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,
Stamford, Connecticut 06901, on Tuesday, October 27, 1998 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 vote upon a proposal to approve the Company's 1998 Stock Plan.
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 18, 1998
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
September 22, 1998
<PAGE>
WARRANTECH CORPORATION
300 Atlantic Street
Stamford, Connecticut 06901
======================
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 27, 1998 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 (i) the election of the nominees named in the table on
the following page and (ii) approval of the Company's 1998 Stock 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 and
to approve the 1998 Stock Plan.
Only stockholders of record at the close of business on September 18, 1998
will be entitled to notice of and to vote at the annual meeting. On September
18, 1998 the Company had outstanding 16,489,814 shares of Common Stock. Each
share of Common Stock entitles the record holder thereof to one vote.
2
<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 45 Chairman of the Board, Chief Executive 1983
Officer and Director
William Tweed 58 Director 1983
Jeff J. White 47 Director 1983
Lawrence Richenstein 45 Director 1993
Gordon A. Paris 45 Director 1998
</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., a subsidiary of the Company, 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, 45, 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 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. Mr. San Antonio has
been a director of Corniche Group Incorporated, an insurance company based in
Euless, Texas, since May 1998.
3
<PAGE>
William Tweed, 58, 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 1996, Mr. Tweed was a director and President of
the Company. From April 1996 to March 1998, Mr. Tweed was Executive Vice
President of European Operations for the Company. Mr. Tweed relinquished his
title of Vice President on April 1, 1998. 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, 47, 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, 45, has been a director of the Company since 1993. In
early 1997, Mr. Richenstein formed Laral Group LLC, a computer peripheral
company. Laral has signed a licensing agreement with Nintendo to provide a wide
range of product peripherals. Laral Group also markets a line of wireless
audio/video and computer accessories under its Unwired brand. 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 Long Hall Technologies, L.L.C. since 1994. Long Hall 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.
Gordon A. Paris, 45, has been a director of the Company since April 1998.
Mr. Paris is Managing Director and Group Head of High Yield Origination and
Capital Markets and Mergers and Acquisitions at TD Securities (USA) Inc., a
subsidiary of The Toronto-Dominion Bank since March 1996. From June 1994 to
March 1996, Mr. Paris was a Managing Director in the Leveraged Finance Group
with CS First Boston. From March 1991 to June 1994, Mr. Paris was a Managing
Director at Lehman Brothers in charge of the High Yield and Restructuring Group.
4
<PAGE>
Other Executive Officers And Key Employees
Michael A. Basone, 40, has been Vice President and Chief Information
Officer since joining the Company in August 1994 and Chief Operating Officer
since January 1997 and Executive Vice President since April 1998. From 1986 to
1994, Mr. Basone held various management positions with Pepsi-Cola
International, ultimately serving as Director of Management Information Systems.
Desiree Kim Caban, 33, has been Secretary of the Company since July 1993
and Senior Vice President of Human Resources since April 1998. From October 1996
to March 1998, Ms. Caban was the Vice President of Human Resources. Prior to
October 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, 33, has been the Senior Vice President of Insurance Services
since April 1998 and has been Assistant Secretary of the Company since January
1995. From October 1995 to March 1998 Ms. Folz was the Vice President of
Insurance Services. Ms. Folz joined the Company in 1987. From 1987 to 1995, Ms.
Folz held various positions including Director of Insurance Services and other
customer service and project analyst positions. She is currently a member of the
Risk and Insurance Management Society and the National Association for Female
Executives.
Richard F. Gavino, 51, has been Executive Vice President and Chief
Financial Officer since April 1998. From 1995 to March 1998, Mr. Gavino was
Chief Financial Officer at Maxon Auto Group, one of the largest automobile
retailers in New Jersey. From 1993 to 1995, Mr. Gavino was a turnaround
consultant. From 1984 to 1993, Mr. Gavino was Senior Vice President and Chief
Financial Officer of Tops Appliance City, a publicly traded consumer electronics
and appliance superstore chain.
Ronald Glime, 53, has been President of Warrantech Automotive, Inc., a
wholly owned subsidiary of the Company, 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. Mr. Glime has been a director of Corniche Group
Incorporated, an insurance company based in Euless, Texas, since May 1998.
