<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
ACACIA RESEARCH CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE>
rstuvwxy
April 24, 1998
Dear Shareholder:
On behalf of your Board of Directors and Management, you are cordially
invited to attend the Annual Meeting of Shareholders to be held on Tuesday, May
19, 1998, at 9:00 a.m., at the Ritz Carlton Huntington Hotel, located at 1401
South Oak Knoll Avenue in Pasadena, California.
The enclosed Notice and Proxy Statement contain details concerning the
business to come before the meeting. You will note that the Board of Directors
of the Company recommends a vote "FOR" the election of the nominated directors
to serve until the next Annual Meeting of Shareholders, "FOR" the proposed
amendments to the Company's 1996 Stock Option Plan, "FOR" the proposed amendment
to the Articles of Incorporation and "FOR" ratification of the selection of
Price Waterhouse LLP as the Company's independent accountants.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AND VOTED AT THE ANNUAL
MEETING EVEN IF YOU CANNOT ATTEND IN PERSON. PLEASE SIGN, DATE, AND RETURN YOUR
PROXY CARD IN THE ENCLOSED ENVELOPE.
Thank you for your continued support.
Cordially,
[SIG]
Paul R. Ryan
PRESIDENT AND CHIEF EXECUTIVE OFFICER
<PAGE>
ACACIA RESEARCH CORPORATION
----------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 19, 1998
------------------------
TO OUR SHAREHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Acacia
Research Corporation, a California corporation (the "Company"), will be held on
Tuesday, May 19, 1998 at 9:00 a.m. at the Ritz Carlton Huntington Hotel located
at 1401 South Oak Knoll Avenue, Pasadena, California, for the following
purposes:
1. To elect directors to serve for the ensuing year and until their
successors are duly elected and qualified;
2. To approve amendments to the Company's 1996 Stock Option Plan;
3. To approve an amendment to the Company's Articles of Incorporation;
4. To ratify the selection of Price Waterhouse LLP as independent
accountants of the Company for the fiscal year ending December 31, 1998;
and
5. To transact such other business as may properly come before the meeting
or any adjournment thereof.
Only shareholders of record at the close of business on April 6, 1998 are
entitled to receive notice of and to vote at the Annual Meeting.
All shareholders are cordially invited to attend the Annual Meeting in
person. However, to assure your representation at the Annual Meeting, you are
urged to mark, sign, date and return the enclosed proxy card as promptly as
possible in the postage-prepaid envelope enclosed for that purpose. Any
shareholder attending the Annual Meeting may vote in person even if he or she
previously returned a proxy.
By Order of the Board of Directors
[SIG]
Kathryn King-Van Wie
SECRETARY
Pasadena, California
April 24, 1998
YOUR VOTE IS IMPORTANT
IN ORDER TO ASSURE YOUR REPRESENTATION AT THE MEETING, YOU ARE REQUESTED
TO COMPLETE, SIGN AND DATE THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE AND
RETURN IT IN THE ENCLOSED ENVELOPE.
<PAGE>
ACACIA RESEARCH CORPORATION
12 SOUTH RAYMOND AVENUE
PASADENA, CALIFORNIA 91105
(626) 449-6431
------------------------
PROXY STATEMENT
---------------------
The enclosed proxy is solicited on behalf of the Board of Directors of
Acacia Research Corporation, a California corporation ("Acacia" or the
"Company"), for use at Acacia's annual meeting of shareholders (the "Annual
Meeting") to be held on Tuesday, May 19, 1998 at 9:00 a.m., or at any
adjournments thereof. The purposes of the Annual Meeting are set forth in this
Proxy Statement and in the accompanying Notice of Annual Meeting of
Shareholders. The Annual Meeting will be held at the Ritz Carlton Huntington
Hotel located at 1401 South Oak Knoll Avenue, Pasadena, California. These proxy
solicitation materials were mailed on or about April 24, 1998 to all
shareholders entitled to vote at the Annual Meeting.
RECORD DATE; OUTSTANDING SHARES; PROCEDURAL MATTERS
Shareholders of record as of the close of business on April 6, 1998 (the
"Record Date") are entitled to notice of and to vote at the Annual Meeting. As
of the Record Date, 3,967,080 shares of the Company's Common Stock, no par value
(the "Common Stock"), were issued and outstanding. Each share has one vote on
all matters. For information regarding holders of more than 5% of the
outstanding Common Stock, see "Security Ownership of Certain Beneficial Owners
and Management."
The Company will bear the cost of this solicitation, including reimbursement
of brokerage firms and other persons representing beneficial owners of shares
for their reasonable expenses in forwarding solicitation material to such
beneficial owners. The solicitation of proxies for the Annual Meeting will be
made primarily by mail. However, proxies may be solicited by certain of the
Company's directors, officers and regular employees, without additional
compensation, personally or by telephone or facsimile. Corporate Investor
Communications, Inc. has been retained to assist in the solicitation of proxies,
for which it will be paid a fee of $3,500 plus reimbursement of out-of-pocket
expenses.
VOTING
Each share of Common Stock outstanding on the Record Date is entitled to one
vote. In addition, every shareholder, or his or her proxy, entitled to vote upon
the election of directors may cumulate his or her votes and give one candidate a
number of votes equal to the number of directors to be elected multiplied by the
number of votes to which his or her shares are entitled, or distribute his or
her votes calculated on the same principal among as many candidates as he or she
thinks fit. No shareholder or proxyholder, however, shall be entitled to
cumulate votes unless such candidate or candidates have been nominated prior to
the voting and the shareholder has given notice at the meeting prior to the
voting of the shareholder's intention to cumulate the shareholder's votes. If
any one shareholder gives such notice, all shareholders may cumulate their votes
for candidates in nomination and proxyholders will have discretionary authority
to cumulate votes. For the election of directors, the nominees 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. For all other
proposals, an affirmative vote of a majority of the shares present and voting at
the meeting is required for approval of all items being submitted to the
shareholders for their consideration other than Proposal No. 4, which requires
the affirmative vote of a majority of the shares issued and outstanding.
Abstentions and broker non-votes are each included in the determination of the
number of shares present and voting. Each is tabulated separately. Abstentions
are counted in tabulations of the votes
1
<PAGE>
cast on proposals presented to shareholders, whereas broker non-votes are not
counted for purposes of determining whether a proposal has been approved.
REVOCABILITY OF PROXIES
A shareholder may revoke any proxy given pursuant to this solicitation by
attending the Annual Meeting and voting in person, or by delivering to the
Company prior to the Annual Meeting a written notice of revocation or a duly
executed proxy bearing a date later than that of the previous proxy. However,
merely attending the Annual Meeting in person will not revoke such proxy.
PROPOSAL NO. 1: ELECTION OF DIRECTORS
(ITEM 1 ON PROXY CARD)
The Bylaws of the Company presently provide that there shall be five
directors and that such directors are to be elected at the annual meeting of
shareholders. Unless otherwise instructed, the proxyholders will vote the
proxies received by them for the five nominees named below. If any nominee of
the Company is unable or declines to serve as a director at the time of the
Annual Meeting, the proxies will be voted for any nominee designated by the
present Board of Directors to fill the vacancy. It is not presently expected
that any of the nominees named below will be unable or will decline to serve as
a director. If additional persons are nominated for election as directors, the
proxyholders intend to vote all proxies received by them in a manner to assure
the election of as many of the nominees listed below as possible. In such event,
the specific nominees to be voted for will be determined by the proxyholders.
The term of office of each person elected as a director will continue until the
next annual meeting of shareholders or until a successor has been elected and
duly qualified.
NOMINEES
Biographical summaries and ages as of the Record Date of individuals
nominated by the Board of Directors for election as directors are provided
below. See "Security Ownership of Certain Beneficial Owners and Management" for
data with respect to the number of shares of the Company's Common Stock
beneficially owned by each of them, directly or indirectly, as of that date.
There is no family relationship among any directors or executive officers of the
Company.
<TABLE>
<CAPTION>
DIRECTOR
NAME, PRINCIPAL OCCUPATION AND DIRECTORSHIPS AGE SINCE
- -------------------------------------------------------------------------------------------------- --- -----------
<S> <C> <C>
R. BRUCE STEWART, CHAIRMAN AND CHIEF FINANCIAL OFFICER 61 1993
Mr. Stewart has served as Chairman of the Board of Directors since January 1993 and as Chief
Financial Officer since January 1997. Mr. Stewart founded the Company and has guided the
development of the Company's strategies and operations. From the Company's incorporation in
January 1993 to January 1997, Mr. Stewart served as the President, Chief Executive Officer and
Treasurer of the Company. Prior to establishing the Company, Mr. Stewart served as the President
of Annandale Corporation, an investment banking firm and broker-dealer, from 1977 to 1992.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
DIRECTOR
NAME, PRINCIPAL OCCUPATION AND DIRECTORSHIPS AGE SINCE
- -------------------------------------------------------------------------------------------------- --- -----------
<S> <C> <C>
PAUL R. RYAN, DIRECTOR, PRESIDENT AND CHIEF EXECUTIVE OFFICER 52 1995
Mr. Ryan has served as a Director since August 1995 and as President and Chief Executive Officer
since January 1997. From May 1996 to January 1997, Mr. Ryan served as Executive Vice President
and Chief Investment Officer of the Company and from August 1995 to May 1996, as Vice President,
Capital Management, of the Company. Mr. Ryan is, along with the Company, a general partner of
each of the private investment partnerships formed by the Company. From April 1993 to August
1995, he was self-employed as a private investor. Mr. Ryan was a general partner of the American
Health Care Fund, L.P. until April 1993. He received his B.S. degree from Cornell University and
attended the New York University Graduate School of Business.
THOMAS B. AKIN, NOMINEE 46 --
Mr. Akin is a nominee for Director. Mr. Akin has been the Managing General Partner of four private
investment funds (Talkot Partners I, Talkot Partners II, LLC, Talkot Crossover Fund, L.P., and
Talkot Capital) since 1996. From 1981 to 1996, Mr. Akin served in a variety of capacities for
Merrill Lynch and Co., including Managing Director of Western Regional Sales from 1986 to 1994.
Previously, he was a Vice President at Salomon Brothers from 1978 to 1981. Mr. Akin holds a B.A.
from the University of California at Santa Cruz and attended the University of California at Los
Angeles Graduate School of Business. He serves on the Board of Directors of Jet Fax Inc. and
Infotec Inc.
FRED A. DE BOOM, DIRECTOR 62 1995
Mr. de Boom has served as a Director since February 1995. Mr. de Boom has been a principal in
Sonfad Associates since June 1993. Sonfad Associates is a Los Angeles-based investment banking
firm that is involved in mergers and acquisitions, private debt and equity placements, strategic
and financial business planning, leveraged buy-outs and ESOP funding, bank debt refinance, asset
based and lease financing, and equity for debt restructuring. Previously, he had been employed
as a Vice President of Tokai Bank for five years and as a Vice President of Union Bank for eight
years. Mr. de Boom received his M.B.A. degree from the University of California and his B.A.
degree from Michigan State University.
EDWARD W. FRYKMAN, DIRECTOR 61 1996
Mr. Frykman has served as a Director since April 1996. Mr. Frykman has been an account executive
with Crowell, Weedon & Co. since 1992. From 1990 to 1992, Mr. Frykman served as Senior Vice
President of L.H. Friend & Co. Both Crowell, Weedon & Co. and L.H. Friend & Co. are investment
brokerage firms located in Southern California. In addition, Mr. Frykman was a Senior Account
Executive with Shearson Lehman Hutton from September 1987 to March 1990 and was the Manager of
the Los Angeles Regional Retail Office of Shearson Lehman Hutton from October 1972 to September
1987.
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE FIVE
NOMINEES LISTED ABOVE. PROXIES RECEIVED WILL BE VOTED FOR EACH OF THE NOMINEES
UNLESS SHAREHOLDERS SPECIFY OTHERWISE IN THE PROXY.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of twenty-four meetings
during the fiscal year ended December 31, 1997. During that period, no incumbent
director attended fewer than 75% of the sum of the total number of meetings of
the Board of Directors and the total number of meetings of all committees of the
Board of Directors on which that director served. See "Director Compensation"
for information on the compensation of non-employee directors. The Board of
Directors has an Audit
3
<PAGE>
Committee and a Compensation Committee, but does not have a nominating committee
or any committee performing a similar function.
The Audit Committee currently consists of R. Bruce Stewart, Fred A. de Boom
and Edward W. Frykman. The Audit Committee recommends engagement of the
Company's independent accountants and is primarily responsible for approving the
services performed by the Company's independent accountants and for reviewing
and evaluating the Company's accounting principles, financial reporting
practices, and its system of internal accounting controls. The Company's Audit
Committee held one meeting during 1997. The Audit Committee is also responsible
for maintaining a line of communication between the Board of Directors and the
Company's independent accountants.
The Compensation Committee, which currently consists of Fred A. de Boom and
Edward W. Frykman, is primarily responsible for making recommendations to the
Board of Directors regarding the Company's executive compensation policy and
incentive compensation for employees and consultants to the Company. In
addition, the Compensation Committee administers the 1996 Stock Option Plan. The
Company's Compensation Committee held seven meetings during 1997.
DIRECTOR COMPENSATION
Directors who are also employees of the Company receive no separate
compensation from the Company for their service as members of the Board of
Directors. Non-employee directors receive a non-discretionary grant of options
to purchase 10,000 shares of the Company's common stock upon joining the Board
of Directors and subsequent non-discretionary annual grants of options to
purchase 1,000 shares of the Company's common stock, all such grants at an
exercise price equal to the market price on the date of grant. See "Proposal No.
