PROSPECTUS
RAND CAPITAL CORPORATION
1,791,122 COMMON SHARES
__________________________
Rand Capital Corporation (the "Company" or "Rand") is a
registered investment company that is classified as a
diversified, closed-end management company. Its objective is
long-term capital appreciation through high risk venture capital
investments in companies having growth potential but whose
securities, in most cases, have no public market. The Company's
office is at 2200 Rand Building, Buffalo, New York 14203,
telephone number (716) 853-0802.
The securities offered hereby will be offered and sold
by the selling shareholders described under "Selling
Shareholders" (the "Selling Shareholders") for their respective
accounts. Each Selling Shareholder will receive all of the net
proceeds from the sale of the Shares owned by such shareholder.
The distribution of the Shares by the Selling Shareholders may be
effected from time to time in one or more transactions in the
over-the-counter market or in negotiated transactions at market
prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. The Company
will not receive any of the proceeds from the sale of the Shares.
This Prospectus sets forth concisely the information
about the Company that a prospective investor ought to know
before investing. This Prospectus and the attached Statement of
Additional Information ("SAI") of even date should be retained
for future reference. Additional information about the Company
including the SAI has been filed with the Securities and Exchange
Commission, and additional copies of the SAI are available upon
oral or written request and without charge by writing to the
Company or calling (716) 853-0802. The table of contents of the
Statement of Additional Information appears at page 22 below.
The Common Stock is traded in the over-the-counter
market and listed on NASDAQ under the symbol "RAND." On May 30,
1997 the last reported bid price for the Common Stock as reported
on the NASDAQ consolidated reporting system was $1 13/32 per
share. See "Price Range of Common Stock."
The Common Stock offered hereby involves a high degree of
risk. See "SUMMARY OF THE OFFERING -- Risk Factors."
Historically, the Company's shares have frequently traded at a
discount from net asset value. See "FINANCIAL HIGHLIGHTS."
_________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Price to Sales Load Proceeds to
Public (1) Company
Per Share $1.41 -0- -0-
Total $2,525,482 -0- -0-
(1) Estimated, based on last reported bid price for
the Company's common stock on May 30, 1997.
(2) The expenses of the offering (other than
commissions paid by the Selling Shareholders) are
estimated to be $62,000 and will be borne by the
Company.
The date of this Prospectus and attached SAI is May
30, 1997.
No dealer, salesman, or other person has been
authorized to give any information or make any representations,
other than those contained in this Prospectus, and, if given or
made, such other information or representations must not be
relied upon as having been authorized by the Company. This
Prospectus does not constitute an offering in any state in which
such offering may not be lawfully made.
TABLE OF CONTENTS
Page
Fee Table . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Financial Highlights . . . . . . . . . . . . . . . . . . . . . 7
History and Business . . . . . . . . . . . . . . . . . . . . . 8
Plan of Distribution . . . . . . . . . . . . . . . . . . . . 15
Selling Shareholders . . . . . . . . . . . . . . . . . . . . 16
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . 18
Management . . . . . . . . . . . . . . . . . . . . . . . . . 18
Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . 19
Dividend Policies . . . . . . . . . . . . . . . . . . . . . . 21
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . 21
Table of Contents of Statement of Additional Information . . 22
Until June 24, 1997 (25 days after the commencement of
this offering), all dealers effecting transactions in the Shares,
whether or not participating in this distribution, may be
required to deliver a Prospectus. This is in addition to the
obligation of dealers to deliver a Prospectus when acting as
underwriters.
Investors are advised to read this Prospectus and to retain it
for future reference.
RAND CAPITAL CORPORATION, 2200 RAND BUILDING, BUFFALO, NY 14203
(716) 853-0802
FEE TABLE
The following table shows per share expenses of the
Company as a percentage of net asset value per share.
Shareholder Transaction Expenses...................... -0-
Annual Expenses (as a percentage of net assets
attributable to common shares) (1):
Management fees(2)........................ 6.16%
Other Expenses(3) ........................ 3.76%
Total Annual Expenses.................................. 9.92%
________________
(1) Estimated for the current fiscal year based on the
average annual operating expenses of the Company
for 1995 and 1996 as a percentage of net asset
value attributable to common shares.
(2) Includes expenses incurred within the Company's
own organization in connection with the research,
selection and supervision of investments. Such
expenses have been deemed to include salaries,
employee benefits, director fees, consulting fees,
and travel expenses.
(3) Other expenses include legal, accounting,
stockholders and office expense, occupancy expense,
insurance, and other expenses.
The purpose of the above table is to assist the
investor in understanding the various costs and expenses that an
investor in the fund will bear directly or indirectly.
The following Example estimates the aggregate amount of
expenses expected to be incurred by the Company aggregated for
the periods shown. THE EXAMPLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF FUTURE EXPENSES. ACTUAL EXPENSES MAY BE MORE
OR LESS THAN THOSE SHOWN.
________________________________________________________________
Example (1) 1 year 3 years 5 years 10 years
________________________________________________________________
You would pay the
following expenses on
a $1,000 investment
assuming a 5% annual
return: $99 $282 $445 $782
________________________________________________________________
(1) The example assumes (a) the percentage rates listed under
"Annual Expenses" remain the same each year except for interest
expense on retired debt; (b) reinvestment of all dividends and
distributions at net asset value; and (c) reflect all recurring
and nonrecurring fees including any underwriting discounts and
commissions.
SUMMARY
Except as specifically indicated otherwise, all numbers
of Rand common stock indicated in this prospectus are approximate
numbers resulting from adjustment for a five-for-four stock split
on May 26, 1995.
THE ISSUER. Rand Capital Corporation is a registered investment
company, classified as a diversified, closed-end management
company, which primarily makes venture capital investments in
small, developing, unseasoned companies. Rand commenced
operations in 1969.
THE OFFERING. The Selling Shareholders identified under "Selling
Shareholders" are offering hereby up to 1,791,122 shares (the
"Shares") of the Company's common stock. The Selling
Shareholders will sell the Shares on a delayed or continuous
basis for their own accounts. The exact timing and amount of
such sales will be within the discretion of the respective
Selling Shareholders. See "Plan of Distribution."
TRADING. The Company's common stock has traded in the over-the-
counter market since 1971 (NASDAQ symbol: RAND).
INVESTMENT OBJECTIVE AND POLICIES. The Company primarily invests
for long-term capital appreciation, not current income. The
Company typically invests in debt securities of a new or
developing company and concurrently acquires an equity interest
in the form of stock, warrants or options to acquire stock or the
right to convert the debt securities into stock. The debt
securities acquired by the Company must frequently be
subordinated to the issuer's indebtedness to banks and other
institutional lenders and would be considered below investment
grade. When the Company acquires venture securities, they are
not readily marketable and are usually restricted securities as
to which there are substantial restrictions on resale under the
Securities Act of 1933, as amended (the "Securities Act"). See
"HISTORY AND BUSINESS -- Investment Objective and Policies."
RISK FACTORS. Investment in the Common Stock is speculative and
involves substantial risks. Some of the principal risks are as
follows.
1. HIGH RISK, ILLIQUID INVESTMENTS. The Company invests in
securities of new or young, developing companies, which generally
have no record of earnings or success. The debt instruments that
the Company receives when it makes venture investments are
usually subordinated to bank lending and would be considered
below "investment grade." The securities the Company acquires,
when acquired, are not readily marketable and, even if a buyer
can be found, the securities are "restricted securities" under
the Securities Act and the sale of the securities is subject,
therefore, to certain legal restrictions. The Company may invest
100% of its assets in "restricted securities." See "HISTORY AND
BUSINESS -- Investment Objectives and Policies." Since there is
no quoted market price for such securities, such securities must
be valued in good faith by Rand's Board of Directors on some
other basis, and such determination involves the risk that the
securities may not be accurately valued.
