<PAGE>
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, 1997 Commission File No. 0-26068
ACACIA RESEARCH CORPORATION
---------------------------
(Exact name of registrant as specified in its charter)
California 95-4405754
- ------------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation organization)
12 South Raymond Avenue, Pasadena CA 91105
- ------------------------------------- ------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (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, 1997, 2,381,372 shares of common stock, no par value, of the
Registrant were outstanding.
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ACACIA RESEARCH CORPORATION
Table Of Contents
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheet . . . . . . . . . . . . . . 3
Consolidated Statement of Operations . . . . . . . . . 4
Consolidated Statement of Cash Flows . . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS. . . . . . . . . . 9
PART II. OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . .13
Signature. . . . . . . . . . . . . . . . . . . . . . . . . . . .15
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
ACACIA RESEARCH CORPORATION
CONSOLIDATED BALANCE SHEETS
June 30, 1997 and December 31, 1996
<TABLE>
<CAPTION>
(Unaudited)
June 30, 1997 December 31, 1996
------------------ -------------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 1,808,614 $ 292,701
Distributions receivable 0 400,000
Notes receivable 799,500 820,500
Receivables from affiliates 0 52,592
Other receivables 192,277 295,546
Prepaid expenses 155,265 219,027
Deferred tax benefit 0 272
------------------ -------------------
Total current assets 2,955,656 1,980,638
Equipment, furniture, and fixtures 206,839 202,049
Other assets
Investments in unconsolidated subsidiaries,
at equity 1,283,635 1,494,671
Investment in unconsolidated subsidary, at cost 1,233,000 1,233,000
Partnership interests, at equity 504,389 625,405
Deferred tax benefit 127,660 0
Organization costs, net of accumulated amortization 2,842 3,169
------------------ -------------------
Total assets $ 6,314,021 $ 5,638,932
------------------ -------------------
------------------ -------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 113,708 $ 90,599
Income taxes payable 0 0
Legal settlement payable 435,000 0
Note payable 375,000 552,500
------------------ -------------------
Total current liabilities 923,708 643,099
Deferred tax liability 150,996 193,503
------------------ -------------------
Total liabilities 1,074,704 836,602
Commitments and contingencies
Minority interest 401,360 380,329
Stockholders' equity
Common stock, no par value, 10,000,000
shares authorized, 2,381,372 shares in
1997 and 1,970,672 shares in 1996
issued and outstanding 5,528,087 4,081,993
(Accumulated deficit) retained earnings (667,639) 428,760
Less stock subscription receivable (31,492) (88,752)
------------------ -------------------
Total stockholders' equity 4,828,956 4,422,001
------------------ -------------------
Total liabilities and stockholders' equity $ 6,314,021 $ 5,638,932
------------------ -------------------
------------------ -------------------
</TABLE>
SEE ACCOMPANYING NOTES
3
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ACACIA RESEARCH CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
For the Six Months Ended and For the Three Months Ended June 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, 1997 June 30, 1996 June 30, 1997 June 30, 1996
-------------------------------- ---------------------------------
<S> <C> <C> <C> <C>
Revenues
Gains on sales of securities, net $50,000 $722,117 $0 $169,751
Unrealized gain attributable to issuance of common stock
by affiliate 0 1,066,408 0 0
Equity (losses) in earnings of investees (98,993) (701) 15,694 (175,467)
Management fees 340,547 1,421,612 308,345 1,415,387
Interest income 20,332 57,953 5,417 30,037
-------------------------------- ---------------------------------
Total revenues, net of investment income 311,886 3,267,389 329,456 1,439,708
Legal settlement expense 460,000 0 0 0
Marketing, general, and administrative 1,229,678 993,251 517,156 565,966
-------------------------------- ---------------------------------
(Loss) income before minority interest and taxes (1,377,792) 2,274,138 (187,700) 873,742
Minority interest in net loss of consolidated subsidiary (113,626) (51,002) (43,842) (44,377)
-------------------------------- ---------------------------------
(Loss) income before provision for income taxes (1,264,166) 2,325,140 (143,858) 918,119
(Benefit) provision for income taxes (167,767) 893,245 (127,660) 366,014
-------------------------------- ---------------------------------
Net (loss) income ($1,096,399) $1,431,895 ($16,198) $552,105
-------------------------------- ---------------------------------
-------------------------------- ---------------------------------
(Loss) earnings per common share
Primary ($0.53) $0.54 ($0.01) $0.20
Fully diluted ($0.53) $0.54 ($0.01) $0.20
Weighted average number of common and common equivalent
shares for computation of (loss) income per share
Primary 2,063,862 2,664,376 2,049,390 2,705,092
Fully diluted 2,063,862 2,664,376 2,049,390 2,705,092
</TABLE>
SEE ACCOMPANYING NOTES
4
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ACACIA RESEARCH CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
June 30, 1997 June 30, 1996
----------------- -----------------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (1,096,399) $ 1,431,895
Adjustments to reconcile net income to net
cash (used in) provided by operating activities:
Legal settlement expense 435,000 0
Depreciation and amortization 25,580 14,000
Deferred taxes (65,571) 315,367
Gain on sales of securities 50,000 (722,117)
Undistributed (earnings) loss of affiliates (98,993) (701)
Minority interest in net loss (113,626) (51,002)
Unrealized gain attributable to issuance of common stock by affiliate 0 (1,066,408)
Changes in assets and liabilities:
(Increase) decrease in accounts receivable,
prepaid expenses, and other assets 154,680 (222,026)
Increase (decrease) in accounts payable,
accrued expenses, and income taxes payable 23,109 286,556
----------------- -----------------
Net cash (used in) provided by operating activities (686,220) (14,436)
Cash flows from investing activities:
Purchase of equity investments (50,000) (1,600,000)
Payment received on advances to affiliates 57,180 414,247
Advances to affiliates (4,588) (267,317)
Distributions receivable 400,000 0
Proceeds from sales of securities 300,000 1,039,117
Payments received on notes receivable 21,000 446,250
Capitalized expenditures (27,313) (102,057)
----------------- -----------------
Net cash used in (provided by) investing activities 696,279 (69,760)
Cash flows from financing activities:
Payments on notes payable (177,500) 0
Proceeds from sale of stock by subsidiary 180,000 511,820
Proceeds from sale of common stock 1,503,354 196,500
----------------- -----------------
Net cash provided by financing activities 1,505,854 708,320
----------------- -----------------
Increase in cash and cash equivalents 1,515,913 624,124
Cash and cash equivalents, beginning 292,701 788,611
----------------- -----------------
Cash and cash equivalents, ending $ 1,808,614 $ 1,412,735
----------------- -----------------
----------------- -----------------
</TABLE>
SEE ACCOMPANYING NOTES
5
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ACACIA RESEARCH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
Acacia Research Corporation (the "Company") was incorporated on January 25,
1993 under the laws of the State of California. The Company provides
investment advisory services, and also provides management services to, and
makes direct investments in, emerging corporations. The Company has
significant economic interests in five 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, Soundview Technologies Incorporated, and Greenwich Information
Technologies LLC. In addition, as a registered investment advisor, the
Company is a general partner in two private investment partnerships, and is
an investment advisor to two offshore investment corporations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION - In the opinion of management, the accompanying
unaudited consolidated financial statements contain all adjustments, which
consist only of normal recurring adjustments necessary to present fairly
the consolidated financial position of the Company and its subsidiaries at
June 30, 1997 and the consolidated results of operations and cash flows
for the three and six months ended June 30, 1997 and June 30, 1996. This
interim financial information and notes thereto should be read in
conjunction with the Company's Annual Report on Form 10-K/A for the year
ended December 31, 1996. The Company's consolidated results of operations
and cash flows for interim periods are not necessarily indicative of the
results to be expected for any other interim period or the full year.
(LOSS) INCOME PER COMMON SHARE - Income per common share for the three and
six months ended June 30, 1996 has been computed based on the weighted
average number of common shares outstanding plus the common shares that
would be outstanding assuming conversion of common stock options and
warrants, which are considered to be common stock equivalents, using the
treasury stock method. Loss per common share for the three and six months
ended June 30, 1997 has been computed based on the weighted average number
of common shares outstanding, and excludes common stock equivalents because
the effect of their inclusion on the loss per common share computation is
anti-dilutive.
NEW PRONOUNCEMENTS - In February 1997, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 128, "Earnings
Per Share" ("SFAS 128"). SFAS 128 establishes new standards for computing
and presenting earnings per share ("EPS") and supersedes APB Opinion No.
15, "Earnings Per Share." SFAS 128 replaces the presentation of primary
EPS with a presentation of basic EPS. It also requires dual presentation
of basic and diluted EPS on the face of the income statement for all
entities with complex capital structures, and requires a reconciliation of
the numerator and denominator of the basic EPS computation to the numerator
and denominator of the diluted EPS computation. SFAS 128 becomes effective
for the Company for the year ending December 31, 1997. Pro forma results
for the second quarter of 1997 and 1996, assuming the application of SFAS
128, are as follows:
For Three Months Ended
----------------------
June 30, 1997 June 30, 1996
------------- -------------
Basic (loss) earnings per share ($0.01) $0.29
Diluted (loss) earnings per share ($0.01) $0.20
RESTATEMENT OF 1996 AND THE THREE MONTHS ENDED MARCH 31, 1997. The
Company's consolidated financial statements for the year ended December 31,
1996, including the period ended June 30, 1996, and the three months ended
March 31, 1997, have been restated to include the accounts of CombiMatrix
Corporation on a consolidated basis. The Company's ownership interest in
CombiMatrix exceeded 50% as of December 31, 1996, but was expected to
decline below 50% based on planned offerings of common stock by
CombiMatrix Corporation and, therefore, was previously reported under the
equity method. However, the Securities and Exchange Commission has
determined that the exception for temporary control is applicable only
if control is likely to be lost in the near term as a result of the
probable occurrence of events that lie outside of the Company's control.
6
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ACACIA RESEARCH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. COMMITMENTS AND CONTINGENCIES
LITIGATION SETTLEMENT - On May 7, 1997, the Company entered into a
Settlement Agreement terminating a lawsuit brought by Ann P. Hodges, a
former director of the Company, and her husband Christopher D. Hodges. The
suit alleged that the Company breached a contract with Ann Hodges by
improperly refusing to permit her to exercise an option to purchase 100,000
shares of common stock of the Company, and sought $950,000 in damages from
the Company. Under the terms of the Settlement Agreement, the Hodges have
received $25,000 in cash and options to purchase 120,600 shares of the
Company's Common Stock at an exercise price equal to $4.25 per share. The
underlying shares will vest over a period of 18 months, and remain
exercisable to the extent the Hodges realize total profits of up to
$475,000 (measured as the aggregate difference between the market value of
the shares on the date of exercise and the exercise price). If, following
the exercise or termination of the option, the Hodges have not realized
profits of $475,000, the Company would be obligated to make a cash payment
to the Hodges equal to the shortfall. For the purposes of these financial
statements, the estimated fair value of this settlement is $460,000, less
the $25,000 cash they have received.
4. NOTES RECEIVABLE
As of June 30, 1997 and 1996, the Company held promissory notes from
individuals related to the sale of common stock owned by the Company in
Whitewing Labs, Inc. These notes generally bear interest at 5% per annum
and are generally secured by the common stock sold.
The following is a summary of notes receivable at June 30, 1997 and
December 31, 1996:
1997 1996
------- ---------
Notes receivable due from stockholders, secured $ 560,000 $ 560,000
Notes receivable, secured 798,750 798,750
Notes receivable, unsecured - 21,000
------- ---------
1,358,750 1,379,750
Less: allowance for losses (559,250) (559,250)
------- ---------
Total notes receivable $ 799,500 $ 820,500
------- ---------
------- ---------
Interest receivable on these notes amounted to approximately $102,300, and
$85,500, as of June 30, 1997 and December 31, 1996, respectively.
The Company currently holds two promissory notes and one demand note, which
are secured by Whitewing Labs, Inc. common stock. The makers of these
notes have been delinquent in payments of principal of and interest on
these notes. The Company recorded a write-down of $559,250 on two of these
notes in December 1996 to reflect the then current market value of the
Whitewing Labs, Inc. common stock held by the Company as collateral for the
repayment of the notes. Although the Company continues to pursue the
collection of amounts owing with respect to the three notes, should the
Company not recover the amounts owing through routine collection
procedures, the Company may consider foreclosing on the collateral or
pursuing other available legal resources.
5. NOTE PAYABLE
As of June 30, 1997, the Company has a note payable to Greenwich
Information Technologies LLC in connection with the purchase of an equity
interest in that entity. This note has a balance of $375,000 as of June
30, 1997 and bears interest at 6.5% per annum. The note calls for monthly
principal payments of $25,000 to $50,000 per month, with the final payment
due in December 1997. The Company has pledged a portion of its membership
interest in Greenwich Information Technologies as security for this note.
