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:
[ ] Preliminary Proxy Statement [ ] Confidential, For Use of
the Commission Only (as
permitted by Rule 14a-6(e)(2))
[x] 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
registration 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 November 3, 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 Monday, November 3, 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
9, 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 9, 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 November 3, 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 November 3,
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 Special 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 sent to stockholders
of the Company on or about September 11, 1997.
Voting Securities; Vote Required; Proxies
The Company's Board of Directors has fixed the close of business on
September 9, 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 Company's
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, upon request, 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
1, 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 1, 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 1, 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 over 99% of the value of the Company's total
portfolio investments (excluding cash and cash equivalents, a certificate of
deposit and U.S. Treasury bills). 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 99% of the
value of its total portfolio investments (excluding estimated deferred
purchase price in connection with the May 30, 1997 sale of the remaining
portion of its Automotive Business, cash and cash equivalents, a certificate
of deposit and U.S. Treasury bills).
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, six or eight-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 only to
acquire 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 for 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 so 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 the Commission a notice
of withdrawal of election to be a Business Development Company on Form N-54C
pursuant to the Investment Company Act. Under 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 corporate 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.
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 of the Investment
Company Act, certain 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 or its fundamental investment
policies without the prior approval of its stockholders; regulates the
composition of the Board of Directors by prohibiting affiliated persons of the
Company from constituting 50% or more of the directors of the Company;
significantly restricts certain transactions between the Company and
affiliated persons of the Company, including its directors and officers;
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; provides for
the custody of securities and bonding of certain employees; restricts
issuances 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, in certain circumstances, 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 repurchases of Company stock may be effected; restricts loans by the
Company; generally prohibits certain activities including, without limitation,
purchases of securities on margin and short sales; restricts the Company in
acting as a distributor of securities, or 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 stockholders. 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 earnings 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 certain 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, uncertain 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 duties of care and 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
duties 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 markets 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 a less restricted basis,
to repurchase shares of the Company's Common Stock if the Board of Directors
believes that such repurchases 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
determines 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 OF THE COMPANY UNANIMOUSLY RECOMMENDS THAT
STOCKHOLDERS VOTE "FOR" 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 9, 1997
<PAGE>
ACORN VENTURE CAPITAL CORPORATION
Proxy for Special Meeting of Stockholders
to be Held November 3, 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 agents, 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 November 3, 1997 at 11:00
A.M. (local time), and any adjournment(s) thereof, all of the shares of common
stock of the Company which the undersigned would be entitled to vote if then
personally present thereat in the manner specified herein 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 hereby authorized to vote
upon such other business as may properly come before the special
meeting or any adjournment(s) thereof as set forth in Rule 14a-
4(c) under the Securities Exchange Act of 1934.
Please date and sign exactly as name appears above.
When shares are held by joint tenants, both persons
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
___________________________________
Title (if applicable)