2. LOSSES ON INVESTMENTS. The venture investments that the
Company makes bear a high degree of risk and, during the ten year
period ended December 31, 1996, approximately 15 of the 42
venture investments made by the Company have resulted in total or
very substantial losses. In addition, the Company had operating
losses in 20 of the last 28 years. See "HISTORY AND BUSINESS --
Investment Objective and Policies."
3. NO DIVIDENDS. The Company invests for capital appreciation,
not current income. The Company has never paid a cash dividend.
The Company has made distributions of the shares of venture
companies on two occasions. See "DIVIDEND POLICIES."
4. SUBORDINATED LOANS; NEED FOR FOLLOW-ON INVESTMENTS. While
the Company typically acquires both debt and equity securities in
a venture company, the debt securities are usually subordinated
to the venture company's indebtedness to banks. Even if the
venture is successful, the Company may be requested to invest
additional funds at a future date to keep the venture alive or
otherwise protect the Company's investment. There is no
assurance, however, that the Company will have the funds to make
any desirable follow-on investment or that the Company's ability
to make follow-on investments may not be limited by its
diversification policies. See "HISTORY AND BUSINESS --Investment
Objective and policies."
5. LIMITATIONS CREATED BY POLICY REGARDING DIVERSIFICATION OF
INVESTMENTS. Due to the Company's election to be classified as a
"diversified" investment company, the Company is required to
maintain at least 75% of the value of its total assets in cash
and cash items, government securities, securities of other
investment companies, and other securities for the purposes of
this calculation limited in respect of any one issuer to an
amount not greater than 5% of the value of the total assets of
the Company and to not greater than 10% of the outstanding voting
securities of such issuer. See "HISTORY AND BUSINESS --
Diversification and Concentration of Investments." As of March
31, 1997, the Company's total assets were approximately
$8,767,000. Accordingly, the Company is generally limited to
making investments of $438,350 or less in any one issuer, and the
Company's ability to make follow-on investments in companies in
which its existing investment is approximately $438,350 or more
may be severely limited at any time when its portfolio is
approaching its diversification limits.
6. TAX STATUS. Unlike many investment companies, the Company
has not qualified and may not qualify as a "regulated investment
company" entitled to special tax benefits under Federal tax law.
See the information under "TAX STATUS," in the attached Statement
of Additional Information which is hereby incorporated herein by
reference.
7. MARKET OVERHANG. The shares which the Selling Shareholders
have indicated their intention to sell into the market from time
to time creates a substantial "market overhang" of 1,821,122
shares, or 31.9% of the Company's outstanding stock, that may be
sold into the market at any time. During the period from April
1, 1996 through April 1, 1997, the average weekly trading volume
of the Company's Common Stock was approximately 50,000 shares (or
approximately 0.9% of the shares currently outstanding). Given
the historically thin trading market in the Company's common
stock, this market overhang may reduce the market price of the
Company's Common Stock and may lead to unusual downside
volatility during the period that the Shares are being sold.
8. LEVERAGING. The Company may borrow money and leverage its
assets, although it has only done so during its 28 year operating
history (a) pursuant to obligations of its former subsidiary,
Rand SBIC, Inc. to the U.S. Small Business Administration
pursuant to the rules of that agency, and (b) on a fully secured,
short term (less than 60 days) basis to meet immediate cash flow
needs. The use of leverage exaggerates the effect of investment
gains and losses. If the Company's investments failed to return
anticipated interest, dividends or proceeds of sale, the use of
leverage would create the risk that the Company would be unable
to meet its obligations for borrowed money and be forced to
liquidate some assets at distress prices. See "HISTORY AND
BUSINESS -- Investment Objective and Policies."
9. LEGAL PROCEEDINGS -- SIGNIFICANT LITIGATION AFFECTING THE
COMPANY. Based on a venture capital investment made by the
Company in 1973, the Company was named as a defendant in an
action to recover response and remediation costs in excess of
$1,000,000 under the Federal Comprehensive Environmental
Response, Cleanup and Liability Act (CERCLA), the New Jersey
Spill Compensation and Control Act and various common law
theories. Although the Company's Motion for Summary Judgement
and dismissal of all claims against it has been granted and the
Company believes that an appeal is unlikely, the Plaintiff's time
for appeal has not yet run. See "LEGAL PROCEEDINGS."
10. NO PROCEEDS TO THE COMPANY, DILUTIVE EFFECT. The securities
offered hereby will be sold for the accounts of the respective
Selling Shareholders, and the Company will not receive any of the
proceeds from such sales. Since the Company will bear expenses
of the offering estimated at $62,000 as a result of the offering
the net asset value of the Company's Common Stock will be reduced
by that amount.
FINANCIAL HIGHLIGHTS
March 31, December 31, December 31, December 31, December 31, December 31,
1997 1996 1995 1994 1993 1992
(unaudited)
_________ ___________ ___________ ___________ ___________ ___________
Per Share
Operating
Performance
Net Asset $1.53 2.21 3.19 3.07 3.07 2.12
Value -
Beginning
Net (0.03) (0.09) (0.09) (0.07) (0.04) (0.01)
Investment
Income (loss)
Net Realized 0.04 (0.59) (0.89) 0.18 (0.02) 0.96
and
Unrealized
Gains
(Losses)
Total From 0.01 (0.68) (0.98) 0.11 (0.07) 0.95
Investment
Oper.
0.00 0.00 0.00 0.00 0.00 0.00
Distributions
- Net Invest
Inc.
0.00 0.00 0.00 (0.14) 0.00 0.00
Distributions
- Capital
Gains
Returns of 0.00 0.00 0.00 0.00 0.00 0.00
Capital
Total 0.00 0.00 0.00 0.00 0.00 0.00
Distributions
Cumulative 0.00 0.00 0.00 0.00 0.03 0.00
Effect of
Change
in Accounting
Method
Change 0.00 0.00 0.00 0.01 0.00 0.00
Resulting
From
Purchase or
Sale of
Company
Stock
Net Asset 1.51 1.53 2.21 3.19 3.07 3.07
Value - End
Per Share 1.88 1.44 3.50 4 4-3/8 3-5/8
Market Value
(Adjusted) -
End
Total (0.01) (0.31) (0.31) 0.03 (0.02) 0.31
Investment
Return
Ratios/Supple
-mental Data
Net Assets, 1.51 1.53 2.21 3.19 3.07 3.07
End of Period
Ratio of 2.62% 9.75 8.73 6.13% 5.86% 6.66%
Expenses to
Average Net
Assets
Ratio of Net (1.84)% (5.04) (3.48) (2.32)% (1.11)% (0.38)%
Income (loss)
to Average
Net Assets
Portfolio 4.9% 22.50% 14% 5.00% 4.79% 7.72%
Turnover
Number of 5,708,034 4,225,477 4,225,477 4,185,477 3,357,170 3,357,170
Shares
FINANCIAL HIGHLIGHTS (Con't)
December 31, December 31, December 31, December 31, December 31,
1991 1990 1989 1988 1987
___________ ___________ ___________ ____________ ___________
Per Share
Operating
Performance
Net Asset Value 2.07 2.53 2.44 2.07 2.13
- Beginning
Net Investment 0.02 (0.04) 0.00 0.00 0.00
Income (loss)
Net Realized 0.06 (0.28) 0.09 0.40 (0.06)
and Unrealized
Gains (Losses)
Total From 0.06 (0.32) 0.09 0.40 (0.06)
Investment
Oper.
0.00 0.00 0.00 0.00 0.00
Distributions -
Net Invest Inc.
