From and after the consummation of an Additional Closing, the Preferred Shares may be exchanged for Notes and Series B Warrants without any additional consideration.

The Company has agreed to file with the SEC a definitive proxy statement by no later January 17, 2020, for a special meeting of stockholders (the “Stockholder Meeting”), to solicit the affirmative vote of the Company’s stockholders for the approval of resolutions providing for: (i) the Company’s issuance of all of the Securities under the Purchase Agreement without giving effect to any limitations under the rules of the Nasdaq Stock Market LLC, and (ii) an amendment to the Company’s certificate of incorporation to increase the number of authorized shares of Common Stock to not less than 300,000,000 shares (such approvals, collectively, the “Stockholder Approval”). to the Purchase Agreement, the Stockholder Meeting must be held no later than February 16, 2020 (the “Stockholder Approval Deadline”).

Subject to (i) the Company’s obtaining Stockholder Approval, (ii) the consummation of one or more Approved Investments and (iii) at least $100,000,000 of principal amount of Notes having been issued to Buyers, the Company will have the option to complete one or more rights offerings to its stockholders (a “Stockholder Offering”) of senior secured notes with terms substantially identical to the Notes, in an aggregate principal amount of up to $100,000,000, and warrants to purchase up to 27,397,261 shares of Common Stock with terms substantially identical to the Series B Warrants.

Until the Buyers no longer hold any Preferred Shares or Notes, the Company will not, other than the issuance and sale of securities in a Stockholder Offering, issue any of its or its subsidiaries’ equity or equity equivalent securities unless the Company will have first provided the Buyers with a right to participate in such offering, subject to certain limitations and exceptions.

The Company expects to use the proceeds from the sale of the Securities to fund strategic acquisitions and investments opportunities approved by the Company and the Designee.

The foregoing transactions contemplated by the Purchase Agreement are referred to herein as the “Financing.”

Registration Rights Agreement

On November 18, 2019, the Company entered into a Registration Rights Agreement with the Designee and the Buyers (the “Registration Rights Agreement”), to which the Company agreed to provide certain registration rights with respect to the Securities and the shares of Common Stock issued upon the conversion or exercise of the Securities, as applicable (the “Registrable Securities”).

Under the Registration Rights Agreement, the Company will, among other things, prepare and file with the SEC (i) an initial registration statement on Form S-3, or if unavailable, a Form S-1, covering the resale of Registrable Securities then-outstanding, and (ii) subsequent registration statements covering the resale of any Registrable Securities to the extent not included in previous registration statements. In addition, upon written notice to the Company by the Designee (a “Demand Notice”), the Company will prepare and file with the SEC a registration statement covering the resale of any Preferred Shares, Notes and/or Series B Warrants set forth in such Demand Notice.

At any time beginning on November 18, 2020, upon the Designee’s request, the Company will use its reasonable best efforts to cause the Preferred Shares, Series B Warrants and/or the Notes to be, as requested by the Designee, listed for trading on The Nasdaq Global Select Market or any other eligible market as selected by the Company.

Governance Agreement

On November 18, 2019, the Company entered into a Governance Agreement (the “Governance Agreement”) with the Designee and certain affiliates of the Designee (collectively, “Starboard”), to which, among other things, the Company agreed to (i) increase the size of the Board of Directors of the Company (the “Board”) from six to seven members, (ii) appoint Jonathan Sagal as a director of the Company (the “Starboard Appointee”), (iii) grant Starboard the right to recommend two additional directors for appointment to the Board (the “Additional Appointees”), (iv) form a Strategic Committee of the Board (the “Strategic Committee”), which will be tasked with, among other things, sourcing and performing due diligence on potential acquisition targets and intellectual property or other investment opportunities, with the goal of finding one or more Approved Investments, (v) appoint Clifford Press, Alfred V. Tobia, Jr. and Jonathan Sagal to the Strategic Committee, with Clifford Press serving as its Chairman, and (vi) appoint Jonathan Sagal to the Nominating and Corporate Governance Committee.

During the period beginning on November 18, 2019 and ending on the earlier of (i) fifteen (15) days prior to the deadline for the submission of stockholder nominations for the Company’s 2020 annual meeting of stockholders to the Company’s Second Amended and Restated Bylaws, or (ii) April 6, 2020 (such period, as may be extended by Starboard under certain circumstances, the “Governance Period”), the Board will remain at no more than seven directors, provided that the Board may be increased during the period to (a) accommodate the appointment of the Additional Appointees, (b) upon Starboard’s written consent, or (c) if the Company’s stockholders take actions to increase the size of the Board.

During the Governance Period, one or more Starboard partners or senior employees (the “Starboard Observers”) will have the right to attend and participate in meetings of the Strategic Committee and will receive copies of all documents distributed to the Strategic Committee. The Starboard Observers may attend and participate, but not vote, at all meetings of the Strategic Committee during the Governance Period. During the Governance Period, Starboard has agreed not to take certain actions with respect to the Company.

If there is a vacancy on the Board during the Governance Period as a result of any of the Starboard Appointee or the Additional Appointees no longer serving on the Board for any reason, then Starboard will be entitled to designate a replacement thereof (each, a “Replacement Director”); provided that at such time certain criteria set forth in the Governance Agreement are satisfied, including that Starboard beneficially own, in the aggregate, at least the lesser of 4.0% of the Company’s then-outstanding Common Stock (on an as-converted basis, if applicable) and 2,013,732 shares of issued and outstanding Common Stock (subject to adjustment for stock splits, reclassifications, combinations and similar adjustments).

