AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 25,AUGUST 7, 2000
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ACACIA RESEARCH CORPORATION
(Exact name of registrant as specified in its charter)(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 95-4405754
(State or other jurisdiction (I.R.S. Employer
of Identification Number)
incorporation or organization) Identification Number)
55 SOUTH LAKE AVENUE
PASADENA, CALIFORNIA 91101
(626) 396-8300
(Address, including zip code, and telephone number,
including area code, of registrants'Registrants' principal executive offices)
--------------------------
KATHRYN KING-VAN WIE, CHIEF OPERATING OFFICER----------------
VICTORIA WHITE
VICE PRESIDENT, LEGAL AFFAIRS
ACACIA RESEARCH CORPORATION
55 SOUTH LAKE AVENUE
PASADENA, CALIFORNIA 91101
(626) 396-8300
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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COPIES OF COMMUNICATIONS TO:
D. STEPHEN ANTION
O'MelvenyJOHN A. LACO
O'MELVENY & MyersMYERS LLP
1999 Avenue of the Stars
7th Floor
Los Angeles, California 90067-6035
(310) 553-6700
--------------------------400 SOUTH HOPE STREET
LOS ANGELES, CALIFORNIA 90071
(213) 430-6000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AT SUCH TIME OR TIMES ON AND AFTER THE DATE ON WHICH THIS REGISTRATION STATEMENT
BECOMES EFFECTIVE AS THE SELLING SECURITYHOLDERS MAY DETERMINE.
--------------------------At such
time or times on and after the date on which this Registration Statement
becomes effective as the Selling Securityholders may determine.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. / /[_]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act") other than securities offered only in
connection with dividend or interest reinvestment plans, check the following
box. /X/[X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /[_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /[_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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CALCULATION OF REGISTRATION FEE
NUMBER OF
SECURITIES OF EACH PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF CLASS TO BE OFFERING PRICE PER AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) SECURITY(2) OFFERING PRICE(2) REGISTRATION FEE
Common Stock, $0.001 par value per share 2,345,116 $51.25(3) $120,187,195(3) $31,729.42
(1) Includes a number of shares of Common Stock initially issuable upon exercise
of certain warrants[_]
(Continued on next page)
The information contained in this Preliminary Prospectus is not complete and
options held by themay be changed. The Selling Securityholders and,may not sell these securities
pursuant to Rule 416 underthis Prospectus until the Registration Statement filed with the
Securities Act,and Exchange Commission is effective. This Prospectus is not an
indeterminate number of
shares of Common Stock as may be issued from timeoffer to time upon exercise of
such warrantssell these securities and options by reason of adjustment ofit is not soliciting an offer to buy these
securities in any state where the number of shares of
Common Stock to be issued upon such exercises under certain circumstances
outlined.
(2) Estimated solely for the purpose of calculating the registration fee.
(3) Pursuant to Rule 457(c), the price of the Common Stockoffer or sale is based upon the
average of the high and low prices of the Common Stock on the Nasdaq
National Market on January 20, 2000.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY
DETERMINE.
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- --------------------------------------------------------------------------------
THE INFORMATION CONTAINED IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND
MAY BE CHANGED. THE SELLING SECURITYHOLDERS MAY NOT SELL THESE SECURITIES
PURSUANT TO THIS PROSPECTUS UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.not permitted.
SUBJECT TO COMPLETION, PRELIMINARY PROSPECTUS DATED JANUARY 25,AUGUST 7, 2000.
PROSPECTUS
ACACIA RESEARCH CORPORATION
2,345,1162,263,833 SHARES OF
COMMON STOCK
----------------
Selling Securityholders who are identified in this prospectus may offer and
sell from time to time up to 2,345,1162,263,833 shares of common stock of Acacia
Research Corporation by using this prospectus.
The offering price for the common stock may be the market price for our
common stock prevailing at the time of sale, a price related to the prevailing
market price, at negotiated prices or such other price as the Selling
Securityholders determine from time to time.
Acacia Research Corporation's common stock is traded on the Nasdaq National
Market under the ticker symbol "ACRI"."ACRI." On January 20,August 4, 2000, the closing sale
price of the common stock, as reported by Nasdaq, was $50.25$26.75 per share.
----------------------------------------
THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD ACQUIRE THESE
SHARES ONLY IF YOU CAN AFFORD A COMPLETE LOSS. SEE "RISK FACTORS" BEGINNING ON
PAGE 75 OF THIS PROSPECTUS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
The date of this prospectus is January ___,August , 2000.
TABLE OF CONTENTS
PAGE
------------
The Company................................................................ 1
Recent Developments........................................................ 3
Risk Factors............................................................... 5
Forward-Looking Statements.................................. 2
The Company................................................. 3
Recent Developments......................................... 5
Risk Factors................................................ 7Statements................................................. 15
Use of Proceeds............................................. 16Proceeds............................................................ 15
Selling Securityholders.....................................Securityholders.................................................... 16
PAGE
----
Plan of Distribution........................................ 20Distribution....................................................... 18
Legal Matters............................................... 20
Experts..................................................... 20Matters.............................................................. 18
Experts.................................................................... 18
Available Information....................................... 21Information...................................................... 18
Incorporation of Certain Documents by Reference............. 21Reference............................ 19
FORWARD-LOOKING STATEMENTS
This prospectusi
SUMMARY
You should read the following summary together with the more detailed
information about our company and the documents it incorporates by reference contain
forward-looking statements. Forward-looking statements relate to future periods
and include descriptions of our plans, objectives, and underlying assumptions
for future operations, our market opportunities, our acquisition opportunities,common stock being sold in this offering,
including "Risk Factors" and our ability to compete.
Generally, "may," "will," "expect," "believe," "estimate," "anticipate,"
"intend," "continue"consolidated financial statements and similar words identify forward-looking statements.
Forward-looking statements are based on our current expectations and are subject
to risks and uncertainties that can cause actual results to differ materially.
For information on these risks and uncertainties, see the "Risk Factors."
We urge you to consider these factors carefully in evaluating the
forward-looking statementsrelated
notes, contained in this prospectus. Forward-looking
statements are made only as of the date of this prospectus. We do not intend,
and undertake no obligation, to update these forward-looking statements.
As usedelsewhere in this prospectus "Company," "we," "us" and "our" refer toor incorporated by reference.
THE COMPANY
Acacia Research Corporation develops and its affiliates.
2
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY CONTAINS BASIC INFORMATION ABOUT THIS OFFERING. IT
LIKELY DOES NOT INCLUDE ALL THE INFORMATION THAT IS IMPORTANT TO YOU AND SHOULD
BE READ IN CONJUNCTION WITH THE MORE DETAILED INFORMATION CONTAINED OR
INCORPORATED BY REFERENCE ELSEWHERE IN THIS PROSPECTUS. INVESTORS SHOULD ALSO
CAREFULLY CONSIDER THE INFORMATION SET FORTH UNDER THE HEADING "RISK FACTORS."
THE COMPANY
We internally develop and operateoperates majority-owned
subsidiaries and also acquireacquires strategic positions in other entities.companies. Our
mission is to build new businesses. We focus primarily on technology-related
companies.
Our strategy is to achieve majority-ownership of new companies by internally
developing new business ideas and by partnering with entrepreneurs. We provide
management expertise, incubation services and capital to our subsidiaries. We
also acquire minority positions in other emerging companies that we have
identified as having significant growth potential. We believe business
development focus, reputation and network of contacts provide us significant
access to investment opportunities.
We provide our subsidiaries with numerous operational and management
services, especially in early stages of their development. Our corporate staff
provides hands-on assistance in the areas of marketing, strategic planning,
business development, technology, accounting and finance, legal, human
resources and recruiting services. We also support our subsidiaries by
providing capital and securing and structuring external financing.
Our centralized infrastructure of experienced professionals allows the
management of our subsidiaries to focus on developing their core businesses.
This provides our subsidiaries with significant time and cost savings. We
believe the entrepreneurial energy and creativity of the managers of our
partner companies are essential components of their success and consequently we
plan to keep them as independent businesses with the opportunity to go public.
The entrepreneurs and their teams retain or are granted equity ownership and
incentives in their own companies. This strategy enables us to partner with
highly motivated entrepreneurs who have the opportunity to reap the rewards of
their efforts by participating in the value they create.
1
Through our consolidatedmajority-owned subsidiaries, we engage in a variety of technology-related businesses such as:
Internet business incubation, biochips,the following
businesses:
Ownership % as of
June 30, 2000 on an
Company Name Description of Business as converted basis
------------ ----------------------- -------------------
Acacia Launchpad LLC.................... An incubator that 100.0%
provides seed capital,
management support and
an environment for the
rapid development of
start-up companies.
CombiMatrix Corporation................. A biotech company with a 58.4%
proprietary biochip
array processor system
for the rapid, cost-
competitive synthesis of
DNA, peptides and other
chemical compounds on a
software programmable
semiconductor chip. This
proprietary technology
has significant
applications in the
areas of genomics,
proteomics and
diagnostics.
MerkWerks Corporation................... A technology company 99.9%
developing a utility
software product for use
with CD-Recordable
computer drives.
Soundbreak.com Incorporated............. An new media company 66.9%
featuring 24 hour video
streaming of music
performances and live
performances hosted by
professional talent
targeting a demographic
of viewers under age 35
and including extensive
viewer interaction
formats.
Soundview Technologies Incorporated..... A technology company 66.7%
that owns intellectual
property related to the
telecommunications
field, including audio
and video blanking
systems, also known as
"V-chip."
We also hold minority interests in the following businesses:
Ownership % as of
June 30, 2000 on an
Company Name Description of Business as converted basis
------------ ----------------------- -------------------
The EC Company.......................... A provider of business- 4.5%
to-business Internet
exchange transactions
for mid-market
suppliers.
Greenwich Information Technologies LLC.. A marketing and 33.3%
licensing agent for
several patents relating
to video-on-demand and
audio-on-demand
technology.
Mediaconnex Communications, Inc......... An Internet business-to- 31.0%
business company
developing technology
that will enable buying
and selling of broadcast
media.
Signature-mail.com llc.................. A provider of on-demand 25.0%
software development, Internet music and
e-commerce, and v-chip technology licensing. We provide business and technology
infrastructure services and ongoing operational support to assist early-stage
companies progress quickly. (See "Risk Factors--Risks Associated with the
Emerging Companies and No Assurance of Success.")
Our current majority-owned subsidiaries are:
- ACACIA LAUNCHPAD LLC ("Launchpad") which was formed in November 1999 to
incubate and accelerate the development of new Internet companies.
Launchpad will provide seed capital and an environment that enables ideas
to grow and get to market quickly. Once a company is past the incubation
stage, we can provide additional funding through direct investments and
capital secured from other strategic venture investors as well as ongoing
operational support. Launchpad is a newly formed entity and is in the
process of commencing operations. We own 100% of the membership interest
of Launchpad.
- COMBIMATRIX CORPORATION ("CombiMatrix") which was formed in October 1995
and is developing a proprietary method to synthesize DNA, peptides and
chemical libraries on an active semiconductor chip with electrochemically
generated reagents. CombiMatrix is a developmental stage company and, to
date, has incurred substantial losses and has not generated any
significant revenues. We own 50% of the outstanding common stock of
CombiMatrix.
- MERKWERKS CORPORATION ("MerkWerks") which was formed in September 1995 and
is currently developing a utility software product for use with
CD-Recordable, or CD-R, computer drives. To date, MerkWerks is in a
development stage, has incurred substantial losses and has not had any
revenues. We own 99.9% of the outstanding common stock of MerkWerks.
- SOUNDBREAK.COM INCORPORATED ("Soundbreak") which was formed in May 1999
and is preparing for the launch of its lifestyle Internet site that will
combine a 24-hour worldwide webcast highlighting new music hosted by
on-air DJs with rich graphics, a music merchandise store, a strong
community area that encourages participation and feedback, and other
features. Soundbreak has incurred substantial losses and has not had any
revenues to date. We own 73.6% of the common stock, on an as-converted
basis, of Soundbreak.
- SOUNDVIEW TECHNOLOGIES INCORPORATED ("Soundview Technologies") which was
formed in March 1996 and owns intellectual property related to the
telecommunications field, including audio and video blanking systems, also
known as "V-chip" technology. Soundview Technologies intends to license
its technology to television manufacturers. Soundview Technologies has
incurred losses and has not had any revenues to date. Soundview
Technologies has yet to enter into licensing agreements with any
television manufacturers. We own 66.7% of the outstanding common stock of
Soundview Technologies.
We also make investments in other businesses that we do not control. Our
current minority-owned affiliates are:
3
- GREENWICH INFORMATION TECHNOLOGIES LLC ("Greenwich Information
Technologies") which was formed in June 1996 and is the exclusive
marketing and licensing agent for several patents relating to
video-on-demand and audio-on-demand technology. To date, Greenwich
Information Technologies has incurred substantial losses and has not had
any revenues. We own 33.3% of the membership interest of Greenwich
Information Technologies.
- MEDIACONNEX COMMUNICATIONS, INC. ("Mediaconnex") which was formed in
November 1999 as a business-to-business e-commerce company focused on the
$90 billion advertising market. We acquired our interest in Mediaconnex in
December 1999. To date, Mediaconnex has incurred losses and has not
generated any revenues. We own 31% of the common stock equity of
Mediaconnex on an as-converted basis.
