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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
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ACACIA RESEARCH CORPORATION
- ------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- ------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)
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Payment of Filing Fee (Check the appropriate box):
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/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:
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(2) Aggregate number of securities to which transaction
applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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[LOGO]
November 2, 1999
Dear Shareholder:
On behalf of your Board of Directors and Management, you are cordially
invited to attend a Special Meeting of Shareholders to be held on Thursday,
December 9, 1999, at 10:00 a.m., at the offices of Acacia Research Corporation,
located at 55 South Lake Avenue in Pasadena, California.
The purpose of the Special Meeting is to consider three proposals, each of
which is identified and described in the enclosed materials. The first proposal,
to change the Company's state of incorporation from California to Delaware, is
especially important. The second, related proposal, seeks the approval of the
shareholders to increase the number of authorized shares of capital stock of the
Company as reincorporated in Deleware. The Proxy Statement describes these
proposals, as well as the third proposal to be presented at the meeting
involving certain amendments to the Company's 1996 Stock Option Plan.
We are delighted that you have chosen to invest in Acacia Research
Corporation and hope that, whether or not you attend the meeting, you will vote
as soon as possible by returning the enclosed proxy card. Your vote is
important, and voting by written proxy will ensure your representation at the
Special Meeting. You may revoke your proxy in accordance with the procedures
described in the Proxy Statement at any time prior to the time it is voted.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AND VOTED AT THE SPECIAL
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
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ACACIA RESEARCH CORPORATION
------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD DECEMBER 9, 1999
------------------------
TO OUR SHAREHOLDERS:
NOTICE IS HEREBY GIVEN that the Special Meeting of Shareholders of Acacia
Research Corporation, a California corporation (the "Company"), will be held on
Thursday, December 9, 1999 at 10:00 a.m. at the offices of Acacia Research
Corporation located at 55 South Lake Avenue, Pasadena, California 91101, for the
following purposes:
1. To consider a proposal to change the Company's state of incorporation
from California to Delaware;
2. To consider a proposal to increase the number of authorized shares of
common stock from 30,000,000 to 60,000,000 and to authorize the issuance
of up to 20,000,000 shares of preferred stock; and
3. To ratify amendments to the Company's 1996 Stock Option Plan.
Only shareholders of record at the close of business on October 29, 1999 are
entitled to receive notice of and to vote at the Special Meeting.
All shareholders are cordially invited to attend the Special Meeting in
person. However, to assure your representation at the Special 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 Special Meeting may vote in person even if he or she
previously returned a proxy.
By Order of the Board of Directors,
/S/ KATHRYN KING-VAN WIE
Kathryn King-Van Wie
SECRETARY
Pasadena, California
November 2, 1999
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.
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ACACIA RESEARCH CORPORATION
55 SOUTH LAKE AVENUE
PASADENA, CALIFORNIA 91101
(626) 396-8300
------------------------
PROXY STATEMENT
------------------------
The enclosed proxy is solicited on behalf of the Board of Directors (the
"BOARD") of Acacia Research Corporation, a California corporation
("ACACIA-CALIFORNIA" or the "COMPANY"), for use at the Company's special meeting
of shareholders (the "SPECIAL MEETING") to be held on Thursday, December 9, 1999
at 10:00 a.m., and at any adjournments thereof. The purposes of the Special
Meeting are set forth in this Proxy Statement and in the accompanying Notice of
Special Meeting of Shareholders. The Special Meeting will be held at the offices
of Acacia Research Corporation located at 55 South Lake Avenue, Pasadena,
California 91101. These proxy solicitation materials were mailed on or about
November 3, 1999 to all shareholders entitled to vote at the Special Meeting.
QUESTIONS AND ANSWERS
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1. Q: WHAT MAY I VOTE ON?
A: (1) The reincorporation of the Company in Delaware;
(2) The increase in the number of authorized shares of
Common Stock of the Company from 30,000,000 to 60,000,000
and to authorize the issuance of up to 20,000,000 shares of
Preferred Stock; and
(3) The approval of amendments to the Company's 1996 Stock
Option Plan.
2. Q: HOW DOES THE BOARD RECOMMEND I VOTE ON THE PROPOSALS?
A: The Board recommends a vote FOR each proposal.
3. Q: WHO IS ENTITLED TO VOTE?
A: Shareholders as of the close of business on October 29, 1999
(the "RECORD DATE") are entitled to vote at the Special
Meeting.
4. Q: HOW DO I VOTE? CAN I REVOKE MY PROXY LATER?
A: Sign and date each proxy card you receive and return it in
the prepaid envelope. You have the right to revoke your
proxy at any time at or before the Special Meeting by:
(1) notifying the Secretary of the Company in writing;
(2) voting in person; or
(3) returning a later-dated proxy card.
5. Q: WHO WILL COUNT THE VOTE?
A: The Secretary of the Company will count the votes and act as
the inspector of election.
6. Q: WHAT SHARES ARE INCLUDED ON THE PROXY CARD(S)?
A: The shares on your proxy card(s) represent ALL of your
shares. If you do not return your proxy card(s), your shares
will not be voted.
7. Q: WHAT DOES IT MEAN IF I GET MORE THAN ONE PROXY CARD?
A: If your shares are registered differently or are in more
than one account, you will receive more than one proxy card.
Sign and return all proxy cards to ensure that all your
shares are voted. We encourage you to have all accounts
registered in the same name and address (whenever possible).
You can accomplish this by contacting our transfer agent,
U.S. Stock
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Transfer Co. or, if your shares are held in "street name,"
by contacting the broker or bank who holds your shares.
8. Q: HOW MANY SHARES CAN VOTE?
A: As of the Record Date, 11,301,050 shares of Common Stock,
the only voting securities of the Company, were issued and
outstanding. Every shareholder is entitled to one vote for
each share of Common Stock held.
9. Q: WHAT IS A "QUORUM"?
A: A "quorum" is a majority of the outstanding shares entitled
to vote. They may be present in person or represented by
proxy. For the purposes of determining a quorum, shares held
by brokers or nominees will be treated as present even if
the broker or nominee does not have discretionary power to
vote on a particular matter or if instructions were never
received from the beneficial owner. These shares are called
"broker non-votes." Abstentions will also be counted as
present for quorum purposes.
10. Q: WHAT IS REQUIRED TO APPROVE EACH PROPOSAL?
A: Approval of the proposals relating to the proposed
reincorporation and the increase in the Company's authorized
capital stock will require the affirmative vote from a
majority of the outstanding shares on the Record Date. As a
result, shares not voted, broker non-votes, and abstentions
all have the effect of a vote against the proposals.
Approval of the proposal relating to the amendments to the
Company's 1996 Stock Option Plan will require the
affirmative vote from a majority of those shares present
(either in person or by proxy) and voting at the Special
Meeting.
11. Q: WHAT IS A "BROKER NON-VOTE"?
A: If a broker indicates on its proxy that it does not have
discretionary authority to vote on a particular matter, the
affected shares will be treated as not present and entitled
to vote with respect to that matter, even though the same
shares may be considered present for quorum purposes and may
be entitled to vote on other matters.
12. Q: WHAT HAPPENS IF I ABSTAIN?
A: Proxies marked "abstain" will be counted as shares present
for the purpose of determining the presence of a quorum, but
for purposes of determining the outcome of a proposal,
shares represented by such proxies will not be treated as
affirmative votes. For proposals requiring either an
affirmative vote of a majority of the shares present or a
majority of the outstanding shares voted, an abstention is
equivalent to a vote against the proposals.
13. Q: WILL ANY OTHER BUSINESS BE CONDUCTED?
A: Under the Company's existing bylaws, only business that has
been identified and brought before the Special Meeting
pursuant to the Notice of Special Meeting may be conducted.
No other business may be considered at the Special Meeting.
14. Q: WHO ARE THE LARGEST PRINCIPAL SHAREHOLDERS?
A: For information regarding holders of more than 5% of the
outstanding Common Stock, see "Security Ownership of Certain
Beneficial Owners and Management" on p. 25 below.
15. Q: HOW WILL THE COMPANY SOLICIT PROXIES?
A: Corporate Investor Communications, Inc. was hired by the
Company to assist in the distribution of proxy materials and
solicitation of votes for $5,500, plus reasonable out-of-
pocket expenses. The Company also reimburses brokerage
houses and other custodians, nominees and fiduciaries for
their reasonable out-of-pocket expenses for forwarding proxy
and solicitation materials to shareholders. Proxies may also
be solicited in person, by telephone, or by facsimile by
directors, officers, and employees of the Company without
additional compensation.
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PROPOSAL NO. 1: REINCORPORATION IN DELAWARE
(ITEM 1 ON PROXY CARD)
INTRODUCTION
For the reasons set forth below, the Board believes that it is in the best
interests of the Company and its shareholders to change the state of
incorporation of the Company from California to Delaware (the "PROPOSED
REINCORPORATION"). Throughout this Proxy Statement, the Company as currently
incorporated in California will be referred to as "ACACIA-CALIFORNIA" and the
Company as reincorporated in Delaware (subject to approval by the shareholders
at the Special Meeting) will be referred to as "ACACIA-DELAWARE."
SHAREHOLDERS ARE URGED TO READ CAREFULLY THIS SECTION OF THIS PROXY
STATEMENT, INCLUDING THE RELATED APPENDICES REFERENCED BELOW AND ATTACHED
HERETO, BEFORE VOTING ON THE PROPOSED REINCORPORATION.
The principal reasons for the Proposed Reincorporation are:
- the greater predictability and flexibility provided by the General
Corporation Law of the State of Delaware (the "DELAWARE GENERAL
CORPORATION LAW"), particularly as construed by the Delaware courts;
- the increased ability of the Company to attract and retain qualified
directors and officers, especially in light of prior initiatives in
California to attempt to severely limit the ability of companies to
indemnify directors and officers;
- the belief that the Company's shareholders will benefit from the
well-established principles of corporate governance that Delaware law
affords; and
- the reduction of the Company's vulnerability to unsolicited or hostile
attempts to obtain control of the Company.
The proposed Acacia-Delaware Charter and Bylaws are attached hereto as
Appendices A and B, respectively. As described below, the Proposed
Reincorporation includes the implementation of certain provisions in the
Acacia-Delaware Charter and Bylaws which alter the rights of shareholders and
the powers of management and which, in some cases, reduce shareholder
participation in important corporate decisions. The Proposed Reincorporation is
not being proposed in response to any present attempt, known to the Board, to
acquire control of the Company, to obtain representation on the Board, or to
take significant corporate action that would materially affect the governance of
the Company.
The Proposed Reincorporation will be effected by merging Acacia-California
into a new Delaware corporation that is a wholly-owned subsidiary of
Acacia-California (the "MERGER"). Upon completion of the Merger,
Acacia-California, as a corporate entity, will cease to exist and
Acacia-Delaware, the new Delaware corporation, will succeed to the assets and
assume the liabilities of Acacia-California and will continue to operate the
business of the Company under its current name, Acacia Research Corporation.
As provided by the Agreement and Plan of Merger, in substantially the form
attached hereto as Appendix C (the "MERGER AGREEMENT"), each outstanding share
of Acacia-California Common Stock, no par value per share, will be automatically
converted into one share of Acacia-Delaware Common Stock, $0.001 par value per
share, upon the effective date of the Merger. Each stock certificate
representing issued and outstanding shares of Acacia-California Common Stock
will continue to represent the same number of shares of Acacia-Delaware Common
Stock. IT WILL NOT BE NECESSARY FOR SHAREHOLDERS TO EXCHANGE THEIR EXISTING
ACACIA-CALIFORNIA STOCK CERTIFICATES FOR ACACIA-DELAWARE STOCK
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CERTIFICATES. However, shareholders may request that their certificates be
exchanged if they so choose.
Acacia-California Common Stock is currently listed on the Nasdaq Stock
Market; after the Merger, Acacia-Delaware Common Stock will be listed on the
Nasdaq Stock Market under the same symbol ("ACRI") as the shares of
Acacia-California Common Stock are listed. There will be no interruption in the
trading of the Company's Common Stock as a result of the Merger. As of the date
the Board resolved to undertake the Proposed Reincorporation, the closing price
of Acacia-California Common Stock on the Nasdaq Stock Market was $19.0625 per
share.
Under California law, the affirmative vote of the holders of a majority of
the outstanding shares of Acacia-California Common Stock is required for
approval of the Merger Agreement and the other terms of the Proposed
Reincorporation. See "Vote Required" on p. 17 below. The Proposed
Reincorporation has been approved by the members of the Board, who unanimously
recommend a vote in favor of the proposal. If approved by the shareholders, it
is anticipated that the Merger will become effective (the "EFFECTIVE DATE") as
soon as practicable following the Special Meeting. However, as described in the
Merger Agreement, the Merger (and thus the Proposed Reincorporation) may be
abandoned or the Merger Agreement may be amended by the Board (except that the
principal terms may not be amended without shareholder approval) either before
or after shareholder approval has been obtained and prior to the Effective Date
if, in the opinion of the Board, circumstances arise which make it inadvisable
to proceed with the Proposed Reincorporation under the original terms of the
Merger Agreement.
As provided in the California General Corporation Law, shareholders of
Acacia-California will not have appraisal rights with respect to the Merger. See
"Comparison of the Charters and Bylaws of Acacia-California and Acacia-Delaware
and Significant Differences Between the Corporation Laws of California and
Delaware--Appraisal Rights" on p. 15 below.
The discussion set forth below is qualified in its entirety by reference to
the Acacia-Delaware Charter (also known as its certificate of incorporation),
the Acacia-Delaware Bylaws, and the Merger Agreement, copies of which are
attached to this Proxy Statement as Appendices A, B and C, respectively.
APPROVAL BY SHAREHOLDERS OF THE PROPOSED REINCORPORATION WILL ALSO
CONSTITUTE APPROVAL OF THE MERGER AGREEMENT, THE ACACIA-DELAWARE CHARTER AND THE
ACACIA-DELAWARE BYLAWS AND ALL PROVISIONS THEREOF, OTHER THAN WITH RESPECT TO
PROPOSAL NO. 2.
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PRINCIPAL REASONS FOR THE PROPOSED REINCORPORATION
As the Company plans for the future, the Board and the Company's management
believe that it is in the best interests of the Company and its shareholders
that the Company be able to draw upon well-established principles of corporate
governance in making legal and business decisions. The predictability of
Delaware corporate law provides a reliable foundation on which the Company's
governance decisions can be based, and the Company believes that its
shareholders will benefit from the responsiveness of Delaware corporate law to
their needs and to those of the corporation they own.
PREDICTABILITY AND FLEXIBILITY OF DELAWARE LAW. For many years, Delaware
has followed a policy of encouraging incorporation in that state and, in
furtherance of that policy, has been a leader in adopting, construing and
implementing comprehensive, flexible corporate laws that are responsive to the
legal and business needs of the corporations organized under its laws. Many
corporations have chosen Delaware as their original state of incorporation or
have subsequently changed their corporate domiciles to Delaware for these
reasons. Because of Delaware's popularity as the state of incorporation for many
major corporations, both the legislature and the courts in Delaware have
demonstrated an ability and a willingness to act quickly and effectively to meet
changing business needs. The Delaware courts have developed considerable
expertise in dealing with corporate issues, and a substantial body of case law
has developed construing Delaware law and establishing public policies with
respect to corporate legal affairs.
INCREASED ABILITY TO ATTRACT AND RETAIN QUALIFIED DIRECTORS AND
OFFICERS. Both California and Delaware law permit a corporation to reduce or
limit the monetary liability of directors for breaches of fiduciary duty in
certain circumstances and to indemnify directors and officers against certain
monetary liability, fees and expenses incurred in connection with the
performance of their respective duties relating to the corporation. The
increasing frequency of claims and litigation directed against directors and
officers has greatly expanded the risks facing directors and officers of
corporations in exercising their respective duties. The amount of time and money
required to respond to such claims and to defend such litigation can be
substantial. It is the Company's desire to reduce these risks to its directors
and officers, to limit to the extent possible the situations in which monetary
damages can be recovered against directors and to indemnify its directors and
officers to the extent possible so that the Company may continue to attract and
retain qualified directors and officers who otherwise might be unwilling to
serve because of the risks involved. The Company believes that, in general,
Delaware law provides greater protection to directors and officers than
California law and that Delaware case law regarding a corporation's ability to
limit director liability and to indemnify directors and officers is better
developed and provides more guidance than California law.
Approximately three years ago, Proposition 211 was rejected by the
California voters. Proposition 211, which was considered in the November 1996
election, would have severely limited the ability of California companies to
indemnify their directors and officers. While Proposition 211 was defeated,
similar initiatives or legislation containing similar provisions may be proposed
in California in the future. As a result, the Company believes that the more
favorable corporate environment afforded by Delaware will enable it to compete
more effectively with other public companies in attracting and retaining
qualified directors and officers.
WELL-ESTABLISHED PRINCIPLES OF CORPORATE GOVERNANCE. There is substantial
judicial precedent in the Delaware courts as to the legal principles applicable
to measures that may be taken by corporations and as to the conduct of boards of
directors under the business judgment rule and other standards. The Company
believes that its shareholders will benefit from the well-established principles
of corporate governance that Delaware law affords.
REDUCED VULNERABILITY TO UNSOLICITED TAKEOVER ATTEMPTS. Delaware, like many
other states, permits a corporation to adopt a number of measures designed to
reduce a corporation's vulnerability to
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unsolicited takeover attempts through provisions in the corporate charter or
bylaws or otherwise. The Proposed Reincorporation is intended to reduce the
Company's vulnerability to unsolicited or hostile attempts to obtain control of
the Company and to increase the likelihood that shareholders will receive a fair
price for their shares in transactions relating to such attempts. The Proposed
Reincorporation is not, however, being proposed in response to any present
attempt, known to the Board, to acquire control of the Company, to obtain
representation on the Company's Board, or to take significant corporate action
that would materially affect the governance of the Company.
In the discharge of its fiduciary obligations to the Company's shareholders,
the Board has evaluated the Company's vulnerability to potential unsolicited
bidders. In the course of such evaluation, the Board has considered, and may
consider in the future, certain defensive strategies designed to enhance the
Board's ability to negotiate with such unsolicited bidders. These strategies
include, but are not limited to, the adoption of a shareholder rights plan, the
adoption of a severance plan for the Company's management and key employees that
becomes effective upon the occurrence of a change in control of the Company, the
establishment of a classified board of directors, supermajority vote
requirements for shareholders to amend the Company's bylaws, the elimination of
cumulative voting, the elimination of the right to remove a director other than
for cause and the authorization of "blank-check" preferred stock (the rights and
preferences of which may be determined by the Board). None of these measures
have been previously adopted by Acacia-California and, other than the
elimination of cumulative voting, the supermajority vote requirement to amend
the bylaws and the authorization of "blank-check" preferred stock, none is
contemplated as part of the Proposed Reincorporation. It should be also noted
that elimination of cumulative voting and the establishment of a classified
board of directors also can be undertaken under California law under certain
circumstances. For a detailed discussion of the changes that will be implemented
as part of the Proposed Reincorporation, see "Comparison of the Charters and
Bylaws of Acacia-California and Acacia-Delaware and Significant Differences
Between the Corporation Laws of California and Delaware" on p. 7 below.
The Board believes that unsolicited takeover attempts may be unfair or
disadvantageous to the Company and its shareholders because, among other
reasons:
- a non-negotiated takeover bid may be timed to take advantage of
temporarily depressed stock prices;
- a non-negotiated takeover bid may be designed to foreclose or minimize the
possibility of more favorable competing bids or alternative transactions;
- a non-negotiated takeover bid may involve the acquisition of only a
controlling interest in the Company's stock, without affording all
shareholders the opportunity to receive the same economic benefits; and
- a non-negotiated takeover bid may deprive shareholders of an adequate
opportunity to evaluate the merits of the proposed transaction.
By contrast, in a transaction in which a potential acquirer must negotiate
with the Board, the Board can and will take account of the underlying and
long-term values of the Company's business, technology and other assets, the
possibilities for alternative transactions on more favorable terms, the possible
advantages from a tax-free reorganization, the anticipated favorable
developments in the Company's business not yet reflected in the stock price and
the equality of treatment of all shareholders.
The Board believes that, for the protection of the Company's shareholders,
any proposed acquisition of control of the Company or proposed business
combination in which the Company might be involved should be thoroughly studied
by the Board to assure that such transaction would be in the best interests of
the Company and its shareholders and that all of the Company's shareholders
would be treated fairly in such transaction. In sum, the Board believes that the
Proposed Reincorporation is
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prudent and in the best interests of the Company and its shareholders and should
be adopted for their protection.
POSSIBLE DISADVANTAGES OF REINCORPORATION
Despite the beliefs of the Board as to the benefits of the Proposed
Reincorporation to the Company and its shareholders, the Proposed
Reincorporation may have the effect of discouraging a future takeover attempt
that is not approved by the Board but is favored by individual shareholders.
