SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
(AMENDMENT NO. __)
Filed by Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted
by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Under Rule 14a-12
ACACIA RESEARCH CORPORATION
---------------------------
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------------------------------------
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
ACACIA
RESEARCH
CORPORATION
April 1, 2004
Dear Stockholder:
You are cordially invited to attend Acacia Research Corporation's
Annual Meeting of Stockholders to be held on Tuesday, May 11, 2004. The meeting
will be held at 610 Newport Center Drive, Suite 130, in Newport Beach,
California, beginning at 10:00 a.m. local time. The formal meeting notice and
Proxy Statement are attached.
At this year's meeting, stockholders are being asked to re-elect three
directors to serve on the Company's Board of Directors, ratify the appointment
of PricewaterhouseCoopers LLP as the Company's independent accountants for 2004,
and transact such other business as may properly come before the meeting.
Whether or not you plan to attend the Annual Meeting, it is important
that your shares be represented and voted at the meeting. Therefore, I urge you
to complete, sign, date and promptly return the enclosed proxy in the enclosed
postage-paid envelope. Returning your completed proxy will ensure your
representation at the Annual Meeting.
We look forward to seeing you on May 11.
Sincerely,
/s/ Paul R. Ryan
Paul R. Ryan
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
ACACIA RESEARCH CORPORATION
500 NEWPORT CENTER DRIVE
NEWPORT BEACH, CALIFORNIA 92660
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 11, 2004
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 11, 2004 at 10:00 a.m. at 610 Newport Center Drive, Suite
130, Newport Beach, California, for the following purposes, as more fully
described in the Proxy Statement accompanying this Notice:
1. To elect three directors to serve on the Company's Board of
Directors until the 2007 Annual Meeting of Stockholders and until
their successors are duly elected and qualified.
2. To ratify the appointment of PricewaterhouseCoopers LLP as
independent accountants of the Company for the fiscal year ending
December 31, 2004.
3. To transact such other business as may properly come before the
meeting or at any postponement or adjournment thereof.
Only stockholders of record at the close of business on March 15, 2004
are entitled to receive notice of and to vote at the Annual Meeting and any
adjournment or postponement thereof.
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 promptly in the
postage-paid envelope enclosed for that purpose. Any stockholder attending the
Annual Meeting may vote in person even if he or she previously returned a proxy.
Sincerely,
/s/ Robert A. Berman
Robert A. Berman
EXECUTIVE VICE PRESIDENT OF
BUSINESS DEVELOPMENT, GENERAL
COUNSEL AND SECRETARY
Newport Beach, California
April 1, 2004
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 POSTAGE-PAID ENVELOPE.
ACACIA RESEARCH CORPORATION
500 NEWPORT CENTER DRIVE
NEWPORT BEACH, CALIFORNIA 92660
__________________________
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 11, 2004
__________________________
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of
Acacia Research Corporation, a Delaware corporation (the "Company"), for use at
the Company's annual meeting of stockholders (the "Annual Meeting") to be held
on Tuesday, May 11, 2004 at 10:00 a.m., and at any adjournment or postponement
thereof. The Annual Meeting will be held at 610 Newport Center Drive, Suite 130,
Newport Beach, California. These proxy solicitation materials were mailed on or
about April 1, 2004, to all stockholders entitled to vote at the Annual Meeting.
QUESTIONS AND ANSWERS
Following are some commonly asked questions raised by our stockholders
and answers to each of those questions.
1. WHAT MAY I VOTE ON AT THE ANNUAL MEETING?
At the Annual Meeting, stockholders will consider and vote upon the
following matters: (1) the re-election of three directors to serve on the
Company's Board of Directors until the 2007 Annual Meeting of Stockholders; (2)
the ratification of the appointment of PricewaterhouseCoopers LLP as independent
accountants of the Company for the fiscal year ending December 31, 2004; and (3)
such other matters as may properly come before the Annual Meeting or any
adjournment or postponement thereof.
2. HOW DOES THE BOARD RECOMMEND THAT I VOTE ON THE PROPOSALS?
The Board of Directors recommends a vote FOR each proposal.
3. HOW DO I VOTE?
Sign and date each proxy card you receive and return it in the
postage-paid envelope prior to the Annual Meeting.
4. CAN I REVOKE MY PROXY?
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. WHO WILL COUNT THE VOTE?
U.S. Stock Transfer Corporation will count the votes and act as the
inspector of election.
6. WHAT SHARES ARE INCLUDED ON THE PROXY CARD(S)?
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. WHAT DOES IT MEAN IF I GET MORE THAN ONE PROXY CARD?
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 or bank holding your shares.
8. WHO IS ENTITLED TO VOTE AT THE ANNUAL MEETING?
Only holders of record of the Company's Acacia Research - Acacia
Technologies common stock ("AR - Acacia Technologies stock") and Acacia Research
- CombiMatrix common stock ("AR - CombiMatrix stock") as of the close of
business on March 15, 2004, are entitled to notice of and to vote at the Annual
Meeting. The AR - Acacia Technologies stock and the AR - CombiMatrix stock are
sometimes referred to collectively as "Acacia common stock".
9. HOW MANY VOTES MAY BE CAST?
As of March 15, 2004, the record date for the Annual Meeting,
19,775,486 shares of AR - Acacia Technologies stock and 27,718,470 shares of AR
- CombiMatrix stock, the only outstanding voting securities of the Company, were
issued and outstanding. At the meeting, each outstanding share of AR - Acacia
Technologies stock will be entitled to 0.874 of a vote, and each outstanding
share of AR - CombiMatrix stock will be entitled to one vote. The voting rights
of the AR - Acacia Technologies stock have been determined based on recent
market values of each class of Acacia common stock in accordance with the
formula set forth in our Restated Certificate of Incorporation. The holders of
AR - Acacia Technologies stock and AR - CombiMatrix stock will vote together as
a single class at the meeting.
10. WHAT IS A "QUORUM" AT THE ANNUAL MEETING?
A "quorum" is a majority of the outstanding shares entitled to vote.
The shares 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.
11. WHAT VOTE IS REQUIRED TO APPROVE EACH PROPOSAL?
For the election of directors, once a quorum has been established, the
nominees for director who receive the most votes will be elected directors of
the Company. To ratify 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 proposal.
If a broker indicates on its proxy that it does not have discretionary
authority to vote on a particular matter, the affected shares will be treated as
not present and entitled to vote with respect to that matter, even though the
same shares may be considered present for quorum purposes and may be entitled to
vote on other matters.
12. WHAT HAPPENS IF I ABSTAIN?
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.
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13. HOW WILL VOTING ON ANY OTHER BUSINESS BE CONDUCTED?
Although the Company does 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 proxy holders, Paul R. Ryan and Robert A.
Berman, to vote on such matters at their discretion.
14. WHO ARE THE LARGEST PRINCIPAL STOCKHOLDERS?
For information regarding holders of more than 5% of the Company's
outstanding common stock, see "Security Ownership of Certain Beneficial Owners
and Management."
15. WHO WILL BEAR THE COST OF THIS SOLICITATION?
The Company will bear the entire cost of the solicitation. The Company
will reimburse brokerage firms and other custodians, nominees and fiduciaries
for their reasonable out-of-pocket expenses incurred in sending proxies and
proxy solicitation materials to stockholders. Proxies may also be solicited in
person, by telephone, or by facsimile by directors, officers and employees of
the Company without additional compensation. The Company has retained Georgeson
Shareholder Communications, Inc. ("Georgeson") to perform various solicitation
services. The Company will pay Georgeson a fee of $4,500, plus phone and other
related expenses, in connection with their solicitation services.
3
MATTERS TO BE CONSIDERED AT THE ANNUAL MEETING
PROPOSAL NO. 1:
ELECTION OF DIRECTORS
GENERAL
The number of directors of the Company is fixed at eight. The Company's
Board of Directors is divided into three classes, with each class being as
nearly equal in number of directors as possible. The term of a class expires,
and their successors are elected for a term of three years, at each annual
meeting of the Company's stockholders.
