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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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<S> <C>
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
ACACIA RESEARCH CORPORATION
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)
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Payment of Filing Fee (Check the appropriate box):
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<S> <C> <C>
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction
applies:
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(2) Aggregate number of securities to which transaction
applies:
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(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how
it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing.
(1) Amount Previously Paid:
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(3) Filing Party:
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(4) Date Filed:
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[LOGO]
April , 2000
Dear Stockholder:
On behalf of your Board of Directors and Management, you are cordially
invited to attend the Annual Meeting of Stockholders to be held on Tuesday, May
16, 2000, at 9:00 a.m., at the Ritz Carlton Huntington Hotel, located at 1401
South Oak Knoll Avenue in Pasadena, California.
The enclosed Notice and Proxy Statement contain details concerning the
business to come before the meeting. You will note that the Board of Directors
of the Company recommends a vote "FOR" approving an amendment to the Company's
Certificate of Incorporation to provide for a classified board of directors,
"FOR" the election of the nominated directors to serve until the next Annual
Meeting of Stockholders, "FOR" ratification of an amendment to the Company's
1996 Stock Option Plan and "FOR" ratification of the selection of
PricewaterhouseCoopers LLP as the Company's independent accountants.
Whether or not you attend the Annual Meeting, please vote as soon as
possible by returning the enclosed proxy card. Your vote is important, and
voting by written proxy will ensure your representation at the Annual Meeting.
You may revoke your proxy in accordance with the procedures described in the
Proxy Statement at any time prior to the time it is voted.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AND VOTED AT THE ANNUAL
MEETING EVEN IF YOU CANNOT ATTEND IN PERSON. PLEASE SIGN, DATE, AND RETURN YOUR
PROXY CARD IN THE ENCLOSED ENVELOPE.
Thank you for your continued support.
Cordially,
[LOGO]
Paul R. Ryan
PRESIDENT AND CHIEF EXECUTIVE OFFICER
<PAGE>
ACACIA RESEARCH CORPORATION
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 16, 2000
------------------------
TO OUR STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Acacia
Research Corporation, a Delaware corporation (the "COMPANY"), will be held on
Tuesday, May 16, 2000 at 9:00 a.m. at the Ritz Carlton Huntington Hotel located
at 1401 South Oak Knoll Avenue, Pasadena, California, for the following
purposes:
1. To approve an amendment to the Company's Certificate of Incorporation to
provide for a classified board of directors;
2. To elect five directors to serve for terms of one to three years as set
forth in Proposal No. 1, or if Proposal No. 1 is not approved, to serve
for the ensuing year and until their successors are duly elected and
qualified;
3. To ratify an amendment to the Company's 1996 Stock Option Plan to
increase the number of shares authorized to 4,000,000;
4. To ratify the selection of PricewaterhouseCoopers LLP as independent
accountants of the Company for the fiscal year ending December 31, 2000;
and
5. To transact such other business as may properly come before the meeting
or any adjournment thereof.
Only stockholders of record at the close of business on April 3, 2000 are
entitled to receive notice of and to vote at the Annual Meeting.
All stockholders are cordially invited to attend the Annual Meeting in
person. However, to assure your representation at the Annual Meeting, you are
urged to mark, sign, date and return the enclosed proxy card as promptly as
possible in the postage-prepaid envelope enclosed for that purpose. Any
stockholder attending the Annual Meeting may vote in person even if he or she
previously returned a proxy.
By Order of the Board of Directors,
Victoria White
SECRETARY
Pasadena, California
April , 2000
YOUR VOTE IS IMPORTANT
IN ORDER TO ASSURE YOUR REPRESENTATION AT THE MEETING, YOU ARE REQUESTED TO
COMPLETE, SIGN AND DATE THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE AND RETURN IT
IN THE ENCLOSED ENVELOPE.
<PAGE>
ACACIA RESEARCH CORPORATION
55 South Lake Avenue
Pasadena, California 91101
(626) 396-8300
------------------------
PROXY STATEMENT
The enclosed proxy is solicited on behalf of the Board of Directors of
Acacia Research Corporation, a Delaware corporation ("ACACIA" or the "COMPANY"),
for use at Acacia's annual meeting of stockholders (the "ANNUAL MEETING") to be
held on Tuesday, May 16, 2000 at 9:00 a.m., and at any adjournments thereof. The
purposes of the Annual Meeting are set forth in this Proxy Statement and in the
accompanying Notice of Annual Meeting of Stockholders. The Annual Meeting will
be held at the Ritz Carlton Huntington Hotel located at 1401 South Oak Knoll
Avenue, Pasadena, California. These proxy solicitation materials were mailed on
or about April , 2000 to all stockholders entitled to vote at the Annual
Meeting.
QUESTIONS AND ANSWERS
1. Q: WHAT MAY I VOTE ON?
A: (1) The approval of an amendment to the Company's Certificate of
Incorporation to provide
for a classified board of directors;
(2) The election of five nominees to serve on the Board of Directors;
(3) The approval of an amendment to the Company's 1996 Stock Option Plan;
and
(4) The approval of the appointment of PricewaterhouseCoopers LLP as
independent accountants for the fiscal year ending December 31, 2000.
2. Q: HOW DOES THE BOARD RECOMMEND I VOTE ON THE PROPOSALS?
A: The Board of Directors recommends a vote FOR approving an amendment to
the Company's Certificate of Incorporation to provide for a classified
board of directors, FOR each of the nominees for director, FOR approving
an amendment to the Company's 1996 Stock Option Plan increasing the
number of shares authorized to 4,000,000 and FOR the ratification of
PricewaterhouseCoopers LLP as independent accountants for the fiscal year
ending December 31, 2000.
3. Q: WHO IS ENTITLED TO VOTE?
A: Stockholders as of the close of business on April 3, 2000 (the "RECORD
DATE") are entitled to vote at the Annual Meeting.
4. Q: HOW DO I VOTE?
A: Sign and date each proxy card you receive and return it in the prepaid
envelope. You have the right to revoke your proxy at any time before the
Annual Meeting by:
(1) notifying the Secretary of the Company in writing;
(2) voting in person; or
(3) returning a later-dated proxy card.
5. Q: WHO WILL COUNT THE VOTE?
A: U.S. Stock Transfer Corporation will count the votes and act as the
inspector of election.
6. Q: WHAT SHARES ARE INCLUDED ON THE PROXY CARD(S)?
A: The shares on your proxy card(s) represent ALL of your shares. If you do
not return your proxy card(s), your shares will not be voted.
7. Q: WHAT DOES IT MEAN IF I GET MORE THAN ONE PROXY CARD?
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A: If your shares are registered differently and are in more than one
account, you will receive more than one proxy card. Sign and return all
proxy cards to ensure that all your shares are voted. We encourage you to
have all accounts registered in the same name and address (whenever
possible). You can accomplish this by contacting our transfer agent, U.S.
Stock Transfer Corporation, or if your shares are held in "street name,"
by contacting the broker of bank who holds your shares.
8. Q: HOW MANY SHARES CAN VOTE?
A: As of the Record Date, 14,373,498 shares of Common Stock, the only
outstanding voting securities of the Company, were issued and
outstanding. Each stockholder is entitled to one vote for each share of
Common Stock held.
9. Q: WHAT IS A "QUORUM"?
A: A "quorum" is a majority of the outstanding shares entitled to vote. They
may be present or represented by proxy. For the purposes of determining a
quorum, shares held by brokers or nominees will be treated as present
even if the broker or nominee does not have discretionary power to vote
on a particular matter or if instructions were never received from the
beneficial owner. These shares are called "broker non-votes." Abstentions
will be counted as present for quorum purposes.
10. Q: WHAT IS REQUIRED TO APPROVE EACH PROPOSAL?
A: For the election of directors, once a quorum has been established, the
nominees for director who receive the most votes will become directors of
the Company. The proposed amendment to the Certificate of Incorporation
requires the affirmative vote of a majority of the outstanding stock
entitled to vote thereon. To approve the proposals relating to the
amendment to the Company's 1996 Stock Option Plan and the appointment of
the independent accountants, a majority of the shares represented at the
Annual Meeting, either in person or by proxy, must be voted in favor of
the proposals.
If a broker indicates on its proxy that it does not have discretionary
authority to vote on a particular matter, the affected shares will be
treated as not present and entitled to vote with respect to that matter,
even though the same shares may be considered present for quorum purposes
and may be entitled to vote on other matters.
11. Q: WHAT HAPPENS IF I ABSTAIN?
A: Proxies marked "abstain" will be counted as shares present for the
purpose of determining the presence of a quorum, but for purposes of
determining the outcome of a proposal, shares represented by such proxies
will not be treated as affirmative votes. For proposals requiring an
affirmative vote of a majority of the outstanding shares entitled to vote
or a majority of the shares present, an abstention is equivalent to a
"no" vote.
12. Q: HOW WILL VOTING ON ANY OTHER BUSINESS BE CONDUCTED?
A: Although we do not know of any business to be considered at the Annual
Meeting other than the proposals described in this proxy statement, if
any other business is properly presented at the Annual Meeting, your
signed proxy card gives authority to the proxyholders, Paul R. Ryan and
Victoria White, to vote on such matters at their discretion.
13. Q: WHO ARE THE LARGEST PRINCIPAL STOCKHOLDERS?
A: For information regarding holders of more than 5% of the outstanding
Common Stock, see "Security Ownership of Certain Beneficial Owners and
Management."
14. Q: HOW MUCH DID THIS PROXY SOLICITATION COST?
A: Corporate Investor Communications, Inc. was hired to assist in the
distribution of proxy materials and the solicitation of votes for $5,500,
plus estimated out-of-pocket expenses of $750. We also reimburse
brokerage houses and other custodians, nominees and fiduciaries for their
reasonable out-of-pocket expenses for forwarding proxy and solicitation
materials to stockholders. Proxies
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may also be solicited in person, by telephone, or by facsimile by
directors, officers, and employees of the Company without additional
compensation.
PROPOSAL NO. 1: AMENDMENT OF COMPANY'S CERTIFICATE OF INCORPORATION
(ITEM 1 ON PROXY CARD)
The Board of Directors has unanimously approved and recommended for
stockholder approval an amendment to the Certificate of Incorporation to add a
new Article XI providing for a classified Board of Directors (the "CLASSIFIED
BOARD AMENDMENT"). Under Delaware law, the Classified Board Amendment would
become effective upon stockholder approval and filing of the amendment to the
Certificate of Incorporation. The text of the Classified Board Amendment is set
forth below:
RESOLVED, that Article XI of the Company's Certificate of Incorporation be
amended to read as follows:
"ARTICLE XI
Except as otherwise provided for or fixed pursuant to the provisions of
Article IV of this Certificate of Incorporation or any resolution or
resolutions of the Board of Directors providing the issuance of any
class or series of stock having a preference over the Common Stock as to
dividends or upon liquidation to elect additional directors under
specified circumstances, the number of directors shall be determined by
the Board of Directors in accordance with the Bylaws. The directors,
other than those who may be elected by the holders of Preferred Stock or
any other class or series of stock having a preference over the Common
Stock as to dividends or upon liquidation pursuant to the terms of this
Certificate of Incorporation or any resolution or resolutions providing
for the issuance of such class or series of stock adopted by the Board
of Directors, shall be divided into three classes, Class I, Class II and
Class III, as nearly equal in number as possible. The term of office for
the Class I directors shall expire at the annual meeting of the
stockholders in 2001; the term of office for the Class II directors
shall expire at the annual meeting of the stockholders in 2002; and the
term of office for the Class III directors shall expire at the annual
meeting of the stockholders in 2003. At each annual meeting of the
stockholders commencing in 2001, the successors to the directors whose
terms are expiring shall be elected to a term expiring at the third
succeeding annual meeting of the stockholders. If the number of
directors is changed, any increase or decrease shall be apportioned
among the classes so as to maintain the number of directors in each
class as nearly equal as possible, and any additional directors of any
class elected to fill a vacancy resulting from an increase in such class
shall hold office for a term that shall coincide with the remaining term
of that class, but in no case will a decrease in the number of directors
shorten the term of any incumbent director. A director shall hold office
until the annual meeting for the year in which his or her term expires
and until his or her successor shall be elected and shall qualify,
subject, however, to prior death, resignation, retirement,
disqualification or removal from office."
The Certificate of Incorporation does not currently contain any provisions
with respect to the term of service or removal of directors. The election of
directors is currently governed by the Bylaws, which provide that all directors
are to be elected annually for a term of one year. Delaware law permits
provisions in a certificate of incorporation or bylaw approved by stockholders
that provide for a classified board of directors.
The Classified Board Amendment provides that, at the 2000 Annual Meeting,
the Company's Board of Directors will be divided into three classes (denominated
Class I, Class II and Class III) which shall be as nearly equal in number as
possible. The directors in each class will hold office following their initial
classification for terms of one year, two years and three years, respectively.
Thus, the term of office of the Class I Directors will expire at the year 2001
Annual Meeting of Stockholders, the term of office of the
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Class II Directors will expire at the year 2002 Annual Meeting of Stockholders,
and the term of office of the Class III Directors will expire at the year 2003
Annual Meeting of Stockholders. Thereafter, the successors to each class of
directors shall be elected for three-year terms. If Proposal No. 1 is not
approved, all directors will be elected to serve until the next Annual Meeting
of Stockholders or until their successors are elected and qualified.
Under Delaware law, the Board of Directors may fill vacancies on a
classified board, and the directors so appointed will hold office until the next
election of the class to which the director was appointed. Delaware law also
provides that, unless a corporation's certificate of incorporation provides
otherwise, directors serving on a classified board of directors may be removed
only for cause. Presently, the Company's directors are elected annually and any
or all may be removed, with or without cause, by a majority vote of the
outstanding shares entitled to vote with respect to an election of directors. If
Proposal No. 1 is adopted, stockholders of the Company will only be able to
remove directors for cause.
Classification of the Board of Directors will promote continuity and
stability in the Company's management and policies. The Board of Directors
further believes that such continuity will facilitate long-range planning and
will have a beneficial effect on employee loyalty and confidence from our
subsidiaries and affiliated companies. Currently, the entire Board of Directors
must stand for election each year. Accordingly, it is possible that all or a
majority of the current directors could be replaced at any given annual meeting
by a plurality vote. If Proposal No. 1 is approved, the Board of Directors will
be divided into three classes effective with the 2000 Annual Meeting, only one
of which classes will stand for election at each annual meeting thereafter.
