<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES ACT OF 1934
For the Quarter Ended June 30, 1996 Commission File No. 0-26068
ACACIA RESEARCH CORPORATION
A California Corporation
IRS Employer Identification No. 95-4405754
12 S. Raymond Avenue, Pasadena, California 91105
Telephone (818) 449-6431
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
-------- --------.
At June 30, 1996, 1,915,172 shares of common stock of the Registrant were
outstanding.
<PAGE> 2
Finocchiaro & Company
Certified Public Accountant
150 East Colorado Blvd., Suite 201
Pasadena, California 91105
Telephone (818) 449-6300 Telecopier (818) 449-6299
To the Stockholders and the Board of Directors
Acacia Research Corporation
The accompanying consolidated balance sheets of Acacia Research Corporation as
of June 30, 1996 and December 31, 1995, and the related consolidated statements
of operations for the six and three months ended June 30, 1996 and 1995, and
cash flows for the six months ended June 30, 1996 and 1995 were not audited by
us, and we do not express an opinion on them.
/s/ Finocchiaro & Co.
Pasadena, California
August 12, 1996
2
<PAGE> 3
ACACIA RESEARCH CORPORATION
CONSOLIDATED BALANCE SHEETS
June 30, 1996 and December 31, 1995
<TABLE>
<CAPTION>
(Unaudited)
June 30, 1996 December 31, 1995
---------------- -----------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 935,243 $ 788,611
Notes receivable 1,399,750 1,846,000
Receivables from affiliates 149,950 176,885
Other receivables 158,606 74,994
Prepaid expenses 17,926 12,948
Deferred tax benefit 31,670 15,820
--------------- ----------------
Total current assets 2,693,145 2,915,258
Equipment, furniture, and fixtures 92,276 63,569
Other assets
Equity in unconsolidated subsidiaries, at equity 919,512 0
Investment in unconsolidated subsidiary, at cost 1,233,000 0
Partnership interests, at equity 1,104,023 821,023
Deferred tax benefit 898,511 659,721
Organization costs, net of accumulated amortization
of $2,613 and $2,045 3,073 3,641
--------------- ----------------
Total Assets $ 6,943,540 $ 4,463,212
=============== ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 84,279 $ 129,066
Deficit interest in unconsolidated subsidiary, at equity 0 114,247
Income taxes payable 414,692 110,471
--------------- ----------------
Total current liabilities 498,971 353,784
Deferred tax liability 294,949 4,195
--------------- ----------------
Total other liabilities 793,920 357,979
Commitments and contingencies
Minority interest 0 10,796
Stockholders' equity
Common stock, no par value, 10,000,000 shares authorized,
1,915,172 shares in 1996 and 1,837,672 shares in 1995
issued and outstanding, 25,000 shares unissued in 1995 4,346,381 3,934,877
Retained earnings 1,947,241 367,812
Less stock subscription receivable (144,002) (208,252)
--------------- ----------------
Total stockholders' equity 6,149,620 4,094,437
--------------- ----------------
Total Liabilities and Stockholders' Equity $ 6,943,540 $ 4,463,212
=============== ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
ACACIA RESEARCH CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Six Months Ended and For the Three Months Ended June 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
June 30, 1996 June 30, 1995
---------------- ----------------
<C> <C>
Revenues
Gains on sales of securities, net $ 722,117 $ 626,000
Unrealized gain attributable to issuance of common stock by affiliate 1,066,408 0
Equity in earnings of investments (50,431) 200,000
Management fees 1,421,612 250
Interest income 53,628 15,560
------------ -----------
Total revenues 3,213,334 841,810
Marketing, general, and administrative 899,790 505,052
------------ -----------
Income before minority interest and taxes 2,313,544 336,758
Minority interest in net loss of consolidated subsidiary (10,796) 0
------------ -----------
Income before provision for income taxes 2,324,340 336,758
Provision for income taxes 744,988 800
------------ -----------
Net Income $ 1,579,352 $ 335,958
Earnings per common share
Primary $0.59 $0.14
Fully diluted $0.59 $0.14
Weighted average shares outstanding
Primary 2,664,376 2,457,050
Fully diluted 2,664,376 2,457,050
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
June 30, 1996 June 30, 1995
------------------ ------------------
<C> <C>
Revenues
Gains on sales of securities, net $ 169,751 $ 375,000
Unrealized gain attributable to issuance of common stock by affiliate 0 0
Equity in earnings of investments (223,633) 200,000
Management fees 1,415,387 250
Interest income 25,712 6,967
------------ ------------
Total revenues 1,387,217 582,217
Marketing, general, and administrative 474,009 244,505
------------ ------------
Income before minority interest and taxes 913,208 337,712
Minority interest in net loss of consolidated subsidiary (4,911) 0
------------ ------------
Income before provision for income taxes 918,119 337,712
Provision for income taxes 222,266 0
------------ ------------
Net Income $ 695,853 $ 337,712
============ ============
Earnings per common share
Primary $0.26 $0.14
Fully diluted $0.26 $0.14
Weighted average shares outstanding
Primary 2,705,092 2,457,050
Fully diluted 2,705,092 2,457,050
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
ACACIA RESEARCH CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
June 30, 1996 June 30, 1995
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,579,352 $ 335,958
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 9,755 3,723
Deferred taxes 318,296 0
Undistributed (earnings) loss of affiliate 50,431 (200,000)
Gain on sales of securities (722,117) (626,000)
Minority interest in net loss (10,796) 0
Unrealized gain attributable to issuance of
common stock by affiliate (1,066,408) 0
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable,
prepaid expenses, and other assets (88,590) 9,977
Increase (decrease) in accounts payable,
accrued expenses, payroll taxes payable,
and other liabilities 255,800 (28,386)
---------------- ----------------
Net cash provided (used) by operating activities 325,723 (504,728)
Cash flows from investing activities:
Purchase of equity investments (1,700,000) (250,000)
Proceeds from sales of securities 889,117 626,000
Payment received on advances to affiliate 414,247 200,000
Advances to affiliate (387,312) (10,368)
Notes receivable 0 (375,000)
Payments received on notes receivable 446,250 0
Capitalized expenditures (37,893) 0
---------------- ----------------
Net cash used by investing activities (375,591) 190,632
Cash flows from financing activities:
Compensation from stock options 0 4,500
Issuance costs 0 (56,991)
Proceeds from sale of common stock 196,500 400,290
---------------- ----------------
Net cash provided by financing activities 196,500 347,799
---------------- ----------------
Increase (decrease) in cash and cash equivalents 146,632 33,703
Cash and cash equivalents, beginning 788,611 361,021
---------------- ----------------
Cash And Cash Equivalents, Ending $ 935,243 $ 394,724
================ ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
ACACIA RESEARCH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of business- Acacia Research Corporation (the "Company") was
incorporated on January 25, 1993 under the laws of the state of
California. The Company provides traditional capital management
services, and also provides management services to and makes direct
investments in new emerging corporations. The Company has significant
economic interests in four companies that it has formed and takes an
active role in each company's growth and advancement. These companies
are: Whitewing Labs, Inc., MerkWerks Corporation, CombiMatrix
Corporation, and Soundview Technologies Incorporated. In addition, as
a registered investment advisor, the Company is a general partner in
two private investment partnerships, Acacia Capital Partners, L.P. and
Acacia Growth Fund, L.P., and is an investment advisor to two offshore
investment corporations, Acacia USA Fund and Acacia USA Growth Fund.
The Company is diversified, and each business segment is operated
independently.
Principles of consolidation - The accompanying consolidated financial
statements for the six months ended June 30, 1996 include the accounts
of the Company and its 69% owned subsidiary, MerkWerks Corporation, a
business developed by the Company. All intercompany transactions and
balances have been eliminated in consolidation. Investments in
companies in which the Company maintains an ownership interest of 20%
to 50%, or exercises significant influence over operating and
financial policies, are accounted for under the equity method. The
equity method is also used to account for the investment in companies
in which the Company's controlling interest in considered to be
temporary (See Note 6). The cost method is used where the Company
maintains ownership of greater than 5% and less than 20%, and does
not exercise significant influence over the investment.
Cash and cash equivalents - The Company considers all highly liquid
investments with original maturities of ninety days or less when
purchased to be cash equivalents. The Company invests excess cash in
money market accounts.
Equipment, furniture, and fixtures - Equipment, furniture, and
fixtures are recorded at cost. Major additions and improvements are
capitalized. When equipment, furniture, and fixtures are sold or
otherwise disposed of, the asset account and related depreciation
account are relieved, and any gain or loss is included in income for
the period of sale or disposal. Depreciation is computed on a
straight-line basis.
Organization costs - Organization costs are recorded at cost and are
amortized on a straight-line basis over a period of five years.
Earnings per common share - Earnings per common share has been
computed based upon the weighted average number of shares actually
outstanding plus the shares that would be outstanding assuming
conversion of common stock options and warrants, which are considered
to be common stock equivalents. Common stock equivalents include
shares issuable upon the assumed exercise of stock options using the
treasury stock method. The weighted average number of shares
outstanding also includes all common stock, stock options and warrants
issued by the Company. These shares have been included pursuant to
SEC rules as if they had been outstanding for all periods presented.
