<PAGE>
[LOGO]
April 28, 1997
Dear Shareholder,
On behalf of your Board of Directors and Management, you are cordially
invited to attend the Annual Meeting of Shareholders to be held on Thursday, May
22, 1997, at 9:00 a.m., at the Ritz Carlton Huntington Hotel, located at 1401
South Oak Knoll Avenue in Pasadena, California.
The enclosed Notice and Proxy Statement contain details concerning the
business to come before the meeting. You will note that the Board of Directors
of the Company recommends a vote "FOR" the proposed amendment to the Company's
Bylaws to allow the Board of Directors to determine the number of directors
within a range of five to nine and "FOR" the election of the nominated directors
to serve until the next Annual Meeting of Shareholders.
It is important that your shares be represented and voted at the meeting
even if you cannot attend in person. Please sign, date, and return your proxy
card in the enclosed envelope.
Thank you for your continued support.
Cordially,
[sig]
Paul R. Ryan
PRESIDENT AND CHIEF EXECUTIVE OFFICER
12 South Raymond Ave. Pasadena, California 91105
<PAGE>
ACACIA RESEARCH
----------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 22, 1997
------------------------
TO OUR SHAREHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Acacia
Research Corporation, a California corporation (the "Company"), will be held on
May 22, 1997 at 9:00 a.m., local time, at the Ritz Carlton Huntington Hotel
located at 1401 South Oak Knoll Avenue, Pasadena, California 91106, for the
following purposes:
1. To vote on a proposed amendment to the Company's Bylaws to change the
number of directors from five (5), as specified therein, to a variable
number which shall be not less than five (5) nor more than nine (9), to
be determined by resolution of the Board of Directors;
2. To elect directors to serve for the ensuing year and until their
successors are elected and duly qualified; and
3. To transact such other business as may properly come before the meeting
or any adjournment thereof.
Only shareholders of record at the close of business on April 1, 1997 are
entitled to receive notice of and to vote at the Annual Meeting.
All shareholders are cordially invited to attend the Annual Meeting in
person. However, to assure your representation at the Annual Meeting, you are
urged to mark, sign, date and return the enclosed proxy card as promptly as
possible in the postage-prepaid envelope enclosed for that purpose. Any
shareholder attending the Annual Meeting may vote in person even if he or she
previously returned a proxy.
By Order of the Board of Directors
[sig]
Kathryn King-Van Wie
SECRETARY
Pasadena, California
April 28, 1997
YOUR VOTE IS IMPORTANT
IN ORDER TO ASSURE YOUR REPRESENTATION AT THE MEETING, YOU ARE REQUESTED
TO COMPLETE, SIGN AND DATE THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE AND
RETURN IT IN THE ENCLOSED ENVELOPE.
<PAGE>
ACACIA RESEARCH CORPORATION
12 SOUTH RAYMOND AVENUE
PASADENA, CALIFORNIA 91105
------------------------
PROXY STATEMENT
The enclosed Proxy is solicited on behalf of the Board of Directors of
Acacia Research Corporation, a California corporation ("Acacia" or the
"Company"), for use at Acacia's Annual Meeting of Shareholders (the "Annual
Meeting") to be held on May 22, 1997 at 9:00 a.m., local time, or at any
adjournments thereof. The purposes of the Annual Meeting are set forth in this
Proxy Statement and in the accompanying Notice of Annual Meeting of
Shareholders. The Annual Meeting will be held at the Ritz Carlton Huntington
Hotel located at 1401 South Oak Knoll Avenue, Pasadena, California 91106.
These proxy solicitation materials were mailed on or about April 28, 1997 to
all shareholders entitled to vote at the Annual Meeting.
RECORD DATE; OUTSTANDING SHARES; PROCEDURAL MATTERS
Shareholders of record as of the close of business on April 1, 1997 (the
"Record Date") are entitled to notice of and to vote at the Annual Meeting. At
the Record Date, 2,078,172 shares of the Company's Common Stock, no par value
(the "Common Stock"), were issued and outstanding. Each share has one vote on
all matters. For information regarding holders of more than 5% of the
outstanding Common Stock, see "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT."
The Company will bear the cost of this solicitation, including reimbursement
of brokerage firms and other persons representing beneficial owners of shares
for their reasonable expenses in forwarding solicitation material to such
beneficial owners. The solicitation of proxies for the Annual Meeting will be
made primarily by mail. However, proxies may be solicited by certain of the
Company's directors, officers and regular employees, without additional
compensation, personally or by telephone or facsimile.