Thus, it will take at least two annual meetings to effectuate a change in
control of the Board of Directors, because only a minority of the directors will
be elected at each meeting.
Because of the additional time required to change control of the Board of
Directors, the Classified Board Amendment will tend to perpetuate present
management. Without the ability to obtain immediate control of the Board of
Directors, a takeover bidder will not be able to take action to remove other
impediments to its acquisition of the Company. Because the Classified Board
Amendment will increase the amount of time required for a takeover bidder to
obtain control of the Company without the cooperation of the Board of Directors,
even if the takeover bidder were to acquire a majority of our outstanding stock,
it will tend to discourage certain tender offers, perhaps including some tender
offers that stockholders may feel would be in their best interests. The
Classified Board Amendment will also make it more difficult for the stockholders
to change the composition of the Board of Directors even if the stockholders
believe such a change would be desirable.
VOTE REQUIRED
The affirmative "FOR" vote of the holders of a majority of shares of the
Company's Common Stock outstanding on the Record Date is required for approval
of the Classified Board Amendment. THE BOARD OF DIRECTORS RECOMMENDS THAT
STOCKHOLDERS VOTE "FOR" THE CLASSIFIED BOARD AMENDMENT. PROXIES RECEIVED WILL BE
SO VOTED UNLESS STOCKHOLDERS SPECIFY OTHERWISE IN THE PROXY.
PROPOSAL NO. 2: ELECTION OF DIRECTORS
(ITEM 2 ON PROXY CARD)
At the Annual Meeting, five directors are to be elected. If Proposal No. 1
is approved, five directors will be elected for the staggered terms set forth
below. If Proposal No. 1 is not approved, five directors will be elected to hold
office until the next Annual Meeting of Stockholders or until their successors
have been elected and qualified. Robert L. Harris II and Fred A. de Boom are
proposed for election as Class I directors for one year terms expiring at the
2001 Annual Meeting. Thomas B. Akin and Edward W. Frykman are proposed for
election as Class II directors for two year terms expiring at the 2002 Annual
Meeting. Paul R. Ryan is proposed for election as a Class III director for a
three year term expiring at the 2003 Annual Meeting.
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Unless otherwise instructed, the proxyholders will vote the proxies received
by them for the five nominees named below. If any nominee of the Company is
unable or declines to serve as a director at the time of the Annual Meeting, the
proxies will be voted for any nominee designated by the present Board of
Directors to fill the vacancy. It is not presently expected that any of the
nominees named below will be unable or will decline to serve as a director. If
additional persons are nominated for election as directors, the proxyholders
intend to vote all proxies received by them in a manner to assure the election
of as many of the nominees listed below as possible. In such event, the specific
nominees to be voted for will be determined by the proxyholders.
NOMINEES
Biographical summaries and ages as of the date hereof of individuals
nominated by the Board of Directors for election as directors are provided
below. See "Security Ownership of Certain Beneficial Owners and Management" for
data with respect to the number of shares of the Company's Common Stock
beneficially owned by each of them, directly or indirectly, as of the Record
Date. There is no family relationship among any directors or executive officers
of the Company.
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<TABLE>
<CAPTION>
DIRECTOR
NAME, PRINCIPAL OCCUPATION AND DIRECTORSHIPS AGE SINCE
-------------------------------------------- -------- --------
<S> <C> <C>
NOMINEES FOR DIRECTOR--CLASS I (TERM EXPIRING 2001)
ROBERT L. HARRIS II, DIRECTOR 41 2000
Mr. Harris has been a director since April 2000 and has been
President and Director of Entertainment Properties Trust
since 1997. Mr. Harris founded Entertainment Properties
Trust which is a publicly-traded company that purchases real
estate from major entertainment companies. Mr. Harris
previously served as Head of International Division and
Senior Vice President of AMC Entertainment from 1993 to 1997
and as President of Carlton Browne and Company, Inc. from
1984 to 1992. He also serves on the Board of Directors of
Imperial Bancorp, Imperial Ventures, Inc., Imperial
Creditcorp and the George L. Graziadio School of Business
and Management at Pepperdine University.
FRED A. DE BOOM, DIRECTOR 64 1995
Mr. de Boom has served as a Director since February 1995,
and he has been a principal in Sonfad Associates since June
1993. Sonfad Associates is a Los Angeles-based investment
banking firm that is involved in mergers and acquisitions,
private debt and equity placements, strategic and financial
business planning, leveraged buy-outs and ESOP funding, bank
debt refinance, asset based and lease financing, and equity
for debt restructuring. Previously, he had been employed as
a Vice President of Tokai Bank for five years and as a Vice
President of Union Bank for eight years. Mr. de Boom
received his B.A. degree from Michigan State University and
his M.B.A. degree from the University of California.
NOMINEES FOR DIRECTOR--CLASS II (TERM EXPIRING 2002)
THOMAS B. AKIN, DIRECTOR 47 1998
Mr. Akin has served as a Director since May 1998. Mr. Akin
has been the Managing General Partner of four private
investment funds (Talkot Partners I, Talkot Partners II,
LLC, Talkot Crossover Fund, L.P., and Talkot Capital) since
1996. Mr. Akin previously served in a variety of capacities
for Merrill Lynch and Co., including Managing Director of
Western Regional Sales from 1986 to 1994. Mr. Akin holds a
B.A. from the University of California at Santa Cruz and
attended the University of California at Los Angeles
Graduate School of Business. He also serves on the Board of
Directors of eFax.com and Infotec Inc.
EDWARD W. FRYKMAN, DIRECTOR 63 1996
Mr. Frykman has served as a Director since April 1996. Mr.
Frykman has been an Account Executive with Crowell, Weedon &
Co. since 1992. Previously, Mr. Frykman served as Senior
Vice President of L.H. Friend & Co. Both Crowell, Weedon &
Co. and L.H. Friend & Co. are investment brokerage firms
located in Southern California. In addition, Mr. Frykman was
a Senior Account Executive with Shearson Lehman Hutton where
he served as the Manager of the Los Angeles Regional Retail
Office.
NOMINEES FOR DIRECTOR--CLASS III (TERM EXPIRING 2003)
PAUL R. RYAN, CHAIRMAN OF THE BOARD OF DIRECTORS, PRESIDENT
AND CHIEF EXECUTIVE OFFICER 54 1995
</TABLE>
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<TABLE>
<CAPTION>
DIRECTOR
NAME, PRINCIPAL OCCUPATION AND DIRECTORSHIPS AGE SINCE
-------------------------------------------- -------- --------
<S> <C> <C>
Mr. Ryan has served as a Director since 1995 and as
President and Chief Executive Officer since 1997. Prior to
being named Chief Executive Officer, he was Executive Vice
President and Chief Investment Officer of the Company. He
was formerly co-founder and general partner of the American
Health Care Fund, L.P., held positions with Young & Rubicam,
Ogilvy & Mather, and Merrill Lynch and was a private venture
capital investor. He holds a B.S. from Cornell University
and attended the New York University Graduate School of
Business.
</TABLE>
VOTE REQUIRED
To elect directors, the nominees for director who receive the most votes
will become directors of the Company. THE BOARD OF DIRECTORS RECOMMENDS THAT THE
STOCKHOLDERS VOTE "FOR" THE FIVE NOMINEES LISTED ABOVE. PROXIES RECEIVED WILL BE
VOTED FOR EACH OF THE NOMINEES UNLESS STOCKHOLDERS SPECIFY OTHERWISE IN THE
PROXY.
BOARD MEETINGS AND COMMITTEES
The Board of Directors held a total of 19 meetings during the fiscal year
ended December 31, 1999. During that period, no incumbent director attended
fewer than 75% of the sum of the total number of meetings of the Board of
Directors and the total number of meetings of all committees of the Board of
Directors on which that director served. The Board of Directors has an Audit
Committee and a Compensation Committee, but does not have a nominating committee
or any committee performing a similar function.
The Audit Committee currently consists of Fred A. de Boom and Edward W.
Frykman. The Audit Committee recommends engagement of the Company's independent
accountants and is primarily responsible for approving the services performed by
the Company's independent accountants and for reviewing and evaluating the
Company's accounting principles, financial reporting practices, and its system
of internal accounting controls. The Company's Audit Committee held one meeting
during 1999. The Audit Committee is also responsible for maintaining a line of
communication between the Board of Directors and the Company's independent
accountants.
The Compensation Committee, which currently consists of Thomas B. Akin, Fred
A. de Boom and Edward W. Frykman, is primarily responsible for making
recommendations to the Board of Directors regarding the Company's executive
compensation policy and incentive compensation for employees and consultants to
the Company. In addition, the Compensation Committee administers the 1996 Stock
Option Plan. The Compensation Committee held seven meetings during 1999.
Compensation Committee Interlocks and Insider Participation In 1999, Edward R.
Frykman served as a member of the Compensation Committee. No member of the
Compensation Committee is a former or current officer or employee of the Company
or any of its subsidiaries. See "Certain Relationships and Related Transactions"
for a discussion of certain relationships between the Company and Mr. Frykman.
DIRECTOR COMPENSATION
Directors who are also employees of the Company receive no separate
compensation from the Company for their service as members of the Board of
Directors. Non-employee directors receive a non-discretionary grant of options
to purchase 20,000 shares of the Company's Common Stock upon joining the Board
of Directors and subsequent non-discretionary annual grants of options to
purchase 5,000 shares of the Company's Common Stock, all such grants at an
exercise price equal to the market price on the date of grant. In addition,
non-employee directors receive compensation in the amount of $750 for each
meeting of the Board of Directors and for any Board committee meeting not
immediately preceding or following a Board of Directors meeting attended in
person and $250 for each telephonic meeting. Directors are also
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reimbursed for expenses incurred in connection with attendance at meetings of
the Board of Directors and Board committees and the performance of Board duties.
In December 1999, the Compensation Committee awarded Mr. Frykman an option
to purchase 20,000 shares at an exercise price of $23.75 per share to vest in
equal installments over a two year period, with the first vesting after 6 months
and quarterly thereafter. The option expires in 5 years and was awarded to Mr.
Frykman in recognition for services rendered in connection with the Company's
401(k) plan and other special projects.
MANAGEMENT
EXECUTIVE OFFICERS
Set forth below is certain information concerning the executive officers of
the Company as of the date hereof.
<TABLE>
<S> <C> <C>
President and Chief Executive
Paul R. Ryan 54 Officer
Peter Frank 42 Chief Financial Officer
</TABLE>
Biographical information on Mr. Ryan is set forth above under the caption
"Nominees."
PETER FRANK was formerly Chief Financial Officer of Gramercy Pictures,
interim Chief Financial Officer of RKO Pictures, Vice President, Marketing
Finance and Administrator of 20th Century Fox, Director Corporate Audit for Fox
Inc., and a manager with Arthur Young & Company. He holds a B.S. in Business
Administration from the University of Southern California and is a Certified
Public Accountant.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of the Record Date, information relating
to the beneficial ownership of the Company's Common Stock by each person known
by the Company to be the beneficial owner of more than five percent (5%) of the
outstanding shares of Common Stock, by each director and nominee for director,
by each of the executive officers named in the Summary Compensation Table, and
by all directors and executive officers as a group. The number of shares
beneficially owned by each director or executive officer is determined under
rules of the Securities and Exchange Commission (the "COMMISSION"), and the
information is not necessarily indicative of beneficial ownership for any other
purpose. Under such rules, beneficial ownership includes any shares as to which
the individual has the sole or shared voting power or investment power and also
any shares which the individual has the right to acquire within 60 days of the
Record Date through the exercise of any stock option or other right. Unless
otherwise noted, the Company believes that each person has sole investment and
voting power (or shares such
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powers with his or her spouse) with respect to the shares set forth in the
following table. The address for each person is Acacia Research Corporation, 55
South Lake Avenue, Pasadena, California 91101.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL PERCENT OF
OWNERSHIP(1)(2) CLASS
-------------------- ----------
<S> <C> <C>
R. Bruce Stewart(3)......................................... 560,000(a) 3.84%
Thomas B. Akin(4)........................................... 235,928(b) 1.64%
Paul R. Ryan................................................ 478,167(c) 3.27%
Fred A. de Boom............................................. 49,000(d) *
Edward W. Frykman........................................... 29,450(e) *
Kathryn King-Van Wie(5)..................................... 198,134(f) N/A
Peter Frank................................................. 15,000(g) *
Robert L. Harris II......................................... 0 *
All Directors and Executive Officers as a Group (six
persons)(6)............................................... 1,367,545(h) 9.16%
</TABLE>
- ------------------------
* Represents less than one percent.
(1) All shares which a named stockholder has the right to acquire within 60
days, including through the exercise of stock options and warrants as
described below are deemed outstanding for the purpose of computing the
percentage of Common Stock owned by such named stockholder, but not the
percentage of Common Stock owned by any other stockholder.
(2) Includes the following options and/or warrants exercisable on or within 60
days of the Record Date: (a) options to purchase 200,000 shares;
(b) options to purchase 12,000 shares; (c) options to purchase 259,167
shares; (d) options to purchase 46,000 shares; (e) options to purchase
26,000 shares; (f) options to purchase 86,933 shares; (g) options to
purchase 15,000 shares and (h) options to purchase 558,167 shares.
(3) Mr. Stewart resigned from the Board of Directors on April 7, 2000.
(4) Includes 105,672 shares held by Talkot Crossover Fund, L.P., of which Mr.
Akin serves as managing general partner.
(5) Ms. King-Van Wie resigned her position as Chief Operating Officer in March
2000.
(6) Ms. King-Van Wie is not included in this group. See note (5) above.