The Board of Directors has nominated Robert L. Harris, II, Fred A. de
Boom and Amit Kumar, Ph.D. for re-election at the Annual Meeting to a term of
office expiring in 2007. The nominees have agreed to serve if elected, and
management has no reason to believe that the nominees will be unavailable for
service. 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 such
other nominees as may be designated by the present Board of Directors.
The following table sets forth information as to the persons who serve
as our directors.
DIRECTOR
NAME AGE SINCE POSITIONS WITH THE COMPANY
------------------------------ ---------- ------------ ---------------------------------------
Paul R. Ryan 58 1995 Chairman and Chief Executive Officer
Robert L. Harris, II 45 2000 President and Director
Thomas B. Akin*^ 51 1998 Director
Fred A. de Boom*+^ 68 1995 Director
Edward W. Frykman*+^ 67 1996 Director
G. Louis Graziadio, III+^ 54 2002 Director
Rigdon Currie^ 73 2003 Director
Amit Kumar, Ph.D. 39 2003 Director, President and Chief Executive
Officer of CombiMatrix Corporation
----------
* MEMBER OF THE AUDIT COMMITTEE
+ MEMBER OF THE COMPENSATION COMMITTEE
^ MEMBER OF THE NOMINATING AND GOVERNANCE COMMITTEE
Biographical information regarding the nominees for election as a
director and each other person whose term of office as a director will continue
after the Annual Meeting is set forth below.
INFORMATION REGARDING THE NOMINEES (CLASS I)
ROBERT L. HARRIS, II has served as a director since April 2000 and as
President since July 2000. Mr. Harris was previously the President and Director
of Entertainment Properties Trust from 1997 to July 2000. Mr. Harris founded
Entertainment Properties Trust, a publicly-traded company that purchases real
estate from major entertainment companies. Mr. Harris led the International
Division and served as Senior Vice President of AMC Entertainment from 1993 to
1997, and served as President of Carlton Browne and Company, Inc., a holding
company and trust with assets in real estate, insurance and financial services,
from 1984 to 1992.
FRED A. DE BOOM has served as a director since February 1995. Mr. de
Boom has been a principal in Sonfad Associates since 1995. 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 was 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
Southern California.
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AMIT KUMAR, PH.D. has served as a director since January 2003. Dr.
Kumar joined Acacia Research Corporation in July 2000 as Senior Vice President
of Life Sciences. Dr. Kumar was appointed to the position of Chief Executive
Officer and President of CombiMatrix Corporation in September 2001. From 1999 to
2000, Dr. Kumar was CEO and President of Signature Biosciences, a genomic,
proteomic, and drug discovery company. From 1998 to 1999, he was an Entrepreneur
in Residence at Oak Investment Partners, specializing in emerging life science
and biotechnology companies. Dr. Kumar held the position of Senior Manager at
IDEXX Laboratories, and was Head of Research and Development at Idetek
Corporation from 1995 to 1998. He held the position of Sr. Scientist at Idetek
Corporation from 1994-1995. Dr. Kumar is a director of Digital Campaigns, Inc.,
a private company, and is a member of the Scientific Advisory Board of
BioProcessors Inc., a private company. Dr. Kumar received his bachelor's degree
from Occidental College in 1986, his Ph.D. from the California Institute of
Technology in 1991, and completed his Post-Doctorate Fellowship at Harvard
University in 1993.
DIRECTORS WITH TERMS EXPIRING IN 2005 (CLASS II)
THOMAS B. AKIN has served as a director since May 1998. Mr. Akin serves
as the managing partner of Talkot Capital, LLC. In that capacity Mr. Akin is the
general partner of Talkot Crossover Fund and Talkot Capital IV, LLC. Mr. Akin
previously worked for Merrill Lynch and Salomon Brothers in various roles in
institutional sales. Mr. Akin serves as the Chairman of the Board of Dynex
Capital, Inc. and as a director and member of the Audit Committee of ADX
Corporation. Mr. Akin holds a B.A. from the University of California at Santa
Cruz and an M.B.A. in finance from the University of California at Los Angeles.
EDWARD W. 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. Mr. Frykman serves as a director of Arrowhead
Research Corp.
DIRECTORS WITH TERMS EXPIRING IN 2006 (CLASS III)
PAUL R. RYAN has served as a director since August 1995, as Chief
Executive Officer since January 1997 and as Chairman since April 2000. He also
served as President of the Company from January 1997 until July 2000. Prior to
being named Chief Executive Officer, he was Executive Vice President and Chief
Investment Officer of the Company from 1996 through 1997 and Vice President,
Capital Management, of the Company from 1995 through 1996. 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. Mr. Ryan holds a B.S. from Cornell University
and attended the New York University Graduate School of Business.
G. LOUIS GRAZIADIO, III has been a director since February 2002. Mr.
Graziadio has held the positions of Chairman and Chief Executive Officer of
Second Southern Corp., the managing partner of Ginarra Partners, L.L.C., a
California company engaged in a wide range of investment activities and business
ventures, since 1990. He also serves as Chairman and Chief Executive Officer of
Boss Holdings, Inc.
RIGDON CURRIE has been a director since January 2003. Mr. Currie is a
director and a member of the Compensation Committee of ESP, Inc., which develops
software for managing industrial environmental issues; Chairman of the Board of
Opportunity Capital Corporation, a private venture capital firm focused on
minority business; and a director of W3 Commerce, Inc., a private software firm
focused on Internet commerce traffic generation. Mr. Currie received a B.S.I.E.
from the Georgia Institute of Technology and an M.B.A. from Harvard Business
School.
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BOARD MEETINGS AND COMMITTEES
The Board of Directors held a total of ten meetings during the fiscal
year ended December 31, 2003. During that period, no incumbent director other
than Mr. Graziadio and Mr. Currie 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, a Compensation Committee
and a Nominating and Governance Committee. The Board of Directors has adopted
charters for each of these committees; each of the charters may be viewed on our
website at www.acaciaresearch.com.
AUDIT COMMITTEE. The Audit Committee currently consists of Fred A. de
Boom, Thomas B. Akin and Edward W. Frykman, each of whom is independent under
the listing standards of the NASDAQ Stock Market. The Audit Committee is
responsible for retaining, evaluating and, if appropriate, recommending the
termination 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 Audit Committee held five meetings during the fiscal year ended
December 31, 2003. The Audit Committee is also responsible for maintaining
communication between the Board of Directors and the Company's independent
accountants.
The Board has determined that Mr. Akin is an audit committee financial
expert as defined by Item 401(h) of Regulation S-K of the Securities Exchange
Act of 1934, as amended (the "Exchange Act").
COMPENSATION COMMITTEE. The Compensation Committee currently consists
of Fred A. de Boom, Edward W. Frykman and G. Louis Graziadio, III, each of whom
is independent under the listing standards of the NASDAQ Stock Market. The
Compensation Committee is primarily responsible for making recommendations to
the Board of Directors regarding the Company's executive compensation policies
and incentive compensation for employees and consultants to the Company. In
addition, the Compensation Committee administers the 2002 Acacia Technologies
Stock Incentive Plan and the 2002 CombiMatrix Stock Incentive Plan. The
Compensation Committee held ten meetings during the fiscal year ended December
31, 2003.
NOMINATING AND GOVERNANCE COMMITTEE. The Nominating and Governance
Committee currently consists of Thomas B. Akin, Fred A. de Boom, Edward W.
Frykman, G. Louis Graziadio, III and Rigdon Currie each of whom is independent
under the listing standards of the NASDAQ Stock Market. The Nominating and
Governance Committee met on February 13, 2004 to recommend director nominees to
the Board of Directors for election at the 2004 annual meeting of stockholders.