Martin Hughes, 34, has been President of Warrantech International, Inc., a
wholly owned subsidiary of the Company, since February 1998. From May 1996 to
January 1998, Mr. Hughes was Managing Director for Warrantech Europe Plc., a
wholly owned subsidiary of the Company. Prior thereto, Mr. Hughes served in
executive positions with American International Group and IMCO Group, Plc.
5
<PAGE>
Andrew Impavido, 57, has been Senior Vice President of Warrantech
Motivation a Corporate Division which consists of Training and Development,
Multimedia Services, and Corporate Communications since April 1998. Mr. Impavido
joined the Company in 1991 as Director of Training and has held the position of
Vice President of Training and Development prior to his present position. Prior
thereto, Mr. Impavido had spent over 20 years in the retail industry and has
held various management and training positions, with industry leaders such as
Sears, Montgomery Ward, and the 350 store Belk Chain.
Harris Miller, 61, has been Executive Vice President of Corporate Planning
and Development since April 1998. During the periods June 1997 through April
1998 and June 1990 through February 1994, Mr. Miller was the Chief Financial
Officer. From 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.
James F. Morganteen, 48, has been General Counsel for the Company since
April 1997 and Senior Vice President since February 1998. Mr. Morganteen most
recently served as a Vice President for Bankers Trust of New York with
responsibility for counseling its OTC risk management operations. From 1987
through 1994, Mr. Morganteen served as Senior Counsel to Xerox Corporation
managing the legal function of Xerox Credit Corporation, the financial services
unit of Xerox Corporation.
Richard Rodriguez, 44, has been President of Warrantech Consumer Product
Services, Inc., a wholly owned subsidiary of the Company, since April 1998. From
December 1996 until March 1998, Mr. Rodriguez has been Vice President and
Managing Director of Warrantech International, Inc., a wholly owned subsidiary
of the Company. From February 1992 until December 1996, Mr. Rodriguez served as
Chief Operating Officer of the Company's Texas operating facilities. From 1987
until 1992, Mr. Rodriguez served in various executive positions with the
Company. Prior to 1987, Mr. Rodriguez served as an executive and/or consultant
to retailers and manufacturers of consumer electronic products.
Randall San Antonio, 44, has been President of Warrantech Direct, Inc., a
wholly owned subsidiary of the Company, 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.
Judith M. Thomas, 44, has been President of Warrantech Help Desk, Inc., a
wholly owned subsidiary of the Company, since April 1997. Ms. Thomas has been
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 since 1993. 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.
6
<PAGE>
Information Concerning Meetings of the Board of Directors
During the fiscal year ended March 31, 1998, the Board of Directors held
four meetings. All such meetings were fully attended. The Company has an Audit
Committee consisting of Messrs. Richenstein and White. Such committee met once
during the 1998 fiscal year. The Company has a Compensation Committee consisting
of Messrs. Richenstein and White. This committee did not meet 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.
<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) 19.6%
300 Atlantic Street
Stamford, Connecticut 06901
William Tweed 2,002,475 shares(2) 12.3%
300 Atlantic Street
Stamford, Connecticut 06901
Jeff J. White 1,743,360 shares(3) 8.8%
35 Hub Drive
Melville, New York 11747
Lawrence Richenstein 11,625 shares - -
500 Eastern Parkway
Farmingdale, New York 11735
Gordon A. Paris 500 shares - -
31 West 52nd Street, 22nd floor
New York, New York 10019-6101
All directors and executive officers
as a group (18 persons) 7,146,360 shares(1,2,3,4) 44.2%
</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.
(2) Includes 23,000 shares held by Mr. Tweed as custodian for one child. Does
not include an aggregate of 7,500 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.
7
<PAGE>
(3) Does not include an aggregate of 225,000 shares owned by Mr. White's mother
and sister as to which he disclaims any beneficial interest.
(4) Includes options held by executive officers of the Company to purchase an
aggregate of 109,409 shares, which are presently exercisable.
Certain Relationships and Related Transactions
On April 1, 1996 Michael Salpeter, former 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. In May 1998, such
Agreement was modified, pursuant to which Mr. Salpeter relinquished his rights
with respect to 125,000 shares, leaving an option exercisable for 362,000
shares.
On October 16, 1997 Ronald Glime, President of Warrantech Automotive, Inc.
signed a Promissory Note (bridge loan) with the Company for $300,000. The Note
was fully paid on July 13, 1998.
On April 24, 1998 Martin Hughes, President of Warrantech International, Inc
signed a Promissory Note with the Company for $200,304. The Note calls for
thirty six (36) monthly payments of $5,564 with a maturity date of March 31,
2001.