- SIGNATURE-MAIL.COM LLC ("Signature-mail") which was formed in October 1997
to develop an on-demand software service that allows
users to personalize
their e-mail and
computer documents with
handwritten signatures,
greetings and drawings.
2
We acquired our interest in Signature-mail in
April 1998. To date, Signature-mail has incurred losses and has not
generated any meaningful revenues. We own 25% of the membership interest
of Signature-mail.
- THE EC COMPANY. ("EC Company") which was formed in 1997 and is a leader in
business-to-business Internet exchange transactions for mid-market
suppliers. We acquired our interest in EC Company in December 1999. To
date, Mediaconnex has incurred losses and has not generated any revenues.
We own a 7.6% interest in EC Company.
- WHITEWING LABS, INC. ("Whitewing") which was formed in 1993 and develops
and markets a line of nutritional supplement products. Whitewing conducted
an initial public offering of its common stock in February 1996. Whitewing
stock trades on the over-the-counter market under the symbol "WWLI" and
Whitewing warrants trade on the over-the-counter market under the symbol
"WWLI-W". We own 18.6% of the outstanding common stock of Whitewing.
Throughout this prospectus, Launchpad, CombiMatrix, MerkWerks, Soundbreak,
Soundview Technologies, Greenwich Information Technologies, Mediaconnex,
Signature-mail, EC Company, and Whitewing are collectively referred to as our
affiliates. See "Risk Factors" for risks associated with each individual
affiliate.
Developing emerging businesses contains all of the problems, expenses,
delays, and risks inherent in establishing a new business enterprise. We have no
control over many of these risks, including uncertain market conditions, product
acceptance, cost and availability of capital and the absence of an operating
history. We also expect to encounter competition in the area of business
opportunities from other entities having similar business objectives, such as
venture capital funds and business incubators. We may possess less financial,
technical, human and other resources than our potential competitors.
Accordingly, we cannot assure that our plan of operations will be successful or
that we will be able to achieve or maintain profitable operations. See "Risk
Factors--No Assurance of Success" and "Risks Associated with the Emerging
Companies."
We have never paid any cash dividends on our common stock and do not
anticipate that we will pay dividends in the foreseeable future. Instead, we
intend to apply any earnings to the development and expansion of our business.
Our predecessor company waswere initially incorporated in the State of California on January 25,
1993, and conducted itsour initial public offering on June 15, 1995. Subsequently, we wereWe
reincorporated in the State of Delaware on December 28, 1999. Our common stock
trades on the Nasdaq National Market under the symbol "ACRI." The closing sale
price of our common stock on January 20,August 4, 2000 as reported on the Nasdaq National
Market was $50.25$26.75 per share. 4
The transfer agent and registrar for our common
stock is U.S. Stock Transfer Corporation.
As used in this prospectus, "we," "us" and "our" refer to Acacia Research
Corporation and its consolidated subsidiaries. Throughout this prospectus,
Launchpad, CombiMatrix, The EC Company, Greenwich Information Technologies,
Mediaconnex, MerkWerks, Signature-mail.com, Soundbreak.com and Soundview
Technologies are collectively referred to as our partner companies; however, we
do not act as an agent or legal representative for any of our partner companies
and we do not have the types of liabilities for our partner companies that a
general partner of a partnership would have. See "Risk Factors" for certain
risks associated with individual partner companies.
Our executive offices are located at 55 South Lake Avenue, Pasadena,
California 91101 and our telephone number is (626) 396-8300. Our website
address is www.acaciaresearch.com. Neither the information contained in our
website nor the websites linked to our website shall be deemed to be a part of
this Prospectus.prospectus.
RECENT DEVELOPMENTS
COMBIMATRIX SUBORDINATED NOTE CONVERSION In October 1999, CombiMatrix
offered holders of three-year 6% unsecured subordinated promissory notes issued
in a private offering completed in March 1998 the opportunity to convert their
outstanding principal balance into CombiMatrix Common Stock. All noteholders,
ourselves included, converted as of December 1999. As a result of these
conversions, our equity ownership is 50%.
ADDITIONAL INVESTMENTS IN SOUNDBREAK. In September 1999, we purchased
10,000 shares of Soundbreak's Series A Convertible Preferred Stock for $1
million, which represented 100% of the outstanding preferred stock at September
30, 1999. Each share of this preferred stock has full voting rights and is
convertible at any time into 100 shares of Soundbreak's common stock.
In October 1999, Soundbreak completed a private equity financing raising
$6.5 million by selling 65,505 shares of its Series B Convertible Preferred
Stock. We purchased 10,000 shares of this preferred stock for $1 million. The
Series B Preferred Stock has no voting rights and each share is convertible into
40 shares of Soundbreak's common stock.
FORMATION OF LAUNCHPAD In November 1999, we announced the formation of
Launchpad. Its mission is to incubate and accelerate the development of new
Internet businesses. New companies can use our marketing, finance, strategic
planning, recruiting, and legal resources together with Launchpad's development
teams to develop Internet-related products and services.
CLOSURE OF ACACIA CAPITAL MANAGEMENT. On December 31, 1999, we closed our
Acacia Capital Management division. Acacia Capital Management was a general
partner in two private investment partnerships and was an investment advisor to
two offshore private investment corporations. Costs associated with exiting this
business were not material and we are currently in the process of distributing
funds pending completion of year-end audits.
NOTICE OF REDEMPTION OF WARRANTS. In October 1999, we gave a redemption
notice for common stock purchase warrants issued in our March 1998 and April
1998 private placements. As a result, all of these warrants were exercised prior
to the redemption time (November 19, 1999) and we received $10.5 million in
proceeds for the issuance of approximately 1.2 million shares of our common
stock
REINCORPORATION OF COMPANY IN DELAWARE. After receiving the approval of our
stockholders at a special meeting, on December 28, 1999, we changed our state of
incorporation from California to Delaware. As a result, all shares of our common
stock were converted into shares of the Delaware corporation. The stockholders
also approved an increase the number of our authorized shares of common stock
from 30 million to 60 million and authorized the issuance of up to 20 million
shares of preferred stock, whose rights, privileges, preferences, and powers
would be determined at a later date.
AMENDMENTS TO STOCK OPTION PLAN. At the special meeting, the stockholders
also ratified amendments to our 1996 Stock Option Plan, which, among other
changes, increased capacity under the plan from 1 million shares to 3 million
shares of our common stock.
PRIVATE PLACEMENT OF COMPANY'S COMMON STOCK AND COMMON STOCK PURCHASE
WARRANTS. In December 1999, we completed a private placement consisting of the
sale of units, each composed of one share of our common stock and one-half of a
common stock purchase warrant. We sold 974,771 units at an offering price of
$21.50 per unit. We raised approximately $21 million from this financing.
5
INVESTMENT IN MEDIACONNEX. In December 1999, we purchased 1,636,364 shares
of Mediaconnex's Series A Preferred Stock for $2,250,000, which represents 74%
of the outstanding Series A Preferred Stock and 31% of all outstanding common
stock on an as-converted basis.
COMBIMATRIX'S AWARD OF FEDERAL CONTRACTS. CombiMatrix has been awarded
three contracts from the federal government to use CombiMatrix's proprietary
biochip technology. In July 1999, the Department of Energy granted CombiMatrix a
contract to develop microarrays of affinity probes for the analysis of gene
products which will aid researchers in the pharmaceutical industry to identify
new drug discovery targets. In July 1999 and January 2000, the Department of
Defense awarded CombiMatrix two contracts to develop Nanode Array Sensor
Microchips used to simultaneously detect numerous chemical and biological
warfare agents.
INVESTMENT IN EC COMPANY. In January 2000, we announced that that we acquired a 7.6% interest in The EC Company for $3
million inout of a $17.3 million private placement of "non-voting" Series B
round financing.
6Preferred Stock. The EC Company is a corporation engaged in business-to-
business Internet exchange transactions for mid-market suppliers.
In February 2000, we issued a 30-day redemption notice for common stock
purchase warrants issued in a December 1999 private placement. As a result, all
of the warrants were exercised prior to the redemption date and we received
proceeds of approximately $14.8 million for the issuance of 578,238 shares of
common stock.
In March 2000, CombiMatrix completed a private equity financing raising
gross proceeds of $17.5 million through the sale of 3.5 million shares of
CombiMatrix common stock. Acacia invested $10 million in this private placement
to acquire 2 million shares of CombiMatrix. As a result of the transaction,
Acacia increased equity ownership in CombiMatrix from 50.0% to 51.8%. Warrants
to purchase 31,050 shares of CombiMatrix's common stock were issued to finders
with a per share exercise price of $5.50.
Also in March 2000, Soundbreak.com completed a "non-voting" Series C
Preferred private equity financing raising gross proceeds of $19 million
through the sale of shares of 188,437 Series C Preferred Stock. Acacia invested
$9 million in this private placement to acquire 90,000 shares of Preferred
Stock. As a result of the transaction, our equity ownership in Soundbreak.com
decreased from 73.6% to 66.9%. Warrants to purchase 40,838 shares of
Soundbreak.com's common stock were issued to finders with a per share exercise
price of $6.66.
Also in June 2000, we contributed capital to three early stage companies
that are being incubated in Launchpad.
In July 2000, we increased our ownership of CombiMatrix from 51.8 percent to
61.4 percent by acquiring additional ownership positions from existing
shareholders of CombiMatrix in exchange for 488,557 restricted shares of common
stock. This purchase will be accounted for as a step acquisition. The purchase
price will be allocated to the fair value of assets acquired and liabilities
assumed including acquired in-process research and development. Any amount
attributed to in-process research and development will be charged to expense in
the third quarter of 2000. The allocation of the purchase price is expected to
be completed in the third quarter of 2000.
3
In July 2000, we completed a private offering of 861,638 units at $27.50 per
unit for gross proceeds of approximately $23.7 million. Each unit consisted of
one share of common stock and one common stock purchase warrant entitling the
holder to purchase one share of common stock at an exercise price of $33.00 per
share, subject to adjustment, expiring in three years. The warrants are
callable by Acacia Research once the closing bid price of the Company's common
stock averages $39.60 or above for 20 consecutive trading days on the Nasdaq
National Market System. An additional 11,000 units were purchased by a finder
pursuant to a Finder Agreement between Acacia and the finder.
Also in July 2000, Gerald D. Knudson, the chief executive officer of
CombiMatrix, was appointed to our Board of Directors. Robert L. Harris II was
named President of the company.
In August 2000, CombiMatrix completed a private equity financing raising
gross proceeds of $36 million through the sale of 4 million shares of
CombiMatrix common stock. We invested $17.5 million in this private placement
to acquire 1,944,445 shares. As a result of the transaction, Acacia's equity
ownership in CombiMatrix decreased from 61.4 % to 58.6%.
In August 2000, CombiMatrix was granted a United States patent for its
biochip array processor system, which enables quick and economical turnaround
of custom-designed microarrays for use in biological research. The patent
covers CombiMatrix's core technology, which is a method for producing
microarrays by synthesizing biological materials on a three-dimensional, active
surface.
Our current new business focus is to identify and develop opportunities in
the life science sector that will be created by commercialization of our
subsidiary CombiMatrix's new biochip technology and other new technologies
emerging in that sector.
4
RISK FACTORS
INVESTMENT IN OUR COMMON STOCK IS SPECULATIVE AND INVOLVES A HIGH DEGREE OF
RISK. YOU SHOULD ONLY PURCHASE SHARES IF YOU CAN AFFORD TO LOSE YOUR ENTIRE
INVESTMENT. IN DECIDING WHETHER TO BUY OUR COMMON STOCK, YOU SHOULD CAREFULLY
CONSIDER THE FOLLOWING RISK FACTORS, THE OTHER INFORMATION CONTAINED IN THIS
PROSPECTUS AND THE OTHER INFORMATION WE HAVE INCORPORATED BY REFERENCE.Investment in our common stock is speculative and involves a high degree of
risk. You should only purchase shares if you can afford to lose your entire
investment. In deciding whether to buy our common stock, you should carefully
consider the following risk factors, other information contained in this
prospectus and information we have incorporated by reference. If any of the
following risks actually occur, our business could be harmed, the trading price
of our common stock could decline, and you may lose all or part of your
investment.
BECAUSE OUR BUSINESS OPERATIONS ARE SUBJECT TO MANY INHERENT AND UNCONTROLLABLE
RISKS, WE CANNOT ASSURE OUR SUCCESS.MAY NOT SUCCEED.
We have significant economic interests in nine companies and take an active
role in each enterprise's growth and advancement.our partner companies. Our
business operations are therefore subject to numerous risks, and all of the problems,challenges,
expenses and uncertainties inherent in the establishment of new business
enterprises. Many of these risks and problemschallenges are subject to outside
influences over which we have no control, includingincluding:
. our partner companies' products and services face uncertain market
acceptance;
. technological advances uncertain market acceptance,
competition,may make our partner companies' products and
services obsolete or less competitive;
. competition;
. increases in operating costs, including costs offor supplies, personnel,
equipment,and equipment;
. the availability and cost of capital, changes incapital;
. general economic conditionsconditions; and
. governmental regulation imposed under federal, state or
local laws.that excessively restricts our partner companies'
businesses.
We cannot assure you that our business venturespartner companies will be able to market any
product or service on a commercial scale, that these business venturesour partner companies will ever
achieve or maintain profitable operations or that they, or we, will be able to
remain in business.
INVESTING IN EMERGING COMPANIES CARRIES A HIGH DEGREE OF RISK.
