UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-12938
Interstate National Dealer Services, Inc.
(Exact name of registrant as specified in its charter)
Delaware 11-3078398
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
333 Earle Ovington Blvd., Mitchel Field, NY 11553
(Address of principal executive offices)
(516) 228-8600
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the past 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
As of March 10, 1999, Registrant had issued and outstanding 4,664,216 shares
of Common Stock.
<PAGE>
INTERSTATE NATIONAL DEALER SERVICES, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
Page
Number
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of
January 31, 1999 and October 31, 1998 3
Consolidated Statements of Operations
for the three months ended January 31,
1999 and 1998 4
Consolidated Statement of Stockholders'
Equity for the three months ended
January 31, 1999 5
Consolidated Statements of Cash Flows for
the three months ended January 31, 1999
and 1998 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
<PAGE>
INTERSTATE NATIONAL DEALER SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
January 31, October 31,
ASSETS 1999 1998
------ --------- ---------
Unaudited
CURRENT ASSETS:
Cash and cash equivalents $ 22,942,427 $ 20,885,903
United States Treasury Bills, at cost 16,438,058 16,445,339
Accounts receivable, net 8,133,332 8,163,882
Prepaid expenses 570,489 653,281
------------ -----------
Total current assets 48,084,306 46,148,405
RESTRICTED CASH 2,109,715 1,951,856
FURNITURE, FIXTURES AND EQUIPMENT, at cost,
less accumulated depreciation and
amortization of $1,003,634 and $897,478,
respectively 1,492,467 1,551,572
INTANGIBLE ASSETS, less accumulated
amortization of $154,167 and $151,667,
respectively 70,833 73,333
DEFERRED INCOME TAXES 2,212,921 2,127,843
NOTE FROM RELATED PARTY 70,000 90,000
OTHER ASSETS 1,648,721 1,463,732
----------- -----------
$55,688,963 $53,406,741
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 3,779,675 $ 3,402,417
Accrued expenses 965,324 737,660
Accrued commissions 944,207 1,001,178
Reserve for claims 1,553,185 1,622,361
Other liabilities 375,511 311,135
---------- ---------
Total current liabilities 7,617,902 7,074,751
DEFERRED CONTRACT REVENUE 27,305,242 26,264,571
CONTINGENCY PAYABLE 2,109,715 1,951,856
----------- ----------
Total liabilities 37,032,859 35,291,178
----------- ----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, par value $.01 per share;
authorized 1,000,000 shares; no issued shares - -
Common stock, par value $.01 per share;
authorized 10,000,000 shares; issued
and outstanding 4,664,216 and 4,650,916
shares, respectively 46,642 46,509
Additional paid-in capital 11,153,666 11,104,699
Retained earnings 7,455,796 6,964,355
---------- ----------
Total stockholders' equity 18,656,104 18,115,563
---------- ------------
$55,688,963 $53,406,741
=========== ===========
The accompanying notes to financial statements
are an integral part of these consolidated balance sheets.
<PAGE>
INTERSTATE NATIONAL DEALER SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JANUARY 31, 1999 AND 1998
UNAUDITED
1999 1998
REVENUES $11,534,491 $10,308,175
OPERATING COSTS AND EXPENSES:
Costs of services provided 5,933,966 5,102,013
Selling, general and administrative expenses 5,218,542 4,701,822
--------- ---------
Operating income 381,983 504,340
OTHER INCOME:
Interest income 405,721 329,997
Non recurring gain on settlement - 500,000
---------- ----------
Income before provision for income taxes 787,704 1,334,337
PROVISION FOR INCOME TAXES 296,263 528,084
---------- ----------
Net income $ 491,441 $ 806,253
========== ==========
NET INCOME PER SHARE:
Basic $ .11 $ .17
====== ======
Weighted average shares outstanding 4,653,229 4,623,016
========= ==========
Diluted $ .10 $ .16
====== ======
Weighted average shares outstanding 5,049,557 4,998,808
========= ==========
The accompanying notes to financial statements
are an integral part of these consolidated statements.
<PAGE>
INTERSTATE NATIONAL DEALER SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED JANUARY 31, 1999
UNAUDITED
Common Stock Additional
Number of Paid-in Retained
Shares Amount Capital Earnings Total
BALANCE AT OCTOBER 31, 1998 4,650,916 $46,509 $11,104,699 $6,964,355 $18,115,563
Shares issued pursuant to
exercise of stock options 13,300 133 48,967 - 49,100
Net income for the three
months ended January
31, 1999 - - - 491,441 491,441
--------- ------- ---------- --------- ----------
BALANCE AT JANUARY 31, 1999 4,664,216 $46,642 $11,153,666 $7,455,796 $18,656,104
========= ======= =========== ========== ==========
The accompanying notes to financial statements
are an integral part of these consolidated statements.