Restatement of prior periods - Financial statements for the period
ended June 30, 1995 have been restated to reflect the change in
accounting for the Company's investment in Whitewing Labs to the
equity method. The Company's ownership interest was reduced, through
sales of the Company's holdings in the investment and additional stock
issued by Whitewing Labs during 1995, from 100% of common equity to
38% while maintaining an overall voting interest of 55% as of December
31, 1995. Whitewing Labs completed a public offering of common stock
in February of 1996 further reducing the Company's control
6
<PAGE> 7
ACACIA RESEARCH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
of its affiliate. As a result of these transactions, the Company has
restated the prior periods financial statements to reflect the
accounting for its investment in Whitewing Labs on the equity method
in accordance with generally accepted accounting principles. This
restatement increased the earnings per common share for the three
months ended June 30, 1995 from $0.02 per share to $0.14 per share,
and earnings for the six months ended June 30, 1995 increased from
$0.05 to $0.14 per share.
Presentation- For financial statement reporting purposes 1995 items
have been reported in a manner consistent with the 1996 presentation.
2. EQUIPMENT, FURNITURE, AND FIXTURES
Equipment, furniture, and fixtures consist of the following at June 30,
1996 and December 31, 1995:
<TABLE>
<CAPTION>
1996 1995
------------- --------------
<S> <C> <C>
Computer equipment $ 63,746 $ 45,730
Furniture and fixtures 53,958 34,260
------------ -------------
117,704 79,990
Accumulated depreciation (25,428) (16,421)
------------ --------------
Total Equipment, Furniture, and Fixtures $ 92,276 $ 63,569
============ ============
</TABLE>
Depreciation expense for the six months ended June 30, 1996 and 1995
was $9,186 and $3,397, respectively.
3. COMMITMENTS AND CONTINGENCIES
Lease obligations - As of June 30, 1996, the equipment, furniture, and
fixtures account included assets in the amount of $8,661 financed by
capital lease agreements which will expire in 1996 and 1999.
Accumulated depreciation includes $2,196 of amortization related to
assets financed by capital lease agreements. The amortization of
assets under capital lease agreements have been included in
depreciation expense.
The Company leases office facilities under operating leases through
December 1998, with options to renew the leases at a rate determined
by the Consumer Price Index at the time of renewal. The Company's
current minimum monthly lease payment is $2,168. Rent expense for the
six months ended June 30, 1996 and 1995 were approximately $16,254 and
$13,123, respectively.
At June 30, 1996, the future minimum lease payments for capital and
operating leases equalled the following:
<TABLE>
<CAPTION>
CAPITAL OPERATING
----------- ---------
<S> <C> <C>
1996 $ 1,350 $ 13,008
1997 2,358 26,016
1998 2,358 26,016
1999 1,965 -
---------- ----------
Totals 8,031 65,040
Less interest portion (1,966) -
---------- ----------
Minimum lease payments $ 6,065 $ 65,040
========== ==========
</TABLE>
7
<PAGE> 8
ACACIA RESEARCH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. STOCK OPTIONS AND WARRANTS
During 1993, the Company adopted a stock option plan (the "1993 Plan")
which authorizes the granting of both options intended to qualify as
"incentive stock options" under Section 422A of the Internal Revenue
Code of 1986 ("Incentive Stock Options") and stock options which are
not intended to so qualify ("Nonstatutory Options") to officers,
directors, employees, consultants, and others expected to provide
significant services to the Company or its subsidiaries. The 1993
Plan, which covers an aggregate of 1,000,000 shares of common stock,
was approved by the Board of Directors in October, 1993. The Company
has reserved 1,000,000 shares of common stock in connection with the
1993 Plan. Under the terms of the 1993 Plan, options may be exercised
upon terms approved by the Board of Directors of the Company, and
expire at a maximum of ten years from the date of grant. Incentive
Stock Options are granted at prices equal to or greater than fair
market value at the date of grant. Nonstatutory Stock Options are
generally granted at prices equal to or greater than 85% of the fair
market value at the date of grant. At June 30, 1996 all shares
available for grant under the 1993 Plan had been granted, and at
December 31, 1995, there were 1,775 shares reserved for future grants
of common stock options.
In March of 1996, the Board of Directors adopted the 1996 Executive
Stock Bonus Plan (the "Bonus Plan"), which was approved by a vote of
the shareholders in May of 1996. The Bonus Plan grants one-time
options to purchase an aggregate of 360,000 shares of common stock of
the Company to directors, officers and other key employees performing
services for the Company and its affiliates. Under each option
agreement of the Bonus Plan, 25% of the options become exercisable on
each of the first four anniversaries of the grant date. The options
granted under the Bonus Plan expire in March 2001.
During April of 1996, the Board of Directors adopted the Acacia 1996
Stock Option Plan (the "1996 Plan"), which was approved by the
shareholders in May of 1996. The Company has reserved 250,000 shares
of common stock for issuance under the 1996 Plan. The 1996 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. The 1996 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. These options are generally exercisable six months to one
year after grant, and expire five years after grant for directors or
up to ten years after grant for key employees. At June 30, 1996,
options to purchase 20,000 shares of common stock had been issued
under the 1996 Plan with 230,000 shares reserved for further grants of
options.
The following is a summary of common stock options:
<TABLE>
<CAPTION>
WEIGHTED
SHARES PRICES AVERAGE
-----------------------------------
<S> <C> <C> <C>
1996
Balance at January 1, 1996 890,725 $1.50-$5.25 $2.66
Options granted 411,775 $4.90-$10.13 $6.24
Options exercised (52,500) $1.50-$5.25 $2.52
Options cancelled (10,000) $5.00 $5.00
-------- ----------- ----
Balance at June 30, 1996 1,240,000 $1.50-$10.13 $3.83
========= =========== ====
Exercisable at June 30, 1996 768,000 $1.50-$5.50 $2.44
======== ========== ====
</TABLE>
As of June 30, 1996 and December 31, 1995 the Company had 100,000
warrants outstanding. The warrants are exercisable at $2.00 per
share, and expire on January 1, 2000.
8
<PAGE> 9
ACACIA RESEARCH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. NOTES RECEIVABLE
As of June 30, 1996, the Company holds promissory notes from
individuals generally related to the sale of common stock owned by the
Company in Whitewing Labs, and MerkWerks Corporation, in the amount of
$1,378,750, and unsecured notes in the amount of $21,000. These notes
generally bear interest at 5% per annum and are generally secured by
the common stock sold and personally guaranteed by the holder. The
value of the collateral is approximately $1,242,000 for the secured
notes as of June 30, 1996. Accrued interest receivable on notes
receivable amounts to approximately $47,700 as of June 30, 1996 and
approximately $13,200 as of December 31, 1995.
The following is a summary of notes receivable at June 30, 1996:
<TABLE>
<S> <C>
Notes receivable due from shareholder, secured $ 460,000
Notes receivable, secured 918,750
Notes receivable, unsecured 21,000
------------
Total Notes Receivable $ 1,399,750
===========
</TABLE>
6. INVESTMENTS, AT EQUITY
Investments carried at equity, and the Company's ownership in each
consist of the following at June 30, 1996 and December 31, 1995:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Whitewing Labs 19% 38%
Acacia Capital Partners, L.P. 51% 60%
CombiMatrix Corporation 55% 0%
Acacia Growth Fund, L.P. 61% 0%
</TABLE>
The investment in Whitewing Labs is reported using the equity method.
The Company maintains an ownership percentage of 19.4% as of June 30,
1996, and officers of the Company hold significant positions on the
Board of Directors of Whitewing Labs. The investment in Whitewing
Labs is carried on the financial statements at value of $881,676 on
June 30, 1996 and at $0 as of December 31, 1995. As of June 30, 1996
Whitewing Labs had total assets of approximately $4,850,000, and net
shareholder's equity of approximately $4,540,000. Whitewing Labs' net
sales for the six months ended June 30, 1996 were $1,923,442 compared
to $1,220,930 for the previous six months ended June 30, 1995. The
market value of the Company's investment in Whitewing Labs is
approximately $2,200,000 based upon the closing market price of $4.06
per share as of June 28, 1996. The Company reported an unrealized
gain on the issuance of common stock by Whitewing Labs during the
quarter ended March 31, 1996. The gain included in these financial
statements is based upon the increase in the value of the Company's
ownership interest in the net equity of Whitewing Labs as a result of
the public offering in February of 1996. Common stock was offered by
Whitewing Labs at $5 per share which is in excess of the Company's
cost per share which resulted in a increase in the book value of the
Company's interest in Whitewing Labs despite the reduction in
ownership to 19.4%.
The Company records its investment in Acacia Capital Partners, L.P. at
equity as its control is temporary, and in accordance with
authoritative pronouncements regarding investments in partnerships.
The Company's capital account with respect to Acacia Capital Partners,
L.P. is $617,771 at June 30, 1996 and was $821,023 on December 31,
1995, and the total net assets of the partnership are $1,211,949 and
$1,365,742 as of June 30, 1996 and December 31, 1995, respectively.