Becoming involvedInvesting in emerging companies is marked bycarries a high degree of risk, including
difficulties in selecting ventures with viable business plans and acceptable
likelihoods of success and future profitability. There is a high probability of
loss associated with investments in start-ups.emerging companies. We must also dedicate
significant amounts of financial resources, management attention and personnel
to identify and develop each new business opportunity, without any assurance
that these expenditures will prove fruitful.
We generally invest in start-up ventures with no operating histories,
unproven technologies and products and, in some cases, start-ups ventures
needing identification and implementation ofwithout experienced
management. We may not be successful in developing these start-up ventures.
Because of the uncertainties and risks associated with such start-up ventures,
you should expect substantial losses associated with failed ventures.
In addition, marketsthe market for venture capital in the United States areis
increasingly competitive. As a result, we may lose business opportunities and
may be lost and the terms of availableneed to accept financing and equity investments in start-ups may deteriorate.on less favorable terms.
Also, we may be unable to participate in additional ventures because we lack
the financial resources to provide them with full funding. We, as well as our
affiliates,partner companies, may need to depend on external financing to provide
sufficient capital.
5
OUR OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY IN THE FUTURE.
Our operating results may vary significantly from quarter to quarter due to
a variety of factors, including:
-. the operating results of our current and future affiliates;
-partner companies;
. the nature and timing of our investments in new businesses;
-partner companies;
. our decisions to acquire or divest interests in our current and future
affiliatessubsidiaries may create changes in losses or income and amortization of
goodwill;
-. changes in our methods of accounting for our current and future
affiliatessubsidiaries may cause us to recognize gains or losses under applicable
accounting rules;
-. the timing of the sales of securities ofequity interests in our current and future
affiliates;partner companies;
. our ability to effectively manage our growth and 7
-the growth of our
partner companies; and
. the cost of future acquisitionacquisitions could increase from intense competition
from other potential acquirers of technology-related companies or ideas.
We also expect to incur significant start-up expenses in pursuing and developing new
business ventures. To date, we have lacked a consistent source of recurring
revenue and mostrevenue.
OUR PARTNER COMPANIES OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY.
None of our partner companies have generated any significant revenues to
date. We cannot assure that these companies will be able to meet their
anticipated working capital needs to develop their products and services. If
they fail to properly develop these products and services, they will be unable
to generate meaningful product sales. We anticipate that these partner
companies operating results are likely to vary significantly as a result of a
number of factors, including:
. the timing of new product introductions by each partner company;
. the stage of development of the business of each partner company;
. the technical feasibility of each partner company's technologies and
techniques;
. the novelty of the technology owned by these partner companies;
. the level of product acceptance;
. the strength of each partner company's intellectual property rights;
. each partner company's ability to exploit and commercialize its
technology;
. the volume and timing of orders received and product line maturation;
. the impact of price competition; and
. each partner company's ability to access distribution channels.
Many of these factors are beyond our partner company's control. We cannot
provide any assurance that any partner company will experience growth in the
future or be profitable on an operating basis in any future period.
THE UNCERTAINTY OF EMERGING COMPANIES AND THE POTENTIAL LACK OF MARKET
ACCEPTANCE OF THEIR PRODUCTS DECREASE THE POSSIBILITY OF OUR SUCCESS.
CombiMatrix. CombiMatrix is developing a proprietary biochip array
processor system that integrates semiconductor technology with new
developments in biotechnology and chemistry. Although CombiMatrix has been
awarded three federal contracts, CombiMatrix is a developmental stage company
without any significant current revenues. Its current activities relate almost
exclusively to research and development.
6
In addition, because the technologies critical to the success of this
industry are in their infancy, we cannot assure that CombiMatrix will be able
to successfully implement its technologies. If its technologies are successful,
CombiMatrix intends to pursue collaborations with pharmaceutical companies,
which may include screening drug companies' or CombiMatrix's libraries and
possibly licensing internally developed chemical compounds. We cannot assure
you that CombiMatrix, even if successful in developing its technologies, would
be able to successfully implement collaborative efforts with pharmaceutical
companies.
The EC Company. The EC Company provides a hosted Internet transaction
exchange that manages data standards and facilities trading relationships
within and across communities to enable the exchange of business-to-business e-
commerce transactions. To date, The EC Company is in the development stage and
has created a minimal number of relationships with vendors and buyers for
business-to-business e-commerce transactions. The EC Company's business model
is new and unproven and we cannot give you any assurance that vendors and
buyers will continue to use its services for Internet transactions. In
addition, The EC Company faces significant competition in the business-to-
business Internet market.
Greenwich Information Technologies. Greenwich Information Technologies is
the exclusive marketing and licensing agent for a number of domestic and
international patents pertaining to information-on-demand systems. To date,
Greenwich Information Technologies has yet to license any of its patents. It is
uncertain if and to what extent Greenwich Information Technologies will be able
to profitably market and license its rights to the information on-demand
technology.
Launchpad. Launchpad was formed to incubate and accelerate the development
of new companies. Launchpad will provide seed capital and an environment
intended to promote growth of new companies and to enable them to get to the
marketplace quickly. Launchpad's business model is new and unproven and may not
be able to develop successful emerging companies.
Mediaconnex. Mediaconnex develops software that performs inventory and sales
management functions for television and cable broadcasters using the Internet.
To date, Mediaconnex has not generated any revenues nor signed contracts with
significant customers. We cannot provide assurance that Mediaconnex will ever
be able to successfully market its services.
MerkWerks. MerkWerks was formed as a software development company. Its first
product is software for use with CD-Recordable disk drives for Macintosh
platforms. MerkWerks is in the developmental stage and, to date, has not
generated any revenues. We cannot provide assurance that MerkWerks will ever be
able to successfully market its products.
MerkWerks' success will depend on whether it is accepted by original
equipment manufacturers (OEMs) that produce CD-Recordable disk drives. We
cannot assure that MerkWerks' software will gain the acceptance of OEMs or ever
be incorporated into CD-Recordable disk drives.
Signature-mail.com. Signature-mail.com has developed software services for
use on the Internet that personalize e-mail with proprietary mass customization
technologies. To date, Signature-mail.com has not generated meaningful
revenues. We cannot provide assurance that Signature-mail.com will ever be able
to successfully market its products.
Soundbreak.com. Soundbreak is a 24-hour worldwide web-cast site providing
music programming, user participation and music-related e-commerce. Soundbreak
is in the developmental stage and market acceptance for Soundbreak is
uncertain. We cannot provide assurance that Soundbreak will generate revenues
or achieve profitability.
In addition, the industry it is entering is a rapidly changing and highly
competitive environment. Soundbreak's success depends on its ability to develop
or obtain sufficiently compelling content to attract and retain an audience,
its ability to form partnerships for music and merchandise fulfillment and
distribution, and its ability to successfully market and establish its presence
on the Internet.
7
Soundview Technologies. Soundview Technologies was formed to commercialize
patent rights of a method of video and audio blanking technology, also known as
V-chip technology, that screens objectionable television programming and blocks
it from the viewer. It is uncertain if and to what extent Soundview
Technologies will be able to profitably exploit its technology.
WE MAY NEED TO SEEK ADDITIONAL FINANCING IN THE FUTURE FOR OURSELVES OR OUR
PARTNER COMPANIES, BUT CANNOT PROVIDE ASSURANCE THAT WE WILL BE ABLE TO OBTAIN
NEEDED FINANCING ON FAVORABLE TERMS.
As of March 31, 2000, we had working capital of $63.8 million and as of June
30, 2000 stockholders' equity of $52.3 million based on our consolidated
financial statements. However, a portion of these funds were held by our
consolidated subsidiaries and thus are restricted to use in the business of the
particular subsidiary.
To date, our partner companies have comeprimarily relied upon selling equity
securities, including sales to and loans from sellingus, to generate the securitiesfunds they
needed to finance implementing their plans of operations. Our partner companies
may be required to obtain additional financing through bank borrowings, debt or
equity financings or otherwise, which would require us to make additional
investments or face a dilution of our affiliates.equity interest.
We cannot assure that we will not encounter unforeseen difficulties that may
deplete our capital resources more rapidly than anticipated. Any efforts to
seek additional funds could be made through equity, debt, or other external
financings; however, we cannot assure that additional funding will be available
on favorable terms, if at all.
BECAUSE EACH PARTNER COMPANY'S SUCCESS GREATLY DEPENDS ON THEIR ABILITY TO
DEVELOP AND MARKET NEW PRODUCTS AND SERVICES AND TO RESPOND TO THE RAPID
CHANGES IN TECHNOLOGY AND DISTRIBUTION CHANNELS, WE CANNOT ASSURE THAT OUR
PARTNER COMPANIES WILL BE SUCCESSFUL IN THE FUTURE.
The markets for each partner company's products are marked by extensive
competition, rapidly changing technology, frequent product and service
improvements, and evolving industry standards. We cannot assure you that our
partner company's existing or future products and services will be successful
or profitable. We also cannot assure you that competitor's products, services
or technologies will not render our partner companies' products and services
noncompetitive or obsolete.
Our success will depend on our partner companies' ability to adapt to this
rapidly evolving marketplace and to develop and market new products and
services or enhance existing ones to meet changing customer demands. Our
partner companies may be unable to adequately adapt products and services or
acquire new products and services that can compete successfully. In addition,
our partner companies may be unable to establish and maintain effective
distribution channels.
OUR FUTURE PLANS DEPEND GREATLY ON INCREASED USE OF THE INTERNET BY BUSINESSBUSINESSES AND
INDIVIDUALS AND THUS OUR BUSINESS MAY SUFFER IF USE OF THE INTERNET FAILS TO
GROW IN THE FUTURE.
Our future plans depend greatly on increased use of the Internet for
providing services and conducting business.
Commercial use of the Internet is currently at an early stage of development
and the future of the Internet is not clear. Because a significant amount of
our resources will be allocated to our existing and future Internet companies,
our business may suffer if commercial use of the Internet fails to grow in the
future.
IF THE U.S. OR OTHER GOVERNMENTS REGULATE THE INTERNET MORE CLOSELY, OUR
BUSINESS MAY BE HARMED.
Because of the Internet's popularity and increasing use, new laws and
regulations may be adopted. These laws and regulations may cover issues such as
privacy, pricing, content and taxation of Internet commerce. If the U.S. or
other governments enact any additional laws or regulations it may impede the
growth of the Internet and our Internet-related businessbusinesses and we could face
additional financial burdens.
OUR AFFILIATES' OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY.
To date, Whitewing has experienced substantial operating losses and its
operating results have varied significantly from quarter to quarter due to a
variety of factors. For further information regarding the nature of and the
fluctuations in Whitewing's operating results, you should review Whitewing's
filings under the Securities Exchange Act, available from the Securities and
Exchange Commission.
CombiMatrix, Greenwich Information Technologies, Launchpad, Mediaconnex,
MerkWerks, Signature-mail, Soundbreak, and Soundview Technologies have generated
no meaningful revenues to date. We anticipate that these affiliates' operating
results are likely to vary significantly as a result of a number of factors, the
timing of new product introductions by each of these affiliates, the stage of
development of the business of each affiliate, the technical feasibility of the
companies' technologies and techniques, the novelty of the technology owned by
these affiliates, the level of product acceptance, the strength of each of these
affiliates' intellectual property rights, each affiliate's ability to exploit
and commercialize its technology, the volume and timing of orders received,
product line maturation, the impact of price competition, and each affiliate's
ability to access distribution channels. Many of these factors are beyond the
affiliates' control. We cannot assure you any affiliate will experience growth
in the future or be profitable on an operating basis in any future period.
THE UNCERTAINTY OF EMERGING COMPANIES AND THE POTENTIAL LACK OF MARKET
ACCEPTANCE OF THEIR PRODUCTS DECREASES THE POSSIBILITY OF OUR SUCCESS.
COMBIMATRIX. CombiMatrix was incorporated in October 1995 and began
operations in April 1996. CombiMatrix is developing a proprietary method to
synthesize DNA, peptides and chemical libraries on an active semiconductor chip
with electrochemically generated reagents. Although CombiMatrix has been awarded
three federal contracts, CombiMatrix is a developmental stage company with very
modest current revenues. Its current activities relate almost exclusively to
research and development.
8
Our investment in CombiMatrix is subject to the risks associated with new
technologies, including the viability of its technologies, unknown market
acceptance, difficulties in obtaining financing, the strength of its
intellectual property protection, increasing competition, and the ability to
convert technology into revenues. In addition, because the technologies critical
to the success of this industry are in their infancy, we cannot assure you that
CombiMatrix will be able to successfully implement its technologies. If its
technologies are successful, CombiMatrix intends to pursue collaborations with
pharmaceutical companies, which may include screening drug companies' or
CombiMatrix's libraries and possibly licensing internally developed chemical
compounds. We cannot assure you that CombiMatrix, even if successful in
developing its technologies, would be able to successfully implement
collaborative efforts with pharmaceutical companies.
CombiMatrix intends to vigorously protect its intellectual property rights.
We cannot assure you, however, that CombiMatrix's pending patent applications
will issue or that a third party will not violate, or attempt to invalidate,
CombiMatrix's intellectual property rights, possibly forcing CombiMatrix to
expend substantial legal fees. Successful challenges to CombiMatrix's patents,
if issued, would materially adversely affect CombiMatrix's business, operating
results, financial condition and prospects.