The charter for the Nominating and Governance Committee provides that, among its
specific responsibilities, the Committee shall:
o Establish criteria and qualifications for Board membership, including
standards for assessing independence.
o Identify and consider candidates, including those recommended by
stockholders and others, to fill positions on the Board, and assess the
contributions and independence of incumbent directors in determining
whether to recommend them for reelection to the Board.
o Recommend to the Board candidates for election or reelection at each
annual meeting of stockholders.
o Annually review the Company's corporate governance processes, and its
governance principles, including such issues as the Board's
organization, membership terms, and the structure and frequency of
Board meetings, and recommend appropriate changes to the Board.
o Administer the Company's Corporate Code of Conduct and annually review
and assess the adequacy of the Corporate Code of Conduct and recommend
any proposed changes to the Board. Specifically, the Committee shall
discuss with management their compliance with the Corporate Code of
Conduct, including any insider and affiliated party transactions, and
the Company's procedures to monitor compliance throughout the Company
with the Corporate Code of Conduct.
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o Review periodically with the Company's Chief Executive Officer and the
Board, the succession plans relating to positions held by senior
executives, and make recommendations to the Board regarding the
selections of individuals to fill these positions.
o Oversee the continuing education of Company directors and the
orientation of new directors.
o Monitor the functions of the Board and its committees, as set forth in
their respective charters, and coordinate and oversee annual
evaluations of the Board's performance and procedures, including an
evaluation of individual directors, and of the Board's committees.
o Assess annually the performance of the duties specified in this Charter
by the Committee and its individual members.
In the event that the Committee determines such action to be necessary,
it has the authority, in its sole discretion, to retain and terminate a search
firm for the purpose of identifying and recruiting director candidates. The
Committee shall have the sole authority to approve the search firm's fees and
other retention terms.
DIRECTOR QUALIFICATION STANDARDS
The Nominating and Governance Committee and the Board have determined
that a director should have the following characteristics:
o the highest ethical standards and integrity;
o a willingness to act on and be accountable for Board decisions;
o an ability to provide wise, informed, and thoughtful counsel to top
management on a range of issues;
o a history of achievement that reflects high standards for the director
candidate and others;
o loyalty and commitment to driving the success of the Company;
o the independence requirements imposed by the Securities and Exchange
Commission and the NASDAQ, as such may be promulgated from time to
time; and
o a background that provides a portfolio of experience and knowledge
commensurate with the Company's needs.
The Nominating and Governance Committee does not have a policy with
regard to the consideration of any director candidates recommended by security
holders; however, the Committee is currently formulating such a policy.
CODE OF CONDUCT
The Company has adopted a corporate Code of Conduct which may be viewed
on our website at www.acaciaresearch.com. This Code of Conduct applies to all
officers, directors and employees of the Company. It is intended to meet the
requirements for a code of ethics under the Sarbanes-Oxley Act of 2002 and the
listing standards of the Nasdaq Stock Market, and is specifically applicable to
the Company's principal executive officer, principal financial and accounting
officer and controller or persons performing similar functions. Any waiver of
this Code of Conduct for any of the Company's executive officers or directors
may be made only by the Board of Directors and must be promptly disclosed to
stockholders in the manner required by applicable law.
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STOCKHOLDER COMMUNICATIONS WITH DIRECTORS
Stockholders wishing to communicate with the Board of Directors or with
a particular Board member or a Board committee should address communications to
the Board or to a particular Board member or Board committee, c/o Acacia
Research Corporation, Attention: Secretary, 500 Newport Center Drive, 7th Floor,
Newport Beach, California 92660. All communications addressed to the Board or to
a particular director or committee will be relayed to that addressee. >From time
to time, the Board may change the process through which stockholders communicate
with the Board or its members. Please refer to the Company's website at
www.acaciaresearch.com for changes in this process. The Board, the particular
director or the Board committee to which a communication is addressed will, if
it deems appropriate, promptly refer the matter either to management or to the
full Board depending on the nature of the communication.
BOARD MEMBER ATTENDANCE AT ANNUAL STOCKHOLDER MEETINGS
Although the Company does not have a formal policy regarding director
attendance at annual stockholder meetings, directors are expected to attend
these meetings absent extenuating circumstances. Each current director of the
Company attended last year's annual meeting of stockholders.
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 nondiscretionary grant of options to
purchase 20,000 shares of AR - Acacia Technologies stock and 20,000 shares of AR
- CombiMatrix stock upon initially joining the Board of Directors and subsequent
non-discretionary annual grants of options to purchase 15,000 shares of AR -
Acacia Technologies stock and 15,000 shares of AR - CombiMatrix stock while
serving as Board members, all such grants at an exercise price equal to the
market price on the date of grant.
Non-employee directors receive compensation in the amount of $1,500 per
month for their service as members of the Board of Directors. In addition,
non-employee directors receive $1,000 for each meeting of the Board of Directors
or of any Board committee attended in person, $1,000 for each meeting attended
by telephone if the meeting is longer than one hour in length, and $500 for each
meeting attended by telephone if the meeting is one hour or less in length,
except that no compensation shall be received for each Compensation or
Nominating and Corporate Governance Committee meeting attended that immediately
precedes or follows a Board of Directors meeting. Directors are also reimbursed
for expenses incurred in connection with attendance at meetings of the Board of
Directors and Board committees and the performance of Board duties.
CERTAIN RELATIONSHIPS
There is no family relationship among any directors or executive
officers of the Company.
REQUIRED VOTE
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
THREE NOMINEES LISTED ABOVE. PROXIES RECEIVED WILL BE VOTED FOR EACH OF THE
NOMINEES UNLESS STOCKHOLDERS SPECIFY OTHERWISE IN THE PROXY.
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PROPOSAL NO. 2:
RATIFICATION OF INDEPENDENT ACCOUNTANTS
The firm of PricewaterhouseCoopers LLP, the Company's independent
accountants for the year ended December 31, 2003, 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, 2004, 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 Company's employment of
PricewaterhouseCoopers LLP 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.
REQUIRED VOTE
The favorable vote of a majority of votes cast regarding the proposal
is required to ratify the appointment of PricewaterhouseCoopers LLP.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
RATIFICATION OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP TO SERVE AS THE
COMPANY'S INDEPENDENT ACCOUNTANTS FOR THE FISCAL YEAR ENDING DECEMBER 31, 2004.
PROXIES RECEIVED WILL BE SO VOTED UNLESS STOCKHOLDERS SPECIFY OTHERWISE IN THE
PROXY.
OTHER MATTERS
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.
9
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information known to the Company
with respect to the beneficial ownership of the Company's common stock as of
March 15, 2004, by (i) all persons known to the Company to beneficially own five
percent (5%) or more of either class of the Company's common stock, (ii) each
director of the Company, (iii) the executive officers named in the "Summary
Compensation Table" of the "Executive Compensation and Other Information"
section of this Proxy Statement, and (iv) all current directors and executive
officers as a group.