The decrease in the Company's
9
<PAGE> 10
ACACIA RESEARCH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. INVESTMENTS, AT EQUITY (continued)
investment in this partnership is attributable primarily to the
transfer of $300,000 of its investment to the Acacia Growth Fund, L.P.
during the quarter ended June 30, 1996. Acacia Capital Partners, L.P.
is a California limited partnership that invests primarily in mid-cap
and large-cap U.S. equity securities.
In March of 1996 the Company acquired a majority interest in
CombiMatrix Corporation. The Company reports its ownership interest in
CombiMatrix Corporation under the equity method as its control is
considered to be temporary based upon planned offerings of common stock
by CombiMatrix Corporation. The Company carries its investment in
CombiMatrix Corporation at a cost of $37,836 as of June 30, 1996, and
has also made advances to the unconsolidated subsidiary of $119,995
through the balance sheet date. As of June 30, 1996, CombiMatrix
Corporation had total assets of $669,821, and net shareholders' equity
of $520,705. There have been no revenues earned by CombiMatrix
Corporation in its development stage.
On April 1, 1996 the Company acquired an equity interest in the Acacia
Growth Fund, L.P. As of June 30, 1996, the Company has invested a
total of $500,000 in this partnership. The Company's capital account
as of June 30, 1996 amounted to $486,252. The total net assets of the
partnership are $801,464 as of June 30, 1996. Acacia Growth Fund,
L.P. is a California limited partnership that invests primarily in
mid-cap and large-cap U.S. equity securities.
7. INVESTMENTS, AT COST
In late March of 1996 the Company entered into an agreement with
Soundview Technologies Incorporated. Under the terms of the agreement
the Company would receive up to a 32% interest in the common stock of
Soundview Technologies in return for the Company's raising capital and
offering management assistance to Soundview Technologies. During the
quarter ended June 30, 1996 the Company received a management fee in
the form of common stock in the amount of $1,400,000 for these
services. As of June 30, 1996 the Company carries its investment of
16.4% of Soundview Technologies at $1,233,000.
10
<PAGE> 11
ACACIA RESEARCH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. PROVISION FOR INCOME TAXES
Provision for income taxes consists of the following:
<TABLE>
<CAPTION>
FEDERAL STATE TOTAL
----------------------------------------------
<S> <C> <C> <C>
JUNE 30, 1996
Current $ 331,649 $ 95,043 $ 426,692
Deferred 247,156 71,140 318,296
JUNE 30, 1995
Current - 800 800
Deferred - - -
</TABLE>
The tax effects of temporary differences and carryforwards that give
rise to significant portions of deferred assets and liabilities
consist of the following.:
<TABLE>
<CAPTION>
DEFERRED TAX ASSETS: 1996 1995
--------------------------------
<S> <C>
Nonstatutory stock options $ 898,512 $ 619,258
Tax basis of investments at equity - 40,463
State income tax deductions 31,670 15,820
----------- -----------
Gross deferred tax assets $ 930,182 $ 675,541
=========== ===========
DEFERRED TAX LIABILITIES:
Excess basis in investments at equity $ 681,177 -
Equipment, furniture & fixtures 4,196 4,195
---------- -----------
Deferred tax liabilities $ 685,373 $ 4,195
========== ===========
</TABLE>
The Company believes that all deferred tax assets as of June 30, 1996
and December 31, 1995 are more likely than not to be realizable.
9. COMMON STOCK SUBSCRIPTIONS
As of June 30, 1996, the Company has a $50,000 unsecured promissory
note receivable from an individual. The note was issued in connection
with the purchase of 25,000 shares of common stock. The note bears
interest at 4% per annum. Other receivables include approximately
$4,900 of interest due on this note. The Company expects to receive
full payment from the individual, and no adjustment has been made to
the carrying value of this note.
The Company also has promissory notes in the amount of $94,002 in
connection with the purchase of 16,167 shares of common stock. These
notes bear interest at 5% per annum. Interest receivable in the
amount of $3,000 has been accrued on these notes.
10. RECEIVABLES FROM AFFILIATES
Receivables from affiliates consist of a promissory note with a
balance of $114,247 at December 31, 1995 bearing interest at 8% per
annum. At December 31, 1995 other receivables included approximately
$43,000 of interest receivable on this note. All outstanding amounts
due on this note were received during the period ended March 31, 1996.
Also included in receivables from affiliates at June 30, 1996 and
December 31, 1995 are advances for the benefit of CombiMatrix
Corporation, and Whitewing Labs. Advances to these companies totalled
$149,950 and $62,638, at June 30, 1996 and December 31, 1995,
respectively.
11
<PAGE> 12
ACACIA RESEARCH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for the periods ended June 30, 1996 and 1995 for interest
was $960 and $113. The Company paid cash for income taxes in the
amount of $123,000 in 1996.
12. CONCENTRATION OF CREDIT RISK
Notes receivable at June 30, 1996 subject the Company to concentration
of credit risk due to notes in the amount of $1,318,750 being due from
two individuals. The risk is limited as these notes are collateralized
by common stock with a value of approximately $1,154,000 and personally
guaranteed by the holders as of June 30, 1996.
The Company maintains its cash balances with financial and brokerage
institutions located in Southern California. As of June 30, 1996 the
Company maintained balances of $646,287 in excess of insured amounts
with these institutions.
12
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion is based primarily on the consolidated balance sheet
of the Company as of June 30, 1996, and on the operations of the Company for
the period from January 1, 1996 to June 30, 1996. The following discussion
compares the activities for the six months ended June 30, 1996 to the
activities for the six months ended June 30, 1995.
This information should be read in conjunction with the accompanying
consolidated financial statements and notes thereto. These financial
statements include all adjustments which are, in the opinion of management,
necessary to reflect the fair statement of the results for the interim periods
presented, and all such adjustments are of a normal recurring nature.
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1996 AND 1995
REVENUES
The Company reported quarterly revenues of $3,213,334 in the six
months ended June 30, 1996, an increase of $2,371,524, over revenues
of $841,810 for the six months ended June 30, 1995.
Gains on Sales of Securities, Net. Net gains on sales of securities
increased from $626,000 for the six months ended June 30, 1995 to
$722,117 for the six months ended June 30, 1996, which represents an
increase of $96,117 or 15.4%. Such gain for the six months ended June
30, 1996 is comprised primarily of gains on sales of shares of
CombiMatrix Corporation, and, to a lesser extent, of gains on sales of
shares of MerkWerks Corporation. The year earlier gain of $626,000
represented a gain from sales of shares of Whitewing Labs. The
Company is prohibited from selling shares of Whitewing Labs without
the consent of Cohig & Associates, Inc., until February 9, 1997,
pursuant to its agreement with Cohig & Associates, Inc. relating to
Whitewing Labs' initial public offering. Furthermore, the timing and
extent of any sales of securities are subject to substantial
fluctuation from quarter to quarter.
Unrealized Gain Attributable on Issuance of Common Stock by Affiliate.
In February 1996, shares of Whitewing Labs were sold in an initial
public offering. This initial public offering of shares reduced the
Company's ownership interest in Whitewing Labs from 38.3% to 19.4%.
As a result of this offering, under generally accepted accounting
principles, the Company reported an unrealized gain of $1,066,408,
representing an increase in the book value of the shares of Whitewing
Labs that the company retained following the initial public offering.
Management does not anticipate recognizing any similar gain in
relation to shares of Whitewing Labs; however, the Company does
anticipate future gains of this nature with respect to other
subsidiaries when they become publicly offered entities.
Equity in Earnings of Investments. The Company reported losses
attributable to equity in earnings of investments of $50,431 for the
period ended June 30, 1996, compared to revenues of $200,000 for the
year-earlier period. Such losses for the period ended June 30, 1996
are comprised of a gain of $85,532 on the Company's capital investment
as a partner of Acacia Capital Partners, L.P. offset by a loss of the
Company's share of net losses of CombiMatrix Corporation of $49,730, a
loss of $13,748 on the Company's capital investment as a partner of
Acacia Growth Fund, L.P., and a loss of $70,785, as determined by the
equity method of accounting, for the Company's investment in Whitewing
Labs.
Management Fees. For the six months ended June 30, 1996, management
fee income increased to $1,421,612 over management fee income of $250
generated during the first six months in 1995. Of the total of
$1,421,612 in management fees earned for the six month period,
approximately $22,000 was derived from three of the four investment
funds managed by the Company. Two of
13
<PAGE> 14
these funds, Acacia Capital Partners, L.P. and Acacia USA Fund, have
been managed by the Company during the full six month period in 1996.
The third fund, Acacia Growth Fund, L.P. was not formed until April
1996. Acacia USA Growth Fund, the fourth fund, was formed in June
1996 and, therefore, has not generated management fees during the six
month period ended June 30, 1996. The balance of $1,400,000 of
management fee revenue recorded during the six months ended June 30,
1996 was paid to the Company by Soundview Technologies Incorporated
through the issuance of 1,400,000 shares of Soundview Technologies'
common stock to the Company for providing management and consulting
services, including assisting Soundview Technologies in raising
$1,000,000 through the sale of Soundview Technologies' common stock at
$1.00 per share. At June 30, 1996, the Company retained 1,233,000 of
these shares.