VOTING
Each share of Common Stock outstanding on the Record Date is entitled to one
vote. In addition, every shareholder, or his proxy, entitled to vote upon the
election of directors may cumulate his votes and give one candidate a number of
votes equal to the number of directors to be elected multiplied by the number of
votes to which his shares are entitled, or distribute his votes calculated on
the same principal among as many candidates as he thinks fit. No shareholder or
proxyholder, however, shall be entitled to cumulate votes unless such candidate
or candidates have been nominated prior to the voting and the shareholder has
given notice at the meeting, prior to the voting, of the shareholder's intention
to cumulate the shareholder's votes. If any one shareholder gives such notice,
all shareholders may cumulate their votes for candidates in nomination. An
affirmative vote of a majority of the shares present and voting at the meeting
is required for approval of all items being submitted to the shareholders for
their consideration. Abstentions and broker non-votes are each included in the
determination of the number of shares present and voting. Each is tabulated
separately. Abstentions are counted in tabulations of the votes cast on
proposals presented to shareholders, whereas broker non-votes are not counted
for purposes of determining whether a proposal has been approved.
REVOCABILITY OF PROXIES
A shareholder may revoke any proxy given pursuant to this solicitation by
attending the Annual Meeting and voting in person, or by delivering to the
Company prior to the Annual Meeting a written notice of revocation or a duly
executed proxy bearing a date later than that of the previous proxy.
<PAGE>
PROPOSAL NO. 1
AMENDMENT OF RESTATED BYLAWS
The Board of Directors has approved and unanimously recommended that the
shareholders approve an amendment to the Company's Bylaws to change the number
of directors from five (5), as specified therein, to a variable number
determined by the Board of Directors by resolution (the "Amendment"). The text
of the proposed amended Bylaw relating to the number of Company directors is set
forth below:
"Section 2. NUMBER AND QUALIFICATION:
The number of directors of the corporation shall not be less than five
(5) nor more than nine (9). The exact number of directors shall be specified
by a resolution duly adopted by the Board of Directors or shareholders. An
amendment changing the maximum or minimum number of directors may only be
adopted by approval of the outstanding shares; provided, however, that a
bylaw amendment reducing the minimum number of directors to a number less
than five (5) cannot be adopted if the votes cast against its adoption at a
meeting of the shares not consenting in the case of action by written
consent, are equal to more than 16 2/3 percent of the outstanding shares
entitled to vote. No amendment may change the stated maximum number of
authorized directors to a number greater than two times the stated minimum
number of directors minus one."
The Board of Directors believes that it is in the Company's best interests
to have flexibility to expand the Board of Directors to add qualified candidates
as the opportunity to do so presents itself. Under the Company's current Bylaws,
the Board of Directors could not vote to appoint an additional director in the
event a qualified candidate was located and desired to serve on the Company's
Board. If Proposal No. 1 is approved by the Company's shareholders, the Board of
Directors will in the future have this flexibility, within the limits of the
maximum board size of nine directors. The Company has no current plans to expand
the size of the Board beyond five directors.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" PROPOSAL
NO. 1.
PROPOSAL NO. 2
ELECTION OF DIRECTORS
NOMINEES
The Bylaws of the Company presently provide that there shall be five (5)
directors and that such directors are to be elected at the Annual Meeting of
Shareholders. Unless otherwise instructed, the proxy holders will vote the
proxies received by them for the five (5) nominees named below. If any nominee
of the Company is unable or declines to serve as a director at the time of the
Annual Meeting, the proxies will be voted for any nominee designated by the
present Board of Directors to fill the vacancy. It is not presently expected
that any of the nominees named below will be unable or will decline to serve as
a director. If additional persons are nominated for election as directors, the
proxy holders intend to vote all proxies received by them in a manner to assure
the election of as many of the nominees listed below as possible. In such event,
the specific nominees to be voted for will be determined by the proxy holders.
The term of office of each person elected as a director will continue until the
next Annual Meeting of Shareholders or until a successor has been elected and
duly qualified.
