<PAGE> 1
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
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or 14A-12
RENT-A-WRECK OF AMERICA, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
[x] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities 2) Aggregate number of securities
to which transaction applies: to which transaction applies:
--------------------------------- --------------------------------
3) Per unit price or other underlying 4) Proposed maximum aggregate
value of transaction computed pursuant value of transaction
to Exchange Act Rule 0-11:*
---------------------------------- --------------------------------
* Set forth the amount on which the filing fee is calculated and state how
it was determined.
[ ] 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: 2) Form, Schedule or Registration
Statement No.:
------------------------------ --------------------------------
3) Filing Party: 4) Date Filed:
--------------------------------- -------------------------------
<PAGE> 2
RENT-A-WRECK OF AMERICA, INC.
11460 CRONRIDGE DRIVE, SUITE 120
OWINGS MILLS, MARYLAND 21117
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD SEPTEMBER 10, 1996
TO THE STOCKHOLDERS:
The Annual Meeting of Stockholders of Rent-A-Wreck of America, Inc.,
a Delaware corporation (the "Company"), will be held on Tuesday, September 10,
1996 at 10:00 a.m. local time, at the executive offices of the Company, 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;
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 July 22, 1996 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 July
29, 1996.
A copy of the Company's 1996 Annual Report to stockholders and Form
10-KSB for the fiscal year ended March 31, 1996, 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
July 25, 1996
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
<PAGE> 3
RENT-A-WRECK OF AMERICA, INC.
11460 CRONRIDGE DRIVE, SUITE 120
OWINGS MILLS, MARYLAND 21117
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD SEPTEMBER 10, 1996
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 best 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 July 29,
1996.
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.
<PAGE> 4
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
Only stockholders of record at the close of business on July
22, 1996 (the "Record Date") will be entitled to vote at the meeting. On the
Record Date, the Company had outstanding 4,107,642 shares of Common Stock and
1,545,750 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. 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 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 election of the
two Class I directors to be elected by the holders of Common Stock requires the
affirmative vote of a majority of the shares of Common Stock present in person
or by proxy at the Annual Meeting and entitled to vote on the action.
Abstentions and broker non-votes are each included in the
determination of the number of shares present for quorum purposes. 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.
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 June 17, 1996, 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 Preferred Stock 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.
-2-
<PAGE> 5
<TABLE>
<CAPTION>
Total(1)
----------------
Name and Address Title of Shares Bene- % of % of
of Beneficial Owner Class ficially Owned Class Common*
- ------------------- --------- -------------- ----- -------
<C> <C> <C> <C> <C>
David Schwartz Common 865,000 21.1 21.1
Bundy Rent-A-Wreck
12333 W. Pico Blvd.
Los Angeles, CA 90064
Cumberland Associates Common 151,200(2) 3.7 ---
1114 Ave. of the Amer. Preferred(3) 96,250 6.2 5.9
New York, NY 10035
William L. Richter Common 929,748(4) 21.5 ---
c/o Richter & Co., Inc. Preferred(3) 1,347,500(4) 87.2 40.1
950 Third Avenue
New York, NY 100022
Alan L. Aufzien Common 52,500(5) 1.3 ---
P.O. Box 2369 Preferred(3) 34,375 2.2 2.1
Secaucus, NJ 07094
Kenneth L. Blum, Sr.(6) --- --- --- ---
11460 Cronridge Dr., #120
Owings Mills, MD 21117
Kenneth L. Blum, Jr.(6)(7) Common 650,000 14.2 14.2
11460 Cronridge Dr., #120
Owings Mills, MD 21117
Robin Cohn (7) Common 649,999 14.2 14.2
c/o Rent-A-Wreck of
America, Inc.
11460 Cronridge Dr., #120
Owings Mills, MD 21117
All Directors and Executive Common 2,497,248(4) 51.9 ---
Officers as a Group, (5)(6)(7)
including the Directors Preferred(3) 1,347,500(4) 87.2 62.4
Named Above (5 persons)
</TABLE>
* 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 Preferred Stock.
Footnotes
(1) Based on 4,107,642 Common Shares and 1,545,750 Preferred Shares outstanding
on the date of this table, July 17, 1996.