EXPENSES
Marketing, general and administrative expenses increased from $505,052
for the six months ended June 30, 1995 to $899,790 for the six months
ended June 30, 1996. This increase is primarily due to increased
costs of operating a public company including additional accounting
legal, printing, and other professional costs which were not incurred
in 1995. However, marketing, general and administrative expenses as a
percent of total revenue decreased from 60% in the period ended June
30, 1995 to 28% in the period ended June 30, 1996.
PROVISION FOR INCOME TAXES
For the six month period ended June 30, 1996, the Company recorded an
income tax provision of $744,988, as compared to an income tax
provision of $800 for the same period in fiscal 1995. This increase
is primarily due to the deferred tax liability associated with the
unrealized gain on the issuance of Whitewing Labs stock and amounts
currently payable that are associated with the management fee earned
by the Company for its management and consulting services to Soundview
Technologies
INFLATION
Inflation has not had a significant impact on the Company.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1996, the Company had cash and cash equivalents of
$935,243, working capital of $2,194,174, and a ratio of current assets
to current liabilities of 5.4 to 1. As of June 30, 1996, the Company
had no indebtedness.
For the first six months of fiscal 1996, the Company had $325,723 of
positive cash flow from operations as compared to a negative cash flow
of $504,728 from operations in the related period in fiscal 1995. The
Company anticipates that the collection of notes receivable will
provide a portion of cash flows in the third quarter in addition to
anticipated revenue generated from the Company's other activities.
The Company anticipates that revenues from operations will continue to
provide necessary funds for its operating expenses. The Company
anticipates that cash generated from operations, together with working
capital reserves, will be adequate to fund recurring capital
expenditures during fiscal 1996 and for the foreseeable future.
14
<PAGE> 15
PART II - OTHER INFORMATION
ITEM I. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGE IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders was held on May 14, 1996. The business at
the meeting was the election of directors, ratification of the Company's 1996
Stock Option Plan, and the ratification of the Company's 1996 Executive Bonus
Plan. All of the proposals were adopted.
The number of votes for and withheld for each director were as follows:
<TABLE>
<CAPTION>
Name For Withheld
- ---- --- --------
<S> <C> <C>
R. Bruce Stewart 1,856,800 2,000
Brooke P. Anderson 1,856,800 2,000
Fred A. de Boom 1,856,800 2,000
Paul R. Ryan 1,856,800 2,000
Edward W. Frykman 1,856,800 2,000
</TABLE>
The number of votes for, against, and abstaining for the Company's 1996 Stock
Option Plan were as follows:
<TABLE>
<CAPTION>
For Against Abstaining
--- ------- ----------
<S> <C> <C>
1,285,290 42,050 100
</TABLE>
The number of votes for, against, and abstaining for the Company's 1996
Executive Bonus Plan were as follows:
<TABLE>
<CAPTION>
For Against Abstaining
--- ------- ----------
<S> <C> <C>
1,179,873 42,450 105,017
</TABLE>
15
<PAGE> 16
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 3.2 Amended and Restated Bylaws
(b) Reports on Form 8-K
None.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ACACIA RESEARCH CORPORATION
By: /s/ R. Bruce Stewart
-----------------------------------------------------
R. Bruce Stewart
President and Treasurer (Principle Financial Officer)
Date: August 13, 1996
16
<PAGE> 1
AMENDED AND RESTATED BYLAWS
of
ACACIA RESEARCH CORPORATION
EXHIBIT 3.2
<PAGE> 2
I N D E X
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I. Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1. Principal Executive Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2. Other Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II. Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1. Place of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2. Annual Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 3. Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 4. Notice of Annual or Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 5. Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 6. Adjourned Meetings and Notice Thereof . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 7. Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 8. Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 9. Consent of Absentees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 10. Action Without Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 11. Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 12. Inspectors of Election . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 13. Conduct of Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE III. Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 1. Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 2. Number of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3. Election and Term of Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 4. Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 5. Place of Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 6. Regular Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 7. Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 8. Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 9. Participation in Meetings by Conference Telephone . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 10. Waiver of Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 11. Adjournment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 12. Fees and Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 13. Action Without Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 14. Rights of Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 15. Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE IV. Officers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
Section 1. Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 2. Election . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 3. Subordinate Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 4. Removal and Resignation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 5. Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 6. Chairman of the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 7. President . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 8. Vice Presidents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 9. Secretary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 10. Treasurer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE V. Other Provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 1. Inspection of Corporate Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 2. Inspection of Bylaws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 3. Endorsement of Documents; Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 4. Certificates of Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 5. Representation of Shares of Other Corporations . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 6. Stock Purchase Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 7. Construction and Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 8. Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 9. Annual Report to Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE VI. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 1. Indemnification of Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 2. Indemnification of Employees and Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 3. Right of Directors and Officers to Bring Suit . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
</TABLE>
ii
<PAGE> 4
AMENDED AND RESTATED BYLAWS
for the regulation, except
as otherwise provided by statute or
its Articles of Incorporation,
of
ACACIA RESEARCH CORPORATION
(a California corporation)
ARTICLE I. Offices.
Section 1. PRINCIPAL EXECUTIVE OFFICE. The corporation's
principal executive office shall be fixed and located at such place as the
Board of Directors (herein called the "Board") shall determine. The Board is
granted full power and authority to change said principal executive office from
one location to another.
Section 2. OTHER OFFICES. Branch or subordinate offices may
be established at any time by the Board at any place or places.
ARTICLE II. Shareholders.
Section 1. PLACE OF MEETINGS. Meetings of shareholders shall
be held either at the principal executive office of the corporation or at any
other place within or without the State of California which may be designated
either by the Board or by the written consent of all persons entitled to vote
thereat, given either before or after the meeting and filed with the Secretary.
Section 2. ANNUAL MEETINGS. The annual meetings of
shareholders shall be held on such date and at such time as may be fixed by the
Board. At such meetings, directors shall be elected and any other proper
business may be transacted.
Section 3. SPECIAL MEETINGS. Special meetings of the
shareholders may be called at any time by the Board, the Chairman of the Board,
the President, or by the holders of shares entitled to cast not less than ten
percent of the votes at such meeting. Upon request in writing to the Chairman
of the Board, the President, any Vice President or the Secretary by any person
(other than the Board) entitled to call a special meeting of
iii
<PAGE> 5
shareholders, the officer forthwith shall cause notice to be given to the
shareholders entitled to vote that a meeting will be held at a time requested
by the person or persons calling the meeting, not less than thirty-five nor
more than sixty days after the receipt of the request. If the notice is not
given within twenty days after receipt of the request, the persons entitled to
call the meeting may give the notice.
Section 4. NOTICE OF ANNUAL OR SPECIAL MEETINGS. Written
notice of each annual or special meeting of shareholders shall be given not
less than ten nor more than sixty days before the date of the meeting to each
shareholder entitled to vote thereat. Such notice shall state the place, date
and hour of the meeting and (i) in the case of a special meeting, the general
nature of the business to be transacted, and no other business may be
transacted, or (ii) in the case of the annual meeting, those matters which the
Board, at the time of the mailing of the notice, intends to present for action
by the shareholders, but, subject to the provisions of applicable law, any
proper matter may be presented at the meeting for such action. The notice of
any meeting at which directors are to be elected shall include the names of
nominees intended at the time of the notice to be presented by management for
election.
Notice of a shareholders' meeting shall be given either
personally or by mail or by other means of written communication, addressed to
the shareholder at the address of such shareholder appearing on the books of
the corporation or given by the shareholder to the corporation for the purpose
of notice, or, if no such address appears or is given, at the place where the
principal executive office of the corporation is located or by publication at
least once in a newspaper of general circulation in the county in which the
principal executive office is located. Notice by mail shall be deemed to have
been given at the time a written notice is deposited in the United States
mails, postage prepaid. Any other written notice shall be deemed to have been
given at the time it is personally delivered to the recipient or is delivered
to a common carrier for transmission, or actually transmitted by the person
giving the notice by electronic means, to the recipient.
Section 5. QUORUM. A majority of the shares entitled to
vote, represented in person or by proxy, shall constitute a quorum at any
meeting of shareholders. If a quorum is present, the affirmative vote of a
majority of the shares represented and voting at the meeting (which shares
voting affirmatively also constitute at least a majority of the required
quorum) shall be the act of the shareholders, unless the vote of a greater
number or voting by classes is required by law or by the Articles, except as
provided in the following sentence. The shareholders present at a duly called
or held meeting at which a quorum is present may continue to do business until
adjournment, notwithstanding the withdrawal of enough shareholders to leave
less than a
iv
<PAGE> 6
quorum, if any action taken (other than adjournment) is approved by at least a
majority of the shares required to constitute a quorum.
