AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 17, 20041, 2005
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
___________________
WASHINGTON, D.C. 20549
__________________
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
_____________________________________
ACACIA RESEARCH CORPORATION
(Exact Namename of Registrantregistrant as Specifiedspecified in Its Charter)
___________________its charter)
__________________
3670
(Primary Standard Industrial
Classification Code Number)
DELAWARE 95-4405754
(State or Other Jurisdictionother jurisdiction of (I.R.S. Employer IncorporationIdentification Number)
incorporation or Organization) Identification Number)organization)
__________________
ACACIA RESEARCH CORPORATION
500 NEWPORT CENTER DRIVE 7TH FLOOR
NEWPORT BEACH, CALIFORNIA 92660
(949) 480-8300
(Address, Including Zip Code,including zip code, and Telephone Number, Including Area Codetelephone number,
including area code, of Registrant's Principal Executive Offices)
PAUL R. RYAN
CHIEF EXECUTIVE OFFICER
500 NEWPORTregistrant's principal executive offices)
__________________
RAYMOND A. LEE, ESQ.
GREENBERG TRAURIG, LLP
650 TOWN CENTER DRIVE, 7TH FLOOR
NEWPORT BEACH,SUITE 1700
COSTA MESA, CALIFORNIA 92660
(949) 480-830092626
(714) 708-6500
(Address, Including Zip Code,including zip code, and Telephone Number, Including Area Codetelephone number,
including area code, of Agentagent for Service)
___________________
COPIES TO:
MARK J. KELSON, ESQ.
ALLEN MATKINS LECK GAMBLE & MALLORY LLP
1901 AVENUE OF THE STARS, SUITE 1800
LOS ANGELES, CALIFORNIA 90067
(310) 788-2400
___________________service)
__________________
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS
SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.As soon as
practicable after the effective date of this registration statement.
If the only securities being registered on this formForm are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /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, 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 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 number of the earlier effective registration statement for the
same offering. / /[ ]
If delivery of thethis prospectus is expected to be made pursuant to Rule
434, please check the following box. / /[ ]
__________________
CALCULATION OF REGISTRATION FEE
==================================== ================================================= ===================================================================================================================================================================
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE REGISTERED AGGREGATE OFFERING PRICE AMOUNT OF
SECURITIES TO BE REGISTERED(1) PROPOSED MAXIMUM AGGREGATE OFFERING PRICEREGISTERED (1) (2) AMOUNT OF(3) REGISTRATION FEE(2)FEE
- ------------------------------------ ------------------------------------------------- ---------------------------------------------------------------------------------- ------------------------- ---------------------------- ------------------------
Acacia Research-CombiMatrix Common
Stock, $0.01 par valueResearch - ------------------------------------ ------------------------------------------------- -------------------------------
Acacia Research-Acacia Technologies Common
Stock, $0.01$0.001 par value per share........... 3,938,832 $22,687,672 $2,670.34
- ------------------------------------ ------------------------------------------------- -------------------------------
Warrants
- ------------------------------------ ------------------------------------------------- -------------------------------
Total $50,000,000 $6,335
==================================== ================================================= ===============================--------------------------------------------------- ------------------------- ---------------------------- ------------------------
(1) Securities registered hereunder may be sold separately, together or as
units with other securities registered hereunder. The securities registered
hereunder include (i) an indeterminate numberThis registration statement relates to the resale by the Selling
Stockholders named herein of up to 3,938,832 shares of Acacia Research-CombiMatrix common stock andResearch
Corporation's Acacia Research-Acacia Technologies common stock as may be sold, from timepreviously issued
to time, by the registrant and an
indeterminateSelling Stockholders in unregistered sales of the securities.
(2) Based upon the estimated maximum number of shares of Acacia Research-CombiMatrix common stock
andthe registrant's Acacia
Research-Acacia Technologies common stock as shallthat may be issuablesold by the Selling
Stockholders named herein.
(3) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(c) of the Securities Act. The aggregate offering price
is based upon conversiona price per share of warrants registered hereunder, and (ii) an indeterminate
number$5.76, the closing price of warrants, representing rights to purchase Acacia
Research-CombiMatrix common stock orthe Acacia
Research-Acacia Technologies common stock registered hereunder.
(2) Calculated pursuant to Rule 457(o) underon January 27, 2005, as reported on
the Securities Act. Pursuant to
Rule 457(o) under the Securities Act and General Instruction II.D to Form
S-3, the table does not specify by each class information as to the amount
to be registered, proposed maximum offering price per unit or proposed
maximum aggregate offering price. In no event will the maximum aggregate
offering price of all securities issued pursuant to this registration
statement exceed $50,000,000.
WENasdaq National Market.
__________________
THE REGISTRANT HEREBY AMENDAMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL WETHE 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 OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
__________________
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY
BE CHANGED. WECHANGED WITHOUT NOTICE. THE SELLING STOCKHOLDERS MAY NOT SELL THESE
SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION BECOMESIS EFFECTIVE. THIS PRELIMINARY PROSPECTUS IS NOT AN OFFER TO
SELL THESE SECURITIES, AND WETHE SELLING STOCKHOLDERS ARE NOT SOLICITING OFFERS TO
BUY THESE SECURITIES, IN ANY STATEJURISDICTION WHERE THE OFFER OR SALE OF THESE
SECURITIES IS NOT PERMITTED.
PRELIMINARY PROSPECTUS
SUBJECT TO COMPLETION, DATED FEBRUARY 17, 2004
$50,000,000
[LOGO]____________,
PROSPECTUS
3,938,832 SHARES
ACACIA RESEARCH CORPORATION
ACACIA RESEARCH-COMBIMATRIX COMMON STOCK
ACACIA RESEARCH-ACACIA TECHNOLOGIES COMMON STOCK
WARRANTS
_____________________
By__________________
This prospectus relates to the resale of up to 3,938,832 shares of
Acacia Research-Acacia Technologies common stock of Acacia Research
Corporation (the "Company," "we," "us" and "our"), a Delaware
corporation, that the stockholders whom we refer to in this prospectus, wedocument as
the "Selling Stockholders" may offer from time to time:
o sharestime. As used in this
prospectus, "Selling Stockholders" includes the Selling Stockholders
named in the table under the section titled "Selling Stockholders"
beginning on page 22 of our Acacia Research-CombiMatrix common stock;
othis prospectus. The shares of our Acacia
Research-Acacia Technologies common stock;
o warrantsstock being offered by this
prospectus were previously issued to purchasethe Selling Stockholders in
unregistered sales of the securities.
As described in this prospectus under the section titled "Use of
Proceeds," we will not receive any of the proceeds from the sale of the
shares of our Acacia Research-CombiMatrix common
stock and our Acacia Research-Acacia Technologies common stock; or
o any combinationstock by the
Selling Stockholders. We will bear the cost of the foregoing.
We will provide specific terms of each issuanceregistration of
these securitiesshares.
Subject to the restrictions described in
supplements to this prospectus. You should read this prospectus, and any
supplement carefully before you decidethe Selling
Stockholders (directly, or through agents or dealers designated from
time to invest.
This prospectustime) may not be used to consummate sales of these securities
unless it is accompanied by a prospectus supplement.
Our Acacia Research-CombiMatrix common stock is traded onsell the Nasdaq
SmallCap Market under the ticker symbol "CBMX." On February 12, 2004, the last
reported sales priceshares of our Acacia Research-CombiMatrixResearch-Acacia
Technologies common stock was $8.00
per share.being offered by this prospectus from time to
time, on terms to be determined at the time of sale. The prices at
which these stockholders may sell the shares will be determined by the
prevailing market price for the shares or in negotiated transactions.
See "Plan of Distribution" beginning on page 23.
Our Acacia Research-Acacia Technologies common stock is tradedquoted on the
Nasdaq National Market under the ticker symbol "ACTG." On February 12, 2004,January 27, 2005,
the last reported salessale price of our Acacia Research-Acacia Technologies
common stock as reported on the Nasdaq National Market was $6.154$5.76 per
share.
We may sell these securities to or through underwriters, dealers or agents,
or we may sell the securities directly to investors on our own behalf.
INVESTING IN OUR SECURITIESACACIA RESEARCH-ACACIA TECHNOLOGIES COMMON STOCK
INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD
CAREFULLY CONSIDER THE INFORMATION UNDER THE HEADINGSUBSTANTIAL RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE 2 OF THIS PROSPECTUS3 TO
READ ABOUT FACTORS YOU SHOULD CONSIDER BEFORE BUYING ANYSHARES OF THE SECURITIES OFFERED HEREBY.
_____________________OUR
ACACIA RESEARCH-ACACIA TECHNOLOGIES COMMON STOCK.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IFPASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE.PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN OR INCORPORATED BY
REFERENCE INTO THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANY OTHER PERSON TO
PROVIDE YOU WITH DIFFERENT INFORMATION. IF ANYONE PROVIDES YOU WITH DIFFERENT OR
INCONSISTENT INFORMATION, YOU SHOULD NOT RELY ON IT.__________________
The date of this prospectus is February 1, 2005
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS CURRENT ASNOT COMPLETE AND MAY BE
CHANGED WITHOUT NOTICE. THE SELLING STOCKHOLDERS MAY NOT SELL THESE SECURITIES
UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION IS EFFECTIVE. THIS PRELIMINARY PROSPECTUS IS NOT AN OFFER TO SELL
THESE SECURITIES, AND THE SELLING STOCKHOLDERS ARE NOT SOLICITING OFFERS TO BUY
THESE SECURITIES, IN ANY JURISDICTION WHERE THE OFFER OR SALE OF THE DATE OF THIS PROSPECTUS. OUR BUSINESS, FINANCIAL
CONDITION, RESULTS OF OPERATIONS AND PROSPECTS MAY HAVE CHANGED SINCE THAT DATE.THESE
SECURITIES IS NOT PERMITTED.
TABLE OF CONTENTS
About This Prospectus..........................................................1
Our Company....................................................................1Page
----
Prospectus Summary...........................................................1
Risk Factors...................................................................2Factors.................................................................3
Cautionary Statement Concerning Forward-Looking Statements....................................................22Information.................21
Use Of Proceeds...............................................................22
Description of our Capital Stock..............................................23
Description of Warrants.......................................................29Proceeds.............................................................22
Selling Stockholders........................................................22
Plan of Distribution..........................................................30
Experts.......................................................................31Distribution........................................................23
Experts.....................................................................24
Legal Matters.................................................................31Matters...............................................................25
Where You Can Find More Information...........................................31Information.........................................25
Material Changes............................................................25
Incorporation of Certain Information Incorporated By Reference.........................................32
Information Not Required In Prospectus......................................II-1
(i)by Reference...........................25
ABOUTPROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS. THIS SUMMARY DOES NOT CONTAIN ALL THE INFORMATION THAT YOU SHOULD
CONSIDER BEFORE INVESTING IN OUR ACACIA RESEARCH-ACACIA TECHNOLOGIES COMMON
STOCK. YOU SHOULD READ THIS ENTIRE PROSPECTUS This prospectus is part of a registration statement that we filed with
the Securities and Exchange Commission, or SEC, using a "shelf" registration
process. Under this process, we may offer and sell any combination of Acacia
Research-CombiMatrix common stock ("AR-CombiMatrix Stock"), Acacia
Research-Acacia Technologies common stock ("AR-Acacia Technologies Stock") and
warrants to purchase our AR-CombiMatrix Stock or our AR-Acacia Technologies
stock in one or more offerings for total proceeds of up to $50,000,000. This
prospectus provides you with a general description of the securities we may
offer. Each time we offer to sell securities, we will provide a supplement to
this prospectus that will contain specific information about the terms of that
offering. The prospectus supplement may also add, update or change information
contained in this prospectus. It is important for you to consider the
information contained in this prospectus and any prospectus supplement together
with additional information described under the heading "Where You Can Find More
Information."CAREFULLY, ESPECIALLY "RISK
FACTORS" AND OUR COMPANY
OURFINANCIAL STATEMENTS AND RELATED NOTES INCORPORATED BY
REFERENCE ON PAGE 25 BELOW.
