SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, For Use of the
[X] Definitive Proxy Statement Commission Only (as permitted
[ ] Definitive Additional Materials by Rule 14a-6(e)(2))
[ ] Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
RENT-A-WRECK OF AMERICA, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
1) Amount previously paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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RENT-A-WRECK OF AMERICA, INC.
11460 CRONRIDGE DRIVE, SUITE 120
OWINGS MILLS, MARYLAND 21117
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD NOVEMBER 3, 1999
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TO THE STOCKHOLDERS:
The Annual Meeting of Stockholders of Rent-A-Wreck of America, Inc., a
Delaware corporation (the "Company"), will be held on Wednesday, November 3,
1999 at 1:00 p.m. local time, at the Company's headquarters located at 11460
Cronridge Drive, Suite 120, Owings Mills, Maryland 21117, for the following
purposes:
1. To elect directors for the ensuing year and until their successors are
elected and qualified; and
2. To transact such other business as may properly come before the meeting
or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Stockholders of record at the close of business on September 22, 1999 are
entitled to vote at the meeting and at any adjournment or postponement thereof.
Shares can be voted at the meeting only if the holder is present or represented
by proxy. A list of stockholders entitled to vote at the meeting will be open
for inspection at the Company's corporate headquarters for any purpose germane
to the meeting during ordinary business hours for 10 days prior to the meeting.
This Notice and Proxy Statement are being mailed on or about September 30,
1999.
A copy of the Company's 1999 Annual Report to stockholders and Form 10-KSB
for the fiscal year ended March 31, 1999, which includes certified financial
statements, is enclosed. All stockholders are cordially invited to attend the
Annual Meeting in person.
Sincerely,
KENNETH L. BLUM, SR.
Chairman and Chief Executive Officer
Owings Mills, Maryland
September 30, 1999
IMPORTANT: PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND MAIL IT
PROMPTLY IN THE ENCLOSED ENVELOPE TO ASSURE REPRESENTATION OF YOUR SHARES,
WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING. IF YOU ATTEND THE ANNUAL
MEETING, YOU MAY REVOKE THE PROXY AND VOTE YOUR SHARES IN PERSON.
RENT-A-WRECK OF AMERICA, INC.
11460 CRONRIDGE DRIVE, SUITE 120
OWINGS MILLS, MARYLAND 21117
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PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD NOVEMBER 3, 1999
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SOLICITATION, EXECUTION AND REVOCATION OF PROXIES
Proxies in the accompanying form are solicited on behalf, and at the
direction, of the Board of Directors of Rent-A-Wreck of America, Inc. (the
"Company"). All shares represented by properly executed proxies, unless such
proxies have previously been revoked, will be voted in accordance with the
direction on the proxies. If no direction is indicated, the shares will be voted
in favor of the proposals to be acted upon at the Annual Meeting. The Board of
Directors is not aware of any other matter which may come before the meeting. If
any other matters are properly presented at the meeting for action, including a
question of adjourning the meeting from time to time, the persons named in the
proxies and acting thereunder will have discretion to vote on such matters in
accordance with their judgment.
When stock is in the name of more than one person, the proxy is valid if
signed by any of such persons unless the Company receives written notice to the
contrary. If the stockholder is a corporation, the proxy should be signed in the
name of such corporation by an executive or other authorized officer. If signed
as attorney, executor, administrator, trustee, guardian or in any other
representative capacity, the signer's full title should be given and, if not
previously furnished, a certificate or other evidence of appointment should be
furnished.
This Proxy Statement and the form of proxy which is enclosed are being
mailed to the Company's stockholders commencing on or about September 30, 1999.
A stockholder executing and returning a proxy has the power to revoke it at
any time before it is voted. A stockholder who wishes to revoke a proxy can do
so by executing a later-dated proxy relating to the same shares and delivering
it to the Secretary of the Company prior to the vote at the Annual Meeting, by
written notice of revocation received by the Secretary prior to the vote at the
Annual Meeting or by appearing in person at the Annual Meeting, filing a written
notice of revocation and voting in person the shares to which the proxy relates.