2: Approval of Amendments to the 1996 Stock Option Plan--Non-Employee Director
Program" for a fuller description. In addition, non-employee directors receive
compensation in the amount of $150 for each meeting of the Board of Directors
and for any Board committee meeting not immediately preceding or following a
Board of Directors meeting attended in person. Directors are also reimbursed for
expenses incurred in connection with attendance at meetings of the Board of
Directors and Board Committees and the performance of Board duties.
MANAGEMENT
EXECUTIVE OFFICERS
Set forth below is certain information concerning the executive officers of
the Company as of the date hereof.
<TABLE>
<S> <C> <C>
R. Bruce Stewart.............. 61 Chairman and Chief Financial Officer
Paul R. Ryan.................. 52 Director, President and Chief Executive
Officer
Kathryn King-Van Wie.......... 36 Chief Operating Officer and Secretary
</TABLE>
Biographical information on Messrs. Stewart and Ryan is set forth above
under the caption "Nominees."
KATHRYN KING-VAN WIE has served as Chief Operating Officer since January
1997 and Corporate Secretary since October 1995. She joined the Company in
August 1995 as Vice President, Operations. She has more than ten years of
marketing and operations experience. From 1992 to 1995, she served as a business
consultant to several small and mid-size companies. Prior to this, she held
positions at Capitol Records, Vinokur Advertising and CBS.
4
<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of the Record Date, information relating
to the beneficial ownership of the Company's Common Stock by each person known
by the Company to be the beneficial owner of more than five percent (5%) of the
outstanding shares of Common Stock, by each director and nominee for director,
by each of the executive officers named in the Summary Compensation Table, and
by all directors and executive officers as a group. The number of shares
beneficially owned by each director or executive officer is determined under
rules of the Securities and Exchange Commission (the "Commission"), and the
information is not necessarily indicative of beneficial ownership for any other
purpose. Under such rules, beneficial ownership includes any shares as to which
the individual has the sole or shared voting power or investment power and also
any shares which the individual has the right to acquire within 60 days of the
Record Date through the exercise of any stock option or other right. Unless
otherwise noted, the Company believes that each person has sole investment and
voting power (or shares such powers with his or her spouse) with respect to the
shares set forth in the following table and the address for each person is
Acacia Research Corporation, 12 South Raymond Avenue, Pasadena, California
91105.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL PERCENT OF
OWNERSHIP(1)(2) CLASS
-------------------- -----------
<S> <C> <C>
Dr. M. Robert and Phyllis Ching (3) ........................ 343,799(a) 8.41%
Thomas B. Akin (4) ......................................... 280,872(b) 6.82%
R. Bruce Stewart ........................................... 253,700(c) 6.03%
Dr. Brooke P. Anderson ..................................... 225,800(d) 5.46%
Paul R. Ryan ............................................... 159,000(e) 3.86%
Fred A. de Boom ............................................ 13,000(f) *
Edward W. Frykman .......................................... 6,950(g) *
All Directors and Executive Officers as a Group (six
persons).................................................. 715,967(h) 15.53%
</TABLE>
- ------------------------
* Represents less than one percent.
(1) All shares which a named shareholder has the right to acquire within 60
days, including through the exercise of stock options and warrants as
described below, are deemed outstanding for the purpose of computing the
percentage of Common Stock owned by such named shareholder, but not the
percentage of Common Stock owned by any other shareholder.
(2) Includes the following options and/or warrants exercisable on or within 60
days of the Record Date: (a) options to purchase 65,525 shares and warrants
to purchase 55,000 shares; (b) warrants to purchase 150,436 shares; (c)
options to purchase 240,000 shares and warrants to purchase 2,000 shares;
(d) options to purchase 170,000 shares and warrants to purchase 1,000
shares; (e) options to purchase 50,000 shares and warrants to purchase
103,500 shares; (f) options to purchase 12,000 shares; (g) options to
purchase 6,000 shares; and (h) options and/or warrants to purchase 642,000
shares.
(3) Includes 12,500 shares jointly held by Dr. Ching and his wife, Phyllis
Ching, 77,150 shares held by The Ching Living Trust, 22,800 shares held by
the M. Robert Ching, M.D., Defined Benefits Pension Plan and 56,500 shares
held by the M. Robert Ching, Inc. Money Purchase Pension Plan. This security
ownership is based upon information which the Company believes is reliable,
but for which the beneficial owner has not filed with the Commission a
Schedule 13D or Schedule 13G.
(4) Includes warrants to purchase 85,218 shares. Also includes 65,218 shares and
warrants to purchase 65,218 shares held by Talkot Crossover Fund, L.P., of
which Mr. Akin serves as general partner.
5
<PAGE>
EXECUTIVE OFFICER COMPENSATION
SUMMARY COMPENSATION TABLE
The following table shows, as to the Company's Chief Executive Officer for
the last fiscal year and the four remaining most highly compensated executive
officers whose cash compensation exceeded $100,000 in the last fiscal year (of
which there is one) (the "Named Executive Officers"), information concerning
compensation earned for services to the Company in all capacities during the
last three fiscal years.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION ------------------
------------------------------------------ SECURITIES
OTHER ANNUAL UNDERLYING OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) COMPENSATION ($) (#) COMPENSATION
- ------------------------------------ --------- ----------- ----------- ---------------- ------------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Paul R. Ryan, President and ........ 1997 60,000 5,000 0 25,000 155,597(1)
Chief Executive Officer 1996 0 10,792 0 100,000(2) 14,208(1)
1995 0 0 0 0 9,000(3)
R. Bruce Stewart, .................. 1997 130,000 5,000 15,473(4) 0 0
Chief Financial Officer 1996 100,833 5,000 14,448(4) 100,000(2) 0
1995 60,000 5,000 16,537(4) 0 0
</TABLE>
- ------------------------
(1) Represents his 25% share of the management and performance fees received as
general partner of Company affiliated investment funds. See "Transactions
with Management--Transactions with Paul R. Ryan."
(2) Represents shares of stock underlying options granted under the 1996
Executive Stock Bonus Plan.
(3) Mr. Ryan was paid a one-time consulting fee of $9,000 for the purpose of
establishing the Company's investment funds prior to becoming an officer or
director of the Company.
(4) Includes $13,895, $13,536, and $15,171 paid by the Company for certain
automobile expenses in 1997, 1996, and 1995, respectively.
The Company has not entered into employment contracts with any of its Named
Executive Officers nor does the Company have any agreement or arrangement with
any such Named Executive Officers relating to a change in control of the
Company.
6
<PAGE>
STOCK OPTION GRANTS AND EXERCISES
In fiscal year 1997, the Company granted stock options to the Named
Executive Officers listed below. The Named Executive Officers did not exercise
any options in fiscal year 1997. The following tables set forth information
regarding the stock options granted to the Named Executive Officers during the
fiscal year ended December 31, 1997 and the value of in-the-money options held
by the Named Executive Officers as of December 31, 1997.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED ANNUAL
--------------------------------------------------------------------- RATE OF STOCK PRICE
NUMBER OF PERCENT OF TOTAL APPRECIATION FOR OPTION
SECURITIES OPTIONS GRANTED TO EXERCISE OR TERM(1)
UNDERLYING OPTIONS EMPLOYEES IN FISCAL BASE PRICE EXPIRATION ------------------------
NAME GRANTED (#) YEAR ($/SH) DATE 0% ($) 5% ($)
- ------------------------------ ------------------- ------------------- ------------- ------------ ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Paul R. Ryan.................. 25,000 16.4% 7.625 12/10/2000 0 30,047
R. Bruce Stewart.............. 0 0 0 0 0 0
<CAPTION>
NAME 10% ($)
- ------------------------------ ---------
<S> <C>
Paul R. Ryan.................. 63,097
R. Bruce Stewart.............. 0
</TABLE>
- ------------------------
(1) The amounts under the columns labeled "5%" and "10%" are included pursuant
to certain rules promulgated by the Commission and are not intended to
forecast future appreciation, if any, in the price of the Company's Common
Stock. The amounts are calculated by using the closing market price of a
share of Common Stock on the grant date as reported by the Nasdaq National
Market and assuming annual compounded stock appreciation rates of 5% and 10%
over the full three-year term of the option. The option grants vest over a
two-year period. The reported amounts are based on the assumption that the
named persons hold the options granted for their full three-year term. The
actual value of the options will vary in accordance with the market price of
the Company's Common Stock. The column headed "0%" is included to
demonstrate that the options were granted at fair market value and optionees
will not recognize any gain without an increase in stock price, which
increase benefits all stockholders commensurately.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1997 AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING IN-THE-
UNEXERCISED OPTIONS MONEY OPTIONS AT 1997
AT 1997 YEAR-END(#) YEAR-END(1)($)
SHARES ACQUIRED ON VALUE -------------------------- -------------------------
NAME EXERCISE(#) REALIZED(2)($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------- ------------------- ----------------- ----------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Paul R. Ryan.............. 0 0 50,000 75,000 95,000 104,375
R. Bruce Stewart.......... 0 0 240,000 50,000 1,310,000 95,000
</TABLE>
- ------------------------
(1) Represents the difference between the exercise price of the options and the
closing price of the Company's Common Stock on December 31, 1997 of $8.00
per share.
(2) Value realized represents the difference between the exercise price of the
options and the value of the underlying securities on the date of exercise.
7
<PAGE>
TRANSACTIONS WITH MANAGEMENT AND OTHERS
During the last fiscal year, there were certain transactions that occurred
between the Company and its officers and directors, which are reported below.
With respect to each transaction, the Company has determined that the terms of
each arrangement were no less fair to the Company than those which could have
been obtained from unaffiliated persons.
TRANSACTIONS WITH PAUL R. RYAN. In January 1995, prior to the time Paul R.
Ryan became an officer or director of the Company, the Company and Mr. Ryan
entered into an agreement pursuant to which the Company and Mr. Ryan agreed to
act as the general partners of certain private investment funds and co-managers
to other investment funds. Under this agreement, the Company is entitled to
receive 75% and Mr. Ryan is entitled to receive 25% of the performance and
management fees earned in respect of the investment advisory services provided
to co-managed investment funds, less certain expenses shared with other parties.
Pursuant to this agreement, Mr. Ryan earned approximately $155,597 during fiscal
year 1997. In addition, in January 1995 prior to the time Mr. Ryan became an
officer or director of the Company, Mr. Ryan acquired warrants to purchase
100,000 shares of the Company's common stock at an exercise price of $2 per
share for an investment of $10,000. At the time the warrants were issued, the
Company was privately-held and had no actively-traded market for its shares of
common stock.
TRANSACTIONS WITH ROBERT B. STEWART. On August 18, 1997, Robert B. Stewart
became Director of Marketing of the Company. Mr. Stewart is the son of Bruce
Stewart, Chief Financial Officer and the Chairman of the Company. Prior to
joining the Company, Mr. Stewart was a principal of Macallan, Dunhill &
Associates ("Macallan"). Upon joining the Company, Mr. Stewart ascribed his
signing bonus of approximately $12,000 against the advance of approximately
$25,000 to Macallan. Mr. Stewart maintains an economic interest in Macallan, but
is not involved with decision making processes. Macallan was engaged by the
Company to provide financial consulting services to the Company in connection
with its investment advisory services. In addition, Mr. Stewart was awarded an
option to purchase 60,000 shares of the Company's Common Stock, vesting over
four years, at an exercise price of $7.75, the price of which was equal to the
fair market value of the shares on the date of grant.
TRANSACTIONS WITH H. LEE BROWNE AND DAVID H. SCHMIDT. On July 6, 1997, the
Company purchased from Messrs. Browne and Schmidt a total of 2,625,000 shares
(the "Soundview Shares") of common stock, $.001 par value per share, of
Soundview Technologies, Inc. ("Soundview"), pursuant to the terms of a Common
Stock Purchase Agreement among the Company, Messrs. Browne and Schmidt dated
July 6, 1997. The Soundview Shares represent 35% of the outstanding capital
stock of Soundview. As a result of the transaction, the Company owned
approximately 51% of the outstanding common stock of Soundview.
The purchase price for the Soundview Shares consisted of a total of 400,000
shares of common stock of the Company, $500,000 in cash and the issuance of
non-recourse promissory notes to Messrs. Browne and Schmidt in the aggregate
principal amount of $900,000. Such notes have subsequently been paid in full.
Pursuant to the Common Stock Purchase Agreement, the Company, Messrs. Browne
and Schmidt entered into an Amended and Restated Stockholders' Agreement to
provide for elections of directors and other matters relating to Soundview. In
addition, as part of the transaction, Soundview entered into five year
employment agreements with each of Messrs. Browne and Schmidt. Also, the Company
agreed to promptly file and maintain a registration statement with the
Commission covering the proposed resale of shares of the Company's common stock
by Messrs. Browne and Schmidt. The registration statement was filed and declared
effective by the Commission in September 1997.
Mr. Browne was and remains the President and Chief Executive Officer of
Soundview Technologies. Mr. Browne is also the Chief Executive Officer and
majority owner of Greenwich Information Technologies LLC, an entity in which the
Company has a substantial minority ownership interest. Mr. Schmidt was and
remains the Vice President and Director of Technology of Soundview.
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TRANSACTION WITH H. LEE BROWNE. On April 2, 1998, the Company acquired a
25% interest in Internet Software LLC, a Delaware limited liability company, for
$2.5 million in cash. Internet Software LLC is engaged in business activities
relating to internet software. Following the Company's investment, Mr. Browne
holds a 33.4% interest in Internet Software LLC. Mr. Browne is employed as the
chief executive officer of Internet Software LLC.