AMOUNT AND NATURE
OF BENEFICIAL PERCENT AMOUNT AND NATURE OF
OWNERSHIP OF AR OF BENEFICIAL OWNERSHIP PERCENT
ACACIA TECHNOLOGIES CLASS(1) OF AR - COMBIMATRIX OF
BENEFICIAL OWNER STOCK STOCK CLASS(1)
------------------------------------------------- ----------------------- -------- --------------------- --------
DIRECTORS AND EXECUTIVE OFFICERS(2)
Paul R. Ryan(3) 1,258,327 6.1% 676,016 2.4%
Thomas B. Akin(4) 157,894 * 129,248 *
Rigdon Currie(5) 23,750 * 91,250 *
Fred A. de Boom(6) 76,050 * 51,962 *
Edward W. Frykman(7) 86,840 * 56,757 *
Robert L. Harris, II(8) 799,168 3.9% 472,765 1.7%
G. Louis Graziadio, III(9) 40,750 * 31,030 *
Amit Kumar, Ph.D.(10) 402,436 2.0% 692,482 2.4%
Clayton J. Haynes(11) 81,830 * 36,840 *
Robert A. Berman(12) 381,003 1.9% 199,761 *
All Directors and Executive Officers as a Group 3,308,048 16.2% 2,438,111 8.7%
(ten persons)(13)
----------------
* Less than one percent
(1) The percentage of shares beneficially owned is based on 19,775,486 shares
of AR - Acacia Technologies stock and 27,718,470 shares of AR -
CombiMatrix stock outstanding as of March 15, 2004. Beneficial ownership
is determined under rules and regulations of the Securities and Exchange
Commission ("SEC"). Shares of common stock subject to options that are
currently exercisable or exercisable within 60 days after March 15, 2004,
are deemed to be outstanding and beneficially owned by the person holding
such options for the purpose of computing the number of shares
beneficially owned and the percentage ownership of such person, but are
not deemed to be outstanding for the purpose of computing the percentage
ownership of any other person. Except as indicated in the footnotes to
this table, and subject to applicable community property laws, the
Company believes that such persons have sole voting and investment power
with respect to all shares of the Company's common stock shown as
beneficially owned by them.
(2) The address for each of the Company's directors and executive officers is
the Company's principal offices, Acacia Research Corporation, 500 Newport
Center Drive, Newport Beach, California 92660.
(3) Includes 803,088 shares of AR - Acacia Technologies stock and 481,231
shares of AR - CombiMatrix stock issuable upon exercise of options that
are currently exercisable or will become exercisable within 60 days of
March 15, 2004.
(4) Includes 85,244 shares of AR - Acacia Technologies Stock and 35,412
shares of AR - CombiMatrix stock held by Talkot Crossover Fund, L.E.
("Talkot") and 72,650 shares of AR - Acacia Technologies stock and 93,836
shares of AR - CombiMatrix stock issuable upon exercise of options that
are currently exercisable or will become exercisable within 60 days of
March 15, 2004. Mr. Akin serves as managing general partner of Talkot.
(5) Includes 23,750 shares of AR - Acacia Technologies stock and 91,250
shares of AR - CombiMatrix stock issuable upon exercise of options that
are currently exercisable or will become exercisable within 60 days of
March 15, 2004.
10
(6) Includes 50,650 shares of AR - Acacia Technologies stock and 36,556
shares of AR - CombiMatrix stock issuable upon exercise of options that
are currently exercisable or will become exercisable within 60 days of
March 15, 2004.
(7) Includes 66,850 shares of AR - Acacia Technologies stock and 48,836
shares of AR - CombiMatrix stock issuable upon exercise of options that
are currently exercisable or will become exercisable within 60 days of
March 15, 2004.
(8) Includes 20,000 shares of AR - Acacia Technologies stock held by the R&S
Harris Trust, of which Mr. Harris is a Trustee and 779,168 shares of AR -
Acacia Technologies stock and 472,765 shares of AR - CombiMatrix stock
issuable upon exercise of options that are currently exercisable or will
become exercisable within 60 days of March 15, 2004.
(9) Includes 40,750 shares of AR - Acacia Technologies stock and 31,030
shares of AR - CombiMatrix stock issuable upon exercise of options that
are currently exercisable or will become exercisable within 60 days of
March 15, 2004.
(10) Includes 401,336 shares of AR - Acacia Technologies stock and 681,868
shares of AR - CombiMatrix stock issuable upon exercise of options that
are currently exercisable or will become exercisable within 60 days of
March 15, 2004.
(11) Includes 81,830 shares of AR - Acacia Technologies stock and 36,840
shares of AR - CombiMatrix stock issuable upon exercise of options that
are currently exercisable or will become exercisable within 60 days of
March 15, 2004.
(12) Includes 381,003 shares of AR - Acacia Technologies stock and 199,761
shares of AR - CombiMatrix stock issuable upon exercise of options that
are currently exercisable or will become exercisable within 60 days of
March 15, 2004.
(13) Includes 2,701,075 shares of AR - Acacia Technologies stock and 2,173,973
shares of AR - CombiMatrix stock issuable upon exercise of options that
are currently exercisable or will become exercisable within 60 days of
March 15, 2004.
11
EXECUTIVE OFFICER COMPENSATION AND OTHER INFORMATION
EXECUTIVE OFFICERS
Set forth below is certain information concerning the executive
officers of the Company as of the date hereof.
NAME AGE POSITIONS WITH THE COMPANY
-------------------------- ------- ---------------------------------------------------------------------
Paul R. Ryan 58 Chairman and Chief Executive Officer
Robert L. Harris, II 45 President
Amit Kumar, Ph.D. 39 Chief Executive Officer and President of CombiMatrix Corporation
Clayton J. Haynes 34 Chief Financial Officer, Treasurer and Senior Vice President, Finance
Robert A. Berman 41 Executive Vice President, General Counsel and Secretary
The following is biographical information and a brief description of
the capacities in which each of the executive officers has served during the
past five years. Biographical information on Messrs. Ryan, Harris and Kumar is
set forth above under "Proposal No. 1: Election of Directors."
CLAYTON J. HAYNES joined the Company in April 2001 as Treasurer and
Senior Vice President, Finance. In November 2001, Mr. Haynes was appointed Chief
Financial Officer of the Company. From 1992 to March 2001, Mr. Haynes was
employed by PricewaterhouseCoopers LLP, ultimately serving as a Manager in the
Audit and Business Advisory Services practice. Mr. Haynes received a B.A. from
the University of California at Los Angeles, is a Certified Public Accountant
and is a member of the American Institute of Certified Public Accountants.
ROBERT A. BERMAN joined the Company in 2000 and was named Senior Vice
President and General Counsel in February 2001. In November 2003, Mr. Berman was
appointed Executive Vice President, Business Development. Mr. Berman held the
position of Director of New Business Development at National Media Corporation
from 1997 to 1999 and at QVC from 1993 to 1997. He practiced law at the
Philadelphia law firm of Blank, Rome, Comsikey and McCauley from 1989 to 1993.
Mr. Berman received a B.S. from the University of Pennsylvania's Wharton School,
and a J.D. from Northwestern Law School.
12
EXECUTIVE OFFICER COMPENSATION
The following table sets forth information concerning compensation
earned for services rendered in all capacities to the Company during the last
three fiscal years for (a) the Company's Chief Executive Officer and (b) the
four most highly compensated executive officers, other than the Chief Executive
Officer, whose annual cash compensation exceeded $100,000 in the last fiscal
year. The listed individuals are collectively referred to herein as the "Named
Executive Officers."
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------- -------------
OTHER SECURITIES
ANNUAL UNDERLYING
SALARY BONUS COMPENSATION OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) (#)(1) COMPENSATION
--------------------------------- ------ --------- --------- ------------- ------------- ------------
Paul R. Ryan 2003 272,619 5,346 0 191,667(2) 0
Chairman and Chief Executive 50,000(3)
Officer 2002 266,019 5,096 0 161,000(2) 0
30,000(3)
2001 257,568 5,096 0 275,001(2) 0
153,504(3)
Robert L. Harris III 2003 267,600 5,250 0 131,667(2) 0
President 50,000(3)
2002 251,077 5,000 0 161,000(2) 0
30,000(3)
2001 227,280 4,615 0 275,001(2) 0
153,504(3)
Amit Kumar, Ph.D. 2003 318,855 57,500 0 30,000(2) 0
Chief Executive Officer and 300,000(3)
President of CombiMatrix(4) 2002 267,038 25,000 0 0(2) 0
300,000(3)
2001 218,258 0 0 177,101(2) 0
98,856(3)
Clayton J. Haynes, Chief 2003 169,696 3,327 0 50,950(2) 0
Financial Officer and 0(3)
Treasurer (5) 2002 147,135 3,173 0 52,500(2) 0
0(3)
2001 81,140 2,404 0 66,000(2) 0
36,840(3)
Robert A. Berman 2003 218,423 24,327 0 107,105(2) 0
Executive Vice President, 40,000(3)
General Counsel and 2002 205,846 4,038 0 105,000(2) 0
Secretary (6) 0(3)
2001 165,395 28,846 0 177,102(2) 0
98,857(3)
--------------
(1) All share and option figures reflect appropriate adjustments for a
one-for-ten stock dividend paid in December 2001. No stock appreciation
rights were granted or outstanding during the periods covered by the
table.
