SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[x] Preliminary Proxy Statement [ ] Confidential, For Use of
the Commission Only (as
permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
ACORN VENTURE CAPITAL CORPORATION
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(Name Of Registrant As Specified In Its Charter)
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(Name Of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials:
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[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registra-
tion statement number, or the form or schedule and the date of its
filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement no.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
ACORN VENTURE CAPITAL CORPORATION
100 Park Avenue
23rd Floor
New York, New York 10017
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held October 7, 1997
A special meeting of the stockholders of ACORN VENTURE CAPITAL
CORPORATION (the "Company") will be held at Club 101, 101 Park Avenue,
Lobby Level, New York, New York 10017, on Tuesday, October 7, 1997, at
11:00 A.M., local time, for the following purposes:
1. To consider and act upon a proposal that the Company
withdraw its election to be treated as a business development
company under the Investment Company Act of 1940;
2. To consider and act upon a proposal to amend the
Company's Certificate of Incorporation to change the Company's
name to "Acorn Holding Corp."; and
3. To transact such other business as may properly come
before the meeting or any adjournment(s) thereof.
The Board of Directors has fixed the close of business on
September __, 1997 as the record date for the determination of
stockholders entitled to notice of, and to vote at, the special
meeting. Only stockholders of record at the close of business on this
date will be entitled to notice of, and to vote at, the special meeting
or any adjournment(s) thereof.
By Order of the Board of Directors,
STEPHEN A. OLLENDORFF
Secretary
September __, 1997
YOU ARE URGED TO COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND
RETURN IT PROMPTLY IN THE POSTAGE PREPAID ENVELOPE WHICH HAS BEEN
PROVIDED, WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING IN
PERSON. PROMPT RETURN OF THE PROXY WILL HELP ASSURE A QUORUM, AND SAVE
THE COMPANY UNNECESSARY EXPENSE. THE PROXY MAY BE REVOKED BY YOU AT
ANY TIME PRIOR TO EXERCISE, AND IF YOU ARE PRESENT AT THE SPECIAL
MEETING YOU MAY, IF YOU WISH, REVOKE YOUR PROXY AT THAT TIME AND
EXERCISE YOUR RIGHT TO VOTE YOUR SHARES PERSONALLY.
<PAGE>
ACORN VENTURE CAPITAL CORPORATION
100 Park Avenue
23rd Floor
New York, New York 10017
Special Meeting of Stockholders
To Be Held October 7, 1997
PROXY STATEMENT
This proxy statement is furnished to the stockholders of Acorn
Venture Capital Corporation, a Delaware corporation (the "Company"), in
connection with the solicitation of proxies by the Company's Board of
Directors for use at a special meeting of Stockholders of the Company
to be held on October 7, 1997, at 11:00 A.M., local time, and any
adjournment(s) thereof (the "Special Meeting"). Stockholders will
consider and vote at the Special Meeting upon (1) a proposal to
withdraw the Company's election to be treated as a business development
company (a "Business Development Company") within the meaning of the
Investment Company Act of 1940 (the "Investment Company Act"); (2) if
proposal (1) above is approved, a proposal to amend the Company's
Certificate of Incorporation to change the Company's name to "Acorn
Holding Corp."; and (3) such other business as may properly come before
the Special Meeting. A copy of the notice of meeting accompanies this
proxy statement.
The principal executive offices of the Company are located at 100
Park Avenue, 23rd Floor, New York, New York 10017 (telephone no. 212-
685-5654). This proxy statement and the accompanying proxy are being
transmitted to stockholders of the Company on or about September __,
1997.
Voting Securities; Vote Required; Proxies
The Company's Board of Directors has fixed the close of business
on September __, 1997, as the record date for the determination of
stockholders of the Company who are entitled to receive notice of, and
to vote at, the Special Meeting. At the close of business on that
date, [5,538,906] shares of Common Stock, par value $.01 (the "Common
Stock"), were issued and outstanding, each of which is entitled to one
vote on each matter to be voted upon at the Special Meeting. The
Company has no other class of securities entitled to vote at the
Special Meeting.
The affirmative vote of the holders of (a) 67% or more of the
shares of Common Stock present (in person or by proxy) at the Special
Meeting, or (b) more than 50% of the outstanding shares of Common
Stock, whichever is less, is required to approve the proposal that the
Company withdraw its election to be a Business Development Company
(Proposal I). The affirmative vote of a majority of the outstanding
shares of Common Stock is required to change the Company's name
(Proposal II). The proposal to change the Company's name will be
presented at the Special Meeting only if the proposal to withdraw the
Company's election as a Business Development Company is first approved
by the Company's stockholders at the Special Meeting.