<PAGE>
INTERSTATE NATIONAL DEALER SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JANUARY 31, 1999 AND 1998
UNAUDITED
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 491,441 $ 806,253
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 117,657 92,665
Deferred income taxes (85,078) (81,328)
Increase (decrease) in cash resulting from
changes in operating assets and liabilities:
Accounts receivable 30,550 1,392,020
Prepaid expenses 82,792 (67,082)
Restricted cash (157,859) 17,982
Other assets (193,990) (230,693)
Accounts payable 377,258 111,450
Accrued expenses 227,664 334,069
Accrued commissions (56,971) (72,598)
Reserve for claims (69,176) (116,881)
Other liabilities 64,376 79,666
Deferred contract revenue 1,040,671 1,009,577
Contingency payable 157,859 (17,982)
---------- ---------
Net cash provided by operating activities 2,027,194 3,257,118
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net sales (purchases) of United States Treasury
Bills 7,281 (1,899,647)
Purchase of furniture, fixtures and equipment (47,051) (144,181)
Note from related party 20,000 20,000
---------- ----------
Net cash used in investing activities (19,770) (2,023,828)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of employee stock options 49,100 -
--------- ---------
Net cash provided by financing activities 49,100 -
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,056,524 1,233,290
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 20,885,903 20,846,524
---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $22,942,427 $22,079,814
=========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Income taxes $ 38,343 $201,967
========= =========
The accompanying notes to financial statements
are an integral part of these consolidated statements.
<PAGE>
INTERSTATE NATIONAL DEALER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The interim consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted.
These financial statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's Annual Report
on Form 10-KSB for the fiscal year ended October 31, 1998.
2. In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the financial position as of
January 31, 1999, and the consolidated results of operations and cash flows for
the periods ended January 31, 1999 and 1998. The accounting policies followed by
the Company are set forth in the Company's consolidated financial statements
included in the Annual Report mentioned above.
3. The consolidated results of operations for the three months ended January 31,
1999 and 1998 are not necessarily indicative of the results to be expected for
the full year.
4. Effective December 15, 1997, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings Per Share." Basic net income
per share ("Basic EPS") is computed by dividing net income by the weighted
average number of common shares outstanding. Diluted net income per share
("Diluted EPS") is computed by dividing net income by the weighted average
number of common shares and dilutive common share equivalents then outstanding.
SFAS No. 128 requires the presentation of both Basic EPS and Diluted EPS on the
face of the statements of operations.
A reconciliation between the numerators and denominators of Basic and Diluted
EPS is as follows:
Net Income Shares Per Share
For the three months ended January 31, 1998
Basic EPS
Net income attributable to common shares $806,253 4,623,016 $.17
Effect of dilutive securities: stock options - 375,792 (.01)
-------- --------- ---
Diluted EPS
Net income attributable to common shares
and assumed option exercises $806,253 4,998,808 $.16
======== ========= ====
For the three months ended January 31, 1999
Basic EPS
Net income attributable to common shares $491,441 4,653,229 $.11
Effect of dilutive securities: stock options - 396,328 (.01)
-------- --------- -----
Diluted EPS
Net income attributable to common shares
and assumed option exercises $491,441 5,049,557 $.10
======== ========= =====
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Revenues increased approximately $1,226,000, or 12%, to approximately
$11,534,000 for the three months ended January 31, 1999 as compared to
approximately $10,308,000 for the three months ended January 31, 1998. This
increase was primarily due to: (i) an increase in the recognition of deferred
contract revenue as a result of an increase in the total number of unexpired
service contracts under administration; and (ii) an increase in administrative
and insurance fees resulting from an increase in the number of service contracts
accepted for administration by the Company in fiscal 1999. The Company monitors
the claims submitted by each dealer to insure that the claims experience on
contracts administered by the Company remains at acceptable levels. The Company
has accelerated the process of canceling those dealers who have not met
acceptable levels. This has resulted in a decrease in the rate of growth of new
contracts accepted for administration in the three months ended January 31, 1999
as compared to the growth rate in the same period ended January 31, 1998.