BUSINESS AND BASIS OF PRESENTATION
Acacia Research develops, acquires and licenses enabling technologies
for the life sciences and media technologies sectors, which comprise theCorporation is comprised of two business groups of Acacia Research.operating groups.
OUR BUSINESS. Our life sciences business, referred to as the
"CombiMatrix group," is primarily comprised of our wholly owned subsidiaries,subsidiary,
CombiMatrix Corporation CombiMatrix
Corporation's majority owned subsidiary, Advanced Material Sciences, Inc., and CombiMatrix Corporation's wholly ownedindirect wholly-owned
subsidiary, CombiMatrix KK.K.K. CombiMatrix Corporation is a life sciences
technology company with a proprietary system for rapid, cost competitive
creation of DNA and other compounds on a programmable semiconductor chip. This
proprietary technology has applications in the areas of genomics, proteomics,
biosensors, drug discovery, drug development, diagnostics, combinatorial
chemistry, material sciences and nanotechnology. CombiMatrix K.K., a Japanese
corporation located in Tokyo, is exploring opportunities for CombiMatrix
Corporation's active array system with pharmaceutical and biotechnology
companies in the Asian market.
Our media technologiesintellectual property licensing business, referred to as the
"Acacia Technologies group," acquires, develops and licenses intellectual
property, and is comprised primarily comprised of our interests in twoAcacia Research Corporation's wholly
owned media technologies subsidiaries:subsidiaries, Acacia Media Technologies Corporation and("Acacia Media
Technologies"), Soundview Technologies, Inc. ("Soundview Technologies") and
Acacia Internet Access Corporation. The Acacia Technologies group owns patented digital
media transmission, or DMT, technology enablingis responsible
for the digitization, encryption,
storage, transmission, receiptdevelopment, acquisition, licensing and playbackprotection of digital content. The DMT
technologyintellectual
property and proprietary technologies and is protected by five United Statespursuing additional licensing and
31 foreign patents. The DMT
technologystrategic business alliances with companies in the intellectual property
licensing industry.
On December 11, 2002, our stockholders voted in favor of a
recapitalization transaction, which became effective on December 13, 2002,
whereby we created two new classes of common stock called Acacia
Research-CombiMatrix common stock ("AR-CombiMatrix stock") and Acacia
Research-Acacia Technologies common stock ("AR-Acacia Technologies stock"), and
divided our existing Acacia Research Corporation common stock into shares of the
two new classes of common stock. AR-CombiMatrix stock is utilized by a varietyintended to reflect
separately the performance of companies, including cable companies,
hotel in-room entertainment companies, Internet movie companies, Internet music
companies, on-line adult entertainment companies, on-line learning companies and
other companies that stream audio or audio/video content. TheAcacia Research Corporation's CombiMatrix group.
AR-Acacia Technologies stock is intended to reflect separately the performance
of Acacia Research Corporation's Acacia Technologies group's United States DMT patents expire in 2011group. Although the
AR-CombiMatrix stock and its
international DMT patents expire in 2012. Thethe AR-Acacia Technologies stock are intended to
reflect the performance of our different business groups, they are both classes
of common stock of Acacia Technologies group also
owns technology known asResearch Corporation and are not stock issued by the
V-chip. The V-chip was adopted by manufacturers of
televisions sold in the United States to provide blocking of certain programming
based upon its content rating code, in compliance with the Telecommunications
Act of 1996. The V-chip technology was protected by U.S. Patent No. 4,554,584,
which expired in July 2003.
GENERAL INFORMATIONrespective groups.
We wereare incorporated on January 25, 1993 under the laws of the State of California. In December 1999, we changed our state of incorporation from
California to Delaware. Our
principal executive office isoffices are located at 500 Newport Center Drive, 7th Floor, Newport
Beach, California 92660. Our92660, and our telephone number is (949) 480-8300. Our website
is located at www.acaciaresearch.com. Information contained on our website is
not incorporated by reference into this prospectus and you should not consider
information on our website a part of this prospectus.
SEPARATE GROUP PRESENTATION. AR-CombiMatrix stock and AR-Acacia
Technologies stock are intended to reflect the separate performance of the
respective divisions of Acacia Research Corporation. The CombiMatrix group and
the Acacia Technologies group are not separate legal entities. Holders of
AR-CombiMatrix stock and AR-Acacia Technologies stock are stockholders of Acacia
Research Corporation. As a result, holders of AR-CombiMatrix stock and AR-Acacia
Technologies stock continue to be subject to all of the risks of an investment
in Acacia Research Corporation and all of its businesses, assets and
liabilities. The assets Acacia Research Corporation attributes to one of the
groups could be subject to the liabilities of the other group. The consolidated
financial statements incorporated by reference into this Prospectus include the
accounts of Acacia Research Corporation and its wholly owned and majority-owned
subsidiaries, including those in both the CombiMatrix group and the Acacia
Technologies group. The group financial statements have been prepared in
accordance with generally accepted accounting principles in the United States of
America, and taken together, comprise all the accounts included in the
corresponding consolidated financial statements of Acacia Research Corporation.
The financial statements of the groups reflect the financial condition, results
of operations, and cash flows of the businesses included therein. The financial
statements of the groups include the accounts or assets of Acacia Research
Corporation specifically attributed to the groups and were prepared using
amounts included in Acacia Research Corporation's consolidated financial
statements.
1
Financial effects arising from one group that affect Acacia Research
Corporation's results of operations or financial condition could, if
significant, affect the results of operations or financial condition of the
other group and the market price of the class of common stock relating to the
other group. Any division net losses of the CombiMatrix group or of the Acacia
Technologies group, and dividends or distributions on, or repurchases of,
AR-CombiMatrix stock or AR-Acacia Technologies stock, will reduce the assets of
Acacia Research Corporation legally available for payment of dividends on
AR-CombiMatrix stock or AR-Acacia Technologies stock.
THE OFFERING
AR-Acacia Technologies stock offered by Selling
Stockholders...................................... 3,938,832 shares
Common stock issued and outstanding as of 23,752,440 shares of AR-Acacia Technologies stock
February 1, 2005.................................. 31,200,496 shares of AR-CombiMatrix stock
Use of proceeds...................................... We will not receive any proceeds from the sale of the shares of
AR-Acacia Technologies stock covered by this prospectus
Nasdaq National Market Symbol........................ ACTG
The Selling Stockholders may sell the shares of our AR-Acacia
Technologies stock subject to this prospectus from time to time and may also
decide not to sell all the shares they are allowed to sell under this
prospectus. The Selling Stockholders will act independently of the Company in
making decisions with respect to the timing, manner and size of each sale.
Furthermore, the Selling Stockholders may enter into hedging transactions with
broker-dealers in connection with distributions of shares or otherwise.
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we are filing
with the Securities and Exchange Commission, or the "SEC," on behalf of the
Selling Stockholders, who are named in the table under the section titled
"Selling Stockholders" beginning on page 22 of this prospectus, utilizing a
"shelf" registration process. Under this shelf registration process, the Selling
Stockholders may, from time to time until this registration statement is
withdrawn from registration by us, sell the shares of our AR-Acacia Technologies
stock being offered under this prospectus in one or more offerings.
This prospectus provides you with a general description of the
securities that the Selling Stockholders may offer. To the extent required, the
number of shares of our AR-Acacia Technologies stock to be sold, the purchase
price, the public offering price, the names of any agent or dealer and any
applicable commission or discount with respect to a particular offering by any
Selling Stockholder may be set forth in an accompanying prospectus supplement.
You should read both this prospectus and any prospectus supplement together with
the additional information described in the section titled "Incorporation of
Certain Information By Reference," beginning on page 25 below.
You should rely only on the information contained in this prospectus or
any related prospectus supplement. We have not authorized, and the Selling
Stockholders may not authorize, anyone to provide you with different
information. We are not, and the Selling Stockholders are not, making an offer
of the shares of our AR-Acacia Technologies stock to be sold under this
prospectus in any jurisdiction where the offer or sale is not permitted. You
should not assume that the information contained in this prospectus or any
related prospectus supplement is accurate as of any date other than the date on
the front cover of this prospectus or the related prospectus supplement, or that
the information contained in any document incorporated by reference is accurate
as of any date other than the date of the document incorporated by reference. We
undertake no obligation to publicly update or revise such information, whether
as a result of new information, future events or any other reason.
2
PRIOR TO MAKING A DECISION ABOUT INVESTING IN OUR AR-ACACIA TECHNOLOGIES STOCK,
YOU SHOULD CAREFULLY CONSIDER THE SPECIFIC RISKS CONTAINED IN THE SECTION TITLED
"RISK FACTORS" BELOW, AND ANY APPLICABLE PROSPECTUS SUPPLEMENT, TOGETHER WITH
ALL OF THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS AND ANY PROSPECTUS
SUPPLEMENT OR APPEARING IN THE REGISTRATION STATEMENT OF WHICH THIS PROSPECTUS
IS A PART.
RISK FACTORS
AN INVESTMENT IN OUR AR-ACACIA TECHNOLOGIES STOCK INVOLVES A NUMBERHIGH
DEGREE OF RISKS.RISK. BEFORE MAKING A
DECISION TO PURCHASEINVESTING IN OUR SECURITIES,AR-ACACIA TECHNOLOGIES STOCK, YOU SHOULD
CAREFULLY CONSIDER THE SPECIFIC RISKS DETAILED IN THIS "RISK FACTORS" SECTION
AND ANY APPLICABLE PROSPECTUS SUPPLEMENT, TOGETHER WITH ALL OF THE RISKS DESCRIBEDOTHER
INFORMATION CONTAINED IN THIS PROSPECTUS.PROSPECTUS AND ANY PROSPECTUS SUPPLEMENT. IF ANY
OF THETHESE RISKS DISCUSSED IN THIS
PROSPECTUS ACTUALLY OCCUR, OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS AND FINANCIAL
CONDITION COULD BE MATERIALLY ADVERSELY AFFECTED. IF THIS WERE TO OCCUR,HARMED, THE
TRADING PRICE OF OUR SECURITIESAR-ACACIA TECHNOLOGIES STOCK COULD
DECLINE, SIGNIFICANTLY AND YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT.