Pursuant to Delaware corporate law and the Company's By-laws, the
holders of a majority of the outstanding shares of Common Stock must be
present in person or represented by proxy for a quorum to exist at the
Special Meeting. The Company does not presently intend to adjourn the
Special Meeting if a quorum is present. However, the Company may seek
to adjourn the Special Meeting in order to further solicit votes,
depending upon the nature of the proposal for which insufficient votes
approving such proposal were received, the percentage of votes cast and
the percentage of affirmative and/or negative votes. The Company will
not, in any event, adjourn the Special Meeting for purposes of further
solicitation in any case where, in the opinion of the Company's
management, stockholders shall clearly have expressed their
disagreement or disinterest in a proposal through negative votes or
abstentions.
Abstentions and broker non-votes (i.e., shares of Common Stock
represented at the Special Meeting by proxies held by brokers or
nominees as to which (i) instructions have not been received from the
beneficial owners or persons entitled to vote and (ii) the broker or
nominee does not have discretionary voting power on a particular
matter) with respect to any proposal will be included in determining
the existence of a quorum and for the purpose of determining the number
of shares required to approve a proposal. Under applicable Delaware
law, in determining whether the above proposals have received the
requisite number of affirmative votes, abstentions and broker non-votes
will be counted and will have the same effect as a vote against each of
the proposals. The Company will appoint an inspector of election who
will determine whether or not a quorum exists, tabulate the votes and
determine whether or not a proposal has been approved.
Shares represented by properly executed proxies received by the
Company will be voted (except to matters where authority to vote is
specifically withheld thereon) at the Special Meeting in the manner
specified thereon or, if no specification is so made, will be voted
"FOR" the proposal that the Company withdraw its election to be treated
as a Business Development Company and "FOR" the proposal to change the
name of the Company. The persons named in the accompanying proxy have
been designated as proxies by the Board of Directors.
In the unanticipated event that any other matters are properly
presented at the Special Meeting for action, the persons named in the
accompanying proxy intend to vote proxies (which confer authority upon
them to vote on any such matters) in accordance with their judgment.
The Board of Directors does not know of any matter other than those
described herein that is expected to be presented for consideration at
the Special Meeting.
Any proxy given pursuant to this solicitation may be revoked by a
stockholder at any time before it is voted by written notification
thereof delivered to Messrs. Edward N. Epstein and/or Stephen A.
Ollendorff (Company Secretary), c/o of the Company, by voting in person
at the Special Meeting, or by executing another proxy bearing a later
date. Attendance by a stockholder at the Special Meeting does not
alone serve to revoke his or her proxy.
The solicitation of proxies will be made principally by mail and,
in addition, may be made by directors and officers of the Company
personally or by telephone or telegraph, without special or extra
compensation for such services. Arrangements will be made with
brokerage firms and other custodians, nominees and fiduciaries to
forward proxies and proxy material to their principals, and the Company
will reimburse them for their out-of-pocket and clerical expenses in
transmitting proxies and related material to beneficial owners. The
costs of soliciting proxies will be borne by the Company. It is
estimated that said costs will be relatively nominal.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNER AND MANAGEMENT
The following table sets forth, as of the close of business on
September __, 1997, certain information as to the stockholder (other
than members of the Company's management and Board of Directors) which
is known by the Company to own beneficially more than 5% of the
Company's Common Stock (based solely upon filings by said entity with
the Securities and Exchange Commission (the "Commission") on Schedule
13D (including amendments thereto) pursuant to the Securities Exchange
Act of 1934 (the "Exchange Act")):
No. of Shares
Name and Business Address Beneficially Percentage
of Beneficial Owner Owned(1) of Class
- ------------------------- ------------- ----------
Asset Value Fund 1,225,000 22.12%
Limited Partnership
376 Main Street
P.O. Box 74
Bedminster, NJ 07921
_______________
(1) Beneficial ownership, as reported in the above table, has been
determined in accordance with Rule 13d-3 under the Exchange Act.
Unless otherwise indicated, beneficial ownership includes both
sole voting and sole dispositive power.