In addition to the use of the mails, proxies may be solicited by personal
interview, telephone and telegram by the directors, officers and regular
employees of the Company. Such persons will receive no additional compensation
for such services. Arrangements will also be made with certain brokerage firms
and certain other custodians, nominees and fiduciaries for the forwarding of
solicitation materials to the beneficial owners of Common Stock held of record
by such persons, and such brokers, custodians, nominees and fiduciaries will be
reimbursed for their reasonable out-of-pocket expenses incurred in connection
therewith. All expenses incurred in connection with this solicitation will be
borne by the Company.
The mailing address of the principal corporate office of the Company is
11460 Cronridge Drive, Suite 120, Owings Mills, Maryland 21117.
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VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
Only stockholders of record at the close of business on September 22, 1999
(the "Record Date") will be entitled to vote at the meeting. On the Record Date,
the Company had outstanding 3,943,217 shares of Common Stock and 1,130,000
shares of Series A Convertible Preferred Stock ("Series A Preferred"), each of
which, except as noted below, entitles the record holder thereof on such date to
one vote on each matter presented at the meeting. As further described below,
the holders of Series A Preferred, voting as a class, have the right to elect up
to four directors of a seven-member board of directors, but a majority of
holders of Series A Preferred have chosen only to exercise their right to elect
two of the directors. Because of the Series A Preferred's right to vote as a
class for the election of Class II directors, the proxy solicited from holders
of Common Stock does not involve the election of directors nominated to
positions in Class II.
The presence of a majority of the Common Stock and a majority of the Series
A Preferred, in person or by proxy, is required to constitute a quorum for the
conduct of business at the Annual Meeting. The two Class I nominees for director
receiving the highest number of affirmative votes (whether or not a majority)
cast by the shares represented at the Annual Meeting and entitled to vote
thereon, a quorum being present, shall be elected as directors.
Abstentions and broker non-votes are each included in the determination of
the number of shares present for quorum purposes. Because abstentions represent
shares entitled to vote, the effect of an abstention will be the same as a vote
cast against a proposal. A broker non-vote, on the other hand, will not be
regarded as representing a share entitled to vote on the proposal and,
accordingly, will have no effect on the voting for such proposal. However, only
affirmative votes are relevant in the election of directors.
Votes will be counted by the Inspector of Elections appointed by the
Chairman of the Annual Meeting and certified to the Company in writing.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of September 15, 1999, the persons and entities identified in the
following table, including all directors, executive officers and persons known
to the Company to own more than 5% of the Company's voting securities, owned
beneficially, within the meaning of Securities and Exchange Commission Rule
13d-3, the shares of voting securities reflected in such table. All the
outstanding shares of Series A Preferred are immediately convertible at the
option of the holder into Common Stock, on a share-for-share basis. Except as
otherwise specified, the named beneficial owner has sole investment and voting
power with respect to such shares.
TOTAL (1)
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SHARES BENEFICIALLY PERCENT PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER TITLE OF CLASS OWNED OF CLASS COMMON
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David Schwartz Common 865,000(2) 21.9 21.9
Bundy Rent-A-Wreck
12333 W. Pico Blvd.
Los Angeles, California 90064
William L. Richter Common 997,706(4) 24.0(4) 24.0
c/o Richter & Co., Inc. Preferred(3) 1,075,000(4) 95.1 35.4(5)
450 Park Avenue
New York, New York 10022
Aufzien Investments Limited Partnership Common 32,500 ** **
P.O. Box 2369 Preferred(4) 34,375 3.0 1.7(8)
Secaucus, New Jersey 07094
Kenneth L. Blum, Sr.(6) -- -- -- --
11460 Cronridge Dr., #120
Owings Mills, Maryland 21117
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TOTAL (1)
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SHARES BENEFICIALLY PERCENT PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER TITLE OF CLASS OWNED OF CLASS COMMON
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Kenneth L. Blum, Jr.(6)(7) Common 1,249,167 24.8 24.8
11460 Cronridge Dr., #120
Owings Mills, Maryland 21117
Robin Cohn (6)(7) Common 1,254,167 24.9 24.9
c/o Rent-A-Wreck of America, Inc.