GENERAL RISKS
THE CONTINUING WORLDWIDE ECONOMIC SLOWDOWN AND RELATED UNCERTAINTIES MAY
CONTINUE TO ADVERSELY IMPACT OUR REVENUES AND OPERATING RESULTS.
Slower economic activity, concerns about inflation, decreased consumer
confidence, reduced corporate profits and capital spending, adverse business
conditions and liquidity concerns in the technology and biotechnology and
related industries, the lingering effects of the war in Iraq, recent
international conflicts and the events of September 11, 2001 and other terrorist
and military activity have resulted in a continuing downturn in worldwide
economic conditions. We cannot predict the timing, strength and duration of any
economic recovery in our industries. These conditions make it extremely
difficult for us to accurately forecast and plan future business activities. We
cannot predict the timing, strength and duration of any economic recovery,
worldwide or in our markets. If such conditions continue or worsen, our
business, financial condition and results of operations will likely be
materially and adversely affected.
BECAUSE OUR BUSINESS OPERATIONS ARE SUBJECT TO MANY INHERENT AND UNCONTROLLABLE
RISKS, WE MAY NOT SUCCEED.
We have significant economic interests in our subsidiary companies. Our
business operations are subject to numerous risks, challenges, expenses and
uncertainties inherent in the establishment of new business enterprises. Many of
these risks and challenges are subject to outside influences over which we have
no control, including:
o our subsidiary companies' products and services face uncertain
market acceptance;
o technological advances may make our subsidiary companies'
products and services obsolete or less competitive;
o competition is intense in the industries in which our
subsidiaries do business;
o increases in operating costs, including costs for supplies,
personnel and equipment;
o the availability and cost of capital;
o general economic conditions; and
o governmental regulation that excessively restricts our
subsidiary companies' businesses.
We cannot assure you that our subsidiary companies will be able to
market any product or service on a large commercial scale, that our subsidiary
companies will ever achieve or maintain profitable operations or that they, or
we, will be able to remain in business.
WE HAVE A HISTORY OF LOSSES AND EXPECT TO INCUR ADDITIONAL LOSSES IN THE FUTURE.
We have sustained substantial losses since our inception resulting in
an accumulated deficit, as of September 30, 2003,2004, of $178.3$182.6 million on a
consolidated basis. We may never become profitable or if we do, we may never be
able to sustain profitability. We expect to incur significant research and
development, marketing, general and administrative and legal expenses. As a
result, we expect to incur significant losses for the foreseeable future.
2
OUR STOCK PRICEPRICES MAY BE VOLATILE, WHICH COULD RESULT IN SUBSTANTIAL LOSSES FOR
INVESTORS IN OUR SECURITIES.
The stock markets in general, and the markets for technology stocks in
particular, have experienced extreme volatility that has often been unrelated to
the operating performance of particular companies. These broad market
fluctuations may adversely affect the trading priceprices of our two classes of
common stock.
3
The market prices of our securities may also fluctuate significantly in
response to the following factors, some of which are beyond our control:
o variations in our quarterly operating results;
o changes in management's or securities analysts' estimates of
our financial performance;
o changes in market valuations of similar companies;
o announcements by us or our competitors of significant
contracts, acquisitions, strategic partnerships, joint
ventures, capital commitments, new products or product
enhancements;
o failure to complete significant transactions; and
o additions or departures of key personnel.
BECAUSE CERTAIN OF OUR SUBSIDIARY COMPANIES MAY NOT GENERATE ANY SIGNIFICANT
REVENUES, AND OPERATING RESULTS FROM OUR SUBSIDIARY COMPANIES MAY FLUCTUATE
SIGNIFICANTLY, OUR OWN OPERATING RESULTS MAY BE NEGATIVELY AFFECTED.
Our operating results may be materially impacted by the operating
results of our subsidiary companies. 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 our operating results are likely to vary significantly as a
result of a number of factors, including:
o the timing of new product introductions by each subsidiary
company;
o the stage of development of the business of each subsidiary
company;
o the technical feasibility of each subsidiary company's
technologies and techniques;
o the novelty of the technology owned by our subsidiary
companies;
o the accuracy, effectiveness and reliability of products
developed by our subsidiary companies;
o the level of product acceptance;
o the strength of each subsidiary company's intellectual
property rights;
o the ability of each subsidiary company to avoid infringing the
intellectual property rights of others;
o each subsidiary company's ability to exploit and commercialize
its technology;
o the volume and timing of orders received and product line
maturation;
o the impact of price competition; and
3
o each subsidiary company's ability to access distribution
channels.
Many of these factors are beyond our subsidiary companies' control. We
cannot provide any assurance that any subsidiary company will experience growth
in the future or be profitable on an operating basis in any future period.
IF WE, OR OUR SUBSIDIARIES, ENCOUNTER UNFORESEEN DIFFICULTIES AND CANNOT OBTAIN
ADDITIONAL FUNDING ON FAVORABLE TERMS, OUR BUSINESS MAY SUFFER.
As of September 30, 2003,2004, we had cash and short-term investments of
$53.6$57.0 million on our consolidated financial statements.
4
To date, our subsidiary companies havethe CombiMatrix group has relied primarily upon selling equity
securities, including sales to and loansas well as payments from us,strategic partners to generate the funds
needed to finance implementing their plansthe implementation of operations.the CombiMatrix group's business
strategies. To date, the Acacia Technologies group has relied primarily upon
selling of equity securities and payments from our V-chip technology licensees
(primarily in 2001) and Digital Media Transmission ("DMT(R)") technology
licensees (2003 to current) to generate the funds needed to finance the
operations of the Acacia Technologies group.
Our subsidiary 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 equity
interests.
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. Nevertheless, we cannot assure that additional funding will
be available on favorable terms, if at all. If we fail to obtain additional
funding when needed for our subsidiary companies and ourselves, we may not be
able to execute our business plans and our business may suffer.
BECAUSE WE HAVE A LIMITED OPERATING HISTORY, WE CANNOT ASSURE THAT OUR
OPERATIONS WILL BE PROFITABLE.
We commenced operations in 1993 and, accordingly, have a limited
operating history. In addition, certain of our subsidiary companies are in the
early stages of development and and/or operations and have limited operating
histories. We also recently acquired eleven (11) new subsidiaries, and although
we conducted customary due diligence before completing the acquisition, we
cannot assure that our projections for profitability will be accurate because of
our limited history with these new companies. You should consider our prospects
in light of the risks, 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 operations will be profitable
or that we will generate sufficient revenues to meet our expenditures and
support our activities.
DuringDespite net operating income of $171,000 and net income of $844,000 for
the nine months ended September 30, 2003 and the fiscal year
ended December 31, 2002,2004, we had operatinghave sustained substantial losses
since our inception resulting in an accumulated deficit as of approximately $20.0September 30,
2004, of $182.6 million and $80.3 million, respectively, and net losses of approximately $19.3 million
and $59.0 million, respectively.on a consolidated basis. If we continue to incur
operating losses in future periods, we may not have enough money to expand our
business and our subsidiary companies' businesses in the future.
OUR FUTURE SUCCESS DEPENDS IN PART ON THE CONTINUED SERVICE OF OUR KEY
EXECUTIVES, AND THE LOSS OF ANY OF THESE KEY EXECUTIVES COULD ADVERSELY AFFECT
OUR BUSINESS AND OPERATING RESULTS.
Our success depends in part upon the continued service of our executive
officers, particularly Paul R. Ryan, our Chairman and Chief Executive Officer,
Robert L. Harris, II, our President, and Dr. Amit Kumar, President and Chief
Executive Officer of CombiMatrix Corporation. Neither Messrs. Ryan or Harris nor
Dr. Kumar has an employment or non-competition agreement with us. The loss of
any of these key individuals would be detrimental to our ongoing operations and
prospects.
OUR FUTURE SUCCESS AND THE SUCCESS OF OUR SUBSIDIARY COMPANIES DEPENDS ON OUR
AND THEIR ABILITIES TO ATTRACT AND RETAIN QUALIFIED TECHNICAL PERSONNEL AND
QUALIFIED MANAGEMENT AND MARKETING TEAMS. FAILURE TO DO SO WOULD HARM OUR
ONGOING OPERATIONS AND BUSINESS PROSPECTS.
We believe that our success will depend on continued employment by us
and our subsidiary companies of senior management and key technical personnel.
Our subsidiary companies will need to attract, retain and motivate qualified
management personnel to execute their current business plans and to successfully
develop commercially viable products and 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.
4
Each of our subsidiary companies has key executives upon whom we
significantly depend, and the success of those subsidiary companies depends on
their ability to retain and motivate those individuals.
5
FAILURE TO EFFECTIVELY MANAGE OUR GROWTH COULD PLACE STRAINS ON OUR MANAGERIAL,
OPERATIONAL AND FINANCIAL RESOURCES AND COULD ADVERSELY AFFECT OUR BUSINESS AND
OPERATING RESULTS.
Our growth has placed, and is expected to continue to place, a strain
on our managerial, operational and financial resources. Further, as our
subsidiary companies' businesses grow, we will be required to manage multiple
relationships. Any further growth by us or our subsidiary companies or an
increase in the number of our strategic relationships will increase this strain
on our 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 subsidiaries.
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.
We may also pay for interests in additional subsidiary 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.
DELAWARE LAW AND OUR CHARTER DOCUMENTS CONTAIN PROVISIONS THAT COULD DISCOURAGE
OR PREVENT A POTENTIAL TAKEOVER OF ACACIA RESEARCH CORPORATION 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 Acacia Research Corporationour company by means of a
tender offer, proxy contest or otherwise, and the removal of incumbent officers
and directors. These provisions include:
o 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;
o amendment of our bylaws by the stockholders requires a
two-thirds approval of the outstanding shares;
o the authorization in our certificate of incorporation of
undesignated preferred stock, which could be issued without
stockholder approval in a manner designed to prevent or
discourage a takeover;
o 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 of directors or to vote to repeal any of
the anti-takeover provisions contained in our certificate of
incorporation and bylaws; and
o 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 our board of
directors.
Such potential obstacles to a takeover could adversely affect the
ability of our stockholders to receive a premium price for their stock in the
event another company wants to acquire us.
5UNDER NEW REGULATIONS REQUIRED BY THE SARBANES-OXLEY ACT OF 2002, AN ADVERSE
OPINION ON INTERNAL CONTROLS COULD BE ISSUED BY OUR AUDITORS, AND THIS COULD
HAVE A NEGATIVE IMPACT ON OUR STOCK PRICE.
If we are unable to complete our assessment as to the adequacy of our
internal control over financial reporting as of December 31, 2004 and for future
year-ends as required by Section 404 of the Sarbanes-Oxley Act of 2002, or if
such assessment is completed and material weaknesses are identified and
reported, investors could lose confidence in the reliability of our financial
statements, which could result in a decrease in the value of our common stock.