Ownership by Management and Directors
The following table sets forth, as of September __, 1997, the
beneficial ownership of the Common Stock of the Company by (i) each
director of the Company, (ii) the Company's chief executive officer and
each of the Company's other executive officers whose total compensation
for services in all capacities to the Company during fiscal year 1996
exceeded $100,000 (of which there was one (1) such person) and (iii)
all directors and executive officers of the Company as a group (based
solely upon information furnished by such persons). Under the rules of
the Commission, a person is deemed to be a beneficial owner of a
security if he has or shares the power to vote or direct the voting of
such security or the power to dispose or direct the disposition of such
security. Accordingly, more than one person may be deemed to be a
beneficial owner of the same securities. A person is also deemed to be
a beneficial owner of any securities of which that person has the right
to acquire beneficial ownership within 60 days.
No. of Shares
Name and Business Address Beneficially Percentage
of Beneficial Owner(1) Owned(2) of Class
- ------------------------- ------------- ----------
Bert Sager.............. 351,500(3)(4) 6.17%
Stephen A. Ollendorff... 1,513,700 25.79%
(4)(5)(6)
Edward N. Epstein....... 957,500(4)(5)(7) 16.83%
Paula Berliner.......... 195,800(4)(8) 3.49%
Mark Auerbach........... - -
Edward S. Croft, III.... - -
Paul C. Meyer........... 8,665 *
Joel J. Silver.......... 3,000 *
Kenneth I. Sawyer....... 1,000 *
All directors and executive
officers as a group
(10 persons)........... 2,241,486(4) 35.36%
___________
* Less than 1%.
(1) The business address, for purposes hereof, of all of the Company's
directors and executive officers is in care of the Company's
principal executive offices at 100 Park Avenue, 23rd Floor, New
York, New York 10017.
(2) Beneficial ownership, as reported in the above table, has been
determined in accordance with Rule 13d-3 under the Exchange Act.
Unless otherwise indicated, beneficial ownership includes both
sole voting and sole dispositive power. Unless otherwise
specifically noted herein, the Company believes that all persons
in the above table have sole voting and dispositive power with
respect to all shares of Common Stock shown to be beneficially
owned by them.
(3) Does not include 76,825 shares of Common Stock owned by Marilyn
Sager, his wife, with respect to which Mr. Sager disclaims
beneficial ownership.
(4) Includes the following shares of Common Stock that may be acquired
upon the exercise of options within 60 days of September __, 1997:
Mr. Sager - 160,000; Mr. Ollendorff - 330,000; Mr. Epstein -
150,000; and Ms. Berliner - 70,000, respectively; and all
directors and executive officers as a group (10 persons) -
800,000.
(5) Stephen A. Ollendorff, the Company's Chief Executive Officer, has
entered into an Irrevocable Proxy and Voting Agreement With
Respect to Election of Directors, dated December 19, 1995, with
Edward N. Epstein, the Company's President, with respect to the
957,500 shares of Common Stock beneficially owned by Mr. Epstein.
Accordingly, Mr. Ollendorff's beneficial ownership includes such
shares. Other than as set forth above, Mr. Ollendorff disclaims
beneficial ownership of such shares.
(6) Includes 1,000 shares owned by Bjorg Ollendorff, Mr. Ollendorff's
wife.
(7) Includes 7,500 shares owned by Mr. Epstein as trustee for his
minor child.
(8) Includes 27,500 shares owned of record by Warren Berliner, Ms.
Berliner's husband.
PROPOSAL I: TO WITHDRAW THE COMPANY'S ELECTION
TO BE TREATED AS A BUSINESS DEVELOPMENT
COMPANY UNDER THE INVESTMENT COMPANY ACT
General
The Company is presently a non-diversified, closed-end
management investment company electing to be treated as a Business
Development Company under the Investment Company Act. The Company has
operated as a Business Development Company since its election to do so
made in January 1984. As a result of its election to be treated as a
Business Development Company, the Company has been exempt from being
"registered" as an investment company under the Investment Company Act.
See "--The Investment Company Act" below. As a Business Development
Company, the Company is subject to certain specified provisions of the
Investment Company Act, which generally provides greater flexibility
with respect to several management issues, capital structure and
certain other matters than does the more comprehensive regulatory
scheme of the Investment Company Act applicable to investment companies
that are not Business Development Companies. Nevertheless, as a
Business Development Company, the Company is subject to significant
regulation of its operations and activities, as described generally in
"--Protective Provisions of the Investment Company Act" below.
Presently, the Company is primarily engaged, through a wholly-
owned subsidiary, in operational, non-investment activities.