Other companies may be able to reverse-engineer CombiMatrix's technology
without violating CombiMatrix's proprietary rights. CombiMatrix's existing
protections also may not preclude competitors from developing products with
features and prices similar to or better than those of CombiMatrix.
GREENWICH INFORMATION TECHNOLOGIES. Greenwich Information Technologies was
formed in June 1996 and is the exclusive marketing and licensing agent for a
number of domestic and international patents and other intellectual property
pertaining to information-on-demand systems. To date, Greenwich Information
Technologies has yet to license any of its patents or other intellectual
properties and has had a minimal level of operations. Although Greenwich
Information Technologies believes that it has marketing and licensing rights to
enforceable patents, we cannot assure you that other companies will not
challenge the underlying patents to these rights or develop competing
technologies that do not infringe upon their patents. Furthermore, whether or
not competing products emerge, it is uncertain if and to what extent Greenwich
Information Technologies will be able to profitably market and license its
rights to the information on-demand technology.
SIGNATURE-MAIL. Signature-mail was formed in October 1997 and has developed
software services for use on the Internet that personalize e-mail with
proprietary mass customization technologies. To date, Signature-mail has not
generated any revenues. We cannot assure you that Signature-mail will ever be
able to successfully market its products.
Signature-mail has five patent applications pending for unique features as
well as methods used for the automated mass customization of the production and
delivery of e-mail. To date, no patents have yet issued and we cannot assure you
that patents will be issued, that their validity will be upheld if challenged or
that they will have sufficiently broad scope to effectively limit competition
for its software product.
Our investment in Signature-mail is subject to the risks associated with new
technologies and software, including the viability of Signature-mail's
technologies, difficulties in obtaining financing, the ability to obtain
intellectual property protection, competition, and rapid technological change.
SOUNDVIEW TECHNOLOGIES. Soundview Technologies was formed in March 1996 to
commercialize patent rights of a method of video and audio blanking technology,
also known as V-chip technology, that screens objectionable television
programming and blocks it from the viewer. Although Soundview Technologies
believes that it owns an enforceable patent on this technology, we caanot assure
you that other companies will not challenge Soundview Technologies' patent
rights or develop competing technologies that do not infringe Soundview
Technologies' patent. Additionally, whether or not competing products emerge, it
is uncertain if and to what extent Soundview Technologies will be able
9
to profitably exploit its technology. The issued patent that Soundview
Technologies owns expires in July 2003.
MERKWERKS. MerkWerks was formed in September 1995 as a software development
company, whose first product is expected to be software for use with
CD-Recordable disk drives for Macintosh platforms. MerkWerks is in the
developmental stage and, to date, has not completed the development of any
products or generated any revenues. We cannot assure you that MerkWerks will
ever be able to successfully develop or market its products. Merkwerks' product
is substantially behind schedule and Merkwerks has scaled back its operations to
conserve cash while continuing product development.
The success of MerkWerks' software depends whether it is accepted by
original equipment manufacturers (OEMs) that produce CD-Recordable disk drives.
We cannot assure you that MerkWerks' software, if and when completed, will gain
the acceptance of OEMs or ever be incorporated into CD-Recordable disk drives.
SOUNDBREAK. Soundbreak was formed in May 1999 and is preparing for the
launch of its lifestyle Internet site that will combine a 24-hour worldwide
webcast highlighting new music hosted by on-air DJs with rich graphics, a music
merchandise store, a strong community area that encourages participation and
feedback, and other features. Soundbreak is in the developmental stage and
because its site has not been launched publicly, the market acceptance for
Soundbreak is uncertain. In addition, the industry it is entering is a rapidly
changing and highly competitive environment. We cannot assure you that
Soundbreak will generate revenues or achieve profitability.
Soundbreak's success will be dependent on its ability to develop or obtain
sufficiently compelling content to attract and retain audience, its ability to
form partnerships for music and merchandise fulfillment and distribution, and
its ability to successfully market and establish its presence on the Internet.
In addition, Soundbreak will depend upon intellectual property rights and
licensed material and any intellectual property claims against Soundbreak can be
costly and could result in the loss of significant rights.
LAUNCHPAD. Launchpad was formed in November 1999 to incubate and accelerate
the development of new Internet companies. Launchpad will provide seed capital
and an environment that enables ideas to grow and get to market quickly. Using
our marketing, finance, strategic planning, recruiting, and legal resources
together with Launchpad's development teams, entrepreneurs can focus solely on
developing great products and services. Once a company is past the incubation
stage, we can provide additional funding through direct investments and capital
secured from other strategic venture investors. Launchpad's business model is
new and unproven and may not be able to develop successful Internet business.
MEDIACONNEX. Mediaconnex was formed in November 1999, and is developing
software that performs inventory and sales management functions for television
and cable broadcasters. The software can then broadcast the data over the
Internet to provide business to business Internet services between the
broadcasters and the buying community where sales, research and information
requests will occur. To date, Mediaconnex has not generated any revenues. We
cannot assure you that Mediaconnex will ever be able to successfully market its
services.
WE CANNOT ASSURE YOU THAT OUR AFFILIATES WILL BE ABLE TO OBTAIN NECESSARY
ADDITIONAL FINANCINGS.
To date, our affiliates have primarily relied upon selling equity
securities, including sales to and loans from us, to generate the funds they
needed to finance implementing their plans of operations. Our affiliates may be
required to obtain additional financing through bank borrowings, debt or equity
financings or otherwise, which would require us to make additional investments
or face a dilution of our equity interest.
10
We cannot assure you that our affiliates will continue to be able to obtain
financing or obtain financing on favorable terms.
OUR SUCCESS DEPENDS ON OUR ABILITY TO RESPOND TO THE RAPID CHANGES IN TECHNOLOGY
AND DISTRIBUTION CHANNELS.
The markets for our affiliates' products and services are characterized by:
- rapidly changing technology;
- evolving industry standards;
- frequent new product and service introductions;
- shifting distribution channels; and
- changing customer demands
Our success will depend on our affiliates' ability to adapt to this rapidly
evolving marketplace. Our affiliates' may be unable to adequately adapt products
and services or to acquire new products and services that can compete
successfully. In addition, our affiliates' may be unable to establish and
maintain effective distribution channels.
BECAUSE WE AND OUR AFFILIATESPARTNER COMPANIES IN THE INTERNET MARKET ARE SUBJECT TO
INTENSE COMPETITION, IN THE INTERNET
MARKET, WE MAY BE UNSUCCESSFUL AND COMPETITION MAY DRIVEREDUCE OUR
POTENTIAL REVENUES DOWN.REVENUES.
The market for technology and Internet products and services is highly
competitive. Moreover, the market for Internet products and services lacks
significant barriers to entry, enabling new businesses to enter this market
relatively easily. Competition in the market for Internet products and services
may intensify in the future. Numerous well-established companies and smaller
entrepreneurial companies are focusing significant resources on developing and
marketing products and services that will compete with our products and
services. In addition, many of our current and potential competitors have
greater financial, technical, operational, and marketing resources. WeOur partner
companies may not be able to compete successfully against these competitors in
selling our goods and services. Competitive pressures may also force prices for
Internet goods and services down and these price reductions may reduce our
potential revenues.
SELLING ASSETS OF, OR INVESTMENTS IN, THE PARTNER COMPANIES THAT WE HAVE
ACQUIRED AND DEVELOPED PRESENTS RISKS.
An element of our business plan involves selling, in public or private
offerings, our affiliatespartner companies and future subsidiarypartner companies, or portions
thereof, that we have acquired and developed. Market and other conditions
largely beyond our control affect:
-. our ability to engage ineffect these sales;
-. the timing of these sales; and
-. the amount of proceeds from these sales.
As a result, we may not be able to sell some or any of these assets. In
addition, even if we are able to sell, we may not be able to sell at favorable
prices.
OUR GROWTH PLACES STRAINS ON OUR MANAGERIAL, OPERATIONAL, AND FINANCIAL
RESOURCES.
Our growth has placed, and is expected to continue to place, a significant
strain on our managerial, operational and financial resources. Further, as the
number of our subsidiarypartner companies and their respective businesses grow, we will
be required to manage multiple relationships. Any further growth by us or our
subsidiarypartner companies or an increase in the number of our strategic relationships
will increase this strain on the Company'sour managerial, operational, and financial
resources. This strain may inhibit our ability to achieve the rapid execution
necessary to successfully implement our business plan. In addition, our future
success depends on our ability to expand our organization to match the growth
of our business and our subsidiary companies.
11
subsidiaries.
IF OUR AFFILIATESBUSINESS AND OUR PARTNER COMPANIES ARE SUCCESSFUL, THEYTO SUCCEED, WE WILL NEED QUALIFIED MARKETINGTO
ATTRACT AND SALESRETAIN QUALIFIED PERSONNEL. WE CANNOT ASSURE YOU THAT OUR AFFILIATESWE WILL BE ABLE
TO ASSEMBLE AND RETAIN THE NECESSARY MANAGEMENT AND MARKETING TEAMS.
If CombiMatrix, Mediaconnex, MerkWerks, Greenwich Information Technologies,
Signature-mail, Soundbreak,We believe that our success will depend on continued employment by us and
Soundview Technologiesour partner companies of senior management and key technical personnel. Our
partner companies will need to attract, retain and motivate qualified
management personnel to execute their current plans and to successfully develop
commercially viable products and services, they will need to expand their
management personnel. Some of these companies will require our assistance to
identify and implement experienced management teams, but we cannot assure you
that these companies will successfully assemble qualified and effective
management teams.
Additionally, unlike Greenwich Information Technologies and Soundview
Technologies, which intend to primarily license their respective technologies to
third parties for commercial exploitation, CombiMatrix and MerkWerks currently
intend to develop, manufacture, market, sell and license their respective
products and services directly to customers. Because CombiMatrix and MerkWerks
have not completed the research and development of their products, they have not
hired marketing and sales personnel or finalized strategic marketing plans. We
cannot assure you that CombiMatrix and MerkWerks will be able to attract and
retain qualified marketing and sales personnel or that any marketing efforts
undertaken by the companies will be successful.
FOR OUR BUSINESS AND OUR AFFILIATES TO SUCCEED, WE MUST ATTRACT AND RETAIN
QUALIFIED PERSONNEL. BECAUSE OF INTENSE COMPETITION FOR THESE INDIVIDUALS, WE
MAY FACE DIFFICULTIES IN RETAINING, ATTRACTING AND MOTIVATING THESE
INDIVIDUALS.
Our success will depend on our ability to attract, retain and motivate the
qualified personnel that will be essential to our current plans and future
development.services. Competition for qualified personnel
is intense and we cannot assure you that we will successfully retain our
existing key employees or attract and retain any additional personnel we may
require.
In particular,addition, CombiMatrix and MerkWerks currently intend to develop, market,
sell and license their respective products and services directly to customers.
Because CombiMatrix and MerkWerks have not completed research and development
of their products, they have not hired marketing and sales personnel or
finalized strategic marketing plans. We cannot assure you that either
CombiMatrix or MerkWerks will be able to attract and retain qualified marketing
and sales personnel or that any marketing efforts undertaken by them will be
successful.
9
Each of our partner companies has key executives upon whom we significantly
depend and the success of our business and each of our affiliates will also be greatly determinedthose partner companies depends on our ability to
retain and motivate thethose individuals. We do not maintain key person life
insurance on any of these individuals, discussed in the following
paragraphs.
COMBIMATRIX.except for CombiMatrix's success will significantly depend upon the
continued services of CombiMatrix's Vice President-Research and
Development. Wedevelopment, on whom we maintain key person life insurance coverage with respect to this individual in the
amount of $1,000,000.
GREENWICH INFORMATION TECHNOLOGIES. Greenwich Information Technologies'
success will significantly depend upon the continued services of H. Lee Browne,
Greenwich Information Technologies' President and Chief Executive Officer.
Neither we nor Greenwich Information Technologies maintain key person life
insurance coverage for Mr. Browne.
OUR AFFILIATESPARTNER COMPANIES FACE INTENSE COMPETITION AND WE CANNOT ASSURE YOU THAT THEY
WILL BE SUCCESSFUL.
WHITEWING. The markets for Whitewing's products are intensely competitive.
The nutritional supplements market is characterized by frequent product
introductions, short product life cycles, rapid price declines and eroding
profit margins, and evolving customer preferences. In each of its product lines,
Whitewing competes and in the future may compete with a large number of
companies with significantly greater financial and other resources. Many of
Whitewing's current and potential competitors have significantly greater name
recognition, research capabilities and financial and technical resources than
Whitewing, and many have longstanding positions and established brand names in
their markets.
COMBIMATRIX.CombiMatrix. The pharmaceutical and biotechnology industries are subject to
intense competition and rapid and significant technological change. Many
organizations are actively attempting to identify and optimize compounds and
build libraries for potential pharmaceutical development. If CombiMatrix's
technologies are successful, CombiMatrix will compete directly with the research
12
departments of pharmaceutical companies, biotechnology companies, other
combinatorial chemistry companies, and research and academic institutions. In
addition to having existing strategic relationships with pharmaceutical
companies, many of these competitors have greater financial and other resources,
and more experience in research and development than CombiMatrix. Historically,
pharmaceutical companies have maintained close control over their research
activities, including the synthesis, screening, and optimization of chemical
compounds. Many of these companies, which represent the greatest potential
market for CombiMatrix's services and compounds, are developing combinatorial
chemistry and other methodologies to improve productivity. In addition, these
companies may already have large collections of compounds previously synthesized
or ordered from chemical supply catalogs or other sources which they may screen
new targets against.