This outcome could result even if a majority of the shareholders deem such
future takeover attempt to be in their best interests or if the shareholders
might receive a substantial premium for their shares over the then current
market value or over their cost basis in such shares. As a result of the
adoption of the Proposed Reincorporation, shareholders who wish to participate
in an unsolicited tender offer may not have an opportunity to do so if such
tender offer is not approved by the Board. In addition, the Proposed
Reincorporation could make it more difficult to change the existing Board and
management of the Company. Furthermore, adoption of the Proposed Reincorporation
will not necessarily ensure or guarantee that shareholders will receive a price
for their shares in connection with an acquisition of control of the Company
that reflects the value of such shares or that is fair and equitable, although,
in the opinion of the Board, the likelihood that the price will reflect such
value and be fair and equitable will be increased by the Proposed
Reincorporation.
NO CHANGE IN THE CORPORATE NAME, BOARD MEMBERS, BUSINESS, MANAGEMENT,
EMPLOYEE BENEFIT PLANS OR LOCATION OF PRINCIPAL FACILITIES OF THE COMPANY
The Proposed Reincorporation will effect only a change in the legal domicile
of the Company and certain other changes of a legal nature, the most significant
of which are described in this Proxy Statement. The Proposed Reincorporation
will NOT result in any change in the name, business, management, fiscal year,
assets, liabilities or location of the principal facilities of the Company. The
directors who serve on the Board of Acacia-California will become the directors
of Acacia-Delaware. All warrants, convertible securities, employee benefit,
stock option and employee stock purchase plans of Acacia-California will be
assumed and continued by Acacia-Delaware, and each option or right issued by
such plans will automatically be converted into an option or right to purchase
the same number of shares of Acacia-Delaware Common Stock, at the same price per
share, upon the same terms and subject to the same conditions. Shareholders
should note that approval of the Proposed Reincorporation will also constitute
approval of the assumption of these plans by Acacia-Delaware. Other employee
benefit arrangements of Acacia-California will also be continued by
Acacia-Delaware upon the terms and subject to the conditions currently in
effect.
As noted above, after the Merger, the shares of the Company's Common Stock
will continue to be listed, without interruption, on the Nasdsaq Stock Market
and under the same symbol ("ACRI"). The Company believes that the Proposed
Reincorporation will not affect any of its material contracts with any third
parties and that Acacia-California's rights and obligations under such material
contractual arrangements will continue and be assumed by Acacia-Delaware.
COMPARISON OF THE CHARTERS AND BYLAWS OF ACACIA-CALIFORNIA AND
ACACIA-DELAWARE AND SIGNIFICANT DIFFERENCES BETWEEN THE CORPORATION LAWS OF
CALIFORNIA AND DELAWARE
GENERAL. The provisions of the Acacia-Delaware Charter are more
comprehensive than those of the Acacia-California Charter (also known as its
articles of incorporation) and material changes are discussed below. The
Acacia-Delaware Bylaws are similar to the Acacia-California Bylaws in many
respects, but does differ in certain parts. As a result, the Proposed
Reincorporation includes the implementation of certain provisions in the
Acacia-Delaware Charter and Bylaws which alter the rights of shareholders and
the powers of management and which, in some cases, may reduce shareholder
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participation in important corporate decisions and may have "anti-takeover"
implications. See "Principal Reasons for the Proposed Reincorporation--Reduced
Vulnerability to Unsolicited Takeover Attempts" on p. 5 and "Possible
Disadvantages of Reincorporation" on p. 7 above.
Pursuant to Delaware law, certain other changes altering the rights of
shareholders and powers of management could be implemented in the future by
amendment of the Acacia-Delaware Charter following shareholder approval or by
amendment of the Acacia-Delaware Bylaws by the Board without shareholder
approval. Except for the provisions described below, the Board does not have any
current plans to implement any additional provisions to the Acacia-Delaware
Charter or Bylaws that may have "anti-takeover" implications. The Company is
also seeking shareholder approval to increase the number of authorized shares of
Common Stock and to authorize the issuance of Preferred Stock.
Approval by the shareholders of the Proposed Reincorporation will constitute
approval of the inclusion in the Acacia-Delaware Charter and Bylaws of each
provision contained in such documents other than with respect to the authorized
capital stock. In addition, approval of the Proposed Reincorporation will result
in certain substantive differences in the corporate law governing the Company.
While the Acacia-Delaware and Acacia-California Charters and Bylaws and the
respective laws of California and Delaware are discussed below, such discussion
contains neither an exhaustive description of all differences between the
Acacia-Delaware and Acacia-California Charters and Bylaws nor an exhaustive
description of the differences between the laws of the two states. The
discussion below of the Acacia-Delaware Charter and Bylaws is qualified by
reference to Appendices A and B hereto, respectively.
AUTHORIZED CAPITALIZATION. If the Proposed Reincorporation is approved and
Proposal No. 2 is also approved, the authorized capitalization of
Acacia-Delaware will be increased from the authorized capitalization of
Acacia-California. Each share of Acacia-Delaware stock has a par value of $0.001
per share, while each share of Acacia-California stock has no par value. The
difference in par value is without significance. The Acacia-Delaware Charter
authorizes the Company to issue 60,000,000 shares of Common Stock and 20,000,000
shares of Preferred Stock, an increase in authorized capital stock from the
Acacia-California Charter, which authorizes the Company to issue only 30,000,000
shares of Common stock and no shares of Preferred Stock. See "Proposal No. 2:
Approval of Increase in the Number of Authorized Shares" on p. 17 below.
"BLANK-CHECK" PREFERRED STOCK. The Acacia-Delaware Charter authorizes the
Board to issue "blank-check" Preferred Stock, which is not authorized under the
Acacia-California Charter. Pursuant to the Acacia-Delaware Charter, the Board is
authorized to issue, without any action on the part of the Company's
shareholders, up to 20,000,000 shares of Preferred Stock and determine the
rights, preferences, privileges, dividends, voting and other rights of each
series of Preferred Stock. See "Proposal No. 2: Approval of Increase in the
Number of Authorized Shares" on p. 17 below.
ELIMINATION OF CUMULATIVE VOTING FOR DIRECTORS. Cumulative voting rights in
the election of directors entitle a shareholder to give one nominee as many
votes as are equal to the number of directors to be elected multiplied by the
number of shares owned by the shareholder, or to distribute such votes among two
or more nominees, as the shareholder sees fit. In the absence of cumulative
voting, the holder or holders of the majority of the shares present or
represented at a meeting have the power to elect each director to be elected at
such meeting. The absence of cumulative voting would make it more difficult for
minority shareholders adverse to a majority of the shareholders to obtain
representation on a corporation's board of directors. California law requires
cumulative voting in the election of directors but permits a "listed"
corporation, such as Acacia-California, to eliminate cumulative voting; however,
Acacia-California has not done so. Under Delaware law, shares may not be
cumulatively voted for the election of directors of the Company unless the
Acacia-Delaware Charter specifically provides for cumulative voting, which it
does not. Thus, as a result of the Proposed
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Reincorporation, shareholders will no longer have the ability to cumulatively
vote for the election of directors.
AMENDMENT OF BYLAWS. Under California law, a corporation's bylaws may be
adopted, amended or repealed either by the vote of a majority of the outstanding
shares or by the approval of the board of directors of such corporation. Neither
the Acacia-California Charter nor the Acacia-California Bylaws contain
provisions restricting or eliminating the rights to adopt, amend or repeal
granted under California law. Delaware law provides that a corporation's bylaws
may be amended by that corporation's shareholders or, if so provided in the
corporation's charter, by the corporation's board of directors. The
Acacia-Delaware Charter gives the Board the power to alter, amend or repeal the
Acacia-Delaware Bylaws. In addition, the Acacia-Delaware Charter authorizes
Acacia-Delaware's shareholders the right to adopt, amend or repeal the
Acacia-Delaware Bylaws, but only with the affirmative vote of the holders of not
less than sixty-six and two-thirds percent (66 2/3%) of the outstanding shares
of Acacia-Delaware Common Stock entitled to vote on such matters. As a result,
the percentage of shareholder approval required to adopt, amend, or repeal a
bylaw of Acacia-Delaware will be higher than the corresponding percentage with
respect to the Acacia-California Bylaws.
RIGHT TO CALL SPECIAL SHAREHOLDERS' MEETINGS. Pursuant to California law,
the Acacia-California Bylaws provide that a special meeting of shareholders may
be called by the Board, the Chairman of the Board or the President of the
Company or by the holders of shares of the Company entitled to cast not less
than 10% of the votes at such meeting. Under Delaware law, a special meeting of
shareholders may be called by the board of directors of a corporation or by any
other person authorized to do so in the corporation's charter or bylaws. The
Acacia-Delaware Charter authorizes only the Board, the Chairman of the Board, or
the President of the Company to call a special meeting of shareholders.
Therefore, under the Acacia-Delaware Charter, holders of 10% or more of the
voting shares of the Company will not be able to call a special meeting of
shareholders.
The Board believes this change is warranted as a prudent corporate
governance measure to prevent an inappropriately small number of shareholders
from prematurely forcing shareholder consideration of a proposal over the
opposition of the Board by calling a special shareholders' meeting before
(i) the time that the Board believes such consideration to be appropriate or
(ii) the next annual meeting. Such special meetings would involve substantial
expense and diversion of Board and management time, results which the Board
believes to be inappropriate for an enterprise the size of the Company.
The elimination of the procedures for shareholders to call special meetings
could discourage hostile takeover attempts or tender offers for control of
Acacia-Delaware which might be approved by many, or indeed by a majority, of
Acacia-Delaware's shareholders. In addition, elimination of the ability of
shareholders to call a special meeting means that a shareholder proposal to
replace the Board would be restricted to only annual meetings, thereby making
the removal of directors by shareholders more difficult. See "Possible
Disadvantages of Reincorporation" on p. 7 above.
Aside from the foregoing, no other change is contemplated in the procedures
to call a special shareholders' meeting, although in the future the Board could
amend the Acacia-Delaware Bylaws without shareholder approval. See "Amendment of
Bylaws" above.
FILLING VACANCIES ON THE BOARD. Under California law, any vacancy on the
Board (other than one created by removal of a director) may be filled by a
majority of the remaining directors of the Company constituting no less than a
quorum. If the number of directors is less than a quorum, a vacancy may be
filled by the unanimous written consent of the directors then in office or by
the affirmative vote of a majority of the directors at a meeting held based on
notice or waiver of notice. A
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vacancy created by removal of a director may be filled by the Board only if so
authorized by the Acacia-California Charter or Bylaws, neither of which
authorize such action by the Board.
Delaware law differs in that vacancies and newly-created positions on the
Board may be filled by a majority of the directors of the Company then in office
(even though less than a quorum) or by a sole remaining director, unless
otherwise provided in the Acacia-Delaware Charter or Bylaws (or unless the
Acacia-Delaware Charter directs that a particular class of stock is to elect
such directors, in which case a majority of the directors elected by such class
would fill such vacancy or newly-created position). Unlike the Acacia-California
Bylaws, the Acacia-Delaware Bylaws provide that the remaining directors can fill
any vacancy on the Board, including a vacancy created by the removal of a
director.
NOMINATION OF DIRECTORS AND INTRODUCTION OF BUSINESS AT SHAREHOLDER
MEETINGS. The Acacia-Delaware Bylaws include advance notice procedures similar
to those included in the Acacia-California Bylaws with regard to the nomination
of directors, other than by or at the direction of the Board (the "NOMINATION
PROCEDURE"), and with regard to other matters to be brought before an annual
meeting of shareholders by a shareholder of the Company (the "BUSINESS
PROCEDURE"). Both the Acacia-California Bylaws and the Acacia-Delaware Bylaws
establish the deadline for giving such notice to the Company as not less than 90
days nor more than 120 days prior to the first anniversary of the preceding
year's annual meeting.
By requiring advance notice of nominations by shareholders, the Nomination
Procedure affords the Board an opportunity to consider the qualifications of the
proposed nominees and, to the extent deemed necessary or desirable by the Board,
to inform the shareholders about such qualifications. By requiring advance
notice of proposed business, the Business Procedure provides the Board with an
opportunity to inform shareholders of the nature of any business proposed to be
conducted at a meeting and the Board's position on any such proposal, enabling
shareholders to better determine how to vote their shares in regard to such
business.
The Nomination Procedure and the Business Procedure may have the effect of
precluding a nomination for the election of directors or of precluding any other
business at a particular meeting if the proper procedures are not followed. In
addition, the procedures may discourage or deter a third party from conducting a
solicitation of proxies to elect its own slate of directors or otherwise
attempting to obtain control of the Company, even if such nominations for the
election of directors or other business might be deemed by the majority of
shareholders to be beneficial to the Company and its shareholders.
Under both the Acacia-California Bylaws and Acacia-Delaware Bylaws, only
such business may be conducted at a special meetings of the shareholders as
shall have been identified and brought before the meeting pursuant to the notice
of such meeting. However, as shareholders with more than 10% of the voting stock
of the Company will no longer be able to call special meetings, only the Board
will be able to nominate persons for election as directors of the Company at
special meetings under the Acacia-Delaware Bylaws.
SHAREHOLDER APPROVAL OF CERTAIN BUSINESS COMBINATIONS. Under Section 203 of
the Delaware General Corporation Law, a Delaware corporation is prohibited from
engaging in a "business combination" with an "interested shareholder" for three
years following the time that such person or entity becomes an interested
shareholder. With certain exceptions, an interested shareholder is a person or
entity who or which owns, individually or with or through certain other persons
or entities, fifteen percent (15%) or more of the corporation's outstanding
voting stock (including any rights to acquire stock by an option, warrant,
agreement, arrangement or understanding, or upon the exercise of conversion or
exchange rights, and stock with respect to which the person has voting rights
only). The three-year moratorium imposed by Section 203 on business combinations
does not apply if (i) prior to the time such shareholder becomes an interested
shareholder, the board of directors of the subject corporation approves either
the business combination or the transaction that resulted in the person or
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entity becoming an interested shareholder; (ii) upon consummation of the
transaction that made him or her an interested shareholder, the interested
shareholder owns at least eighty-five percent (85%) of the corporation's voting
stock outstanding at the time the transaction commenced (excluding from the 85%
calculation shares owned by directors who are also officers of the subject
corporation and shares held by employee stock plans that do not give employee
participants the right to decide confidentially whether to accept a tender or
exchange offer) or (iii) at or after the time such person or entity becomes an
interested shareholder, the board of directors approves the business combination
and it is also approved at a shareholder meeting by sixty-six and two-thirds
percent (66 2/3%) of the outstanding voting stock not owned by the interested
shareholder. Although a Delaware corporation to which Section 203 applies may
elect not to be governed by Section 203, the Board intends that the Company be
governed by Section 203. The Board believes that most Delaware corporations have
availed themselves of this statute and have not opted out of Section 203.
The Board believes that Section 203 will encourage any potential acquirer to
negotiate with the Board. Section 203 also might have the effect of limiting the
ability of a potential acquirer to make a two-tiered bid for Acacia-Delaware in
which all shareholders would not be treated equally. Shareholders should note,
however, that the application of Section 203 to Acacia-Delaware will confer upon
the Board the power to reject a proposed business combination in certain
circumstances, even though a potential acquirer may be offering a substantial
premium for Acacia-Delaware's shares over the then-current market price. Section
203 would also discourage certain potential acquirers who are unwilling to
negotiate with the Board.
California law requires that holders of common stock receive common stock in
a merger of the corporation with the holder of more than fifty percent (50%) but
less than ninety percent (90%) of the target's common stock or its affiliate
unless all of the target company's shareholders consent to the transaction. This
provision of California law may have the effect of making a "cash-out" merger by
a majority shareholder more difficult to accomplish. Although Delaware law does
not parallel California law in this respect, under some circumstances Section
203 does provide similar protection to shareholders against coercive two-tiered
bids for a corporation in which the shareholders are not treated equally.
ACTION BY WRITTEN CONSENT OF SHAREHOLDERS. Unless otherwise provided in a
corporation's charter, both California and Delaware law permit any action which
may be taken at any annual or special meeting of shareholders to be taken
without a meeting and without prior notice if a written consent, setting forth
the action to be taken, is signed by the holders of outstanding shares of the
corporation's capital stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted. The
Acacia-California Charter does not contain a provision limiting the Company's
shareholders' right to take action by written consent. In contrast, the
Acacia-Delaware Charter does not permit the Company's shareholders to take
action by written consent. Thus, shareholders will no longer have the ability to
take action by written consent.
CLASSIFIED BOARD OF DIRECTORS. A classified board of directors is one on
which a certain number, but not all, of the directors are elected on a rotating
basis each year. Delaware law permits, but does not require, a classified board
of directors, pursuant to which the directors can be divided into as many as
three classes with staggered terms of office, with only one class of directors
standing for election each year. The Acacia-Delaware Charter and Bylaws do not
provide for a classified board and the adoption of a classified board in the
future would require shareholder approval. Under California law, a corporation
may generally provide for a classified board of directors by adopting amendments
to its charter or bylaws, which amendments must be approved by the shareholders.
The Acacia-California Charter and Bylaws do not currently provide for a
classified board.
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REMOVAL OF DIRECTORS. Under California law, any director or the entire
board of directors may be removed, with or without cause, by approval of a
majority of the outstanding shares entitled to vote; however, no individual
director may be removed (unless the entire board is removed) if the number of
votes cast against such removal would be sufficient to elect the director under
cumulative voting. Delaware law provides that a director of a corporation can be
removed with or without cause by the holders of a majority of the shares then
entitled to vote in an election of directors unless the corporation has adopted
a classified board of directors or adopted cumulative voting for directors;
Acacia-Delaware has adopted neither such feature and, thus, directors will be
removable with or without cause.
LIMITATION OF LIABILITY OF DIRECTORS. California and Delaware have similar
laws respecting the elimination of the liability of a director to the
corporation or its shareholders for monetary damages for breach of the
director's fiduciary duty, provided that such liability does not arise from
certain proscribed conduct. California law does not permit the elimination or
limitation of monetary liability where such liability is based on:
(i) intentional misconduct or knowing and culpable violation of law; (ii) acts
or omissions that a director believes to be contrary to the best interests of
the corporation or its shareholders or that involve the absence of good faith on
the part of the director; (iii) receipt of an improper personal benefit;
(iv) acts or omissions that show reckless disregard for the director's duty to
the corporation or its shareholders, where the director in the ordinary course
of performing a director's duties should be aware of a risk of serious injury to
the corporation or its shareholders; (v) acts or omissions that constitute an
unexcused pattern of inattention that amounts to an abdication of the director's
duty to the corporation and its shareholders; (vi) transactions between the
corporation and a director who has a material financial interest in such
transaction or (vii) liability for improper distributions, loans or guarantees.
Delaware law does not permit the elimination or limitation of director
monetary liability for: (i) breaches of the director's duty of loyalty to the
corporation or its shareholders; (ii) acts or omissions not in good faith or
involving intentional misconduct or knowing violations of law; (iii) the payment
of unlawful dividends or unlawful stock repurchases or redemptions or (iv)
transactions in which the director received an improper personal benefit. Such
provision also may not limit a director's liability for violation of, or
otherwise relieve the Company or its directors from the necessity of, complying
with federal or state securities laws, or affect the availability of
non-monetary remedies such as injunctive relief or rescission.
The Acacia-Delaware Charter provides for the elimination of personal
monetary liability of directors to the fullest extent permissible under Delaware
law. The Acacia-California Charter does not contain a comparable provision, even
though such a provision is permitted under California law. Because Delaware law
is more permissive under certain circumstances than California law with respect
to eliminating monetary liability of directors, the Acacia-Delaware Charter is
potentially broader in application than a comparable charter provision under
California law. The Acacia-Delaware Charter provision also incorporates any
future amendments to Delaware law that further eliminate or limit such
liability.
The Board believes that the elimination of liability in the Acacia-Delaware
Charter is in the best interests of the Company in that it maintains its ability
to attract and retain qualified individuals to serve as directors, by providing
assurance that decisions made in good faith will not subject them to personal
liability by a court evaluating their decisions with the benefit of hindsight.
However, this provision will limit the remedies available to shareholders
dissatisfied with a Board decision, even if such decision involved gross
negligence on the part of the directors. In such case, the shareholders' only
remedy would be to file suit to stop the completion of the Board's action, which
remedy may not be effective if such action has already been completed.
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INDEMNIFICATION. California and Delaware have similar laws respecting
indemnification by a corporation of its officers, directors, employees and other
agents. California law requires indemnification when the individual has defended
successfully the action on the merits while Delaware law requires
indemnification when there has been a successful defense on the merits or
otherwise. If the individual loses or settles, the laws of both states, with
some differences, provide for permissive indemnification (i.e., it is not
required, but the corporation may indemnify). Delaware law generally permits
indemnification of expenses, including attorneys' fees, actually and reasonably
incurred in the defense or settlement of a derivative or third-party action,
provided there is a determination (i) by a majority vote of the directors who
are not parties to such action, suit or proceeding, even though less than a
quorum, (ii) by a committee of such directors designated by majority vote of
such directors, even though less than a quorum, (iii) by independent legal
counsel or (iv) by a majority vote of a quorum of the shareholders that the
person seeking indemnification acted in good faith and in a manner reasonably
believed to be in or not opposed to the best interests of the corporation.
Without court approval, however, no indemnification may be made in respect of
any derivative action in which such person is adjudged liable for negligence or
misconduct in the performance of his or her duty to the corporation. California
law allows indemnification if, with respect to the matter giving rise to the
lawsuit, the individual acted (i) in good faith and (ii) for the purpose or in a
manner that he reasonably believed to be in the best interests of the
corporation. Although California law is similar to Delaware law in that it
requires determination to be made by the majority vote of non-party directors or
by the majority vote of a quorum of the shareholders, California law also
provides for determination to be made by the court. However, it does not allow
for determination to be made by an independent counsel.
