FRESHSTART VENTURE CAPITAL CORP, DEF 14A, 1998-10-16

FRESHSTART VENTURE CAPITAL CORP
DEF 14A, 1998-10-16

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FRESHSTART VENTURE CAPITAL CORP.
313 WEST 53RD STREET
NEW YORK, NY 10019

Notice of Annual Meeting of Shareholders
To Be Held on November 10, 1998

To the Shareholders:

The Annual Meeting of Shareholders of Freshstart Venture Capital Corp. (the
"Company") will be held at the offices of Stursberg & Veith, 405 Lexington
Avenue, Suite 4949, New York, New York, on November 10, 1998, at 10:30 a.m. to
consider and act upon the following matters:

1. To elect eight directors to serve until the next Annual Meeting and
until their successors are chosen and qualified.

2. To approve an amendment to the certificate of incorporation of the
Company increasing from 3,000,000 to 5,000,000 the authorized number of shares
of the common stock of the Company, subject to the approval of the United States
Small Business Administration.

3. To approve the selection by the Board of Directors of Michael C.
Finkelstein & Co. as the Company's independent public accountants for the fiscal
year ended May 31, 1998.

4. To approve the election to become a Business Development Company under
Section 54 of the Investment Company Act of 1940.

5. To adopt an incentive stock option plan for employees of the Company.

6. To adopt a stock option plan for non-employee directors of the Company,
subject to the approval of the Securities and Exchange Commission.

7. To consider and act upon such other matters as may properly come before
the meeting or any adjournment thereof.

Shareholders of record at the close of business on October 5, 1998, will be
entitled to notice of and to vote at the meeting. The stock transfer books of
the Company will remain open.

All shareholders are cordially invited to attend the meeting.

By Order of the Board of Directors

October 14, 1998 NEIL GREENBAUM, Secretary

WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND SIGN
THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE IN ORDER TO
ASSURE REPRESENTATION OF YOUR SHARES.

<PAGE>

FRESHSTART VENTURE CAPITAL CORP.
313 WEST 53RD STREET
NEW YORK, NEW YORK 10019

Proxy Statement for
Annual Meeting of Shareholders
November 10, 1998

This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Freshstart Venture Capital Corp. (the
"Company") for use at the Annual Meeting of Shareholders to be held on November
10, 1998, and at any adjournment of that meeting. In considering whether or not
to have an adjournment, management will consider what is in the best interest of
the shareholders. All proxies will be voted as marked. Proxies marked as
abstaining (including proxies containing broker non-votes) on any matters to be
acted upon by shareholders will be treated as present at the meeting for
purposes of determining a quorum but will not be counted as votes cast on such
matters unless the matter in question requires a majority vote for approval, in
which case the abstention will be the equivalent of a vote against. Any proxy
may be revoked by a shareholder at any time before it is exercised by written or
oral request to Neil Greenbaum, Secretary of the Company. The date of mailing of
this Proxy Statement is expected to be on or about October 14, 1998.

The Board of Directors has fixed October 5, 1998, as the record date for
the determination of shareholders entitled to vote at the Annual Meeting. At the
close of business on October 5, 1998, there were outstanding and entitled to
vote 2,172,688 outstanding shares of common stock, par value $.01 (the "Common
Stock"), of the Company. Each share is entitled to one vote.

The following table sets forth information concerning ownership of the
Company's Common Stock as of October 5, 1998, by each person known by the
Company to be the beneficial owner of more than five percent of the Common
Stock.

Number of Shares Percent of Common
Name and Address Beneficially Owned Stock Outstanding
- ---------------- ------------------ -----------------

Neil Greenbaum 142,848(2) 6.6%
29 Flamingo Road North
East Hills, NY 11576 (1)

Zindel Zelmanovitch 136,114(3) 6.3%
1934 East 18th Street
Brooklyn, NY 11229

Pearl Greenbaum 205,312(4) 9.4%
300 Winston Drive
Cliffside Park, NJ 07010 (1)

(1) Pearl Greenbaum is the mother of Neil Greenbaum.

<PAGE>

(2) Includes 5,400 shares held by Mr. Greenbaum's children. Also includes
13,040 shares held in joint tenancy with Mr. Greenbaum's wife. Also
includes 10,260 shares held by the defined benefit plan of Pearland
Brokerage Inc., of which Mr. Greenbaum is an administrator. Also includes
7,180 shares held by the Freshstart Venture Capital Money Purchase Plan, of
which Mr. Greenbaum is an administrator. Excludes 30,200 shares held by his
wife and 20,440 shares held by his mother and children as joint tenants, as
to which shares Mr. Greenbaum disclaims beneficial ownership.

(3) Includes 50,348 shares held with his wife as joint tenants and 1,600 shares
held directly by his wife. Also includes 84,564 shares held in pension
plans of which Mr. Zelmanovitch is the beneficiary and 7,180 shares held by
the Freshstart Venture Capital Money Purchase Plan, of which Mr.
Zelmanovitch is an administrator.

(4) Includes 39,100 shares held in joint tenancy with Mrs. Greenbaum's
grandchildren. Also includes 33,760 shares held in joint tenancy with her
daughter, Karen Franklin. Also includes 10,260 shares held by the benefit
plan of Pearland Brokerage Inc., of which Mrs. Greenbaum is an
administrator. Excludes 93,240 shares held by the estate of her husband,
Andrew Greenbaum, as to which shares Mrs. Greenbaum disclaims beneficial
ownership.

Except as otherwise indicated above, the persons listed in the above table
have sole voting and investment power with respect to their respective shares.

All of the persons listed above, for as long as they continue to hold five
percent or more of the Company's outstanding Common Stock, will be deemed
"affiliated persons" of the Company, as such term is defined in the Investment
Company Act of 1940, as amended (the "1940 Act").

All of the Company's outstanding preferred stock is nonvoting and is held
by the United States Small Business Administration ("SBA").

PROPOSAL NO. 1
ELECTION OF DIRECTORS

The affirmative vote of the holders of a majority of the Common Stock
present or represented at the meeting is required for the election of directors.
The persons named in the proxy will vote, as permitted by the By-Laws of the
Company, to elect as directors the eight nominees named below, unless authority
to vote for the election of directors is withheld by marking the proxy to that
effect or the proxy is marked with the names of directors as to whom authority
to vote is withheld. The proxy may not be voted for more than eight directors.
All of the eight nominees are presently directors of the Company.

Each director will be elected to hold office until the next annual meeting
of shareholders and until his or her successor is elected and qualified. If a
nominee becomes unavailable, the person acting under the proxy may vote the
proxy for the election of a substitute. It is not presently contemplated that
any of the nominees will be unavailable.

The following sets forth the name of each nominee and the positions and
offices held by him or her, his or her age, the date on which he or she became a
director of the Company, his

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or her principal occupation and business experience for the last five years and
the names of other publicly-held companies in which he or she serves as a
director:

Zindel Zelmanovitch, 51, has been President and a director of the Company
since March 1982. Mr. Zelmanovitch is also President, director and a principal
shareholder of East Coast Venture Capital Inc., a wholly-owned subsidiary of
Veritas Financial, Inc., that has been a licensed SSBIC since 1986. He has also
served as Secretary and a director of the National Association of Investment
Companies (NAIC) since 1991. He has been Secretary and a director of the
National Association of Investment Companies Management Group, Inc. since 1993
and Vice Chairman since 1997. Mr. Zelmanovitch is also the President of Z.
Zindel Corp., which provides management services. Since 1997, he has been a
director of the Midwood Federal Credit Union. Mr. Zelmanovitch received an
M.B.A. from Long Island University in June 1997. He has also been licensed as a
real estate broker by the New York Department of State since 1976.

Neil Greenbaum, 41, has been the Secretary and a director of the Company
since March 1982. Mr. Greenbaum has acted as Vice President and Secretary of
Pearland Transfer Corp., a licensed medallion broker, and Pearland Brokerage
Inc., an insurance brokerage company, for more than five years. Mr. Greenbaum
has been President of Hereford Insurance Company since April 1994. He has been
the President of United Brokers Association, a taxicab brokerage organization,
since October 1988. Mr. Greenbaum has also been President of All Taxi Management
Inc. since 1995. Mr. Greenbaum has also been President of the New York City
Committee for Taxi Cab Safety since 1996 and was appointed to the Taxi and
Limousine Advisory Board in March 1998.