11460 Cronridge Dr., #120
Owings Mills, Maryland 21117
Robert M. Temko Common 200,000 5.1 5.1
39 Hidden Valley Drive
Newark, Delaware 19711
All Directors and Executive Officers as a Group, Common 2,274,373(4) 43.4 43.4(5)
including the Directors Named Above (4 persons) (6)(7)
Preferred(3)(4) 1,075,000(4)(5) 95.1 50.4(6)
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* Represents percentage ownership of Common Stock based upon shares of Common
Stock owned or deemed owned due to presently exercisable warrants and
options and after such person's conversion of Series A Preferred.
** Less than 1%.
FOOTNOTES
(1) Based on 3,943,217 Common Shares and 1,130,000 Series A Preferred Shares
outstanding on the date of this table, September 15, 1999.
(2) Pledged to secure third-party bank loan to Mr. Schwartz.
(3) Holders of Series A Preferred, voting as a class, are entitled to elect up
to four members of a seven member Board of Directors and are also entitled
to vote as a class on other significant corporate actions. Pursuant to the
terms of proxies granted to Richter Investment Corp. ("RIC"), 95.1% of the
Series A Preferred may be voted by RIC as of the date of this table. The
proxies are effective until such time that fewer than 500,000 shares of
Series A Preferred remain outstanding. See note 4 below.
(4) Includes 84,000 shares of Common Stock issuable upon exercise of options
and warrants, 178,750 shares of Series A Preferred, and 1,200 shares of
Common Stock held by spouse and 13,750 shares of Series A Preferred and
5,000 shares of Common Stock held by a family member. Also includes 550,000
shares of Series A Preferred and 321,600 shares of Common Stock held by
RIC, 296,375 shares of Common Stock and options and warrants (currently
exercisable or exercisable within 60 days) held by Richter & Co., Inc.
("RCI"). Also includes an additional 332,500 shares of Series A Preferred
as to which RIC holds voting authority via proxy (see note 3 above). Mr.
Richter holds a controlling interest in RIC, and RIC holds 100% of the
outstanding stock of RCI. Mr. Richter, RIC and RCI have the same address.
34,375 shares of Series A Preferred, held by a partnership controlled by
Mr. Aufzien, are subject to a voting proxy granted to RIC.
(5) Excludes 332,500 shares of Series A Preferred as to which RIC holds voting
authority via proxy (see notes 3 and 4 above) because RIC would not have
voting or investment control of the Common Stock issued upon conversion of
such shares of Series A Preferred.
(6) Mr. Blum, Sr. is the father of Kenneth L. Blum, Jr. and Robin Cohn; see
note 7 below. Mr. Blum disclaims beneficial ownership of shares held by Mr.
Blum, Jr. and Ms. Cohn. See also "Certain Transactions."
(7) Includes 1,087,500 shares issuable pursuant to currently exercisable
options and, in the case of Ms. Cohn, includes 166,667 shares held jointly
with spouse. See note 6 above. Mr. Blum, Jr. and Ms. Cohn disclaim
beneficial ownership of shares held by each other. For additional
information regarding options held by Mr. Blum, Jr. and Ms. Cohn), see
"Certain Transactions - Management Agreement with K.A.B., Inc. and Related
Transactions - Stock Option Grant."
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PROPOSAL 1
ELECTION OF DIRECTORS
NOMINEES
Four persons have been nominated for election at the 1999 Annual Meeting as
directors for terms expiring at the year 2000 Annual Meeting and until their
successors have been duly elected and qualified. Each of the nominees currently
is a director of the Company.