Section 6. ADJOURNED MEETINGS AND NOTICE THEREOF. Any
shareholders' meeting, whether or not a quorum is present, may be adjourned
from time to time by the vote of a majority of the shares represented either in
person or by proxy, but in the absence of a quorum (except as provided in
Section 5 of this Article) no other business may be transacted at such meeting.
It shall not be necessary to give any notice of the time and
place of the adjourned meeting or of the business to be transacted thereat,
other than by announcement at the meeting at which such adjournment is taken;
provided, however, when any shareholders' meeting is adjourned for more than 45
days or, if after adjournment a new record date is fixed for the adjourned
meeting, notice of the adjourned meeting shall be given as in the case of an
original meeting.
Section 7. VOTING. The shareholders entitled to notice of
any meeting or to vote at any such meeting shall be only persons in whose name
shares stand on the stock records of the corporation on the record date
determined in accordance with Section 8 of this Article.
Subject to the following sentence and to the provisions of
Section 708 of the California General Corporation Law, every shareholder
entitled to vote at any election of directors may cumulate such shareholder's
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 the shareholder's
shares are entitled, or distribute the shareholder's votes on the same
principle among as many candidates as the shareholder thinks fit. No
shareholder shall be entitled to cumulate votes for any candidate or candidates
pursuant to the preceding sentence unless such candidate or candidates' names
have been placed in nomination 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 has given such
notice, all shareholders may cumulate their votes for candidates in nomination.
Elections need not be by ballot; provided, however, that all
elections for directors must be by ballot upon demand made by a shareholder at
the meeting and before the voting begins.
In any election of directors, the candidates receiving the
highest number of votes of the shares entitled to be voted for them up to the
number of directors to be elected by such shares are elected.
Voting shall in all cases be subject to the provisions of
Chapter 7 of the California General Corporation Laws and to the following
provisions:
v
<PAGE> 7
(a) Subject to clause (g), shares held by an
administrator, executor, guardian, conservator or custodian may be voted by
such holder either in person or by proxy, without a transfer of such shares
into the holder's name; and shares standing in the name of a trustee may be
voted by the trustee, either in person or by proxy, but no trustee shall be
entitled to vote shares held by such trustee without a transfer of such shares
into the trustee's name.
(b) Shares standing in the name of a receiver may be
voted by such receiver, and shares held by or under the control of a receiver
may be voted by such receiver without the transfer thereof into the receiver's
name if authority to do so is contained in the order of the court by which such
receiver was appointed.
(c) Subject to the provisions of Section 705 of the
California General Corporation Law and except where otherwise agreed in writing
between the parties, a shareholder whose shares are pledged shall be entitled
to vote such shares until the shares have been transferred into the name of the
pledgee, and thereafter the pledgee shall be entitled to vote the shares so
transferred.
(d) Shares standing in the name of a minor may be voted
and the corporation may treat all rights incident thereto as exercisable by the
minor, in person or by proxy, whether or not the corporation has notice, actual
or constructive, of the nonage, unless a guardian of the minor's property has
been appointed and written notice of such appointment given to the corporation.
(e) Shares standing in the name of another corporation,
domestic or foreign, may be voted by such officer, agent or proxyholder as the
bylaws of such other corporation may prescribe or, in the absence of such
provision, as the Board of Directors of such other corporation may determine
or, in the absence of such determination, by the chairman of the board,
president or any vice president of such other corporation, or by any other
person authorized to do so by the chairman of the board, president or any vice
president of such other corporation. Shares which are purported to be voted or
any proxy purported to be executed in the name of a corporation (whether or not
any title of the person signing is indicated) shall be presumed to be voted or
the proxy executed in accordance with the provisions of this clause, unless the
contrary is shown.
(f) Shares of the corporation owned by any subsidiary
shall not be entitled to vote on any matter.
vi
<PAGE> 8
(g) Shares held by the corporation in a fiduciary
capacity, and shares of the issuing corporation held in a fiduciary capacity by
any subsidiary, shall not be entitled to vote on any matter, except to the
extent that the settlor or beneficial owner possesses and exercises a right to
vote or to give the corporation binding instructions as to how to vote such
shares.
(h) If shares stand of record in the names of two or more
persons, whether fiduciaries, members of a partnership, joint tenants, tenants
in common, husband and wife as community property, tenants by the entirety,
voting trustees, persons entitled to vote under a shareholder voting agreement
or otherwise, or if two or more persons (including proxyholders) have the same
fiduciary relationship respecting the same shares, unless the secretary of the
corporation is given written notice to the contrary and is furnished with a
copy of the instrument or order appointing them or creating the relationship
wherein it is so provided, their acts with respect to voting shall have the
following effect:
(i) If only one votes, such act binds all;
(ii) If more than one vote, the act of the majority so
voting binds all;
(iii) If more than one vote, but the vote is evenly split
on any particular matter, each faction may vote the securities in
question proportionately.
If the instrument so filed or the registration of the shares shows that any
such tenancy is held in unequal interests, a majority or even split for the
purpose of this section shall be a majority or even split in interest.
Section 8. RECORD DATE. The Board may fix, in advance, a
record date for the determination of the shareholders entitled to notice of any
meeting or to vote or entitled to receive payment of any dividend or other
distribution, or any allotment of rights, or to exercise rights in respect of
any other lawful action. The record date so fixed shall be not more than 60
days nor less than 10 days prior to the date of the meeting nor more than 60
days prior to any other action. When a record date is so fixed, only
shareholders of record on that date are entitled to notice of and to vote at
the meeting or to receive the dividend, distribution, or allotment of rights,
or to exercise of the rights, as the case may be, notwithstanding any transfer
of shares on the books of the corporation after the record date. A
determination of shareholders of record entitled to notice of or to vote at a
meeting of shareholders shall apply to any adjournment of the meeting unless
the Board fixes a new record date for the adjourned meeting. The Board shall
fix a new record date if the meeting is adjourned for more than forty-five
days.
vii
<PAGE> 9
If no record date is fixed by the Board, the record date for
determining shareholders entitled to notice of or to vote at a meeting of
shareholders shall be at the close of business on the business day next
preceding the day on which notice is given or, if notice is waived, at the
close of business on the business day next preceding the day on which the
meeting is held. The record date for determining shareholders for any purpose
other than set forth in this Section 8 or Section 10 of this Article shall be
at the close of business on the day on which the Board adopts the resolution
relating thereto, or the sixtieth day prior to the date of such other action,
whichever is later.
Section 9. CONSENT OF ABSENTEES. The transactions of any
meeting of shareholders, however called and noticed, and wherever held, are as
valid as though had at a meeting duly held after regular call and notice, if a
quorum is present either in person or by proxy, and if, either before or after
the meeting, each of the persons entitled to vote, not present in person or by
proxy, signs a written waiver of notice, or a consent to the holding of the
meeting or an approval of the minutes thereof. All such waivers, consents or
approvals shall be filed with the corporate records or made a part of the
minutes of the meeting. Attendance of a person at a meeting shall constitute a
waiver of notice of and presence at such meeting, except when the person
objects, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened and except that
attendance at a meeting is not a waiver of any right to object to the
consideration of matters required by the California General Corporation Law to
be included in the notice but not so included, if such objection is expressly
made at the meeting. Neither the business to be transacted at nor the purpose
of any regular or special meeting of shareholders need be specified in any
written waiver of notice, consent to the holding of the meeting or approval of
the minutes thereof, except as provided in Section 601(f) of the California
General Corporation Law.
Section 10. ACTION WITHOUT MEETING. Subject to Section 603
of the California General Corporation Law, any action which, under any
provision of the California General Corporation Law, may be taken at any annual
or special meeting of shareholders, may be taken without a meeting and without
prior notice if a consent in writing, setting forth the action so taken, shall
be signed by the holders of outstanding shares having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
Unless a record date for voting purposes be fixed as provided in Section 8 of
this Article, the record date for determining shareholders entitled to give
consent pursuant to this Section 10, when no prior action by the Board has been
taken, shall be the day on which the first written consent is given.
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Section 11. PROXIES. Every person entitled to vote shares
has the right to do so either in person or by one or more persons authorized by
a written proxy executed by such shareholder and filed with the Secretary. Any
proxy duly executed is not revoked and continues in full force and effect until
revoked by the person executing it prior to the vote pursuant thereto. Such
revocation may be effected either, (i) by a writing delivered to the Secretary
of the Corporation stating that the proxy is revoked, (ii) or by a subsequent
proxy executed by the person executing the prior proxy and presented to the
meeting, or (iii) by attendance at the meeting and voting in person by the
person executing the proxy; provided, however, that no proxy shall be valid
after the expiration of eleven months from the date of its execution unless
otherwise provided in the proxy.
Section 12. INSPECTORS OF ELECTION. In advance of any
meeting of shareholders, the Board may appoint inspectors of election to act at
such meeting and any adjournment thereof. If inspectors of election be not so
appointed, or if any persons so appointed fail to appear or refuse to act, the
chairman of any such meeting may, and on the request of any shareholder or
shareholder's proxy shall, make such appointment at the meeting. The number of
inspectors shall be either one or three. If appointed at a meeting on the
request of one or more shareholders or proxies, the majority of shares present
shall determine whether one or three inspectors are to be appointed.
