<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES ACT OF 1934
For the Quarter Ended March 31, 1999 Commission File No. 0-26068
ACACIA RESEARCH CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
California 95-4405754
----------------------------- ------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation organization) Identification No.)
55 South Lake Avenue, Pasadena CA 91101
- ---------------------------------------- ------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (626)396-8300
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
At May 12, 1999 10,310,815 shares of common stock, no par value, of the
Registrant were outstanding.
<PAGE>
ACACIA RESEARCH CORPORATION
Table Of Contents
<TABLE>
<CAPTION>
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets...............................................3
Consolidated Statements of Operations.....................................4
Consolidated Statements of Cash Flows.....................................5
Notes to Consolidated Financial Statements................................6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................10
Item 3. Quantitative and Qualitative Disclosures About Market Risk...............16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................................16
Item 2. Changes in Securities....................................................16
Item 3. Defaults Upon Senior Securities..........................................16
Item 4. Submission of Matters to a Vote of Security Holders......................16
Item 5. Other Information........................................................16
Item 6. Exhibits and Reports on Form 8-K.........................................16
SIGNATURE....................................................................................16
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
ACACIA RESEARCH CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
March 31, 1999 December 31, 1998
--------------- ------------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents .................................... $ 6,553,000 $ 7,508,000
Management fees and other receivables ........................ 28,000 239,000
Receivables from affiliates .................................. 29,000 27,000
Prepaid expenses ............................................. 118,000 96,000
Income tax receivable ........................................ -- 110,000
------------- -------------
Total current assets ................................ 6,728,000 7,980,000
Equipment, furniture, and fixtures, net 585,000 530,000
Notes receivable, net .......................................... 29,000 38,000
Investment in affiliates, at equity ............................ 3,047,000 3,481,000
Partnership interests, at equity ............................... 1,912,000 1,832,000
Patents, net of accumulated amortization ....................... 4,343,000 4,610,000
Goodwill, net of accumulated amortization ...................... 1,057,000 1,158,000
Other assets, net of accumulated amortization .................. 128,000 140,000
------------- ------------
$ 17,829,000 $ 19,769,000
------------- ------------
------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses ....................... $ 267,000 $ 366,000
------------- ------------
Total current liabilities .......................... 267,000 366,000
Other liabilities ............................................. 240,000 240,000
Notes payable, net of discount................................. 1,241,000 1,222,000
------------- ------------
Total liabilities .................................. 1,748,000 1,828,000
------------- ------------
Stockholders' equity
Common stock, no par value; 30,000,000 shares authorized;
10,310,815 shares in 1999 and 10,190,815 shares in 1998
issued and outstanding .................................... 26,881,000 26,737,000
Warrants to purchase common stock ........................... 100,000 100,000
Accumulated deficit ......................................... (10,900,000) (8,896,000)
------------- -------------
Total stockholders' equity ......................... 16,081,000 17,941,000
------------- -------------
$ 17,829,000 $ 19,769,000
------------- -------------
------------- -------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE>
ACACIA RESEARCH CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(Unaudited)
Three Months Ended
--------------------------------
March 31, 1999 March 31, 1998
--------------------------------
<S> <C> <C>
Revenues:
Capital management fee income $ 61,000 $ 31,000
------------- -------------
Total Revenues 61,000 31,000
------------- -------------
Operating Expenses:
Research and development expenses 469,000 368,000
Marketing, general and administrative expenses 832,000 485,000
Amortization of patents and goodwill 390,000 383,000
------------- -------------
Total Operating Expenses 1,691,000 1,236,000
------------- -------------
Operating Loss (1,630,000) (1,205,000)
------------- -------------
Other income (expense):
Interest income 72,000 16,000
Interest expense (41,000) (1,000)
Equity in income of partnerships 44,000 54,000
Equity in losses of affiliates (433,000) (38,000)
------------- -------------
Total other income (expense) (358,000) 31,000
------------- -------------
Loss before income taxes and minority interests (1,988,000) (1,174,000)
Provision for income taxes (16,000) --
------------- -------------
Loss before minority interests (2,004,000) (1,174,000)
Minority interests -- 177,000
------------- -------------
Net loss $ (2,004,000) $ (997,000)
------------- -------------
------------- -------------
Loss per common share
Basic ($0.20) ($0.15)
Diluted ($0.20) ($0.15)
Weighted average number of common and potential
common shares outstanding used in computation
of loss per share
Basic 10,209,926 6,673,402
Diluted 10,209,926 6,673,402
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE>
ACACIA RESEARCH CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1999 March 31, 1998
-------------- --------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (2,004,000) $ (997,000)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 439,000 404,000
Amortization of discount on notes payable 20,000 --
Equity in (income) loss of affiliates and partnerships 389,000 (16,000)
Minority interest in net loss -- (177,000)
Compensation expense relating to stock options/warrants 24,000 16,000
Provision for write-down of notes and interest receivable 9,000 --
Changes in assets and liabilities, net of effects of acquisitions:
Management fees and other receivables, prepaid expenses,
patents and other assets 278,000 143,000
Accounts payable, accrued expenses, accrued compensation,
and other liabilities (99,000) (137,000)
------------ ------------
Net cash used in operating activities (944,000) (764,000)
------------ ------------
Cash flows from investing activities:
Advances to affiliates (2,000) (27,000)
Proceeds from note receivable secured by common stock -- 101,000
Purchase of partnership interest (37,000) --
Capitalized expenditures (92,000) (12,000)
------------ ------------
Net cash (used in) provided by investing activities (131,000) 62,000
------------ ------------
Cash flows from financing activities:
Proceeds from notes payable -- 1,400,000
Proceeds from exercise of stock options and warrants 120,000 471,000
Capital contributions from minority
shareholders of subsidiaries -- 139,000
Proceeds from sale of common stock, net of issuance costs -- 3,431,000
------------ ------------
Net cash provided by financing activities 120,000 5,441,000
------------ ------------
(Decrease) increase in cash and cash equivalents (955,000) 4,739,000
Cash and cash equivalents, beginning 7,508,000 1,367,000
------------ ------------
Cash and cash equivalents, ending $ 6,553,000 $ 6,106,000
------------ ------------
------------ ------------
Supplemental schedule of non-cash investing and financing activities:
Issuance of common stock for additional equity in consolidated
subsidiaries and affiliates $ -- $ 3,035,000
Discount on notes payable from issuance of subsidiary's warrants $ -- $ 238,000
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE>
ACACIA RESEARCH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
Acacia Research Corporation (the "Company") was incorporated on
January 25, 1993 under the laws of the State of California. The Company
is a diversified company that makes direct investments in and provides
management services to emerging businesses with intellectual property
rights, most of which are involved in developing new or unproven
technologies. There is no assurance that any or all such technologies
will be successful, and even if successful, that the development of
such technologies can be commercialized.
At March 31, 1999, the Company had significant economic interests in seven
enterprises and takes an active role in each enterprise's growth and
advancement. These enterprises are: CombiMatrix Corporation ("CombiMatrix"),
Greenwich Information Technologies LLC ("Greenwich Information
Technologies"), MerkWerks Corporation ("MerkWerks"), Signature-mail.com llc
("Signature-mail.com"), Soundview Technologies Incorporated ("Soundview
Technologies"), Whitewing Labs, Inc. ("Whitewing Labs"), and Acacia Capital
Management. The Company, doing business as Acacia Capital Management, is a
general partner in two private investment partnerships and is an investment
advisor to two offshore private investment corporations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION - In the opinion of management, the accompanying
unaudited consolidated financial statements contain all adjustments which
consist only of normal recurring adjustments necessary to present fairly
the consolidated financial position of the Company and its subsidiaries
on March 31, 1999 and the consolidated results of operations and cash
flows for the three months ended March 31, 1999 and 1998. This interim
financial information and notes thereto should be read in conjunction
with the Company's Annual Report on Form 10-K for the year ended December
31, 1998. The Company's consolidated results of operations and cash flows
for interim periods are not necessarily indicative of the results to be
expected for any other interim period or the full year.
RECLASSIFICATIONS - Certain reclassifications of prior year's amounts have
been made to conform to the 1999 presentation.
3. NOTES RECEIVABLE
As of March 31, 1999 and December 31, 1998, the Company held promissory
notes currently due and payable from individuals related to the sale of a
portion of the Company's investment in Whitewing Labs. These notes
generally bear interest at 5% per annum and are generally secured by the
common stock sold. As of March 31, 1999 and December 31, 1998, two
promissory notes secured by the common stock of Whitewing Labs were valued
at the market value of the collateral held by the Company.
Notes receivable consist of the following at March 31, 1999 and December
31, 1998:
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
-------------- -----------------
<S> <C> <C>
Notes Receivable ................. $319,000 $319,000
Less: Reserve for Write-down ..... (290,000) (281,000)
-------------- -----------------
$ 29,000 $ 38,000
-------------- -----------------
</TABLE>
Interest receivable on these notes amounted to approximately $10,000, as
of March 31, 1999 and December 31, 1998, and is included in management
fees and other receivables in the consolidated balance sheets.
6
<PAGE>
ACACIA RESEARCH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. NOTES PAYABLE
In March 1998, CombiMatrix completed a private debt financing raising
gross proceeds of $1.45 million through the issuance of 290 units, each
unit consisting of one $5,000 principal unsecured promissory note
("Subordinated Note") and common stock purchase warrants to purchase 500
shares of common stock. Each Subordinated Note bears interest at the
rate of 6% per annum on the outstanding principal balance. Accrued
interest is due and payable annually on January 15th of each year until
the Subordinated Notes are paid in full. Principal shall be due and
payable in full on the third anniversary of each Subordinated Note.
Each common stock purchase warrant entitles the holder to purchase one
share of CombiMatrix common stock at an exercise price of $2.00, subject
to adjustment, during a period of three years, expiring in March 2001. In
accordance with APB Opinion No. 14 "Accounting for Convertible Debt and
Debt Issued with Stock Purchase Warrants," $850 of each unit issued has
been attributed to the warrants included in each unit resulting in debt
discount. The Company invested $50,000 in this private placement. If,
prior to the maturity date of the Subordinated Notes, CombiMatrix has an
offering of its common stock or senior securities convertible into its
common stock that has gross proceeds exceeding $500,000 that does not
involve certain exempt transactions, the holders of the Subordinated
Notes shall be offered the opportunity to acquire shares of CombiMatrix
common stock in exchange for the then outstanding principal amount of the
Subordinated Notes. Holders will be entitled to only one opportunity to
exchange Subordinated Notes into CombiMatrix common stock.