0.00 0.00 0.00 0.00 0.00
Distributions -
Capital Gains
Returns of 0.00 0.00 0.00 0.00 0.00
Capital
Total 0.00 (0.14) 0.00 0.00 0.00
Distributions
Cumulative 0.00 0.00 0.00 (0.03) 0.00
Effect of
Change in
Accounting
Method
Change 0.00 0.00 0.00 0.00 0.00
Resulting From
Purchase or
Sale of Company
Stock
Net Asset Value 2.12 2.07 2.53 2.44 2.07
- End
Per Share 1-3/8 1-1/8 1-1/4 1-1/8 1-1/8
Market Value
(Adjusted) -
End
Total 0.03 (0.15) 0.04 0.16 (0.03)
Investment
Return
Ratios/Supple-
mental Data
Net Assets, End 2.13 2.07 2.53 2.44 2.07
of Period
Ratio of 9.34% 8.96% 8.58% 9.88% 10.32%
Expenses to
Average Net
Assets
Ratio of Net .92% (1.89)% 0.00% 0.00% 0.00%
Income (loss)
to Average Net
Assets
Portfolio 36.76% 14.78% 13.82% 7.36% 31.59%
Turnover
Number of 3,357,170 3,357,170 3,357,170 3,357,170 3,357,170
Shares
NOTES:
(1) Data has been restated to reflect 25% stock distributions in
1992, 1993, 1994 and 1995, and reflects the Company's private
placement in 1997.
(2) The information contained in this Table of Financial
Highlights was obtained from the Company's Annual Report to
Shareholders for each indicated year. The financial highlights
for the years 1996, 1995, 1994, 1993, 1992, 1991, 1990 and 1989
were audited by Deloitte & Touche LLP whose report on such
information for each of the five years in the period ended
December 31, 1996 is included in the Annual Report for each
respective year.
HISTORY AND BUSINESS
Introduction
Rand Capital Corporation, which was organized as a New
York corporation in February 1969, is a venture capital
investment company having as its principal purpose investment in
small, young and, in some cases, newly-created enterprises which
are principally engaged in the development or exploitation of
inventions, technological improvements, new products and services
not previously generally available. It is registered under the
Investment Company Act of 1940 (the "1940 Act") and is classified
under the 1940 Act as a closed-end, diversified, management
investment company.
The Company has operated under its present name since
1969. During the past five years the Company has not engaged in
any business other than as an investment company.
Investment Objective and Policies
The Company's investment objective is long-term
capital appreciation, primarily through investments in small,
developing companies. Accordingly, it invests its funds
principally in undertakings commonly referred to as "venture
capital" investments, which involve a high degree of risk and
which, in the Company's opinion, have the potential for
significant capital appreciation.
Typically, the Company will invest in unseasoned
companies, and, in some cases, it may assist in the formation of
new companies and may be a substantial shareholder. On occasion,
it may invest in companies which have been operating for a period
of time and have a record of revenues or earnings. Generally,
the portfolio company's capital will be supplied by its founders
on an equity basis, by the Company through a combination of debt
and equity securities and by banks or other institutions as
senior or secured creditors. The bank and institutional lenders
generally require that the Company subordinate its rights as a
creditor to their rights. The venture debt securities that the
Company invests in would be considered to be below investment
grade.
Enterprises selected for investment will ordinarily
have developed or will be developing what the Company considers
new or unusual concepts such as advanced technology or new
products, methods or techniques of production or marketing. In
selecting companies for investment, the Company will consider
quality of management and any operating record; the soundness of
the idea, service or product to be developed or being developed;
the effect of market and economic conditions and governmental
policies on the company and its products; the nature of its
competition; and, if substantial plant and equipment are
necessary to the company's operations, the suitability or cost of
such facilities.
When acquiring debt securities, the Company will
consider the ability of the issuer to service interest and
principal repayment requirements. The economic terms of the
investment are generally a matter of negotiation between the
Company and the venture company; other investors may also
participate in the negotiation. In some cases where the long-
term prospects of the investment appear attractive to the
Company, but continuing development work will preclude payment of
interest in the near-term, the Company will agree to a deferment
of interest payments. The Company frequently defers payment of
principal installments by portfolio companies for periods of up
to three years. However, the Company's own requirements of
current income to meet some or all of its operating expenses will
necessarily act as some restraint upon a repeated selection of
investments which fail to produce current income. In 1996, on
the basis of a re-evaluation made by the Company and its Board of
Directors, a determination was made to place greater emphasis on
making investments that provide a current return.
From time to time, because of a temporary lack of suitable
venture capital opportunities or in order to provide liquidity to
support the Company's operations, the Company may invest in
liquid and current income-type investments consisting of federal
or state government securities and securities issued by their
agencies and instrumentalities that are guaranteed by them,
certificates of deposit, bankers' acceptances, commercial paper
or other short-term securities, high-rated, publicly-traded
corporate debt obligations, first mortgage construction loans
where a commitment has been obtained from a long-term lender to
acquire the permanent first mortgage loan to be placed upon the
completed property, money market funds, or it may retain its
funds in cash. Such investments in liquid and current income-
type investments do not themselves have the potential for
significant capital appreciation called for by the Company's
principal investment strategy.
The Company spends a substantial portion of its
employee's time monitoring its investments and furnishing
advisory services to the companies in its venture capital
investment portfolio. Upon occasion, the Company has received
compensation in cash and in securities of a portfolio company for
advisory services furnished to a portfolio company. Although
such compensation has rarely been significant in the past, the
Company, under appropriate circumstances, will seek to increase
its income from such advisory services in the future. Where the
Company deems it beneficial to have its nominee on the board of
directors of a venture company in which it invests, it may obtain
a commitment by the portfolio company or its shareholders to
effect that result. As of the date of this Prospectus, nominees
of the Company serve on the boards of directors of four of the
companies in which it has venture investments.
Fundamental Policies
The following investment policies of the Company are
fundamental policies and may not be changed without approval of
the lesser of (1) more than 50% of the Company's outstanding
voting securities or (2) 67% or more of the voting securities
present at a meeting of security holders at which a quorum is
present.
1. The Company may invest up to 100% of its assets in
restricted securities.
2. The Company may issue senior securities in the
form of debentures and preferred stock and may borrow money from
banks and other lenders, on an unsecured basis, all within the
limitation of the 1940 Act. However, an order issued by the
Securities and Exchange Commission which permitted Rand to invest
in a small business investment company subsidiary prohibits the
issuance of preferred stock. See "Other Restrictions on
Investment" hereunder and "Capital Stock -- Preferred Stock."
3. The Company will not:
(a) purchase and sell commodities or commodity
contracts;
(b) trade in contracts commonly called puts or
calls or combinations thereof, except that it may acquire
warrants, options or other rights to subscribe to or sell
securities in furtherance of its investment objectives;
(c) underwrite securities of other issuers,
except that it may acquire portfolio securities under
circumstances where, if sold, the Company might be deemed a
statutory underwriter for purposes of the Securities Act of 1933;
(d) purchase any securities of a company if any
of the directors or officers of the Company owns more than 1/2 of
1% and such persons owning more than 1/2 of 1% together own 5% or
more, of the shares of such company.
4. The Company will diversify its investments so as
to maintain its classification as a "diversified company" within
the meaning of the 1940 Act, that is, at least 75% of the value
of its total assets shall be represented by cash and cash items
(including receivables), Government securities, securities of
other investment companies, and other securities for the purposes
of this calculation limited in respect of any one issuer to an
amount not greater in value than 5% of the value of the total
assets of the Company and to not more than 10% of the outstanding
voting securities of such issuer. "Government securities" refers
to any security issued or guaranteed as to principal or interest
by the United States, or by a person controlled or supervised by
and acting as an instrumentality of the Government of the United
States pursuant to authority granted by the Congress of the
United States; or any certificate of deposit for any of the
foregoing.
5. The Company will not concentrate its investments
in any one industry, that is, it will not invest more than 25% of
its total assets (at values current at the time of the
investment) in any one industry.
6. The Company may invest in real estate development
companies, but it may not directly hold real estate except for
office use or in connection with the orderly liquidation of a
debt or other investment. Holdings in real estate companies and
for office use will not exceed 25% of the value of its total
assets after each such investment.
7. The Company may make loans and purchase debt
securities in furtherance of its investment objectives. The
loans that the Company makes are made in connection with high-
risk, venture capital investments, are usually subordinated to
bank or other institutional loans, and would be considered below
"investment grade." See, "SUMMARY -- Risk Factors --1. High
risk, illiquid investments," above.