The Purchase Agreement, Registration Rights Agreement and the Governance Agreement are filed as Exhibits 10.1 through 10.3, respectively, to this Current Report on Form 8-K and are incorporated herein by reference. The form of Note, form of Series A Warrant and form of Series B Warrant are attached as Exhibits 4.1 through 4.3, respectively, to this Current Report on Form 8-K and are incorporated herein by reference. The foregoing descriptions of the Purchase Agreement, Registration Rights Agreement, Governance Agreement, Notes, Series A Warrants and Series B Warrants do not purport to be complete and are qualified in their entirety by reference to such exhibits.

Item 3.02 Unregistered Sales of Equity Securities.

The information under Item 1.01 is incorporated by reference into this Item 3.02.

Item 3.03 Material Modification to Rights of Security Holders.

On November 18, 2019, the Company issued 350,000 Preferred Shares with a liquidation preference per share equal to the greater of (i) the Conversion Amount (as defined below), and (ii) the amount that would have been received had such Preferred Shares been converted into Common Stock immediately prior to a liquidation event (the “Preferred Liquidation Distribution”). The “Conversion Amount” means the sum of (i) $100 (subject to adjustment for stock splits, stock dividends, recapitalizations and similar events), (ii) any accrued and unpaid dividends, and (iii) any accrued and unpaid late charges for the failure to make any payment due under any agreements related to the Financing, including but not limited to the Purchase Agreement, the Notes, the Warrants, the Registration Rights Agreement, and the Governance Agreement.

Under the terms of the Certificate of Designations (as defined below), the ability of the Company to pay dividends on, make distributions with respect to, or to redeem, purchase or acquire, or make a liquidation payment on its common stock or any preferred stock ranking junior to the Preferred Shares, will be subject to restrictions in the event that the Company does not declare dividends on the Preferred Shares for the most recently completed dividend period or, in the case of any such liquidation payment, does not pay to holders of the Preferred Shares Preferred Liquidation Distributions.

The terms of the Preferred Shares are more fully described in the Certificate of Designations, which establishes the rights, preferences, privileges, qualifications, restrictions and limitations relating to the Preferred Shares. A Copy of the Certificate of Designations is included as Exhibit 3.1 to this Current Report on Form 8-K and is incorporated by reference herein.

Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

On November 18, 2019, Jonathan Sagal was appointed as a director of the Company to serve until the Company’s 2020 annual meeting of stockholders and until his successor is duly elected and qualified.

Mr. Sagal will serve as a member of the Nominating and Governance Committee and the Strategic Committee.

Mr. Sagal is a Managing Director at Starboard Value. Prior to joining Starboard Value in June 2011, Mr. Sagal was an investment analyst at Casablanca Capital, an investment firm focused on shareholder activism. Previously, he was an investment analyst at Mill Road Capital, where he focused on long-term public and private equity investments in microcap companies, and Prentice Capital Management (“Prentice”), where he focused on investments in consumer and retail companies. Prior to Prentice, he was an Investment Banking Analyst in the Mergers & Acquisitions group at Rothschild Inc. Mr. Sagal received an M.B.A. from Columbia Business School and graduated from Princeton University, where he received an A.B., summa cum laude, in Philosophy.

Mr. Sagal will receive the standard compensation for his respective services at the same level as other non-employee directors of the Company, as described in the Company’s definitive proxy statement for the Company’s 2019 annual meeting of stockholders, previously filed with the SEC on June 14, 2019. Mr. Sagal has entered into an indemnification agreement with the Company (the “Indemnification Agreement”), which requires the Company to indemnify him to the fullest extent permitted under Delaware law and to advance expenses incurred as a result of any proceeding against him as to which he could be indemnified. The foregoing description is qualified in its entirety by reference to the full text of the Indemnification Agreement, a form of which has been filed with the SEC as an exhibit to the Company’s Form 10-K for the year ended December 31, 2018.

Other than the Governance Agreement and the Financing, there is no arrangement or understanding between Mr. Sagal and any other persons or entities to which he was appointed as a director. There have been no transactions, or currently proposed transactions, in which the Company was or is to be a participant and the amount involved exceeds $120,000, and in which Mr. Sagal, or any member of his respective immediate family, had or will have a direct or indirect material interest since the beginning of the Company’s last fiscal year.

Item 5.03 Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year.

On November 18, 2019, the Company filed a Certificate of Designations, Preferences, and Rights of Series A Convertible Preferred Stock with the Secretary of State of the State of Delaware, establishing the rights, preferences, privileges, qualifications, restrictions and limitations relating to the Preferred Shares (the “Certificate of Designations”). The Certificate of Designations became effective with the Secretary of State of the State of Delaware upon filing.

Capitalized terms used in this Item 5.03 but not defined herein shall have the meanings set forth in the Certificate of Designations.

(d) Exhibits

ACACIA RESEARCH CORP Exhibit
EX-3.1 2 d836502dex31.htm EX-3.1 EX-3.1 Exhibit 3.1 CERTIFICATE OF DESIGNATIONS,…
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About ACACIA RESEARCH CORPORATION (NASDAQ:ACTG)

Acacia Research Corporation, through its subsidiaries, is engaged in patent investment, prosecution, licensing and enforcement activities. The Company’s subsidiaries partner with inventors and patent owners for patented inventions. The Company operates in patent licensing and enforcement business segment. The Company’s subsidiaries generate revenues from the granting of intellectual property rights for the use of patented technologies that its subsidiaries control or own. The Company’s subsidiaries assist patent owners with the prosecution and development of their patent portfolios, the protection of their patented inventions from unauthorized use, the generation of licensing revenue from users of their patented technologies and with the enforcement against unauthorized users of their patented technologies through the filing of patent infringement litigation. It is engaged in licensing and enforcing patented technologies. Its subsidiaries include Adaptix, Inc. and Body Science, LLC.