Biographical summaries and ages as of April 28, 1997 of individuals
nominated by the Board of Directors for election as directors are provided
below. Data with respect to the number of shares of the Company's Common Stock
beneficially owned by each of them, directly or indirectly, as of that date,
appears on pages 5 and 6 of this Proxy Statement under the caption "Security
Ownership of Certain
2
<PAGE>
Beneficial Owners and Management." There is no family relationship among any
directors or executive officers of the Company.
<TABLE>
<CAPTION>
DIRECTOR
NAME, PRINCIPAL OCCUPATION AND DIRECTORSHIPS AGE SINCE
- -------------------------------------------------------------------------------------------------- --- ---------
<S> <C> <C>
R. BRUCE STEWART, CHAIRMAN AND CHIEF FINANCIAL OFFICER 60 1993
Mr. Stewart joined the Company at its inception in March 1991, and has served the Company as
Chairman since its incorporation in January 1993. Mr. Stewart is currently the Company's Chief
Financial Officer. From the Company's inception to January 1997, Mr. Stewart served as the
Company's President, Chief Executive Officer and Treasurer. Mr. Stewart founded the Company and
has guided the development of the Company's strategies and operations. Prior to establishing the
Company, Mr. Stewart served as the President of Annandale Corporation, an investment banking firm
and broker-dealer, from 1977 to 1992.
PAUL R. RYAN, DIRECTOR, PRESIDENT AND CHIEF EXECUTIVE OFFICER 51 1995
Mr. Ryan became a director and Vice President, Capital Management of the Company in August
1995. He was elected President and Chief Executive Officer of the Company in January 1997. Mr.
Ryan is, along with the Company, a general partner of each of the private investment partnerships
formed by the Company. He received a B.S. degree from Cornell University and attended the New York
University Graduate School of Business. Mr. Ryan was a general partner of the American Health Care
Fund, L.P. until 1993.
BROOKE P. ANDERSON, DIRECTOR AND VICE PRESIDENT, RESEARCH AND DEVELOPMENT 33 1993
Dr. Anderson joined the Company at its inception and, from January 1993 to the present, has
served the Company as Director, Vice President, Research and Development and, from January 1993
through September 1995, as Secretary. Dr. Anderson is responsible for the technical development
and maintenance of Acacia's stock-screening models. He received his Ph.D. in Computation and
Neural Systems and M.S. in Applied Physics from the California Institute of Technology, as well as
a B.S. in Nuclear Engineering from the University of Michigan. Dr. Anderson has authored technical
papers in the fields of neural networks, signal processing, and adaptive systems and is the
co-holder of a U.S. patent pertaining to adaptive systems.
FRED A. DE BOOM, DIRECTOR 61 1995
Mr. de Boom became a director of the Company in February 1995. Mr. de Boom is a principal in
Sonfad Associates, a position he has held since June 1993. Sonfad Associates is a Los Angeles
based investment banking firm that is involved in mergers and acquisitions, private debt and
equity placements, strategic and financial business planning, leveraged buy-outs and ESOP funding,
bank debt refinance, asset based and lease financing, and equity for debt restructuring.
Previously, he had been employed as a Vice President of Tokai Bank for five years, and as a Vice
President of Union Bank for an additional eight years. Mr. de Boom received a B.A. degree from
Michigan State University and an M.B.A. degree from the University of California.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
DIRECTOR
NAME, PRINCIPAL OCCUPATION AND DIRECTORSHIPS AGE SINCE
- -------------------------------------------------------------------------------------------------- --- ---------
<S> <C> <C>
EDWARD W. FRYKMAN, DIRECTOR 60 1996
Mr. Frykman has served on the Company's Board of Directors since April 1996. Mr. Frykman is
presently an account executive with Crowell, Weedon & Co., a position he has held since 1992. From
1990 to 1992, Mr. Frykman served as Senior Vice President of L.H. Friend & Co. Both Crowell,
Weedon & Co. and L.H. Friend & Co. are investment brokerage firms located in Southern California.
In addition, from October 1972 to September 1987, Mr. Frykman was the Manager of the Los Angeles
Regional Retail Office of Shearson Lehman Hutton, and from September 1987 to March 1990 served as
a Senior Account Executive with Shearson Lehman Hutton.
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE FIVE
(5) NOMINEES LISTED ABOVE, REGARDLESS OF WHETHER THE AMENDMENT IS APPROVED BY
THE SHAREHOLDERS AT THE ANNUAL MEETING.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of nine meetings during
the fiscal year ended December 31, 1996. During fiscal 1996, no incumbent
director attended fewer than 75% of the sum of the total number of meetings of
the Board of Directors and the total number of meetings of all committees of the
Board of Directors on which that director served. See "Director Compensation"
for information on the compensation of non-employee directors.
