SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [Fee Required]
For the fiscal year ended December 31, 1995
Commission File No. 814-29
ACORN VENTURE CAPITAL CORPORATION
----------------------------------------------------
(Exact name of small business issuer in its charter)
Delaware 59-2332857
- ------------------------------- ------------------------
(State or other jurisdiction of (IRS Employer Identifi-
incorporation or organization) cation No.)
522 Park Street, Jacksonville, Florida 32204
- -------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Issuer's telephone number, including area code (904) 359-8624
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
Check whether the Issuer (1) 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
---- ----
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this Form, and no disclosure
will be contained, to the best of the Registrant's knowledge, in
definitive proxy or information statements incorporated by refer-
ence in Part III of this Form 10-KSB or any amendment to this Form
10-KSB. [ x ]
Issuer's revenues for the fiscal year ended December 31, 1995 were $741,312.
The aggregate market value of the voting stock held by non-
affiliates of the Registrant as of April 1, 1996 (valued at the
average of the bid price of $1.125 and asked price of $1.1875 on
such date) was $2,874,335.
The number of shares of Common Stock outstanding (including shares
held by affiliates of the issuer) as of April 1, 1996: 5,538,906
Transitional Small Business Disclosure Format (check one): Yes No X
---- ----
DOCUMENTS INCORPORATED BY REFERENCE: NONE
<PAGE>
PART I
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ITEM 1. Description of Business
-----------------------
Acorn Venture Capital Corporation (the "Company") is a non-
diversified, closed-end management investment company that has
elected to be treated as a business development company ("BDC")
under the Investment Company Act of 1940 (the "1940 Act"). The
Company's primary investment objective has historically been, and
continues to be, achievement of long-term capital appreciation of
its assets, rather than current income, by making investments in,
and providing managerial assistance to, emerging and established
companies that management believes offer significant potential
opportunities for growth ("portfolio companies"). Since October
1991, the Company has concentrated its efforts on making large,
controlling equity and/or equity-related investments in portfolio
companies.
As of December 31, 1995, the Company had controlling interests
in Recticon Enterprises, Inc. ("Recticon") (a manufacturer of
monocrystalline silicon wafers), Automotive Industries, Inc.
("Automotive") (which operates 32 full-service automotive retail
centers, principally in Florida, and, to a lesser extent, Georgia),
and ServiceMax Tire & Auto Centers, Inc. ("ServiceMax") (which
operates 14 full-service automotive retail centers at sites in
Michigan, 12 at which Total Petroleum, Inc. operates gas stations
and convenience stores).
The Company historically has generally invested, and from time
to time in the future may make investments, in portfolio companies
through "private placements" which, in management's opinion, are
likely to effect public financings within approximately two to
three years from the date of investment or which otherwise have a
viable plan to allow the Company to liquidate its position within
a reasonable period of time.
The Company does not have a registered investment adviser and
its investment decisions are made by its management in accordance
with policies approved by its Board of Directors (the "Board").
The Company does not operate pursuant to a written investment
advisory agreement that must be approved periodically by
stockholders. The Company currently has six officers, five of whom
are employees of the Company and one of whom is an employee of one
of the Company's subsidiaries.
Direct investments may be made in companies with operating
histories that are unprofitable or marginally profitable, that have
negative net worths or that are involved in bankruptcy or
reorganization proceedings. Such investments would involve
businesses that management believes have turnaround potential
through the infusion of additional working capital and a
strengthened management team. These companies may require
significant managerial assistance and investment therein may be of
higher risk and speculative. Investments in such situations will
be made only where management has identified a specific strategy to
improve operating performance. To date, a significant portion of
the Company's investments have been of this nature. See "--Present
Portfolio-Venture Capital Investments."
Following its initial investment, the Company has made and may
in the future make additional debt and equity investments in
portfolio companies ("Additional Investments") in order to protect
or enhance its initial investment. The Company may, together with
other investors, including management and its affiliates, make
direct or Additional Investments in a number of other situations,
including attempts to salvage insolvent or bankrupt companies, the
acquisitions of divisions of companies, the acquisition of
privately-held companies, or the acquisition of companies in order
to spin-off portions of their operations or assets into independent
entities. Because of the substantial financial and management
commitment typically made to new portfolio companies, the Company
expects that it will make only a few, if any, new investments in
any one year. See "--Present Portfolio--Venture Capital
Investments" and "Management's Discussion and Analysis or Plan of
Operations."
The Company may also make direct and/or Additional Investments
in publicly-traded securities of relatively small, emerging growth
companies that management believes have long-term growth
possibilities.
Significant Events
- ------------------
Recticon entered into long-term agreements with two of its
major customers, pursuant to which said customers have paid in cash
an aggregate of $2.3 Million for the right to receive a specified
number of silicon wafers at a predetermined gross profit margin.
In addition, Recticon entered into agreements pursuant to which
Recticon received $2.4 Million in cash from two customers in order
for Recticon to purchase additional furnaces and related equipment
(the "Units"). At the end of five years, the Units will be turned
over to Recticon at no cost. In exchange therefor, Recticon has
agreed to sell these customers the wafers produced by the Units at
a pre-determined gross profit margin. Recticon is expanding its
facilities and anticipates (although no assurance can be given)
that it may conclude four or five such additional Units over the
next two to three years. Recticon presently has ten functioning
Units. These new Units will not only give Recticon added capacity,
but will also enable it to eventually enter into the six-inch wafer
market and, subject to purchasing additional equipment, give it the
capacity to enter into the eight-inch market. Recticon's present
backlog and commitments are of such a nature that, based upon
present capacity, it will only accept new orders for delivery dates
in 1999. The Company has determined, for the reasons set forth
under the subheading "Present Portfolio-Venture Capital
Investments" below, to increase its valuation of Recticon to
$12,500,000.
In January 1996, ServiceMax completed a new agreement with
Total Petroleum, Inc., its landlord, pursuant to which it is
operating 14 of its best performing stores and has shut down 11 of
the worst performing stores, at no financial penalty. The Board
has reduced its valuation of ServiceMax to zero due to a
significant liability and the uncertainty of successfully seeking
indemnification for any or all of the liability from involved third
parties.
In January 1996, the Board authorized the purchase from time
to time in the open market of up to ten (10%) percent of the
Company's outstanding Common Stock (approximately 553,890 shares),
depending upon prevailing market prices and other factors. The
Board's authorization for the buy-back was based upon its
consideration of several factors that it deemed relevant, including
that the intrinsic value of the Company's Common Stock is not
reflected in the current market price. To date, the Company has
not repurchased any of its shares of Common Stock and there can be
no assurance that it will.
In March 1996, the Board, in reviewing the present financial
condition of Digital Products Corporation ("Digital"), has fully
reserved against the note of $500,000 due and owing the Company,
based on the uncertainty of Digital being able to repay the note in
November 1996.
In November 1995, the Board elected Edward N. Epstein as
President and Chief Operating Officer of the Company, with Stephen
A. Ollendorff, remaining as Chief Executive Officer. Mr.
Ollendorff and Bert Sager share the position of Chairman of the
Board. Two additional directors were also elected to the Board in
November 1995, namely Mark Auerbach and Ronald J. Manganiello,
expanding the Board to ten members.
On January 2, 1996, the Company engaged the firm of Coopers &
Lybrand L.L.P. to act as its independent accountants for the 1995
and 1996 fiscal years, replacing Ernst & Young LLP. Ernst & Young
resigned stating that under applicable professional standards, it
was no longer independent with respect to the Company.
Effective April 1, 1995, the Company relocated its principal
office to Automotive's offices in Jacksonville in order to reduce
costs to the Company and to consolidate operations.
Present Portfolio-Venture Capital Investments
- ---------------------------------------------
Set forth below is certain information concerning the
Company's present principal investments in portfolio companies, two
of which are publicly-held companies. Information concerning the
publicly-held companies has been derived from filings by the
respective companies with the Securities and Exchange Commission
(the "Commission"). The information below concerning the
privately-held companies has been obtained from those portfolio
companies. For further information concerning the Company's
investments, including acquisition dates, purchase prices and
valuation at December 31, 1995, see Notes to Financial Statements
included herein. The Company's two principal investments in
portfolio companies constituted, as of December 31, 1995, 98.6% of
the Company's total portfolio investments.
1. Recticon Enterprises, Inc. In July 1993, the Company
acquired Recticon, by issuing 800,000 shares of its Common Stock to
the stockholders of Recticon in exchange for all of the outstanding
shares of stock of Recticon. Such shares are restricted securities
and are not registered under either the Securities Act of 1933, as
amended, or the 1940 Act. In addition, the Company has made cash
contributions to Recticon in the amount of $1,027,750. During
1994, the Company loaned $190,000 to Recticon for working capital,
which loan was repaid prior to December 31, 1994. In September
1994, the Company executed a Guaranty Agreement on a $550,000
credit line, and a term loan of $225,000 for Recticon. In February
1995, the Company guaranteed a line of credit up to an additional
$200,000.
During the year ended December 31, 1995, the Company received
a total of $182,500 in management and consulting fees, and a loan
in the amount of $760,000, from Recticon. In January 1996,
Recticon paid a special cash dividend to the Company in the amount
of $250,000.
Recticon, located in Pottstown, Pennsylvania, manufactures
two, three and four-inch monocrystalline silicon wafers, which are
made from silicon crystals and are the basic substrate from which
integrated circuits and other semiconductor devices are fabricated.
Recticon's wafers are used by university research departments and
microelectronic manufacturers, and are best suited for use in
electronics devices employed in avionics, telecommunications and
computers.
Recticon's business is highly competitive and it believes that
there are many competitors who produce, sell, design and support
similar products. Many of these competitors have substantially
greater marketing, financial, administrative and other resources
than Recticon.
Recticon entered into long-term agreements with two of its
major customers, pursuant to which said customers have paid an
aggregate of $2.3 Million for the right to receive a specified
number of silicon wafers at a predetermined gross profit margin.
In addition, Recticon entered into agreements pursuant to which
Recticon received $2.4 Million in cash from two customers in order
for Recticon to purchase the Units. See "Description of Business--
Significant Events."
For 1995, three customers of Recticon accounted for 34%, 14%
and 9% of its sales, respectively. For 1994, three customers of
the Company accounted for 30%, 10% and 9% of its sales,
respectively. The loss of any or all of these customers, could
have an adverse, possibly severe, effect on the business of
Recticon.
The Company has determined to increase its valuation of
Recticon to $12,500,000, primarily as a result of Recticon's
anticipated increased profitability, a substantial increase in its
backlog and the cash infusion during 1995 of $4.7 Million as a
result of certain supply and equipments contracts it has entered
into with certain of its major customers.
Recticon Financial Data
-----------------------
The following selected financial data of Recticon has been
derived from the audited (by other auditors) financial statements
as of and for the periods ended December 31, 1995 and December 31,
1994.
<TABLE>
<CAPTION>
Income Statement Data:
Year Ended Year Ended
December 31, December 31,
1995 1994
------------ ------------
<S> <C> <C>
Total Net Sales $6,491,505 $4,249,405
Total Cost of Goods Sold 4,670,714 3,297,583
Gross Margin 1,820,791 951,822
Total Expenses 938,853 606,515
Net Income Before
Management Fees 881,938 345,307
Management Fees 195,000 75,000
---------- ----------
Net Income $ 686,938 $ 270,307
========== ==========
</TABLE>
<TABLE>
<CAPTION>
Balance Sheet Data:
As of As of
December 31, December 31,
1995 1994
------------ ------------
<S> <C> <C>
Total Assets $5,131,918 $2,056,633
========== ==========
Total Liabilities 1,659,314 987,632
Deferred Income 1,716,665 -
Stockholders' Equity 1,755,939 1,069,001
---------- ----------
Total Liabilities and
and Stockholders'
Equity $5,131,918 $2,056,633
========== ==========
</TABLE>
2. Automotive Industries, Inc. Automotive, a wholly-owned
Delaware corporation, located in Jacksonville, Florida, operates 32
full-service automotive retail centers principally in Florida and
Georgia under the names Jim Martin Tire, Wall Tire Distributors,
Mott Tire, Kehoe Tire and Daytona Discount Tire. On December 22,
1993, the Company acquired all of the outstanding stock of
Automotive from General Tire, Inc. and other minority stockholders
for a cash purchase price of $2,400,000. In addition, the Company
has made cash investments in Automotive of $500,000.
During the year ended December 31, 1995, the Company received
a total of $447,500 in cash dividends from Automotive.
The tires, auto parts and service business is highly
competitive. Automotive's principal competitors are national and
regional chains carrying automotive parts and accessories and
offering automotive services, most of which have greater financing
capability and greater capital than Automotive.
Orland Wolford, a Vice President of the Company, is currently
the President of Automotive.
Automotive Financial Data
-------------------------
The following selected financial data of Automotive has been
derived from the financial statements as of and for the periods
ended December 31, 1995 and December 31, 1994.
<TABLE>
<CAPTION>
Income Statement Data:
Year Ended Year Ended
December 31, December 31,
1995 1994
(Unaudited) (Audited)
------------ ------------
<S> <C> <C>
Total Net Sales $19,307,943 $19,031,685
Total Cost of Goods Sold 8,659,918 9,460,907
----------- -----------
Gross Margin 10,648,025 9,570,778
Total Expenses 12,158,711 9,540,528
----------- -----------
Net (Loss) Income $(1,510,686)* $ 30,250
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
Balance Sheet Data:
As of As of
December 31, December 31,
1995 1994
(Unaudited) (Audited)
------------ ------------
<S> <C> <C>
Total Assets $ 6,251,413 $ 6,566,677
=========== ===========
Total Current Liabilities 3,570,915 2,583,673
Total Long-Term Debt 1,106,099 1,127,754
Total Stockholders' Equity 1,574,399 2,855,250
----------- -----------
Total Liabilities and Equity $ 6,251,413 $ 6,566,677
=========== ===========
*Includes a write-off of $1,430,883, relating to a
reserve established for a receivable due from ServiceMax.
</TABLE>
3. Digital Products Corporation. In November 1993, the
Company loaned $500,000 to Digital, a Florida corporation,
pursuant to a 10% subordinated convertible note due 1996 and
received 750,000 warrants to purchase 750,000 shares of common
stock of Digital at an exercise price of $2.00 per share.
In March 1996, the Board, in reviewing the present
financial condition of Digital Products Corporation
("Digital"), has fully reserved against the note of $500,000
due and owing the Company, based on the uncertainty of Digital
being able to repay the note in November 1996.
Digital, a publicly-held company, and its subsidiaries
develop, manufacture and distribute telecomputer products and
technology, as well as computer software application programs.
Digital also provides post-sale support services for such
products, technology and software programs, and, in
conjunction with the marketing of its products, technology and
services, it may act as a dealer of computer hardware and
other software products. Digital's common stock is traded in
the over-the-counter market on The Nasdaq Stock Market
("NASDAQ") and as of April 1, 1996, the closing sales price of
its common stock was $.16.
4. ServiceMax Tire & Auto Centers, Inc. ServiceMax, a
wholly-owned Delaware corporation as of April 1994, owns and
operates 14 full-service automotive retail centers at sites in
Michigan. Total Petroleum, Inc. ("Total") operates gas
stations and convenience stores at 12 of the sites, and
ServiceMax has signed long-term leases with Total to operate
the 12 auto part stores and service facilities. In January
1996, ServiceMax completed a new agreement with Total,
pursuant to which it operates 14 of its best performing stores
and shut down 11 of the worst performing stores at no
financial penalty.
As of December 31, 1995, the Company has invested a total
of $5,619,503 in ServiceMax. These funds were utilized to
complete the opening of the stores and to finance continuing
operations. The Board has reduced its valuation of ServiceMax
to zero, as of December 31, 1995, due to a significant
liability and the uncertainty of successfully seeking
indemnification for any or all of the liability from involved
third parties.
During 1995, the Company made additional investments of
$1,200,000 to ServiceMax.
The tires, auto parts and service business is highly
competitive. ServiceMax's principal competitors are national
and regional chains carrying automotive parts and accessories
and offering automotive services, most of which have greater
financing capability and greater capital than ServiceMax.
Liquid Net Assets of the Company
- --------------------------------
Largely as a result of its significant investments in its
portfolio companies, as of December 31, 1995, the Company had
temporarily invested principally all of the remainder of its
net assets in bank checking and transaction accounts, United
States Treasury Bills, and a short-term certificate of deposit
($582,656 or approximately 4.1% of the net assets as of
December 31, 1995).
Competition
- -----------
Numerous companies and individuals are engaged in the
venture capital business and such business is intensely
competitive. Most of the competitors have significantly
greater experience, resources and managerial capabilities than
the Company and are therefore in a better position than the
Company to obtain access to and to consummate attractive
venture capital investments.
Regulation
- ----------
The Small Business Investment Incentive Act of 1980 (the
"Incentive Act") modified the provisions of the 1940 Act that
are applicable to a closed-end investment BDC. After filing
its election to be treated as a BDC, a company may not
withdraw its election without first obtaining the approval of
holders of a majority of its outstanding voting securities (as
defined under the 1940 Act). The following is a brief
description of the 1940 Act, as modified by the Incentive Act,
and as qualified in its entirety by reference to the full
texts of the 1940 Act, the Incentive Act and the rules
thereunder.
Generally, to be eligible to elect BDC status, a company
must engage in the business of furnishing capital and
significant managerial assistance to companies which do not
have ready access to capital through conventional financial
channels. Such portfolio companies are termed "eligible
portfolio companies." More specifically, in order to qualify
as a BDC, a company must (i) be a domestic company; (ii) have
registered a class of its securities or have filed a
registration statement with the Commission pursuant to Section
12 of the Securities Exchange Act of 1934 (the "1934 Act");
(iii) operate for the purpose of investing in the securities
of certain types of portfolio companies, namely, immature or
emerging companies and businesses suffering or just recovering
from financial distress (see following paragraph); (iv) extend
significant managerial assistance generally to such portfolio
companies; (v) have a majority of directors who are not
"interested persons" (as defined in the 1940 Act); and (vi)
file (or, under certain circumstances, intend to file) a
proper notice of election with the Commission.
