitled to receive
compensation of $1,000 for each meeting attended in person and $250 for each
meeting attended by telephone. During fiscal 1997, the following fees were paid:
Jeff J. White $4,250.00
William Rueger 1,000.00
Michael J. Salpeter 750.00
Lawrence Richenstein 3,000.00
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, 1992 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
1992 100 100 100
1993 110 115 81
1994 135 127 110
1995 156 135 79
1996 124 174 107
1997 277 183 107
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 1997, consisted
of two outside directors, Jeff J. White and Lawrence Richenstein.
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 detailed
and comprehensive 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.
In view of the extensive deliberations of the Committee during the 1996
fiscal year, the Committee did not find it necessary to meet during the 1997
fiscal year.
During the 1997 fiscal year, all decisions regarding the Company's
Employee Incentive Stock Option Plan (the ISOP), including the granting of
options thereunder, were made by the full Board of Directors. The ISOP, as
amended, has been in effect since 1988. As of March 31, 1997, options to
purchase an aggregate of 540,533 shares of Common Stock have been granted
under the ISOP, of which 271,929 were granted during the fiscal year ended
March 31, 1997. 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, 1997, Mr. San Antonio received
$507,150 in base salary and $193,089 in bonuses. Mr. San Antonio's total
compensation during the 1996 fiscal year, and the terms of his employment
agreement 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
Lawrence Richenstein
PROPOSED AMENDMENTS TO
THE BY-LAWS
The Board of Directors of the Company has unanimously approved the
following amendments to the Company's By-Laws (the "By-Laws") and recommends
that the Company's stockholders approve such amendments. The proposed
amendments would: (1) divide the Board of Directors into three classes of
directors, as nearly equal in number as possible, serving staggered
three-year terms; (2) provide that the size of the Board of Directors shall be
not less than five nor more than eighteen directors, with the Board determining
the exact number of directors; and (3) provide that directors may be removed
only for cause.
Summary of the Proposed Amendments
The full texts of the proposed amendments are attached to this Proxy
Statement as Exhibits A. The following description of the amendments is
qualified in its entirety by reference to Exhibits A.
The By-Laws currently provide for a single class of directors
elected annually for a term of one year. The proposed amendments to Article
III, Section 2 of the By-Laws provide that the Board shall be divided into
three classes of directors, each class as nearly equal in number as possible,
and each class of directors serving for three-year staggered terms. Such
classification provision will apply to all future elections of directors
rather than to the current election. If the proposed amendments are adopted,
the Board of Directors will designate which directors are members of the three
classes: assuming no change in the size of the Board, one Class I director
shall be elected for a one-year term expiring at the 1998 meeting of
stockholders; two Class II directors shall be elected for a two-year term
expiring at the 1999 Annual Meeting of Stockholders; and two Class III
directors shall be elected for a three-year term expiring at the 2000 Annual
Meeting of Stockholders (in each case, until their respective successors
are elected and qualified). At each Annual Meeting of Stockholders after the
1997 Meeting, the directors chosen to succeed those whose term is expiring
shall be elected for a three-year term.
The Company's Certificate of Incorporation presently requires that
the number of directors constituting the whole Board of Directors shall be
fixed by, or in the manner provided in, the By-Laws. The By-Laws currently
provide that the Board shall consist of not less than three, unless and
until determined by vote of a majority of the entire Board of Directors
then in office. The Board has set the number of directors at five. The
proposed amendments to Article III, Section 2 of the By-Laws provide that the
Board of Directors shall consist of not less than five nor more than eighteen
directors, the exact number of which is to be determined from time to time by
the Board within the minimum and maximum limitations.
Article III, Section 10 of the By-Laws currently provides that
directors may be removed, either with or without cause, at any time by the
affirmative vote of the holders of record of a majority of the outstanding
stock entitled to vote for the election of directors of the Company at a
special meeting of the stockholders called and held for this purpose. The
proposed amendments to the By-Laws provide that directors may be removed
only for cause and by the affirmative vote of the holders of at least a
majority of the shares entitled to vote for the election of directors.
Purpose and Effects of the Proposed Amendments.
The purpose of the proposed amendments to the By-Laws is to discourage
certain types of transactions that involve an actual or threatened change of
control of the Company. It is designed to make it more difficult and
time-consuming to change majority control of the Board. Thus, its purpose is
to reduce the vulnerability of the Company to an unsolicited proposal for the
takeover of the Company that does not contemplate the acquisition of all of the
Company's outstanding shares or an unsolicited proposal for the restructuring
or sale of all or part of the Company. The Board believes that as a general
rule such unsolicited proposals are not in the best interests of the Company
and its share owners.
There has been a recent trend toward the accumulation of substantial
stock positions in public companies by third parties as a prelude to proposing
a takeover or a restructuring or sale of all or part of a company or other
similar extraordinary corporate action. Such actions are often undertaken
by the third party without advance notice to or consultation with management of
a company. In many cases, the purchaser seeks representation on a company's
board of directors in order to increase the likelihood that its proposal will
be implemented by the company. If the company resists the efforts of the
purchaser to obtain representation on the company's board, the purchaser
may commence a proxy contest to have its nominees elected to the board in
place of certain directors or the entire board. In some cases, the purchaser
may not truly be interested in taking over the company but uses the threat of
a proxy fight and/or a bid to take over the company in an effort to force
the company to repurchase its equity position at a substantial premium over
market price.