The Board has an Audit Committee and a Compensation Committee but does not
have a nominating committee or any committee performing a similar function.
The Audit Committee of the Board of Directors, which currently consists of
R. Bruce Stewart, Fred A. de Boom and Edward W. Frykman, was established in
April 1996. The Audit Committee Recommends engagement of the Company's
independent accountants and is primarily responsible for approving the services
performed by the Company's independent accountants and for reviewing and
evaluating the Company's accounting principles and its system of internal
accounting controls. The Company did not have an Audit Committee meeting during
fiscal 1996.
The Compensation Committee of the Board of Directors, which currently
consists of Fred A. de Boom and Edward W. Frykman, was established in April
1996. The Compensation Committee is primarily responsible for making
recommendations to the Board of Directors regarding the Company's executive
compensation policy and incentive compensation for employees and consultants to
the Company. The Company's Compensation Committee held two meetings during
fiscal 1996.
DIRECTOR COMPENSATION
Directors who are also employees of the Company receive no separate
compensation from the Company for their service as members of the Board of
Directors. However, non-employee directors receive non-discretionary annual
grants of options to purchase 1,000 shares of the Company's common stock at an
exercise price equal to the market price on the date of grant. In addition,
non-employee directors receive compensation in the amount of $150 for each
meeting of the Board of Directors attended.
4
<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of April 1, 1997, information relating to
the beneficial ownership of the Company's Common Stock by each person known by
the Company to be the beneficial owner of more than five percent (5%) of the
outstanding shares of Common Stock, by each director and nominee for director,
by each of the executive officers named in the Summary Compensation Table, and
by all directors and executive officers as a group. The number of shares
beneficially owned by each director or executive officer is determined under
rules of the Securities and Exchange Commission (the "Commission"), and the
information is not necessarily indicative of beneficial ownership for any other
purpose. Under such rules, beneficial ownership includes any shares as to which
the individual has the sole or shared voting power or investment power and also
any shares which the individual has the right to acquire within 60 days of April
1, 1997 through the exercise of any stock option or other right. Unless
otherwise indicated, each person has sole investment and voting power (or shares
such powers with his or her spouse) with respect to the shares set forth in the
following table.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
BENEFICIAL OWNERSHIP CLASS (1)
-------------------- -----------
<S> <C> <C>
Dr. Robert M. and Phyllis Ching (2) ........................ 274,275 12.82%
Mark and Harriet Rosen (3).................................. 187,175 9.01
R. Bruce Stewart (4) ....................................... 225,600 9.84
12 S. Raymond Avenue
Pasadena, CA 91105
Dr. Brooke P. Anderson (5) ................................. 197,800 8.90
12 S. Raymond Avenue
Pasadena, CA 91105
Paul R. Ryan (6) ........................................... 125,000 5.67
12 S. Raymond Avenue
Pasadena, CA 91105
Kathryn King-Van Wie (7) ................................... 22,517 1.07
12 S. Raymond Avenue
Pasadena, CA 91105
Fred A. de Boom (8) ........................................ 7,500 *
12 S. Raymond Avenue
Pasadena, CA 91105
Edward W. Frykman .......................................... 3,050 *
12 S. Raymond Avenue
Pasadena, CA 91105
All Directors and Executive Officers as a Group (6
persons) ................................................. 581,467 22.41
</TABLE>
- ------------------------
* Represents less than one percent.
(1) All Shares which a named shareholder has the right to acquire within 60 days
of the exercise of stock options, as described above, are not deemed
outstanding for the purpose of computing the percentage of Common Stock
owned by such named shareholder and not the percentage of Common Stock owned
by any other shareholder.
5
<PAGE>
(2) Includes options exercisable within 60 days of April 1, 1997 to purchase
20,000 shares at the exercise of $1.50 per share, 30,000 shares at the
exercise of $2.50 per share, 10,000 shares at the exercise of $5.25 per
share and 1,775 shares at the exercise of $5.50 per share granted to Dr.