9
<PAGE>
EXECUTIVE OFFICER COMPENSATION
SUMMARY COMPENSATION TABLE
The following table shows information concerning compensation earned for
services to the Company in all capacities during the last three fiscal years for
the Company's Chief Executive Officer for the last fiscal year and the two
highly compensated executive officer whose cash compensation exceeded $100,000
in the last fiscal year (the "NAMED EXECUTIVE OFFICERS"):
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
----------------------------------- ------------
OTHER SECURITIES
ANNUAL UNDERLYING
SALARY BONUS COMPENSATION OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) (#) COMPENSATION
- --------------------------- -------- -------- -------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Paul R. Ryan, President and 1999 104,423 0 0 102,917 40,769(1)
Chief Executive Officer 1998 87,115 2,500 0 0 128,944(1)
1997 60,000 5,000 0 50,000 155,597(1)
R. Bruce Stewart, Chairman 1999 130,000 0 21,759(3) 0 0
of the Board of Directors 1998 128,333 2,500 20,308(3) 0 0
and Chief Financial
Officer(2) 1997 130,000 5,000 15,473(3) 0 0
Kathryn King-Van Wie, 1999 109,615 0 0 49,584 0
Chief Operating Officer(4) 1998 83,429 2,500 0 0 0
1997 72,500 5,000 0 75,000 0
</TABLE>
- ------------------------
(1) Represents his 25% share of the management and performance fees received as
general partner of Company affiliated investment funds. See "Transactions
with Management--Transactions with Paul R. Ryan."
(2) Mr. Stewart resigned from his position as Chief Financial Officer in October
1999 and from the Board of Directors in April 2000.
(3) Includes $12,721, $8,478, and $13,895 paid by the Company for certain
automobile expenses in 1999, 1998, and 1997, respectively.
(4) Ms. King-Van Wie resigned her position as Chief Operating Officer in March
2000.
The Company has not entered into employment contracts with any of its Named
Executive Officers nor does the Company have any agreement or arrangement with
any such Named Executive Officers relating to a change in control of the
Company.
10
<PAGE>
STOCK OPTION GRANTS AND EXERCISES
The following table sets forth information regarding stock options granted
to the Named Executive Officers listed below:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------
PERCENT OF
NUMBER OF TOTAL POTENTIAL REALIZABLE VALUE AT
SECURITIES OPTIONS ASSUMED ANNUAL RATE
UNDERLYING GRANTED TO OF STOCK PRICE APPRECIATION
OPTIONS EMPLOYEES EXERCISE OR FOR OPTION TERM(1)
GRANTED IN FISCAL BASE PRICE EXPIRATION -------------------------------
NAME (#) YEAR ($/SH) DATE 0%($) 5%($) 10%($)
- ---- ---------- ---------- ----------- ---------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Paul R. Ryan........... 102,917 14.18% 7.54688 6/30/04 776,702 899,130 1,033,791
R. Bruce Stewart....... 0 0 N/A N/A N/A N/A N/A
Kathryn King-Van Wie... 49,584 6.83% 7.54688 6/30/04 374,204 433,188 498,066
</TABLE>
- ------------------------
(1) The amounts under the columns labeled "5%" and "10%" are included pursuant
to certain rules promulgated by the Commission and are not intended to
forecast future appreciation, if any, in the price of the Company's Common
Stock. The amounts are calculated by using the closing market price of a
share of Common Stock on the grant date as reported by the Nasdaq National
Market and assuming annual compounded stock appreciation rates of 5% and 10%
over the full three-year term of the option. The option grants vest over a
three-year period. The reported amounts are based on the assumption that the
named persons hold the options granted for their full three-year term. The
actual value of the options will vary in accordance with the market price of
the Company's Common Stock. The column headed "0%" is included to
demonstrate that the options were granted at fair market value and optionees
will not recognize any gain without an increase in stock price, which
increase benefits all stockholders commensurately.
The following table sets forth information regarding the stock options
exercised by to the Named Executive Officers during the fiscal year ended
December 31, 1999 and the value of in-the-money options held by the Named
Executive Officers as of December 31, 1999:
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1999 AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES 1999 YEAR-END(#) 1999 YEAR-END(1)($)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED(2)($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Paul R. Ryan........... 0 0 200,000 50,000 5,850,000 1,462,500
R. Bruce Stewart....... 80,000 2,315,000 150,000 50,000 4,387,500 1,462,500
Kathryn King-Van Wie... 45,000 1,229,063 160,000 70,000 4,680,000 2,047,500
</TABLE>
- ------------------------
(1) Represents the difference between the exercise price of the options and the
average of the high and low prices of the Company's Common Stock on the
Nasdaq Stock Market on December 31, 1999 of $29.25 per share.
(2) Value realized represents the difference between the exercise price of the
options and the value of the underlying securities on the date of exercise.
11
<PAGE>
TRANSACTIONS WITH MANAGEMENT AND OTHERS
During the last fiscal year, there were certain transactions that occurred
between the Company and its subsidiaries and its directors, executive officers
and significant shareholders, which are reported below. With respect to each
transaction, the Company has determined that the terms of each arrangement were
no less fair to the Company than those which could have been obtained from
unaffiliated persons.
TRANSACTIONS WITH PAUL R. RYAN. In January 1995, prior to the time Paul
R. Ryan became an officer or director of the Company, the Company and Mr.
Ryan entered into an agreement pursuant to which the Company and Mr. Ryan
agreed to act as the general partners of certain private investment funds
and co-managers to other investment funds. The Company terminated its
management of the funds and its capital management division in the fourth
quarter of 1999. Under this agreement, the Company is entitled to receive
75% and Mr. Ryan is entitled to receive 25% of the performance and
management fees earned in respect of the investment advisory services
provided to co-managed investment funds, less certain expenses shared with
other parties. Pursuant to this agreement, Mr. Ryan earned approximately
$40,769 during fiscal year 1999. Also in January 1995, Mr. Ryan acquired
warrants to purchase 100,000 shares of the Company's Common Stock at an
exercise price of $2.00 per share for an investment of $10,000. At the time
the warrants were issued, the Company was privately-held and had no
actively-traded market for its shares of Common Stock.
TRANSACTION WITH ROBERT B. STEWART. In August 1997, the Company hired
Rob Stewart as Director of Marketing and promoted him to Senior Vice
President in 1999. He is responsible for investor relations and capital
formation for affiliate companies. Rob Stewart is the son of R. Bruce
Stewart, Chairman of the Board of Directors. In 1999, Rob Stewart earned a
base salary of $94,039 and was awarded an option to purchase 10,000 shares
of the Company's Common Stock, vesting over two years, at an exercise price
of $23.75 per share. Rob Stewart was previously awarded in 1998 an option to
purchase 120,000 shares, vesting over four years, at an exercise price of
$3.875 per share.
TRANSACTION WITH EDWARD R. FRYKMAN. In December 1999, Mr. Frykman
received an option to purchase 20,000 shares of the Company's Common Stock
for services rendered to the Company. See "Director Compensation."
COMPENSATION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
The Company's executive compensation program is administered by the
Compensation Committee of the Board of Directors. The Compensation Committee is
responsible for approving the compensation package of each executive officer and
recommending it to the Board of Directors as well as administering the 1996
Stock Option Plan. In making decisions regarding executive compensation, the
Compensation Committee considers the input of the Company's management and other
directors.
The Company's executive compensation program consists of a mixture of base
salary, cash bonuses, and stock option awards. In determining the total amount
and mixture of the compensation package for each executive officer, the
Compensation Committee and the Board of Directors subjectively consider the
overall value to the Company of each executive in light of numerous factors such
as competitive position, individual performance, including past and expected
contribution to the Company's goals of each executive officer, and the Company's
long-term needs and goals, including attracting and retaining key management
personnel.
The Compensation Committee will periodically review the individual base
salaries of the executive officers, and adjust salaries based on individual job
performance and changes in the officer's duties and responsibilities. In making
salary decisions, the Compensation Committee exercises its discretion and
judgment based on these factors. No specific formula is applied to determine the
weight of each factor.
12
<PAGE>
Long-term incentive compensation is realized through granting of stock
options to most employees, including eligible executive officers. The Company
has no other long-term incentive plans. Stock options are granted by the Company
to aid in the retention of employees and to align the interests of employees
with those of the stockholders. In addition, the Compensation Committee believes
that the grant of an equity interest serves to link management interests with
stockholder interest and to motivate executive officers to make long-term
decisions that are in the best interests of the Company and the stockholders as
well as provides an incentive to maximize stockholder value. Stock options have
value for an employee only if the price of the Company's Common Stock increases
above the exercise price on the grant date and the employee remains in the
Company's employ for the period required for the stock to be exercisable, thus
providing an incentive to remain in the Company's employ.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
Paul R. Ryan, the Company's President and Chief Executive Officer, received
an annual base salary of $104,423 and no bonus in 1999. When Mr. Ryan was
appointed Vice President, Capital Management in August 1995 and later Executive
Vice President and Chief Investment Officer in May 1996, he received no salary
for these additional duties. The cash amounts paid to Mr. Ryan in the form of
base salary and bonus were recommended to the Board of Directors by the
Compensation Committee. In exercising its discretion and judgment in reaching
its recommendation, the Compensation Committee took into consideration the
various factors and criteria described above as well as (a) Mr. Ryan's
compensation as a general partner in the investment funds, which is pursuant to
an agreement entered into prior to his being named an officer of the Company
that entitles him to receive 25% of the performance and management fees for
investment advisory services rendered the funds; and (b) Mr. Ryan's additional
duties and responsibilities as President and Chief Executive Officer. The Board
of Directors approved the Compensation Committee's recommendation.
IMPACT OF SECTION 162(M) OF THE INTERNAL REVENUE CODE
The Company does not believe Section 162(m) of the Internal Revenue Code of
1986, as amended (the "CODE"), which disallows a tax deduction for certain
compensation in excess of $1 million, will generally have an effect on the
Company. The Compensation Committee reviews the potential effect of Section
162(m) periodically and will consider various alternatives for preserving the
deductibility of compensation payments. However, the Compensation Committee will
not necessarily limit compensation to that which is deductible.
Respectfully Submitted by the
Compensation
Committee of the Board of Directors,
Thomas B. Akin
Fred A. de Boom
Edward Frykman
13
<PAGE>
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return on the
Common Stock of the Company for the last five fiscal years with the cumulative
total return of (i) the Composite Index for The Nasdaq Stock Market (U.S.
Companies) (the "NASDAQ INDEX") and (ii) the Index for Nasdaq Financial Stocks
(the "INDUSTRY INDEX"). This graph assumes the investment of $100 on June 30,
1995 in the Company's Common Stock, the Nasdaq Index and the Industry Index and
assumes dividends are reinvested. Measurement points are at the last trading day
of the fiscal quarters represented below.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
ACACIA RESEARCH CORPORATION NASDAQ STOCK MARKET (US) NASDAQ FINANCIAL STOCKS
<S> <C> <C> <C>
6.30.1995 100.00 100.00 100.00
9.29.1995 125.00 112.04 113.95
12.29.1995 100.00 113.41 122.24
3.29.1996 145.83 118.71 127.18
6.28.1996 133.33 128.40 130.19
9.30.1996 170.83 132.97 141.22
12.31.1996 125.00 139.51 156.73
3.29.1997 120.83 132.00 163.51
6.28.1997 114.58 156.20 190.40
9.30.1997 200.00 182.62 222.19
12.31.1997 133.33 171.27 240.55
3.31.1998 65.63 200.04 254.36
6.30.1998 132.29 205.83 247.75
9.30.1998 98.99 185.44 204.94
12.31.1998 77.08 240.98 232.88
3.31.1999 65.17 270.09 229.13
6.30.1999 132.29 295.53 256.85
9.30.1999 289.58 302.69 222.87
12.31.1999 487.50 326.31 230.34
</TABLE>
14
<PAGE>
PROPOSAL NO. 3: APPROVAL OF AMENDMENT
TO THE 1996 STOCK OPTION PLAN
(ITEM 3 ON PROXY CARD)
At the Annual Meeting, shareholders will be asked to approve an amendment,
adopted by the Board of Directors on March 28, 2000 (the "AMENDMENT"), to the
1996 Stock Option Plan (as previously amended and as modified by the Amendment,
the "1996 PLAN," unless the context otherwise dictates).
The Company has recently hired a number of management and other personnel,
including those at its subsidiaries, and has granted a significant number of
options in connection with such hiring. As a result, the Board of Directors
believes that it is prudent to increase capacity under the 1996 Plan in order to
assure that sufficient capacity exists in the future for new and existing
personnel employed by the Company and its subsidiaries. The Amendment increases
(1) the aggregate share limit under the 1996 Plan by 1,000,000 shares, for a
proposed new aggregate share limit of 4,000,000 shares (subject to customary
adjustments for recapitalizations and similar events described below) and (2)
the maximum number of shares of Common Stock that may be delivered pursuant to
Options qualified as Incentive Stock Options, for a proposed new maximum limit
of 3,800,000 shares.
As of March 31, 2000, 113,367 shares had been issued pursuant to an exercise
under the Key Employee Program and 1,576,966 shares were subject to outstanding
but unexercised options thereunder. As of March 31, 2000, no shares had been
issued under the Non-Employee Director Program and 89,000 shares were subject to
outstanding but unexercised options thereunder. As of March 31, 2000, a total of
1,309,667 shares remained available for grant purposes (plus any shares which
may become available because outstanding options expire, are cancelled, or
otherwise terminate before being exercised). Of the proposed 4,000,000 share
limit, 3,800,000 shares may be issued pursuant to options qualified as incentive
stock options under the Code.
The benefits to be received in 2000 as a result of the Amendment by the
Named Executive Officers, the current executive officers, the current directors
who are not officers, and all employees are not determinable, because all grants
under the Key Employee Program are discretionary and there is sufficient
existing capacity in the Non-Employee Director Program that approval of the
Amendment will have no near-term impact on the directors' grants.
SUMMARY DESCRIPTION OF THE 1996 PLAN
The 1996 Plan was approved by the Company's shareholders at the 1996 Annual
Meeting. Subsequent amendments were adopted by the Board of Directors in March
1998 and October 1999 and approved by the Company's shareholders at the 1998
Annual Meeting and at the Special Meeting of Shareholders in December 1999,
respectively. The purposes of the 1996 Plan are to promote the interests of the
Company and its shareholders, to improve the long-term financial performance of
the Company, and to attract, motivate and retain outside directors, members of
management and key individuals by providing competitive financial incentives.
The 1996 Plan consists of two parts: the Key Employee Program which allows
discretionary awards of generally nontransferable nonqualified stock options and
incentive stock options to officers of the Company and its subsidiaries, key
employees, non-employee directors, and certain other individuals who perform
significant services for the Company and its subsidiaries; and the Non-Employee
Director Program which provides for automatic annual grants of generally
nontransferable nonqualified stock options to non-employee directors.