5. COMMON STOCK SPLIT
On March 17, 1998, the Company announced that its Board of Directors
declared a two-for-one split of the Company's common stock in the form of
a stock dividend of one share of common stock for each share outstanding.
The Company distributed the stock dividend on or about June 12, 1998, for
each share held of record at the close of business on May 29, 1998. All
references to number of common shares and per share information in the
consolidated financial statements and related footnotes have been adjusted
as appropriate to reflect the stock split for all periods presented.
6. SEGMENT INFORMATION
The Company has two reportable segments: Investment Activities, including
investment advisory services and investments in development stage
companies, and CombiMatrix.
The Company provides investment advisory services, and also provides
management services to, and makes direct investments in emerging
corporations with intellectual property rights, most of which are involved
in developing new or unproven technologies.
CombiMatrix engages in a highly specialized and focused research effort in
combinatorial chemistry. It seeks to streamline the drug discovery process
and has demonstrated the preliminary feasibility of its proprietary
technologies.
The Company evaluates segment performance based on fees earned, and cost
versus earnings potential of future completed products or services.
Material intercompany transactions and transfers
7
<PAGE>
ACACIA RESEARCH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
have been eliminated in consolidation. The accounting policies of the
segments are the same as those described in the summary of significant
accounting policies.
The table below presents information about the Company's reportable
segments for the three months ended March 31, 1999 and 1998.
<TABLE>
<CAPTION>
1999 Investment
Activities CombiMatrix Other Total
- -----------------------------------------------------------------------------------------------
Management fee income $61,000 -- -- $61,000
Amortization of patents and goodwill 387,000 -- 3,000 390,000
Interest income 63,000 9,000 -- 72,000
Interest expense -- 41,000 -- 41,000
Equity in losses of affiliates 433,000 -- -- 433,000
Equity in income of partnerships 44,000 -- -- 44,000
Loss before minority interests and
income taxes 1,372,000 482,000 86,000 1,940,000
Segment assets 17,079,000 567,000 183,000 17,829,000
Investments in affiliates, at equity 3,047,000 -- -- 3,047,000
Partnerships interests, at equity 1,912,000 -- -- 1,912,000
Capital expenditures 70,000 22,000 -- 92,000
1998 Investment
Activities CombiMatrix Other Total
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Management fee income $31,000 -- -- $31,000
Amortization of patents and goodwill 379,000 -- 4,000 383,000
Interest income 13,000 3,000 -- 16,000
Interest expense -- 1,000 -- 1,000
Equity in losses of affiliates 38,000 -- -- 38,000
Equity in income of partnerships 54,000 -- -- 54,000
Loss before minority interests and
income taxes 730,000 304,000 140,000 1,174,000
Segment assets 14 529,000 1,411,000 165,000 16,105,000
Investments in affiliates, at equity 1,552,000 -- -- 1,552,000
Partnerships interests, at equity 643,000 -- -- 643,000
Capital expenditures -- 12,000 -- 12,000
</TABLE>
7. SUBSEQUENT EVENTS
In April 1999, Whitewing Labs began trading on the NASD OTC Bulletin Board
system under the ticker symbol WWLI as a result of not meeting its net
tangible asset requirement for continued listing in addition to a bid price
deficiency. The stock had previously traded on the Nasdaq Small Cap
system. Whitewing Labs remains a reporting company under Securities and
Exchange Commission ("SEC") rules and will continue to file quarterly,
annual and other reports with the SEC.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995.
Reference is made in particular to the description of the Company's plans and
objectives for future operations, assumptions underlying such plans and
objectives, and other forward-looking statements included in this report. Such
statements may be identified by the use of forward-looking terminology such as
"may," "will," "expect," "believe," "estimate," "anticipate," "intend,"
"continue," or similar terms, variations of such terms or the negative of such
terms. Such statements are based on management's current expectations and are
subject to a number of factors and uncertainties, which could cause actual
results to differ materially from those described in the forward-looking
statements. Such statements address future events and conditions concerning Year
2000 readiness, capital expenditures, earnings, litigation, regulatory matters,
markets for products and services, liquidity and capital resources, and
accounting matters. Actual results in each case could differ materially from
those anticipated in such statements by reason of factors such as future
economic conditions, changes in consumer demand, legislative, regulatory and
competitive developments in markets in which the Company and its affiliates
operate, and other circumstances affecting anticipated revenues and costs. The
Company expressly disclaims any obligation or undertaking to release publicly
any updates or revisions to any forward-looking statements contained herein to
reflect any change in the Company's expectations with regard thereto or any
change in events, conditions or circumstances on which any such statement is
based. Additional factors that could cause such results to differ materially
from those described in the forward-looking statements are set forth in
connection with the forward-looking statement.
GENERAL
The following discussion is based primarily on the consolidated balance sheet
of the Company as of March 31, 1999, and on the operations of the Company for
the period from January 1, 1999 to March 31, 1999. The discussion compares the
activities for the three months ended March 31, 1999 to the activities for the
three months ended March 31, 1998.
This information should be read in conjunction with the accompanying
consolidated financial statements and notes thereto. In April 1998, the Company
acquired a 25% interest in a new affiliate company, Signature-mail.com (formerly
Internet Software LLC). The Company accounts for this investment using the
equity method.
RESULTS OF OPERATIONS
REVENUES
CAPITAL MANAGEMENT FEES. During the three months ended March 31, 1999,
capital management fee income, which includes performance fee income,
was $61,000 as compared to capital management fee income of $31,000
generated during the three months ended March 31, 1998. The increase in
capital management fee income derived from the four investment funds
managed by the Company during the three months ended March 31, 1999 was
primarily a result of the Company collecting a performance fee on the
twelve-month anniversary of a partner in one of the domestic investment
funds. Performance fees for the four private investment funds managed
by the Company are generally paid to the Company at the end of the
Company's (and the four funds') fiscal year. However, in regard to the
Company's two domestic private investment funds, performance fees may
not be paid until a partner has been invested in one of these funds for
a period of twelve months. Therefore, a performance fee may be paid to
the Company on the twelve-month anniversary of a partner's investment
in a domestic private investment fund and thereafter at the end of the
fiscal year. The Company also earns quarterly management fees that are
based on a percentage of the amount of money invested in the funds
under management.
9
<PAGE>
RESULTS OF OPERATIONS (continued)
REVENUES (continued)
The Company may share management fees or direct a certain amount of
brokerage to a broker in return for the broker's referral of
prospective clients in relation to its investment advisory business.
The Company may also employ consultants to whom it will pay cash or a
portion of the advisory fees paid by clients referred to the Company by
such consultants.
OPERATING EXPENSES
Total operating expenses increased to $1,691,000 during the three months ended
March 31, 1999 from $1,236,000 during the three months ended March 31, 1998
primarily due to expenses relating to the Company's move to larger office
facilities (including an increase in the Company's monthly lease payments), an
increase in the Company's business development activities, an increase in the
Company's head count and higher wages, and expenses relating to the expansion of
CombiMatrix's research and development efforts.
RESEARCH AND DEVELOPMENT EXPENSES. The Company incurred research and
development expenses of $469,000 for the three months ended March 31,
1999, compared to expenses of $368,000 during the three months ended
March 31, 1998. Such expenses for the three months ended March 31, 1999
are comprised of expenses incurred by CombiMatrix of $418,000, expenses
incurred by MerkWerks of $41,000, and expenses incurred by Soundview
Technologies of $10,000. Research and development expenses for the
three months ended March 31, 1998 are comprised of expenses incurred by
CombiMatrix of $296,000, expenses incurred by MerkWerks of $42,000, and
expenses incurred by Soundview Technologies of $30,000. During the
three months ended March 31, 1999, CombiMatrix's expenses increased
due to an increase in the number of CombiMatrix personnel as it
expanded its research and development efforts.
MARKETING, GENERAL AND ADMINISTRATIVE EXPENSES. For the three months
ended March 31, 1999, marketing, general and administrative expenses
increased to $832,000 as compared to $485,000 for the three months
ended March 31, 1998. During the three months ended March 31, 1999, the
Company's expenses increased due to general expansion of the Company,
including an increase in office expenses relating to the Company's
move to larger office facilities, an increase in business development
expenses as the Company explores new business opportunities, and an
increase in salaries and fringe benefits primarily due to an increase
in the number of Company personnel as well as higher wages and payroll
expenses. Expenses incurred during the three months ended March 31,
1999 also include a write-down of $9,000 relating to two promissory
notes held by the Company, which are secured by Whitewing Labs stock.
The notes, which are currently past due, have been written down to the
market value price of the collateral held by the Company. Soundview
Technologies' marketing, general and administrative expenses were
$31,000 in the three months ended March 31, 1999 and $61,000 for
the three months ended March 31, 1998.
Marketing, general and administrative expenses include expenses
incurred in the use of consultants in which a portion of the
compensation has been paid in equity securities (stock options or
warrants). The Company is required to record the fair value of such
securities as they vest. Using option valuation techniques, the Company
incurred an expense of approximately $24,000 in the three months ended
March 31, 1999 and $16,000 in the three months ended March 31, 1998.
10
<PAGE>
RESULTS OF OPERATIONS (continued)
OPERATING EXPENSES (continued)
AMORTIZATION OF PATENTS AND GOODWILL. The Company reported amortization
expenses relating to patents and goodwill of $390,000 during the three
months ended March 31, 1999 as compared to $383,000 during the three
months ended March 31, 1998. As a result of the Company's purchase of
additional equity interests in Soundview Technologies in June 1997 and
January 1998 and in MerkWerks in January 1998, the Company is incurring
amortization expenses each quarter for periods ranging from three to
five years relating to the intangible assets acquired. Amortization
expenses at or above the three months ended March 31, 1999 level is
expected to continue for the foreseeable future.
OTHER INCOME (EXPENSE)
The Company reported other expense of $358,000 for the three months
ended March 31, 1999 compared to other income of $31,000 for the three months
ended March 31, 1998.
INTEREST INCOME. During the three months ended March 31, 1999, interest
income was $72,000 as compared to interest income during the three
months ended March 31, 1998, of $16,000. The increase is due to the
Company having higher cash balances in the three months ended March 31,
1999 as compared to the three months ended March 31, 1998.