Pearl Greenbaum, 74, has been the Vice President and a director of the
Company since March 1982. Mrs. Greenbaum has been President of Pearland Transfer
Corp. and Pearland Brokerage Inc. for more than five years. She has been
Treasurer of Hereford Insurance Company since April 1994.

Michael L. Moskowitz, 39, has been a director of the Company since June
1984. From 1984 to 1992 Mr. Moskowitz was Treasurer of the Company. Mr.
Moskowitz has been President of M. L. Moskowitz and Co., Inc., a residential
mortgage banking firm, since August of 1986.

Eugene Haber, 50, has been a director of the Company since September 1996.
He has been a practicing attorney since 1973 and since 1975 a partner in the
firm of Cobert, Haber & Haber, a general practice law firm specializing in
litigation and commercial transactions with a heavy emphasis on the New York
City Taxi industry.

Alan Work, 42, has been a director of the Company since March 1988. Since
1989, he has been Executive Vice President for Quantex Associates Inc., an
executive search firm. From 1982 to 1989, Mr. Work was an account executive for
E.D.P. World.

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Ben Lichtenberg, 43, has been a director of the Company since January 1997.
He has been an Executive Vice President in charge of Investment Banking at First
Colonial Securities Group since 1992. From 1990 to 1992 he was a Vice President
in charge of Investment Banking at S.W. Ryan & Co. Prior to that, from 1988 to
1990 he was a Vice President in charge of Investment Banking at Bryn Mawr
Investments. Mr. Lichtenberg received a B.S. in Economics from the Wharton
School of the University of Pennsylvania.

John Hamill, 53, has been a director of the Company since June 1997. He has
been President of Suburban Greater Hartford Realty Management Corporation
("Suburban Greater Hartford") since 1992. From 1976 to 1992 Mr. Hamill was a
Vice President of Greater Hartford Realty Management Corporation until he bought
the company and changed its name to Suburban Greater Hartford in 1992. Also from
1972 to 1992 Mr. Hamill was a Vice President of Utility Development Corporation,
the parent corporation of Suburban Greater Hartford, which rehabilitated or
constructed over 6,000 units many of which projects were constructed with the
help of HUD mortgage insurance programs. Mr. Hamill received a B.S. in Biology
and a Masters in Education from the University of Hartford.

The following table sets forth information concerning ownership of the
Company's Common Stock as of October 5, 1998, by each director and officer of
the Company and by all directors and officers of the Company as a group.

Number of Shares Percent of Common
Name and Address Beneficially Owned Stock Outstanding
- ---------------- ------------------ -----------------

*Neil Greenbaum (1) 142,848 (2) 6.6%

*Zindel Zelmanovitch 136,114 (3) 6.3%

*Pearl Greenbaum (1) 205,312 (4) 9.4%

Michael L. Moskowitz 39,183 (5) 1.8%

Eugene Haber 176 (7) (6)

Alan Work 4,720 (8) (6)

Ben Lichtenberg 7,000 (9) (6)

John Hamill 38,500 (10) 1.8%

Officers and Directors of the 556,413 25.6%
Company as a group (8 persons)

- ----------
* "Interested Person" with respect to the Company, as such term is defined in
the 1940 Act.

(1) Pearl Greenbaum is the mother of Neil Greenbaum.

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<PAGE>

(4) Includes 39,100 shares held in joint tenancy with Mrs. Greenbaum's
grandchildren. Also includes 33,760 shares held in joint tenancy with her
daughter, Karen Franklin. Also includes 10,260 shares held by the benefit
plan of Pearland Brokerage Inc. of which Mrs. Greenbaum is an
administrator. Excludes 93,240 shares held by the estate of her husband,
Andrew Greenbaum, as to which shares Mrs. Greenbaum disclaims beneficial
ownership.

(5) Includes 9,000 shares held by M.L. Moskowitz & Co., Inc. of which Mr.
Moskowitz is a principal shareholder. Also includes 7,095 shares held by
the profit sharing plan of M.L. Moskowitz & Co. of which Mr. Moskowitz is
the trustee.

(6) Represents less than 1% of the Common Stock.

(7) Includes 132 shares held by his wife.

(8) Includes 2,220 shares held by Mr. Work and his wife as joint tenants and
2,500 shares held by the pension plan of a company of which Mr. Work is the
sole trustee.

(9) These shares are held with Mr. Lichtenberg's children as joint tenants.

(10) Excludes (i) 10,200 shares held by Mr. Hamill's three children, (ii) 18,660
shares held by his mother-in-law, Pearl Greenbaum, and his children as
joint tenants and (iii) 72,500 shares held by his wife, as to all of which
shares Mr. Hamill disclaims beneficial ownership.

Except as otherwise indicated above, the persons listed in the above table
have sole voting and investment power with respect to their respective shares.

Committees of the Board and Meeting Attendance

During the fiscal year ended May 31, 1998, the Company's Board of Directors
held five meetings. The Company has standing Credit, Audit, 1998 Plan and
Director Plan Committees, but does not have standing nominating or compensation
committees.

The Credit Committee is comprised of Mr. Zelmanovitch, Mr. Greenbaum and
Mr. Haber. The Credit Committee reviews loan activities and delinquencies and
provides recommendations to the Board of Directors. The Credit Committee met 10
times during the last fiscal year.

The Audit Committee is comprised of Zindel Zelmanovitch, Neil Greenbaum,
Eugene Haber, Michael L. Moskowitz and John Hamill. The Audit Committee,
established in March 1998, met one time during the last fiscal year. The
function of the Audit Committee is to review the internal accounting control
procedures of the Company, review the consolidated financial statements of the
Company and review with the independent public accountants the results of their
audit.

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<PAGE>

The 1998 Employee Plan Committee will be established at such time as the
Employee Plan is approved by the stockholders. The function of the Plan
Committee is to administer the 1998 Incentive Stock Option Plan.

The Director Plan Committee will be established at such time as the
Non-Employee Directors Option Plan is approved by the stockholders and the
Securities and Exchange Commission (the "Commission"). The function of the
Directors Plan Committee will be to administer the Non-Employee Directors Option
Plan.

Each director attended at least 75% of the aggregate number of meetings of
the Board of Directors and the meetings of all committees of the Board of
Directors on which he served during the last fiscal year.

Executive Compensation

The following table sets forth all remuneration for services rendered to
the Company during the year ended May 31, 1998 paid to or acquired for the
account of all directors and executive officers being paid an aggregate of
$60,000 per year.

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<PAGE>

<TABLE>
<CAPTION>
Pension or Retirement Benefits Estimated Annual Total
Aggregate Accrued as Part of Company Benefits Upon Compensation
Name of Person, Position Compensation(1) Expense(2) Retirement(3) Paid to Directors
------------------------ --------------- ---------- ------------- -----------------
<S> <C> <C> <C>
Zindel Zelmanovitch $85,320(4) $8,532 $93,852(4)
(President and Director)

Neil Greenbaum (Secretary $36,300(4) $3,630 $39,930(4)
and Director)

Pearl Greenbaum (Vice $0(4) $0 $0(4)
President and Director)

Michael Moskowitz $500(5) $500(5)
(Director)

Eugene Haber (Director) $400(5) $400(5)

Alan Work (Director) $500(5) $500(5)

Ben Lichtenberg (Director) $500(5) $500(5)

John Hamill (Director) $400(5) $400(5)
</TABLE>

- ----------
(1) Officers' salaries constitute a major portion of the Company's total
"management fee compensation," which must be approved by the SBA. The SBA
has approved management fee compensation of $225,000 for the Company. This
amount includes officers' salaries, other salaries and employment benefits.

(2) The Company initiated a defined contribution plan in fiscal 1989. The
eligibility requirements for participation in the plan are a minimum age of
21 years old and 24 months of continuous employment with the Company.
Contributions are currently limited to ten percent of each participant's
compensation. All employees and officers were covered and fully vested in
the plan as of May 31, 1998.

(3) The amounts vested at the time of retirement may be withdrawn as a lump sum
or periodic payments in the discretion of the beneficiary. The annual
benefits upon retirement can not be estimated. However, the amounts vested
for the named individuals are as follows: Zindel Zelmanovitch, $271,766;
Neil Greenbaum, $118,584; and Pearl Greenbaum, $88,273.