(2) Cumberland Associates is a limited partnership organized under the laws of
the State of New York, and is engaged in the business of managing, on a
discretionary basis, eleven securities accounts. K. Tucker Andersen, Richard
Reiss, Jr., Robert Bruce III, and Oscar S. Schafer are the general partners
(the "General Partners") of Cumberland
-3-
<PAGE> 6
Associates. The business address of each of the General Partners is the same
as that of Cumberland Associates. By virtue of Rule 13d-3, each of the
General Partners may be deemed the beneficial owner of all of the shares of
Common Stock owned by Cumberland Associates. The foregoing information is
based on a Schedule 13D dated October 10, 1989, filed by Cumberland
Associates, as supplemented by additional information supplied to the
Company by Cumberland Associates. Cumberland Associates has no voting power
with respect to any shares of Common Stock.
(3) Holders of Preferred Stock, 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 a voting trust, Richter Investment Corp. ("RIC") has the power to
vote 87.2% of the Preferred Stock. See note 4 below.
(4) Includes 550,000 shares of Preferred Stock and 275,000 shares of Common
Stock held by RIC and 84,375 shares of Common Stock and warrants to acquire
142,000 shares of Common Stock held by Richter & Co., Inc. ("RCI"). Also
includes 605,000 shares of Preferred Stock as to which RIC holds voting
authority via proxy (see note 3 above). Includes 46,600 shares of Common
Stock held in RCI's trading account. Mr. Richter has voting control of RIC,
and RIC holds 100% of the outstanding stock of RCI. Also includes 48,708
shares of Common Stock held by Richter, Cohen & Co., Inc., as to which Mr.
Richter shares voting control. Also includes 77,334 shares of Common Stock
issuable upon exercise of options and warrants, 6,200 shares of Common Stock
and 13,750 shares of Preferred Stock held by family members.
(5) Does not include holdings of RIC, although Mr. Aufzien is a minority
shareholder in RIC.
(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 Relationships and Related
Transactions."
(7) Includes 483,333 shares issuable pursuant to currently exercisable options
and, in the case of Ms. Cohn, includes 166,666 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 information regarding additional
options held by Mr. Blum, Jr. and Ms. Cohn which are not currently
exercisable (and thus not deemed beneficially owned for purposes of the
above table), see "Certain Transactions - Management Agreement with K.A.B.,
Inc. and Related Transactions - Stock Option Grant."
-4-
<PAGE> 7
PROPOSAL 1
ELECTION OF DIRECTORS
NOMINEES
Four persons have been nominated for election at the 1996
Annual Meeting as directors for terms expiring at the 1997 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 has no reason to believe that any of the nominees will
not be candidates or will be unable to serve.
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 David Schwartz. 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., 69, 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. Mr. Blum co-founded United Healthcare, Inc., a Baltimore,
Maryland-based healthcare company in 1974 and served as its president and chief
executive officer until 1990. Since 1990, Mr. Blum has been a management
consultant to a variety of companies, including National Computer Services,
Inc., a computer service bureau and 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. which has a Management Agreement with the Company. See "Certain
Transactions."
DAVID S. SCHWARTZ, 60, has served as Vice-Chairman of the Board
since June 1993, and previously served as Co-Chairman of the Board since
November 1989. Since January 1973, Mr. Schwartz has been the President of Bundy
Rent-A-Wreck Inc. -- the original Rent-A-Wreck location.
-5-
<PAGE> 8
Class II Directors:
Richter Investment Corp. ("RIC"), acting in its capacity as
proxy holder pursuant to the Voting Agreement among certain holders of Series A
Preferred, the Company and RIC, 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 and/or
controlled by its affiliates, RIC will vote 87.2% 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, 53, 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. Mr. Richter has been President of
Richter Investment Corp. and its wholly-owned subsidiary, Richter & Co., Inc., a
registered broker-dealer firm for the past five years. Mr. Richter is a Director
and Co-Chairman of Avesis Incorporated, which markets and administers discount
benefit programs.
ALAN L. AUFZIEN, 66, has served as a Director of the Company
since November 1989. Mr. Aufzien has also been a partner in the Norall
Organisation, a private investment company, since 1987. Since 1983, he has also
been the president 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 the organization. Mr. Aufzien is also a director of First New Jersey
Real Estate Trust and of New York Harbour Associates.