The Company does not have any policy directly limiting
the amount of its portfolio turnover. However, high portfolio
turnover is not generally consistent with the Company's
investment objective of long term capital appreciation through
venture capital investments. During the last three full fiscal
years, the aggregate dollar amounts of purchases and sales of
portfolio securities, other than Government securities, were:
1996 -- $5,001,693; 1995 -- $3,889,108 and, 1994 -- $1,228,797.
Insofar as the Company's investment policies would
permit it to invest in a real estate investment company, see
"Other Restrictions on Investment," below.
The Company's policy not to acquire puts or calls,
except rights to acquire or sell securities to further its
investment objectives, has been interpreted by the Company's
management in light of its principal investment strategy to seek
long term-capital appreciation through high risk venture capital
investments in companies having growth potential, but whose
securities are generally not publicly traded. Thus, in the case
of call options, the Company has made loans to portfolio
companies and received debt instruments in face amounts equal to
the amounts loaned together with warrants to purchase common
stock from the portfolio company at prices that would generally
be favorable to the Company if the portfolio company is
successful during the period prior to the expiration date of the
warrant. Frequently, the warrants are exercisable at the option
of the Company by conversion of part or all of the debt
instrument in lieu of additional cash payments. Generally, this
procedure is an alternative to making an investment in the common
or preferred stock of the portfolio company and, accordingly, is
not viewed as creating additional risks but is seen as providing
cash flow through interest payments on the debt instruments while
preserving some ability to cash-out of the investment at maturity
or upon default on the debt instrument in the event that the
portfolio company is not successful within an appropriate time
period. The debt securities thus acquired by the Company must
frequently be subordinated to the issuer's indebtedness to banks
and other institutional lenders and would be considered below
"investment grade."
In the case of put options, the Company occasionally
makes investments in the common stock of a portfolio company
while simultaneously obtaining a put option to sell the stock, at
the Company's option, back to the portfolio company at an amount
equal to its purchase price during a period of time. This
investment format is also viewed as a means of reducing risk as
compared with investing in the portfolio company's common stock
without having such an option.
The term "call option" is frequently used to designate
a short-term contract (generally having a duration of nine months
or less) under which the purchaser of the call option, in return
for payment of the option premium (the option's current market
price), obtains the right to buy a publicly traded security to
which the option relates at a specified exercise price at any
time during the term of the option. The writer of the call
option, who receives the premium, assumes the obligation to
deliver the underlying security against payment of the exercise
price at any time during the term of the option. The term "put
option" is frequently used to designate a similar short-term
contract that gives the purchaser of the option, in return for
the premium paid, the right to sell the underlying publicly
traded security at a specified exercise price at any time during
the term of the option. The writer of the put option receives
the premium and assumes the obligation to buy the underlying
security at the exercise price whenever the option is exercised.
The Company's Board of Directors does not consider the writing of
or trading in these kinds of "put options" or "call options" to
be related to its investment objectives and, accordingly, it
views them as prohibited under its fundamental investment
policies.
Diversification and Concentration of Investments
Two of the Company's fundamental investment policies,
which cannot be changed except with prior shareholder approval,
are to make diversified investments and to avoid concentrating
its investments in any industry. Under the classification of
investment companies provided under Section 5 of the 1940 Act, a
"diversified company" must maintain at least 75% of its total
assets in cash and cash items (including receivables), Government
securities, securities of other investment companies, and other
securities for the purposes of the calculation limited in respect
of any one issuer to an amount not greater in value than 5% of
the value of the total assets of the investment company and to
not more than 10% of the outstanding voting securities of such
issuer, provided that a diversified company does not lose its
status as such based on a subsequent discrepancy between these
requirements and the values of its various investments if any
such discrepancy did not exist immediately after making an
acquisition. As provided in Section 8(b) of the 1940 Act as
interpreted by the Staff of the Securities and Exchange
Commission, a registered investment company must announce any
policy of concentrating its investments in a particular industry
or group of industries, and an investment company avoids
concentrating in any industry or group of industries by avoiding
making any investment in an industry if, immediately after making
the investment, more than 25% of the Company's total assets would
be invested in securities of issuers within the industry.
During 1994 and 1995 certain investments, which were
acquired in accordance with the Company's policies for
diversification of investments and against concentration in one
industry or group of industries, appreciated in value to such an
extent that the Company's portfolio temporarily ceased to be non-
diversified and its investments became concentrated beyond the
amount permitted by the Company's policies. The appreciation of
these investments did not cause the Company to be in violation of
its policies requiring diversification and against concentration
within a single industry, because those policies govern the way
in which new investments may be made, and they do not affect
existing investments whose value has changed.
Presently, the Company's portfolio of investments is
diversified. Nevertheless, if an existing investment were to
subsequently increase in value to an extent that caused the
Company's portfolio to be non-diversified and excessively
concentrated in a single industry, all investments in portfolio
securities would thereafter have to be (a) limited to not more
than 5% of total assets and not more than 10% of voting
securities of the issuer, and (b) made in a different industry.
These limitations could adversely affect the Company's ability to
make investments in a manner that would be judged by management
as being most likely to receive optimum returns.
Although the Company intends to continue to follow its
policies of diversifying its investments and not concentrating
its investments in any one industry, where significant
appreciation in the value of an existing investment causes the
Company's portfolio to no longer be diversified and to be
concentrated to an extent that would not have been permissible
for a new investment, the Company will not liquidate part or all
of the investment solely for the purpose of establishing
diversification and removing the concentration, but will retain
the investment until the Board of Directors determines that it
would be in the best interest of the Company to dispose of the
investment.
Other Restrictions on Investment
In addition to the fundamental policies enumerated
above, statutory requirements affect investment concentration.
Section 12(d) of the 1940 Act prevents the Company from investing
in an unregistered investment company if, immediately after
acquisition of the securities of the other company, the Company
would have more than 5% of its assets invested in the securities
of the other company or the Company would own more than 3% of the
voting securities of the other company.
The Company does not ordinarily expect to acquire a
majority interest in its venture investments. However, it is the
Company's policy that, subject to the limitations created by its
policy on diversification, when the Company believes it necessary
to protect its investment or enhance its investment
opportunities, the Company may acquire up to 100% of the equity
interest in another company.
Recent Private Sale of Common Stock
The Company made a private offering of common stock in
which it sold 1,174,037 on January 16, 1997 and 308,520 shares on
March 3, 1997 to private investors pursuant to the terms of
Subscription Agreements dated as of those dates (collectively,
the "Subscription Agreement"). The Subscription Agreement
contained registration rights provisions whereby the Company
agreed to cause the offer and sale of as many of the shares as
the subscribers should request to be registered under the
Securities Act of 1933 for sale to the public. This Prospectus
has been prepared and filed pursuant to the registration rights
provisions under the Subscription Agreement.
Share Price Data
The Company's common stock is traded in the over-the-
counter market and listed on NASDAQ under the symbol "Rand." The
following table shows the per share net asset value ("NAV"), the
high bid price, the premium or discount (expressed as a
percentage) of the high bid price to per share NAV, the low bid
price, and the premium or discount (expressed as a percentage) of
the low bid price to per share NAV for the Company's common stock
during the two most recent fiscal years and for each full fiscal
quarter since the beginning of the current fiscal year. The bid
prices are over-the-counter market quotations that reflect inter-
dealer prices, without retail mark-up, mark-down or commission
and may not necessarily represent actual transactions. The stock
price bid data and net asset values have been adjusted for stock
distributions including a five-for-four stock distribution to
shareholders of record on May 26, 1995.