On July 6, 1998 Joel San Antonio, Chairman and Chief Executive Officer, William
Tweed, Director and Jeff White, Director, exercised all of their vested options
to purchase Warrantech common stock. Each of them has agreed to execute
Promissory Notes in favor of the Company for the exercise price of the options.
The Notes call for the principal to be paid at the end of three years with
interest at 6% due annually. The principal amounts are $3,235,965, $2,522,957
and $2,303,578 respectively.
Warrantech Consumer Product Services, Inc. and Warrantech Direct, Inc. have made
commission payments to Unlimited Business Services, Inc. totaling $364,756 for
the fiscal year 1998 pursuant to Representative Agreements. Judith Thomas,
President of Warrantech Help Desk, Inc. is the President of Unlimited Business
Services, Inc.
8
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table provides information for the years ended March 31,
1998, 1997 and 1996, 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, 1998.
<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) (Shares) Awards (Shares) Awards Compensation(4)
<S> <C> <C> <C> <C> <C> <C> <C>
Joel San Antonio 1998 $ 557,865 $ 211,941 $ 28,104 - - $1,070
Chairman of the Board 1997 507,150 193,089 26,525 - - -
and Chief Executive Officer 1996 450,000 96,994 20,389 - - -
Michael A. Basone
Executive Vice President, 1998 $ 158,939 $ 43,277 $ 12,318 - - $2,341
Chief Information Officer 1997 159,940 $ 25,100 $ 15,343 - 11,600 -
and Chief Operating Officer 1996 143,443 $ 22,948 4,800 8,440 9,524 -
Ronald Glime
President of Warrantech 1998 $ 160,385 $110,903 $ 7,837 - - $1,972
Automotive, Inc. 1997 137,404 60,500 4,034 - 27,749 -
1996 129,443(3) 11,550 21,483 - - -
Richard Rodriguez
President of Warrantech 1998 $ 121,102 $ 1,000 $ 6,285 - 7,742 $1,648
Consumer Product Services, 1997 98,135 6,900 5,383 - - -
Inc. 1996 95,333 13,648 5,343 - - -
Judith M. Thomas
President of Warrantech 1998 $ 150,000 $ 50,000 $ 30,230 - - $ 455
Help Desk, Inc. 1997 - - - - - -
1996 - - - - - -
</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 in fiscal 1996, 1997 and 1998, life insurance premiums for the
years 1996, 1997 and 1998, living expenses paid Glime in fiscal 1996, and
relocation expenses paid Mr. Basone in fiscal 1997 and Ms. Thomas in fiscal
1998.
(3) Consisting of $125,000 in base salary and $4,443 of commissions in fiscal
1996.
(4) Represents amounts contributed by the Company in accordance with the
Company's 401(K) Plan.
9
<PAGE>
Option Grants In Last Fiscal Year
The following table sets forth certain information with respect to options
to purchase Common Stock granted during the fiscal year ended March 31, 1998 to
each of the named executive officers.
<TABLE>
<CAPTION>
Potential Realizable Value
At Assumed Annual Rates
Of Stock Price Appreciation
__________________________________Individual Grants__________________________ For Option Term (1)
Number of % of Total
Securities Options/SARs
Underlying granted to Exercise or
Options/SARs Employee in Base Price Expiration
Granted Fiscal Year Per Share Date 5% ($) 10% ($)
<S> <C> <C> <C> <C> <C> <C>
Joel San Antonio - 0.0% - - - -
Michael Basone - 0.0% - - - -
Ronald Glime - 0.0% - - - -
Richard Rodriguez 7,742 40.2% 11.625 12/02/04 63,301 72,781
Judith M. Thomas - 0.0% - - - -
</TABLE>
(1) Computed based upon the Company's price per share of $7.063, as reported on
NASDAQ National Market System on March 31, 1998.
10
<PAGE>
Options Exercised and Holdings
The following table sets forth information with respect to the individuals
listed in the Summary Compensation Table above, concerning unexercised options
held as of the end of the 1998 fiscal year.
