SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
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 Section 240.14a-11(c) or
Section 240.14a-12
ACACIA RESEARCH CORPORATION
(Name of Registrant as Specified In Its Charter)
______________________________________________________
(Name of Person(s) Filing Proxy Statement if other
than the Registrant)
Payment of Filing Fee (Check the appropriate box):
X $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1),
14a-6(i)(2) or Item 22(a)(2) of Schedule 14A.
__ $500 per each party to the controversy pursuant to Exchange
Act Rule 14a-6(i)(3).
__ Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
1) Title of each class of securities to which transaction
applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
__ Fee paid previously with preliminary materials.
__ 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:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
ACACIA RESEARCH CORPORATION
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 14, 1996
To the Shareholders:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders
of Acacia Research Corporation, a California corporation (the
"Company"), will be held on Tuesday, May 14, 1996 at 5:00 p.m.,
local time, at The Pasadena Rose Bowl Press Box located at 1001
Rose Bowl Drive at Arroyo Blvd., Pasadena, California 91103, for
the following purposes:
1. To elect directors to serve for the ensuing year and until
their successors are elected and duly qualified;
2. To approve and ratify the Company's 1996 Stock Option Plan
and reserve 250,000 shares for issuance thereunder;
3. To approve and ratify the Company's 1996 Executive Stock
Bonus Plan and the award of options to purchase 360,000 shares
thereunder; and
4. To transact such other business as may properly come before
the meeting or any adjournment thereof.
Only shareholders of record at the close of business on March
20, 1996 are entitled to receive notice of and to vote at the
Annual Meeting.
All shareholders are cordially invited to attend the Annual
Meeting in person. However, to assure your representation at the
Annual Meeting, you are urged to mark, sign, date and return the
enclosed proxy card as promptly as possible in the postage-prepaid
envelope enclosed for that purpose. Any shareholder attending the
Annual Meeting may vote in person even if he or she previously
returned a proxy.
By Order of the Board of Directors
Kathryn King-Van Wie
Secretary
Pasadena, California
April 22, 1996
YOUR VOTE IS IMPORTANT
IN ORDER TO ASSURE YOUR REPRESENTATION AT THE MEETING,
YOU ARE REQUESTED TO COMPLETE, SIGN AND DATE THE ENCLOSED
PROXY AS PROMPTLY AS POSSIBLE AND RETURN IT IN THE ENCLOSED
ENVELOPE.
<PAGE>
ACACIA RESEARCH CORPORATION
12 SOUTH RAYMOND AVENUE
PASADENA, CALIFORNIA 91105
_______________________
PROXY STATEMENT
The enclosed Proxy is solicited on behalf of the Board of
Directors of Acacia Research Corporation, a California corporation
("Acacia" or the "Company"), for use at Acacia's Annual Meeting of
Shareholders (the "Annual Meeting") to be held on Tuesday, May 14,
1996 at 5:00 p.m., local time, or at any adjournment(s) thereof.
The purposes of the Annual Meeting are set forth in this Proxy
Statement and in the accompanying Notice of Annual Meeting of
Shareholders. The Annual Meeting will be held on Tuesday, May 14,
1996 at 5:00 p.m., local time, at The Pasadena Rose Bowl Press Box
located at 1001 Rose Bowl Drive at Arroyo Blvd., Pasadena,
California 91103.
These proxy solicitation materials were mailed on or about April
22, 1996 to all shareholders entitled to vote at the Annual
Meeting.
RECORD DATE; OUTSTANDING SHARES; PROCEDURAL MATTERS
Shareholders of record as of the close of business on March 20,
1996 (the "Record Date") are entitled to notice of and to vote at
the Annual Meeting. At the March 20, 1996 Record Date, 1,868,072
shares of the Company's Common Stock, no par value (the "Common
Stock"), were issued and outstanding. Each share has one vote on
all matters. For information regarding holders of more than 5% of
the outstanding Common Stock, see "SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT." The closing prices of the
Company's Common Stock as reported on the NASD Bulletin Board on
March 20, 1996 was $6.13 per share, and on April 19, 1996 was $9.25
per share.
The Company will bear the cost of this solicitation, including
reimbursement of brokerage firms and other persons representing
beneficial owners of shares for their reasonable expenses in
forwarding solicitation material to such beneficial owners. The
solicitation of proxies for the 1996 Annual Meeting will be made
primarily by mail. However, proxies may be solicited by certain of
the Company's directors, officers and regular employees, without
additional compensation, personally or by telephone or facsimile.
VOTING
Each share of Common Stock outstanding on the Record Date is
entitled to one vote. In addition, every shareholder, or his
proxy, entitled to vote upon the election of directors may cumulate
his votes and give one candidate a number of votes equal to the
number of directors to be elected multiplied by the number of votes
to which his shares are entitled, or distribute his votes
calculated on the same principle among as many candidates as he
thinks fit. No shareholder or proxyholder, however, shall be
entitled to cumulate votes unless such candidate or candidates have
been nominated prior to the voting and the shareholder has given
notice at the meeting, prior to the voting, of the shareholder's
intention to cumulate the shareholder's votes. If any one
shareholder gives such notice, all shareholders may cumulate their
votes for candidates in nomination. An affirmative vote of a
majority of the shares present and voting at the meeting is
required for approval of all items being submitted to the
shareholders for their consideration. Abstentions and broker non-
votes are each included in the determination of the number of
shares present and voting. Each is tabulated separately.
Abstentions are counted in tabulations of the votes cast on
proposals presented to shareholders, whereas broker non-votes are
not counted for purposes of determining whether a proposal has been
approved.
REVOCABILITY OF PROXIES
A shareholder may revoke any proxy given pursuant to this
solicitation by attending the Annual Meeting and voting in person,
or by delivering to the Company prior to the Annual Meeting a
written notice of revocation or a duly executed proxy bearing a
date later than that of the previous proxy.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
NOMINEES
The Bylaws of the Company presently provide that there shall be
five directors and that such directors are to be elected at the
Annual Meeting of Shareholders. Unless otherwise instructed, the
proxy holders will vote the proxies received by them for the
Company's five nominees named below, all of whom are presently
directors of the Company. If any nominee of the Company is unable
or declines to serve as a director at the time of the Annual
Meeting, the proxies will be voted for any nominee designated by
the present Board of Directors to fill the vacancy. It is not
presently expected that any of the nominees named below will be
unable or will decline to serve as a director. If additional
persons are nominated for election as directors, the proxy holders
intend to vote all proxies received by them in a manner to assure
the election of as many of the nominees listed below as possible.
In such event, the specific nominees to be voted for will be
determined by the proxy holders. The term of office of each person
elected as a director will continue until the next Annual Meeting
of Shareholders or until a successor has been elected and duly
qualified.
Biographical summaries and ages as of March 20, 1996 of
individuals nominated by the Board of Directors for election as
directors are provided below. Data with respect to the number of
shares of the Company's Common Stock beneficially owned by each of
them, directly or indirectly, as of that date, appears on pages 15
and 16 of this Proxy Statement under the caption "Security
Ownership of Certain Beneficial Owners and Management." There is
no family relationship among any directors or executive officers of
the Company.
NAME, PRINCIPAL OCCUPATION AND DIRECTORSHIPS AGE DIRECTOR
SINCE
R. BRUCE STEWART, PRESIDENT, TREASURER AND DIRECTOR
Mr. Stewart joined the Company at its 59 1993
inception in March 1991, and has served the Company
as Director, President and Chief Executive Officer
since its incorporation in January 1993. Mr. Stewart
founded the Company and has guided the development of
the Company's strategies and operations. Prior to
establishing the Company, Mr. Stewart served as the
President of Annandale Corporation, an investment
banking firm and broker-dealer, from 1977 to 1992.
BROOKE P. ANDERSON, VICE PRESIDENT, RESEARCH AND 33 1993
DEVELOPMENT AND DIRECTOR
Dr. Anderson joined the Company at its inception
and, from January 1993 to the present, has served the
Company as Director, Vice President, Research and
Development, and, from January 1993 through September
1995, as Secretary. Dr. Anderson has primary
responsibility for the technical development and
maintenance of Acacia's stock-screening models. He
received his Ph.D. in Computation and Neural Systems
and M.S. in Applied Physics from the California
Institute of Technology, as well as a B.S. in Nuclear
Engineering from the University of Michigan. Dr. Anderson
is the author of technical papers in the fields of
neural networks, signal processing, and adaptive systems
and is the co-holder of a U.S. patent pertaining to
adaptive systems.
FRED A. DE BOOM, DIRECTOR
Mr. de Boom became a director of the Company 60 1995
in February 1995. Mr. de Boom is a principal in
Sonfad Associates, a position he has held since
June 1993. Sonfad Associates is a Los Angeles
based investment banking firm that is involved in
mergers and acquisitions, private debt and equity
placements, strategic and financial business planning,
leveraged buy-outs and ESOP funding, bank debt refinance,
asset based and lease financing, and equity for debt
restructuring. Previously, he had been employed as a
Vice President of Tokai Bank for five years, and as a
Vice President of Union Bank for an additional eight
years. Mr. de Boom received a B.A. degree from Michigan
State University and an M.B.A. degree from the University
of California.
PAUL R. RYAN, VICE PRESIDENT, CAPITAL MANAGEMENT
AND DIRECTOR
Mr. Ryan became a director and officer of 49 1995
the Company in August 1995. Mr. Ryan has direct
responsibility for portfolio management and is,
along with the Company, a general partner of
each of the funds formed by the Company. He
received a B.S. Degree from Cornell University and
attended the New York University Graduate School
of Business. Mr. Ryan was a general partner of the
American Health Care Fund, L.P. until 1993. Prior
to such time, he was a financial consultant with
Merrill Lynch.
EDWARD W. FRYKMAN, DIRECTOR
In April 1996, the Board of Directors appointed 59 1996
Mr. Frykman to fill a vacancy on the Board of
Directors. Mr. Frykman is presently an account
executive with Crowell, Weedon & Co., a position he
has held since 1992. From 1990 to 1992, Mr. Frykman
served as Senior Vice President of L.H. Friend & Co.
Both Crowell, Weedon & Co. and L.H. Friend & Co.
are investment brokerage firms located in Southern
California. In addition, from October 1972 to
September 1987, Mr. Frykman was the Manager of the
Los Angeles Regional Retail Office of Shearson Lehman
Hutton, and from September 1987 to March 1990 served
as a Senior Account Executive with Shearson Lehman
Hutton.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR"
ALL OF THE NOMINEES LISTED ABOVE.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of twenty (20)
meetings during the fiscal year ended December 31, 1995. During
fiscal 1995, no incumbent director attended fewer than 75% of the
sum of the total number of meetings of the Board of Directors (held
while such person was a director) and the total number of meetings
of all committees of the Board of Directors on which that director
served. See "Director Compensation" for information on the
compensation of non-employee directors.
The Board has an Audit Committee and a Compensation Committee but
does not have a nominating committee or any committee performing a
similar function.
The Audit Committee of the Board of Directors, which currently
consists of Fred A. de Boom and Edward W. Frykman, was established
in April 1996. The Audit Committee recommends engagement of the
Company's independent accountants and is primarily responsible for
approving the services performed by the Company's independent
accountants and for reviewing and evaluating the Company's
accounting principles and its system of internal accounting
controls. The Company did not have an Audit Committee meeting
during fiscal 1995.
The Compensation Committee of the Board of Directors, which
currently consists of Fred A. de Boom and Edward W. Frykman, was
established in April 1996. The Compensation Committee is primarily
responsible for making recommendations to the Board of Directors
regarding the Company's executive compensation policy and incentive
compensation for employees and consultants to the Company. The
Company did not have a Compensation Committee meeting during fiscal
1995.
DIRECTOR COMPENSATION
Directors who are also employees of the Company receive no
separate compensation from the Company for their service as members
of the Board of Directors. In 1995, the Company's then only non-
employee director, Fred de Boom, received options to purchase
10,000 shares of Common Stock under the Company's 1993 Stock Option
Plan in lieu of receiving retainer fees for his service as a non-
employee director of the Company. If the 1996 Stock Option Plan is
approved by the Company's shareholders, each non-employee director
will receive additional stock option grants, and it is not
anticipated that such non-employee directors will receive any cash
compensation from the Company for their service as members of the
Board of Directors in 1996, although they may be reimbursed for
reasonable expenses incurred by them in attending Board of
Directors and Committee meetings.
PROPOSAL NO. 2
APPROVAL AND RATIFICATION OF THE
1996 STOCK OPTION PLAN
On April 16, 1996, the Board of Directors adopted the Acacia 1996
Stock Option Plan (the "1996 Plan"), subject to the approval by the
shareholders of the Company at the Annual Meeting. A total of
250,000 shares of the Company's Common Stock is proposed to be
reserved for issuance under the 1996 Plan. The 1996 Plan is
intended to replace the Company's 1993 Stock Option Plan.
GENERAL
The Plan, was approved and adopted by the Board of Directors of
the Company (the "Board"), on April 16, 1996.