UNLESS OTHERWISE INSTRUCTED, THE PROXY HOLDERS WILL VOTE THE PROXIES
RECEIVED BY THEM FOR THE ELECTION OF EACH OF THE COMPANY'S CLASS I NOMINEES
LISTED BELOW, EXCEPT FOR THOSE PROXIES WHICH WITHHOLD SUCH AUTHORITY. If any of
the nominees shall be unable or unwilling to serve as a director, it is intended
that the proxy will be voted for the election of such other person or persons as
the Company's management may recommend in the place of such nominee. The
management believes each nominee will be a candidate to serve as a director.
All directors will hold office until the next Annual Meeting of
Stockholders and the election and qualification of their successors. Officers
are elected annually and serve at the pleasure of the Board of Directors.
CLASS I DIRECTORS:
The proxy will be voted as specified thereon and, in the absence of
contrary instruction, will be voted for the election of the following Class I
directors: Kenneth L. Blum, Sr. and Kenneth L. Blum, Jr. Such directors will
serve until the next annual meeting of stockholders and until their respective
successors are elected and qualified. Information with regard to the nominees is
set forth below:
KENNETH L. BLUM, SR., 72, Kenneth L. Blum, Sr. has served as Chairman and a
Director of the Company since June 1993, has been the Company's Chief Executive
Officer since December 1993, and was its President from June 1993 to October
1994. Since 1990, Mr. Blum has been a management consultant to a variety of
companies, including American Business Information Systems, Inc., a high-volume
laser printing company. Mr. Blum is a director of Avesis Incorporated, which
markets and administers discount benefit programs. Mr. Blum is the father of the
Company's President, Kenneth L. Blum, Jr. Mr. Blum controls K.A.B., Inc., a
Florida corporation ("K.A.B."), which has a Management Agreement with the
Company. See "Certain Transactions."
KENNETH L. BLUM, JR., 35, has served as Secretary of the Company since
March 1994, as Vice President from May 1994 to October 1994, as President since
October 1994, and as a director since October 1998. Mr. Blum is also President
of American Business Information Systems, Inc., a high-volume laser printing
company. Mr. Blum is the son of the Company's Chairman and Chief Executive
Officer.
CLASS II DIRECTORS:
Richter Investment Corp. ("RIC"), acting in its capacity as holder of a
proxy granted by certain holders of Series A Preferred, has at the present time
agreed to a four member board of directors and has selected Messrs. William L.
Richter and Alan L. Aufzien (the "Class II Directors") as the nominees to the
Board of the Series A Preferred. By virtue of this proxy and the Series A
Preferred owned or controlled by its affiliates as of the Record Date, RIC will
vote 95.1% of the outstanding Series A Preferred. RIC has indicated its intent
to vote its proxy in favor of such Class II nominees, thus ensuring their
election. These nominees have been approved by the Company's Board of Directors.
WILLIAM L. RICHTER, 56, has been a director of the Company since November
1989 and has served previously as a director from 1983 to 1985. Mr. Richter was
Co-Chairman of the Company from November 1989 to June 1993 and has been Vice
Chairman since June 1993. For the past ten years, Mr. Richter has been President
of Richter Investment Corp. and its wholly owned subsidiary, Richter & Co.,
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Inc., a registered broker-dealer and investment banking firm. Mr. Richter has
been a Senior Managing Director of Cerberus Capital Management, L.P. (or its
predecessor organization) since its founding in late 1992. Mr. Richter is a
Director and Co-Chairman of Avesis Incorporated, which markets and administers
discount benefit programs.
ALAN L. AUFZIEN, 69, has served as a Director of the Company since November
1989. Mr. Aufzien has also been a partner in the Norall Organization, a private
investment company, since 1987. Since 1983, he has also been the president and a
director of New York Harbour Associates, Inc. (a real estate development firm).
From 1986 to 1996, Mr. Aufzien was the Chairman of Meadowlands Basketball
Association (New Jersey Nets) and currently serves as a director of that
organization. Mr. Aufzien is also a director of First Real Estate Trust of New
Jersey.