Expenses incurred by an officer or director in defending an action may be
paid in advance, under Delaware law and California law, if such director or
officer undertakes to repay such amounts if it is ultimately determined that he
or she is not entitled to indemnification. In addition, the laws of both states
authorize a corporation's purchase of indemnity insurance for the benefit of its
officers, directors, employees and agents whether or not the corporation would
have the power to indemnify against the liability covered by the policy.
California law permits the Company to provide such additional rights to
indemnification beyond those mandated by statute to the extent such additional
indemnification is authorized in its charter. Although the Acacia-California
Charter contains no specific authorizing provision with respect to
indemnification, the Acacia-California Bylaws permit indemnification to the
fullest extent permitted by California law.
Delaware law permits the Company to provide indemnification in excess of
that mandated by statute, but Delaware law does not require authorizing
provisions in the Acacia-Delaware Charter and does not contain express
prohibitions on indemnification in certain circumstances. Limitations on
indemnification may be imposed by a court, however, based on principles of
public policy. Acacia-Delaware's Bylaws allow for indemnification to the maximum
extent permitted by Delaware law.
As of the date of this Proxy Statement, the Company is not aware of any
actions pending or threatened against officers or directors of Acacia-California
or Acacia-Delaware in their capacities as such.
INSPECTION OF SHAREHOLDER LIST. Both California and Delaware law allow any
shareholder to inspect the shareholder list for a purpose reasonably related to
such person's interest as a shareholder. Like California law, Delaware law
provides for inspection rights as to a list of shareholders entitled to vote at
a meeting for any purpose germane to the meeting, but limits such inspection to
the 10-day period preceding a shareholders' meeting. California law, unlike
Delaware law, also provides that persons holding an aggregate of five percent
(5%) or more of the corporation's voting shares and that persons holding an
aggregate of one percent (1%) or more of such shares who have contested the
election of
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directors have the right to inspect and copy the corporation's shareholder list
without establishing the purpose for such inspection.
SOURCES OF DIVIDENDS AND REPURCHASES OF SHARES. California law dispenses
with the concepts of par value of shares as well as statutory definitions of
capital, surplus and the like. The concepts of par value, capital and surplus
exist under Delaware law.
Delaware law permits a corporation to declare and pay dividends out of
surplus or, if there is no surplus, out of net profits for the fiscal year in
which the dividend is declared and/or for the preceding fiscal year as long as
the amount of capital of the corporation following the declaration and payment
of the dividend is not less than the aggregate amount of the capital represented
by the issued and outstanding stock of all classes having a preference upon the
distribution of assets. In addition, Delaware law generally provides that a
corporation may redeem or repurchase its shares only if the capital of the
corporation is not impaired (meaning that the value of the assets of the
corporation is less than the amount represented by the aggregate outstanding
shares of the capital stock of the corporation) and such redemption or
repurchase would not impair the capital of the corporation. The ability of a
Delaware corporation to pay dividends on, or to make repurchases or redemptions
of, its shares is dependent on the financial status of the corporation standing
alone and not on a consolidated basis. In determining the amount of surplus of a
Delaware corporation, the assets of the corporation, including stock of
subsidiaries owned by the corporation, may be valued at their fair market value
as determined by the board of directors, regardless of their historical book
value.
Under California law, a corporation may not make any distribution to its
shareholders unless either: (i) the corporation's retained earnings immediately
prior to the proposed distribution equal or exceed the amount of the proposed
distribution or (ii) immediately after giving effect to such distribution, the
corporation's assets (exclusive of goodwill, capitalized research and
development expenses and deferred charges) would be at least equal to 1 1/4
times its liabilities (not including deferred taxes, deferred income and other
deferred credits), and the corporation's current assets would be at least equal
to its current liabilities (or 1 1/4 times its current liabilities if the
average pre-tax and pre-interest expense earnings for the preceding two fiscal
years were less than the average interest expense for such years). Such tests
are applied to California corporations on a consolidated basis.
SHAREHOLDER APPROVAL OF MERGERS. Both California and Delaware law generally
require that the holders of majority of the shares of both acquiring and target
corporations approve statutory mergers with differing exceptions to this general
requirement.
Delaware law does not require a shareholder vote of the surviving
corporation in a merger (unless the corporation provides otherwise in its
charter) if: (i) the merger agreement does not amend the existing charter;
(ii) each share of stock of the surviving corporation outstanding immediately
before the effective date of the merger is an identical outstanding share after
the merger and (iii) either (a) no shares of common stock of the surviving
corporation and no shares, securities or obligations convertible into such stock
are to be issued or delivered under the plan of merger or (b) the authorized
unissued shares or shares of common stock of the surviving corporation to be
issued or delivered under the plan of merger plus those initially issuable upon
conversion of any other shares, securities or obligations to be issued or
delivered under such plan do not exceed twenty percent (20%) of the shares of
common stock of such constituent corporation outstanding immediately prior to
the effective date of the merger.
California law contains a similar exception to its voting requirements for
reorganizations where shareholders or the corporation itself, or both,
immediately prior to the reorganization will own immediately after the
reorganization equity securities constituting more than 83 1/3% (or five-sixths)
of the voting power of the surviving or acquiring corporation or its parent
entity.
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LOANS TO DIRECTORS, OFFICERS AND OTHER EMPLOYEES. Under California law, a
corporation may make loans to, or guarantees for the benefit of, directors and
officers if such loans or guarantees are approved by a majority of the
corporation's shareholders or, for corporations with 100 or more shareholders of
record, by its board of directors acting under a shareholder-approved bylaw. The
Acacia-California Bylaws do not authorize the Company to make loans or
guarantees to any director or officer of the Company. Under Delaware law, the
Company may make loans to, guarantee the obligations of or otherwise assist its
officers or other employees (including directors who are officers of employees)
and those of its subsidiaries when such action, in the judgment of the Board,
may reasonably be expected to benefit the corporation, and the Acacia-Delaware
Bylaws have a provision to that effect. The Acacia-Delaware Bylaws (i) allow for
loans to employees of the Company who are not officers or directors and (ii) do
not allow for loans to directors who are not officers or employees of the
Company.
APPRAISAL RIGHTS. Under both California and Delaware law, a shareholder of
a corporation participating in certain major corporate transactions may, under
varying circumstances, be entitled to appraisal rights under which such
shareholder may receive cash in the amount of the fair market value of his or
her shares in lieu of the consideration he or she would otherwise receive in the
transaction.
Under Delaware law, such appraisal rights are not available: (i) with
respect to the sale, lease or exchange of all or substantially all of the assets
of a corporation; (ii) with respect to a merger or consolidation by a
corporation the shares of which are listed on a national securities exchange,
designated as a national market system on an interdealer quotation system by the
National Association of Securities Dealers, Inc. or held of record by more than
2,000 holders if such shareholders receive only shares of the surviving
corporation or shares of any other corporation that are either listed on a
national securities exchange or held of record by more than 2,000 holders, plus
cash in lieu of fractional shares of such corporations; or (iii) to shareholders
of a corporation surviving a merger if no vote of the shareholders of the
surviving corporation is required to approve the merger under Delaware law.
The limitations on the availability of appraisal rights under California law
are different from those under Delaware law. Shareholders of a California
corporation whose shares are listed on a national securities exchange generally
do not have such appraisal rights unless the holders of at least five percent
(5%) of the class of outstanding shares claim the right or the corporation or
any law restricts the transfer of such shares. Appraisal rights are also
unavailable if the shareholders of a corporation or the corporation itself, or
both, immediately prior to the reorganization will own immediately after the
reorganization equity securities constituting more than 83 1/3% (or five-sixths)
of the voting power of the surviving or acquiring corporation or its parent
entity. California law generally affords appraisal rights in sale of asset
reorganizations.
Pursuant to California law, appraisal rights are not available to
shareholders of Acacia-California with respect to the Merger.
DISSOLUTION. Under California law, shareholders holding fifty percent (50%)
or more of the total voting power of the Company may authorize the Company's
dissolution, with or without the approval of the Board, and this right may not
be modified by the Acacia-California Charter. Under Delaware law, without the
Board's approval of a dissolution of the Company, a dissolution must be
unanimously approved by all the shareholders entitled to vote thereon, while a
dissolution that is approved by the Board only requires the approval of a simple
majority of such shareholders. In the event of such a Board-initiated
dissolution, Delaware law allows the Company to include in the Acacia-Delaware
Charter a supermajority (greater than a simple majority) voting requirement in
connection with dissolutions. The Acacia-Delaware Charter does not contain a
supermajority voting requirement in connection with dissolutions.
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INTERESTED DIRECTOR TRANSACTIONS. Under both California and Delaware law,
certain contracts or transactions in which one or more of the Company's
directors has an interest are not void or voidable because of such interest,
provided that certain conditions, such as obtaining the required approval and
fulfilling the requirements of good faith and full disclosure, are met. With
certain minor exceptions, the conditions are similar under California and
Delaware law.
SHAREHOLDER DERIVATIVE SUITS. California law provides that a shareholder
bringing a derivative action on behalf of the Company need not have been a
shareholder at the time of the transaction in question, provided that certain
tests are met. Under Delaware law, a shareholder may bring a derivative action
on behalf of the Company only if the he or she was a shareholder of the Company
at the time of the transaction in question or if his or her stock thereafter
devolved upon him or her by operation of law. California law also provides that
the Company or the defendant in a derivative suit may make a motion to the court
for an order requiring the plaintiff shareholder to furnish a security bond,
while Delaware law does not.
APPLICATION OF THE CALIFORNIA GENERAL CORPORATION LAW TO DELAWARE
CORPORATIONS. Under Section 2115 of the California General Corporation Law,
certain foreign corporations (i.e., corporations not organized under California
law) which have significant contacts with California are subject to a number of
key provisions of the California General Corporation Law. However, an exemption
from Section 2115 is provided for a corporation whose shares are qualified as a
national market security on the Nasdaq Stock Exchange and if the corporation has
at least 800 holders of its equity securities as of the record date for its most
recent shareholder meeting. Following the Proposed Reincorporation, the
Company's Common Stock will continue to be qualified on the National Market
System of the Nasdaq Stock Market and, accordingly, Acacia-Delaware would be
exempt from Section 2115 so long as it has more than 800 holders of its equity
securities.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES. The following is a discussion of
certain federal income tax considerations that may be relevant to holders of
Acacia-California Common Stock who receive Acacia-Delaware Common Stock in
exchange for their Acacia-California Common Stock as a result of the Proposed
Reincorporation. The discussion does not address all of the tax consequences of
the Proposed Reincorporation that may be relevant to particular
Acacia-California shareholders, such as dealers in securities, or those
Acacia-California shareholders who acquired their shares upon the exercise of
stock options, nor does it address the tax consequences to holders of options or
warrants to acquire Acacia-California Common Stock. Furthermore, no foreign,
state or local tax considerations are addressed herein. In view of the varying
nature of such tax consequences, each shareholder is urged to consult his or her
own tax advisor as to the specific tax consequences of the Proposed
Reincorporation, including the applicability of federal, state, local or foreign
tax laws.
Subject to the limitations, qualifications and exceptions described herein,
and assuming the Proposed Reincorporation qualifies as a reorganization within
the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended
(the "CODE"), the following tax consequences generally should result:
(a) No gain or loss should be recognized by holders of Acacia-California
Common Stock upon receipt of Acacia-Delaware Common Stock under the Proposed
Reincorporation;
(b) The aggregate tax basis of Acacia-Delaware Common Stock received by each
shareholder in the Proposed Reincorporation should be equal to the aggregate tax
basis of Acacia-California Common Stock surrendered in exchange therefor; and
(c) The holding period of Acacia-Delaware Common Stock received by each
shareholder of Acacia-California should include the period for which such
shareholder held Acacia-California Common Stock surrendered in exchange
therefor, provided that such Acacia-California Common Stock
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was held by the shareholder as a "capital asset" (as defined in Section 1221 of
the Code) at the time of the Proposed Reincorporation.
The Company does not intend to request a ruling from the Internal Revenue
Service (the "IRS") with respect to the federal income tax consequences of the
Proposed Reincorporation under the Code. The Company will, however, receive an
opinion from the Company's general tax counsel substantially to the effect that
the Proposed Reincorporation will qualify as a reorganization within the meaning
of Section 368(a) of the Code (the "TAX OPINION"). The Tax Opinion will neither
bind the IRS nor preclude it from asserting a contrary position. In addition,
the Tax Opinion will be subject to certain assumptions and qualifications and
will be based in part upon the truth and accuracy of representations made by
Acacia-California and its wholly-owned Delaware subsidiary. Of particular
importance will be assumptions and representations relating to the requirement
under Section 368 of the Code that, after the Proposed Reincorporation, the
shareholders of Acacia-California retain, through ownership of Acacia-Delaware
stock, a significant equity interest in the assets previously held by
Acacia-California (the "continuity of interest" requirement).
A successful IRS challenge to the reorganization status of the Proposed
Reincorporation (in consequence of a failure to satisfy the "continuity of
interest" requirement or otherwise) would result in a shareholder recognizing
gain or loss with respect to each share of Acacia-California Common Stock
exchanged in the Proposed Reincorporation equal to the difference between (i)
the shareholder's basis in such share and (ii) the fair market value, as of the
time of the Proposed Reincorporation, of Acacia-Delaware Common Stock received
in exchange therefor. In such event, a shareholder's aggregate basis in the
shares of Acacia-Delaware Common Stock received in the exchange would equal
their fair market value on such date, and the shareholder's holding period for
such shares would not include the period during which the shareholder held
Acacia-California Common Stock.
State, local and foreign income tax consequences to shareholders may vary
from the federal tax consequences described above.
The Company does not expect to recognize gain or loss for federal income tax
purposes as a result of the Proposed Reincorporation, and Acacia-Delaware should
succeed, without adjustment, to the federal income tax attributes of
Acacia-California.
VOTE REQUIRED
The affirmative "FOR" vote of the holders of a majority of the shares of the
Company's Common Stock outstanding on the Record Date is required for approval
of the Proposed Reincorporation, which will also constitute approval of the
Merger Agreement, the Certificate of Incorporation of Acacia-Delaware and the
Acacia-Delaware Bylaws. THE BOARD UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE
"FOR" THE PROPOSED REINCORPORATION AS DESCRIBED ABOVE. PROXIES RECEIVED WILL BE
SO VOTED UNLESS SHAREHOLDERS SPECIFY OTHERWISE IN THE PROXY.
PROPOSAL NO. 2: APPROVAL OF INCREASE
IN THE NUMBER OF AUTHORIZED SHARES
(ITEM 2 ON THE PROXY CARD)
The Acacia-California Charter authorizes the Company to issue up to
30,000,000 shares of Common Stock of which, as of the Record Date, 11,301,050
shares were issued and outstanding, and 3,172,423 shares were reserved for
issuance under outstanding options and warrants (subject to adjustment persuant
to certain antidilution provisions contained in the warrants) and no shares of
Preferred Stock. The Acacia-Delaware Charter authorizes Acacia-Delaware to issue
up to 60,000,000 shares of Common Stock and 20,000,000 shares of Preferred
Stock. The Board has no immediate plans to issue a significant number of
additional shares of Common Stock or Preferred Stock. However, the larger number
of authorized shares provided for in the Acacia-Delaware Charter will provide
the
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Company with the certainty and flexibility to undertake various types of
transactions, including stock splits (in the form of stock dividends),
financings, increases in the shares reserved for issuance pursuant to stock
incentive plans, or other corporate transactions not yet determined.
The issuance of additional shares of capital stock may, among other things,
dilute the equity or book value per share, earnings per share and voting rights
of current holders of capital 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.
The Board of Acacia-California has had the flexibility in approving the
stock splits without having to wait for shareholder approval. The Board has
previously approved and distributed a 2-for-1 stock split in the form of a stock
dividend of one share of Common Stock for each share of Common Stock outstanding
on June 12, 1998. In particular, under California law, the Board may
proportionately increase the Company's authorized stock to effect a stock split
without requiring shareholder approval. Under Delaware law, however, the Board
cannot split the Company's stock by means of a 100% stock dividend without
shareholder approval if there are insufficient authorized shares available.
In order for the Board of Acacia-Delaware to respond with the same
flexibility the Company has had as a California corporation, the Company must
have a sufficient number of authorized shares to cover appropriate levels of
stock dividends. Under the proposed Acacia-Delaware Charter, the additional
shares of Common Stock would be available for issuance without further
stockholder action, unless shareholder action is otherwise required by Delaware
law or the rules of any stock exchange or automated quotation system on which
the Common Stock may then be listed or quoted. Although the Company is not
currently contemplating any additional stock split or stock dividend and there
can be no assurance that any additional stock split or stock dividend will
happen at any particular time in the future or at all, the additional authorized
shares in Acacia-Delaware will effectively provide the Board with the same
flexibility it had to split the shares of Acacia-California.
With respect to the Preferred Stock, the Acacia-Delaware Charter grants the
Board the authority to issue such shares in one or more series and to fix and
determine the relative powers, rights, preferences and privileges, including
dividends and voting rights, and the qualifications, limitations or
restrictions, of the shares of each series without further shareholder approval.
The issuance of Preferred Stock could be used by the Board as a method of
discouraging, delaying, or preventing a change in control of the Company or to
resist takeover offers opposed by the Company's management. Under certain
circumstances, the Board could create impediments for or frustrate persons
seeking to effect a hostile takeover or otherwise gain control of the Company by
causing shares of Preferred Stock with voting or conversion rights to be issued
to a holder or holders who side with the Board.
VOTE REQUIRED
The affirmative "FOR" vote of the holders of a majority of the shares of the
Company's Common Stock outstanding on the Record Date is required for approval
of the increase in authorized shares at this time. If this proposal is not
approved by the shareholers but the shareholders approve the Reincorporation
Proposal, the Company will reset the authorized shares of Common Stock of
Acacia-Delaware to 30,000,000 and no shares of Preferred Stock, as currently
authorized for Acacia-California, and then complete the Proposed
Reincorporation. THE BOARD UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE "FOR"
THE PROPOSAL TO SET THE NUMBER OF AUTHORIZED SHARES OF ACACIA-DELAWARE AT
60,000,000 SHARES OF COMMON STOCK AND 20,000,000 SHARES OF PREFERRED STOCK.
PROXIES RECEIVED WILL BE SO VOTED UNLESS SHAREHOLDERS SPECIFY OTHERWISE IN THE
PROXY.
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PROPOSAL NO. 3: APPROVAL OF AMENDMENTS
TO THE 1996 STOCK OPTION PLAN
(ITEM 3 ON PROXY CARD)
At the Special Meeting, shareholders will be asked to approve certain
amendments, adopted by the Board on October 6, 1999 (the "AMENDMENTS"), to the
1996 Stock Option Plan (as previously amended and as modified by the Amendments,
the "1996 PLAN," unless the context otherwise dictates). All references below to
the 1996 Plan's share limits have been adjusted to reflect the Company's 2-for-1
stock split distributed in June 1998. The Amendments have the following effects:
INCREASED NUMBER OF SHARES SUBJECT TO THE 1996 PLAN. Currently, a maximum
of 850,000 shares of Common Stock may be granted under the Key Employee Program
(described below) of the 1996 Plan and a maximum of 150,000 shares of Common
Stock may be delivered under the Non-Employee Director Program (described below)
of the 1996 Plan, for an aggregate share limit of 1,000,000 shares.
As of September 30, 1999, 4,000 shares had been issued pursuant to an
exercise under the Key Employee Program, 839,501 shares were subject to
outstanding but unexercised options thereunder, and a total of 6,499 shares
remained available for grant purposes (plus any shares which may become
available because outstanding options expire, are cancelled, or otherwise
terminate before being exercised). As of September 30, 1999, no shares had been
issued under the Non-Employee Director Program, 74,000 shares were subject to
outstanding but unexercised options thereunder, and a total of 76,000 shares
remained available for grant purposes (plus any shares which may become
available because outstanding options expire, are cancelled, or otherwise
terminate before being exercised).
The Amendments increase the aggregate share limit under the 1996 Plan by
2,000,000 shares, for a proposed new aggregate share limit of 3,000,000 shares
(subject to customary adjustments for recapitalizations and similar events,
described below). The amendments also remove the separate limits on the
aggregate numbers of shares that could be granted under each of the Key Employee
Program and the Non-Employee Director Program. That is, if the Amendments are
approved by shareholders, there will be no specific program limits but the
programs will be subject to the aggregate limit of 3,000,000 shares.
Of the proposed 3,000,000 share limit, 2,800,000 shares may be issued
pursuant to options qualified as incentive stock options under the Code.
Currently, a maximum of 200,000 shares may be subject to options that are
granted under the Key Employee Program to any one individual in any calendar
year. The Amendments increase this limit to 400,000 shares.
INCREASED ANNUAL GRANTS UNDER THE NON-EMPLOYEE DIRECTOR PROGRAM. Under the
Non-Employee Director program, each non-employee director automatically receives
an annual grant of options. The Amendments would increase the number of shares
underlying each annual grant from 2,000 to 5,000.