COMPENSATION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
The Company's executive compensation program is administered by the
Compensation Committee of the Board of Directors. The Compensation Committee is
responsible for approving the compensation package of each executive officer and
recommending it to the Board of Directors as well as administering the 1996
Stock Option Plan. In making decisions regarding executive compensation, the
Compensation Committee considers the input of the Company's management and other
directors.
The Company's executive compensation program consists of a mixture of base
salary, cash bonuses, and stock awards. In determining the total amount and
mixture of the compensation package for each executive officer, the Compensation
Committee and the Board of Directors subjectively consider the overall value to
the Company of each executive in light of numerous factors such as competitive
position, individual performance, including past and expected contribution to
the Company's goals of each executive officer, and the Company's long-term needs
and goals, including attracting and retaining key management personnel.
The Compensation Committee will periodically review the individual base
salaries of the executive officers, and adjust salaries based on individual job
performance and changes in the officer's duties and responsibilities. In making
salary decisions, the Compensation Committee exercises its discretion and
judgment based on these factors. No specific formula is applied to determine the
weight of each factor.
Long-term incentive compensation is realized through granting of stock
options to most employees, including eligible executive officers. The Company
has no other long-term incentive plans. Stock options are granted by the Company
to aid in the retention of employees and to align the interests of employees
with those of the shareholders. In addition, the Compensation Committee believes
that the grant of an equity interest serves to link management interests with
shareholder interest and to motivate executive officers to make long-term
decisions that are in the best interests of the Company and the shareholders as
well as provides an incentive to maximize shareholder value. Stock options have
value for an employee only if the price of the Company's Common Stock increases
above the exercise price on the grant date and the employee remains in the
Company's employ for the period required for the stock to be exercisable, thus
providing an incentive to remain in the Company's employ.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
Paul R. Ryan, who was named the Company's President and Chief Executive
Officer in January 1997, received an annual base salary of $60,000. Mr. Ryan
also received a bonus of $5,000, which was no more than the bonus amount paid to
each executive officer of the Company in 1997. When Mr. Ryan was appointed Vice
President, Capital Management in August 1995 and later Executive Vice President
and Chief Investment Officer in May 1996, he received no salary for these
additional duties. The cash amounts paid to Mr. Ryan in the form of base salary
and bonus were recommended to the Board of Directors by the Compensation
Committee. In exercising its discretion and judgment in reaching its
recommendation, the Compensation Committee took into consideration the various
factors and criteria described above as well as (a) Mr. Ryan's compensation as a
general partner in the investment funds, which is pursuant to an agreement
entered into prior to his being named an officer of the Company that entitles
him to receive 25% of the performance and management fees for investment
advisory services rendered the funds; and
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(b) Mr. Ryan's additional duties and responsibilities as President and Chief
Executive Officer. The Board of Directors approved the Compensation Committee's
recommendation.
IMPACT OF SECTION 162(m) OF THE INTERNAL REVENUE CODE
The Company does not believe Section 162(m) of the Internal Revenue Code of
1986, as amended (the "Code"), which disallows a tax deduction for certain
compensation in excess of $1 million, will generally have an effect on the
Company. The Compensation Committee reviews the potential effect of Section
162(m) periodically and will consider various alternatives for preserving the
deductibility of compensation payments. However, the Compensation Committee will
not necessarily limit compensation to that which is deductible.
<TABLE>
<S> <C>
Respectfully Submitted by the Compensation
Committee of the Board of Directors
Fred A. de Boom
Edward Frykman
</TABLE>
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total shareholder return on the
Common Stock of the Company for the last ten fiscal quarters with the cumulative
total return of (i) the Composite Index for The Nasdaq Stock Market (U.S.
Companies) (the "Nasdaq Index") and (ii) the Index for Nasdaq Financial Stocks
(the "Industry Index"). This graph assumes the investment of $100 on June 30,
1995 in the Company's Common Stock, the Nasdaq Index and the Industry Index and
assumes dividends are reinvested. Measurement points are at the last trading day
of the fiscal quarters represented below.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
ACACIA RESEARCH CORPORATION NASDAQ STOCK MARKET (US) NASDAQ FINANCIAL STOCKS
<S> <C> <C> <C>
6/30/95 100.00 100.00 100.00
9/29/95 125.00 112.04 113.95
12/29/95 100.00 113.41 122.24
3/29/96 145.83 118.71 127.18
6/28/96 133.33 128.40 130.19
9/30/96 170.83 132.97 141.22
12/31/96 125.00 139.51 156.73
3/31/97 120.83 132.00 163.51
6/30/97 114.58 156.20 190.40
9/30/97 200.00 182.62 222.19
12/31/97 133.33 171.27 240.55
</TABLE>
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PROPOSAL NO. 2: APPROVAL OF AMENDMENTS
TO THE 1996 STOCK OPTION PLAN
(ITEM 2 ON PROXY CARD)
At the Annual Meeting, shareholders will be asked to approve amendments,
adopted by the Board of Directors on March 30, 1998 (the "Amendments"), to the
1996 Stock Option Plan (as modified by the Amendments, the "1996 Plan", unless
the context otherwise dictates). The Amendments have the following effects:
INCREASED NUMBER OF SHARES SUBJECT TO THE 1996 PLAN. The Amendments would
increase the authorized number of shares of Common Stock subject to the 1996
Plan by 250,000 shares (an additional 225,000 in the Key Employee Program and
25,000 in the Non-Employee Director Program). At the time the 1996 Plan was
first adopted, an aggregate of 250,000 shares of Common Stock was set aside for
delivery under the 1996 Plan, of which a maximum of 200,000 shares may be
delivered under the Key Employee Program and a maximum of 50,000 shares may be
delivered under the Non-Employee Director Program. As of March 31, 1998, no
shares had been issued under the Key Employee Program, 188,000 shares were
subject to outstanding but unexercised options granted thereunder and, assuming
approval of the Amendments, a total of 237,000 shares (plus shares which become
available through expiration, cancellation or termination of outstanding but
unexercised options and subject to adjustments pursuant to the 1996 Plan) were
available thereunder. As of March 31, 1998, no shares had been issued under the
Non-Employee Director Program, 24,000 shares were subject to outstanding but
unexercised options granted thereunder and, assuming approval of the Amendments,
a total of 51,000 shares (plus shares which become available through expiration,
cancellation or termination of outstanding but unexercised options and subject
to adjustments pursuant to the 1996 Plan) were available thereunder. Because of
the relatively modest remaining capacity under the 1996 Plan, the Board of
Directors approved the Amendments.
TRANSFERABILITY RESTRICTIONS. The 1996 Plan currently provides that options
are generally nontransferable. The Amendments would clarify the existing
transfer restrictions and provide for limited exceptions. For further
description of the amended provisions see "Summary Description of the 1996
Plan-- Transferability."
The benefits to be received in 1998 as a result of the Amendments by the
Named Executive Officers, the current executive officers, the current directors
who are not officers, and all employees are not determinable, because all grants
under the initial Key Employee Program are discretionary and there is sufficient
existing capacity in the Non-Employee Director Program that approval of the
Amendments will have no near-term impact on the directors' grants.
SUMMARY DESCRIPTION OF THE 1996 PLAN
The 1996 Plan was approved by the Company's shareholders at the 1996 Annual
Meeting Except for the Amendment proposed here, no other material amendments to
the 1996 Plan have been adopted. The purposes of the 1996 Plan are to promote
the interests of the Company and its shareholders, to improve the long-term
financial performance of the Company, and to attract, motivate and retain
outside directors, members of management and key individuals by providing
competitive financial incentives.
The 1996 Plan consists of two parts: the Key Employee Program which allows
discretionary awards of generally nontransferable nonqualified stock options and
incentive stock options to officers of the Company and its subsidiaries, key
employees and certain other individuals who perform significant services for the
Company and its subsidiaries; and the Non-Employee Director Program which
provides for initial grants and automatic annual grants of nontransferable
nonqualified stock options to non-employee directors.
The following summary of the 1996 Plan, as amended by the Amendments, is
qualified in its entirety by reference to the text of the 1996 Plan and
additional provisions, not inconsistent with the 1996 Plan, set
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<PAGE>
forth in the respective award agreements entered into by recipients of options
under the 1996 Plan. Capitalized terms not otherwise defined herein have the
same meaning as set forth in the 1996 Plan, a copy of which is attached as
Exhibit A. This summary principally addresses the general provisions of the 1996
Plan; the specific terms and conditions of an option are set forth in the a
participant's award agreement. For additional information regarding certain
options and other benefits granted to certain directors and officers of the
Company, see "Election of Directors--Executive Officer Compensation."
The closing price of the Common Stock on April 6, 1998 was $16.25.
KEY EMPLOYEE PROGRAM
SHARES ISSUABLE UNDER THE KEY EMPLOYEE PROGRAM. A maximum of 425,000 shares
of Common Stock may be issued upon the exercise of options under the Key
Employee Program. The 425,000 shares represent approximately 10.7% of the Common
Stock issued and outstanding on April 6, 1998.
ELIGIBILITY. Persons entitled to receive awards under the Key Employee
Program include officers and key employees (including any executive,
administrative, managerial, production, marketing or sales employee) of the
Company or a subsidiary, as well as certain other individuals who perform
substantial services for the Company and its subsidiaries similar to those
performed by key employees (collectively, "Eligible Employees"). There are
presently approximately thirty Eligible Employees who may participate in the Key
Employee Program. Members of the Board of Directors who are not officers or
employees of the Company or its subsidiaries are not eligible to participate in
the Key Employee Program.
ADMINISTRATION. The Key Employee Program is administered by the
Compensation Committee of the Board of Directors (the "Committee"). All
Committee members must be "disinterested persons" within the meaning of Rule
16b-3 issued under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). The Committee has full authority to authorize option awards to
Eligible Employees under the 1996 Plan. The Committee determines and designates
those Eligible Employees who are to be granted options under the 1996 Plan, the
number of shares to be subject to such options and the terms and conditions of
the options granted, subject to the express provisions of the 1996 Plan and
applicable law. The Committee also has authority to interpret and construe the
provisions of the 1996 Plan and any related agreements; to prescribe, amend and
rescind rules and regulations relating to the administration of this 1996 Plan;
to cancel, modify or waive the Company's rights with respect to, or modify,
discontinue, suspend, or terminate awards held by Eligible Employees, subject to
any required consent of the holder of the option; and to accelerate or extend
the exercisability or extend the term of outstanding awards, subject to certain
limitations.
GRANT OF AWARDS. The Committee may in its discretion grant one or more
incentive stock options and/or nonqualified stock options to any Eligible
Employee. Each option confers the right to purchase shares of the Company's
Common Stock at a future date. The purchase price per share for an incentive
stock option must be at least equal to the fair market value of the Common Stock
on the award date, or 110% of the fair market value for an incentive stock
option granted to any person who at the time such option is granted owns shares
of Common Stock representing 10% of the total combined voting power of all
classes of Company stock, and such option expires five years from the grant
date. For a summary of the differences in the tax treatment of the two types of
options, see "Federal Income Tax Consequences."
EXERCISE OF OPTIONS. Unless the Committee otherwise provides, no option
granted under the Key Employee Program may be exercised until at least six
months after the initial award date, subject to acceleration as described below,
and, thereafter, such options become exercisable in one or more installments in
the manner and at the time or times specified by the Committee. Generally, once
exercisable, an option remains exercisable until its expiration or earlier
termination. No option may be exercised more than ten years after the date it is
granted or such shorter period as the Committee may determine, except that
incentive stock options granted to any person who, at the time such option is
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<PAGE>
granted, owns shares of Common Stock representing 10% of the total combined
voting power of all classes of stock of the Company shall not be exercisable
more than five years after the initial grant of such option. Subject to these
limitations, the Committee may extend or accelerate the exercisability of an
option in any circumstances it deems appropriate (including circumstances
related to a change in control or reorganization). Payment for the exercise of
an incentive stock option may be made (i) in cash, (ii) in shares of Common
Stock already owned by the option holder for at least six months, (iii) partly
in cash and partly in shares of such Common Stock, (iv) with a promissory note
secured by such Common Stock, or (v) by delivery of a notice instructing the
Company to deliver the shares being purchased to a broker, subject to the
broker's delivery of cash to the Company equal to the purchase price.
REGRANTS AND REPRICING. The Committee may grant an option holder, if he or
she is otherwise eligible, a new or modified option in lieu of an option granted
prior thereto, for a number of shares, at an exercise price, and for a term,
which in any of such respects is greater or lesser than that under the earlier
option, or may effect similar results by cancellation and regrant, amendment,
substitution or otherwise, subject only to the general limitations under the
1996 Plan or under applicable law. Certain of such changes may require the
consent of the holder of the option.
RELOAD OPTIONS. The Committee may authorize an option holder who uses
already-owned shares of Common Stock to pay for the exercise of options to
simultaneously receive a new "reload" option. Subject to certain limitations
specified in the 1996 Plan, such reload options would give the option holder the
right to purchase the same number of shares of Common Stock as such option
holder used to pay for the exercise of the earlier options. The exercise price
of the reload option would be equal to the fair market value of a share of
Common Stock on the date of exercise of the initial option to which the reload
feature relates. The reload option would only exercisable if (i) the option
holder is an Eligible Employee on the exercise date, (ii) the exercise occurs at
least six months after its date of grant and (iii) the initial option to which
the reload option relates has not expired or the Committee has extended the
period in which the reload option may be exercised. The Committee may also
authorize the grant of additional reload options for the number of shares of
Common Stock used to pay for the exercise of any prior reload option. In no
event, however, shall the aggregate number of additional shares authorized by
reload options exceed 50% of the maximum number of shares initially deliverable
(subject to adjustments in accordance with the 1996 Plan) on exercise of the
base option.