The Plan provides for the grant of Nonqualified Stock Options
and Incentive Stock Options to key employees including officers of
the Company and its Subsidiaries and certain other individuals as
selected by the Committee under the "Key Employee Program." The
Plan also provides for the automatic grant of Nonqualified Stock
Options to non-employee directors upon initial election to the
Board of Directors and thereafter on an annual basis under the
"Non-Employee Director Program." Capitalized terms herein not
otherwise defined shall have the meanings given to them in the
Plan.
The Plan is available from the Secretary of the Company on
request. Reference is made to the Plan for a full statement of its
terms. Additional provisions, not inconsistent with the Plan, are
set forth in the respective Award Agreements entered into by
recipients of Options under the Plan. This summary principally
addresses the general provisions of the Plan. The specific terms
and conditions of an Option are set forth in a participant's Award
Agreement.
PURPOSE
The purpose of the Plan is to promote the success of the Company
and its Subsidiaries by providing an additional means through the
grant of Options to attract, motivate and retain certain key
employees, agents and consultants (including officers whether or
not directors) of the Company and its Subsidiaries, and experienced
and knowledgeable independent directors.
AMENDMENT, SUSPENSION OR TERMINATION OF THE PLAN
The Plan will terminate on April 15, 2006 unless the Plan is
earlier terminated by the Board. To the extent required by Rule
16b-3 or other applicable law, shareholder approval is required
with respect to certain amendments that (i) materially increase the
benefits accruing to Participants under the Plan, (ii) materially
increase the aggregate number of shares which may be issued under
the Plan, or (iii) materially modify the requirements as to
eligibility for participation in the Plan. Other than as described
in the previous sentence, the Board may, without shareholder
approval, at any time terminate or from time to time amend, modify
or suspend the Plan, except for certain exceptions regarding the
frequency of amendments to the Non-Employee Director Program.
Without written consent of the Participant, no amendment,
suspension or termination of the Plan or change of or affecting any
outstanding Option shall affect in any manner materially adverse to
the Participant any rights or benefits of the Participant or
obligations of the Company under any then outstanding Option
granted under this Plan.
ADMINISTRATION OF THE PLAN
The Non-Employee Director Program provides for automatic Option
grants and is, to the maximum extent possible, self-effectuating.
The Key Employee Program is administered by a committee of the
Board (the "Committee"), the members of which must be
"disinterested" within the meaning of Rule 16b-3 promulgated under
the Exchange Act.
The Committee must act by a majority vote or by written consent
of its members. The Committee has the authority to select those
employees of the Company or a Subsidiary who may participate in the
Key Employee Program and to determine the terms of their Options,
including the number of shares subject thereto, subject only to the
limitations of the Plan and applicable law. In addition, the
Committee has the authority to approve the forms of Award
Agreements, to construe and interpret the Plan and any related
agreements, to prescribe, amend and rescind rules and regulations
relating to the administration of this Plan, to cancel, modify or
waive the Company's rights with respect to, or modify, discontinue,
suspend, or terminate any or all outstanding Awards held by
Eligible Employees, subject to any required consent under Section
4.6 of the Plan, to accelerate or extend the exercisability or
extend the term of any or all such outstanding Awards within the
maximum of Awards and to make all other determinations and take
such other action as contemplated by the Plan or as may be
necessary or advisable for the administration of the Plan and the
effectuation of its purposes.
Members of the Committee are selected by the Board to serve
until their successors are appointed. The Committee currently
consists of the two members of the Company's Compensation
Committee, Fred A. de Boom and Edward W. Frykman. For additional
information about the Plan and the Committee, the Committee's
address is c/o Acacia Research Corporation, 12 South Raymond
Avenue, Pasadena, California 91105. The telephone number at that
location is (818) 449-6431.
ELIGIBILITY AND PARTICIPATION
Any key employee (including any officer, executive, or
administrative, managerial, production, marketing or sales
employee) of the Company or a Subsidiary, as determined in the sole
discretion of the Committee, is eligible to be granted Options
under the Key Employee Program. In addition, the Committee may
select in its sole discretion certain other persons (including
significant agents and consultants) who perform substantial
services for the Company or a Subsidiary of a nature similar to
those performed by key employees to participate in the Plan. The
Plan provides that all directors who are not officers or employees
of the Company or a Subsidiary are eligible to participate in the
Non-Employee Director Program.
TERMS
The Committee determines the number of shares that are to be
subject to the Options granted to participants under the Key
Employee Program and the terms and conditions of such Options,
including whether such Options are Nonqualified Stock Options or
Incentive Stock Options. The maximum number of shares that may be
subject to Options granted to any individual under the Key Employee
Program during any calendar year is 100,000, subject to adjustment
as described under the caption "Options and Adjustments to Options"
below.
The number of shares that are subject to annual Options
automatically granted to each Non-Employee Director Participant is
currently fixed at 1,000 for each such Option. In addition, the
number of shares that are subject to one-time Options automatically
granted to each Non-Employee Director Participant is 10,000 for
each such Option. The maximum number of shares that may be issued
upon the exercise of all Options granted to Non-Employee Directors
under the Non-Employee Director Program is 50,000, subject to
adjustment as described under the caption "Options and Adjustments
to Options" below. The maximum number of shares that may be
delivered pursuant to Options qualified as Incentive Stock Options
granted under the Plan is 200,000. Each of the three foregoing
numerical limits are subject to adjustments in accordance with the
Plan.
The aggregate number of shares of the Company's Common Stock
which may be issued upon the exercise of all Options under the Plan
is 250,000.
AWARD AGREEMENT
Each Option granted to a Participant must be evidenced by a
written Award Agreement executed by the Participant and an
authorized officer of the Company, containing all the terms and
conditions of the Option.
OPTIONS AND ADJUSTMENTS TO OPTIONS
The Options represent options to purchase shares of the
Company's Common Stock. The number and kind of shares issuable
under the Plan and upon the exercise of Options (and the exercise
price, if appropriate) will be adjusted in an appropriate
proportionate and equitable manner in the event of any
extraordinary dividend or other extraordinary distribution in
respect of the Common Stock, or any recapitalization, stock split
(including a stock split in the form of a stock dividend), reverse
stock split, reorganization, merger, combination, consolidation,
split-up, spin-off, combination, repurchase, or exchange of Common
Stock for other securities of the Company, or any other like
corporate transaction or event in respect of the Common Stock, so
that after any such event, the Participant's proportionate interest
will be maintained as before the occurrence of any such event;
provided, however, that no such adjustment shall be made with
respect to Incentive Stock Options which would cause the Plan to
violate Section 424(a) of the Internal Revenue Code or any
successor provision thereto. Notwithstanding the preceding
sentence, Options granted to Non-Employee Director Participants
shall be adjusted as described above only to the extent that
(a) such adjustment and the Committee's actions in respect thereof
satisfy applicable criteria under Rule 16b-3 and (b) such
adjustment is consistent with adjustments to Options held by
persons other than executive officers or directors of the Company.
The Plan provides, with limited exceptions, that Options are not
assignable or transferable except by will or the laws of descent
and distribution, and that only the Participant (or, in the event
of his or her death, the Participant's Beneficiary) may exercise
the Option.
KEY EMPLOYEE PROGRAM
One or more Options may be granted to any Eligible Employee.
The Committee will designate Options granted as either Incentive
Stock Options or Nonqualified Stock Options and the appropriate
designation will appear on the respective Award Agreements. Award
Agreements need not be identical and, as previously noted, the
terms of individual Award Agreements are determined by the
Committee, subject to the limitations described in the Plan.
No Option granted under the Key Employee Program may be
exercised during the first six months after such Option is granted
and no such Option may be exercised more than 10 years after the
date it is granted or such shorter period as the Committee may
determine, except that Incentive Stock Options granted to any
person who, at the time such Option is granted, owns (or is deemed
to own under Section 424(d) of the Internal Revenue Code) shares of
Common Stock representing 10% of the total combined voting power of
all classes of stock of the Company shall not be exercisable more
than five years after the initial grant of such Options. Options
granted to Eligible Employees become exercisable in one or more
installments in the manner and at the time or times specified by
the Committee, which may also thereafter extend or accelerate the
exercisability of an Option in any circumstances it deems
appropriate (including circumstances related to a Change in Control
Event or reorganization as described in Section 4.2 of the Plan),
subject to the maximum 10 year term. A Change in Control Event is
defined under Section 5.1(g) of the Plan to include certain changes
in ownership of more than 50% of the outstanding stock and certain
mergers, asset sales and changes in Board composition. Once
exercisable, an Option remains exercisable until the expiration of
the exercise period or earlier cancellation or termination of the
Option. The Committee may provide that any unexercised Option
granted to an Eligible Employee may not be exercised as of the date
of any event or transaction in or pursuant to which the Company
does not survive.
The purchase price payable upon the exercise of an Incentive
Stock Option must be at least equal to the Fair Market Value of the
Common Stock on the Award Date, or 110% of the Fair Market Value
for Incentive Stock Options granted to any person who, at the time
such Option is granted, owns (or is deemed to own under Section
424(d) of the Internal Revenue Code) shares of Common Stock
representing 10% of the total combined voting power of all classes
of stock of the Company. No such requirement exists under the Plan
for Nonqualified Stock Options. Payment for the exercise of
Incentive Stock Options may be made in cash, with shares of Common
Stock already owned by the Participant, with a combination of cash
and such Common Stock or with a promissory note secured by such
Common Stock.
The Committee may authorize a Participant who uses already-owned
shares of the Company's Common Stock to pay for the exercise of
Options to simultaneously receive a new "reload" Option. Subject
to certain limitations specified in Section 2.2(c) of the Plan or
otherwise imposed by the Committee, such reload Options would give
the Participant the right to purchase the same number of shares of
the Company's Common Stock as such Participant used to pay for the
exercise of the earlier Options. The exercise price of the reload
option would be equal to the Fair Market Value of a share of Common
Stock on the date of exercise of the initial Option to which the
reload feature relates. The reload option would only be
exercisable if (i) the Option holder is an Eligible Employee of the
Company or any of its Subsidiaries at the time of exercise, (ii)
the exercise occurs at least six months after its date of grant and
(iii) the initial option to which the reload Option relates has not
expired or it has expired but the Committee has extended the period
in which the reload Option may be exercised. The Committee may
also authorize the grant of additional reload options for the
number of shares of Common Stock used to pay for the exercise of
any prior reload option.
The Committee will establish in respect of each Award granted to
an Eligible Employee the effect of a termination of employment on
the rights and benefits thereunder and in so doing may make
distinctions based upon the cause of termination.
Subject to the general limitations on Awards contained in the
Plan, the Committee from time to time may authorize, generally or
in specific cases only, any adjustment in the exercise or purchase
price, the number of shares subject to, or the term of, an Award
granted to an Eligible Employee by cancellation of an outstanding
Award and a subsequent regranting of an Award, by amendment, by
substitution of an outstanding Award, by waiver or by other legally
valid means. Such amendment or other action may result among other
changes in an exercise or purchase price which is higher or lower
than the exercise or purchase price of the original or prior Award,
provide for a greater or lesser number of shares subject to the
Award, or provide for a longer or shorter vesting or exercise
period. Certain of such changes may require the consent of the
holder under Section 4.6 of the Plan.
NON-EMPLOYEE DIRECTOR PROGRAM
Under the Non-Employee Director Program, each person who was a
Non-Employee Director at the time of the Plan's adoption by the
Board on April 16, 1996 was granted automatically, subject to the
approval of shareholders at the Annual Shareholders Meeting on May
14, 1996, a Nonqualified Stock Option to purchase 10,000 shares of
the Company's Common Stock. In addition, on the first business day
in each calendar year during the term of the Plan following the
approval of the Plan by the shareholders of the Company, each
person who is a Non-Employee Director as of such date will granted
automatically on each such date a Nonqualified Stock Option to
purchase 1,000 shares of the Common Stock. The purchase price per
share of Common Stock covered by each such Option granted to a Non-
Employee Director Participant, payable in cash and/or shares of
Common Stock, shall be the Fair Market Value of the Common Stock on
the date the Option is granted. Except in the event of certain
Change of Control Events described in the Plan, the Options will be
exercisable in full commencing on the first anniversary of their
grant, with the exception of the one-time Nonqualified Stock
Options granted to all Non-Employee Directors to purchase 10,000
shares of the Company's Common Stock, which such Options shall vest
at the rate of 2,500 shares of Common Stock per year on each of the
first four anniversaries of the date of such grant. Unless earlier
terminated, the Options will terminate 5 years after they are
granted. The specific number of shares specified above and the
shares subject to outstanding Options (as well as the exercise
price) are subject to adjustment as described under the caption
"Options and Adjustments to Options."
In the event that a Non-Employee Director Participant's service
as a Board member is terminated for any reason, Options held by
such director shall remain exercisable (to the extent such Options
were previously exercisable) for six (6) months after such service
terminates or until the expiration of the stated term of such
Options, whichever occurs first. The non-exercisable portion of
such Options will terminate upon a termination of service of the
director.