The following summary of the 1996 Plan, as modified by the Amendment, is
qualified in its entirety by reference to the text of the 1996 Plan and
additional provisions, not inconsistent with the 1996 Plan, set forth in the
respective award agreements entered into by recipients of options under the 1996
Plan. Capitalized terms not otherwise defined herein have the same meaning as
set forth in the 1996 Plan, a copy
15
<PAGE>
of which is attached as Appendix A. This summary principally addresses the
general provisions of the 1996 Plan; the specific terms and conditions of an
option are set forth in each participant's award agreement.
SHARES ISSUABLE UNDER THE 1996 PLAN. A maximum of 4,000,000 shares of
Common Stock may be issued upon the exercise of options under the 1996 Plan. The
4,000,000 shares represent approximately 28% of the Common Stock issued and
outstanding on the Record Date.
The closing price of the Common Stock on the Record Date was $36.375.
KEY EMPLOYEE PROGRAM
ELIGIBILITY. Persons entitled to receive awards under the Key Employee
Program include officers and key employees (including any executive,
administrative, managerial, production, marketing or sales employee) of the
Company and its subsidiaries, as well as any non-employee director, and certain
other individual consultants, agents, or advisors who render or have rendered
bona fide services for the Company and its subsidiaries, other than services in
connection with the offering or sale of securities of the Company in a capital
raising transaction (collectively, "ELIGIBLE PERSONS"). There are presently
approximately 93 eligible employees of the Company and its subsidiaries who may
participate in the Key Employee Program, including all of the Company's
executive officers and all of its non-employee directors.
ADMINISTRATION. The Key Employee Program is administered by the
Compensation Committee of the Board (the "COMMITTEE"). All Committee members
must be "disinterested persons" within the meaning of Rule 16b-3 issued under
the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"). The
Committee has full authority to authorize option grants to Eligible Persons
under the 1996 Plan. The Committee determines and designates those Eligible
Persons who are to be granted options under the 1996 Plan, the number of shares
to be subject to such options and the terms and conditions of the options
granted, subject to the express provisions of the 1996 Plan and applicable law.
The Committee also has authority to interpret and construe the provisions of the
1996 Plan and any related agreements; to prescribe, amend and rescind rules and
regulations relating to the administration of this 1996 Plan; to cancel, modify
or waive the Company's rights with respect to, or modify, discontinue, suspend,
or terminate awards held by Eligible Persons, subject to any required consent of
the holder of the option; and to accelerate or extend the exercisability or
extend the term of outstanding awards, subject to certain limitations.
GRANT OF AWARDS. The Committee may in its discretion grant one or more
incentive stock options and/or nonqualified stock options to any Eligible
Person. Each option confers the right to purchase shares of the Company's Common
Stock at a future date. The Committee will determine the purchase price per
share for each option, provided that the purchase price per share for an
incentive stock option must be at least equal to the fair market value of the
Common Stock on the award date, or 110% of the fair market value for an
incentive stock option granted to any person who at the time such option is
granted owns shares of Common Stock representing 10% of the total combined
voting power of all classes of Company stock. For a summary of the differences
in the tax treatment of the two types of options, see "Federal Income Tax
Consequences" on p. 19 below.
EXERCISE OF OPTIONS. Unless the Committee otherwise provides, no option
granted under the Key Employee Program may be exercised until at least six
months after the initial award date, subject to acceleration as described below,
and, thereafter, such options become exercisable in one or more installments in
the manner and at the time or times specified by the Committee. Generally, once
exercisable, an option remains exercisable until its expiration or earlier
termination. No option may be exercised more than ten years after the date it is
granted or such shorter period as the Committee may determine, except that
incentive stock options granted to any person who, at the time such option is
granted, owns shares of Common Stock representing 10% of the total combined
voting power of all classes of stock of the Company shall not be exercisable
more than five years after the initial grant of such option.
16
<PAGE>
Subject to these limitations, the Committee may extend or accelerate the
exercisability of an option in any circumstances it deems appropriate; however,
for circumstances related to a change in control or reorganization, only the
Board of Directors may accelerate an option. Payment for the exercise of a stock
option may be made (i) in cash, (ii) in shares of Common Stock already owned by
the option holder for at least six months, (iii) partly in cash and partly in
shares of such Common Stock, (iv) with a promissory note secured by such Common
Stock, or (v) by delivery of a notice instructing the Company to deliver the
shares being purchased to a broker, subject to the broker's delivery of cash to
the Company equal to the purchase price.
REGRANTS AND REPRICING. The Committee may grant an option holder, if he or
she is otherwise eligible, a new or modified option in lieu of an option granted
prior thereto, for a number of shares, at an exercise price, and for a term,
which in any of such respects is greater or lesser than that under the earlier
option, or may effect similar results by cancellation and regrant, amendment,
substitution or otherwise, subject only to the general limitations under the
1996 Plan or under applicable law. Certain of such changes may require the
consent of the holder of the option.
RELOAD OPTIONS. The Committee may authorize an option holder who uses
already-owned shares of Common Stock to pay for the exercise of options to
simultaneously receive a new "reload" option. Subject to certain limitations
specified in the 1996 Plan, such reload options would give the option holder the
right to purchase the same number of shares of Common Stock as such option
holder used to pay for the exercise of the earlier options. The exercise price
of the reload option would be equal to the fair market value of a share of
Common Stock on the date of exercise of the initial option to which the reload
feature relates. The reload option would be exercisable only if (i) the option
holder is an Eligible Person on the exercise date, (ii) the exercise occurs at
least six months after its date of grant and (iii) the initial option to which
the reload option relates has not expired or the Committee has extended the
period in which the reload option may be exercised. The Committee may also
authorize the grant of additional reload options for the number of shares of
Common Stock used to pay for the exercise of any prior reload option. In no
event, however, shall the aggregate number of additional shares authorized by
reload options exceed 50% of the maximum number of shares initially deliverable
(subject to adjustments in accordance with the 1996 Plan) on exercise of the
base option.
TERMINATION OF EMPLOYMENT. The Committee may provide in the option
agreements (which need not be the same) or otherwise, the extent, if any, to
which options will remain exercisable by an Eligible Person or the Eligible
Person's personal representative or beneficiary after an Eligible Person's
employment by the Company terminates for any reason, including voluntary or
involuntary termination, retirement, disability or death, and the extent, if
any, to which the exercisability of options may be accelerated or extended upon
termination of employment. The Committee may make distinctions based upon the
cause of termination in establishing the effect of a termination of employment
on the rights and benefits under an award.
LIMITS ON GRANTS. The maximum number of shares of Common Stock that are
issuable under options that during any calendar year are granted to any Eligible
Person participating in the Key Employee Program may not exceed 400,000, subject
to certain adjustments in accordance with the 1996 Plan. The maximum number of
shares of Common Stock that may be delivered pursuant to incentive stock options
granted under the 1996 Plan is 3,800,000, subject to adjustment in accordance
with the 1996 Plan.
NON-EMPLOYEE DIRECTOR PROGRAM
ADMINISTRATION. The Non-Employee Director Program provides for automatic
grants to members of the Board of Directors who are not officers or employees of
the Company or its subsidiaries. Only three persons are currently eligible for
the Non-Employee Director Program.
17
<PAGE>
GRANTS OF AWARDS. Only nonqualified stock options will be awarded under the
Non-Employee Director Program. Under this program, each Non-Employee Director at
the time of election to the Board of Directors will automatically receive a
nonqualified stock option to purchase 20,000 shares of the Company's Common
Stock. In addition, on the first business day in each calendar year during the
term of the 1996 Plan, each person who is a Non-Employee Director as of such
date will be granted automatically on each such date a nonqualified stock option
to purchase 5,000 shares of Common Stock.
EXERCISE OF OPTIONS. Options awarded under the Non-Employee Director
Program become exercisable in full twelve months after the award date with the
exception of the one-time nonqualified stock options granted to all Non-Employee
Directors to purchase 20,000 shares of the Company's Common Stock, which shall
vest at the rate of 5,000 shares of Common Stock per year on each of the first
four anniversaries of the date of such grant. The options expire on the fifth
anniversary of the award date. Such options become immediately exercisable in
full upon a change in control event, which includes certain charges in ownership
of more than 50% of the outstanding stock and certain mergers, asset sales and
changes in Board of Directors composition. Payment for the exercise of an option
may be made (i) in cash, (ii) in shares of Common Stock already owned by the
option holder, or (iii) partly in cash and partly in shares of Common Stock.
TERMINATION OF DIRECTORSHIP. When a non-employee director's services as a
member of the Board of Directors terminate for any reason, the director's
options, to the extent they are exercisable on such date, shall remain
exercisable for six months after the date of such termination or until the
expiration of their stated term, whichever occurs first. Any option which is not
exercisable on the date of termination of such services will terminate upon a
termination of service of the director.
AMENDMENTS AND MISCELLANEOUS
SHARES AVAILABLE FOR AWARDS--REPLENISHMENT. Shares relating to options
granted under the 1996 Plan that expire or for any reason are cancelled or
terminated, fail to vest, or for any other reason are not deliverable will
again, except to the extent prohibited by law or terms of the 1996 Plan, be
available for subsequent options.
ADJUSTMENT AND ACCELERATION. The number and type of shares available under
the 1996 Plan, as well as the number and price of shares subject to outstanding
options granted thereunder and other share amounts or limits under the 1996
Plan, are subject to adjustment upon or in contemplation of any
reclassification, recapitalization, stock split (including a stock split in the
form of a stock dividend), reverse stock split, merger, combination,
consolidation, or other reorganization; any split-up, spin-off, or similar
extraordinary dividend distribution in respect of the Common Stock, any exchange
of the Common Stock or other securities of the Company, or any similar, unusual
or extraordinary corporate transaction in respect of the Common Stock, or a sale
of substantially all of the assets of the Company as an entirety, so that the
participant's proportionate interest will be maintained as before the occurrence
of any such event. However, options granted to Non-Employee Directors shall be
adjusted as described above only to the extent such adjustment is consistent
with adjustments to options held by persons other than executive officers or
directors of the Company.
Upon the occurrence of a change in control, each option granted under the
1996 Plan to an Eligible Person will immediately become exercisable, unless the
Board of Directors, prior to such change in control, determines otherwise.
Generally, a change in control occurs under the 1996 Plan when
(i) the shareholders of the Company approve the dissolution or liquidation of
the Company;
(ii) with certain exceptions, the consummation of a merger, consolidation, or
other reorganization with or into, or the sale of all or substantially all
of the Company's business and/or assets as an entirety to, one or more
entities that are not subsidiaries or other affiliates of the Company;
18
<PAGE>
(iii) with certain exceptions, any person becomes the beneficial owner of
securities of the Company representing 25% or more of the combined voting
power of the Company's then outstanding securities entitled to vote in the
election of directors of the Company; or
(iv) during any two-year period, individuals who at the beginning of such period
constituted the Board of Directors cease to constitute at least a majority
thereof, unless the election, or the nomination for election by the
Company's shareholders, of each new Board member was approved by a vote of
at least three-fourths of the Board members then still in office who were
Board members at the beginning of such period.
TERMINATION OF OR CHANGES TO THE 1996 PLAN. The authority to grant new
options under the 1996 Plan will terminate on April 15, 2006, unless the 1996
Plan is terminated prior to that time by the Board of Directors. The Board of
Directors may terminate or amend the 1996 Plan at any time, but no amendment
may, without the approval of the shareholders, (i) materially increase the
benefits accruing to participants under the 1996 Plan, (ii) materially increase
the aggregate number of shares which may be issued under the 1996 Plan, or (iii)
materially modify the requirements of eligibility for participation. No
amendment, suspension or termination of the 1996 Plan will, without the written
consent of the participant, materially adversely affect any rights or benefits
of such participant or obligations of the Company under any then outstanding
award granted under the 1996 Plan.
TRANSFERABILITY. The 1996 Plan provides that all options are
non-transferable and will not become subject in any manner to sale, transfer,
anticipation, alienation, assignment, pledge, encumbrance or charge. The
Committee may, however, permit options to be exercised by certain persons or
entities related to a participant for estate and/or tax planning purposes.
Incentive stock options and restricted stock awards will be further subject to
all applicable transfer restrictions under the Code. Only the participant,
subject to the above exceptions, may exercise an option during the participant's
lifetime.
AWARD AGREEMENT. Each option granted to a Participant must be evidenced by
a written Award Agreement executed by the Participant and an authorized officer
of the Company, containing all the terms and conditions of the Option. Award
Agreements need not be identical and the terms of individual Award Agreements
are determined by the Committee, subject to the limitations described in the
1996 Plan.
COMPLIANCE WITH LAWS. Any securities delivered under the 1996 Plan shall be
subject to all applicable federal and state laws, rules and regulations
(including but not limited to state and federal securities laws and federal
margin requirements) and to such regulatory approvals as may, in the opinion of
counsel for the Company, be necessary or advisable in connection therewith, and
the person acquiring such securities must, if requested by the Company, provide
such assurances and representations to the Company as the Company may deem
necessary or desirable to assure compliance with all applicable legal
requirements.
1996 PLAN NOT EXCLUSIVE. The 1996 Plan does not limit the authority of the
Board of Directors or the Committee to grant awards or authorize any other
compensation, with or without reference to Common Stock, under any other plan or
authority. Shareholder approval of the Amendment, however, will not be deemed to
constitute approval of any such other compensatory awards.
FEDERAL INCOME TAX CONSEQUENCES
The federal income tax consequences of the 1996 Plan under current federal
law, which is subject to change, are summarized in the following discussion
which deals with the general tax principles applicable to the 1996 Plan. State
and local consequences are beyond the scope of this summary.
NONQUALIFIED STOCK OPTIONS. In general, no taxable income will be
recognized by an Eligible Person or Non-Employee Director who receives an award
under the 1996 Plan (a "PARTICIPANT") upon the grant of a nonqualified stock
option under the 1996 Plan. Upon the exercise of a nonqualified stock option,
the
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Participant will recognize ordinary income in an amount equal to the excess of
the fair market value of the Common Stock over the option exercise price, and
the Company will be entitled to a corresponding deduction. Upon a subsequent
disposition of the Common Stock, the Participant will recognize short-term or
long-term capital gain or loss, depending on how long the Common Stock is held.
The Company will not be entitled to any further deduction at that time.