TERMINATION OF EMPLOYMENT. The Committee may provide in the option
agreements (which need not be the same) or otherwise, the extent, if any, to
which options will remain exercisable by an Eligible Employee or the Eligible
Employee's personal representative or beneficiary after an Eligible Employee's
employment by the Company terminates for any reason, including voluntary or
involuntary termination, retirement, disability or death, and the extent, if
any, to which the exercisability of options may be accelerated or extended upon
termination of employment. The Committee may make distinctions based upon the
cause of termination in establishing the effect of a termination of employment
on the rights and benefits under an award.
LIMITS ON GRANTS. The maximum number of shares of Common Stock that are
issuable under options that during any calendar year are granted to any Eligible
Employee participating in the Key Employee Program may not exceed 100,000,
subject to certain adjustments in accordance with the 1996 Plan.
To the extent that the aggregate "fair market value" (as defined below) of
stock with respect to which incentive stock options first become exercisable by
a participant in any calendar year exceeds $100,000, taking into account Common
Stock subject to incentive stock options under both the 1996 Plan and all other
plans of the Company, such options shall be treated as nonqualified stock
options. In reducing the number of options treated as incentive stock options to
meet the $100,000 limit, the most recently granted options shall be reduced
first. To the extent a reduction of simultaneously granted options is necessary
to meet the $100,000 limit, the Committee may, in the manner and to the extent
permitted by law, designate which shares of Common Stock are to be treated as
shares acquired pursuant to the exercise of an
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<PAGE>
incentive stock option. For the purpose set forth above, the "fair market value"
of the stock subject to options shall be determined as of the date the options
were awarded.
The maximum number of shares of Common Stock that may be delivered pursuant
to incentive stock options granted under the 1996 Plan is 425,000, subject to
adjustment in accordance with the 1996 Plan.
NON-EMPLOYEE DIRECTOR PROGRAM
SHARES ISSUABLE UNDER THE NON-EMPLOYEE DIRECTOR PROGRAM. A maximum of
75,000 shares of Common Stock may be issued upon the exercise of options under
the Non-Employee Director Program. The 75,000 shares represent approximately
1.9% of the Common Stock issued and outstanding on April 6, 1998.
ADMINISTRATION. The Non-Employee Director Program provides for automatic
grants to members of the Board of Directors who are not officers or employees of
the Company or its subsidiaries. Two persons are eligible only for the
Non-Employee Director Program.
GRANTS OF AWARDS. Only nonqualified stock options will be awarded under the
Non-Employee Director Program. Under this Program, each person who was a
Non-Employee Director at the time of the 1996 Plan's adoption by the Board on
April 16, 1996 was granted automatically, subject to the approval of
shareholders at the annual shareholders meeting on May 14, 1996, a nonqualified
stock option to purchase 10,000 shares of the Company's Common Stock. In
addition, on the first business day in each calendar year during the term of the
1996 Plan following the approval of the 1996 Plan by the shareholders of the
Company, each person who is a Non-Employee Director as of such date will be
granted automatically on each such date a nonqualified stock option to purchase
1,000 shares of Common Stock. Except in the event of certain change of control
events described in the 1996 Plan, the options will be exercisable in full
commencing on the first anniversary of their grant, with the exception of the
one-time nonqualified stock options granted to all Non-Employee Directors to
purchase 10,000 shares of the Company's Common Stock, which such options shall
vest at the rate of 2,500 shares of Common Stock per year on each of the first
four anniversaries of the date of such grant.
EXERCISE OF OPTIONS. Options awarded under the Non-Employee Director
Program become exercisable in full 12 months after the award date and expire on
the fifth anniversary of the award date. Such options become immediately
exercisable in full upon a change in control event, which includes certain
charges in ownership of more than 50% of the outstanding stock and certain
mergers, asset sales and changes in Board composition. Payment for the exercise
of an option may be made (i) in cash, (ii) in shares of Common Stock already
owned by the option holder, or (iii) partly in cash and partly in shares of
Common Stock.
TERMINATION OF DIRECTORSHIP. When a non-employee director's services as a
member of the Board of Directors terminate for any reason, the director's
options, to the extent they are exercisable on such date, shall remain
exercisable for six months after the date of such termination or until the
expiration of their stated term, whichever occurs first. Any option which is not
exercisable on the date of termination of such services will terminate upon a
termination of service of the director.
LIMITS ON GRANTS. The number of shares of Common Stock that are subject to
annual options automatically granted to each Non-Employee Director Participant
is currently fixed at 1,000 for each such option. The number of shares of Common
Stock that are subject to one-time options automatically granted to each
Non-Employee Director Participant is 10,000 for each such option, subject to
adjustment in accordance with the Plan.
LIMITATION ON AMENDMENTS. The provisions of the Non-Employee Director
Program shall not be amended more than once every six months (other than as may
be necessary to conform to any applicable charges in the Code or ERISA or, in
each case, the rules thereunder), unless such amendment would be consistent with
the provisions of Rule 16b-3(c)(2)(ii) (or any successor provision).
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The maximum number of shares that may be issued upon the exercise of all
options granted to Non-Employee Directors under the Non-Employee Director
Program is 75,000, subject to adjustment in accordance with the 1996 Plan.
AMENDMENTS AND MISCELLANEOUS
SHARES AVAILABLE FOR AWARDS-REPLENISHMENT. Shares relating to awards
granted under the 1996 Plan that are expired or cancelled or terminated without
having been exercised in full, typically will again be available for purposes of
the 1996 Plan, subject to any applicable limitations under Rule 16b-3. In
addition, the 1996 Plan authorizes the reissue of an indeterminate number of
shares delivered to pay the exercise price or delivered or offset to pay
withholding taxes in respect of an award granted thereunder, provided, however,
that, to the extent required to maintain the 1996 Plan's status as a qualifying
plan under Rule 16b-3, such shares shall be available for subsequent awards only
to Eligible Employees who are not Section 16 Persons; provided further that
(except as otherwise permitted by the Code) no such shares shall be available
for future grants of incentive stock options under this 1996 Plan.
ADJUSTMENT AND ACCELERATION. The number and kind of shares available under
the 1996 Plan, as well as the number and price of shares subject to outstanding
options granted thereunder and other share amounts or limits under the 1996
Plan, are subject to adjustment in the event of any extraordinary dividend or
other extraordinary distribution in respect of the Common Stock, or any
recapitalization, stock split (including a stock split in the form of a stock
dividend), reverse stock split, reorganization, merger, combination,
consolidation, split-up, spin-off, combination, repurchase, or exchange of
Common Stock for other securities of the Company, or other similar events, so
that after any such event, the participant's proportionate interest will be
maintained as before the occurrence of any such event. However, options granted
to Non-Employee Director Participants shall be adjusted as described above only
to the extent that such adjustment satisfies applicable criteria under Rule
16b-3, and such adjustment is consistent with adjustments to options held by
persons other than executive officers or directors of the Company.
Upon the occurrence of a change in control, each option granted under the
1996 Plan to an Eligible Employee participant will immediately become
exercisable, unless the Committee, prior to such change in control, determines
otherwise. Generally speaking, a change in control occurs under the 1996 Plan
when (i) 20% or more of the combined voting power in the election of directors
of the Company's then outstanding securities is acquired by any entity or group,
(ii) a majority of the directors are replaced in a proxy context, (iii) the
shareholders of the Corporation approve the dissolution or liquidation of the
Corporation, or an agreement to merge, consolidate or otherwise reorganize
(other than with a subsidiary), as a result of which less than 50% of the voting
securities of the surviving entity are owned by shareholders of the Company
prior to such reorganization, or (iv) the Shareholders approve the sale of
substantially all of the Company's business and/or assets (other than to a
subsidiary).
TERMINATION OF OR CHANGES TO THE 1996 PLAN. The authority to grant new
options under the 1996 Plan will terminate on April 15, 2006, unless the 1996
Plan is terminated prior to that time by the Board of Directors. The Board of
Directors may terminate or amend the 1996 Plan at any time, except for certain
exceptions regarding the frequency of amendments to the Non-Employee Director
Program, but no amendment may, without the approval of the shareholders, (i)
materially increase the benefits accruing to participants under the 1996 Plan,
(ii) materially increase the aggregate number of shares which may be issued
under the 1996 Plan, or (iii) materially modify the requirements of eligibility
for participation. No amendment, suspension or termination of the 1996 Plan
will, without the written consent of the participant, materially adversely
affect any rights or benefits of such participant or obligations of the Company
under any then outstanding award granted under the 1996 Plan.
TRANSFERABILITY. The 1996 Plan provides that all options are
non-transferable and will not become subject in any manner to sale, transfer,
anticipation, alienation, assignment, pledge, encumbrance or charge. The
Committee may, however, permit options to be exercised by certain persons or
entities related
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<PAGE>
to a participant for estate and/or tax planning purposes. Incentive stock
options and restricted stock awards will be further subject to all applicable
transfer restrictions under the Code. Only the participant, subject to the above
exceptions, may exercise an option during the participant's lifetime.
AWARD AGREEMENT. Each option granted to a Participant must be evidenced by
a written Award Agreement executed by the Participant and an authorized officer
of the Company, containing all the terms and conditions of the Option. Award
Agreements need not be identical and the terms of individual Award Agreements
are determined by the Committee, subject to the limitations described in the
1996 Plan.
COMPLIANCE WITH LAWS. Any securities delivered under the 1996 Plan shall be
subject to all applicable federal and state laws, rules and regulations
(including but not limited to state and federal securities laws and federal
margin requirements) and to such regulatory approvals as may, in the opinion of
counsel for the Company, be necessary or advisable in connection therewith, and
the person acquiring such securities must, if requested by the Company, provide
such assurances and representations to the Company as the Company may deem
necessary or desirable to assure compliance with all applicable legal
requirements.
1996 PLAN NOT EXCLUSIVE. The 1996 Plan does not limit the authority of the
Board of Directors or the Committee to grant awards or authorize any other
compensation, with or without reference to Common Stock, under any other plan or
authority. Shareholder approval of the Amendments, however, will not be deemed
to constitute approval of any such other compensatory awards.
FEDERAL INCOME TAX CONSEQUENCES
The federal income tax consequences of the 1996 Plan under current federal
law, which is subject to change, are summarized in the following discussion
which deals with the general tax principles applicable to the 1996 Plan. State
and local consequences are beyond the scope of this summary.
NONQUALIFIED STOCK OPTIONS. In general, no taxable income will be
recognized by an Eligible Employee or Non-Employee Director who receives an
award under the 1996 Plan (a "Participant") upon the grant of a nonqualified
stock option under the 1996 Plan. Upon the exercise of a nonqualified stock
option, the Participant will recognize ordinary income in an amount equal to the
excess of the fair market value of the Common Stock over the option exercise
price, and the Company will be entitled to a corresponding deduction. Upon a
subsequent disposition of the Common Stock, the Participant will recognize
short-term or long-term capital gain or loss, depending on how long the Common
Stock is held. The Company will not be entitled to any further deduction at that
time.
INCENTIVE STOCK OPTIONS. A Participant who is granted an incentive stock
option under the 1996 Plan will not recognize taxable income either on the date
of grant or on the date of its exercise, provided that, in general, the exercise
occurs during employment or within three months after termination of employment.
If Common Stock acquired pursuant to an incentive stock option is not sold or
otherwise disposed of within two years from the date of grant of the option nor
within one year after the date of exercise, any gain or loss resulting from
disposition of the Common Stock will be treated as long-term capital gain or
loss. If stock acquired upon the exercise of an incentive stock option is
disposed of prior to the expiration of such holding periods (a "Disqualifying
Disposition"), the Participant will recognize ordinary income in the year of
such disposition in an amount equal to the excess of the fair market value of
the Common Stock on the date of exercise over the exercise price or, if less,
the excess of the amount realized on the Disqualifying Disposition over the
exercise price. Any remaining gain or any net loss will be treated as a short-,
intermediate-, or long-term capital gain or loss, depending upon how long the
Common Stock is held. Unlike the case in which a nonqualified stock option is
exercised, the Company is not entitled to a tax deduction upon either the grant
or exercise of an incentive option or upon disposition of the Common Stock
acquired pursuant to such exercise, except to the extent that the Participant
recognizes ordinary income in a Disqualifying Disposition.
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ACCELERATED PAYMENTS. If, as a result of certain changes in control of the
Company, a recipient's options become immediately exercisable, the additional
economic value, if any, attributable to the acceleration may be deemed a
"parachute payment." The additional value will generally be deemed a parachute
payment if such value, when combined with the value of other payments which are
deemed to result from the change in control, equals or exceeds a threshold
amount equal to 300% of the recipient's average annual taxable compensation over
the five calendar years preceding the year in which the change in control
occurs. In such case, the excess of the total parachute payments over such
recipient's average annual taxable compensation will be subject to a 20%
nondeductible excise tax in addition to any income tax payable. The Company will
not be entitled to a deduction for that portion of any parachute payment which
is subject to the excise tax.