Costs of services provided, which consist primarily of claims and
cancellation costs, increased by approximately $832,000, or 16%, to
approximately $5,934,000 for the three months ended January 31, 1999, as
compared to approximately $5,102,000 for the three months ended January 31,
1998. As a percentage of revenues, cost of services provided increased to 51%
for the three months ended January 31, 1999 as compared to 49% in the same
period in 1998. Claims and cancellation costs are directly affected by the total
number of unexpired contracts under administration, which has increased on a
yearly basis.
Gross margin increased by approximately $395,000, or 8%, to approximately
$5,601,000 for the three months ended January 31, 1999, as compared to
approximately $5,206,000 for the three months ended January 31, 1998. This
increase is primarily attributable to the increase in revenues as described
above. Gross margin for the three months ended January 31, 1999 was 49% as
compared to 51% for the three months ended January 31, 1998. This decrease is
primarily attributable to an increase in the relative percentage of revenue
represented by deferred contract revenue, which has a low gross margin, as
compared to administrative fees which have a higher gross margin.
Selling, general and administrative expenses increased by approximately
$517,000, or 11%, to approximately $5,219,000 for the three months ended January
31, 1999, up from approximately $4,702,000 for the three months ended January
31, 1998. This increase was in large part due to (i) increases in selling
expenses primarily due to increased commissions paid as a result of increased
sales volume; and (ii) increases in general and administrative expenses due to
increased personnel resulting from the development of new service contract
products and the development of the Company's new web site,
Interstateautomall.com. As a percentage of revenues, selling, general and
administrative expenses decreased to 45% for the three months ended January 31,
1999 as compared to 46% in the same period in 1998.
Other income, net decreased by approximately $424,000 or 51%, to
approximately $406,000 for the three months ended January 31, 1999, as compared
to approximately $830,000 for the three months ended January 31, 1998. This
decrease is attributable to non recurring other income of $500,000 received by
the Company in settlement of a dispute with an unaffiliated party in the first
quarter of 1998. The decrease was partially offset by an increase in investment
income generated by funds provided by operating activities.
For the three months ended January 31, 1999, the Company had income before
income taxes of approximately $787,000 and recorded a provision for income taxes
of approximately $296,000, as compared to income before income taxes of
approximately $1,334,000 and a provision for income taxes of approximately
$528,000 in the same period in 1998. Net income decreased approximately
$315,000, or 39%, to approximately $491,000 for the three months ended January
31, 1999 as compared to approximately $806,000 for the three months ended
January 31, 1998. The decrease in net income is the result of the $500,000 non
recurring gain on settlement received in fiscal 1998.
Diluted net income per share for the three months ended January 31, 1999 was
$.10 per share, the same as the diluted net income per share for the three
months ended January 31, 1998, exclusive of the $500,000 non recurring gain on
settlement. Diluted net income per share for the three months ended January 31,
1999 was $.10 per share as compared to diluted net income per share of $.16 for
the same period in 1998, inclusive of the non recurring item.
<PAGE>
Liquidity and Capital Resources
Cash and cash equivalents and United States Treasury Bills, at cost, were
approximately $39,380,000 at January 31, 1999, as compared to approximately
$37,331,000 at October 31, 1998. The increase of approximately $2,049,000 was
primarily the result of cash provided by the Company's operating activities.
During the fiscal year ended October 31, 1997, the Company entered into a
$3,000,000 revolving credit facility with the Chase Manhattan Bank. Under the
terms of the facility, advances bear interest at 1/2% above the prime rate and
the Company is obligated to pay an annual facility fee of 1/2% of the total
available amount. Outstanding amounts under the credit facility are secured by a
pledge of all accounts receivable of the Company. As at January 31, 1999, no
amounts had been borrowed under the credit facility.
The Company believes that its current available cash and anticipated levels
of internally generated funds will be sufficient to fund its financial
requirements at least for the next fiscal year at the Company's present level of
revenues and business activity.
Impact of Inflation
The Company does not believe that inflation has had, or will have in the
foreseeable future, a material impact upon the Company's operating results.
Year 2000
The Year 2000 issue exists because many computer systems and applications
currently use two-digit date fields to designate a year. As the century date
change occurs, date-sensitive systems will recognize the year 2000 as 1900, or
not at all. This inability to recognize or properly treat the Year 2000 may
cause systems to process critical financial and operational information
incorrectly. The Company's computer systems use four-digit date fields to
designate a year and, as a result, the Company believes that its systems will
properly recognize the Year 2000. The Company has contacted its critical
suppliers of services to determine that the services that they provide are Year
2000 compliant. The Company believes, based upon its internal reviews, the
configuration of the Company's systems, inquiries made of its critical customers
and suppliers, and other factors, that the future external and internal costs to
be incurred relating to the modification of internal-use software for the Year
2000 will not be material to the Company's results of operations or financial
position.