7
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ACACIA RESEARCH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. COMMON STOCK SUBSCRIPTIONS
Common stock subscriptions as of June 30, 1997 and December 31, 1996
consist of promissory notes due from individuals on the purchase of common
stock and the exercise of stock options. These notes generally bear
interest at 4% to 5% per annum. The notes are due in full in 1997. As of
June 30, 1997 and December 31, 1996 the outstanding balances due on these
notes were $31,492 and $88,752, respectively. Other receivables with
respect to these notes include an interest receivable of $6,700 in 1997,
and $5,700 in 1996. During July 1997, approximately $26,786 has been
received toward the outstanding principal balance of $31,492.
7. RECEIVABLES FROM AFFILIATES
Receivables from affiliates generally represent advances to the Company's
affiliates. At December 31, 1996, receivables from affiliates include
advances to Whitewing Labs, Inc. of approximately $27,000 and Soundview
Technologies of approximately $20,000. As of June 30, 1997, Whitewing
Labs, Inc. and Soundview Technologies have paid advances due to the
Company in full.
8. GAIN ON ISSUANCE OF STOCK BY EQUITY INVESTEE
In February 1996, Whitewing Labs, Inc. issued approximately, 1.1 million
shares of common stock as part of a public offering of its common stock.
The issuance of stock reduced the Company's ownership interest from
approximately 38% to approximately 18%. This transaction resulted in a
noncash pretax gain of approximately $1.1 million for the Company.
8
<PAGE>
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, 1997, and on the operations of the Company for
the period from January 1, 1997 to June 30, 1997. The following discussion
compares the activities for the six and three months ended June 30, 1997 to
the activities for the six and three months ended June 30, 1996. This
information should be read in conjunction with the accompanying consolidated
financial statements and notes thereto.
RESULTS OF OPERATIONS
REVENUES
SIX MONTHS ENDED JUNE 30, 1997 AND JUNE 30, 1996
The Company reported revenues of $311,886 in the six months ended June 30,
1997 compared to revenues of $3,267,389 for the six months ended June 30,
1996.
GAINS ON SALES OF SECURITIES, NET. Net gains on sales of securities
decreased from $722,117 for the six months ended June 30, 1996 to $50,000
for the six months ended June 30, 1997. Such gain for the six months ended
June 30, 1997 is comprised of gains on sales of interests in CombiMatrix
Corporation. However, the Company continued to maintain a 51% ownership
interest as of June 30, 1997. The year-earlier gain of $722,117 represents
a gain primarily from sales of shares of CombiMatrix Corporation, and to a
lesser extent of MerkWerks Corporation and Soundview Technologies
Incorporated. During the six month period ended in 1997, the Company sold
a smaller portion of its assets, focusing instead on the development of its
various business interests. During the comparable period ended in 1996,
the Company sold a larger portion of its holdings primarily to raise the
capital necessary to acquire interests in new companies as well as provide
working capital for ongoing operations. Until the Company generates
sufficient revenue from operations of its various business concerns, the
Company, from time to time, may sell a portion of its equity interests when
that interest has appreciated to a value that management believes is
prudent and market conditions are favorable. However, the Company intends
to retain significant interests in its current and future holdings.
UNREALIZED GAIN ATTRIBUTABLE ON ISSUANCE OF COMMON STOCK BY AFFILIATE. In
February 1996, shares of Whitewing Labs, Inc. 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 18.4%. 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 if they become publicly offered
entities.
EQUITY (LOSSES) IN EARNINGS OF INVESTMENTS. The Company reported losses
attributable to earnings of investments of $98,993 for the six months ended
June 30, 1997, compared to losses of $701 for the year-earlier period.
Such losses for the period ended June 30, 1997 are comprised of a gain of
$96,992 on the Company's capital investments as a general partner in two
private investment partnerships offset by a loss of $142,434 for the
Company's investment in Whitewing Labs, and a loss of $53,551 for the
Company's investment in Greenwich Information Technologies, as determined
by the equity method of accounting.
MANAGEMENT FEES. For the six months ended June 30, 1997, management fee
income, which includes a performance fee income, was $340,547 over
management fee income of $1,421,612 generated during the first six months
in 1996. The Company derived management fees in the period ended June 30,
1997 primarily from four investment funds managed by the Company.
Of the total of $1,421,612 in management fees earned for the six month
period ended June 30, 1996, $1,400,000 was paid to the Company by Soundview
Technologies 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.
9
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RESULTS OF OPERATIONS (CONTINUED)
REVENUES (CONTINUED)
SIX MONTHS ENDED JUNE 30, 1997 AND JUNE 30, 1996 (continued)
The balance of approximately $22,000 of management fee income recorded
during the six months ended June 30, 1996 was derived from four investment
funds managed by the Company. Two of these funds had been managed by the
Company during the full six month period in 1996. The third fund and
fourth fund were formed in April 1996 and June 1996, respectively and,
therefore, generated limited management fees during the six month period
ended June 30, 1996.
THREE MONTHS ENDED JUNE 30, 1997 AND JUNE 30, 1996
The Company reported revenues of $329,456 in the three months ended June
30, 1997 compared to revenues of $1,439,708 for the three months ended June
30, 1996.
GAINS ON SALES OF SECURITIES, NET. Net gains on sales of securities
decreased from $169,751 for the three months ended June 30, 1996 to $0
for the comparable period ended June 30, 1997, as reported by the Company
during the 1997 period.
EQUITY (LOSSES) IN EARNINGS OF INVESTMENTS. The Company reported gains
attributable to earnings of investments of $15,694 for the three months
ended June 30, 1997, compared to losses of $175,467 for the year-earlier
period. Such earnings for the three months ended June 30, 1997 are
comprised of a gain of $58,897 on the Company's capital investments as a
general partner in two private investment partnerships offset by a loss of
$24,254 for the Company's investment in Whitewing Labs, and a loss of
$18,949 for the Company's investment in Greenwich Information Technologies,
as determined by the equity method of accounting.
MANAGEMENT FEES. For the three months ended June 30, 1997, management fee
income, which includes a performance fee income, was $308,345 over
management fee income of $1,415,387 generated during the three months ended
June 30, 1996. The Company derived management fees in the period ended
June 30, 1997 primarily from four investment funds managed by the Company.
Of the total of $1,415,387 in management fees earned for the three month
period ended June 30, 1996, $1,400,000 was paid to the Company by Soundview
Technologies 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.
The balance of approximately $15,000 of management fee income recorded
during the three months ended June 30, 1996 was derived from four
investment funds managed by the Company.
EXPENSES
SIX MONTHS ENDED JUNE 30, 1997 AND JUNE 30, 1996
Marketing, general and administrative expenses increased from $993,251 for
the six months ended June 30, 1996 to $1,229,678 for the six months ended
June 30, 1997. This increase is primarily due to legal, accounting,
printing, and other costs associated with the Company's efforts in further
developing its business enterprises and exploring new opportunities for the
Company and its affiliates and, to some extent, costs incurred in the
litigation and settlement of a lawsuit as well as expenses incurred by
CombiMatrix Corporation for a full six month period in 1997 compared to
approximately three months of the same period in 1996.
10
<PAGE>
RESULTS OF OPERATIONS (CONTINUED)
EXPENSES (CONTINUED)
SIX MONTHS ENDED JUNE 30, 1997 AND JUNE 30, 1996 (continued)
The Company also incurred a one-time charge of $460,000 relating to a legal
settlement, which has been offset by a $25,000 cash payment. Management of
the Company believes that settling this litigation on the agreed upon terms
prevented unnecessary litigation costs as well as the unnecessary diversion
of Company resources and was in the best interests of the Company.
THREE MONTHS ENDED JUNE 30, 1997 AND JUNE 30, 1996
Marketing, general and administrative expenses decreased from $565,966 for
the three months ended June 30, 1996 to $517,156 for the three months ended
June 30, 1997. This decrease is primarily due the absence of legal fees
associated with the commencement of private investment funds as well as
decreases in consulting fees.
PROVISION FOR INCOME TAXES
SIX MONTHS ENDED JUNE 30, 1997 AND JUNE 30, 1996
For the six month period ended June 30, 1997, the Company recorded a
benefit of $167,767 as compared to an income tax expense of $893,245 for
the same period in fiscal 1996. In the current tax year, the Company has
generated a net operating loss, which results in a tax benefit for the
six months ended June 30, 1996 of $167,767.
THREE MONTHS ENDED JUNE 30, 1997 AND JUNE 30, 1996
For the three month period ended June 30, 1997, the Company recorded a
benefit of $127,660 as compared to an income tax expense of $366,014 for
the same period in fiscal 1996. The difference is attributable to losses
during the three months ended June 30, 1997 versus income generated during
the three months ended June 30, 1996.
INFLATION
Inflation has not had a significant impact on the Company.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1997, the Company had cash and cash equivalents of $1,808,614,
working capital of $2,031,948, and a ratio of current assets to current
liabilities of 3.2 to 1. During the period ended June 30, 1997, the Company
issued a Promissory Note to Greenwich Information Technologies LLC in the
principal amount of $525,000, whereby the Company will make payments to
Greenwich Information Technologies of a minimum of $25,000 each month from
February 1, 1997 through July 1, 1997; $50,000 each month from August 1, 1997
to December 1, 1997; and pay the outstanding principal plus any accrued and
unpaid interest by December 31, 1997. The Note bears a simple interest rate
of 6.5% per annum. The Company also executed a Pledge Agreement in connection
with the Promissory Note whereby the Company pledged a portion of its
membership interest in Greenwich Information Technologies, while retaining
voting and distribution rights to such membership interest, in order to
secure the Company's obligations under the Promissory Note. Should the
Company default on the Promissory Note, the Company could lose a substantial
portion of its membership interest. As of June 30, 1997, the Company has
paid $150,000 towards the note and has a principal balance owing of $375,000.
The Company anticipates that although revenues from operations, together with
working capital reserves may provide necessary funds for its operating expenses
in the foreseeable future, the Company may also seek additional financing to
fund these expenses as well as new business opportunities. In addition, there
can be no
11
<PAGE>
assurance that the Company will not encounter unforeseen difficulties
that may deplete its capital resources more rapidly than anticipated. Any
efforts to seek additional funds could be made through equity, debt, or other
external financing and there can be no assurance that additional funding, if
necessary, will be available on favorable terms, if at all. Moreover, the
development and expansion of the Company's business could place significant
demands on the Company's infrastructure, and may require the Company to hire
additional personnel, to implement additional operating and financial controls,
install additional reporting and management information systems, and otherwise
improve and expand the Company's business. The Company's future operating
results will depend on management's ability to manage future growth, and there
can be no assurance that efforts to manage future growth will be successful.
NEW PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"). SFAS
128 establishes new standards for computing and presenting earnings per share
("EPS") and supersedes APB Opinion No. 15, "Earnings Per Share." SFAS 128
replaces the presentation of primary EPS with a presentation of basic EPS. It
also requires dual presentation of basic and diluted EPS on the face of the
income statement for all entities with complex capital structures, and requires
a reconciliation of the numerator and denominator of the basic EPS computation
to the numerator and denominator of the diluted EPS computation. SFAS 128
becomes effective for the Company for the year ending December 31, 1997. Pro
forma results for the second quarter of 1997 and 1996, assuming the application
of SFAS 128, are as follows:
For Three Months Ended
----------------------
June 30, 1997 June 30, 1996
----------------------------
Basic (loss) earnings per share ($0.01) $0.29
Diluted (loss) earnings per share ($0.01) $0.20
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995.
Reference is made in particular to the description of the Company's plans and
objectives for future operations, assumptions underlying such plans and
objectives, and other forward-looking statements included in this report. Such
statements may be identified by the use of forward-looking terminology such as
"may," "will," "expect," "believe," "estimate," "anticipate," "intend,"
"continue," or similar terms, variations of such terms or the negative of such
terms. Such statements are based on management's current expectations and are
subject to a number of factors and uncertainties, which could cause actual
results to differ materially from those described in the forward-looking
statements. Such statements address future events and conditions concerning
capital expenditures, earnings, litigation, regulatory matters, markets for
products and services, liquidity and capital resources, and accounting matters.
Actual results in each case could differ materially from those anticipated in
such statements by reason of factors such as future economic conditions, changes
in consumer demand, legislative, regulatory and competitive developments in
markets in which the Company and its affiliates operate, and other circumstances
affecting anticipated revenues and costs. The Company expressly disclaims any
obligation or undertaking to release publicly any updates or revisions to any
forward-looking statements contained herein to reflect any change in the
Company's expectations with regard thereto or any change in events, conditions
or circumstances on which any such statement is based. Additional factors that
could cause such results to differ materially from those described in the
forward-looking statements are set forth in connection with the forward-looking
statement.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
12
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ITEM 2. CHANGES IN SECURITIES
SALES OF UNREGISTERED SECURITIES
In June 1997, the Company sold 290,200 units at a purchase price of $5.00 per
unit, each unit representing one common stock purchase warrant and one share
of the Company's common stock, to 37 accredited investors. Each common stock
purchase warrant entitles its holder to purchase one share of the Company's
common stock at an exercise price of $7.50 per share, subject to adjustment,
and expires on June 8, 2000. Finders involved in this transaction received
finders fees at a rate of $0.50 per unit placed and one finder warrant per
ten units placed. Each finder warrant may be exercised prior to June 8, 2000
for one share of the Company's common stock at an exercise price of $5.50 per
share, subject to adjustment. The Company's sale of these units was exempt
from registration, as a private placement, under Section 3(b) of the
Securities Act of 1933 and Regulation D promulgated thereunder.