MANAGEMENT SERVICES AGREEMENT. Effective June 30, 1993, the Company entered
into a Management Agreement (the "Management Agreement") with K.A.B., pursuant
to which K.A.B. agreed to manage substantially all aspects of the Company's
business, subject to certain limitations and the direction of the Company's
Board of Directors. The Management Agreement was amended and extended as of
April 1, 1996 and most recently amended in January 1999 to provide a $300,000
annual fee and reimbursement of expenses. See "Certain Transactions."
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under the securities laws of the United States, the Company's directors,
its executive officers, and any persons holding more than 10% of the Company's
Common Stock are required to report their initial ownership of the Company's
Common Stock and any subsequent changes in that ownership to the Securities and
Exchange Commission. Specific due dates for these reports have been established,
and the Company is required to disclose any failure to file by these dates. The
Company believes that all of these filing requirements were satisfied during the
fiscal year ended March 31, 1999. In making these disclosures, the Company has
relied solely on written representations of its directors and executive officers
and copies of the reports that they have filed with the Commission.
MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of four meetings during
the fiscal year ended March 31, 1999. During the fiscal year ended March 31,
1999, no director attended fewer than 75% of the aggregate of all meetings of
the Board of Directors and the committees, if any, upon which such director
served except for David Schwartz who was a director for part of the year and
missed one board meeting as a director before he resigned. The Company's audit
committee, which consists of Mr. Richter and Mr. Aufzien and functions as an
overseer of the Company's financial reporting process and internal controls, met
once to review the fiscal year ended March 31, 1999. The Company has no standing
nominating or compensation committee.
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EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table and related notes set forth information regarding the
compensation awarded to, earned by or paid to the Company's Chief Executive
Officer for services rendered to the Company during the fiscal years ended March
31, 1999, 1998 and 1997. No other executive officer who was serving as an
executive officer received salary and bonus which aggregated at least $100,000
for services rendered to the Company during the fiscal year.
LONG-TERM COMPENSATION
ANNUAL ---------------------
COMPENSATION AWARDS
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Securities Underlying
NAME AND PRINCIPAL POSITION YEAR SALARY Options/SARs(#)
- --------------------------- ---- ------------ ---------------------
Kenneth L. Blum, Sr., CEO (1) 1999 $262,500 --(2)
1998 250,000 --(2)
1997 250,000 --(2)
(1) Mr. Blum became Chief Executive Officer of the Company in connection with
the Management Agreement between the Company and K.A.B., effective June 30,
1993. Mr. Blum does not receive cash compensation directly from the
Company. K.A.B. receives cash compensation pursuant to the Management
Agreement of $300,000 per year ($250,000 per year prior to January 1, 1999)
plus expense reimbursements ($7,850 in the year ended March 31, 1999). The
amounts indicated in the table represent compensation received by K.A.B.
pursuant to the Management Agreement. Mr. Blum is the sole stockholder of
K.A.B. See "Certain Transactions - Management Agreement with K.A.B., Inc.
and Related Transactions - Management Agreement."
(2) During the year ended March 31, 1994, K.A.B. received options for the
purchase of 2,250,000 shares of the Company's Common Stock in connection
with the Management Agreement. Also effective on that date, K.A.B.
transferred the Options to certain related parties. During the year ended
March 31, 1995, the Board of Directors approved the vesting of 1,000,000 of
these options at an exercise price of $1.00 per share. Effective July 20,
1995 the exercise price of the balance of the options was set by the Board
of Directors at $1.15 per share, with vesting, subject to continued
employment, on July 1, 2002, or earlier subject to satisfaction of
performance targets. As a result of the Company's financial performance for
the fiscal year ended March 31, 1999, the Company met the performance
targets, and the balance of the options became fully vested as of March 31,
1999. See "Certain Transactions - Management Agreement with K.A.B., Inc.
and Related Transactions - Stock Option Grant."
OPTION/SAR GRANTS IN LAST FISCAL YEAR
No stock options or SARs were granted to the executive officer named in the
Summary Compensation Table during the last fiscal year. See "Certain
Transactions - Management Agreement with K.A.B., Inc. and Related Transactions -
Stock Option Grant."