(4) Employee directors do not receive additional compensation for their
services as directors.

(5) The Company has a policy of paying its non-employee directors fees of $100
for each meeting attended, not to exceed a total of $1,000 in any single
year for any individual director.

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<PAGE>

Certain Transactions

Neil Greenbaum and Pearl Greenbaum, officers and directors of the Company,
and Barbara Joy Hamill, the wife of John Hamill, a nominee for director, are
principals in Pearland Transfer Corp. ("Pearland"), which is licensed to broker
taxi medallions. Frequently, Pearland refers an individual purchasing a
medallion to sources of financing, including the Company and other SSBICs. A
substantial portion of the Company's taxicab medallion financings are referred
to the Company by Pearland. Pearland receives no compensation from the Company
for these referrals. Pearland, however, receives a brokerage fee of
approximately $3,000-$4,000 per medallion transfer, the cost of which fee is
typically split between the purchaser and seller of the medallion.

Mr. Zelmanovitch, President and a director of the Company, is also
President and a director of another SSBIC, East Coast Venture Capital Inc.
("East Coast"), a wholly-owned subsidiary of Veritas Financial, Inc. The Company
and East Coast may in the future co-invest in certain loan and/or other
investment opportunities. Because such co-investing would require prior approval
from the Securities and Exchange Commission pursuant to the 1940 Act, the
Company will seek such approval if the Company's management determines such
co-investing to be in the best interests of the Company.

The Company currently leases office space from 313 West 53rd Street Assoc.,
a partnership whose partners consist of certain officers and directors of the
Company, for $1,500 per month plus a prorated portion of any increases in the
landlord's operating costs above those in effect at the time the lease was
entered into and the prorated share of any repair expenses incurred by the
landlord. The lease is on a month-to-month basis.

Compliance with Section 16(a) of The 1934 Act

Section 16(a) of the Securities Exchange Act of 1934 (the "1934 Act")
requires the Company's officers and directors, and persons who own more than ten
percent of the Company's Common Stock, to file initial reports of beneficial
ownership and changes in beneficial ownership with the Commission and to furnish
the Company with copies of all reports filed.

Based solely on a review of the forms furnished to the Company, or written
representations from certain reporting persons, the Company believes that all
persons who were subject to Section 16(a) in 1998 complied with the filing
requirements.

PROPOSAL NO. 2
APPROVAL OF AMENDMENT TO CHARTER

Pursuant to the Company's certificate of incorporation, the Company is presently
authorized to issue an aggregate of 8,000,000 shares, of which 5,000,000 shares
are four (4%) percent preferred stock, $1.00 par value, with a 4% dividend rate
("4% Preferred Stock"), and 3,000,000 shares are common stock, $.01 par value
("Common Stock"). To date, 1,410,000 shares of 4% Preferred Stock (all of which
are held by the SBA) and 2,172,688 shares of Common Stock, respectively, were
issued and outstanding.

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<PAGE>

One of the purposes of this Annual Meeting of Shareholders is to consider and
vote upon approval of an amendment to the Company's certificate of incorporation
that would increase the number of shares of Common Stock the Company is
authorized to issue from 3,000,000 to 5,000,000 shares. A copy of the form of
proposed amendment reflecting the increase in the authorized shares of Common
Stock is included as Exhibit A hereto. Holders of the Common Stock do not have
any preemptive or similar rights to purchase any securities of the Company and
accordingly do not have any rights to purchase any additional authorized shares
of Common Stock. The Board of Directors would not seek from shareholders any
authorization or approval for the issuance of the additional authorized shares
of Common Stock unless required to do so by law in the particular instance. If
and when issued, the newly authorized shares of Common Stock would have the same
rights as the presently issued and outstanding shares of Common Stock.

The purpose of the increase in the authorized number of shares of Common Stock
is to have a sufficient number of authorized shares (i) to provide for the
exercise of options under the stock option plans (the "Stock Option Plans") and
(ii) to provide for the issuance of additional shares in connection with a
future sale of shares pursuant to either a private or public financing. The
Stock Option Plans are described in Proposal Nos. 5 and 6, and no consideration
will be received by the Company in connection with the Stock Option Plans until
the options issued pursuant to the Stock Option Plans are exercised. The Company
presently has no plans to sell any of its shares.

The affirmative vote of the holders of a majority of the outstanding shares
of Common Stock is required for the approval of the proposed amendment to the
certificate of incorporation.

Proposal No. 2 also requires approval by the SBA.

The Board of Directors of the Company recommends a vote FOR Proposal No. 2.

PROPOSAL NO. 3
APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS FOR FISCAL 1998

The Board of Directors, including a majority of directors who are not
interested persons of the Company, subject to shareholder approval, has selected
Michael C. Finkelstein & Co. as independent public accountants to be employed by
the Company for the fiscal year ending May 31, 1998 to sign or certify such
financial statements, or any portions thereof, as may be filed by the Company
with the Commission or any other authorities at any time. The employment of such
independent public accountants for such purpose is subject to approval by the
shareholders at this meeting. No member of Michael C. Finkelstein & Co. or any
associate thereof has a direct or indirect material financial interest in the
Company or any of its affiliates.

The affirmative vote of a majority of the Common Stock present or
represented at the meeting is required to approve the selection of Michael C.
Finkelstein & Co. as independent public accountants for the Company for fiscal
1998.

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<PAGE>

A representative of Michael C. Finkelstein & Co. will be present at the
Annual Meeting of Shareholders for the purpose of answering shareholder
questions and making any other appropriate statement.

The Board of Directors of the Company recommends a vote FOR Proposal No. 3.

PROPOSAL NO. 4
APPROVAL OF THE ELECTION
TO BECOME A BUSINESS DEVELOPMENT COMPANY

The Company has been registered under the 1940 Act as, and has operated as,
a closed-end, diversified management investment company. The Board of Directors
has determined that it would be in the best interests of shareholders to elect
to become a business development company ("BDC") under the 1940 Act.

A BDC is a specialized type of investment company. The Board believes the
greater flexibility in operations, including the ability to invest in entities
that other affiliated persons invest in and the ability to offer expanded
management incentives and other benefits of a BDC, makes this the correct choice
and recommends that you vote "FOR" the proposal. The Company may not withdraw
its election without first obtaining the approval of a majority of its
outstanding voting securities. The following is a brief summary of the 1940 Act
as applied to BDCs. This summary is not complete and is qualified in its
entirety by reference to the full text of the 1940 Act, as amended to date, and
the rules adopted thereunder.

Generally, to be eligible to elect BDC status, a company must be primarily
engaged in the business of furnishing capital and managerial expertise to
companies that 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 equity securities or
have filed a registration statement with the Securities and Exchange Commission
pursuant to Section 12 of the 1934 Act, which is a prerequisite for the trading
of equity securities; (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 to such
portfolio companies; (v) have a majority of "disinterested" directors (as
defined in the 1940 Act); and (vi) file (or, under certain circumstances, intend
to file) a proper notice of election with the Company.

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; or (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 Securities and Exchange Commission. Control under the 1940
Act is presumed to exist where a BDC owns 25% of the outstanding securities of
the investee.

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

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may acquire to "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 company's assets consist of
qualifying assets. The staff of the Commission is of the view that a BDC must
meet this test within two years and must have at least 50% of its assets in
securities of portfolio companies within two years. The Company expects to be
able to meet these criteria. Qualifying assets include: (i) securities of
companies that were eligible portfolio companies at the time such company
acquired their securities; (ii) securities of bankrupt or insolvent companies
that were eligible at the time of such company's initial acquisition of their
securities but are no longer eligible, provided that such company has maintained
a substantial portion of its initial investment in those companies; (iii)
securities received in exchange for or distributed in or with respect to any of
the foregoing; and (iv) 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
including limiting purchases to transactions not involving a public offering and
acquiring securities from either the portfolio company or their officers,
directors or affiliates.