Forward-Looking Statements
This Form 10-Q, together with other statements and information publicly
disseminated by the Company, contains certain forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Such statements
are based on assumptions and expectations which may not be realized and are
inherently subject to risks and uncertainties, many of which cannot be predicted
with accuracy and some of which might not even be anticipated. Future events and
actual results, financial or otherwise, may differ from the results discussed in
the forward-looking statements. A number of these risks and other factors that
might cause differences, some of which could be material, along with additional
discussion of forward-looking statements, are set forth in the Company's Report
on Form 8-K filed with the Securities and Exchange Commission on December 23,
1996.
<PAGE>
PART II - OTHER INFORMATION
Item 6(b) Exhibits and Reports on Form 8-K
A) Exhibits
Exhibit
No. Description
10.1 Amended and Restated Employment Agreement between the Company and
Lawrence J. Altman, dated February 1, 1999.
B) Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended January 31,
1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereto duly authorized.
INTERSTATE NATIONAL DEALER SERVICES, INC.
March 10, 1999 By: /s/ Zvi D. Sprung
Date Zvi D. Sprung
Chief Financial Officer
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
This Amended and Restated Employment Agreement is entered into as of
the 1st day of February, 1999, by and between INTERSTATE NATIONAL DEALER
SERVICES, INC., a Delaware corporation (the "Company"), and LAWRENCE J. ALTMAN
(the "Executive").
RECITALS:
WHEREAS, the Company and the Executive are parties to an Employment
Agreement entered into as of December 1, 1993, as amended by the Amendment to
the Employment Agreement, dated as of May 1, 1996 and by the Amendment to the
Employment Agreement, dated as of February 13, 1998 (collectively, the "Prior
Employment Agreement").
AGREEMENT:
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the parties hereby agree as follows:
1. Position and Duties. The Company agrees to employ the Executive, and the
Executive agrees to be employed, as Senior Vice President, Marketing of the
Company, subject to the supervision of, and reporting only to, The Board, the
Chairman of the Board and/or the President. Executive shall have such duties,
responsibilities, titles and authority normally associated with the position of
senior vice president of marketing of a company the size and structure of the
Company. The Executive agrees to devote his best talents, efforts and abilities
on a full-time basis to the performance of such duties. 2. 3. Compensation. For
all services rendered by the Executive pursuant to this Agreement, the Company
shall annually pay to the Executive the compensation set forth in clauses 2(a),
(b) and (c) below (each an "Element"), the sum of which Elements shall be
Executive's "Total Compensation" for any such year: 4. (a) Annual Salary. The
Company shall pay Executive a salary at the rate of $70,710 per year during the
Term, subject to future increases in the discretion of the Company (the "Annual
Salary") and subject to applicable tax, Social Security and other legally
required withholding ("Withholding"). The Annual Salary shall be paid in
accordance with the customary payroll practices of the Company at regular
intervals, but in no event less frequently than every month, as the Company may
establish from time to time for employees of the Company generally. The Company
shall conduct an annual performance appraisal and salary review on behalf of the
Executive. (b) (c) Commissions. The Executive shall receive commissions in an
amount equal to 2% of (i) all administrative fees for vehicle service contracts
and vehicle warranties paid to the Company during each calendar month minus (ii)
the aggregate selling expenses incurred by the Company for such month minus
(iii) $150,000. Such commissions shall be paid to the Executive no later than 30
days following the end of each calendar month; however, nothing herein shall be
deemed to make the Company obligated to sell any products or services. (d) (e)
Performance Bonus. In addition to any other compensation provided for in this
Section 2, the Company may award to the Executive a performance bonus at any
time in such amount as the Board or the Compensation Committee of the Board may
determine (the "Performance Bonus"), in its sole discretion, after taking into
consideration other compensation paid or payable to the Executive under this
Agreement, as well as the financial and non-financial progress of the business
of the Company and the contributions of the Executive toward that progress. Any
Performance Bonus shall be subject to Withholding. Nothing contained herein
shall be deemed to make the Company obligated to pay any such Performance Bonus.