Other sources of compounds include compounds extracted from natural
products, such as plants and microorganisms, and compounds created using
rational drug design. CombiMatrix is joined by academic institutions,
governmental agencies and other research organizations in conducting research in
areas, either on their own or through collaborative efforts. CombiMatrix
anticipates that it will face increased competition in the future as new
companies enter the market and advanced technologies become available. CombiMatrix's processes may be rendered obsolete or uneconomical by
technologicalMany of
these competitors have greater financial and other resources, and more
experience in research and development, than CombiMatrix. Technological
advances or entirely different approaches developed by one or more of
CombiMatrix's competitors.competitors could render CombiMatrix's processes obsolete or
uneconomical. The existing approaches of CombiMatrix's competitors or new
approaches or technology developed by CombiMatrix's competitors may be more
effective than those developed by CombiMatrix.
SIGNATURE-MAIL. The software industryEC Company. Competition for Internet products and services is highly competitive. Signature-mail
seeksintense.
The EC Company competes for a share of a customer's purchasing budget for
services, materials and supplies with other online providers and traditional
distribution channels. Several companies offer competitive solutions that
compete with The EC Company. We expect that additional companies will offer
competing solutions on a stand-alone or combined basis in the future.
Furthermore, competitors may develop Internet products or services that are
superior to, prevent competition through proprietary technology. Signature-mailor have greater market acceptance than, the solutions offered by
The EC Company. Many competitors have greater brand recognition and greater
financial, marketing and other resources than The EC Company. This may place
The EC Company at a disadvantage in responding to their competitors pricing
strategies, technological advances, advertising campaigns, strategic
partnerships and other initiatives.
Greenwich Information Technologies. Although we believe that Greenwich
Information Technologies has five pending patent applications. However, nomarketing and licensing rights to enforceable
patents have been issued yet and other intellectual property relating to video and audio on demand,
we cannot assure you that other companies will not develop competing
technologies that offer better or less expensive alternatives to those offered
by Greenwich Information Technologies. In the patents will be issued, they will withstand
challengesevent a competing technology
emerges, Greenwich Information Technologies would expect substantial
competition. Potential competitors could have significantly greater research
capabilities and financial and technical resources than Greenwich Information
Technologies, and some could have established brand names in the market for
such products.
Launchpad. There are a significant number of other Internet incubators, such
as Internet Capital Group, Inc., CMGI, Inc., and idealab!, each competing for
the same opportunities. In addition, Launchpad faces competition from other
capital providers, including publicly-traded Internet companies, venture
capital companies and large corporations. Many of these competitors have
greater financial resources and brand name recognition than Launchpad. These
competitors may limit Launchpad's opportunities.
Mediaconnex. The market for the sale of commercial inventory for television
and cable broadcasters is highly competitive and rapidly changing. In addition
to their validity or that they will have sufficiently broad scope to
effectively limit competitionthe long-standing traditional sales channels, there are a number of newly
created Internet-based sites competing for market acceptance among the
broadcasters and media buyers. Because Mediaconnex's software is not yet
complete, acceptance of its software product.
MERKWERKS.and business model in the market is
unproven and speculative. Moreover, because there are few barriers to entry,
competition is likely to increase, including the probability of established
competitors expanding their current offering of services. Many of the current
and potential competitors to Mediaconnex may have substantial competitive
advantages relative to Mediaconnex, including longer operating histories as
well as greater financial, technical or marketing resources.
MerkWerks. There are several CD-recordablea number of CD-Recordable disk drive software packages
on the market. MerkWerks' first product is not yet complete or ready for sale. Thus, the acceptance of MerkWerks' software in the market is
unproven and speculative. The markets for software
10
products are intensely competitive and are characterized by rapid changes in
technological standards. MerkWerks faces competition from large companies with
substantial technical, marketing and financial resources, allowing them to
aggressively develop, enhance and market competing products. These advantages
may allow competitors to dominate distribution channels and to respond more
quickly than MerkWerks to emerging technologies or to changing customer
requirements. Numerous actions by these competitors, including price reductions
and product giveaways, increased promotion, the introduction of enhanced
products and product bundling could have a material adverse effect on
MerkWerks' ability to develop and market its software products and on its
business, financial condition and operating results.
SOUNDBREAK.Signature-mail.com. The market for the online promotion and distribution of music
and related merchandisesoftware industry is highly competitive. Signature-
mail.com seeks to achieve a competitive advantage through proprietary
technology. Signature-mail.com has ten pending patent applications. However, no
patents have been issued yet and rapidly changing.we cannot be certain that any patents will be
issued, that they will withstand challenges to their validity or that they will
have sufficiently broad scope to effectively limit competition for Signature-
mail.com's software product.
Soundbreak.com. The number of Web siteswebsites competing for the attention and
spending of consumers, advertisers and users has increased, and we expect it to
continue to increase because there are few barriers to entry to Internet
commerce. Soundbreak faces competitive pressures from numerous actual and
potential competitors. Competition is likely to increase significantly as new
companies enter the market and current competitors expand their services.
Certain companies have announced agreements to work together to offer music
over the Internet, and Soundbreak may face increased competitive pressures as a
result. Many of Soundbreak's current and potential competitors in the Internet
and music entertainment businesses may have substantial competitive advantages,
relative to us, including: longer operating histories; significantly greater financial,
technical and marketing resources; greater brand name recognition; existing
customer bases; and more popular content.
13
These competitors may be able to respond more quickly to new or emerging
technologies and changes in customer requirements and devote greater resources
to develop, promote and sell their products or services than Soundbreak can. Web
sitesSoundbreak.com.
Websites maintained by existing and potential competitors may be perceived by
consumers, artists, talent management companies and other music-related vendors
or advertisers as being superior to Soundbreak's web site.
MEDIACONNEX. The market for the sale of commercial inventory forwebsite.
Soundview Technologies. We believe that Soundview Technologies' V-chip
technology is protected by enforceable patent rights. However, no assurances
can be given that other companies will not develop competing technologies that
offer better or less expensive alternatives to those offered by Soundview
Technologies. Many potential competitors, including television manufacturers,
have significantly greater research capabilities and cable broadcasters is highly competitivefinancial and rapidly changing. In addition
to the long-standing traditional sales channels, there are a number of newly
created web-based sites competing for market acceptance among the broadcasterstechnical
resources than Soundview Technologies and media buyers. Because Mediaconnex's software is not yet complete, acceptance
of its software and business modelmay have established brand names in
the market is unproven and speculative.
Moreover, because there are few barriers to entry, competition is likely to
increase, including the probability of established competitors expanding their
current offering of services. Many of the current and potential competitors to
Mediaconnex may have substantial competitive advantages relative to Mediaconnex,
including longer operating histories as well as greater financial, technical or
marketing resources.market.
WE CANNOT ASSURE THAT WE WILL BE ABLE TO EFFECTIVELY PROTECT OUR AFFILIATES'PARTNER
COMPANIES' PROPRIETARY TECHNOLOGY.
The success of the business of CombiMatrix, Greenwich Information
Technologies, Signature-mail, Soundview Technologies, Mediaconnex and MerkWerksour partner companies relies, to varying degrees, on
proprietary rights and their protection or exclusivity. Although reasonable
efforts will be taken to protect their proprietary rights, the complexity of
international trade secret, copyright, trademark and patent law, and common
law, coupled with limited resources and the demands of quick delivery of
products and services to market, create risk that these efforts will prove
inadequate. For certain partner companies, such as Greenwich Information
Technologies and Soundview Technologies, proprietary rights constitute the only
significant assets of such company.
CombiMatrix, Greenwich Information Technologies, Signature-mailSignature-mail.com and
Soundview Technologies will depend largely on the protection of enforceable patent
rights. Mediaconnex, CombiMatrix and Signature-mail currentlyThey have applications on file with the U.S. Patent and Trademark
Office seeking patents on their core technologies while Greenwich Information Technologies and
Soundview Technologiesand/or have patents or rights
to patents that have been issued
as well as have additional patents pending. MerkWerks intends to rely on a
combination of statutory and common law, copyright, trademark and trade secret
law, and licensing agreements to protect its software product.issued. We cannot assure you that the pending patent
applications will issue,be issued, that third
11
parties will not violate, or attempt to invalidate the affiliates'these intellectual property
rights, or that certain aspects of the affiliates'their intellectual property will not be
reverse-engineered by third parties without violating the affiliates' proprietarytheir patent rights.
In additionMany of our partner companies also own licenses from third parties and it is
possible that they could become subject to infringement actions based upon such
licenses. Our partner companies generally obtain representations as to the
protection thatorigin and ownership of such licensed content; however, this may be afforded by patents and the
various laws protecting proprietary rights, the affiliatesnot adequately
protect them.
Our partner companies also enter into confidentiality agreements with third
parties and generally limit access to information relating to their intellectual property.proprietary
rights. Despite these precautions, third parties may be able to gain access to
and use their intellectual propertyproprietary rights to develop similar competing technologies and/or
products.products with similar or better features and prices. Any substantial
unauthorized use of the affiliates patent and otherour partner companies' proprietary rights could materially
and adversely affect their business and operational results.
Any disputes involving our partner companies' proprietary rights, with or
without merit, could subject our partner companies to costly litigation and the
diversion of their technical and management personnel. On April 5, 2000,
Soundview Technologies filed a patent and antitrust lawsuit against Sony
Corporation of America, Philips Electronics North America Corporation, the
Consumer Electronics Manufacturers Association, and the Consumer Electronics
Association in the federal district court alleging that Sony and Philips
television sets fitted with "V-chips" infringe Soundview Technologies' patent.
However, no assurance can be given that Soundview Technologies will prevail in
that action or that the television manufacturers will be required to pay
royalties to Soundview Technologies. See "Business--Soundview Technologies"
below.
WE COULD BE SUBJECT TO INFRINGEMENT CLAIMS ON PROPRIETARY RIGHTS.
From time to time, we may be subject to third party claims in the ordinary
course of business, including claims of alleged infringement of proprietary
rights by us and our partner companies. Any such claims may damage our business
by:
. subjecting us and our partner companies to significant liability for
damages;
. invalidating proprietary rights held by our partner companies;
. being time-consuming and expensive to defend even if such claims are not
meritorious; and
. resulting in the diversion of management time and attention.
BECAUSE EACH AFFILIATE'S SUCCESS GREATLY DEPENDS ON THEIR ABILITY TO DEVELOP AND
MARKET NEW PRODUCTS AND SERVICES,WE HAVE A LIMITED OPERATING HISTORY, WE CANNOT ASSURE YOU THAT OUR
AFFILIATESOPERATIONS WILL BE SUCCESSFUL IN THE FUTURE.
The markets for each affiliate's productsPROFITABLE.
We commenced operations in 1993 and, accordingly, have a limited operating
history. In addition, many of our partner companies are also marked by extensive
competition, rapidly changing technology, frequent product improvements,in the early stages of
development and evolving industry standards. The success of each affiliate will depend on its
ability to develop and market new products and services or enhance existing ones
to meet the evolving needshave limited operating histories. You should consider our
prospects in light of the market. Werisks, expenses, and difficulties frequently
encountered by companies with such limited operating histories. Since we have a
limited operating history, we cannot assure you that our affiliates' existing or future products and servicesoperations will be
successfulprofitable or profitable. In addition,that we cannot assure you other developers' products,
services or technologies will not rendergenerate sufficient revenues to meet our
affiliates' productsexpenditures and services
noncompetitive or obsolete.
14
WE MAY NEED TO SEEK ADDITIONAL FINANCING IN THE FUTURE, BUT CANNOT ASSURE YOU
THAT WE WILL BE ABLE TO OBTAIN NEEDED FINANCING ON FAVORABLE TERMS.
As of September 30,support our activities.
During the fiscal year ended December 31, 1999, we had working capitalan operating loss of
$12.4approximately $10.4 million and stockholders' equitya net loss of $16.7approximately $8.2 million.
During the six months ended June 30, 2000, we had an operating loss of
approximately $9.8 million based onand a net loss of approximately $16.8 million. If we
continue to have operating losses, we may not have enough money to expand our
consolidated financial
statements. However, a portion of these funds were held bybusiness and our consolidated
subsidiaries and thus are restricted to usepartner companies' businesses in the business of the particular
subsidiary.
We cannot assure you that we will not encounter unforeseen difficulties that
may deplete our capital resources more rapidly than anticipated. Any efforts to
seek additional funds could be made through equity, debt, or other external
financings, however, we cannot assure you that additional funding will be
available on favorable terms, if at all.
To date, we have relied upon the sale of equity securities to generate the
funds needed to finance the implementation of our plan of operations. In the
past, we have also relied on gains from the sale of investment securities,
including those of Whitewing, CombiMatrix, Soundview Technologies, and
MerkWerks, as well as equity interests in Greenwich Information Technologies as
additional sources of revenue. To date we have not experienced any significant
liquidity event with respect to our affiliates' companies.future.
12
ALTHOUGH WE HOLD MINORITY POSITIONS IN CERTAIN AFFILIATES,SUBSIDIARIES, WE DO NOT HAVE THE
ABILITY TO CONTROL THEIR DECISION MAKING OR DAY TO DAYDAY-TO-DAY OPERATIONS.