(2) Options granted with respect to AR - Acacia Technologies stock.
(3) Options granted with respect to AR - CombiMatrix stock.
(4) Dr. Kumar joined the Company in July 2000 and became an executive officer
upon his appointment as Chief Executive Officer and President of
CombiMatrix Corporation in September 2001.
(5) Mr. Haynes joined the Company in April 2001 and became an executive
officer upon his appointment as Chief Financial Officer in November 2001.
13
(6) Mr. Berman joined the Company in 2000 and became an executive officer in
2002.
STOCK OPTION GRANTS AND EXERCISES
The following table sets forth information regarding stock options
granted to the Named Executive Officers during 2003 No stock appreciation rights
were granted to any of the Named Executive Officers during 2003.
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
--------------------------------------------------------
PERCENT OF
TOTAL POTENTIAL REALIZABLE VALUE AT
NUMBER OF OPTIONS ASSUMED ANNUAL RATE
SECURITIES GRANTED TO OF STOCK PRICE APPRECIATION
UNDERLYING EMPLOYEES EXERCISE OR FOR OPTION TERM(1)
OPTIONS IN FISCAL BASE EXPIRATION -----------------------------
NAME GRANTED (#) YEAR PRICE($/SH) DATE 5%($) 10%($)
--------------------------- ---------------- ---------- ----------- ---------- ------------- --------------
Paul R. Ryan 40,000 (2) 3.8% 1.85 5/20/13 7,445 55,687
60,000 (3) 5.7% 1.85 8/19/13 61,011 162,899
91,667 (4) 8.7% 5.17 11/24/13 298,045 755,304
50,000 (5) 2.5% 1.95 2/21/13 61,318 155,390
Robert L. Harris, II 40,000 (2) 3.8% 1.85 5/20/13 7,445 55,687
91,667 (7) 8.7% 5.17 11/24/13 298,045 755,304
50,000 (5) 2.5% 1.95 2/21/13 61,318 155,390
Amit Kumar, Ph.D. 30,000 (8) 2.8% 1.85 3/24/13 2,163 36,318
300,000 (6) 15.0% 1.95 2/21/13 367,904 932,340
Clayton J. Haynes 13,330 (2) 1.3% 1.85 5/20/13 2,481 18,558
37,620 (9) 3.6% 5.17 11/24/13 122,317 309,976
Robert A. Berman 26,000 (2) 2.5% 1.85 5/20/13 4,839 36,197
81,105 (10) 7.7% 5.17 11/24/13 263,704 668,277
40,000 (5) 2.0% 1.95 2/21/13 49,054 124,312
--------------
(1) The 5% and 10% assumed rates of appreciation are prescribed by the rules
and regulations of the SEC and do not represent the Company's estimate or
projection of the future trading prices of its common stock. Unless the
market price of the common stock appreciates over the option term, no
value will be realized from these option grants. Actual gains, if any, on
stock option exercises are dependent on numerous factors, including,
without limitation, the future performance of the Company, overall
business and market conditions, and the optionee's continued employment
with the Company throughout the vesting period and option term, which
factors are not reflected in this table.
(2) The option was granted with respect to shares of AR - Acacia Technologies
stock and became exercisable in ten (10) successive equal monthly
installments upon the completion of service over the ten (10) month
period measured from May 27, 2003.
(3) The option was granted with respect to shares of AR - Acacia Technologies
stock. Twenty Thousand (20,000) option shares became exercisable on
December 31, 2003 with the balance of the option shares becoming
exercisable in twenty-four (24) equal monthly installments thereafter.
(4) The option was granted with respect to shares of AR - Acacia Technologies
stock and become exercisable in twelve (12) successive equal monthly
installments upon the completion of service over the twelve (12) month
period measured from December 31, 2005.
(5) The option was granted with respect to shares of AR - CombiMatrix stock.
One-sixth (1/6) of the option shares became exercisable upon the
completion of six (6) months of service measured from February 21, 2003
with the balance of the option shares becoming exercisable in thirty (30)
successive monthly installments thereafter.
14
(6) The option was granted with respect to shares of AR - CombiMatrix stock.
One hundred fifty thousand (150,000) option shares became exercisable on
February 21, 2003. One-sixth (1/6) of the remaining one hundred fifty
thousand (150,000) option shares became exercisable upon the completion
of six (6) months of service measured from February 21, 2003 with the
balance of the option shares becoming exercisable in thirty (30)
successive monthly installments thereafter.
(7) The option was granted with respect to shares of AR - Acacia Technologies
stock and become exercisable in twelve (12) successive equal monthly
installments upon the completion of service over the twelve (12) month
period measured from December 28, 2005.
(8) The option was granted with respect to shares of AR - Acacia Technologies
stock. One-sixth (1/6) of the option shares became exercisable upon the
completion of six (6) months of service measured from March 24, 2003 with
the balance of the option shares becoming exercisable in thirty (30)
successive monthly installments thereafter.
(9) The option was granted with respect to shares of AR - Acacia Technologies
stock and become exercisable in twelve (12) successive equal monthly
installments upon the completion of service over the twelve (12) month
period measured from January 2, 2006.
(10) The option was granted with respect to shares of AR - Acacia Technologies
stock Twenty thousand (20,000) option shares were immediately
exercisable. The balance of the option shares become exercisable in
twelve (12) successive equal monthly installments upon the completion of
service over the twelve (12) month period measured from December 28,
2005.
15
AGGREGATED OPTION EXERCISES AND FISCAL YEAR END VALUES
The following table provides information, with respect to the Named
Executive Officers, concerning the exercise of options to purchase AR - Acacia
Technologies stock during 2003 and unexercised options held by them at the end
of that fiscal year. None of the Named Executive Officers exercised any stock
appreciation rights during 2003 and no stock appreciation rights were held by
the Named Executive Officers at the end of such year.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT 2003 IN-THE-MONEY OPTIONS AT
SHARES YEAR-END(#) 2003 YEAR-END (1)($)
ACQUIRED ON VALUE -------------------------- --------------------------
NAME EXERCISE(#) REALIZED(2)($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------------------------- ----------- -------------- ----------- ------------- ----------- -------------
Paul R. Ryan 0 0 867,047 327,583 $638,049 $827,595
Robert L. Harris 0 0 681,582 370,086 $487,191 $683,597
Amit Kumar, Ph.D. 0 0 379,943 47,160 $220,194 $ 98,568
Clayton J. Haynes 0 0 64,331 105,119 $115,734 $230,359
Robert A. Berman 0 0 350,145 198,563 $264,320 $440,751
--------------
(1) Represents the difference between the exercise price of the options and
the average of the closing prices of the Company's AR - Acacia
Technologies stock on the Nasdaq National Market on December 31, 2003 of
$5.45 per share.
(2) Value realized represents the difference between the exercise price of
the options and the value of the underlying securities on the date of
exercise.