Investing in a BDC may entail special risks because of the nature of their
investments in small companies. Because of the absence of any trading market for
unlisted investments, the Company may require more time to liquidate its
investments than would be the case for listed securities. Companies whose
securities are unlisted tend to be smaller than established companies and
generally have smaller capitalizations and fewer resources and, therefore, are
often more vulnerable to financial failure. In addition, the management of such
companies tend to be less experienced and knowledgeable than those of
established companies that are in a "start-up" stage of development, have little
or no operating history, operate at a loss or with substantial variations in
operating results from period to period, have limited products, markets or
financial resources or have the need for substantial additional "follow-up"
capital to support expansion or to achieve or maintain a competitive position.

As a BDC, the Company may invest in the securities of public companies and
other investments that are not qualifying assets, but such investments shall not
exceed 30% of the Company's total asset value at the time of any such
investment.

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 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 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 expects that the business focus will not change significantly
as management provides direct assistance and advice to portfolio companies and
expects to continue to do so. It does so through conferences, meetings and
assistance with business planning and development as well as providing access to
knowledgeable third parties.

The Company may issue in limited amounts, warrants, options and rights to
purchase its securities to its officers, directors and employees in connection
with an executive compensation

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<PAGE>

plan if certain conditions are met. These conditions include the authorization
of such issuance by a majority of the holders of the Company's Common Stock and
the approval of a majority of the independent members of the Board of Directors
and a majority of the directors who have no financial interest in the
transaction. The issuance of options, warrants or rights to directors who are
not also officers or employees requires the prior approval of the Commission.
The Company intends to submit to the Securities and Exchange Commission an
application for an exemptive order for the 1998 Non-Employee Directors Stock
Option Plan. The 1998 Non-Employee Directors Stock Option Plan will not be
implemented until the approval of the Securities and Exchange Commission has
been received. Proposal Nos. 5 and 6 would implement these provisions.

The Board of Directors recommend a vote FOR Proposal No. 4.

PROPOSAL NO. 5
APPROVAL OF AN INCENTIVE STOCK OPTION PLAN

The Company's Board of Directors, including a majority of the
non-interested directors, has adopted, subject to shareholder approval, an
employee stock option plan (the "1998 Employee Plan") in order to link the
personal interests of key employees to the long-term financial success of the
Company and the growth of shareholder value. The 1998 Employee Plan authorizes
the grant of incentive stock options within the meaning of Section 422 of the
Internal Revenue Code for the purchase of an aggregate of 125,000 shares
(subject to adjustment for stock splits and similar capital changes) of Common
Stock to employees of the Company. By adopting the 1998 Employee Plan, the Board
believes that the Company will be better able to attract, motivate and retain as
employees people upon whose judgment and special skills the success of the
Company in large measure depends. To date, no options to purchase shares of
Common Stock have been granted under the 1998 Employee Plan. Accordingly, as of
such date, 125,000 shares of Common Stock were available for future awards under
the 1998 Employee Plan.

The 1998 Employee Plan will be administered by the 1998 Employee Plan
Committee of the Board of Directors, which will be comprised solely of
non-employee directors (who are "outside directors" within the meaning of
Section 152(m) of the Internal Revenue Code of 1986, as amended (the "Code"),
"disinterested persons" within the meaning of Rule 16b-3 under the Securities
Exchange Act of 1934 (the "1934 Act") and not interested persons under Section
2(a)(19) of the Investment Company Act of 1940 (the "Committee")). The Committee
can make such rules and regulations and establish such procedures for the
administration of the 1998 Employee Plan as it deems appropriate.

The exercise price of an incentive stock option must be at the fair market
value of the Company's Common Stock on the date of grant (110% of the fair
market value for shareholders who, at the time the option is granted, own more
than 10% of the total combined classes of stock of the Company or any
subsidiary). No employees may exercise more than $100,000 in options held by
them in any year.

No option may have a term of more than ten years (five years for 10% or
greater shareholders). Options generally may be exercised only if the option
holder remains

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<PAGE>

continuously associated with the Company or a subsidiary from the date of grant
to the date of exercise. However, options may be exercised upon termination of
employment or upon death or disability of any employee within certain specified
periods.

The following is a general summary of the federal income tax consequences
under current tax law of incentive stock options ("ISOs"). It does not purport
to cover all of the special rules, including special rules relating to persons
subject to the reporting requirements of Section 16 under the 1934 Act who do
not hold the shares acquired upon the exercise of an option for at least six
months after the date of grant of the option and special rules relating to the
exercise of an option with previously-acquired shares, or the state or local
income or other tax consequences inherent in the ownership and exercise of stock
options and the ownership and disposition of the underlying shares.

An optionee will not recognize taxable income for federal income tax
purposes upon the grant of an ISO.

Upon the exercise of an ISO, the optionee will not recognize taxable
income. If the optionee disposes of the shares acquired pursuant to the exercise
of an ISO more than two years after the date of grant and more than one year
after the transfer of the shares to him or her, the optionee will recognize
long-term capital gain or loss and the Company will not be entitled to a
deduction. However, if the optionee disposes of such shares within the required
holding period, all or a portion of the gain will be treated as ordinary income
and the Company will generally be entitled to deduct such amount.

In addition to the federal income tax consequences described above, an
optionee may be subject to the alternative minimum tax.

Under the 1998 Employee Plan, because the number of options and the time of
such grants are totally within the discretion of the Committee, the number of
options which would have been granted to any employees, including officers or
directors of the Company, if the 1998 Employee Plan had previously been approved
can not be determined.

The description of the 1998 Employee Plan set forth herein is qualified in
its entirety by reference to the text of the 1998 Employee Plan, a copy of which
is attached as Exhibit 2 to this Proxy Statement.

The affirmative vote of the holders of a majority of the outstanding shares
of Common Stock is required for the approval of the 1998 Plan. The Board of
Directors of the Company recommends a vote FOR Proposal No. 5.

PROPOSAL NO. 6
APPROVAL OF A NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN

The Company's Board of Directors has adopted subject to shareholder
approval, a stock option plan for non-employee directors (the "Director Plan")
in order to link the personal interests of such non-employee directors to the
long-term financial success of the Company and the growth of shareholder value.
The Director Plan provides for the automatic grant of options

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<PAGE>

to directors of the Company who are not employees, officers or interested
persons of the Company (an "Eligible Director"). By adopting the Director Plan,
the Board believes that the Company will be better able to attract, motivate and
retain as directors people upon whose judgment and special skills the success of
the Company in large measure depends. In accordance with the provisions of the
1940 Act, the automatic grant of options under the Director Plan will not occur
until after the date of the approval (the "Approval Date") of the Director Plan
by the Commission. There can be no assurance that the Commission will approve
the Director Plan.

The total number of shares for which options may be granted from time to
time under the Director Plan is 75,000 shares.

The Director Plan provides that an Eligible Director serving on the
Company's Board of Directors who has served as a director for at least one year
prior to the Approval Date will automatically receive on the Approval Date the
grant of an option to purchase the number of shares of Common Stock determined
by dividing $50,000 by the fair market value of the Common Stock on the Approval
Date. With respect to any Eligible Director who is elected or reelected as a
director of the Company after the Approval Date such elected director will
automatically receive on the date such director has served as a director of the
Company for one year of such election or reelection an option to purchase the
number of shares of Common Stock determined by dividing $50,000 by the fair
market value of the Common Stock on the date of the first anniversary such
director became a director of the Company.

The Director Plan will be administered by a committee of directors who are
not eligible to participate in the Director Plan (the "Committee") or by the
entire Board of Directors, if the Board so determines. Options become
exercisable with respect to such shares granted on the date on which the option
was granted, so long as the optionee remains an Eligible Director. No option may
be exercised more than five years after the date on which it is granted. The
number of shares available for options, the number of shares subject to
outstanding options and their exercise prices will be adjusted for changes in
outstanding shares such as stock splits and combinations of shares. Shares
purchased upon exercise of options, in whole or in part, must be paid for in
cash or by means of unrestricted shares of Common Stock or any combination
thereof.

The following is a general summary of the federal income tax consequences
under current tax law of non-qualified stock options ("NQSOs"). It does not
purport to cover all of the special rules, including special rules relating to
persons subject to the reporting requirements of Section 16 under the 1934 Act
who do not hold the shares acquired upon the exercise of an option for at least
six months after the date of grant of the option and special rules relating to
the exercise of an option with previously-acquired shares, or the state or local
income or other tax consequences inherent in the ownership and exercise of stock
options and the ownership and disposition of the underlying shares.