(f) (g) Elements Earned Pro Rata. Each Element of the Executive's Total
Compensation shall be deemed to be earned by Executive on a pro rata basis
throughout each fiscal year, based on the number of days elapsed in such fiscal
year, for purposes of determining amounts accrued or owing but not yet paid
under this Agreement. The pro rata portion of any Annual Bonus accrued or owing
as a result of an Early Termination (as defined in Section 5 below) shall be
paid to the Executive on or before the Bonus Payment Deadline. (h) 5. Benefits.
The Executive shall be entitled to such medical and other benefits as are
customarily given to employees of the Company generally. 6. 7. Term. The term of
this Agreement shall be for five (5) years, commencing on the date hereof and
terminating February 1, 2004 (the "Term"), unless sooner terminated as herein
provided. In the event that the Executive continues his employment after the
Term, his employment will be deemed "at will" under the same terms as provided
herein unless otherwise expressly agreed to by further written agreement between
the Company and the Executive. 8. 9. Early Termination. The employment of the
Executive by the Company may be terminated prior to the end of the Term as set
forth below: 10. (a) Death. If the Executive shall die during the Term, the
employment of the Executive by the Company shall thereupon terminate, except
that the Company shall pay to the legal representative of the Executive's estate
an amount equal to: (i) all amounts accrued or owing but not yet paid under this
Agreement and any other benefits in accordance with the terms of any applicable
plans and programs of the Company; and (ii) the Total Compensation paid or
payable to the Executive hereunder for the most recent fiscal year of the
Company immediately prior the date of death. Such amount shall be paid in six
equal monthly installments with the first payment due and payable on the first
day of the second calendar month following the date of death. (b) (c)
Disability. The Company or the Executive, upon not less than thirty (30) days
written notice to the other party, may terminate the employment by the Company
of the Executive if the Executive shall become, by reason of physical or mental
disability, unable to render, for 135 consecutive days or for shorter periods
aggregating 180 days or more in any twelve month period, services of the
character contemplated by this Agreement. As a result of any such disability
termination, the Company shall: (d) (i) pay to the Executive, within thirty (30)
days of such disability termination date, all amounts accrued or owing but not
yet paid under this Agreement and any other benefits in accordance with the
terms of any applicable plans and programs of the Company; (ii) (iii) pay to the
Executive annually, in installments at least as frequent as monthly, an amount
equal to fifty percent (50%) of the Total Compensation paid or payable to the
Executive hereunder for the Company's most recent fiscal year immediately prior
to the Executive's disability termination less the amount, if any, of payments
received by the Executive from a Company funded disability insurance plan (the
"Disability Benefit"). Such Disability Benefit shall be subject to Withholding
and shall be payable for the longer of two (2) years or the balance of the Term;
and (iv) (v) for the longer of two (2) years or the balance of the Term, provide
Executive with the same level of health/medical insurance or coverage provided
to him immediately prior to such disability termination, with the cost of such
continued insurance or coverage being borne by the Company. Alternatively, the
Executive may elect to receive from the Company instead of such insurance or
coverage, a monthly payment equal to the cost to the Executive to obtain
comparable health/medical insurance or coverage through another provider. (vi)
(vii) Any payments due to the Executive hereunder may be paid to his then
current spouse or legal representative for Executive's benefit, to the extent
warranted by Executive's incapacity. (viii) (e) Proper Cause. The Company, by
written notice to the Executive, may terminate the Company's employment of the
Executive for proper cause. As used herein, "proper cause" shall mean that the
Executive has: (1) willfully refused or failed to carry out specific directions
of the Board, the Chairman of the Board and/or the President of the Company
which directions are not inconsistent with the duties and responsibilities set
forth in Section 1 hereof, or willfully refused or failed to perform a material
part of such duties and responsibilities hereunder; (2) committed a breach of
any of the provisions of Section 8, 9 or 10 of this Agreement; (3) acted
fraudulently or dishonestly in his relations with the Company; (4) been
convicted of a felony involving an act of moral turpitude, fraud or
misrepresentation; (5) engaged in the use of illegal substances or alcohol,
which use has impaired the Executive's ability to perform his duties and
responsibilities; or (6) willfully engaged in misconduct which materially
injured the reputation, business or business relationships of the Company,
monetarily or otherwise. For purposes of this clause (c), no act, or failure to
act, on the part of the Executive shall be deemed "willful" unless done, or
omitted to be done, by the Executive otherwise than in good faith and in a
manner that the Executive reasonably believed was in or not opposed to the best
interests of the Company and its shareholders. (f) (g) As a result of any such
termination for Proper Cause, the Company shall pay, within thirty (30) days of
such termination, all amounts accrued or owing but not yet paid under this