EXECUTIVE OFFICERS
Kenneth L. Blum, Jr., 33, has served as Secretary of the
Company since March 1994, as Vice President from May 1994 to October 1994, and
as President since October 1994. Mr. Blum is President and Chief Executive
Officer and the sole stockholder of National Health Enterprises, Inc., which
provides management and consulting services in the health care industry. Mr.
Blum is also President of American Business Information Systems, Inc., a high-
volume laser printing company and computer service bureau.
Management Services Agreement. Effective June 30, 1993, the
Company entered into a Management Agreement (the "Management Agreement") with
K.A.B., Inc., a Florida corporation ("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. See
"Certain Transactions."
-6-
<PAGE> 9
COMPLIANCE WITH SECTION 16(a) REPORTING REQUIREMENTS.
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 year ended March 31, 1996, except that David Schwartz filed
on a Form 5 dated May 8, 1996 the sale of 13,700 shares of Common Stock on June
20, 1995. 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 five
meetings during the fiscal year ended March 31, 1996. During the fiscal year
ended March 31, 1996, 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. The Company has no standing audit, nomination or
compensation committee.
-7-
<PAGE> 10
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 years ended
March 31, 1994, 1995 and 1996. No other executive officer who was serving as an
executive officer during fiscal 1995 received salary and bonus which aggregated
at least $100,000 for services rendered to the Company during the year ended
March 31, 1996.
<TABLE>
<CAPTION>
Long-Term
Compensation
------------
Annual Compensation Awards
----------------------------- ------------
Securities
Other Annual Underlying
Compensation Options/SARs
Name and Principal Position Year Salary($) Bonus($) ($)(1) (#)
- --------------------------- ---- ------------- --------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Kenneth L. Blum, Sr., CEO 1996 $200,000(1) --- --- ---(2)
1995 $200,000(1) --- --- ---(2)
1994 $100,000(1) --- --- 2,250,000(2)
</TABLE>
(1) Mr. Blum became Chief Executive Officer of the Company in connection with a
Management Agreement between the Company and K.A.B., Inc., a Florida
corporation ("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 based on hours worked to a
maximum of $200,000 per year (increased by the Company to $250,000 per year
effective April 1, 1996) plus expense reimbursements. 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. 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 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. Also effective on
that date, K.A.B. transferred the Options to certain transferees. See
"Certain Transactions - Management Agreement with K.A.B., Inc. and Related
Transactions - Stock Option Grant."
-8-
<PAGE> 11
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 Note 2
to the Summary Compensation Table and "Certain Transactions - Management
Agreement with K.A.B., Inc. and Related Transactions - Stock Option Grant."
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 Note 2 to the
Summary Compensation Table and "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. In
addition, David Schwartz, a director of the Company, received $2,000 and $0
during the years ended March 31, 1995 and 1996, respectively, in consideration
of consulting services.
-9-
<PAGE> 12
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. The Management Agreement provides cash compensation based on
hours worked to a maximum of $200,000 per year (increased by the Company to
$250,000 per year effective April 1, 1996), as well as 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, which was extended for
an additional five years as of April 1, 1996. The Management Agreement is
terminable by the Company for cause, as defined.
The Management Agreement includes certain representations and
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 profitability and/or
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.
The Unvested Options also became exercisable on an accelerated basis pursuant to
the term of the original grant, as follows:
<TABLE>
<CAPTION>
Number of Shares Alternative Vesting Event:
---------------- --------------------------
<S> <C> <C>
500,000 Completion of the first fiscal year in which
the Company has Profits of at least $750,000 or
in which the Stock Price is at least $4.00
750,000 Completion of the first fiscal year in which
the Company has Profits of at least $1,000,000
or in which the Stock Price is at least $5.00
</TABLE>
-10-
<PAGE> 13
"Profits" of the Company in any fiscal
period shall mean the Company's pretax operating
profit during such period as determined in
accordance with generally accepted accounting
principles ("GAAP") based on the Company's books
and records, and excluding any profit or loss from
financial transactions and any charge for
compensation expense relating to these stock
options.
"Stock Price" means the average closing
high bid price for the Company's Common Stock as
reported on NASDAQ (or, if applicable, the NASD
Bulletin Board or pink sheets) over any 30
consecutive calendar days during the applicable
fiscal year.
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.