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AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUE TABLE
No executive officer named in the Summary Compensation Table held or
exercised options at the end of the last fiscal year. See "Certain Transactions
- - Management Agreement with K.A.B., Inc. and Related Transactions - Stock Option
Grant."
EMPLOYMENT/CHANGE OF CONTROL ARRANGEMENTS
In the event of termination of the Management Agreement with K.A.B. without
cause, all options granted to K.A.B. in connection with the Management Agreement
remain outstanding for the balance of their ten-year term. See "Certain
Relationships and Related Transactions - Management Agreement with K.A.B., Inc.
and Related Transactions - Stock Option Grant."
COMPENSATION OF DIRECTORS
Currently, directors of the Company who also serve as officers of the
Company and outside directors receive no cash compensation in connection with
the services they render as directors. (Officers, however, receive compensation
in their capacity as officers as described above.) Directors are reimbursed for
expenses incurred in connection with their Board service. On March 3, 1999, the
Company's Board of Directors approved the payment to William L. Richter of
consulting fees of $30,000 per year beginning April 1, 1999. The fees were
assigned to Richter & Co., Inc.
CERTAIN TRANSACTIONS
MANAGEMENT AGREEMENTS WITH K.A.B., INC. AND RELATED TRANSACTIONS
MANAGEMENT AGREEMENT. Effective June 30, 1993, the Company entered into a
Management Agreement (the "Management Agreement") with K.A.B. pursuant to which
K.A.B. agreed to provide management consulting with respect to substantially all
aspects of the Company's business, subject to certain limitations and the
direction of the Company's Board of Directors. K.A.B. is controlled by Kenneth
L. Blum, Sr. who is Chairman and Chief Executive Officer of the Company.
Effective January 1, 1999, the Management Agreement provides for a payment to
K.A.B. of $300,000 per year and reimbursement of expenses and options for the
purchase of up to 2,250,000 shares of the Company's Common Stock, as described
below. The Management Agreement had an original term of five years, and the term
was extended for an additional five years on April 1, 1996, thereby extending
the term of the Management Agreement to July 1, 2003. The Management Agreement
is terminable by the Company for cause, as defined.
The Management Agreement includes certain representations, warranties and
limitations on solicitation by K.A.B. of customers and employees of the Company
during the term of the Management Agreement and for two years thereafter. The
Management Agreement also requires that K.A.B. hold in confidence the Company's
confidential information. Mr. Blum, Sr., K.A.B. and their affiliates are
involved in various business ventures in addition to the activities on behalf of
the Company required by the Management Agreement. Participation in such other
ventures may detract from efforts on behalf of the Company.
STOCK OPTION GRANT. Effective June 30, 1993, the Company issued five-year
options (the "Options") to K.A.B. for the purchase of up to 2,250,000 shares of
the Company's Common Stock. The Options originally vested at prices ranging from
$1.00 to $1.30 contingent upon achievement of a combination of profitability and
stock price targets. Effective October 19, 1994, the Board of Directors approved
the vesting of 1,000,000 Options at an exercise price of $1.00 per share and
provided that the balance of the Options (an aggregate of 1,250,000 Options)
(the "Unvested Options") would vest at $1.30 on April 1, 1998 subject to
continued retention of K.A.B.'s services pursuant to the Management Agreement.
-7-
Effective July 20, 1995, the Board of Directors provided that the exercise
price of the Unvested Options would be $1.15 per share irrespective of the
circumstances under which the Options vest. The actions of the Board of
Directors were predicated upon the Board's view of the Company's performance
relative to the original vesting criteria and other relevant considerations. As
a result of the Company's financial performance for the fiscal year ended March
31, 1999, the Unvested Options fully vested on March 31, 1999.
Options remain exercisable throughout their term, except that exercisable
Options terminate 120 days after termination of the Management Agreement by the
Company for cause. Effective April 1, 1996, the Board of Directors delayed the
vesting date of the Options (absent acceleration as provided above) to July 1,
2002 in conjunction with the extension of the Management Agreement by five years
through June 30, 2003.