Upon the exercise of a NQSO, the optionee will recognize ordinary income in
an amount equal to the excess, if any, of the fair market value of the shares
acquired on the date of exercise over the exercise price thereof, and the
Company will generally be entitled to a deduction for such amount at that time.
If the optionee later sells shares acquired pursuant to the exercise of

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<PAGE>

a NQSO, he or she will recognize long-term or short-term capital gain or loss,
depending on the period for which the shares were held. Long-term capital gain
is generally subject to more favorable tax treatment than ordinary income or
short-term capital gains.

If the option does not have a readily ascertainable fair market value, an
optionee will not recognize taxable income for federal income tax purposes upon
the grant of an NQSO.

Options granted under the Director Plan will not be transferable other than
by the laws of descent and during the optionee's life may be exercised only by
the optionee. All rights to exercise options will terminate after the optionee
ceases to be an Eligible Director. If the optionee dies before expiration of the
option, his legal successors may have the right to exercise the option in whole
or in part within one year of death.

The Director Plan may be terminated at any time by the Board of Directors,
and will terminate ten years after the effective date of the Director Plan. The
Board of Directors may not materially increase the number of shares authorized
under the plan or materially increase the benefits accruing to participants
under the plan without the approval of the shareholders of the Company.

The exercise or conversion price of the options issued pursuant to the
Director Plan shall be not less than current market value at the date of
issuance, or if no such market value exists, the current net asset value of such
voting securities.

To date no options have been granted under the Director Plan.

Each person who is a director at the time of the Approval Date or
thereafter becomes a director of the Company will receive a one time grant of
options to purchase that number of shares of Common Stock determined by dividing
$50,000 by the current market price on the Approval Date, or on his first
anniversary date of becoming a director, as described in more detail above.

The following table sets forth the number of shares which the current
non-employee directors would have been entitled to receive if the Approval Date
had been May 31, 1998.

Name and Position Dollar Value Number of Shares
----------------- ------------ ----------------

Michael Moskowitz, Director $50,000 8,163

Eugene Haber, Director $50,000 8,163

Alan Work, Director $50,000 8,163

Ben Lichtenberg, Director $50,000 8,163

John Hamill, Director $50,000 8,163

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<PAGE>

The description of the Director Plan set forth herein is qualified in its
entirety by reference to the text of the Director Plan, a copy of which is
attached as Exhibit 3 to this Proxy Statement.

The affirmative vote of the holders of a majority of the outstanding shares
of Common Stock is required for the approval of the Director Plan. The Board of
Directors of the Company recommends a vote FOR Proposal No. 6.

PROPOSAL NO. 7
OTHER MATTERS

The Board of Directors does not know of any other matters which may come
before the meeting. However, if any other matters are properly presented to the
meeting, it is the intention of the persons named in the accompanying proxy to
vote, or otherwise to act, in accordance with their judgment on such matters.

All costs of solicitation of proxies will be borne by the Company. In
addition to solicitations by mail, the Company's directors, officers and regular
employees, without additional remuneration, may solicit proxies by telephone and
personal interview.

Deadline for Submission of Shareholder Proposals

Proposals of shareholders intended to be presented at the 1999 Annual
Meeting of Shareholders must be received by the Company at its principal
executive offices not later than July 22, 1999, for inclusion in the proxy
statement for that meeting. Mere submission of a proposal does not guarantee its
inclusion in the Proxy Statement or its presentation at the meeting since
certain federal rules must also be met.

Requests for Financial Statements

The Company will furnish, without charge a copy of its financial statements
for the fiscal year ended May 31, 1998, to shareholders who make written request
to the Company at 313 West 53rd Street, New York, NY 10019 or call the Company
collect at (212) 265- 2249.

The Board of Directors invites shareholders to attend the Annual Meeting.
Whether or not you plan to attend, you are urged to complete, date, sign and
return the enclosed proxy in the accompanying envelope. Prompt response will
greatly facilitate arrangements for the meeting, and your cooperation will be
appreciated. Shareholders who attend the meeting may vote their stock personally
even though they have sent in their proxies.

By Order of the Board of Directors

NEIL GREENBAUM, Secretary
October 14, 1998

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<PAGE>

Exhibit 1

CERTIFICATE OF AMENDMENT

TO THE

CERTIFICATE OF INCORPORATION

FRESHSTART VENTURE CAPITAL CORP.

Under Section 805 of the Business Corporation Law

-----------------------------------------------------------

It is hereby certified that:

FIRST: The name of the Corporation is FRESHSTART VENTURE CAPITAL CORP.

SECOND: The Certificate of Incorporation of the Corporation was filed by
the Department of State on March 4, 1982 under the name Freshstart Venture
Capital Corp.

THIRD: The Certificate of Incorporation of Freshstart Venture Capital Corp.
is hereby amended. The amendment to the Certificate of Incorporation of the
Corporation effected by this Certificate of Amendment is to increase the
aggregate number of authorized shares of Common Stock, $.01 par value, from
3,000,000 to 5,000,000.

FOURTH: To accomplish the foregoing amendment, the first paragraph of
Article 5 of the Certificate of Incorporation of the Corporation shall be deemed
amended and restated and subparagraphs (a)-(g) shall remain unchanged. The
amended first paragraph shall be as follows:

"5. The total number of authorized shares of capital stock of
this Corporation shall consist of 15,000,000 shares of which
10,000,000 shares shall be Four (4%) Percent Preferred Stock,
having a par value of one ($1.00) dollar per share, and 5,000,000
shares shall be Common Stock, having a par value of $.01 (one
cent) per share. The Four (4%) Percent Preferred Stock authorized
is restricted solely for issuance to the United States Small
Business Administration (the "SBA"). The

<PAGE>

designation of each class, the number of shares of each class and
par value of the shares of each class are as follows:

Number of Par Value
Shares Type Per Share
------ ---- ---------

10,000,000 Four (4%) Percent Preferred Stock $1.00

5,000,000 Common Stock $0.01"

FIFTH: The foregoing amendment to The Certificate of Incorporation of the
Corporation was authorized by the vote of a majority of the holders of all of
the outstanding shares of the Corporation entitled to vote on the said amendment
of the Certificate of Incorporation subsequent to the affirmative vote of the
Board of Directors and, pursuant to the provisions of Article 6 of the
Certificate of Incorporation, with consent of the United States Small Business
Administration.

IN WITNESS WHEREOF, this Certificate of Amendment to the Certificate of
Incorporation has been subscribed to this _____day of________________ , 1998 by
the undersigned who affirm that the statements made herein are true under the
penalties of perjury.

------------------------------
ZINDEL ZELMANOVITCH, PRESIDENT

------------------------------
NEIL GREENBAUM, SECRETARY

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<PAGE>

Exhibit 2

FRESHSTART VENTURE CAPITAL CORP.

1998 INCENTIVE STOCK OPTION PLAN

The purpose of the 1998 Incentive Stock Option Plan (the "Plan") is to
attract and retain key employees of Freshstart Venture Capital Corp. (the
"Company") and its affiliates, to provide an incentive for them to achieve
long-range performance goals, and to enable them to participate in the long-term
growth of the Company by the granting of Incentive Stock Options (individually
referred to herein as an "Option" and collectively as "Options") to purchase the
Company's common stock, par value $0.01 par value (the "Common Stock").

1. Administration of the Plan.

The administration of the Plan shall be under the general supervision of
the 1998 Employee Plan Committee of the Board of Directors of the Company (the
"1998 Employee Plan Committee"). The 1998 Employee Plan Committee of the Board
of Directors will be comprised solely of non-employee directors (who are
"outside directors" within the meaning of Section 152(m) of the Internal Revenue
Code of 1986, as amended (the "Code"), "disinterested persons" within the
meaning of Rule 16b-3 under the Securities Exchange Act of 1934 (the "1934 Act")
and not interested persons under Section 2(a)(19) of the Investment Company Act
of 1940. Within the limits of the Plan, the 1998 Employee Plan Committee shall
determine the individuals to whom, and the times at which, Options shall be
granted, the type of Option to be granted, the duration of each Option, the
price and method of payment for each Option, and the time or times within which
(during its term) all or portions of each Option may be exercised. The 1998
Employee Plan Committee may establish such rules as it deems necessary for the
proper administration of the Plan, make such determinations and interpretations
with respect to the Plan and Options granted under it as may be necessary or
desirable and include such further provisions or conditions in Options granted
under the Plan as it deems advisable. To the extent permitted by law, the 1998
Employee Plan Committee may delegate its authority under the Plan to a
sub-committee of the 1998 Employee Plan Committee.