<TABLE>
<CAPTION>
Shares Acquired Number of Unexercised Options at Value of Unexercised In-the-Money
Name On Exercise Value Realized Fiscal Year-End(#) Options at Fiscal Year-End ($)(1)
- -------------------------------------------------------------------------------------------------------------------------------
Exercisable Unexercisable Exercisable Unexercisable
---------------------- ---------------------- ---------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Joel San Antonio - - 1,204,080 - $ 5,268,452 $ -
Michael Basone 4,762 54,228 11,600 4,762 31,906 8,872
Ronald Glime - - 24,749 - 61,947 -
Richard Rodriguez 15,357 179,433 - 7,742 - -
Judith M. Thomas - - - - - -
</TABLE>
(1) Based on the closing price of $ 7.063 of the Company's common stock as
reported on the NASDAQ National Market System on March 31, 1998.
11
<PAGE>
Employment Agreements
On August 25, 1998, the Company entered into a five year employment
agreement, effective April 1, 1998, with Joel San Antonio. Under the terms of
the agreement, Mr. San Antonio's initial base compensation is $585,000 per
annum, subject to an increase of 5% per annum through the term of the agreement.
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 2% of the
net after tax profits of the Company. In connection with his entering into such
agreement, the Board awarded Mr. San Antonio options to purchase an aggregate of
400,000 shares of the Company's common stock at an exercise price of $3.37 (fair
market value on the date of grant plus 10%) per share, all of which options vest
contingent upon the Company achieving certain specified performance goals. The
employment agreement continues in full force and effect for additional one year
periods unless either party terminates by giving 90 days written notice prior to
the end of any term or renewal term. Mr. San Antonio also entered into an
agreement not to compete for two years with the Company which may be exercised
by the Company upon the expiration or earlier termination of the employment
agreement by delivery to Mr. San Antonio of an aggregate of 100,000 shares of
the Company's common stock.
Effective January 1, 1998 the Company entered into an employment agreement
with Michael Basone to serve as the Company's Executive Vice President, Chief
Information Officer and Chief Operating Officer. Under the terms of such
Agreement, Mr. Basone's current salary is $200,000, subject to automatic
increases of 5% after the first fifteen months and annually thereafter during
the term of the Agreement. Mr. Basone was granted stock options in April 1998,
pursuant to the Agreement, to purchase $200,000 of the Company's stock which
vest equally over a three year period. 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 not be terminated without
cause.
Effective January 1, 1998 Warrantech Automotive, Inc. entered into a
five-year employment agreement with Ronald Glime, its President. Under the terms
of such Agreement Mr. Glime is entitled to an initial annual base salary of
$200,000 subject to automatic increases of 5% after the first fifteen months and
annually thereafter during the term of the Agreement. Mr. Glime was granted
stock options in April 1998, pursuant to the Agreement, to purchase $250,000 of
the Company's stock which vest equally over a five year period. Mr. Glime is
entitled to receive a cash bonus based upon a percentage of Warrantech
Automotive, Inc.'s operating performance. The Company provides Mr. Glime 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.
12
<PAGE>
Effective April 1, 1998, Warrantech Consumer Product Services, Inc. entered
into an employment agreement with Richard Rodriguez, its President. Under the
terms of such Agreement, which expires December 31, 2001, Mr. Rodriguez is
entitled to an initial annual base salary of $150,000 subject to increases at
the option and sole discretion of the Company. Mr. Rodriguez received a $25,000
bonus upon signing of the employment agreement. Mr. Rodriguez was granted stock
options, pursuant to the Agreement, to purchase $225,000 of the Company's stock
which vest equally over a three year period. Mr. Rodriguez is entitled to
receive a cash bonus based upon a percentage of Warrantech Consumer Product
Services, Inc. and Warrantech Home Service Company's operating performance. The
Company provides Mr. Rodriguez 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 by the employee, at any time, upon sixty (60) days
written notice. During fiscal year 1998 the Company also granted stock options
in the amount of 7,742 shares to Mr. Rodriguez.
Effective April 1, 1997, the Company and Warrantech Help Desk, Inc. entered
into a five year employment agreement with Judith Thomas, its President. Under
the terms of such Agreement Ms. Thomas is entitled to an initial annual base
salary of $150,000 subject to automatic increases of 5% annually. Ms. Thomas
received a $50,000 bonus upon signing of the employment agreement. Ms. Thomas
was granted stock options in April 1998, pursuant to the Agreement, to purchase
$150,000 of the Company's stock which vest equally over a five year period. Ms.
Thomas was also awarded $50,000 in stock grants in April 1998. Ms. Thomas is
entitled to receive a cash bonus equal to a percentage of her current base
salary upon the attainment of certain operating goals established for Warrantech
Help Desk, Inc. The Company provides Ms. Thomas with medical and dental
insurance, relocation benefits, 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.