The Board of Directors of the Company believes that the imminent
threat of removal of the Company's management in such situations would
severely curtail management's ability to negotiate effectively with such
purchasers. Management would be deprived of the time and information necessary
to evaluate the takeover proposal, to study alternative proposals, and to
help ensure that the best price is obtained in any transaction involving the
Company that may ultimately be undertaken. If the real purpose of a takeover
bid were to attempt to force the Company to repurchase an accumulated stock
interest at a premium price, management would face the risk that if it did not
repurchase such interest, the Company's business and management would be
disrupted.
A classified Board with staggered three-year terms would
contribute to the continuity and stability of the Company's leadership and
policies, because only approximately one-third of the directors would be
subject to election each year. The staggered terms of directors would
moderate the pace of changes in the Board of Directors by requiring at
least two stockholder meetings, instead of one, to change a majority of the
directors (assuming no resignations or the removal of directors for cause).
For the same reason, the proposed amendments may deter certain
tender offers or other takeover attempts which some or a majority of
stockholders may deem to be in their best interests. In addition, the
proposed amendments would delay stockholders who do not approve of the
policies of the Board of Directors from removing members of the Board for two
years, unless they can show cause and obtain the required vote.
Takeovers or changes in management of the Company that are proposed
and effected without prior consultation and negotiation with the Company's
management are not necessarily detrimental to the Company and its share
owners. However, the Board feels that the benefits of protecting its
ability to negotiate with the proponent of an unfriendly or unsolicited
proposal to take over or restructure the Company outweigh the disadvantages of
discouraging such proposals. The amendments would give the Board more time to
review a sudden, unexpected third party takeover proposal and appropriate
alternatives to the proposal and attempt to obtain the best price for all
stockholders.
The amendments are not the result of any specific attempts of which
the Company is aware to accumulate the Company's shares or to obtain control of
the Company. Although the Board of Directors is not aware of any problems
experienced by the Company in the past with respect to the continuity and
stability of management, the Board believes that a classified Board would
decrease the likelihood of problems of continuity and stability arising in the
future.
Other Anti-Takeover Measures
In addition to the proposed amendments to the By-Laws, the Board of
Directors is considering the implementation of a rights plan utilizing the
authorized, but unissued, preferred stock of the Company. The basic objectives
of the rights plan would be to deter abusive takeover tactics by making them
unacceptably expensive to the raider and to encourage prospective acquirers
to negotiate with the Board of Directors of the Company rather than to attempt
a hostile takeover. No action has been taken with respect to such plan and
there can be no assurance that such plan will be implemented. Shareholder
approval is not required in order to approve or implement the rights plan,
and it is not contemplated that any such approval would be sought in the
event the Board elects to implement such a plan.
Vote Required for Adoption of the Proposed Amendments
The affirmative vote of the holders of eighty percent (80%) of the
outstanding shares of stock of the Company entitled to vote for the election
of directors is required to adopt the proposed amendments to the By-Laws.
Recommendation of the Board of Directors
After careful consideration, the Board has unanimously approved the
proposed amendments to the By-Laws in the form attached as Exhibits A. The
Board believes that the adoption of these proposed amendments is in the best
interests of the Company and its stockholders. Accordingly, the Board
recommends a vote FOR approving the proposed amendments to the By-Laws.
Stockholder Proposals for 1998 Meeting
Proposals of stockholders to be included in the Company's proxy
material for the 1998 annual meeting must be received in writing by the Company
at its executive offices not later than June 30, 1998 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
Corporate Secretary
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 October 28, 1997, 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 at 150 Westpark Way, Euless, Texas
76040 for the purposes shown on the reverse side of this proxy card
(To be Signed on Reverse Side.)
____________________________________________________________________________
/ X / Please mark your vote as per this example.
VOTE FOR all nominees listed WITHHOLD AUTHORITY
1. Election of / / below (except as marked to / / for all nominees listed
Directors contrary below) below:
Nominees: JOEL SAN ANTONIO WILLIAM TWEED MICHAEL SALPETER
JEFFREY J. WHITE LAWRENCE RICHENSTEIN
** To withhold authority to vote for any individual nominee, write that name
on the line below**
FOR AGNST ABST ______________________________________________________
/ / / / / /
2. To amend Company By-Laws
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 proposals 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.)
EXHIBIT A
PROPOSED AMENDMENT TO THE BY-LAWS OF
WARRANTECH CORPORATION
RESOLVED, that Sections 2 and 10 of Article III of the Corporation's
By-Laws be amended to read as follows:
"Section 2. Number, Qualification, Election and Term of Office. The
number of directors shall be not less than five nor more than eighteen
directors, the exact number to be determined by the Board of Directors from
time to time. The Board of Directors shall be divided into three classes
designated Class I, Class II and Class III. Such classes shall be nearly as
equal in number as the then total number of directors constituting the Board
permits. Except as may otherwise be provided herein or in the Certificate
of Incorporation, the members of the Board of Directors of the Corporation,
who need not be shareholders, shall be elected by a majority of the votes
cast at the annual meeting of shareholders, by the holders of shares,
present in person or by proxy, entitled to vote for the election of directors.
Each director shall hold office until the third annual meeting of the
shareholders succeeding his election, and until his successor is elected and
qualified, or until his prior death, resignation or removal, as hereinafter
provided in these By-Laws or as otherwise provided for by statute or by the
Certificate of Incorporation."
"Section 10. Removal of Directors. Except as otherwise provided in the
Certificate of Incorporation or in these By-Laws, any director may be removed
from office at any time, but only for cause, by the affirmative vote of the
holders of at least a majority of the voting power of the shares entitled to
vote for the election of directors of the Company at a special meeting of
the stockholders called and held for the purpose; and the vacancy in the
Board of Directors caused by any such removal may be filled by the stockholders
at such meeting, or, if the stockholders shall fail to fill such vacancy,
as in these By-Laws provided."