As directed by Section 404 of the Sarbanes-Oxley Act of 2002, the Securities
6
and Exchange Commission adopted rules requiring public companies to include a
report of management on our internal control over financial reporting in their
annual reports on Form 10-K. This report is required to contain an assessment by
management of the effectiveness of such company's internal controls over
financial reporting. In addition, the independent registered public accounting
firm auditing a public company's financial statements must also attest to and
report on management's assessment of the effectiveness of our internal controls
over financial reporting as well as the operating effectiveness of our internal
controls. While we have expended significant resources in developing the
necessary documentation and testing procedures required by Section 404, there is
a risk at each year end that we may fail to have an effectively designed and
operating system of internal control, or that we may not effectively complete
our assessment, or if our internal controls are not designed or operating
effectively, our independent registered public accounting firm may either
disclaim an opinion as it relates to management's assessment of the
effectiveness of our internal controls or may issue an adverse opinion on the
effectiveness of our internal controls. This could result in an adverse reaction
in the financial markets due to a loss of confidence in the reliability of our
financial statements, which could cause the market price of our common stock to
decline and make it more difficult for us to finance our operations.
WE MAY INCUR INCREASED COSTS AS A RESULT OF RECENTLY ENACTED AND PROPOSED
CHANGES IN LAWS AND REGULATIONS RELATING TO CORPORATE GOVERNANCE MATTERS
Recently enacted and proposed changes in the laws and regulations
affecting public companies, including the provisions of the Sarbanes-Oxley Act
of 2002 and rules adopted or proposed by the Securities and Exchange Commission
and by the American Stock Exchange, will result in increased costs to us as we
evaluate the implications of any new rules and respond to their requirements.
New rules could make it more difficult or more costly for us to obtain certain
types of insurance, including director and officer liability insurance, and we
may be forced to accept reduced policy limits and coverage or incur
substantially higher costs to obtain the same or similar coverage. The impact of
these events could also make it more difficult for us to attract and retain
qualified persons to serve on our board of directors, our board committees or as
executive officers. We cannot predict or estimate the amount of the additional
costs we may incur or the timing of such costs to comply with any new rules and
regulations.
RISKS RELATING TO THE ACACIA TECHNOLOGIES GROUP
The risk factors beginning on this page discuss risks relating to the
Acacia Technologies group. Because each holder of AR-Acacia Technologies stock,
is a holder of the common stock of one company, Acacia Research Corporation, the
risks associated with the CombiMatrix group could affect the AR-Acacia
Technologies stock. As such, we also urge you to read carefully the section
"Risks Relating to the CombiMatrix Group" below.
THE ACACIA TECHNOLOGIES GROUP HAS INCURRED LOSSES IN THE PAST AND EXPECTS TO
INCUR ADDITIONAL LOSSES IN THE FUTURE.
The Acacia Technologies group has sustained substantial losses in the
past. We expect the Acacia Technologies group to incur significant legal,
marketing, general and administrative expenses. As a result, we expect the
Acacia Technologies group to incur significant losses for the foreseeable
future.
THE V-CHIP TECHNOLOGY PATENT HELD BY THE ACACIA TECHNOLOGIES GROUP EXPIRED IN
JULY 2003, AND IF THE GROUP DOES NOT DEVELOP OTHER RECURRING SOURCES OF REVENUE,
ITS FINANCIAL CONDITION WILL BE ADVERSELY IMPACTED.
The Acacia Technologies group, and Acacia Research Corporation as a
whole, has generated substantially all of its revenues from licensing the V-chip
technology to television manufacturers. The Acacia Technologies group's patent
on the V-chip technology expired in July 2003. In August 2004, the U.S. Court of
Appeals for the Federal Circuit affirmed the September 2002 U.S. District Court
for the District of Connecticut ruling that television manufacturers named in
the Acacia Technologies group's V-chip patent infringement lawsuit do not
infringe the Acacia Technologies group's V-chip patent. The Acacia Technologies
group is beginning to market its digital media transmission technology and its
Internet Access Redirection technology and is developing other technologies and
products. We also recently acquired eleven (11) new subsidiaries, and although
we conducted customary due diligence before completing the acquisition, we
cannot assure that our projections for profitability will be accurate because of
our limited history with these new companies. You should consider our prospects
in light of the risks, 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 operations will be profitable
or that we will generate sufficient revenues to meet our expenditures and
support our activities.
7
THE ACACIA TECHNOLOGIES GROUP MAY FAIL TO MEET MARKET EXPECTATIONS BECAUSE OF
FLUCTUATIONS IN ITS QUARTERLY OPERATING RESULTS, WHICH COULD CAUSE THE PRICE OF
AR-ACACIA TECHNOLOGIES STOCK TO DECLINE.
The Acacia Technologies group's revenues and operating results have
fluctuated in the past and may continue to fluctuate significantly from quarter
to quarter in the future. It is possible that in future periods the Acacia
Technologies group's revenues could fall below the expectations of securities
analysts or investors, which could cause the market price of our AR-Acacia
Technologies stock to decline. The following are among the factors that could
cause the Acacia Technologies group's operating results to fluctuate
significantly from period to period:
o its unpredictable revenue sources, as described below and in
our most recent annual report incorporated by reference on
page 25 below;
o costs related to acquisitions, alliances, licenses and other
efforts to expand its operations;
o the timing of payments under the terms of any customer or
license agreements into which the Acacia Technologies group
may enter; and
o expenses related to, and the results of, patent filings and
other proceedings relating to intellectual property rights.
THE ACACIA TECHNOLOGIES GROUP'S REVENUES WILL BE UNPREDICTABLE, AND THIS MAY
HARM ITS FINANCIAL CONDITION.
The amount and timing of revenues that the Acacia Technologies group
may realize from its business will be unpredictable because:
o whether the Acacia Technologies group generates revenues
depends, in part, on the success of its licensing efforts;
o its cycle of obtaining licensees may be lengthy; and
o it cannot be sure as to the timing of receipt of payment.
As a result, the Acacia Technologies group's revenues may vary
significantly from quarter to quarter, which could make its business difficult
to manage and cause its quarterly results to be below market expectations. If
this happens, the price of our AR-Acacia Technologies stock may decline
significantly.
TECHNOLOGY COMPANY STOCK PRICES ARE ESPECIALLY VOLATILE, AND THIS VOLATILITY MAY
DEPRESS THE PRICE OF OUR AR-ACACIA TECHNOLOGIES STOCK.
The stock market has experienced significant price and volume
fluctuations, and the market prices of technology companies have been highly
volatile. We believe that various factors may cause the market price of our
AR-Acacia Technologies stock to fluctuate, perhaps substantially, including,
among others, announcements of:
o its or its competitors' technological innovations;
o developments or disputes concerning patents or proprietary
rights;
o developments in relationships with licensees;
o its failure to meet or exceed securities analysts'
expectations of its financial results; or
o a change in financial estimates or securities analysts'
recommendations.
8
In the past, companies that have experienced volatility in the market
price of their stock have been the objects of securities class action
litigation. If our AR-Acacia Technologies stock was the object of securities
class action litigation, it could result in substantial costs and a diversion of
management's attention and resources, which could materially harm the business
and financial results of the Acacia Technologies group.
THE ACACIA TECHNOLOGIES GROUP FACES INTENSE COMPETITION, AND WE CANNOT ASSURE
YOU THAT IT WILL BE SUCCESSFUL.
Although the Acacia Technologies group believes that Acacia Media
Technologies, Acacia Internet Access Corporation and the new 11 subsidiaries
acquired from Global Patent Services have marketing and licensing rights to
enforceable patents and other intellectual property, the Acacia Technologies
group cannot assure you that other companies will not develop competing
technologies that offer better or less expensive alternatives to those offered
by our subsidiaries. In the event a competing technology emerges, the Acacia
Technologies group would expect substantial additional competition.
THE MARKETS SERVED BY THE ACACIA TECHNOLOGIES GROUP ARE SUBJECT TO RAPID
TECHNOLOGICAL CHANGE, AND IF THE ACACIA TECHNOLOGIES GROUP IS UNABLE TO DEVELOP
AND INTRODUCE NEW PRODUCTS, ITS REVENUES COULD STOP GROWING OR COULD DECLINE.
The markets served by the Acacia Technologies group frequently undergo
transitions in which products rapidly incorporate new features and performance
standards on an industry-wide basis. Products for communications applications,
high-speed computing applications, as well as other applications covered by the
Acacia Technologies group's intellectual property, are based on continually
evolving industry standards. A significant portion of the Acacia Technologies
group's revenues in recent periods has been, and is expected to continue to be,
derived from licensing of technologies based on existing transmission standards.
The Acacia Technologies group's ability to compete in the future will, however,
depend on its ability to identify and ensure compliance with evolving industry
standards.
THE ACACIA TECHNOLOGIES GROUP'S SUCCESS IS BASED ON ITS ABILITY TO PROTECT ITS
PROPRIETARY TECHNOLOGY AND ITS ABILITY TO DEFEND ITSELF AGAINST INFRINGEMENT
CLAIMS.
The success of the Acacia Technologies group relies, to varying
degrees, on its proprietary rights and their protection or exclusivity. Although
reasonable efforts will be taken to protect the Acacia Technologies group's
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. Accordingly, if we are unsuccessful with
litigation to protect our intellectual property rights, the future revenues of
the Acacia Technologies group could be adversely affected.
From time to time, the Acacia Technologies group may be subject to
third-party claims in the ordinary course of business, including claims of
alleged infringement of proprietary rights. Any such claims may harm the Acacia
Technologies group by subjecting it to significant liability for damage and
invalidating its proprietary rights. These types of claims, with or without
merit, could subject the Acacia Technologies group to costly litigation and
diversion of its technical and management personnel. The Acacia Technologies
group depends largely on the protection of enforceable patent rights. The Acacia
Technologies group has applications on file with the U.S. Patent and Trademark
Office seeking patents on its core technologies and has patents or rights to
patents that have been issued. We cannot assure you that the pending patent
applications of the Acacia Technologies group will be issued, that third parties
will not violate, or attempt to invalidate these intellectual property rights,
or that certain aspects of those intellectual property will not be
reverse-engineered by third parties without violating the patent rights of the
Acacia Technologies group.
For Acacia Media Technologies, Soundview Technologies, Acacia Internet
Access Corporation, and our 11 new subsidiaries, proprietary rights constitute
their only significant assets. The Acacia Technologies group also owns licenses
from third parties, and it is possible that it could become subject to
infringement actions based upon such licenses. The Acacia Technologies group
generally obtains representations as to the origin and ownership of such
licensed content. However, this may not adequately protect the Acacia
Technologies group. The Acacia Technologies group enters into confidentiality
agreements with third parties and generally limits access to information
relating to its proprietary rights. Despite these precautions, third parties may
be able to gain access to and use the Acacia Technologies group's proprietary
rights to develop competing technologies and products with similar or better
features and prices. Any substantial unauthorized use of the Acacia Technologies
group's proprietary rights could materially and adversely affect its business
and operational results.