13
<PAGE>
Other Incentives and Compensation
The Company has provided executives equity-based long-term incentives
through its 1988 Employee Incentive Stock Option Plan, which was 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 has proposed the 1998 Stock Plan to provide similar future incentives.
The Company provides executive officers with an incentive bonus plan which
provides cash and/or stock bonuses upon meeting certain performance criteria.
The Company provides 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
who are claims adjusters for obtaining and maintaining certification as
professionals in their field.
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, 1998, all Section 16 filing requirements applicable
to its officers, directors and greater than 10% beneficial owners were complied
with except that Desiree Kim Caban filed one Form 4 late and Michael A. Basone
filed one Form 4 late.
Non-Management Directors' Compensation
Effective January 1, 1997, each non-employee director is entitled to
receive compensation of $2,500 plus 500 shares of Company stock per calendar
quarter of board service. Committee service is compensated at $500 plus 125
shares of Company stock per calendar quarter. Effective January 1, 1998,
quarterly stock compensation was changed to 250 shares for board service and
62.5 shares for committee service with the cash components unchanged. During
fiscal 1998, the following amounts were paid:
Jeff J. White $17,500
Lawrence Richenstein 17,500
No directors' fees are payable to employees of the Company who serve as
directors.
14
<PAGE>
Performance Graph
The following graph and table tracks an assumed investment of $100 on March 31,
1993 in the Common Stock of the Company, The Russell 2000 Index and a peer group
comprised of three 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 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG WARRANTECH CORPORATION, THE RUSSELL 2000 INDEX
AND A PEER GROUP
* $100 INVESTED ON 3/31/93 IN STOCK OR INDEX - INCLUDING REINVESTMENT OF
DIVIDENDS. FISCAL YEAR ENDING MARCH 31.
3/93 3/94 3/95 3/96 3/97 3/98
Warrantech Corporation 100 123 142 113 253 198
Peer Group 100 187 137 189 192 352
Russell 2000 100 111 117 151 159 226
The peer group consists of Unico American Corp., Automobile Protection Corp. and
Harris & Harris Group, Inc. All amounts rounded to the nearest dollar.
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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 1998, 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:
Reflect a pay-for-performance relationship where a portion of total
compensation is at risk.
Attract 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% of the after tax profits of the Company for
the Chief Executive Officer. Having duly considered the recommendations of the
Committee, the Board of Directors approved these changes at its November 14,
1995 meeting. Effective with the employment agreement dated August 25, 1998, Mr.
San Antonio's incentive bonus was further reduced to 2% of the after tax profits
of the Company.
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 1998
fiscal year. Subsequent to the
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1998 fiscal year, the Compensation Committee has met twice in connection
with the negotiation of Mr. San Antonio's new employment agreement.
During the 1998 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 and expires in 1998. As of March 31, 1998, options to
purchase an aggregate of 190,000 shares of Common Stock have been granted under
the ISOP, of which 32,147 were granted during the fiscal year ended March 31,
1998. The Committee is of the opinion that the ISOP has been an extremely
effective in attracting and retaining key executives and employees of the
Company and its subsidiaries and motivating them to improve the Company's
financial performance, and supports the adoption of the 1998 Stock Plan to
replace the ISOP, in order to provide the Company with the same benefits on an
ongoing basis that have been provided in the past by the ISOP.
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, 1998, Mr. San Antonio received
$557,865 in base salary and $211,941 in bonuses. Mr. San Antonio's total
compensation during the 1998 fiscal year and the terms of his employment
agreement were 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 in the 1998 fiscal year.
COMPENSATION COMMITTEE
Jeff J. White
Lawrence Richenstein
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PROPOSAL TO APPROVE THE 1998 STOCK PLAN (Item 2 on proxy card)
The Board adopted the 1998 Stock Plan (the "1998 Stock Plan") on August 25,
1998, subject to the approval of the Company's stockholders. Accordingly, at the
meeting, the Company's stockholders will be asked to approve the 1998 Stock Plan
and the Board recommends that it be approved. The Board and management believe
that the 1998 Stock Plan helps the Company attract and retain competitively
superior employees and promotes long-term growth and profitability by further
aligning employee and stockholder interests. A summary of the essential features
of the 1998 Stock Plan is provided below. All defined terms used below have the
meaning set forth in the 1998 Stock Plan, unless otherwise indicated.