An eligible portfolio company generally is a U.S. company
that is not an investment company and that (i) does not have
a class of securities registered on an exchange or included in
the Federal Reserve Board's over-the-counter margin list; (ii)
is actively controlled by a BDC and has an affiliate of a BDC
on its board of directors; or (iii) meets such other criteria
as may be established by the Commission. Control under the
1940 Act is presumed to exist where a BDC owns more than 25%
of the outstanding voting securities of the portfolio company.
The 1940 Act prohibits or restricts companies subject to
the 1940 Act from investing in certain types of companies,
such as brokerage firms, insurance companies, investment
banking firms and investment companies. Moreover, the 1940
Act limits the type of assets that BDCs may acquire to certain
prescribed qualifying assets and certain assets necessary for
its operations (such as office furniture, equipment and
facilities) if, at the time of acquisition, less than 70% of
the value of the BDC's assets consists of qualifying assets.
Qualifying assets include: (i) privately acquired securities
of companies that were eligible portfolio companies at the
time such BDC acquired their securities; (ii) securities of
bankrupt or insolvent companies; (iii) securities of eligible
portfolio companies controlled by a BDC; (iv) securities
received in exchange for or distributed in or with respect to
any of the foregoing; and (v) cash items, government
securities and high-quality short-term debt. The 1940 Act
also places restrictions on the nature of the transactions in
which, and the persons from whom, securities can be purchased
in order for the securities to be considered qualifying
assets. Such restrictions include limiting purchases to
transactions not involving a public offering and acquiring
securities directly from either the portfolio company or their
officers, directors or affiliates.
The Company is permitted by the 1940 Act, under specified
conditions, to issue multiple classes of senior debt and a
single class of preferred stock if its asset coverage, as
defined in the 1940 Act, is at least 200% after the issuance
of the debt or the preferred stock (i.e., such senior
securities may not be in excess of 50% of its net assets). If
the value of the Company's net assets, as defined, were to
increase through the issuance of additional capital stock or
otherwise, the Company would be permitted under the 1940 Act
to issue senior securities. The Company has no senior
securities outstanding and has no current intention of issuing
any senior securities although it may do so in the future.
The Company may sell its securities at a price that is
below the net asset value per share only after a majority of
its disinterested directors has determined that such sale
would be in the best interests of the Company and its
stockholders and upon the approval by the holders of a
majority of its outstanding voting securities, including a
majority of the voting securities held by non-affiliated
persons, of such policy or practice within one year prior to
such sale. If the offering of the securities is underwritten,
a majority of the disinterested directors (in consultation
with the underwriter(s)) must determine in good faith that the
price of the securities being sold is not less than a price
which closely approximates the market value of the securities,
less any distribution discounts or commissions. As defined in
the 1940 Act, the term "majority of the Company's outstanding
voting securities" means the vote of (i) 67% or more of the
Company's Common Stock present at a meeting, if the holders of
more than 50% of the outstanding Common Stock are present or
represented by proxy, or (ii) more than 50% of the Company's
outstanding Common Stock, whichever is less.
Many of the transactions involving the Company and its
affiliates (as well as affiliates of those affiliates) which
were prohibited without the prior approval of the Commission
under the 1940 Act prior to its amendment by the Incentive Act
are now permissible upon the prior approval of a majority of
the Company's disinterested directors and a majority of the
directors having no financial interest in the transactions.
However, certain transactions involving certain persons
related to the Company, including its directors, officers, and
employees, may still require the prior approval of the
Commission. In general, (i) any person who owns, controls or
holds power to vote, more than 5% of the Company's outstanding
Common Stock; (ii) any director, executive officer or general
partner of that person; and (iii) any person who directly or
indirectly controls, is controlled by, or is under common
control with, that person, must obtain the prior approval of
a majority of the Company's disinterested directors and, in
some situations, the prior approval of the Commission, before
engaging in certain transactions involving the Company or any
company controlled by the Company. The 1940 Act generally
does not restrict transactions between the Company and its
portfolio companies.
While a BDC may change the nature of its business so as
to cease being a BDC (and in connection therewith withdraw its
election to be treated as a BDC) or, in certain circumstances,
to change its business purpose, only if authorized to do so by
a majority vote (as defined in the 1940 Act) of its
outstanding voting securities, stockholder approval of changes
in other fundamental investment policies of a BDC is not
required (in contrast to the general 1940 Act requirement,
which requires stockholder approval for a change in any
fundamental investment policy). The Company is entitled to
change its non-diversification status also without stockholder
approval. In addition, should the Company lose its status as
a BDC, it would become subject to more stringent regulation
under the 1940 Act if it did not become exempt from 1940 Act
regulation. The Company may, in the future, seek to become
exempt from 1940 Act regulation altogether.
ITEM 2. Description of Property
- --------------------------------
Effective April 1, 1995, the Company relocated its
principal executive office to the offices of Automotive in
Jacksonville, Florida, in order to reduce costs and
consolidate its operations, at no charge to the Company. The
Company, however, agreed to pay through the end of 1995,
approximately $18,800 with respect to termination arrangements
for its prior office space in Pompano Beach, Florida. The
Company also maintains an office in New York, New York, at no
charge to the Company.
ITEM 3. Legal Proceedings
- --------------------------
In October 1994, the Company instituted an action in Dade
County, Florida, against Carburetion Labs International, Inc.
("CLI") seeking an aggregate of $128,000 in payment of
outstanding promissory notes, including principal and
interest, together with attorneys' fees. A judgment was
entered against CLI in favor of the Company, and the Company
foreclosed, obtaining a certificate of title to a certain
patent. The Company is still seeking payment of the balance
due and owing.
ITEM 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
The Company did not submit any matters to a vote of its
stockholders during the fourth quarter of its fiscal year
ended December 31, 1995.
PART II
ITEM 5. Market for the Registrant's Common Equity
and Related Stockholder Matters
- --------------------------------------------------
The Company's Common Stock was accepted for listing in
October 1988 on NASDAQ under the symbol "AVCC". The following
table sets forth, for the periods indicated, the range of high
and low closing bid quotations as reported by NASDAQ. Such
quotations reflect inter-dealer prices, without retail mark-
up, mark-down or commission and do not necessarily represent
actual transactions. There presently is a limited public
market for the Common Stock.
Quarter Ending Low High
-------------- --- ----
1995
----
March 31 $ .50 $1.13
June 30 $ .53 $ .81
September 30 $ .69 $ .88
December 31 $ .88 $1.00
Quarter Ending Low High
-------------- --- ----
1994
----
March 31 $2.38 $3.13
June 30 $1.00 $2.38
September 30 $ .50 $1.00
December 31 $ .44 $1.38
As of April 1, 1996, there were approximately 497 holders
of record of the Company's Common Stock with 5,538,906 shares
of Common Stock outstanding. In addition, the Company
believes that there are more than 3,500 beneficial owners of
Common Stock whose shares are held in "street" name as of such
date. On April 1, 1996, the closing bid and asked quotations
of the Common Stock were $1.125 and $1.1875, respectively.
The Company has never paid and does not currently intend
to pay cash dividends. In addition, the Company has never
made, nor adopted any policies with respect to, in-kind
distributions, and has no present intention of adopting any
such policies or of making any such distributions.
Furthermore, there may also be substantial legal and
contractual restrictions affecting the timing of any such
distributions by the Company or any such resales by
stockholders of distributed securities.
ITEM 6. Management's Discussion and Analysis or Plan of Operations
- -------------------------------------------------------------------
The primary investment objective of the Company continues
to be the achievement of long-term capital appreciation,
rather than current income, by making investments in emerging
and established companies that management believes offer
significant potential opportunities for growth. Since October
1991, the Company has concentrated its efforts on making
large, controlling investments in portfolio companies. To the
extent the Company does not make a controlling investment, the
Company believes it will be able to achieve its objective of
long-term appreciation by concentrating on investments in
companies which it believes are likely to effect public
financings within approximately two to three years from the
date of investment or which otherwise have a viable plan to
allow the Company to liquidate its position within a
reasonable period of time.
The following discussion and analysis should be read in
conjunction with the Company's financial statements and the
notes thereto appearing elsewhere in this report.
Results of Operations
- ---------------------
Fiscal Years Ended December 31, 1995 and 1994
("Fiscal 1995" and "Fiscal 1994")
As a result of operations, net assets increased
$3,828,345 (or 27.0% of net assets) during Fiscal 1995, and
decreased $3,805,382 (or 36.6% of net assets) during Fiscal
1994. The increase in Fiscal 1995 was primarily due to an
increase in the valuation of Recticon from $3,195,750 to
$12,500,000, offset however by the write-off in the valuation
of certain portfolio companies, primarily ServiceMax from
$2,500,000 to zero. The decrease in Fiscal 1994 primarily
resulted from the depreciation/loss on investments including
$1,212,000 with respect to Data Access Systems, Inc. and
$1,920,000 with respect to ServiceMax, and the increased costs
of running the operations of the Company.
The Company recognized investment income (which consisted
primarily of income from the Company's subsidiaries and
interest income) of $741,312 for Fiscal 1995 and $297,966 for
Fiscal 1994. Because of its business philosophy of seeking
long-term capital appreciation in its investment portfolio,
the Company has historically not generated substantial
investment income. However, it intends to generate sufficient
income during 1996 from its principal portfolio companies
(Recticon and Automotive), subject to cash availability, in
order to meet its operating expenses.
Expenses aggregated $878,465 during Fiscal 1995, and
$669,388 during Fiscal 1994. The increase during Fiscal 1995
was primarily due to the consulting fees paid to Edward N.
Epstein during Fiscal 1995. Mr. Epstein is now President of
the Company. The increase during Fiscal 1994 was primarily
due to the increase in salaries from $214,311 during Fiscal
1993 to $369,723 during Fiscal 1994 and an increase in
consulting fees from $47,485 in Fiscal 1993 to $95,723 in
Fiscal 1994. Because the Company plans to increase its focus
on supervising its two major portfolio companies, it
anticipates incurring due diligence and other related costs in
amounts greater than it has incurred heretofore.
Liquidity and Capital Resources
- -------------------------------
As of December 31, 1995, the Company had cash and cash
equivalents of $383,563, and United States Treasury Bills of
$199,093, as compared to cash and cash equivalents of $55,976
and United States Treasury Bills of $593,691, and a
certificate of deposit of $100,000 at December 31, 1994. The
decline in capital resources of approximately $167,011 from
Fiscal 1994 was primarily the result of investments in
ServiceMax. As of December 31, 1995, the Company had
liabilities of $1,918,266, as compared to liabilities of
$5,900 at December 31, 1994. The increase in liabilities was
primarily due to $760,000 the Company borrowed from Recticon
(in order to invest in ServiceMax), a capital contribution of
$460,330 payable to Automotive, and the establishment of
$650,000 credit of deferred income tax liability (see Note 8
to Notes to Financial Statements).
The Company believes that it has sufficient capital to
implement its current investment objectives. However, the
ability of the Company to meet its future investment
objectives is subject to Recticon maintaining profitable
operations and Automotive achieving profitable operations, of
which no assurance can be given. There can be no assurance
that the Company will be successful in its attempts, if any,
to raise additional funds. The Company currently has no
material commitments for capital expenditures, except as set
forth herein, and to finance the working capital needs of its
portfolio companies.
<PAGE>
ITEM 7. Financial Statements
- -----------------------------
Acorn Venture Capital Corporation
Report on Audit of Financial Statements
for the years ended December 31, 1995, 1994 and 1993
<PAGE>
Table of Contents
Pages
Report of Independent Accountants F-1-F-1A
Financial Statements:
Balance Sheets F-2
Statement of Operations F-3
Statements of Changes in Net Assets F-4
Statements of Cash Flows F-5-F-6
Notes to Financial Statements F-7-F-19
<PAGE>
Report of Independent Certified Public Accountants
Board of Directors and Shareholders
Acorn Venture Capital Corporation
We have audited the accompanying balance sheet of Acorn
Venture Capital Corporation as of December 31, 1994, and the
related statements of operations, changes in net assets and
cash flows for each of the two years in the period ended
December 31, 1994. These financial statements are the
responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of
securities owned as of December 31, 1994, by correspondence
with the custodian and broker, or verification by examination.
An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial
position of Acorn Venture Capital Corporation at December 31,
1994, the results of its operations, changes in net assets and
its cash flows for each of the two years in the period ended
December 31, 1994, in conformity with generally accepted
accounting principles.
As explained in Note 2, the financial statements as of
December 31, 1994, include securities valued at approximately
$9,518,000 (91.6% of net assets) whose values have been
estimated by the Board of Directors in the absence of readily
ascertainable market values. We have reviewed the procedures
used by the Board of Directors in arriving at their estimate
of value of such securities and have inspected underlying
documentation and, in the circumstances, we believe the
procedures are reasonable and the documentation appropriate.
However, because of the inherent uncertainty of valuation,
those estimated values may differ significantly from the
values that would have been used had a ready market for the
securities existed, and the differences could be material.
Ernst & Young LLP
--------------------------
Ernst & Young LLP
Jacksonville, Florida
April 5, 1995
F-1A
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Acorn Venture Capital
Corporation:
We have audited the accompanying balance sheet of Acorn
Venture Capital Corporation as of December 31, 1995, and the
related statements of operations, changes in net assets, and
cash flows for year then ended. These financial statements are
the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our
procedures included verification of securities owned as of
December 31, 1995 by physical inspection. An audit also
includes assessing the accounting principles used and
significant estimates made by management, as well as
evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the 1995 financial statements referred to
above present fairly, in all material respects, the financial
position of Acorn Venture Capital Corporation as of December
31, 1995, and the results of its operations, changes in its
net assets, and its cash flows for the year then ended, in
conformity with generally accepted accounting principles.
As explained in the notes to the financial statements, as of
December 31, 1995 the financial statements include securities
valued at approximately $14,192,651 (comprising substantially
all of net assets), whose values have been estimated by the
Board of Directors in the absence of readily ascertainable
market values. We have reviewed the procedures used by the
Board of Directors in arriving at their estimate of value of
such securities and have inspected underlying documentation
and, in the circumstances, we believe the procedures are
reasonable and the documentation appropriate. However, because
of the inherent uncertainty of valuation, those estimated
values may differ significantly from the values that would
have been used had a ready market for the securities existed,
and the differences could be material.
/s/ Coopers & Lybrand L.L.P.
- ---------------------------
Coopers & Lybrand L.L.P.
Jacksonville, Florida
March 22, 1996
F-1
<PAGE>
<TABLE>
<CAPTION>
ACORN VENTURE CAPITAL CORPORATION
Balance Sheets
as of December 31, 1995 and 1994
1995 1994
<S> <C> <C>
Assets:
Investments at fair or market value:
Investments in and advances to majority
owned companies:
Recticon Enterprises, Inc.(100% owned) $12,500,000 $ 3,195,750
Automotive Industries, Inc.100% owned) 2,900,000 2,900,000
ServiceMax Tire & Auto Centers, Inc.
100% owned) 0 2,500,000
Madison Avenue Propulsion Corporation
0% and 80% owned in 1995 and 1994,
respectively) 0 428,555
----------- -----------
$15,400,000 $ 9,024,305
Notes receivable 0 375,000
Other common stocks and warrants 12,981 12,913
Convertible debenture 0 100,000
Certificate of deposit 0 100,000
U.S. Treasury bills 199,093 593,691
----------- -----------
Total investments (cost of
$14,288,138 and $13,547,692
at December 31, 1995 and 1994,
respectively 15,612,074 10,205,909
Cash and cash equivalents 383,563 55,976
Accounts and management fee receivable 100,000 0
Other assets 6,183 138,224
----------- -----------
Total assets 16,101,820 10,400,109
Liabilities:
Accounts payable 4,392 5,900
Notes payable to Recticon Enterprise, Inc. 760,000 0
Capital contribution payable to
Automotive Industries, Inc. 460,330 0
Accrued interest and other payables
to affiliates 43,544 0
Deferred income taxes 650,000 0
----------- -----------
Net assets $14,183,554 $10,394,209
=========== ===========
Net assets:
Common Stock, par value $.01 per share
-authorized 20,000,000 shares,
issued 5,588,906 shares at December 31,
1995 and 1994 and outstanding
5,538,906 and 5,588,906 shares at
December 31, 1995 and 1994,
respectively $ 55,889 $ 55,889
Additional paid-in capital 14,128,656 14,128,656
Treasury stock (50,000 shares in 1995) (39,000) 0
Accumulated:
Net investment losses (907,527) (770,374)
Net realized losses on investments (911,921) (822,860)
Net unrealized accumulated
appreciation (depreciation)
of investments (net of
deferred income taxes of
$650,000 in 1995) 1,857,457 (2,197,102)
----------- -----------
38,009 (3,790,336)
=========== ===========
Net assets applicable to
outstanding common shares
(equivalent to $2.56 per
share in 1995 and $1.86 per
share in 1994, based on out-
standing common shares of
5,538,906 and 5,588,906 in
1995 and 1994, respectively) $14,183,554 $10,394,209
=========== ===========
</TABLE>
See accompanying notes.