INTEREST EXPENSE. Interest expense in the three months ended March
31, 1999 was $41,000 as compared to $1,000 during the three months
ended March 31, 1998. The expense incurred during the three months
ended March 31, 1999 is primarily attributable to CombiMatrix and
relates to three-year 6% unsecured subordinated promissory notes
issued by CombiMatrix in a private offering completed in March 1998.
Warrants to purchase CombiMatrix common stock were also issued in
this private placement. For financial statement purposes, the
proceeds from the private placement were allocated between the
warrants and the notes resulting in a discount on the notes. Such
discount is amortized over the terms of the notes and treated as
additional interest expense. As a result, reported interest is
higher than the cash amount of interest that will actually be paid
to the noteholders. Subject to certain terms and conditions, these
notes are due and payable in March 2001. Interest on these notes is
payable each year on January 15 during the term of each note.
EQUITY IN INCOME OF PARTNERSHIPS. The Company reported equity in income
of partnerships of $44,000 for the three months ended March 31, 1999,
compared to $54,000 for the three months ended March 31, 1998.
EQUITY IN LOSSES OF AFFILIATES. The Company reported equity in losses
of affiliates of $433,000 in the three months ended March 31, 1999,
compared to equity in losses of affiliates of $38,000 in the three
months ended March 31, 1998. Losses during the three months ended March
31, 1999 are comprised of a loss of $37,000 for the Company's
investment in Whitewing Labs, a loss of $77,000 for the Company's
investment in Greenwich Information Technologies, and a loss of
$319,000 for the Company's investment in Signature-mail.com, as
determined by the equity method of accounting. Losses for the three
months ended March 31, 1998 are comprised of a loss of $4,000 for the
Company's investment in Whitewing Labs, and a loss of $34,000 for the
Company's investment in Greenwich Information Technologies, as
determined by the equity method of accounting. No earnings or losses
are attributable to Signature-mail.com during the three months ended
March 31, 1998 as the Company made this investment in April 1998.
11
<PAGE>
MINORITY INTERESTS
There were no minority interests in losses of consolidated subsidiaries
in the three months ended March 31, 1999 as compared to $177,000 in the three
months ended March 31, 1998. As of December 31, 1998, all minority interest
balances were depleted.
INFLATION
Inflation has not had a significant impact on the Company.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1999, the Company had cash and cash equivalents of
$6,553,000 and working capital of $6,461,000 on a consolidated basis. In May
1998, the Company entered into a lease commitment for new office space to
increase and replace its existing office space. This lease commitment
provides for minimum monthly lease payments of $12,000 for a period of 60
months as compared to the Company's previous monthly lease payment of
approximately $3,000. The Company moved into the new, larger office space in
December 1998. To meet the Company's increased needs, the Company incurred
expenses specific to the move during the three months ended March 31, 1999.
The Company has no other material commitments for capital expenditures at the
present time.
Warrants issued by the Company in private placements completed in
November 1997, March 1998, and April 1998 contain call and redemption
provisions should the closing bid of the Company's Common Stock exceed $7.50,
$10.00, and $12.50, respectively for twenty or more consecutive trading days.
The exercise price for the Common Stock underlying the warrants are $5.75,
$7.50, and $9.25 per share, respectively. In the event the requirements to
call the warrants are satisfied, the Company may call such warrants and the
Company expects that most, if not all, holders to exercise such warrants in
response. There can be no assurance that the closing bid price of the
Company's Common Stock will exceed all such thresholds or that, if so, the
Company will decide to call the warrants.
The Company has no committed lines of credit or other committed
funding. However, the Company anticipates that existing working capital reserves
will provide sufficient funds for its operating expenses for at least the next
twelve months in the absence of making any major new investments. The Company
intends to seek additional financing to fund new or existing businesses. There
can be no assurance that the Company will not encounter unforeseen difficulties
that may deplete its capital resource more rapidly than anticipated. Any efforts
to seek additional funds could be made through equity, debt, or other external
financing and there can be no assurance that additional funding will be
available on favorable terms, if at all. Such financing transactions may be
dilutive to existing investors.
YEAR 2000 ISSUES
Many of the world's computer systems (including those in
non-information technology equipment and systems) currently record years in a
two-digit format, rather than four, to define the applicable year. Computer
systems that recognize a date using "00" as the year 1900 rather than the year
2000 may produce errors or system failures. In addition, the fact that the Year
2000 is a non-standard leap year may create difficulties for some systems. A few
systems may also be affected by certain dates in the month of September 1999.
Because the activities of many businesses are affected by dates or are
date-related, the inability to use such date information correctly could lead to
business disruption in the U.S. and internationally (the "Year 2000" Issue). The
potential costs and uncertainties associated with the Year 2000 Issue will
depend on a number of factors, including software, hardware and the nature of
the industry in which a company operates. Additionally, companies must
coordinate with other entities with which they electronically interact.
12
<PAGE>
YEAR 2000 ISSUES (continued)
The following discussion contains forward-looking statements within
the meaning of the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, including the following: estimated timetables
for implementation and completion of the phases of the Company's Year 2000
plan; projections of expenditures regarding the Year 2000 plan; statements
regarding the possible effects of the Year 2000 Issue on the Company's
business and that of third parties with whom the Company does business; and
possible contingency plans of the Company. The statements contained in this
section are also "Year 2000 Readiness Disclosures" as provided for in the
Year 2000 Information and Readiness Disclosure Act.
The Company has been reviewing its systems and programs to identify
those subject to the Year 2000 Issue, and is in the process of upgrading
and/or modifying its affected internal systems to achieve compliance. In
addition, the Company is working with its major external suppliers to assess
their compliance and remediation efforts and the Company's exposure to them.
The Company is in various stages of reviewing, testing and making software
repairs and upgrades to those systems and programs that it believes will be
affected by the Year 2000 Issue. Because the Year 2000 project is an ongoing
company-wide endeavor, the state of the Company's and its majority-owned
subsidiaries', MerkWerks Corporation, CombiMatrix Corporation, and Soundview
Technologies Corporation ("Subsidiaries"), progress changes daily. With the
exception of the financial figures, which are provided as of March 31, 1999,
the information contained in this disclosure is made as of May 14, 1999
which is the latest practical date for providing such information. The
Company is monitoring and assisting minority-owned affiliates,
Signature-mail.com and Greenwich Information Technologies, in addressing the
Year 2000 Issue as it applies to their businesses. The Company's other
minority-owned affiliate, Whitewing Labs, is a publicly traded company.
Information pertaining to the Year 2000 Issue as it applies to Whitewing Labs
is available in its reports filed with the SEC.
Although the Company relies on computer technology to conduct business
and has the potential to be affected by the Year 2000 Issue, most of the
Company's internal systems are not affected. However, due to the interdependent
nature of computer systems, particularly with regard to the Company's investment
advisory services, the Company and its Subsidiaries may be adversely impacted by
the Year 2000 Issue depending on whether it, its Subsidiaries, or other entities
not affiliated with the Company address this issue successfully.
The Company's Year 2000 compliance plan is comprised of four phases:
Assessment, Remediation, Testing and Implementation.
The Assessment phase includes preparing an inventory of systems that
the Company anticipates will be affected by the Year 2000 Issue as well as
creating a strategy to evaluate and address potential problems. The Company
has completed its final Assessment of its important internal systems,
however, final Assessment of its Subsidiaries' important internal systems is
expected to be completed by June 30, 1999.
In the Remediation phase, software corrections, upgrades, software
patches, and bug fixes will be made to remedy identified Year 2000
deficiencies in software, hardware, operating systems, network devices and
phone systems. The Remediation phase also includes sending questionnaires
requesting Year 2000 compliance assurances to vendors of such systems. The
majority of the Company's internal systems have completed the Remediation
phase. However, the Company's Subsidiaries either have not yet begun or have
just begun the Remediation phase. The Company expects that the Subsidiaries'
Remediation of their important components will be completed by July 31, 1999.
Certain systems that are insignificant to the Company's and its Subsidiaries'
operations may not be made Year 2000 compliant by December 31, 1999, but the
Company does not anticipate that this would have a materially adverse impact
on the Company's or Subsidiaries' business, results of operations or
financial condition.
Testing will be conducted on both existing and new systems which may be
affected by the Year 2000 Issue as well as systems that have been fixed,
upgraded or otherwise altered in the Remediation phase during 1999.
13
<PAGE>
YEAR 2000 ISSUES (continued)
The Company's investment advisory services is dependent upon a
complex worldwide network of information technology systems that contain date
fields, including data feeds to the Company's internal systems as well as
stock market links. The Company's ability to minimize the effects of the Year
2000 Issue is highly dependent upon the efforts of third parties. The failure
of organizations such as securities exchanges, securities clearing
organizations, banks, vendors, clients or governmental regulatory agencies to
resolve their own processing issues with respect to the Year 2000 Issue in a
timely manner could have a materially adverse effect on the Company's
business, results of operations, or financial condition, threatening the
Company's ability to manage client assets, communicate information to
clients, management of fund portfolios on a day-to-day basis, and comply with
federal securities laws as well as compromise record-keeping and other
compliance systems. The Securities Industry Association recently conducted
Beta tests that were run in "future time" and employed test scripts to check
functionality. These tests resulted in problems completing a minimal amount
of mock trades due to Year 2000 changes. An industry-wide simulation is
underway, which should provide the Company with more information to assess
potential risks in this area.
Other than third-party long distance telephone and data lines and
public utility suppliers of electrical power, the Company's business operations
are not heavily dependent on non-information technology ("non-IT") components,
systems or third-party vendors. The Company is conducting an assessment of
Company managed or leased non-IT components including building, mechanical, air
conditioning, electrical, security and conveyance systems for Year 2000
compliance. Most of these non-IT systems cannot easily be tested for Year 2000
compliance; however, the Company does not believe that the failure of any of its
non-IT systems, other than electrical or long distance data and voice lines,
would have a materially adverse effect upon its business, results of operation
or financial condition.
The Company is beginning to develop a contingency plan, which it
expects to complete by July 1999. However, alternatives to use of normal
systems, especially those systems relevant to the Company's investment advisory
services, or supplies of electricity or long distance voice and data lines are
limited. A broader failure of third-party systems, in particular, externally
managed data lines, communication systems, telephone or electrical systems would
materially and adversely affect the Company' ability to carry on business
operations in any regular fashion. Although the Company is investigating
alternative solutions, it is not clear that an adequate contingency plan can be
developed for such failures.