The following table provides information, with respect to the Named
Executive Officers, concerning the exercise of options to purchase AR -
CombiMatrix stock during 2003 and unexercised options held by them at the end of
that fiscal year. None of the Named Executive Officers exercised any stock
appreciation rights during 2003 and no stock appreciation rights were held by
the Named Executive Officers at the end of such year.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT 2003 IN-THE-MONEY OPTIONS AT
SHARES YEAR-END(#) 2003 YEAR-END (1)($)
ACQUIRED ON VALUE -------------------------- --------------------------
NAME EXERCISE(#) REALIZED(2)($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------------------------- ----------- -------------- ----------- ------------- ----------- -------------
Paul R. Ryan 0 0 523,576 61,402 $ 71,617 $ 53,616
Robert L. Harris 0 0 421,214 107,457 $ 53,117 $ 53,617
Amit Kumar, Ph.D. 0 0 627,341 244,319 $285,174 $153,193
Clayton J. Haynes 0 0 30,700 6,140 $ 6,386 $ 1,277
Robert A. Berman 0 0 185,237 42,652 $ 32,392 $ 41,975
--------------
(1) Represents the difference between the exercise price of the options and
the average of the closing prices of the Company's AR - CombiMatrix stock
on the Nasdaq SmallCap Market on December 31, 2003 of $3.35 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.
16
EMPLOYMENT AGREEMENTS
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.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Company's Board of Directors
currently consists of Messrs. de Boom, Frykman and Graziadio. None of these
individuals was an officer or employee of the Company at any time during 2003 or
at any other time. No current executive officer of the Company has ever served
as a member of the board of directors or compensation committee of any other
entity that has or has had one or more executive officers serving as a member of
the Company's Board of Directors or Compensation Committee.
17
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 2002
Acacia Technologies Stock Incentive Plan and the 2002 CombiMatrix Stock
Incentive 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.
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 interests 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, 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.
EXECUTIVE SEVERANCE POLICY. The Company's Executive Severance Policy
provides that, in the event of involuntary termination of employment of an
executive officer for other than cause or other than on account of death or
disability, the Company shall pay to the executive officer a lump sum amount
equal to the aggregate of the officer's annual base salary through the date of
termination and any compensation previously deferred by the executive officer,
any accrued vacation pay, and reimbursable expenses, as well as three (3) months
of the executive officer's base salary for each full year that the officer was
employed by the Company, up to a maximum of twelve (12) months of the executive
officer's base salary. In addition the Executive Severance Policy provides for
paid COBRA coverage for the medical and dental benefits selected by the
executive officer in the year in which the termination occurs.
COMPENSATION OF CHIEF EXECUTIVE OFFICER. Paul R. Ryan, the Company's
Chairman and Chief Executive Officer, received an annual base salary of $272,619
and a bonus in the amount of $5,346 in 2003. The cash amount paid to Mr. Ryan in
the form of base salary and bonus was 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. The Board of Directors
approved the Compensation Committee's recommendation.
18
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, 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,
FRED A. DE BOOM
EDWARD W. FRYKMAN
G. LOUIS GRAZIADIO, III
19
AUDIT COMMITTEE REPORT
The following is the report of the Audit Committee with respect to the
Company's audited financial statements for 2003, which include the consolidated
balance sheets of the Company as of December 31, 2003 and 2002, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 2003, and the notes
thereto.
COMPOSITION. The Audit Committee of the Board of Directors is comprised
of three directors, and operates under a written charter adopted by the Board of
Directors, a copy of which is attached as Appendix A to this Proxy. The members
of the Audit Committee are Fred A. de Boom, Thomas B. Akin and Edward W.
Frykman. All members of the Audit Committee are "independent", as defined in
Rule 10A-3 under the Exchange Act and Rule 4200(a)(14) of the Marketplace Rules
contained in the National Association of Securities Dealers Manual, and
financially literate.
RESPONSIBILITIES. The responsibilities of the Audit Committee include
recommending to the Board of Directors an accounting firm to be engaged as the
Company's independent accountants. Management has primary responsibility for the
Company's internal controls and financial reporting process. The independent
accountants are responsible for performing an independent audit of the Company's
consolidated financial statements in accordance with generally accepted auditing
standards and for issuing a report thereon. The Audit Committee's responsibility
is to oversee these processes.
REVIEW WITH MANAGEMENT AND INDEPENDENT ACCOUNTANTS. The Audit Committee
has reviewed the Company's consolidated audited financial statements and met
separately, and held discussions with, management and PricewaterhouseCoopers
LLP, the Company's independent accountants. Management represented to the Audit
Committee that the Company's consolidated financial statements were prepared in
accordance with generally accepted accounting principles. The Audit Committee
discussed with PricewaterhouseCoopers LLP matters required to be discussed by
Statement on Auditing Standards No. 61, "Communication with Audit Committees."
The Company's independent accountants also provided to the Audit
Committee the written disclosures and the letter required by Independence
Standards Board Standard No. 1, "Independence Discussions with Audit
Committees," and the Audit Committee discussed with the independent accountants,
PricewaterhouseCoopers LLP, the firm's independence.
CONCLUSION. Based upon the Audit Committee's discussions with
management and the independent accountants, the Audit Committee's review of the
representations of management and the report of the independent accountants to
the Audit Committee, the Audit Committee recommended that the Board of Directors
include the audited consolidated financial statements in the Company's Annual
Report on Form 10-K for the year ended December 31, 2003, as filed with the SEC.
REAPPOINTMENT OF INDEPENDENT AUDITORS. In February 2004 the Audit
Committee recommended to the Board of Directors the reappointment of
PricewaterhouseCoopers LLP as the Company's independent accountants for the
fiscal year ending December 31, 2004.
This report is submitted by the Audit Committee of the Board of
Directors.
THOMAS B. AKIN
FRED A. DE BOOM
EDWARD W. FRYKMAN
20
THE COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS
The Audit Committee has selected PricewaterhouseCoopers LLP as
independent accountant for the company in 2004.
Representatives of PricewaterhouseCoopers LLP will be present at the
2004 Annual Meeting, where they may make a statement and will be available to
respond to questions.
AUDIT AND RELATED FEES
AUDIT FEES - PricewaterhouseCoopers LLP was the company's principal
accountant for the years ended December 31, 2003 and 2002. Total fees paid to
PricewaterhouseCoopers LLP for audit services rendered during 2003 and 2002 were
$363,000 and $636,000, respectively. 2002 fees include audit services provided
by PricewaterhouseCoopers LLP associated with the Company's 2002 Registration
Statement on Form S-4 related to the merger transactions consummated in December
2002.
AUDIT-RELATED FEES - Total fees paid to PricewaterhouseCoopers LLP for
audit-related services rendered during 2003 and 2002 were $5,000 and $332,000,
respectively. 2003 fees, related primarily to accounting related consultation
services. 2002 fees include audit services provided by PricewaterhouseCoopers
LLP associated with the Company's 2002 merger transactions consummated in
December 2002.
TAX FEES - Total fees paid to PricewaterhouseCoopers LLP for tax
services rendered during 2003 and 2002 were $100,000 and $357,000, respectively,
related primarily to tax related compliance and consultation services.
ALL OTHER FEES - There were no other fees paid to
PricewaterhouseCoopers LLP for other services rendered during 2003 and 2002.
AUDIT COMMITTEE PRE-APPROVAL POLICY
The Audit Committee has established policies and procedures regarding
pre-approval of all services provided by the independent accountant. At the
beginning of the fiscal year, the Committee pre-approves the engagement of the
independent accountant to provide audit services based on fee estimates. The
Committee also pre-approves proposed audit-related services, tax services and
other permissible services, based on specified project and service details, fee
estimates, and aggregate fee limits for each service category. The Committee
receives a report at each meeting on the status of services provided or to be
provided by the independent accountant and the related fees.
21
STOCK PERFORMANCE GRAPH
The Stock Performance Graph depicted below compares the yearly change
in the Company's cumulative total stockholder return for the last five fiscal
years with the cumulative total return of the Nasdaq Stock Market (U.S.) Index
and the Nasdaq Biotech Index.