Additionally, in June 1997, the Company issued warrants representing the
right to purchase 100,000 shares of the Company common stock, (subject to
vesting) at an exercise price of $6.00 per share, to Cruttenden Roth
Incorporated in connection with financial consulting services provided by
that firm, and the Company granted an option to purchase 12,000 shares of the
Company's common stock (subject to vesting) at an exercise price of $5.00 per
share, in connection with services provided to the Company by a consultant.
Each of these transactions was exempt from registration, as a private
placement, under Section 4(2) of the Securities Act of 1933.
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 22, 1997. The business at
the meeting was the ratification of a proposed amendment to the Company's
Bylaws to change the number of directors from five, as specified therein, to
a variable number which shall be not less than five nor more than nine, to be
determined by resolution of the Board of Directors, and the election of
directors. Each of the proposals was adopted.
The number of votes for and withheld for the amendment to the Bylaws were as
follows:
For Against Abstaining
------------------------------------------------------
1,095,235 9,920 4,800
The number of votes for and withheld for each director were as follows:
Name For Withheld
- ---- --- --------
R. Bruce Stewart 1,855,372 4,350
Brooke P. Anderson 1,855,372 4,350
Fred A. de Boom 1,855,372 4,350
Paul R. Ryan 1,855,372 4,350
Edward W. Frykman 1,855,372 4,350
ITEM 5. OTHER INFORMATION
None.
13
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
3.2 Amended and Restated Bylaws
10.6 Legal Settlement between the Company and Ann P. Hodges and
Christopher D. Hodges
10.7 Agreement between the Company and Cruttenden Roth Incorporated
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
Current report event date July 21, 1997
14
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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
Chief Financial Officer (principal financial officer)
Date: August 14, 1997
15
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AMENDED AND RESTATED BYLAWS
of
ACACIA RESEARCH CORPORATION
EXHIBIT 3.2
<PAGE>
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............................................... 5
Section 9. Consent of Absentees...................................... 6
Section 10. Action Without Meeting.................................... 6
Section 11. Proxies................................................... 7
Section 12. Inspectors of Election.................................... 7
Section 13. Conduct of Meeting........................................ 7
ARTICLE III. Directors...................................................... 8
Section 1. Powers.................................................... 8
Section 2. Number of Directors....................................... 8
Section 3. Election and Term of Office............................... 9
Section 4. Vacancies................................................. 9
Section 5. Place of Meeting.......................................... 10
Section 6. Regular Meetings.......................................... 10
Section 7. Special Meetings.......................................... 10
Section 8. Quorum.................................................... 11
Section 9. Participation in Meetings by Conference Telephone......... 11
Section 10. Waiver of Notice.......................................... 11
Section 11. Adjournment............................................... 11
Section 12. Fees and Compensation..................................... 11
Section 13. Action Without Meeting.................................... 11
Section 14. Rights of Inspection...................................... 11
Section 15. Committees................................................ 12
</TABLE>
i
<PAGE>
ARTICLE IV. Officers........................................................ 13
Section 1. Officers.................................................. 13
Section 2. Election.................................................. 13
Section 3. Subordinate Officers...................................... 13
Section 4. Removal and Resignation................................... 13
Section 5. Vacancies................................................. 13
Section 6. Chairman of the Board..................................... 13
Section 7. President................................................. 14
Section 8. Vice Presidents........................................... 14
Section 9. Secretary................................................. 14
Section 10. Treasurer................................................. 15
ARTICLE V. Other Provisions................................................. 15
Section 1. Inspection of CorporateRecords............................ 15
Section 2. Inspection of Bylaws...................................... 16
Section 3. Endorsement of Documents; Contracts....................... 16
Section 4. Certificates of Stock..................................... 16
Section 5. Representation of Shares of Other Corporations............ 17
Section 6. Stock Purchase Plans...................................... 17
Section 7. Construction and Definitions.............................. 18
Section 8. Amendments................................................ 18
Section 9. Annual Report to Shareholders............................. 18
ARTICLE VI. Indemnification................................................. 18
Section 1. Indemnification of Directors and Officers................. 18
Section 2. Indemnification of Employees and Agents................... 20
Section 3. Right of Directors and Officers to Bring Suit............. 20
ii
<PAGE>
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
1
<PAGE>
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
2
<PAGE>
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:
3
<PAGE>
(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.
4
<PAGE>
(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.
5
<PAGE>
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.
6
<PAGE>
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
7
<PAGE>
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 number of directors shall
be not less than five (5) nor more than nine (9). The exact number of directors
shall be specified by a resolution duly adopted by the
8
<PAGE>
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.
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.
9
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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 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,
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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.
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
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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:
(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.
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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.
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.
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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 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.
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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 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,
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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.
(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
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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 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
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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
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
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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 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
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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.
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.
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EXHIBIT ___
SETTLEMENT AGREEMENT
I. PRELIMINARY STATEMENT
A. PARTIES. The parties to this Settlement Agreement are Acacia
Research Corporation ("Acacia") and Whitewing Labs, Inc. ("Whitewing") on the
one hand, and Christopher D. Hodges and Ann P. Hodges (collectively, the
"Hodges") on the other hand.
B. RECITALS. This Settlement Agreement is entered into with respect to
the following facts:
(1) In or about October 1993, the Hodges became employed by Acacia.
At or around the same time, Ann Hodges became an officer and director of
Acacia, and an officer of Whitewing. (Christopher Hodges contends that he
too was a director of Acacia, but Acacia disagrees.) As part of their
compensation packages, Christopher Hodges received options to purchase
50,000 shares of Acacia common stock at $2.00 per share, and Ann Hodges
received options to purchase 50,000 shares of Acacia common stock at $2.00
per share and options to purchase 10,000 shares of Whitewing common stock
at $.133 per share (collectively the "Stock Options").
(2) In or about October 1994, the Hodges's employment by Acacia was
terminated, and they resigned from all of their positions at Acacia and
Whitewing. In or about November 1994, Acacia, Whitewing, and the Hodges
executed a Termination and Consulting Agreement (the "Termination
Agreement") which, among other things, purported to confirm the continuing
validity of the Stock Options.
(3) In February 1996, Ann Hodges attempted to exercise her Stock
Options to purchase Whitewing common stock. In March 1996, Acacia and
Whitewing informed the Hodges that the companies believed the Stock Options
and Termination Agreement were null and void because they had been obtained
through fraud and duress. As a result, Whitewing refused to permit Ann
Hodges to exercise any of her Stock Options to purchase Whitewing common
stock.
(4) In May 1996, the Hodges attempted to exercise 10,000 of their
100,000 Stock Options to purchase Acacia common stock. Acacia refused to
permit the Hodges to exercise any of these Stock Options.
(5) In August 1996, the Hodges filed an action in the United States
District Court for the Central District of California entitled CHRISTOPHER
D. HODGES, ET AL. V. ACACIA
<PAGE>
RESEARCH CORPORATION, ET AL., USDC Case No. 96-5551 R (Ex) (the
"Action"). In the Action, the Hodges allege that Acacia and Whitewing
breached the Termination Agreement and the parties' prior agreements
concerning the Stock Options by refusing to permit the Hodges to exercise
any of the Stock Options.
(6) In October 1996, Acacia and Whitewing filed a cross-complaint
for fraud, duress, and declaratory relief against the Hodges (the
"Cross-Action"). In the Cross-Action, Acacia and Whitewing seek a
judicial declaration that the Termination Agreement and Stock Options are
null and void, and also seek the return of money previously paid to the
Hodges.
(7) To avoid the expense and inconvenience of protracted litigation,
the parties desire to bring an end to the Action and the Cross-Action, and
to settle and release one another from all of the claims and disputes
between them.
II. SETTLEMENT OF CLAIMS
In full settlement of all their respective claims and in consideration
of the mutual promises set forth in this Settlement Agreement, the parties
agree:
A. CONSIDERATION BY ACACIA AND WHITEWING.
(1) Upon execution of this Settlement Agreement, Acacia will deliver
to the Hodges a check payable to the Hodges in the amount of $25,000.00.
(2) Upon execution of this Settlement Agreement, Acacia will grant
the Hodges nontransferable options to purchase an aggregate amount of
120,600 shares of Acacia common stock, in the form set forth on the Form of
Option Agreement, attached hereto as Exhibit A (the "Settlement Options").
These Settlement Options will not, however, vest to the Hodges immediately,
but instead will vest to the Hodges over time, according to the following
schedule: 6,700 Settlement Options will vest with the Hodges on the date of
execution of this Settlement Agreement; thereafter, during each of the next
17 months and on the monthly anniversary of the date of execution of this
Settlement Agreement, 6,700 additional Settlement Options will vest with
the Hodges. These monthly issuances of Settlement Options are subject to
termination, and the aggregate amount of Settlement Options exercisable by
the Hodges is subject to reduction, pursuant to the terms of Paragraph
II.A.(3) below. The exercise price of all of the Settlement Options (I.E.,
the price the Hodges will pay Acacia for a share of Acacia common stock if
they choose to exercise any of the Settlement Options) will be fixed at 15%
below the average selling price of a share of Acacia common stock (on the
Nasdaq National Market System) on the date the Settlement
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Options are granted.
(3) Any Settlement Options not exercised by the Hodges within 18
months of the date of execution of this Settlement Agreement will
automatically expire on the 18th-month anniversary of the date of execution
of this Settlement Agreement. Upon the expiration of the unexercised
Settlement Options, Acacia will pay the Hodges the sum of $475,000.00 (the
"Settlement Amount"), which sum will be reduced by any profits realized by
the Hodges through the exercise of any of the Settlement Options (without
offsetting or otherwise considering any transaction which results in a
monetary loss to the Hodges). For purpose of this Paragraph, the amount of
profit realized by the Hodges through the exercise of a Settlement Option
will be calculated by subtracting the exercise price of the Option from the
average selling price of a share of Acacia common stock (on the Nasdaq
National Market System) on the date of exercise. Thus, for example, if the
exercise price of the Settlement Options were fixed at $7.00 per share, and
the Hodges exercise 10,000 Settlement Options on a date when the average
selling price of a share of Acacia common stock were $10.00 per share, the
Hodges would realize profits of $30,000.00 from the exercise of the
Options, and the Settlement Amount would be reduced by this $30,000.00.
If, at any time prior to the date on which the Settlement Amount becomes
due and owing, the Hodges have realized total profits of $475,000.00 from
the exercise of Settlement Options, then Acacia's obligation to pay any of
the Settlement Amount will automatically terminate, Acacia's obligation to
issue any additional Settlement Options to the Hodges will automatically
terminate, and any unexercised Settlement Options previously issued to the
Hodges will automatically become null and void.
(4) Except as provided in Paragraph II.A.(3) above, the Hodges may at
any time exercise any of the Settlement Options that have been vested, but
they need not exercise any Settlement Options at any time, and their right
to exercise Settlement Options will accumulate as the Options are issued to
them on a monthly basis.
(5) The Hodges will be entitled to registration rights with respect
to the common stock issued to them upon exercise of the Settlement Options
in accordance with the terms set forth on Exhibit B attached hereto.
(6) Upon execution of this Settlement Agreement, Acacia and Whitewing
will stipulate to the dismissal with prejudice of the Cross-Action, with
each party to bear its own costs and attorneys' fees.
B. CONSIDERATION BY THE HODGES.
(1) Upon execution of this Settlement Agreement, the
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Hodges will stipulate to the dismissal with prejudice of the Action, with
each party to bear its own costs and attorneys' fees.
III. MUTUAL WAIVERS AND RELEASES
A. RELEASE OF ALL CLAIMS. Except as to the obligations of the parties
under this Settlement Agreement, and in further consideration for the execution
of this Settlement Agreement:
(1) Acacia, on behalf of itself and its partners, parents,
subsidiaries, divisions, affiliates, officers, directors, shareholders,
investors, employees, representatives, agents, attorneys, transferors,
transferees, predecessors, successors, and assigns, hereby forever and
fully releases and discharges the Hodges, and each of their respective
partners, employees, representatives, agents, attorneys, transferors,
transferees, predecessors, successors, and assigns from any and all claims,
rights, demands, liens, agreements, contracts, warranties, covenants,
actions, suits, causes of action, obligations, controversies, debts, costs,
attorneys' fees, expenses, accounts, damages, judgments, orders, and
liabilities of whatever kind or nature in law, equity, or otherwise,
whether known or unknown, suspected or unsuspected, anticipated or
unanticipated, liquidated or unliquidated, and whether or not concealed or
hidden, which exist, may exist, have existed, or may have existed, or which
hereafter can, will, or may exist, based on any facts, events, or omissions
occurring prior to the date hereof, including but not limited to claims
asserted in the Cross-Action.