ELIGIBILITY OF NON-EMPLOYEE DIRECTORS FOR DISCRETIONARY
SHARES. Non-employee directors of the Company are currently eligible to receive
options only under the Non-Employee Director Program. The Amendments would also
make non-employee directors of the Company eligible for discretionary options
grants under the Key Employee Program. However, the Company will have no
obligation to award such options and any award of such options must be
consistent with the Board's fiduciary duties to the Company.
The Board also adopted certain technical amendments to the 1996 Plan,
generally in response to regulatory changes in securities, tax, employment
benefits, and labor laws as well as changes in accounting principles and
policies. These technical amendments, as well as the amendments described above,
are reflected in the copy of the 1996 Plan attached as Appendix D.
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SUMMARY DESCRIPTION OF THE 1996 PLAN
The 1996 Plan was approved by the Company's shareholders at the 1996 Annual
Meeting. Subsequent amendments were adopted by the Board in March 1998 and
approved by the Company's shareholders at the 1998 Annual Meeting. 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, non-employee directors (if shareholders approve the Amendments), and
certain other individuals who perform significant services for the Company and
its subsidiaries; and the Non-Employee Director Program which provides for
automatic annual grants of generally nontransferable nonqualified stock options
to non-employee directors.
The following summary of the 1996 Plan, as modified 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 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 Appendix D. This
summary principally addresses the general provisions of the 1996 Plan; the
specific terms and conditions of an option are set forth in each participant's
award agreement.
SHARES ISSUABLE UNDER THE 1996 PLAN. A maximum of 3,000,000 shares of
Common Stock may be issued upon the exercise of options under the 1996 Plan. The
3,000,000 shares represent approximately 27% of the Common Stock issued and
outstanding on the Record Date.
The closing price of the Common Stock on the Record Date was $15.00.
KEY EMPLOYEE PROGRAM
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 and its subsidiaries, as well as any non-employee director (if
shareholders approve the Amendments), and certain other individual consultants,
agents, or advisors who render or have rendered bona fide services for the
Company and its subsidiaries, other than services in connection with the
offering or sale of securities of the Company in a capital raising transaction
(collectively, "ELIGIBLE PERSONS"). There are presently approximately 50
eligible employees of the Company and its subsidiaries who may participate in
the Key Employee Program, including all of the Company's executive officers and
all of its non-employee directors.
ADMINISTRATION. The Key Employee Program is administered by the
Compensation Committee of the Board (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 grants to Eligible Persons
under the 1996 Plan. The Committee determines and designates those Eligible
Persons 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 Persons, subject to any required consent of
the holder of
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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
Person. Each option confers the right to purchase shares of the Company's Common
Stock at a future date. The Committee will determine the purchase price per
share for each option, provided that 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. For a summary of the differences
in the tax treatment of the two types of options, see "Federal Income Tax
Consequences" on p. 24 below.
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
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; however, for circumstances
related to a change in control or reorganization, only the Board may accelerate
an option. Payment for the exercise of a 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 Person 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.
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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 Person or the Eligible
Person's personal representative or beneficiary after an Eligible Person'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
Person participating in the Key Employee Program may not exceed 400,000, subject
to certain adjustments in accordance with the 1996 Plan. The maximum number of
shares of Common Stock that may be delivered pursuant to incentive stock options
granted under the 1996 Plan is 2,800,000, subject to adjustment in accordance
with the 1996 Plan.
NON-EMPLOYEE DIRECTOR PROGRAM
ADMINISTRATION. The Non-Employee Director Program provides for automatic
grants to members of the Board who are not officers or employees of the Company
or its subsidiaries. Only three persons are currently eligible 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 Non-Employee Director at
the time of election to the Board will automatically receive a nonqualified
stock option to purchase 20,000 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 Amendments to 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 5,000 shares of Common Stock.
EXERCISE OF OPTIONS. Options awarded under the Non-Employee Director
Program become exercisable in full twelve months after the award date with the
exception of the one-time nonqualified stock options granted to all Non-Employee
Directors to purchase 20,000 shares of the Company's Common Stock, which shall
vest at the rate of 5,000 shares of Common Stock per year on each of the first
four anniversaries of the date of such grant. The options 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 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.
AMENDMENTS AND MISCELLANEOUS
SHARES AVAILABLE FOR AWARDS--REPLENISHMENT. Shares relating to options
granted under the 1996 Plan that expire or for any reason are cancelled or
terminated, fail to vest, or for any other reason are
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not deliverable will again, except to the extent prohibited by law or terms of
the 1996 Plan, be available for subsequent options.
ADJUSTMENT AND ACCELERATION. The number and type 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 upon or in contemplation of any
reclassification, recapitalization, stock split (including a stock split in the
form of a stock dividend), reverse stock split, merger, combination,
consolidation, or other reorganization; any split-up, spin-off, or similar
extraordinary dividend distribution in respect of the Common Stock, any exchange
of the Common Stock or other securities of the Company, or any similar, unusual
or extraordinary corporate transaction in respect of the Common Stock, or a sale
of substantially all of the assets of the Company as an entirety, so that the
participant's proportionate interest will be maintained as before the occurrence
of any such event. However, options granted to Non-Employee Directors shall be
adjusted as described above only to the extent 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 Person will immediately become exercisable, unless the
Board, prior to such change in control, determines otherwise. Generally, a
change in control occurs under the 1996 Plan when
(i) the shareholders of the Company approve the dissolution or liquidation
of the Company;
(ii) with certain exceptions, the consummation of a merger, consolidation,
or other reorganization with or into, or the sale of all or
substantially all of the Company's business and/or assets as an
entirety to, one or more entities that are not subsidiaries or other
affiliates of the Company;
(iii) with certain exceptions, any person becomes the beneficial owner of
securities of the Company representing 25% or more of the combined
voting power of the Company's then outstanding securities entitled to
vote in the election of directors of the Company; or
(iv) during any two-year period, individuals who at the beginning of such
period constituted the Board cease to constitute at least a majority
thereof, unless the election, or the nomination for election by the
Company's shareholders, of each new Board member was approved by a vote
of at least three-fourths of the Board members then still in office who
were Board members at the beginning of such period.
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. The Board may terminate or
amend the 1996 Plan at any time, 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 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.
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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 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 Person 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-
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.
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
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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).
For information on options granted to directors and executive officers of
the Company, see "Director and Executive Officer Compensation" below.
The number, amount and type of options to be received by or allocated to
Eligible Persons in the future under the 1996 Plan cannot be determined at this
time. At this time, the Company has not made any additional awards under the
1996 Plan.
VOTE REQUIRED
SHAREHOLDERS SHOULD NOTE THAT BECAUSE THIS PROPOSAL WILL INCREASE THE NUMBER
OF OPTIONS AWARDED TO DIRECTORS UNDER THE NON-EMPLOYEE DIRECTOR PROGRAM AND
CAUSE THE DIRECTORS TO BECOME ELIGIBLE FOR DISCRETIONARY OPTIONS UNDER THE KEY
EMPLOYEE PROGRAM, THE DIRECTORS HAVE A PERSONAL INTEREST IN ITS APPROVAL.
HOWEVER, THE MEMBERS OF THE BOARD BELIEVE THAT THE AMENDMENTS TO THE 1996 PLAN
ARE IN THE BEST INTEREST OF THE COMPANY AND ITS SHAREHOLDERS.
The affirmative "FOR" vote of a majority of the shares of the Company's
Common Stock cast at the Special Meeting regarding the proposal is required to
approve the Amendments. If they are not approved, the Amendments will not be
adopted. THE BOARD 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.
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 Common Stock by each person known by the Company
to be the beneficial owner of more than five percent of the outstanding shares
of Common Stock, by each 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
25
<PAGE>
days of the Record Date through the exercise of any stock option, warrant, 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. The address for
each person is Acacia Research Corporation, 55 South Lake Avenue, Pasadena,
California 91101.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL PERCENT OF
NAME OWNERSHIP(1)(2) CLASS
- ---- -------------------- ----------
<S> <C> <C>
R. Bruce Stewart................................ 510,000(a) 4.52%
Paul R. Ryan.................................... 394,000(b) 3.49%
Thomas B. Akin (3).............................. 380,944(c) 3.38%
Fred A. de Boom................................. 42,000(d) *
Edward W. Frykman............................... 20,900(e) *
All Directors and Executive Officers as a Group
(six persons)................................. 1,564,128(f) 13.91%
</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 for
determining 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 150,000 shares;
(b) options to purchase 175,000 shares and warrants to purchase
200,000 shares; (c) options to purchase 5,000 shares and warrants to
purchase 260,872 shares; (d) options to purchase 39,000 shares; (e) options
to purchase 19,000 shares; and (f) options to purchase 547,000 shares and
warrants to purchase 460,872 shares.
(3) Includes warrants to purchase 130,436 shares held directly by Mr. Akin and
warrants to purchase 130,436 shares held by Talkot Crossover Fund, L.P., of
which Mr. Akin serves as general partner. Also includes 3,636 shares held by
Talkot Crossover Fund L.P.
26
<PAGE>
DIRECTOR AND EXECUTIVE OFFICER COMPENSATION
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.
Non-employee directors receive a non-discretionary grant of options to purchase
20,000 shares of Common Stock upon joining the Board and subsequent
non-discretionary annual grants of options to purchase 2,000 shares of Common
Stock (which will be increased to 5,000 shares if the Amendments to the 1996
Plan are approved by the shareholders), all such grants at an exercise price
equal to the market price on the date of grant. In addition, non-employee
directors receive compensation in the amount of $750 for each meeting of the
Board and for any Board committee meeting not immediately preceding or following
a Board meeting attended in person and $250 for each telephonic meeting.
Directors are also reimbursed for expenses incurred in connection with
attendance at meetings of the Board and Board committees and the performance of
Board duties.
SUMMARY COMPENSATION TABLE
The following table shows information concerning compensation earned for
services to the Company in all capacities during the last three fiscal years for
the Company's Chief Executive Officer for the last fiscal year and the one
executive officer whose cash compensation exceeded $100,000 in the last fiscal
year (the "NAMED EXECUTIVE OFFICERS"):
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
----------------------------------------- ---------------------
OTHER ANNUAL SECURITIES UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) COMPENSATION ($) OPTIONS (#) COMPENSATION
- --------------------------- -------- ---------- --------- ---------------- --------------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Paul R. Ryan, President and 1998 87,115 2,500 0 0 128,944(1)
Chief Executive Officer 1997 60,000 5,000 0 50,000 155,597(1)
1996 0 10,792 0 200,000(2) 14,208(1)
R. Bruce Stewart, Chief 1998 128,333 2,500 11,276(3) 0 0
Financial Officer 1997 130,000 5,000 15,473(3) 0 0
1996 100,833 5,000 14,448(3) 200,000(2) 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) Includes $9,879, $13,895, and $13,536 paid by the Company for certain
automobile expenses in 1998, 1997, and 1996, respectively.
The Company has not entered into employment contracts with any of its Named
Executive Officers nor does the Company have any agreement or arrangement with
any such Named Executive Officers relating to a change in control of the
Company.
STOCK OPTION GRANTS AND EXERCISES
In 1998, no stock options were granted to the Named Executive Officers. The
following table sets forth information regarding the stock options exercised by
to the Named Executive Officers during the fiscal year ended December 31, 1998
and the value of in-the-money options held by the Named Executive Officers as of
December 31, 1998:
27
<PAGE>
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1998 AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
1998 YEAR-END(#) 1998 YEAR-END(1)($)
SHARES ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE(#) REALIZED(2)($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- --------------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Paul R. Ryan.............. 0 0 125,000 125,000 168,906 168,906
R. Bruce Stewart.......... 300,000 2,156,250 180,000 100,000 436,875 149,375
</TABLE>
- ------------------------------
(1) Represents the difference between the exercise price of the options and the
average of the high and low prices of the Company's Common Stock on the
Nasdaq National Market on December 31, 1998 of $4.59375 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.
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 $128,944 during 1998. Also in January 1995, Mr. Ryan
acquired warrants to purchase 100,000 shares of 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. In August 1997, the Company hired
Robert B. Stewart as Director of Marketing and, in November 1998, promoted
him to Vice President of Acacia Capital Management. Rob Stewart is the son
of R. Bruce Stewart, Chief Financial Officer and the Chairman of the
Company. 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. In 1998, Rob Stewart earned a base salary of $70,769
and a bonus of $2,500.
TRANSACTION WITH H. LEE BROWNE. In April 1998, the Company acquired a
25% interest in Internet Software LLC, a Delaware limited liability company,
for $2.5 million in cash. In November 1998, Internet Software LLC was
renamed Signature-mail.com llc. Signature-mail.com llc has created a
proprietary software product that enables users to personalize their e-mail
and computer documents by including an image of their handwritten
signatures, greetings and drawings, and by easily changing the image's size
and color. Following the Company's investment, Mr. Browne holds a 33.4%
interest in Signature-mail.com llc. Mr. Browne is employed as the chief
executive officer of Signature-mail.com llc.
Mr. Browne is also the president and chief executive officer of
Soundview Technologies Incorporated, a majority-owned subsidiary of the
Company. 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.
28
<PAGE>
INCLUSION OF SHAREHOLDER PROPOSALS IN NEXT YEAR'S PROXY STATEMENT
Proposals of shareholders which are intended to be presented by such
shareholders at the Company's 2000 Annual Meeting must be received by the
Company no later than December 28, 1999 in order that they may be included in
the proxy statement and form of proxy relating to that meeting.
ADVANCE NOTICE PROCEDURES FOR NEXT YEAR'S ANNUAL MEETING
The company hereby advises shareholders that, until further notice,
February 20, 2000 is the date after which notice of a shareholder-sponsored
proposal submitted outside of the processes of Rule 14a-8 under the Securities
Exchange Act of 1934 (i.e., a proposal to be presented at the next annual
meeting of shareholders but not submitted for inclusion in the Company's proxy
statement) will be considered untimely under the Commission's proxy rules.
OTHER BUSINESS
No other matters may be submitted to the shareholders at the Special Meeting
other than the business noticed and described above.
Dated: November 2, 1999
By Order of the Board of Directors,
[SIG]
Kathryn King-Van Wie
SECRETARY
29
<PAGE>
APPENDIX A
CERTIFICATE OF INCORPORATION
OF
ACACIA RESEARCH CORPORATION
I, the undersigned, for purpose of incorporating and organizing a
corporation under the General Corporation Law of Delaware, do execute this
Certificate of Incorporation and do hereby certify as follows:
ARTICLE I
The name of the Corporation is Acacia Research Corporation (the
"Corporation").
ARTICLE II
A. The address of the registered office of the Corporation in the State of
Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle.
The name of its registered agent at such address is The Corporation Trust
Company.
B. The name and mailing address of the incorporator is Alice Y. Ohashi,
O'Melveny & Myers LLP, 1999 Avenue of the Stars, Suite 700, Los Angeles,
California 90067.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
Delaware.
ARTICLE IV
A. The total number of shares of all classes that this Corporation shall
have the authority to issue shall be 80,000,000, which shall be divided into two
classes, one to be designated "Common Stock," which shall consist of 60,000,000
authorized shares, $0.001 par value per share, and a second class to be
designated as "Preferred Stock," which shall consist of 20,000,000 authorized
shares, $0.001 par value per share.
B. The Preferred Stock may be issued in one or more series, from time to
time, each series to be appropriately designated by a distinguishing number,
letter or title, prior to the issue of any shares thereof.
C. Each series of Preferred Stock shall consist of such number of shares
and have such voting powers, full or limited, or no voting powers, and such
designations, preferences and relative, participating, optional or other special
rights, and the qualifications, limitations or restrictions thereof, as shall be
stated in the resolution or resolutions providing for the issuance of such
series adopted by the Board of Directors of the Corporation (the "Board of
Directors"), and the Board of Directors is hereby expressly vested with
authority, to the full extent now or hereafter provided by law, to adopt any
such resolution or resolutions.
The authority of the Board of Directors with respect to each series shall
include, but not be limited to, determination of the following:
(i) the number of shares constituting that series and the distinctive
designation of that series;
A-1
<PAGE>
(ii) the dividend rate on the shares of that series, whether dividends
shall be cumulative, and, if so, from which date or dates, and the relative
rights of priority, if any, of payment of dividends on shares of that
series;
(iii) whether that series shall have voting rights, in addition to the
voting rights provided by law, and if so, the terms of such voting rights;
(iv) whether that series shall have conversion privileges, and, if so,
the terms and conditions of such conversion, including provision for
adjustment of the conversion rate in such events as the Board of Directors
shall determine;
(v) whether the shares of that series shall be redeemable, and, if so,
the terms and conditions of such redemption, including the date or date upon
or after which they shall be redeemable, and the amount per share payable in
case of redemption, which amount may vary under different conditions and at
different redemption dates;
(vi) whether the series shall have a sinking fund for the redemption or
purchase of shares of that series, and, if so, the terms and amount of such
sinking fund;
(vii) the rights of the shares of that series in the event of voluntary
or involuntary liquidation, dissolution or winding-up of the Corporation,
and the relative rights of priority, if any, of payment of shares of that
series; and
(viii) any other relative rights, preferences and limitations of that
series.
ARTICLE V
In furtherance and not in limitation of the powers conferred by the laws of
the State of Delaware, the Board of Directors is expressly authorized to adopt,
alter, amend and repeal the Bylaws of the Corporation, subject to the power of
the stockholders of the Corporation to alter or repeal any bylaw whether adopted
by them or otherwise; provided, however, that the affirmative vote of 66 and 2/3
percent of the voting power of the capital stock of the Corporation entitled to
vote thereon shall be required for stockholders to adopt, amend, alter or repeal
any provision of the Bylaws of the Corporation.
ARTICLE VI
The number of directors of the Corporation shall be fixed from time to time
by a Bylaw of the Corporation or amendment thereof duly adopted by the Board of
Directors.
ARTICLE VII
Unless and except to the extent that the Bylaws of the Corporation shall so
require, election of directors need not be by written ballot.
ARTICLE VIII
A. Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws of the Corporation may provide. The books of the
Corporation may be kept (subject to any provision contained in the laws of the
State of Delaware) outside of the State of Delaware at such place or places as
may be designated from time to time by the Board of Directors or in the Bylaws
of the Corporation.
B. No action that is required or permitted to be taken by the stockholders
of the Corporation at any annual or special meeting of stockholders may be
effected by written consent of the stockholders in lieu of a meeting of
stockholders.
C. Special meetings of stockholders may be called only by the Board of
Directors, the Chairman of the Board of Directors, or the President, and may not
be called by any other person or persons.
A-2
<PAGE>
ARTICLE IX
A director of the Corporation shall not be liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except to the extent such exemption from liability or limitation thereof is not
permitted under the General Corporation Law of Delaware as the same exists or
may hereafter be amended. If the General Corporation Law of Delaware is amended
after the date of the filing of this Certificate of Incorporation to authorize
corporate action further eliminating or limiting the personal liability of
directors, then the liability of a director of the Corporation shall be
eliminated or limited to the fullest extent permitted by the General Corporation
Law of Delaware as so amended. Any repeal or modification of this Article by the
stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time, or increase
the liability of any director of the Corporation with respect to any acts or
omissions of such director occurring prior to, such repeal or modification.
ARTICLE X
The Corporation may indemnify to the fullest extent permitted by law any
person made or threatened to be made a party to an action or proceeding, whether
criminal, civil, administrative or investigative, by reason of the fact that
such person, his or her testator or intestate is or was a director, officer or
employee of the Corporation or any predecessor of the Corporation or serves or
served at any other enterprise as a director, officer or employee at the request
of the Corporation or any predecessor to the Corporation. No repeal or
modification of this Article by the stockholders shall adversely affect any
right or protection of a director of the Corporation existing by virtue of this
Article at the time of such repeal or modification.
ARTICLE XII
The Corporation hereby reserves the right at any time and from time to time
to amend, alter, change, or repeal any provisions contained in this Certificate
of Incorporation, and other provisions authorized by the laws of the State of
Delaware at the time in force may be added or inserted, in the manner now or
hereafter prescribed by law, and all rights, preferences, and privileges of
whatsoever nature conferred upon stockholders, directors, or any other persons
whomsoever by or pursuant to this Certificate of Incorporation in its present
form or as hereafter amended are granted subject to the right reserved in this
Article.
IN WITNESS WHEREOF, the undersigned Incorporator hereby acknowledges that
the foregoing Certificate of Incorporation is her act and deed on this 8th day
of October, 1999.