The Options granted to Non-Employee Directors will become
immediately exercisable in full upon a Change in Control Event (as
defined above - see "Key Employee Program"). If an Option granted
under this program is not exercised prior to a dissolution of the
Company, or a merger or other corporate event in which the Company
does not survive, and no provision is made or can be made for the
assumption, conversion, substitution or exchange of the Option
under the terms of the Plan, such Option shall terminate upon the
occurrence of such event.
RESTRICTIONS ON RESALE
The Plan provides that other than by will or the laws of descent
and distribution or pursuant to other relief from transfer
restrictions under Rule 16b-3, no Option shall be transferrable by
the Participant or shall be subject in any manner to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance or
charge and any such attempted action shall be void and disregarded
by the Company. Moreover, any securities delivered under the Plan
shall be subject to all applicable federal and state laws, rules
and regulations (including but not limited to state and federal
securities laws and federal margin requirements) and to such
regulatory approvals as may, in the opinion of counsel for the
Company, be necessary or advisable in connection therewith, and the
person acquiring such securities must, if requested by the Company,
provide such assurances and representations to the Company as the
Company may deem necessary or desirable to assure compliance with
all applicable legal requirements.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion of the federal income tax consequences
relating to the exercise of any award or any disposition of stock
acquired under the Plan pursuant to an award exercise is based on
present federal tax laws and regulations and does not purport to be
a complete description of the federal income tax laws.
Participants may also be subject to certain state and local taxes
which are not described below.
Nonqualified Stock Options
In general, the grant of a Nonqualified Stock Option under the
Plan will not result in taxable income to the recipient at the time
of the grant. When a Participant exercises the Nonqualified Stock
Option, however, he or she will generally recognize ordinary income
equal to the difference between the Option price and the fair
market value of the shares at the time of exercise. Options are
not exercisable within the first six months. The Company is
generally entitled to a corresponding deduction at the same time
and in the same amounts as the income recognized by a Participant.
If a holder of a Nonqualified Stock Option pays the Option
exercise price solely in cash, his or her basis in the shares
acquired is equal to the Fair Market Value of the Common Stock on
the date ordinary income is recognized and, upon subsequent
disposition, any further gain or loss is taxable either as a short-
term or long-term capital gain or loss, depending on how long the
shares of Common Stock are held. The holding period for such
shares commences as of the date ordinary income is recognized. The
Company will not be entitled to any further deduction at the time
of the subsequent disposition.
If a holder of a Nonqualified Stock Option pays the exercise
price, in full or in part, with previously acquired shares of
Common Stock, he or she will recognize ordinary income in an amount
equal to the excess of the Fair Market Value of the Common Stock
received over the exercise price. No additional gain or loss is
recognized as a result of the disposition of previously acquired
shares of Common Stock. The shares of Common Stock received by an
Eligible Employee or Non-Employee Director which are equal in
number to the previously acquired shares exchanged therefor will
have the same basis and holding period as such previously acquired
shares. The shares of Common Stock received by an Eligible
Employee or Non-Employee Director in excess of the number of
previously acquired shares will have a basis equal to the fair
market value of such additional shares as of the date ordinary
income is recognized. The holding period for such additional
shares will commence as of the date ordinary income is recognized.
Incentive Stock Options
An Eligible Employee who is granted an Incentive Stock Option
under the Plan does not recognize taxable income either on the date
of grant or on the date of its exercise, provided that, in general,
the exercise occurs during employment or within three months after
termination of employment. Upon disposition of the Common Stock
acquired upon exercise of an Incentive Stock Option, long-term
capital gain or loss will be recognized in an amount equal to the
difference between the sales price and the Option exercise price,
provided that the Eligible Employee has not disposed of the Common
Stock within two years of the date of grant or within one year from
the date of exercise. If the Eligible Employee disposes of the
Common Stock without satisfying both holding period requirements (a
"Disqualifying Disposition"), he or she will generally recognize
ordinary income at the time of such Disqualifying Disposition in an
amount equal to the excess of the Fair Market Value of the Common
Stock on the date of exercise over the exercise price or, if less,
the excess of the amount realized on the Disqualifying Disposition
over the exercise price. Any remaining gain or net loss is treated
as a short-term or long-term capital gain or loss, depending upon
how long the Common Stock is held. Unlike the case in which a
Nonqualified Stock Option is exercised, the Company is not entitled
to a tax deduction upon either the timely exercise of an Incentive
Stock Option or upon disposition of the Common Stock acquired
pursuant to such exercise, except to the extent that the employee
recognizes ordinary income in a Disqualifying Disposition.
Limitations on Deductibility
If, as a result of a Change in Control Event of the Company, a
recipient's Options become immediately exercisable, the additional
economic value, if any, attributable to the acceleration may be
deemed a "parachute payment." This amount will generally be deemed
a parachute payment if such value, when combined with the value of
other payments which are deemed to result from the Change in
Control Event, equals or exceeds a threshold amount equal to 300%
of the recipient's average annual taxable compensation over the
five calendar years preceding the year in which the Change in
Control Event occurs. In such case, the excess of the total
parachute payments over such recipient's average annual taxable
compensation will be subject to a 20% nondeductible excise tax in
addition to any income tax payable. The Company will not be
entitled to a deduction for that portion of any parachute payment
which is subject to the excise tax.
Effective January 1, 1994, the amount which may be deducted by
the Company with respect to compensation paid to the Chief
Executive Officer and four other most highly compensated executives
is generally limited to $1 million per tax year for each
individual. Certain awards under the Plan may be exempt from the
$1 million limit because of a "performance-based" exception.
Withholding Taxes
Except in certain circumstances including Incentive Stock
Options, federal income taxes will be required to be withheld upon
the exercise or other realization of an award. The tax
consequences to a recipient of an award under the Plan will differ
depending on the manner in which the recipient elects to satisfy
the withholding obligation. If the recipient delivers previously
owned shares of Common Stock to pay withholding taxes, the delivery
of shares will be treated as a sale of stock and the Eligible
Employee will recognize long-term or short-term capital gain or
loss depending upon the Fair Market Value, basis and holding period
of the previously owned shares so used.
If the recipient elects to have the Company reduce the number of
shares of Common Stock otherwise issuable, or a recipient tenders
back shares that were issued as part of an award, the recipient
should generally recognize no gain or loss as a result of the
reduction in the net number of shares received. However, if a
recipient uses previously owned shares of Common Stock to pay the
exercise price of a Nonqualified Stock Option and the tax
withholding requirements are satisfied by the withholding of shares
otherwise issuable, the recipient's award will consist of two sets
of shares. A number of shares awarded, equal to the number of
previously owned shares exchanged to exercise the Option, will have
the same basis and holding period as the previously owned shares.
Shares awarded in excess of this number will have a basis equal to
their Fair Market Value at the time of taxation and a holding
period beginning on the same date. If such excess shares have
sufficient Fair Market Value to satisfy the withholding obligation,
the recipient will recognize no gain or loss as a result of the
reduction in the number of shares of Common Stock received.
However, to the extent that any shares of Common Stock retained by
the Company to pay any withholding taxes have the same basis and
holding period as previously owned shares, the Participant will
recognize gain or loss as described in the manner described above
for tendering previously owned shares to satisfy the tax
withholding obligation.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR"
APPROVAL AND RATIFICATION OF THE 1996 STOCK OPTION PLAN.
PROPOSAL NO. 3
APPROVAL AND RATIFICATION OF
THE 1996 EXECUTIVE STOCK BONUS PLAN
At the 1996 Annual Meeting, shareholders will be asked to approve
the Company's 1996 Executive Stock Bonus Plan (the "Bonus Plan").
Shareholder approval of the Bonus Plan will result in the Company
awarding one-time grants of options to purchase, in the aggregate,
360,000 shares of Common Stock of the Company to directors,
officers and other key employees performing services for the
Company and its affiliates, all as set forth in the table below
(the "Recipients"). The Bonus Plan consists of five option award
agreements (the "Option Agreements") granting options to purchase
shares of Common Stock (the "Options") . The Option Agreements,
and the grant of the Options pursuant thereto, have been approved
by the Board of Directors of the Company (with each Recipient who
is a director of the Company abstaining from the approval of his
Option Agreement), subject to the receipt of shareholder approval
at the Annual Meeting. If approved by the shareholders, the Bonus
Plan, and the underlying Option Agreements, will be effective as of
March 11, 1996.
The Option Agreements will not qualify as "performance-based
compensation" under Section 162(m) of the Internal Revenue Code
(the "Code"). See "Federal Income Tax Consequences of the Option
Agreements -- Section 162(m) Limits" below. The following summary
of the Option Agreements is qualified in its entirety by the full
text of the Option Agreements, a form of which is attached to this
Proxy Statement as Appendix A, and which is incorporated herein by
this reference.
GENERAL DESCRIPTION OF THE OPTION AGREEMENTS
The following table sets forth certain information with respect
to the Options proposed to be awarded to the Recipients under the
Option Agreements:
BENEFITS UNDER 1996 EXECUTIVE STOCK BONUS PLAN
NAME AND POSITION NUMBER OF SHARES OF COMMON STOCK UNDERLYING
OPTIONS TO BE GRANTED
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Number of
Shares of
Common Potential Realizable Value
Stock at Assumed Annual Rates of
Underlying Exercise Stock Price Appreciation
Options to Price Expiration for Option Term($)<F2>
Name and Position be Granted ($/sh)<F1> Date 5% 10%
R. Bruce Stewart, President,
Treasurer and Director 100,000 6.10 March 10, 2001 168,532 372,411
Brooke P. Anderson, Vice
President, Research and
Development and Director 100,000 6.10 March 10, 2001 168,532 372,411
Paul R. Ryan, Vice President,
Capital Management and
Director 100,000 6.10 March 10, 2001 168,532 372,411
Kathryn King-Van Wie, Vice
President, Operations and
Secretary 50,000 6.10 March 10, 2001 84,266 186,206
Executive Group
(4 persons) 350,000 6.10 March 10, 2001 589,861 1,303,439
Non-Executive Director
Group (0 persons) 0 n.a. n.a. n.a. n.a.
Non-Executive Officer
Employee Group
(1 person) 10,000 6.10 March 10, 2001 16,853 37,241
</TABLE>
_____________________
[FN]
<F1> Exercise price is based on the average of the high and low
price per share of Common Stock on the grant date (March 11,
1996), as reported on the NASD Bulletin Board. The closing
bid price on April 19, 1996 was $9.00.
<F2> The amounts in these columns are based upon assumed rates of
appreciation over the option term which are prescribed by SEC
regulations applicable to the disclosure of option grants
generally. Actual gains, if any, on stock option exercises
are dependent on the future performance of the Common Stock,
overall market conditions and the option holder's continued
employment through the applicable vesting periods. Based on
the April 19, 1996 closing bid price of $9.00 per share of
Common Stock, the intrinsic value of the options to purchase
360,000 shares pursuant to the Bonus Plan is $1,044,000.
[/FN]
Vesting of Options. Each Option Agreement provides for the
vesting of the award of Options granted to the Recipients. Under
each of the Option Agreements, 25 percent of the Options become
exercisable on each of the first four anniversaries of the grant
date.
Method of Exercise. Full payment for shares purchased upon the
exercise of the Options shall be made at the time of such exercise
by one or a combination of the following methods: (i) cash,
electronic funds transfer or check, (ii) the delivery of shares of
Common Stock already owned by the Recipient, or (iii) reduction by
the Company of the number of shares of Common Stock awarded
pursuant to the Option by a number of shares of Common Stock with
a fair market value equal to the Option exercise price.
Adjustment and Termination of Option Under Certain Events. If the
outstanding shares of Common Stock are increased, decreased,
exchanged or converted as a result of a stock split, reverse stock
split, or the like, or if such shares are exchanged for or
converted into cash, property or a different number or kind of
securities as a result of a reorganization, merger, consolidation,
recapitalization, restructuring, or reclassification, then, the
Board will make appropriate adjustments in the number and type of
shares that may be acquired pursuant to the Option. In addition,
the Company retains the right to terminate the Option to the extent
not previously exercised upon an event or transaction in which the
Company does not survive. In such event, the Recipient will have
the right to exercise the Option as to all or any part of the
shares of Common Stock subject thereto, without regard to vesting
requirements.
Transferability. The Options are not transferable by the
Recipients other than by will or the laws of descent and
distribution or pursuant to a qualified domestic relations order.
Shares of Common Stock issuable upon exercise of an Option will be
paid only to such Recipient (during his or her lifetime) or to such
Recipient's beneficiaries.
Termination of Employment. Each Option Agreement provides that
at such time as such Recipient ceases to be employed by the
Company, the Options and all rights under the Option Agreements
shall terminate; provided, however, that to the extent the Options
were or become exercisable on such date, the Options will not
expire and will continue to be exercisable for the three months
immediately following such date.
FEDERAL INCOME TAX CONSEQUENCES OF THE OPTION AGREEMENTS
The following discussion summarizes the federal income tax
consequences of the Option Agreements under federal law as in
effect as of the date of grant of the Options, which is subject to
change. State and local tax consequences are beyond the scope of
this summary.