INCENTIVE STOCK OPTIONS. A Participant who is granted an incentive stock
option under the 1996 Plan will not recognize taxable income either on the date
of grant or on the date of its exercise, provided that, in general, the exercise
occurs during employment or within three months after termination of employment.
If Common Stock acquired pursuant to an incentive stock option is not sold or
otherwise disposed of within two years from the date of grant of the option nor
within one year after the date of exercise, any gain or loss resulting from
disposition of the Common Stock will be treated as long-term capital gain or
loss. If stock acquired upon the exercise of an incentive stock option is
disposed of prior to the expiration of such holding periods (a "DISQUALIFYING
DISPOSITION"), the Participant will recognize ordinary income in the year of
such disposition in an amount equal to the excess of the fair market value of
the Common Stock on the date of exercise over the exercise price or, if less,
the excess of the amount realized on the Disqualifying Disposition over the
exercise price. Any remaining gain or any net loss will be treated as a short-or
long-term capital gain or loss, depending upon how long the Common Stock is
held. Unlike the case in which a nonqualified stock option is exercised, the
Company is not entitled to a tax deduction upon either the grant or exercise of
an incentive option or upon disposition of the Common Stock acquired pursuant to
such exercise, except to the extent that the Participant recognizes ordinary
income in a Disqualifying Disposition.
ACCELERATED PAYMENTS. If, as a result of certain changes in control of the
Company, a recipient's options become immediately exercisable, the additional
economic value, if any, attributable to the acceleration may be deemed a
"parachute payment." The additional value will generally be deemed a parachute
payment if such value, when combined with the value of other payments which are
deemed to result from the change in control, equals or exceeds a threshold
amount equal to 300% of the recipient's average annual taxable compensation over
the five calendar years preceding the year in which the change in control
occurs. In such case, the excess of the total parachute payments over such
recipient's average annual taxable compensation will be subject to a 20%
nondeductible excise tax in addition to any income tax payable. The Company will
not be entitled to a deduction for that portion of any parachute payment which
is subject to the excise tax.
SECTION 162(M) LIMITS ON DEDUCTIBILITY. Section 162(m) of the Internal
Revenue Code of 1986, as amended, limits the amount which may be deducted by the
Company with respect to compensation paid to the Chief Executive Officer and the
four other most highly compensated executives to $1 million per tax year for
each individual, unless such excess compensation is "performance-based" or is
otherwise exempt from Section 162(m). The applicable conditions of an exemption
for a performance-based compensation plan include, among others, a requirement
that the shareholders approve the material terms of the 1996 Plan. Stock options
that may be granted under the 1996 Plan (other than any nonqualified stock
options granted at below market value exercise prices) are intended to qualify
for the exemption for performance-based compensation under Section 162(m).
For information on options granted to directors and executive officers of
the Company, see "Director and Executive Officer Compensation" above.
The number, amount and type of options to be received by or allocated to
Eligible Persons in the future under the 1996 Plan cannot be determined at this
time. At this time, the Company has not made any additional awards under the
1996 Plan.
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VOTE REQUIRED
The affirmative "FOR" vote of a majority of the share of the Company's
Common Stock cast at the Annual Meeting regarding the proposal is required to
approve the Amendment. If they are not approved, the Amendment will not be
adopted. THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE
APPROVAL OF THE AMENDMENT TO THE 1996 PLAN AS DESCRIBED ABOVE. PROXIES RECEIVED
WILL BE SO VOTED UNLESS SHAREHOLDERS SPECIFY OTHERWISE IN THE PROXY.
PROPOSAL NO. 4: RATIFICATION OF SELECTION OF
INDEPENDENT ACCOUNTANTS
(ITEM 4 ON PROXY CARD)
The firm of PricewaterhouseCoopers LLP, the Company's independent
accountants for the year ended December 31, 1999, was recommended by the Audit
Committee, whose selection was approved by the Board of Directors to act in such
capacity for the fiscal year ending December 31, 2000, subject to ratification
by the stockholders.
PricewaterhouseCoopers LLP has served as the principal independent
accountants for the Company since April 1997. There are no affiliations between
the Company and PricewaterhouseCoopers LLP, its partners, associates or
employees, other than as pertain to the engagement of PricewaterhouseCoopers LLP
as independent accountants for the Company.
If the stockholders of the Company do not ratify the selection of
PricewaterhouseCoopers LLP, or if such firm should decline to act or otherwise
become incapable of acting, or if the employment should be discontinued, the
Board of Directors, on the recommendation of the Audit Committee, will appoint
substitute independent accountants. A representative of PricewaterhouseCoopers
LLP will be present at the Annual Meeting, will be given the opportunity to make
a statement if he or she so desires, and will be available to respond to
appropriate questions.
VOTE. The favorable vote of a majority of votes cast regarding the proposal
is required to ratify the selection of PricewaterhouseCoopers LLP. THE BOARD OF
DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE PROPOSAL TO RATIFY THE
SELECTION OF PRICEWATERHOUSECOOPERS LLP AS THE COMPANY'S INDEPENDENT ACCOUNTANTS
FOR THE YEAR ENDING DECEMBER 31, 2000. PROXIES RECEIVED WILL BE SO VOTED UNLESS
STOCKHOLDERS SPECIFY OTHERWISE IN THE PROXY.
OTHER MATTERS
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors,
executive officers and holders of more than 10% of the Company's Common Stock to
file with the Commission initial reports of ownership and reports of changes in
ownership of Common Stock of the Company. The Company believes that, based on
the written representations of its directors and officers, and the copies of
reports filed with the Commission during the fiscal year ended December 31, 1999
by its directors, officers and holders of more than 10% of the Company's Common
Stock complied with the requirements of Section 16(a) with the exception of: (i)
Peter Frank and Mary Rose Colonna, who did not timely file Form 3; and (ii) Mr.
Akin, Mr. de Boom and Mr. Frykman, who did not timely file Form 5 to report one
transaction each.
ANNUAL REPORT TO STOCKHOLDERS
Enclosed with this Proxy Statement is the Annual Report of the Company for
the fiscal year ended December 31, 1999. The Annual Report is enclosed for the
convenience of stockholders only and should not be viewed as part of the proxy
solicitation material. If any person who was a beneficial owner of Common Stock
of the Company on the Record Date for the 2000 Annual Meeting desires additional
copies of the Company's Annual Report, the same will be furnished without charge
upon receipt of a
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written request. The request should identify the person making the request as a
stockholder of the Company as of the Record Date and should be directed to
Victoria White, Acacia Research Corporation, 55 South Lake Avenue, Pasadena,
California 91101.
STOCKHOLDER PROPOSALS FOR THE 2001 ANNUAL MEETING
Proposals of stockholders intended to be presented at the 2001 Annual
Meeting must be received by the Company by December __, 2000 to be considered
for inclusion in the Company's proxy statement relating to that meeting.
Stockholders desiring to present a proposal at the 2001 Annual Meeting but who
do not desire to have the proposal included in the proxy materials distributed
by the Company must deliver written notice of such proposal to the Company on or
after January 17, 2001 and on or before February 16, 2001 or the persons
appointed as proxies in connection with the 2001 Annual Meeting will have
discretionary authority to vote on any such proposal.
OTHER BUSINESS
The Company knows of no other matters to be submitted to the stockholders at
the Annual Meeting. If any other matters properly come before the stockholders
at the Annual Meeting, it is the intention of the persons named on the enclosed
proxy card to vote the shares they represent as the Board of Directors may
recommend.
Dated: April __, 2000
By Order of the Board of Directors,
Victoria White
SECRETARY
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APPENDIX A
ACACIA RESEARCH CORPORATION
1996 STOCK OPTION PLAN
(as amended on March 30, 1998 and October 6, 1999 and March 28, 2000)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C>
ARTICLE I. THE PLAN.................................................... A-1
Section 1.1 Purpose..................................................... A-1
Section 1.2 Administration and Authorization; Power and Procedure....... A-1
Section 1.3 Participation............................................... A-2
Section 1.4 Shares Available for Awards................................. A-2
Section 1.5 Grant of Awards............................................. A-3
Section 1.6 Award Period................................................ A-3
Section 1.7 Exercise and Vesting of Awards.............................. A-3
Section 1.8 No Transferability.......................................... A-3
ARTICLE II. KEY EMPLOYEE OPTIONS........................................ A-4
Section 2.1 Grants...................................................... A-4
Section 2.2 Option Price................................................ A-4
Section 2.3 Limitations on Grant and Terms of Incentive Stock Options... A-5
Section 2.4 Limits on 10% Holders....................................... A-6
Section 2.5 Option Repricing/Cancellation and Regrant................... A-6
ARTICLE
III. NON-EMPLOYEE DIRECTOR OPTIONS............................... A-6
Section 3.1 Participation............................................... A-6
Section 3.2 Annual Option Grants........................................ A-6
Section 3.3 Option Price................................................ A-7
Section 3.4 Option Period............................................... A-7
Section 3.5 Exercise of Options......................................... A-7
Section 3.6 Termination of Directorship................................. A-7
Section 3.7 Adjustments................................................. A-7
Section 3.8 Acceleration Upon a Change in Control Event................. A-7
ARTICLE IV. OTHER PROVISIONS............................................ A-8
Rights of Eligible Persons, Participants and
Section 4.1 Beneficiaries............................................. A-8
Section 4.2 Adjustments; Acceleration................................... A-8
Section 4.3 Effect of Termination of Employment......................... A-10
Section 4.4 Compliance with Laws........................................ A-10
Section 4.5 Tax Withholding............................................. A-10
Plan Amendment, Termination and Suspension; Changes in
Section 4.6 Awards.................................................... A-10
Section 4.7 Privileges of Stock Ownership............................... A-11
Section 4.8 Effective Date of Plan...................................... A-11
Section 4.9 Term of the Plan............................................ A-11
Section
4.10 Governing Law/Construction/Severability..................... A-11
Section
4.11 Captions.................................................... A-12
Section
4.12 Effect of Change of Subsidiary Status....................... A-12
Section
4.13 Non-Exclusivity of Plan..................................... A-12
Section
4.14 No Restriction on Corporate Powers.......................... A-12
Section
4.15 Effect on Other Benefits.................................... A-12
ARTICLE V. DEFINITIONS................................................. A-13
Section 5.1 Definitions................................................. A-13
</TABLE>
<PAGE>
ACACIA RESEARCH CORPORATION
1996 STOCK OPTION PLAN
(as amended March 30, 1998 and October 6, 1999 and March 28, 2000)
ARTICLE I. THE PLAN
SECTION 1.1 PURPOSE.
The purpose of this Plan is to promote the success of the Company by
providing an additional means through the grant of Awards (a) to attract,
motivate and retain key employees, including officers, and directors of the
Company and other eligible persons with rewards and incentives for high levels
of individual performance and improved financial performance of the Company
under the "Key Employee Program" in Article II, and (b) to attract, motivate and
retain experienced and knowledgeable independent directors through the benefits
provided under the "Non-Employee Director Program" in Article III. "Corporation"
means Acacia Research Corporation and "Company" means the Corporation and its
Subsidiaries, collectively. These terms and other capitalized terms if not
defined elsewhere in the text of this Plan, are defined in Article V.
SECTION 1.2 ADMINISTRATION AND AUTHORIZATION; POWER AND PROCEDURE.
(a) COMMITTEE. This Plan shall be administered by and all Awards to
Eligible Persons shall be authorized by the Committee. Any action of the
Committee with respect to the administration of this Plan shall be taken
pursuant to a majority vote or by written consent of its members.
(b) PLAN AWARDS; INTERPRETATION; POWERS OF COMMITTEE. Subject to the
express provisions of this Plan, the Committee shall have the authority:
(i) to determine from among those eligible persons the particular
Eligible Persons who will receive any Awards;
(ii) to grant Awards to Eligible Persons, determine the price at
which securities will be offered or awarded and the amount of securities
to be offered or awarded to any of such persons, and determine the other
specific terms and conditions of such Awards consistent with the express
limits of this Plan, and establish the installments (if any) in which
such Awards shall become exercisable, or determine that no delayed
exercisability is required, and establish the events of termination of
such Awards;
(iii) to approve the forms of Award Agreements (which need not be
identical either as to type of award or among Participants);
(iv) to construe and interpret this Plan and any agreements defining
the rights and obligations of the Company and any Eligible Person under
this Plan, further define the terms used in this Plan, and prescribe,
amend and rescind rules and regulations relating to the administration of
this Plan;
(v) to cancel, modify or waive the Corporation's rights with respect
to, or modify, discontinue, suspend, or terminate any or all outstanding
Awards held by Eligible Persons, subject to any required consent under
Section 4.6;
(vi) to accelerate or extend the exercisability or extend the term
of any or all such outstanding Awards within the maximum ten-year term of
Awards under Section 1.6; and
(vii) to make all other determinations and take such other action as
contemplated by this Plan or as may be necessary or advisable for the
administration of this Plan and the effectuation of its purposes.
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Notwithstanding the foregoing, the provisions of Article III relating
to Non-Employee Director Awards shall be non-discretionary, automatic
and, to the maximum extent possible, self-effectuating. To the extent
required, any interpretation or administration of this Plan in respect of
Options granted under Article III will be the responsibility of the
Board.
(c) BINDING DETERMINATIONS. Any action taken by, or inaction of, the
Corporation, any Subsidiary, the Board or the Committee relating or
pursuant to this Plan shall be within the absolute discretion of that
entity or body and shall be conclusive and binding upon all persons. No
member of the Board or Committee, or officer of the Corporation or any
Subsidiary, shall be liable for any such action or inaction of the entity
or body, of another person or, except in circumstances involving bad
faith, of himself or herself. Subject only to compliance with the express
provisions hereof, the Board and Committee may act in their absolute
discretion in matters within their authority related to this Plan.
(d) RELIANCE ON EXPERTS. In making any determination or in taking or not
taking any action under or with respect to this Plan, the Committee or
the Board, as the case may be, may obtain and may rely upon the advice of
experts, including professional advisors to the Corporation. No director,
officer or agent of the Company shall be liable for any such action or
determination taken or made or omitted in good faith.
(e) DELEGATION. The Committee may delegate ministerial,
non-discretionary functions to individuals who are officers or employees
of the Company.
SECTION 1.3 PARTICIPATION.