Purpose and Eligibility
The 1998 Stock Plan is intended to promote the interests of the Company by
affording employees, executive officers and directors of the Company and its
present and future subsidiaries and outside consultants or advisors to the
Company, an opportunity to acquire a proprietary interest in the Company in
order to attract and retain such persons, to provide them with long term
financial incentives to increase the value of the Company and to provide them
with a stake in the future of the Company which corresponds to the stake of each
of the Company's stockholders. The Administrator (as hereinafter defined)
determines which members of such class of eligible individuals shall receive
grants under the 1998 Stock Plan and the terms of such grants.
Shares Subject to Plan
The stock subject to the 1998 Stock Plan shall be authorized but unissued
shares of Common Stock of the Company, par value $0.007 per share (the "Common
Stock"), or shares of Common Stock reacquired by the Company in any manner. The
maximum number of shares of Common Stock which may be issued over the term of
the Plan shall initially not exceed 674,704 shares. Such authorized share
reserve is comprised of (i) the number of shares which remained available for
issuance, as of the 1998 Stock Plan's Effective Date, under the (the
"Predecessor Plan") Warrantech Corporation 1988 Employee Incentive Stock Option
Plan (amended as of July 1996), including the shares subject to the outstanding
options incorporated into the 1998 Stock Plan and any other shares which would
have been available for future option grants under the Predecessor Plan, plus
(ii) an additional 600,000 shares. Of the 674,704 shares available for issuance
under the plan, should it be approved, options to purchase 148,368 shares at an
exercise price of $3.37 per share have been granted by the Board of Directors to
Mr. San Antonio, in connection with his 1998 employment agreement, leaving
526,336 shares available for future grants.
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Effective Date and Duration
The effective date of the 1998 Stock Plan was August 25, 1998. The 1998
Stock Plan shall terminate on August 24, 2008, unless earlier terminated by the
Board. No award shall be granted after the date which the 1998 Stock Plan
terminates.
Administration
The 1998 Stock Plan is administered by a committee (the "Administrator") of
the Board which consists of three disinterested directors of the Company, who
are appointed by the Board. A member of the Board shall be deemed to be
"disinterested" only if he satisfies such requirements as the SEC may establish
for disinterested administrators acting under the plans intended to qualify for
exemption under Rule 16b-3, promulgated under the Securities Exchange Act of
1934 (the "Exchange Act"). The Administrator shall, subject to the provisions of
the 1998 Stock Plan, (i) determine the amount of all grants, (ii) determine the
terms and conditions of grant agreements and all elections and other forms,
(iii) interpret the 1998 Stock Plan and (iv) make all other decisions relating
to the operations of the 1998 Stock Plan.
Awards Available Under 1998 Stock Plan
The Administrator may make the following types of grants under the 1998
Stock Plan, each of which shall be an "Award." One share of the Company's Common
Stock shall be the underlying security for any Award.
Stock Options. The Administrator may grant to participants Stock Options to
purchase Shares. The Option Price for each Share subject to a Stock Option shall
not be less than the greater of (i) the par value of a Share or (ii) the Fair
Market Value (as such term is defined in the 1998 Stock Plan) of a Share on the
date the Stock Option is granted. The Stock Options may be Non-Qualified Stock
Options ("NQSOs") or Incentive Stock Options ("ISOs") which are intended to
satisfy the requirement of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"). Each grant of Stock Options shall be evidenced by an
agreement which shall incorporate such terms and conditions (including the
expiration and exercise dates) as the Administrator, in its sole discretion,
deems to be consistent with the terms of the 1998 Stock Plan and other legal
requirements. The Administrator may prescribe the method of exercise and payment
of such Stock Options. The Administrator may issue new Stock Options equal to
the number of Shares surrendered by a participant upon exercise of previously
granted Stock Options.
Restricted Shares. The Administrator may grant to participants the right to
purchase shares, subject to specified restrictions ("Restricted Shares"). Such
restrictions may include, but are not limited to, the requirement of continued
employment with the Company or a subsidiary and achievement of performance
objectives. If a participant fails to meet the terms
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<PAGE>
and conditions set forth in the related agreement during the period of the
restrictions, the Restricted Shares shall be forfeited, and all rights of the
participant to such shares shall terminate without further obligation on the
part of the Company. Except to the extent restricted under the terms and
conditions of the related agreement, a participant who is granted Restricted
Shares shall have all of the rights of a stockholder, including, without
limitation, the right to vote Restricted Shares and the right to receive
dividends on such Restricted Shares.