/s/ ALICE Y. OHASHI
------------------------------------------------------------------
Alice Y. Ohashi,
INCORPORATOR
A-3
<PAGE>
APPENDIX B
BYLAWS OF
ACACIA RESEARCH CORPORATION
(a Delaware corporation)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
ARTICLE 1. OFFICES......................................... B-1
ARTICLE 2. MEETINGS OF STOCKHOLDERS........................ B-1
Annual meeting............................................ B-1
Special meetings.......................................... B-1
Business which may be conducted........................... B-2
Notice.................................................... B-3
Quorum and adornment...................................... B-4
Voting.................................................... B-4
Proxies................................................... B-6
Inspectors of election.................................... B-6
Conduct of meeting........................................ B-7
Conduct of absentees...................................... B-7
ARTICLE 3. DIRECTORS....................................... B-8
Powers.................................................... B-8
Number of directors....................................... B-8
Election and term of office............................... B-8
Resignations and vacancies................................ B-9
Meetings of the board of directors........................ B-9
Quorum.................................................... B-10
Participation by conference telephone..................... B-10
Waiver of notice.......................................... B-10
Adjournment............................................... B-10
Fees and compensation..................................... B-10
Action without meeting.................................... B-10
Committees................................................ B-11
ARTICLE 4. OFFICERS........................................ B-12
Officers.................................................. B-12
Election.................................................. B-12
Subordinate officers...................................... B-12
Removal and resignation................................... B-12
Vacancies................................................. B-12
The chairman of the board................................. B-12
The president and vice-presidents......................... B-13
The secretary and assistant secretary..................... B-13
The treasurer and assistant treasurer..................... B-13
ARTICLE 5. CERTIFICATE OF STOCK............................ B-14
Lost certificates......................................... B-14
Transfer of stock......................................... B-15
Fixing record date........................................ B-15
Registered stockholders................................... B-15
ARTICLE 6. GENERAL PROVISIONS.............................. B-15
Maintenance and inspection of records..................... B-15
Annual report to stockholders............................. B-16
Checks; drafts; evidence of indebtedness.................. B-16
Endorsement of documents; contracts....................... B-16
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Representation of shares of other corporations............ B-16
Stock purchase plans...................................... B-17
Construction and definitions.............................. B-17
Amendments................................................ B-17
Fiscal year............................................... B-17
Dividends................................................. B-17
Loans to officers and employees........................... B-18
ARTICLE 7. INDEMNIFICATION................................. B-18
Right to indemnification.................................. B-18
Prepayment of expenses.................................... B-18
Claims.................................................... B-18
Nonexclusivity of rights.................................. B-19
Other sources............................................. B-19
Amendment or repeal....................................... B-19
Other indemnification and prepayment of expenses.......... B-19
Insurance................................................. B-19
Indemnity agreements...................................... B-19
</TABLE>
ii
<PAGE>
BYLAWS OF
ACACIA RESEARCH CORPORATION
(A DELAWARE CORPORATION)
ARTICLE 1. OFFICES
1.1 The registered office shall be in the City of Wilmington, County of New
Castle, State of Delaware.
1.2 The corporation may also have offices at such other places both within and
without the State of Delaware as the Board of Directors may from time to time
determine or the business of the corporation may require.
ARTICLE 2. MEETINGS OF STOCKHOLDERS
2.1 All meetings of the stockholders shall be held at such place, within or
without the State of Delaware, as shall be designated from time to time by the
Board of Directors and stated in the notice of the meeting or in a duly executed
waiver of notice thereof.
2.2 The Secretary shall prepare and make, at least 10 days before every meeting
of stockholders, a complete list of stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
10 days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
ANNUAL MEETINGS
2.3 Annual meetings of stockholders shall be held at such date and time as
shall be designated from time to time by the Board of Directors and stated in
the notice of the meeting, at which they shall elect directors and transact such
other business as may properly be brought before the meeting. At an annual
meeting of the stockholders, only such business shall be conducted as shall have
been properly brought before the meeting.
SPECIAL MEETINGS
2.4 Special meetings of the stockholders may be called only by the Board of
Directors, the Chairman of the Board or the President and may not be called by
any other person or persons. Upon such written request to the Secretary by any
person or persons (other than the Board of Directors) entitled to call a special
meeting of the stockholders, the Secretary shall cause notice to be given to the
stockholders entitled to vote that a meeting will be held at a time requested by
the person or persons calling the meeting, not less than 35 days nor more than
60 days after the receipt of the request. If notice of a special meeting of the
stockholders is not given within 20 days after the Secretary's receipt of the
request, the person or persons entitled to call the meeting may give the notice.
Subject to the provisions of applicable law, only such business shall be
considered at a special meeting of the stockholders as shall have been stated in
the notice for such meeting.
B-1
<PAGE>
BUSINESS WHICH MAY BE CONDUCTED
2.5 Annual Meetings of the Stockholders.
2.5.1 Nominations of persons for election to the Board of Directors and the
proposal of business to be considered by the stockholders may be made at an
annual meeting of the stockholders only (A) pursuant to the corporation's
notice of meeting (or any supplement thereto), (B) by or at the direction of
the Board of Directors or (C) by any stockholder of the corporation who was
a stockholder of record of the corporation at the time the notice provided
for in this Section is delivered to the Secretary, who is entitled to vote
at the meeting and who complies with the notice procedures set forth in this
Section.
2.5.2 For nominations or other business to be properly brought before an
annual meeting by a stockholder pursuant to clause (C) of subsection 2.5.1,
the stockholder must have given timely notice thereof in writing to the
Secretary and any such proposed business other than the nominations of
persons for election to the Board of Directors must constitute a proper
matter for stockholder action. To be timely, a stockholder's notice shall be
delivered to the Secretary at the principal executive offices of the
corporation not later than the close of business on the 90th day nor earlier
than the close of business on the 120th day prior to the first anniversary
of the preceding year's annual meeting (provided, however, that in the event
that the date of the annual meeting is more than 30 days before or more than
70 days after such anniversary date, notice by the stockholder must be so
delivered not earlier than the close of business on the 120th day prior to
such annual meeting and not later than the close of business on the later of
the 90th day prior to such annual meeting or the 10th day following the day
on which public announcement of the date of such meeting is first made by
the corporation). In no event shall the public announcement of an
adjournment or postponement of an annual meeting commence a new time period
(or extend any time period) for the giving of a stockholder's notice as
described above. Such stockholder's notice shall set forth: (A) as to each
person whom the stockholder proposes to nominate for election as a director
all information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors in an election contest,
or is otherwise required, in each case pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT") and Rule
14a-11 thereunder (and such person's written consent to being named in the
proxy statement as a nominee and to serving as a director if elected); (B)
as to any other business that the stockholder proposes to bring before the
meeting, a brief description of the business desired to be brought before
the meeting, the text of the proposal or business (including the text of any
resolutions proposed for consideration and, in the event that such business
includes a proposal to amend the Bylaws of the corporation, the language of
the proposed amendment), the reasons for conducting such business at the
meeting and any material interest in such business of such stockholder and
the beneficial owner, if any, on whose behalf the proposal is made; and
(C) as to the stockholder giving the notice and the beneficial owner, if
any, on whose behalf the nomination or proposal is made (1) the name and
address of such stockholder, as they appear on the corporation's books, and
of such beneficial owner, (2) the class and number of shares of capital
stock of the corporation which are owned beneficially and of record by such
stockholder and such beneficial owner, (3) a representation that the
stockholder is a holder of record of stock of the corporation entitled to
vote at such meeting and intends to appear in person or by proxy at such
meeting to propose such business or nomination, and (4) a representation
whether the stockholder or beneficial owner, if any, intends or is part of a
group which intends (x) to deliver a proxy statement and/or form of proxy to
holders of at least the percentage of the corporation's outstanding capital
stock required to approve or adopt the proposal or elect the nominee and/or
(y) otherwise to solicit proxies from stockholders in support of such
proposal or nomination. The corporation may require any proposed nominee to
furnish such other information
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as it may reasonably require to determine the eligibility of such proposed
nominee to serve as a director of the corporation.
2.5.3 Notwithstanding anything in the second sentence of subsection 2.5.2
to the contrary, in the event that the number of directors to be elected to
the Board of Directors at the annual meeting is increased and there is no
public announcement by the corporation naming the nominees for the
additional directorships at least 100 days prior to the first anniversary of
the preceding year's annual meeting, a stockholder's notice required by this
Section shall also be considered timely, but only with respect to nominees
for the additional directorships, if it shall be delivered to the Secretary
of the corporation at the principal executive offices of the corporation not
later than the close of business on the 10th day following the day on which
such public announcement is first made by the corporation.
2.6 Special Meetings of the Stockholders. Only such business shall be conducted
at a special meeting of the stockholders as shall have been brought before the
meeting pursuant to the corporation's notice of meeting. Nominations of persons
for election to the Board of Directors may be made at a special meeting of the
stockholders at which directors are to be elected pursuant to the corporation's
notice of meeting only by or at the direction of the Board of Directors.
2.7 General.
2.7.1 Only persons who are nominated in accordance with the procedures set
forth in this Section shall be eligible to be elected at an annual or
special meeting of the stockholders of the corporation to serve as directors
and only such business shall be conducted at a meeting of the stockholders
as shall have been brought before the meeting in accordance with the
procedures set forth in this Section. Except as otherwise provided by law,
the President, as chairman of the meeting, shall have the power and duty
(A) to determine whether a nomination or any business proposed to be brought
before the meeting was made or proposed, as the case may be, in accordance
with the procedures set forth in this Section (including whether the
stockholder or beneficial owner, if any, on whose behalf the nomination or
proposal is made or solicited (or is part of a group which solicited) or did
not so solicit, as the case may be, proxies in support of such stockholder's
nominee or proposal in compliance with such stockholder's representation as
required by this Section) and (B) if any proposed nomination or business was
not made or proposed in compliance with the Section, to declare that such
nomination shall be disregarded or that such proposed business shall not be
transacted.
2.7.2 For purposes of this Section, "PUBLIC ANNOUNCEMENT" shall include
disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document
publicly filed by the corporation with the Securities and Exchange
Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.
2.7.3 Notwithstanding the foregoing provisions of this Section, a
stockholder shall also comply with all applicable requirements of the
Exchange Act and the rules and regulations thereunder with respect to the
matters set forth in this Section. Nothing in this Section shall be deemed
to affect any rights (A) of stockholders to request inclusion of proposals
in the corporation's proxy statement pursuant to Rule 14a-8 under the
Exchange Act or (B) of the holders of any series of Preferred Stock to elect
directors pursuant to any applicable provisions of the Certificate of
Incorporation.
NOTICE
2.8 Written notice of each annual or special meeting shall be given not fewer
than 10 days nor more than 60 days before the date of the meeting, to each
stockholder entitled to vote at such meeting. Such notice shall state the place,
date and hour of the meeting and (i) in the case of the annual meeting,
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those matters that the Board of Directors, at the time of the mailing of the
notice, intends to present for action by the stockholders, and, subject to the
provisions of applicable law, any other matters properly brought may be
presented at the meeting for action, or (ii) in the case of a special meeting,
the purpose or purposes for which the meeting was called, but, subject to the
provisions of applicable law, no other business may be presented at the special
meeting for action. The notice of any meeting at which directors are to be
elected shall include the names of nominees intended at the time of the notice
to be presented by the Board of Directors for election.
2.9 Notice of a stockholders' meeting shall be given by mail or by other means
of written communication, addressed to the stockholder at the address of such
stockholder appearing on the books of the corporation or given by the
stockholder to the corporation for the purpose of notice. Notice by mail shall
be deemed to have been given at the time a written notice is deposited in the
United States mail, postage prepaid. Any other written notice shall be deemed to
have been given at the time it is personally delivered to the recipient or is
delivered to a common carrier for transmission, or actually transmitted by the
person giving the notice by electronic means, to the recipient.
QUORUM AND ADJOURNMENT
2.10 Except as otherwise provided by law, the Certificate of Incorporation or
these Bylaws, at each meeting of stockholders the presence in person or by proxy
of the holders of a majority in voting power of the outstanding shares of stock
entitled to vote at the meeting shall be necessary and sufficient to constitute
a quorum. In the absence of a quorum, the stockholders so present may, by a
majority in voting power thereof, adjourn the meeting from time to time in the
manner provided in Section 2.11 until a quorum shall attend.
2.11 Any meeting of stockholders, annual or special, may adjourn from time to
time to reconvene at the same or some other place, and notice need not be given
of any such adjourned meeting if the time and place thereof are announced at the
meeting at which the adjournment is taken. At the adjourned meeting the
corporation may transact any business which might have been transacted at the
original meeting. If the adjournment is for more than 30 days, or if after the
adjournment a new record date is fixed for the adjourned meeting, notice of the
adjourned meeting shall be given to each stockholder of record entitled to vote
at the meeting.
VOTING
2.12 The stockholders entitled to notice of any meeting or to vote at any such
meeting shall be only persons in whose name shares stand on the stock records of
the corporation on the record date determined in accordance with Section 5.7.
2.13 Voting at meetings of stockholders need not be by written ballot. At all
meetings of stockholders for the election of directors, a plurality of the votes
cast shall be sufficient to elect. All other elections and questions shall,
unless otherwise provided by the Certificate of Incorporation, these Bylaws, the
rules or regulations of any stock exchange applicable to the corporation or as
otherwise provided by law or pursuant to any regulation applicable to the
corporation, be decided by the affirmative vote of the holders of a majority in
voting power of the shares of stock of the corporation which are present in
person or by proxy and entitled to vote thereon.
2.14 Voting shall in all cases be subject to the provisions to the following
provisions:
2.14.1 The stockholders of the corporation shall not have the right to
cumulate their votes for the election of directors of the corporation.
2.14.2 Shares held by an administrator, executor, guardian, conservator or
custodian may be voted by such holder either in person or by proxy, without
a transfer of such shares into the holder's
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name; and shares standing in the name of a trust may be voted by the trustee
of such trust, either in person or by proxy, but no trustee shall be
entitled to vote shares held by such trust without a transfer of such shares
into the trust's name.
2.14.3 Shares standing in the name of a receiver may be voted by such
receiver, and shares held by or under the control of a receiver may be voted
by such receiver without the transfer thereof into the receiver's name if
authority to do so is contained in the order of the court by which such
receiver was appointed.
2.14.4 Except where otherwise agreed in writing between the parties, a
stockholder whose shares are pledged shall be entitled to vote such shares
until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
2.14.5 Shares standing in the name of a minor may be voted and the
corporation may treat all rights incident thereto as exercisable by the
minor, in person or by proxy, whether or not the corporation has notice,
actual or constructive, of the minor's actual age, unless a guardian of the
minor's property has been appointed and written notice of such appointment
given to the corporation.
2.14.6 Shares standing in the name of another corporation, domestic or
foreign, may be voted by such officer, agent or proxyholder of such other
corporation as the bylaws of such other corporation may prescribe or, in the
absence of such provision, as the board of directors of such other
corporation may determine or, in the absence of such determination, by the
chairman of the board, president or any vice president of such other
corporation, or by any other person authorized to do so by the chairman of
the board, president or any vice president of such other corporation. Shares
which are purported to be voted or any proxy purported to be executed in the
name of a corporation (whether or not any title of the person signing is
indicated) shall be presumed to be voted or the proxy executed in accordance
with the provisions of this clause, unless the contrary is shown.
2.14.7 Shares of the corporation owned by its subsidiaries shall not be
entitled to vote on any matter.
2.14.8 If shares stand of record in the names of two or more persons,
whether fiduciaries, members of a partnership, joint tenants, tenants in
common, husband and wife as community property, tenants by the entirety,
voting trustees, persons entitled to vote under a stockholder voting
agreement or otherwise, or if two or more persons (including proxyholders)
have the same fiduciary relationship respecting the same shares, unless the
Secretary is given written notice to the contrary and is furnished with a
copy of the instrument or order appointing them or creating the relationship
wherein it is so provided, their acts with respect to voting shall have the
following effect:
(a) If only one votes, such act binds all;
(b) If more than one vote, the act of the majority so voting binds all; or
(c) If more than one vote, but the vote is evenly split on any particular
matter, each faction may vote the securities in question
proportionately.
If the instrument so filed or the registration of the shares shows that any such
tenancy is held in unequal interests, a majority or even split for the purpose
of this Section shall be a majority or even split in interest.
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PROXIES
2.15 Each stockholder entitled to vote at a meeting of the stockholders may
authorize another person or persons to act for such stockholder by proxy, but no
such proxy shall be voted or acted upon after three years from its date, unless
the proxy provides for a longer period. A proxy shall be irrevocable if it
states that it is irrevocable and if, and only as long as, it is coupled with an
interest sufficient in law to support an irrevocable power. A stockholder may
revoke any proxy which is not irrevocable by attending the meeting and voting in
person or by filing an instrument in writing revoking the proxy or by delivering
a proxy in accordance with applicable law bearing a later date to the Secretary.
2.16 A proxy or consent validly delivered to the corporation shall mean any
written authorization which is signed by the person executing the proxy, as well
as any electronic transmission (to include without limitation transmissions by
facsimile and by computer messaging systems), which is authorized by a
stockholder or the stockholder's attorney in fact, which gives another person or
persons power to vote with respect to the shares of such stockholder. A
stockholder may authorize another person or persons to act for such stockholder
as proxy by transmitting or authorizing the transmission of a telegram,
cablegram, or other means of electronic transmission to the person who will be
the holder of the proxy or to a proxy solicitation firm, proxy support service
organization or like agent duly authorized by the person who will be the holder
of the proxy to receive such transmission, provided that any such telegram,
cablegram or other means of electronic transmission must either set forth or be
submitted with information from which it can be determined that the telegram,
cablegram or other electronic transmission was authorized by the stockholder. If
it is determined that such telegrams, cablegrams or other electronic
transmissions are valid, the inspectors of election or, if there are no
inspectors, such other persons making that determination shall specify the
information upon which they relied. Any copy, facsimile telecommunication or
other reliable reproduction of the writing or transmission created pursuant to
this Section may be substituted or used in lieu of the original writing or
transmission for any and all purposes for which the original writing or
transmission could be used, provided that such copy, facsimile telecommunication
or other reproduction shall be a complete reproduction of the entire original
writing or transmission.
INSPECTORS OF ELECTION
2.17 In advance of any meeting of stockholders, the Board of Directors shall
appoint inspectors of election to act at such meeting and any adjournment
thereof. If inspectors of election are not so appointed, or if any persons so
appointed fail to appear or refuse to act, the chairman of any such meeting may,
and on the request of any stockholder or stockholder's proxy shall, make such
appointment at the meeting. The number of inspectors shall be either one or
three. If appointed at a meeting on the request of one or more stockholders or
proxies, the majority of shares present shall determine whether one or three
inspectors are to be appointed.
2.18 The duties of such inspectors shall include: determining the number of
shares outstanding and the voting power of each; determining the shares
represented at the meeting; determining the existence of a quorum; determining
the authenticity, validity and effect of proxies; receiving votes, ballots or
consents; hearing and determining all challenges and questions in any way
arising in connection with the right to vote; counting and tabulating all votes
or consents; determining when the polls shall close; determining the result; and
doing such acts as may be proper to conduct the election or vote with fairness
to all stockholders. If there are three inspectors of election, the decision,
act or certificate of a majority is effective in all respects as the decision,
act or certificate of all.
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CONDUCT OF MEETING
2.19 The President shall preside as chairman at all meetings of the
stockholders. The chairman shall conduct each such meeting in a businesslike and
fair manner, but shall not be obligated to follow any technical, formal or
parliamentary rules or principles of procedure. The chairman's rulings on
procedural matters shall be conclusive and binding on all stockholders, unless
at the time of a ruling a request for a vote is made to the stockholders holding
shares entitled to vote and which are represented in person or by proxy at the
meeting, in which case the decision of a majority of such shares shall be
conclusive and binding on all stockholders. Without limiting the generality of
the foregoing, the chairman shall have all of the powers usually vested in the
chairman of a meeting of stockholders.
CONSENT OF ABSENTEES
2.20 The transactions of any meeting of stockholders, however called and
noticed, and wherever held, are as valid as though conducted at a meeting duly
held after regular call and notice, if a quorum is present either in person or
by proxy, and if, either before or after the meeting, each of the persons
entitled to vote, not present in person or by proxy, signs a written waiver of
notice, or a consent to the holding of the meeting or an approval of the minutes
thereof. All such waivers, consents or approvals shall be filed with the
corporate records or made a part of the minutes of the meeting. Attendance of a
person at a meeting shall constitute a waiver of notice of and presence at such
meeting, except when the person objects, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened and except that attendance at a meeting is not a waiver of any right to
object to the consideration of matters required by the General Corporation Law
of Delaware to be included in the notice but not so included, if such objection
is expressly made at the meeting. Neither the business to be transacted at nor
the purpose of any regular or special meeting of stockholders need be specified
in any written waiver of notice, consent to the holding of the meeting or
approval of the minutes thereof, except as provided in the General Corporation
Law of Delaware.
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ARTICLE 3. DIRECTORS
POWERS
3.1 Subject to limitations of the Certificate of Incorporation, of these Bylaws
and of the General Corporation Law of Delaware relating to action required to be
approved by the stockholders or by the outstanding shares, the business and
affairs of the corporation shall be managed and all corporate powers shall be
exercised by or under the direction of the Board of Directors and it shall have
the final authority in matters of strategy and policy matters for the
corporation.
The Board of Directors may delegate management duties for the operation of
the business to those persons to whom authority is properly delegated by the
Board of Directors, including officers of the corporation, provided that the
business and affairs of the corporation shall be managed and all corporate
powers shall be exercised under the ultimate direction of the Board of
Directors. Without prejudice to such general powers, but subject to the same
limitations, it is hereby expressly declared that the Board of Directors shall
have the following powers in addition to the other powers enumerated in these
Bylaws:
(A) To select and remove all officers (in accordance with the provisions of
these Bylaws), agents and employees of the corporation; prescribe the
powers and duties for them as may not be inconsistent with law, the
Certificate of Incorporation or these Bylaws; fix their compensation and
require from them an affidavit providing for the good faith exercise of
their duties only in the best interests of the corporation.