WHITEWING.The EC Company. We currently own 532,459 shares of Whitewing's common stock
(18.6% of the outstanding shares)a 4.5% interest in The EC Company and have
voting control over 789,709 shares
Whitewing's common stock (27.4%no board representation. Additional rounds of the outstanding shares). R. Bruce Stewart,equity financing may further
dilute our Chief Financial Officer, is Chairman of the Board of Directors of Whitewing
and Paul Ryan, our President and Chief Executive Officer, is also a member of
the Board of Directors of Whitewing, representing half of Whitewing's Board of
Directors. This minority position and board representation gives us influence
over, butinterest in The EC Company. We do not have the ability to control
the decision-making at Whitewing.
GREENWICH INFORMATION TECHNOLOGIES.The EC Company.
Greenwich Information Technologies. We currently maintain a membership
interest of 33.3% in Greenwich Information Technologies. Although we are a
senior member of Greenwich Information Technologies, we do not hold a majority
of the board of three senior members, and we have no control over their day toits day-to-
day operations.
The day to day operations are currently directed by the chief
executive officer, H. Lee Browne.
SIGNATURE-MAIL. We have a membership interest of 25% in Signature-mail.
Although we are a senior member of Signature-mail, we do not hold a majority of
the board of three senior members, and we have no control over their day to day
operations. The day to day operations are currently directed by the chief
executive officer, H. Lee Browne.
MEDIACONNEX.Mediaconnex. We currently own 74%73.77% of the outstanding Series A Preferred
Stock of Mediaconnex. The holders of the Series A Preferred Stock, voting
together as a class, have the right to designate two members to the Boardboard of
Directorsdirectors of Mediaconnex, giving Acaciaus the right to control 40% of the Board of Directors.board. To
date, Paul Ryan, the CEO of Acaciaour Chief Executive Officer, and Peter Frank, the CFO of Acacia,Amit Kumar, Vice President,
Life Sciences, have been appointed to the Boardboard of Directors.directors of Mediaconnex.
This minority position and board representation will give Acaciagives us influence over, but
not the ability to control, the decision-making at Mediaconnex.
The day to day operationsSignature-mail.com. We have a membership interest of 25.0% in Signature-
mail.com. Although we are currently
controlled by Sean Atkins, the President anda senior member of Signature-mail.com, we do not hold
a majority of the board of three senior members, and we have no control over
its day-to-day operations.
SOME OF OUR FACILITIES ARE LOCATED NEAR MAJOR EARTHQUAKE FAULT LINES.
Our facilities and the facilities of a number of our partner companies,
including CombiMatrix, The EC Company, Launchpad, Mediaconnex, MerkWerks, and
Soundbreak.com, are located near major earthquake fault lines. We could be
materially and adversely affected in the event of a major earthquake. We have
not obtained and do not presently intend to obtain earthquake insurance or
business interruption coverage.
WE MAY INCUR SIGNIFICANT COSTS TO AVOID INVESTMENT COMPANY STATUS AND MAY
SUFFER ADVERSE CONSEQUENCES IF DEEMED TO BE AN INVESTMENT COMPANY.
We may incur significant costs to avoid investment company status and may
suffer other adverse consequences if deemed to be an investment company under
the Investment Company Act of 1940. Some of our equity investments may
constitute investment securities under the Investment Company Act. A company
may be deemed to be an investment company if it owns investment securities with
a value exceeding 40% of its total assets, subject to certain exclusions.
Investment companies are subject to registration under, and compliance with,
the Investment Company Act unless a particular exclusion or regulatory safe
harbor applies. If we are deemed an investment company, we would become subject
to the requirements of the Investment Company Act. As a consequence, we would
be prohibited from engaging in business or issuing its securities as it has in
the past and might be subject to civil and criminal penalties for
noncompliance. In addition, certain of our contracts might be voidable, and a
court-appointed receiver could take control of us and liquidate our business.
Although we believe our investment securities currently comprise less than
40% of its assets, fluctuations in the value of these securities or of our
other assets may cause this limit to be exceeded. This would require us to
attempt to reduce its investment securities as a percentage of its total
assets. This reduction can be attempted in a number of ways, including the
disposition of investment securities and the acquisition of non-investment
security assets. If we sell investment securities, we may sell them sooner than
we otherwise would. These sales may be at depressed prices and we may never
realize anticipated benefits from, or may incur losses on, these investments.
Some investments may not be sold due to contractual or legal restrictions or
the inability to locate a suitable buyer. Moreover, we may incur tax
liabilities when we sells assets. We may also be unable to
13
purchase additional investment securities that may be important to our
operating strategy. If we decide to acquire non-investment security assets, we
may not be able to identify and acquire suitable assets and businesses.
THE AVAILABILITY OF SHARES FOR SALE IN THE FUTURE COULD REDUCE THE MARKET PRICE
OF OUR COMMON STOCK.
In the future, we may issue securities to raise cash for acquisitions, and
we may also pay for interests in additional partner companies by using a
combination of cash and our common stock, or just our common stock. We may also
issue securities convertible into our common stock. Any of these events may
dilute your ownership interest in us and have an adverse impact on the price of
our common stock.
In addition, sales of a substantial amount of our common stock in the public
market, or the perception that these sales may occur, could reduce the market
price of our common stock. This could also impair our ability to raise
additional capital through the sale of our securities.
THERE MAY BE VOLATILITY IN OUR STOCK PRICE.
Our common stock, which is quoted on the Nasdaq National Market, has
experienced significant price and volume fluctuations. These fluctuations are
likely to continue in the future. The market price of our common stock may
decline below the price of the stock sold in this offering. The market prices
of the securities of technology and Internet-related companies have been
especially volatile.
DELAWARE LAW AND OUR CHARTER DOCUMENTS CONTAIN PROVISIONS THAT COULD DISCOURAGE
OR PREVENT A POTENTIAL TAKEOVER OF OUR COMPANY THAT MIGHT OTHERWISE RESULT IN
OUR STOCKHOLDERS RECEIVING A PREMIUM OVER THE MARKET PRICE OF THEIR SHARES.
Provisions of Delaware law and our certificate of incorporation and bylaws
could make more difficult the acquisition of our company by means of a tender
offer, proxy contest or otherwise, and the removal of incumbent officers and
directors. These provisions include:
. Section 203 of the Delaware General Corporation Law, which prohibits a
merger with a 15%-or-greater stockholder, such as a party that has
completed a successful tender offer, until three years after that party
became a 15%-or-greater stockholder;
. amendment of our bylaws by the shareholders requires a two-thirds
approval of the outstanding shares;
. the authorization in the certificate of incorporation of undesignated
preferred stock, which could be issued without stockholder approval in a
manner designed to prevent or discourage a takeover;
. provisions in our bylaws eliminating stockholders' rights to call a
special meeting of stockholders, which could make it more difficult for
stockholders to wage a proxy contest for control of our board or to vote
to repeal any of the anti-takeover provisions contained in our
certificate of incorporation and bylaws; and
. the division of our Board of Directors into three classes with staggered
terms for each class, which could make it more difficult for an outsider
to gain control of Mediaconnex.
EC COMPANY.our Board of Directors.
14
FORWARD-LOOKING STATEMENTS
This prospectus and the documents it incorporates by reference contain
forward-looking statements within the meaning of the "safe harbor" provisions
of the Private Securities Litigation Reform Act of 1995. In particular, these
statements include the description of our plans and objectives for future
operations, assumptions underlying such plans and objectives, and other
forward-looking statements included in this report. These statements may be
identified by the use of forward-looking terminology such as "may," "will,"
"expect," "believe," "estimate," "anticipate," "intend," "continue," or similar
terms, variations of such terms or the negative of such terms. These statements
are based on management's current expectations and are subject to a number of
factors and uncertainties, which could cause actual results to differ
materially from those described in the forward-looking statements. These
statements address future events and conditions concerning product development,
capital expenditures, earnings, litigation, regulatory matters, markets for
products and services, liquidity and capital resources, and accounting matters.
Actual results in each case could differ materially from those anticipated in
these statements by reason of the factors described under the caption "Risk
Factors" and such other factors such as future economic conditions, changes in
consumer demand, legislative, regulatory and competitive developments in
markets in which we and our subsidiaries operate, and other circumstances
affecting anticipated revenues and costs. We own a 7.6% interestexpressly disclaim any obligation
or undertaking to release publicly any updates or revisions to any forward-
looking statements contained in EC Company and have no board
representation, therefore giving us abilitythis prospectus to control, the decision-making at
EC Company.
15
reflect any change in our
expectations with regard thereto or any change in events, conditions or
circumstances on which any such statement is based.
USE OF PROCEEDS
We will not receive any proceeds from the sale of the shares of common stock
offered by the Selling Securityholders pursuant to this prospectus. We will
receive proceeds if Selling Securityholders exercise their warrants or options
to purchase shares of common stock. If all of the Selling Securityholders were
to exercise their warrants and options, we would receive gross proceeds of
$17,072,938.$28,951,036. When and if we receive these funds, they will be used for general
corporate purposes.
15
SELLING SECURITYHOLDERS
The shares of common stock offered pursuant to this prospectus have been or
will be issued to the Selling Securityholders (or their assignees) directly by
our company. Of the shares of our common stock covered by this prospectus,
974,771861,638 shares were issued to certain Selling Securityholders in a private
placement completed in December 1999July 2000 pursuant to an exemption from registration
contained in Regulation D promulgated under Section 4(2) of the Securities Act.
An additional 487,387861,638 shares of common stock (subject to adjustment under
certain circumstances) covered by this prospectus are issuable upon the
exercise of common stock purchase warrants issued to certain Selling
Securityholders in that private placement. We may redeem theseAn additional 11,000 shares and
11,000 warrants under certain
circumstances. A further 720,000were issued pursuant to a purchase by a finder in such Private
Placement. Another 488,557 shares of common stock (subject to adjustment
under certain circumstances) covered by this prospectus are issuable upon the
exercise of options issued to certain Selling Securityholders under our 1996
Executive Stock Bonus Plan approved by the Stockholders at our 1996 annual
meeting. Another 60,107 shares of common stock
were issued to certain Selling Securityholders in connection with a private transaction where we exchanged our
common stock forseries of separate
transactions to acquire additional equity interestinterests in MerkWerks. The remaining 102,851CombiMatrix. Another
30,000 shares of common stock offeredwere issued pursuant to this Prospectus (subject to
adjustment) represent shares issuable uponan option exercise of certain options and other
warrants held by certain selling securityholders.M. Robert Ching.
The following table sets forth certain information with respect to the
beneficial ownership of shares of our common stock by the Selling
Securityholders as of January 20,August 3, 2000 and the number of shares which may be
offered pursuant to this prospectus for the account of each of the Selling
Securityholders or their transferees from time to time. Except as described in
the footnotes to the table, to the best of our knowledge, none of the Selling
Securityholders has had any position, office or other material relationship
with our company or any of our affiliates.
16
MAXIMUM NUMBER OF PERCENT OF CLASS
NUMBER OF SHARES SHARES WHICH MAY NUMBER OF SHARES BENEFICIALLY OWNED
BENEFICIALLY OWNED BE SOLD IN THIS BENEFICIALLY OWNED AFTER THE OFFERING
SELLING SECURITYHOLDERS PRIOR TO OFFERING (1) OFFERING (1) AFTER THE OFFERING (2) (2)
-Maximum Number of Number of Shares Percent of Class
Number of Shares Shares Which May Beneficially Beneficially
Beneficially Owned Be Sold in This Owned After the Owned After The
Selling Securityholders Prior to Offering(1) Offering(1) Offering(2) Offering(2)
----------------------- ----------------------------------------- ----------------- ---------------------- ---------------------------------- ----------------
Brooke P. Anderson (3).... 560,827 202,532 358,295 2.24
Dorothy L. Anderson Living
Trust................... 6,314 314 6,000All Points Management
Trust.................. 125,000 81,250 43,750 *
Ivano Angelastri (4)...... 8,500 8,500(4)Aries Domestic Fund,
L.P.................... 46,058 46,058 0 0
Milton Aronowitz Jr....... 1,688 1,688Aries Domestic Fund II,
L.P.................... 12,948 12,948 0 0
The Balboa Fund........... 70,000 30,000 40,000 *
Bank Leumi le-Israel...... 450,000 450,000Aries Master Fund II.... 86,450 86,450 0 0
Martin M. Berman.......... 169 169Balboa Fund L.P......... 80,008 78,788 1,220 *
Balboa Fund Ltd......... 40,000 40,000 0 0
The Paul E. Berning SERP
Trust................... 10,128 10,128Douglas Benson & Zinita
Benson................. 29,250 29,250 0 0
R. Carlton Browne....... 4,636 3,636 1,000 *
Richard C. Browne......... 7,500 7,500 0 0
Merrill & Rene Burt Rev
Trust................... 6,977 6,977 0 0
Hendrick Capelle.......... 7,500 7,500 0 0
Rene Carrel (5)........... 10,000 10,000(5)Browne....... 29,818 21,818 8,000 *
Chelonia Fund L.P....... 19,697 19,697 0 0
M. Robert Ching Defined
Benefit Pension Plan
(6)..................... 786,050(7)(8) 187,500 598,550(7)(8) 3.75
Colgate Limited
Partnership............. 3,376 3,376(3)..... 672,500(4)(5) 30,000(4)(5) 642,500 4.46%
Philip Ching & Beverly
Ching.................. 41,665 20,313 21,352 *
Victor Ching............ 10,261 8,125 2,136 *
C. Perry Chu............ 8,636 6,500 2,136 *
Priscilla Chu........... 4,063 4,063 0 0
Michael Cunniff (9)....... 12,000 12,000Crescent International.