High % of Low % of
NAV Bid NAV Bid NAV
1995:
1st Quarter...... $3.25 $4.20 129% $3.60 111%
2nd Quarter...... $3.30 $5.375 163% $4.50 136%
3rd Quarter...... $3.33 $7.00 210% $5.25 158%
4th Quarter...... $2.21 $6.50 294% $3.00 136%
1996:
1st Quarter...... $2.11 $3.50 166% $1.00 47%
2nd Quarter...... $1.76 $2.25 128% $1.375 99%
3rd Quarter...... $1.66 $2.125 128% $1.50 90%
4th Quarter...... $1.53 $1.688 110% $1.188 78%
1997:
1st Quarter...... $1.51 $2.00 132% $1.438 95%
Information concerning the Company's allocation of
brokerage, transfer and dividend paying agent, and custodian is
hereby incorporated by reference from information presented under
the heading "ALLOCATION OF BROKERAGE, TRANSFER AGENT, AND
CUSTODIANSHIP" in the attached Statement of Additional
Information.
PLAN OF DISTRIBUTION
The securities offered hereby will be offered and sold
by the selling shareholders described under "Selling
Shareholders" (the "Selling Shareholders") for their respective
accounts. The Company will not receive any of the net proceeds
from the Common Stock being offered by the Selling Shareholders.
The Selling Shareholders may sell shares of Common
Stock in any of the following ways: (i) through dealers; (ii)
through agents; or (iii) directly to one or more purchasers. The
distribution of the Shares by the Selling Shareholders may be
effected from time to time in one or more transactions in the
over-the-counter market or in negotiated transactions at market
prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. The Selling
Shareholders may effect such transactions by selling Shares to or
through broker-dealers, including broker-dealers who are market
makers in the Common Stock, and such broker-dealers may receive
compensation in the form of discounts, concessions or commissions
from the Selling Shareholders and/or commissions from purchasers
of Shares for whom they may act as agent. The Selling
Shareholders and any broker-dealer or agents that participate in
the distribution of the Shares by the Selling Shareholders may be
deemed to be underwriters under the Securities Act of 1933, and
any discounts, concessions or commissions received by any such
broker-dealers or agents may be deemed to be underwriting
discounts and commissions under the Securities Act.
SELLING SHAREHOLDERS
The following table sets forth information regarding
(1) the name of each Selling Shareholder, (2) the amount and
percentage of Shares owned by each Selling Shareholder
immediately prior to the commencement of the Offering, (3) the
number of Shares to be offered hereunder by each Selling
Shareholder, and (4) the amount and percentage of Shares expected
to be owned by each Selling Shareholder after the completion of
the Offering. Except for the Shares to be sold by Mr. Newman and
Colmac Holdings Limited, all of the Shares were acquired by the
Selling Shareholders pursuant to the private offering described
under "HISTORY AND BUSINESS -- Recent Private Offering." Except
under the terms of such private offering and as indicated in the
foot notes to the table, no Selling Shareholder has had any
material relationship with the Company during the last three
years.
BEFORE THE OFFERING AFTER THE OPENING
------------------- -----------------
SHARES PERCENT OF TO BE SHARES PERCENT OF
NAME OWNED OUTSTANDING SOLD OWNED OUTSTANDING
Gregory Abbott 48,429 * 48,429 -0- *
The Clatskanie 20,000 * 12,000 8,000 *
Trust, C. Balbach TTE
The Todd Trust, 20,000 * 20,000 -0- *
C. Balbach TTE
Paul D. Bauer 22,900 * 12,900 10,000 *
Thomas R. 29,835 * 10,000 19,835 *
Beecher, Jr. (1)
Venture 64,516 1.1% 64,516 -0- *
Investment Club
Mark A. Browning 13,000 * 13,000 -0- *
Samuel R. 39,758 * 32,258 7,500 *
Cappiello
Mark Chaplin 10,000 * 10,000 -0- *
Barington Capital 32,258 * 32,258 -0- *
Group, LP
Donald I. Dussing 16,129 * 16,129 -0- *
James R. Endler, 32,258 * 32,258 -0- *
IRA
Michael Farrell 64,516 1.1% 64,516 -0- *
Patricia A. Fors 64,516 1.1% 64,516 -0- *
Richard Garman 50,000 * 50,000 -0- *
Arthur A. Glick 16,129 * 16,129 -0- *
The Deerfield 161,290 2.8% 161,290 -0- *
Corporation
Herbert J. 6,451 * 6,451 -0- *
Heimerl, Jr.
William N. 26,500 * 26,500 -0- *
Hudson, Jr.
Luiz F. Kahl (1) 64,516 1.1% 64,516 -0- *
Allan G. Kenzie 100,000 1.8% 20,000 80,000 1.4%
(2)
Langley H. Kenzie 20,000 * 15,294 4,706 *
(2)
David & Margot 10,000 * 10,000 -0- *
Kenzie (2)
Michael & Joe 10,000 * 10,000 -0- *
Steinitz
Daniel C. Kenzie 10,000 * 10,000 -0- *
(2)
Allen G. Kenzie, 16,000 * 16,000 -0- *
TTE (2)
FBO Langley C.
King
Allan G. Kenzie, 16,000 * 16,000 -0- *
TTE (2)
FBO Connor A.
King
Rachel K. King, 20,000 * 20,000 -0- *
TTE (2)
FBO Mary L.
Kenzie
Mary L. Kenzie, 20,000 * 20,000 -0- *
TTE (2)
FBO Rachel K.
King
Lippes Family, 20,000 * 20,000 -0- *
LLC
Paul E. Locke 5,000 * 5,000 -0- *
Wendelyn M. 2,000 * 2,000 -0- *
Duquette, Trustee
FBO Laura C.
Duquette
Wendelyn M. 2,000 * 2,000 -0- *
Duquette, TTE
FBO Nicole O.
Duquette
Wendelyn M. 2,000 * 2,000 -0- *
Duquette, TTE
FBO Maxwell A.
Duquette
Theodore E. 2,000 * 2,000 -0- *
Marks, II, TTE
FBO Derek R.
Marks
Theodore E. 2,000 * 2,000 -0- *
Marks, II, TTE
FBO Mathew G.
Marks
Theodore E. 2,000 * 2,000 -0- *
Marks, II, TTE
FBO Theodore E.
Marks, III
Heather R. Palmer 6,000 * 6,000 -0- *
Joshua R. Marks 6,000 * 6,000 -0- *
Wendelyn M. 3,000 * 3,000 -0- *
Duquette
Theodore E. 3,000 * 3,000 -0- *
Marks, III
E.W.M. 10,000 * 10,000 -0- *
Investments, Inc.
Donald McClellan 10,000 * 10,000 -0- *
Frank McGuire 32,258 * 32,258 -0- *
Colmac Holdings 400,000 7.0% 100,000 300,000 5.3%
Limited (3)
Reginald B. 500,000 8.8% 500,000 -0- *
Newman, II (1)
Susan M. Nycek 1,340 * 1,340 -0- *
(5)
J.H. Paull, TTE 20,000 * 20,000 -0- *
FBO Melissa S.
Paull
J.H. Paull, TTE 20,000 * 20,000 -0- *
FBO Allison S.
Paull
Robin K. 9,000 * 6,500 2,500 *
Penberthy (4)
Gregory Photiadis 6,451 * 6,451 -0- *
Jayne K. Rand (1) 215,734 3.8% 100 215,634 3.8%
Karl I. Riner 10,000 * 10,000 -0- *
Pierre & 3,225 * 3,225 -0- *
Madeleine Savoie
Gerald C. Saxe 64,516 * 64,516 -0- *
Richard & Jarilyn 6,451 * 6,451 -0- *
Searns (6)
Olympic 20,000 * 20,000 -0- *
Management
Systems
Randy Strauss 6,451 * 6,451 -0- *
James H. Thompson 20,000 * 20,000 -0- *
Joseph N. 3,225 * 3,225 -0- *
Williams
Frederick W. 1,745 * 645 1,100 *
Winter (1)
__________________________________________________
* Less than 1%.
(1) Director of the Company.
(2) Ross B. Kenzie is Director of the Company.
Langley H. Kenzie is Ross Kenzie's wife; the other
persons indicated are adult members of Ross
Kenzie's family who do not share his household.