(B) To conduct, manage and control the affairs and business of the
corporation and to make such rules and regulations therefor not
inconsistent with law, the Certificate of Incorporation or these Bylaws,
as they may deem best.
(C) To adopt, make and use a corporate seal, and to prescribe the forms of
certificates of stock, and to alter the form of such seal and of such
certificates from time to time as they may deem best.
(D) To authorize the issuance of shares of stock of the corporation from time
to time, upon such terms and for such consideration as may be lawful.
(E) To borrow money and incur indebtedness for the purposes of the
corporation, and to cause to be executed and delivered, in the corporate
name, promissory notes, bonds, debentures, deeds of trust, mortgages,
pledges, hypothecations or other evidences of debt and securities
therefor.
(F) To make, repeal, alter, amend and rescind any or all of these Bylaws.
NUMBER OF DIRECTORS
3.2 The authorized number of directors of the corporation shall be not less
than five nor more than nine. Within such limits, the Board of Directors may fix
the exact number of directors by resolution duly adopted by the Board of
Directors. Initially, the exact number of directors shall be five. No reduction
of the authorized number of directors shall have the effect of removing any
director prior to the expiration of the director's term of office.
ELECTION AND TERM OF OFFICE
3.3 Only persons who are nominated by, or at the direction of the Board of
Directors or the Chairman of the Board, or by a stockholder who has given timely
written notice to the Secretary in accordance with these Bylaws, will be
eligible for election as directors of the corporation.
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3.4 For a person to be qualified to serve as a director of the corporation,
such person need not be an employee or stockholder of the corporation during his
or her directorship.
3.5 The directors shall be elected at each annual meeting of the stockholders,
but if any such annual meeting is not held or the directors are not elected
thereat, the directors may be elected at any special meeting of stockholders
held for that purpose. Each director shall hold office until the next annual
meeting and until a successor has been elected and qualified or until his or her
earlier death, resignation, or removal.
RESIGNATIONS AND VACANCIES
3.6 Any director may resign effective upon giving written notice to the
Chairman of the Board, the President, the Secretary or the Board of Directors,
unless the notice specifies a later time for the effectiveness of such
resignation. If the resignation is effective at a future time, a successor may
be elected to take office when the resignation becomes effective.
Any newly-created directorship resulting from an increase in the authorized
number of directors or any vacancies in the Board of Directors occurring by
reason of death, resignation, retirement, disqualification or removal may be
filled by a majority of the remaining directors, though less than a quorum, or
by a sole remaining director, and each director so elected shall hold office
until the next annual meeting and until such director's successor has been
elected and qualified.
A vacancy or vacancies in the Board of Directors shall be deemed to exist in
case of the death, resignation or removal of any director, or if the authorized
number of directors is increased, or if the stockholders fail, at any annual or
special meeting of the stockholders at which any director or directors are
elected, to elect the full authorized number of directors to be voted for at
that meeting.
MEETINGS OF THE BOARD OF DIRECTORS
3.7 Regular or special meetings of the Board of Directors shall be held at any
place within or without the State of Delaware which has been designated from
time to time by the Board of Directors. In the absence of such designation,
regular meetings shall be held at the principal executive office of the
corporation.
3.8 Following each annual meeting of stockholders, the Board of Directors shall
hold a regular meeting for the purpose of organization, election of officers and
the transaction of other business. Other regular meetings of the Board of
Directors shall be held without call on such dates and at such times as may be
fixed by the Board of Directors. Call and notice of all regular meetings of the
Board of Directors are hereby dispensed with.
3.9 Special meetings of the Board of Directors for any purpose or purposes may
be called at any time by the Chairman of the Board, the President, the Secretary
or by any two directors.
Special meetings of the Board of Directors shall be held upon four days'
written notice or 48 hours' notice given personally or by telephone, including a
voice messaging system or other system or technology designed to record and
communicate messages, telegraph, telex, facsimile electronic mail or other
similar means of communication. Any such notice shall be addressed or delivered
to each director at such director's address as it is shown upon the records of
the corporation or as may have been given to the corporation by the director for
purposes of notice or, if such address is not shown on such records or is not
readily ascertainable, at the place in which the meetings of the directors are
regularly held.
Notice by mail shall be deemed to have been given at the time a written
notice is deposited in the United States mail, first-class postage prepaid. Any
other written notice shall be deemed to have been
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given at the time it is personally delivered to the recipient or is delivered to
a common carrier for transmission, or actually transmitted by the person giving
the notice by electronic means, to the recipient. Oral notice shall be deemed to
have been given at the time it is communicated, in person or by telephone or
wireless, to the recipient or to a person at the office of the recipient who the
person giving the notice has reason to believe will promptly communicate it to
the recipient.
QUORUM
3.10 A majority of the whole Board of Directors constitutes a quorum of the
Board of Directors for the transaction of business, except to adjourn as
provided below in this Article. Every act or decision done or made by a majority
of the directors present at a meeting duly held at which a quorum is present
shall be regarded as the act of the Board of Directors, unless a greater number
be required by law or by the Certificate of Incorporation. A meeting at which a
quorum is initially present may continue to transact business notwithstanding
the withdrawal of directors, if any action taken is approved by at least a
majority of the required quorum for such meeting.
PARTICIPATION BY CONFERENCE TELEPHONE
3.11 Any meeting, regular or special, may be held by conference telephone or
similar communication equipment, so long as all directors participating in the
meeting can hear one another and all such directors shall be deemed to be
present in person at the meeting.
WAIVER OF NOTICE
3.12 Notice of a meeting need not be given to any director who signs a waiver
of notice or a consent to holding the meeting or an approval of the minutes
thereof, whether before or after the meeting, or who attends the meeting without
protesting, prior thereto or at its commencement, the lack of notice to such
director. All such waivers, consents and approvals shall be filed with the
corporate records or made a part of the minutes of the meeting.
ADJOURNMENT
3.13 A majority of the directors present, whether or not a quorum is present,
may adjourn any directors' meeting to another time and place. Notice of the time
and place of holding an adjourned meeting need not be given to absent directors
if the time and place be fixed at the meeting adjourned, except as provided in
the next sentence. If the meeting is adjourned for more than 24 hours, notice of
any adjournment to another time or place shall be given prior to the time of the
adjourned meeting to the directors who were not present at the time of the
adjournment.
FEES AND COMPENSATION
3.14 Directors and members of committees may receive such compensation, if any,
for their services, and such reimbursement for expenses, as may be fixed or
determined by the Board of Directors.
ACTION WITHOUT MEETING
3.15 Any action required or permitted to be taken by the Board of Directors may
be taken without a meeting if all members of the Board of Directors shall
consent in writing to such action. Such consent or consents shall have the same
effect as a unanimous vote of the Board of Directors and shall be filed with the
minutes of the proceedings of the Board of Directors.
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COMMITTEES
3.16 The Board of Directors may appoint one or more committees, each consisting
of one or more directors, and delegate to such committees any of the powers and
authority of the Board of Directors, except no such committee shall have power
or authority in reference to the following:
(A) Approving, adopting or recommending to the stockholders any action or
matter expressly required by the General Corporation Law of Delaware to
be submitted to the stockholders for approval; or
(B) Adopting, altering, amending or repealing these Bylaws or any of them.
Any such committee must be designated, and the members or alternate members
thereof appointed, by resolution adopted by a majority of the authorized number
of directors and any such committee may be designated an Executive Committee or
by such other name as the Board of Directors shall specify. Alternate members of
a committee may replace any absent member at any meeting of the committee. The
Board of Directors shall have the power to prescribe the manner in which
proceedings of any such committee shall be conducted. In the absence of any such
prescription, such committee shall have the power to prescribe the manner in
which its proceedings shall be conducted. Unless the Board of Directors or such
committee shall otherwise provide, the regular and special meetings and other
actions of any such committee shall be governed by the provisions of this
Article applicable to meetings and actions of the Board of Directors. Minutes
shall be kept of each meeting of each committee.
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ARTICLE 4. OFFICERS
OFFICERS
4.1 The officers of the corporation shall be a President, a Secretary and a
Treasurer. The corporation may also have, at the discretion of the Board of
Directors, a Chairman of the Board, one or more Vice Chairmen of the Board, one
or more Vice Presidents, one or more Assistant Secretaries, one or more
Assistant Treasurers, and such other officers as may be elected or appointed in
accordance with the provisions of this Article.
ELECTION
4.2 The officers of the corporation, except such officers as may be elected or
appointed in accordance with the provisions of this Article, shall be chosen
annually by, and shall serve at the pleasure of, the Board of Directors, and
shall hold their respective offices until their resignation, removal, or other
disqualification from service, or until their respective successors shall be
elected.
SUBORDINATE OFFICERS
4.3 The Board of Directors may elect, and may empower the President to appoint,
such other officers as the business of the corporation may require, each of whom
shall hold office for such period, have such authority and perform such duties
as are provided in these Bylaws or as the Board of Directors may from time to
time determine.
REMOVAL AND RESIGNATION
4.4 Any officer may be removed, either with or without cause, by the Board of
Directors at any time or, except in the case of an officer chosen by the Board
of Directors, by any officer upon whom such power of removal may be conferred by
the Board of Directors. Any such removal shall be without prejudice to the
rights, if any, of the officer under any contract of employment of the officer.
Any officer may resign at any time by giving written notice to the
corporation, but without prejudice to the rights, if any, of the corporation
under any contract to which the officer is a party. Any such resignation shall
take effect at the date of the receipt of such notice or at any later time
specified therein and, unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective.
VACANCIES
4.5 A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed in
these Bylaws for regular election or appointment to such office.
THE CHAIRMAN OF THE BOARD
4.6 The Chairman of the Board, if any, shall preside at all meetings of the
Board of Directors and he or she shall have and may exercise such powers as are,
from time to time, assigned to him or her by the Board of Directors and as may
be provided by law.
4.7 In the absence of the Chairman of the Board, the Vice Chairman of the
Board, if any, shall preside at all meetings of the Board of Directors and he or
she shall have and may exercise such powers as are, from time to time, assigned
to him or her by the Board of Directors and as may be provided by law.
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THE PRESIDENT AND VICE-PRESIDENTS
4.8 Subject to such powers, if any, as may be given by the Board of Directors
to the Chairman of the Board, if there be such an officer, the President is the
general manager and chief executive officer of the corporation and has, subject
to the control of the Board of Directors, general supervision, direction and
control of the business and officers of the corporation. The President shall
preside at all meetings of the stockholders and, in the absence of the Chairman
of the Board, or if there be none, at all meetings of the Board of Directors.
The President has the general powers and duties of management usually vested in
the office of President and general manager of a corporation and such other
powers and duties as may be prescribed by the Board of Directors.
4.9 In the absence or disability of the President, the Vice Presidents in order
of their rank as fixed by the Board of Directors, or, if not ranked, the Vice
President designated by the Board of Directors, shall perform all the duties of
the President and, when so acting, shall have all the powers of, and be subject
to all the restrictions upon, the President. The Vice Presidents shall have such
other powers and perform such other duties as from time to time may be
prescribed for them respectively by the Board of Directors.
THE SECRETARY AND ASSISTANT SECRETARY
4.10 The Secretary shall keep or cause to be kept, at the principal executive
office and such other place as the Board of Directors may order, a book of
minutes of all meetings of stockholders, the Board of Directors and its
committees, with the time and place of holding, whether regular or special, and
if special, how authorized, the notice thereof given, the names of those present
at Board of Directors and committee meetings, the number of shares present or
represented at stockholders' meetings, and the proceedings thereof. The
Secretary shall keep, or cause to be kept, a copy of these Bylaws of the
corporation at the principal executive office or such other place as the Board
of Directors may order.
The Secretary shall keep, or cause to be kept, at the principal executive
office or at the office of the corporation's transfer agent or registrar, if one
has been appointed, a share register, or a duplicate share register, showing the
names of the stockholders and their addresses, the number and classes of shares
held by each, the number and date of certificates issued for the same, and the
number and date of cancellation of every certificate surrendered for
cancellation.
The Secretary shall give, or cause to be given, notice of all meetings of
the stockholders and of the Board of Directors and any committees thereof
required by these Bylaws or by law to be given, shall keep the seal of the
corporation in safe custody, and shall have such other powers and perform such
other duties as may be prescribed by the Board of Directors.
4.11 The Assistant Secretary, or if there be more than one, the Assistant
Secretaries in the order determined by the Board of Directors (or if there be no
such determination, then in the order of their election) shall, in absence of
the Secretary or in the event of his or her inability or refusal to act, perform
the duties and exercise the powers of the Secretary and shall perform such other
duties and have such other powers as the Board of Directors may from time to
time prescribe.
THE TREASURER AND ASSISTANT TREASURER
4.12 The Treasurer is the chief financial officer of the corporation and shall
keep and maintain, or cause to be kept and maintained, adequate and correct
accounts of the properties and business transactions of the corporation, and
shall send or cause to be sent to the stockholders of the corporation such
financial statements and reports as are by law or these Bylaws required to be
sent to them. The books of account shall at all times be open to inspection by
any director.
The Treasurer shall deposit all moneys and other valuables in the name and
to the credit of the corporation with such depositaries as may be designated by
the Board of Directors. The Treasurer shall
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disburse the funds of the corporation as may be ordered by the Board of
Directors, shall render to the President and the directors, whenever they
request it, an account of all transactions as Treasurer and of the financial
condition of the corporation, and shall have such other powers and perform such
other duties as may be prescribed by the Board of Directors.
4.13 The Assistant Treasurer, or if there be more than one, the Assistant
Treasurers in the order determined by the Board of Directors (or if there be no
such determination, then in the order of their election) shall, in absence of
the Treasurer or in the event of his or her inability or refusal to act, perform
the duties and exercise the powers of the Treasurer and shall perform such other
duties and have such other powers as the Board of Directors may from time to
time prescribe.
ARTICLE 5. CERTIFICATE OF STOCK
5.1 Every holder of stock in the corporation shall be entitled to have a
certificate, signed by, or in the name of the corporation by, the Chairman or
Vice Chairman of the Board, or the President or a Vice President and the
Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary,
certifying the number of shares owned by the holder in the corporation.
5.2 Certificates may be issued for partly paid shares and in such case upon the
face or back of the certificates issued to represent any such partly paid
shares, the total amount of the consideration to be paid therefor, and the
amount paid thereon shall be specified.
5.3 If the corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualification, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided in Section 202 of the General Corporation Law of Delaware, in
lieu of the foregoing requirements, there may be set forth on the face or back
of the certificate which the corporation shall issue to represent such class or
series of stock, a statement that the corporation will furnish without charge to
each stockholder who so requests the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.
5.4 Any of or all the signatures on the certificate may be facsimile. In case
any officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, it may
be issued by the corporation with the same effect as if such person were such
officer, transfer agent or registrar at the date of issue.
LOST CERTIFICATES
5.5 The Board of Directors may direct a new certificate or certificates to be
issued in place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen or destroyed. When authorizing such issue of a new certificate or
certificates, the Board of Directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate or certificates, or his or her legal representative, to
advertise the same in such manner as it shall require and/or to give the
corporation a bond in such sum as it may direct as indemnity against any claim
that may be made against the corporation with respect to the certificate alleged
to have been lost, stolen or destroyed.
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TRANSFER OF STOCK
5.6 Upon surrender to the corporation or the transfer agent of the corporation
of a certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignation or authority to transfer, it shall be the duty of the
corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its books.
FIXING RECORD DATE
5.7 In order that the corporation may determine the stockholders entitled to
notice of or to vote at any meeting of the stockholders or any adjournment
thereof, or to express consent to corporate action in writing without a meeting,
or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is adopted
by the Board of Directors, and which record date: (a) in the case of
determination of stockholders entitled to vote at any meeting of stockholders or
adjournment thereof, shall, unless otherwise required by law, not be more than
60 nor less than 10 days before the date of such meeting; (b) in the case of
determination of stockholders entitled to express consent to corporate action in
writing without a meeting, shall not be more than 10 days from the date upon
which the resolution fixing the record date is adopted by the Board of Directors
and (c) in the case of any other action, shall not be more than 60 days prior to
such other action. If no record date is fixed: (a) the record date for
determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held; (b) the record date
for determining stockholders entitled to express consent to corporate action in
writing without a meeting, when no prior action of the Board of Directors is
required by law or the Certificate of Incorporation, shall be the first date on
which a signed written consent setting forth the action taken or proposed to be
taken is delivered to the corporation in accordance with applicable law, or, if
prior action by the Board of Directors is required by law or the Certificate of
Incorporation, shall be at the close of business on the day on which the Board
of Directors adopts the resolution taking such prior action and (c) the record
date for determining stockholders for any other purpose shall be at the close of
business on the day on which the Board of Directors adopts the resolution
relating thereto. A determination of stockholders of record entitled to notice
of or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
REGISTERED STOCKHOLDERS
5.8 The corporation shall be entitled to recognize the exclusive right of a
person registered on its books as the owner of shares to receive dividends, and
to vote as such owner, and to hold liable for calls and assessments a person
registered on its books as the owner of shares and shall not be bound to
recognize any equitable or other claim to or interest in such share or shares on
the part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise provided by the laws of Delaware.
ARTICLE 6. GENERAL PROVISIONS
MAINTENANCE AND INSPECTION OF RECORDS
6.1 Any stockholder of record, in person or by attorney or other agent, shall,
upon written demand under oath stating the purpose thereof, have the right
during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
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records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanies by a power of attorney or
such other writing that authorizes the attorney or other agent to so act on
behalf of the stockholder. The demand under oath shall be directed to the
corporation at its registered office in the State of Delaware or at its
principal executive office.
6.2 Any director shall have the right to examine the corporation's stock
ledger, a list of its stockholders, and its other books and records for a
purpose reasonably related to the director's position as a director. The Court
of Chancery is hereby vested with the exclusive jurisdiction to determine
whether a director is entitled to the inspection sought. The Court may summarily
order the corporation to permit the director to inspect any and all books and
records, the stock ledger, and the stock list and to make copies or extracts
therefrom. The Court may, in its discretion, prescribe any limitations or
conditions with reference to the inspection, or award such other and further
relief as the Court may deem just and proper.
ANNUAL REPORT TO STOCKHOLDERS
6.3 At any point at which the corporation has less than 100 holders of record
of its shares, this corporation expressly waives the annual report to
stockholders. Notwithstanding the waiver of such annual report by the
corporation, nothing herein shall be interpreted as prohibiting the Board of
Directors from issuing voluntary annual or other periodic reports to
stockholders during such time as the corporation has less than 100 holders of
record.
CHECKS; DRAFTS; EVIDENCE OF INDEBTEDNESS
6.4 From time to time, the Board of Directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
the payment of money, notes or other evidences of indebtedness that are issued
in the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.
ENDORSEMENT OF DOCUMENTS; CONTRACTS
6.5 Subject to the provisions of applicable law, any note, mortgage, evidence
of indebtedness, contract, share certificate, conveyance or other instrument in
writing and any assignment or endorsements thereof executed or entered into
between the corporation and any other person, when signed by the Chairman of the
Board, the President or any Vice President and the Secretary, any Assistant
Secretary, the Treasurer or any Assistant Treasurer of the corporation shall be
valid and binding on the corporation in the absence of actual knowledge on the
part of the other person that the signing officers had no authority to execute
the same. Any such instruments may be signed by any other person or persons and
in such manner as from time to time shall be determined by the Board of
Directors, and, unless so authorized by the Board of Directors, no officer,
agent or employee shall have any power or authority to bind the corporation by
any contract or engagement or to pledge its credit or to render it liable for
any purpose or amount.
REPRESENTATION OF SHARES OF OTHER CORPORATIONS
6.6 The President or any other officer or officers authorized by the Board of
Directors or the President are each authorized to vote, represent and exercise
on behalf of the corporation all rights incident to any and all shares of any
other corporation or corporations standing in the name of the corporation. The
authority herein granted may be exercised either by any such officer in person
or by any other person authorized so to do by proxy or power of attorney duly
executed by said officer.
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STOCK PURCHASE PLANS
6.7 The corporation may adopt and carry out a stock purchase plan or agreement
or stock option plan or agreement providing for the issue and sale for such
consideration as may be fixed of its unissued shares, or of issued shares
acquired or to be acquired, to one or more of the employees or directors of the
corporation or of a subsidiary or to a trustee on their behalf and for the
payment for such shares in installments or at one time, and may provide for
aiding any such persons in paying for such shares by compensation for services
rendered, promissory notes or otherwise.
Any such stock purchase plan or agreement or stock option plan or agreement
may include, among other features, the fixing of eligibility for participation
therein, the class and price of shares to be issued or sold under the plan or
agreement, the number of shares which may be subscribed for, the method of
payment therefor, the reservation of title until full payment therefor, the
effect of the termination of employment, an option or obligation on the part of
the corporation to repurchase the shares upon termination of employment,
restrictions upon transfer of the shares, the time limits of and termination of
the plan, and any other matters, not in violation of applicable law, as may be
included in the plan as approved or authorized by the Board of Directors or any
committee of the Board of Directors.