Stock Options. No taxable income will be realized by such
Recipient upon the grant of the Options pursuant to the Option
Agreements. Upon exercise of an Option, such Recipient will
realize ordinary income in the amount of the excess of the fair
market value of the shares of Common Stock on the date of exercise
over the Option price. At that time, the Company will be entitled
to a corresponding deduction, subject to the limits imposed by
Section 162(m) of the Code (described below under the caption
"Section 162(m) Limits") in the amount of the ordinary income
recognized by such Recipient. Upon subsequent dispositions of the
shares of Common Stock, such Recipient will realize short-term or
long-term capital gain or loss, depending on the period of time
that the shares of Common Stock are held and the selling price.
The Company will not be entitled to any further deduction at that
time.
Section 162(m) Limits. Upon a Recipient's exercise of an Option,
the Company will generally be entitled to a corresponding deduction
in the amount of the ordinary income recognized by such Recipient.
Because the Option Agreements will not qualify as "performance-
based compensation" for purposes of Section 162(m) of the Code, the
deductibility of such amount of ordinary income, however, may be
subject to the limits imposed by Section 162(m). Under Section
162(m), a publicly held corporation may not deduct certain
compensation in excess of $1,000,000 paid to "covered employees,"
which includes the chief executive officer and the four other most
highly-paid officers of the corporation meeting certain income
thresholds for a given tax year.
RECOMMENDATION OF THE BOARD OF DIRECTORS "FOR" THE PROPOSAL
The Board of Directors believes that the approval of the Option
Agreements will promote the interests of the Company and its
shareholders by more closely linking the compensation of the
Recipients with the financial performance of the Company. Approval
of the Option Agreements requires the affirmative vote of holders
of the majority of the disinterested shares having voting power
present or represented by proxy at the Annual Meetings, provided
that the votes cast with respect to the proposal represent over 50%
of the shares entitled to vote on the proposal.
THE BOARD OF DIRECTORS HAS APPROVED THE OPTION AGREEMENTS AND
RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE PROPOSAL. Proxies
solicited by the Board of Directors will be so voted unless a
shareholder specifies otherwise in the proxy.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of March 20, 1996, information
relating to the beneficial ownership of the Company's Common Stock
by each person known by the Company to be the beneficial owner of
more than five percent (5%) of the outstanding shares of Common
Stock, by each director and nominee for director, by each of the
executive officers named in the Summary Compensation Table, and by
all directors and executive officers as a group. The number of
shares beneficially owned by each director or executive officer is
determined under rules of the Securities and Exchange Commission
(the "Commission"), and the information is not necessarily
indicative of beneficial ownership for any other purpose. Under
such rules, beneficial ownership includes any shares as to which
the individual has the sole or shared voting power or investment
power and also any shares which the individual has the right to
acquire within 60 days of March 20, 1995 through the exercise of
any stock option or other right. Unless otherwise indicated, each
person has sole investment and voting power (or shares such powers
with his or her spouse) with respect to the shares set forth in the
following table.
<TABLE>
<CAPTION>
<S> <C> <C>
Amount and Nature of Percent of
Beneficial Ownership Class <F1>
Dr. Robert M. and Phyllis Ching<F2> 257,500 13.4%
Bruce Stewart<F3>
12 S. Raymond Avenue
Pasadena, CA 91105 241,600 11.7
Mark and Harriet Rosen<F4> 223,900 12.0
Dr. Brooke P. Anderson<F5>
12 S. Raymond Avenue
Pasadena, CA 91105 172,800 8.7
William R. and Sally M. Tipton 162,350 8.7
Paul R. Ryan<F6>
12 S. Raymond Avenue
Pasadena, CA 91105 100,000 5.1
Fred A. de Boom<F7>
12 S. Raymond Avenue
Pasadena, CA 91105 4,000 *
Edward W. Frykman
12 S. Raymond Avenue
Pasadena, CA 91105 0 *
Kathryn King-Van Wie<F8>
12 S. Raymond Avenue
Pasadena, California 91105 17 *
All Directors and Executive Officers
as a Group (6 Persons) 518,417 22.8
</TABLE>
________________________________
* Represents less than one percent
[FN]
<F1> All Shares which a named shareholder has the right to so
acquire upon exercise of stock options are deemed outstanding
for the purpose of computing the percentage of Common Stock
owned by any other shareholder.
<F2> Includes options exercisable within 60 days of March 20, 1996
to purchase 20,000 shares at the exercise of $1.50 per share,
30,000 shares at the exercise of $2.50 per share and 10,000
shares at the exercise of $5.25 per share granted to Dr. Ching
by the Company. Also includes 65,000 shares jointly held by
Phyllis Ching and her children, and 62,500 shares held by the
M. Robert Ching, M.D., Inc. Money Purchase Pension Plan.
<F3> Includes options exercisable within 60 days of March 20, 1996
to purchase 150,000 shares at the exercise of $1.50 per share,
and 40,000 shares at the exercise price of $2.00 per share
shares granted to Mr. Stewart by the Company.
<F4> Includes options to purchase 25,000 shares exercisable within
60 days of March 20, 1996 at the exercise of $2.50 per share,
granted to Mark and Harriet Rosen by the Company.
<F5> Includes options exercisable within 60 days of March 20, 1996
to purchase 100,000 shares at the exercise of $1.50 per share,
and 20,000 shares at the exercise price of $2.00 per share
granted to Dr. Anderson by the Company.
<F6> Includes warrants exercisable within 60 days of March 20, 1996
to purchase 100,000 shares at the exercise price of $2.00 per
share issued by the Company to Mr. Ryan in January 1995 for a
purchase price of $10,000.
<F7> Includes options to purchase 2,500 shares exercisable within
60 days of March 20, 1996 at the exercise of $5.25 per share,
granted to Mr. de Boom by the Company.
<F8> Includes 17 shares held in a trust for Ms. King-Van Wie's
minor child, of which Ms. King-Van Wie acts as trustee. Ms.
King-Van Wie disclaims any beneficial interest in all shares
held by such trust.
[/FN]
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), requires the Company's directors, executive
officers and holders of more than 10% of the Company's Common Stock
to file with the Commission initial reports of ownership and
reports of changes in ownership of Common Stock and other equity
securities of the Company. The Company believes that, based on the
written representations of its directors and officers, and the
copies of reports filed with the Commission during the fiscal year
ended December 31, 1995 by its directors, officers and holders of
more than 10% of the Company's Common Stock: (i) The Company's
officers and directors did not file initial reports of ownership on
Form 3 and began reporting under Section 16(a) with the timely
filing of reports of changes in ownership on Form 4, with the
exception of R. Bruce Stewart, who had one late Form 4 relating to
two transactions; and (ii) Dr. Robert and Phyllis Ching and Mark
and Harriet Rosen, each holders of more than 10% of the Company's
Common Stock, have not reported under Section 16(a).
EXECUTIVE OFFICER COMPENSATION
SUMMARY COMPENSATION TABLE
The following table shows, as to the Company's Chief Executive
Officer and the four remaining most highly compensated executive
officers whose salary plus bonus exceeded $100,000 in the last
fiscal year (collectively, the "Named Executive Officers"),
information concerning compensation paid for services to the
Company in all capacities during the fiscal years ended
December 31, 1993, December 31, 1994 and December 31, 1995. There
were no Named Executive Officers other than Mr. Stewart with
respect to the years reported.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
All Other
Annual Compensation Long-Term Compensation Compensation
Securities
Restricted Underlying
Other Annual Stock Options/
Name and Principal Position Year Salary Bonus Compensation($) Awards (SAR's)
R. Bruce Stewart, 1993 60,000 0 <F1> 0 150,000<F4> 0
President, Treasurer, Director 1994 60,000 0 10,883<F2> 0 40,000<F4> 0
1995 60,000 5,000 22,189<F3> 0 0 0
</TABLE>
___________________________________
[FN]
<F1> Other annual compensation for fiscal year 1993 did not exceed
the lesser of $50,000 or 10% of the total annual salary and
bonus reported.
<F2> Includes $4,124 paid by the Company for certain automobile
expenses, and $6,759 paid by the Company for certain medical
expenses, in 1994.
<F3> Includes $15,171 paid by the Company for certain automobile
expenses, and $7,018 paid by the Company for certain medical
expenses, in 1995.
<F4> Represents shares of stock underlying options granted under
the 1993 Stock Option Plan. No tandem or freestanding stock
appreciation rights have been granted.
[/FN]
The Company has not entered into employment contracts with any of
its Named Executive Officers, nor does the Company have any
agreement or arrangement with any such Named Executive Officer
relating to a change in control of the Company.
STOCK OPTION GRANTS AND EXERCISES
The Company did not grant stock options to Named Executive
Officers, nor did any Named Executive Officer exercise any
previously granted options, in fiscal year 1995.
The following tables set forth information regarding the stock
options exercised by the Named Executive Officers during the fiscal
year ended December 31, 1995 and the value of in-the-money options
held by such Named Executive Officers as of December 31, 1995.
Option Exercises in Fiscal Year 1995 and Fiscal Year-End Option
Values
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Number of Unexercised Value of Unexercised
Shares Options at In-the-Money Options at
Acquired on Value 1995 Year-End(#) 1995 Year-End<F2>($)
Name Exercise(#) Realized<F1>($) Exercisable Unexercisable Exercisable Unexercisable
R. Bruce Stewart, 0 0 190,000 0
President, Treasurer, Director
</TABLE>
______________________
[FN]
<F1> Value realized represents the difference between the exercise
price of the options and the value of the underlying
securities on the date of exercise.
<F2> Represents the difference between the exercise price of the
options and the closing price of the Company's Common Stock on
December 29, 1995 of $5.75 per share.
[/FN]
TRANSACTIONS WITH MANAGEMENT
During fiscal 1995 there were certain transactions that occurred
between the Company and its officers and directors, which are
reported below. With respect to each transaction, the Company has
determined that the terms of each arrangement were no less fair to
the Company than those which could have been obtained from
unaffiliated persons.
Transactions with Paul Ryan. On January 5, 1995, prior to the
time Paul R. Ryan became an officer or director of the Company, the
Company and Mr. Ryan entered into an agreement (the "Ryan
Agreement") pursuant to which the Company and Mr. Ryan agreed to
act as the two general partners of Acacia Capital Partners, L.P.,
a private investment partnership, and all future funds formed by
the parties. In July 1995, Mr. Ryan became the Vice President,
Capital Management and a Director of the Company. Since the date
of the Ryan Agreement, the parties became the investment advisor to
Acacia USA Fund, an offshore investment corporation, which, along
with Acacia Capital Partners, L.P., has operated pursuant to the
terms of the Ryan Agreement. Under the Ryan Agreement and the
limited partnership agreements for each such fund, subject to
certain exceptions, the general partners will be allocated
performance fees on an annual basis equal to 20% of the annual net
profits attributable to each partner's investment in the
partnership. The general partners will also be entitled to receive
annual management fees payable by each limited partner in an amount
equal to 1% of the value of such limited partner's capital account.
Under the Ryan Agreement, the Company is entitled to receive 75%,
and Mr. Ryan is entitled to receive 25%, of such performance and
management fees. At the time the Ryan Agreement was entered into,
Mr. Ryan purchased certain warrants from the Company, exercisable
at any time prior to December 31, 1999 for 100,000 shares of the
Company's Common Stock at a price of $2.00 per share. These
transactions occurred prior to the time Mr. Ryan became an officer
and director of the Company.
Transactions with Whitewing Labs, Inc. At December 31, 1995, the
Company had made loans to Whitewing Labs, Inc. ("Whitewing")
totaling $314,247. Whitewing repaid $200,000 with respect to
principal and interest of such loans during 1995 and the balance
was repaid in 1996. Between December 1994 and September 1995, the
Company assisted Whitewing in selling additional equity in private
transactions to raise gross proceeds of approximately $2.1 million.
The Company sold a portion of its interest in Whitewing during 1994
and 1995, maintaining ownership of approximately 38% of the
outstanding common stock of Whitewing, as of December 31, 1995.
Whitewing successfully completed a public offering of more than
1,000,000 shares of newly issued common shares which further
reduced the Company's voting control to 36% of the common shares
outstanding for Whitewing. R. Bruce Stewart, the President,
Treasurer, and Chairman of the Board of the Company, is also the
Secretary and Treasurer, and the Chairman of the Board of Whitewing
and currently holds options to purchase 150,000 shares of
Whitewing. Fred A. de Boom, a director of the Company, is also a
director of Whitewing and currently holds options to purchase
15,000 shares of Whitewing.
APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors has appointed Finocchario & Co.,
independent accountants, to audit the Company's financial
statements for the fiscal year ending December 31, 1996.
Finocchario & Co. has audited the Company's financial statements
since the fiscal period ended December 31, 1993. Representatives
of Finocchario & Co. are expected to be present at the Annual
Meeting and will have the opportunity to respond to questions and
to make a statement if they desire.