(3) Willis S. McLeese, a director of the Company, is
the Chairman and principal owner of Colmac
Holdings Limited.
(4) Chief Financial Officer and Secretary of Company.
(5) Office Manager of the Company.
(6) Respectively, the Chief Executive Officer and
Executive Vice President of Key Resource Group,
LLC, an entity to which the Company has, subject
to certain conditions, undertaken to make a
$450,000 venture capital investment.
USE OF PROCEEDS
Each of the Selling Shareholders will receive all of the
net proceeds from the sale of the Shares owned by such
shareholder. The Company will not receive any of the net
proceeds from the sale of the Shares.
MANAGEMENT
The business and affairs of the Company are managed
under the direction of its Board of Directors as required by New
York law. The day-to-day operations of the Company are conducted
through its officers.
The President and the Executive Vice President of the
Company, Allen F. Grum and Nora B. Sullivan, are primarily
responsible for the day to day management of the Company's
portfolio. Information concerning the length of time Mr. Grum
and Ms. Sullivan have been primarily responsible for the
Company's portfolio and concerning their business experience is
included in the attached Statement of Additional Information
under the caption "MANAGEMENT," and is hereby incorporated herein
by reference. Information concerning Willis S. McLeese, a
director who is not a resident of the United States, is included
in the attached Statement of Additional Information and is hereby
incorporated herein by reference. Information concerning
brokerage allocation, custodianship of the Company's investment
securities, and the Company's transfer agent is included in the
attached Statement of Additional Information under the caption
"ALLOCATION OF BROKERAGE, TRANSFER AGENT AND CUSTODIANSHIP," and
is hereby incorporated herein by reference.
To the knowledge of the Company, no person: (a)
beneficially owns, either directly or through one or more
controlled companies, more than 25% of the voting securities of
the Company; (b) has acknowledged or asserted that it controls
the Company: or (c) has been adjudged under Section 2(a)(9) of
the Investment Company Act of 1940 to control the Company.
CAPITAL STOCK
Rand is authorized to issue 500,000 shares of a class
of Preferred Stock having a par value of $10 per share and
10,000,000 shares of Common Stock having a par value of $.10 per
share.
As of the date of this Prospectus, 5,708,034 shares of
Common Stock are issued and outstanding. No shares of Preferred
Stock have been issued.
Common Stock
Holders of Common Stock are entitled to dividends and
other distributions when and as declared by the Board of
Directors and to share ratably in assets available for
distribution on liquidation or dissolution of the Company,
subject however to the prior rights of holders of the Preferred
Stock, when issued. Shares of Common Stock have no conversion
rights, are not subject to redemption and have no sinking fund.
There are no restrictions on the purchase by the Company of
Common Stock, except as provided by law. Each share of Common
Stock, voting as a single class, is entitled to one vote for the
election of directors and all other matters requiring shareholder
vote, and these shares have no cumulative voting rights.
All the outstanding shares of Common Stock are validly
issued, fully paid and non-assessable. All shares of Common
Stock to be sold pursuant to the offering contained in this
Prospectus are currently issued and outstanding. Holders of
shares of Common Stock do not have preemptive rights.
Preferred Stock
Subject to the limitations of the 1940 Act and the
terms of an Exemptive Order of the Securities and Exchange
Commission dated November 5, 1975 pursuant to which the Company
was permitted to make investments in a small business investment
company subsidiary (the "Exemptive Order"), the Preferred Stock
may be issued in one or more series from time to time as the
Board of Directors may determine. The Exemptive Order prohibits
issuance of any Preferred Stock, and cannot be amended without
the specific approval of the Commission. If Preferred Stock were
permitted to be issued, the Board of Directors would be
authorized under the Company's Certificate of Incorporation to
fix the number of shares to be included in each series, the
dividend rate, and the designation, relative rights, preferences
and limitations (including the right of conversion into Common
Stock, if any) pertaining to each such series. No such series
shall, however, have a preference or priority over any other
series of Preferred Stock on the distribution of the Company's
assets or with respect to the payment of dividends.
Under the 1940 Act, Preferred Stock cannot be issued
or sold unless immediately after such issuance or sale, the
Preferred Stock shall have an asset coverage of 200%; that is,
the aggregate involuntary liquidation preference of such
Preferred Stock, or the amount to which the Preferred Stock is
entitled on the Company's involuntary liquidation, and the
aggregate amount of senior securities representing indebtedness
may not exceed 50% of the Company's total assets (less all
liabilities and indebtedness not represented by senior
securities) after issuance or sale of such Preferred Stock.
Dividends and other distributions on the shares of Common Stock
would be prohibited unless at the time of declaration or
distribution the Preferred Stock has at least 200% asset coverage
after deducting the amount of the distribution. Preferred Stock
would have priority over any class of stock as to distribution of
assets and payment of dividends, which dividends would be
cumulative.
Tax Status
Information concerning tax matters relating the
Company is hereby incorporated by reference to the information
under the caption "TAX STATUS" in the attached Statement of
Additional Information.
DIVIDEND POLICIES
The Company generally retains all of its cash for use
in investments and operating expenses. The Company has never
paid a cash dividend on its Common Stock and has no present
intention of paying cash dividends on the Common Stock.
In August of 1977, the Company distributed to its
shareholders from its portfolio 211,190 common shares of
Astronics Corporation, and in July of 1990 the Company
distributed to its shareholders from its portfolio 137,496 common
shares of Research Frontiers, Inc. Shares of the same class as
the shares distributed were publicly traded on the over-the-
counter market prior to distributions. From time to time the
Company may consider distributing other securities in its
portfolio to its shareholders particularly if securities of the
same class are registered under the Securities Exchange Act of
1934 and traded in the public securities markets and if the
distribution will not violate the provisions of the Securities
Act. There is no present intention to make any such
distribution.
From time to time the Company has made distributions
of its common stock to its shareholders in the form of stock
splits. The most recent such distribution was a five-for-four
stock split with a record date of May 26, 1995 that was
distributed on June 16, 1995.
The Company has entered into no agreements which
restrict the payment of dividends.
LEGAL PROCEEDINGS
Stearns & Foster Bedding Company.
On March 21, 1994, a lawsuit was brought against a
number of parties, including the Company, in the U.S. District
Court for the District of New Jersey, under the title Stearns &
Foster Bedding Company v. The Franklin Corporation, et al, (Civil
Action No. 94-967 (JCL)). The action sought contribution
pursuant to the federal Comprehensive Environmental Response
Cleanup and Liability Act (CERCLA) and the New Jersey Spill
Compensation and Control Act for response and environmental
remediation costs in excess of $1 million to be incurred in
connection with the clean-up of a property owned from 1976 to
1979 by a company alleged to have been under the control of Rand
through a venture capital investment. In December of 1996, the
Court granted the Company's Motion for Summary Judgment and
dismissed all of the claims against it. Although the Plaintiff
has the right to appeal the dismissal, the Company has been
advised that the Plaintiff has reached a settlement with one of
the other Defendants for its remaining claims and, if the
settlement is consummated, the litigation will be terminated
without right of appeal.
TABLE OF CONTENTS
OF
STATEMENT OF ADDITIONAL INFORMATION
The following table of contents identifies the
location of information in the attached Statement of Additional
Information.
CAPTION Page
Portfolio Turnover........................................... 3
Management................................................... 3
Control Persons and Principal Holders of Securities..........10
Investment Advisory and Other Services.......................11
Allocation of Brokerage, Transfer Agent and Custodianship....11
Tax Status...................................................12
Financial Statements.........................................13
PART B
STATEMENT OF ADDITIONAL INFORMATION
RAND CAPITAL CORPORATION
2200 RAND BUILDING
BUFFALO, NEW YORK 14203
Rand Capital Corporation (the "Company" or "Rand")
is a registered investment company, classified as a diversified,
closed-end, management investment company with an investment
objective of long-term capital appreciation through high risk
venture capital investments in companies having growth potential
but whose securities, in most cases, have no public market. This
Statement of Additional Information relating to the Company is
not a prospectus and should be read in conjunction with the
Company's prospectus. A copy of the Company's prospectus can be
obtained from the Company, 2200 Rand Building, Buffalo, New York
14203, telephone number (716) 853-0802. The date of this
Statement of Additional Information and of the prospectus to
which this Statement of Additional Information relates is May 30,
1997.