Based upon current information, the Company estimates that the total
cost of implementing its Year 2000 plan, including costs associated to the
redeployment of existing personnel who have and will spend significant
administrative time and effort in addressing the Year 2000 Issue, will not be
material. The Company has incurred, to date, less than $5,000 in direct Year
2000 costs. However, Year 2000 cost estimates may change as the Year 2000
approaches, during which time the Company's and its Subsidiaries' Year 2000
readiness efforts are expected to become more defined. Costs incurred relating
to making the Company's and its Subsidiaries' systems Year 2000 compliant are
being expensed in the period in which they are incurred. Future costs are not
expected to exceed $10,000.
The Company's expectations about future costs and the timely completion
of its Year 2000 modifications are subject to uncertainties that could cause
actual results to differ materially from what has been discussed above. Factors
that could influence the amount of future costs and the effective timing of
remediation efforts include, the success of the Company in identifying computer
programs and non-information technology systems that are subject to the Year
2000 Issue, the nature and amount of programming and testing required to upgrade
or replace each of the affected programs and systems, the nature and amount of
testing, the rate and magnitude of related labor and consulting costs, and the
success of the Company's external counterparties and suppliers in addressing the
Year 2000 Issue.
14
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company was not a party to derivative financial instruments at
or during the three month period ended March 31, 1999. The Company's
financial instruments, other than instruments carried on the equity basis,
are its fixed notes payable of $1,241,000 which are discussed in Note 4 to
the March 31, 1999 consolidated financial statements.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
3.2 Amended and Restated Bylaws
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
None.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ACACIA RESEARCH CORPORATION
By: /s/ R. BRUCE STEWART
-------------------------------------------------------
R. Bruce Stewart
Chief Financial Officer (principal financial officer)
Date: May 14, 1999
15
<PAGE>
Exhibit 3.2
AMENDED AND RESTATED BYLAWS
of
ACACIA RESEARCH CORPORATION
<PAGE>
I N D E X
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I. Offices........................................................................1
Section 1. PRINCIPAL EXECUTIVE OFFICE.....................................................1
Section 2. OTHER OFFICES..................................................................1
ARTICLE II. Shareholders..................................................................1
Section 1. PLACE OF MEETINGS..............................................................1
Section 2. ANNUAL MEETINGS................................................................1
Section 3. SPECIAL MEETINGS...............................................................1
Section 4. NOTICE OF ANNUAL OR SPECIAL MEETINGS...........................................2
Section 5. QUORUM.........................................................................2
Section 6. ADJOURNED MEETINGS AND NOTICE THEREOF..........................................2
Section 7. VOTING.........................................................................3
Section 8. RECORD DATE....................................................................5
Section 9. CONSENT OF ABSENTEES...........................................................5
Section 10. ACTION WITHOUT MEETING........................................................6
Section 11. PROXIES.......................................................................6
Section 12. INSPECTORS OF ELECTION........................................................6
Section 13. CONDUCT OF MEETING............................................................6
ARTICLE III. Directors....................................................................9
Section 1. POWERS.........................................................................9
Section 2. NUMBER AND QUALIFICATION......................................................10
Section 3. ELECTION AND TERM OF OFFICE...................................................10
Section 4. VACANCIES.....................................................................10
Section 5. PLACE OF MEETING..............................................................10
Section 6. REGULAR MEETINGS..............................................................11
Section 7. SPECIAL MEETINGS..............................................................11
Section 8. QUORUM........................................................................11
Section 9. PARTICIPATION IN MEETINGS BY CONFERENCE TELEPHONE.............................11
Section 10. WAIVER OF NOTICE.............................................................11
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Section 11. ADJOURNMENT..................................................................12
Section 12. FEES AND COMPENSATION........................................................12
Section 13. ACTION WITHOUT MEETING.......................................................12
Section 14. RIGHTS OF INSPECTION.........................................................12
Section15. COMMITTEES....................................................................12
ARTICLE IV. Officers.....................................................................13
Section 1. OFFICERS......................................................................13
Section 2. ELECTION......................................................................13
Section 3. SUBORDINATE OFFICERS..........................................................13
Section 4. REMOVAL AND RESIGNATION.......................................................13
Section 5. VACANCIES.....................................................................14
Section 6. CHAIRMAN OF THE BOARD.........................................................14
Section 7. PRESIDENT.....................................................................14
Section 8. VICE PRESIDENTS...............................................................14
Section 9. SECRETARY.....................................................................14
Section 10. TREASURER....................................................................15
ARTICLE V. Other Provisions..............................................................15
Section 1. INSPECTION OF CORPORATE RECORDS...............................................15
Section 2. INSPECTION OF BYLAWS..........................................................16
Section 3. ENDORSEMENT OF DOCUMENTS; CONTRACTS...........................................16
Section 4. CERTIFICATES OF STOCK.........................................................16
Section 5. REPRESENTATION OF SHARES OF OTHER CORPORATIONS................................17
Section 6. STOCK PURCHASE PLANS..........................................................17
Section 7. CONSTRUCTION AND DEFINITIONS..................................................17
Section 8. AMENDMENTS....................................................................18
Section 9. ANNUAL REPORT TO SHAREHOLDERS.................................................18
ARTICLE VI. Indemnification..............................................................18
Section 1. INDEMNIFICATION OF DIRECTORS AND OFFICERS.....................................18
Section 2. INDEMNIFICATION OF EMPLOYEES AND AGENTS.......................................19
Section 3. RIGHT OF DIRECTORS AND OFFICERS TO BRING SUIT.................................20
</TABLE>
ii
<PAGE>
AMENDED AND RESTATED BYLAWS
for the regulation, except
as otherwise provided by statute or
its Articles of Incorporation,
of
ACACIA RESEARCH CORPORATION
(a California corporation)
ARTICLE I. OFFICES.
Section 1. PRINCIPAL EXECUTIVE OFFICE. The corporation's principal
executive office shall be fixed and located at such place as the Board of
Directors (herein called the "Board") shall determine. The Board is granted full
power and authority to change said principal executive office from one location
to another.
Section 2. OTHER OFFICES. Branch or subordinate offices may be
established at any time by the Board at any place or places.
ARTICLE II. SHAREHOLDERS.
Section 1. PLACE OF MEETINGS. Meetings of shareholders shall be held
either at the principal executive office of the corporation or at any other
place within or without the State of California which may be designated either
by the Board or by the written consent of all persons entitled to vote thereat,
given either before or after the meeting and filed with the Secretary.
Section 2. ANNUAL MEETINGS. The annual meetings of shareholders shall
be held on such date and at such time as may be fixed by the Board. At such
meetings, directors shall be elected and any other proper business may be
transacted.
Section 3. SPECIAL MEETINGS. Special meetings of the shareholders may
be called at any time by the Board, the Chairman of the Board, the President, or
by the holders of shares entitled to cast not less than ten percent (10%) of the
votes at such meeting. Upon request in writing to the Chairman of the Board, the
President, any Vice President or the Secretary by any person (other than the
Board) entitled to call a special meeting of shareholders, the officer forthwith
shall cause notice to be given to the shareholders entitled to vote that a
meeting will be held at a time requested by the person or persons calling the
meeting, not less than thirty-five (35) nor more than sixty (60) days after the
receipt of the request. If the notice is not given within twenty (20) days after
receipt of the request, the persons entitled to call the meeting may give the
notice.
1
<PAGE>
Section 4. NOTICE OF ANNUAL OR SPECIAL MEETINGS. Written notice of each
annual or special meeting of shareholders shall be given not less than ten (10)
nor more than sixty (60) days before the date of the meeting to each shareholder
entitled to vote thereat. Such notice shall state the place, date and hour of
the meeting and (i) in the case of a special meeting, the general nature of the
business to be transacted, and no other business may be transacted, or (ii) in
the case of the annual meeting, those matters which the Board, at the time of
the mailing of the notice, intends to present for action by the shareholders,
but, subject to the provisions of applicable law, any proper matter may be
presented at the meeting for such action. The notice of any meeting at which
directors are to be elected shall include the names of nominees intended at the
time of the notice to be presented by management for election.
Notice of a shareholders' meeting shall be given either personally or
by mail or by other means of written communication, addressed to the shareholder
at the address of such shareholder appearing on the books of the corporation or
given by the shareholder to the corporation for the purpose of notice, or, if no
such address appears or is given, at the place where the principal executive
office of the corporation is located or by publication at least once in a
newspaper of general circulation in the county in which the principal executive
office is located. Notice by mail shall be deemed to have been given at the time
a written notice is deposited in the United States mails, postage prepaid. Any
other written notice shall be deemed to have been given at the time it is
personally delivered to the recipient or is delivered to a common carrier for
transmission, or actually transmitted by the person giving the notice by
electronic means, to the recipient.
Section 5. QUORUM. A majority of the shares entitled to vote,
represented in person or by proxy, shall constitute a quorum at any meeting of
shareholders. If a quorum is present, the affirmative vote of a majority of the
shares represented and voting at the meeting (which shares voting affirmatively
also constitute at least a majority of the required quorum) shall be the act of
the shareholders, unless the vote of a greater number or voting by classes is
required by law or by the Articles, except as provided in the following
sentence. The shareholders present at a duly called or held meeting at which a
quorum is present may continue to do business until adjournment, notwithstanding
the withdrawal of enough shareholders to leave less than a quorum, if any action
taken (other than adjournment) is approved by at least a majority of the shares
required to constitute a quorum.
Section 6. ADJOURNED MEETINGS AND NOTICE THEREOF. Any shareholders'
meeting, whether or not a quorum is present, may be adjourned from time to time
by the vote of a majority of the shares represented either in person or by
proxy, but in the absence of a quorum (except as provided in Section 5 of this
Article) no other business may be transacted at such meeting.
It shall not be necessary to give any notice of the time and place of
the adjourned meeting or of the business to be transacted thereat, other than by
announcement at the meeting at which such adjournment is taken; provided,
however, when any shareholders'
2
<PAGE>
meeting is adjourned for more than forty-five (45) days or, if after adjournment
a new record date is fixed for the adjourned meeting, notice of the adjourned
meeting shall be given as in the case of an original meeting.
Section 7. VOTING. The shareholders entitled to notice of any meeting
or to vote at any such meeting shall be only persons in whose name shares stand
on the stock records of the corporation on the record date determined in
accordance with Section 8 of this Article.