F-2
<PAGE>
<TABLE>
<CAPTION>
ACORN VENTURE CAPITAL CORPORATION
Statements of Operations
for years ended December 31, 1995, 1994 and 1993
1995 1994 1993
<S> <C> <C> <C>
Investment income:
Interest, including interest
on notes from affiliated
companies of $67,740 (1995),
$24,261 (1994) and $42,299
(1993) $ 101,312 $ 126,091 $ 103,702
Dividends from Automotive
Industries, Inc. 447,500 75,000 0
Consulting and management fees
from affiliated companies 182,500 96,875 24,528
Other Income 10,000 0 18,135
----------- ----------- -----------
741,312 297,966 146,365
----------- ----------- -----------
Expenses:
Consulting fees 262,565 95,723 47,485
Compensation 374,542 369,723 214,311
Legal and accounting 71,809 127,184 105,320
Registration fees 13,501 16,286 29,877
Interest and other 156,048 60,472 65,046
----------- ----------- -----------
878,465 669,388 462,039
----------- ----------- -----------
Net investment loss (137,153) (371,422) (315,674)
----------- ----------- -----------
Realized and unrealized gains
(losses) on investments:
Realized gains (losses)
from sales of investments (89,061) (1,120,496) 262,329
----------- ----------- -----------
Net change in unrealized
appreciation (depreciation)
of investments 4,704,559 (2,313,464) 147,773
Less deferred taxes applicable
to unrealized appreciation
(depreciation) of invest-
ments (650,000) 0 0
----------- ----------- -----------
4,054,559 (2,313,464) 147,773
Net realized and unrealized
(losses) gains on investments 3,965,498 (3,433,960) 410,102
----------- ----------- -----------
Net increase (decrease) in net
assets resulting from
operations $ 3,828,345 $(3,805,382) $ 94,428
=========== =========== ===========
Per-share amounts:
Net investment loss $ (0.02) $ (0.07) $ (0.09)
Net realized gains (losses)
on investments (0.02) (0.20) 0.08
Net unrealized gains (losses)
on investments 0.73 (0.42) 0.04
----------- ----------- -----------
$ 0.69 $ (0.69) $ 0.03
=========== =========== ===========
Weighted average number of shares
used in per-share computations 5,584,892 5,543,495 3,370,998
=========== =========== ===========
</TABLE>
See accompanying notes.
F-3
<PAGE>
<TABLE>
<CAPTION>
ACORN VENTURE CAPITAL CORPORATION
Statements of Changes in Net Assets
for years ended December 31, 1995, 1994 and 1993
1995 1994 1993
<S> <C> <C> <C>
Net investment loss $ (137,153) $ (371,422) $ (315,674)
Net realized gains (losses)
from sales of investments (89,061) (1,120,496) 262,329
Net change in unrealized
appreciation (depreciation) of
investments 4,054,559 (2,313,464) 147,773
----------- ----------- -----------
Net increase (decrease) in net
assets resulting from
operations 3,828,345 (3,805,382) 94,428
----------- ----------- -----------
Capital share transactions:
Treasury stock (50,000 shares) (39,000) 0 0
Issuance of 175,000 shares
of Common Stock in exchange
for 5,810 shares of
ServiceMax Tire & Auto
Centers, Inc. 0 444,500 0
Issuance of 800,000 shares
in Common Stock in exchange
for all of the outstanding
shares of Recticon
Enterprises, Inc. 0 0 2,168,000
Net proceeds from public
offering 0 0 4,593,722
----------- ----------- -----------
(39,000) 444,500 6,761,722
----------- ----------- -----------
Net increase (decrease) in net
assets 3,789,345 (3,360,882) 6,856,150
Net assets at beginning of year 10,394,209 13,755,091 6,898,941
----------- ----------- -----------
Net assets at end of year $14,183,554 $10,394,209 $13,755,091
=========== =========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE>
<TABLE>
<CAPTION>
ACORN VENTURE CAPITAL CORPORATION
Statements of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
for years ended December 31, 1995, 1994 and 1993
1995 1994 1993
<S> <C> <C> <C>
Cash flows from operating
activities:
Net increase (decrease) in
net assets resulting from
operations $ 3,828,345 $(3,805,382) $ 94,428
Adjustments to reconcile
net (decrease) increase
in net assets resulting
from operations to net
cash provided by (used in)
operating activities:
Unrealized (appreciation)
depreciation of invest-
ments (4,704,559) 2,313,464 (147,773)
(Gains) losses on sales
of investments 89,061 1,120,496 (262,329)
Deferred income taxes 650,000 0 0
Changes in operating
assets and liabilities:
Receivables (50,000) 475,454 0
Interest receivable 0 (34,354) (37,355)
Prepaid expenses and
other assets 131,881 67,532 (168,286)
Accounts payable (1,508) 4,449 (1,221)
Accrued interest and
other 43,544 0 (20,000)
----------- ----------- -----------
Net cash provided by
(used in) operating
activities (13,236) (141,659) (542,536)
----------- ----------- -----------
Cash flows from investing activities:
Investment in Recticon
Enterprises, Inc. 0 (249,750) (968,000)
Investment in Automotive
Industries, Inc. (217,005) 0 (2,900,000)
Investment in ServiceMax Tire
& Auto Centers, Inc. (1,200,000) (778,182) (1,492,275)
Investment in Data Access
Systems, Inc. (AVCC) 0 (25,000) (612,017)
Investment in Madison Avenue
Propulsion Corporation 388,555 (412,400) 0
Purchases of common stock 0 (200,100) (237,672)
Proceeds from sales of common
stock 0 314,957 475,261
Purchase (redemption) of
convertible debentures 100,000 (100,000) 0
Proceeds from sales of
preferred stock 0 0 106,285
Purchases of notes receivable 0 0 (605,000)
Collections on notes receivable 20,000 90,000 0
Purchases of certificates of
deposit 0 0 (1,000,000)
Redemption of certificates of
deposit 100,000 1,000,000 0
Purchase of U.S. Treasury bills (199,093) (983,721) 0
Proceeds of sales of U.S.
Treasury bills 593,691 400,000 3,000,000
Proceeds from sale of U.S.
Treasury note 0 0 303,936
Purchase of equipment and other (5,325) 0 (2,886)
----------- ----------- -----------
Net cash used in
investing activities (419,177) (944,196) (3,932,368)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from note payable to
Recticon Enterprises, Inc. 760,000 0 0
Payment of stock issuance
costs 0 0 (301,278)
Net proceeds from sale of
common stock 0 0 4,895,000
----------- ----------- -----------
Net cash provided by
financing activities 760,000 0 4,593,722
----------- ----------- -----------
Increase (decrease) in cash and
cash equivalents 327,587 (802,537) 118,818
Cash and cash equivalents at
beginning of year 55,976 858,513 739,695
----------- ----------- -----------
Cash and cash equivalents at
end of year $ 383,563 $ 55,976 $ 858,513
=========== =========== ===========
</TABLE>
See accompanying notes.
F-5
<PAGE>
<TABLE>
<CAPTION>
ACORN VENTURE CAPITAL CORPORATION
Statements of Cash Flows, Continued
for years ended December 31, 1995, 1994 and 1993
1995 1994 1993
<S> <C> <C> <C>
Non-cash investing activities:
Sale of investment in Data Access
Systems, Inc. in exchange for
a note receivable from
Proexe Corporation $ 0 $ 1,212,017 $ 0
=========== =========== ===========
Purchase of an additional 5,810
shares of ServiceMax Tire &
Auto Center, Inc. in exchange
for 175,000 shares of the
Company's common stock $ 0 $ 444,500 $ 0
=========== =========== ===========
Sale of note receivable from
Recticon Enterprises, Inc.
in exchange for a restricted
certificate of deposit $ 0 $ 100,000 $ 0
=========== =========== ===========
Purchase of investment in
Recticon Enterprises, Inc.
in exchange for 800,000
shares of the Company's
Common Stock $ 0 $ 0 $ 2,168,000
=========== =========== ===========
Capital contribution to
Automotive Industries,
Inc. approved in 1995 but
paid in 1996 $ 460,330 $ 0 $ 0
=========== =========== ===========
Receipt of 50,000 shares of
the Company's common stock
for settlement of litigation
with former management of
ServiceMax Tire & Auto
Centers, Inc. $ 39,000 $ 0 $ 0
=========== =========== ===========
Sale of investment in Madison
Avenue Propulsion Corporation
common stock in exchange for
a note receivable $ 50,000 $ 0 $ 0
=========== =========== ===========
</TABLE>
See accompanying notes.
F-6
<PAGE>
ACORN VENTURE CAPITAL CORPORATION
Notes to Financial Statements
1. ORGANIZATION AND SIGNIFICATION ACCOUNTING POLICIES:
Organization and Nature of Operations - Acorn Venture Capital
Corporation (the "Company") was incorporated under the laws of the
State of Delaware on September 8, 1983. The Company is a
nondiversified, closed-end management investment company and has
filed with the Securities and Exchange Commission ("SEC") a
notification of election to be treated as a "business development
company" as that term is defined in the Investment Company Act of
1940, as amended. The Company's primary investment objective has
been and continues to be, achievement of long-term capital
appreciation of its assets, rather than current income, by making
investments in, and providing managerial assistance to, emerging
and established companies that management believes offer
significant potential for growth.
Investments - The Company held three wholly owned subsidiaries
during 1995 - Recticon Enterprises, Inc., Automotive Industries,
Inc., ServiceMax Tire & Auto Centers, Inc. - which are neither
investment companies nor business development companies.
Accordingly, the accounts of such subsidiaries are not included
with those of the Company. These subsidiaries, net of a related
note and capital contribution payable, represent 100.0% and 82.6%
of the Company's net assets at December 31, 1995 and 1994,
respectively.
The Company's investments in these wholly owned subsidiaries, notes
receivable and other common stocks, warrants and convertible
debentures are restricted investments and are valued at fair value
as determined by the Board of Directors (see Notes 2, 3, 4 and 5).
The net change in unrealized appreciation (depreciation) of
investments, for the years ended December 31, 1995, 1994 and 1993
was $4,704,559, $(2,313,464) and $147,773, respectively, and
includes gross unrealized appreciation of $9,304,250, $0 and
$149,899, respectively, and gross unrealized depreciation of
$4,599,691, $2,313,464 and $2,126, respectively.
Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of gains, income and expenses
during the reporting period. Actual results could differ from
those estimates, particularly with respect to the fair value
determination of investments. Due to the inherent uncertainty of
the valuation of investments, those estimated values may differ
significantly from the values that would have been used had a ready
market for the securities existed, and the differences could be
material.
Income Taxes - The Company is not entitled to the special treatment
available to regulated investment companies and is taxed as a
regular corporation for federal and state income tax purposes. The
Company files a consolidated federal income tax return with its
three wholly owned subsidiaries.
F-7
<PAGE>
Cash and Cash Equivalents - For the purpose of the statements of
cash flows, the Company considers cash and liquid investments with
original maturities of three months or less to be cash and cash
equivalents. No interest or tax payments were made during 1995,
1994 and 1993.
Per Share Amounts - Per share amounts are computed using the
weighted average number of shares outstanding in each year.
Reclassifications - Certain 1994 and 1993 amounts have been
reclassified to conform to the 1995 presentation.
2. INVESTMENTS IN AND ADVANCES TO MAJORITY OWNED COMPANIES:
The aggregate wholly owned fair value of the Company's investments
in and advances to majority owned companies was $15,400,000 and
$9,024,305 as of December 31, 1995 and 1994, respectively. After a
reduction for a related note payable to one subsidiary (Recticon
Enterprises, Inc.) of $760,000 and a capital contribution payable
of $460,330 to another subsidiary (Automotive Industries, Inc.) at
December 31, 1995, the fair value of the Company's net investment
in and advances to majority owned companies aggregated $14,179,670
and $9,024,305 (100.0% and 86.8% of net assets) at December 31,
1995 and 1994, respectively. A summary of the Company's wholly
owned investments at December 31, 1995 and 1994, is as follows:
RECTICON ENTERPRISES, INC.
Value December 31
Number of Type of Issue and ------------------------
Shares Name of Issuer 1995 1994
- --------- ---------------------------- ----------- -----------
100 Common stock, Recticon
Enterprises, Inc., 100%
owned (88.1% and 30.7% of
net assets at December 31,
1995 and 1994, respectively) $12,500,000 $ 3,195,750
=========== ===========
In July 1993, the Company acquired Recticon Enterprises, Inc., a
Pennsylvania corporation ("Recticon"), by issuing 800,000 shares of
its Common Stock (the transaction was recorded at the net asset value
of the Company's Stock, which was $2.71 per share as of such date) in
exchange for all of the outstanding shares of stock of Recticon.
Such shares are restricted securities and are not registered under
either the Securities Act of 1933 or the Investment Company Act of
1940. Recticon manufactures monocrystalline silicone wafers which are
used in the microelectronics industry.
In 1993 and 1994, the Company made capital contributions to Recticon
totaling $1,027,750. During 1995, Recticon advanced funds and issued
a promissory note to the Company in the amount of $760,000, accruing
interest at 10-1/4% and due July 15, 1997 (see Note 7). Recticon paid
the Company management fees totaling $195,000 and $62,500 during 1995
and 1994.
F-8
<PAGE>
As of December 31, 1995, the Company has guaranteed a $750,000 line
of credit and term loans with an outstanding balance of $306,571 at
December 31, 1995 obtained by Recticon.
Considering a number of factors influencing the value of the
Company's investment in Recticon, including its current and expected
future operating performance, among other factors, the Board of
Directors approved increases in the valuation of the investment in
Recticon from $3,195,750 at December 31, 1994 to $12,500,000 at
December 31, 1995. Cost at December 31, 1995 and 1994 amounted to
$3,195,750.
The following selected financial data of Recticon has been derived
from the audited (by other auditors) financial statements as of
December 31, 1995 and 1994.
<TABLE>
<CAPTION>
Year Ended December 31
-------------------------
1995 1994
---------- -----------
<S> <C> <C>
Statement of Operations Data
Total net sales $ 6,491,505 $ 4,249,405
Total cost of goods sold 4,670,714 3,297,583
----------- ------------
Gross margin 1,820,791 951,822
Operating expenses 835,525 647,792
Management fees to parent
company 195,000 62,500
State income tax expense
(benefit) 103,328 (28,777)
----------- ------------
Net Income $ 686,938 $ 270,307
=========== ============
Balance Sheet Data
Total assets $ 5,131,918 $ 2,056,633
=========== ============
Total liabilities $ 3,375,979 $ 987,632
Stockholders' equity 1,755,939 1,069,001
----------- ------------
$ 5,131,918 $ 2,056,633
=========== ============
</TABLE>
AUTOMOTIVE INDUSTRIES, INC.
Value December 31
Number of Type of Issue and ------------------------
Shares Name of Issuer 1995 1994
- --------- ---------------------------- ----------- -----------
142 Common stock, Automotive
Industries, Inc., 100% owned
(20.4% and 27.9% of net
assets at December 31, 1995
and 1994, respectively) $ 2,900,000 $ 2,900,000
=========== ===========
F-9
<PAGE>
On December 22, 1993, the Company acquired Automotive Industries,
Inc., a Delaware corporation ("Automotive"), by purchasing 100% of
the outstanding common stock of Automotive for $2,400,000. Such
shares are restricted securities and are not registered under either
the Securities Act of 1933 or the Investment Company Act of 1940.
Through December 31, 1995, the Company has made additional
contributions to Automotive totaling $1,177,335. Automotive owns and
operates full-service automotive retail centers in northern Florida
and southeast Georgia. At December 31, 1995 and 1994, the Board of
Directors valued the investment in Automotive at $2,900,000. Cost at
December 31, 1995 and 1994 amounted to $3,577,335 and $2,900,000.
During 1995 and 1994, Automotive declared and paid dividends totaling
$447,500 and $75,000.
The Company's Board of Directors approved capital contributions of
$677,335 for 1995 which was recorded as an unrealized loss in 1995
due to poor operating performance of Automotive in 1995. $460,330 of
this contribution was paid in 1996.
The following selected financial data of Automotive has been derived
from its 1995 and 1994 financial statements.
<TABLE>
<CAPTION>
(Unaudited) (Audited)
1995 1994
---------- -----------
<S> <C> <C>
Statement of Operations Data
Total net sales $19,307,943 $19,031,685
Total cost of goods sold 8,659,918 9,460,907
------------ -----------
Gross margin 10,648,025 9,570,778
Total expenses 12,158,711 9,540,528
------------ -----------
Net (loss) income $(1,510,686) $ 30,250
============ ===========
Balance Sheet Data
Total assets $ 6,251,413 $ 6,566,677
============ ===========
Total current liabilities $ 3,570,915 $ 2,583,673
Long term debt 1,106,099 1,127,754
Stockholders' equity 1,574,399 2,855,250
------------ -----------
$ 6,251,413 $ 6,566,677
============ ===========
</TABLE>
During 1995, Automotive wrote off approximately $1.4 million of notes
receivable and advances to ServiceMax that were deemed uncollectible.
An audit of Automotive's 1995 financial statements is currently in
progress.
F-10
<PAGE>
SERVICEMAX TIRE & AUTO CENTERS, INC.
Value December 31
Number of Type of Issue and -----------------------
Shares Name of Issuer 1995 1994
- --------- ---------------------------- ----------- ----------
23,210 Common Stock, ServiceMax
Tire & Auto Centers, Inc.,
100% owned (0% and 24.1% of
net assets at December 31,
1995 and 1994, respectively) $ 0 $2,500,000
========== ==========
The investment in ServiceMax Tire & Auto Centers, Inc. ("ServiceMax")
was made on June 1, 1992. ServiceMax operates tire and service
facilities at gas station and convenience store locations in
Michigan. The Company made an original investment of $1,000,000 in
exchange for 75% of 7,500 shares of ServiceMax. Through December 31,
1993, the Company contributed an additional $2,179,279 to ServiceMax,
in exchange for an additional 9,900 shares of common stock.
In March 1994, the Company purchased 580 shares of ServiceMax common
stock from a member of ServiceMax's management (representing a 2.5%
equity interest in ServiceMax) in exchange for 25,000 restricted
shares of the Company's common stock. The Board of Directors has
assigned a value of $2.54 per share to the 25,000 restricted shares
issued. In April 1994, the Company reached a settlement with former
management pursuant to which Acorn issued 150,000 restricted shares
of the Company's common stock in exchange for 5,230 ServiceMax shares
held by former management, giving the Company a 100% ownership
interest in ServiceMax. Such shares are restricted securities and are
not registered under either the Securities Act of 1933 or the
Investment Company Act of 1940. The Board of Directors has assigned
a value of $2.54 per share to the 150,000 restricted shares issued.
Also, as part of the settlement the Company purchased certain notes
payable totaling $68,229, which it contributed to the capital of
ServiceMax.