TABLE OF CONTENTS
OF
STATEMENT OF ADDITIONAL INFORMATION
The following table of contents identifies the location
of information in this Statement of Additional Information.
CAPTION Page
Portfolio Turnover........................................... 3
Management................................................... 3
Control Persons and Principal Holders of Securities..........10
Investment Advisory and Other Services.......................11
Allocation of Brokerage, Transfer Agent and Custodianship....11
Tax Status...................................................12
Financial Statements.........................................13
PORTFOLIO TURNOVER
While Rand's investment objective of long term capital
appreciation through venture capital investments leads to
relatively infrequent sales of individual portfolio securities,
the nature of its investments can lead to substantial
fluctuations in "portfolio turnover" (see "Portfolio Turnover" in
the Financial Highlights table of the attached Prospectus)
resulting from dramatic fluctuations in the value of individual
investments among the relatively small number of investments in
the Company's portfolio. During 1995 and 1996, the Company wrote
down and wrote off a number of investments including its
investments in Aria Wireless Systems, Inc. and Bydatel
Corporation, which had constituted a significant portion of its
aggregate portfolio value. During 1996, the Company also made a
determination that it would generally not maintain investments in
entities after their stock became publicly traded, and this
policy resulted in the sale of other investments in 1996 and in
the first quarter of 1997. Generally, the Company's management
believes that once a portfolio company's stock becomes publicly
traded the value of the investment becomes subject to market
fluctuations which may not reflect the intrinsic values which
Rand seeks to identify and pursue in its normal operations.
MANAGEMENT
The following information is given with respect to each
director and officer of the Company.
Positions
Held with Principal Occupation
Name, Age and Address the Company During Past Five Years
Allen F. Grum (39) President, President of the Company
2200 Rand Building Director since January 1996,
Buffalo, New York 14203 Director since April
1996; prior thereto
Senior Vice President of
the Company since June
1, 1995; Executive Vice
President of Hamilton
Financial Corporation
(mortgage bankers) 1994;
Senior Vice President of
Marine Midland Mortgage
Corporation, 1991-1994.
Nora B. Sullivan (39) Executive Executive Vice President
2200 Rand Building Vice of the Company since
Buffalo, New York 14203 President September 1995; Senior
Associate at Barakat &
Chamberlain (financial
and economic consulting
firm) February to July
1995; attended Columbia
Business School from
1993-4, where she
received an MBA in
Finance and
International Business;
prior thereto, General
Counsel to Integrated
Waste Management (solid
waste management
company) 1991-1992.
Robin K. Penberthy (33) Chief Chief Financial Officer
2200 Rand Building Financial and Secretary of the
Buffalo, New York 14203 Officer, Company since January
Secretary 1996; Scholastic
Aptitude Test (SAT)
Instructor for The
Princeton Review during
1995; prior thereto
Administrative Vice
President-Investor
Relations Manager at
Marine Midland Mortgage
Corporation 1993-94;
various officer
positions at Marine
Midland Mortgage
Corporation since prior
to 1992.
*Reginald B. Newman, Chairman of Chairman of the Board of
II (59) Board Directors of the Company
700 Grand Island since April 1996, and a
Boulevard Director since 1987;
Tonawanda, New York President of NOCO Energy
14150 Corporation (petroleum
distributor) since prior
to 1992.
Thomas R. Beecher, Director Director since 1969,
Jr. (61) Chairman of the Board
200 Theater Place August 1991 to April
Buffalo, New York 1996; Attorney;
14202 President of Beecher
Securities Corporation,
(family-owned venture
capital company) since
prior to 1992.
Luiz F. Kahl (60) Director Director since January
6255 Sheridan Drive 1997; President of
Williamsville, NY 14221 Vector Group LC (private
investment company)
since February 1996;
President and Chief
Executive Officer of The
Carborundum Company
(producer of structural
and electronic ceramic
materials) since prior
to 1992; Director of
National Fuel Gas
(utility company) since
1992.
Ross B. Kenzie (65) Director Director since April
369 Franklin Street 1996; Director of
Buffalo, New York 14202 Merchants Insurance
since prior to 1991.
Retired since prior to
1992.
*Willis S. McLeese Director Director since 1986;
45 St. Clair Ave. W. Chairman of Colmac
Suite 902 Holdings Limited
Toronto, Ontario (developer, owner and
operator of co-
generation and
alternative energy
electric power
generating plants),
Toronto, Canada since
prior to 1992.
Jayne K. Rand (36) Director Director since 1989;
One M&T Plaza Vice President of
Buffalo, New York 14203 Manufacturers & Traders
Trust Co. since 1993,
prior thereto Assistant
Vice President of Marine
Midland Bank, N.A. since
prior to 1992.
Frederick W. Winter Director Director since 1996.
(53) Dean of the School of
University of Buffalo Management, University
School of Management of New York at Buffalo
160 Jacobs Management since 1994; prior
Center thereto was Head of the
Buffalo, New York 14260 Department of Business
Administration at the
University of Illinois
since prior to 1992;
Director of Bell Sports,
Inc. (bicycye and
sporting goods
manufacturer) since
prior to 1992; Director
of Alkon Corporation
(manufacturer of
pneumatic parts and
fittings) since 1992.
Persons designated by an asterisk (*) in the
above table are "interested persons" within the meaning of
Section 2(a)(19) of the Investment Company Act of 1940, as
amended. Mr. Newman and Mr. McLeese are "interested persons"
based upon the percentage ownership of the Company's common stock
that each one owns.
Willis S. McLeese, who is a resident of Ontario, Canada,
has a majority of his assets in the United States through his
ownership of Colmac Holdings Limited which owns 100% of Colmac
Dynamics, Inc., a Delaware corporation. Mr. McLeese has not
authorized an agent in the United States to receive notice of
service of process.
Compensation
The following table sets forth information with respect to
compensation paid or accrued by the Company in fiscal year 1996
to each director of the Company and to each executive officer or
any affiliated person of the Company with aggregate compensation
from the Company in excess of $60,000, and to each director of
the Company. The Company is not part of a fund complex.
COMPENSATION TABLE
Pension or
Aggregate Retirement Benefits Estimated
Name of Person, Compensation Accrued as Part of Annual Benefits
Position from Fund Fund Expenses Upon Retirement
Allen F. Grum $102,405 $2,750(1) $3,701(2)
President, Director
Nora B. Sullivan $87,042 $2,550(1) -0-
Executive Vice
President
Reginald B. Newman II $6,250 -0- -0-
Chairman
Thomas R. Beecher, Jr. $3,750 -0- -0-
Director
Ross B. Kenzie $4,250 -0- -0-
Director
Willis S. McLeese $4,750 -0- -0-
Director
Jayne K. Rand $6,250 -0- -0-
Director
Donald A. Ross $3,750(3) -0- (3)
Director, Consultant
Frederick W. Winter $4,500 -0- -0-
Director
______________________
(1) Included within the indicated compensation is payment
of Company contributions to the Company's 401(k) Profit Sharing
Plan. To date, an aggregate of $5,300 has been deferred for
payment to Mr. Grum and Ms. Sullivan. Under such plan,
participants may elect to contribute up to 20% of their
compensation on a pre-tax basis by salary reduction. For
eligible employees, the Company may make a discretionary flat
contribution of 1% of compensation and match an eligible
contribution of up to a maximum of five percent (5%). In
addition, the Company may contribute an annual discretionary
amount as determined by the Board of Directors. In 1996, the
Company did not make any discretionary contributions to the
401(k) Plan.
(2) Includes pension benefit payable to the Company's
Defined Benefit Pension Retirement Plan described below. Amounts
indicated do not include any benefits payable pursuant to the
Company's 401(k) Profit Sharing Plan.