[STOCK PERFORMANCE GRAPH HERE]
1998 1999 2000 2001 2002 2003
---- ---- ---- ---- ---- ----
Acacia Research Corporation $100 $684 $407 $278 $ 76 $184
Nasdaq Index $100 $186 $113 $ 89 $ 61 $ 91
Nasdaq Biotech Index $100 $202 $248 $208 $114 $166
The graph covers the period from December 31, 1998 to December 31,
2003. Cumulative total returns are calculated assuming that $100 was invested on
December 31, 1998 in the Company's common stock, and in each index, and that all
dividends were reinvested. The Company has not paid or declared any cash
dividends on its common stock. On December 13, 2002, each share of the Company's
common stock was converted into one share of AR - Acacia Technologies stock and
0.5582 of a share of AR - CombiMatrix stock. As a result, the graph reflects a
composite return for the two classes of the Company's common stock. Stockholder
returns over the indicated period should not be considered indicative of future
stock prices or shareholder returns.
The preceding Stock Performance Graph, Audit Committee Report and
Compensation Committee Report are not considered proxy solicitation materials
and are not deemed filed with the SEC. Notwithstanding anything to the contrary
set forth in any of the Company's previous filings made under the Securities Act
of 1933, as amended, or the Exchange Act that might incorporate future filings
made by the Company under those statutes, the Stock Performance Graph, Audit
Committee Report and Compensation Committee Report shall not be incorporated by
reference into any such prior filings or into any future filings made by the
Company under those statutes.
22
CERTAIN TRANSACTIONS
Since January 1, 2003 there has not been any transaction or series of
similar transactions to which the Company was or is a party in which the amount
involved exceeded or exceeds $60,000 and in which any director, executive
officer, holder of more than 5% of any class of the Company's voting securities,
or any member of the immediate family of any of the foregoing persons had or
will have a direct or indirect material interest.
INDEMNIFICATION AGREEMENTS WITH DIRECTORS AND OFFICERS. In addition to
the indemnification provisions contained in the Company's Restated Certificate
of Incorporation and Bylaws, the Company has entered into separate
indemnification agreements with each of its directors and officers. These
agreements require the Company, among other things, to indemnify each such
director or officer against expenses (including attorneys' fees), damages,
judgments, fines, penalties and settlements paid by such individual in
connection with any action, suit or proceeding arising out of such individual's
status or service as a director or officer of the Company (other than
liabilities with respect to which such individual receives payment from another
source, arising in connection with certain final legal judgments, arising from
willful misconduct or conduct that is knowingly fraudulent or deliberately
dishonest, or which the Company is prohibited by applicable law from paying) and
to advance expenses incurred by such individual in connection with any
proceeding against such individual with respect to which such individual may be
entitled to indemnification by the Company.
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 SEC initial reports of ownership and reports of changes in
ownership of the Company's common stock. The Company believes that, based on the
written representations of its directors and officers, and the copies of reports
filed with the SEC during the fiscal year ended December 31, 2003, its
directors, officers and holders of more than 10% of the Company's common stock
complied with the requirements of Section 16(a), except that Robert A. Berman,
Robert L. Harris, II, Amit Kumar Ph.D. and Paul R. Ryan were delinquent in the
filing of their respective Form 4s relating to options to purchase AR -
CombiMatrix stock granted to each of the named individuals on February 21, 2003.
FORM 10-K
On March 3, 2004 the Company filed with the SEC an Annual Report on
Form 10-K for the 2003 fiscal year. A copy of the Company's Form 10-K has been
mailed concurrently with this Proxy Statement to all stockholders entitled to
notice of and to vote at the Annual Meeting. The Form 10-K is not incorporated
into this Proxy Statement and is not considered proxy solicitation material.
HOUSEHOLDING
In accordance with a notice sent earlier this year to certain
street-name stockholders who share a single address, we are sending only one
Form 10-K report and proxy statement to that address unless we received contrary
instructions from any stockholder at that address. This practice, known as
"householding," is designed to reduce our printing and postage costs. However,
if any stockholder residing at such an address wishes to receive a separate Form
10-K or proxy statement in the future, they may telephone our Corporate
Secretary at (949) 480-8300 or write to him at Acacia Research Corporation, 500
Newport Center Drive, Newport Beach, California 92660. If you are receiving
multiple copies of our annual report and proxy statement, you can request
householding by contacting the Secretary in the same manner.
23
STOCKHOLDER PROPOSALS FOR THE 2005 ANNUAL MEETING
Proposals of stockholders intended to be presented at the 2005 Annual
Meeting must be received by the Company by December 2, 2004 to be considered for
inclusion in the Company's proxy statement relating to that meeting.
Stockholders desiring to present a proposal at the 2005 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 11, 2005 and on or before February 10, 2005 or the persons
appointed as proxies in connection with the 2005 Annual Meeting will have
discretionary authority to vote on any such proposal.
April 1, 2004
By Order of the Board of Directors,
/s/ Robert A. Berman
Robert A. Berman
EXECUTIVE VICE PRESIDENT OF BUSINESS
DEVELOPMENT, GENERAL COUNSEL AND
SECRETARY
24
APPENDIX A
ACACIA RESEARCH CORPORATION
AUDIT COMMITTEE CHARTER
The Board of Directors (the "Board") of Acacia Research Corporation (the
"Company") has established a standing committee to be known as the Audit
Committee (the "Committee").
PURPOSE
The purpose of the Committee is to oversee the Company's auditing, accounting
and control functions, including primary responsibility for the financial
reporting process of the Company. In particular, the Committee shall assist the
Board in monitoring:
o The integrity of the financial statements of the Company, to ensure the
balance, transparency and integrity of published financial information,
o The outside auditor's independence and qualifications,
o The performance of the Company's outside auditors,
o The compliance by the Company with legal and regulatory requirements,
and
o The effectiveness of the Company's internal controls and risk
management system.
The Committee's responsibilities shall also include:
o Preparing the report required by the rules of the Securities and
Exchange Commission (the "SEC") to be included in the Company's annual
proxy statement, and
o The appointment, compensation, retention, oversight and, where
appropriate, replacement of the Company's outside auditors, who are
responsible to the Board and the Committee.
AUTHORITY
The Committee has authority to conduct or authorize investigations into any
matters within its scope of responsibility. Such authority includes but is not
limited to:
o Retaining outside counsel, accountants, outside advisors, consultants,
or others to assist in the conduct of an investigation or as it
determines appropriate to advise or assist in the performance of its
functions.
o Seeking any information it requires from employees or external parties.
Employees and external parties will be directed to cooperate and comply
with the committee's requests.
o Meeting with the senior financial personnel, company officers, outside
auditors, or outside counsel, as necessary.
o Establishing procedures for dealing with concerns of employees
regarding accounting, internal control and auditing matters.
o Establishing procedures for the receipt, retention and treatment of
complaints received by the Company regarding accounting, internal
controls or accounting matters.
A-1
COMPOSITION
The Committee shall be composed of such number of directors as may be appointed
by the Board, but shall have at least three members, each of whom shall meet the
SEC and Nasdaq independence and experience requirements, as determined by the
Board. Specifically, each member of the Committee shall be barred from accepting
any consulting, advisory or other compensatory fee from the Company or any
subsidiary of the Company, and shall not be an "affiliated person" of the
Company or any subsidiary of the Company, in each case other than in such
member's capacity as a member of the Board or any committee of the Board. Such
members shall be outside directors who are independent of Company management and
in a better position to provide the independent point of view crucial to this
Committee's effectiveness. All such members shall be financially literate and at
least one shall qualify as a "financial expert" as defined under applicable SEC
rules, as determined by the Board.
The Board shall appoint the members of the Committee to serve until their
successors have been duly designated and one member so appointed shall be
designated by the Board as the chair of the Committee.
Members of the Committee may be removed by the Board for any reason at any time.
Vacancies on the Committee shall be filled by vote of the Board during its first
meeting following the occurrence of such vacancy.