ServiceMax declared and paid the Company dividends totaling $37,500
during 1994. As ServiceMax had an accumulated deficit at the time of
the dividend declarations, these dividends were a return of capital
and consequently were deducted from the Company's investment in
ServiceMax.
During 1995 and 1994, the Company made an additional capital
contributions aggregating $1,200,000 and $764,994, respectively. As
of December 31, 1995, the Company's investment in ServiceMax amounted
to approximately $5,619,503.
As of December 31, 1995, the Board of Directors reduced its valuation
of ServiceMax to zero, due to continued operating losses and a
significant liability and the uncertainty of successfully seeking
indemnification for any or all of the liability from applicable third
parties.
F-11
<PAGE>
<TABLE>
<CAPTION>
MADISON AVENUE PROPULSION CORPORATION
Number of
Shares or
Face Value
December 31,
1994 (None at Value
December 31, December 31
1995) Type of Issue and Name of Issuer 1994
- -------------- ---------------------------------- ------------
<S> <C> <C>
80 Common Stock, Madison Avenue
Propulsion Corporation $ 40,000
$ 372,400 Notes receivable, 8%, principal
and interest due on September 30,
1995, including accrued interest
of $16,155 388,555
----------
Total investment (4.1% of net
assets at December 31, 1994) $ 428,555
==========
</TABLE>
On March 3, 1994, the Company invested $40,000 in and loaned $110,000
to Madison Avenue Propulsion Corporation ("Madison"). Madison was a
start-up company that, through a subsidiary, manufactured amusement
rides for use by theme parks and carnivals. During 1994, the Company
loaned an additional $262,400 to Madison.
During 1995, the notes outstanding and accrued interest were
consolidated into a new note. The Company subsequently sold its
interest in the Madison stock in exchange for a $50,000 note
receivable and repayment of outstanding principal and accrued
interest, resulting in a realized gain of $10,000.
3. NOTES RECEIVABLE:
<TABLE>
<CAPTION>
Face Value
December 31 Value December 31,
- ---------------------- Type of Issue and ---------------------
1995 1994 Name of Issuer 1995 1994
- ---------- ---------- ---------------------------- ---------- ----------
Restricted:
<S> <C> <C> <C> <C>
$ 500,000 $ 500,000 Note receivable from Digital
Products Corporation, 10%,
subordinated convertible
note, principal due on
November 22, 1996, interest
due semi-annually commenc-
ing May 22, 1994 $ 0 $375,000
1,212,017 1,212,017 Note receivable from Proexe
Corporation, 5%, principal
due no later than October
1, 2001 pursuant to defined
prepayment terms, interest
due monthly 0 0
</TABLE>
F-12
<PAGE>
3. NOTES RECEIVABLE, Continued:
<TABLE>
<CAPTION>
Face Value
December 31 Value December 31,
- ---------------------- Type of Issue and ---------------------
1995 1994 Name of Issuer 1995 1994
- ---------- ---------- ---------------------------- ---------- ----------
<S> <C> <C> <C> <C>
$100,000 $100,000 Note receivable from
Carburetion Labs
International, Inc. 8%,
promissory note, principal
due on April 28, 1994,
interest due monthly commenc-
ing on August 1, 1993 0 0
5,000 5,000 Note receivable from
Carburetion Labs
International, Inc., 8%,
promissory note, principal
due on demand, interest
due on the earlier of
demand or quarterly
commencing on July 1,
1993 0 0
------- --------
(0% and 3.7% of net
assets at December 31,
1995 and 1994,
respectively) $ 0 $375,000
======= ========
</TABLE>
In November 1993, the Company loaned Digital Products Corporation
("Digital") $500,000 under the terms of a subordinated convertible
note of the same date. The note is due on November 22, 1996, and
interest is due semi-annually commencing on May 22, 1994. The note is
convertible at any time prior to repayment of the note into 333,333
common shares of Digital. In connection with the Company's restricted
loan at Digital, the Company received 750,000 restricted warrants
each entitling the holder to purchase 1 common share, exercisable at
$2.00 per share through November 22, 1996 (see Note 4). The Board of
Directors has valued the note at zero and $375,000, plus accrued
interest at December 31, 1995 and 1994, respectively.
In 1992, the Company incorporated AVCC, Inc. ("AVCC"), as a wholly
owned subsidiary, for the purpose of purchasing 100% of the stock of
Data Access Systems, Inc. ("DASI"). DASI was in the business of
producing, selling and providing support for multi-host/multi-vendor
computer workstations. In 1992, the Company made investments in and
advances to AVCC totaling $500,000. In September 1993, AVCC merged
into DASI. Through 1993, the Company loaned $675,000 to DASI. As of
December 31, 1993, the Company contributed the outstanding principal
of $675,000 and accrued interest balances of approximately $12,000 on
the notes to DASI, as additional paid-in capital. During 1994, the
Company contributed an additional $25,000 to DASI. In October 1994,
the Company transferred its ownership interest in the investment in
DASI in exchange for a $1,212,017, 5% promissory note from the buyer,
Proexe Corporation, an entity owned by an officer of DASI. The note
is due no later than October 1, 2001, pursuant to prepayment terms
related to the subsequent operating performance or resale of DASI.
Based on the continued poor operating results of DASI the Board
determined it was probable that no amounts would be collected on the
note and therefore reduced the carrying value of the note to zero as
of December 31, 1994. As the decline in value of this note is deemed
by the Board of Directors to be permanent impairment, the Company has
recorded a $1,212,017 realized loss on this note in 1994. During
1994, DASI paid the Company management fees totaling $25,000. During
1995, a payment of $20,000 was received and recorded as a realized
gain.
F-13
<PAGE>
In April 1993, the Company loaned Carburetion Labs International,
Inc. ("Carburetion") $5,000 under the terms of a promissory note. The
note is due on demand, and interest is due on the earlier of demand
or quarterly commencing on July 1, 1993. On April 28, 1993, the
Company loaned Carburetion $100,000 under the terms of a note and
warrant. At December 31, 1994, the Board established a reserve and an
unrealized loss of $105,000. At December 31, 1995, it was determined
that these amounts were uncollectible and the notes were written off
and a realized loss was recorded for the $105,000 notes receivable
and related accrued interest of $14,051.
4. OTHER COMMON STOCK AND WARRANTS:
<TABLE>
<CAPTION>
Number of Shares
December 31 Value December 31,
- ---------------------- Type of Issue and ---------------------
1995 1994 Name of Issuer 1995 1994
- ---------- ---------- ---------------------------- ---------- ----------
Common stock-restricted:
<S> <C> <C> <C> <C>
49,565 49,565 Amerinex Artificial
Intelligence, Inc. $ 9,913 $ 9,913
24 0 Cardiac Control Systems,
Inc. 68 0
Warrants-restricted:
30,000 30,000 Aqua Care Systems, Inc.
each entitling the
holders to purchase
1 common share at
$3 per share, exer-
cisable through April
17, 1997 3,000 3,000
750,000 750,000 Digital Products
Corporation, each
entitling the holder
to purchase 1 common
share at $2.00 per
share through November
22, 1996 (see Note 3) 0 0
-------- --------
(.09% and .12% of net
assets at December 31,
1995 and 1994,
respectively) $ 12,981 $ 12,913
======== ========
</TABLE>
F-14
<PAGE>
The investment in Amerinex Artificial Intelligence, Inc. ("AAII") is
restricted as to sale. The Company held shares at December 31, 1995 and 1994
which the Board of Directors valued at $.20 per share or $9,913. There is no
quoted market for AAII stock, and it has not paid any cash dividends. The
investment in Cardiac Control Systems, Inc. was received in connection with
the redemption of a convertible debenture (see Note 5).
5. CONVERTIBLE DEBENTURE:
Face Value
December 31 Value December 31,
- ---------------------- Type of Issue and ---------------------
1995 1994 Name of Issuer 1995 1994
- ---------- ---------- ---------------------------- ---------- ----------
Restricted:
$ 0 $100,000 Cardiac Control Systems, Inc.,
5%, principal due on October
31, 1999 convertible into
one share of Cardiac's
restricted common stock for
each $2.80 of outstanding
principal (0% and 1% of net
assets at December 31, 1995
and 1994, respectively) $ 0 $100,000
======== ========
On October 17, 1994, the Company purchased, in a private placement, a 5%
convertible debenture from Cardiac Control Systems, Inc. ("Cardiac") for
$100,000. The debenture was redeemed on April 5, 1995. As a result 24
shares of stock were issued in lieu of accrued interest of $68 (see Note
4).
6. U.S. TREASURY BILLS:
<TABLE>
<CAPTION>
Value December 31
Face Type of Issue and --------------------
Value Name of Issuer 1995 1994
- --------- ---------------------------- ----------- -----------
<S> <C> <C> <C>
$ 200,000 U.S. Treasury bill, 5.51% due
February 8, 1996 $ 199,093 $ 0
300,000 U.S. Treasury bill, 5.21% due
February 2, 1995 0 298,674
300,000 U.S. Treasury bill, 5.57% due
April 18, 1995 0 295,017
--------- ---------
Total U.S. Treasury Bills
(1.4% at 5.7% of net
assets at December 31,
1995 and 1994) $ 199,093 $ 593,691
========= =========
</TABLE>
7. NOTE PAYABLE:
The $760,000 note payable to Recticon at December 31, 1995 bears interest
at 10.25% with principal and interest due on July 15, 1997.
F-15
<PAGE>
8. INCOME TAXES:
No provision for income taxes is required for 1994 or 1993 principally as
a result of net operating losses and loss carryforwards. Deferred income
taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Deferred tax
assets recognized must be reduced by a valuation allowance to the extent
it is more likely than not the benefits may not be realized. As of
December 31, 1995 and 1994, the significant components of the Company's
deferred income taxes are as follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Deferred tax assets (liabilities)
Net operating loss carryforwards $ 507,000 $ 262,000
Unrealized appreciation on
investments (1,157,000) 1,134,000
------------ ------------
Total deferred tax assets
(liabilities) (650,000) 1,396,000
Valuation allowance 0 (1,396,000)
------------ ------------
Net deferred tax
(liability) asset $ (650,000) $ 0
============ ============
</TABLE>
The Company files a consolidated tax return with its wholly owned
subsidiaries. For income tax purposes, at December 31, 1995, the Company
had a consolidated net operating loss carryforward of approximately
$1,050,000 that begins to expire in 2006.
The reason for the differences between the provision for income taxes and
the amount which results from applying the federal statutory tax rate to
income (loss) before income taxes are as follows:
<TABLE>
<CAPTION>
Year Ended December 31
------------------------------------
1995 1994 1993
<S> <C> <C> <C>
Income tax (benefit) expense
at statutory rate $ 1,570,000 $(1,293,830) $ 32,106
Reversal of valuation allowance (1,396,000) 0 0
Limitations on recognition of
deferred taxes relating to
net unrealized and net
operating losses 0 1,293,830 0
Loss carryforward 0 0 (32,106)
State income taxes and other 476,000 0 0
------------ ----------- -----------
$ 650,000 $ 0 $ 0
=========== =========== ==========
</TABLE>
9. COMMON STOCK:
In December 1993, the Company issued 2,000,000 shares at $2.75 per
share in a public stock offering and the Company received gross
proceeds of $5,500,000 less commissions, expenses and costs of
approximately $906,000 which resulted in net proceeds of approximately
$4,594,000.
F-16
<PAGE>
The Company also entered into a three-year consulting agreement, to
retain the underwriters as a financial consultant after the close of
the 1993 public offering. The fee for the agreement was $200,000, and
was paid in full upon the consummation of the 1993 public offering.
Approximately $131,000 of the fee was included in prepaid expense at
December 31, 1994.
The following is a summary of the common stock transactions of the
Company.
<TABLE>
<CAPTION>
Common Stock
--------------------
Shares Amount Capital Stock Total
--------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C>
Balance December
31, 1992 2,613,906 $ 26,139 $ 6,952,184 $ 0 $ 6,978,323
1993 offering proceeds
(net of commissions
and related expenses
of $605,000) 2,000,000 20,000 4,875,000 0 4,895,000
1993 offering costs 0 0 (301,278) 0 (301,278)
Issuance of Common
Stock at the
Company's net
asset value per
share of $2.71
to purchase
Recticon note
2) 800,000 8,000 2,160,000 0 2,168,000
--------- -------- ----------- -------- ------------
Net increase 2,800,000 28,000 6,733,722 0 6,761,722
--------- -------- ----------- -------- ------------
Balance of December
31, 1993 5,413,906 54,139 13,685,906 0 13,740,045
Issuance of Common
Stock at the
Company's net asset
value per share of
$2.54 in exchange
for 5,810 shares of
ServiceMax Tire &
Auto Centers, Inc.
(Note 2) 175,000 1,750 442,750 0 444,500
--------- -------- ----------- --------- ------------
Balance at December
31, 1994 5,588,906 55,889 14,128,656 0 14,184,545
Receipt of 50,000
per settlement
agreement with
former management
of ServiceMax Tire
& Auto Centers,
Inc. 0 0 0 (39,000) (39,000)
--------- -------- ----------- --------- ------------
Balance at December
31, 1995 5,588,906 $ 55,889 $14,128,656 $(39,000) $14,145,545
========= ======== =========== ========= ============
</TABLE>
10. RELATED PARTY TRANSACTIONS:
During 1995, 1994 and 1993, the Company paid a law firm, of which the
Company's co-chairman is of counsel, $27,692, $74,838 and $104,303,
respectively, for services rendered including reimbursement of
expenses.
Effective February 20, 1995, the Company entered into an consulting
agreement with a board member, who is also a shareholder of the
Company. During 1995, the Company paid $166,628 for consulting services
rendered including reimbursement of expenses. Effective November 19,
1995, the Board of Directors approved new officers.
F-17
<PAGE>
Effective October 3, 1994, the Board of Directors elected the president
of Automotive as a vice president of the Company. The vice
president is also a shareholder of the Company. During 1995, 1994 and
1993 this vice president received an annual salary of $216,000,
$214,000 and $227,000, respectively, from Automotive. In addition,
this vice president has an outstanding loan payable to ServiceMax at
December 31, 1994 of $60,000, which has been forgiven by ServiceMax as
of December 31, 1995.
Effective October 3, 1994, the Board of Directors elected the president
of Recticon as a vice president of the Company. The vice president is
also a shareholder of the Company. During 1995, 1994, and 1993 this
vice president received an aggregate annual salary of $171,000,
$194,000 and $215,000, respectively, from Recticon and DASI, a former
investee (see Note 3), but received no compensation from the Company.
11. STOCK OPTIONS:
The Company has issued stock options to various officers of the
Company. The stock options were issued at fair market value as of the
date of grant and have a term of ten years from date of grant. The
following is a summary of the stock options outstanding:
<TABLE>
<CAPTION>
Number Exercise
of Options Price
---------- ----------
<S> <C> <C>
Options outstanding
January 1, 1993 190,000 $ 3.375
Options granted 450,000 1.84-2.00
Options cancelled/surrendered 0 -
Options expired 0 -
-------- -----------
Balance December 31, 1993 640,000 1.84-3.375
Options granted 150,000 1.16
Options cancelled/surrendered 0 -
Options exercised 0 -
-------- -----------
Balance December 31, 1994 790,000 1.16-3.375
Options granted 150,000 .875
Options cancelled/surrendered (40,000) (3.375)
Options exercised 0 -
-------- -----------
Balance December 31, 1995
(700,000 shares exercisable) 900,000 $.875-3.375
</TABLE>
100,000 of the options issued in 1995 are not exercisable until
February 15, 1996.
Effective November 2, 1994, the Board of Directors amended the
outstanding option agreements whereby each outstanding option can be
exercised at the fair value of the Company's common stock on November
22, 1994, ($0.5625 per share), if a "change in control" of the Company,
as defined in the option agreements, occurs. Assuming these shares were
exercised, the earnings per share at December 31, 1995 would have been
$.59 per share.
As of December 31, 1995 no options had been exercised.
F-18
<PAGE>
12. FINANCIAL INSTRUMENTS:
Financial instruments of the Company include investments and cash and
cash equivalents and a related note payable which are reported in the
1995 financial statement at their estimated fair value.
Financial instruments that subject the Company to concentrations of
credit risk are cash and cash equivalents, as well as indirectly the
assets and liabilities of the Company's majority owned companies. In
management's opinion, there are no significant concentrations of credit
risk at December 31, 1995.
F-19
<PAGE>
ITEM 8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
- ------------------------------------------------------
As a result of the Company advising Ernst & Young LLP ("E&Y") that
the Company may be asserting certain claims with respect to the
performance of E&Y's duties as auditor of one of the Company's
portfolio companies, E&Y, by letter dated December 28, 1995 (and
received on January 2, 1996), resigned, stating that under applicable
professional standards, it was no longer independent with respect to
the Company. Pursuant to a recommendation of the Company's Audit
Committee, the Board on January 2, 1996, selected and retained the firm
of Coopers & Lybrand L.L.P. to act as its independent accountants for
the 1995 fiscal year.
E&Y had been retained as the Company's independent public
accountants for more than the past two fiscal years. For the last two
fiscal years, E&Y's reports on the Company's financial statements for
the past two fiscal years did not contain an adverse opinion or a
disclaimer of opinion nor were they qualified or modified as to
uncertainty, audit scope or accounting principles. However, there was
an explanatory paragraph in each report relating to the valuation of
investments being based on the best estimate of the Board in the
absence of readily ascertainable market value. In connection with the
audits of the Company's financial statements for each of the two fiscal
years ended as of December 31, 1994, and in the subsequent interim
period, there were no disagreements with E&Y on any matters of
accounting principles or practices, financial statement disclosure or
auditing scope or procedure, which if not resolved to the satisfaction
of E&Y would have caused E&Y to make reference to the matter in their
report on the Company's financial statements for such periods.
Reference is made to the Company's Current Report on Form 8-K, dated
January 2, 1996, filed with the Commission on January 5, 1996.
PART III
--------
ITEM 9. Directors, Executive Officers, Promoters and
Control Persons
- ----------------------------------------------------
The following is a list (along with certain biographical
information) of the executive officers and directors of the Company.