The duties of such inspectors shall be as prescribed by
Section 707(b) of the California General Corporation Law and shall include:
determining the number of shares outstanding and the voting power of each;
determining the shares represented at the meeting; determining the existence of
a quorum; determining the authenticity, validity and effect of proxies;
receiving votes, ballots or consents; hearing and determining all challenges
and questions in any way arising in connection with the right to vote; counting
and tabulating all votes or consents; determining when the polls shall close;
determining the result; and doing such acts as may be proper to conduct the
election or vote with fairness to all shareholders. If there are three
inspectors of election, the decision, act or certificate of a majority is
effective in all respects as the decision, act or certificate of all.
Section 13. CONDUCT OF MEETING. The President shall preside
as chairman at all meetings of the shareholders. The chairman shall conduct
each such meeting in a businesslike and fair manner, but shall not be obligated
to follow any technical, formal or parliamentary rules or principles of
procedure. The chairman's rulings on procedural matters shall be conclusive
and binding on all shareholders, unless at the time of a ruling a request for a
vote is made to the shareholders holding shares entitled to vote and which are
represented in person or by proxy at the meeting, in which case the decision of
a majority of such shares shall be conclusive and binding on all shareholders.
Without limiting the generality of the foregoing, the chairman shall
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have all of the powers usually vested in the chairman of a meeting of
shareholders.
ARTICLE III. Directors.
Section 1. POWERS. Subject to limitations of the Articles,
of these Amended and Restated Bylaws (these "Bylaws") and of the California
General Corporation Law relating to action required to be approved by the
shareholders or by the outstanding shares, the business and affairs of the
corporation shall be managed and all corporate powers shall be exercised by or
under the direction of the Board. The Board may delegate the management of the
day-to-day operation of the business of the corporation to a management company
or other person provided that the business and affairs of the corporation shall
be managed and all corporate powers shall be exercised under the ultimate
direction of the Board. Without prejudice to such general powers, but subject
to the same limitations, it is hereby expressly declared that the Board shall
have the following powers in addition to the other powers enumerated in these
Bylaws:
(a) To select and remove all the other officers, agents
and employees of the corporation, prescribe the powers and duties for them as
may not be inconsistent with law, the Articles or these Bylaws, fix their
compensation and require from them security for faithful service.
(b) To conduct, manage and control the affairs and
business of the corporation and to make such rules and regulations therefor not
inconsistent with law, the Articles or these Bylaws, as they may deem best.
(c) To adopt, make and use a corporate seal, and to
prescribe the forms of certificates of stock, and to alter the form of such
seal and of such certificates from time to time as they may deem best.
(d) To authorize the issuance of shares of stock of the
corporation from time to time, upon such terms and for such consideration as
may be lawful.
(e) To borrow money and incur indebtedness for the
purposes of the corporation, and to cause to be executed and delivered
therefor, in the corporate name, promissory notes, bonds, debentures,deeds of
trust, mortgages, pledges, hypothecations or other evidences of debt and
securities therefor.
Section 2. NUMBER AND QUALIFICATION. The authorized number
of directors of the corporation shall be five (5) until changed by amendment to
the Articles of Incorporation or by an amendment to this
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Section 2, Article III, of these Bylaws, adopted by the vote of the
shareholders entitled to exercise a majority of the voting power of the
corporation.
Section 3. ELECTION AND TERM OF OFFICE. The directors shall
be elected at each annual meeting of the shareholders, but if any such annual
meeting is not held or the directors are not elected thereat, the directors may
be elected at any special meeting of shareholders held for that purpose. Each
director shall hold office until the next annual meeting and until a successor
has been elected and qualified.
Section 4. VACANCIES. Any director may resign effective upon
giving written notice to the Chairman of the Board, the President, the
Secretary or the Board, unless the notice specifies a later time for the
effectiveness of such resignation. If the resignation is effective at a future
time, a successor may be elected to take office when the resignation becomes
effective.
Vacancies in the Board, except those existing as a result of a
removal of a director, may be filled by a majority of the remaining directors,
though less than a quorum, or by a sole remaining director, and each director
so elected shall hold office until the next annual meeting and until such
director's successor has been elected and qualified.
A vacancy or vacancies in the Board shall be deemed to exist
in case of the death, resignation or removal of any director, or if the
authorized number of directors be increased, or if the shareholders fail, at
any annual or special meeting of shareholders at which any director or
directors are elected, to elect the full authorized number of directors to be
voted for at that meeting.
The Board may declare vacant the office of a director who has
been declared of unsound mind by an order of court or convicted of a felony.
The shareholders may elect a director or directors at any time
to fill any vacancy or vacancies not filled by the directors. Any such
election by written consent other than to fill a vacancy created by removal
requires the consent of a majority of the outstanding shares entitled to vote.
Any such election by written consent to fill a vacancy created by removal
requires unanimous consent.
No reduction of the authorized number of directors shall have
the effect of removing any director prior to the expiration of the director's
term of office.
Section 5. PLACE OF MEETING. Regular or special meetings of
the Board shall be held at any place within or without the State of California
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which has been designated from time to time by the Board. In the absence of
such designation, regular meetings shall be held at the principal executive
office of the corporation.
Section 6. REGULAR MEETINGS. Immediately following each
annual meeting of shareholders the Board shall hold a regular meeting for the
purpose of organization, election of officers and the transaction of other
business.
Other regular meetings of the Board shall be held without call
on such dates and at such times as may be fixed by the Board. Call and notice
of all regular meetings of the Board are hereby dispensed with.
Section 7. SPECIAL MEETINGS. Special meetings of the Board
for any purpose or purposes may be called at any time by the Chairman of the
Board, the President, any Vice President, the Secretary or by any two
directors.
Special meetings of the Board shall be held upon four days'
written notice or forty-eight hours' notice given personally or by telephone,
telegraph, telex or other similar means of communication. Any such notice
shall be addressed or delivered to each director at such director's address as
it is shown upon the records of the corporation or as may have been given to
the corporation by the director for purposes of notice or, if such address is
not shown on such records or is not readily ascertainable, at the place in
which the meetings of the directors are regularly held.
Notice by mail shall be deemed to have been given at the time
a written notice is deposited in the United States mails, postage prepaid. Any
other written notice shall be deemed to have been given at the time it is
personally delivered to the recipient or is delivered to a common carrier for
transmission, or actually transmitted by the person giving the notice by
electronic means, to the recipient. Oral notice shall be deemed to have been
given at the time it is communicated, in person or by telephone or wireless, to
the recipient or to a person at the office of the recipient who the person
giving the notice has reason to believe will promptly communicate it to the
recipient.
Section 8. QUORUM. A majority of the authorized number of
directors constitutes a quorum of the Board for the transaction of business,
except to adjourn as provided in Section 11 of this Article. Every act or
decision done or made by a majority of the directors present at a meeting duly
held at which a quorum is present shall be regarded as the act of the Board,
unless a greater number be required by law or by the Articles. A meeting at
which a quorum is initially present may continue to transact business
notwithstanding the withdrawal of directors, if any action taken is approved by
at least a majority of the required quorum for such meeting.
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Section 9. PARTICIPATION IN MEETINGS BY CONFERENCE TELEPHONE.
Members of the Board may participate in a meeting through use of conference
telephone or similar communications equipment, so long as all members
participating in such meeting can hear one another.
Section 10. WAIVER OF NOTICE. Notice of a meeting need not
be given to any director who signs a waiver of notice or a consent to holding
the meeting or an approval of the minutes thereof, whether before or after the
meeting, or who attends the meeting without protesting, prior thereto or at its
commencement, the lack of notice to such director. All such waivers, consents
and approvals shall be filed with the corporate records or made a part of the
minutes of the meeting.
Section 11. ADJOURNMENT. A majority of the directors
present, whether or not a quorum is present, may adjourn any directors' meeting
to another time and place. Notice of the time and place of holding an adjourned
meeting need not be given to absent directors if the time and place be fixed at
the meeting adjourned, except as provided in the next sentence. If the meeting
is adjourned for more than 24 hours, notice of any adjournment to another time
or place shall be given prior to the time of the adjourned meeting to the
directors who were not present at the time of the adjournment.
Section 12. FEES AND COMPENSATION. Directors and members of
committees may receive such compensation, if any, for their services, and such
reimbursement for expenses, as may be fixed or determined by the Board.
Section 13. ACTION WITHOUT MEETING. Any action required or
permitted to be taken by the Board may be taken without a meeting if all
members of the Board shall individually or collectively consent in writing to
such action. Such consent or consents shall have the same effect as a
unanimous vote of the Board and shall be filed with the minutes of the
proceedings of the Board.
Section 14. RIGHTS OF INSPECTION. Every director shall have
the absolute right at any reasonable time to inspect and copy all books,
records and documents of every kind and to inspect the physical properties of
the corporation and also of its subsidiary corporations, domestic or foreign.
Such inspection by a director may be made in person or by agent or attorney and
includes the right to copy and obtain extracts.