DEADLINE FOR RECEIPT OF SHAREHOLDER PROPOSALS FOR ANNUAL MEETING
FOR FISCAL YEAR 1997
Proposals of shareholders which are intended to be presented by
such shareholders at the Company's 1997 Annual Meeting must be
received by the Company no later than December 20, 1996 in order
that they may be included in the proxy statement and form of proxy
relating to that meeting.
OTHER MATTERS
The Company knows of no other matters to be submitted to the
shareholders at the Annual Meeting. If any other matters properly
come before the shareholders at the Annual Meeting, it is the
intention of the persons named on the enclosed proxy card to vote
the shares they represent as the Board of Directors may recommend.
Dated: April 22, 1996
BY ORDER OF THE BOARD OF DIRECTORS
Kathryn King-Van Wie
Secretary
<PAGE>
APPENDIX A
FORM OF OPTION AWARD AGREEMENT
THIS AGREEMENT, dated April ___, 1996 and effective as of March
11, 1996, between Acacia Research Corporation, a California
corporation (the "Company"), and (the
"Recipient").
W I T N E S S E T H:
WHEREAS, pursuant to a resolution adopted by the Board of
Directors of the Company (the "Board") on March 11, 1996 (the
"Resolution"), the Company has granted to the Recipient, effective
as of March 11, 1996 (the "Award Date"), a nonqualified stock
option to purchase all or any part of _______ authorized but
unissued or treasury shares of common stock, no par value per share
("Common Stock"), of the Company upon the terms and conditions set
forth herein.
NOW, THEREFORE, in consideration of the premises and the
agreements, provisions and covenants herein contained, the parties
hereto agree as follows:
1. Grant of Option. This Agreement evidences the Company's
grant to the Recipient of the right and option to purchase, on the
terms and conditions set forth herein, all or any part of an
aggregate of _______ shares of Common Stock at the price of $6.10
per share (the "Option"), exercisable from time to time, subject to
the provisions of this Agreement, prior to the close of business on
the day before the fifth anniversary of the Award Date (the
"Expiration Date").
2. Exercisability of Option. The Option may be exercised in an
amount up to 25% of the aggregate number of shares set forth in
Section 1 hereof (subject to adjustment pursuant to Section 5 of
this Agreement) on and after the first anniversary of the Award
Date and as to an additional 25% of such aggregate number of shares
(subject to adjustment pursuant to Section 5 of this Agreement) on
each of the second, third and fourth anniversaries of the Award
Date.
To the extent the Recipient does not in any year purchase all or
any part of the shares to which the Recipient is entitled, the
Recipient has the right cumulatively thereafter to purchase any
shares not so purchased and such right shall continue until the
Option terminates or expires. Fractional share interests shall be
disregarded, but may be cumulated. No fewer than 1000 shares may
be purchased at any one time, unless the number purchased is the
total number at the time available for purchase under the Option.
3. Method of Exercise of Option. The Option shall be
exercisable by the delivery to the Company of a written notice
stating the number of shares to be purchased pursuant to the Option
and accompanied by payment of the aggregate purchase price for the
shares to be purchased, which payment may be made in whole or in
part by any one or more of the following means:
(a) the delivery of cash, electronic funds transfer or check;
(b) the delivery of previously owned shares of Common Stock of
the Company (including shares acquired pursuant to this
Agreement); or
(c) a reduction in the amount of shares of Common Stock
issuable pursuant to this Agreement by a number of shares of
Common Stock with a fair market value equal to the Option
exercise price.
4. Effect of Termination of Employment or Death. The Option and
all other rights hereunder, to the extent not exercised, shall
terminate and become null and void on a date three months following
such date as the Recipient ceases to be employed by the Company (or
a subsidiary of the Company) or dies, to the extent the Option was
exercisable at the date of such termination or death; provided,
however, that in no event may the Option be exercised by anyone
under this Section or otherwise after the Expiration Date.
5. Adjustments. If the outstanding shares of Common Stock are
(i) increased, decreased, exchanged or converted as a result of a
stock split (including a split in the form of a stock dividend),
reverse stock split, or the like, or (ii) exchanged for or
converted into cash, property or a different number or kind of
securities as a result of a reorganization, merger, consolidation,
recapitalization, restructuring, or reclassification, then, subject
to the terms of such transaction and the right of the Board to
terminate the Option pursuant to Section 6 of this Agreement, the
Board shall make equitable, appropriate and proportionate
adjustments in the number and type of shares that may be acquired
pursuant to the Option, and such other terms as necessarily are
affected by such event.
6. Termination of Option Under Certain Events. The Board
retains the right to terminate the Option to the extent not
previously exercised upon an event or transaction in which the
Company does not survive; provided, that the Company shall have
given to the Recipient at least five days notice of any such
termination of the Option, and the Recipient shall have had the
right prior to or simultaneously with the consummation of such
event or other transaction to exercise the Option as to all or any
part of the shares of Common Stock subject to this Agreement.
7. Non-Transferability of Option. The Option and any other
rights of the Recipient under this Agreement are nontransferable by
the Recipient other than by will or the laws of descent and
distribution or pursuant to a qualified domestic relations order
and the Option is exercisable only by the Recipient (or such
permitted transferee). The designation of a beneficiary in the
case of the Recipient's death consistent with applicable law and
the terms of this Agreement shall not constitute a transfer.
8. Tax Withholding. Upon any exercise of the Option, the
Company shall have the right at its option to require the Recipient
(or his or her heirs, personal representative or beneficiary, as
the case may be) to pay or provide for payment of the amount of any
taxes that the Company may be required to withhold with respect to
such transaction. In any case where a tax is required to be
withheld in connection with the delivery of shares of Common Stock
under this Agreement, the Recipient may elect to have the Company
reduce the number of shares to be delivered by (or otherwise
reacquire) the appropriate number of shares valued at their then
fair market value, to satisfy such withholding obligation.
9. Compliance with Laws. This Agreement, the vesting of the
Option under this Agreement and the issuance and delivery of shares
of Common Stock and/or the payment of the purchase price under this
Agreement are subject to compliance with all applicable federal and
state laws, rules and regulations (including but not limited to
state and federal securities law and federal margin requirements)
and to such approvals by any listing, regulatory or governmental
authority as may, in the opinion of counsel for the Company, be
necessary or advisable in connection therewith. Any securities
delivered under this Agreement shall be subject to such
restrictions and the person acquiring such securities shall, if
requested by the Company, provide such assurances and
representations to the Company as the Company may deem necessary or
desirable to assure compliance with all applicable legal
requirements.
10. Governing Law; Severability. This Agreement shall be
governed by, and construed in accordance with the laws of the state
of California. If any provision shall be held by a court of
competent jurisdiction to be invalid and unenforceable, the
remaining provisions of this Agreement shall continue in effect.
11. Notices. Any notice to be given under the terms of this
Agreement shall be in writing and addressed to the Company at its
principal office located at 12 South Raymond Avenue, Pasadena,
California 91105, and to the Recipient at the address given
beneath the Recipient's signature hereto, or at such other address
as either party may hereafter designate in writing to the other.
12. Shareholder Approval. Notwithstanding anything else
contained herein to the contrary, this Agreement and the Option
granted hereunder are subject to shareholder approval in accordance
with the Company's By-laws and applicable law.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed on its behalf by a duly authorized officer and the
Recipient has hereunto set his or her hand.
ACACIA RESEARCH CORPORATION
By:________________________
Title:_____________________
RECIPIENT
__________________________
Name:_____________________
__________________________
(Address)
__________________________
(City, State, Zip Code)
<PAGE>
CONSENT OF SPOUSE
In consideration of the execution of the foregoing Option
Award Agreement between Acacia Research Corporation and [Name of
Recipient] ("Recipient"), I, ____________________________, the
spouse of Recipient, do hereby join with my spouse in executing the
foregoing Option Award Agreement and do hereby agree to be bound by
all of the terms and provisions thereof.
DATED: April ___, 1996.
_____________________________
Signature of Spouse
__________________________
(Print Name)
<PAGE>
[FORM OF PROXY CARD]
ACACIA RESEARCH CORPORATION
ANNUAL MEETING OF SHAREHOLDERS MAY 14, 1996
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
ACACIA RESEARCH CORPORATION
The undersigned hereby appoints R. Bruce Stewart and Kathryn
King-Van Wie, and each of them, proxyholders, each with full power
of substitution to vote for the undersigned at the Annual Meeting
of Shareholders of Acacia Research Corporation to be held on May
14, 1996, and at any adjournments thereof, with respect to the
following matters, which were more fully described in the Proxy
Statement dated April 22, 1996 (the "Proxy Statement"), receipt of
which is hereby acknowledged by the undersigned.
THIS PROXY WILL BE VOTED AS DIRECTED. UNLESS OTHERWISE
DIRECTED, THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE FIVE
DIRECTOR NOMINEES AND FOR THE SECOND AND THIRD PROPOSALS.
The Board of Directors recommends that you vote FOR the nominees
on Proposal 1 and FOR Proposals 2 and 3.
(1) The election of the following
directors: R. Bruce Stewart, Brooke P.
Anderson, Fred A. de Boom, Paul R.
Ryan and Edward W. Frykman
FOR all nominees listed above (except as marked to the
contrary below.) WITHHOLD AUTHORITY to vote for all nominees
listed above.
(INSTRUCTION: To withhold authority to vote for any nominee,
write that nominee's name in the space provided below.)
_______________________________________________________________
(2) Approval and Ratification of the 1996
Stock Option Plan. To approve and
ratify the 1996 Stock Option Plan and
reserve 250,000 shares for isssuance
thereunder.
__ FOR __ AGAINST __ ABSTAIN
(3) Approval and Ratification of the 1996 Executive Stock
Bonus Plan. To approve and ratify the 1996 Executive
Stock Bonus Plan and the award of options to purchase
360,000 shares thereunder.
__ FOR __ AGAINST __ ABSTAIN
(Please date and sign on reverse side)
<PAGE>
__________________________
COMMON
(4) Such other matters as may properly come before the
meeting or any adjournment thereof. As to such other
matters, the undersigned hereby confers discretionary
authority.
__ FOR __ AGAINST __ ABSTAIN
Dated: ______________________, 1996
_________________________________
(Please Print Name)
_________________________________
(Signature of Holder of Common Stock)
_________________________________
(Additional Signature if Held Jointly)
NOTE: Please sign exactly as your name
is printed. Each joint tenant should
sign. Executors, administrators,
trustees and guarantors should give
full titles when signing. Corporations
and partnerships should sign in full
corporate or partnership name by
authorized person. Please mark, sign,
date and return your Proxy promptly
in the enclosed envelope, which requires
no postage if mailed in the United States.
<PAGE>
[The following copy of the 1996 Stock Option Plan of Acacia
Research Corporation is filed as an appendix to the proxy
materials filed with the Securities and Exchange Commission
pursuant to Instruction 3 to Item 10 of Schedule 14A, but
is not part of the proxy statement and does not otherwise
constitute soliciting material.]
ACACIA RESEARCH CORPORATION
1996 STOCK OPTION PLAN
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I. THE PLAN. . . . . . . . . . . . . . . . . . . . 1
Section 1.1 Purpose. . . . . . . . . . . . . . . . . . 1
Section 1.2 Administration and Authorization; Power
and Procedure. . . . . . . . . . . . . . . 1
Section 1.3 Participation. . . . . . . . . . . . . . . 3
Section 1.4 Shares Available for Awards. . . . . . . . 3
Section 1.5 Grant of Awards. . . . . . . . . . . . . . 4
Section 1.6 Award Period . . . . . . . . . . . . . . . 4
Section 1.7 Exercise and Vesting of Awards . . . . . . 4
Section 1.8 No Transferability . . . . . . . . . . . . 4
ARTICLE II. KEY EMPLOYEE OPTIONS. . . . . . . . . . . . . . 5
Section 2.1 Grants . . . . . . . . . . . . . . . . . . 5
Section 2.2 Option Price . . . . . . . . . . . . . . . 5
Section 2.3 Limitations on Grant and Terms of
Incentive Stock Options. . . . . . . . . . . . . . . 7
Section 2.4 Limits on 10% Holders. . . . . . . . . . . 7
Section 2.5 Option Repricing/Cancellation and
Regrant. . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.6 Limit on Grants to any Individual. . . . . 8
ARTICLE III. NON-EMPLOYEE DIRECTOR OPTIONS. . . . . . . . . . 8
Section 3.1 Participation. . . . . . . . . . . . . . . 8
Section 3.2 Annual Option Grants . . . . . . . . . . . 8
Section 3.3 Option Price . . . . . . . . . . . . . . . 8
Section 3.4 Option Period. . . . . . . . . . . . . . . 9
Section 3.5 Exercise of Options. . . . . . . . . . . . 9
Section 3.6 Termination of Directorship. . . . . . . . 9
Section 3.7 Adjustments. . . . . . . . . . . . . . . . 9
Section 3.8 Acceleration Upon a Change in Control
Event. . . . . . . . . . . . . . . . . . . . . . . . 10
Section 3.9 Limitation on Amendments . . . . . . . . . 10
ARTICLE IV. OTHER PROVISIONS. . . . . . . . . . . . . . . . 10
Section 4.1 Rights of Eligible Employees,
Participants and Beneficiaries . . . . . . . . . . . 10
Section 4.2 Adjustments; Acceleration. . . . . . . . . 11
Section 4.3 Effect of Termination of Employment. . . . 12
Section 4.4 Compliance with Laws . . . . . . . . . . . 12
Section 4.5 Tax Withholding. . . . . . . . . . . . . . 12
Section 4.6 Plan Amendment, Termination and
Suspension; Changes in Awards. . . . . . . . . . . . 13
Section 4.7 Privileges of Stock Ownership. . . . . . . 14
Section 4.8 Effective Date of Plan . . . . . . . . . . 14
Section 4.9 Term of the Plan . . . . . . . . . . . . . 14
Section 4.10 Governing Law/Construction/Severability. . 14
Section 4.11 Captions . . . . . . . . . . . . . . . . . 15
Section 4.12 Effect of Change of Subsidiary Status. . . 15
Section 4.13 Non-Exclusivity of Plan. . . . . . . . . . 15
ARTICLE V. DEFINITIONS . . . . . . . . . . . . . . . . . . 15
Section 5.1 Definitions. . . . . . . . . . . . . . . . 15
<PAGE>
ACACIA RESEARCH CORPORATION
1996 STOCK OPTION PLAN
ARTICLE I. THE PLAN
SECTION 1.1 PURPOSE.