9
RISKS RELATING TO THE COMBIMATRIX GROUP
The risk factors beginning on this page discuss risks relating to the
CombiMatrix group. Because each holder of AR- CombiMatrixAR-CombiMatrix stock is also a holder
of the common stock of one company, Acacia Research Corporation, the risks
associated with the Acacia Technologies group could affect our AR-CombiMatrix
stock. As such, we also urge you to read carefully the section "Risks Relating
to the Acacia Technologies Group" below.above.
THE COMBIMATRIX GROUP HAS A HISTORY OF LOSSES AND EXPECTS TO INCUR ADDITIONAL
LOSSES IN THE FUTURE.
The CombiMatrix group has sustained substantial losses since its
inception. The CombiMatrix group may never become profitable, or if it does, it
may never be able to sustain profitability. We expect the CombiMatrix group to
incur significant research and development, marketing, general and
administrative expenses. As a result, we expect the CombiMatrix group to incur
significant losses for the foreseeable future.
THE COMBIMATRIX GROUP MAY FAIL TO MEET MARKET EXPECTATIONS BECAUSE OF
FLUCTUATIONS IN ITS QUARTERLY OPERATING RESULTS, WHICH COULD CAUSE ITS STOCK
PRICE TO DECLINE.
The CombiMatrix group's revenues and operating results have fluctuated
in the past and may continue to fluctuate significantly from quarter to quarter
in the future. It is possible that in future periods the CombiMatrix group's
revenues could fall below the expectations of securities analysts or investors,
which could cause the market price of our AR-CombiMatrix stock to decline. The
following are among the factors that could cause the CombiMatrix group's
operating results to fluctuate significantly from period to period:
o its unpredictable revenue sources, as described below and in
our most recent annual report incorporated by reference on
page 25 below;
o the nature, pricing and timing of the CombiMatrix group's and
its competitors' products;
o changes in the CombiMatrix group's and its competitors'
research and development budgets;
o expenses related to, and the CombiMatrix group's ability to
comply with, governmental regulations of its products and
processes; and
o expenses related to, and the results of, patent filings and
other proceedings relating to intellectual property rights.
The CombiMatrix group anticipates significant fixed expenses due in
part to its need to continue to invest in product development. It may be unable
to adjust its expenditures if revenues in a particular period fail to meet its
expectations, which would harm its operating results for that period. As a
result of these fluctuations, the CombiMatrix group believes that
period-to-period comparisons of the CombiMatrix group's financial results will
not necessarily be meaningful, and you should not rely on these comparisons as
an indication of its future performance.
THE COMBIMATRIX GROUP'S REVENUES WILL BE UNPREDICTABLE, AND THIS MAY HARM ITS
FINANCIAL CONDITION.
The amount and timing of revenues that the CombiMatrix group may
realize from its business will be unpredictable because:
o whether products are commercialized and generate revenues
depends, in part, on the efforts and timing of its potential
customers;
o its sales cycles may be lengthy; and
o it cannot be sure as to the timing of receipt of payment for
its products.
610
As a result, the CombiMatrix group's revenues may vary significantly
from quarter to quarter, which could make its business difficult to manage and
cause its quarterly results to be below market expectations. If this happens,
the price of the CombiMatrix group's common stock may decline significantly.
TECHNOLOGY COMPANY STOCK PRICES ARE ESPECIALLY VOLATILE, AND THIS VOLATILITY MAY
DEPRESS THE PRICE OF OUR AR-COMBIMATRIX STOCK.
The stock market has experienced significant price and volume
fluctuations, and the market prices of technology companies, particularly
biotechnology companies, has been highly volatile. We believe that various
factors may cause the market price of our AR-CombiMatrix stock to fluctuate,
perhaps substantially, including, among others, announcements of:
o its or its competitors' technological innovations;
o developments or disputes concerning patents or proprietary
rights;
o supply, manufacturing or distribution disruptions or other
similar problems;
o proposed laws regulating participants in the biotechnology
industry;
o developments in relationships with collaborative partners or
customers;
o its failure to meet or exceed securities analysts'
expectations of its financial results; or
o a change in financial estimates or securities analysts'
recommendations.
In the past, companies that have experienced volatility in the market
price of their stock have been the objects of securities class action
litigation. If our AR-CombiMatrix stock was the object of securities class
action litigation, it could result in substantial costs and a diversion of
management's attention and resources, which could materially harm the business
and financial results of the CombiMatrix group.
THE COMBIMATRIX GROUP IS DEPLOYING NEW AND UNPROVEN TECHNOLOGIES WHICH MAKES
EVALUATION OF ITS BUSINESS AND PROSPECTS DIFFICULT, AND IT MAY BE FORCED TO
CEASE OPERATIONS IF IT DOES NOT DEVELOP COMMERCIALLY SUCCESSFUL PRODUCTS.
The CombiMatrix group has not proven its ability to commercialize
products on a large scale. In order to successfully commercialize products on a
large scale, it will have to make significant investments, including investments
in research and development and testing, to demonstrate their technical benefits
and cost-effectiveness. Problems frequently encountered in connection with the
commercialization of products using new and unproven technologies might limit
its ability to develop and commercialize its products. For example, the
CombiMatrix group's products may be found to be ineffective, unreliable or
otherwise unsatisfactory to potential customers. The CombiMatrix group may
experience unforeseen technical complications in the processes it uses to
develop, manufacture, customize or receive orders for its products. These
complications could materially delay or limit the use of products the
CombiMatrix group attempts to commercialize, substantially increase the
anticipated cost of its products or prevent it from implementing its processes
at appropriate quality and scale levels, thereby causing its business to suffer.
THE COMBIMATRIX GROUP MAY NEED TO RAISE ADDITIONAL CAPITAL IN THE FUTURE, AND IF
ADDITIONAL CAPITAL IS NOT AVAILABLE ON ACCEPTABLE TERMS, THE COMBIMATRIX GROUP
MAY HAVE TO CURTAIL OR CEASE OPERATIONS.
The CombiMatrix group's future capital requirements will be substantial
and will depend on many factors including how quickly it commercializes its
products, the progress and scope of its collaborative and independent research
and development projects, the filing, prosecution, enforcement and defense of
patent claims and the need to obtain regulatory approval for certain products in
the United States or elsewhere. Changes may occur that would cause the
CombiMatrix group's available capital resources to be consumed significantly
sooner than it expects.
711
The CombiMatrix group may be unable to raise sufficient additional
capital on favorable terms or at all. If it fails to do so, it may have to
curtail or cease operations or enter into agreements requiring it to relinquish
rights to certain technologies, products or markets because it will not have the
capital necessary to exploit them.
IF THE COMBIMATRIX GROUP DOES NOT ENTER INTO SUCCESSFUL PARTNERSHIPS AND
COLLABORATIONS WITH OTHER COMPANIES, IT MAY NOT BE ABLE TO FULLY DEVELOP ITS
TECHNOLOGIES OR PRODUCTS, AND ITS BUSINESS WOULD BE HARMED.
Since the CombiMatrix group does not possess all of the resources
necessary to develop and commercialize products that may result from its
technologies on a mass scale, it will need either to grow its sales, marketing
and support group or make appropriate arrangements with strategic partners to
market, sell and support its products. The CombiMatrix group believes that it
will have to enter into additional strategic partnerships to develop and
commercialize future products. If it does not enter into adequate agreements, or
if its existing arrangements or future agreements are not successful, its
ability to develop and commercialize products will be impacted negatively, and
its revenues will be adversely affected.
The current business of the CombiMatrix group is substantially
dependent on its existing arrangement with Roche. The CombiMatrix group
currently relies upon payments by Roche for a majority of its future revenues
and expends a majority of its resources toward fulfilling its contractual
obligations to Roche. Roche's primary service to the CombiMatrix group is to
distribute and proliferate its technology platform. If the CombiMatrix group
were to lose its relationship with Roche, the CombiMatrix group would be
required to establish a distribution agreement with another partner or
distribute its technology platform itself. This could prove difficult,
time-consuming and expensive, and the CombiMatrix group may not be successful in
achieving this objective.
THE COMBIMATRIX GROUP HAS LIMITED EXPERIENCE COMMERCIALLY MANUFACTURING,
MARKETING OR SELLING ANY OF ITS POTENTIAL PRODUCTS, AND UNLESS IT DEVELOPS THESE
CAPABILITIES, IT MAY NOT BE SUCCESSFUL.
Even if the CombiMatrix group is able to develop its products for
commercial release on a large-scale, it has limited experience in manufacturing
its products in the volumes that will be necessary for it to achieve commercial
sales and in marketing or selling its products to potential customers. We cannot
assure you that the CombiMatrix group will be able to commercially produce its
products on a timely basis, in sufficient quantities or on commercially
reasonable terms.
THE COMBIMATRIX GROUP FACES INTENSE COMPETITION AND WE CANNOT ASSURE YOU THAT IT
WILL BE SUCCESSFUL.
The CombiMatrix group expects to compete with companies that design,
manufacture and market instruments for analysis of genetic variation and
function and other applications using established sequential and parallel
testing technologies. The CombiMatrix group is also aware of other biotechnology
companies that have or are developing testing technologies for the SNP
genotyping, gene expression profiling and proteomic markets. The CombiMatrix
group anticipates that it will face increased competition in the future as new
companies enter the market with new technologies and its competitors improve
their current products.
The markets for the CombiMatrix group's products are characterized by
rapidly changing technology, evolving industry standards, changes in customer
needs, emerging competition and new product introductions. One or more of the
CombiMatrix group's competitors may offer technology superior to those of the
CombiMatrix group and render its technology obsolete or uneconomical. Many of
its competitors have greater financial and personnel resources and more
experience in marketing, sales and research and development than it has. Some of
its competitors currently offer arrays with greater density than it does and
have rights to intellectual property, such as genomic information or proprietary
technology, which provides them with a competitive advantage. If the CombiMatrix
group were not able to compete successfully, its business and financial
condition would be materially harmed.
8
IF THE COMBIMATRIX GROUP'S NEW AND UNPROVEN TECHNOLOGY IS NOT USED BY
RESEARCHERS IN THE PHARMACEUTICAL, BIOTECHNOLOGY AND ACADEMIC COMMUNITIES, ITS
BUSINESS WILL SUFFER.
The CombiMatrix group's products may not gain market acceptance. In
that event, it is unlikely that its business will succeed. Biotechnology and
pharmaceutical companies and academic research centers have historically
analyzed genetic variation and function using a variety of technologies, and
many of them have made significant capital investments in existing technologies.
Compared to existing technologies, the CombiMatrix group's technologies are new
and unproven. In order to be successful, its products must meet the commercial
requirements of the biotechnology, pharmaceutical and academic communities as
tools for the large-scale analysis of genetic variation and function. Market
acceptance will depend on many factors, including:
o the development of a market for its tools for the analysis of
genetic variation and function, the study of proteins and
other purposes;
o the benefits and cost-effectiveness of its products relative
to others available in the market;
12
o its ability to manufacture products in sufficient quantities
with acceptable quality and reliability and at an acceptable
cost;
o its ability to develop and market additional products and
enhancements to existing products that are responsive to the
changing needs of its customers;
o the willingness and ability of customers to adopt new
technologies requiring capital investments or the reluctance
of customers to change technologies in which they have made a
significant investment; and
o the willingness of customers to transmit test data and permit
the CombiMatrix group to transmit test results over the
Internet, which will be a necessary component of its product
and services packages unless customers purchase or license its
equipment for use in their own facilities.