Subject to the following sentence and to the provisions of Section 708
of the California General Corporation Law, every shareholder entitled to vote at
any election of directors may cumulate such shareholder's votes and give one
candidate a number of votes equal to the number of directors to be elected
multiplied by the number of votes to which the shareholder's shares are
entitled, or distribute the shareholder's votes on the same principle among as
many candidates as the shareholder thinks fit. No shareholder shall be entitled
to cumulate votes for any candidate or candidates pursuant to the preceding
sentence unless such candidate or candidates' names have been placed in
nomination prior to the voting and the shareholder has given notice at the
meeting prior to the voting of the shareholder's intention to cumulate the
shareholder's votes. If any one shareholder has given such notice, all
shareholders may cumulate their votes for candidates in nomination.
Elections need not be by ballot; provided, however, that all elections
for directors must be by ballot upon demand made by a shareholder at the meeting
and before the voting begins.
In any election of directors, the candidates receiving the highest
number of votes of the shares entitled to be voted for them up to the number of
directors to be elected by such shares are elected.
Voting shall in all cases be subject to the provisions of Chapter 7 of
the California General Corporation Laws and to the following provisions:
(a) Subject to clause (g), shares held by an administrator, executor,
guardian, conservator or custodian may be voted by such holder either in person
or by proxy, without a transfer of such shares into the holder's name; and
shares standing in the name of a trustee may be voted by the trustee, either in
person or by proxy, but no trustee shall be entitled to vote shares held by such
trustee without a transfer of such shares into the trustee's name.
(b) Shares standing in the name of a receiver may be voted by such
receiver, and shares held by or under the control of a receiver may be voted by
such receiver without the transfer thereof into the receiver's name if authority
to do so is contained in the order of the court by which such receiver was
appointed.
3
<PAGE>
(c) Subject to the provisions of Section 705 of the California General
Corporation Law and except where otherwise agreed in writing between the
parties, a shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
(d) Shares standing in the name of a minor may be voted and the
corporation may treat all rights incident thereto as exercisable by the minor,
in person or by proxy, whether or not the corporation has notice, actual or
constructive, of the nonage, unless a guardian of the minor's property has been
appointed and written notice of such appointment given to the corporation.
(e) Shares standing in the name of another corporation, domestic or
foreign, may be voted by such officer, agent or proxyholder as the bylaws of
such other corporation may prescribe or, in the absence of such provision, as
the board of directors of such other corporation may determine or, in the
absence of such determination, by the chairman of the board, president or any
vice president of such other corporation, or by any other person authorized to
do so by the chairman of the board, president or any vice president of such
other corporation. Shares which are purported to be voted or any proxy purported
to be executed in the name of a corporation (whether or not any title of the
person signing is indicated) shall be presumed to be voted or the proxy executed
in accordance with the provisions of this clause, unless the contrary is shown.
(f) Shares of the corporation owned by any subsidiary shall not be
entitled to vote on any matter.
(g) Shares held by the corporation in a fiduciary capacity, and shares
of the issuing corporation held in a fiduciary capacity by any subsidiary, shall
not be entitled to vote on any matter, except to the extent that the settlor or
beneficial owner possesses and exercises a right to vote or to give the
corporation binding instructions as to how to vote such shares.
(h) If shares stand of record in the names of two or more persons,
whether fiduciaries, members of a partnership, joint tenants, tenants in common,
husband and wife as community property, tenants by the entirety, voting
trustees, persons entitled to vote under a shareholder voting agreement or
otherwise, or if two or more persons (including proxyholders) have the same
fiduciary relationship respecting the same shares, unless the secretary of the
corporation is given written notice to the contrary and is furnished with a copy
of the instrument or order appointing them or creating the relationship wherein
it is so provided, their acts with respect to voting shall have the following
effect:
(i) If only one votes, such act binds all;
(ii) If more than one vote, the act of the majority so voting binds
all;
4
<PAGE>
(iii) If more than one vote, but the vote is evenly split on any
particular matter, each faction may vote the securities in question
proportionately.
If the instrument so filed or the registration of the shares shows that
any such tenancy is held in unequal interests, a majority or even split for the
purpose of this section shall be a majority or even split in interest.
Section 8. RECORD DATE. The Board may fix, in advance, a record date
for the determination of the shareholders entitled to notice of any meeting or
to vote or entitled to receive payment of any dividend or other distribution, or
any allotment of rights, or to exercise rights in respect of any other lawful
action. The record date so fixed shall be not more than sixty (60) days nor less
than ten (10) days prior to the date of the meeting nor more than sixty (60)
days prior to any other action. When a record date is so fixed, only
shareholders of record on that date are entitled to notice of and to vote at the
meeting or to receive the dividend, distribution, or allotment of rights, or to
exercise of the rights, as the case may be, notwithstanding any transfer of
shares on the books of the corporation after the record date. A determination of
shareholders of record entitled to notice of or to vote at a meeting of
shareholders shall apply to any adjournment of the meeting unless the Board
fixes a new record date for the adjourned meeting. The Board shall fix a new
record date if the meeting is adjourned for more than forty-five days.
If no record date is fixed by the Board, the record date for
determining shareholders entitled to notice of or to vote at a meeting of
shareholders shall be at the close of business on the business day next
preceding the day on which notice is given or, if notice is waived, at the close
of business on the business day next preceding the day on which the meeting is
held. The record date for determining shareholders for any purpose other than
set forth in this Section 8 or Section 10 of this Article shall be at the close
of business on the day on which the Board adopts the resolution relating
thereto, or the sixtieth day prior to the date of such other action, whichever
is later.
Section 9. CONSENT OF ABSENTEES. The transactions of any meeting of
shareholders, however called and noticed, and wherever held, are as valid as
though had at a meeting duly held after regular call and notice, if a quorum
is present either in person or by proxy, and if, either before or after the
meeting, each of the persons entitled to vote, not present in person or by
proxy, signs a written waiver of notice, or a consent to the holding of the
meeting or an approval of the minutes thereof. All such waivers, consents or
approvals shall be filed with the corporate records or made a part of the
minutes of the meeting. Attendance of a person at a meeting shall constitute
a waiver of notice of and presence at such meeting, except when the person
objects, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened and except that
attendance at a meeting is not a waiver of any right to object to the
consideration of matters required by the California General Corporation Law
to be included in the notice but not so included, if such objection is
expressly made at the meeting. Neither the business to be transacted at nor
the purpose of any regular or special meeting of shareholders need be
specified in any written waiver of notice, consent to the
5
<PAGE>
holding of the meeting or approval of the minutes thereof, except as provided
in Section 601(f) of the California General Corporation Law.
Section 10. ACTION WITHOUT MEETING. Subject to Section 603 of the
California General Corporation Law, any action which, under any provision of the
California General Corporation Law, may be taken at any annual or special
meeting of shareholders, may be taken without a meeting and without prior notice
if a consent in writing, setting forth the action so taken, shall be signed by
the holders of outstanding shares having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present and voted. Unless a
record date for voting purposes be fixed as provided in Section 8 of this
Article, the record date for determining shareholders entitled to give consent
pursuant to this Section 10, when no prior action by the Board has been taken,
shall be the day on which the first written consent is given.
Section 11. PROXIES. Every person entitled to vote shares has the right
to do so either in person or by one or more persons authorized by a written
proxy executed by such shareholder and filed with the Secretary. Any proxy duly
executed is not revoked and continues in full force and effect until revoked by
the person executing it prior to the vote pursuant thereto. Such revocation may
be effected either, (i) by a writing delivered to the Secretary of the
Corporation stating that the proxy is revoked, (ii) or by a subsequent proxy
executed by the person executing the prior proxy and presented to the meeting,
or (iii) by attendance at the meeting and voting in person by the person
executing the proxy; provided, however, that no proxy shall be valid after the
expiration of eleven months from the date of its execution unless otherwise
provided in the proxy.
Section 12. INSPECTORS OF ELECTION. In advance of any meeting of
shareholders, the Board may appoint inspectors of election to act at such
meeting and any adjournment thereof. If inspectors of election be not so
appointed, or if any persons so appointed fail to appear or refuse to act, the
chairman of any such meeting may, and on the request of any shareholder or
shareholder's proxy shall, make such appointment at the meeting. The number of
inspectors shall be either one or three. If appointed at a meeting on the
request of one or more shareholders or proxies, the majority of shares present
shall determine whether one or three inspectors are to be appointed.
The duties of such inspectors shall be as prescribed by Section 707(b)
of the California General Corporation Law and shall include: determining the
number of shares outstanding and the voting power of each; determining the
shares represented at the meeting; determining the existence of a quorum;
determining the authenticity, validity and effect of proxies; receiving votes,
ballots or consents; hearing and determining all challenges and questions in any
way arising in connection with the right to vote; counting and tabulating all
votes or consents; determining when the polls shall close; determining the
result; and doing such acts as may be proper to conduct the election or vote
with fairness to all shareholders. If there are three inspectors of election,
the decision, act or certificate of a majority is effective in all respects as
the decision, act or certificate of all.
6
<PAGE>
Section 13. CONDUCT OF MEETING. The President shall preside as chairman
at all meetings of the shareholders. The chairman shall conduct each such
meeting in a businesslike and fair manner, but shall not be obligated to follow
any technical, formal or parliamentary rules or principles of procedure. The
chairman's rulings on procedural matters shall be conclusive and binding on all
shareholders, unless at the time of a ruling a request for a vote is made to the
shareholders holding shares entitled to vote and which are represented in person
or by proxy at the meeting, in which case the decision of a majority of such
shares shall be conclusive and binding on all shareholders. Without limiting the
generality of the foregoing, the chairman shall have all of the powers usually
vested in the chairman of a meeting of shareholders.
Section 14. NOTICE OF SHAREHOLDER BUSINESS AND NOMINATIONS.
(a) ANNUAL MEETINGS OF SHAREHOLDERS.
(i) Nominations of persons for election to the Board and the
proposal of business to be considered by the shareholders may be made
at an annual meeting of shareholders (1) pursuant to the corporation's
notice of meeting, (2) by or at the direction of the Board or (3) by
any shareholder of the corporation who was a shareholder of record at
the time of giving of notice provided for in this bylaw, who is
entitled to vote at the meeting and who complied with the notice
procedures set forth in this bylaw.