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 to Richter & Co., Inc., a New York investment banking firm
("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 to Mr. Richter. See " -- Investment Banking
Services," below.
Stock Purchase. Kenneth L. Blum, Jr. and Alan S. Cohn acquired
166,667 and 166,666 shares, respectively, of the Company's Common Stock (the
"Shares") on June 30, 1993 for consideration of $.75 per share. Mr. Blum, Sr. is
the father of Mr. Blum, Jr. and the father-in-law of Mr. Cohn.
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 Mr. Cohn. The Registration Rights
Agreement provides up to three demand registrations with respect to
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<PAGE> 14
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.
Franchise Agreement. Effective June 30, 1993, K.A.B., Inc.
acquired a Company franchise for the Towson, Maryland area.
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; 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 commission equal to 6% of the
cash received by the Company upon any exercises 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. 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.
As a result of actions taken by the Board of Directors on
October 19, 1994 and July 15, 1995, the 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 Grants"
above.
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<PAGE> 15
OTHER
Financing Agreement. As of August 31, 1993, the Company entered
into a Commercial Installment Sales and Financing Agreement with K.A.B. The
agreement permitted the Company to offer vehicle financing to franchisees. The
Company executed a Master Note in favor of K.A.B. in the amount of $200,000, but
was only obligated to repay amounts outstanding on vehicles purchased. Advances
from K.A.B. bore interest at 12% per annum. Pursuant to a separate Sales
Commission Agreement, the Company was also obligated to pay K.A.B. a 2% per
annum commission on the unpaid balance of advances made to the Company under the
financing agreement. The Company repaid the Note in full and terminated the
agreement described in this paragraph in April 1995.
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 to lease approximately 1,384 square feet. For this space, the Company is
currently paying $1,188 per month 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.
During fiscal 1994, the Company issued 500,000 shares of Common
Stock through RCI in transactions exempt from registration under the Securities
Act of 1993, as amended, yielding net proceeds of approximately $354,328. RCI
received cash compensation in an amount equal to approximately 6% of the gross
proceeds of the transactions plus five-year warrants for 30,000 shares of Common
Stock exercisable at $.80 per share. RCI has assigned 12,000 of such warrants to
William L. Richter.
Effective December 31, 1992, the Company entered into an
agreement with David Schwartz to convert a portion of a note payable to him by
the Company to common stock. The Company issued 133,333 shares of common stock
to Mr. Schwartz in exchange for cancellation of $100,000 of the note, and
granted Mr. Schwartz an option to convert the remaining portion of the note into
common stock at $.75 per share. In June 1994, the Company retired the note via a
payment of $127,943, representing the entire unpaid principal balance.
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, 1996, ABIS received $77,005 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, 1996.
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<PAGE> 16
RCI provides substantial ongoing financial management and other
services to the Company at no charge. 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
On October 30, 1995, the Board of Directors of Rent-A-Wreck of
America, Inc. (the "Registrant") unanimously approved the dismissal of Arthur
Andersen LLP as the Registrant's independent certified public accountant. On
that same date, the Registrant's Board of Directors approved the engagement of
Grant Thornton LLP as the Registrant's new independent certified public
accountants for the fiscal year ended March 31, 1996. Arthur Anderson LLP was
notified of its dismissal, and Grant Thornton LLP of its engagement on October
25, 1995.
During the Registrant's two most recent fiscal years and
through October 25, 1995, there were no disagreements with Arthur Anderson LLP
on any matters of accounting principles or practices, financial statement
disclosures, or auditing scope or procedures, which disagreements, if not
resolved to the satisfaction of Arthur Andersen LLP, would have caused the firm
to make reference in connection with its report to the subject matter of the
disagreement.
Arthur Andersen LLP's report on the financial statements for
the past two years contain no adverse opinion or disclaimer of opinion and was
not qualified or modified as to uncertainty, audit scope, or accounting
principles.
During the Registrant's two most recent fiscal years and
through October 25, 1995, there were no "reportable events" (as defined in
Regulation S-K Item 304(a)(1)(v)).
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, 1997.
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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<PAGE> 17
FINANCIAL INFORMATION
Enclosed with this Proxy Statement are the Company's 1996
Annual Report to Stockholders and a copy of the Company's Report on Form 10-KSB
for the year ended March 31, 1996 (the "Form 10-KSB") which includes the
Company's audited financial statements and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
STOCKHOLDER PROPOSALS
Proposals intended to be presented at the 1997 Annual Meeting
of Stockholders must be received by the Company by March 31, 1997 to be
considered for inclusion in the Company's proxy materials relating to that
meeting.