The purpose of this Plan is to promote the success of the
Company by providing an additional means through the grant of
Awards (a) to attract, motivate and retain key employees, including
officers (whether or not directors), of the Company with rewards
and incentives for high levels of individual performance and
improved financial performance of the Company under the "Key
Employee Program" in Article II, and (b) to attract, motivate and
retain experienced and knowledgeable independent directors through
the benefits provided under the "Non-Employee Director Program" in
Article III. "Corporation" means Acacia Research Corporation and
"Company" means the Corporation and its Subsidiaries, collectively.
These terms and other capitalized terms if not defined elsewhere in
the text of this Plan, are defined in Article V.
SECTION 1.2 ADMINISTRATION AND AUTHORIZATION; POWER AND
PROCEDURE.
(a) Committee. This Plan shall be administered by and
all Awards to Eligible Employees shall be authorized by the
Committee. Any action of the Committee with respect to the
administration of this Plan shall be taken pursuant to a
majority vote or by written consent of its members.
(b) Plan Awards; Interpretation; Powers of Committee.
Subject to the express provisions of this Plan, the Committee
shall have the authority:
(i) to determine from among those eligible persons
the particular Eligible Employees who will receive any
Awards;
(ii) to grant Awards to Eligible Employees,
determine the price at which securities will be offered
or awarded and the amount of securities to be offered or
awarded to any of such persons, and determine the other
specific terms and conditions of such Awards consistent
with the express limits of this Plan, and establish the
installments (if any) in which such Awards shall become
exercisable, or determine that no delayed exercisability
is required, and establish the events of termination of
such Awards;
(iii) to approve the forms of Award Agreements (which
need not be identical either as to type of award or among
Participants);
(iv) to construe and interpret this Plan and any
agreements defining the rights and obligations of the
Company and Eligible Employee Participants under this
Plan, further define the terms used in this Plan, and
prescribe, amend and rescind rules and regulations
relating to the administration of this Plan;
(v) to cancel, modify or waive the Corporation's
rights with respect to, or modify, discontinue, suspend,
or terminate any or all outstanding Awards held by
Eligible Employees, subject to any required consent under
Section 4.6;
(vi) to accelerate or extend the exercisability or
extend the term of any or all such outstanding Awards
within the maximum ten-year term of Awards under Section
1.6; and
(vii) to make all other determinations and take such
other action as contemplated by this Plan or as may be
necessary or advisable for the administration of this
Plan and the effectuation of its purposes.
Notwithstanding the foregoing, the provisions of Article III
relating to Non-Employee Director Awards shall be non-
discretionary, automatic and, to the maximum extent possible, self-
effectuating, and the discretion of the Committee shall not extend
to such Awards in any manner that would be impermissible under Rule
16b-3(c)(2).
(c) Binding Determinations. Any action taken by, or
inaction of, the Corporation, any Subsidiary, the Board or the
Committee relating or pursuant to this Plan shall be within
the absolute discretion of that entity or body and shall be
conclusive and binding upon all persons. No member of the
Board or Committee, or officer of the Corporation or any
Subsidiary, shall be liable for any such action or inaction of
the entity or body, of another person or, except in
circumstances involving bad faith, of himself or herself.
Subject only to compliance with the express provisions hereof,
the Board and Committee may act in their absolute discretion
in matters within their authority related to this Plan.
(d) Reliance on Experts. In making any determination or
in taking or not taking any action under or with respect to
this Plan, the Committee or the Board, as the case may be, may
obtain and may rely upon the advice of experts, including
professional advisors to the Corporation. No director,
officer or agent of the Company shall be liable for any such
action or determination taken or made or omitted in good
faith.
(e) Delegation. The Committee may delegate ministerial,
non-discretionary functions to individuals who are officers or
employees of the Company.
SECTION 1.3 PARTICIPATION.
Awards may be granted by the Committee only to those persons
that the Committee determines to be Eligible Employees. An
Eligible Employee who has been granted an Award may, if otherwise
eligible, be granted additional Awards if the Committee shall so
determine. Non-Employee Directors shall not be eligible to receive
any Awards except for Nonqualified Stock Options granted
automatically without further action of the Committee under the
provisions of Article III.
SECTION 1.4 SHARES AVAILABLE FOR AWARDS.
Subject to the provisions of Section 4.2, the capital stock
that may be delivered under this Plan shall be shares of the
Corporation's authorized but unissued Common Stock. The shares may
be delivered for any lawful consideration.
(a) Number of Shares. The maximum aggregate number of
shares of Common Stock that may be delivered pursuant to all
Awards granted under this Plan (including under Articles II
and III) shall not exceed 250,000 shares and the maximum
number of shares of Common Stock that may be delivered under
the provisions of Article III shall not exceed 50,000 shares.
The maximum number of shares of Common Stock that may be
delivered pursuant to Options qualified as Incentive Stock
Options granted under this Plan is 200,000. Each of the three
foregoing numerical limits shall be subject to adjustments as
contemplated by Section 4.2.
(b) Calculation of Available Shares and Replenishment.
Shares subject to outstanding Awards shall be reserved for
issuance. If any Award shall expire or be cancelled or
terminated without having been exercised in full, the
unpurchased shares subject thereto shall again be available
for the purposes of the Plan, subject to any applicable
limitations under Rule 16b-3. In addition, any Common Stock
which is used by an Eligible Employee Participant as full or
partial payment to the Company for the purchase of Common
Stock acquired upon exercise of an Option and any shares
delivered by an Eligible Employee Participant or withheld by
the Company in satisfaction of the tax withholding obligations
of such Participant, shall be available for further awards to
Eligible Employees under this Plan; provided, however, that,
to the extent required to maintain the Plan's status as a
qualifying plan under Rule 16b-3, such shares shall be
available for subsequent awards only to Eligible Employees who
are not Section 16 Persons; provided further that (except as
otherwise permitted by the Code) no such shares shall be
available for future grants of incentive stock options under
this Plan.
SECTION 1.5 GRANT OF AWARDS.
Subject to the express provisions of this Plan, the Committee
shall grant and determine the terms and conditions of all Awards to
Eligible Employees, the number of shares of Common Stock subject to
each Award and the price to be paid for the shares subject to each
Award. Each Award shall be evidenced by an Award Agreement signed
by the Corporation and, if required by the Committee, by the
Participant.
SECTION 1.6 AWARD PERIOD.
All Awards to Eligible Employees and all executory rights or
obligations under the related Award Agreements shall expire on such
date (if any) as shall be determined by the Committee, but not
later than 10 years after the Award Date, and shall be subject to
earlier termination as provided herein or in the Award Agreements.
The Committee from time to time may authorize by amendment to or
waiver of the Award Agreements or otherwise, as to any number of
Awards or all Awards to Eligible Employees, any extension or
acceleration of benefits thereunder.
SECTION 1.7 EXERCISE AND VESTING OF AWARDS.
(a) Provisions for Exercise. Unless the Committee
otherwise provides, no Eligible Employee's Award shall be
exercisable until at least 6 months after the initial Award
Date and, once exercisable, an Award shall remain exercisable
until the expiration or earlier cancellation or termination of
the Award.
(b) Procedure. Any exercisable Award shall be deemed to
be exercised when the Secretary of the Corporation receives
written notice of such exercise from the Participant, together
with any required payment made in accordance with Section
2.2(a) or 3.3, as the case may be, and Section 4.5.
(c) Fractional Shares/Minimum Issue. Fractional share
interests shall be disregarded, but may be accumulated. The
Committee may, however, in the case of Eligible Employees
determine in the Award Agreement or thereafter that cash,
other securities, or other property will be paid or
transferred in lieu of any factional share interests. No
fewer than 100 shares may be required on exercise of an Award
at one time unless the number purchased is the total number at
the time available for purchase under the Award.
SECTION 1.8 NO TRANSFERABILITY.
Awards may be exercised only by, and amounts payable or shares
issuable pursuant to an Award shall be paid only to (or registered
only in the name of), the Participant or, if the Participant has
died, the Participant's Beneficiary. Other than by will or the
laws of descent and distribution or, with respect to Nonqualified
Stock Options, pursuant to a QDRO, no right or benefit under this
Plan or any Award shall be transferrable by the Participant or
shall be subject in any manner to anticipation, alienation, sale,
transfer, assignment, pledge, encumbrance or charge and any such
attempted action shall be void. The Corporation shall disregard
any attempt at transfer, assignment or other alienation prohibited
by the preceding sentences and shall pay or deliver such cash or
shares of Common Stock in accordance with the provisions of this
Plan. The designation of a Beneficiary hereunder shall not
constitute a transfer for these purposes.
ARTICLE II. KEY EMPLOYEE OPTIONS
SECTION 2.1 GRANTS.
One or more Options may be granted under this Article to any
Eligible Employee. Each Option granted may be either an Option
intended to be an Incentive Stock Option, or not so intended, as
determined by the Committee, and such intent shall be indicated in
the applicable Award Agreement. Notwithstanding the preceding
sentence, Options granted to Other Eligible Persons shall only be
Nonqualified Stock Options.
SECTION 2.2 OPTION PRICE.
(a) Pricing Limits. The purchase price per share of the
Common Stock covered by each Option granted under this Article
shall be determined by the Committee at the time of the Award,
but in the case of Incentive Stock Options shall not be less
than 100% (110% in the case of an Eligible Employee
Participant described in Section 2.4) of the Fair Market Value
of the Common Stock on the date of grant.
(b) Payment Provisions. No shares shall be delivered
pursuant to the exercise of an Option granted under this
Article until payment of the full purchase price of such
shares is received by the Corporation at its principal office
located at 12 S. Raymond Avenue, Suite B, Pasadena, California
91105, or at such other place as the Committee may specify
from time to time. Payment methods may include any of the
following, pursuant to such conditions and rules or procedures
as may be established by the Committee from time to time or as
may be set forth in the Award Agreement:
(i) In cash;
(ii) In shares of Common Stock already owned by the
Participant;
(iii) Partly in cash and partly in shares of Common
Stock already owned by the Participant; or
(iv) By delivery of a notice instructing the
Corporation to deliver the shares being purchased to a
broker, subject to the broker's delivery of cash to the
Corporation equal to the purchase price; or
(v) To the extent an applicable Award Agreement so
provides, payment may be made in whole or in part by a
promissory note executed by the recipient of an Award in
favor of the Corporation, upon terms and conditions
determined by the Committee, and secured by the Common
Stock issuable upon exercise of the Options granted by
such Award in compliance with applicable law (including,
without limitation, state corporate law and federal
margin requirements).
Any shares used for payment pursuant to clause (ii) or (iii) above
shall have been held by the Eligible Employee Participant for at
least six months prior to such exercise date. Common Stock
accepted as a payment shall be valued at the Fair Market Value of
the Common Stock on the date of exercise.