(ii) For nominations or other business to be properly brought
before an annual meeting by a shareholder pursuant to clause (3) of
paragraph (a)(i) of this bylaw, the shareholder must have given timely
notice thereof in writing to the Secretary of the corporation and such
other business must be a proper matter for shareholder action. To be
timely, a shareholder'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 60 days after such anniversary date, notice by the shareholder to
be timely 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 an adjournment of an annual meeting commence a new time period for
the giving of a shareholder's notice as described above. Such
shareholder's notice shall set forth (1) as to each person whom the
shareholder proposes to nominate for election or reelection 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 (including such
person's written consent to being named in the proxy
7
<PAGE>
statement as a nominee and to serving as a director if elected); (2) as
to any other business that the shareholder proposes to bring before the
meeting, a brief description of the business desired to be brought
before the meeting, the reasons for conducting such business at the
meeting and any material interest in such business of such shareholder
and the beneficial owner, if any, on whose behalf the proposal is made;
and (3) as to the shareholder giving the notice and the beneficial
owner, if any, on whose behalf the nomination or proposal is made
(A) the name and address of such shareholder, as they appear on the
corporation's books, and of such beneficial owner and (B) the class and
number of shares of the corporation which are owned beneficially and of
record by such shareholder and such beneficial owner.
(iii) Notwithstanding anything in the second sentence of
paragraph (a)(ii) of this bylaw to the contrary, in the event that the
number of directors to be elected to the Board is increased and there
is no public announcement naming all of the nominees for director or
specifying the size of the increased Board made by the corporation at
least 100 days prior to the first anniversary of the preceding year's
annual meeting, a shareholder's notice required by this bylaw shall
also be considered timely, but only with respect to nominees for any
new positions created by such increase, if it shall be delivered to the
Secretary 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.
(b) SPECIAL MEETINGS OF SHAREHOLDERS. Only such business shall be
conducted at a special meeting of shareholders as shall have been identified and
brought before the meeting pursuant to the notice of such meeting delivered in
accordance with Section 3 of this Article. Nominations of persons for election
to the Board may be made at a special meeting of shareholders at which directors
are to be elected only (i) by or at the direction of the Board or (ii) by any
shareholder (or group of shareholders) of the corporation who (1) is a
shareholder of record at the time of giving of notice, (2) is entitled to vote
at the meeting, and (3) has complied the notice procedures set forth in these
bylaws (including Section 3 of this Article). In the event any person (other
than the Board) calls a special meeting of shareholders for the purpose of
electing one or more directors to the Board, such person or persons must
nominate and identify a candidate or candidate (as the case may be) for election
to such position(s) in the notice of meeting.
(c) GENERAL.
(i) Only such persons who are nominated in accordance with the
procedures set forth in this bylaw shall be eligible to serve as
directors and only such business shall be conducted at a meeting of
shareholders as shall have been brought before the meeting in
accordance with the procedures set forth in this bylaw. Except as
otherwise provided by law, the Chairman of the meeting shall have the
power and duty to determine whether a nomination or any business
8
<PAGE>
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 bylaw
and, if any proposed nomination or business is not in compliance with
this bylaw, to declare that such defective proposal or nomination shall
be disregarded.
(ii) For purposes of this bylaw, "public announcement" shall
mean 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.
(iii) Notwithstanding the foregoing provisions of this bylaw,
a shareholder 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 bylaw. Nothing in this bylaw shall be
deemed to affect any rights of shareholders to request inclusion of
proposals in the corporation's proxy statement pursuant to Rule 14a-8
under the Exchange Act.
ARTICLE III. DIRECTORS.
Section 1. POWERS. Subject to limitations of the Articles, of
these Amended and Restated Bylaws (these "Bylaws") and of the California General
Corporation Law relating to action required to be approved by the shareholders
or by the outstanding shares, the business and affairs of the corporation shall
be managed and all corporate powers shall be exercised by or under the direction
of the Board. The Board may delegate the management of the day-to-day operation
of the business of the corporation to a management company or other person
provided that the business and affairs of the corporation shall be managed and
all corporate powers shall be exercised under the ultimate direction of the
Board. Without prejudice to such general powers, but subject to the same
limitations, it is hereby expressly declared that the Board shall have the
following powers in addition to the other powers enumerated in these Bylaws:
(a) To select and remove all the other officers, agents and
employees of the corporation, prescribe the powers and duties for them as may
not be inconsistent with law, the Articles or these Bylaws, fix their
compensation and require from them security for faithful service.
(b) To conduct, manage and control the affairs and business of
the corporation and to make such rules and regulations therefor not inconsistent
with law, the Articles or these Bylaws, as they may deem best.
(c) To adopt, make and use a corporate seal, and to prescribe
the forms of certificates of stock, and to alter the form of such seal and of
such certificates from time to time as they may deem best.
9
<PAGE>
(d) To authorize the issuance of shares of stock of the
corporation from time to time, upon such terms and for such consideration as may
be lawful.
(e) To borrow money and incur indebtedness for the purposes of
the corporation, and to cause to be executed and delivered therefor, in the
corporate name, promissory notes, bonds, debentures, deeds of trust, mortgages,
pledges, hypothecations or other evidences of debt and securities therefor.
Section 2. NUMBER AND QUALIFICATION. The authorized number of
directors of the corporation shall be five (5) until changed by amendment to the
Articles of Incorporation or by an amendment to this Section 2, Article III, of
these Bylaws, adopted by the vote of the shareholders entitled to exercise a
majority of the voting power of the corporation.
Section 3. ELECTION AND TERM OF OFFICE. The directors shall be
elected at each annual meeting of the shareholders, but if any such annual
meeting is not held or the directors are not elected thereat, the directors may
be elected at any special meeting of shareholders held for that purpose. Each
director shall hold office until the next annual meeting and until a successor
has been elected and qualified.
Section 4. VACANCIES. Any director may resign effective upon
giving written notice to the Chairman of the Board, the President, the Secretary
or the Board, unless the notice specifies a later time for the effectiveness of
such resignation. If the resignation is effective at a future time, a successor
may be elected to take office when the resignation becomes effective.
Vacancies in the Board, except those existing as a result of a
removal of a director, may be filled by a majority of the remaining directors,
though less than a quorum, or by a sole remaining director, and each director so
elected shall hold office until the next annual meeting and until such
director's successor has been elected and qualified.
A vacancy or vacancies in the Board shall be deemed to exist
in case of the death, resignation or removal of any director, or if the
authorized number of directors be increased, or if the shareholders fail, at any
annual or special meeting of shareholders at which any director or directors are
elected, to elect the full authorized number of directors to be voted for at
that meeting.
The Board may declare vacant the office of a director who has
been declared of unsound mind by an order of court or convicted of a felony.
The shareholders may elect a director or directors at any time
to fill any vacancy or vacancies not filled by the directors. Any such election
by written consent other than to fill a vacancy created by removal requires the
consent of a majority of the outstanding shares entitled to vote. Any such
election by written consent to fill a vacancy created by removal requires
unanimous consent.
10
<PAGE>
No reduction of the authorized number of directors shall have
the effect of removing any director prior to the expiration of the director's
term of office.
Section 5. PLACE OF MEETING. Regular or special meetings of
the Board shall be held at any place within or without the State of California
which has been designated from time to time by the Board. In the absence of such
designation, regular meetings shall be held at the principal executive office of
the corporation.
Section 6. REGULAR MEETINGS. Immediately following each annual
meeting of shareholders the Board shall hold a regular meeting for the purpose
of organization, election of officers and the transaction of other business.
Other regular meetings of the Board shall be held without call
on such dates and at such times as may be fixed by the Board. Call and notice of
all regular meetings of the Board are hereby dispensed with.
Section 7. SPECIAL MEETINGS. Special meetings of the Board for
any purpose or purposes may be called at any time by the Chairman of the Board,
the President, any Vice President, the Secretary or by any two directors.
Special meetings of the Board shall be held upon four days'
written notice or forty-eight hours' notice given personally or by telephone,
telegraph, telex or other similar means of communication. Any such notice shall
be addressed or delivered to each director at such director's address as it is
shown upon the records of the corporation or as may have been given to the
corporation by the director for purposes of notice or, if such address is not
shown on such records or is not readily ascertainable, at the place in which the
meetings of the directors are regularly held.
Notice by mail shall be deemed to have been given at the time
a written notice is deposited in the United States mails, postage prepaid. Any
other written notice shall be deemed to have been given at the time it is
personally delivered to the recipient or is delivered to a common carrier for
transmission, or actually transmitted by the person giving the notice by
electronic means, to the recipient. Oral notice shall be deemed to have been
given at the time it is communicated, in person or by telephone or wireless, to
the recipient or to a person at the office of the recipient who the person
giving the notice has reason to believe will promptly communicate it to the
recipient.
Section 8. QUORUM. A majority of the authorized number of
directors constitutes a quorum of the Board for the transaction of business,
except to adjourn as provided in Section 11 of this Article. Every act or
decision done or made by a majority of the directors present at a meeting duly
held at which a quorum is present shall be regarded as the act of the Board,
unless a greater number be required by law or by the Articles. A meeting at
which a quorum is initially present may continue to transact business
notwithstanding the withdrawal of directors, if any action taken is approved by
at least a majority of the required quorum for such meeting.
11
<PAGE>
Section 9. PARTICIPATION IN MEETINGS BY CONFERENCE TELEPHONE.
Members of the Board may participate in a meeting through use of conference
telephone or similar communications equipment, so long as all members
participating in such meeting can hear one another.
Section 10. WAIVER OF NOTICE. Notice of a meeting need not be
given to any director who signs a waiver of notice or a consent to holding the
meeting or an approval of the minutes thereof, whether before or after the
meeting, or who attends the meeting without protesting, prior thereto or at its
commencement, the lack of notice to such director. All such waivers, consents
and approvals shall be filed with the corporate records or made a part of the
minutes of the meeting.
Section 11. ADJOURNMENT. A majority of the directors present,
whether or not a quorum is present, may adjourn any directors' meeting to
another time and place. Notice of the time and place of holding an adjourned
meeting need not be given to absent directors if the time and place be fixed at
the meeting adjourned, except as provided in the next sentence. If the meeting
is adjourned for more than 24 hours, notice of any adjournment to another time
or place shall be given prior to the time of the adjourned meeting to the
directors who were not present at the time of the adjournment.
Section 12. FEES AND COMPENSATION. Directors and members of
committees may receive such compensation, if any, for their services, and such
reimbursement for expenses, as may be fixed or determined by the Board.