2. Shares Subject to the Plan.

(a) Number of Shares. The aggregate number of shares of Common Stock of the
Company which may be optioned under the Plan is 125,000 shares. In the event
that the 1998 Employee Plan Committee in its discretion determines that any
stock dividend, split-up, combination or reclassification of shares,
recapitalization or other similar capital change affects the Common Stock such
that adjustment is required in order to preserve the benefits or potential
benefits of the Plan or any Option granted under the Plan, the maximum aggregate
number and kind of shares or securities of the Company as to which Options may
be granted under the Plan and as to which Options then outstanding shall be
exercisable, and the option price of such Options, shall be appropriately
adjusted by the 1998 Employee Plan Committee (whose determination shall be
conclusive) so that the proportionate number of shares or other securities as to
which Options may be granted and the proportionate interest of holders of
outstanding Options shall be maintained as before the occurrence of such event.

(b) Effect of Certain Transactions. In order to preserve a Participant's
(as defined below) rights under an Option in the event of a change in control of
the Company, the 1998 Employee Plan Committee in its discretion may, at the time
an Option is made or at any time thereafter, take one or more of the following
actions: (i) provide for the acceleration of any

<PAGE>

time period relating to the exercise or payment of the Option, (ii) provide for
payment to the Participant of cash or other property with a fair market value
equal to the amount that would have been received upon the exercise or payment
of the Option had the Option been exercised or paid upon the change in control,
(iii) adjust the terms of the Option in a manner determined by the 1998 Employee
Plan Committee to reflect the change in control, (iv) cause the Option to be
assumed, or new rights substituted therefor, by another entity, or (v) make such
other provision as the 1998 Employee Plan Committee may consider equitable to
the Participant and in the best interests of the Company, provided such action
shall comply with Section 424 of the Code and will not render any Incentive
Stock Option granted hereunder to be other than an incentive stock option for
purposes of Section 422 of the Code.

(c) Restoration of Shares. If any Option expires or is terminated
unexercised or is forfeited for any reason, the shares subject to such Option,
to the extent of such expiration, termination or forfeiture, shall again be
available for granting pursuant to Options under the Plan, subject, however, in
the case of Incentive Stock Options, to any requirements under the Code (as
defined below).

(d) Reservation of Shares. The Company shall at all times while the Plan is
in force reserve such number of shares of Common Stock as will be sufficient to
satisfy the requirements of the Plan. Shares issued under the Plan may consist
in whole or in part of authorized but unissued shares or treasury shares.

3. Grant of Options; Eligible Persons.

(a) Types of Options. Options shall be granted under the Plan either as
incentive stock options ("Incentive Stock Options"), as defined in Section 422
of the Internal Revenue Code of 1986, as amended (the "Code"), or as Options
that do not meet the requirements of Section 422 ("Nonstatutory Stock Options").
Options may be granted from time to time by the 1998 Employee Plan Committee,
within the limits set forth in Sections 1 and 3 of the Plan, to all employees of
the Company or of any parent corporation or subsidiary corporation of the
Company (as defined in Sections 424(e) and (f), respectively, of the Code) (such
individuals collectively referred to herein as "Participants").

(b) Date of Grant. The date of grant for each Option shall be the date on
which it is approved by the 1998 Employee Plan Committee or such later date as
the 1998 Employee Plan Committee may specify. No Incentive Stock Options shall
be granted hereunder after ten years from the date on which the Plan was
approved by the Board of Directors.

4. Form of Options.

Options granted hereunder shall be evidenced by a writing delivered to the
optionee specifying the terms and conditions thereof and containing such other
terms and conditions not inconsistent with the provisions of the Plan as the
1998 Employee Plan Committee considers necessary or advisable to achieve the
purposes of the Plan or comply with applicable tax and regulatory laws and
accounting principles. The form of such Options may vary among optionees.

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<PAGE>

5. Option Price.

The price at which shares may from time to time be optioned shall be
determined by the 1998 Employee Plan Committee, provided that such price shall
not be less than the current market value of the Common Stock on the date of
grant, and provided further that no Incentive Stock Option shall be granted to
any individual who is ineligible to be granted an Incentive Stock Option because
his ownership of stock of the Company or its parent or subsidiary corporations
exceeds the limitations set forth in Section 422(b)(6) of the Code unless such
option price is at least 110% of the current market value of the Common Stock on
the date of grant.

To the extent permitted by law, the 1998 Employee Plan Committee may in its
discretion permit the option price to be paid in whole or in part by a note or
in installments or with shares of Common Stock of the Company or such other
lawful consideration as the 1998 Employee Plan Committee may determine.

6. Term of Option and Dates of Exercise.

(a) Exercisability. The 1998 Employee Plan Committee shall determine the
term of all Options, the time or times that Options are exercisable and whether
they are exercisable in installments, provided that the term of each Option
granted under the Plan shall not exceed a period of ten years from the date of
its grant, and provided further that no Incentive Stock Option shall be granted
to any individual who is ineligible to be granted such Option because his
ownership of stock of the Company or its parent or subsidiary corporations
exceeds the limitations set forth in Section 422(b)(6) of the Code unless the
term of his Incentive Stock Option does not exceed a period of five years from
the date of its grant. In the absence of such determination, the Option shall be
exercisable at any time or from time to time, in whole or in part, during a
period of ten years from the date of its grant or, in the case of an Incentive
Stock Option, the maximum term of such Option.

(b) Effect of Disability, Death or Termination of Employment. The 1998
Employee Plan Committee shall determine the effect on an Option of the
disability, death, retirement or other termination of employment of an optionee
and the extent to which, and during the period which, the optionee's estate,
legal representative, guardian, or beneficiary on death may exercise rights
thereunder. Any beneficiary on death shall be designated by the optionee, in the
manner determined by the 1998 Employee Plan Committee, to exercise rights of the
optionee in the case of the optionee's death.

(c) Other Conditions. The 1998 Employee Plan Committee may impose such
conditions with respect to the exercise of Options, including conditions
relating to applicable federal or state securities laws, as it considers
necessary or advisable.

(d) Withholding. The optionee shall pay to the Company, or make provisions
satisfactory to the 1998 Employee Plan Committee for payment of, any taxes
required by law to be withheld in respect of any Options under the Plan no later
than the date of the event creating the tax liability. The Company and any
parent corporation or subsidiary corporation of the Company (as defined in
Sections 424(e) and (f), respectively, of the Code) may, to the

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<PAGE>

extent permitted by law, deduct any such tax obligations from any payment of any
kind otherwise due to the optionee.

(e) Amendment of Options. The 1998 Employee Plan Committee may amend,
modify or terminate any outstanding Option, including substituting therefor
another Option of the same or different type, changing the date of exercise or
realization and converting an Incentive Stock Option to a Nonstatutory Stock
Option, provided that the optionee's consent to such action shall be required
unless the 1998 Employee Plan Committee determines that the action, taking into
account any related action, would not materially and adversely affect the
optionee.

7. Non-transferability.

Options granted under the Plan shall not be transferable by the holder
thereof otherwise than by will or the laws of descent and distribution or, in
the case of a Nonstatutory Stock Option, to the extent consistent with
qualifying for the exemption provided by Rule 16b-3 under the Securities
Exchange Act of 1934 (the "Exchange Act"), pursuant to a qualified domestic
relations order, and shall be exercisable, during the holder's lifetime, only by
him or her or such permitted transferee.

8. No Right to Employment.

No persons shall have any claim or right to be granted an Option, and the
grant of an Option shall not be construed as giving an optionee the right to
continued employment. The Company expressly reserves the right at any time to
dismiss an optionee free from any liability or claim under the Plan, except as
specifically provided in the applicable Option.

9. No Rights as a Shareholder.

Subject to the provisions of the applicable Option, no optionee or any
person claiming through an optionee shall have any rights as a shareholder with
respect to any shares of Common Stock to be distributed under the plan until he
or she becomes the holder thereof.