Agreement through the date of termination and any other benefits in accordance
with the terms of any applicable plans and programs of the Company. (h) (i) By
Executive For Good Reason; Other Termination. The Executive may terminate the
employment by the Company of the Executive upon not less than ten (10) days'
written notice to the Company based upon his reasonable determination that one
or more of the following events has occurred (each a "Good Reason"): (j) (1) any
of the Company's representations or warranties in this Agreement is not
materially true, accurate and/or complete; (2) (3) the Company intentionally and
continually breached or wrongfully failed to fulfill or perform its obligations,
promises or covenants under this Agreement without cure; (4) (5) the Company
terminated the Executive's employment hereunder, and such termination does not
constitute Proper Cause (as defined herein); (6) (7) the Company intentionally
required the Executive to commit or participate in any felony or other serious
crime; (8) (9) there has been a Change in Control of the Company (as defined
below); and/or (10) (11) the Company engaged in other conduct constituting legal
cause for termination. (12) (13) If any event of Good Reason occurs, and such
event is reasonably susceptible of being cured, the Company shall be entitled to
one period of thirty (30) days during which to cure such event, following the
receipt of written notice of such event from Executive. As a result of any such
termination for Good Reason, or if the Company terminates the employment of the
Executive for any reason other than as set forth in Sections 5(a), 5(b) or 5(c),
the Company shall: (14) (ii) within thirty (30) days of such termination, pay to
the Executive all amounts accrued or owing but not yet paid under this Agreement
and any other benefits in accordance with the terms of any applicable plans and
programs of the Company; (iii) (iv) pay Executive an amount equal to the dollar
amount of the Total Compensation paid or payable to the Executive hereunder for
the Company's most recent fiscal year immediately prior to the Executive's
termination multiplied by a factor of two (2) (the "Severance Benefit"). Such
Severance Benefit shall be paid in one lump sum within forty-five (45) days of
the Executive's termination date and shall be subject to Withholding; and (v)
(vi) for the longer of two (2) years or the balance of the Term, provide
Executive with the same level of health/medical insurance or coverage provided
to him immediately prior to such termination, with the cost of such continued
insurance or coverage being borne by the Company; alternatively, the Executive
may elect to receive from the Company, instead of such insurance or coverage, a
monthly payment equal to the monthly cost to the Executive to obtain comparable
health/medical insurance or coverage through another provider; however, the
Company shall in no event be required to provide any such coverage or monthly
payment after such time as Executive becomes entitled to receive (without regard
to any individual waivers of coverage or other similar arrangements) comparable
health/medical benefits of the same type from another employer or recipient of
Executive's services. (vii) 11. Other Activities. The Executive shall devote his
full business time, attention and energies to the performance of his duties
hereunder, and will not, during the term of this Agreement, be engaged in any
other business activity without the prior written consent of the Company. 12.
13. Change Of Control. In the event that the Executive is an employee of the
Company at the moment immediately prior to a Change in Control of the Company
(as defined below), the Executive shall be entitled to receive all benefits
described in this Section 7. 14. (a) For purposes of this Agreement, a "Change
in Control of the Company" shall be deemed to occur if: (b) (i) there shall have
occurred a change in control of a nature that would be required to be reported
in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the
Securities Exchange Act of 1934, as amended, as in effect on the date hereof,
whether or not the Company is then subject to such reporting requirement,
provided, however, that there shall not be deemed to be a Change in Control of
the Company if: (A) immediately prior to the occurrence of what would otherwise
be a Change in Control of the Company, the Executive is the other party to the
transaction (a "Control of the Company Event"); or (B) immediately prior to the
occurrence of what would otherwise be a Change in Control of the Company, the
Executive is an executive officer, trustee, director or more than 25% equity
holder of the other party to the Control of the Company Event or of any entity,
directly or indirectly, controlling such other party; (ii) (iii) the Company
merges or consolidates with, or sells all or substantially all of its assets to,
another company (each, a "Transaction"), provided, however, that a Transaction
shall not be deemed to result in a Change in Control of the Company if (A)
immediately prior thereto the circumstances in (a)(i)(A) or (a)(i)(B) above
exist, or (B) (1) the shareholders of the Company, immediately before such
Transaction own, directly or indirectly, immediately following such Transaction
in excess of fifty percent (50%) of the combined voting power of the outstanding
voting securities of the corporation or other entity resulting from such
Transaction (the "Surviving Corporation") in substantially the same proportion
as their ownership of the voting securities of the Company immediately before
such Transaction ("Shares") and (2) the individuals who were members of the
Company's Board of Directors immediately prior to the execution of the agreement