SECTION 162(M) LIMITS ON DEDUCTIBILITY. Section 162(m) of the Internal
Revenue Code of 1986, as amended, limits the amount which may be deducted by the
Company with respect to compensation paid to the Chief Executive Officer and the
four other most highly compensated executives to $1 million per tax year for
each individual, unless such excess compensation is "performance-based" or is
otherwise exempt from Section 162(m). The applicable conditions of an exemption
for a performance-based compensation plan include, among others, a requirement
that the shareholders approve the material terms of the 1996 Plan. Stock options
that may be granted under the 1996 Plan (other than any nonqualified stock
options granted at below market value exercise prices) are intended to qualify
for the exemption for performance-based compensation under Section 162(m).
VOTE REQUIRED
SHAREHOLDERS SHOULD NOTE THAT BECAUSE THE DIRECTORS ARE ELIGIBLE TO RECEIVE
OPTIONS UNDER THIS PROPOSAL, THE DIRECTORS HAVE A PERSONAL INTEREST IN ITS
APPROVAL. HOWEVER, THE MEMBERS OF THE BOARD ALSO BELIEVE THAT THE AMENDMENTS TO
THE 1996 PLAN ARE IN THE BEST INTEREST OF THE COMPANY AND ITS SHAREHOLDERS.
The favorable vote of a majority of votes cast regarding the proposal is
required to approve the Amendments. If they are not approved, the Amendments
will not be adopted. THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE
FOR THE APPROVAL OF THE AMENDMENTS TO THE 1996 PLAN AS DESCRIBED ABOVE. PROXIES
RECEIVED WILL BE SO VOTED UNLESS SHAREHOLDERS SPECIFY OTHERWISE IN THE PROXY.
PROPOSAL NO. 3: AMENDMENT OF THE ARTICLES OF INCORPORATION
(ITEM 3 ON PROXY CARD)
The Board of Directors has approved and unanimously recommended for approval
of the shareholders an amendment to the Company's Articles of Incorporation to
increase the number of authorized shares of Common Stock from 10,000,000 to
30,000,000 shares (the "Charter Amendment"). The text of the Charter Amendment
is set forth below:
RESOLVED, that Article IV of the Company's Articles of Incorporation be
amended to read as follows:
"This corporation is authorized to issue only one class of shares of
stock, designated 'Common Stock' and the number of shares of Common
Stock authorized to be issued is 30,000,000, without par value."
The additional shares of Common Stock could be used for a variety of
purposes, including financing transactions, acquisitions and other corporate
purposes. The Board of Directors will have the authority to issue the additional
shares authorized under the Charter Amendment without further action by the
shareholders. The Board of Directors announced its intention to declare a
two-for-one stock split in the form of a stock dividend of one share of common
stock for each common share outstanding (the "Stock Split"), contingent upon
approval of this proposal to amend the Articles of Incorporation to increase the
number of authorized shares. If approved, the Company will distribute the stock
dividend on or about June 12, 1998 for each share held of record at the close of
business on May 29, 1998.
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As of the Record Date, there were 10,000,000 shares of Common Stock
authorized, of which 3,967,080 shares (39.7%) were issued and outstanding, and
6,032,920 shares (60.3%) were unissued, of which 1,204,700 shares (12.0%) were
reserved for issuance under outstanding options and 773,122 shares (7.7%) were
issuable upon exercise of outstanding warrants (subject to adjustment pursuant
to certain antidilution provisions contained in the warrants). Because the
proposed Stock Split is expected to utilize a significant number of the
currently authorized, but unissued and unreserved shares of Common stock, the
board of Directors believes that the adoption of the Charter Amendment is
advisable both to enable the proposed Stock Split and also to provide the
Company with sufficient flexibility to undertake future financings and
acquisitions, grant stock options, and carry out other corporate objectives. At
the present time, there are no agreements, understandings or arrangements for
the issuance of the additional shares of Common Stock, except through the Stock
Split and pursuant to outstanding options and warrants.
The issuance of additional shares of Common Stock may, among other things,
dilute the equity or book value per share, earnings per share and voting rights
of current holders of Common Stock. An increase in the number of authorized
shares could make it more difficult for a third party to acquire, or could
discourage a third party from seeking to acquire, a majority of the outstanding
voting stock of the Company.
VOTE. The favorable vote of a majority of votes of the shares issued and
outstanding is required to approve the Charter Amendment. THE BOARD OF DIRECTORS
RECOMMENDS SHAREHOLDERS VOTE FOR THE APPROVAL OF THE CHARTER AMENDMENT TO THE
ARTICLES OF INCORPORATION. PROXIES RECEIVED WILL BE SO VOTED UNLESS SHAREHOLDERS
SPECIFY OTHERWISE IN THE PROXY.
PROPOSAL NO. 4: RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS
(ITEM 4 ON PROXY CARD)
The firm of Price Waterhouse LLP, the Company's independent accountants for
the year ended December 31, 1997, was recommended by the Audit Committee, whose
selection was approved by the Board of Directors to act in such capacity for the
fiscal year ending December 31, 1998, subject to ratification by the
shareholders. Price Waterhouse LLP has served as the principal independent
accountants for the Company since April 1997. There are no affiliations between
the Company and Price Waterhouse LLP, its partners, associates or employees,
other than as pertain to the engagement of Price Waterhouse LLP as independent
accountants for the Company.
On April 28, 1997, the Company changed its independent accountants from
Finocchiaro & Co. to Price Waterhouse LLP This change was made because of the
developing complexity of the Company's financial statements and the Company's
status as a reporting company under the Exchange Act. Neither of the reports of
Finocchiaro & Co. for the years ended December 31, 1996 and 1995 contained an
adverse opinion or a disclaimer of opinion, or was qualified or modified as to
uncertainty, audit scope, or accounting principles. The decision to change
independent accountants was approved by the Audit Committee of the Board of
Directors, by delegated authority of the Board of Directors of the Company.
Since January 1, 1995, there were no disagreements with Finocchiaro & Co. on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, and none of the events set forth in
paragraphs (a)(1)(v)(A) through (D) of Item 304 of Regulation S-K occurred.
Since January 1, 1995, neither the Company nor anyone acting on its behalf (i)
has received from Price Waterhouse LLP either a written report or oral advice
relating to the application of accounting principles to a specified transaction,
either completed or proposed, or the type of audit opinion that might be
rendered on the Company's financial statements, which was an important factor
considered by the Company in reaching a decision as to the accounting, auditing
or financial reporting issue; or (ii) has consulted Price Waterhouse LLP
regarding any matter that was either the subject of a disagreement (as defined
in Item 304(a)(1)(iv) of Regulation S-K and the related instructions to the
Item) or a reportable event (as described in Item 304(a)(1)(iv) of Regulation
S-K).
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If the shareholders of the Company do not ratify the selection of Price
Waterhouse LLP, or if such firm should decline to act or otherwise become
incapable of acting, or if the employment should be discontinued, the Board of
Directors, on the recommendation of the Audit Committee, will appoint substitute
independent accountants. A representative of Price Waterhouse LLP will be
present at the Annual Meeting, will be given the opportunity to make a statement
if he or she so desires, and will be available to respond to appropriate
questions.
VOTE. The favorable vote of a majority of votes cast regarding the proposal
is required to ratify the selection of Price Waterhouse LLP. THE BOARD OF
DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE PROPOSAL TO RATIFY THE
SELECTION OF PRICE WATERHOUSE LLP AS THE COMPANY'S INDEPENDENT ACCOUNTANTS FOR
THE YEAR ENDING DECEMBER 31, 1998. PROXIES RECEIVED WILL BE SO VOTED UNLESS
SHAREHOLDERS SPECIFY OTHERWISE IN THE PROXY.
OTHER MATTERS
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors,
executive officers and holders of more than 10% of the Company's Common Stock to
file with the Commission initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company. The
Company believes that, based on the written representations of its directors and
officers, and the copies of reports filed with the Commission during the fiscal
year ended December 31, 1997 by its directors, officers and holders of more than
10% of the Company's Common Stock complied with the requirements of Section
16(a) with the exception of: (i) Dr. Ching, who did not timely file Form 3; (ii)
Mr. Ryan, Ms. King-Van Wie, Mr. de Boom and Mr. Frykman, who did not timely file
Form 5 to report one transaction each; and (iii) Mr. Stewart, who did not timely
file Form 4 to report two transactions.
ANNUAL REPORT TO SHAREHOLDERS
Enclosed with this Proxy Statement is the Annual Report of the Company for
the 1997 fiscal year. The Annual Report is enclosed for the convenience of
stockholders only and should not be viewed as part of the proxy solicitation
material. If any person who was a beneficial owner of Common Stock of the
Company on the Record Date for the 1998 Annual Meeting desires additional copies
of the Company's Annual Report, the same will be furnished without charge upon
receipt of a written request. The request should identify the person making the
request as a shareholder of the Company as of the Record Date and should be
directed to Kathryn King-Van Wie, Acacia Research Corporation, 12 South Raymond
Avenue, Pasadena, California 91105.
SHAREHOLDER PROPOSALS
Proposals of shareholders which are intended to be presented by such
shareholders at the Company's 1999 Annual Meeting must be received by the
Company no later than December 26, 1998 in order that they may be included in
the proxy statement and form of proxy relating to that meeting.
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OTHER BUSINESS
The Company knows of no other matters to be submitted to the shareholders at
the Annual Meeting. If any other matters properly come before the shareholders
at the Annual Meeting, it is the intention of the persons named on the enclosed
proxy card to vote the shares they represent as the Board of Directors may
recommend.
Dated: April 24, 1998
BY ORDER OF THE BOARD OF DIRECTORS
[SIG]
Kathryn King-Van Wie
SECRETARY
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EXHIBIT A
ACACIA RESEARCH CORPORATION
1996 STOCK OPTION PLAN
(as amended March 30, 1998)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I. THE PLAN...................................................... 1
Section 1.1 Purpose.................................................. 1
Section 1.2 Administration and Authorization; Power and Procedure.... 1
Section 1.3 Participation............................................ 2
Section 1.4 Shares Available for Awards.............................. 2
Section 1.5 Grant of Awards.......................................... 3
Section 1.6 Award Period............................................. 3
Section 1.7 Exercise and Vesting of Awards........................... 3
Section 1.8 No Transferability....................................... 3
ARTICLE II. KEY EMPLOYEE OPTIONS......................................... 4
Section 2.1 Grants................................................... 4
Section 2.2 Option Price............................................. 4
Section 2.3 Limitations on Grant and Terms of Incentive Stock
Options.............................................................. 5
Section 2.4 Limits on 10% Holders.................................... 6
Section 2.5 Option Repricing/Cancellation and Regrant................ 6
Section 2.6 Limit on Grants to any Individual........................ 6
ARTICLE III. NON-EMPLOYEE DIRECTOR OPTIONS............................... 6
Section 3.1 Participation............................................ 6
Section 3.2 Annual Option Grants..................................... 6
Section 3.3 Option Price............................................. 7
Section 3.4 Option Period............................................ 7
Section 3.5 Exercise of Options...................................... 7
Section 3.6 Termination of Directorship.............................. 7
Section 3.7 Adjustments.............................................. 7
Section 3.8 Acceleration Upon a Change in Control Event.............. 7
ARTICLE IV. OTHER PROVISIONS............................................. 8
Section 4.1 Rights of Eligible Employees, Participants and
Beneficiaries........................................................ 8
Section 4.2 Adjustments; Acceleration................................ 8
Section 4.3 Effect of Termination of Employment...................... 9
Section 4.4 Compliance with Laws..................................... 9
Section 4.5 Tax Withholding.......................................... 9
Section 4.6 Plan Amendment, Termination and Suspension; Changes in
Awards............................................................... 9
Section 4.7 Privileges of Stock Ownership............................ 10
Section 4.8 Effective Date of Plan................................... 10
Section 4.9 Term of the Plan......................................... 10
Section 4.10 Governing Law/Construction/Severability................. 10
Section 4.11 Captions................................................ 11
Section 4.12 Effect of Change of Subsidiary Status................... 11
Section 4.13 Non-Exclusivity of Plan................................. 11
ARTICLE V. DEFINITIONS................................................... 11
Section 5.1 Definitions.............................................. 11
</TABLE>
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ACACIA RESEARCH CORPORATION
1996 STOCK OPTION PLAN
(AS AMENDED MARCH 30, 1998)
ARTICLE I. THE PLAN
SECTION 1.1 PURPOSE.
The purpose of this Plan is to promote the success of the Company by
providing an additional means through the grant of Awards (a) to attract,
motivate and retain key employees, including officers (whether or not
directors), of the Company with rewards and incentives for high levels of
individual performance and improved financial performance of the Company under
the "Key Employee Program" in Article II, and (b) to attract, motivate and
retain experienced and knowledgeable independent directors through the benefits
provided under the "Non-Employee Director Program" in Article III. "Corporation"
means Acacia Research Corporation and "Company" means the Corporation and its
Subsidiaries, collectively. These terms and other capitalized terms if not
defined elsewhere in the text of this Plan, are defined in Article V.
SECTION 1.2 ADMINISTRATION AND AUTHORIZATION; POWER AND PROCEDURE.
(a) COMMITTEE. This Plan shall be administered by and all Awards to
Eligible Employees shall be authorized by the Committee. Any action of the
Committee with respect to the administration of this Plan shall be taken
pursuant to a majority vote or by written consent of its members.