(2) Whitewing, on behalf of itself and its partners, parents,
subsidiaries, divisions, affiliates, officers, directors, shareholders,
investors, employees, representatives, agents, attorneys, transferors,
transferees, predecessors, successors, and assigns, hereby forever and
fully releases and discharges the Hodges, and each of their respective
partners, employees, representatives, agents, attorneys, transferors,
transferees, predecessors, successors, and assigns from any and all claims,
rights, demands, liens, agreements, contracts, warranties, covenants,
actions, suits, causes of action, obligations, controversies, debts, costs,
attorneys' fees, expenses, accounts, damages, judgments, orders, and
liabilities of whatever kind or nature in law, equity, or otherwise,
whether known or unknown, suspected or unsuspected, anticipated or
unanticipated, liquidated or unliquidated, and whether or not concealed or
hidden, which exist, may exist, have existed, or may have existed, or which
hereafter can, will, or may exist, based on any facts, events, or omissions
occurring prior to the date hereof, including but not limited to claims
asserted in the Cross-Action.
(3) The Hodges, on behalf of themselves and their
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respective partners, employees, representatives, agents, attorneys,
transferors, transferees, predecessors, successors, and assigns, hereby
forever and fully release and discharge Acacia and each of its partners,
parents, subsidiaries, divisions, affiliates, officers, directors,
shareholders, investors, employees, representatives, agents, attorneys,
transferors, transferees, predecessors, successors, and assigns from any
and all claims, rights, demands, liens, agreements, contracts,
warranties, covenants, actions, suits, causes of action, obligations,
controversies, debts, costs, attorneys' fees, expenses, accounts,
damages, judgments, orders, and liabilities of whatever kind or nature in
law, equity, or otherwise, whether known or unknown, suspected or
unsuspected, anticipated or unanticipated, liquidated or unliquidated,
and whether or not concealed or hidden, which exist, may exist, have
existed, or may have existed, or which hereafter can, will, or may exist,
based on any facts, events, or omissions occurring prior to the date
hereof, including but not limited to claims asserted in the Action.
(4) The Hodges, on behalf of themselves and their respective
partners, employees, representatives, agents, attorneys, transferors,
transferees, predecessors, successors, and assigns, hereby forever and
fully release and discharge Whitewing, and each of its partners, parents,
subsidiaries, divisions, affiliates, officers, directors, shareholders,
investors, employees, representatives, agents, attorneys, transferors,
transferees, predecessors, successors, and assigns from any and all claims,
rights, demands, liens, agreements, contracts, warranties, covenants,
actions, suits, causes of action, obligations, controversies, debts, costs,
attorneys' fees, expenses, accounts, damages, judgments, orders, and
liabilities of whatever kind or nature in law, equity, or otherwise,
whether known or unknown, suspected or unsuspected, anticipated or
unanticipated, liquidated or unliquidated, and whether or not concealed or
hidden, which exist, may exist, have existed, or may have existed, or which
hereafter can, will, or may exist, based on any facts, events, or omissions
occurring prior to the date hereof, including but not limited to claims
asserted in the Action.
(The claims identified in subparagraphs III.A.(1), III.A.(2),
III.A.(3), and III.A.(4) above are collectively referred to herein as the
"Released Claims.")
B. WAIVER OF OTHER CLAIMS. The parties each acknowledge that there is a
possibility that, subsequent to the execution of this Settlement Agreement, they
will discover facts or incur or suffer claims which were unknown or unsuspected
at the time this Settlement Agreement was executed, and which if known by them
at that time may have materially affected their decision to execute this
Settlement Agreement. The parties acknowledge and agree that by reason of this
Settlement Agreement and the releases of the Released Claims, they are assuming
any risk of such unknown facts
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and such unknown and unsuspected claims. The parties have each been advised
of the existence of Section 1542 of the California Civil Code, which provides:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH
A CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN
HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE,
WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY
AFFECTED HIS SETTLEMENT WITH A DEBTOR.
Notwithstanding such provisions, this Settlement Agreement will constitute a
full and mutual release in accordance with its terms. Each of the parties
knowingly and voluntarily waive the provisions of Section 1542, as well as
any other statute, law, or rule of similar effect, and acknowledge and agree
that this waiver is an essential and material term of this Settlement
Agreement, and that without such waiver the Settlement Agreement would not
have been entered into. The parties hereby represent that they have been
advised by their legal counsel, and understand and acknowledge the
significance and consequence of their releases and of this specific waiver of
Section 1542 and other such laws.
IV. REPRESENTATIONS AND WARRANTIES OF THE HODGES
A. REPRESENTATIONS AND WARRANTIES. Each of the Hodges severally
represents and warrants to Acacia and to each other that such person:
(1) is acquiring the Settlement Options for such person's
own account as an investment and without an intent to distribute;
(2) acknowledges that the Settlement Options have not been
registered under the Securities Act of 1933, as amended, or any
state securities laws, and that the Settlement Options and any
shares of Acacia common stock received upon exercise of the
Settlement Options may not be resold or transferred by such
person without appropriate registration or the availability of an
exemption from such requirements; and
(3) has such knowledge and experience in business and
financial matters in general as to be capable of evaluating
Acacia, its proposed activities, and the risks and merits of an
investment in the Settlement Options and any shares of Acacia
common stock received upon exercise of the Settlement Options.
By making payment for any Acacia common stock received upon exercise
of any Settlement Option, or by taking delivery of any Settlement
Option or any Acacia common stock, each of the Hodges will be deemed
to have reaffirmed such representation and warranty at and as of the
date of such payment or delivery.
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V. MISCELLANEOUS PROVISIONS
A. DISCLAIMER OF LIABILITY. Nothing in this Settlement Agreement will
be construed as an express or implied admission or acknowledgment by the
parties that they have any liability to one another in connection with the
Action.
B. CONFIDENTIALITY. The parties agree to keep the terms and conditions
of this Settlement Agreement confidential, and will not disclose its terms or
conditions to anyone other than their respective professional business,
accounting, and legal advisors (who will similarly keep the terms and
conditions of this Settlement Agreement confidential), except as required by
law. The parties hereto acknowledge that Acacia is subject to the securities
laws as a publicly-traded company and will therefore be required to disclose
all or portions of this Agreement in accordance with applicable securities
laws.
C. ADDITIONAL DOCUMENTATION AND COOPERATION WITH FURTHER PROCEEDINGS.
The parties agree to promptly execute such additional documentation, and to
cooperate in further proceedings necessary to effectuate the terms of this
Settlement Agreement, without charge or other consideration.
D. NO ASSIGNMENT OF CLAIMS. The parties represent to one another that
they have not assigned, transferred, or encumbered any of the Released
Claims. Each of the parties agrees to indemnify and hold harmless each of
the others from any liabilities, claims, demands, damages, costs, expenses,
and attorneys' fees incurred by the others as a result of any person
asserting such an assignment or transfer.
E. TAX WITHHOLDING. Upon exercise of any Settlement Option, the Hodges
shall pay to Acacia any taxes on income or gain or other charges which the
Hodges may be required to pay or the Company may be required to withhold with
respect to such event.
F. AUTHORITY OF NON-INDIVIDUAL PARTIES. Acacia and Whitewing represent
to the Hodges that they each have the authority to enter into this Settlement
Agreement on behalf of themselves and their respective directors,
shareholders, and/or partners. Each of these non-individual parties agrees
to indemnify and hold harmless the Hodges from any liabilities, claims,
demands, damages, costs, expenses, and attorneys' fees incurred as a result
of any person or entity asserting a lack of such authority.
G. INTEGRATION AND MUTUAL REPRESENTATIONS. This Settlement
Agreement constitutes the entire agreement and understanding between
the parties concerning the subject matter hereof, and supersedes and
replaces all prior negotiations, proposed agreements, and agreements,
written or oral, relating thereto. Each of the parties has read this
Settlement Agreement and understands the contents thereof. Each of
the parties has made
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such an investigation of the facts pertinent to this Settlement Agreement and
all of the matters pertaining to it as they deemed necessary. Each of the
parties acknowledges that, in entering into this Settlement Agreement, it has
not relied on any representation made by any party that is not contained in
this Settlement Agreement. Each of the parties acknowledges that it has been
represented by legal counsel of its own choice throughout all negotiations
which preceded the execution of this Settlement Agreement, and that it has
executed this document with the advice and consent of such legal counsel.
H. GOVERNING LAW. The parties acknowledge and agree that the laws of
the State of California govern their rights under this Settlement Agreement.
All questions concerning the construction of this Settlement Agreement and
the rights and liabilities of the parties hereunder will be governed by the
laws of the State of California in effect as of the date hereof (without
giving effect to the conflicts of laws principles thereof), and this
Settlement Agreement will be deemed to have been executed and performed in
the County of Los Angeles. Should any action or other proceeding be
necessary to enforce any of the provisions of this Settlement Agreement, the
action will be filed in state or federal court in the County of Los Angeles.
I. ATTORNEYS' FEES. Should any action or other proceeding be necessary
to enforce any of the provisions of this Settlement Agreement, the prevailing
party will be entitled to recover its costs and reasonable attorneys' fees.
J. BINDING EFFECT. This Settlement Agreement will be binding on and
inure to the benefit of the parties and their successors in interest, their
predecessors in interest, and their assigns.
K. AMENDMENTS. This Settlement Agreement may be amended, modified,
canceled, or waived only by written instrument executed by each of the
parties.
L. UNENFORCEABLE TERMS. If any provision of this Settlement Agreement
is adjudicated to be unenforceable or invalid for any reason, that part will
be severed from the balance of this Settlement Agreement and the validity and
enforceability of the remainder of this Settlement Agreement will in no way
be affected or impaired, unless the severed portion was essential to the
intended purpose of this Settlement Agreement. If the severed portion was
essential to the intended purpose of this Settlement Agreement, then the
party who was to receive the benefit of the severed portion has the option to
void this Settlement Agreement. The parties expressly agree that paragraphs
II.A.(1), II.A.(2), II.A.(3), II.A.(4), II.A.(5), II.A.(6), II.B.(1),
III.A.(1), III.A.(2), III.A.(3), III.A.(4), III.B., IV.A.(1), IV.A.(2),
IV.A.(3), and IV.A.(4) are each essential to the intended purpose of this
Settlement Agreement.
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M. WAIVER OF TERMS. A waiver of any term or condition of this
Settlement Agreement will not be deemed to be, and may not be construed as, a
waiver of any other term or condition hereof.
N. NEUTRAL CONSTRUCTION. This Settlement Agreement will be construed
neutrally, and will not be applied more strictly against one party than
another.
O. EXECUTION IN COUNTERPARTS. This Settlement Agreement may be
executed in any number of counterparts, which together will constitute one
instrument.
IN WITNESS WHEREOF, the undersigned have executed this ten-page
(excluding exhibits) Settlement Agreement as of May 7, 1997.
ACACIA RESEARCH CORPORATION
By /s/ R. BRUCE STEWART
-----------------------------
Its Chief Financial Officer
-----------------------------
WHITEWING LABS, INC.
By /s/ CYNTHIA A. KOLKE
-----------------------------
Its President
-----------------------------
Approved as to Form:
O'MELVENY & MYERS LLP
ALAN RADER
CRAIG A. CORMAN
By /S/ CRAIG A. CORMAN
-------------------------------
Craig A. Corman
Attorneys for ACACIA RESEARCH
CORPORATION and WHITEWING LABS, INC.
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/s/ CHRISTOPHER D. HODGES
-----------------------------
CHRISTOPHER D. HODGES
/s/ ANN P. HODGES
-----------------------------
ANN P. HODGES
Approved as to Form:
AKERMAN, SENTERFITT & EIDSON, P.A.
TERRANCE A. BOSTIC
By /s/ TERRANCE A. BOSTIC
------------------------------------
Terrance A. Bostic
Attorneys for CHRISTOPHER D. HODGES
and ANN P. HODGES
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EXHIBIT A
NON-TRANSFERABLE, NONQUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT dated as of the 7th day of May, 1997, between Acacia
Research Corporation, a California corporation (the "Company"), and
Christopher D. Hodges and Ann P. Hodges (the "Hodges").
W I T N E S E T H
WHEREAS, pursuant to the terms of the Settlement Agreement with the
Hodges dated May 7, 1997 (the "Settlement Agreement"), the Company has
granted to the Hodges effective as of the date hereof (the "Option Date") a
stock option to purchase authorized but unissued or treasury shares of Common
Stock of the Company (the "Common Stock"), upon the terms and subject to the
conditions set forth herein.