Additionally, less than 40% of the Company's total assets (exclusive of
Government securities and cash items) consist of, and less than 45% of
the Company's net income after taxes (for the last four fiscal quarters
combined) have been derived from, securities (other than, among other
things, Government securities or securities issued by majority-owned
subsidiaries). Accordingly, the Company falls outside the provisions
of the Investment Company Act defining an "investment company" and the
Company's management believes that such provisions will not be
applicable to the Company in the reasonably foreseeable future.
Because the exemptive benefits of the Investment Company Act are no
longer relevant to the Company, the Company's Board of Directors has
concluded that it would be neither consistent with the Investment
Company Act nor in the best interests of the Company and its
stockholders to continue to subject the Company to the limitations and
regulatory burdens imposed under the Investment Company Act upon
Business Development Companies. See "--Reasons for Proposal" below.
The Investment Company Act provides that a Business Development
Company shall not withdraw its election as a Business Development
Company, unless authorized by a vote of its stockholders. The Board of
Directors of the Company has determined that it is in the best
interests of the Company and its stockholders to seek stockholder
approval to withdraw the Company's election as a Business Development
Company. All of the Company's directors and officers have indicated
their intention to vote for approval of Proposals I and II. THE BOARD
OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF THE
PROPOSAL TO WITHDRAW THE COMPANY'S ELECTION TO BE TREATED AS A BUSINESS
DEVELOPMENT COMPANY.
As soon as practicable following stockholder approval of the
Company's proposal to withdraw its election, the Company will, subject
to its management's satisfying themselves that the Company will not
thereupon be required to register under the Investment Company Act,
file a notification on Form N-54C with the Commission to withdraw the
Company's election to be subject to the provisions of Sections 55
through 65 of the Investment Company Act. Upon the filing of this
Form, which is effective immediately upon receipt by the Commission,
the Company will no longer be subject to regulation under the
Investment Company Act. See "--Protective Provisions of the Investment
Company Act" below. The Company will, however, continue to be
registered under the Exchange Act and the Common Stock is expected to
continue to be listed on the NASDAQ SmallCap Market. The Company will
continue to be taxed as a "C Corporation" for Federal income tax
purposes, insofar as the Company does not qualify as a "Subchapter M
investment company".
Background
While earlier in its existence, the Company made and held
several passive portfolio investments, since October 1991, the Company
has concentrated on making and holding large controlling equity and/or
equity-related investments in a limited number of portfolio companies.
In furtherance of this business policy, the Company has been
liquidating its interests in portfolio companies in which it did not
hold a controlling equity interest.
Through its two wholly-owned subsidiaries, Automotive
Industries, Inc. and Recticon Enterprises, Inc. ("Recticon"), the
Company has recently concentrated its investments in the operations of
full-service automotive retail centers (the "Automotive Business") and
in a manufacturer of monocrystalline silicon wafers (the "Wafer
Business"), respectively. As of December 31, 1996, the Company's
investments in the Automotive Business and the Wafer Business
constituted approximately 98% of the Company's total portfolio
investments. Over approximately the past two years, the Company has
been reducing its interests in the Automotive Business and, on May 30,
1997, the Company sold substantially all of the assets of Automotive
Industries, Inc. (subject to the acquiror's assumption of the
significant liabilities of such company). This sale effectively
terminated the Company's interests in the Automotive Business.
Consequently, as of June 30, 1997, the Company's interest in the Wafer
Business represented approximately ___% of its total portfolio
investments.
Company's Present Business
The Company's present principal business is owning and operating
its wholly-owned subsidiary, Recticon, which it acquired in 1993 by
issuing 800,000 shares of its Common Stock to the stockholders of
Recticon in exchange for all of the outstanding shares of Recticon.
Recticon, located in Pottstown, Pennsylvania, manufactures two,
three and four-inch monocrystalline silicon wafers, which are made from
silicon crystals and are the basic substrate from which integrated
circuits and other semiconductor devices are fabricated. Recticon's
wafers are used by university research departments and microelectronic
manufacturers, and are best suited for use in electronics devices
employed in avionics, telecommunications and computers.
The business in which Recticon is engaged is highly competitive
and it believes that there are many competitors who produce, sell,
design and support similar products. Many of these competitors have
substantially greater marketing, financial, administrative and other
resources than Recticon.