The Administrator shall determine and specify the purchase price of the
Restricted Shares, the nature of the restrictions and the performance objectives
in the related agreement. The performance objectives shall consist of (i) one or
more business criteria, including financial and individual performance criteria,
and (ii) a target level or levels of performance with respect to such criteria.
The performance objectives shall be objective and shall otherwise meet the
requirements of Section 162(m)(4)(C) of the Code.
Stock Payments. Stock Payments may be made to participants as a bonus or as
additional compensation, as determined by the Administrator. Once a participant
receiving Stock Payments becomes a holder of record of such Shares, the
participant shall have all voting, dividend, liquidation and other rights with
respect to Shares issued as Stock Payments.
Transferability During Lifetime
During the lifetime of a participant to whom an Award is granted, only the
participant, or participant's legal representative, may exercise or receive
payment of an Award; provided, however, that the Administrator may permit
transfers of awards other than ISOs pursuant to a valid domestic relations order
if and to the extent any such transfers do not cause a participant subject to
Section 16 of the Exchange Act to lose the benefit of the exemption under Rule
16b-3 for such transactions or violate other rules or regulations of the SEC or
the Internal Revenue Service or materially increase the cost of the Company's
compliance with such rules or regulations.
Adjustments
In the event that there is any change in the Company's Common Stock by
reason of any dividend or other distribution, recapitalization, forward or
reverse split, reorganization, merger, consolidation, spin-off, combination,
repurchase, or share exchange, or other similar corporate transaction or events,
the number and kind of Shares which may be delivered, the exercise price, grant
price, or purchase price relating to any Award may be appropriately adjusted by
the Administrator at the time of such event.
20
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Amendments
The Board shall have the right to amend, modify, suspend or terminate the
1998 Stock Plan at any time, for any purpose; provided that the 1998 Stock Plan
may not be amended in a manner which would disqualify the Plan from the
exemption provided by Rule 16b-3 under the Exchange Act.
Federal Income Tax Consequences
The rules governing the tax treatment of Stock Options, Restricted Shares
and Stock Payments are quite technical. Therefore, the description of the
Federal income tax consequences set forth below is necessarily general in nature
and does not purport to be complete. Moreover, statutory provisions are subject
to change, as are their interpretations, and their applications may vary in
individual circumstances. Finally, the tax consequences under applicable state
and local income tax laws may not be the same as under the Federal income tax
laws.
Incentive Stock Options. The participant recognizes no taxable gain or loss
when an ISO is granted or exercised, although upon exercise the spread between
the fair market value and the exercise price generally is an item of tax
preference for purposes of the participant's alternative minimum tax. If the
Shares acquired upon the exercise of an ISO are held for at least one year after
exercise and two years after grant (the "Holding Periods"), the participant
recognizes any gain or loss realized upon such sale as long-term capital gain or
loss and the Company is not entitled to a deduction. If the Shares are not held
for the Holding Periods, the gain is ordinary income to the participant to the
extent of the difference between the exercise price and the fair market value of
the Company's Common Stock on the date the option is exercised and any excess is
capital gain. Also, in such circumstances, the Company receives a deduction
equal to the amount of any ordinary income recognized by the participant.
Non-Qualified Stock Options. The participant recognizes no taxable income
and the Company receives no deduction when an NQSO is granted. Upon exercise of
an NQSO, the participant recognizes ordinary income and the Company receives a
deduction equal to the difference between the exercise price and the fair market
value of the Shares on the date of exercise. No more that fifty percent (50%) of
the shares received upon an exercise of a NQSO may be sold within one year
following the date of such exercise. All of such shares may be sold thereafter.
The participant recognizes as a capital gain or loss any subsequent profit or
loss realized on the sale or exchange of any Shares disposed of or sold.
Restricted Shares. A participant granted Restricted Shares is not required
to include the value of such Shares in income until the first time such
participant's rights in the Shares are transferable or are not subject to
substantial risk of forfeiture, whichever occurs earlier, unless such
participant timely files an election under the Code Section 83(b) to be taxed on
the receipt of the Shares. In either case, the amount of such ordinary income
will be equal to the excess of the fair market value of the Shares at the time
the income is recognized over the
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<PAGE>
amount (if any) paid for the Shares. The Company receives a deduction, in the
amount of the ordinary income recognized by the participant, for the Company's
taxable year in which the participant recognizes such income.