Section 13. ACTION WITHOUT MEETING. Any action required or
permitted to be taken by the Board may be taken without a meeting if all members
of the Board shall individually or collectively consent in writing to such
action. Such consent or consents shall have the same effect as a unanimous vote
of the Board and shall be filed with the minutes of the proceedings of the
Board.
Section 14. RIGHTS OF INSPECTION. Every director shall have
the absolute right at any reasonable time to inspect and copy all books, records
and documents of every kind and to inspect the physical properties of the
corporation and also of its subsidiary corporations, domestic or foreign. Such
inspection by a director may be made in person or by agent or attorney and
includes the right to copy and obtain extracts.
Section 15. COMMITTEES. The Board may appoint one or more
committees, each consisting of two or more directors, and delegate to such
committees any of the authority of the Board except with respect to:
(a) The approval of any action for which the General Corporation Law
also requires shareholders' approval or approval of the outstanding
shares;
(b) The filling of vacancies in the Board or on any committee;
12
<PAGE>
(c) The fixing of compensation of the directors for serving on the
Board or on any committee;
(d) The amendment or repeal of bylaws or the adoption of new bylaws;
(e) The amendment or repeal of any resolution of the Board which by its
express terms is not so amendable or repealable;
(f) a distribution to the shareholders of the corporation except at a
rate or in a periodic amount or within a price range determined by the
Board; or
(g) The appointment of other committees of the Board or the members
thereof.
Any such committee must be designated, and the members or
alternate members thereof appointed, by resolution adopted by a majority of the
authorized number of directors and any such committee may be designated an
Executive Committee or by such other name as the Board shall specify. Alternate
members of a committee may replace any absent member at any meeting of the
committee. The Board shall have the power to prescribe the manner in which
proceedings of any such committee shall be conducted. In the absence of any such
prescription, such committee shall have the power to prescribe the manner in
which its proceedings shall be conducted. Unless the Board or such committee
shall otherwise provide, the regular and special meetings and other actions of
any such committee shall be governed by the provisions of this Article
applicable to meetings and actions of the Board. Minutes shall be kept of each
meeting of each committee.
ARTICLE IV. OFFICERS.
Section 1. OFFICERS. The officers of the corporation shall be
a President, a Secretary and a Treasurer. The corporation may also have, at the
discretion of the Board, a Chairman of the Board, one or more Vice-Presidents,
one or more Assistant Secretaries, one or more Assistant Treasurers, and such
other officers as may be elected or appointed in accordance with the provisions
of Section 3 of this Article.
Section 2. ELECTION. The officers of the corporation, except
such officers as may be elected or appointed in accordance with the provisions
of Section 3 or Section 5 of this Article, shall be chosen annually by, and
shall serve at the pleasure of, the Board, and shall hold their respective
offices until their resignation, removal, or other disqualification from
service, or until their respective successors shall be elected.
Section 3. SUBORDINATE OFFICERS. The Board may elect, and may
empower the President to appoint, such other officers as the business of the
corporation may require, each of whom shall hold office for such period, have
such authority and
13
<PAGE>
perform such duties as are provided in these Bylaws or as the Board may from
time to time determine.
Section 4. REMOVAL AND RESIGNATION. Any officer may be
removed, either with or without cause, by the Board at any time or, except in
the case of an officer chosen by the Board, by any officer upon whom such power
of removal may be conferred by the Board. Any such removal shall be without
prejudice to the rights, if any, of the officer under any contract of employment
of the officer.
Any officer may resign at any time by giving written notice to
the corporation, but without prejudice to the rights, if any, of the corporation
under any contract to which the officer is a party. Any such resignation shall
take effect at the date of the receipt of such notice or at any later time
specified therein and, unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective.
Section 5. VACANCIES. A vacancy in any office because of
death, resignation, removal, disqualification or any other cause shall be filled
in the manner prescribed in these Bylaws for regular election or appointment to
such office.
Section 6. CHAIRMAN OF THE BOARD. The Chairman of the Board,
if there shall be such an officer, shall, if present, preside at all meetings of
the Board and exercise and perform such other powers and duties as may be from
time to time assigned by the Board.
Section 7. PRESIDENT. Subject to such powers, if any, as may
be given by the Board to the Chairman of the Board, if there be such an officer,
the President is the general manager and chief executive officer of the
corporation and has, subject to the control of the Board, general supervision,
direction and control of the business and officers of the corporation. The
President shall preside at all meetings of the shareholders and, in the absence
of the Chairman of the Board, or if there be none, at all meetings of the Board.
The President has the general powers and duties of management usually vested in
the office of president and general manager of a corporation and such other
powers and duties as may be prescribed by the Board.
Section 8. VICE PRESIDENTS. In the absence or disability of
the President, the Vice Presidents in order of their rank as fixed by the Board,
or, if not ranked, the Vice President designated by the Board, shall perform all
the duties of the President and, when so acting, shall have all the powers of,
and be subject to all the restrictions upon, the President. The Vice Presidents
shall have such other powers and perform such other duties as from time to time
may be prescribed for them respectively by the Board.
Section 9. SECRETARY. The Secretary shall keep or cause to be
kept, at the principal executive office and such other place as the Board may
order, a book of minutes of all meetings of shareholders, the Board and its
committees, with the time and
14
<PAGE>
place of holding, whether regular or special, and if special, how authorized,
the notice thereof given, the names of those present at Board and committee
meetings, the number of shares present or represented at shareholders' meetings,
and the proceedings thereof. The Secretary shall keep, or cause to be kept, a
copy of the Bylaws of the corporation at the principal executive office or
business office in accordance with Section 213 of the California General
Corporation Law.
The Secretary shall keep, or cause to be kept, at the
principal executive office or at the office of the corporation's transfer agent
or registrar, if one be appointed, a share register, or a duplicate share
register, showing the names of the shareholders and their addresses, the number
and classes of shares held by each, the number and date of certificates issued
for the same, and the number and date of cancellation of every certificate
surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all
meetings of the shareholders and of the Board and any committees thereof
required by these Bylaws or by law to be given, shall keep the seal of the
corporation in safe custody, and shall have such other powers and perform such
other duties as may be prescribed by the Board.
Section 10. TREASURER. The Treasurer is the chief financial
officer of the corporation and shall keep and maintain, or cause to be kept and
maintained, adequate and correct accounts of the properties and business
transactions of the corporation, and shall send or cause to be sent to the
shareholders of the corporation such financial statements and reports as are by
law or these Bylaws required to be sent to them. The books of account shall at
all times be open to inspection by any director.
The Treasurer shall deposit all moneys and other valuables in
the name and to the credit of the corporation with such depositaries as may be
designated by the Board. The Treasurer shall disburse the funds of the
corporation as may be ordered by the Board, shall render to the President and
the directors, whenever they request it, an account of all transactions as
Treasurer and of the financial condition of the corporation, and shall have such
other powers and perform such other duties as may be prescribed by the Board.
ARTICLE V. OTHER PROVISIONS.
Section 1. INSPECTION OF CORPORATE RECORDS.
(a) A shareholder or shareholders holding at least five
percent in the aggregate of the outstanding voting shares of the corporation or
who hold at least one percent of those voting shares and have filed a
Schedule 14A with the United States Securities and Exchange Commission shall
have an absolute right to do either or both of the following:
15
<PAGE>
(i) Inspect and copy the record of shareholders' names and
addresses and shareholdings during usual business hours upon
five business days' prior written demand upon the corporation;
or
(ii) Obtain from the transfer agent, if any, for the
corporation, upon five business days' prior written demand and
upon the tender of its usual charges for such a list (the
amount of which charges shall be stated to the shareholder by
the transfer agent upon request), a list of the shareholders'
names and addresses, who are entitled to vote for the election
of directors and their shareholdings, as of the most recent
record date for which it has been compiled or as of a date
specified by the shareholder subsequent to the date of demand.
(b) The record of shareholders shall also be open to
inspection and copying by any shareholder or holder of a voting trust
certificate at any time during usual business hours upon written demand on the
corporation, for a purpose reasonably related to such holder's interest as a
shareholder or holder of a voting trust certificate.
(c) The accounting books and records and minutes of
proceedings of the shareholders and the Board and committees of the Board shall
be open to inspection upon written demand on the corporation of any shareholder
or holder of a voting trust certificate at any reasonable time during usual
business hours, for a purpose reasonably related to such holder's interests as a
shareholder or as a holder of such voting trust certificate.
(d) Any inspection and copying under this Article may be made
in person or by agent or attorney.
Section 2. INSPECTION OF BYLAWS. The corporation shall keep in
its principal executive office in the State of California, or if its principal
executive office is not in such State at its principal business office in such
State, the original or a copy of these Bylaws as amended to date, which shall be
open to inspection by shareholders at all reasonable times during office hours.
If the principal executive office of the corporation is located outside the
State of California and the corporation has no principal business office in such
state, it shall upon the written request of any shareholder furnish to such
shareholder a copy of these Bylaws as amended to date.
Section 3. ENDORSEMENT OF DOCUMENTS; CONTRACTS. Subject to the
provisions of applicable law, any note, mortgage, evidence of indebtedness,
contract, share certificate, conveyance or other instrument in writing and any
assignment or endorsements thereof executed or entered into between the
corporation and any other person, when signed by the Chairman of the Board, the
President or any Vice President and the Secretary, any Assistant Secretary, the
Treasurer or any Assistant Treasurer of the corporation shall be valid and
binding on the corporation in the absence of actual knowledge on the part of the
other person that the signing officers had no authority to execute the same. Any
such instruments may be signed by any other person or persons
16
<PAGE>
and in such manner as from time to time shall be determined by the Board, and,
unless so authorized by the Board, no officer, agent or employee shall have any
power or authority to bind the corporation by any contract or engagement or to
pledge its credit or to render it liable for any purpose or amount.
Section 4. CERTIFICATES OF STOCK. Every holder of shares of
the corporation shall be entitled to have a certificate signed in the name of
the corporation by the Chairman of the Board, the President or a Vice-President
and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant
Secretary, certifying the number of shares and the class or series of shares
owned by the shareholder. Any or all of the signatures on the certificate may be
facsimile. If any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be issued by the corporation with the same effect as if such person were an
officer, transfer agent or registrar at the date of issue.
Certificates for shares may be issued prior to full payment
under such restrictions and for such purposes as the Board may provide;
provided, however, that on any certificate issued to represent any partly paid
shares, the total amount of the consideration to be paid therefor and the amount
paid thereon shall be stated.