MEETINGS
The Committee shall meet at least four times a year, and may meet additionally
as it deems necessary or appropriate in its judgment, either in person or
telephonically, such additional meetings to be called by the chair or at least
two other members of the Committee.
The Committee may adopt rules for its meetings and activities. In the absence of
any such rules, Committee actions shall be governed by the Company's bylaws and
applicable law. In all cases, a quorum of the Committee shall be a majority of
the persons then serving as members of the Committee. Minutes shall be regularly
kept of the Committee's proceedings, by a person appointed by the Committee to
do so.
The Committee shall also meet at least quarterly with management and the
Company's outside auditors in separate executive sessions.
RESPONSIBILITIES
The Committee will carry out the following responsibilities:
FINANCIAL STATEMENTS
o Review the annual audited and quarterly financial statements and Form
10-K, including the results of the audit for each fiscal year and MD&A
disclosures, with management and the outside auditor, and recommend to
the Board the inclusion of the annual audited financial statements in
the Company's Annual Report on Form 10-K to be filed with the SEC.
o Reviewing with the outside auditor and management the results of the
outside auditor's review of the quarterly financial statements,
including any significant accounting or disclosure and regulatory
issues, prior to issuance of earnings releases and filing quarterly
reports on Form 10-Q with the SEC.
o Oversee the periodic financial reporting process implemented by
management and review the Company's interim financial statements,
annual financial statements and preliminary announcements prior to
release.
o Review management's process for ensuring that the information contained
in press announcements is consistent with published information,
balanced and transparent.
o Review from time to time (but in no event less often than annually)
with the outside auditor and management, as appropriate:
A-2
o Significant financial reporting issues and judgments made in connection
with the preparation of the Company's financial statements;
o Major issues regarding the Company's accounting and auditing principles
and practices, including critical accounting policies, and major
changes in auditing and accounting principles and practices proposed or
promulgated by regulatory accounting authorities or suggested by the
outside auditor, internal auditor or management;
o Matters required to be discussed by Statement on Auditing Standards No.
61 and 90 relating to the conduct of the audit;
o The results of the audit, which should include a review of any audit
problems or difficulties encountered by the outside auditor in the
course of the audit work, including any restrictions on the scope of
activities or access to required personnel or information, and any
disagreements with management; and
EXTERNAL AUDIT
o Annually retain, evaluate, and, if appropriate, recommend termination
of the Company's outside auditor. The Committee shall be directly
responsible, in its capacity as a committee of the Board, for the
appointment, compensation, oversight, and evaluation of performance of
the work of the outside auditor.
o Approve in advance all audit engagement fees and the terms of all audit
services to be provided by the outside auditor. The Committee shall
establish policies and procedures for the engagement of the outside
auditor to provide permissible non-audit services, which shall include
pre-approval of such services.
o At least annually, obtain and review a report from the outside auditor
describing any relationships between the auditor and the Company and
any other relationships that may adversely affect the auditor's
independence, consider the independence of the outside auditor, and
otherwise take appropriate action to satisfy itself of the independence
of the auditor, including considering whether the provision of
non-audit services by the outside auditor is compatible with the
auditor's independence.
o At least annually, review the outside auditor's proposed audit scope
and approach (inclusions and exclusions), including coordination of
audit effort with internal audit, to ensure the completeness of
coverage and reduction of redundant efforts.
o At least annually, obtain and review a report by the outside auditor
describing its own internal quality-control procedures; any material
issues raised by its most recent quality-control review or peer review;
and any inquiry or investigation by governmental or professional
authorities respecting any of its audits within the past five years,
together with any steps taken to deal with any such issues.
o Discuss with the external auditor the appropriateness of the Company's
accounting policies.
INTERNAL AUDIT
o Review the internal audit function of the Company, including the
proposed programs for the coming year, and the coordination of such
programs with the outside auditors, with particular attention to
maintaining the best possible balance between independent and internal
auditing resources.
o Review progress of the internal audit program, key findings and
management's action plans to address findings.
A-3
COMPLIANCE
o Advise the Board with respect to the Company's policies and procedures
regarding compliance with applicable law and regulations.
o Review the effectiveness of procedures for the receipt, retention,
resolution and treatment of complaints received by the Company
regarding accounting, internal accounting controls or auditing matters
and for employees to make confidential and anonymous submissions of
concern regarding questionable accounting or auditing matters. This
should also include a review of management follow-up, including
disciplinary action, for any actions of noncompliance.
INTERNAL CONTROLS
o Meet periodically with management to review the Company's major
financial risk exposures and the steps management has taken to monitor
and control such exposures.
o Periodically review the adequacy and effectiveness of the Company's
disclosure controls and procedures and the Company's internal controls,
including any information technology security and control.
o Evaluate overall effectiveness of the Company's internal control and
risk management frameworks and consider whether recommendations made by
the auditors have been implemented by management.
REPORTING
o Regularly report to the Board about committee activities, issues and
related recommendations.
o Report annually to the stockholders, describing the committee's
composition, responsibilities, and how they were discharged, and any
other information required by regulators.
OTHER RESPONSIBILITIES
o Assess annually the Committee's and individual members' performance of
the duties specified in this Charter and report its findings to the
Board.
o Annually review and assess the adequacy of this Charter and recommend
any proposed changes to the Board. This Charter shall be disclosed in
the Company's proxy statement at least once every three years.
o Hold separate private meetings with management and external auditors.
o Establish policies for the hiring of employees and former employees of
the external auditors.
While the Committee has the responsibilities and powers set forth in this
Charter, it is not the duty of the Committee to plan and conduct audits or to
determine that the Company's financial statements are complete and accurate and
are in accordance with generally accepted accounting principles.
A-4
PROXY PROXY
ACACIA RESEARCH CORPORATION
Annual Meeting of Stockholders May 11, 2004
This Proxy is Solicited on Behalf of the Board of Directors
of Acacia Research Corporation
The undersigned revokes all previous proxies, acknowledges receipt of the Notice
of the Annual Meeting of Stockholders and the accompanying Proxy Statement and
appoints Paul R. Ryan and Robert A. Berman and each of them, the Proxy of the
undersigned, with full power of substitution and revocation, to vote all shares
of Acacia Research - Acacia Technologies Common Stock and Acacia Research -
CombiMatrix Common Stock held of record by the undersigned on March 15, 2004,
either on his or her own behalf or on behalf of any entity or entities, at the
Annual Meeting of Stockholders of Acacia Research Corporation (the "Company") to
be held May 11, 2004, or at any postponements or adjournments thereof, with the
same force and effect as the undersigned might or could do if personally present
thereat. The shares represented by this Proxy shall be voted in the manner set
forth on the reverse side.
THIS PROXY, WHEN PROPERLY SIGNED, DATED AND RETURNED, WILL BE VOTED AS DIRECTED.
UNLESS OTHERWISE DIRECTED, THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE
THREE DIRECTOR NOMINEES AND FOR EACH OF THE OTHER PROPOSALS.
(See reverse side)
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The Board of Directors recommends a vote FOR the nominees listed below and a
vote FOR each of the listed proposals.
(1) To elect three directors to serve until the 2007 Annual Meeting of
Stockholders and until their successors are duly elected and qualified.
Nominees: Robert L. Harris, II, Fred A. de Boom and Amit Kumar.
[ ] FOR all nominees listed above (except as marked to the contrary below.)
[ ] WITHHOLD AUTHORITY to vote for all nominees listed below.
(INSTRUCTION: To withhold authority to vote for any nominee, write that
nominee's name in the space below.)
______________________ ______________________ ______________________
(2) To ratify the appointment of PricewaterhouseCoopers LLP as independent
accountants of the Company for the fiscal year ending December 31, 2004.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(3) To transact such other business as may properly come before the Annual
Meeting or at any postponements or 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.
______________________________________
(Dated)
______________________________________
(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
marked in the United States.
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DETACH PROXY HERE AND RETURN
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