Ching by the Company in connection with certain consulting services. Also
includes 12,500 shares jointly held by Dr. Ching and his wife, Phyllis
Ching, 77,150 shares held by The Ching Living Trust, 22,800 shares held by
the M. Robert Ching, M.D., Defined Benefits Pension Plan and 56,500 shares
held by the M. Robert Ching, Inc. Money Purchase Pension Plan.] This
security ownership is based upon information which the Company believes is
reliable but for which the beneficial owner has not filed with the
Securities and Exchange Commission a Schedule 134D or Schedule 13G.
(3) This security ownership is based upon information which the Company believes
is reliable but for which the beneficial owner has not filed with the
Securities and Exchange Commission a Schedule 13D or Schedule 13G.
(4) Includes options exercisable within 60 days of April 1, 1997 to purchase
150,000 shares at the exercise of $1.50 per share, 40,000 shares at the
exercise price of $2.00 per share and 25,000 shares at the exercise of $6.10
per share granted to Mr. Stewart by the Company.
(5) Includes options exercisable within 60 days of April 1, 1997 to purchase
100,000 shares at the exercise of $1.50 per share, 20,000 shares at the
exercise price of $2.00 per share and 25,000 shares at the exercise price of
$6.10 per share granted to Dr. Anderson by the Company.
(6) Includes warrants exercisable within 60 days of April 1, 1997 to purchase
100,000 shares at the exercise price of $2.00 per share issued by the
Company to Mr. Ryan in January 1995 for a purchase price of $10,000 and
25,000 shares at the exercise of $6.10 per share.
(7) Includes options exercisable within 60 days of April 1, 1997 to purchase
10,000 shares at the exercise of $5.25 per share and 12,500 shares at the
exercise of $6.10 per share. Also includes 17 shares held in trust for Ms.
King-Van Wie's minor child, of which Ms. King-Van Wie acts as a trustee.
(8) Includes options exercisable within 60 days of April 1, 1997, to purchase
4,000 shares at the exercise of $5.25 per share and 2,500 shares at the
exercise of $10.50 per share granted to Mr. de Boom by the Company.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors, executive officers and
holders of more than 10% of the Company's Common Stock to file with the
Commission initial reports of ownership and reports of changes in ownership of
Common Stock and other equity securities of the Company. The Company believes
that, based on the written representations of its directors and officers, and
the copies of reports filed with the Commission during the fiscal year ended
December 31, 1996 by its directors, officers and holders of more than 10% of the
Company's Common Stock: (i) with respect to one transaction, a report on Form 4
filed by R. Bruce Stewart does not appear in the records of the Commission and
will be refiled; and (ii) Dr. Robert and Phyllis Ching, holders of more than 10%
of the Company's Common Stock have not reported under Section 16(a).
6
<PAGE>
EXECUTIVE OFFICER COMPENSATION
SUMMARY COMPENSATION TABLE
The following table shows, as to the Company's Chief Executive Officer for
the last fiscal year and the four remaining most highly compensated executive
officers whose cash compensation exceeded $100,000 in the last fiscal year (of
which there were none) (the "Named Executive Officer"), information concerning
compensation paid for services to the Company in all capacities during the
fiscal years ended December 31, 1994, December 31, 1995 and December 31, 1996.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION -------------------------
---------------------------------- SECURITIES
OTHER ANNUAL RESTRICTED UNDERLYING
SALARY BONUS COMPENSATION STOCK OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) AWARDS (SAR'S) COMPENSATION
- ---------------------------------------- ---- ------- ----- ------------ ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
R. Bruce Stewart, 1994 60,000 0 10,883(1) 0 40,000(4) 0
Chief Executive Officer, Treasurer, 1995 60,000 5,000 22,189(2) 0 0 0
Director 1996 100,833 5,000 20,616(3) 0 100,000(5) 0
</TABLE>
- ------------------------
(1) Includes $4,124 paid by the Company for certain automobile expenses, and
$6,759 paid by the Company for certain medical expenses, in 1994.
(2) Includes $15,171 paid by the Company for certain automobile expenses, and
$7,018 paid by the Company for certain medical expenses, in 1995.
(3) Includes $13,536 paid by the Company for certain automobile expenses, and
$7,080 paid by the Company for certain medical expenses, in 1996.
(4) Represents shares of stock underlying options granted under the 1993 Stock
Option Plan. No tandem or freestanding stock appreciation rights have been
granted.
(5) Represents shares of stock underlying options granted under the 1996
Executive Stock Bonus Plan.