10. Amendment or Termination.

The Board of Directors of the Company may amend, suspend or terminate the
Plan or any portion thereof at any time, subject to any shareholder approval
that the Board of Directors determines to be necessary or advisable, provided
that the Participant's consent will be required for any amendment, suspension or
termination that would adversely affect the rights of the Participant under any
outstanding Options.

11. Adjustment of Shares; Merger or Consolidation, Etc. of the Company.

(a) Recapitalization, Etc. In the event there is any change in the
outstanding Common Stock of the Company by reason of any reorganization,
recapitalization, stock split, stock dividend, combination of shares, or
otherwise, there shall be substituted for or added to each share of Common Stock
theretofore appropriated or thereafter subject, or which may

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<PAGE>

become subject, to any Option, the number and kind of shares of stock or other
securities into which each outstanding share of Common Stock shall be so changed
or for which each such share shall be exchanged, or to which each such share
shall be exchanged, or to which each such share shall be entitled, as the case
may be, and the per share price thereof also shall be appropriately adjusted.
Notwithstanding the foregoing, (i) each such adjustment with respect to an
Incentive Stock Option shall comply with the rules of Section 424(a) of the Code
and (ii) in no event shall any adjustment be made which would render any
Incentive Stock Option granted hereunder to be other than an incentive stock
option for purposes of Section 422 of the Code.

(b) Merger, Consolidation, or Change in Control of Company. Upon (i) the
merger or consolidation of the Company with or into another corporation
(pursuant to which the stockholders of the Company immediately prior to such
merger or consolidation will not, as of the date of such merger or
consolidation, own a beneficial interest in shares of voting securities of the
corporation surviving such merger or consolidation having at least a majority of
the combined voting power of such corporation's then outstanding securities), if
the agreement of merger or consolidation does not provide for (1) the
continuance of the Options granted hereunder or (2) the substitution of new
options for Options granted hereunder, or for the assumption of such Options by
the surviving corporation, (ii) the dissolution, liquidation, or sale of all or
substantially all the assets of the Company to a person unrelated to the Company
or to a direct or indirect owner of a majority of the voting power of the
Company's then outstanding voting securities (such sale of assets being referred
to as an "Asset Sale") or (iii) the Change in Control of the Company, then the
holder of any such Option theretofore granted and still outstanding (and not
otherwise expired) shall have the right immediately prior to the effective date
of such merger, consolidation, dissolution, liquidation, Asset Sale, or Change
in Control of the Company to exercise such Options(s) in whole or in part
without regard to any installment provision that may have been made part of the
terms and conditions of such Options(s); provided that all conditions precedent
to the exercise of such Option(s), other than the passage of time, have
occurred. The Company, to the extent practicable, shall give advance notice to
affected Participants of such merger, consolidation, dissolution, liquidation,
Asset Sale, or Change in Control of the Company. Unless otherwise provided in
the subject award agreement or merger, consolidation, or Asset Sale agreement,
all such Options which are not so exercised shall be forfeited as of the
effective time of such merger, consolidation, dissolution, liquidation, or Asset
Sale (but not in the case of a Change in Control of the Company). In the event
the Company becomes a subsidiary of another corporation (the "Parent Company")
with respect to which the stockholders of the Company (as determined immediately
before such transaction) own, immediately after such transaction, a beneficial
interest in shares of voting securities of the Parent Company having at least a
majority of the combined voting power of such Parent Company's then outstanding
securities, there shall be substituted for Options granted hereunder, options to
purchase common stock of the Parent Company. The substitution described in the
immediately preceding sentence shall be effected in a manner such that any
option granted by the Parent Company to replace an incentive stock option
granted hereunder shall satisfy the requirements of Section 422 of the Code.
Notwithstanding the foregoing, the holder of any such Option shall not have the
right to exercise such Option if such exercise would render any Incentive Stock
Options granted hereunder to be other than an incentive stock option for
purposes of Section 422 of the Code.

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<PAGE>

(c) Definition of Change in Control of the Company. As used herein, a
"Change in Control of the Company" shall be deemed to have occurred if any
person (including any individual, firm, partnership or other entity), together
with all Affiliates and Associates (as defined under Rule 12b-2 of the General
Rules and Regulations promulgated under the Exchange Act) of such person (but
excluding (i) a trustee or other fiduciary holding securities under an employee
benefit plan of the Company or any subsidiary of the Company, (ii) a corporation
owned, directly or indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of the Company, (iii) the
Company or any subsidiary of the Company, or (iv) only as provided in the
immediately following sentence, a Participant together with all Affiliates and
Associates of the Participant) who is not a stockholder or an Affiliate or
Associate of a stockholder of the Company on the date of stockholder approval of
the Plan is or becomes the beneficial Owner (as defined in Rule 13d-3
promulgated under the Exchange Act), directly or indirectly, of securities of
the Company representing 40% or more of the combined voting power of the
Company's then outstanding securities. The provisions of clause (iv) of the
immediately preceding sentence shall apply only with respect to the Option(s)
held by the Participant who, together with his Affiliates or Associates, if any,
is or becomes the direct or indirect Beneficial Owner of the percentage of
securities set forth in such clause.

12. Stockholder Approval.

The Plan is subject to approval by the stockholders of the Company by the
affirmative vote of the holders of a majority of the shares of capital stock of
the Company entitled to vote thereon and present or represented at a meeting
duly held in accordance with the laws of the State of New York, or by any other
action that would be given the same effect under the laws of such jurisdiction,
which action in either case shall be taken within twelve (12) months from the
date the Plan was adopted by the Board of Directors. In the event such approval
is not obtained, all Options granted under the Plan shall be void and without
effect.

13. Governing Law.

The provisions of the plan shall be governed by and interpreted in
accordance with the laws of the State of New York.

This Plan was approved by the Board of Directors on ______ __, 1998. This
Plan was approved by the Shareholders on ________ ___, 1998.

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Exhibit 3

FRESHSTART VENTURE CAPITAL CORP.

Non-Employee Director Stock Option Plan

This Non-Employee Director Stock Option Plan dated ___________ __, 1998
(the "Plan") governs options to purchase Common Stock, $0.01 par value (the
"Common Stock"), Freshstart Venture Capital Corp. (the "Company") granted on or
after the date hereof by the Company to members of the Board of Directors (the
"Board") of the Company who are not also employees, officers or interested
persons (as defined in Section 2 below) of the Company. The purpose of the Plan
is to attract and retain qualified persons to serve as Directors of the Company
and to encourage ownership of stock of the Company by such Directors so as to
provide additional incentives to promote the success of the Company.

1. Administration of the Plan.

Grants of stock options (individually referred to herein as an "Option" and
collectively as "Options") under the Plan shall be automatic as provided in
Section 6 hereof. However, all questions of interpretation with respect to the
Plan and Options granted under it shall be determined by a committee (the
"Committee") consisting of the Directors of the Company who are not eligible to
participate in the Plan, and such determination shall be final and binding upon
all persons having an interest in the Plan. The plan may be administered by the
entire Board of Directors if permitted by applicable law and regulation and if
determined to be in the best interests of the Company.

2. Persons Eligible to Participate in the Plan.

Members of the Board who are not also officers or employees of the Company
shall be eligible to participate in the Plan ("Eligible Directors").

3. Shares Subject to the Plan.

(a) Number of Shares. The aggregate number of shares of Common Stock of the
Company which may be optioned under this Plan is 75,000 shares. In the event of
a stock dividend, split-up, combination or reclassification of shares,
recapitalization or similar capital change relating to the Common Stock, the
maximum aggregate number and kind of shares or securities of the Company as to
which Options may be granted under this Plan and as to which Options then
outstanding shall be exercisable, and the exercise price of such Options, shall
be appropriately adjusted by the Committee (whose determination shall be
conclusive) so as to preserve the value of the Option.

(b) Effect of Certain Transactions. In order to preserve an Eligible
Director's rights under an Option in the event of a change in control of the
Company, the Committee in its discretion may, on the Date of Grant (as defined
in Section 6(b) below) or at any time thereafter, take one or more of the
following actions: (i) provide for the acceleration of any time period relating
to the exercise or payment of the Option, (ii) provide for payment to the
Eligible

<PAGE>

Director of cash or other property with a fair market value equal to the amount
that would have been received upon the exercise or payment of the Option had the
Option been exercised or paid upon the change in control, (iii) adjust the terms
of the Option in a manner determined by the Committee to reflect the change in
control, (iv) cause the Option to be assumed, or new rights substituted
therefor, by another entity, or (v) make such other provision as the Committee
may consider equitable to the Eligible Director and in the best interest of the
Company.