Ltd.................... 36,000 36,000 0 0
Alan Dietzak.............. 5,064 5,064Dimensional Partners,
L.P.................... 148,400 148,400 0 0
Irene Farmer.............. 75,064 5,064 70,000 *
First Associated (10)..... 2,008 2,008(10)Dimensional Partners,
Ltd.................... 381,600 381,600 0 0
Fontana Family Trust...... 17,442 17,442John Drake.............. 343,820 73,125 270,695 1.88%
Fred Finocchiaro........ 307,000 32,500 274,500 1.90%
Hermes Partners, L.P.... 115,000 100,000 15,000 *
Kevin Kennelly.......... 91,413 39,813 51,600 *
David Lackey............ 108,000 10,595 97,405 *
Calvin Layland.......... 58,157(6) 23,157(6) 35,000 *
Christopher Lenzo....... 62,500 32,500 30,000 *
William Moon............ 9,825 8,125 1,700 *
Pequot Scout Fund,
L.P.................... 36,364 36,364 0 0
Carl W. Fuller............ 25,000 15,000 10,000Donald Richey........... 18,100 8,938 9,162 *
Gorman Trust (11)......... 5,000 5,000(11) 0 0
Jack Hengst Money Purchase
Pension Plan............ 8,577 6,977 1,600 *
Hermes Partners, L.P...... 60,000 60,000 0 0
Roland Heuberger.......... 21,750 21,750 0 0
Kathryn King-Van Wie
(12).................... 208,584(13) 100,000 108,584(13) *
David Lackey (14)......... 140,500 12,500(14) 128,000 *
John Lackey (15).......... 87,500 67,500(15) 20,000 *
Roger Lewis............... 5,950 950 5,000 *
Liechtensteinische
Landesbank.............. 30,000 30,000 0 0
Robert & Elva Medearis.... 6,977 6,977 0 0
Mill Creek Fund........... 7,500 7,500 0 0
Don Montgomery (16)....... 24,400 20,000 4,400 *
David W. Moyer............ 6,752 6,752 0 0
Wesley E. Mudge Separate
Prop Trust.............. 21,000 21,000 0 0
Roger Mulhaupt............ 81,450 81,450 0 0
Dewi Muljadi-White........ 1,736 1,736 0 0
Barry Neville............. 6,767 6,767 0 0
Newton Family Trust....... 9,192 9,192 0 0
Bates & Fran Reese
Trust................... 15,000 15,000 0 0
Refima AG................. 15,000 15,000 0 0
Reman Partners Ltd........ 225,000 225,000 0 0
RMT Risk Management &
Trading................. 22,500 22,500 0 0
Paul Ryan (17)............ 494,000(18) 200,000 294,000(18) 1.84
John E. Saunders.......... 548 548Royal Bank of Canada.... 436,364 436,364 0 0
1716
MAXIMUM NUMBER OF PERCENT OF CLASS
NUMBER OF SHARES SHARES WHICH MAY NUMBER OF SHARES BENEFICIALLY OWNED
BENEFICIALLY OWNED BE SOLD IN THIS BENEFICIALLY OWNED AFTER THE OFFERING
SELLING SECURITYHOLDERS PRIOR TO OFFERING (1) OFFERING (1) AFTER THE OFFERING (2) (2)
-Maximum Number of Number of Shares Percent of Class
Number of Shares Shares Which May Beneficially Beneficially
Beneficially Owned Be Sold in This Owned After the Owned After the
Selling Securityholders Prior to Offering(1) Offering(1) Offering(2) Offering(2)
----------------------- ----------------------------------------- ----------------- ---------------------- ---------------------------------- ----------------
Ueli Schurch (19)......... 44,330 44,330(19)Seneca Capital, L.P..... 126,728 126,728 0 0
R. Bruce Stewart (20)..... 560,000 200,000 360,000 2.25
Thomas Stewart (21)....... 7,500 2,500(21) 5,000 *
William Tipton............ 11,764 11,764Seneca Capital
International Ltd...... 236,910 236,910 0 0
Bret Undem (22)........... 6,406 6,406(22)Vertical Ventures LLC
(7).................... 22,000 22,000 0 0
Beat Zanitti.............. 60,000 60,000West Bay Investments,
LLC.................... 10,000 10,000 0 0
Marc A. Zemp.............. 90,000 90,000 0 0
Judy Ziegler IRA.......... 3,255 3,255Scott Wilfong........... 11,818 11,818 0 0
- --------
* Less than one percent1% of class
- --------------------------
(1) Assumes exercise of all common stock purchase warrants or options
beneficially owned by the Selling Securityholder at the exercise price and
for the maximum number of shares permitted as of the date of this
prospectus. Share figures include shares of our common stock issued in the
private placement as well asand underlying the underlying common stock purchase warrants as
follows:
SHARES OF COMMON STOCK
ISSUED IN PRIVATE SHARES UNDERLYING
SELLING SECURITYHOLDERS PLACEMENT WARRANTSShares of Common Stock Shares Underlying
Selling Securityholders Issued in Private Placement Warrants
- ----------------------- ------------------------------------------------- -----------------
Aries Domestic Fund II, L.P. ... 6,474 6,474
Aries Domestic Fund, L.P........ 23,029 23,029
The Aries Master Fund II........ 43,225 43,225
Balboa Fund.............................................Fund Ltd................. 20,000 10,000
Bank Leumi le-Israel........................................ 300,000 150,00020,000
R. Carlton Browne II............ 1,818 1,818
Richard C. Browne........................................... 5,000 2,500
Merrill & Rene Burt Rev Trust............................... 4,651 2,326
Hendrick Capelle............................................ 5,000 2,500
M. Robert Ching Defined Benefit Pension Plan................ 125,000 62,500
Fontana Family Trust........................................ 11,628 5,814
Carl W. Fuller.............................................. 10,000 5,000
Jack Hengst Money Purchase Pension Plan..................... 4,651 2,326Browne............... 10,909 10,909
Crescent International Ltd...... 18,000 18,000
Dimensional Partners, L.P....... 74,200 74,200
Dimensional Partners, Ltd....... 190,800 190,800
Hermes Partners, L.P........................................ 40,000 20,000
Roland Heuberger............................................ 14,500 7,250
John Lackey (15)............................................ 20,000 10,000
Liechtensteinische Landesbank............................... 20,000 10,000
Robert & Elva Medearis...................................... 4,651 2,326
Mill Creek Fund.............................................L.P............ 50,000 50,000
Pequot Scout Fund, L.P.......... 18,182 18,182
Royal Bank of Canada............ 218,182 218,182
Seneca Capital International
Ltd. .......................... 118,455 118,455
Seneca Capital, L.P............. 63,364 63,364
Vertical Ventures LLC........... 11,000 11,000
West Bay Investments, LLC....... 5,000 2,500
Wesley E. Mudge Separate Prop Trust......................... 14,000 7,000
Roger Mulhaupt.............................................. 54,300 27,150
Newton Family Trust......................................... 6,128 3,064
Bates & Fran Reese Trust.................................... 10,000 5,000
Refima AG................................................... 10,000 5,000
Reman Partners Ltd.......................................... 150,000 75,000
RMT Risk Management & Trading............................... 15,000 7,500
Ueli Schurch (19)........................................... 21,700 10,850
Thomas Stewart (21)......................................... 1,000 500
Bret Undem (22)............................................. 2,562 1,281
Beat Zanitti................................................ 40,000 20,000
Marc A. Zemp................................................ 60,000 30,000
- ----------------------------------
(2) Assumes that each Selling Securityholderselling Security holder will sell all shares of common
stock offered pursuant to this prospectus, but not any other shares of
common stock beneficially owned by such securityholder.security holder.
(3) Dr. Anderson is a director and officer of CombiMatrix.
18
(4) Mr. Angelastri acted as a finder in connection with the December 1999
Private Placement and in such capacity received "Finder Warrants" to
purchase 8,500 shares at an exercise price of $23.65 per share. These
warrants expire on December 9, 2002.
(5) Mr. Carrel acted as a finder in connection with the December 1999 Private
Placement and in such capacity received "Finder Warrants" to purchase 10,000
shares at an exercise price of $23.65 per share. These warrants expire on
December 9, 2002.
(6) Dr. Ching has provided consulting services to the Company.
(7)(4) Includes shares beneficially owned by Dr. Ching issued in the names of M.
Robert Ching & Phyllis Ching Living Trust, M. Robert Ching M.D. Inc. Money
Purchase Pension Plan, M. Robert Ching, M.D. Inc. Defined Benefit Plan and
Phyllis Ching.
(8)(5) Includes 7,500 shares which are subject to options as follows: (a) 10,000 shares,
at an exercise price of $2.625 per share, expiring October 13, 2000; (b)
10,000 shares, at an exercise price of $2.625 per share, expiring October
13, 2000; (c) 3,550 shares, at an exercise price of $2.75 per share,
expiring January 29, 2001; and (d) 15,000 sharesoption at an exercise price of $3.50 per
share, expiring August 5, 2001.
(9) Mr. Cunniff provides consulting services to(6) Includes shares beneficially owned by Dr. Layland issued in the Company.
(10) The Gorman Trust received "Finder Warrants" to purchase 5,000 shares at an
exercise pricename of
$23.65 per share in connection with the December 1999
Private Placement. These warrants expire on December 9, 2002.
(11) First Associated SecuritiesCalvin C. Layland Pension & Profit Sharing Plan.
(7) Vertical Ventures LLC acted as a finder in connection with the December 1999July 2000
Private Placement and in such capacity received "Finder
Warrants" to purchase 2,008 shares at an exercise price of $23.65 per share.
These warrants expire December 9, 2002.
(12) Ms. King is the Chief Operating Officer of the Company.
(13) Includes shares which are subject to options as follows: (a) 40,000 shares,
at an exercise price of $2.625 per share, expiring October 13, 2000; and (b)
50,000 shares, at an exercise price of $3.5625 per share, expiring March 10,
2001.
(14) Mr. David Lackey acted as a finder in connection with the December 1999
Private Placement and in such capacity received "Finder warrants" to
purchase 12,500 shares at an exercise price of $23.65 per share. These
warrants expire on December 9, 2002.
(15) Mr. John Lackey acted as a finder in connection with the December 1999
Private Placement and in such capacity received "Finder warrants" to
purchase 37,500 shares at an exercise price of $23.65 per share. These
warrants expire on December 9, 2002
(16) Dr. Montgomery is a director and officer of CombiMatrix.
(17) Mr. Ryan is a director and President and Chief Executive Officer of the
Company.
(18) Includes 75,000 shares which are subject to options, at an exercise price
of $3.75 per share, expiring DecemberPlacement.
17 2002.
(19) Mr. Schurch acted as a finder in connection with the December 1999 Private
Placement and in such capacity received "Finder warrants" to purchase 11,780
shares at an exercise price of $23.65 per share. These warrants expire on
December 9, 2002.
(20) Mr. R. Bruce Stewart is the Chairman of the Board of Directors of the
Company.
(21) Mr. Thomas Stewart acted as a finder in connection with the December 1999
Private Placement and in such capacity received "Finder warrants" to
purchase 1,000 shares at an exercise price of $23.65 per share. These
warrants expire on December 9, 2002. Mr. Thomas Stewart is the son of R.
Bruce Stewart, the Chairman of the Board of Directors.
(22) Mr. Undem acted as a finder in connection with the December 1999 Private
Placement and in such capacity received "Finder warrants" to purchase 2,563
shares at an exercise price of $23.65 per share. These warrants expire on
December 9, 2002
19
PLAN OF DISTRIBUTION
The shares of common stock offered hereby may be sold by the Selling
Securityholders or by their respective pledgees, donees, transferees or other
successors in interest. Such sales may be made at fixed prices that may be
changed, at market prices prevailing at the time of sale, at prices related to
such prevailing market prices, or at negotiated prices. The shares may be sold
by one or more of the following:
-. one or more block trades in which a broker or dealer so engaged will
attempt to sell all or a portion of the shares held by the Selling
Securityholders as agent but may position and resell a portion of the
block as principal to facilitate the transaction;
-. purchase by a broker or dealer as principal and resale by such broker or
dealer as principal and resale by such broker or dealer for its account
pursuant to this prospectus;
-. ordinary brokerage transactions and transactions in which the broker
solicits purchasers; and
-. privately negotiated transactions between the Selling Securityholders and
purchasers without a broker-dealer.
The Selling Securityholders may effect such transactions by selling shares
to or through broker dealers, and such broker-dealers will receive compensation
in negotiated amounts in the form of discounts, concessions, commissions or
fees from the Selling Securityholders and/or the purchasers of the shares for
whom such broker-dealers may act as agent or to whom they sell as principal, or
both (which compensation to a particular broker-dealer might be in excess of
customary commissions). Such brokers or dealers or other participating brokers
or dealers and the Selling Securityholders may be deemed to be "underwriters"
within the meaning of the Securities Act, in connection with such sales. Except
for customary selling commissions in ordinary brokerage transactions, any such
underwriter or agent will be identified, and any compensation paid to such
persons will be described, in a prospectus supplement. In addition, any
securities covered by this prospectus that qualify for sale pursuant to Rule
144 might be sold under Rule 144 rather than pursuant to this prospectus.