In 1995, Recticon entered into long-term agreements with two of
its major customers, pursuant to which said customers have paid an
aggregate of $2.3 Million in cash for the right to receive a specified
number of silicon wafers at a predetermined gross profit margin to
Recticon. In addition, in 1996, Recticon entered into agreements
pursuant to which Recticon received $2.4 Million in cash from two
customers (one of which is one of the customers referred to in the
preceding sentence) in order for Recticon to purchase additional
furnaces and related equipment (the "Units"). At the end of five
years, the Units will be turned over to Recticon at no cost. In
exchange therefor, Recticon has agreed to sell these customers the
wafers produced by the Units at a mutually agreed to gross profit
margin to Recticon. Recticon has expanded its facilities and, as a
result thereof, has the capacity to add an additional four or five
Units. Recticon presently has ten functioning Units. These new Units
will not only give Recticon added capacity in its existing markets, but
will also enable it to enter into the five and six-inch wafer markets
and, subject to purchasing additional equipment, would give it the
capacity to enter into the eight-inch market. There can be no
assurances that Recticon will acquire any additional Units or
successfully enter into the five and six-inch wafer markets.
Company's Future Business
As described above, the Company has become a holding company
with one wholly-owned, operating subsidiary, Recticon. The principal
purpose of the Company will be to derive earnings from the operation of
Recticon and possibly other businesses rather than for the purpose of
obtaining dividend and interest income through the efforts of others.
The Company may acquire other companies or operating businesses in the
future. While there can be no assurance that any such acquisitions
will be made, the Company intends to acquire only the entire or, at the
least, controlling interests in such companies and have such companies
operate as subsidiaries of the Company. Accordingly, the Company is
now, and expects to be, engaged in a business other than investing,
reinvesting or trading in securities. As a result, neither the
exemptive benefit ordinarily enjoyed by a regulated Business
Development Company, nor the associated burdens, will be necessary or
relevant to the Company.
The Investment Company Act
A company falling within the definition of the term "investment
company" under the Investment Company Act is required to register with
the Commission as such unless an exemption from registration is
available. In 1980, the Investment Company Act was amended to provide
for the regulation of Business Development Companies and to exempt such
Companies from registration under the Investment Company Act. A
Business Development Company is, in effect, a closed-end investment
company that (i) is operated for the purpose of making investments in
small and developing businesses; (ii) makes available significant
managerial assistance to its portfolio companies; and (iii) notifies
the Commission of its election to be treated as a Business Development
Company under the Investment Company Act.
As a result of the Company's election to be treated as a
Business Development Company, the Company has been exempt from the
requirement to register as an investment company under the Investment
Company Act. However, the Company has been subject to the Investment
Company Act's provisions and rules applicable to Business Development
Companies, as well as numerous provisions of the Investment Company Act
applicable to registered closed-end investment companies. These
consist of extensive regulations relating to the Business Development
Companies' operations, including: (i) capital structure requirements;
(ii) limits on the sources of funds from which the Company may make
distributions; (iii) limits on the Company's ability to distribute and
repurchase its own securities; (iv) requirements relating to
disinterested persons; (v) restrictions on executive compensation
arrangements; and (vi) limitations on transactions with related
persons. See "--Protective Provisions of the Investment Company Act"
below.
A Business Development Company may not withdraw its election as
a Business Development Company unless authorized by the vote of its
outstanding voting securities. Following approval by the Company's
stockholders of the proposal, the Company will, subject to its
management's satisfying themselves that the Company will not thereupon
be required to register under the Investment Company Act, file with a
Commission a notice of withdrawal of election to be a Business
Development Company on Form N-54C pursuant to the Investment Company
Act. Pursuant to the Investment Company Act, withdrawal of the
election is effective upon the filing of a Form N-54C notification.
Consequences of Withdrawal of Election
If the Company ceases to be a Business Development Company, it
will no longer be subject to any regulatory provisions of the
Investment Company Act, certain of which are outlined below in this
section. However, the Company would continue to be subject to the
Exchange Act, which regulates publicly traded companies, including the
provisions relating to: solicitation of proxies from stockholders;
filing of interim and annual reports with the Commission; filing of
securities ownership reports by directors, officers and principal
stockholders; prohibitions against insider trading in securities; the
use of manipulative devices in connection with certain security
transactions; and the making of misleading statements in reports or
documents filed with the Commission or disseminated to stockholders or
the public.
Withdrawal by the Company of its election to be a Business
Development Company will have no direct effect on the Company's
Certificate of Incorporation or By-laws, nor will it affect the status
of the Company under Delaware corporation law. However, the Board of
Directors of the Company may at some date after such withdrawal
recommend changes in the Certificate of Incorporation if appropriate to
facilitate the Company's conduct of its business. Other than the
proposal to change the Company's name (Proposal II), no such specific
changes are presently contemplated. In addition, the Company does not
presently contemplate entering into any special arrangements with its
management or directors if and when it is no longer a Business
Development Company, except that it may in the future grant stock
options which would otherwise have been inconsistent with the
Investment Company Act.