The Options are transferable without the Company's consent only to
employees or affiliates of K.A.B. performing substantial services for or on
behalf of the Company or to employees of the Company, subject to compliance with
applicable law. Effective July 20, 1995, the Board of Directors approved the
transfer of 483,333 Options and 604,167 Unvested Options to each of Kenneth L.
Blum, Jr., the Company's President and Secretary; and Robin Cohn. Mr. Blum, Sr.
is the father of Mr. Blum, Jr. and Ms. Cohn. Also effective July 20, 1995, the
Board of Directors approved the transfer by K.A.B. of 33,334 Options and 41,666
Unvested Options (fully vested as of March 31, 1999) to RCI. A principal of RCI,
William L. Richter, is a member (and Vice Chairman of) the Company's Board of
Directors. In connection with Mr. Richter's employment arrangements with RCI,
RCI transferred 13,334 of these Options and 16,666 of these Unvested Options
(fully vested as of March 31, 1999) to Mr. Richter. See "- Investment Banking
Services," below.
REGISTRATION RIGHTS AGREEMENT. The Company entered into a Registration
Rights Agreement (the "Registration Rights Agreement") effective June 30, 1993
with K.A.B., Mr. Blum, Jr. and Alan S. Cohn. Mr. Blum, Sr. is the father of Mr.
Blum, Jr., and the father-in-law of Mr. Cohn. The Registration Rights Agreement
provides up to three demand registrations with respect to the Shares and the
shares issuable pursuant to the Options ("Registrable Securities"). The first
demand registration is exercisable at the request of holders of at least 250,000
Registrable Securities after a fiscal year in which Profits are at least
$250,000, provided that the Stock Price is at least $2.00 at the time of the
request. The second demand registration is exercisable at the request of holders
of at least 600,000 Registrable Securities after at least 1,000,000 Options have
become exercisable. The third demand registration is exercisable at the request
of holders of at least 1,000,000 Registrable Securities after all of the Options
have become exercisable. Holders of the Company's Series A Preferred Stock have
the right to participate in the above demand registrations on a pro rata basis.
The Registration Rights Agreement also provides piggyback registration rights
with respect to registrations in which other selling stockholders are
participating. The Company is obligated to pay the offering expenses of each
such registration, except for the selling stockholders' pro rata portion of
underwriting discounts and commissions. No precise prediction can be made of the
effect, if any, that the availability of shares pursuant to registrations under
the Registration Rights Agreement will have on the market price prevailing from
time to time. Nevertheless, sales of substantial amounts of the Common Stock
pursuant to such registrations could adversely affect prevailing market prices.
INVESTMENT BANKING SERVICES. The Management Agreement and related
transactions with K.A.B. were structured and negotiated for the Company by RCI,
which received cash consideration of $15,000 and five-year warrants (the
"Warrants") to acquire: (i) 20,000 shares of the Company's Common Stock
currently exercisable at $.80 per share (which have been exercised); and (ii)
135,000 shares of the Company's Common Stock exercisable on the same basis as is
applicable to the Options, as described above. RCI is also entitled to receive a
fee equal to 6% of the cash received by the Company upon any exercise of the
Options. The shares of Common Stock issuable pursuant to the Warrants are
entitled to piggyback registration rights with respect to any registration in
which the Shares or the Common Stock issuable pursuant to the Options are
included. RCI has assigned warrants for the purchase of 62,000 shares of the
Company's Common Stock to Mr. Richter out of the Warrants (of which 8,000 have
been exercised). Mr. Richter and his firm have provided and expect to continue
to provide substantial investment banking services for Mr. Blum and various of
his affiliated entities. To that extent, RCI may be deemed to have had a
conflict of interest with respect to its efforts on behalf of the Company in
effecting the Management Agreement and related agreements with K.A.B. The
Company's Board of Directors took into account the potential conflict of
interest issues referred to above in structuring and entering into the
investment banking agreement with RCI and believes that such agreement was
desirable and in the best interests of the Company notwithstanding such
possibility.