LEGAL MATTERS
The validity of the shares of common stock intended to be sold pursuant to
this prospectus will be passed upon for the Company by O'Melveny & Myers LLP.
EXPERTS
The consolidated financial statements of the Company incorporated intoin this prospectusProspectus by
reference to the Annual Report on Form 10-K of Acacia Research Corporation for
the yearsyear ended December 31, 1998 and December 31, 19971999 have been so includedincorporated in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting
The consolidated financial statements incorporated in this prospectus by
reference for the year ended December 31, 1996 have been so included in reliance
on the report of Finocchiaro & Co., independent accountants, given on the
authority of said firm as experts in auditing and accounting. Fred F.
Finocchiaro, a principal of Finocchiaro & Co., participated in the private
placements by the Company in June 1997, November 1997, and April 1998.
20
AVAILABLE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-3 under the Securities Act with respect to the shares of
common stock offered by this prospectus. This prospectus does not contain all
the information set forth in the registration statement and the exhibits and
schedules thereto. For further information about us and the shares of common
stock, we refer you to the registration statement and to the exhibits and
schedules filed with it. Statements contained in this prospectus as to the
contents of any contract or other documents referred to are not necessarily
complete. We refer you to those copies of contracts or other documents that
have been filed as exhibits to the registration statement, and statements
relating to such documents are qualified in all aspects by such reference.
Anyone may inspect a copy of the registration statement without charge at
the Commission's Public Reference Room at 450 Fifth Street, N.W., Washington,
D.C. 20549. You may obtain copies of all or any portion of the registration
statement by writing to the Commission's Public Reference Room, 450 Fifth
Street, N.W., Washington, D.C. 20549, and paying prescribed fees. You may obtain
information on the operation of the Public Reference Room by calling the
Commission at 1-800-SEC-0300. In addition, the Commission maintains a Web site
at http://www.sec.gov that contains reports, proxy and information statements
and other information regarding companies such as Silicon that file
electronically with the Commission.18
We are subject to the information requirements of the Securities Exchange
Act and therefore we file reports, proxy statements and other information with
the Commission. You can inspect and copy the reports, proxy statements and
other information that we file at the public reference facilities maintained by
the Commission at the Public Reference Room, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the Commission's regional offices at 7 World
Trade Center, Suite 1300, New York, New York 10048 and 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. You can also obtain copies of such
material from the Commission's Public Reference Room, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. You may obtain information on the
operation of the Public Reference Room by calling the Commission at 1-800-SEC-
0300. The Commission also makes electronic filings publicly available on its
Web site. Reports,site at http://www.sec.gov. Our common stock is traded on the Nasdaq
National Market under the symbol "ACRI" and reports, proxy and information
statements and other information about us may be inspected at the National
Association of Securities Dealers, Inc. at 1735 K Street, N.W., Washington,
D.C. 20006.
Our common stock is traded on the Nasdaq National Market under the symbol
"ACRI." Certain information, reports and proxy statements of our company are
also available for inspection at the offices of the Nasdaq National Market
Reports Section, 1735 K Street, Washington, D.C. 20006.
INFORMATION INCORPORATED BY REFERENCE
The following documents, which we have filed with the Commission, are
incorporated by reference into this prospectus:
-. our annual report on Form 10-K for the fiscal year ended December 31,
1998;
-1999;
. our quarterly reportsreport on Form 10-Q for the quartersquarter ended March 31, 1999, June 30, 1999 and September 30, 1999;
-2000;
. our current reportreports on Form 8-K event date December 28, 1999;filed on February 24, 2000 and -April 7,
2000; and
. the description of our common stock contained in Amendment No. 2 to our
registration statement on Form 8-A/A dated December 30, 1999.
All documents that we file with the Commission pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this prospectus and
before the termination of the offering of the shares of common stock shall be
deemed incorporated by reference into this prospectus and to be a part of this
prospectus from the respective dates of filing such documents.
21
We will provide without charge to each person to whom a copy of this
prospectus is delivered, upon such person's written or oral request, a copy of
any and all of the information incorporated by reference in this prospectus,
other than exhibits to such documents, unless such exhibits are specifically
incorporated by reference into the information that this prospectus
incorporates. Requests should be directed to the Secretary at Acacia Research
Corporation, 55 South Lake Avenue, Pasadena, California 91101, telephone number
(626) 396-8300.
Any statement contained in a document incorporated or deemed to be
incorporated by reference in this prospectus shall be deemed modified,
superseded or replaced for purposes of this prospectus to the extent that a
statement contained in this prospectus or in any subsequently filed with
document that also is or is deemed to be incorporated by reference in this
prospectus modifies, supersedes or replaces such statement. Any statement so
modified, superseded or replaced shall not be deemed, except as so modified,
superseded or replaced, to constitute a part of this prospectus.
2219
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
You should rely only on the information incorporated by reference, provided
in this prospectus or any supplement or that we have referred you to. We have
not authorized anyone else to provide you with different information. You should
not assume that the information in this prospectus or any supplement is accurate
as of any date other than the date on the front of those documents. However, you
should realize that the affairs of the Company may have changed since the date
of this prospectus. This prospectus will not reflect such changes. You should
not consider this prospectus to be an offer or solicitation relating to the
securities in any jurisdiction in which such an offer or solicitation relating
to the securities is not authorized, if the person making the offer or
solicitation is not qualified to do so, or if it is unlawful for you to receive
such an offer or solicitation.-------------------------------------------------------------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION INCORPORATED BY REFERENCE, PROVIDED
IN THIS PROSPECTUS OR ANY SUPPLEMENT OR THAT WE HAVE REFERRED YOU TO. WE HAVE
NOT AUTHORIZED ANYONE ELSE TO PROVIDE YOU WITH DIFFERENT INFORMATION. YOU
SHOULD NOT ASSUME THAT THE INFORMATION IN THIS PROSPECTUS OR ANY SUPPLEMENT IS
ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE FRONT OF THOSE DOCUMENTS.
HOWEVER, YOU SHOULD REALIZE THAT OUR AFFAIRS MAY HAVE CHANGED SINCE THE DATE
OF THIS PROSPECTUS. THIS PROSPECTUS WILL NOT REFLECT SUCH CHANGES. YOU SHOULD
NOT CONSIDER THIS PROSPECTUS TO BE AN OFFER OR SOLICITATION RELATING TO THE
SECURITIES IN ANY JURISDICTION IN WHICH SUCH AN OFFER OR SOLICITATION RELATING
TO THE SECURITIES IS NOT AUTHORIZED, IF THE PERSON MAKING THE OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO, OR IF IT IS UNLAWFUL FOR YOU TO
RECEIVE SUCH AN OFFER OR SOLICITATION.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
ACACIA RESEARCH CORPORATION
2,345,116 SHARES OF
COMMON STOCK
---------------------2,263,833 Shares of
Common Stock
----------------
PROSPECTUS
---------------------
January----------------
August , 2000
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------
PART II
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTIONOther Expenses of Issuance and Distribution
The expenses in connection with the registration of shares of the Selling
Securityholders will be borne by the Company and are estimated as follows:
Commission registration fee................................. $31,729fee......................................... $16,006
Printing and engraving......................................engraving.............................................. 2,000
Accounting fees and expenses................................expenses........................................ 2,000
Legal fees and expenses.....................................expenses............................................. 10,000
Miscellaneous expenses......................................expenses.............................................. 5,000
Total....................................................... $50,729-------
Total............................................................. $35,006
=======
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERSIndemnification of Directors and Officers
The Company's Certificate of Incorporation provides for the elimination of
personal monetary liability of directors to the fullest extent permissible
under Delaware law. Delaware law does not permit the elimination or limitation
of director monetary liability for: (i) breaches of the director's duty of
loyalty to the corporation or its stockholders; (ii) acts or omissions not in
good faith or involving intentional misconduct or knowing violations of law;
(iii) the payment of unlawful dividends or unlawful stock repurchases or
redemptions or (iv) transactions in which the director received an improper
personal benefit.
The Company's Bylaws provide for the indemnification to fullest extent
permitted by applicable law of any person who was or is made or is threatened
to be made a party or is otherwise involved in any action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of his or
her current or past service to the Company, against all liability and loss
suffered and expenses (including attorney' fees) reasonably incurred by such
person.
The Company plans to enter into agreements (the "Indemnification
Agreements") with each of the directors and executive officers of the Company
pursuant to which the Company has agreed to indemnify such director or
executive officer from claims, liabilities, damages, expenses, losses, costs,
penalties or amounts paid in settlement incurred by such director or executive
officer in or arising out of such person's capacity as a director or executive
officer of the Company or any other corporation of which such person is a
director at the request of the Company to the maximum extent provided by
applicable law. In addition, such director or executive officer will be
entitled to an advance of expenses to the maximum extent authorized or
permitted by law.
To the extent that the Board of Directors or the stockholders of the Company
may in the future wish to limit or repeal the ability of the Company to provide
indemnification as set forth in the Certificate of Incorporation, such repeal
or limitation may not be effective as to directors and executive officers who
are parties to the Indemnification Agreements, because their rights to full
protection would be contractually assured by the Indemnification Agreements. It
is anticipated that similar contracts may be entered into, from time to time,
with future directors of the Company.
ITEM 16. EXHIBITSExhibits
See the attached Exhibit Index that follows the signature page.
II-1
ITEM 17. UNDERTAKINGSUndertakings
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales ar being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effectivepost-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
PROVIDED, HOWEVER,Provided, however, that paragraphs (1)(i) and (1)(ii) above do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") that are incorporated by reference in the Registration
Statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial BONA FIDEbona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
(4) That, for purposes of determining any liability under the Securities Act
of 1933, each filing of the registrant's annual report pursuant to Section
13(a) or 15(d) of the Exchange Act (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the Exchange
Act) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial BONA FIDEbona fide offering thereof.
(5) That, for purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
II-2
ITEM 17. UNDERTAKINGS (CONTINUED)
(6) That, for the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial BONA FIDEbona fide offering thereof.
(7) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 6 above, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Pasadena, State of California, on the 24th day of
January,August 4, 2000.
ACACIA RESEARCH CORPORATION
By: /s/ PAUL R. RYAN
-----------------------------------------
Paul R. Ryan
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ACACIA RESEARCH CORPORATION
/s/ Paul R. Ryan
By: _________________________________
Paul R. Ryan
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, each person whose signature appears
below constitutes and appoints Paul R. Ryan, Peter FrankRobert L. Harris II, and Kathryn King-Van
Wie,Victoria
White, his or her true and lawful attorney-in-fact and agent, with full powers
of substitution and resubstitution, for him or her and in his or her name,
place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to the Registration Statement (or any
other registration statement for the same offering that is to be effective upon
filing pursuant to Rule 462(b) under the Securities Act of 1933), and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Commission, granting unto said attorney-in-fact and agent,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorney-in-fact and agent, or his or her
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
Director, President
/s/ Paul R. Ryan Chairman of the Board and /s/ PAUL R. RYANAugust 4, 2000
____________________________________ Chief Executive Officer
------------------------------------------- (Principal Executive January 24, 2000
Paul R. Ryan (Principal Executive
Officer)
/s/ PETER FRANK Chief Financial Officer
------------------------------------------- (Principal Financial January 24,Robert L. Harris Director and President August 4, 2000
Peter Frank Officer)____________________________________
Robert L. Harris
/s/ MARY ROSE COLONNA
------------------------------------------- Controller (Principal January 24, 2000 Mary Rose Colonna Vice President, Finance and August 4, 2000
____________________________________ Controller (Principal
Mary Rose Colonna Accounting Officer)
/s/ Thomas B. Akin Director August 4, 2000
____________________________________
Thomas B. Akin
II-4
SIGNATURE TITLE DATE
--------- ----- ----
/s/ R. BRUCE STEWART
------------------------------------------- Chairman of the Board January 24,Fred A. Boom Director August 4, 2000
R. Bruce Stewart
/s/ THOMAS B. AKIN
------------------------------------------- Director January 24, 2000
Thomas B. Akin
/s/ FRED A. DE BOOM
------------------------------------------- Director January 24, 2000____________________________________
Fred A. de Boom
/s/ EDWARDEdward W. FRYKMAN
-------------------------------------------Frykman Director January 24,August 4, 2000
____________________________________
Edward W. Frykman
/s/ Gerald Knudson Director August 4, 2000
____________________________________
Gerald Knudson
II-5
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------------- -----------
4.1 Form of Common Stock Warrant Agreement issued as part of the December 1999July 2000
private placement
4.2 Form of Specimen Certificate of Company's Common Stock (1)
4.3 Form of Option Agreement constituting the 1996 Executive
Stock Bonus Plan (2)
5.1 Opinion of Counsel re: legality of securities being registered
23.1 Consent of Independent Accountants
(Finocchiaro & Co.)
23.2 Consent of Independent Accountants (PricewaterhouseCoopers
LLP)
23.3 Consent of Counsel (included in Exhibit 5.1)
24.1 Powers of Attorney (included on page II-3)S-1)
- --------------------------------
(1) Previously filed by Registrant with Amendment No. 2 on Form 8-A/A on
December 30, 1999 (SEC File No. 000-26068)
(2) Previously filed by Registrant as Appendix A to its Definitive Proxy
Statement on Schedule 14A on April 26, 1996 (SEC File No. 000-26068).
II-6