Awards may be granted by the Committee only to those persons that the
Committee determines to be Eligible Persons. An Eligible Person who has been
granted an Award may, if otherwise eligible, be granted additional Awards if the
Committee shall so determine. Non-Employee Directors may be granted
discretionary Awards in accordance with Article II in addition to any
Nonqualified Stock Options granted automatically under the provisions of
Article III.
SECTION 1.4 SHARES AVAILABLE FOR AWARDS.
Subject to the provisions of Section 4.2, the capital stock that may be
delivered under this Plan shall be shares of the Corporation's authorized but
unissued Common Stock. The shares may be delivered for any lawful consideration.
(a) NUMBER OF SHARES. The maximum aggregate number of shares of Common
Stock that may be delivered pursuant to all Awards granted under this
Plan (including under Articles II and III) shall not exceed 4,000,000
shares (the "Share Limit"). The maximum number of shares of Common Stock
that may be delivered pursuant to Options qualified as Incentive Stock
Options granted under this Plan is 3,800,000. Each of the foregoing
numerical limits shall be subject to adjustments as contemplated by
Section 4.2. The maximum number of shares of Common Stock that are
issuable under Options that during any calendar year are granted to any
Participant shall not exceed 400,000, subject to adjustments contemplated
by Section 4.2.
(b) CALCULATION OF AVAILABLE SHARES AND REPLENISHMENT. No Option may be
granted under this Plan unless, on the date of grant, the sum of (i) the
maximum number of shares of Common Stock issuable at any time pursuant to
such Option, plus (ii) the number of shares of Common Stock that have
previously been issued pursuant to Options granted under this Plan, other
than reacquired shares available for reissue consistent with any
applicable limitations, plus (iii) the maximum number of shares that may
be issued at any time after such date of grant pursuant to Options that
are outstanding on such date, does not exceed the Share Limit. Shares
subject to outstanding Awards shall be reserved for issuance. Shares of
Common Stock that are subject to or underlie Options that expire or for
any reason are canceled or terminated, fail to vest, or for
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any other reason are not delivered under this Plan will again, except to
the extent prohibited by law or the terms of this Plan, be available for
subsequent Options under this Plan. Shares of Common Stock issued
pursuant to the terms hereof (including shares of Common Stock offset in
satisfaction of applicable withholding taxes or the exercise price of any
Option) shall reduce on a share-for-share basis the number of shares of
Common Stock remaining available under this Plan.
SECTION 1.5 GRANT OF AWARDS.
Subject to the express provisions of this Plan, the Committee will determine
the terms and conditions of all Awards to Eligible Persons, the number of shares
of Common Stock subject to each Award and the price to be paid for the shares
subject to each Award. Each Award shall be evidenced by an Award Agreement
signed by the Corporation and, if required by the Committee, by the Participant.
SECTION 1.6 AWARD PERIOD.
All Awards to Eligible Persons and all executory rights or obligations under
the related Award Agreements shall expire on such date (if any) as shall be
determined by the Committee, but not later than 10 years after the Award Date,
and shall be subject to earlier termination as provided herein or in the Award
Agreements, provided that the Committee may specifically authorize in writing
the deferred delivery of shares of Common Stock otherwise delivered under this
Plan. The Committee from time to time may authorize by amendment to or waiver of
the Award Agreements or otherwise, as to any number of Awards or all Awards to
Eligible Persons, any extension or acceleration of benefits thereunder.
SECTION 1.7 EXERCISE AND VESTING OF AWARDS.
(a) PROVISIONS FOR EXERCISE. Unless the Committee otherwise provides, no
Eligible Person's Award shall be exercisable until at least 6 months
after the initial Award Date and, once exercisable, an Award shall remain
exercisable until the expiration or earlier cancellation or termination
of the Award.
(b) PROCEDURE. Any exercisable Award shall be deemed to be exercised
when the Secretary of the Corporation receives written notice of such
exercise from the Participant (on a form and in such manner as may be
required by the Committee), together with any required payment made in
accordance with Section 2.2(a) or 3.3, as the case may be, and Section
4.5 and any written statement required pursuant to Section 4.4.
(c) FRACTIONAL SHARES/MINIMUM ISSUE. Fractional share interests shall be
disregarded, but may be accumulated. The Committee may, however, in the
case of Eligible Persons determine in the Award Agreement or thereafter
that cash, other securities, or other property will be paid or
transferred in lieu of any factional share interests. No fewer than 100
shares may be required on exercise of an Award at one time unless the
number purchased is the total number at the time available for purchase
under the Award.
SECTION 1.8 NO TRANSFERABILITY.
(a) LIMIT ON EXERCISE AND TRANSFER. Unless otherwise expressly provided in
(or pursuant to) this Section 1.8, by applicable law and by the Award Agreement,
as the same may be amended, (i) all Awards are non-transferable and shall not be
subject in any manner to sale, transfer, anticipation, alienation, assignment,
pledge, encumbrance or charge; (ii) Awards shall be exercised only by the
Participant; and (iii) amounts payable or shares issuable pursuant to an Award
shall be delivered only to (or for the account of) the Participant.
(b) EXCEPTIONS. The Committee may permit Awards to be exercised by and
paid only to certain persons or entities related to the Participant, including
but not limited to members of the Participant's immediate family, charitable
institutions, or trusts or other entities whose beneficiaries or beneficial
A-3
<PAGE>
owners are members of the Participant's immediate family and/or charitable
institutions, or to such other persons or entities as may be approved by the
Committee, pursuant to such conditions and procedures as the Committee may
establish. Any permitted transfer shall be subject to the condition that the
Committee receive evidence satisfactory to it that the transfer is being made
for estate and/or tax planning purposes or a gratuitous or donative basis and
without consideration (other than nominal consideration). Incentive Stock
Options shall be subject to any and all additional transfer restrictions under
the Code (notwithstanding Section 1.8(c)).
(c) FURTHER EXCEPTIONS TO LIMITS ON TRANSFER. The exercise and transfer
restrictions in Section 1.8(a) shall not apply to:
(i) transfers to the Corporation,
(ii) the designation of a beneficiary to receive benefits in the event
of the Participant's death or, if the Participant has died, transfers to
or exercise by the Participant's beneficiary, or, in the absence of a
validly designated beneficiary, transfers by will or the laws of descent
and distribution,
(iii) transfers pursuant to a QDRO order,
(iv) if the Participant has suffered a disability, permitted transfers
or exercises on behalf of the Participant by his or her legal
representative, or
(v) the authorization by the Committee of "cashless exercise" procedures
with third parties who provide financing for the purpose of (or who
otherwise facilitate) the exercise of Awards consistent with applicable
laws and the express authorization of the Committee.
ARTICLE II. KEY EMPLOYEE OPTIONS
SECTION 2.1 GRANTS.
One or more Options may be granted under this Article to any Eligible
Person. Each Option granted may be either an Option intended to be an Incentive
Stock Option, or not so intended, as determined by the Committee, and such
intent shall be indicated in the applicable Award Agreement. Notwithstanding the
preceding sentence, Options granted to Other Eligible Persons shall only be
Nonqualified Stock Options.
SECTION 2.2 OPTION PRICE.
(a) PRICING LIMITS. The purchase price per share of the Common Stock
covered by each Option granted under this Article shall be determined by
the Committee at the time of the Award, but in the case of Incentive
Stock Options shall not be less than 100% (110% in the case of an
Eligible Person Participant described in Section 2.4) of the Fair Market
Value of the Common Stock on the date of grant.
(b) PAYMENT PROVISIONS. No shares shall be delivered pursuant to the
exercise of an Option granted under this Article until payment of the
full purchase price of such shares is received by the Corporation at its
principal office located at 55 S. Lake Avenue, Pasadena, California
91101, or at such other place as the Committee may specify from time to
time. Payment methods may include any of the following, pursuant to such
conditions and rules or procedures as may be established by the Committee
from time to time or as may be set forth in the Award Agreement:
(i) In cash;
(ii) In shares of Common Stock already owned by the Participant;
(iii) Partly in cash and partly in shares of Common Stock already owned
by the Participant; or
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(iv) By delivery of a notice instructing the Corporation to deliver the
shares being purchased to a broker, subject to the broker's delivery of
cash to the Corporation equal to the purchase price; or
(v) To the extent an applicable Award Agreement so provides, payment may
be made in whole or in part by a promissory note executed by the
recipient of an Award in favor of the Corporation, upon terms and
conditions determined by the Committee, and secured by the Common Stock
issuable upon exercise of the Options granted by such Award in compliance
with applicable law (including, without limitation, state corporate law
and federal margin requirements).
Any shares used for payment pursuant to clause (ii) or (iii) above that were
acquired by the Participant from the Corporation (pursuant to an option exercise
or otherwise) shall have been held by the Eligible Person Participant for at
least six months prior to such exercise date. Common Stock accepted as a payment
shall be valued at the Fair Market Value of the Common Stock on the date of
exercise.
(c) RELOAD OPTIONS. The Committee may provide in an Award Agreement
that, effective as of the date of exercise by a Participant of all or
part of an Option (the "Base Option") by delivering shares of Common
Stock already owned by the Participant to the extent permitted by
subsection (b)(ii) or (iii) above, the Eligible Person Participant shall
be granted an additional Option (a "Reload Option") to purchase at the
Fair Market Value on the date of such exercise and new grant, a number of
shares of Common Stock equal to the number of whole shares (subject to
reduction in the case of an outstanding Incentive Stock Option to the
extent necessary to comply with the $100,000 limit set forth in Section
2.3(a)) used by the Participant to pay or toward the payment of the
exercise price of the Base Option, provided the Participant at the time
of such exercise is an Eligible Person. The Reload Option may be
exercised between the date six months after its grant and the original
date of expiration of the Base Option or such later time as the Committee
may permit. The Reload Option shall be evidenced in the Award Agreement
for the Base Option or by any other writing containing such terms and
conditions as the Committee shall approve, which conditions may provide
that upon the exercise of any Reload Option, an additional Reload Option
may be granted with respect to the number of whole shares used to
exercise the prior outstanding Reload Option. In no event, however, shall
the aggregate number of additional shares authorized by Reload Option(s)
exceed 50% of the maximum number of shares initially deliverable (subject
to adjustments pursuant to Section 4.2(a)) on exercise of the Base
Option.
SECTION 2.3 LIMITATIONS ON GRANT AND TERMS OF INCENTIVE STOCK OPTIONS.
(a) $100,000 LIMIT. To the extent that the aggregate "fair market value"
(as defined below) of stock with respect to which incentive stock options
first become exercisable by a Participant in any calendar year exceeds
$100,000, taking into account both Common Stock subject to Incentive
Stock Options under this Plan and stock subject to incentive stock
options under all other plans of the Company, such options shall be
treated as Nonqualified Stock Options. For this purpose, the "fair market
value" of the stock subject to options shall be determined as of the date
the options were awarded. In reducing the number of options treated as
incentive stock options to meet the $100,000 limit, the most recently
granted options shall be reduced first. To the extent a reduction of
simultaneously granted options is necessary to meet the $100,000 limit,
the Committee may, in the manner and to the extent permitted by law,
designate which shares of Common Stock are to be treated as shares
acquired pursuant to the exercise of an Incentive Stock Option.
(b) OPTION PERIOD. Each Option and all rights thereunder shall expire no
later than 10 years after the Award Date.
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(b) OTHER CODE LIMITS. There shall be imposed in any Award Agreement
relating to Incentive Stock Options such terms and conditions as from
time to time are required in order that the Option be an "incentive stock
option" as that term is defined in Section 422 of the Code.
SECTION 2.4 LIMITS ON 10% HOLDERS.
No Incentive Stock Option may be granted to any person who, at the time the
Option is granted, owns (or is deemed to own under Section 424(d) of the Code)
shares of outstanding Common Stock representing more than 10% of the total
combined voting power of all classes of stock of the Corporation, unless the
exercise price of such Option is at least 110% of the Fair Market Value of the
stock subject to the Option on the date of grant and such Option by its terms is
not exercisable after the expiration of five years from the date such Option is
granted.
SECTION 2.5 OPTION REPRICING/CANCELLATION AND REGRANT.
Subject to Section 1.4 and Section 4.6 and the general limitations on Awards
contained elsewhere in this Plan, the Committee from time to time may authorize,
generally or in specific cases only, any adjustment in the exercise or purchase
price, the number of shares subject to, or the term of, an Award granted under
this Article by cancellation of an outstanding Award and a subsequent regranting
of an Award, by amendment, by substitution of an outstanding Award, by waiver or
by other legally valid means. Such amendment or other action may result among
other changes in an exercise or purchase price which is higher or lower than the
exercise or purchase price of the original or prior Award, provide for a greater
or lesser number of shares subject to the Award, or provide for a longer or
shorter vesting or exercise period.
ARTICLE III. NON-EMPLOYEE DIRECTOR OPTIONS
SECTION 3.1 PARTICIPATION.
Awards under this Article III shall be made only to Non-Employee Directors.
SECTION 3.2 ANNUAL OPTION GRANTS.
(a) TIME OF INITIAL AWARD. Subject to approval by the shareholders of
the Corporation, persons who are Non-Employee Directors at the time of
the Plan's adoption on April 16, 1996, and persons who are elected or
appointed to the Board after April 16, 1996, on the date of such
election, shall each be granted without further action a Nonqualified
Stock Option to purchase 20,000 shares of Common Stock.
(b) SUBSEQUENT ANNUAL AWARDS. On the first business day in each calendar
year following the approval of this Plan by the shareholders of the
Corporation and during the term of this Plan, there shall be granted
automatically (without any action by the Committee or the Board) a
Nonqualified Stock Option (the Award Date of which shall be such date) to
each Non-Employee Director then in office to purchase 5,000 shares of
Common Stock on each such date.
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SECTION 3.3 OPTION PRICE.
The purchase price per share of the Common Stock covered by each Option
granted pursuant to Section 3.2 hereof shall be 100 percent of the Fair Market
Value of the Common Stock on the Award Date. The Award Date of Options granted
under Section 3.2(a) shall, for purposes of determining the Option price, be
April 16, 1996 with respect to Options granted to Non-Employee Directors as of
that date, or the date such Option is granted upon election or appointment of
the applicable director to the Board with respect to all other Options granted
under Section 3.2(a). The purchase price of any shares purchased shall be paid
in full at the time of each purchase either (i) in cash or by check of or on
behalf of the Non-Employee Director, (ii) in shares of Common Stock valued at
their Fair Market Value on the date of exercise of the Option or (iii) partly in
such shares and partly in cash; provided that if payments are made pursuant to
clauses (ii) and (iii) above any shares used for such payment that were acquired
from the Corporation (pursuant to an option exercise or otherwise) shall have
been held by the Non-Employee Director Participant for at least six months prior
to such exercise date.