IF THE MARKET FOR ANALYSIS OF GENOMIC INFORMATION DOES NOT DEVELOP OR IF GENOMIC
INFORMATION IS NOT AVAILABLE TO THE COMBIMATRIX GROUP'S POTENTIAL CUSTOMERS, ITS
BUSINESS WILL NOT SUCCEED.
The CombiMatrix group is designing its technology primarily for
applications in the biotechnology, pharmaceutical and academic communities. The
usefulness of the CombiMatrix group's technology depends in part upon the
availability of genomic data. The CombiMatrix group is initially focusing on
markets for analysis of genetic variation and function, namely SNP genotyping
and gene expression
profiling. These markets are new and emerging, and they may not develop as the
CombiMatrix group anticipates, or at all. Also, researchers may not seek or be
able to convert raw genomic data into medically valuable information through the
analysis of genetic variation and function. If genomic data is not available for
use by the CombiMatrix group's customers or if its target markets do not emerge
in a timely manner, or at all, demand for its products will not develop as it
expects, and it may never become profitable.
THE COMBIMATRIX GROUP'S FUTURE SUCCESS DEPENDS ON THE CONTINUED SERVICE OF ITS
ENGINEERING, TECHNICAL AND KEY MANAGEMENT PERSONNEL AND ITS ABILITY TO IDENTIFY,
HIRE AND RETAIN ADDITIONAL ENGINEERING, TECHNICAL AND KEY MANAGEMENT PERSONNEL.
There is intense competition for qualified personnel in the CombiMatrix
group's industry, particularly for engineers and senior level management. Loss
of the services of, or failure to recruit, engineers or other technical and key
management personnel could be significantly detrimental to the group and could
adversely affect its business and operating results. The CombiMatrix group may
not be able to continue to attract and retain engineers or other qualified
personnel necessary for the development of its products and business or to
replace engineers or other qualified personnel who may leave the group in the
future. The CombiMatrix group's anticipated growth is expected to place
increased demands on its resources and likely will require the addition of new
management personnel.
9
THE EXPANSION OF THE COMBIMATRIX GROUP'S PRODUCT LINES MAY SUBJECT IT TO
REGULATION BY THE UNITED STATES FOOD AND DRUG ADMINISTRATION AND FOREIGN
REGULATORY AUTHORITIES, WHICH COULD PREVENT OR DELAY ITS INTRODUCTION OF NEW
PRODUCTS.
If the CombiMatrix group manufactures, markets or sells any products
for any regulated clinical or diagnostic applications, those products will be
subject to extensive governmental regulation as medical devices in the United
States by the FDA and in other countries by corresponding foreign regulatory
authorities. The process of obtaining and maintaining required regulatory
clearances and approvals is lengthy, expensive and uncertain. Products that
CombiMatrix Corporation manufactures, markets or sells for research purposes
only are not subject to governmental regulations as medical devices or as
analyte specific reagents to aid in disease diagnosis. We believe that the
CombiMatrix group's success will depend upon commercial sales of improved
versions of products, certain of which cannot be marketed in the United States
and other regulated markets unless and until the CombiMatrix group obtains
clearance or approval from the FDA and its foreign counterparts, as the case may
be. Delays or failures in receiving these approvals may limit our ability to
benefit from new CombiMatrix group products.
AS THE COMBIMATRIX GROUP'S OPERATIONS EXPAND, ITS COSTS TO COMPLY WITH
ENVIRONMENTAL LAWS AND REGULATIONS WILL INCREASE, AND FAILURE TO COMPLY WITH
THESE LAWS AND REGULATIONS COULD HARM ITS FINANCIAL RESULTS.
13
The CombiMatrix group's operations involve the use, transportation,
storage and disposal of hazardous substances, and as a result it is subject to
environmental and health and safety laws and regulations. As the CombiMatrix
group expands its operations, its use of hazardous substances will increase and
lead to additional and more stringent requirements. The cost to comply with
these and any future environmental and health and safety regulations could be
substantial. In addition, the CombiMatrix group's failure to comply with laws
and regulations, and any releases of hazardous substances into the environment
or at its disposal sites, could expose the CombiMatrix group to substantial
liability in the form of fines, penalties, remediation costs and other damages,
or could lead to a curtailment or shut down of its operations. These types of
events, if they occur, would adversely impact the group's financial results.
THE COMBIMATRIX GROUP'S BUSINESS DEPENDS ON ISSUED AND PENDING PATENTS, AND THE
LOSS OF ANY PATENTS OR THE GROUP'S FAILURE TO SECURE THE ISSUANCE OF PATENTS
COVERING ELEMENTS OF ITS BUSINESS PROCESSES WOULD MATERIALLY HARM ITS BUSINESS
AND FINANCIAL CONDITION.
The CombiMatrix group's success depends on its ability to protect and
exploit its intellectual property. The CombiMatrix group currently has twofour
patents issued in the United States, one patentfour patents issued in Europe and more than
4459 patent
applications pending in the United States, Europe and elsewhere. The patent
application process before the United States Patent and Trademark Office and
other similar agencies in other countries is initially confidential in nature.
Patents that are filed outside the United States, however, are published
approximately eighteen months after filing. The CombiMatrix group cannot
determine in a timely manner whether patent applications covering technology
that competes with its technology have been filed in the United States or other
foreign countries or which, if any, will ultimately issue or be granted as
enforceable patents. Some of the CombiMatrix group's patent applications may
claim compositions, methods or uses that may also be claimed in patent
applications filed by others. In some or all of these applications, a
determination of priority of inventorship may need to be decided in a proceeding
before the United States Patent and Trademark Office or a foreign regulatory
body or a court. If the CombiMatrix group is unsuccessful in these proceedings,
it could be blocked from further developing, commercializing or selling
products. Regardless of the ultimate outcome, this process is time-consuming and
expensive.
ANY INABILITY TO ADEQUATELY PROTECT THE COMBIMATRIX GROUP'S PROPRIETARY
TECHNOLOGIES COULD MATERIALLY HARM THE COMBIMATRIX GROUP'S COMPETITIVE POSITION
AND FINANCIAL RESULTS.
If the CombiMatrix group does not protect its intellectual property
adequately, competitors may be able to use its technologies and erode any
competitive advantage that it may have. The laws of some foreign countries do
not protect proprietary rights to the same extent as the laws of the United
States, and many companies have encountered significant problems in protecting
their proprietary rights abroad. These problems can be caused by the absence of
rules and methods for defending intellectual property rights.
10
The patent positions of companies developing tools for the
biotechnology, pharmaceutical and academic communities, including the
CombiMatrix group's patent position, generally are uncertain and involve complex
legal and factual questions. The CombiMatrix group will be able to protect its
proprietary rights from unauthorized use by third parties only to the extent
that its proprietary technologies are covered by valid and enforceable patents
or are effectively maintained as trade secrets. The CombiMatrix group's existing
patents and any future issued or granted patents it obtains may not be
sufficiently broad in scope to prevent others from practicing its technologies
or from developing competing products. There also is a risk that others may
independently develop similar or alternative technologies or designs around the
CombiMatrix group's patented technologies. In addition, others may oppose or
invalidate its patents, or its patents may fail to provide it with any
competitive advantage. Enforcing the CombiMatrix group's intellectual property
rights may be difficult, costly and time-consuming and ultimately may not be
successful.
The CombiMatrix group also relies upon trade secret protection for its
confidential and proprietary information. While it has taken security measures
to protect its proprietary information, these measures may not provide adequate
protection for its trade secrets or other proprietary information. The
CombiMatrix group seeks to protect its proprietary information by entering into
confidentiality and invention disclosure and transfer agreements with employees,
collaborators and consultants. Nevertheless, employees, collaborators or
consultants may still disclose its proprietary information, and the CombiMatrix
group may not be able to meaningfully protect its trade secrets. In addition,
others may independently develop substantially equivalent proprietary
information or techniques or otherwise gain access to its trade secrets.
14
ANY LITIGATION TO PROTECT THE COMBIMATRIX GROUP'S INTELLECTUAL PROPERTY, OR ANY
THIRD-PARTY CLAIMS OF INFRINGEMENT, COULD DIVERT SUBSTANTIAL TIME AND MONEY FROM
THE COMBIMATRIX GROUP'S BUSINESS AND COULD SHUT DOWN SOME OF ITS OPERATIONS.
The CombiMatrix group's commercial success depends in part on its
non-infringement of the patents or proprietary rights of third parties. Many
companies developing tools for the biotechnology and pharmaceutical industries
use litigation aggressively as a strategy to protect and expand the scope of
their intellectual property rights. Accordingly, third parties may assert that
the CombiMatrix group is employing their proprietary technology without
authorization. In addition, third parties may claim that use of the CombiMatrix
group's technologies infringes their current or future patents. The CombiMatrix
group could incur substantial costs and the attention of its management and
technical personnel could be diverted while defending ourselves against any of
these claims. The CombiMatrix group may incur the same liabilities in enforcing
its patents against others. The CombiMatrix group has not made any provision in
its financial plans for potential intellectual property related litigation, and
it may not be able to pursue litigation as aggressively as competitors with
substantially greater financial resources.
If parties making infringement claims against the CombiMatrix group are
successful, they may be able to obtain injunctive or other equitable relief,
which effectively could block the CombiMatrix group's ability to further
develop, commercialize and sell products, and could result in the award of
substantial damages against it. If the CombiMatrix group is unsuccessful in
protecting and expanding the scope of its intellectual property rights, its
competitors may be able to develop, commercialize and sell products that compete
with it using similar technologies or obtain patents that could effectively
block its ability to further develop, commercialize and sell its products. In
the event of a successful claim of infringement against the CombiMatrix group,
we may be required to pay substantial damages and either discontinue those
aspects of its business involving the technology upon which it infringed or
obtain one or more licenses from third parties. While the CombiMatrix group may
license additional technology in the future, it may not be able to obtain these
licenses at a reasonable cost, or at all. In that event, it could encounter
delays in product introductions while it attempts to develop alternative methods
or products, which may not be successful. Defense of any lawsuit or failure to
obtain any of these licenses could prevent it from commercializing available
products.
11
RISKS RELATING TO THE ACACIA TECHNOLOGIES GROUP
The risk factors beginning on this page discuss risks relating to the
Acacia Technologies group. Because each holder of AR-Acacia Technologies stock
is a holder of the common stock of one company, Acacia Research Corporation, the
risks associated with the CombiMatrix group could affect the AR-Acacia
Technologies stock. As such, we also urge you to read carefully the section
"Risks Relating to the CombiMatrix Group" above.
THE ACACIA TECHNOLOGIES GROUP HAS INCURRED LOSSES IN THE PAST AND EXPECTS TO
INCUR ADDITIONAL LOSSES IN THE FUTURE.