All directors of the Company are serving a current term of office which
continues until the next annual meeting of stockholders, and all
officers are serving a current term of office which continues until the
next annual meeting of directors:
<TABLE>
<CAPTION>
Year of
Election
as
Name and Age Director Position
- ------------- --------- ---------------------
(As of 3/1/96)
<S> <C> <C>
Bert Sager*(1)(2) 1983 Co-Chairman of the Board
(70) and Director
Stephen A. Ollendorff* 1983 Chairman of the Board,
(57) (1)(2) Chief Executive Officer,
Secretary and Director
Edward N. Epstein* 1995 President and Chief
(55) (1)(2) Operating Officer; Director
Larry V. Unterbrink* 1985(3) Treasurer
(61)
Paula Berliner* 1990 Vice President; Director
(52) (1)(2)
Orland M. Wolford* N/A Vice President
(48)
Mark Auerbach(1)(4)(5) 1995 Director
(56)
Ronald J. Manganiello 1995 Director
(46) (4)
Paul C. Meyer(4) 1990 Director
(48)
Joel J. Silver(5) 1983 Director
(59)
J. Earl Templeton 1983 Director
(80) (5)
Kenneth I. Sawyer(2) 1992 Director
(50)
______________
* Indicates "interested person" of the Company within the meaning of
the 1940 Act.
(1) Member of the Executive Committee
(2) Member of Nominating Committee
(3) Mr. Unterbrink was a member of the Board from
1985 until February 1995.
(4) Member of the Audit Committee
(5) Member of Stock Option and Compensation Committee
</TABLE>
______________
BERT SAGER has been Co-Chairman of the Board of the Company since
November 1995 and was Chairman from June 1989 to that time. Prior
thereto, he was President since the Company's inception and until May
1989. Mr. Sager has been a private investor for more than five years
and has been a practicing attorney since 1949. He is a director of
Computer Products, Inc. ("CPI"), a publicly-traded manufacturer of
standardized electronic products, of Boca Raton, Florida; and Windmere
Corporation, a publicly-traded Florida-based manufacturer of personal
care products.
STEPHEN A. OLLENDORFF has been Chief Executive Officer of the
Company since September 1992, Chairman of the Board since November
1995, President of the Company from June 1989 until November 1995, and
Secretary since the Company's inception. He served as Vice President
from the Company's inception until his election as President. Mr.
Ollendorff has been of counsel to the law firm of Hertzog, Calamari &
Gleason since December 1990. Mr. Ollendorff, as an individual and/or
together with partners in his law firm, invested in various real estate
enterprises and other private companies. Mr. Ollendorff also serves as
a director of CPI.
EDWARD N. EPSTEIN was elected President and Chief Operating
Officer of the Company in November 1995. For more than the past five
years, has been the principal of Edward N. Epstein & Assoc., a
consulting firm specializing in corporate structure and management.
LARRY V. UNTERBRINK, Treasurer of the Company since February 1990,
is a private investor residing in Florida. Mr. Unterbrink had been,
from May 1982 to December 1994, President and Treasurer of Seahorse
Ltd., a leasing and publishing company.
PAULA BERLINER has been a Vice President of the Company since June
1992 and, since May 1990, has been a private investor residing in
Florida. Prior to May 1990, Ms. Berliner was involved as a principal
or executive officer of a custom fabricator of window blinds and shades
company located in Florida. She is presently a director of the Family
Bank of Hallandale located in Florida.
ORLAND M. WOLFORD has been a Vice President of the Company since
October 1994. For more than the past five years, Mr. Wolford has been
the President and Chief Executive Officer of Automotive. In September
1989, Automotive and its subsidiaries filed a petition pursuant to
Chapter 11 of the U.S. Bankruptcy Code. On February 8, 1991, the
Bankruptcy Court's Order confirming debtors' reorganization plan was
filed and Automotive was discharged from such Chapter 11 proceedings.
MARK AUERBACH, since June 1993, has been Senior Vice President and
Chief Financial Officer of Central Lewmar L.P., a distributor of fine
papers. From August 1992 to June 1993, Mr. Auerbach was a partner of
Marron Capital L.P., an investment banking firm. From July 1990 to
August 1992, he was President, Chief Executive Officer and Director of
Implant Technology Inc., a manufacturer of artificial hips and knees.
Mr. Auerbach is currently a director of Pharmaceutical Resources, Inc.,
a New York Stock Exchange listed company, the manufacturer of generic
drugs, and a director and Chairman of the Board of Oakhurst Company,
Inc., a publicly-traded holding company, whose subsidiaries operate
automotive after-market distributors.
RONALD J. MANGANIELLO has been a partner in the merchant banking
firm of New Canaan Capital LLC since January 1996. For more than the
past five years until January 1996, Mr. Manganiello was Chairman and
Chief Executive Officer of Hanger Orthopedic Group, Inc., a publicly-
traded provider of patient care services and products for orthotic and
prosthetic rehabilitation. He is currently a director of Hanger
Orthopedic Group, Inc.
PAUL C. MEYER Since January 1994, Mr. Meyer has held various
executive positions at Viacom New Media ("Viacom"), a publisher and
distributor of multimedia products and a division of Viacom
International, Inc., and is presently Executive Vice President and
General Manager-New York. From October 1991 through October 1994, he
was President of Paul C. Meyer & Associates, Inc., a financial
consulting firm specializing in financial and operational restructuring
of companies. Mr. Meyer has also been a financial consultant to
Automotive Industries, Inc. since September 1989. From February 1990
until December 1991, he was President of Superior Toy & Manufacturing
Company.
JOEL J. SILVER, since December 1994, has been president, chief
executive officer and a director of International Cutlery, Ltd., a
publicly-traded specialty gift store operation. Mr. Silver co-founded
CW Acquisitions, Inc. in 1990 and served from its inception as a
director and until 1993, as senior executive vice president. In June
1993, Mr. Silver was appointed CW Acquisition, Inc.'s co-chairman,
president and chief executive officer. Mr. Silver was also a director,
president, treasurer and secretary of Hoffritz Holding Company, Inc.
and a director and senior executive vice president of each of Hoffritz
For Cutlery, Inc. and Edwin Jay, Inc., which positions he held for
approximately 19 years. In August 1994, certain creditors of CW
Acquisitions, Inc. and the three Hoffritz entities filed involuntary
petitions in the Court pursuant to Chapter 11 of the U.S. Bankruptcy
Code, which petitions on September 28, 1994, placed the companies into
Chapter 11 reorganization proceedings. Mr. Silver is a director of
Claire's Stores, Inc., a New York Stock Exchange listed company,
located in Pembroke Pines, Florida.
J. EARL TEMPLETON has been a retired executive for more than the
past five years. Mr. Templeton was employed as an Executive Vice
President of CPI and Corporate Vice President and Group Vice President
of Illinois Tool Works, Inc. He is currently a director of CPI.
KENNETH I. SAWYER is Chairman of the Board, President and Chief
Executive Officer of Pharmaceutical Resources, Inc., a New York Stock
Exchange listed company ("PRI"), since August 1991. For more than five
years prior thereto, Mr. Sawyer was Chairman of the Board, President
and Chief Executive Officer of Par Pharmaceutical, Inc., a wholly-owned
subsidiary of PRI and the manufacturer of generic drugs.
There are no family relationships between any executive officers
or directors of the Company.
ITEM 10. Executive Compensation
- --------------------------------
Summary Compensation Table
- --------------------------
The following table sets forth information for the fiscal years
ended December 31, 1995, December 31, 1994 and December 31, 1993,
respectively, respecting compensation earned by the Chief Executive
Officer of the Company and the only other executive officer (whose
salary and bonus earned in Fiscal 1995 exceeded $100,000) of the
Company serving at the end of Fiscal 1995 (the "Named Executives").
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
-------------------------------- ------------
Securities
Name and Principal Underlying
Position Year Salary($) Bonus($) Options(#)(1)
- ------------------- ---- --------- -------- -------------
<S> <C> <C> <C> <C>
Stephen A. Ollendorff 1995 $250,000(2) - -
Chairman and Chief 1994 250,000(2) - -
Executive Officer 1993 162,796(3) - 260,000
Edward N. Epstein 1995 $122,500(4) $30,000 150,000
President and
Chief Operating
Officer
- -------------
(1) Represents options awarded under the 1991 Stock Option Plan.
(2) Mr. Ollendorff has voluntarily assumed responsibility for rent
and secretarial expenses relating to the New York office. Mr.
Ollendorff does not receive any fringe benefits from the
Company.
(3) Does not include approximately $25,000 paid to Mr. Ollendorff
in Fiscal 1993 by ServiceMax, a wholly-owned subsidiary of the
Company.
(4) This amount was paid to Mr. Epstein pursuant to his consulting
arrangement with the Company.
</TABLE>
The Company does not have any annuity, retirement, pension,
deferred or incentive compensation plan or arrangement under
which any executive officers are entitled to benefits, nor
does the Company have any long-term incentive plan pursuant to
which performance units or other forms of compensation are
paid. Executives who qualify are permitted to participate in
the Company's 1991 Stock Option Plan.
Stock Option Grants In Last Fiscal Year
- ---------------------------------------
The following table sets forth information concerning stock
options granted to the Named Executives during the fiscal year
ended December 31, 1995:
<TABLE>
<CAPTION>
No. of Percentage of
Securities Total Options
Underlying Granted to Exercise
Options Employees in Price Per Expiration
Name Granted(#) Fiscal Year(%) Share($) Date
- ----- ---------- -------------- --------- ----------
<S> <C> <C> <C> <C>
Stephen A. (1) - - -
Ollendorff
Edward N. 150,000 100 .875 11/23/05
Epstein
_____________
(1) On November 19, 1995, Mr. Ollendorff surrendered an aggregate of
40,000 stock options previously granted to him in prior years in
order to enable the Company to grant options to another executive.
</TABLE>
On November 22, 1994, the Stock Option and Compensation
Committee authorized the amendment to the Company's outstanding
stock options in order to deter a hostile takeover, whereby each
optionee would be given the opportunity to exercise his/her options
at the exercise price of $.5625 (equal to the "fair market value"
of the Company's common stock on November 22, 1994), in the event
of a "change of control." A "change of control" would occur in
the following circumstances: (i) the first purchase of shares of
equity securities of the Company pursuant to a tender offer or
exchange offer (other than an offer by the Company) for 25% or more
of the equity securities of the Company, which offer has not been
approved by the Board of the Company, (ii) a single purchaser or a
group of associated purchasers acquiring, without the approval or
consent of the Board of the Company, securities of the Company
representing 25% or more of the combined voting power of the
Company's then outstanding securities in one or a related series of
transactions, or (iii) in respect of an election of directors by
the Company's stockholders, the election of any or all of the
management's slate of directors being contested or opposed, whether
through a solicitation of proxies, or otherwise. As of April 1,
1996, no such "change of control" has occurred.
Year-End Option Values Table
- ----------------------------
The following table sets forth information at December 31, 1995
respecting exercisable and non-exercisable options held by the
Named Executives. During Fiscal 1995, the Named Executives did not
exercise any stock options. The table also includes the value of
"in-the-money" stock options which represents the spread between
the exercise prices of the existing stock options and the year-end
price of the Common Stock.
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised In-
Options Held the-Money Options
at December 31, 1995(1) Held at December 31, 1995(1)
------------------------- ----------------------------
Not Not
Name Exercisable Exercisable Exercisable Exercisable
- ---- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Stephen A.
Ollendorff 280,000(2) -0- $-0- $-0-
Edward N.
Epstein 50,000 100,000(3) $ 6,250 $12,500
________________
(1) Based upon the closing sales price of the Common Stock
on December 31, 1995 ($1.00).
(2) On November 19, 1995, Mr. Ollendorff surrendered an aggregate of 40,000
stock options previously granted to him in order to enable the Company
to grant options to another executive.
(3) These shares become exercisable on February 15, 1996.
</TABLE>
Compensation of Directors
- -------------------------
Effective December 1993, directors who are not executive
officers of the Company are compensated for their services by
payment of an annual retainer of $4,000, $500 for each Board
meeting attended in person by such director (excluding the four
regular quarterly Board meetings) and $250 for each committee
meeting attended in person by such director.
Paul C. Meyer, a director of the Company, reviews, on behalf of
the Board, the financial and operational viability of potential
portfolio companies at an annual compensation of $10,000, subject
to cost-of-living adjustments.
Employment Arrangements
- -----------------------
The Company entered into an employment agreement with Stephen A.
Ollendorff, effective October 31, 1991, for a minimum period of
three years. Prior to December 15, 1993, Mr. Ollendorff received
an annual compensation of $185,000, with one portfolio company,
ServiceMax, reimbursing the Company $37,500 per year for Mr.
Ollendorff's services ($21,875 received in 1993). Effective
December 15, 1993, pursuant to a new minimum three-year employment
agreement, Mr. Ollendorff receives annual compensation of $250,000,
subject to cost-of-living adjustments, from the Company, but
receives no additional amounts from any portfolio companies or
subsidiaries of the Company. On January 17, 1996, Mr. Ollendorff's
employment agreement was amended in order to clarify certain terms
and conditions, including the geographic location in which services
are provided, events of termination and his obligations with
respect to confidential information, non-solicitation of employees
and covenants not to compete. Mr. Ollendorff will devote such time
to the business and affairs of the Company as he believes is
necessary for the operations of the Company. In addition, Mr.
Ollendorff has voluntarily assumed responsibility for rent and
secretarial expenses relating to the Company's New York office.
Mr. Ollendorff receives no fringe benefits from the Company.
The Company entered into an employment agreement with Edward N.
Epstein, effective January 1, 1996, for a minimum period of three
years, for an annual compensation of $150,000, subject to cost-of-
living adjustments. Mr. Epstein will devote such time to the
business and affairs of the Company as he believes is necessary for
the operations of the Company. Prior to the execution of the
foregoing employment agreement, Mr. Epstein had been retained as a
consultant to the Company at the annual compensation of $120,000,
primarily devoted to reviewing the sales and marketing efforts of
Automotive and ServiceMax.
In addition, effective October 31, 1991, the Company entered
into the employment agreements, for a minimum three year period,
with the following officers. These agreements were amended in
January 1996 to clarify certain terms and conditions, including the
geographic location in which services are provided, events of
termination and obligations with respect to confidential
information, non-solicitation of employees and covenants not to
compete.
Bert Sager--$20,000 per year, subject to cost-of-living
adjustments, to devote such time to the business and affairs of the
Company as he deems necessary to fulfill his obligations as
Chairman of the Board. In February 1994, the Stock Option and
Compensation Committee increased Mr. Sager's annual salary to
$50,000 per year, subject to periodic review by the Committee.
Effective, April 1, 1995, the Stock Option and Compensation
Committee decreased Mr. Sager's annual salary to $20,000.
Larry V. Unterbrink--$20,000 per year, subject to cost-of-living
adjustments, to devote such time to the business and affairs of the
Company as he deems necessary to fulfill his obligations as
Treasurer.
Paula Berliner, Vice President of the Company since June 1992
and a director of the Company since September 1992, reviews, on
behalf of the Board, the financial and operational viability of
potential portfolio companies at an annual compensation of
approximately $22,300, subject to cost-of-living adjustments.
Payments From Portfolio Companies
- ---------------------------------
For Fiscal 1996, Automotive and Recticon have agreed to pay to
the Company, from operating cash flow, a monthly payment of $17,500
and $50,000, respectively.
During the year ended December 31, 1995, the Company received a
total of $182,500 in management and consulting fees, and a loan in
the amount of $760,000, from Recticon. In January, 1996, Recticon
paid a special cash dividend to the Company in the amount of
$250,000.
During the year ended December 31, 1995, the Company received a
total of $447,500 in cash dividends from Automotive.
ITEM 11. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
Security Ownership of Certain Beneficial Owners
- -----------------------------------------------
The following table sets forth, as of the close of business on
April 1, 1996, information as to those stockholders (other than
members of the Company's management), which are known by the
Company to beneficially own more than 5% of its outstanding Common
Stock (based solely upon filings by each of said holders with the
Commission on Schedule 13D of the 1934 Act:
<TABLE>
<CAPTION>
No. of Shares
Name and Address Beneficially Percentage
of Beneficial Owner Owned(1) of Class
- ------------------- ------------- ----------
<S> <C> <C>
Asset Value Fund 913,409 16.5%
Limited Partnership
376 Main Street
P.O. Box 74
Bedminster, NJ 07921
Herbert Berman 313,600 5.7%
405 Lexington Avenue
New York, NY 10174
_______________
(1) Beneficial ownership, as reported in the above table, has been
determined in accordance with Rule 13d-3 under the 1934 Act.
Unless otherwise indicated, beneficial ownership includes both
sole voting and sole dispositive power.
</TABLE>
Ownership by Management
- -----------------------
The following table sets forth, as of April 1, 1996, the
beneficial ownership of the Common Stock of the Company of (i) each
director (including the Named Executives) of the Company, and (ii)
all directors and executive officers of the Company as a group
(based upon information furnished by such persons). Under the
rules of the Commission, a person is deemed to be a beneficial
owner of a security if he has or shares the power to vote or direct
the voting of such security or the power to dispose or direct the
disposition of such security. Accordingly, more than one person
may be deemed to be a beneficial owner of the same securities. A
person is also deemed to be a beneficial owner of any securities of
which that person has the right to acquire beneficial ownership
within 60 days.
<TABLE>
<CAPTION>
No. of Shares
Name and Address Beneficially Percentage
of Beneficial Owner(1) Owned(2) of Class
- ---------------------- ------------- ----------
<S> <C> <C>
Bert Sager.............. 393,325(3)(4) 6.9%
Stephen A. Ollendorff... 1,647,246 27.6%
(4)(5)(6)
Edward N. Epstein....... 900,000(4)(5) 15.8%
Paula Berliner.......... 189,800(4)(7) 3.4%
Mark Auerbach........... - -
Ronald J. Manganiello... 153,500(8) 2.8%
Paul C. Meyer........... 17,330 *
Joel J. Silver.......... 3,000 *
J. Earl Templeton....... 2,000 *
Kenneth I. Sawyer....... - -
All directors and executive
officers as a group
(12 persons)........... 2,584,022(4) 41.1%
___________
* Less than 1%.