(3) See "Consulting and Deferred Compensation Agreements."
below. Mr. Ross' service as a director ended on April 17, 1997.
Consulting and Deferred Compensation Agreements
Effective December 31, 1995, the Company and Donald A.
Ross terminated his employment agreement and entered into a
Consulting Agreement and a Deferred Compensation Agreement.
Under the terms of the Consulting Agreement, Mr. Ross was paid
$10,000 in 1996 for providing part-time consulting services,
assistance in maintaining continuity in business relations during
the transition to new management, and such other services related
to the Company's business operations as the Company may
reasonably request. Such amounts included any amounts payable
for service as a director and on any committee of the Board of
Directors. In addition, Mr. Ross receives: medical insurance
coverage for the duration of his life and that of his wife for
himself, his wife and his dependents, and during the period of
his consulting agreement, the use of a car and up to $1,500 in
annual maintenance fees therefor, and $2,400 annual membership
dues at a business club and reimbursement of business
entertainment expenses of up to $2,000 per year at the club. The
Consulting Agreement ran for the period of 12 months and was
subject to annual review by the Company. This Agreement was not
renewed for 1997. Under the Deferred Compensation Agreement, Mr.
Ross, or his heirs, received deferred payment for services
previously rendered in the amount of $60,000 for 1996, and will
receive $31,000 for each year thereafter until Mr. Ross reaches
age 70.
Defined Benefit Pension Retirement Plan
From 1988 to 1996, the Company maintained a Defined
Benefit Pension Retirement Plan (the "Defined Benefit Plan") for
all full time employees meeting minimum age and service
requirements. At the later of age 65 or the fifth year of
participation, participants are entitled to accrued monthly
pension benefits computed under a final average pay formula equal
to 75% of average monthly compensation, up to a maximum of
$50,000 per year, reduced proportionately for each year of
service less than ten. The non-forfeitable right of an employee
to pension benefits accrues after a three year period of
employment. Benefits are not reduced by social security payments
or by payments from other sources. The Defined Benefit Plan is
funded through Company contributions, and benefits are payable
under one of several payment options including lifetime annuity
and lump sum settlement. Mr. Grum's benefits are not fully
vested. This plan was terminated in September 1996.
Compensation of Directors
During 1996, under the Company's standard compensation
arrangements with directors, each non-employee director receives
an annual fee of $1,000 plus $750 for attendance at each meeting
of the Board of Directors and each meeting of a Committee not
held on the same day as a Board meeting, and the Chairman of the
Board, Mr. Newman, received an annual fee of $2,500 plus $750 for
attendance at Board and Committee meetings.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
The following table sets forth the holdings of each
person who owns of record or beneficially five percent or more of
the Company's Common Stock, and by all officers and directors as
a group, as of March 13, 1997.
Amount and Nature Percent of
Name and Address of Ownership (1) Class
---------------- ----------------- ----------
More than 5% owners:
Reginald B. Newman II 500,000 8.8%
700 Grand Island Boulevard
Tonawanda, New York 14150
Willis S. McLeese (2) 400,000 7.0%
45 St. Clair Avenue, West
Suite 902
Toronto, Canada
All Directors and Officers
as a group (11 persons): 1,390,058(3) 24.4%
______________________
(1) The beneficial ownership information presented is based upon
information furnished by each person or contained in filings
made with the Securities and Exchange Commission. All
amounts of securities listed are owned both of record and
beneficially unless otherwise noted.
(2) Such shares are owned by Colmac Holdings Limited, a
corporation of which Mr. McLeese is the Chairman and
principal owner.
(3) Except as indicated in (2) above and 9,835 shares as to
which members of the group have sole voting and shared
investment control, members of the group have sole voting
and investment power over the shares indicated. To the
knowledge of the Company, no person: (a) beneficially owns,
either directly or through one or more controlled companies,
more than 25% of the voting securities of the Company; (b)
has acknowledged or asserted that it controls the Company:
or (c) has been adjudged under Section 2(a)(9) of the
Investment Company Act of 1940 to control the Company.
INVESTMENT ADVISORY AND OTHER SERVICES
The Company has no investment adviser and is not a
party to any management-related service contracts. The Company
is advised by its officers under the supervision of its Board of
Directors. Deloitte & Touche LLP independent auditors, with an
office at Suite 250, Key Bank Tower, 50 Fountain Plaza, Buffalo,
New York 14202 acts as independent auditors for the Company. In
such capacity, Deloitte & Touche LLP examines and audits the
accounts of the Company.
ALLOCATION OF BROKERAGE, TRANSFER AGENT AND CUSTODIANSHIP
Brokerage
Because the Company primarily makes venture capital
investments by negotiated transactions involving securities which
are not publicly traded, the Company does not ordinarily pay
brokerage on its purchase of portfolio securities. From time to
time the Company has sought to increase its return on its cash
awaiting venture capital investment by purchasing certificates of
deposit and government or mortgage backed debt securities from
the issuing banks or from dealers in these securities.
The Company has no agreement, understanding or
allocation formula with respect to the placement of brokerage.
In selecting brokers, the Company may give consideration to a
broker who has presented prospective investments to it or has
furnished research or other information to it which has been
useful in evaluating an investment. However, no Company employee
is authorized knowingly to permit any broker to charge the
Company a commission exceeding the lowest commission generally
available to it.
Transfer Agent
The Company's transfer agent, registrar and dividend
paying agent is Continental Stock Transfer & Trust Company, 2
Broad Street, New York, New York 10007.
Custodianship
The Company maintains custody of its own portfolio
securities and does not have a third-party custodian. The
Company's portfolio securities are kept in a vault maintained at
a branch office of Marine Midland Bank, N.A. located in the Rand
Building at LaFayette Square, Buffalo, New York 14203.
TAX STATUS
Subchapter M of the Internal Revenue Code establishes
special tax provisions for a "regulated investment company." The
Company does not now qualify and does not expect to qualify as a
regulated investment company for 1997 and is therefore subject to
regular corporate tax rates. Rand Capital and Rand SBIC file
consolidated tax returns.
The Company may choose to become a regulated investment
company in any year in which it can qualify and such election is
determined to be beneficial to it. There is no assurance that it
will be able to qualify. Once made, an election cannot be
revoked.
If the Company were to qualify and to elect to be a
regulated investment company, it would (i) distribute all of its
net investment income and gains to shareholders and these
distributions would be taxable as ordinary income or capital
gains, (ii) shareholders might be proportionately liable for
taxes on income and gains of the Company, but shareholders not
subject to tax on their income would not be required to pay tax
on amounts distributed to them, and (iii) the Company would
inform shareholders of the amount and nature of the income or
gains. Tax items which are treated differently for alternative
minimum taxation and regular taxation must be apportioned between
a regulated investment company and its shareholders.
In order for the Company to qualify for tax treatment
as a regulated investment company, at least (1) 90% of the
Company's gross income must be derived from dividends, interest,
payments with respect to securities loans, and gains from a sale
or other disposition of stock or securities, and less than 30% of
its gross income may be derived from the sale or distribution of
stock or securities held for less than 3 months, and (2) 50% of
the value of its total assets at the close of each quarter must
be represented by cash and cash equivalent items, government
securities, securities of other regulated investment companies,
and securities of companies of which the Company owns 10% or less
of the outstanding voting securities and the Company must not
invest more than 25% of its assets in any one issuer.
FINANCIAL STATEMENTS
The Statements of Financial Position at December 31,
1995 and December 31, 1996, including the Portfolio of
Investments at December 31, 1996 and the related Statements of
Operations and Changes in Net Assets for each of the years then
ended, and the Schedules of Selected Per Share Data and Ratios
for each of the five years in the period ended December 31, 1996,
together with the report thereon of Deloitte & Touche LLP dated
January 24, 1997 are contained on pages 3 through 16 of the Rand
Capital Corporation Annual Report for 1996 and are incorporated
herein by reference.