The Company has not entered into employment contracts with any of its Named
Executive Officers, nor does the Company have any agreement or arrangement with
any such Named Executive Officer relating to a change in Control of the Company.
STOCK OPTION GRANTS AND EXERCISES
In fiscal year 1996, the Company granted stock options to the Named
Executive Officer listed below. Such Named Executive Officer did not exercise
any options in fiscal year 1996.
The following tables set forth information regarding the stock options
granted to the Named Executive Officer during the fiscal year ended December 31,
1996 and the value of in-the-money options held by the Named Executive Officer
as of December 31, 1996.
OPTION EXERCISES IN FISCAL YEAR 1996 AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT 1996 IN-THE-MONEY OPTIONS AT
YEAR-END(#) 1996 YEAR-END(2)($)
SHARES ACQUIRED VALUE -------------------------- ---------------------------
NAME ON EXERCISE(#) REALIZED(1)($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------- ----------------- ------------------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
R. Bruce Stewart............ 0 0 190,000 100,000 $ 1,425,000 $ 750,000
</TABLE>
- ------------------------
(1) Value realized represents the difference between the exercise price of the
options and the value of the underlying securities on the date of exercise.
(2) Represents the difference between the exercise price of the options and the
closing price of the Company's Common Stock on December 31, 1996 of $7.50
per share.
7
<PAGE>
TRANSACTIONS WITH MANAGEMENT
During fiscal 1996 there were certain transactions that occurred between the
Company and its officers and directors, which are reported below. With respect
to each transaction, the Company has determined that the terms of each
arrangement were no less fair to the Company than those which could have been
obtained from unaffiliated persons.
TRANSACTIONS WITH PAUL R. RYAN. Prior to the time Paul R. Ryan became
an officer or director of the Company, the Company and Mr. Ryan entered into
an agreement pursuant to which the Company and Mr. Ryan agreed to act as the
general partners of certain private investment funds and co-managers to
other investment funds. Under this agreement, the Company is entitled to
receive 75%, and Mr. Ryan is entitled to receive 25% of the performance and
management fees earned in respect of the investment advisory services
provided to co-managed investment funds, less certain expenses shared with
other parties. Pursuant to this agreement, Mr. Ryan earned approximately
$14,000 during fiscal year 1996.
TRANSACTIONS WITH BROOKE P. ANDERSON, PH.D. From time to time, the
Company or affiliate of the Company have offered stock of affiliates through
private placements to accredited investors. Dr. Anderson has participated in
some of these private placements and was subject to the same terms and
conditions as other accredited investors who were not officers or directors
of the Company or its affiliates. During fiscal year 1996, Dr. Anderson
purchased 7,500 shares of MerkWerks Corporation at a price per share of $1,
10,000 shares of CombiMatrix Corporation at a price per share of $1, and
13,200 shares of Soundview Technologies at a price per share of $1. Dr.
Anderson is currently a director of the Company as well as a director of
MerkWerks Corporation and a director of CombiMatrix Corporation. Dr.
Anderson owns less than 0.5% of each of these companies.
TRANSACTIONS WITH MACALLAN, DUNHILL & ASSOCIATES. Macallan, Dunhill &
Associates ("Macallan") has been engaged by the Company to provide financial
consulting services to the Company in connection with its investment
advisory services. Robert B. Stewart Jr., the son of Mr. R. Bruce Stewart,
is a principal of Macallan. As Macallan has been engaged on terms similar to
those on which the Company has engaged another financial consulting firm for
the same services, the Company's Board of Directors approved and ratified
this transaction. Under this arrangement with the Company, during fiscal
year 1996, Macallan received $25,000. The payments to Macallan are advances
against that portion of the fees earned and to be earned on capital invested
in the Company's managed investment funds that is attributable to Macallan.
Once advances to Macallan are fully repaid to the Company, Macallan will be
paid certain portions of the management fees and the performance fees earned
on the monies brought into the funds managed by Macallan.
8
<PAGE>
COMPENSATION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
The Company's executive compensation program is administered by the
Compensation Committee of the Board of Directors, which is comprised of
directors who are not employees of the Company. Messrs. de Boom and Frykman
served on the Compensation Committee from its establishment in April 1996
through the end of the fiscal year. The Compensation Committee is responsible
for approving the compensation package of each executive officer and
recommending it to the Board of Directors. In making decisions regarding
executive compensation, the Compensation Committee considers the input of the
Company's management and other directors.