Upon ceasing to be a Business Development Company, the Company
will be required under generally accepted accounting principles to
consolidate assets, revenues and operating results of its wholly-owned
subsidiary, Recticon. This contrasts with the Company's current
required practice of including in its net asset valuation
determinations the unrealized appreciation or depreciation of its
investments and reflecting in its assets an amount equal to the fair
value, as determined from time to time by the Board of Directors, of
its investments. In short, the Company believes that while the
financial performance of the Company, as a Business Development
Company, is currently measured primarily by its comparative balance
sheets, its financial performance as an operating company, one not
subject to the Investment Company Act, should be measured at least as
much by its comparative income statements.
As discussed above, this proposal will have no Federal income
tax consequences upon the Company or its stockholders. The Company
will continue to be taxed as a "C" corporation for Federal income tax
purposes, insofar as the Company does not qualify as a subchapter M
investment company.
If the Company's stockholders do not approve this proposal that
the Company withdraw its election to be a Business Development Company,
the Company will not withdraw such election and will continue as a
Business Development Company, rather than becoming subject to the more
comprehensive regulatory scheme applicable to registered investment
companies generally.
Protective Provisions of the Investment Company Act
After the withdrawal of the Company's election as a Business
Development Company, the Company will no longer be subject to
regulation under the Investment Company Act and, consequently, the
Company's stockholders will no longer have the benefit of certain
protective provisions under the Investment Company Act, some of which
are summarized below.
The Investment Company Act requires the Company to carry its
assets at fair value rather than at cost in financial reports;
prohibits the Company from changing the nature of its business of
fundamental investment policies without the prior approval of its
stockholders; regulates the composition of the Board of Directors by,
among other things, prohibiting investment bankers, securities brokers,
legal counsel and affiliated persons of the Company from constituting
50% or more of the directors of the Company; restricts certain
transactions between the Company and affiliated persons of the Company
including directors and officers, and transactions between the Company
and any of such persons on the one hand and third parties on the other;
regulates the capital structure of the Company by restricting the
issuance of senior equity and debt securities; significantly restricts
the issuance of options, rights and warrants to purchase stock of the
Company except under certain circumstances as employee compensation;
provides for the custody of securities and bonding of certain
employees; restricts issuance of Common Stock of the Company at a price
per share less than the then current net asset value of the Common
Stock; prohibits issuance of securities in return for services or for
property other than cash or securities (except as a dividend or a
distribution to security holders or in connection with a
reorganization); restricts the manner in which re-purchases of stock
may be effected; restricts plans of reorganization; generally prohibits
certain functions and activities including, without limitation, certain
purchases of securities on margin, short sales, acting as a distributor
of securities, and owning stock of other investment companies,
insurance companies, brokers, dealers or underwriters; and establishes
certain remedies in the event of breaches of fiduciary duty by various
management personnel and others associated with the Company.
Reasons For Proposal
Given the manner in which the Company now operates its business,
as described above, the Board of Directors believes that the regulatory
and financial reporting requirements imposed by the Investment Company
Act, while appropriate for investment companies and, for the most part,
Business Development Companies (insofar as applicable to them), are no
longer appropriate for the Company or, on balance, in the best interest
of the Company or its stock- holders. For example:
1. The Company's business objective is to obtain and report
consolidated earnings from the operations of Recticon and any other
companies it may acquire in the future. Nevertheless, the Company,
because it elected to be regulated as a Business Development Company,
is still required by applicable regulations to prepare its financial
statements as other investment companies, which rely on the fair values
of their portfolio investments for purposes of determining increases or
decreases in the value of their net assets. The Company is thereby
precluded from consolidating assets, revenues and operating results of
majority-owned subsidiaries which are not investment companies and
including in its earnings the operating results of companies which are
less than 50% owned by the Company, but over which the Company
nevertheless has significant influence.
2. By virtue of its election to be treated as a Business
Development Company, the Company may not (without, among other things,
stockholder approval) issue new shares of its Common Stock at a price
per share below the current net asset value per share of outstanding
Common Stock. While this restriction provides stockholders of an
investment company with appropriate and meaningful protection against
dilution of their indirect investments in the fund's portfolio
securities, the Company regards it as essentially irrelevant to the
interests of investors in an operating or holding company, who look to
its consolidated earning stream from operations for maximization of
investment value.