4. Types of Options.

All Options granted under this Plan shall be non-statutory options not entitled
to special tax treatment under Section 422 of the Internal Revenue Code of 1986,
as amended.

5. Form of Options.

Options granted hereunder shall be evidenced by a writing delivered to the
optionee specifying the terms and conditions thereof and containing such other
terms and conditions not inconsistent with the provisions of the Plan as the
Committee considers necessary or advisable to achieve the purposes of the Plan
or comply with applicable tax and regulatory laws and accounting principles.

6. Grant of Options and Option Terms.

(a) Initial Grant of Options. On the later of (i) date of the approval of
the Plan (the "Approval Date") by the Securities and Exchange Commission in
accordance with the Investment Company Act of 1940, or (ii) the first
anniversary of the election or appointment of such Director to the Board (the
"First Anniversary Date"), providing such Director is then serving, each of the
following Directors shall automatically be granted Options to purchase the
number of shares of Common Stock determined by dividing $50,000 by the Current
Market Value (as defined in Section 6(c) below) on the date indicated opposite
each Director's name (the "Initial Grants") provided each such Director is
serving on the Company's Board as an Eligible Director on the Approval Date or
the First Anniversary Date, as the case may be:

Name of Director Automatic Grant Date
---------------- --------------------
Michael Moskowitz Approval Date
Eugene Haber Approval Date
Alan Work Approval Date

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Ben Lichtenberg Approval Date
John Hamill Approval Date

(b) Automatic Grant of Options. At each annual meeting of the stockholders
of the Company after the Approval Date, each new Eligible Director elected at
such meeting shall automatically be granted on such new Eligible Director's
First Anniversary Date of such election an Option to purchase the number of
shares of Common Stock determined by dividing $50,000 by the Current Market
Value of the Common Stock on such First Anniversary Date of such election. In
addition, upon the election of an Eligible Director other than at an annual
meeting of stockholders (whether by the Board or the stockholders and whether to
fill a vacancy or otherwise), each such Eligible Director shall automatically be
granted an Option on the First Anniversary Date of the election of an Eligible
Director other than at an annual meeting of stockholders to purchase that number
of shares that is determined by dividing $50,000 by the Current Market Value of
the Common Stock on the First Anniversary Date of such election. After the
Initial Grants have been made, all subsequent grants of Options to Eligible
Directors upon the First Anniversary Date of their election to the Board shall
be referred to as "Automatic Grants." The "Date of Grant" for the Initial Grants
shall be the Approval Date and the Date of Grant for the Automatic Grants shall
be the First Anniversary Date of the election as a new Eligible Director,
whether at an annual meeting or otherwise, as the case may be. No Options shall
be granted hereunder after ten years from the date on which this Plan was
initially approved and adopted by the Board.

(c) Exercise Price. The price at which shares may from time to time be
optioned shall be determined by the Committee, provided that such price shall
not be less than the current market value (the "Current Market Value") of the
Common Stock on the date of grant, or if no such market value exists, then the
current net asset value of the Common Stock of the Company or such other lawful
consideration as the Committee may determine.

(d) Term of Option. The term of each Option granted under this Plan shall
be five years from the Date of Grant.

(e) Period of Exercise. Options granted under this Plan shall become
exercisable commencing 12 months after the Date of Grant. Directors holding
exercisable Options under this Plan who cease to be Eligible Directors for any
reason, other than death, may exercise the rights they had under such Options at
the time they ceased to be an Eligible Director; provided, however, no
additional Options held by such Directors shall be exercisable thereafter. Upon
the death of a Director, those entitled to do so under the Director's will or
the laws of descent and distribution shall have the right, at any time within
twelve months after the date of death, to exercise in whole or in part any
rights that were available to the Director at the time of his or her death.
Options granted under the Plan shall terminate, and no rights thereunder may be
exercised, after the expiration of five years from their Date of Grant.

(f) Method of Exercise and Payment. Options may be exercised only by
written notice of the Company at its executive offices accompanied by payment of
the full exercise price for the shares of Common Stock as to which they are
exercised. The exercise price shall be paid in cash or by check or by the
surrender of unrestricted shares of Common Stock or by any combination of the
foregoing. Upon receipt of such notice and payment, the

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<PAGE>

Company shall promptly issue and deliver to the optionee (or other person
entitled to exercise the Option) a certificate or certificates for the number of
shares as to which the exercise is made.

(g) Non-transferability. Options granted under this Plan shall not be
transferable by the holder thereof otherwise than by will or the laws of descent
and distribution, and shall be exercisable, during the holder's lifetime, only
by him or her.

(h) Withholding. The optionee shall pay to the Company, or make provisions
satisfactory to the Company for payment of, any taxes required by law to be
withheld in respect of any Options under the Plan no later than the date of the
event creating the tax liability. The Company and any parent corporation or
subsidiary corporation of the Company (as defined in Sections 424(e) and (f),
respectively, of the Code) may, to the extent permitted by law, deduct any such
tax obligations from any payment of any kind otherwise due to the optionee.

7. Limitation of Rights.

(a) No Right to Continue as a Director. Neither the Plan nor the granting
of an Option or any other action taken pursuant to the Plan, shall constitute an
agreement or understanding, express or implied that the Company will retain an
optionee as a Director for any period of time or at any particular rate of
compensation.

(b) No Stockholders' Rights for Options. No Director shall have any rights
as a stockholders with respect to the shares covered by his or her Option until
the date he or she exercises such Option and pays the Option price to the
Company, and no adjustment will be made for dividends or other rights for which
the record date is prior to the date such Option is exercised and paid for.

8. Amendment or Termination.

The Board may amend, suspend or terminate the Plan or any portion thereof
at any time, subject to any shareholder approval that the Board determines to be
necessary or advisable, provided that the Participant's consent will be required
for any amendment, suspension or termination that would adversely affect the
rights of the Participant under any outstanding Options.

9. No Fractional Shares. All grants of Options shall be rounded to the
nearest whole share and no Options representing fractional shares shall be
issued.

10. Governing Law. The provisions of the Plan shall be governed by and
interpreted in accordance with the laws of the State of New York.

This Plan was approved by the Board of Directors on ___________ __, 1998. This
Plan was approved by the Shareholders on ___________ __, 1998. This Plan was
approved by the Securities and Exchange Commission on ___________ __, 199__.

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PROXY FOR HOLDERS OF COMMON STOCK

FRESHSTART VENTURE CAPITAL CORP.

The undersigned holder of shares of common stock, $.01 par value ("Common
Stock"), of Freshstart Venture Capital Corp. (the "Company") hereby constitutes
and appoints Zindel Zelmanovitch and Neil Greenbaum and each of them, singly,
proxies and attorneys of the undersigned, with full power of substitution to
each, for and in the name of the undersigned, to vote and act upon all matters
(unless and except as expressly limited below) at the Annual Meeting of
Shareholders of the Company to be held on November 10, 1998, at the offices of
Stursberg & Veith, 405 Lexington Avenue, Suite 4949, New York, New York at 10:30
a.m., and at any and all adjournments thereof, in respect of all Common Stock of
the Company held by the undersigned or in respect of which the undersigned would
be entitled to vote or act, with all the powers the undersigned would possess if
personally present. All proxies heretofore given by the undersigned in respect
of said meeting are hereby revoked.

PROPOSAL 1. To Elect Directors

FOR electing all nominees listed (as recommended in the proxy
statement) except as marked below _______

Zindel Zelmanovitch, Neil Greenbaum, Pearl Greenbaum, Michael L.
Moskowitz, Eugene Haber, Alan Work, Ben Lichtenberg and John
Hamill.

WITHHOLD AUTHORITY to vote for all nominees listed

(INSTRUCTION: To withhold authority to vote for any individual
nominee, write that person's name in the space provided.)

_________________________________________________________________

PROPOSAL 2. To approve an amendment to the certificate of incorporation of
the Company increasing from 3,000,000 to 5,000,000 the authorized
number of shares of the Common Stock of the Company, subject to
the approval of the United States Small Business Administration.