The Company's executive compensation program consists of a mixture of base
salary, cash bonuses, and stock awards. In determining the total amount and
mixture of the compensation package for each executive officer, the Compensation
Committee and the Board subjectively consider the overall value to the Company
of each executive in light of numerous factors such as competitive position,
individual performance, including past and expected contribution to the
Company's goals of each executive officer, and the Company's long-term needs and
goals, including attracting and retaining key management personnel.
The Company has historically paid its executive officers below-market cash
compensation, along with generous option awards. In general, the Compensation
Committee establishes base salaries of the Company's executive officers at
levels that the Compensation Committee believes are below the median base
salaries of companies considered by the Compensation Committee to be comparable
to the Company. The Company's current compensation philosophy is that total cash
compensation should be lower than industry average and should vary with the
performance of the Company in attaining financial and non-financial objectives,
and that executive officers should be compensated above this cash compensation
level only if the Company's performance, as reflected in its stock price,
justifies a higher level of compensation. The Compensation Committee believes
that this philosophy best aligns executive compensation with the interests of
the shareholders.
The Committee will periodically review the individual base salaries of the
executive officers, and adjust salaries based on individual job performance and
changes in the officer's duties and responsibilities. In making salary
decisions, the Committee exercises its discretion and judgment based on these
factors. No specific formula is applied to determine the weight of each factor.
Long-term incentive compensation is realized through granting of stock
options to most employees, including eligible executive officers. The Company
has no other long-term incentive plans. Stock options are granted by the Company
to aid in the retention of employees and to align the interests of employees
with those of the shareholders. In addition, the Committee believes that the
grant of an equity interest serves to link management interests with shareholder
interest and to motivate executive officers to make long-term decisions that are
in the best interests of the Company and the shareholders and provides an
incentive to maximize shareholder value. Stock options have value for an
employee only if the price of the Company's Stock increases above the exercise
price on the grant date and the employee remains in the Company's employ for the
period required for the stock to be exercisable, thus providing an incentive to
remain in the Company's employ.
In 1996, stock options for the executive officers were granted pursuant to
the 1996 Executive Stock Bonus Plan approved by the shareholders on May 14,
1996. In addition, in 1996, all employees, including the executive officers,
received a special cash bonus.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
In July 1996, in connection with his employment as the Company's President
and Chief Executive Officer, Mr. R. Bruce Stewart received a salary increase
from an annual base salary of $60,000 to an annual
9
<PAGE>
base salary of $130,000. In connection with the 1996 Executive Stock Bonus Plan,
Mr. Stewart received an option to purchase 100,000 shares of common stock at
$6.10, which vests over a four-year period. Mr. Stewart also received a bonus of
$5,000, which was no more than the bonus amount paid to each executive officer
of the Company in 1996. Mr. Stewart does not have an employment contract with
the Company.
IMPACT OF SECTION 162(m) OF THE INTERNAL REVENUE CODE
The Company does not believe Section 162(m) of the Internal Revenue Code,
which disallows a tax deduction for certain compensation in excess of $1
million, will generally have an effect on the Company. However, the shares of
Common Stock issued to the Company's executive officers in connection with the
1996 Executive Stock Bonus Plan will not qualify as "performance-based
compensation" within the meaning of Section 162(m). Depending on the market
value of such shares on each vesting date and the other compensation paid to the
executive officers in each such year, all or a portion of the compensation
expense associated with such shares may not be deductible for income tax
purposes. The Compensation Committee reviews the potential effect of Section
162(m) periodically and in the future may decide to structure the
performance-based portion of its executive officer compensation to comply with
Section 162(m).
Respectfully Submitted by the
Compensation
Committee of the Board of Directors
Fred A. de Boom
Edward Frykman
10
<PAGE>
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total shareholder return on the
Common Stock of the Company for the last six fiscal quarters with the cumulative
total return of (i) the Composite Index for The Nasdaq Stock Market (U.S.