providing for such Transaction constitute at least a majority of the members of
the board of directors of the Surviving Corporation, or of a corporation or
other entity beneficially directly or indirectly owning a majority of the
outstanding voting securities of the Surviving Corporation; or (iv) (v) the
Company acquires assets of another company or a subsidiary of the Company merges
or consolidates with another company (each, an "Other Transaction") and (A) the
shareholders of the Company, immediately before such Other Transaction own,
directly or indirectly, immediately following such Other Transaction, 50% or
less of the combined voting power of the outstanding voting securities of the
corporation or other entity resulting from such Other Transaction (the "Other
Surviving Corporation") or (B) the individuals who were members of the Company's
Board of Directors immediately prior to the execution of the agreement providing
for such Other Transaction constitute less than a majority of the members of the
board of directors of the Other Surviving Corporation, or of a corporation or
other entity beneficially directly or indirectly owning a majority of the
outstanding voting securities of the Other Surviving Corporation, provided,
however, that an Other Transaction shall not be deemed to result in a Change in
Control of the Company if immediately prior thereto the circumstances in
(a)(i)(A) or (a)(i)(B) above exist. (vi) (c) In the event that the Executive is
an employee of the Company at the moment immediately prior to a Change of
Control of the Company: (d) (e) (i) the Company shall pay to the Executive
additional compensation in the form of cash equal to, on the date of a Change in
Control of the Company and with respect to each option to purchase Shares held
by the Executive whether or not such option has vested or is exercisable on such
date (an "Option"), the number of Shares underlying the Option, multiplied by
the amount, if any, that the exercise price of the Option or the Closing Share
Value (as defined below), whichever is less, exceeds the Initial Share Value (as
defined below). (f) (g) (ii) with respect to each Option, in the event that the
Closing Share Value is greater than the exercise price of such Option, then the
Executive can (A) retain the Option or (B) exercise the Option, or (C) forfeit
the Option and receive, in exchange therefor, a cash payment equal to the number
of Shares underlying the Option multiplied by the amount that the Closing Share
Value exceeds the exercise price of the Option. (h) (i) (iii) upon the
occurrence of a Change of Control, all Options then held by the Executive shall
immediately vest and become exercisable. (j) (k) (iv) for purposes of this
subsection, the "Initial Share Value" of an Option shall mean the average of the
Closing Prices of the Shares for the period commencing on the 180th day prior to
the date of the Change in Control of the Company and ending on the 150th day
prior to the date of the Change in Control of the Company, and the "Closing
Share Value" shall mean the Closing Price of the Shares on the date of the
Change in Control of the Company. For purposes of this subsection, the "Closing
Price" of a Share on any date shall mean the last sale price, regular way, or,
in case no such sale takes place on such date, the average of the closing bid
and asked prices, regular way, in either case as reported in the principal
consolidated transaction reporting system with respect to securities listed on
the principal national securities exchange on which the Shares are listed or
admitted to trading or, if the Shares are not listed or admitted to trading on
any national securities exchange, the last quoted price, or if not so quoted,
the average of the highest bid and lowest ask prices in the over-the-counter
market, as reported by the National Association of Securities Dealers, Inc.
Automated Quotation System or, if such system is no longer used, the principal
other automated quotation system that may then be in use or, if the Shares are
not quoted by any such organization, the average of the closing bid and asked
prices as furnished by a professional market maker making the market in the
Shares as such person is selected from time to time by the Board of Directors of
the Company or, if there are no professional market makers making a market in
the Shares, then the value as determined in good faith judgement of the Board of
Directors of the Company. (l) 15. Non-Competition. In order to induce the
Company to enter into and perform this Agreement and, as additional
consideration for the payment of the Total Compensation provided herein, so long
as the Executive is employed by the Company and for the two (2) year period
following the termination of the Executive's employment pursuant to Section 5(b)
(pertaining to disability), Section 5(c) (pertaining to proper cause) or by the
Executive other than for Good Reason, the Executive will not, either separately
or in association with others, directly or indirectly, in the continental United
States, (i) establish, engage in or become interested in, as an employee,
consultant, advisor, agent, owner, partner, co-venturer, principal, stockholder,
director or otherwise, any company the primary business of which is the
administration of vehicle service contracts and warranties, or (ii) solicit,
interfere with, or endeavor to entice away from the Company any dealers,
independent agents or insurance underwriters party to an agreement with the
Company as of the date of Executive's termination of employment. Mere passive
ownership of stock representing five percent (5%) or less of the capital stock
of a publicly held company shall not be deemed a breach of this Section 8. 16.
