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Item 1.01.
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Entry into a Material Definitive Agreement.
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Transaction Agreement
On June 4, 2020,
Acacia Research Corporation, a Delaware corporation (the “Company”), entered into a Transaction Agreement (the “Transaction
Agreement”) with LF Equity Income Fund, a sub-fund of LF Investment Fund, acting by its authorized corporate director, Link
Fund Solutions Limited (“Seller”), to acquire a portfolio of securities (“Sale Securities”) of 19 public
and private life sciences companies (each, a “Portfolio Company”) by the Company for a total consideration of £223.9
million (the “Purchase Price”) (the “Portfolio Transaction”). The Company and Seller had first entered
into a confidential undertaking on April 3, 2020, allowing for, among other things, a review of the Sale Securities.
The purchase and
sale of the Sale Securities of certain private Portfolio Companies are subject to rights of first refusal, tag-along rights and
other similar rights held by other securityholders of such private Portfolio Companies. If such rights are not exercised with respect
to any Sale Securities of a private Portfolio Company, the Company will acquire such Sale Securities on the terms described in
the Transaction Agreement. In the event that securityholders of a private Portfolio Company exercise their right of first refusal
or tag-along rights or similar rights with respect to the Sale Securities, the Company will not purchase those Sale Securities
and the Purchase Price will be adjusted accordingly. The parties agree to use commercially reasonable efforts to cause the sale
of all Sale Securities to be consummated by November 30, 2020; provided, that, either party may extend by up to one month by providing
written notice to the other party.
The obligation of
the Company to complete each purchase of Sale Securities at the Offer Price is subject to certain closing conditions, including
(1) the absence of any legal restriction that prevents the transfer of the applicable Sale Securities, (2) the Seller having obtained
any required waivers or consents from securityholders of such Portfolio Company, (3) the accuracy of Seller’s representations
and warranties contained in the Transaction Agreement (generally subject to qualifications as to materiality), (4) Seller’s
performance of its covenants and obligations under the Transaction Agreement in all material respects, and (5) the Transaction
Agreement not having been validly terminated in accordance with its terms.
The foregoing summary
of the Transaction Agreement does not purport to be complete and is subject to, and qualified in its entirety by, the full text
of the Transaction Agreement, which is attached as Exhibit 2.1 to this Current Report on Form 8-K and incorporated by reference
herein.
Issuance of June 2020
Notes
As previously reported,
on November 18, 2019, the Company entered into a Securities Purchase Agreement (the “Purchase
Agreement”) with Starboard Value LP (the “Designee” or “Starboard Value”) and the Buyers (as defined
in the Purchase Agreement), pursuant to which, among other things, the Company and Starboard Value would designate suitable investments
or acquisitions as “Approved Investments” and Starboard Value would elect to purchase and allocate among one or more
of its affiliates senior secured notes in one or more Additional Closings. In connection with the Portfolio Transaction, the Company
and Starboard Value designated the Portfolio Transaction as an Approved Investment (as defined under the Purchase Agreement) and
issued to Starboard $115 million principal amount of its Senior Secured Notes (the “June 2020 Notes”). In connection
with such issuance, the Company and Starboard Value entered into a Supplemental Agreement on June 4, 2020 to, among other things,
agree to the following:
Preferred
Stock Dividend Waiver
In
connection with the Portfolio Transaction and the issuance of the June 2020 Notes, $35 million from the previously-disclosed escrow
account (the “Escrow Account”) was released and used to fund a portion of the Purchase Price. Pursuant to the Supplemental
Agreement, the Company and Starboard agreed that, so long as at least $35 million (or such lesser amount equal to the Stated Value
of outstanding Series A Convertible Preferred Stock, par value $0.001 per share (the “Preferred Shares”) of the Company)
is redeposited into the Escrow Account, provided no Triggering Event (as defined in the Certificate of Designations for the Preferred
Shares), or event that with the
passage of time and/or giving of notice would
constitute a Triggering Event, has occurred and is continuing, Starboard Value, on behalf of the funds holding the Preferred Shares,
shall waive all dividends accruing on the Preferred Shares in excess of 3.00% per annum. Pursuant to the terms of the Preferred
Shares, dividends would otherwise accrue on the Preferred Shares at a rate of 8.00% per annum following an Approved Investment.
The Company expects to fund the Escrow Account with proceeds from the sale of the assets acquired in the Portfolio Transaction.
June
2020 Notes Redemption
Pursuant
to the Supplemental Agreement, the Company shall redeem $80 million principal amount of the June 2020 Notes by September 30, 2020
and the remaining $35 million principal amount of the June 2020 Notes by December 31, 2020 (the “Final Note Redemption Date”)
at par, plus accrued and unpaid interest and late fees, if any. In addition, the terms of the June 2020 Notes waive the requirement
for the Company to comply with the ratio of Consolidated Total Debt to EBITDA covenant (the “Financial Covenant”) for
the test periods ending June 30, 2020 and September 30, 2020. The Company is required to redeem the June 2020 Notes by the Financial
Note Redemption Date, which would otherwise be the next testing date for the Financial Covenant.
Series
B Warrant Cash Exercise
Pursuant
to the Supplemental Agreement, in consideration for permitting the Company to redeem the June 2020 Notes prior to November 15,
2027 (the “Maturity Date”), the Company and Starboard Value amended the terms of the previously issued Series B Warrants
of the Company (the “Series B Warrants”) to permit the payment of the exercise price of $3.65 through the payment of
cash rather than through cancellation of notes issued pursuant to the Purchase Agreement at any time until the Series B Warrant
Expiration Date of November 15, 2027. 31,506,849 of the Series B Warrants are subject to this adjustment with the remaining balance
68,493,151 Series B Warrants continuing with their original terms.
Optional
Redemption of Preferred Shares
Pursuant
to the Supplemental Agreement, in further consideration for permitting the Company to redeem the June 2020 Notes prior to the Maturity
Date, Starboard and the Company agreed that, (i) in addition to the terms of the Preferred Shares, Starboard has the right to redeem
the Preferred Shares at any time (i) between May 15, 2021 and August 15, 2021 and (ii) between May 15, 2022 and August 15, 2022
if less than $50 million principal amount of notes issued under the Purchase Agreement remain outstanding between the applicable
notice date for redemption and the related redemption date at 115% of the stated value of the Preferred Shares being redeemed plus
accrued and unpaid dividends and late charges, if any. In addition, the Supplemental Agreement provides that the Company has the
right to redeem the Preferred Shares at any time between May 15, 2022 and August 15, 2022 if less than $50 million principal amount
of notes issued under the Purchase Agreement remain outstanding between the applicable notice date for redemption and the related
redemption date at 115% of the stated value of the Preferred Shares being redeemed plus accrued and unpaid dividends and late charges,
if any.
Maximum
Amount of Notes Issuable under the Purchase Agreement
Pursuant
to the Supplemental Agreement, Starboard and the Company agreed that the maximum amount of notes that may be issued pursuant to
the Purchase Agreement shall be $365,000,000 plus the principal amount of June 2020 Notes that have been redeemed, but in no case
may more than $365,000,000 in notes issued pursuant to the Purchase Agreement be outstanding at any one time.
The
Supplemental Agreement and the revised Form of Note is attached hereto as Exhibit 10.1 and is incorporated herein by reference.
The foregoing description of the Supplemental Agreement is not complete and is subject to and qualified in its entirety by reference
to the full text thereof set forth in Exhibit 10.1.