Section 15. COMMITTEES. The Board may appoint one or more
committees, each consisting of two or more directors, and delegate to such
committees any of the authority of the Board except with respect to:
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(a) The approval of any action for which the General
Corporation Law also requires shareholders' approval or approval of
the outstanding shares;
(b) The filling of vacancies in the Board or on any
committee;
(c) The fixing of compensation of the directors for
serving on the Board or on any committee;
(d) The amendment or repeal of bylaws or the adoption of
new bylaws;
(e) The amendment or repeal of any resolution of the
Board which by its express terms is not so amendable or repealable;
(f) a distribution to the shareholders of the corporation
except at a rate or in a periodic amount or within a price range
determined by the Board; or
(g) The appointment of other committees of the Board or
the members thereof.
Any such committee must be designated, and the members or
alternate members thereof appointed, by resolution adopted by a majority of the
authorized number of directors and any such committee may be designated an
Executive Committee or by such other name as the Board shall specify. Alternate
members of a committee may replace any absent member at any meeting of the
committee. The Board shall have the power to prescribe the manner in which
proceedings of any such committee shall be conducted. In the absence of any
such prescription, such committee shall have the power to prescribe the manner
in which its proceedings shall be conducted. Unless the Board or such
committee shall otherwise provide, the regular and special meetings and other
actions of any such committee shall be governed by the provisions of this
Article applicable to meetings and actions of the Board. Minutes shall be kept
of each meeting of each committee.
ARTICLE IV. Officers.
Section 1. OFFICERS. The officers of the corporation shall
be a President, a Secretary and a Treasurer. The corporation may also have, at
the discretion of the Board, a Chairman of the Board, one or more
Vice-Presidents, one or more Assistant Secretaries, one or more Assistant
Treasurers, and such other officers as may be elected or appointed in
accordance with the provisions of Section 3 of this Article.
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Section 2. ELECTION. The officers of the corporation, except
such officers as may be elected or appointed in accordance with the provisions
of Section 3 or Section 5 of this Article, shall be chosen annually by, and
shall serve at the pleasure of, the Board, and shall hold their respective
offices until their resignation, removal, or other disqualification from
service, or until their respective successors shall be elected.
Section 3. SUBORDINATE OFFICERS. The Board may elect, and
may empower the President to appoint, such other officers as the business of
the corporation may require, each of whom shall hold office for such period,
have such authority and perform such duties as are provided in these Bylaws or
as the Board may from time to time determine.
Section 4. REMOVAL AND RESIGNATION. Any officer may be
removed, either with or without cause, by the Board at any time or, except in
the case of an officer chosen by the Board, by any officer upon whom such power
of removal may be conferred by the Board. Any such removal shall be without
prejudice to the rights, if any, of the officer under any contract of
employment of the officer.
Any officer may resign at any time by giving written notice to
the corporation, but without prejudice to the rights, if any, of the
corporation under any contract to which the officer is a party. Any such
resignation shall take effect at the date of the receipt of such notice or at
any later time specified therein and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
Section 5. VACANCIES. A vacancy in any office because of
death, resignation, removal, disqualification or any other cause shall be
filled in the manner prescribed in these Bylaws for regular election or
appointment to such office.
Section 6. CHAIRMAN OF THE BOARD. The Chairman of the Board,
if there shall be such an officer, shall, if present, preside at all meetings
of the Board and exercise and perform such other powers and duties as may be
from time to time assigned by the Board.
Section 7. PRESIDENT. Subject to such powers, if any, as may
be given by the Board to the Chairman of the Board, if there be such an
officer, the President is the general manager and chief executive officer of
the corporation and has, subject to the control of the Board, general
supervision, direction and control of the business and officers of the
corporation. The President shall preside at all meetings of the shareholders
and, in the absence of the Chairman of the Board, or if there be none, at all
meetings of the Board. The President has the general powers and duties of
management
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usually vested in the office of president and general manager of a corporation
and such other powers and duties as may be prescribed by the Board.
Section 8. VICE PRESIDENTS. In the absence or disability of
the President, the Vice Presidents in order of their rank as fixed by the
Board, or, if not ranked, the Vice President designated by the Board, shall
perform all the duties of the President and, when so acting, shall have all the
powers of, and be subject to all the restrictions upon, the President. The
Vice Presidents shall have such other powers and perform such other duties as
from time to time may be prescribed for them respectively by the Board.
Section 9. SECRETARY. The Secretary shall keep or cause to
be kept, at the principal executive office and such other place as the Board
may order, a book of minutes of all meetings of shareholders, the Board and its
committees, with the time and place of holding, whether regular or special, and
if special, how authorized, the notice thereof given, the names of those
present at Board and committee meetings, the number of shares present or
represented at shareholders' meetings, and the proceedings thereof. The
Secretary shall keep, or cause to be kept, a copy of the Bylaws of the
corporation at the principal executive office or business office in accordance
with Section 213 of the California General Corporation Law.
The Secretary shall keep, or cause to be kept, at the
principal executive office or at the office of the corporation's transfer agent
or registrar, if one be appointed, a share register, or a duplicate share
register, showing the names of the shareholders and their addresses, the number
and classes of shares held by each, the number and date of certificates issued
for the same, and the number and date of cancellation of every certificate
surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all
meetings of the shareholders and of the Board and any committees thereof
required by these Bylaws or by law to be given, shall keep the seal of the
corporation in safe custody, and shall have such other powers and perform such
other duties as may be prescribed by the Board.
Section 10. TREASURER. The Treasurer is the chief financial
officer of the corporation and shall keep and maintain, or cause to be kept and
maintained, adequate and correct accounts of the properties and business
transactions of the corporation, and shall send or cause to be sent to the
shareholders of the corporation such financial statements and reports as are by
law or these Bylaws required to be sent to them. The books of account shall at
all times be open to inspection by any director.
The Treasurer shall deposit all moneys and other valuables in
the name and to the credit of the corporation with such depositaries as may be
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designated by the Board. The Treasurer shall disburse the funds of the
corporation as may be ordered by the Board, shall render to the President and
the directors, whenever they request it, an account of all transactions as
Treasurer and of the financial condition of the corporation, and shall have
such other powers and perform such other duties as may be prescribed by the
Board.
ARTICLE V. Other Provisions.
Section 1. INSPECTION OF CORPORATE RECORDS.
(a) A shareholder or shareholders holding at least five
percent in the aggregate of the outstanding voting shares of the corporation or
who hold at least one percent of such voting shares and have filed a Schedule
14B with the United States Securities and Exchange Commission relating to the
election of directors of the corporation shall have an absolute right to do
either or both of the following:
(i) Inspect and copy the record of shareholders' names
and addresses and shareholdings during usual business hours upon five
business days' prior written demand upon the corporation; or
(ii) Obtain from the transfer agent, if any, for the
corporation, upon five business days' prior written demand and upon
the tender of its usual charges for such a list (the amount of which
charges shall be stated to the shareholder by the transfer agent upon
request), a list of the shareholders' names and addresses who are
entitled to vote for the election of directors and their
shareholdings, as of the most recent record date for which it has been
compiled or as of a date specified by the shareholder subsequent to
the date of demand.
(b) The record of shareholders shall also be open to
inspection and copying by any shareholder or holder of a voting trust
certificate at any time during usual business hours upon written demand on the
corporation, for a purpose reasonably related to such holder's interest as a
shareholder or holder of a voting trust certificate.
(c) The accounting books and records and minutes of
proceedings of the shareholders and the Board and committees of the Board shall
be open to inspection upon written demand on the corporation of any shareholder
or holder of a voting trust certificate at any reasonable time during usual
business hours, for a purpose reasonably related to such holder's interests as
a shareholder or as a holder of such voting trust certificate.
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(d) Any inspection and copying under this Article may be
made in person or by agent or attorney.
Section 2. INSPECTION OF BYLAWS. The corporation shall keep
in its principal executive office in the State of California, or if its
principal executive office is not in such State at its principal business
office in such State, the original or a copy of these Bylaws as amended to
date, which shall be open to inspection by shareholders at all reasonable times
during office hours. If the principal executive office of the corporation is
located outside the State of California and the corporation has no principal
business office in such state, it shall upon the written request of any
shareholder furnish to such shareholder a copy of these Bylaws as amended to
date.
Section 3. ENDORSEMENT OF DOCUMENTS; CONTRACTS. Subject to
the provisions of applicable law, any note, mortgage, evidence of indebtedness,
contract, share certificate, conveyance or other instrument in writing and any
assignment or endorsements thereof executed or entered into between the
corporation and any other person, when signed by the Chairman of the Board, the
President or any Vice President and the Secretary, any Assistant Secretary, the
Treasurer or any Assistant Treasurer of the corporation shall be valid and
binding on the corporation in the absence of actual knowledge on the part of
the other person that the signing officers had no authority to execute the
same. Any such instruments may be signed by any other person or persons and in
such manner as from time to time shall be determined by the Board, and, unless
so authorized by the Board, no officer, agent or employee shall have any power
or authority to bind the corporation by any contract or engagement or to pledge
its credit or to render it liable for any purpose or amount.