CONSTRUCTION AND DEFINITIONS
6.8 Unless the context otherwise requires, the general provisions, rules of
construction and definitions contained in the General Corporation Law of
Delaware shall govern the construction of these Bylaws.
AMENDMENTS
6.9 These Bylaws may be amended or repealed either by approval of 66- 2/3% of
the outstanding shares of the corporation entitled to vote on such action or by
the approval of the Board of Directors, for those amendments to the Bylaws for
which approval of the Board of Directors alone is sufficient under the General
Corporation Law of Delaware.
FISCAL YEAR
6.10 The fiscal year of the corporation shall be fixed by resolution of the
Board of Directors.
DIVIDENDS
6.11 Dividends upon the capital stock of the corporation, subject to the
provisions of the Certificate of Incorporation, if any, may be declared by the
Board of Directors at any regular or special meeting, pursuant to law. Dividends
may be paid in cash, in property, or in shares of the capital stock, subject to
the provisions of the Certificate of Incorporation.
6.12 Before payment of any dividend, there may be set aside out of any funds of
the corporation available for dividends such sum or sums as the directors from
time to time, in their absolute discretion, think proper as a reserve or
reserves to meet contingencies, or for equalizing dividends, or for repairing or
maintaining any property of the corporation, or for such other purposes as the
directors shall think conducive to the interest of the corporation, and the
directors may modify or abolish any such reserve in the manner in which it was
created.
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LOANS TO OFFICERS AND EMPLOYEES
6.13 The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or of its
subsidiaries, including any officer or employee who is a director of the
corporation or its subsidiaries, whenever, in the judgment of the Board of
Directors, such loan, guarantee or assistance may reasonably be expected to
benefit the corporation. The loan, guarantee or other assistance may be with or
without interest and may be unsecured, or secured in such manner as the Board of
Directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing in these Bylaws shall be deemed to deny, limit
or restrict the powers of guaranty or warranty of the corporation at common law
or under any statute.
ARTICLE 7. INDEMNIFICATION
RIGHT TO INDEMNIFICATION
7.1 The corporation shall indemnify and hold harmless, to the fullest extent
permitted by applicable law as it presently exists or may hereafter be amended,
any person (an "INDEMNITEE") who was or is made or is threatened to be made a
party or is otherwise involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (a "PROCEEDING"), by reason of the
fact that such person, or a person for whom he or she is the legal
representative, is or was a director or officer of the corporation or, while a
director or officer of the corporation, is or was serving at the written request
of the corporation as a director, officer, employee or agent of another
corporation or of a partnership, joint venture, trust, enterprise or non-profit
entity, including service with respect to employee benefit plans, against all
liability and loss suffered and expenses (including attorneys' fees) reasonably
incurred by such Indemnitee. Notwithstanding the preceding sentence, except as
otherwise provided in Section 7.3, the corporation shall be required to
indemnify an Indemnitee in connection with a proceeding (or part thereof)
commenced by such Indemnitee only if the commencement of such proceeding (or
part thereof) by the Indemnitee was authorized by the Board of Directors.
PREPAYMENT OF EXPENSES
7.2 The corporation shall pay the expenses (including attorneys' fees) incurred
by an Indemnitee in defending any proceeding in advance of its final
disposition, PROVIDED, HOWEVER, that, to the extent required by law, such
payment of expenses in advance of the final disposition of the proceeding shall
be made only upon receipt of an undertaking by the Indemnitee to repay all
amounts advanced if it should be ultimately determined that the Indemnitee is
not entitled to be indemnified under this Article or otherwise.
CLAIMS
7.3 If a claim for indemnification of advancement of expenses under this
Article is not paid in full within 60 days after a written claim therefor by the
Indemnitee has been received by the corporation, the Indemnitee may file suit to
recover the unpaid amount of such claim and, if successful in whole or in part,
shall be entitled to be paid the expense of prosecuting such claim. In any such
action the corporation shall have the burden of proving that the Indemnitee is
not entitled to the requested indemnification or advancement of expenses under
applicable law.
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NONEXCLUSIVITY OF RIGHTS
7.4 The rights conferred on any Indemnitee by this Article shall not be
exclusive of any other rights which such Indemnitee may have or hereafter
acquire under any statute, provision of the Certificate of Incorporation, these
Bylaws, agreement, vote of the stockholders or disinterested directors or
otherwise.
OTHER SOURCES
7.5 The corporation's obligation, if any, to indemnify or to advance expenses
to any Indemnitee who was or is serving at its request as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust,
enterprise or non-profit entity shall be reduced by any amount such Indemnitee
may collect as indemnification or advancement of expenses from such other
corporation, partnership, joint venture, trust, enterprise or non-profit entity.
AMENDMENT OR REPEAL
7.6 Any repeal or modification of the foregoing provisions of this Article
shall not adversely affect any right or protection hereunder of any Indemnitee
in respect of any act or omission occurring prior to the time of such repeal or
modification.
OTHER INDEMNIFICATION AND PREPAYMENT OF EXPENSES
7.7 This Article shall not limit the right of the corporation, to the extent
and in the manner permitted by law, to indemnify and to advance expenses to
persons other than Indemnitees when and as authorized by appropriate corporate
action.
INSURANCE
7.8 The corporation may maintain insurance, at its expense, to protect itself
and any director, officer, employee or agent of the corporation or another
corporation, partnership, joint venture, trust or other enterprise against any
expense, liability or loss, whether or not the corporation would have the power
to indemnify such person against such expense, liability or loss under the law.
INDEMNITY AGREEMENTS
7.9 The corporation may enter into agreements with any director, officer,
employee or agent of the corporation, providing for indemnification to the
fullest extent permissible under the law and the Certificate of Incorporation.
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APPENDIX C
AGREEMENT AND PLAN OF MERGER
OF
ACACIA RESEARCH CORPORATION
(a Delaware corporation)
AND
ACACIA RESEARCH CORPORATION
(a California corporation)
THIS AGREEMENT AND PLAN OF MERGER dated as of , 1999 (this "MERGER
AGREEMENT") is between Acacia Research Corporation, a Delaware corporation
("ACACIA DELAWARE"), and Acacia Research Corporation, a California corporation
("ACACIA CALIFORNIA"). Acacia Delaware and Acacia California are sometimes
referred to herein as the "CONSTITUENT CORPORATIONS."
RECITALS
A. Acacia California desires to merge with and into Acacia Delaware and
Acacia Delaware desires to merge with Acacia California, all upon the terms and
subject to the conditions of this Merger Agreement.
B. Acacia Delaware is a corporation duly organized and existing under the
laws of the State of Delaware and has an authorized capital of
[80,000,000] shares, [60,000,000] of which are designated "Common Stock," par
value $0.001 per share[, and 20,000,000 of which are designated "Preferred
Stock," par value $0.001 per share]. The Preferred Stock of Acacia Delaware is
undesignated as to series, rights, preferences, privileges or restrictions. As
of the date hereof, 100 shares of Common Stock of Acacia Delaware are issued and
outstanding, all of which are held by Acacia California, and no shares of
Preferred Stock are issued and outstanding.
C. Acacia California is a corporation duly organized and existing under the
laws of the State of California and has an authorized capital of 30,000,000
shares of "Common Stock," no par value per share. As of , 1999,
[11,301,050] shares of Common Stock were issued and outstanding.
D. The Board of Directors of Acacia California has determined that, for the
purpose of effecting the reincorporation of Acacia California in the State of
Delaware, it is advisable and in the best interests of Acacia California and its
shareholders that Acacia California merge with and into Acacia Delaware upon the
terms and conditions herein provided.
E. The respective Boards of Directors of Acacia Delaware and Acacia
California have approved this Merger Agreement and have directed that this
Merger Agreement be submitted to a vote of their respective sole stockholder and
shareholders and executed by the undersigned officers.
NOW, THEREFORE, in consideration of the mutual agreements and covenants set
forth herein, Acacia Delaware and Acacia California hereby agree, subject to the
terms and conditions hereinafter set forth, as follows:
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ARTICLE I
MERGER
1.1 MERGER. In accordance with the provisions of this Merger Agreement,
the Delaware General Corporation Law and the California General Corporation Law,
Acacia California will be merged with and into Acacia Delaware (the "MERGER"),
the separate existence of Acacia California will cease and Acacia Delaware will
survive the Merger and will continue to be governed by the laws of the State of
Delaware. Acacia Delaware will be, and is herein sometimes referred to as, the
"SURVIVING CORPORATION." The name of the Surviving Corporation will be Acacia
Research Corporation.
1.2 FILING AND EFFECTIVENESS. The Merger will become effective when the
following actions will have been completed:
(a) This Merger Agreement and the Merger will have been adopted and approved
by the sole stockholder of Acacia Delaware and the shareholders of Acacia
California, in accordance with the requirements of the Delaware General
Corporation Law and the California General Corporation Law;
(b) All of the covenants and conditions precedent to the consummation of the
Merger specified in this Merger Agreement will have been satisfied or duly
waived by the party entitled to satisfaction thereof;
(c) An executed Certificate of Merger or an executed counterpart of this
Merger Agreement meeting the requirements of the Delaware General Corporation
Law will have been filed with the Secretary of State of the State of Delaware;
and
(d) An executed Certificate of Merger or an executed counterpart of this
Merger Agreement meeting the requirements of the California General Corporation
Law will have been filed with the Secretary of State of the State of California.
The date and time when the Merger will become effective, as aforesaid, is herein
called the "EFFECTIVE DATE OF THE MERGER."
1.3 EFFECT OF THE MERGER. Upon the Effective Date of the Merger, the
separate existence of Acacia California will cease and Acacia Delaware, as the
Surviving Corporation, (i) will continue to possess all of its assets, rights,
powers and property as constituted immediately prior to the Effective Date of
the Merger, (ii) will be subject to all actions previously taken by its and
Acacia California's Board of Directors, (iii) will succeed, without other
transfer, to all of the assets, rights, powers and property of Acacia California
in the manner more fully set forth in Section 259 of the Delaware General
Corporation Law, (iv) will continue to be subject to all of the debts,
liabilities and obligations of Acacia Delaware as constituted immediately prior
to the Effective Date of the Merger and (v) will succeed, without other
transfer, to all of the debts, liabilities and obligations of Acacia California
in the same manner as if Acacia Delaware had itself incurred them, all as more
fully provided under the applicable provisions of the Delaware General
Corporation Law and the California General Corporation Law.
ARTICLE II
CHARTER DOCUMENTS, DIRECTORS AND OFFICERS
2.1 CERTIFICATE OF INCORPORATION. The Certificate of Incorporation of
Acacia Delaware as in effect immediately prior to the Effective Date of the
Merger will continue in full force and effect as the Certificate of
Incorporation of the Surviving Corporation until duly amended in accordance with
the provisions thereof and applicable law.
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2.2 BYLAWS. The Bylaws of Acacia Delaware as in effect immediately prior
to the Effective Date of the Merger will continue in full force and effect as
the Bylaws of the Surviving Corporation until duly amended in accordance with
the provisions thereof and applicable law.
2.3 DIRECTORS AND OFFICERS. The directors and officers of Acacia
California immediately prior to the Effective Date of the Merger will be the
directors and officers of the Surviving Corporation until their successors will
have been duly elected and qualified or until as otherwise provided by law, the
Certificate of Incorporation of the Surviving Corporation or the Bylaws of the
Surviving Corporation.
ARTICLE III
MANNER OF CONVERSION OF STOCK
3.1 ACACIA CALIFORNIA COMMON STOCK. Upon the Effective Date of the
Merger, each share of Acacia California Common Stock issued and outstanding
immediately prior thereto will, by virtue of the Merger and without any action
by the Constituent Corporations, the holder of such shares or any other person,
be converted into and exchanged for one (1) fully paid and nonassessable share
of Common Stock, par value $0.001 per share, of the Surviving Corporation.
3.2 ACACIA CALIFORNIA OPTIONS, STOCK PURCHASE RIGHTS AND CONVERTIBLE
SECURITIES.
(a) Upon the Effective Date of the Merger, the Surviving Corporation will
assume and continue the stock option plans and all other employee benefit plans
of Acacia California. Each outstanding and unexercised option or other right to
purchase or security convertible into Acacia California Common Stock will become
an option or right to purchase or a security convertible into the Surviving
Corporation's Common Stock on the basis of one (1) share of the Surviving
Corporation's Common Stock for each share of Acacia California Common Stock
issuable pursuant to any such option, stock purchase right or convertible
security, on the same terms and conditions and at an exercise price per share
equal to the exercise price applicable to any such Acacia California option,
stock purchase right or convertible security at the Effective Date of the
Merger.
(b) A number of shares of the Surviving Corporation's Common Stock will be
reserved for issuance upon the exercise of options, stock purchase rights and
convertible securities equal to the number of shares of Acacia California Common
Stock so reserved immediately prior to the Effective Date of the Merger.
3.3 ACACIA DELAWARE COMMON STOCK. Upon the Effective Date of the Merger,
each share of Common Stock, par value $0.001 per share, of Acacia Delaware
issued and outstanding immediately prior thereto will, by virtue of the Merger
and without any action by Acacia Delaware, the holder of such shares or any
other person, be canceled and returned to the status of authorized but unissued
shares.
3.4 EXCHANGE OF CERTIFICATES. After the Effective Date of the Merger, each
holder of an outstanding certificate representing shares of Acacia California
Common Stock may, at such holder's option, surrender the same for cancellation
to U.S. Stock Transfer Co., as exchange agent (the "EXCHANGE AGENT"), and each
such holder will be entitled to receive in exchange therefor a certificate or
certificates representing the number of shares of the Surviving Corporation's
Common Stock into which the surrendered shares were converted as herein
provided. Unless and until so surrendered, each outstanding certificate
theretofore representing shares of Acacia California Common Stock will be deemed
for all purposes to represent the number of shares of the Surviving
Corporation's Common Stock into which such shares of Acacia California Common
Stock were converted in the Merger.
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The registered owner on the books and records of the Surviving Corporation
or the Exchange Agent of any shares of stock represented by such outstanding
certificate will, until such certificate will have been surrendered for transfer
or conversion or otherwise accounted for to the Surviving Corporation or the
Exchange Agent, have and be entitled to exercise any voting and other rights
with respect to and to receive dividends and other distributions upon the shares
of Common Stock of the Surviving Corporation represented by such outstanding
certificate as provided above.
Each certificate representing Common Stock of the Surviving Corporation so
issued in the Merger will bear the same legends, if any, with respect to the
restrictions on transferability as the certificates of Acacia California so
converted and given in exchange therefore, unless otherwise determined by the
Board of Directors of the Surviving Corporation in compliance with applicable
laws, and any additional legends agreed upon by the holder and the Surviving
Corporation.
If any certificate for shares of Acacia Delaware stock is to be issued in a
name other than that in which the certificate surrendered in exchange therefor
is registered, it will be a condition of issuance thereof that the certificate
so surrendered will be properly endorsed and otherwise in proper form for
transfer, that such transfer otherwise be proper and comply with applicable
securities laws and that the person requesting such transfer pay to Acacia
Delaware or the Exchange Agent any transfer or other taxes payable by reason of
issuance of such new certificate in a name other than that of the registered
holder of the certificate surrendered or establish to the satisfaction of Acacia
Delaware that such tax has been paid or is not payable.
ARTICLE IV
GENERAL
4.1 COVENANTS OF ACACIA DELAWARE. Acacia Delaware covenants and agrees
that it will, on or before the Effective Date of the Merger:
(a) qualify to do business as a foreign corporation in the State of
California and in connection therewith irrevocably appoint an agent for service
of process as required under the provisions of Section 2105 of California
General Corporation Law;
(b) file any and all documents with the California Franchise Tax Board
necessary for the assumption by Acacia Delaware of all of the franchise tax
liabilities of Acacia California; and
(c) take such other actions as may be required by the California General
Corporation Law.
4.2 FURTHER ASSURANCES. From time to time, as and when required by Acacia
Delaware or by its successors or assigns, there will be executed and delivered
on behalf of Acacia California such deeds and other instruments, and there will
be taken or caused to be taken by Acacia California such further and other
actions as will be appropriate or necessary in order to vest or perfect in or
conform of record or otherwise by Acacia Delaware the title to and possession of
all the property, interests, assets, rights, privileges, immunities, powers,
franchises and authority of Acacia California and otherwise to carry out the
purposes of this Merger Agreement, and the officers and directors of Acacia
Delaware are fully authorized in the name and on behalf of Acacia California or
otherwise to take any and all such action and to execute and deliver any and all
such deeds and other instruments.
4.3 ABANDONMENT. At any time before the Effective Date of the Merger, this
Merger Agreement may be terminated and the Merger may be abandoned for any
reason whatsoever by the Board of Directors of either Acacia California or of
Acacia Delaware, or of both, notwithstanding the approval of this Merger
Agreement by either the shareholders of Acacia California or by the sole
stockholder of Acacia Delaware, or by both.
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<PAGE>
4.4 AMENDMENT. The Boards of Directors of the Constituent Corporations may
amend this Merger Agreement at any time prior to the filing of this Merger
Agreement (or certificate in lieu thereof) with the Secretaries of State of the
States of Delaware and California, provided that an amendment made subsequent to
the adoption of this Merger Agreement by either the sole stockholder of Acacia
Delaware or the shareholders of Acacia California shall not: (i) alter or change
the amount or kind of shares, securities, cash, property and/or rights to be
received in exchange for or on conversion of all or any of the shares of any
class or series thereof of such Constituent Corporation; (ii) alter or change
any term of the Certificate of Incorporation of the Surviving Corporation to be
effective immediately after the Merger or (iii) alter or change any of the terms
and conditions of this Merger Agreement if such alteration or change would
adversely affect the holders of any class or series of capital stock of either
Constituent Corporation.
4.5 REGISTERED OFFICE. The registered office of the Surviving Corporation
in the State of Delaware shall be 1209 Orange Street, Wilmington, Delaware 19801
in the County of New Castle and The Corporation Trust Company will be the
registered agent of the Surviving Corporation at such address.
4.6 AGREEMENT. Executed copies of this Merger Agreement will be on file at
the principal place of business of the Surviving Corporation at 55 South Lake
Avenue, Pasadena, California 91101 and copies thereof will be furnished to any
holder of any class or series of capital stock of either Constituent
Corporation, upon request and without cost.
4.7 GOVERNING LAW. This Merger Agreement will in all respects be
construed, interpreted and enforced in accordance with and governed by the laws
of the State of Delaware and, so far as applicable, the merger provisions of the
California General Corporation Law.
4.8 COUNTERPARTS. In order to facilitate the filing and recording of this
Merger Agreement, the same may be executed in any number of counterparts, each
of which will be deemed to be an original and all of which together will
constitute one and the same instrument.
[Signature Page to Follow]
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IN WITNESS WHEREOF, this Merger Agreement having first been approved by the
resolutions of the Boards of Directors of Acacia Research Corporation, a
Delaware corporation, and Acacia Research Corporation, a California corporation,
is hereby executed on behalf of each of such two corporations and attested by
their respective officers thereunto duly authorized as of the date first above
written.