(1) The business address for purposes hereof of all of the
Company's directors and executive officers is in care of the
Company.
(2) Unless otherwise noted, the Company believes that all persons
in the table have sole voting and disposition power with
respect to all shares of Common Stock beneficially owned by
them.
(3) Does not include 41,825 shares owned by Marilyn Sager, his
wife, with respect to which he disclaims beneficial ownership.
(4) Includes the following shares that may be acquired upon the
exercise of options within 60 days of March , 1996: Mr.
Sager - 160,000; Mr. Ollendorff - 280,000; Mr. Epstein -
150,000; Ms. Berliner - 70,000; and all directors and
executive officers as a group (12 persons) - 750,000.
(5) Stephen A. Ollendorff has entered into an Irrevocable Proxy
and Voting Agreement With Respect to Election of Directors,
dated December 19, 1995, with Edward N. Epstein, with respect
to the 900,000 shares of Common Stock beneficially owned by
Mr. Epstein. Accordingly, Mr. Ollendorff's beneficial
ownership includes such shares. Other than as set forth, Mr.
Ollendorff disclaims beneficial ownership of such shares. See
"Certain Relationships and Related Transactions."
(6) Includes 1,000 shares owned of record by Bjorg Ollendorff, his
wife.
(7) Includes 27,500 shares owned of record by Warren Berliner, her
husband.
(8) Includes 18,500 shares owned of record by Lisa Manganiello,
his wife.
</TABLE>
ITEM 12. Certain Relationships and Related Transactions
- --------------------------------------------------------
Mr. Ollendorff, Chief Executive Officer of the Company, is of
counsel to Hertzog, Calamari & Gleason, general counsel to the
Company. Mr. Ollendorff has entered into an Irrevocable Proxy and
Voting Agreement With Respect to Election of Directors (the
"Proxy"), with Edward N. Epstein, with respect to the 900,000
shares of Common Stock beneficially owned by Mr. Epstein (the
"Stock"), commencing on December 19, 1995 and terminating on
December 31 of such year in which either party shall have given the
other party at least twelve (12) months' written notice thereof
prior to December 31 of such year; provided, that, notwithstanding
the foregoing the Proxy shall remain in full force and effect until
at least December 31, 1998. If any shares of the Stock covered by
the Proxy are sold to any other party, the Proxy as it relates to
such shares of Stock shall terminate immediately upon such sale.
Pursuant to the Proxy Mr. Ollendorff undertakes to vote the Stock,
as well as use his best efforts (including voting shares of stock
of the Company owned by him) for the election of the greater of (i)
two (2) directors or (ii) a number of directors equal to 22%
(rounded up to the next highest number) of the entire Board of
Directors, acceptable to Mr. Epstein.
ITEM 13. Exhibits and Reports on Form 8-K
- ------------------------------------------
(a) Exhibits:
3.1 Certificate of Incorporation - incorporated by reference to
Exhibit 1 to the Company's Registration Statement on Form N-2 (No.
2-88798) filed with the Commission on January 9, 1984.
3.2 Certificate of Amendment of Certificate of Incorporation,
dated November 14, 1986, as filed and recorded with the Secretary
of State of Delaware on November 26, 1986 - incorporated by
reference to Exhibit 3.2 of the Company's Annual Report on Form 10-
K for the fiscal year ended December 31, 1986.
3.3 By-laws, as amended, effective September 14, 1992 -
incorporated by reference to Exhibit 2 to the Company's
Registration Statement on Form N-2 (No. 33-52302) filed with the
Commission on September 23, 1992.
10.1 Employment Agreement dated August 31, 1993, between the
Company and Stephen A. Ollendorff - incorporated by reference to
Exhibit 10.2 to the Company's Registration Statement on Form N-2
(No. 33-69610) filed with the Commission on September 19, 1993.
10.2 Agreement dated October 31, 1991 between the Company and
Bert Sager - incorporated by reference to Exhibit 10.3 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1991.
10.3 Agreement dated October 31, 1991 between the Company and
Larry V. Unterbrink - incorporated by reference to Exhibit 10.3 to
the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1991.
10.4 Agreement between the Company and Paul C. Meyer &
Associates, Inc. dated October 31, 1991 - incorporated by reference
to Exhibit 10.6 to the Company's Registration Statement on Form N-2
(No. 33-52302) filed with the Commission on October 23, 1992.
10.5 1991 Stock Option Plan, as amended - incorporated by
reference to Exhibit 10.7 to the Company's Registration Statement
on Form N-2 (No. 33-52302) filed with the Commission on October 23,
1992.
10.6 Purchase and Settlement Agreement, dated as of April 8,
1994, by and among ServiceMax, ServiceMax Tire and Auto Centers of
Michigan, Inc., the Company, Stephen A. Ollendorff, Orland Wolford,
Bert Sager, Donald R. Nance, C. James Sabo, Richard A. Sabo and
Robert L. Sabo - incorporated by reference to Exhibit 10.7 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993.
10.7 Amendment No. 1 to Employment Agreement, dated as of
January 17, 1996, by and between the Company and Stephen A.
Ollendorff.
10.8 Employment Agreement, dated as of January 17, 1996, by and
between the Company and Edward N. Epstein.
10.9 Amendment No. 1 to Employment Agreement, dated as of
January 17, 1996, by and between the Company and Bert Sager.
10.10 Amendment No. 1 to Employment Agreement, dated as of
January 17, 1996, by and between the Company and Larry V.
Unterbrink.
10.11 Employment Agreement, dated as of January 17, 1996, by
and between the Company and Paula Berliner.
21 List of subsidiaries of the Company.
23 Consent of Ernst & Young LLP, independent auditors.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Company during the
quarter ending December 31, 1995.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ACORN VENTURE CAPITAL CORPORATION
(Registrant)
Dated: April 1, 1996 By: Stephen A. Ollendorff
-------------------------------
Stephen A. Ollendorff
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed by the following persons on behalf of
the Registrant in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
Stephen A. Ollendorff Chairman of the Board April 1, 1996
- ----------------------- and Chief Executive
Stephen A. Ollendorff Officer (Principal
Executive Officer);
Secretary and Director
Bert Sager
- ----------------------- Co-Chairman of the Board April 1, 1996
Bert Sager and Director
Edward N. Epstein
- ----------------------- President and Chief April 1, 1996
Edward N. Epstein Operating Officer;
Director
Larry V. Unterbrink
- ------------------------ Treasurer (Principal April 1, 1996
Larry V. Unterbrink Financial and Accounting
Officer)
Paula Berliner
- ------------------------ Vice President and April 1, 1996
Paula Berliner Director
Mark Auerbach
- ------------------------ Director April 1, 1996
Mark Auerbach
Ronald J. Manganiello
- ------------------------ Director April 1, 1996
Ronald J. Manganiello
Paul C. Meyer
- ------------------------ Director April 1, 1996
Paul C. Meyer
Kenneth I. Sawyer
- ------------------------ Director April 1, 1996
Kenneth I. Sawyer
Joel J. Silver
- ------------------------ Director April 1, 1996
Joel J. Silver
J. Earl Templeton
- ------------------------ Director April 1, 1996
J. Earl Templeton
EXHIBIT 10.7
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
AGREEMENT, dated as of January 17, 1996, by and
between Acorn Venture Capital Corporation, a Delaware
corporation ("Employer"), and Stephen A. Ollendorff
("Executive").
W I T N E S S E T H:
WHEREAS, Employer and Executive are parties to a
certain Employment Agreement (the "Employment Agreement"),
dated as of August 31, 1993; and
WHEREAS, each of Employer and Executive wish to
amend the Employment Agreement, to, among other things,
clarify the geographic location in which Executive is to
provide services pursuant to the Employment Agreement, and
the events of termination covered by Section 4.3(c) therein
and to confirm the obligations of the Executive with respect
to confidential information, non-solicitation of employees
and covenants not to compete, all as set forth herein.
NOW, THEREFORE, for good and valuable
consideration, the sufficiency of which is hereby
acknowledged by the parties hereto, and in consideration of
the mutual covenants contained herein, the parties hereto
hereby agree as follows:
1. Amendments of Employment Agreement. The
Employment Agreement is hereby amended by adding the
following provision, which shall become Section 1.3 of the
Employment Agreement:
"1.3 Location of Employment. Employer and
Executive agree that Executive shall provide the
services to be rendered by him hereunder
substantially in the New York City metropolitan
and Northern New Jersey areas. If Employer shall
require Executive to perform his services outside
of the above-mentioned areas, Executive may, at
his option, terminate this Agreement and, upon
such termination, be entitled to the compensation
provided by Section 4.3(c) hereof."
The Employment Agreement is hereby amended by
revising Section 4.3(c) as follows:
"(c) Termination Without Cause or By Breach by
Employer. In the event that Executive's
employment hereunder is terminated, by Employer or
Executive, for any reason other than (i) as a
result of death, disability or for cause, as set
forth in Sections 4.1(a), (b) and (c),
respectively, or (ii) as a result of Executive's
voluntary resignation, Executive will be paid his
Base Salary up to the last day of the Employment
Term and any bonuses which he had or may have
earned or accrued had he been employed through the
balance of the Employment Term, as payment in full
of all amounts due and owing by Employer to
Executive. Such amounts must be paid to Executive
in cash in full without offset for any reason
within ten (10) days following Employer's
declaration of termination of employment.
The Employment Agreement is hereby amended by
adding the following provision, which shall become Section
6.10 of the Employment Agreement:
"6.10 Expenses of Proceedings. If a party hereto
shall institute a legal action or arbitration
proceeding in connection with a breach or alleged
breach of the provisions of this Agreement by the
other party hereto, the party who/which shall
prevail in such action or proceeding shall be
reimbursed for all of his/its costs and expenses,
including attorney's fees, incurred in connection
with such action or proceeding."
The Employment Agreement is hereby amended by
adding the following provision, which shall become Section 7
of the Employment Agreement:
"7. Confidentiality and Nonsolicitation.
7.1 "Confidential Information" Defined.
"Confidential Information" means any and all
information (oral or written) relating to Employer
or any subsidiary thereof or any person
controlling, controlled by, or under common
control with Employer or any subsidiary or any of
their respective activities, including, but not
limited to, information relating to: technology,
research, test procedures and results, machinery
and equipment; manufacturing processes; financial
information; products; identity and description of
materials and services used; purchasing; costs;
pricing; customers and prospects; advertising,
promotion and marketing; and selling, servicing
and information pertaining to any governmental
investigation, except such information generally
in the public domain (such information not being
deemed to be in the public domain merely because
it is embraced by more general information which
is in the public domain), other than as a result
of a breach of the provisions of Section 7.2
hereof or otherwise known by Executive prior to
his employment by Employer.
7.2 Non-disclosure of Confidential Information.
Executive will not at any time (other than as may
be required or appropriate in connection with the
performance by him of his duties hereunder) use,
communicate, disclose or disseminate any
Confidential Information in any manner whatsoever
(except as may be required under legal process by
subpoena or other court order).
7.3 Certain Activities. Executive will not,
while employed by Employer and, unless terminated
without cause (as such term is defined in Section
4.1(c) hereof) by Employer or unless Executive
terminates his employment as a result of a breach
by Employer of its obligations hereunder, for a
period of one year following the effective date of
termination, hire, offer to hire, entice away or
in any other manner persuade or attempt to
persuade any officer, employee, lessor, lessee,
customer, prospective customer or supplier of
Employer or any of its subsidiaries to discontinue
or adversely alter his or its relationship with
Employer or any of its subsidiaries.
7.4 Non-Competition. Executive will not, while
employed by Employer, be employed by (whether as
an officer, director, employee or consultant), any
business which is in competition with the business
of any subsidiary of the Employer. Nothing herein
shall prohibit Executive or any law firm with
which he is associated from performing legal
services for any entity or person provided that
such legal services will not violate the legal
code of ethics.
7.5 Injunctive Relief. The parties hereby
acknowledge and agree that (a) Employer will be
irreparably injured in the event of a breach by
Executive of any of his obligations under this
Section 7; (b) monetary damages will not be an
adequate remedy for any such breach; (c) Employer
will be entitled to injunctive relief, in addition
to any other remedy which it may have, in the
event of any such breach, including, but not
limited to, termination of the Employment Term for
cause (as such term is defined in Section 4.1(c)
hereof); and (d) the existence of any claims which
Executive may have against Employer or any of its
subsidiaries, whether under this Agreement or
otherwise, will not be a defense to the
enforcement by Employer of any of its rights under
this Section 7.
7.6 Non-exclusivity and Survival. The covenants
of Executive contained in this Section 7 are in
addition to, and not in lieu of, any obligations
which Executive may have with respect to the
subject matter hereof, whether by contract, as a
matter of law or otherwise, and such covenants and
their enforceability will survive any termination
of the Employment Term by either party and any
investigation made with respect to the breach
thereof by Employer at any time."
2. Clarification of Employment Agreement. The
Employer and the Executive hereby each agrees and confirms
that Section 1.1 of the Employment Agreement will not have
been violated if the Executive is employed in the capacity
of Chairman of the Board (or Co-Chairman of the Board) and
Chief Executive Officer.
3. Applicable Law. This Agreement shall be
governed by and construed in accordance with the laws of the
State of Delaware, without giving effect to any choice of
law provisions thereof.
4. Binding Effect. This Agreement will inure to
the benefit of, and be binding upon, the parties hereto and
their respective heirs, legal representatives, permitted
assigns and successors (including any successors by merger,
consolidation and acquisition of all or a substantial
portion of the assets of Employer).
5. Effect on Employment Agreement. Except as
expressly amended hereby, the Employment Agreement shall
remain in full force and effect.
IN WITNESS WHEREOF, this Agreement has been
executed and delivered by the parties hereto as of the date
first above written.
ACORN VENTURE CAPITAL
CORPORATION
By: /s/ Bert Sager
------------------------
Bert Sager, Co-Chairman
Executive:
/s/ Stephen A. Ollendorff
---------------------------
STEPHEN A. OLLENDORFF
EXHIBIT 10.8
EMPLOYMENT AGREEMENT
AGREEMENT dated as of the 17th day of January, 1996,
between ACORN VENTURE CAPITAL CORPORATION, a Delaware corpo-
ration ("Employer"), and EDWARD N. EPSTEIN ("Executive").
W I T N E S E T H :
WHEREAS, Employer is desirous of employing Employee
as President and Chief Operating Officer for the period
provided for in this Agreement; and
WHEREAS, Employee is agreeable to such employment
under the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the covenants
herein contained, the parties hereto hereby agree as follows:
1. Employment.
1.1 General. Effective upon the commencement
of the Employment Term (as defined in Section 3 hereof),
Employer agrees to employ Executive in the capacity of
President and Chief Operating Officer or such other position
or positions as the Board of Directors of Employer (the
"Board") and Executive shall mutually agree upon. Executive
hereby accepts such employment, upon the terms and subject to
the conditions herein contained. Executive will perform and
carry out such duties and responsibilities as may be assigned
to him from time to time by Employer, including services to be
rendered to portfolio companies and subsidiaries of the
Employer.
1.2 Responsibilities. Executive hereby agrees
that during the Employment Term he will devote such business
time, and attention to the business and affairs of the
Employer as he believes, in good faith, is necessary for the
operation of the Employer.
1.3 Location of Employment. Employer and
Executive agree that Executive shall provide the services to
be rendered by him hereunder substantially in the New York
City metropolitan area and Connecticut. If Employer shall
require Executive to perform his services outside of the
above-mentioned areas, Executive may, at his option, terminate
this Agreement and, upon such termination, be entitled to the
compensation provided by Section 4.3(c) hereof.
2. Compensation.
2.1 Compensation. Subject to the terms and
conditions herein contained, Employer will pay to Executive,
and Executive will accept, for all services which may be
rendered by him pursuant to this Agreement the following
salary: during the Employment Term (as hereinafter defined),
$150,000 per year. Such payments shall be made to the extent
applicable, in conformity with the Investment Company Act of
1940. In addition, the annual payments shall be appropriately
and proportionately increased at the beginning of each
calendar year commencing with the second calendar year during
the Employment Term based upon the amount of the increase, if
any, in the composite Consumer Price Index published by the
United States Bureau of Labor Statistics as the same is in
effect on the date of this Agreement (the annual payments as
increased by the composite Consumer Price Index hereinafter
referred to as the "Base Salary").
2.2 Bonus. Executive was entitled to a bonus
of $30,000 for services rendered to the Employer in calendar
year 1995, payable November 30, 1995.
2.3 No Additional Compensation. The Executive
acknowledges that he is not entitled to receive any
remuneration for services to be rendered by him to any
subsidiaries or portfolio companies.
3. Term of Employment. The employment by Employer
of Executive pursuant hereto will commence effective January
1, 1996 and, subject to the provisions of Section 4, will
continue through the close of business on December 31, 1998,
provided, however, the term of this Agreement shall, after
December 31, 1998, be automatically extended on December 31 of
each calendar year thereafter by an additional period of one
year unless the Executive or Employer elects by written notice
to the other given not later than June 30 of such calendar
year that he or it does not want the term of this Agreement
extended (the foregoing hereinafter referred to as the
"Employment Term").
4. Premature Termination.
4.1 Events of Termination. Anything in this
Agreement contained to the contrary notwithstanding,
Executive's employment hereunder will terminate upon the
following terms and conditions:
(a) Death. Executive's employment hereunder
will terminate forthwith upon the death of
Executive.
(b) Disability. Executive's employment
hereunder will terminate, at the option of
Employer, in the event that Employer makes a good
faith determination that Executive is so disabled,
for mental or physical reasons, as to have been
unable to substantially perform his duties hereun-
der for an aggregate of 180 consecutive days during
any period of 12 consecutive months. The existence
of a disability will be determined by the Board of
Directors in consultation with a reputable,
licensed physician selected by Employer and
approved by Executive, and Executive will cooperate
in all reasonable respects to enable an examination
to be made by such physician.