3. The Investment Company Act significantly restricts (a)
transactions involving transfers of property in either direction
between the Company and most affiliated persons of the Company (or the
affiliated persons of such affiliated persons) and (b) transactions
between the Company and such affiliated persons (or the affiliated
persons of such affiliated persons) participating jointly on the one
hand and with third parties on the other. These restrictions, while
somewhat relaxed as applied to Business Development Companies,
nevertheless require in certain circumstances obtaining Commission
approval, often a time-consuming and expensive procedure, for
transactions of the types described above involving directors,
officers, employees or principal underwriters of the Company (or
certain of their affiliated persons), regardless of the intrinsic
fairness of such transactions or the approval thereof by disinterested
directors of the Company. While the Company believes interested-party
transactions should not become a routine fact of a public corporation's
life, situations may frequently arise in which a corporation's best
interests are served by such transactions. The Board of Directors
believes that the stockholders of the Company are adequately protected
by the duty of loyalty already imposed on the Company's directors under
Delaware law. Delaware law generally permits the disinterested members
of the board of directors of a corporation to determine the fairness to
the corporation or a particular interested-party transaction, provided
full disclosure of all material facts regarding the transaction and the
interested party's relationship with the corporation is made. The
Company believes that the growth of its principal business is hampered
by the extensive restrictions and protections imposed by the Investment
Company Act in this regard, and that the more flexible state-legislated
protective scheme should more appropriately govern.
4. Business Development Companies are limited as to the types
of securities other than common stock which they may issue. The
issuance of convertible securities and rights to acquire shares of
common stock (e.g., warrants and options), generally prohibited to
investment companies, is significantly restricted for Business
Development Companies, primarily because of the statutory interest in
facilitating computation of the Company's net asset value per share.
In addition, issuances of senior debt and senior equity securities
require that certain "asset coverage" tests and other criteria be
satisfied on a continuing basis. This often effectively precludes the
use of these types of securities since asset coverage is continuously
affected by variations in market prices of the Company's investments
whose securities are publicly- traded. Operating companies, including
holding companies operating through controlled subsidiaries, benefit
from having significant flexibility to raise capital through various
means, and, to that end, from being able to issue several different
types of securities. As with interested-party transactions,
stockholders in such companies rely on the duty imposed on corporate
directors by Delaware law with regard to the adequacy of consideration
paid for the corporation's securities.
5. Business Development Companies are prohibited from re-
purchasing their own securities other than (i) on a securities exchange
or such other open market as the Commission may designate by rules and
regulations or orders, (ii) pursuant to tender offers to all
stockholders or (iii) under such other circumstances as the Commission
may permit by rules and regulations or orders. The Board of Directors
believes that it may be in the best interests of the Company to have
the ability on an unrestricted basis to re-purchase large blocks of the
Company's Common Stock if the Board of Directors believes that such re-
purchase would be in the best interests of the Company and its
stockholders. Public operating companies have been able to benefit
from the repurchase of their own securities if the Board of Directors
feels that the stock being repurchased is undervalued in the public
market.
The foregoing represents what the Company regards as only the
more salient aspects in which the restrictions of the Investment
Company Act, as applied to the Company, have had the effect of
dampening market interest in the Company and hindering financial
growth. In the opinion of the Company's directors and executive
officers, such restrictions are inappropriate for and, on balance,
contrary to the interests of the stockholders of the Company based on
the Company's current objectives, as those objectives have evolved.
Moreover, in the view of the Company's directors and executive
officers, the absence of a following by financial analysts of Business
Development Companies generally adversely affects the Company's ability
to raise capital.
See "--Protective Provisions of the 1940 Act" above for a brief
summary of certain material statutory and regulatory provisions
specific to Business Development Companies under the Investment Company
Act. See also "--Consequences of Withdrawal of Election" in this
section.
Stockholders' Vote
Under the Investment Company Act, approval of this proposal
requires the affirmative vote of the holders of (a) 67% or more of the
shares of Common Stock of the Company present or represented by proxy
at the Special Meeting (if a quorum exists), or (b) more than 50% of
the outstanding shares of Common Stock of the Company, whichever is
less.
Recommendation
THE BOARD OF DIRECTORS OF THE COMPANY UNANIMOUSLY RECOMMENDS
THAT STOCKHOLDERS VOTE "FOR" PROPOSAL I.
PROPOSAL II: AMENDMENT TO THE COMPANY'S CERTIFICATE OF
INCORPORATION TO CHANGE THE COMPANY'S NAME TO
"Acorn Holding Corp."