<TABLE>
<S> <C> <C>
ACACIA RESEARCH CORPORATION,
a Delaware corporation
By:
-----------------------------------------
Paul R. Ryan
Chief Executive Officer and President
ATTEST:
- -------------------------------------------
Kathryn King-Van Wie
Corporate Secretary
ACACIA RESEARCH CORPORATION,
a Delaware corporation
By:
-----------------------------------------
Paul R. Ryan
Chief Executive Officer and President
ATTEST:
- -------------------------------------------
Kathryn King-Van Wie
Corporate Secretary
</TABLE>
C-6
<PAGE>
APPENDIX D
ACACIA RESEARCH CORPORATION
1996 STOCK OPTION PLAN
(as amended on March 30, 1998 and October 6, 1999)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C>
ARTICLE I. THE PLAN.................................................... D-1
Section 1.1 Purpose..................................................... D-1
Section 1.2 Administration and Authorization; Power and Procedure....... D-1
Section 1.3 Participation............................................... D-2
Section 1.4 Shares Available for Awards................................. D-2
Section 1.5 Grant of Awards............................................. D-3
Section 1.6 Award Period................................................ D-3
Section 1.7 Exercise and Vesting of Awards.............................. D-3
Section 1.8 No Transferability.......................................... D-3
ARTICLE II. KEY EMPLOYEE OPTIONS........................................ D-4
Section 2.1 Grants...................................................... D-4
Section 2.2 Option Price................................................ D-4
Section 2.3 Limitations on Grant and Terms of Incentive Stock Options... D-5
Section 2.4 Limits on 10% Holders....................................... D-6
Section 2.5 Option Repricing/Cancellation and Regrant................... D-6
ARTICLE
III. NON-EMPLOYEE DIRECTOR OPTIONS............................... D-6
Section 3.1 Participation............................................... D-6
Section 3.2 Annual Option Grants........................................ D-6
Section 3.3 Option Price................................................ D-7
Section 3.4 Option Period............................................... D-7
Section 3.5 Exercise of Options......................................... D-7
Section 3.6 Termination of Directorship................................. D-7
Section 3.7 Adjustments................................................. D-7
Section 3.8 Acceleration Upon a Change in Control Event................. D-7
ARTICLE IV. OTHER PROVISIONS............................................ D-8
Rights of Eligible Persons, Participants and
Section 4.1 Beneficiaries............................................. D-8
Section 4.2 Adjustments; Acceleration................................... D-8
Section 4.3 Effect of Termination of Employment......................... D-10
Section 4.4 Compliance with Laws........................................ D-10
Section 4.5 Tax Withholding............................................. D-10
Plan Amendment, Termination and Suspension; Changes in
Section 4.6 Awards.................................................... D-10
Section 4.7 Privileges of Stock Ownership............................... D-11
Section 4.8 Effective Date of Plan...................................... D-11
Section 4.9 Term of the Plan............................................ D-11
Section
4.10 Governing Law/Construction/Severability..................... D-11
Section
4.11 Captions.................................................... D-12
Section
4.12 Effect of Change of Subsidiary Status....................... D-12
Section
4.13 Non-Exclusivity of Plan..................................... D-12
Section
4.14 No Restriction on Corporate Powers.......................... D-12
Section
4.15 Effect on Other Benefits.................................... D-12
ARTICLE V. DEFINITIONS................................................. D-13
Section 5.1 Definitions................................................. D-13
</TABLE>
<PAGE>
ACACIA RESEARCH CORPORATION
1996 STOCK OPTION PLAN
(as amended March 30, 1998 and October 6, 1999)
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, and directors of the
Company and other eligible persons 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 Persons 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 Persons who will receive any Awards;
(ii) to grant Awards to Eligible Persons, 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 any Eligible Person 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 Persons, 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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<PAGE>
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 Persons. An Eligible Person who has been
granted an Award may, if otherwise eligible, be granted additional Awards if the
Committee shall so determine. Non-Employee Directors may be granted
discretionary Awards in accordance with Article II in addition to any
Nonqualified Stock Options granted automatically 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 3,000,000
shares (the "Share Limit"). 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 2,800,000. Each of the foregoing
numerical limits shall be subject to adjustments as contemplated by
Section 4.2. The maximum number of shares of Common Stock that are
issuable under Options that during any calendar year are granted to any
Participant shall not exceed 400,000, subject to adjustments 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. Shares of
Common Stock
D-2
<PAGE>
that are subject to or underlie Options that expire or for any reason are
canceled or terminated, fail to vest, or for any other reason are not
delivered under this Plan will again, except to the extent prohibited by
law or the terms of this Plan, be available for subsequent Options under
this Plan. Shares of Common Stock issued pursuant to the terms hereof
(including shares of Common Stock offset in satisfaction of applicable
withholding taxes or the exercise price of any Option) shall reduce on a
share-for-share basis the number of shares of Common Stock remaining
available under this Plan.
SECTION 1.5 GRANT OF AWARDS.
Subject to the express provisions of this Plan, the Committee will determine
the terms and conditions of all Awards to Eligible Persons, 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 Persons 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, provided that the Committee may specifically authorize in writing
the deferred delivery of shares of Common Stock otherwise delivered under this
Plan. 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 Persons, 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 Person'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 (on a form and in such manner as may be
required by the Committee), 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 and any written statement required pursuant to Section 4.4.
(c) FRACTIONAL SHARES/MINIMUM ISSUE. Fractional share interests shall be
disregarded, but may be accumulated. The Committee may, however, in the
case of Eligible Persons 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; (ii) Awards shall be exercised only by the
Participant; and (iii) amounts payable or shares issuable pursuant to an Award
shall be delivered only to (or for the account of) the Participant.
D-3
<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
Person. 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 Person 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 55 S. Lake Avenue, Pasadena, California
91101, 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:
D-4
<PAGE>
(i) In cash;
(ii) In shares of Common Stock already owned by the Participant;
(iii) Partly in cash and partly in shares of Common Stock already owned
by the Participant; or
(iv) By delivery of a notice instructing the Corporation to deliver the
shares being purchased to a broker, subject to the broker's delivery of
cash to the Corporation equal to the purchase price; or
(v) To the extent an applicable Award Agreement so provides, payment may
be made in whole or in part by a promissory note executed by the
recipient of an Award in favor of the Corporation, upon terms and
conditions determined by the Committee, and secured by the Common Stock
issuable upon exercise of the Options granted by such Award in compliance
with applicable law (including, without limitation, state corporate law
and federal margin requirements).
Any shares used for payment pursuant to clause (ii) or (iii) above that were
acquired by the Participant from the Corporation (pursuant to an option exercise
or otherwise) shall have been held by the Eligible Person 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 Person 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 Person. 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,
D-5
<PAGE>
designate which shares of Common Stock are to be treated as shares
acquired pursuant to the exercise of an Incentive Stock Option.
(b) OPTION PERIOD. Each Option and all rights thereunder shall expire no
later than 10 years after the Award Date.
(b) OTHER CODE LIMITS. There shall be imposed in any Award Agreement
relating to Incentive Stock Options such terms and conditions as from
time to time are required in order that the Option be an "incentive stock
option" as that term is defined in Section 422 of the Code.
SECTION 2.4 LIMITS ON 10% HOLDERS.
No Incentive Stock Option may be granted to any person who, at the time the
Option is granted, owns (or is deemed to own under Section 424(d) of the Code)
shares of outstanding Common Stock representing more than 10% of the total
combined voting power of all classes of stock of the Corporation, unless the
exercise price of such Option is at least 110% of the Fair Market Value of the
stock subject to the Option on the date of grant and such Option by its terms is
not exercisable after the expiration of five years from the date such Option is
granted.
SECTION 2.5 OPTION REPRICING/CANCELLATION AND REGRANT.
Subject to Section 1.4 and Section 4.6 and the general limitations on Awards
contained elsewhere in this Plan, the Committee from time to time may authorize,
generally or in specific cases only, any adjustment in the exercise or purchase
price, the number of shares subject to, or the term of, an Award granted under
this Article by cancellation of an outstanding Award and a subsequent regranting
of an Award, by amendment, by substitution of an outstanding Award, by waiver or
by other legally valid means. Such amendment or other action may result among
other changes in an exercise or purchase price which is higher or lower than the
exercise or purchase price of the original or prior Award, provide for a greater
or lesser number of shares subject to the Award, or provide for a longer or
shorter vesting or exercise period.
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 20,000 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 5,000 shares of
Common Stock on each such date.
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<PAGE>
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 that were acquired
from the Corporation (pursuant to an option exercise or otherwise) 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 5,000 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 PERSONS, PARTICIPANTS AND BENEFICIARIES.
(a) EMPLOYMENT STATUS. Status as an Eligible Person shall not be
construed as a commitment that any Award will be made under this Plan to
an Eligible Person or to Eligible Persons 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 Person 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 or affect an employee's status
as an employee at will, 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 or service of such person, with or without
cause. Nothing in this Section 4.1(b), however, shall adversely affect
any express independent right of such person under a separate employment
or service contract other than an Award Agreement.
(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. Subject to Section 4.2(e), upon or in contemplation of
any reclassification, recapitalization, stock split (including a stock
split in the form of a stock dividend) or reverse stock split; any
merger, combination, consolidation or other reorganization; any split-up,
spin-off, or similar extraordinary dividend distribution ("spin-off") in
respect of the Common Stock (whether in the form of securities or
property); any exchange of Common Stock or other securities of the
Corporation, or any similar, unusual or extraordinary corporate
transaction in respect of the Common Stock; or a sale of substantially
all the assets of the Corporation as an entirety ("asset sale"); then the
Committee shall, in such manner, to such extent (if any) and at such time
as it deems appropriate and equitable in the circumstances:
(i) in any of such events, proportionately adjust any or all of (1) the
number of shares of Common Stock or the number and type of other
securities that thereafter may be made the subject of Options
(including the specific maximum and numbers of shares set forth
elsewhere in this Plan), (2) the number, amount and type of shares
of Common Stock (or other securities or property) subject to any or
all outstanding Options, (3) the exercise price of any or all
outstanding Options, or (4) the securities, cash or other property
deliverable upon exercise of any outstanding Options, or
(ii) in the case of a reclassification, recapitalization, merger,
consolidation, combination, or other reorganization, spin-off or
asset sale, make provision for a cash payment or for the
substitution or exchange of any or all outstanding Options or the
cash, securities or
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property deliverable to the holder of any or all outstanding
Options based upon the distribution or consideration payable to
holders of the Common Stock upon or in respect of such event.
In this context, the Committee may not make adjustments that would
disqualify Options as Incentive Stock Options without the written consent
of holders of Incentive Stock Options materially adversely affected
thereby.
In any of such events, the Committee may take such action prior to such
event to the extent that the Committee deems the action necessary to
permit the Participant to realize the benefits intended to be conveyed
with respect to the underlying shares in the same manner as is or will be
available to shareholders generally.
(b) ACCELERATION OF AWARDS UPON CHANGE IN CONTROL. Subject to Section
4.2(e) and unless prior to a Change in Control Event the Board determines
that, upon its occurrence, benefits under any or all Options will not
accelerate or determines that only certain or limited benefits under any
or all Options will be accelerated and the extent to which they will be
accelerated, and/or establishes a different time in respect of such
Change in Control Event for such acceleration, then upon (or, as may be
necessary to effectuate the purposes of this acceleration, immediately
prior to) the occurrence of a Change in Control Event, each Option will
become immediately vested and exercisable.
The Board may override the limitations on acceleration in this Section
4.2 by express provision in the Award Agreement and may accord any
Eligible Person a right to refuse any acceleration, whether pursuant to
the Award Agreement or otherwise, in such circumstances as the Board may
approve. Any acceleration of Awards will comply with applicable legal
requirements and, if necessary to accomplish the purposes of the
acceleration or if the circumstances otherwise require, may be deemed by
the Board to occur (subject to Sections 4.2(d) and 4.2(e)) not greater
than 30 days before or only upon the consummation of the event.
(c) POSSIBLE EARLY TERMINATION OF ACCELERATED AWARDS. If any Option has
been fully accelerated as permitted by Section 4.2(b) but is not
exercised in connection with or prior to (1) a dissolution of the
Corporation, (2) an event described in Section 4.2(a) that the
Corporation does not survive, or (3) a Change in Control Event approved
by the Board, the Option shall terminate if the Board has expressly
provided through a plan of reorganization or otherwise for the
substitution, assumption, exchange or other settlement of the Option. If
the exercisability of an Option has been timely accelerated in any of the
circumstances in (1) through (3) above but the Option is not exercised
and no provision has been made for a substitution, assumption, exchange
or other settlement, the Option shall terminate upon the occurrence of
the event.
(d) POSSIBLE RESCISSION OF ACCELERATION. If the vesting of an Option has
been accelerated in anticipation of an event and the Committee or the
Board later determines that the event will not occur, the Committee may
rescind the effect of the acceleration as to any then outstanding and
unexercised or otherwise unvested Options.
(e) POOLING EXCEPTION. Any discretion with respect to the events
addressed in this Section 4.2, including any acceleration of vesting,
shall be limited to the extent required by applicable accounting
requirements in the case of a transaction intended to be accounted for as
a pooling of interests transaction.
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SECTION 4.3 EFFECT OF TERMINATION OF EMPLOYMENT.
The Committee shall establish in respect of each Award granted to an
Eligible Person 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. In addition, any
securities delivered under this Plan may be subject to any special restrictions
that the Committee may require to preserve a pooling of interests under
generally accepted accounting principles. 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, the
Committee may require or allow any Eligible Person Participant to elect,
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. In no event will the value
of any shares withheld or reacquired to satisfy applicable withholding
obligations exceed the minimum amount of required withholding under applicable
law.
SECTION 4.6 PLAN AMENDMENT, TERMINATION AND SUSPENSION; CHANGES IN AWARDS.
(a) BOARD AUTHORIZATION. The Board may, at any time, terminate or, from
time to time, amend, modify or suspend this Plan, in whole or in part. No
Awards may be granted during any suspension of this Plan or after
termination of this Plan, but the Committee shall retain jurisdiction as
to Awards then outstanding in accordance with the terms of this Plan.
(b) SHAREHOLDER APPROVAL. 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
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resolution may waive conditions of or limitations on Awards to Eligible
Persons 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 Person 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, and was approved by the shareholders on May 14, 1996. The first
amendment to the Plan is effective as of March 30, 1998, the date of Board
approval, and was approved by the shareholders on April 24, 1998. The second
amendment to the Plan is effective as of October 6, 1999, the date of Board
approval, subject to shareholder approval by July 31, 2000.
SECTION 4.9 TERM OF THE PLAN.
No Award shall be granted more than ten years after the initial effective
date of the Plan (the "termination date"). Unless otherwise expressly provided
in this Plan or in an applicable Award Agreement, any Award theretofore granted
may extend beyond such termination date, and all authority of the Committee with
respect to Awards hereunder shall continue during any suspension of this Plan
and in respect of outstanding Awards on such termination date.
SECTION 4.10 GOVERNING LAW/CONSTRUCTION/SEVERABILITY.
(a) CHOICE OF LAW. This Plan, the Awards, all documents evidencing
Awards and all other related documents shall be governed by, and
construed in accordance with the laws of the state of incorporation of
the Corporation.
(b) SEVERABILITY. If any provision shall be held by a court of competent
jurisdiction to be invalid and unenforceable, the remaining provisions of
this Plan shall continue in effect.
(c) PLAN CONSTRUCTION. It is the intent of the Corporation that this
Plan and Awards hereunder satisfy and be interpreted in a manner that in
the case of Participants who are or may be subject to Section 16(b) of
the Exchange Act satisfies the applicable requirements of Rule 16b-3
thereunder so that such persons will be entitled to the benefits of
Rule 16b-3 or
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other exemptive rules under Section 16 of the Exchange Act and will not
be subjected to avoidable liability thereunder. 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 granted to a person
subject to Section 162(m) of the Code 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.
SECTION 4.14 NO RESTRICTION ON CORPORATE POWERS.
The existence of the Plan and the Awards granted hereunder shall not affect
or restrict in any way the right or power of the Board or the shareholders of
the Corporation to make or authorize any adjustment, recapitalization,
reorganization or other change in the Corporation's capital structure or its
business, any merger or consolidation of the Corporation, any issue of bonds,
debentures, preferred or prior preference stocks ahead of or affecting the
Corporation's capital stock or the rights thereof, the dissolution or
liquidation of the Corporation or any sale or transfer of all or any part of its
assets or business, or any other corporate act or proceeding.
SECTION 4.15 EFFECT ON OTHER BENEFITS.
Payments and other benefits received by a Participant under an Award made
pursuant to this Plan shall not be deemed a part of a Participant's regular,
recurring compensation for purposes of the termination, indemnity or severance
pay law of any country or state and shall not be included in, nor have any
effect on, the determination of benefits under any other employee benefit plan
or similar arrangement provided by the Corporation or a Subsidiary unless
expressly so provided by such other plan or arrangements. Awards under this Plan
may be made in combination with or in tandem with, or as alternatives to,
grants, awards or payments under any other Corporation or Subsidiary plan.
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ARTICLE V. DEFINITIONS.
SECTION 5.1 DEFINITIONS.
(a) "AWARD" shall mean an award of any Option authorized by and granted
under this Plan.
(b) "AWARD AGREEMENT" shall mean any writing setting forth the terms of
an Award that has been authorized by the Committee.
(c) "AWARD DATE" shall mean the date upon which the Committee took the
action granting an Award or such later date as the Committee designates
as the Award Date at the time of the Award, or in the case of
Non-Employee Director Awards under Article III, the date of automatic
grant under Article III.
(d) "AWARD PERIOD" shall mean the period beginning on an Award Date and
ending on the expiration date of such Award.
(e) "BENEFICIARY" shall mean the person, persons, trust or trusts
entitled by will or the laws of descent and distribution to receive the
benefits specified in the Award Agreement and under this Plan in the
event of a Participant's death, and shall mean the Participant's executor
or administrator if no other Beneficiary is identified and able to act
under the circumstances.
(f) "BOARD" shall mean the Board of Directors of the Corporation.
(g) "CHANGE IN CONTROL EVENT" means any of the following:
(i) Approval by the shareholders of the Corporation of the
dissolution or liquidation of the Corporation;
(ii) Consummation of a merger, consolidation, or other
reorganization, with or into, or the sale of all or
substantially all of the Corporation's business and/or assets
as an entirety to, one or more entities that are not
Subsidiaries or other affiliates of the Company (a "Business
Combination"), unless (1) as a result of the Business
Combination more than 50% of the outstanding voting power
generally in the election of directors of the surviving or
resulting entity or a parent thereof (the "Successor Entity")
immediately after the reorganization are, or will be, owned,
directly or indirectly, by holders of the Corporation's voting
securities immediately before the Business Combination; (2) no
Person (excluding the Successor Entity or an Excluded Person)
beneficially owns, directly or indirectly, more than 20% of the
outstanding shares or the combined voting power of the
outstanding voting securities of the Successor Entity, after
giving effect to the Business Combination, except to the extent
that such ownership existed prior to the Business Combination;
and (3) at least 50% of the members of the board of directors
of the entity resulting from the Business Combination were
members of the Board at the time of the execution of the
initial agreement, or of the action of the Board, providing for
the Business Combination.
(iii) Any "PERSON" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act other than an Excluded Person becomes
the beneficial owner (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the
Corporation representing more than 25% of the combined voting
power of the
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Corporation's then outstanding securities entitled to then vote
generally in the election of directors of the Corporation,
other than as a result of (1) an acquisition directly from the
Company, (2) an acquisition by the Company, (3) an acquisition
by any employee benefit plan (or related trust) sponsored or
maintained by the Company or a Successor Entity, or (4) an
acquisition by an entity pursuant to a transaction which is
expressly excluded under clause (ii) above; or
(iv) During any period not longer than two consecutive years,
individuals who at the beginning of such period constituted the
Board cease to constitute at least a majority thereof, unless
the election, or the nomination for election by the
Corporation's shareholders, of each new Board member was
approved by a vote of at least three-fourths of the Board
members then still in office who were Board members at the
beginning of such period (including for these purposes, new
members whose election or nomination was so approved), but
excluding for this purpose, any such individual whose initial
assumption of office occurs as a result of an actual or
threatened election contest with respect to the election or
removal of directors or other actual or threatened solicitation
of proxies or consents by or on behalf of a person other than
the Board.
(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 PERSON" 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.
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(p) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
(q) "EXCLUDED PERSON" means (i) any person described in and satisfying
the conditions of Rule 13d-1(b)(1) under the Exchange Act, (ii) the
Company, (iii) an employee benefit plan (or related trust) sponsored or
maintained by the Company or the Successor Entity.
(r) "FAIR MARKET VALUE" shall mean (i) if the Common Stock is listed and
registered on a national securities exchange such as the New York Stock
Exchange or the American Stock Exchange, the simple average of the
highest and lowest quoted selling prices of the Common Stock on such
exchange on the applicable date of determination, or, if no such sales
were made on such date on such exchange, then by such method as of the
last date prior thereto on which sales were made, or (ii) if the Common
Stock is not listed and registered on any national securities exchange,
the simple average of the bid and ask prices per share of Common Stock in
the over-the-counter market at the end of the applicable date of
determination, or, if for any reason no such quotations are available,
then by such other method as the Committee, in its sole discretion, shall
determine to be appropriate on such date of determination.
(s) "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.
(t) "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.
(u) "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.
(v) "OPTION" shall mean an option to purchase Common Stock under this
Plan.
(w) "OTHER ELIGIBLE PERSON" shall mean any member of the Board, or other
individual (to the extent provided in the next sentence) consultant,
agent, or advisor who renders or has rendered bona fide services (other
than services in connection with the offering or sale of securities of
the Company in a capital raising transaction) to the Company, and who is
selected to participate in this Plan by the Committee. A non-employee
consultant, agent, or advisor may be granted an Award only if such
person's participation in this 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 by the Corporation or (2) the Corporation's compliance with any
other applicable laws.
(x) "PARTICIPANT" shall mean a person who has been granted or has
received an Award under this Plan.
(y) "PLAN" shall mean this 1996 Stock Option Plan.
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<PAGE>
(z) "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.
(aa) "RULE 16B-3" shall mean Rule 16b-3 as promulgated by the Securities
and Exchange Commission pursuant to the Exchange Act.
(bb) "SECTION 16 PERSON" shall mean a person subject to Section
16(a) of the Exchange Act.
(cc) "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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ACACIA RESEARCH CORPORATION
SPECIAL MEETING OF SHAREHOLDERS DECEMBER 9, 1999
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 Special Meeting of Shareholders of Acacia Research
Corporation to be held on December 9, 1999, and at any adjournments thereof,
with respect to the following matters, which were more fully described in the
Proxy Statement dated November 2, 1999 (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 PROPOSAL NO. 1, FOR PROPOSAL NO. 2 AND FOR PROPOSAL NO. 3.
(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 each of Proposals No. 1,
No. 2, and No. 3.
(1) To approve the change in the Company's state of incorporation from
California to Delaware. / / FOR / / AGAINST / / ABSTAIN
(2) To approve the increase in the number of authorized shares of common
stock from 30,000,000 to 60,000,000 and to authorize the issuance of up
to 20,000,000 shares of preferred stock. / / FOR / / AGAINST / /
ABSTAIN
(3) The ratification of amendments to the Company's 1996 Stock Option Plan. / /
FOR / / AGAINST / / ABSTAIN
Dated: __________________, 1999
_______________________________
(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.