SECTION 3.4 OPTION PERIOD.
Each option granted under this Article III and all rights or obligations
thereunder shall expire on the fifth anniversary of the Award Date and shall be
subject to earlier termination as provided below.
SECTION 3.5 EXERCISE OF OPTIONS.
Each Option granted under this Article III shall become exercisable in full
12 months after the Award Date, except (i) such Options granted pursuant to
Section 3.2(a), which such Options shall vest at the rate of 5,000 shares of
Common Stock per year on each of the first four anniversaries of the date of
such grant, and (ii) as provided in Section 3.8.
SECTION 3.6 TERMINATION OF DIRECTORSHIP.
An Option granted pursuant to this Article shall, if exercisable on the date
of a Non-Employee Director Participant's termination of service as a director,
remain exercisable only for six months after the date of such termination or
until the expiration of the stated term of such Option, whichever first occurs.
Any Option granted pursuant to Section 3.2 hereof held by such Non-Employee
Director Participant which is not exercisable on the date of termination of
service shall terminate.
SECTION 3.7 ADJUSTMENTS.
Options granted under this Article III shall be subject to adjustment as
provided in Section 4.2, but only to the extent that such adjustment is
consistent with adjustments to Options held by persons other than executive
officers or directors of the Corporation (or, if there are none, consistent in
respect of the underlying shares with the effect on stockholders generally).
SECTION 3.8 ACCELERATION UPON A CHANGE IN CONTROL EVENT.
Upon the occurrence of a Change in Control Event, each Option granted under
Section 3.2 hereof shall become immediately exercisable in full. To the extent
that any Option granted under this Article III (a) is not exercised prior to
(i) a dissolution of the Corporation or (ii) a merger or other corporate event
in which the Corporation does not survive and (b) no provision is (or consistent
with the provisions of Section 3.7 can be) made for the assumption, conversion,
substitution or exchange of the Option, the Option shall terminate upon the
occurrence of such event.
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ARTICLE IV. OTHER PROVISIONS
SECTION 4.1 RIGHTS OF ELIGIBLE PERSONS, PARTICIPANTS AND BENEFICIARIES.
(a) EMPLOYMENT STATUS. Status as an Eligible Person shall not be
construed as a commitment that any Award will be made under this Plan to
an Eligible Person or to Eligible Persons generally.
(b) NO EMPLOYMENT CONTRACT. Nothing contained in this Plan (or in any
other documents related to this Plan or to any Award) shall confer upon
any Eligible Person or other Participant any right to continue in the
employ or other service of the Company or constitute any contract or
agreement of employment or other service or affect an employee's status
as an employee at will, nor shall it interfere in any way with the right
of the Company to change such person's compensation or other benefits or
to terminate the employment or service of such person, with or without
cause. Nothing in this Section 4.1(b), however, shall adversely affect
any express independent right of such person under a separate employment
or service contract other than an Award Agreement.
(c) PLAN NOT FUNDED. This Plan is not subject to Title 1 of ERISA and is
not funded. No Participant, Beneficiary or other person shall have any
right, title or interest in any fund or in any specific asset (including
shares of Common Stock, except as expressly otherwise provided) of the
Company by reason of any Award hereunder. Neither the provisions of this
Plan (or of any related documents), nor the creation or adoption of this
Plan, nor any action taken pursuant to the provisions of this Plan shall
create, or be construed to create, a trust of any kind or a fiduciary
relationship between the Company and any Participant, Beneficiary or
other person.
SECTION 4.2 ADJUSTMENTS; ACCELERATION.
(a) ADJUSTMENTS. Subject to Section 4.2(e), upon or in contemplation of
any reclassification, recapitalization, stock split (including a stock
split in the form of a stock dividend) or reverse stock split; any
merger, combination, consolidation or other reorganization; any split-up,
spin-off, or similar extraordinary dividend distribution ("spin-off") in
respect of the Common Stock (whether in the form of securities or
property); any exchange of Common Stock or other securities of the
Corporation, or any similar, unusual or extraordinary corporate
transaction in respect of the Common Stock; or a sale of substantially
all the assets of the Corporation as an entirety ("asset sale"); then the
Committee shall, in such manner, to such extent (if any) and at such time
as it deems appropriate and equitable in the circumstances:
(i) in any of such events, proportionately adjust any or all of (1) the
number of shares of Common Stock or the number and type of other
securities that thereafter may be made the subject of Options
(including the specific maximum and numbers of shares set forth
elsewhere in this Plan), (2) the number, amount and type of shares
of Common Stock (or other securities or property) subject to any or
all outstanding Options, (3) the exercise price of any or all
outstanding Options, or (4) the securities, cash or other property
deliverable upon exercise of any outstanding Options, or
(ii) in the case of a reclassification, recapitalization, merger,
consolidation, combination, or other reorganization, spin-off or
asset sale, make provision for a cash payment or for the
substitution or exchange of any or all outstanding Options or the
cash, securities or property deliverable to the holder of any or
all outstanding Options based upon the distribution or
consideration payable to holders of the Common Stock upon or in
respect of such event.
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In this context, the Committee may not make adjustments that would
disqualify Options as Incentive Stock Options without the written consent
of holders of Incentive Stock Options materially adversely affected
thereby.
In any of such events, the Committee may take such action prior to such
event to the extent that the Committee deems the action necessary to
permit the Participant to realize the benefits intended to be conveyed
with respect to the underlying shares in the same manner as is or will be
available to shareholders generally.
(b) ACCELERATION OF AWARDS UPON CHANGE IN CONTROL. Subject to Section
4.2(e) and unless prior to a Change in Control Event the Board determines
that, upon its occurrence, benefits under any or all Options will not
accelerate or determines that only certain or limited benefits under any
or all Options will be accelerated and the extent to which they will be
accelerated, and/or establishes a different time in respect of such
Change in Control Event for such acceleration, then upon (or, as may be
necessary to effectuate the purposes of this acceleration, immediately
prior to) the occurrence of a Change in Control Event, each Option will
become immediately vested and exercisable.
The Board may override the limitations on acceleration in this Section
4.2 by express provision in the Award Agreement and may accord any
Eligible Person a right to refuse any acceleration, whether pursuant to
the Award Agreement or otherwise, in such circumstances as the Board may
approve. Any acceleration of Awards will comply with applicable legal
requirements and, if necessary to accomplish the purposes of the
acceleration or if the circumstances otherwise require, may be deemed by
the Board to occur (subject to Sections 4.2(d) and 4.2(e)) not greater
than 30 days before or only upon the consummation of the event.
(c) POSSIBLE EARLY TERMINATION OF ACCELERATED AWARDS. If any Option has
been fully accelerated as permitted by Section 4.2(b) but is not
exercised in connection with or prior to (1) a dissolution of the
Corporation, (2) an event described in Section 4.2(a) that the
Corporation does not survive, or (3) a Change in Control Event approved
by the Board, the Option shall terminate if the Board has expressly
provided through a plan of reorganization or otherwise for the
substitution, assumption, exchange or other settlement of the Option. If
the exercisability of an Option has been timely accelerated in any of the
circumstances in (1) through (3) above but the Option is not exercised
and no provision has been made for a substitution, assumption, exchange
or other settlement, the Option shall terminate upon the occurrence of
the event.
(d) POSSIBLE RESCISSION OF ACCELERATION. If the vesting of an Option has
been accelerated in anticipation of an event and the Committee or the
Board later determines that the event will not occur, the Committee may
rescind the effect of the acceleration as to any then outstanding and
unexercised or otherwise unvested Options.
(e) POOLING EXCEPTION. Any discretion with respect to the events
addressed in this Section 4.2, including any acceleration of vesting,
shall be limited to the extent required by applicable accounting
requirements in the case of a transaction intended to be accounted for as
a pooling of interests transaction.
SECTION 4.3 EFFECT OF TERMINATION OF EMPLOYMENT.
The Committee shall establish in respect of each Award granted to an
Eligible Person the effect of a termination of employment or services on the
rights and benefits thereunder and in so doing may make distinctions based upon
the cause of termination.
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SECTION 4.4 COMPLIANCE WITH LAWS.
This Plan, the granting and vesting of Awards under this Plan and the
issuance and delivery of shares of Common Stock and/or the payment of money or
the use or application of shares under this Plan or under Awards granted
hereunder are subject to compliance with all applicable federal and state laws,
rules and regulations (including but not limited to state and federal securities
laws and federal margin requirements) and to such approvals by any listing,
regulatory or governmental authority as may, in the opinion of counsel for the
Corporation, be necessary or advisable in connection therewith. In addition, any
securities delivered under this Plan may be subject to any special restrictions
that the Committee may require to preserve a pooling of interests under
generally accepted accounting principles. Any securities delivered under this
Plan shall be subject to such restrictions and the person acquiring such
securities shall, if requested by the Corporation, provide such assurances and
representations to the Corporation as the Corporation may deem necessary or
desirable to assure compliance with all applicable legal requirements.
SECTION 4.5 TAX WITHHOLDING.
Upon any exercise, vesting, or payment of any Award or, if they require upon
the disposition of shares of Common Stock acquired pursuant to the exercise of
an Incentive Stock Option prior to satisfaction of the holding period
requirements of Section 422 of the Code, the Company shall have the right at its
option to (i) require the Participant (or Beneficiary) to pay or provide for
payment of the amount of any taxes which the Company may be required to withhold
with respect to such transaction or (ii) deduct from any amount payable in cash
the amount of any taxes which the Company may be required to withhold with
respect to such cash amount. In any case where a tax is required to be withheld
in connection with the delivery of shares of Common Stock under this Plan, the
Committee may require or allow any Eligible Person Participant to elect,
pursuant to such rules and subject to such conditions as the Committee may
establish, to have the Corporation reduce the number of shares to be delivered
by (or otherwise reacquire) that number of shares valued at their then Fair
Market Value to satisfy such withholding obligation. In no event will the value
of any shares withheld or reacquired to satisfy applicable withholding
obligations exceed the minimum amount of required withholding under applicable
law.
SECTION 4.6 PLAN AMENDMENT, TERMINATION AND SUSPENSION; CHANGES IN AWARDS.
(a) BOARD AUTHORIZATION. The Board may, at any time, terminate or, from
time to time, amend, modify or suspend this Plan, in whole or in part. No
Awards may be granted during any suspension of this Plan or after
termination of this Plan, but the Committee shall retain jurisdiction as
to Awards then outstanding in accordance with the terms of this Plan.
(b) SHAREHOLDER APPROVAL. To the extent required under Sections 422 or
424 of the Code or any other applicable law, or deemed necessary or
advisable by the Board, any amendment to this Plan shall be subject to
shareholder approval.
(c) AMENDMENTS TO AWARDS. Without limiting any other express authority
of the Committee under, but subject to the express limits of, this Plan,
the Committee by agreement or resolution may waive conditions of or
limitations on Awards to Eligible Persons that the Committee in the prior
exercise of its discretion has imposed, without the consent of a
Participant, and may make other changes to the terms and conditions of
Awards that do not affect in any manner materially adverse to the
Eligible Person Participant, his or her rights and benefits under an
Award.
(d) LIMITATIONS ON AMENDMENTS TO PLAN AND AWARDS. No amendment,
suspension or termination of the Plan or change of or affecting any
outstanding Award shall, without written consent of the Participant,
affect in any manner materially adverse to the Participant any rights or
benefits of the Participant or obligations of the Corporation under any
then outstanding Award granted under
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this Plan. Changes contemplated by Section 4.2 shall not be deemed to
constitute changes or amendments for purposes of this Section 4.6.
SECTION 4.7 PRIVILEGES OF STOCK OWNERSHIP.
A Participant shall not be entitled to any privilege of stock ownership as
to any shares of Common Stock not actually delivered to and held of record by
him or her, other than benefits incident to the disposition of shares upon due
exercise of an Option consistent with the terms of this Plan. No adjustment will
be made for dividends or other rights as a shareholder for which a record date
is prior to the date of delivery of shares on exercise of an Award.
SECTION 4.8 EFFECTIVE DATE OF PLAN.
This Plan is effective as of April 16, 1996, the date of initial Board
approval, and was approved by the shareholders on May 14, 1996. The first
amendment to the Plan is effective as of March 30, 1998, the date of Board
approval, and was approved by the shareholders on April 24, 1998. The second
amendment to the Plan is effective as of October 6, 1999, the date of Board
approval, subject to shareholder approval by December 31, 1999. The third
amendment to the plan is effective as of March 28, 2000, the date of Board
approval, subject to shareholder approval by June 30, 2000.
SECTION 4.9 TERM OF THE PLAN.
No Award shall be granted more than ten years after the initial effective
date of the Plan (the "termination date"). Unless otherwise expressly provided
in this Plan or in an applicable Award Agreement, any Award theretofore granted
may extend beyond such termination date, and all authority of the Committee with
respect to Awards hereunder shall continue during any suspension of this Plan
and in respect of outstanding Awards on such termination date.
SECTION 4.10 GOVERNING LAW/CONSTRUCTION/SEVERABILITY.
(a) CHOICE OF LAW. This Plan, the Awards, all documents evidencing
Awards and all other related documents shall be governed by, and
construed in accordance with the laws of the state of incorporation of
the Corporation.
(b) SEVERABILITY. If any provision shall be held by a court of competent
jurisdiction to be invalid and unenforceable, the remaining provisions of
this Plan shall continue in effect.
(c) PLAN CONSTRUCTION. It is the intent of the Corporation that this
Plan and Awards hereunder satisfy and be interpreted in a manner that in
the case of Participants who are or may be subject to Section 16(b) of
the Exchange Act satisfies the applicable requirements of Rule 16b-3
thereunder so that such persons will be entitled to the benefits of
Rule 16b-3 or other exemptive rules under Section 16 of the Exchange Act
and will not be subjected to avoidable liability thereunder. If any
provision of this Plan or of any Award would otherwise frustrate or
conflict with the intent expressed above, that provision to the extent
possible shall be interpreted and deemed amended so as to avoid such
conflict, but to the extent of any remaining irreconcilable conflict with
such intent as to such persons in the circumstances, such provision shall
be disregarded. It is the further intent of the Company that Options
granted to a person subject to Section 162(m) of the Code with an
exercise price not less than Fair Market Value on the date of grant shall
qualify as performance-based compensation under Section 162(m) of the
Code, and this Plan shall be interpreted consistent with such intent.