(c) By Employer For Cause. Executive's em-
ployment hereunder will terminate, at the option of
Employer, in the event of Executive's proven
engagement in any conduct, action or behavior
constituting an act of moral turpitude (as deter-
mined by an independent counsel selected by the
Board, Executive having been given an opportunity
to rebut any such claim or charge) that has or may
reasonably be expected to have a material adverse
effect on the operations of Employer.
4.2 Notice. In the event of the termination
of Executive's employment pursuant to Section 4.1(b) and
4.1(c) not less than 10 days' prior written notice of such
termination will be given by the terminating party to the
other party, which notice will specify the effective date of
termination.
4.3 Payment Upon Premature Termination.
(a) Termination Upon Death or Disability. In
the event that Executive's employment hereun-
der is terminated pursuant to Section 4.1(a)
or 4.1(b), Executive will be paid all Base
Salary and his pro rata share of any bonuses
which he may have earned or accrued in connec-
tion with this Agreement or any bonus plan of
Employer for which he is eligible up to the
effective date of termination, as payment in
full of all amounts due and owing by Employer
to Executive.
(b) Termination by Employer For Cause. In the
event that Executive's employment hereunder is
terminated pursuant to Section 4.1(c) or
because of his voluntary resignation,
Executive will be paid his Base Salary up to
the effective date of termination as payment
in full of all amounts due and owing by Em-
ployer to Executive.
(c) Termination Without Cause or By Breach By
Employer. In the event that Executive's
employment hereunder is terminated by Employer
or Executive, for any reason other than (i) as
a result of death, disability or for cause, as
set forth in paragraphs 4.1(a), (b) and (c)
respectively, or (ii) as a result of
Executive's voluntary resignation, Executive
will be paid his Base Salary up to the last
day of the Employment Term and any bonuses
which he had or may have earned or accrued had
he been employed through the balance of the
Employment Term, as payment in full of all
amounts due and owing by Employer to
Executive. Such amounts must be paid to
Executive in cash in full without offset for
any reason within ten (10) days following
Employer's declaration of termination of
employment.
5. Confidentiality and Nonsolicitation.
5.1 "Confidential Information" Defined.
"Confidential Information" means any and all information (oral
or written) relating to Employer or any subsidiary thereof or
any person controlling, controlled by, or under common control
with Employer or any subsidiary or any of their respective
activities, including, but not limited to, information
relating to: technology, research, test procedures and
results, machinery and equipment; manufacturing processes;
financial information; products; identity and description of
materials and services used; purchasing; costs; pricing;
customers and prospects; advertising, promotion and marketing;
and selling, servicing and information pertaining to any
governmental investigation, except such information generally
in the public domain (such information not being deemed to be
in the public domain merely because it is embraced by more
general information which is in the public domain), other than
as a result of a breach of the provisions of Section 5.2
hereof or otherwise known by Executive prior to his employment
by Employer.
5.2 Non-disclosure of Confidential
Information. Executive will not at any time (other than as
may be required or appropriate in connection with the
performance by him of his duties hereunder), use, communicate,
disclose or disseminate any Confidential Information in any
manner whatsoever (except as may be required under legal
process by subpoena or other court order).
5.3 Certain Activities. Executive will not,
while employed by Employer and, unless terminated without
cause (as such term is defined in Section 4.1(c) hereof) by
Employer or unless Executive terminates his employment as a
result of a breach by Employer of its obligations hereunder,
for a period of one year following the effective date of
termination, hire, offer to hire, entice away or in any other
manner persuade or attempt to persuade any officer, employee,
lessor, lessee, customer, prospective customer or supplier of
Employer or any of its subsidiaries to discontinue or
adversely alter his or its relationship with Employer or any
of its subsidiaries.
5.4 Non-Competition. Executive will not,
while employed by Employer, be employed by (whether as an
officer, director, employee or consultant), any business which
is in competition with the business of any subsidiary of the
Employer.
5.5 Injunctive Relief. The parties hereby
acknowledge and agree that (a) Employer will be irreparably
injured in the event of a breach by Executive of any of his
obligations under this Section 5; (b) monetary damages will
not be an adequate remedy for any such breach; (c) Employer
will be entitled to injunctive relief, in addition to any
other remedy which it may have, in the event of any such
breach, including, but not limited to, termination of the
Employment Term for cause (as such term is defined in Section
4.1(c) hereof); and (d) the existence of any claims which
Executive may have against Employer or any of its
subsidiaries, whether under this Agreement or otherwise, will
not be a defense to the enforcement by Employer of any of its
rights under this Section 5.
5.6 Non-exclusivity and Survival. The
covenants of Executive contained in this Section 5 are in
addition to, and not in lieu of, any obligations which
Executive may have with respect to the subject matter hereof,
whether by contract, as a matter of law or otherwise, and such
covenants and their enforceability will survive any
termination of the Employment Term by either party and any
investigation made with respect to the breach thereof by
Employer at any time.
6. Expenses. Employer will reimburse Executive
(upon the submission by him of reasonably itemized accounts
thereof) for such costs and expenses as Executive may
reasonably incur in connection with the performance by him of
his duties hereunder in accordance with Employer's policy with
respect thereto as in effect from time to time during the term
of this Agreement.
7. Miscellaneous Provisions.
7.1 Execution in Counterparts. This Agreement
may be executed in one or more counterparts, each of which
will be deemed an original, but all of which together will
constitute one and the same document.
7.2 Notices. All notices, requests, demands
and other communications hereunder will be in writing and will
be deemed duly given when delivered by hand or three days
after mailing by registered or certified mail or private
courier service, postage prepaid, return receipt requested, as
follows:
If to Employer, at its principal place of
business, Attention: Chief Executive Officer
If to Executive, to:
Edward N. Epstein
628 West Road
New Canaan, CT 06840
or to such other address as either party hereto will have
designated by like notice to the other party hereto.
7.3 Amendment. This Agreement may only be
supplemented, abandoned, discharged or amended by a written
instrument executed by each of the parties hereto or otherwise
as provided herein.
7.4 Entire Agreement. This Agreement con-
stitutes the entire agreement of the parties hereto with
respect to the subject matter hereof, and, effective upon the
commencement of the Employment Term, supersedes all prior
agreements and understandings of the parties hereto, oral and
written (including the Prior Agreement), with respect to the
subject matter hereof.
7.5 Applicable Law. This Agreement will be
governed by the laws of the State of Delaware applicable to
contracts made and to be wholly performed therein.
7.6 Headings. The headings contained herein
are for the sole purpose of convenience of reference, and will
not in any way limit or affect the meaning or interpretation
of any of the terms or provisions of this Agreement.
7.7 Binding Effect; Benefits. Executive may
not delegate his duties or assign his rights hereunder, except
as provided herein. This Agreement will inure to the benefit
of, and be binding upon, the parties hereto and their
respective heirs, legal representatives, successors and
permitted assigns.
7.8 Waiver, etc. The failure of either of the
parties hereto to at any time enforce any of the provisions of
this Agreement will not be deemed or construed to be a waiver
of any such provision, nor to in any way affect the validity
of this Agreement or any provision hereof or the right of
either of the parties hereto to thereafter enforce each and
every provision of this Agreement. No waiver of any breach of
any of the provisions of this Agreement will be effective
unless set forth in a written instrument executed by the party
against whom or which enforcement of such waiver is sought;
and no waiver of any such breach will be construed or deemed
to be a waiver of any other or subsequent breach.
7.9 Capacity, etc. Executive hereby repre-
sents and warrants to Employer that: (i) he has full power,
authority and capacity to execute and deliver this Agreement,
and to perform his obligations hereunder, (ii) such execution,
delivery and performance will not (and with the giving of
notice or lapse of time or both would not) result in the
breach of any agreements or other obligations to which he is
a party or otherwise bound, and (iii) this Agreement is his
valid and binding obligation in accordance with its terms.
Employer hereby represents that: (x) it has the full power and
authority to execute and deliver this Agreement and to perform
its obligations hereunder (y) such execution, delivery and
performance will not (and with the giving of notice or lapse
of time or both would not) result in the breach of any
agreements or other obligations to which it is a party or
otherwise bound, and (z) this Agreement is the valid and
binding obligation of Employer enforceable in accordance with
its terms.
7.10 Expenses of Proceedings. If a party
hereto shall institute a legal action or arbitration
proceeding in connection with a breach or alleged breach of
the provisions of this Agreement by the other party hereto,
the party who/which shall prevail in such action or proceeding
shall be reimbursed for all of his/its costs and expenses,
including attorney's fees, incurred in connection with such
action or proceeding.
IN WITNESS WHEREOF, this Agreement has been executed
and delivered by the parties hereto as of the date first above
written.
ACORN VENTURE CAPITAL
CORPORATION
By:/s/ Stephen A. Ollendorff
-------------------------
Stephen A. Ollendorff
Chief Executive Officer
Executive:
/s/ Edward N. Epstein
----------------------------
EDWARD N. EPSTEIN
EXHIBIT 10.9
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
AGREEMENT, dated as of January 17, 1996, by and
between Acorn Venture Capital Corporation, a Delaware
corporation ("Employer"), and Bert Sager ("Executive").
W I T N E S S E T H:
WHEREAS, Employer and Executive are parties to a
certain Employment Agreement (the "Employment Agreement"),
dated as of October 16, 1991; and
WHEREAS, each of Employer and Executive wish to
amend the Employment Agreement, to, among other things,
clarify the geographic location in which Executive is to
provide services pursuant to the Employment Agreement, and
the events of termination covered by Section 4.3(c) therein
and to confirm the obligations of the Executive with respect
to confidential information, non-solicitation of employees
and covenants not to compete, all as set forth herein.
NOW, THEREFORE, for good and valuable
consideration, the sufficiency of which is hereby
acknowledged by the parties hereto, and in consideration of
the mutual covenants contained herein, the parties hereto
hereby agree as follows:
1. Amendments of Employment Agreement. The
Employment Agreement is hereby amended by adding the
following provision, which shall become Section 1.3 of the
Employment Agreement:
"1.3 Location of Employment. Employer and
Executive agree that Executive shall provide the
services to be rendered by him hereunder
substantially in the State of Florida. If
Employer shall require Executive to perform his
services outside of the above-mentioned area,
Executive may, at his option, terminate this
Agreement and, upon such termination, be entitled
to the compensation provided by Section 4.3(c)
hereof."
The Employment Agreement is hereby amended by
revising Section 4.3(c) as follows:
"(c) Termination Without Cause or By Breach by
Employer. In the event that Executive's
employment hereunder is terminated, by Employer or
Executive, for any reason other than (i) as a
result of death, disability or for cause, as set
forth in Sections 4.1(a), (b) and (c),
respectively, or (ii) as a result of Executive's
voluntary resignation, Executive will be paid his
Base Salary up to the last day of the Employment
Term and any bonuses which he had or may have
earned or accrued had he been employed through the
balance of the Employment Term, as payment in full
of all amounts due and owing by Employer to
Executive. Such amounts must be paid to Executive
in cash in full without offset for any reason
within ten (10) days following Employer's
declaration of termination of employment.
The Employment Agreement is hereby amended by
adding the following provision, which shall become Section
6.10 of the Employment Agreement:
"6.10 Expenses of Proceedings. If a party hereto
shall institute a legal action or arbitration
proceeding in connection with a breach or alleged
breach of the provisions of this Agreement by the
other party hereto, the party who/which shall
prevail in such action or proceeding shall be
reimbursed for all of his/its costs and expenses,
including attorney's fees, incurred in connection
with such action or proceeding."
The Employment Agreement is hereby amended by
adding the following provision, which shall become Section 7
of the Employment Agreement:
"7. Confidentiality and Nonsolicitation.
7.1 "Confidential Information" Defined.
"Confidential Information" means any and all
information (oral or written) relating to Employer
or any subsidiary thereof or any person
controlling, controlled by, or under common
control with Employer or any subsidiary or any of
their respective activities, including, but not
limited to, information relating to: technology,
research, test procedures and results, machinery
and equipment; manufacturing processes; financial
information; products; identity and description of
materials and services used; purchasing; costs;
pricing; customers and prospects; advertising,
promotion and marketing; and selling, servicing
and information pertaining to any governmental
investigation, except such information generally
in the public domain (such information not being
deemed to be in the public domain merely because
it is embraced by more general information which
is in the public domain), other than as a result
of a breach of the provisions of Section 7.2
hereof or otherwise known by Executive prior to
his employment by Employer.
7.2 Non-disclosure of Confidential Information.
Executive will not at any time (other than as may
be required or appropriate in connection with the
performance by him of his duties hereunder) use,
communicate, disclose or disseminate any
Confidential Information in any manner whatsoever
(except as may be required under legal process by
subpoena or other court order).
7.3 Certain Activities. Executive will not,
while employed by Employer and, unless terminated
without cause (as such term is defined in Section
4.1(c) hereof) by Employer or unless Executive
terminates his employment as a result of a breach
by Employer of its obligations hereunder, for a
period of one year following the effective date of
termination, hire, offer to hire, entice away or
in any other manner persuade or attempt to
persuade any officer, employee, lessor, lessee,
customer, prospective customer or supplier of
Employer or any of its subsidiaries to discontinue
or adversely alter his or its relationship with
Employer or any of its subsidiaries.
7.4 Non-Competition. Executive will not, while
employed by Employer, be employed by (whether as
an officer, director, employee or consultant), any
business which is in competition with the business
of any subsidiary of the Employer. Nothing herein
shall prohibit Executive or any law firm with
which he is associated from performing legal
services for any entity or person provided that
such legal services will not violate the legal
code of ethics.
7.5 Injunctive Relief. The parties hereby
acknowledge and agree that (a) Employer will be
irreparably injured in the event of a breach by
Executive of any of his obligations under this
Section 7; (b) monetary damages will not be an
adequate remedy for any such breach; (c) Employer
will be entitled to injunctive relief, in addition
to any other remedy which it may have, in the
event of any such breach, including, but not
limited to, termination of the Employment Term for
cause (as such term is defined in Section 4.1(c)
hereof); and (d) the existence of any claims which
Executive may have against Employer or any of its
subsidiaries, whether under this Agreement or
otherwise, will not be a defense to the
enforcement by Employer of any of its rights under
this Section 7.
7.6 Non-exclusivity and Survival. The covenants
of Executive contained in this Section 7 are in
addition to, and not in lieu of, any obligations
which Executive may have with respect to the
subject matter hereof, whether by contract, as a
matter of law or otherwise, and such covenants and
their enforceability will survive any termination
of the Employment Term by either party and any
investigation made with respect to the breach
thereof by Employer at any time."
2. Clarification of Employment Agreement. The
Employer and the Executive hereby each agrees and confirms
that Section 1.1 of the Employment Agreement will not have
been violated if the Executive is employed in the capacity
of Co-Chairman of the Board.
3. Applicable Law. This Agreement shall be
governed by and construed in accordance with the laws of the
State of Delaware, without giving effect to any choice of
law provisions thereof.
4. Binding Effect. This Agreement will inure to
the benefit of, and be binding upon, the parties hereto and
their respective heirs, legal representatives, permitted
assigns and successors (including any successors by merger,
consolidation and acquisition of all or a substantial
portion of the assets of Employer).
5. Effect on Employment Agreement. Except as
expressly amended hereby, the Employment Agreement shall
remain in full force and effect.
IN WITNESS WHEREOF, this Agreement has been
executed and delivered by the parties hereto as of the date
first above written.
ACORN VENTURE CAPITAL
CORPORATION
By: /s/ Stephen A. Ollendorff
-----------------------------
Stephen A. Ollendorff
Chief Executive Officer
Executive:
/s/ Bert Sager
----------------------------
BERT SAGER
EXHIBIT 10.10
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
AGREEMENT, dated as of January 17, 1996, by and
between Acorn Venture Capital Corporation, a Delaware
corporation ("Employer"), and Larry V. Unterbrink
("Executive").
W I T N E S S E T H:
WHEREAS, Employer and Executive are parties to a
certain Employment Agreement (the "Employment Agreement"),
dated as of October 31, 1991; and
WHEREAS, each of Employer and Executive wish to
amend the Employment Agreement, to, among other things,
clarify the geographic location in which Executive is to
provide services pursuant to the Employment Agreement, and
the events of termination covered by Section 4.3(c) therein
and to confirm the obligations of the Executive with respect
to confidential information, non-solicitation of employees
and covenants not to compete, all as set forth herein.
NOW, THEREFORE, for good and valuable
consideration, the sufficiency of which is hereby
acknowledged by the parties hereto, and in consideration of
the mutual covenants contained herein, the parties hereto
hereby agree as follows:
1. Amendments of Employment Agreement. The
Employment Agreement is hereby amended by adding the
following provision, which shall become Section 1.3 of the
Employment Agreement:
"1.3 Location of Employment. Employer and
Executive agree that Executive shall provide the
services to be rendered by him hereunder
substantially in the State of Florida. If
Employer shall require Executive to perform his
services outside of the above-mentioned area,
Executive may, at his option, terminate this
Agreement and, upon such termination, be entitled
to the compensation provided by Section 4.3(c)
hereof."
The Employment Agreement is hereby amended by
revising Section 4.3(c) as follows:
"(c) Termination Without Cause or By Breach by
Employer. In the event that Executive's
employment hereunder is terminated, by Employer or
Executive, for any reason other than (i) as a
result of death, disability or for cause, as set
forth in Sections 4.1(a), (b) and (c),
respectively, or (ii) as a result of Executive's
voluntary resignation, Executive will be paid his
Base Salary up to the last day of the Employment
Term and any bonuses which he had or may have
earned or accrued had he been employed through the
balance of the Employment Term, as payment in full
of all amounts due and owing by Employer to
Executive. Such amounts must be paid to Executive
in cash in full without offset for any reason
within ten (10) days following Employer's
declaration of termination of employment.