The Acacia Technologies group has sustained substantial losses in the
past. We expect the Acacia Technologies group to incur significant research and
development, marketing, general and administrative expenses. As a result, we
expect the Acacia Technologies group to incur significant losses for the
foreseeable future.
THE V-CHIP TECHNOLOGY PATENT HELD BY THE ACACIA TECHNOLOGIES GROUP EXPIRED IN
JULY 2003, AND IF THE GROUP DOES NOT DEVELOP OTHER RECURRING SOURCES OF REVENUE,
ITS FINANCIAL CONDITION WILL BE ADVERSELY IMPACTED.
The Acacia Technologies group, and Acacia Research Corporation as a
whole, has generated substantially all of its revenues from licensing the V-chip
technology to television manufacturers. The Acacia Technologies group's patent
on the V-chip technology expired in July 2003. The Acacia Technologies group
will not be able to collect royalties for televisions containing V-chip
technology sold after the expiration of that patent, but it may still collect
revenues from the sale of such televisions in the U.S. before that date. The
Acacia Technologies group is beginning to market its digital media transmission
technology and is developing other technologies and products. The eventual
licensing and sale of these technologies is intended to replace the revenue
currently being generated by licensing its V-chip technology. If the Acacia
Technologies group does not succeed in developing such technologies or is unable
to commercially license its existing and future technologies, its financial
condition will be adversely impacted.
THE ACACIA TECHNOLOGIES GROUP MAY FAIL TO MEET MARKET EXPECTATIONS BECAUSE OF
FLUCTUATIONS IN ITS QUARTERLY OPERATING RESULTS, WHICH COULD CAUSE THE PRICE OF
AR-ACACIA TECHNOLOGIES STOCK TO DECLINE.
The Acacia Technologies group's revenues and operating results have
fluctuated in the past and may continue to fluctuate significantly from quarter
to quarter in the future. It is possible that in future periods the Acacia
Technologies group's revenues could fall below the expectations of securities
analysts or investors, which could cause the market price of our AR-Acacia
Technologies stock to decline. The following are among the factors that could
cause the Acacia Technologies group's operating results to fluctuate
significantly from period to period:
o its unpredictable revenue sources, as described below;
o costs related to acquisitions, alliances, licenses and other
efforts to expand its operations;
o the timing of payments under the terms of any customer or
license agreements into which the Acacia Technologies group
may enter; and
o expenses related to, and the results of, patent filings and
other proceedings relating to intellectual property rights.
THE ACACIA TECHNOLOGIES GROUP'S REVENUES WILL BE UNPREDICTABLE, AND THIS MAY
HARM ITS FINANCIAL CONDITION.
The amount and timing of revenues that the Acacia Technologies group
may realize from its business will be unpredictable because:
o whether the Acacia Technologies group generates revenues
depends, in part, on the success of its licensing efforts;
12
o its cycle of obtaining licensees may be lengthy; and
o it cannot be sure as to the timing of receipt of payment.
As a result, the Acacia Technologies group's revenues may vary
significantly from quarter to quarter, which could make its business difficult
to manage and cause its quarterly results to be below market expectations. If
this happens, the price of our AR-Acacia Technologies stock may decline
significantly.
TECHNOLOGY COMPANY STOCK PRICES ARE ESPECIALLY VOLATILE, AND THIS VOLATILITY MAY
DEPRESS THE PRICE OF OUR AR-ACACIA TECHNOLOGIES STOCK.
The stock market has experienced significant price and volume
fluctuations, and the market prices of technology companies have been highly
volatile. We believe that various factors may cause the market price of our
AR-Acacia Technologies stock to fluctuate, perhaps substantially, including,
among others, announcements of:
o its or its competitors' technological innovations;
o developments or disputes concerning patents or proprietary
rights;
o developments in relationships with licensees;
o its failure to meet or exceed securities analysts'
expectations of its financial results; or
o a change in financial estimates or securities analysts'
recommendations.
In the past, companies that have experienced volatility in the market
price of their stock have been the objects of securities class action
litigation. If our AR-Acacia Technologies stock was the object of securities
class action litigation, it could result in substantial costs and a diversion of
management's attention and resources, which could materially harm the business
and financial results of the Acacia Technologies group.
THE ACACIA TECHNOLOGIES GROUP FACES INTENSE COMPETITION, AND WE CANNOT ASSURE
YOU THAT IT WILL BE SUCCESSFUL.
Although the Acacia Technologies group believes that Acacia Media
Technologies has marketing and licensing rights to enforceable patents and other
intellectual property relating to video and audio on demand, the Acacia
Technologies group cannot assure you that other companies will not develop
competing technologies that offer better or less expensive alternatives to those
offered by Acacia Media Technologies. In the event a competing technology
emerges, Acacia Media Technologies would expect substantial additional
competition.
THE MARKETS SERVED BY THE ACACIA TECHNOLOGIES GROUP ARE SUBJECT TO RAPID
TECHNOLOGICAL CHANGE, AND IF THE ACACIA TECHNOLOGIES GROUP IS UNABLE TO DEVELOP
AND INTRODUCE NEW PRODUCTS, ITS REVENUES COULD STOP GROWING OR COULD DECLINE.
The markets served by the Acacia Technologies group frequently undergo
transitions in which products rapidly incorporate new features and performance
standards on an industry-wide basis. Products for communications applications,
as well as for high-speed computing applications, are based on continually
evolving industry standards. A significant portion of the Acacia Technologies
group's revenues in recent periods has been, and is expected to continue to be,
derived from licensing of technologies based on existing transmission standards.
The Acacia Technologies group's ability to compete in the future will, however,
depend on its ability to identify and ensure compliance with evolving industry
standards.
13
THE ACACIA TECHNOLOGIES GROUP'S SUCCESS IS BASED ON ITS ABILITY TO PROTECT ITS
PROPRIETARY TECHNOLOGY AND ITS ABILITY TO DEFEND ITSELF AGAINST INFRINGEMENT
CLAIMS.
The success of the Acacia Technologies group relies, to varying
degrees, on its proprietary rights and their protection or exclusivity. Although
reasonable efforts will be taken to protect the Acacia Technologies group's
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 example, in our pending litigation
against certain television manufacturers alleging their infringement of
Soundview Technologies' V-chip patent, a motion for summary judgment filed by
the defendants was granted in September 2002. The court ruled that the
defendants did not infringe on Soundview Technologies' patent. If we are
unsuccessful in our intended appeal of this ruling, legal principles will
preclude us from claiming infringement of our patents by other parties.
Accordingly, if we are unsuccessful in this or other litigation to protect our
intellectual property rights, the future revenues of the Acacia Technologies
group could be adversely affected.
From time to time, the Acacia Technologies group may be subject to
third-party claims in the ordinary course of business, including claims of
alleged infringement of proprietary rights. Any such claims may harm the Acacia
Technologies group by subjecting it to significant liability for damage and
invalidating its proprietary rights. These types of claims, with or without
merit, could subject the Acacia Technologies group to costly litigation and
diversion of its technical and management personnel. The Acacia Technologies
group depends largely on the protection of enforceable patent rights. The Acacia
Technologies group has applications on file with the U.S. Patent and Trademark
Office seeking patents on its core technologies and has patents or rights to
patents that have been issued. We cannot assure you that the pending patent
applications of the Acacia Technologies group will be issued, that third parties
will not violate, or attempt to invalidate these intellectual property rights,
or that certain aspects of those intellectual property will not be
reverse-engineered by third parties without violating the patent rights of the
Acacia Technologies group.
For Acacia Media Technologies and Soundview Technologies, proprietary
rights constitute their only significant assets. The Acacia Technologies group
also owns licenses from third parties and it is possible that it could become
subject to infringement actions based upon such licenses. The Acacia
Technologies group generally obtains representations as to the origin and
ownership of such licensed content. However, this may not adequately protect the
Acacia Technologies group. The Acacia Technologies group enters into
confidentiality agreements with third parties and generally limits access to
information relating to its proprietary rights. Despite these precautions, third
parties may be able to gain access to and use the Acacia Technologies group's
proprietary rights to develop competing technologies and products with similar
or better features and prices. Any substantial unauthorized use of the Acacia
Technologies group's proprietary rights could materially and adversely affect
its business and operational results.
RISKS RELATING TO OUR CAPITAL STRUCTURE
HOLDERS OF BOTH CLASSES OF OUR STOCK ARE STOCKHOLDERS OF ONE COMPANY, AND THE
FINANCIAL PERFORMANCE OF ONE GROUP COULD AFFECT THE OTHER, THUS EXPOSING THE
HOLDERS OF EACH GROUP'S STOCK TO THE RISKS OF AN INVESTMENT IN THE ENTIRE
COMPANY.
Holders of AR-CombiMatrix stock and AR-Acacia Technologies stock are
stockholders of a single company. The CombiMatrix group and the Acacia
Technologies group are not separate legal entities. As a result, stockholders
will continue to be subject to all of the risks of an investment in Acacia
Research Corporation and all of our businesses, assets and liabilities. The
issuance of our AR-CombiMatrix stock and our AR-Acacia Technologies stock and
the allocation of assets and liabilities and stockholders' equity between the
CombiMatrix group and the Acacia Technologies group did not result in a
distribution or spin-off to stockholders of any of our assets or liabilities and
did not affect ownership of our assets or responsibility for our liabilities or
those of our subsidiaries. The assets we attribute to one group could be subject
to the liabilities of the other group, whether such liabilities arise from
lawsuits, contracts or indebtedness that we attribute to the other group. If we
are unable to satisfy one group's liabilities out of the assets we attribute to
it, we may be required to satisfy those liabilities with assets we have
attributed to the other group.
14
Financial effects from one group that affect our consolidated results
of operations or financial condition could, if significant, affect the results
of operations or financial condition of the other group and the market price of
the common stock relating to the other group. In addition, net losses of either
group and dividends or distributions on, or repurchases of, either class of
common stock will reduce the funds we can pay as dividends on each class of
common stock under Delaware law. For these reasons, you should read our
consolidated financial information with the financial information we provide for
each group.group in our most recent Form 10-K and Form 10-Q incorporated by reference
at page 25 below.
THE MARKET PRICE OF EITHER CLASS OF OUR COMMON STOCK MAY NOT REFLECT THE
SEPARATE PERFORMANCE OF THE GROUP RELATED TO THAT CLASS OF COMMON STOCK.
The market price of our AR-CombiMatrix stock or AR-Acacia Technologies
stock may not reflect the separate performance of the business of the group
relating to that class of common stock. The market price of either class of
common stock could simply reflect the performance of Acacia Research Corporation
as a whole, or the market price of either class of common stock could move
independently of the performance of the business of either group. Investors may
15
discount the value of either class of common stock because it is part of a
common enterprise rather than a stand-alone company.
THE MARKET PRICE OF EITHER CLASS OF OUR COMMON STOCK MAY BE AFFECTED BY FACTORS
THAT DO NOT AFFECT TRADITIONAL COMMON STOCK.