NOW, THEREFORE, in consideration of the execution of the Settlement
Agreement, the mutual promises and covenants made herein and therein and the
mutual benefits derived, the parties agree as follows:
1. DEFINED TERMS. Capitalized terms used herein and not otherwise
defined herein shall have the meaning assigned to such terms in the
Settlement Agreement. The term "Shares", as used herein, refers to shares of
the Common Stock and of any stock or any other securities or property into
which the Shares may hereafter be changed.
2. GRANT OF OPTION; EXERCISE PRICE; VESTING LIMITS. (a) This
Agreement evidences the Company's grant to the Hodges of the right and option
to purchase, subject to the terms and conditions set forth herein, all or any
part of an aggregate of 120,600 shares of the Common Stock (the "Option") at
a price per share of $4.25 (as from time to time adjusted hereunder, the
"Exercise Price"), representing a price equal to 85% of the fair market value
of the Common Stock on the date hereof.
(b) The Option shall vest and may be exercised as follows: 6700
Shares (subject to adjustment pursuant to Section 7 of this Agreement) on the
date of this Agreement, and 6700 Shares (subject to adjustment pursuant to
Section 7 of this Agreement) on each of the successive seventeen monthly
anniversaries of the date of this Agreement thereafter.
(c) Once exercisable, the Option may be exercised, from time to
time, in whole or in part, prior to the close of business on November 7,
1998, subject to earlier termination under Section 7 below, and subject to
reduction or termination pursuant to Section 2(d) below (the earliest of such
dates, the "Expiration
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Date"). The Exercise Price and the number of Shares purchasable upon
exercise of the Option shall be subject to adjustment as provided in Section
7.
(d) Options with respect to any Shares not exercised by the Hodges
prior to the Expiration Date automatically expire on such Expiration Date.
If, at any time prior to the Expiration Date, the Hodges have realized total
profits of $475,000.00 from the exercise of Options as calculated in
accordance with Paragraph II.A.(3) of the Settlement Agreement, then the
Option (or such portion of the Option which, if exercised, would increase the
Hodges' profit under such calculation to an amount in excess of $475,000.00)
shall thereupon cease vesting, and any unexercised Options previously issued
to the Hodges will automatically become null and void.
(e) Except as provided in Section 2(d) above, the Hodges may at any
time exercise all or any part of the Options that have vested, but they need
not exercise all or any part of the Options at any time, and their right to
exercise the Options will accumulate as the Options vest in accordance with
this Agreement.
(f) The Hodges will be entitled to registration rights with respect
to the Shares in accordance with the terms set forth in the Settlement
Agreement.
3. EXERCISABILITY OF OPTION. Upon payment in cash, bank cashier's
check or by wire transfer of the Exercise Price, the Company shall cause to
be delivered to the Hodges one or more certificates for the Shares so
purchased. The certificate shall be deemed to have been issued as of the
date of the surrender of the Option as to such number of Shares for which the
Exercise Price has been paid. If less than all of the Option is exercised,
the Hodges or the Company may request an exchange of this Agreement for a new
option agreement in substantially the same form in respect of the remaining
number of Shares subject to the Option. No fewer than 1000 Shares may be
purchased at any one time, unless the number purchased is the total number at
the time remaining for purchase under the Option. No adjustment shall be
made for any cash dividends declared or paid on Shares issuable on the
exercise of the Option.
4. METHOD OF EXERCISE OF OPTION. The Option may be exercised only
by the delivery to the Company of a written executed notice substantially in
the form of EXHIBIT I hereto stating the number of Shares as to which it is
being exercised and accompanied by payment in full in cash, bank cashier's
check or by wire transfer, of an amount equal to the Exercise Price per Share
multiplied by the number of Shares to be purchased, plus an amount sufficient
to pay all withholding or other taxes or charges associated with such
exercise.
5. COMPLIANCE WITH LAWS.
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(a) SECURITIES LAWS. The issuance and delivery of the Shares are
subject to compliance with all applicable federal and state securities laws,
and to such approvals by any listing, regulatory or governmental authority as
may be necessary in connection therewith. Any securities delivered under this
Agreement shall be subject to such restrictions, and the person acquiring
such securities shall, if requested by the Company, provide such assurances
and representations to the Company as the Company may reasonably deem
necessary or advisable to assure compliance with such legal requirements.
Optionee acknowledges that it is acquiring the Option and if applicable any
of the Shares for investment purposes and not with a view to or for sale in
connection with the distribution thereof. Neither the Option nor the Shares
have been registered under the 1933 Act or any state securities laws. Prior
to their registration, the Shares will be considered "restricted securities"
under Rule 144 under the 1933 Act and neither the Shares nor any interest
therein may be sold or otherwise disposed of without such registration or an
opinion of counsel to the Company that an exemption from applicable
registration requirements is available. Any permitted transferee shall be
subject to similar restrictions.
(b) TAX WITHHOLDING. Upon exercise of the Option, the Hodges shall
pay to the Company any taxes on income or gain or other charges which the
Hodges may be required to pay or the Company may be required to withhold with
respect to such event.
(c) PAYMENT OF TAXES. The Company shall pay all documentary stamp
taxes, if any, attributable to this Agreement or the issuance of any of the
Shares or other securities upon the exercise of the Option, PROVIDED,
HOWEVER, that the Company shall not be required to permit (or to pay any tax
or taxes which may be payable in respect of) any transfer involved in the
issue of any certificate for Shares in a name other than that of the Hodges.
(d) RESERVATION OF SHARES. The Company will at all times reserve
and keep available, free from preemptive rights, out of the aggregate of its
authorized but unissued Shares or its authorized and issued Shares held in
its treasury, for the purpose of enabling it to satisfy any obligation to
issue Shares upon exercise of the Option, the full number of Shares
deliverable upon exercise of the Option.
6. NON-TRANSFERABILITY OF OPTION. The Option and any other rights
of the Hodges under this Agreement are exercisable only by the Hodges, are
nontransferable and shall not be subject in any manner to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance or charge (other
than to the Company), except by operation of law or by will or the laws of
descent and distribution. The Company may disregard any attempt at transfer,
assignment or other alienation prohibited hereby.
7. ADJUSTMENT OF EXERCISE PRICE, NUMBER OF SHARES
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PURCHASABLE. The Exercise Price and the number of Shares purchasable upon
the exercise of the Option are subject to adjustment by action both of the
Board of Directors of the Company from time to time as provided in this
Section 7.
(a) ADJUSTMENT EVENTS. If there shall occur any stock split,
dividend payable in stock, reverse stock split, merger or other
reorganization, or exchange of Shares or other securities of the Company, or
there shall occur any other fundamental change or event in respect of the
Shares or a sale of substantially all the assets of the Company as an
entirety, then the Board of Directors shall
(i) equitably and proportionately adjust (i) the number and type
of Shares (or other securities or property) subject to the
then outstanding Option, (ii) the exercise price of the
Option, and (iii) the securities and/or property deliverable
upon exercise of the Option; or
(ii) in the case of a merger or other reorganization that the
Company does not survive, or a sale of substantially all of
the assets of the Company as an entirety, provide for the
substitution or exchange of the Option (or the Shares
deliverable on exercise of the Option) for a right to
acquire the consideration payable to holders of other Shares
of the Company upon or in respect of such event subject to
the continuing limitations on vesting and exercise in
Section 2.
If, in the case of any such event, the stock or other securities or
property receivable on common shares by shareholders of the Company includes
shares of stock or other securities or property of or from an entity other
than a successor legally bound hereby, such other entity shall execute and
deliver for the benefit of the Hodges an agreement to be bound hereby,
together with such additional provisions to protect the interests of the
Hodges as the Board of Directors shall reasonably consider necessary by
reason of the foregoing.
In the event of a merger or other reorganization that the Company
does not survive, or a sale of substantially all of the assets of the Company
as an entirety, the Board of Directors may in its discretion determine that
each Option shall become immediately exercisable, and Shares shall
immediately vest free of restrictions. Any acceleration of Awards shall
comply with applicable legal requirements. If any Option or other right to
acquire Shares under this Agreement has been so accelerated, but the Hodges
fail to exercise such Option prior to the consummation of such reorganization
or sale, such Option or right shall thereupon terminate.
The provisions of this Section 7 shall bind the Hodges to
all adjustments or substitutions made by the Board of Directors in
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good faith in accordance with the terms hereof and shall apply to any
successive recapitalization, reorganization or other referenced events.
(b) NO SHAREHOLDER RIGHTS. Nothing contained in this Agreement
shall be construed as conferring upon the Hodges (i) any right to vote or
receive dividends or rights or to be deemed for any purpose the holder of
Shares or of any other securities of the Company which may at any time be
issuable on the exercise of the Option, (ii) any other rights of a
shareholder of the Company, (iii) any right to vote upon any matter submitted
to shareholders at any meeting thereof, (iv) any authority to give or
withhold consent to any corporate action, or (v) to receive notice of
meetings, until the Option shall have been duly exercised as provided herein.
(c) EFFECTIVE DATE. Except as provided herein, adjustments under
Section 7(a) shall become effective immediately after the record date for the
determination of shareholders entitled to receive the applicable rights
contemplated thereby. Nevertheless, the Company may elect to defer the
effectiveness of such adjustment (but in no event to a date later than the
effective time of the event giving rise to such adjustment), in which case
the Company shall, with respect to any Option exercised after such record
date and before such adjustment shall have become effective (i) defer issuing
the number of Shares or other securities or deliverable upon such exercise in
excess of the number of Shares or other securities or property of the Company
issuable thereupon prior to adjustment, and (ii) not later than five business
days after such adjustment shall have become effective issue to such holder
the additional Shares or other securities or property issuable on such
exercise.
(d) DE MINIMIS EXCEPTION. No adjustment in the Exercise Price
shall be required unless such adjustment would require an increase or
decrease of at least 1% of the Exercise Price per Share; PROVIDED, that any
adjustments which by reason of this Section 7(d) are not required to be made
shall be carried forward and taken into account in any subsequent adjustment.
All calculations under this Section 7 shall be made to the nearer cent or to
the nearer one-hundredth of a Share, as the case may be. The Company shall
not be required to issue any fractional share, but any fractional share
interest shall be paid in cash equal to the fair market value of the
applicable percentage of a share in lieu thereof or, at the Company's
election, paid in a fractional or whole Share.
(e) FORM. Irrespective of any adjustments in the exercise price or
the number or kind of shares that may be acquired upon the exercise of the
Option, this Agreement may continue to express the same Exercise Price per
share and number and kind of Shares as are originally set forth in this
Agreement.
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8. NO RESTRICTIONS ON CORPORATE AUTHORITY; TERMINATION OF OPTION
ON LIQUIDATION OF THE COMPANY. The provisions of this Agreement shall not be
deemed to restrict in any way any rights of the shareholder(s) or the Board,
acting in good faith, during the term of this Agreement to dissolve,
reorganize or take any other action or make any other change (fundamental or
otherwise) affecting the structure, existence, organization, operations or
business of the Company or any of its subsidiaries. This Option and all
rights hereunder shall terminate if the Option is not exercisable or
exercised prior to a dissolution of the Company. All decisions, including
adjustments, by the Board or the Board of Directors made in good faith under
this Agreement shall be binding and conclusive on the Hodges.
9. NOTICES. Any notice to be given under the terms of this
Agreement shall be in writing and addressed to the Company at its principal
offices located at 12 South Raymond Avenue, Pasadena, California 91105 to the
attention of the Chief Financial Officer and Corporate Secretary, and to the
Hodges at the address given beneath their signatures hereto, or to such other
address as either party may hereafter designate in writing delivered to the
other party expressly for such purposes.
10. AMENDMENTS. This Agreement may be amended only by a writing
signed by the Company and the Hodges.
11. SUCCESSORS; BENEFIT. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Hodges shall bind and
inure to the benefit of their respective successors and permitted assigns
hereunder. Nothing in this Agreement shall be construed to give to any
person or corporation other than the Company and the Hodges any legal or
equitable right, remedy or claim under this Agreement; and this Agreement
shall be for the sole and exclusive benefit of the Company, the Hodges and
any such permitted assigns or successors.
12. TERMINATION. This Agreement shall terminate at the close of
business on the Expiration Date. Notwithstanding the foregoing, this
Agreement will terminate upon the exercise of the Option in accordance with
these terms, in its entirety.
13. GOVERNING LAW. THIS AGREEMENT AND THE OPTION SHALL BE DEEMED
TO BE A CONTRACT MADE UNDER THE LAWS OF THE STATE OF CALIFORNIA AND FOR ALL
PURPOSES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
SUCH STATE APPLICABLE TO CONTRACTS TO BE MADE AND PERFORMED ENTIRELY WITHIN
SUCH STATE, SUBJECT TO THE GENERAL CORPORATION LAW OF THE STATE OF
INCORPORATION OF THE COMPANY AS TO MATTERS GOVERNED THEREBY AS A MATTER OF
CORPORATION LAW.