Stock Payments. A participant granted Stock Payments recognizes income in
an amount equal to the fair market value of such shares as and when such becomes
payable to the participant. The Company receives a deduction for the same amount
in the year that income is recognized by the participant.
Section 162(m). Section 162(m) of the Code limits to $1 million per year
the Federal income tax deduction available to a public company for the
compensation paid to any of its chief executive officer and four other highest
paid executive officers. However, Section 162(m) provides an exception from this
limitation for certain "performance-based" compensation if various requirements
are satisfied. The Stock Plan is designed to satisfy this exception for Stock
Options. In addition, if the Administrator elects to issue Restricted Shares or
Stock Payments thereunder, it also can satisfy the exception for such grants by
utilizing "performance-based" award criteria.
As discussed above, the employees of the Company and its subsidiaries who
will receive awards under the Stock Plan and the size and terms of the awards
are generally to be determined by the Administrator in its discretion. Thus, it
is not possible either to predict the future benefits or amounts that will be
received by or allocated to particular individuals or groups of employees.
THE BOARD RECOMMENDS A VOTE "FOR" THE PROPOSAL.
Independent Accountants
On August 28, 1998, the Company, as authorized by its Board, engaged Ernst
& Young, LLP as its new independent accountants, replacing
PricewaterhouseCoopers.
The reports of PricewaterhouseCoopers on the financial statements of the
Company for the past two fiscal years contained no adverse opinion or disclaimer
of opinion and were not qualified or modified as to uncertainty, audit scope or
accounting principles. In connection with its audits for the two most recent
fiscal years and through August 28, 1998, there have been no disagreements with
PricewaterhouseCoopers on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of PricewaterhouseCoopers
would have caused them to make reference thereto in their report on the
financial statements for such years.
Upon filing a report on Form 8-K with the SEC relating to the dismissal of
PricewaterhouseCoopers, the Company requested that PricewaterhouseCoopers
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
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PricewaterhouseCoopers' letter, dated August 31, 1998, is filed as an exhibit to
the amendment filed September 4, 1998 to the Company's report on Form 8-K dated
August 28, 1998. The Company also has provided PricewaterhouseCoopers with an
opportunity to make a brief statement of its views in this proxy statement.
PricewaterhouseCoopers has been invited to have its representatives attend the
Meeting to make a statement and respond to appropriate questions. However, it is
not anticipated that any such representative will attend the Meeting.
The Company has not consulted with Ernst & Young, LLP on (A) applications
of accounting principles to a specified transaction, either completed or
proposed, (B) the type of auditing opinion that might be rendered on the
Company's financial statements, and neither a written report was provided to the
Company nor oral advice was provided that Ernst & Young concluded was an
important factor considered by the Company in reaching a decision as to the
accounting, auditing or financial reporting issue or (C) any matter that was
either the subject of a disagreement or a Reportable Event as such term is
defined herein. It is anticipated that representatives of Ernst & Young, LLP
will attend the Meeting, 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.
Stockholder Proposals for 1999 Meeting
Proposals of stockholders to be included in the Company's proxy material
for the 1999 annual meeting must be received in writing by the Company at its
executive offices not later than March 31, 1999 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
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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 27, 1998, at 10:00 a.m. Eastern Time and at any
adjournment or adjournments thereof, hereby revoking any proxies heretofore
given, at the The Landmark Club, located at One Landmark Square, 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.
<TABLE>
<S> <C> <C> <C>
VOTE FOR all nominees listed WITHHOLD AUTHORITY Nominees: JOEL SAN ANTONIO
1. Election of [ ] below (except as marked to [ ] for all nominees listed WILLIAM TWEED
Directors the contrary below) to right: GORDON A. PARIS
JEFF J. WHITE
LAWRENCE RICHENSTEIN
</TABLE>
** To withhold authority to vote for any individual nominee, write that name on
the line below**
_________________________________________________________________
2. Approval of 1998 Stock Plan [ ] FOR [ ] AGAINST [ ] ABSTAIN
3. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting. This Proxy, when properly
executed, will be voted in the manner directed by the undersigned stockholder.
If no direction is made this proxy will be voted for proposals 1 and 2.
<TABLE>
<S> <C> <C>
Signature _______________________________ Date ______________ Signature ____________________________ Date ______________
</TABLE>
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.)