RENT-A-WRECK OF AMERICA, INC.
KENNETH L. BLUM, SR.
July 25, 1996 Chairman and Chief Executive Officer
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<PAGE> 18
RENT-A-WRECK OF AMERICA, INC.
11460 CRONRIDGE DRIVE, SUITE 118
OWINGS MILLS, MARYLAND 21117
THIS PROXY IS SOLICITED ON
BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Kenneth L. Blum, Sr. and
Kenneth L. Blum, Jr., as Proxies, each with the power to appoint his substitute,
and hereby authorizes each of them to represent and to vote, as designated
below, all the shares of Common Stock of Rent-A-Wreck of America, Inc., a
Delaware corporation (the "Company") held on record by the undersigned on July
22, 1996 at the Annual Meeting of Stockholders to be held on September 10, 1996,
and at any adjournment thereof.
1. ELECTION OF CLASS I DIRECTORS
Kenneth L. Blum, Sr. David S. Schwartz
[ ] VOTE FOR all nominees listed, except as indicated to the contrary
below (if any). (INSTRUCTIONS: TO WITHHOLD YOUR VOTE FOR ANY
INDIVIDUAL NOMINEE, WRITE THE NOMINEE'S NAME IN THE SPACE BELOW.)
[ ] WITHHOLD AUTHORITY to vote for all nominees.
2. In their discretion, to vote upon such other business as may properly
come before the Annual Meeting or any adjournment.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED BY
THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS INDICATED, THIS PROXY WILL BE
VOTED FOR THE ABOVE NOMINEES AS RECOMMENDED BY THE BOARD OF DIRECTORS.
Please sign exactly as name appears on your stock certificate.
When shares are held by joint tenants, both should sign. When signing as
attorney, executor, administrator, trustee or guardian, please give full title
as such. If a corporation, please give full corporate name and indicate that
execution is by president or other authorized officer. If a partnership, please
sign in partnership name by authorized person.
Dated:______________________, 1996.
Stockholder Name(s): (Print)
_____________________________________________
_____________________________________________
_____________________________________________
Signature
_____________________________________________
Signature if held jointly
<PAGE> 19
RENT-A-WRECK OF AMERICA, INC.
11460 CRONRIDGE DRIVE, SUITE 118
OWINGS MILLS, MARYLAND 21117
THIS PROXY IS SOLICITED ON
BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Kenneth L. Blum, Sr. and
Kenneth L. Blum, Jr., as Proxies, each with the power to appoint his substitute,
and hereby authorizes each of them to represent and to vote, as designated
below, all the shares of Preferred Stock of Rent-A-Wreck of America, Inc., a
Delaware corporation (the "Company") held of record by the undersigned on July
22, 1996 at the Annual Meeting of Stockholders to be held on September 10, 1996,
and at any adjournment thereof.
1. ELECTION OF CLASS II DIRECTORS:
William L. Richter Alan L. Aufzien
[ ] VOTE FOR all Class II nominees listed, except as
indicated to the contrary below (if any).
(INSTRUCTIONS: TO WITHHOLD YOUR VOTE FOR ANY
INDIVIDUAL NOMINEE, WRITE THE NOMINEE'S NAME IN THE
SPACE BELOW.)
[ ] WITHHOLD AUTHORITY to vote for all Class II nominees.
2. In their discretion, to vote upon such other business as may
properly come before the Annual Meeting or any adjournment.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED BY THE
UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED
FOR THE ABOVE NOMINEES AS RECOMMENDED BY THE BOARD OF DIRECTORS.
Please sign exactly as name appears on your stock certificate.
When shares are held by joint tenants, both should sign. When signing as
attorney, executor, administrator, trustee or guardian, please give full title
as such. If a corporation, please give full corporate name and indicate that
execution is by president or other authorized officer. If a partnership, please
sign in partnership name by authorized person.
Dated:______________________, 1996.
Stockholder Name(s): (Print)
_____________________________________________
_____________________________________________
_____________________________________________
Signature
_____________________________________________
Signature if held jointly