(c) Reload Options. The Committee may provide in an
Award Agreement that, effective as of the date of exercise by
a Participant of all or part of an Option (the "Base Option")
by delivering shares of Common Stock already owned by the
Participant to the extent permitted by subsection (b)(ii) or
(iii) above, the Eligible Employee Participant shall be
granted an additional Option (a "Reload Option") to purchase
at the Fair Market Value on the date of such exercise and new
grant, a number of shares of Common Stock equal to the number
of whole shares (subject to reduction in the case of an
outstanding Incentive Stock Option to the extent necessary to
comply with the $100,000 limit set forth in Section 2.3(a))
used by the Participant to pay or toward the payment of the
exercise price of the Base Option, provided the Participant at
the time of such exercise is an Eligible Employee. The Reload
Option may be exercised between the date six months after its
grant and the original date of expiration of the Base Option
or such later time as the Committee may permit. The Reload
Option shall be evidenced in the Award Agreement for the Base
Option or by any other writing containing such terms and
conditions as the Committee shall approve, which conditions
may provide that upon the exercise of any Reload Option, an
additional Reload Option may be granted with respect to the
number of whole shares used to exercise the prior outstanding
Reload Option. In no event, however, shall the aggregate
number of additional shares authorized by Reload Option(s)
exceed 50% of the maximum number of shares initially
deliverable (subject to adjustments pursuant to Section
4.2(a)) on exercise of the Base Option.
SECTION 2.3 LIMITATIONS ON GRANT AND TERMS OF INCENTIVE
STOCK OPTIONS.
(a) $100,000 Limit. To the extent that the aggregate
"fair market value" (as defined below) of stock with respect
to which incentive stock options first become exercisable by
a Participant in any calendar year exceeds $100,000, taking
into account both Common Stock subject to Incentive Stock
Options under this Plan and stock subject to incentive stock
options under all other plans of the Company, such options
shall be treated as Nonqualified Stock Options. For this
purpose, the "fair market value" of the stock subject to
options shall be determined as of the date the options were
awarded. In reducing the number of options treated as
incentive stock options to meet the $100,000 limit, the most
recently granted options shall be reduced first. To the
extent a reduction of simultaneously granted options is
necessary to meet the $100,000 limit, the Committee may, in
the manner and to the extent permitted by law, designate which
shares of Common Stock are to be treated as shares acquired
pursuant to the exercise of an Incentive Stock Option.
(b) Option Period. Each Option and all rights
thereunder shall expire no later than 10 years after the Award
Date.
(b) Other Code Limits. There shall be imposed in any
Award Agreement relating to Incentive Stock Options such terms
and conditions as from time to time are required in order that
the Option be an "incentive stock option" as that term is
defined in Section 422 of the Code.
SECTION 2.4 LIMITS ON 10% HOLDERS.
No Incentive Stock Option may be granted to any person who, at
the time the Option is granted, owns (or is deemed to own under
Section 424(d) of the Code) shares of outstanding Common Stock
representing more than 10% of the total combined voting power of
all classes of stock of the Corporation, unless the exercise price
of such Option is at least 110% of the Fair Market Value of the
stock subject to the Option on the date of grant and such Option by
its terms is not exercisable after the expiration of five years
from the date such Option is granted.
SECTION 2.5 OPTION REPRICING/CANCELLATION AND REGRANT.
Subject to Section 1.4 and Section 4.6 and the general
limitations on Awards contained elsewhere in this Plan, the
Committee from time to time may authorize, generally or in specific
cases only, any adjustment in the exercise or purchase price, the
number of shares subject to, or the term of, an Award granted under
this Article by cancellation of an outstanding Award and a
subsequent regranting of an Award, by amendment, by substitution of
an outstanding Award, by waiver or by other legally valid means.
Such amendment or other action may result among other changes in an
exercise or purchase price which is higher or lower than the
exercise or purchase price of the original or prior Award, provide
for a greater or lesser number of shares subject to the Award, or
provide for a longer or shorter vesting or exercise period.
SECTION 2.6 LIMIT ON GRANTS TO ANY INDIVIDUAL.
The maximum number of shares of Common Stock that are
issuable under Options that during any calendar year are granted to
any Eligible Employee Participant shall not exceed 100,000, subject
to adjustments contemplated by Section 4.2.
ARTICLE III. NON-EMPLOYEE DIRECTOR OPTIONS
SECTION 3.1 PARTICIPATION.
Awards under this Article III shall be made only to Non-
Employee Directors.
SECTION 3.2 ANNUAL OPTION GRANTS.
(a) Time of Initial Award. Subject to approval by the
shareholders of the Corporation, persons who are Non-Employee
Directors at the time of the Plan's adoption on April 16,
1996, and persons who are elected or appointed to the Board
after April 16, 1996, on the date of such election, shall each
be granted without further action a NonQualified Stock Option
to purchase 10,000 shares of Common Stock.
(b) Subsequent Annual Awards. On the first business day
in each calendar year following the approval of this Plan by
the shareholders of the Corporation and during the term of
this Plan, there shall be granted automatically (without any
action by the Committee or the Board) a Nonqualified Stock
Option (the Award Date of which shall be such date) to each
Non-Employee Director then in office to purchase 1,000 shares
of Common Stock on each such date.
SECTION 3.3 OPTION PRICE.
The purchase price per share of the Common Stock covered by
each Option granted pursuant to Section 3.2 hereof shall be 100
percent of the Fair Market Value of the Common Stock on the Award
Date. The Award Date of Options granted under Section 3.2(a)
shall, for purposes of determining the Option price, be April 16,
1996 with respect to Options granted to Non-Employee Directors as
of that date, or the date such Option is granted upon election or
appointment of the applicable director to the Board with respect to
all other Options granted under Section 3.2(a). The purchase price
of any shares purchased shall be paid in full at the time of each
purchase either (i) in cash or by check of or on behalf of the Non-
Employee Director, including (to the extent permitted by applicable
law and consistent with Rule 16b-3(c)(2)) the process set forth in
Section 2.2(b)(iv), (ii) in shares of Common Stock valued at their
Fair Market Value on the date of exercise of the Option or
(iii) partly in such shares and partly in cash; provided that if
payments are made pursuant to clauses (ii) and (iii) above any
shares used for such payment shall have been held by the Non-
Employee Director Participant for at least six months prior to such
exercise date.
SECTION 3.4 OPTION PERIOD.
Each option granted under this Article III and all rights or
obligations thereunder shall expire on the fifth anniversary of the
Award Date and shall be subject to earlier termination as provided
below.
SECTION 3.5 EXERCISE OF OPTIONS.
Each Option granted under this Article III shall become
exercisable in full 12 months after the Award Date, except (i) such
Options granted pursuant to Section 3.2(a), which such Options
shall vest at the rate of 2,500 shares of Common Stock per year on
each of the first four anniversaries of the date of such grant, and
(ii) as provided in Section 3.8.
SECTION 3.6 TERMINATION OF DIRECTORSHIP.
An Option granted pursuant to this Article shall, if
exercisable on the date of a Non-Employee Director Participant's
termination of service as a director, remain exercisable only for
six months after the date of such termination or until the
expiration of the stated term of such Option, whichever first
occurs. Any Option granted pursuant to Section 3.2 hereof held by
such Non-Employee Director Participant which is not exercisable on
the date of termination of service shall terminate.
SECTION 3.7 ADJUSTMENTS.
Options granted under this Article III shall be subject to
adjustment as provided in Section 4.2, but only to the extent that
(a) such adjustment and the Committee's actions in respect thereof
satisfy applicable criteria under Rule 16b-3 and (b) such
adjustment is consistent with adjustments to Options held by
persons other than executive officers or directors of the
Corporation.
SECTION 3.8 ACCELERATION UPON A CHANGE IN CONTROL EVENT.
Upon the occurrence of a Change in Control Event, each Option
granted under Section 3.2 hereof shall become immediately
exercisable in full. To the extent that any Option granted under
this Article III (a) is not exercised prior to (i) a dissolution of
the Corporation or (ii) a merger or other corporate event in which
the Corporation does not survive and (b) no provision is (or
consistent with the provisions of Section 3.7 can be) made for the
assumption, conversion, substitution or exchange of the Option, the
Option shall terminate upon the occurrence of such event.
SECTION 3.9 LIMITATION ON AMENDMENTS.
The provisions of this Article III shall not be amended more
than once every six months (other than as may be necessary to
conform to any applicable changes in the Code or ERISA or, in each
case, the rules thereunder), unless such amendment would be
consistent with the provisions of Rule 16b-3(c)(2)(ii) (or any
successor provision).
ARTICLE IV. OTHER PROVISIONS
SECTION 4.1 RIGHTS OF ELIGIBLE EMPLOYEES, PARTICIPANTS AND
BENEFICIARIES.
(a) Employment Status. Status as an Eligible Employee
shall not be construed as a commitment that any Award will be
made under this Plan to an Eligible Employee or to Eligible
Employees generally.
(b) No Employment Contract. Nothing contained in this
Plan (or in any other documents related to this Plan or to any
Award) shall confer upon any Eligible Employee or other
Participant any right to continue in the employ or other
service of the Company or constitute any contract or agreement
of employment or other service, nor shall it interfere in any
way with the right of the Company to change such person's
compensation or other benefits or to terminate the employment
of such person, with or without cause, but nothing contained
in this Plan or any document related hereto shall adversely
affect any other contractual right of such person without his
or her consent thereto.
(c) Plan Not Funded. This Plan is not subject to Title
1 of ERISA and is not funded. No Participant, Beneficiary or
other person shall have any right, title or interest in any
fund or in any specific asset (including shares of Common
Stock, except as expressly otherwise provided) of the Company
by reason of any Award hereunder. Neither the provisions of
this Plan (or of any related documents), nor the creation or
adoption of this Plan, nor any action taken pursuant to the
provisions of this Plan shall create, or be construed to
create, a trust of any kind or a fiduciary relationship
between the Company and any Participant, Beneficiary or other
person.
SECTION 4.2 ADJUSTMENTS; ACCELERATION.
(a) Adjustments. If there shall occur any extraordinary
dividend or other extraordinary distribution in respect of the
Common Stock (whether in the form of cash, Common Stock, other
securities, or other property), or any recapitalization, stock
split (including a stock split in the form of a stock
dividend), reverse stock split, reorganization, merger,
combination, consolidation, split-up, spin-off, combination,
repurchase, or exchange of Common Stock or other securities of
the Corporation, or there shall occur any other like corporate
transaction or event in respect of the Common Stock, then the
Committee shall, in such manner and to such extent (if any) as
it deems appropriate and equitable (1) proportionately adjust
any or all of (a) the number and type of shares of Common
Stock (or other securities) which thereafter may be made the
subject of Awards (including the specific maximum numbers of
shares set forth elsewhere in this Plan), (b) the number,
amount and type of shares of Common Stock (or other securities
or property) subject to any or all outstanding Awards, and
(c) the exercise price of any or all outstanding Awards, or
(2) in the case of an extraordinary dividend or distribution,
merger, reorganization, consolidation, combination, split up,
exchange or spin off make provision for a cash payment or a
substitution or exchange of the securities or property
deliverable upon exercise to the holder of any or all
outstanding Awards based upon the distribution or
consideration payable to holders of Common Stock upon or in
respect of such event; provided, however, in each case, that
with respect to Awards of Incentive Stock Options, no such
adjustment shall be made which would cause the Plan to violate
Section 424(a) of the Code or any successor provision thereto.
(b) Acceleration of Awards Upon Change in Control. As
to any Eligible Employee Participant, unless prior to a Change
in Control Event the Committee determines that, upon its
occurrence, there shall be no acceleration of benefits under
Awards or determines that only certain or limited benefits
under Awards shall be accelerated and the extent to which they
shall be accelerated, and/or establishes a different time in
respect of such Change in Control Event for such acceleration,
then upon the occurrence of a Change in Control Event each
Option shall become immediately exercisable. The Committee
may override the limitations on acceleration in this Section
4.2(b) by express provision in the Award Agreement and may
accord any Eligible Employee Participant a right to refuse
such acceleration in such circumstances as the Committee may
approve. Any acceleration of Awards shall comply with
applicable regulatory requirements, including without
limitation Section 422 of the Code. The authority and
provisions of this Section 4.2 are not intended to limit the
Committee's authority to provide for acceleration of
exercisability of Awards in other circumstances. Further, the
Committee may provide for the termination of any or all of an
Eligible Employee Participant's Awards to the extent they are
not exercised as of the date of any event or transaction in or
pursuant to which the Corporation does not survive.
SECTION 4.3 EFFECT OF TERMINATION OF EMPLOYMENT.
The Committee shall establish in respect of each Award granted
to an Eligible Employee the effect of a termination of employment
on the rights and benefits thereunder and in so doing may make
distinctions based upon the cause of termination.
SECTION 4.4 COMPLIANCE WITH LAWS.
This Plan, the granting and vesting of Awards under this Plan
and the issuance and delivery of shares of Common Stock and/or the
payment of money or the use or application of shares under this
Plan or under Awards granted hereunder are subject to compliance
with all applicable federal and state laws, rules and regulations
(including but not limited to state and federal securities laws and
federal margin requirements) and to such approvals by any listing,
regulatory or governmental authority as may, in the opinion of
counsel for the Corporation, be necessary or advisable in
connection therewith. Any securities delivered under this Plan
shall be subject to such restrictions and the person acquiring such
securities shall, if requested by the Corporation, provide such
assurances and representations to the Corporation as the
Corporation may deem necessary or desirable to assure compliance
with all applicable legal requirements.
SECTION 4.5 TAX WITHHOLDING.