Except as provided in this Section, no new certificate for
shares shall be issued in lieu of an old one unless the latter is surrendered
and cancelled at the same time. The Board may, however, if any certificate for
shares is alleged to have been lost, stolen or destroyed, authorize the issuance
of a new certificate in lieu thereof, and the corporation may require that the
corporation be given a bond or other adequate security sufficient to indemnify
it against any claim that may be made against it (including expense or
liability) on account of the alleged loss, theft or destruction of such
certificate or the issuance of such new certificate.
Section 5. REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The
President or any other officer or officers authorized by the Board or the
President are each authorized to vote, represent and exercise on behalf of the
corporation all rights incident to any and all shares of any other corporation
or corporations standing in the name of the corporation. The authority herein
granted may be exercised either by any such officer in person or by any other
person authorized so to do by proxy or power of attorney duly executed by said
officer.
Section 6. STOCK PURCHASE PLANS. The corporation may adopt and
carry out a stock purchase plan or agreement or stock option plan or agreement
providing for the issue and sale for such consideration as may be fixed of its
unissued shares, or of issued shares acquired or to be acquired, to one or more
of the employees or directors of the corporation or of a subsidiary or to a
trustee on their behalf and for the payment for such shares in installments or
at one time, and may provide for aiding any such persons in
17
<PAGE>
paying for such shares by compensation for services rendered, promissory notes
or otherwise.
Any such stock purchase plan or agreement or stock option plan
or agreement may include, among other features, the fixing of eligibility for
participation therein, the class and price of shares to be issued or sold under
the plan or agreement, the number of shares which may be subscribed for, the
method of payment therefor, the reservation of title until full payment
therefor, the effect of the termination of employment, an option or obligation
on the part of the corporation to repurchase the shares upon termination of
employment, restrictions upon transfer of the shares, the time limits of and
termination of the plan, and any other matters, not in violation of applicable
law, as may be included in the plan as approved or authorized by the Board or
any committee of the Board.
Section 7. CONSTRUCTION AND DEFINITIONS. Unless the context
otherwise requires, the general provisions, rules of construction and
definitions contained in the General Provisions of the California Corporations
Code and in the California General Corporation Law shall govern the construction
of these Bylaws.
Section 8. AMENDMENTS. These Bylaws may be amended or repealed
either by approval of the outstanding shares (as defined in Section 152 of the
California General Corporation Law) or by the approval of the Board; provided,
however, that after the issuance of shares, a bylaw specifying or changing a
fixed number of directors or the maximum or minimum number or changing from a
fixed to a variable number of directors or vice versa may only be adopted by
approval of the outstanding shares, and a bylaw reducing the fixed number or the
minimum number of directors to a number less than five shall be subject to the
provisions of Section 212(a) of the California General Corporation Law.
Section 9. ANNUAL REPORT TO SHAREHOLDERS. The annual report to
shareholders referred to in Section 1501 of the California General Corporation
Law is expressly waived, but nothing herein shall be interpreted as prohibiting
the Board from issuing annual or other periodic reports to shareholders.
ARTICLE VI. INDEMNIFICATION
Section 1. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Each
person who was or is a party or is threatened to be made a party to or is
involved in any threatened, pending or completed action, suit or proceeding,
formal or informal, whether brought in the name of the corporation or otherwise
and whether of a civil, criminal, administrative or investigative nature
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director or officer
of the corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding is an alleged
action or
18
<PAGE>
inaction in an official capacity or in any other capacity while serving as a
director or officer, shall, subject to the terms of any agreement between the
corporation and such person, be indemnified and held harmless by the corporation
to the fullest extent permissible under California law and the corporation's
Articles of Incorporation, against all costs, charges, expenses, liabilities and
losses (including attorneys' fees, judgments, fines, ERISA excise taxes or
penalties and amounts paid or to be paid in settlement) reasonably incurred or
suffered by such person in connection therewith, and such indemnification shall
continue as to a person who has ceased to be a director or officer and shall
inure to the benefit of his or her heirs, executors and administrators;
provided, however, that (a) the corporation shall indemnify any such person
seeking indemnification in connection with a proceeding (or part thereof)
initiated by such person only if such proceeding (or part thereof) was
authorized by the Board of the corporation, (b) the corporation shall indemnify
any such person seeking indemnification in connection with a proceeding (or part
thereof) other than a proceeding by or in the name of the corporation to procure
a judgment in its favor only if any settlement of such a proceeding is approved
in writing by the corporation, and (c) that no such person shall be indemnified
(i) except to the extent that the aggregate of losses to be indemnified exceeds
the amount of such losses for which the director or officer is paid pursuant to
any directors' and officers' liability insurance policy maintained by the
corporation; (ii) on account of any suit in which judgment is rendered against
such person for an accounting of profits made from the purchase or sale by such
person of securities of the corporation pursuant to the provisions of
Section 16(b) of the Securities Exchange Act of 1934 and amendments thereto
or similar provisions of any federal, state or local statutory law; (iii) if
a court of competent jurisdiction finally determines that any indemnification
hereunder is unlawful; (iv) for acts or omissions involving intentional
misconduct or knowing and culpable violation of law; (v) for acts or
omissions that the director or officer believes to be contrary to the best
interests of the corporation or its shareholders or that involve the absence
of good faith on the part of the director or officer; (vi) for any
transaction from which the director or officer derived an improper personal
benefit; (vii) for acts or omissions that show a reckless disregard for the
director's or officer's duty to the corporation or its shareholders in
circumstances in which the director or officer was aware, or should have been
aware, in the ordinary course of performing his or her duties, of a risk of
serious injury to the corporation or its shareholders; (viii) for acts or
omissions that constitute an unexcused pattern of inattention that amounts to
an abdication of the director's or officer's duties to the corporation or its
shareholders; (ix) for costs, charges, expenses, liabilities and losses
arising under Section 310 or 316 of the General Corporation Law of California
(the "Law"); and (x) as to circumstances in which indemnity is expressly
prohibited by Section 317 of the Law. The right to indemnification conferred
in this Article shall be a contract right and shall include the right to be
paid by the corporation expenses incurred in defending any proceeding in
advance of its final disposition; provided, however, that if the Law requires
the payment of such expenses incurred by a director or officer in his or her
capacity as a director or officer (and not in any other capacity in which
service was or is rendered by such person while a director or officer,
including, without limitation, service to an employee benefit plan) in
advance of the final disposition of a proceeding, such advances shall be made
19
<PAGE>
only upon delivery to the corporation of an undertaking, by or on behalf of such
director or officer, to repay all amounts to the cooperation if it shall be
ultimately determined that such person is not entitled to be indemnified.
Section 2. INDEMNIFICATION OF EMPLOYEES AND AGENTS. A person
who was or is a party or is threatened to be made a party to or is involved in
any proceeding by reason of the fact that he or she is or was an employee or
agent of the corporation or is or was serving at the request of the corporation
as an employee or agent of another enterprise, including service with respect to
employee benefit plans, whether the basis of such action is an alleged action or
inaction in an official capacity or in any other capacity while serving as an
employee or agent, may, subject to the terms of any agreement between the
corporation and such person, be indemnified and held harmless by the corporation
to the fullest extent permitted by California law and the corporation's Articles
of Incorporation, against all costs, charges, expenses, liabilities and losses,
(including attorneys' fees, judgments, fines, ERISA excise taxes or penalties
and amounts paid or to be paid in settlement) reasonably incurred or suffered by
such person in connection therewith. The immediately preceding sentence is not
intended to be and shall not be considered to confer a contract right on any
employee or agent (other than directors and officers) of the corporation.
Section 3. RIGHT OF DIRECTORS AND OFFICERS TO BRING SUIT. If a
claim under Section 1 of this Article is not paid in full by the corporation
within 30 days after a written claim has been received by the corporation, the
claimant may at any time thereafter bring suit against the corporation to
recover the unpaid amount of the claim and, if successful in whole or in part,
the claimant shall also be entitled to be paid the expense of prosecuting such
claim. Neither the failure of the corporation (including its Board, independent
legal counsel, or its shareholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is permissible
in the circumstances because he or she has met the applicable standard of
conduct, if any, nor an actual determination by the corporation (including its
Board, independent legal counsel, or its shareholders) that the claimant has not
met the applicable standard of conduct, shall be a defense to the action or
create a presumption for the purpose of an action that the claimant has not met
the applicable standard of conduct.
Section 4. ADVANCE OF EXPENSES. Expenses incurred in defending
any proceeding may be advanced by this corporation prior to the final
disposition of such proceeding upon receipt of an undertaking by or on behalf of
the agent to repay such amount unless it shall be determined ultimately that the
agent is entitled to be indemnified as authorized in this Article.
Section 5. INSURANCE. The corporation shall have power to
purchase and maintain insurance on behalf of any agent of the corporation
against any liability asserted against or incurred by the agent in such capacity
or arising out of the agent's
20
<PAGE>
status as such whether or not the corporation would have the power to indemnify
the agent against such liability under the provisions of this Article.
21
<PAGE>
CERTIFICATE OF SECRETARY
OF
ACACIA RESEARCH CORPORATION
(a California corporation)
I hereby certify that I am the duly elected and acting
Secretary of said corporation and that the foregoing Amended and Restated
Bylaws, comprising 22 pages, constitute the Bylaws of said corporation as duly
adopted at a meeting of the Board of Directors thereof held on April 13, 1999.
/s/ KATHRYN KING-VAN WIE
---------------------------------------------
Kathryn King-Van Wie, Secretary
22
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 6,553,000
<SECURITIES> 0
<RECEIVABLES> 57,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,728,000
<PP&E> 805,000
<DEPRECIATION> 220,000
<TOTAL-ASSETS> 17,829,000
<CURRENT-LIABILITIES> 267,000
<BONDS> 0
0
0
<COMMON> 28,881,000
<OTHER-SE> 100,000
<TOTAL-LIABILITY-AND-EQUITY> 17,829,000
<SALES> 0
<TOTAL-REVENUES> 61,000
<CGS> 0
<TOTAL-COSTS> 1,691,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 41,000
<INCOME-PRETAX> (1,988,000)
<INCOME-TAX> (16,000)
<INCOME-CONTINUING> (2,004,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,004,000)
<EPS-PRIMARY> (0.20)
<EPS-DILUTED> (0.20)
</TABLE>