14. COUNTERPARTS. This Agreement may be executed in any
number of counterparts and each of such counterparts shall for all
purposes be deemed to be an original, and all such counterparts
A-6
<PAGE>
shall together constitute but one and the same instrument.
15. HEADINGS. The headings used in this Agreement are inserted for
convenience only and neither constitute a portion of this Agreement nor in
any manner affect the construction of the provisions of this Agreement.
16. EFFECTIVE DATE. This Agreement and the Option evidenced hereby
shall be granted as of the Effective Date and subject to the effectiveness of
the Settlement Agreement.
17. NONQUALIFIED STOCK OPTION. The Option are not, and are not
intended as, incentive stock options within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended.
A-7
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed on its behalf by a duly authorized officer and the Hodges have duly
executed this Agreement.
ACACIA RESEARCH CORPORATION, a
California corporation
By /s/ R. BRUCE STEWART
--------------------------------
Title Chief Financial Officer
-----------------------------
CHRISTOPHER D. HODGES
/s/ CHRISTOPHER D. HODGES
----------------------------------
----------------------------------
(Address)
----------------------------------
(City, State, Zip Code)
ANN P. HODGES
/s/ ANN P. HODGES
----------------------------------
----------------------------------
(Address)
----------------------------------
(City, State, Zip Code)
A-8
<PAGE>
Notational Record of Exercise:
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Date Number of Shares Amount Received
- -----------------------------------------------------------------
- -----------------------------------------------------------------
- -----------------------------------------------------------------
- -----------------------------------------------------------------
- -----------------------------------------------------------------
- -----------------------------------------------------------------
- -----------------------------------------------------------------
- -----------------------------------------------------------------
- -----------------------------------------------------------------
A-9
<PAGE>
EXHIBIT I
FORM OF EXERCISE OF OPTION
( TO BE EXECUTED UPON ANY EXERCISE OF OPTION )
The undersigned hereby irrevocably elects [check applicable
box(es)]
/ / To exercise the rights, evidenced by the Non-Transferable,
Nonqualified Stock Option Agreement dated as of ____________ ___, 1997 (the
"Agreement"), to purchase _________ shares (the "Shares") and herewith
tenders payment in full for such Shares as follows: [check applicable box]
/ / by certified or official bank check payable to the order of
Acacia Research Corporation (the "Company") in the amount of $______________
/ / by wire transfer to _______________________
in accordance with the terms of the Agreement and instructions from the Chief
Financial Officer of the Company.
The Hodges request that a certificate for such Shares be registered to the
Hodges and delivered to: ___________________________________.
If said number of Shares is less than all of the shares purchasable under the
Agreement, the Hodges shall deliver the Agreement to the Company so that the
Company can make notation of the partial exercise and the date hereof on the
executed copies of the Agreement.
The Shares may be sold or otherwise transferred only in compliance
with the Securities Act of 1933 and any applicable state laws and that
the Shares are legended to assure compliance with such laws. The
Hodges severally represent that each of them
A-1
<PAGE>
will comply with the Agreement and all applicable securities laws as to any
transactions in or with respect to the Shares.
Dated: , 199
--------- --- --
CHRISTOPHER D. HODGES
---------------------------
---------------------------
Insert Taxpayer I.D. No.
of Christopher Hodges)
ANN P. HODGES
---------------------------
---------------------------
Insert Taxpayer I.D. No.
of Ann P. Hodges)
To be completed by the Company after the price and receipt of funds
verified:
ACCEPTED BY:
ACACIA RESEARCH CORPORATION,
a California corporation
By:
----------------------------
Its:
----------------------------
A-2
<PAGE>
EXHIBIT B
PROCEDURES FOR THE
REGISTRATION OF SHARES
SECTION 1. DEMAND REGISTRATION RIGHTS.
(a) At any time, the Hodges may by written notice to Acacia request
that Acacia register under the Securities Act of 1933, as amended, all or a
portion of the Registrable Shares held by the Hodges (a "Demand
Registration") and, subject to the provisions of this Agreement, Acacia shall
use its reasonable best efforts to effect such registration on Securities and
Exchange Commission Form S-3, as promptly as shall be practicable; PROVIDED,
HOWEVER, that Acacia shall have no obligation under this Section 1(a) if the
sale of the shares by the Hodges is then covered under any other Registration
Statement that includes such shares on a continuing or other basis. For
purposes of this Agreement, (i) "Registrable Shares" means the shares of
Acacia's common stock issued or issuable upon exercise of a Settlement Option
and held by the Hodges from time to time. Any such share of common stock
will cease to be a Registrable Share when (a) a registration statement
covering a Registrable Share has been declared effective by the Securities
and Exchange Commission, or any other federal agency at the time
administering the Securities Exchange Act of 1934 or the Securities Act of
1933 (the "Commission"), and such share has been disposed of by the Hodges
pursuant to such effective registration statement, (b) the Registrable Share
is transferred to another person, (c) such share (after initial issuance) is
held by Acacia or one of its subsidiaries or otherwise ceases to be
outstanding, or (d) such share may be traded without restriction pursuant to
paragraph (k) of Rule 144, if applicable; and (ii) "Registration Statement"
means any registration statement or comparable document under the Securities
Act through which a public sale or disposition of the Registrable Shares may
be registered, including the prospectus, amendments and supplements to such
registration statement, all exhibits, and all material incorporated by
reference or deemed to be incorporated by reference in such Registration
Statement.
(b) Each notice to Acacia shall set forth (i) the number of
shares to be sold by the Hodges and (ii) the proposed manner of sale.
Acacia shall have no obligation to effect any Demand Registration
under this Section 1 unless the number of Registrable Shares in such
Demand Registration shall be equal to at least 50,000 shares or, if
lesser, the remaining Registrable Shares, but not less than 10,000
shares. The maximum number of such demands under this Section 1 shall
be two (2); PROVIDED, HOWEVER, that no such demand may be made after
the Expiration Date. A Registration Statement will not count as a
Demand Registration hereunder unless it is declared effective by the
Commission and remains effective for at least ninety (90) days or such
shorter period which shall terminate when all of the Registrable
Shares covered by such Demand Registration have been
B-1
<PAGE>
sold pursuant to such Demand Registration; PROVIDED, HOWEVER, that in the
event a Registration Statement is withdrawn at the request of the Hodges,
they shall forfeit the demand registration rights granted pursuant to this
Section 1.
(c) Acacia shall have the sole right to determine whether any of
the Registrable Shares covered by a Demand Registration are to be sold in an
underwritten offering, and if Acacia so determines, Acacia alone shall have
the right to select the managing underwriter or underwriters to administer
the offering.
(d) If the managing underwriter of an underwritten offering under
this Section 1 advises Acacia in writing that in its opinion the number of
shares requested to be included in such registration exceeds the number which
can be sold in such offering, Acacia will include in such registration only
the number of shares which in the opinion of such underwriter can be sold and
may delay registering the balance of the shares in a non-underwritten
offering for up to 120 days.
SECTION 2. SUSPENSION OF EFFECTIVENESS. Acacia's obligations under Section
1 above shall not restrict its ability to suspend the effectiveness of, or
direct the Hodges not to offer or sell securities under, any Demand
Registration, at any time, for such reasonable period of time which Acacia
believes is necessary to prevent the premature disclosure of any events or
information having a material effect on Acacia. In addition, Acacia shall
not be required to keep any Demand Registration effective, or may, without
suspending such effectiveness, instruct the Hodges not to sell such
securities, during any period during which Acacia is instructed, directed,
ordered or otherwise requested by any governmental agency or self-regulatory
organization to stop or suspend such trading or sales.
SECTION 3. HOLDBACK AGREEMENT. In the event of any filing of a prospectus
supplement or the commencement of an underwritten public distribution of
Acacia's common stock under a Registration Statement, whether or not
Registrable Shares are included, the Hodges agree not to effect any public
sale or distribution of Acacia's common stock (except as part of such
underwritten public distribution), including a sale pursuant to Rule 144 or
Rule 144A under the Securities Act, during a period designated by Acacia in a
written notice duly given to the Hodges, which period shall commence
approximately 14 days prior to the effective date of any such filing of such
prospectus supplement or the commencement of such underwritten public
distribution of such common stock under a Registration Statement and shall
continue for up to 134 consecutive days.
SECTION 4. REGISTRATION PROCEDURES. Except as otherwise expressly provided
herein, in connection with any registration of Registrable Shares pursuant to
this Agreement, Acacia shall, as expeditiously as possible:
B-2
<PAGE>
(a) prepare and file with the Commission a Registration Statement on
Form S-3 with respect to such Registrable Shares and use its reasonable best
efforts to cause such Registration Statement to become effective as soon as
practicable thereafter; and before filing a Registration Statement or
prospectus or any amendments or supplements thereto, furnish to the Hodges
copies of such Registration Statement and such other documents as proposed to
be filed (including copies of any document to be incorporated by reference
therein), and thereafter furnish to the Hodges such number of copies as may
be reasonably requested in writing by the Hodges of such Registration
Statement, each amendment and supplement thereto (including copies of any
document to be incorporated by reference therein), including all exhibits
thereto, the prospectus included in such registration statement (including
each preliminary prospectus), and, promptly after the effectiveness of a
Registration Statement, the definitive final prospectus filed with the
Commission;
(b) use its reasonable best efforts to register or qualify such
Registrable Shares under such other securities or blue sky laws of such
jurisdictions within the United States as the Hodges reasonably (in light of
the Hodges' intended plan of distribution) requests; PROVIDED that Acacia
will not be required to (i) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
Section (4)(b), (ii) subject itself to taxation in any such jurisdiction or
(iii) consent to general service of process in any such jurisdiction;
(c) notify the Hodges, at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, of the
occurrence of any event as a result of which the prospectus included in such
Registration Statement (including any document to be incorporated by
reference therein) contains an untrue statement of a material fact or omits
any fact necessary to make the statements therein not misleading and, at the
request of the Hodges, Acacia shall prepare a supplement or amendment to such
prospectus so that, as thereafter delivered to the purchasers of such
Registrable Shares, such prospectus will not contain an untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading and
promptly make available to the Hodges any such supplement or amendment;
(d) notify the Hodges and the managing underwriters, if any,
promptly, and (if requested by any such Person) confirm such advice in
writing, (i) when the Registration Statement, the prospectus or any
prospectus supplement or post-effective amendment has been filed, and, with
respect to the Registration Statement or any post-effective amendment, when
the same has become effective, (ii) of the issuance by the Commission of any
stop order suspending the effectiveness of a Registration Statement or of any
order preventing or suspending the use of any preliminary prospectus or the
initiation of any proceedings for
B-3
<PAGE>
that purpose and Acacia shall promptly use its reasonable best efforts to
prevent the issuance of any stop order or to obtain its withdrawal if such
stop order should be issued and (iii) of the receipt by Acacia of any
notification with respect to the suspension of the qualification or exemption
from qualification of a Registration Statement or any of the Registrable
Shares for offer or sale in any jurisdiction, or the initiation or
threatening of any proceeding for such purpose.
Acacia may require the Hodges to furnish to Acacia such information
regarding themselves and the distribution of such Registrable Shares as
Acacia may from time to time reasonably request in writing and such other
information as may be legally required in connection with such registration.
The Hodges agree, by their acquisition of Registrable Shares and its
acceptance of the benefits provided to it hereunder, to furnish promptly to
Acacia all information required to be disclosed in order to make any
previously furnished information not materially misleading.
The Hodges agree that upon receipt of any notice from Acacia of the
happening of any event of the kind described herein requiring the cessation
of the distribution of a prospectus or the distribution of a supplemented or
amended prospectus, the Hodges will forthwith discontinue disposition of
Registrable Shares pursuant to the Registration Statement covering such
Registrable Shares until the Hodges's receipt of the copies of the
supplemented or amended prospectus contemplated by this Agreement, or until
it is advised in writing by Acacia that the use of the prospectus may be
resumed, and, if so directed by Acacia, the Hodges will deliver to Acacia (at
Acacia's expense) all copies, other than permanent file copies then in the
Hodges's possession, of the prospectus covering such Registrable Shares
current at the time of receipt of such notice.