Companies) (the "Nasdaq Index") and (ii) the Index for Nasdaq Financial Stocks
(the "Industry Index"). This graph assumes the investment of $100 on June 30,
1995 in the Company's Common Stock, the Nasdaq Index and the Industry Index and
assumes dividends are reinvested. Measurement points are at the last trading day
of the fiscal quarters represented below.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
ACACIA RESEARCH CORPORATION NASDAQ STOCK MARKET (US) NASDAQ FINANCIAL STOCKS
<S> <C> <C> <C>
6/30/95 100.00 100.00 100.00
9/29/95 125.00 112.04 113.95
12/29/95 100.00 113.41 122.24
3/29/96 145.83 118.71 127.18
6/28/96 133.33 128.40 130.19
9/30/96 170.83 132.97 141.22
12/31/96 125.00 139.49 156.74
</TABLE>
APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors has appointed , independent
accountants, to audit the Company's financial statements for the fiscal year
ending December 31, 1997.
Finocchario & Co. has audited the Company's financial statements since the
fiscal period ended December 31, 1993. Representatives of Finocchario & Co. are
expected to be present at the Annual Meeting and will have the opportunity to
respond to questions and to make a statement if they desire.
DEADLINE FOR RECEIPT OF SHAREHOLDER PROPOSALS FOR ANNUAL MEETING FOR FISCAL YEAR
1997
Proposals of shareholders which are intended to be presented by such
shareholders at the Company's 1998 Annual Meeting must be received by the
Company no later than December 26, 1997 in order that they may be included in
the proxy statement and form of proxy relating to that meeting.
11
<PAGE>
OTHER MATTERS
The Company knows of no other matters to be submitted to the shareholders at
the Annual Meeting. If any other matters properly come before the shareholders
at the Annual Meeting, it is the intention of the persons named on the enclosed
proxy card to vote the shares they represent as the Board of Directors may
recommend.
Dated: April 28, 1997
BY ORDER OF THE BOARD OF DIRECTORS
[sig]
Kathryn King-Van Wie
SECRETARY
12
<PAGE>
Appendix A to Proxy Statement
dated April __, 1997
ACACIA RESEARCH CORPORATION
ANNUAL MEETING OF SHAREHOLDERS MAY 22, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
ACACIA RESEARCH CORPORATION
The undersigned hereby appoints Paul R. Ryan and Kathryn King-Van Wie, and
each of them, proxyholders, each with full power of substitution to vote for
the undersigned at the Annual Meeting of Shareholders of Acacia Research
Corporation to be held on May 22, 1997, and at any adjournments thereof, with
respect to the following matters, which were more fully described in the
Proxy Statement dated April 28, 1997 (the "Proxy Statement"), receipt of
which is hereby acknowledged by the undersigned.
THIS PROXY WILL BE VOTED AS DIRECTED. UNLESS OTHERWISE DIRECTED, THIS
PROXY WILL BE VOTED FOR THE FIRST PROPOSAL AND FOR THE ELECTION OF THE FIVE
DIRECTOR NOMINEES.
See Reverse
Side
<PAGE>
- ------------- /X/ please mark your
COMMON choices like this
The Board of Directors recommends that you vote FOR Proposal
1 and FOR the nominees on Proposal 2.
FOR AGAINST ABSTAIN
(1) The amendment to the Company's Bylaws / / / / / /
to change the number of directors from
five (5), as specified therein, to a
variable number which shall be not less
than five (5) nor more than nine (9),
to be determined by resolution of the
Board.
(INSTRUCTION: To withhold authority
to vote for any nominee, line through
his name.)
FOR all
nominees WITHHOLD
listed below AUTHORITY
(except as to vote
marked to the for all nominees
contrary below listed below
(2) The election of the nominees for director / / / /
specified in the Proxy Statement to the
Board of Directors. R. Bruce Stewart,
Brooke P. Anderson, Fred A. de Boom,
Paul R. Ryan and Edward W. Frykman,
regardless of whether the Amendment is
approved.
(3) Such other matters as may properly come before the meeting or any
adjournment thereof. As to such matters, the undersigned hereby confers
discretionary authority.
Dated: May ____, 1997
_______________________________________________
(Please Print Name)
_______________________________________________
(Signature of Holder of Common Stock)
_______________________________________________
(Additional Signature if Held Jointly)
NOTE: Please sign exactly as your name
is printed. Each joint tenant
should sign. Executors, administrators,
trustees and guarantors should give full
titles when signing. Corporations and
partnerships should sign in full
corporate or partnership name by
authorized person. Please mark, sign,
date and return your Proxy promptly
in the enclosed envelope, which
requires no postage if mailed in the
United States.