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SECTION 4.11 CAPTIONS.
Captions and headings are given to the sections and subsections of this Plan
solely as a convenience to facilitate reference. Such headings shall not be
deemed in any way material or relevant to the construction or interpretation of
the Plan or any provision thereof.
SECTION 4.12 EFFECT OF CHANGE OF SUBSIDIARY STATUS.
If an entity ceases to be a Subsidiary, for purposes of this Plan and any
Award hereunder, a termination of employment of each employee of such Subsidiary
who does not continue as an employee of another entity within the Company shall
be deemed to have occurred.
SECTION 4.13 NON-EXCLUSIVITY OF PLAN.
Nothing in this Plan shall limit or be deemed to limit the authority of the
Board or the Committee to grant awards or authorize any other compensation, with
or without reference to the Common Stock, under any other plan or authority.
SECTION 4.14 NO RESTRICTION ON CORPORATE POWERS.
The existence of the Plan and the Awards granted hereunder shall not affect
or restrict in any way the right or power of the Board or the shareholders of
the Corporation to make or authorize any adjustment, recapitalization,
reorganization or other change in the Corporation's capital structure or its
business, any merger or consolidation of the Corporation, any issue of bonds,
debentures, preferred or prior preference stocks ahead of or affecting the
Corporation's capital stock or the rights thereof, the dissolution or
liquidation of the Corporation or any sale or transfer of all or any part of its
assets or business, or any other corporate act or proceeding.
SECTION 4.15 EFFECT ON OTHER BENEFITS.
Payments and other benefits received by a Participant under an Award made
pursuant to this Plan shall not be deemed a part of a Participant's regular,
recurring compensation for purposes of the termination, indemnity or severance
pay law of any country or state and shall not be included in, nor have any
effect on, the determination of benefits under any other employee benefit plan
or similar arrangement provided by the Corporation or a Subsidiary unless
expressly so provided by such other plan or arrangements. Awards under this Plan
may be made in combination with or in tandem with, or as alternatives to,
grants, awards or payments under any other Corporation or Subsidiary plan.
ARTICLE V. DEFINITIONS.
SECTION 5.1 DEFINITIONS.
(a) "AWARD" shall mean an award of any Option authorized by and granted
under this Plan.
(b) "AWARD AGREEMENT" shall mean any writing setting forth the terms of
an Award that has been authorized by the Committee.
(c) "AWARD DATE" shall mean the date upon which the Committee took the
action granting an Award or such later date as the Committee designates
as the Award Date at the time of the Award, or in the case of
Non-Employee Director Awards under Article III, the date of automatic
grant under Article III.
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(d) "AWARD PERIOD" shall mean the period beginning on an Award Date and
ending on the expiration date of such Award.
(e) "BENEFICIARY" shall mean the person, persons, trust or trusts
entitled by will or the laws of descent and distribution to receive the
benefits specified in the Award Agreement and under this Plan in the
event of a Participant's death, and shall mean the Participant's executor
or administrator if no other Beneficiary is identified and able to act
under the circumstances.
(f) "BOARD" shall mean the Board of Directors of the Corporation.
(g) "CHANGE IN CONTROL EVENT" means any of the following:
(i) Approval by the shareholders of the Corporation of the
dissolution or liquidation of the Corporation;
(ii) Consummation of a merger, consolidation, or other
reorganization, with or into, or the sale of all or
substantially all of the Corporation's business and/or assets
as an entirety to, one or more entities that are not
Subsidiaries or other affiliates of the Company (a "Business
Combination"), unless (1) as a result of the Business
Combination more than 50% of the outstanding voting power
generally in the election of directors of the surviving or
resulting entity or a parent thereof (the "Successor Entity")
immediately after the reorganization are, or will be, owned,
directly or indirectly, by holders of the Corporation's voting
securities immediately before the Business Combination; (2) no
Person (excluding the Successor Entity or an Excluded Person)
beneficially owns, directly or indirectly, more than 20% of the
outstanding shares or the combined voting power of the
outstanding voting securities of the Successor Entity, after
giving effect to the Business Combination, except to the extent
that such ownership existed prior to the Business Combination;
and (3) at least 50% of the members of the board of directors
of the entity resulting from the Business Combination were
members of the Board at the time of the execution of the
initial agreement, or of the action of the Board, providing for
the Business Combination.
(iii) Any "PERSON" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act other than an Excluded Person becomes
the beneficial owner (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the
Corporation representing more than 25% of the combined voting
power of the Corporation's then outstanding securities entitled
to then vote generally in the election of directors of the
Corporation, other than as a result of (1) an acquisition
directly from the Company, (2) an acquisition by the Company,
(3) an acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Company or a Successor
Entity, or (4) an acquisition by an entity pursuant to a
transaction which is expressly excluded under clause
(ii) above; or
(iv) During any period not longer than two consecutive years,
individuals who at the beginning of such period constituted the
Board cease to constitute at least a majority thereof, unless
the election, or the nomination for election by the
Corporation's shareholders, of each new Board member was
approved by a vote of at least three-fourths of the Board
members then still in office who were Board members at the
beginning of such period (including for these purposes, new
members whose election or nomination was so approved), but
excluding for this purpose, any such individual whose initial
assumption of office occurs as a result of an actual or
threatened election contest
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with respect to the election or removal of directors or other
actual or threatened solicitation of proxies or consents by or
on behalf of a person other than the Board.
(h) "CODE" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
(i) "COMMITTEE" shall mean a committee appointed by the Board to
administer this Plan, which committee shall be comprised only of two or
more directors or such greater number of directors as may be required
under applicable law, each of whom, (i) in respect of any decision at a
time when the Participant affected by the decision may be subject to
Section 162(m) of the Code, shall be an "outside" director within the
meaning of Section 162(m) of the Code and (ii) in respect of any decision
affecting a transaction at a time when the Participant involved in the
transaction may be subject to Section 16 of the Exchange Act, shall be a
"non-employee director" within the meaning of Rule 16b-3(b)(3)
promulgated under the Exchange Act.
(j) "COMMON STOCK" shall mean the Common Stock, no par value, of the
Corporation and such other securities or property as may become the
subject of Awards, or become subject to Awards, pursuant to an adjustment
made under Section 4.2 of this Plan.
(k) "COMPANY" shall mean, collectively, the Corporation and its
Subsidiaries.
(l) "CORPORATION" shall mean Acacia Research Corporation, a California
corporation, and its successors.
(m) "DISINTERESTED" shall mean disinterested within the meaning of any
applicable regulatory requirements, including Rule 16b-3.
(n) "ELIGIBLE PERSON" shall mean an officer, a key executive, or an
administrative, managerial, production, marketing or sales employee of
the Company, whether or not such person is a director, or an Other
Eligible Person.
(o) "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
(p) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
(q) "EXCLUDED PERSON" means (i) any person described in and satisfying
the conditions of Rule 13d-1(b)(1) under the Exchange Act, (ii) the
Company, (iii) an employee benefit plan (or related trust) sponsored or
maintained by the Company or the Successor Entity.
(r) "FAIR MARKET VALUE" shall mean (i) if the Common Stock is listed and
registered on a national securities exchange such as the New York Stock
Exchange or the American Stock Exchange, the simple average of the
highest and lowest quoted selling prices of the Common Stock on such
exchange on the applicable date of determination, or, if no such sales
were made on such date on such exchange, then by such method as of the
last date prior thereto on which sales were made, or (ii) if the Common
Stock is not listed and registered on any national securities exchange,
the simple average of the bid and ask prices per share of Common Stock in
the over-the-counter market at the end of the applicable date of
determination, or, if for any reason no such quotations are available,
then by such other method as the Committee, in its sole discretion, shall
determine to be appropriate on such date of determination.
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(s) "INCENTIVE STOCK OPTION" shall mean an Option which is designated as
an incentive stock option within the meaning of Section 422 of the Code,
the award of which contains such provision as are necessary to comply
with that section.
(t) "NONQUALIFIED STOCK OPTION" shall mean an Option that is designated
as a Nonqualified Stock Option and shall include any Option intended as
an Incentive Stock Option that fails to meet the applicable legal
requirements thereof. Any Option granted hereunder that is not designated
as an incentive stock option shall be deemed to be designated a
nonqualified stock option under this Plan and not an incentive stock
option under the Code. Options granted under Article III shall be
Nonqualified Stock Options.
(u) "NON-EMPLOYEE DIRECTOR" shall mean a person who is, as of the
applicable date of determination for an award under Article III, (i) a
member of the Board of Directors of the Corporation and not an officer or
employee of the Company or any affiliate, and (ii) eligible to serve on
the Committee.
(v) "OPTION" shall mean an option to purchase Common Stock under this
Plan.
(w) "OTHER ELIGIBLE PERSON" shall mean any member of the Board, or other
individual (to the extent provided in the next sentence) consultant,
agent, or advisor who renders or has rendered bona fide services (other
than services in connection with the offering or sale of securities of
the Company in a capital raising transaction) to the Company, and who is
selected to participate in this Plan by the Committee. A non-employee
consultant, agent, or advisor may be granted an Award only if such
person's participation in this Plan would not adversely affect (1) the
Corporation's eligibility to use Form S-8 to register under the
Securities Act of 1933, as amended, the offering of shares issuable under
the Plan by the Corporation or (2) the Corporation's compliance with any
other applicable laws.
(x) "PARTICIPANT" shall mean a person who has been granted or has
received an Award under this Plan.
(y) "PLAN" shall mean this 1996 Stock Option Plan.
(z) "QDRO" shall mean a qualified domestic relations order as defined in
Section 414(p) of the Code or Title I, Section 206(d)(3) of ERISA (to the
same extent as if this Plan were subject thereto), or the applicable
rules thereunder or other decree accorded relief from transfer
restrictions under Rule 16b-3.
(aa) "RULE 16B-3" shall mean Rule 16b-3 as promulgated by the Securities
and Exchange Commission pursuant to the Exchange Act.
(bb) "SECTION 16 PERSON" shall mean a person subject to Section
16(a) of the Exchange Act.
(cc) "SUBSIDIARY" shall mean any corporation or other entity a majority
of whose outstanding voting stock or voting power is beneficially owned
directly or indirectly by the Corporation.
A-15
<PAGE>
ACACIA RESEARCH CORPORATION
ANNUAL MEETING OF SHAREHOLDERS MAY 16, 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
ACACIA RESEARCH CORPORATION
The undersigned hereby appoints Paul R. Ryan and Victoria White, and each of
them, proxyholders, each with full power of substitution to vote for the
undersigned at the Annual Meeting of Shareholders of Acacia Research Corporation
to be held on May 16, 2000, and at any adjournments thereof, with respect to the
following matters, which were more fully described in the Proxy Statement dated
April , 2000 (the "Proxy Statement"), receipt of which is hereby acknowledged
by the undersigned.
THIS PROXY WILL BE VOTED AS DIRECTED. UNLESS OTHERWISE DIRECTED, THIS PROXY
WILL BE VOTED FOR APPROVING AN AMENDMENT TO THE COMPANY'S CERTIFICATE OF
INCORPORATION TO PROVIDE FOR A CLASSIFIED BOARD OF DIRECTORS IN PROPOSAL NO. 1;
FOR THE ELECTON OF THE FIVE DIRECTOR NOMINEES IN PROPOSAL NO. 2; FOR APPROVING
AN AMENDMENT TO THE COMPANY'S 1996 STOCK OPTION PLAN INCREASING THE AGGREGATE
NUMBER OF AUTHORIZED SHARES TO 4,000,000 IN PROPOSAL NO. 3; AND FOR PROPOSAL
NO. 4.
(SEE REVERSE SIDE)
<PAGE>
(CONTINUED FROM OTHER SIDE)
- ----------------------------------
COMMON /X/ Please mark your choices like this
The Board of Directors recommends that you vote FOR Proposal No. 1, FOR the
nominees on Proposal No. 2, FOR Proposal No. 3 and FOR Proposal No. 4.
(1) The approval of an amendment to the Company's Certificate of Incorporation
to provide for a classified board of directors.
/ / FOR / / AGAINST / / ABSTAIN
(2) The election of the nominees for director specified in the Proxy Statement
to the Board of Directors for terms of one to three years as set forth in
Proposal No. 1: Class I (term expiring 2001): Robert L. Harris II and
Fred A. de Boom; Class II (term expiring 2002): Thomas B. Akin and Edward
Frykman; Class III (term expiring 2003): Paul R. Ryan. If Proposal No. 1 is
not approved, all the nominees will serve until the next Annual Meeting of
Shareholders or until their successors are duly elected and qualified.
<TABLE>
<S> <C>
/ / FOR all nominees listed above (except as marked to the contrary below.) / / WITHHOLD AUTHORITY to vote for
all nominees listed below.
</TABLE>
(INSTRUCTION: To withhold authority to vote for any nominee, write that
nominee's name in the space below.)
- --------------------------------------------------------------------------------
(3) To ratify an amendment to the Company's 1996 Stock Option Plan to increase
the number of shares to 4,000,000.
/ / FOR / / AGAINST / / ABSTAIN
(4) The ratification of the selection of PricewaterhouseCoopers LLP as
independent accountants of the Company for the fiscal year ending December 31,
2000.
/ / FOR / / AGAINST / / ABSTAIN
(5) Such other matters as may properly come before the meeting or any
adjournment thereof. As to such matters, the undersigned hereby confers
discretionary authority and authorizes the proxyholders to vote the proxies
cumulatively in their discretion if cumulative voting is in effect at the
meeting.
Dated: _________________________, 2000
______________________________________
(Please Print Name)
_______________________________________
(Signature of Holder of Common Stock)
_______________________________________
(Additional Signature if Held Jointly)
NOTE: Please sign exactly as your name
is printed. Each joint tenant should
sign. Executors, administrators,
trustees and guarantors should give
full titles when signing. Corporations
and partnerships should sign in full
corporate or partnership name by
authorized person. Please mark, sign,
date and return your Proxy promptly in
the enclosed envelope, which requires
no postage if mailed in the United
States.