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As a result of actions taken by the Board of Directors on October 19, 1994
and July 15, 1995, the remaining unexercised 135,000 Warrants referred to in the
preceding paragraph have the following terms: 24,000 Warrants held by Mr.
Richter and 36,000 Warrants held by RCI are vested with an exercise price of
$1.00 per share; and 30,000 Warrants held by Mr. Richter and 45,000 Warrants
held by RCI have an exercise price of $1.15 per share and vest subject to the
same criteria applicable to the Unvested Options. See "- Stock Option Grant"
above.
Warrants for 30,000 shares of the Company's Common Stock exercisable at
$.80 per share were issued to RCI in connection with previous private placement
transactions for which RCI acted as agent. RCI assigned 12,000 of those warrants
to William L. Richter and 4,000 warrants to RCI employees. On February 11, 1999,
RCI exercised 14,000 of those warrants and William L. Richter exercised 12,000
of those warrants. On March 1, 1999 the Company bought back a total of 2,500 of
those warrants from RCI employees at $.50 per warrant, and the remaining 1,500
of those warrants expired.
OTHER
LEASE. As of October 1993, the Company relocated its corporate offices to
Owings Mills, Maryland. The Company has entered into a month-to-month lease for
approximately 1,000 square feet. The Company paid rent of $8,044 during the year
ended March 31, 1999 for this space to American Business Information Systems,
Inc. ("ABIS"). Kenneth L. Blum, Jr. and Robin Cohn are significant stockholders
of ABIS, and Mr. Blum is an executive officer of ABIS.
Effective January 1, 1995, the Company entered into a five-year agreement
with National Computer Services, Inc. ("NCS," which merged with ABIS in January
1996) to develop computer software and related documentation. During the year
ended March 31, 1999, ABIS received $1,175 pursuant to this agreement. Kenneth
L. Blum, Jr. was the sole stockholder and an executive officer of NCS.
Effective March 20, 1995, the Company retained RCI as its exclusive
financial advisor and placement agent. RCI's fees under this arrangement are
payable only upon completion of defined transactions and, in such event, are
calculated upon the basis of a percentage of the transaction value. The
agreement is terminable by the Company upon 90 days notice, provided that RCI is
entitled to receive certain fees for two years following termination in the
event a transaction is concluded involving an entity introduced to the Company
by RCI. The Company made no payments under this agreement during the year ended
March 31, 1999.
Through March 31, 1999, RCI has provided substantial ongoing financial
management and other services to the Company at no charge. Effective April 1,
1999, RCI will receive an annual consulting fee of $30,000. In the opinion of
management, the terms of the Company's arrangements with RCI, K.A.B., and ABIS
taken as a whole are at least as favorable to the Company as could be obtained
from third parties.
AUDIT MATTERS
The Board of Directors has appointed Grant Thornton LLP as independent
auditors to audit the financial statements of the Company for the fiscal year
ending March 31, 2000. Grant Thornton LLP's representatives are not expected to
be present at the Annual Meeting.
OTHER MATTERS
The Company is unaware of any other matters that are to be presented for
action at the meeting. Should any other matter come before the meeting, however,
the persons named in the enclosed proxy will have discretionary authority to
vote all proxies with respect to such matter in accordance with their judgment.
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FINANCIAL INFORMATION
Enclosed with this Proxy Statement are the Company's 1999 Annual Report to
Stockholders and a copy of the Company's Report on Form 10-KSB for the year
ended March 31, 1999 which includes the Company's audited financial statements
and financial statement schedules and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
STOCKHOLDER PROPOSALS
Proposals intended to be presented at the 2000 Annual Meeting of
Stockholders must be received by the Company by June 2, 2000 to be considered
for inclusion in the Company's proxy materials relating to that meeting. Notice
of stockholder proposals for presentation at the 2000 Annual Meeting, but which
are not going to be presented to the Company for inclusion in the proxy
materials, will be considered untimely after August 17, 2000 and will not be
considered at the next annual meeting.
RENT-A-WRECK OF AMERICA, INC.
KENNETH L. BLUM, SR.
October 1, 1999 Chairman and Chief Executive Officer
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