The Employment Agreement is hereby amended by
adding the following provision, which shall become Section
6.10 of the Employment Agreement:
"6.10 Expenses of Proceedings. If a party hereto
shall institute a legal action or arbitration
proceeding in connection with a breach or alleged
breach of the provisions of this Agreement by the
other party hereto, the party who/which shall
prevail in such action or proceeding shall be
reimbursed for all of his/its costs and expenses,
including attorney's fees, incurred in connection
with such action or proceeding."
The Employment Agreement is hereby amended by
adding the following provision, which shall become Section 7
of the Employment Agreement:
"7. Confidentiality and Nonsolicitation.
7.1 "Confidential Information" Defined.
"Confidential Information" means any and all
information (oral or written) relating to Employer
or any subsidiary thereof or any person
controlling, controlled by, or under common
control with Employer or any subsidiary or any of
their respective activities, including, but not
limited to, information relating to: technology,
research, test procedures and results, machinery
and equipment; manufacturing processes; financial
information; products; identity and description of
materials and services used; purchasing; costs;
pricing; customers and prospects; advertising,
promotion and marketing; and selling, servicing
and information pertaining to any governmental
investigation, except such information generally
in the public domain (such information not being
deemed to be in the public domain merely because
it is embraced by more general information which
is in the public domain), other than as a result
of a breach of the provisions of Section 7.2
hereof or otherwise known by Executive prior to
his employment by Employer.
7.2 Non-disclosure of Confidential Information.
Executive will not at any time (other than as may
be required or appropriate in connection with the
performance by him of his duties hereunder) use,
communicate, disclose or disseminate any
Confidential Information in any manner whatsoever
(except as may be required under legal process by
subpoena or other court order).
7.3 Certain Activities. Executive will not,
while employed by Employer and, unless terminated
without cause (as such term is defined in Section
4.1(c) hereof) by Employer or unless Executive
terminates his employment as a result of a breach
by Employer of its obligations hereunder, for a
period of one year following the effective date of
termination, hire, offer to hire, entice away or
in any other manner persuade or attempt to
persuade any officer, employee, lessor, lessee,
customer, prospective customer or supplier of
Employer or any of its subsidiaries to discontinue
or adversely alter his or its relationship with
Employer or any of its subsidiaries.
7.4 Non-Competition. Executive will not, while
employed by Employer, be employed by (whether as
an officer, director, employee or consultant), any
business which is in competition with the business
of any subsidiary of the Employer.
7.5 Injunctive Relief. The parties hereby
acknowledge and agree that (a) Employer will be
irreparably injured in the event of a breach by
Executive of any of his obligations under this
Section 7; (b) monetary damages will not be an
adequate remedy for any such breach; (c) Employer
will be entitled to injunctive relief, in addition
to any other remedy which it may have, in the
event of any such breach, including, but not
limited to, termination of the Employment Term for
cause (as such term is defined in Section 4.1(c)
hereof); and (d) the existence of any claims which
Executive may have against Employer or any of its
subsidiaries, whether under this Agreement or
otherwise, will not be a defense to the
enforcement by Employer of any of its rights under
this Section 7.
7.6 Non-exclusivity and Survival. The covenants
of Executive contained in this Section 7 are in
addition to, and not in lieu of, any obligations
which Executive may have with respect to the
subject matter hereof, whether by contract, as a
matter of law or otherwise, and such covenants and
their enforceability will survive any termination
of the Employment Term by either party and any
investigation made with respect to the breach
thereof by Employer at any time."
2. Applicable Law. This Agreement shall be
governed by and construed in accordance with the laws of the
State of Delaware, without giving effect to any choice of
law provisions thereof.
3. Binding Effect. This Agreement will inure to
the benefit of, and be binding upon, the parties hereto and
their respective heirs, legal representatives, permitted
assigns and successors (including any successors by merger,
consolidation and acquisition of all or a substantial
portion of the assets of Employer).
4. Effect on Employment Agreement. Except as
expressly amended hereby, the Employment Agreement shall
remain in full force and effect.
IN WITNESS WHEREOF, this Agreement has been
executed and delivered by the parties hereto as of the date
first above written.
ACORN VENTURE CAPITAL
CORPORATION
By:/s/ Stephen A. Ollendorff
-------------------------
Stephen A. Ollendorff
Chief Executive Officer
Executive:
/s/ Larry V. Unterbrink
---------------------------
LARRY V. UNTERBRINK
EXHIBIT 10.11
EMPLOYMENT AGREEMENT
AGREEMENT dated as of the 17th day of January, 1996,
between ACORN VENTURE CAPITAL CORPORATION, a Delaware corpo-
ration ("Employer"), and PAULA BERLINER ("Executive").
W I T N E S E T H :
WHEREAS, Employer is desirous of employing Employee
as Vice President for the period provided for in this
Agreement; and
WHEREAS, Employee is agreeable to such employment
under the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the covenants
herein contained, the parties hereto hereby agree as follows:
1. Employment.
1.1 General. Effective upon the commencement
of the Employment Term (as defined in Section 3 hereof),
Employer agrees to employ Executive in the capacity of Vice
President or such other position or positions as the Board of
Directors of Employer (the "Board") and Executive shall
mutually agree upon. Executive hereby accepts such
employment, upon the terms and subject to the conditions
herein contained. Executive will perform and carry out such
duties and responsibilities as may be assigned to her from
time to time by Employer, including services to be rendered to
portfolio companies and subsidiaries of the Employer.
1.2 Responsibilities. Executive hereby agrees
that during the Employment Term she will devote such business
time, and attention to the business and affairs of the
Employer as she believes, in good faith, is necessary for the
operation of the Employer.
1.3 Location of Employment. Employer and
Executive agree that Executive shall provide the services to
be rendered by her hereunder substantially in the State of
Florida. If Employer shall require Executive to perform her
services outside of the above-mentioned areas, Executive may,
at his option, terminate this Agreement and, upon such
termination, be entitled to the compensation provided by
Section 4.3(c) hereof.
2. Compensation.
2.1 Compensation. Subject to the terms and
conditions herein contained, Employer will pay to Executive,
and Executive will accept, for all services which may be
rendered by her pursuant to this Agreement the following
salary: during the Employment Term (as hereinafter defined),
$22,322.90 per year. Such payments shall be made to the
extent applicable, in conformity with the Investment Company
Act of 1940. In addition, the annual payments shall be
appropriately and proportionately increased at the beginning
of each calendar year commencing with the second calendar year
during the Employment Term based upon the amount of the
increase, if any, in the composite Consumer Price Index
published by the United States Bureau of Labor Statistics as
the same is in effect on the date of this Agreement (the
annual payments as increased by the composite Consumer Price
Index hereinafter referred to as the "Base Salary").
2.2 No Additional Compensation. The Executive
acknowledges that she is not entitled to receive any
remuneration for services to be rendered by her to any
subsidiaries or portfolio companies.
3. Term of Employment. The employment by Employer
of Executive pursuant hereto will commence effective January
1, 1996 and, subject to the provisions of Section 4, will
continue through the close of business on December 31, 1998,
provided, however, the term of this Agreement shall, after
December 31, 1996, be automatically extended on December 31 of
each calendar year thereafter by an additional period of one
year unless the Executive or Employer elects by written notice
to the other given not later than September 30 of such
calendar year that she or it does not want the term of this
Agreement extended (the foregoing hereinafter referred to as
the "Employment Term").
4. Premature Termination.
4.1 Events of Termination. Anything in this
Agreement contained to the contrary notwithstanding,
Executive's employment hereunder will terminate upon the
following terms and conditions:
(a) Death. Executive's employment hereunder
will terminate forthwith upon the death of
Executive.
(b) Disability. Executive's employment
hereunder will terminate, at the option of
Employer, in the event that Employer makes a good
faith determination that Executive is so disabled,
for mental or physical reasons, as to have been
unable to substantially perform her duties hereun-
der for an aggregate of 180 consecutive days during
any period of 12 consecutive months. The existence
of a disability will be determined by the Board of
Directors in consultation with a reputable,
licensed physician selected by Employer and
approved by Executive, and Executive will cooperate
in all reasonable respects to enable an examination
to be made by such physician.
(c) By Employer For Cause. Executive's em-
ployment hereunder will terminate, at the option of
Employer, in the event of Executive's proven
engagement in any conduct, action or behavior
constituting an act of moral turpitude (as deter-
mined by an independent counsel selected by the
Board, Executive having been given an opportunity
to rebut any such claim or charge) that has or may
reasonably be expected to have a material adverse
effect on the operations of Employer.
4.2 Notice. In the event of the termination
of Executive's employment pursuant to Section 4.1(b) and
4.1(c) not less than 10 days' prior written notice of such
termination will be given by the terminating party to the
other party, which notice will specify the effective date of
termination.
4.3 Payment Upon Premature Termination.
(a) Termination Upon Death or Disability. In
the event that Executive's employment hereun-
der is terminated pursuant to Section 4.1(a)
or 4.1(b), Executive will be paid all Base
Salary and her pro rata share of any bonuses
which she may have earned or accrued in
connection with this Agreement or any bonus
plan of Employer for which she is eligible up
to the effective date of termination, as pay-
ment in full of all amounts due and owing by
Employer to Executive.
(b) Termination by Employer For Cause. In the
event that Executive's employment hereunder is
terminated pursuant to Section 4.1(c) or
because of her voluntary resignation,
Executive will be paid her Base Salary up to
the effective date of termination as payment
in full of all amounts due and owing by Em-
ployer to Executive.
(c) Termination Without Cause or By Breach By
Employer. In the event that Executive's
employment hereunder is terminated by Employer
or Executive, for any reason other than (i) as
a result of death, disability or for cause, as
set forth in paragraphs 4.1(a), (b) and (c)
respectively, or (ii) as a result of
Executive's voluntary resignation, Executive
will be paid her Base Salary up to the last
day of the Employment Term and any bonuses
which she had or may have earned or accrued
had she been employed through the balance of
the Employment Term, as payment in full of all
amounts due and owing by Employer to
Executive. Such amounts must be paid to
Executive in cash in full without offset for
any reason within ten (10) days following
Employer's declaration of termination of
employment.
5. Confidentiality and Nonsolicitation.
5.1 "Confidential Information" Defined.
"Confidential Information" means any and all information (oral
or written) relating to Employer or any subsidiary thereof or
any person controlling, controlled by, or under common control
with Employer or any subsidiary or any of their respective
activities, including, but not limited to, information
relating to: technology, research, test procedures and
results, machinery and equipment; manufacturing processes;
financial information; products; identity and description of
materials and services used; purchasing; costs; pricing;
customers and prospects; advertising, promotion and marketing;
and selling, servicing and information pertaining to any
governmental investigation, except such information generally
in the public domain (such information not being deemed to be
in the public domain merely because it is embraced by more
general information which is in the public domain), other than
as a result of a breach of the provisions of Section 5.2
hereof or otherwise known by Executive prior to her employment
by Employer.
5.2 Non-disclosure of Confidential
Information. Executive will not at any time (other than as
may be required or appropriate in connection with the
performance by her of her duties hereunder), use, communicate,
disclose or disseminate any Confidential Information in any
manner whatsoever (except as may be required under legal
process by subpoena or other court order).
5.3 Certain Activities. Executive will not,
while employed by Employer and, unless terminated without
cause (as such term is defined in Section 4.1(c) hereof) by
Employer or unless Executive terminates her employment as a
result of a breach by Employer of its obligations hereunder,
for a period of one year following the effective date of
termination, hire, offer to hire, entice away or in any other
manner persuade or attempt to persuade any officer, employee,
lessor, lessee, customer, prospective customer or supplier of
Employer or any of its subsidiaries to discontinue or
adversely alter her or its relationship with Employer or any
of its subsidiaries.
5.4 Non-Competition. Executive will not,
while employed by Employer, be employed by (whether as an
officer, director, employee or consultant), any business which
is in competition with the business of any subsidiary of the
Employer.
5.5 Injunctive Relief. The parties hereby
acknowledge and agree that (a) Employer will be irreparably
injured in the event of a breach by Executive of any of her
obligations under this Section 5; (b) monetary damages will
not be an adequate remedy for any such breach; (c) Employer
will be entitled to injunctive relief, in addition to any
other remedy which it may have, in the event of any such
breach, including, but not limited to, termination of the
Employment Term for cause (as such term is defined in Section
4.1(c) hereof); and (d) the existence of any claims which
Executive may have against Employer or any of its
subsidiaries, whether under this Agreement or otherwise, will
not be a defense to the enforcement by Employer of any of its
rights under this Section 5.
5.6 Non-exclusivity and Survival. The
covenants of Executive contained in this Section 5 are in
addition to, and not in lieu of, any obligations which
Executive may have with respect to the subject matter hereof,
whether by contract, as a matter of law or otherwise, and such
covenants and their enforceability will survive any
termination of the Employment Term by either party and any
investigation made with respect to the breach thereof by
Employer at any time.
6. Expenses. Employer will reimburse Executive
(upon the submission by her of reasonably itemized accounts
thereof) for such costs and expenses as Executive may
reasonably incur in connection with the performance by her of
her duties hereunder in accordance with Employer's policy with
respect thereto as in effect from time to time during the term
of this Agreement.
7. Miscellaneous Provisions.
7.1 Execution in Counterparts. This Agreement
may be executed in one or more counterparts, each of which
will be deemed an original, but all of which together will
constitute one and the same document.
7.2 Notices. All notices, requests, demands
and other communications hereunder will be in writing and will
be deemed duly given when delivered by hand or three days
after mailing by registered or certified mail or private
courier service, postage prepaid, return receipt requested, as
follows:
If to Employer, at its principal place of
business, Attention: Chief Executive Officer
If to Executive, to:
Paula Berliner
2700 N. 29th Avenue
Suite 220
Hollywood, FL 33020
or to such other address as either party hereto will have
designated by like notice to the other party hereto.
7.3 Amendment. This Agreement may only be
supplemented, abandoned, discharged or amended by a written
instrument executed by each of the parties hereto or otherwise
as provided herein.
7.4 Entire Agreement. This Agreement con-
stitutes the entire agreement of the parties hereto with
respect to the subject matter hereof, and, effective upon the
commencement of the Employment Term, supersedes all prior
agreements and understandings of the parties hereto, oral and
written (including the Prior Agreement), with respect to the
subject matter hereof.
7.5 Applicable Law. This Agreement will be
governed by the laws of the State of Delaware applicable to
contracts made and to be wholly performed therein.
7.6 Headings. The headings contained herein
are for the sole purpose of convenience of reference, and will
not in any way limit or affect the meaning or interpretation
of any of the terms or provisions of this Agreement.
7.7 Binding Effect; Benefits. Executive may
not delegate his duties or assign his rights hereunder, except
as provided herein. This Agreement will inure to the benefit
of, and be binding upon, the parties hereto and their
respective heirs, legal representatives, successors and
permitted assigns.
7.8 Waiver, etc. The failure of either of the
parties hereto to at any time enforce any of the provisions of
this Agreement will not be deemed or construed to be a waiver
of any such provision, nor to in any way affect the validity
of this Agreement or any provision hereof or the right of
either of the parties hereto to thereafter enforce each and
every provision of this Agreement. No waiver of any breach of
any of the provisions of this Agreement will be effective
unless set forth in a written instrument executed by the party
against whom or which enforcement of such waiver is sought;
and no waiver of any such breach will be construed or deemed
to be a waiver of any other or subsequent breach.
7.9 Capacity, etc. Executive hereby repre-
sents and warrants to Employer that: (i) she has full power,
authority and capacity to execute and deliver this Agreement,
and to perform her obligations hereunder, (ii) such execution,
delivery and performance will not (and with the giving of
notice or lapse of time or both would not) result in the
breach of any agreements or other obligations to which she is
a party or otherwise bound, and (iii) this Agreement is her
valid and binding obligation in accordance with its terms.
Employer hereby represents that: (x) it has the full power and
authority to execute and deliver this Agreement and to perform
its obligations hereunder (y) such execution, delivery and
performance will not (and with the giving of notice or lapse
of time or both would not) result in the breach of any
agreements or other obligations to which it is a party or
otherwise bound, and (z) this Agreement is the valid and
binding obligation of Employer enforceable in accordance with
its terms.
7.10 Expenses of Proceedings. If a party
hereto shall institute a legal action or arbitration
proceeding in connection with a breach or alleged breach of
the provisions of this Agreement by the other party hereto,
the party who/which shall prevail in such action or proceeding
shall be reimbursed for all of her/its costs and expenses,
including attorney's fees, incurred in connection with such
action or proceeding.
IN WITNESS WHEREOF, this Agreement has been executed
and delivered by the parties hereto as of the date first above
written.
ACORN VENTURE CAPITAL
CORPORATION
By:/s/Stephen A. Ollendorff
------------------------
Stephen A. Ollendorff
Chief Executive Officer
Executive:
/s/ Paula Berliner
---------------------------
PAULA BERLINER
EXHIBIT 21 -- SUBSIDIARIES OF THE COMPANY
The following are subsidiaries of the Company or of its
subsidiaries, as set forth below:
State of Incorporation
Name Ownership
- ------- ----------------------
Automotive Industries, Inc. Delaware
Wholly-owned subsidairy
of the Company
Recticon Enterprises, Inc. Pennsylvania
Wholly-owned subsidiary
of the Company
ServiceMax Tire & Auto Delaware
Centers, Inc. Wholly-owned subsidiary
of the Company
ServiceMax Tire & Auto
Centers of Michigan, Inc. Michigan
Wholly-owned subsidiary of
ServiceMax Tire & Auto
Centers, Inc.
EXHIBIT 23
Consent of Ernst & Young LLP
Independent Auditors
We consent to the use of our report dated April 5, 1995, in
this 1995 Annual Report (Form 10-KSB) of Acorn Venture
Capital Corporation.
Ernst & Young LLP
----------------------
Ernst & Young LLP
Jacksonville, Florida
March 8, 1996
<TABLE> <S> <C>
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORAMTION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF ACORN VENTURE CAPITAL CORPORATION FOR THE YEAR ENDED
DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
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