(b) PLAN AWARDS; INTERPRETATION; POWERS OF COMMITTEE. Subject to the
express provisions of this Plan, the Committee shall have the authority:
(i) to determine from among those eligible persons the particular
Eligible Employees who will receive any Awards;
(ii) to grant Awards to Eligible Employees, determine the price at
which securities will be offered or awarded and the amount of securities
to be offered or awarded to any of such persons, and determine the other
specific terms and conditions of such Awards consistent with the express
limits of this Plan, and establish the installments (if any) in which
such Awards shall become exercisable, or determine that no delayed
exercisability is required, and establish the events of termination of
such Awards;
(iii) to approve the forms of Award Agreements (which need not be
identical either as to type of award or among Participants);
(iv) to construe and interpret this Plan and any agreements defining
the rights and obligations of the Company and Eligible Employee
Participants under this Plan, further define the terms used in this Plan,
and prescribe, amend and rescind rules and regulations relating to the
administration of this Plan;
(v) to cancel, modify or waive the Corporation's rights with respect
to, or modify, discontinue, suspend, or terminate any or all outstanding
Awards held by Eligible Employees, subject to any required consent under
Section 4.6;
(vi) to accelerate or extend the exercisability or extend the term
of any or all such outstanding Awards within the maximum ten-year term of
Awards under Section 1.6; and
(vii) to make all other determinations and take such other action as
contemplated by this Plan or as may be necessary or advisable for the
administration of this Plan and the effectuation of its purposes.
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Notwithstanding the foregoing, the provisions of Article III relating to
Non-Employee Director Awards shall be non-discretionary, automatic and, to the
maximum extent possible, self-effectuating. To the extent required, any
interpretation or administration of this Plan in respect of Options granted
under Article III will be the responsibility of the Board.
(c) BINDING DETERMINATIONS. Any action taken by, or inaction of, the
Corporation, any Subsidiary, the Board or the Committee relating or pursuant
to this Plan shall be within the absolute discretion of that entity or body
and shall be conclusive and binding upon all persons. No member of the Board
or Committee, or officer of the Corporation or any Subsidiary, shall be
liable for any such action or inaction of the entity or body, of another
person or, except in circumstances involving bad faith, of himself or
herself. Subject only to compliance with the express provisions hereof, the
Board and Committee may act in their absolute discretion in matters within
their authority related to this Plan.
(d) RELIANCE ON EXPERTS. In making any determination or in taking or
not taking any action under or with respect to this Plan, the Committee or
the Board, as the case may be, may obtain and may rely upon the advice of
experts, including professional advisors to the Corporation. No director,
officer or agent of the Company shall be liable for any such action or
determination taken or made or omitted in good faith.
(e) DELEGATION. The Committee may delegate ministerial,
non-discretionary functions to individuals who are officers or employees of
the Company.
SECTION 1.3 PARTICIPATION.
Awards may be granted by the Committee only to those persons that the
Committee determines to be Eligible Employees. An Eligible Employee who has been
granted an Award may, if otherwise eligible, be granted additional Awards if the
Committee shall so determine. Non-Employee Directors shall not be eligible to
receive any Awards except for Nonqualified Stock Options granted automatically
without further action of the Committee under the provisions of Article III.
SECTION 1.4 SHARES AVAILABLE FOR AWARDS.
Subject to the provisions of Section 4.2, the capital stock that may be
delivered under this Plan shall be shares of the Corporation's authorized but
unissued Common Stock. The shares may be delivered for any lawful consideration.
(a) NUMBER OF SHARES. The maximum aggregate number of shares of Common
Stock that may be delivered pursuant to all Awards granted under this Plan
(including under Articles II and III) shall not exceed 500,000 shares (the
"Share Limit") and the maximum number of shares of Common Stock that may be
delivered under the provisions of Article III shall not exceed 75,000
shares. The maximum number of shares of Common Stock that may be delivered
pursuant to Options qualified as Incentive Stock Options granted under this
Plan is 425,000. Each of the three foregoing numerical limits shall be
subject to adjustments as contemplated by Section 4.2.
(b) CALCULATION OF AVAILABLE SHARES AND REPLENISHMENT. No Option may
be granted under this Plan unless, on the date of grant, the sum of (i) the
maximum number of shares of Common Stock issuable at any time pursuant to
such Option, plus (ii) the number of shares of Common Stock that have
previously been issued pursuant to Options granted under this Plan, other
than reacquired shares available for reissue consistent with any applicable
limitations, plus (iii) the maximum number of shares that may be issued at
any time after such date of grant pursuant to Options that are outstanding
on such date, does not exceed the Share Limit. Shares subject to outstanding
Awards shall be reserved for issuance. If any Award shall expire or be
cancelled or terminated without having been exercised in full, the
unpurchased shares subject thereto shall again, except to the extent
prohibited by law, be
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available for the purposes of the Plan. In addition, any Common Stock which
is used by an Eligible Employee Participant as full or partial payment to
the Company for the purchase of Common Stock acquired upon exercise of an
Option and any shares delivered by an Eligible Employee Participant or
withheld by the Company in satisfaction of the tax withholding obligations
of such Participant, shall be available for further awards to Eligible
Employees under this Plan; PROVIDED, HOWEVER, that, to the extent required
to maintain the Plan's status as a qualifying plan under Rule 16b-3, such
shares shall be available for subsequent awards only to Eligible Employees
who are not Section 16 Persons; PROVIDED FURTHER that (except as otherwise
permitted by the Code) no such shares shall be available for future grants
of incentive stock options under this Plan.
SECTION 1.5 GRANT OF AWARDS.
Subject to the express provisions of this Plan, the Committee shall grant
and determine the terms and conditions of all Awards to Eligible Employees, the
number of shares of Common Stock subject to each Award and the price to be paid
for the shares subject to each Award. Each Award shall be evidenced by an Award
Agreement signed by the Corporation and, if required by the Committee, by the
Participant.
SECTION 1.6 AWARD PERIOD.
All Awards to Eligible Employees and all executory rights or obligations
under the related Award Agreements shall expire on such date (if any) as shall
be determined by the Committee, but not later than 10 years after the Award
Date, and shall be subject to earlier termination as provided herein or in the
Award Agreements. The Committee from time to time may authorize by amendment to
or waiver of the Award Agreements or otherwise, as to any number of Awards or
all Awards to Eligible Employees, any extension or acceleration of benefits
thereunder.
SECTION 1.7 EXERCISE AND VESTING OF AWARDS.
(a) PROVISIONS FOR EXERCISE. Unless the Committee otherwise provides,
no Eligible Employee's Award shall be exercisable until at least 6 months
after the initial Award Date and, once exercisable, an Award shall remain
exercisable until the expiration or earlier cancellation or termination of
the Award.
(b) PROCEDURE. Any exercisable Award shall be deemed to be exercised
when the Secretary of the Corporation receives written notice of such
exercise from the Participant, together with any required payment made in
accordance with Section 2.2(a) or 3.3, as the case may be, and Section 4.5.
(c) FRACTIONAL SHARES/MINIMUM ISSUE. Fractional share interests shall
be disregarded, but may be accumulated. The Committee may, however, in the
case of Eligible Employees determine in the Award Agreement or thereafter
that cash, other securities, or other property will be paid or transferred
in lieu of any factional share interests. No fewer than 100 shares may be
required on exercise of an Award at one time unless the number purchased is
the total number at the time available for purchase under the Award.
SECTION 1.8 NO TRANSFERABILITY.
(a) LIMIT ON EXERCISE AND TRANSFER. Unless otherwise expressly provided in
(or pursuant to) this Section 1.8, by applicable law and by the Award Agreement,
as the same may be amended, (i) all Awards are non-transferable and shall not be
subject in any manner to sale, transfer, anticipation, alienation, assignment,
pledge, encumbrance or charge; Awards shall be exercised only by the
Participant; and (ii) amounts payable or shares issuable pursuant to an Award
shall be delivered only to (or for the account of) the Participant.
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<PAGE>
(b) EXCEPTIONS. The Committee may permit Awards to be exercised by and
paid only to certain persons or entities related to the Participant, including
but not limited to members of the Participant's immediate family, charitable
institutions, or trusts or other entities whose beneficiaries or beneficial
owners are members of the Participant's immediate family and/or charitable
institutions, or to such other persons or entities as may be approved by the
Committee, pursuant to such conditions and procedures as the Committee may
establish. Any permitted transfer shall be subject to the condition that the
Committee receive evidence satisfactory to it that the transfer is being made
for estate and/or tax planning purposes or a gratuitous or donative basis and
without consideration (other than nominal consideration). Incentive Stock
Options shall be subject to any and all additional transfer restrictions under
the Code (notwithstanding Section 1.8(c)).
(c) FURTHER EXCEPTIONS TO LIMITS ON TRANSFER. The exercise and transfer
restrictions in Section 1.8(a) shall not apply to:
(i) transfers to the Corporation,
(ii) the designation of a beneficiary to receive benefits in the
event of the Participant's death or, if the Participant has died,
transfers to or exercise by the Participant's beneficiary, or, in the
absence of a validly designated beneficiary, transfers by will or the
laws of descent and distribution,
(iii) transfers pursuant to a QDRO order,
(iv) if the Participant has suffered a disability, permitted
transfers or exercises on behalf of the Participant by his or her legal
representative, or
(v) the authorization by the Committee of "cashless exercise"
procedures with third parties who provide financing for the purpose of
(or who otherwise facilitate) the exercise of Awards consistent with
applicable laws and the express authorization of the Committee.
ARTICLE II. KEY EMPLOYEE OPTIONS
SECTION 2.1 GRANTS.
One or more Options may be granted under this Article to any Eligible
Employee. Each Option granted may be either an Option intended to be an
Incentive Stock Option, or not so intended, as determined by the Committee, and
such intent shall be indicated in the applicable Award Agreement.
Notwithstanding the preceding sentence, Options granted to Other Eligible
Persons shall only be Nonqualified Stock Options.
SECTION 2.2 OPTION PRICE.
(a) PRICING LIMITS. The purchase price per share of the Common Stock
covered by each Option granted under this Article shall be determined by the
Committee at the time of the Award, but in the case of Incentive Stock
Options shall not be less than 100% (110% in the case of an Eligible
Employee Participant described in Section 2.4) of the Fair Market Value of
the Common Stock on the date of grant.
(b) PAYMENT PROVISIONS. No shares shall be delivered pursuant to the
exercise of an Option granted under this Article until payment of the full
purchase price of such shares is received by the Corporation at its
principal office located at 12 S. Raymond Avenue, Suite B, Pasadena,
California 91105, or at such other place as the Committee may specify from
time to time. Payment methods may include any of the following, pursuant to
such conditions and rules or procedures as may be established by the
Committee from time to time or as may be set forth in the Award Agreement:
(i) In cash;
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<PAGE>
(ii) In shares of Common Stock already owned by the Participant;
(iii) Partly in cash and partly in shares of Common Stock already
owned by the Participant; or
(iv) By delivery of a notice instructing the Corporation to deliver
the shares being purchased to a broker, subject to the broker's delivery
of cash to the Corporation equal to the purchase price; or
(v) To the extent an applicable Award Agreement so provides, payment
may be made in whole or in part by a promissory note executed by the
recipient of an Award in favor of the Corporation, upon terms and
conditions determined by the Committee, and secured by the Common Stock
issuable upon exercise of the Options granted by such Award in compliance
with applicable law (including, without limitation, state corporate law
and federal margin requirements).
Any shares used for payment pursuant to clause (ii) or (iii) above shall have
been held by the Eligible Employee Participant for at least six months prior to
such exercise date. Common Stock accepted as a payment shall be valued at the
Fair Market Value of the Common Stock on the date of exercise.
(c) RELOAD OPTIONS. The Committee may provide in an Award Agreement
that, effective as of the date of exercise by a Participant of all or part
of an Option (the "Base Option") by delivering shares of Common Stock
already owned by the Participant to the extent permitted by subsection
(b)(ii) or (iii) above, the Eligible Employee Participant shall be granted
an additional Option (a "Reload Option") to purchase at the Fair Market
Value on the date of such exercise and new grant, a number of shares of
Common Stock equal to the number of whole shares (subject to reduction in
the case of an outstanding Incentive Stock Option to the extent necessary to
comply with the $100,000 limit set forth in Section 2.3(a)) used by the
Participant to pay or toward the payment of the exercise price of the Base
Option, provided the Participant at the time of such exercise is an Eligible
Employee. The Reload Option may be exercised between the date six months
after its grant and the original date of expiration of the Base Option or
such later time as the Committee may permit. The Reload Option shall be
evidenced in the Award Agreement for the Base Option or by any other writing
containing such terms and conditions as the Committee shall approve, which
conditions may provide that upon the exercise of any Reload Option, an
additional Reload Option may be granted with respect to the number of whole
shares used to exercise the prior outstanding Reload Option. In no event,
however, shall the aggregate number of additional shares authorized by
Reload Option(s) exceed 50% of the maximum number of shares initially
deliverable (subject to adjustments pursuant to Section 4.2(a)) on exercise
of the Base Option.
SECTION 2.3 LIMITATIONS ON GRANT AND TERMS OF INCENTIVE STOCK OPTIONS.
(a) $100,000 LIMIT. To the extent that the aggregate "fair market
value" (as defined below) of stock with respect to which incentive stock
options first become exercisable by a Participant in any calendar year
exceeds $100,000, taking into account both Common Stock subject to Incentive
Stock Options under this Plan and stock subject to incentive stock options
under all other plans of the Company, such options shall be treated as
Nonqualified Stock Options. For this purpose, the "fair market value" of the
stock subject to options shall be determined as of the date the options were
awarded. In reducing the number of options treated as incentive stock
options to meet the $100,000 limit, the most recently granted options shall
be reduced first. To the extent a reduction of simultaneously granted
options is necessary to meet the $100,000 limit, the Committee may, in the
manner and to the extent permitted by law, designate which shares of Common
Stock are to be treated as shares acquired pursuant to the exercise of an
Incentive Stock Option.