Upon any exercise, vesting, or payment of any Award or, if
they require upon the disposition of shares of Common Stock
acquired pursuant to the exercise of an Incentive Stock Option
prior to satisfaction of the holding period requirements of Section
422 of the Code, the Company shall have the right at its option to
(i) require the Participant (or Beneficiary) to pay or provide for
payment of the amount of any taxes which the Company may be
required to withhold with respect to such transaction or
(ii) deduct from any amount payable in cash the amount of any taxes
which the Company may be required to withhold with respect to such
cash amount. In any case where a tax is required to be withheld in
connection with the delivery of shares of Common Stock under this
Plan, any Eligible Employee Participant may elect, to the extent
allowed by and pursuant to such rules and subject to such
conditions as the Committee may establish, to have the Corporation
reduce the number of shares to be delivered by (or otherwise
reacquire) that number of shares valued at their then Fair Market
Value to satisfy such withholding obligation.
SECTION 4.6 PLAN AMENDMENT, TERMINATION AND SUSPENSION;
CHANGES IN AWARDS.
(a) Board Authorization. Except as provided in Section
3.9, the Board may, at any time, terminate or, from time to
time, amend, modify or suspend this Plan, in whole or in part.
No Awards may be granted during any suspension of this Plan or
after termination of this Plan, but the Committee shall retain
jurisdiction as to Awards then outstanding in accordance with
the terms of this Plan.
(b) Shareholder Approval. If any amendment would
(i) materially increase the benefits accruing to Participants
under this Plan, (ii) materially increase the aggregate number
of securities that may be issued under this Plan, or
(iii) materially modify the requirements as to eligibility for
participation in this Plan, then to the extent then required
by Rule 16b-3 to secure benefits thereunder or to avoid
liability under Section 16 of the Exchange Act (and Rules
thereunder) or required under Section 424 of the Code or any
other applicable law, or deemed necessary or advisable by the
Board, such amendment shall be subject to shareholder
approval.
(c) Amendments to Awards. Without limiting any other
express authority of the Committee under, but subject to the
express limits of, this Plan, the Committee by agreement or
resolution may waive conditions of or limitations on Awards to
Eligible Employees that the Committee in the prior exercise of
its discretion has imposed, without the consent of a
Participant, and may make other changes to the terms and
conditions of Awards that do not affect in any manner
materially adverse to the Eligible Employee Participant, his
or her rights and benefits under an Award.
(d) Limitations on Amendments to Plan and Awards. No
amendment, suspension or termination of the Plan or change of
or affecting any outstanding Award shall, without written
consent of the Participant, affect in any manner materially
adverse to the Participant any rights or benefits of the
Participant or obligations of the Corporation under any then
outstanding Award granted under this Plan. Changes
contemplated by Section 4.2 shall not be deemed to constitute
changes or amendments for purposes of this Section 4.6.
SECTION 4.7 PRIVILEGES OF STOCK OWNERSHIP.
A Participant shall not be entitled to any privilege of stock
ownership as to any shares of Common Stock not actually delivered
to and held of record by him or her, other than benefits incident
to the disposition of shares upon due exercise of an Option
consistent with the terms of this Plan. No adjustment will be made
for dividends or other rights as a shareholder for which a record
date is prior to the date of delivery of shares on exercise of an
Award.
SECTION 4.8 EFFECTIVE DATE OF PLAN.
This Plan is effective as of April 16, 1996, the date of
initial Board approval, subject to shareholder approval by December
31, 1996.
SECTION 4.9 TERM OF THE PLAN.
No Award shall be granted more than ten years after the
initial effective date of the Plan (the "termination date").
Unless otherwise expressly provided in this Plan or in an
applicable Award Agreement, any Award theretofore granted may
extend beyond such termination date, and all authority of the
Committee with respect to Awards hereunder shall continue during
any suspension of this Plan and in respect of outstanding Awards on
such termination date.
SECTION 4.10 GOVERNING LAW/CONSTRUCTION/SEVERABILITY.
(a) Choice of Law. This Plan, the Awards, all documents
evidencing Awards and all other related documents shall be
governed by, and construed in accordance with the laws of the
state of incorporation of the Corporation.
(b) Severability. If any provision shall be held by a
court of competent jurisdiction to be invalid and
unenforceable, the remaining provisions of this Plan shall
continue in effect.
(c) Plan Construction. It is the intent of the
Corporation that this Plan and Awards hereunder satisfy and be
interpreted in a manner that in the case of Participants who
are or may be subject to Section 16(b) of the Exchange Act
satisfies the applicable requirements of Rule 16b-3 thereunder
so that such persons will be entitled to the benefits of Rule
16b-3 or other exemptive rules under Section 16 of the
Exchange Act and will not be subjected to avoidable liability
thereunder and so that persons receiving Awards under
Article III remain "disinterested" under these Rules. If any
provision of this Plan or of any Award would otherwise
frustrate or conflict with the intent expressed above, that
provision to the extent possible shall be interpreted and
deemed amended so as to avoid such conflict, but to the extent
of any remaining irreconcilable conflict with such intent as
to such persons in the circumstances, such provision shall be
disregarded. It is the further intent of the Company that
Options with an exercise price not less than Fair Market Value
on the date of grant shall qualify as performance-based
compensation under Section 162(M) of the Code, and this Plan
shall be interpreted consistent with such intent.
(d) Limitations Prior to September 1, 1996.
Notwithstanding any other provision of this plan, during the
period prior to September 1, 1996 (or such other date as the
transition period under Rule 16b-3 may expire as to the
Company) (i) any Award granted to a Section 16 Person shall
have an exercise price equal to or greater than 50% of the
Fair Market Value of the shares of Common Stock on the date of
the Award and (ii) any Award the grant of which is intended to
be exempt from Rule 16b-3 shall not be transferrable other
than as permitted by former Rule 16b-3(d)(ii).
SECTION 4.11 CAPTIONS.
Captions and headings are given to the sections and
subsections of this Plan solely as a convenience to facilitate
reference. Such headings shall not be deemed in any way material
or relevant to the construction or interpretation of the Plan or
any provision thereof.
SECTION 4.12 EFFECT OF CHANGE OF SUBSIDIARY STATUS.
If an entity ceases to be a Subsidiary, for purposes of this
Plan and any Award hereunder, a termination of employment of each
employee of such Subsidiary who does not continue as an employee of
another entity within the Company shall be deemed to have occurred.
SECTION 4.13 NON-EXCLUSIVITY OF PLAN.
Nothing in this Plan shall limit or be deemed to limit the
authority of the Board or the Committee to grant awards or
authorize any other compensation, with or without reference to the
Common Stock, under any other plan or authority.
ARTICLE V. DEFINITIONS.
SECTION 5.1 DEFINITIONS.
(a) "Award" shall mean an award of any Option authorized
by and granted under this Plan.
(b) "Award Agreement" shall mean any writing setting
forth the terms of an Award that has been authorized by the
Committee.
(c) "Award Date" shall mean the date upon which the
Committee took the action granting an Award or such later date
as the Committee designates as the Award Date at the time of
the Award, or in the case of Non-Employee Director Awards
under Article III, the date of automatic grant under
Article III.
(d) "Award Period" shall mean the period beginning on an
Award Date and ending on the expiration date of such Award.
(e) "Beneficiary" shall mean the person, persons, trust
or trusts entitled by will or the laws of descent and
distribution to receive the benefits specified in the Award
Agreement and under this Plan in the event of a Participant's
death, and shall mean the Participant's executor or
administrator if no other Beneficiary is identified and able
to act under the circumstances.
(f) "Board" shall mean the Board of Directors of the
Corporation.
(g) A "Change in Control Event" shall mean and shall be
deemed to have occurred if and when: (i) within the meaning
of Section 13(d) of the Exchange Act, any person or group
becomes a beneficial owner, directly or indirectly, of
securities of the Corporation representing 20% or more of the
combined voting power in the election of directors of the
Corporation's then outstanding securities; (ii) individuals
who were members of the Board of the Corporation immediately
prior to a meeting of the shareholders of the Corporation
involving a contest for the election of directors shall not
constitute a majority of the Board following such election;
(iii) the shareholders of the Corporation approve the
dissolution or liquidation of the Corporation; (iv) the
shareholders of the Corporation approve an agreement to merge
or consolidate, or otherwise reorganize, with or into one or
more entities which are not subsidiaries, as a result of which
less than 50% of the outstanding voting securities of the
surviving or resulting entity are, or are to be, owned by
shareholders of the Corporation immediately prior to such
reorganization (assuming for purposes of such determination
that there is no change in the record ownership of the
Corporation's securities from the record date for such
approval until such reorganization and that such record owners
hold no securities of the other parties to such
reorganization, excluding from consideration as a former
shareholder any shareholder who is, or as a result of the
transaction in question becomes, an "affiliate", as that term
is used the Exchange Act and the rules promulgated thereunder,
of any party to such merger, consolidation or reorganization);
or (v) the shareholders of the Corporation approve the sale of
substantially all of the Corporation's business and/or assets
to a person or entity which is not a Subsidiary.
(h) "Code" shall mean the Internal Revenue Code of 1986,
as amended from time to time.
(i) "Committee" shall mean a committee appointed by the
Board to administer this Plan, which committee shall be
comprised only of two or more directors or such greater number
of directors as may be required under applicable law, none of
whom is an Eligible Employee and each of whom, during such
time as one or more Participants may be subject to Section 16
of the Exchange Act, shall be Disinterested and "outside"
within the meaning of Section 162(m) of the Code.
(j) "Common Stock" shall mean the Common Stock, no par
value, of the Corporation and such other securities or
property as may become the subject of Awards, or become
subject to Awards, pursuant to an adjustment made under
Section 4.2 of this Plan.
(k) "Company" shall mean, collectively, the Corporation
and its Subsidiaries.
(l) "Corporation" shall mean Acacia Research
Corporation, a California corporation, and its successors.
(m) "Disinterested" shall mean disinterested within the
meaning of any applicable regulatory requirements, including
Rule 16b-3.
(n) "Eligible Employee" shall mean an officer, a key
executive, or an administrative, managerial, production,
marketing or sales employee of the Company, whether or not
such person is a director, or an Other Eligible Person.
(o) "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended.
(p) "Exchange Act" shall mean the Securities Exchange
Act of 1934, as amended from time to time.
(q) "Fair Market Value" shall mean (i) if the Common
Stock is listed and registered on a national securities
exchange such as the New York Stock Exchange or the American
Stock Exchange, the simple average of the highest and lowest
quoted selling prices of the Common Stock on such exchange on
the applicable date of determination, or, if no such sales
were made on such date on such exchange, then by such method
as of the last date prior thereto on which sales were made, or
(ii) if the Common Stock is not listed and registered on any
national securities exchange, the simple average of the bid
and ask prices per share of Common Stock in the over-the-
counter market at the end of the applicable date of
determination, or, if for any reason no such quotations are
available, then by such other method as the Committee, in its
sole discretion, shall determine to be appropriate on such
date of determination.
(r) "Incentive Stock Option" shall mean an Option which
is designated as an incentive stock option within the meaning
of Section 422 of the Code, the award of which contains such
provision as are necessary to comply with that section.
(s) "Nonqualified Stock Option" shall mean an Option
that is designated as a Nonqualified Stock Option and shall
include any Option intended as an Incentive Stock Option that
fails to meet the applicable legal requirements thereof. Any
Option granted hereunder that is not designated as an
incentive stock option shall be deemed to be designated a
nonqualified stock option under this Plan and not an incentive
stock option under the Code. Options granted under
Article III shall be Nonqualified Stock Options.
(t) "Non-Employee Director" shall mean a person who is,
as of the applicable date of determination for an award under
Article III, (i) a member of the Board of Directors of the
Corporation and not an officer or employee of the Company or
any affiliate, and (ii) eligible to serve on the Committee.
(u) "Option" shall mean an option to purchase Common
Stock under this Plan.
(v) "Other Eligible Person" shall mean any other
individual (including significant agents and consultants) who
performs substantial services for the Company of a nature
similar to those performed by key employees, selected to
participate in this Plan by the Committee from time to time;
provided that in no event shall a Non-Employee Director be
selected as an Other Eligible Person.
(w) "Participant" shall mean a person who has been
granted or has received an Award under this Plan.
(x) "Plan" shall mean this 1996 Stock Option Plan.
(y) "QDRO" shall mean a qualified domestic relations
order as defined in Section 414(p) of the Code or Title I,
Section 206(d)(3) of ERISA (to the same extent as if this Plan
were subject thereto), or the applicable rules thereunder or
other decree accorded relief from transfer restrictions under
Rule 16b-3.
(z) "Rule 16b-3" shall mean Rule 16b-3 as promulgated by
the Securities and Exchange Commission pursuant to the
Exchange Act.
(aa) "Section 16 Person" shall mean a person subject to
Section 16(a) of the Exchange Act.
(bb) "Subsidiary" shall mean any corporation or other
entity a majority of whose outstanding voting stock or voting
power is beneficially owned directly or indirectly by the
Corporation.