SECTION 5. REGISTRATION EXPENSES. All expenses incident to Acacia's
performance of or compliance with the registration of shares pursuant to this
Agreement, including, without limitation, all registration and filing fees,
fees and expenses of compliance with securities or "blue sky" laws (including
reasonable fees and disbursements of counsel of Acacia and counsel for the
underwriters in connection with "blue sky" qualifications of the Registrable
Shares), fees and expenses associated with filings required to be made with
the National Association of Securities Dealers, Inc., and with listing on any
national securities exchange or exchanges in which listing may be sought,
printing expenses, messenger and delivery expenses, fees and expenses of
counsel for Acacia and its independent certified public accountants,
securities acts liability insurance (if Acacia elects to obtain such
insurance), the fees and expenses of any special experts retained by Acacia
in connection with such registration, and fees and expenses of other persons
retained by Acacia (all such expenses being herein called "REGISTRATION
EXPENSES") will be borne by Acacia; PROVIDED that in no event shall
Registration Expenses payable by Acacia include any (i) underwriting
discounts, commissions, or fees attributable to the
B-4
<PAGE>
sale of the Registrable Shares, (ii) fees and expenses of any counsel,
accountants, or other persons retained or employed by the Hodges or
underwriters, or (iii) transfer taxes, if any.
B-5
<PAGE>
June 30, 1997
Mr. Paul R. Ryan
Chief Executive Officer
Acacia Research Corporation
12 South Raymond Avenue
Pasadena, CA 91105
Dear Mr. Ryan:
This letter agreement (the "Agreement") will confirm the understanding between
Acacia Research Corporation ("Acacia" or the "Company") and Cruttenden Roth
Incorporated ("CRI" or the "Advisor") pursuant to which the Company has retained
CRI to act as a non-exclusive Advisor, on the terms and subject to the
conditions set forth herein, in connection with financial consulting services to
be provided to the Company by CRI in matters relating to possible merger and
acquisition transactions, capital market financings, investment opportunities,
negotiations and valuation work with companies in which Acacia holds a minority
or majority interest, investor relations, including the Company's participation
in investment conferences sponsored by CRI, and such other services as the
Company may request from time to time and CRI may agree to provide (the
"Services"). The Services shall not include any underwriting or broker-dealer
related activities, and the Company agrees to bear sole responsibility for the
negotiation, preparation, filing, amending and distribution of any offering
materials or transaction documents, in connection with any of the foregoing
investments or transactions.
RETENTION. The Company hereby retains CRI on a non-exclusive basis to act as
its financial advisor for a period of two years, subject to earlier termination
as hereafter provided, from the date hereof in connection with the Services to
be provided to the Company by CRI. CRI agrees to act as Advisor to the Company
and to perform the Services. Subject to the terms and conditions of this
Agreement, the nature and scope of the Advisor's efforts shall be limited solely
to that of Advisor to the Company on matters including but not limited to those
defined above, and within such limits CRI shall engage in such activities as it
deems appropriate and which are acceptable to the Company. CRI shall promptly
provide the Company with reports in writing, as the Company may request,
describing the services rendered by CRI each quarter during the term of this
Agreement. The Company agrees to retain its own legal counsel and accountants
for any necessary legal and tax advice, including any such services or related
services in connection with the Services to be provided by the Advisor.
COMPENSATION. In consideration of the above services the Advisor agrees to
accept, within twelve months of the date of this agreement, Warrants
representing the right to purchase a total of 100,000 shares of the Company's
Common Stock, at an exercise price equal to the fair market price per share of
the Common Stock on the date of issuance. The Warrants shall be represented by
two certificates to purchase 50,000 shares each, having the following terms (See
Exhibit A "Form of Warrant' for complete terms and conditions.)
1) Warrants at an aggregate purchase price of $500 (or $0.01 per warrant)
representing the right to purchase the first 50,000 shares of the
Company's Common Stock shall be exercisable for a period of three
years from the date of issuance, but not within the first year from
date of issuance; and
<PAGE>
2) Warrants at an aggregate purchase price of $500 (or $0.01 per warrant)
representing the right to purchase the second 50,000 shares of the
Company's Common Stock shall be exercisable for a period of three
years from the date of issuance, but not prior to two years from the
date of issuance, except that these Warrants shall be automatically
revoked and canceled without any action whatever by the Company if
this Agreement is terminated by either the Advisor or the Company for
any reason whatsoever prior to the expiration.
3) The Warrants shall contain a cash-less exercise option which will
permit CRI at its option, to exercise its warrants without necessarily
requiring the use of cash for the purchase of the Shares. ("Cash-less
Option"). The Cash-less Option will permit CRI, in its exercise of
the Warrants, to pay in cash or check for the shares represented by
those Warrants, to pay for the acquired shares through a reduction in
the number of shares issuable on such exercise providing the current
value of the Company's shares (as reported by the Nasdaq National
Market System) exceeds the warrant exercise price.
4)
a) If the Company, at any time after the date one year from the date
hereof and prior to the expiration date of the Warrants issued to
CRI under this Agreement proposes to register any Common Stock
with the Securities and Exchange Commission (together with any
other federal agency at the time administering the Securities
Exchange Act of 1934, as amended (the "Exchange Act') and
Securities Act of 1933, as amended, the "Commission"), other than
pursuant to a registration statement on a form exclusively for
the sale and distribution of securities by the Company to
employees of the Company or its subsidiaries or for use
exclusively in connection with a business combination, whether or
not for sale for its own account, and the registration form to be
used may be used for the shelf registration of the shares of
Common Stock issued or issuable upon exercise of a Warrant issued
pursuant to this Agreement (unless: (1) a registration statement
covering such Registrable Share has been declared effective by
the Commission, (2) such share is transferred to any person other
than the Advisor, (3) such share (after initial issuance) is held
by the Company or one of its subsidiaries or otherwise ceases to
be outstanding, or (4) the share of Common Stock may be traded
without restriction pursuant to paragraph (k) of Rule 144, if
applicable) (the "Registrable Shares"), the Company will promptly
give written notice to the Advisor of the Company's intention to
effect such a registration and include in such registration all
Registrable Shares with respect to which the Company has received
written notice from the Advisor for inclusion therein within 20
days after the date of the Company' s notice; provided that:
i) if, at any time after giving written notice of its intention
to register any shares and prior to the effective date of
the registration statement filed in connection with such
registration, the Company or its counsel determines that
pursuant to a contractual obligation with a third party the
inclusion of any Registrable Shares in such registration
statement would impede or hinder the Company in fulfilling
its contractual obligations, the Company shall temporarily
be relieved of its obligation to register any Registrable
Shares in connection with such registration;
ii) If such registration shall be in connection with an
underwritten public offering and the managing underwriter
shall advise the Company in writing that, in its opinion,
the number of shares requested to be included m such
registration exceeds the number of such securities which can
be sold in such
<PAGE>
offering or would have an adverse impact on the price
of such securities, the amount to be registered shall
be determined by the Company in its sole and absolute
discretion; and
iii) the number of shares to be sold by the Advisor is not
less than 10,000.
b) If any such registration described in paragraph (a) above (each a
"Piggy-Back Registration") is an underwritten primary offering,
the Advisor shall not have the right to select the managing
underwriter to administer such offering.
c) The maximum number of Piggy-Back Registrations hereunder shall be
one (1); provided, however, that in the event that the Company
offers, at its sole election, to register the Registrable Shares
at any time after the execution of this Agreement, whether or not
the Advisor elects to participate in such registration, the
Advisor shall not be entitled to any Piggy-Back Registration
hereunder.
d) The Company's obligation hereunder shall not restrict its ability
to suspend the effectiveness of, or direct the Advisor not to
offer or sell securities under, any Piggy Back Registration, at
any time, for such reasonable period of time that the Company
believes is necessary to prevent the premature disclosure of any
events or information having a material effect on the Company. In
addition, the Company shall not be required to keep a Piggy Back
Registration effective, or may, without suspending such
effectiveness, instruct the holders of Registrable Shares
included in a Piggy Back Registration not to sell such
securities, during any period during which the Company is
instructed, directed, ordered or otherwise requested by any
governmental agency.
In addition to the compensation to be paid to the Advisor as provided above, the
Company shall pay to, or on behalf of the Advisor, promptly as billed, all
reasonable out-of-pocket expenses pre approved by the Company in writing
(including all reasonable fees and expenses of Advisor's counsel, if any, and
messenger, overnight courier, fax, telephone, copying, printing, database and
travel related expenses) incurred by the Advisor in connection with the
Services.
COMPLIANCE WITH LAWS. In performing Services for the Company pursuant to this
Agreement, CRI shall comply with all applicable laws, including, but not limited
to, federal and state securities laws. CRI represents and warrants to the
Company that CRI has, or shall obtain prior to any performances of services
hereunder, any and all licenses, registrations and permits necessary for the
performance of CRI's Services pursuant to this Agreement.
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY. The Company as of
the date hereof represents, warrants and agrees for CRI's benefit as follows:
This agreement is duly authorized and validly executed and delivered by the
Company, and constitutes a legal, valid and binding agreement of the Company.
In connection with the Advisor's activities hereunder, the Company agrees to
furnish the Advisor with publicly disseminated written materials, including all
reports under the Exchange Act, all publicly available press releases and all
proxy statements and other shareholder communication. In addition, the Company,
at its discretion and its prior approval of each instance, agrees to provide the
Advisor with access to the Company's accountants, counsel, consultants and other
appropriate agents and representatives.
Should CRI want to use agents or other third parties in connection with its
services to the Company, CRI will inform the Company and provide the Company
with the names of such agents
<PAGE>
or third parties prior to any engagement. The Company reserves the right to
review and approve in advance any such agents or third parties as well as
reserves the right not to approve such agents or third parties. CRI shall be
responsible for all such agents and third parties in their observance of the
terms of this Agreement.
CONFIDENTIALITY. Except to the extent authorized by the Company or required by
any Federal or state law, rule or regulation or any decision or order of any
court or regulatory authority, the Advisor agrees that it will refrain from
disclosing to any person, other than to agents, if any, attorneys, accountants,
employees, officers, and directors engaged by the Advisor or the Company in
connection with any Services to be provided hereunder, each and all of whom
shall have signed a confidentiality and non-disclosure agreement by the Company
or be subject to an enforceable non-disclosure obligation, any confidential
information which has not become public about the Company or its agents,
attorneys, accountants in connection with the services rendered hereunder. Any
advice rendered by CRI hereunder shall not be disclosed publicly in any manner
without CRI's written approval and will be treated by the Company and CRI as
confidential. In addition, CRI's advice is not intended for, and should not be
relied upon by, other third parties. The Company also agrees that any reference
to the Advisor or any affiliate of the Advisor in any release or communication
to any party outside the Company is subject to the Advisor's approval, which
approval shall not be unreasonably withheld or delayed. If the Advisor resigns
or is terminated prior to any release or communication, no reference shall be
made therein to the Advisor without the Advisor's prior written permission.
TERMINATION. This agreement may be terminated by the Company at any time prior
to the expiration of this Agreement upon 30 days written notice to CRI. CRI may
terminate the Agreement prior to the expiration of this agreement upon 30 days
written to the Company but only for cause, which shall mean only: (i) the
misconduct or bad faith of any of officer, director or employee of the company
with respect to the Company's performance of its duties under this agreement,
(ii) the Company's breach of any of the provisions of this Agreement or (iii)
the voluntary or involuntary bankruptcy of the Company. Unless earlier
terminated as set forth above, this Agreement shall terminate on June 30, 1999.
In either event, the Company shall continue to be liable to CRI for any unpaid
compensation earned by CRI pursuant to this Agreement together with any
reimbursable expenses incurred through the date of termination, and the
indemnity, contribution and expense reimbursement provisions contained in this
Agreement shall remain operative and in full force and effect regardless of
termination, expiration or consummation of Services.
NOTICES. Notices hereunder shall be given in writing and shall be mailed or
delivered if to the Company at:
Acacia Research Corporation
12 South Raymond Avenue
Pasadena, CA 91105
Attn: Paul Ryan
if to the Advisor at:
Cruttenden Roth, Inc.
11150 Santa Monica Blvd.
Suite 750
Los Angeles, CA 90025
Attn: Michael Doherty
<PAGE>
ADVERTISEMENTS. The Company agrees that the Advisor shall have the right to
place advertisements in financial and other newspapers and journals at its own
expense describing its services to the Company hereunder; provided that the
Advisor shall have submitted a copy of any such proposed advertisement to the
Company for its prior approval, which approval shall not be unreasonably
withheld or delayed.
CONSTRUCTION. The Agreement incorporates the entire understanding of the
parties and shall be governed by, and construed in accordance with, the laws of
the State of California as applied to contracts made and performed in such
State, without regard to principles of conflicts of laws.
SEVERABILITY. Any determination that any provision of this Agreement may be, or
is, unenforceable shall not affect the enforceability of the remainder of this
Agreement.
HEADINGS. The section headings in this Agreement have been inserted as a matter
of convenience for reference and are not an effective part of this Agreement.
COUNTERPARTS. This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.
THIRD PARTY BENEFICIARIES. This Agreement has been and is made solely for the
benefit of the Company, the Advisor and the other Indemnified Persons referred
to in this Agreement and the respective successors and assigns, and no other
person shall acquire or have any rights under or by virtue of this agreement.