5
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(b) OPTION PERIOD. Each Option and all rights thereunder shall expire
no later than 10 years after the Award Date.
(c) OTHER CODE LIMITS. There shall be imposed in any Award Agreement
relating to Incentive Stock Options such terms and conditions as from time
to time are required in order that the Option be an "incentive stock option"
as that term is defined in Section 422 of the Code.
SECTION 2.4 LIMITS ON 10% HOLDERS.
No Incentive Stock Option may be granted to any person who, at the time the
Option is granted, owns (or is deemed to own under Section 424(d) of the Code)
shares of outstanding Common Stock representing more than 10% of the total
combined voting power of all classes of stock of the Corporation, unless the
exercise price of such Option is at least 110% of the Fair Market Value of the
stock subject to the Option on the date of grant and such Option by its terms is
not exercisable after the expiration of five years from the date such Option is
granted.
SECTION 2.5 OPTION REPRICING/CANCELLATION AND REGRANT.
Subject to Section 1.4 and Section 4.6 and the general limitations on Awards
contained elsewhere in this Plan, the Committee from time to time may authorize,
generally or in specific cases only, any adjustment in the exercise or purchase
price, the number of shares subject to, or the term of, an Award granted under
this Article by cancellation of an outstanding Award and a subsequent regranting
of an Award, by amendment, by substitution of an outstanding Award, by waiver or
by other legally valid means. Such amendment or other action may result among
other changes in an exercise or purchase price which is higher or lower than the
exercise or purchase price of the original or prior Award, provide for a greater
or lesser number of shares subject to the Award, or provide for a longer or
shorter vesting or exercise period.
SECTION 2.6 LIMIT ON GRANTS TO ANY INDIVIDUAL.
The maximum number of shares of Common Stock that are issuable under Options
that during any calendar year are granted to any Eligible Employee Participant
shall not exceed 100,000, subject to adjustments contemplated by Section 4.2.
ARTICLE III. NON-EMPLOYEE DIRECTOR OPTIONS
SECTION 3.1 PARTICIPATION.
Awards under this Article III shall be made only to Non-Employee Directors.
SECTION 3.2 ANNUAL OPTION GRANTS.
(a) TIME OF INITIAL AWARD. Subject to approval by the shareholders of
the Corporation, persons who are Non-Employee Directors at the time of the
Plan's adoption on April 16, 1996, and persons who are elected or appointed
to the Board after April 16, 1996, on the date of such election, shall each
be granted without further action a Nonqualified Stock Option to purchase
10,000 shares of Common Stock.
(b) SUBSEQUENT ANNUAL AWARDS. On the first business day in each
calendar year following the approval of this Plan by the shareholders of the
Corporation and during the term of this Plan, there shall be granted
automatically (without any action by the Committee or the Board) a
Nonqualified Stock Option (the Award Date of which shall be such date) to
each Non-Employee Director then in office to purchase 1,000 shares of Common
Stock on each such date.
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SECTION 3.3 OPTION PRICE.
The purchase price per share of the Common Stock covered by each Option
granted pursuant to Section 3.2 hereof shall be 100 percent of the Fair Market
Value of the Common Stock on the Award Date. The Award Date of Options granted
under Section 3.2(a) shall, for purposes of determining the Option price, be
April 16, 1996 with respect to Options granted to Non-Employee Directors as of
that date, or the date such Option is granted upon election or appointment of
the applicable director to the Board with respect to all other Options granted
under Section 3.2(a). The purchase price of any shares purchased shall be paid
in full at the time of each purchase either (i) in cash or by check of or on
behalf of the Non-Employee Director, (ii) in shares of Common Stock valued at
their Fair Market Value on the date of exercise of the Option or (iii) partly in
such shares and partly in cash; provided that if payments are made pursuant to
clauses (ii) and (iii) above any shares used for such payment shall have been
held by the Non-Employee Director Participant for at least six months prior to
such exercise date.
SECTION 3.4 OPTION PERIOD.
Each option granted under this Article III and all rights or obligations
thereunder shall expire on the fifth anniversary of the Award Date and shall be
subject to earlier termination as provided below.
SECTION 3.5 EXERCISE OF OPTIONS.
Each Option granted under this Article III shall become exercisable in full
12 months after the Award Date, except (i) such Options granted pursuant to
Section 3.2(a), which such Options shall vest at the rate of 2,500 shares of
Common Stock per year on each of the first four anniversaries of the date of
such grant, and (ii) as provided in Section 3.8.
SECTION 3.6 TERMINATION OF DIRECTORSHIP.
An Option granted pursuant to this Article shall, if exercisable on the date
of a Non-Employee Director Participant's termination of service as a director,
remain exercisable only for six months after the date of such termination or
until the expiration of the stated term of such Option, whichever first occurs.
Any Option granted pursuant to Section 3.2 hereof held by such Non-Employee
Director Participant which is not exercisable on the date of termination of
service shall terminate.
SECTION 3.7 ADJUSTMENTS.
Options granted under this Article III shall be subject to adjustment as
provided in Section 4.2, but only to the extent that such adjustment is
consistent with adjustments to Options held by persons other than executive
officers or directors of the Corporation (or, if there are none, consistent in
respect of the underlying shares with the effect on stockholders generally).
SECTION 3.8 ACCELERATION UPON A CHANGE IN CONTROL EVENT.
Upon the occurrence of a Change in Control Event, each Option granted under
Section 3.2 hereof shall become immediately exercisable in full. To the extent
that any Option granted under this Article III (a) is not exercised prior to (i)
a dissolution of the Corporation or (ii) a merger or other corporate event in
which the Corporation does not survive and (b) no provision is (or consistent
with the provisions of Section 3.7 can be) made for the assumption, conversion,
substitution or exchange of the Option, the Option shall terminate upon the
occurrence of such event.
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ARTICLE IV. OTHER PROVISIONS
SECTION 4.1 RIGHTS OF ELIGIBLE EMPLOYEES, PARTICIPANTS AND BENEFICIARIES.
(a) EMPLOYMENT STATUS. Status as an Eligible Employee shall not be
construed as a commitment that any Award will be made under this Plan to an
Eligible Employee or to Eligible Employees generally.
(b) NO EMPLOYMENT CONTRACT. Nothing contained in this Plan (or in any
other documents related to this Plan or to any Award) shall confer upon any
Eligible Employee or other Participant any right to continue in the employ
or other service of the Company or constitute any contract or agreement of
employment or other service, nor shall it interfere in any way with the
right of the Company to change such person's compensation or other benefits
or to terminate the employment of such person, with or without cause, but
nothing contained in this Plan or any document related hereto shall
adversely affect any other contractual right of such person without his or
her consent thereto.
(c) PLAN NOT FUNDED. This Plan is not subject to Title 1 of ERISA and
is not funded. No Participant, Beneficiary or other person shall have any
right, title or interest in any fund or in any specific asset (including
shares of Common Stock, except as expressly otherwise provided) of the
Company by reason of any Award hereunder. Neither the provisions of this
Plan (or of any related documents), nor the creation or adoption of this
Plan, nor any action taken pursuant to the provisions of this Plan shall
create, or be construed to create, a trust of any kind or a fiduciary
relationship between the Company and any Participant, Beneficiary or other
person.
SECTION 4.2 ADJUSTMENTS; ACCELERATION.
(a) ADJUSTMENTS. If there shall occur any extraordinary dividend or
other extraordinary distribution in respect of the Common Stock (whether in
the form of cash, Common Stock, other securities, or other property), or any
recapitalization, stock split (including a stock split in the form of a
stock dividend), reverse stock split, reorganization, merger, combination,
consolidation, split-up, spin-off, combination, repurchase, or exchange of
Common Stock or other securities of the Corporation, or there shall occur
any other like corporate transaction or event in respect of the Common
Stock, then the Committee shall, in such manner and to such extent (if any)
as it deems appropriate and equitable (1) proportionately adjust any or all
of (a) the number and type of shares of Common Stock (or other securities)
which thereafter may be made the subject of Awards (including the specific
maximum numbers of shares set forth elsewhere in this Plan), (b) the number,
amount and type of shares of Common Stock (or other securities or property)
subject to any or all outstanding Awards, and (c) the exercise price of any
or all outstanding Awards, or (2) in the case of an extraordinary dividend
or distribution, merger, reorganization, consolidation, combination, split
up, exchange or spin off make provision for a cash payment or a substitution
or exchange of the securities or property deliverable upon exercise to the
holder of any or all outstanding Awards based upon the distribution or
consideration payable to holders of Common Stock upon or in respect of such
event; PROVIDED, HOWEVER, in each case, that with respect to Awards of
Incentive Stock Options, no such adjustment shall be made which would cause
the Plan to violate Section 424(a) of the Code or any successor provision
thereto.
(b) ACCELERATION OF AWARDS UPON CHANGE IN CONTROL. As to any Eligible
Employee Participant, unless prior to a Change in Control Event the
Committee determines that, upon its occurrence, there shall be no
acceleration of benefits under Awards or determines that only certain or
limited benefits under Awards shall be accelerated and the extent to which
they shall be accelerated, and/or establishes a different time in respect of
such Change in Control Event for such acceleration, then upon the occurrence
of a Change in Control Event each Option shall become immediately
exercisable. The Committee may override the limitations on acceleration in
this Section 4.2(b) by express
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<PAGE>
provision in the Award Agreement and may accord any Eligible Employee
Participant a right to refuse such acceleration in such circumstances as the
Committee may approve. Any acceleration of Awards shall comply with
applicable regulatory requirements, including without limitation Section 422
of the Code. The authority and provisions of this Section 4.2 are not
intended to limit the Committee's authority to provide for acceleration of
exercisability of Awards in other circumstances. Further, the Committee may
provide for the termination of any or all of an Eligible Employee
Participant's Awards to the extent they are not exercised as of the date of
any event or transaction in or pursuant to which the Corporation does not
survive. In the case of a transaction intended to be accounted for as a
pooling of interests transaction, the Committee will have no discretion with
respect to the foregoing acceleration of Options.
SECTION 4.3 EFFECT OF TERMINATION OF EMPLOYMENT.
The Committee shall establish in respect of each Award granted to an
Eligible Employee the effect of a termination of employment or services on the
rights and benefits thereunder and in so doing may make distinctions based upon
the cause of termination.
SECTION 4.4 COMPLIANCE WITH LAWS.
This Plan, the granting and vesting of Awards under this Plan and the
issuance and delivery of shares of Common Stock and/or the payment of money or
the use or application of shares under this Plan or under Awards granted
hereunder are subject to compliance with all applicable federal and state laws,
rules and regulations (including but not limited to state and federal securities
laws and federal margin requirements) and to such approvals by any listing,
regulatory or governmental authority as may, in the opinion of counsel for the
Corporation, be necessary or advisable in connection therewith. Any securities
delivered under this Plan shall be subject to such restrictions and the person
acquiring such securities shall, if requested by the Corporation, provide such
assurances and representations to the Corporation as the Corporation may deem
necessary or desirable to assure compliance with all applicable legal
requirements.
SECTION 4.5 TAX WITHHOLDING.
Upon any exercise, vesting, or payment of any Award or, if they require upon
the disposition of shares of Common Stock acquired pursuant to the exercise of
an Incentive Stock Option prior to satisfaction of the holding period
requirements of Section 422 of the Code, the Company shall have the right at its
option to (i) require the Participant (or Beneficiary) to pay or provide for
payment of the amount of any taxes which the Company may be required to withhold
with respect to such transaction or (ii) deduct from any amount payable in cash
the amount of any taxes which the Company may be required to withhold with
respect to such cash amount. In any case where a tax is required to be withheld
in connection with the delivery of shares of Common Stock under this Plan, any
Eligible Employee Participant may elect, to the extent allowed by and pursuant
to such rules and subject to such conditions as the Committee may establish, to
have the Corporation reduce the number of shares to be delivered by (or
otherwise reacquire) that number of shares valued at their then Fair Market
Value to satisfy such withholding obligation.
SECTION 4.6 PLAN AMENDMENT, TERMINATION AND SUSPENSION; CHANGES IN AWARDS.
(a) BOARD AUTHORIZATION. Except as provided in Section 3.9, the Board
may, at any time, terminate or, from time to time, amend, modify or suspend
this Plan, in whole or in part. No Awards may be granted during any
suspension of this Plan or after termination of this Plan, but the Committee
shall retain jurisdiction as to Awards then outstanding in accordance with
the terms of this Plan.
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(b) SHAREHOLDER APPROVAL. To the extent required under Sections 422 or
424 of the Code or any other applicable law, or deemed necessary or
advisable by the Board, any amendment to this Plan shall be subject to
shareholder approval.
(c) AMENDMENTS TO AWARDS. Without limiting any other express authority
of the Committee under, but subject to the express limits of, this Plan, the
Committee by agreement or resolution may waive conditions of or limitations
on Awards to Eligible Employees that the Committee in the prior exercise of
its discretion has imposed, without the consent of a Participant, and may
make other changes to the terms and conditions of Awards that do not affect
in any manner materially adverse to the Eligible Employee Participant, his
or her rights and benefits under an Award.
(d) LIMITATIONS ON AMENDMENTS TO PLAN AND AWARDS. No amendment,
suspension or termination of the Plan or change of or affecting any
outstanding Award shall, without written consent of the Participant, affect
in any manner materially adverse to the Participant any rights or benefits
of the Participant or obligations of the Corporation under any then
outstanding Award granted under this Plan. Changes contemplated by Section
4.2 shall not be deemed to constitute changes or amendments for purposes of
this Section 4.6.