17. Confidential Information. During the Term and at any time thereafter, the
Executive shall not divulge, furnish or make accessible to any person or
business entity any of the Company's trade secrets or other information of a
confidential nature including, but not limited to, the Company's business
methods, operational procedures and cost and price information, without the
prior written consent of the Company. 18. 19. Non-Interference. The Executive,
during the time period referred to in Section 8 hereof, will not cause or
influence any employee, consultant or advisor now employed or in the future to
be employed by the Company, to work in any way for the Executive or in any
enterprise in which the Executive owns a participation, directly or indirectly.
20. 21. Unenforceability. If any provision of Sections 8, 9 or 10 is held to be
unenforceable because of the scope, duration or area of its applicability, such
scope, duration or area, or all of them, shall be modified to the minimum extent
possible to make such provision(s) enforceable, and such provision(s) shall then
be applicable in such modified form. 22. 23. Return of Property. Upon
termination of his employment with the Company, or at any time the Company may
so request, the Executive will promptly deliver to the Company all memoranda,
notes, records, reports, manuals, drawings, blueprints and other documents (and
all copies thereof), in whatever form (including files and data in electronic
form) relating to the business of the Company, and all property associated
therewith, which he may then possess or have under his control.
1. Injunctive Relief. The Executive agrees that the
restrictions and covenants contained in Sections 8, 9, 10 and 12
hereof are necessary for the protection of the Company and any
breach thereof will cause the Company irreparable damages for
which there is no adequate remedy at law. The Executive further
agrees that, in the event of a breach of his obligations
thereunder, the Company shall have the absolute right, in
addition to any other remedy that might be available to it, to
obtain from any court having jurisdiction, such equitable relief
as might be appropriate, including temporary, interlocutory,
preliminary and permanent decrees or injunctions enjoining any
further breach of such provisions.
2.
3. Miscellaneous.
4.
(a) Severability. If any provision of this Agreement
is determined to be invalid or unenforceable, it shall not affect
the validity or enforceability of any of the other remaining
provisions hereof.
(b)
(c) Notices. Any and all notices or other
communications required or permitted hereunder shall be in
writing and shall be deemed to have been duly given if delivered
by hand or if mailed, first class, postage prepaid, registered or
certified mail, return receipt requested to the addresses of the
parties set forth below or, as to each party, at such other
address as shall be designated in a written notice to the other
party.
(d)
(e) To the Company:
(f) Interstate National Dealer Services, Inc.
(g) The Omni, Suite 700
(h) 333 Earle Ovington Boulevard
(i) Mitchel Field, NY, 11553
(j)
(k)
(l) To the Executive:
(m) Mr. Lawrence J. Altman
(n) 57 Orbach Avenue
(o) Malverne, NY 11565
(p)
(q)
(r) Waiver. No waiver by either party hereto of
any breach of any provision of this Agreement shall be deemed a
waiver of any preceding or succeeding breach of such provision or
any other provision herein contained.
(s)
(t) Governing Law. This Agreement shall be
governed by, and construed in accordance with, the laws of the
State of New York, without giving effect to the conflict of law
principles thereof.
(u)
(v) Entire Agreement. This Agreement sets forth the
entire agreement of the parties hereto with respect to the
subject matter hereof, and is intended to supersede all prior
employment negotiations, understandings and agreements. No
provision of this Agreement may be waived or changed, except by a
writing signed by the party to be charged with such waiver or
change.
(w)
(x) Binding Effect. This Agreement shall be binding
upon, and shall inure to the benefit of, the parties hereto and
their respective personal representatives, successors and assigns.
(a) Counterparts. This Agreement may be executed in
counterparts, each of which shall be an original, but together
shall constitute one and the same instrument.
(b)
(c)
(d)
[Signatures appear on next page; balance of this page left
intentionally blank.]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first above written.
INTERSTATE NATIONAL DEALER
SERVICES, INC.
By:
Name: Chester J. Luby
Title: Chairman and Chief
Executive
Officer
Lawrence J. Altman
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<PERIOD-START> Nov-01-1998
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