General
If Proposal I is adopted by the stockholders at the Special
Meeting, the Company will present at the Special Meeting a proposal
that the Company's name be changed to "Acorn Holding Corp.".
As described in Proposal I, the nature of the Company's business
has changed to making large, controlling investments in companies.
Accordingly, the Board of Directors believes that the change in the
Company's name will more appropriately indicate that the Company is now
a holding company with an operating subsidiary, rather than an
investment company. The Board of Directors of the Company believes
that the name "Acorn Holding Corp." better connotes to the public and
the investment community the purposes and business of the Company.
Accordingly, if Proposal I is adopted, the Company will present at the
Special Meeting a proposal that the Company's Certificate of
Incorporation be amended as follows:
"The name of the corporation is Acorn Holding Corp.".
Stockholders' Vote
Under Delaware law, the affirmative vote of a majority of the
outstanding shares of Common Stock is required to amend the Certificate
of Incorporation in order to change the Company's name.
Recommendation
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE
ADOPTION OF PROPOSAL II.
Stockholder Proposals
Any stockholder who intends to present a proposal or action at
the Company's 1997 Annual Meeting of Stockholders must comply with and
meet the requirements of Regulation 14a-8 of the Exchange Act and the
Company's By-Laws. Regulation 14a-8 requires, among other things, that
a proposal have been received by the Company in writing at its
principal executive office not later than July 30, 1997 in order for
such proposal to be considered for inclusion in the Proxy Statement
relating to the 1997 Annual Meeting of Stockholders. In addition, the
Company's By-Laws require that a stockholder proposal be received by
the Company no earlier than October 2, 1997 and no later than November
1, 1997.
Certain Reports
Copies of the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1996, and the Company's quarterly
reports on Form 10-QSB for the fiscal quarters ended on March 31, 1997
and June 30, 1997, will be provided, without charge, to any Company
stockholder upon the written or oral of such person. Requests for such
documents should be directed to: Secretary, Acorn Venture Capital
Corporation, 100 Park Avenue, 23rd Floor, New York, New York 10017
(telephone no. 800-818-9558).
By Order of the Board of Directors
STEPHEN A. OLLENDORFF
Secretary
Dated: September __, 1997
<PAGE>
ACORN VENTURE CAPITAL CORPORATION
Proxy for Special Meeting of Stockholders
to be Held October 7, 1997
THIS PROXY IS BEING SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS
The undersigned stockholder(s) of ACORN VENTURE CAPITAL
CORPORATION, a Delaware corporation (the "Company"), hereby constitutes
and appoints EDWARD N. EPSTEIN and STEPHEN A. OLLENDORFF, and each of
them, with full power of substitution in each, as the agent, attorneys
and proxies of the undersigned, for and in the name, place and stead of
the undersigned, to vote at the Special Meeting of Stockholders of the
Company to be held at Club 101, 101 Park Avenue, New York, New York
10017 on October 7, 1997 at 11:00 A.M. (local time), and any
adjournment(s) thereof, all of the shares of common stock which the
undersigned would be entitled to vote if then personally present in the
manner specified and on any other business as may properly come before
the meeting.
This Proxy will be voted in accordance with the instructions
indicated herein. If no instructions are given, this Proxy will be
voted "FOR" Proposals 1 and 2.
Please mark boxes __ or x in blue or black ink.
1. TO APPROVE THE PROPOSAL TO WITHDRAW THE COMPANY'S ELECTION TO BE
TREATED AS A BUSINESS DEVELOPMENT COMPANY UNDER THE INVESTMENT
COMPANY ACT OF 1940
FOR _____ AGAINST _____ ABSTAIN _____
(Continued and to be signed on the reverse side.)
<PAGE>
2. TO APPROVE THE PROPOSAL TO AMEND THE COMPANY'S
CERTIFICATE OF INCORPORATION TO CHANGE THE COMPANY'S
NAME TO "ACORN HOLDING CORP."
FOR _____ AGAINST _____ ABSTAIN _____
3. In their discretion, the proxies are authorized to vote upon
such other business as may properly come before the meeting or
any adjournment(s) thereof as set forth in Rule 14a-4(c) of the
Securities Exchange Act.
Please sign exactly as name appears above. When
shares are held by joint tenants, both should sign.
When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such.
If a corporation, please sign in full corporate name
by President or other authorized officer. If a
partnership, please sign in partnership name by
authorized person.
Dated________________________, 1997
___________________________________
Signature
___________________________________
Signature if held jointly