Section 4. CERTIFICATES OF STOCK. Every holder of shares of
the corporation shall be entitled to have a certificate signed in the name of
the corporation by the Chairman of the Board, the President or a Vice-President
and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant
Secretary, certifying the number of shares and the class or series of shares
owned by the shareholder. Any or all of the signatures on the certificate may
be facsimile. If any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the corporation with the same effect as if such
person were an officer, transfer agent or registrar at the date of issue.
Certificates for shares may be issued prior to full payment
under such restrictions and for such purposes as the Board may provide;
provided, however, that on any certificate issued to represent any partly paid
shares, the
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total amount of the consideration to be paid therefor and the amount paid
thereon shall be stated.
Except as provided in this Section, no new certificate for
shares shall be issued in lieu of an old one unless the latter is surrendered
and cancelled at the same time. The Board may, however, if any certificate for
shares is alleged to have been lost, stolen or destroyed, authorize the
issuance of a new certificate in lieu thereof, and the corporation may require
that the corporation be given a bond or other adequate security sufficient to
indemnify it against any claim that may be made against it (including expense
or liability) on account of the alleged loss, theft or destruction of such
certificate or the issuance of such new certificate.
Section 5. REPRESENTATION OF SHARES OF OTHER CORPORATIONS.
The President or any other officer or officers authorized by the Board or the
President are each authorized to vote, represent and exercise on behalf of the
corporation all rights incident to any and all shares of any other corporation
or corporations standing in the name of the corporation. The authority herein
granted may be exercised either by any such officer in person or by any other
person authorized so to do by proxy or power of attorney duly executed by said
officer.
Section 6. STOCK PURCHASE PLANS. The corporation may adopt
and carry out a stock purchase plan or agreement or stock option plan or
agreement providing for the issue and sale for such consideration as may be
fixed of its unissued shares, or of issued shares acquired or to be acquired,
to one or more of the employees or directors of the corporation or of a
subsidiary or to a trustee on their behalf and for the payment for such shares
in installments or at one time, and may provide for aiding any such persons in
paying for such shares by compensation for services rendered, promissory notes
or otherwise.
Any such stock purchase plan or agreement or stock option plan
or agreement may include, among other features, the fixing of eligibility for
participation therein, the class and price of shares to be issued or sold under
the plan or agreement, the number of shares which may be subscribed for, the
method of payment therefor, the reservation of title until full payment
therefor, the effect of the termination of employment, an option or obligation
on the part of the corporation to repurchase the shares upon termination of
employment, restrictions upon transfer of the shares, the time limits of and
termination of the plan, and any other matters, not in violation of applicable
law, as may be included in the plan as approved or authorized by the Board or
any committee of the Board.
Section 7. CONSTRUCTION AND DEFINITIONS. Unless the context
otherwise requires, the general provisions, rules of construction and
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definitions contained in the General Provisions of the California Corporations
Code and in the California General Corporation Law shall govern the
construction of these Bylaws.
Section 8. AMENDMENTS. These Bylaws may be amended or
repealed either by approval of the outstanding shares (as defined in Section
152 of the California General Corporation Law) or by the approval of the Board;
provided, however, that after the issuance of shares, a bylaw specifying or
changing a fixed number of directors or the maximum or minimum number or
changing from a fixed to a variable number of directors or vice versa may only
be adopted by approval of the outstanding shares, and a bylaw reducing the
fixed number or the minimum number of directors to a number less than five
shall be subject to the provisions of Section 212(a) of the California General
Corporation Law.
Section 9. ANNUAL REPORT TO SHAREHOLDERS. The annual report
to shareholders referred to in Section 1501 of the California General
Corporation Law is expressly waived, but nothing herein shall be interpreted as
prohibiting the Board from issuing annual or other periodic reports to
shareholders.
ARTICLE VI. Indemnification
Section 1. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Each
person who was or is a party or is threatened to be made a party to or is
involved in any threatened, pending or completed action, suit or proceeding,
formal or informal, whether brought in the name of the corporation or otherwise
and whether of a civil, criminal, administrative or investigative nature
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director or officer
of the corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans, whether the basis of such proceeding is an
alleged action or inaction in an official capacity or in any other capacity
while serving as a director or officer, shall, subject to the terms of any
agreement between the corporation and such person, be indemnified and held
harmless by the corporation to the fullest extent permissible under California
law and the corporation's Articles of Incorporation, against all costs,
charges, expenses, liabilities and losses (including attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid or to be
paid in settlement) reasonably incurred or suffered by such person in
connection therewith, and such indemnification shall continue as to a person
who has ceased to be a director or officer and shall inure to the benefit of
his or her heirs, executors and administrators; provided, however, that (a) the
corporation shall
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indemnify any such person seeking indemnification in connection with a
proceeding (or part thereof) initiated by such person only if such proceeding
(or part thereof) was authorized by the Board of the corporation, (b) the
corporation shall indemnify any such person seeking indemnification in
connection with a proceeding (or part thereof) other than a proceeding by or in
the name of the corporation to procure a judgment in its favor only if any
settlement of such a proceeding is approved in writing by the corporation, and
(c) that no such person shall be indemnified (i) except to the extent that the
aggregate of losses to be indemnified exceeds the amount of such losses for
which the director or officer is paid pursuant to any directors' and officers'
liability insurance policy maintained by the corporation; (ii) on account of
any suit in which judgment is rendered against such person for an accounting of
profits made from the purchase or sale by such person of securities of the
corporation pursuant to the provisions of Section 16(b) of the Securities
Exchange Act of 1934 and amendments thereto or similar provisions of any
federal, state or local statutory law; (iii) if a court of competent
jurisdiction finally determines that any indemnification hereunder is unlawful;
(iv) for acts or omissions involving intentional misconduct or knowing and
culpable violation of law; (v) for acts or omissions that the director or
officer believes to be contrary to the best interests of the corporation or its
shareholders or that involve the absence of good faith on the part of the
director or officer; (vi) for any transaction from which the director or
officer derived an improper personal benefit; (vii) for acts or omissions that
show a reckless disregard for the director's or officer's duty to the
corporation or its shareholders in circumstances in which the director or
officer was aware, or should have been aware, in the ordinary course of
performing his or her duties, of a risk of serious injury to the corporation or
its shareholders; (viii) for acts or omissions that constitute an unexcused
pattern of inattention that amounts to an abdication of the director's or
officer's duties to the corporation or its shareholders; (ix) for costs,
charges, expenses, liabilities and losses arising under Section 310 or 316 of
the General Corporation Law of California (the "Law"); and (x) as to
circumstances in which indemnity is expressly prohibited by Section 317 of the
Law. The right to indemnification conferred in this Article shall be a
contract right and shall include the right to be paid by the corporation
expenses incurred in defending any proceeding in advance of its final
disposition; provided, however, that if the Law requires the payment of such
expenses incurred by a director or officer in his or her capacity as a director
or officer (and not in any other capacity in which service was or is rendered
by such person while a director or officer, including, without limitation,
service to an employee benefit plan) in advance of the final disposition of a
proceeding, such advances shall be made only upon delivery to the corporation
of an undertaking, by or on behalf of such director or officer, to repay all
amounts to the coporation if it shall be ultimately determined that such person
is not entitled to be indemnified.
xxi
<PAGE> 23
Section 2. INDEMNIFICATION OF EMPLOYEES AND AGENTS. A person
who was or is a party or is threatened to be made a party to or is involved in
any proceeding by reason of the fact that he or she is or was an employee or
agent of the corporation or is or was serving at the request of the corporation
as an employee or agent of another enterprise, including service with respect
to employee benefit plans, whether the basis of such action is an alleged
action or inaction in an official capacity or in any other capacity while
serving as an employee or agent, may, subject to the terms of any agreement
between the corporation and such person, be indemnified and held harmless by
the corporation to the fullest extent permitted by California law and the
corporation's Articles of Incorporation, against all costs, charges, expenses,
liabilities and losses, (including attorneys' fees, judgments, fines, ERISA
excise taxes or penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith. The
immediately preceding sentence is not intended to be and shall not be
considered to confer a contract right on any employee or agent (other than
directors and officers) of the corporation.
Section 3. RIGHT OF DIRECTORS AND OFFICERS TO BRING SUIT. If
a claim under Section 1 of this Article is not paid in full by the corporation
within 30 days after a written claim has been received by the corporation, the
claimant may at any time thereafter bring suit against the corporation to
recover the unpaid amount of the claim and, if successful in whole or in part,
the claimant shall also be entitled to be paid the expense of prosecuting such
claim. Neither the failure of the corporation (including its Board,
independent legal counsel, or its shareholders) to have made a determination
prior to the commencement of such action that indemnification of the claimant
is permissible in the circumstances because he or she has met the applicable
standard of conduct, if any, nor an actual determination by the corporation
(including its Board, independent legal counsel, or its shareholders) that the
claimant has not met the applicable standard of conduct, shall be a defense to
the action or create a presumption for the purpose of an action that the
claimant has not met the applicable standard of conduct.
xxii
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