SUCCESSION. This Agreement shall be binding upon and inure to the benefit of
the Company, CRI, the Indemnified Persons and their respective successors,
assigns, heirs and personal representatives.
If the foregoing terms correctly set forth our Agreement, please confirm this by
signing and returning to the Advisor the duplicate copy of this letter.
Thereupon this letter as signed in counterpart, shall constitute our Agreement
on the subject matter herein.
CRUTTENDEN ROTH INCORPORATED
By: _________________________
Title: ______________________
Confirmed and Agreed to:
ACACIA RESEARCH CORPORATION
By: ___________________
Title: ________________
Date: _________________
<PAGE>
EXHIBIT A
FORM OF WARRANT
THIS SECURITY AND ANY SHARES ISSUED UPON EXERCISE OF THIS SECURITY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE TRANSFERRED OR OTHERWISE
DISPOSED OF UNLESS THE APPLICABLE SECURITY HAS BEEN REGISTERED UNDER THE ACT AND
SUCH LAWS OR (1) REGISTRATION UNDER SUCH LAWS IS NOT REQUIRED AND (2) AN OPINION
OF COUNSEL SATISFACTORY TO THE COMPANY IS FURNISHED TO THE COMPANY TO THE EFFECT
THAT REGISTRATION UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS IS NOT
REQUIRED.
ACACIA RESEARCH CORPORATION
WARRANT TO PURCHASE COMMON STOCK
This certifies that, for value received, Cruttenden Roth Incorporated ("the
Holder") is entitled to subscribe for and purchase up to shares
(subject to adjustment from time to time pursuant to the provisions of Section 5
hereof) of fully paid and nonassessable Common Stock of Acacia Research
Corporation, a California corporation (the "Company"), at the price specified in
Section 2 hereof, as such price may be adjusted from time to time pursuant to
Section 5 hereof (the "Warrant Price"), subject to the provisions and upon the
terms and conditions hereinafter set forth and callable by the Company upon the
terms and conditions set forth in Section 1 hereof.
As used herein, the term "Common Stock" shall mean the Company's presently
authorized Common Stock, no par value, and any stock into or for which such
Common Stock may hereafter be converted or exchanged.
This Warrant is issued pursuant to that certain Agreement between the
Holder and the Company dated June 30, 1997.
l. TERM OF WARRANT
The purchase right represented by this Warrant is exercisable, in whole or
in part, at any time during a period beginning one year from the date hereof and
ending .
2. WARRANT PRICE
The Warrant Price is $6.00 per share, subject to adjustment from time to
time pursuant to the provisions of Section 5 hereof.
3. METHOD OF EXERCISE: PAYMENT; ISSUANCE OF NEW WARRANT.
Subject to Section 1 hereof, the purchase right represented by this Warrant
may be exercised by the Holder, in whole or in part, by the surrender of this
Warrant (with the notice of exercise form attached hereto as Exhibit 1 duly
executed) at the principal office of the Company and by the payment to the
Company: (i) by cashier's check or wire transfer, of an amount equal to the then
applicable Warrant Price per share multiplied by the number of shares then being
purchased; (ii) without payment of any cash through a cashless exercise option
whereby the Holder receives a number of shares of Common Stock equal to the
excess, if any, of the Current Market Price per share at the date of exercise
over the Warrant Price at the time of exercise, multiplied by the number of
shares for which the Warrants are to, divided by the Current Market Price. For
purposes of this Section 3, the "Current Market Price" per share for any date
shall mean the average of the Closing Prices of the Common Stock for the 10
Trading Days prior to such date. "Closing Price" on any Trading Day shall mean
the last reported sale price, or in case no such sale takes place on such day,
the average of the closing bid and asked prices, for the Common Stock as
reported by the Nasdaq National Market System. "Trading Day" shall mean a day
on which the Common Stock is traded on the Nasdaq National Market System; or
(iii) or a combination of (i) and (ii) of this Section 3.
6
<PAGE>
The Company shall not be required to issue fractional shares as a result of the
exercise of Warrants. If Holder is entitled to a fraction of a share of Common
Stock as a result of the exercise of Warrants, the Company may pay Holder an
amount in cash equal to the Current Market price multiplied by the fraction of a
share of Common Stock to which the Holder would otherwise be entitled, without
interest. The Company agrees that the shares so purchased shall be deemed to be
issued to the Holder as the record owner of such shares as of the close of
business on the date on which this Warrant shall have been surrendered and
payment made for such shares as aforesaid. In the event of any exercise of the
rights represented by this Warrant, certificates for the shares of stock so
purchased shall be delivered to the Holder within 15 days thereafter and, unless
this Warrant has been fully exercised or expired, a new Warrant representing the
portion of the shares, if any, with respect to which this Warrant shall not then
have been exercised, shall also be issued to the Holder within such 15 day
period.
4. STOCK FULLY PAID; RESERVATION OF SHARES.
All Common Stock which may be issued upon the exercise of the rights
represented by this Warrant will, upon issuance, be fully paid and
nonassessable, and free from all taxes, liens and charges with respect to the
issue thereof. During the period within which the rights represented by this
Warrant may be exercised, the Company will at all times have authorized, and
reserved for the purpose of the issuance upon exercise of the purchase rights
evidenced by this Warrant, a sufficient number of shares of its Common Stock to
provide for the exercise of the rights represented by this Warrant.
5. ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF SHARES.
The kind of securities purchasable upon the exercise of this Warrant, the
Warrant Price and the number of shares purchasable upon exercise of this Warrant
shall be subject to adjustment from time to time upon the occurrence of the
following events:
(a) RECLASSIFICATION, CONSOLIDATION, OR MERGER. In case of any
reclassification or change of outstanding securities of the class issuable
upon exercise of this Warrant (other than a change in par value, or from
par value to no par value, or from no par value to par value, or as a
result of a subdivision or combination), or in case of any consolidation or
merger of the Company with or into another corporation, other than a merger
with another corporation in which the Company is a continuing corporation
and which does not result in any reclassification or change of outstanding
securities issuable upon exercise of this Warrant, the Company, or such
successor, as the case may be, shall execute a new Warrant, providing that
the Holder of this Warrant shall have the right to exercise such new
Warrant and procure upon such exercise, in lieu of each share of Common
Stock theretofore issuable upon exercise of this Warrant, the kind and
amount of shares of stock, other securities, money and property receivable
upon such reclassification, change, consolidation, or merger by a Holder of
one share of Common Stock. Such new Warrant shall provide for adjustments,
which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 5. The provisions of this
subparagraph (a) shall similarly apply to successive reclassification,
changes, consolidations, and mergers.
(b) SUBDIVISION OR COMBINATION OF SHARES. If the Company at any time
while this Warrant remains outstanding and unexpired shall subdivide or
combine its common stock, or distribute dividends on its common stock
payable in Common Stock, the Warrant Price shall be proportionately
decreased in the case of a subdivision or increased in the case of a
combination or dividend.
(c) ADJUSTMENT OF NUMBER OF SHARES. Upon each adjustment in the
Warrant Price pursuant to any of subparagraphs (a) through (c) of this
Section 5, the number of shares of Common Stock purchasable hereunder shall
be adjusted, to the nearest whole share, to the product obtained by
multiplying the number of shares purchasable immediately prior to such
adjustment in the Warrant Price by a fraction, the numerator of which shall
be the Warrant Price immediately prior to such adjustment and the
denominator of which shall be the Warrant Price immediately thereafter.
7
<PAGE>
6. NOTICE OF ADJUSTMENTS.
Whenever any Warrant Price shall be adjusted pursuant to Section 5 hereof,
the Company shall prepare a certificate signed by its chief financial officer
setting forth, in reasonable detail, the event requiring the adjustment, the
amount of the adjustment, the method by which such adjustment was calculated,
the Warrant Price after giving effect to such adjustment and the number of
shares then purchasable upon exercise of this Warrant, and shall cause copies of
such certificate to be mailed (by first class mail, postage prepaid) to the
Holder of this Warrant at the address determined in accordance with Section
10(c) hereof, or at such other address as may be provided to the Company in
writing by the Holder of this Warrant.
7. FRACTIONAL SHARES.
No fractional shares of Common Stock will be issued in conjunction with any
exercise hereunder, but in lieu of such fractional shares the Company shall make
a cash payment therefore on the basis of the Warrant Price then in effect.
8. COMPLIANCE WITH SECURITIES ACT.
The Holder of this Warrant, by acceptance hereof, agrees that this Warrant
and the shares of Common Stock to be issued on exercise hereof are being
acquired for investment and that it will not offer, sell or otherwise dispose of
this Warrant or any shares of Common Stock to be issued upon exercise hereof
except under circumstances which will not result in a violation of the
Securities Act of 1933, as amended (the "Act"). This Warrant and all shares of
Common Stock issued upon exercise of this Warrant (unless registered under the
Act) shall be stamped and imprinted with a legend substantially in the following
form:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE ACT"), OR APPLICABLE STATE SECURITIES LAWS AND
MAY NOT BE TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS IT HAS BEEN
REGISTERED UNDER THE ACT AND SUCH LAWS OR (1) REGISTRATION UNDER SUCH
LAWS IS NOT REQUIRED AND (2) AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY IS FURNISHED TO THE COMPANY TO THE EFFECT THAT REGISTRATION
UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS IS NOT
REQUIRED."
9. TRANSFER AND EXCHANGE OF WARRANT.
This Warrant is not transferrable or exchangeable without the consent
of the Company.
10. MISCELLANEOUS.
(a) NO RIGHTS AS SHAREHOLDER. The Holder of this Warrant shall not
be entitled to vote or receive dividends or be deemed the Holder of Common Stock
or any other securities of the Company that may at any time be issuable on the
exercise hereof for any purpose, nor shall anything contained herein be
construed to confer upon the Holder of this Warrant, as such, any of the rights
of a shareholder of the Company or any right to vote for the election of
directors or upon any matter submitted to shareholders at any meeting thereof,
or to give or withhold consent to any corporate action (whether upon any
recapitalization, issuance of stock, reclassification of stock, change of par
value or change of stock to no par value, consolidation, merger, conveyance or
otherwise) or to receive notice of meetings, or to receive dividends or
subscription rights or otherwise until the Warrant shall have been exercised and
the shares purchasable upon the exercise hereof shall have become deliverable,
as provided herein.
(b) REPLACEMENT. On receipt of evidence reasonably satisfactory to
the Company of the loss, theft, destruction, or mutilation of this Warrant and,
in the case of mutilation, on surrender and cancellation of this Warrant, the
Company, at its expense, will execute and deliver,
8
<PAGE>
in lieu of this Warrant, a new Warrant of like tenor.
(c) NOTICE. Any notice given to either party under this Warrant
shall be in writing, and any notice hereunder shall be deemed to have been given
upon the earlier of delivery thereof by hand delivery, by courier, or by
standard form of telecommunication or three (3) business days after the mailing
thereof in the U.S. mail if sent registered mail with postage prepaid, addressed
to the Company at its principal executive offices and to the Holder at its
address set forth in the Company's books and records or at such other address as
the Holder may have provided to the Company in writing.
(d) GOVERNING LAW. This Warrant shall be governed and construed
under the laws of the State of California.
This Warrant is executed as of this _________________ day of June, 1997.
ACACIA RESEARCH CORPORATION
By: ______________________________
Name: ____________________________
Title: ___________________________
9
<PAGE>
EXHIBIT 1
NOTICE OF EXERCISE
TO: ACACIA RESEARCH CORPORATION
1. The undersigned hereby elects to purchase _____________________
shares of Common Stock of Acacia Research Corporation pursuant to the terms
of the attached Warrant, and tenders herewith payment of the purchase price
of such shares in full.
2. Please issue a certificate or certificates representing said shares of
Common Stock in the name of the Holder at the address specified below:
________________________________________
(Name)
________________________________________
(Address)
________________________________________
(Address)
3. The undersigned represents that the aforesaid shares of Common Stock
are being acquired for the account of the undersigned for investment and not
with a view to, or for resale in connection with, the distribution thereof and
that the undersigned has no present intention of distributing or reselling such
shares.
____________________________________
(Name of Holder)
_____________________________________
(Signature of Holder)
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,808,614
<SECURITIES> 0
<RECEIVABLES> 799,500
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,955,656
<PP&E> 291,125
<DEPRECIATION> 84,286
<TOTAL-ASSETS> 6,314,021
<CURRENT-LIABILITIES> 923,708
<BONDS> 0
0
0
<COMMON> 5,496,595
<OTHER-SE> (667,639)
<TOTAL-LIABILITY-AND-EQUITY> 6,314,021
<SALES> 0
<TOTAL-REVENUES> 311,886
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,264,166)
<INCOME-TAX> (167,767)
<INCOME-CONTINUING> (1,096,399)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,096,399)
<EPS-PRIMARY> (0.53)
<EPS-DILUTED> (0.53)
</TABLE>