SECTION 4.7 PRIVILEGES OF STOCK OWNERSHIP.
A Participant shall not be entitled to any privilege of stock ownership as
to any shares of Common Stock not actually delivered to and held of record by
him or her, other than benefits incident to the disposition of shares upon due
exercise of an Option consistent with the terms of this Plan. No adjustment will
be made for dividends or other rights as a shareholder for which a record date
is prior to the date of delivery of shares on exercise of an Award.
SECTION 4.8 EFFECTIVE DATE OF PLAN.
This Plan is effective as of April 16, 1996, the date of initial Board
approval, subject to shareholder approval by December 31, 1996.
SECTION 4.9 TERM OF THE PLAN.
No Award shall be granted more than ten years after the initial effective
date of the Plan (the "termination date"). Unless otherwise expressly provided
in this Plan or in an applicable Award Agreement, any Award theretofore granted
may extend beyond such termination date, and all authority of the Committee with
respect to Awards hereunder shall continue during any suspension of this Plan
and in respect of outstanding Awards on such termination date.
SECTION 4.10 GOVERNING LAW/CONSTRUCTION/SEVERABILITY.
(a) CHOICE OF LAW. This Plan, the Awards, all documents evidencing
Awards and all other related documents shall be governed by, and construed
in accordance with the laws of the state of incorporation of the
Corporation.
(b) SEVERABILITY. If any provision shall be held by a court of
competent jurisdiction to be invalid and unenforceable, the remaining
provisions of this Plan shall continue in effect.
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(c) PLAN CONSTRUCTION. It is the intent of the Corporation that this
Plan and Awards hereunder satisfy and be interpreted in a manner that in the
case of Participants who are or may be subject to Section 16(b) of the
Exchange Act satisfies the applicable requirements of Rule 16b-3 thereunder
so that such persons will be entitled to the benefits of Rule 16b-3 or other
exemptive rules under Section 16 of the Exchange Act and will not be
subjected to avoidable liability thereunder and so that persons receiving
Awards under Article III remain "disinterested" under these Rules. If any
provision of this Plan or of any Award would otherwise frustrate or conflict
with the intent expressed above, that provision to the extent possible shall
be interpreted and deemed amended so as to avoid such conflict, but to the
extent of any remaining irreconcilable conflict with such intent as to such
persons in the circumstances, such provision shall be disregarded. It is the
further intent of the Company that Options with an exercise price not less
than Fair Market Value on the date of grant shall qualify as
performance-based compensation under Section 162(m) of the Code, and this
Plan shall be interpreted consistent with such intent.
SECTION 4.11 CAPTIONS.
Captions and headings are given to the sections and subsections of this Plan
solely as a convenience to facilitate reference. Such headings shall not be
deemed in any way material or relevant to the construction or interpretation of
the Plan or any provision thereof.
SECTION 4.12 EFFECT OF CHANGE OF SUBSIDIARY STATUS.
If an entity ceases to be a Subsidiary, for purposes of this Plan and any
Award hereunder, a termination of employment of each employee of such Subsidiary
who does not continue as an employee of another entity within the Company shall
be deemed to have occurred.
SECTION 4.13 NON-EXCLUSIVITY OF PLAN.
Nothing in this Plan shall limit or be deemed to limit the authority of the
Board or the Committee to grant awards or authorize any other compensation, with
or without reference to the Common Stock, under any other plan or authority.
ARTICLE V. DEFINITIONS.
SECTION 5.1 DEFINITIONS.
(a) "AWARD" shall mean an award of any Option authorized by and
granted under this Plan.
(b) "AWARD AGREEMENT" shall mean any writing setting forth the terms
of an Award that has been authorized by the Committee.
(c) "AWARD DATE" shall mean the date upon which the Committee took
the action granting an Award or such later date as the Committee designates
as the Award Date at the time of the Award, or in the case of Non-Employee
Director Awards under Article III, the date of automatic grant under Article
III.
(d) "AWARD PERIOD" shall mean the period beginning on an Award Date
and ending on the expiration date of such Award.
(e) "BENEFICIARY" shall mean the person, persons, trust or trusts
entitled by will or the laws of descent and distribution to receive the
benefits specified in the Award Agreement and under this Plan in the event
of a Participant's death, and shall mean the Participant's executor or
administrator if no other Beneficiary is identified and able to act under
the circumstances.
(f) "BOARD" shall mean the Board of Directors of the Corporation.
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(g) A "CHANGE IN CONTROL EVENT" shall mean and shall be deemed to
have occurred if and when: (i) within the meaning of Section 13(d) of the
Exchange Act, any person or group becomes a beneficial owner, directly or
indirectly, of securities of the Corporation representing 20% or more of the
combined voting power in the election of directors of the Corporation's then
outstanding securities; (ii) individuals who were members of the Board of
the Corporation immediately prior to a meeting of the shareholders of the
Corporation involving a contest for the election of directors shall not
constitute a majority of the Board following such election; (iii) the
shareholders of the Corporation approve the dissolution or liquidation of
the Corporation; (iv) the shareholders of the Corporation approve an
agreement to merge or consolidate, or otherwise reorganize, with or into one
or more entities which are not subsidiaries, as a result of which less than
50% of the outstanding voting securities of the surviving or resulting
entity are, or are to be, owned by shareholders of the Corporation
immediately prior to such reorganization (assuming for purposes of such
determination that there is no change in the record ownership of the
Corporation's securities from the record date for such approval until such
reorganization and that such record owners hold no securities of the other
parties to such reorganization, excluding from consideration as a former
shareholder any shareholder who is, or as a result of the transaction in
question becomes, an "affiliate", as that term is used the Exchange Act and
the rules promulgated thereunder, of any party to such merger, consolidation
or reorganization); or (v) the shareholders of the Corporation approve the
sale of substantially all of the Corporation's business and/or assets to a
person or entity which is not a Subsidiary.
(h) "CODE" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
(i) "COMMITTEE" shall mean a committee appointed by the Board to
administer this Plan, which committee shall be comprised only of two or more
directors or such greater number of directors as may be required under
applicable law, each of whom, (i) in respect of any decision at a time when
the Participant affected by the decision may be subject to Section 162(m) of
the Code, shall be an "outside" director within the meaning of Section
162(m) of the Code and (ii) in respect of any decision affecting a
transaction at a time when the Participant involved in the transaction may
be subject to Section 16 of the Exchange Act, shall be a "non-employee
director" within the meaning of Rule 16b-3(b)(3) promulgated under the
Exchange Act.
(j) "COMMON STOCK" shall mean the Common Stock, no par value, of the
Corporation and such other securities or property as may become the subject
of Awards, or become subject to Awards, pursuant to an adjustment made under
Section 4.2 of this Plan.
(k) "COMPANY" shall mean, collectively, the Corporation and its
Subsidiaries.
(l) "CORPORATION" shall mean Acacia Research Corporation, a
California corporation, and its successors.
(m) "DISINTERESTED" shall mean disinterested within the meaning of
any applicable regulatory requirements, including Rule 16b-3.
(n) "ELIGIBLE EMPLOYEE" shall mean an officer, a key executive, or an
administrative, managerial, production, marketing or sales employee of the
Company, whether or not such person is a director, or an Other Eligible
Person.
(o) "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
(p) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
(q) "FAIR MARKET VALUE" shall mean (i) if the Common Stock is listed
and registered on a national securities exchange such as the New York Stock
Exchange or the American Stock Exchange, the simple average of the highest
and lowest quoted selling prices of the Common Stock on such exchange on the
applicable date of determination, or, if no such sales were made on such
date on such
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<PAGE>
exchange, then by such method as of the last date prior thereto on which
sales were made, or (ii) if the Common Stock is not listed and registered on
any national securities exchange, the simple average of the bid and ask
prices per share of Common Stock in the over-the-counter market at the end
of the applicable date of determination, or, if for any reason no such
quotations are available, then by such other method as the Committee, in its
sole discretion, shall determine to be appropriate on such date of
determination.
(r) "INCENTIVE STOCK OPTION" shall mean an Option which is designated
as an incentive stock option within the meaning of Section 422 of the Code,
the award of which contains such provision as are necessary to comply with
that section.
(s) "NONQUALIFIED STOCK OPTION" shall mean an Option that is
designated as a Nonqualified Stock Option and shall include any Option
intended as an Incentive Stock Option that fails to meet the applicable
legal requirements thereof. Any Option granted hereunder that is not
designated as an incentive stock option shall be deemed to be designated a
nonqualified stock option under this Plan and not an incentive stock option
under the Code. Options granted under Article III shall be Nonqualified
Stock Options.
(t) "NON-EMPLOYEE DIRECTOR" shall mean a person who is, as of the
applicable date of determination for an award under Article III, (i) a
member of the Board of Directors of the Corporation and not an officer or
employee of the Company or any affiliate, and (ii) eligible to serve on the
Committee.
(u) "OPTION" shall mean an option to purchase Common Stock under this
Plan.
(v) "OTHER ELIGIBLE PERSON" shall mean any other individual
(including significant agents and consultants) who performs substantial
services for the Company of a nature similar to those performed by key
employees, selected to participate in this Plan by the Committee from time
to time. A Non-employee providing bona fide services (other than as an
eligible advisor or consultant) may also be selected as an Other Eligible
Person if such agent's participation in the Plan would not adversely affect
(1) the Corporation's eligibility to use Form S-8 to register under the
Securities Act of 1933, as amended, the offering of shares issuable under
the Plan or (2) the Corporation's compliance with any other applicable laws.
(w) "PARTICIPANT" shall mean a person who has been granted or has
received an Award under this Plan.
(x) "PLAN" shall mean this 1996 Stock Option Plan.
(y) "QDRO" shall mean a qualified domestic relations order as defined
in Section 414(p) of the Code or Title I, Section 206(d)(3) of ERISA (to the
same extent as if this Plan were subject thereto), or the applicable rules
thereunder or other decree accorded relief from transfer restrictions under
Rule 16b-3.
(z) "RULE 16B-3" shall mean Rule 16b-3 as promulgated by the
Securities and Exchange Commission pursuant to the Exchange Act.
(aa) "SECTION 16 PERSON" shall mean a person subject to Section 16(a)
of the Exchange Act.
(bb) "SUBSIDIARY" shall mean any corporation or other entity a
majority of whose outstanding voting stock or voting power is beneficially
owned directly or indirectly by the Corporation.
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<PAGE>
ACACIA RESEARCH CORPORATION
ANNUAL MEETING OF SHAREHOLDERS MAY 19, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
ACACIA RESEARCH CORPORATION
The undersigned hereby appoints Paul R. Ryan and Kathryn King-Van Wie, and
each of them, proxyholders, each with full power of substitution to vote for the
undersigned at the Annual Meeting of Shareholders of Acacia Research Corporation
to be held on May 19, 1998, and at any adjournments thereof, with respect to the
following matters, which were more fully described in the Proxy Statement dated
April 24, 1998 (the "Proxy Statement"), receipt of which is hereby acknowledged
by the undersigned.
THIS PROXY WILL BE VOTED AS DIRECTED. UNLESS OTHERWISE DIRECTED, THIS PROXY
WILL BE VOTED FOR THE ELECTON OF THE FIVE DIRECTOR NOMINEES IN PROPOSAL NO. 1
AND FOR PROPOSAL NOS. 2 THROUGH 4.
(SEE REVERSE SIDE)
<PAGE>
(CONTINUED FROM OTHER SIDE)
- ----------------------------------------
COMMON /X/ Please mark your choices like this
The Board of Directors recommends that you vote FOR the nominees on Proposal No.
1 and FOR Proposals Nos. 2 through 4.
(1) The election of the nominees for director specified in the Proxy Statement
to the Board of Directors. R. Bruce Stewart, Paul R. Ryan, Thomas B. Akin,
Fred A. de Boom and Edward W. Frykman.
<TABLE>
<S> <C>
/ / FOR all nominees listed above (except as marked to the contrary below.) / / WITHHOLD AUTHORITY to vote for all
nominees listed below.
</TABLE>
(INSTRUCTION: To withhold authority to vote for any nominee, write that
nominee's name in the space below.)
- --------------------------------------------------------------------------------
(2) The amendments to the Company's 1996 Stock Option Plan increasing the
number of shares
for issuance thereunder and certain other changes thereto. / /
FOR / / AGAINST / / ABSTAIN
(3) The amendment to the Company's Articles of Incorporation increasing the
number of authorized
shares of Common Stock to 30,000,000. / / FOR / /
AGAINST / / ABSTAIN
(4) The ratification of the selection of Price Waterhouse LLP as independent
accountants of the
Company for the fiscal year ending December 31, 1998. / / FOR / /
AGAINST / / ABSTAIN
(5) Such other matters as may properly come before the meeting or any
adjournment thereof. / / FOR / / AGAINST / / ABSTAIN
As to such matters, the undersigned hereby confers discretionary authority.
Dated: May ________, 1998
________________________________
(Please Print Name)
________________________________
(Signature of Holder of Common
Stock)
________________________________
(Additional Signature if Held
Jointly)
NOTE: Please sign exactly as
your name is printed. Each joint
tenant should sign. Executors,
administrators, trustees and
guarantors should give full
titles when signing.
Corporations and partnerships
should sign in full corporate or
partnership name by authorized
person. Please mark, sign, date
and return your Proxy promptly
in the enclosed envelope, which
requires no postage if mailed in
the United States.