THE COMPLEX NATURE OF THE TERMS OF OUR AR-COMBIMATRIX STOCK AND
AR-ACACIA TECHNOLOGIES STOCK MAY ADVERSELY AFFECT THE MARKET PRICE OF
EITHER CLASS OF COMMON STOCK.
The complex nature of the terms of our two classes of common stock,
such as the convertibility of AR-CombiMatrix stock into AR-Acacia Technologies
stock, or vice versa, and the potential difficulties investors may have
understanding these terms, may adversely affect the market price of either class
of common stock.
THE MARKET PRICE OF OUR AR-COMBIMATRIX STOCK OR AR-ACACIA TECHNOLOGIES
STOCK MAY BE ADVERSELY AFFECTED BY THE FACT THAT HOLDERS HAVE LIMITED
LEGAL INTERESTS IN THE GROUP RELATING TO THE CLASS OF COMMON STOCK HELD
AS A SEPARATE LEGAL ENTITY.
For example, as described in greater detail in the subsequent risk
factors, holders of either class of common stock generally do not have separate
class voting rights with respect to significant matters affecting either group.
In addition, upon our liquidation or dissolution, holders of either class of
common stock will not have specific rights to the assets of the group relating
to the class of common stock held and will not be entitled to receive proceeds
that are proportional to the relative performance of that group.
THE MARKET PRICE OF OUR AR-COMBIMATRIX STOCK OR AR-ACACIA TECHNOLOGIES
STOCK MAY BE ADVERSELY AFFECTED BY EVENTS INVOLVING THE GROUP RELATING
TO THE OTHER CLASS OF COMMON STOCK OR THE PERFORMANCE OF THE CLASS OF
COMMON STOCK RELATING TO THAT GROUP.
Events, such as earnings announcements or other developments concerning
one group that the market does not view favorably and which thus adversely
affect the market price of the class of common stock relating to that group, may
adversely affect the market price of the class of common stock relating to the
other group. Because both classes of common stock are common stock of Acacia
Research Corporation, an adverse market reaction to one class of common stock
may, by association, cause an adverse reaction to the other class of common
stock. This reaction may occur even if the triggering event was not material to
us as a whole.
THE HOLDERS OF AR-COMBIMATRIX STOCK AND THE HOLDERS OF AR-ACACIA TECHNOLOGIES
STOCK HAVE ONLY LIMITED SEPARATE STOCKHOLDER RIGHTS.
Holders of AR-CombiMatrix stock and AR-Acacia Technologies stock have
the rights customarily held by common stockholders. They also have these
specific rights related to their corresponding group:
15
o certain rights with regard to dividends and liquidation;
o requirements for a mandatory dividend, redemption or
conversion upon the disposition of all or substantially all of
the assets of their corresponding group; and
o a right to vote on matters as a separate voting class in the
limited circumstances provided under Delaware law, by stock
exchange rules or as determined by our board of directors
(such as an amendment of our certificate of incorporation that
changes the rights, privileges or preferences of the class of
stock held by such stockholders).
o We will not hold separate stockholder meetings for holders of
AR-CombiMatrix stock and AR-Acacia Technologies stock.
16
THE HOLDERS OF AR-COMBIMATRIX STOCK AND THE HOLDERS OF AR-ACACIA TECHNOLOGIES
STOCK WILL HAVE CERTAIN LIMITS ON THEIR RESPECTIVE VOTING POWERS.
GROUP COMMON STOCK WITH A MAJORITY OF VOTING POWER CAN CONTROL VOTING
OUTCOMES.
The holders of AR-CombiMatrix stock and AR-Acacia Technologies stock
will vote together as a single class, except in limited circumstances. If a
separate vote on a matter by the holders of either our AR-CombiMatrix stock or
our AR-Acacia Technologies stock is not required under Delaware law or by stock
exchange rules, and if our board of directors does not require a separate vote,
either class of common stock that is entitled to more than the number of votes
required to approve such matter could control the outcome of such vote - even if
the matter involves a divergence or conflict of the interests between the
holders of our AR-CombiMatrix stock and our AR-Acacia Technologies stock. In
addition, if the holders of common stock having a majority of the voting power
of all shares of common stock outstanding approve a merger, the terms of which
did not require separate class voting under stock exchange rules, then the
merger could be consummated - even if the holders of a majority of either class
of common stock were to vote against the merger.
GROUP COMMON STOCK WITH LESS THAN MAJORITY VOTING POWER CAN BLOCK
ACTION IF A CLASS VOTE IS REQUIRED.
If Delaware law, stock exchange rules or our board of directors
requires a separate vote on a matter by the holders of either our AR-CombiMatrix
stock or our AR-Acacia Technologies stock, such as a proposal to amend the terms
of one class of stock, those holders could prevent approval of the matter, even
if the holders of a majority of the total number of votes cast or entitled to be
cast, voting together as a class, were to vote in favor of it.
HOLDERS OF ONLY ONE CLASS OF COMMON STOCK CANNOT ENSURE THAT THEIR
VOTING POWER WILL BE SUFFICIENT TO PROTECT THEIR INTERESTS.
Since the relative voting power per share of AR-CombiMatrix stock and
AR-Acacia Technologies stock will fluctuate based on the market values of the
two classes of common stock, the relative voting power of a class of common
stock could decrease. As a result, holders of shares of only one of the two
classes of common stock cannot ensure that their voting power will be sufficient
to protect their interests.
OUR RESTATED CERTIFICATE OF INCORPORATION MAY BE AMENDED TO INCREASE OR DECREASE
THE AUTHORIZED SHARES OF EITHER CLASS OF COMMON STOCK WITHOUT THE APPROVAL OF
EACH CLASS VOTING SEPARATELY.
Our restated certificate of incorporation provides that an amendment to
our restated certificate to increase or decrease the number of authorized shares
of either class of common stock will require the approval of the holders of a
majority of the voting power of all shares of common stock, voting together as a
single class, and will not require the approval of each class of stock voting as
a separate class. Accordingly, if the holders of one class of common stock hold
a majority of the voting power of all shares of common stock, then that majority
could approve an amendment to our restated certificate to increase or decrease
the authorized shares of stock of either class without the approval of the
holders of the minority class of stock.
16
STOCKHOLDERS MAY NOT HAVE ANY REMEDIES FOR BREACH OF FIDUCIARY DUTIES IF ANY
ACTION BY OUR DIRECTORS OR OFFICERS HAS A DISADVANTAGEOUS EFFECT ON EITHER CLASS
OF COMMON STOCK.
Stockholders may not have any remedies if any action or decision of our
directors and officers has a disadvantageous effect on either class of common
stock compared to the other class of common stock. We are not aware of any legal
precedent under Delaware law involving the fiduciary duties of directors and
officers of corporations having two classes of common stock, or separate classes
or series of capital stock, the rights of which, like our AR-CombiMatrix stock
and AR-Acacia Technologies stock, are defined by reference to separate
businesses of the corporation.
Principles of Delaware law established in cases involving differing
treatment of two classes of capital stock or two groups of holders of the same
class of capital stock provide that a board of directors owes an equal duty to
all stockholders regardless of class or series. Under these principles of
Delaware law and the related principle known as the "business judgment rule,"
absent abuse of discretion, a good faith business decision made by a
disinterested and adequately informed board of directors, board of directors'
committee or officer with respect to any matter having different effects on
holders of AR-CombiMatrix stock and holders of AR-Acacia Technologies stock
would be a defense to any challenge to such determination made by or on behalf
of the holders of either class of common stock.
17
NUMEROUS POTENTIAL CONFLICTS OF INTERESTS EXIST BETWEEN OUR AR-COMBIMATRIX STOCK
AND OUR AR-ACACIA TECHNOLOGIES STOCK WHICH MAY BE DIFFICULT TO RESOLVE BY OUR
BOARD OR WHICH MAY BE RESOLVED ADVERSELY TO ONE OF THE CLASSES.
The existence of separate classes of common stock could give rise to
occasions when the interests of the holders of AR-CombiMatrix stock and
AR-Acacia Technologies stock diverge or conflict. Examples include
determinations by our directors or officers to:
o pay or omit the payment of dividends on AR-CombiMatrix stock
or AR-Acacia Technologies stock;
o allocate consideration to be received by holders of each of
the classes of common stock in connection with a merger or
consolidation involving Acacia Research Corporation;
o convert one class of common stock into shares of the other;
o approve certain dispositions of the assets of either group;
o allocate the proceeds of future issuances of our stock either
to the Acacia Technologies group or the CombiMatrix group;
o allocate corporate opportunities between the groups; and
o make other operational and financial decisions with respect to
one group that could be considered detrimental to the other
group.
When making decisions with regard to matters that create potential
diverging or conflicting interests, our directors and officers will act in
accordance with their fiduciary duties, the terms of our restated certificate of
incorporation, and, to the extent applicable, our management and allocation
policies.
THE PERFORMANCE OF ONE GROUP OR THE DIVIDENDS PAID TO ONE GROUP MAY
ADVERSELY AFFECT THE DIVIDENDS AVAILABLE FOR THE OTHER GROUP.
Our board of directors currently has no intention to pay dividends on
our AR-CombiMatrix stock or our AR-Acacia Technologies stock. Determinations as
to future dividends on our AR-CombiMatrix stock and our AR-Acacia Technologies
stock will be based primarily on the financial condition, results of operations
and business requirements of the relevant group and Acacia Research Corporation
17
as a whole. Subject to the limitations referred to below, our board of directors
has the authority to declare and pay dividends on our AR-CombiMatrix stock and
our AR-Acacia Technologies stock in any amount and could, in its sole
discretion, declare and pay dividends exclusively on our AR-CombiMatrix stock,
exclusively on our AR-Acacia Technologies stock, or on both, in equal or unequal
amounts. Our board of directors will not be required to consider the amount of
dividends previously declared on each class, the respective voting or
liquidation rights of each class or any other factor.
The performance of one group may cause our board of directors to pay
more or less dividends on the common stock relating to the other group than if
that other group was a stand-alone company. In addition, Delaware law and our
restated certificate of incorporation impose limitations on the amount of
dividends which may be paid on each class of common stock.
PROCEEDS OF MERGERS OR CONSOLIDATIONS MAY BE ALLOCATED UNFAVORABLY.
Our restated certificate of incorporation does not contain any
provisions governing how consideration to be received by holders of common stock
in connection with a merger or consolidation involving Acacia Research
Corporation is to be allocated among holders of each class of common stock. Our
board of directors will determine the percentage of the consideration to be
allocated to holders of each class of common stock in any such transaction. Such
percentage may be materially more or less than that which might have been
allocated to such holders had our board of directors chosen a different method
of allocation.
18
HOLDERS OF EITHER CLASS OF COMMON STOCK MAY BE ADVERSELY AFFECTED BY A
CONVERSION OF GROUP COMMON STOCK.
Our board of directors could, in its sole discretion and without
stockholder approval, determine to convert shares of AR-Acacia Technologies
stock into shares of AR-CombiMatrix stock, or vice versa, at a time when either
or both classes of common stock may be considered to be overvalued or
undervalued. Any such conversion would dilute the interests in Acacia Research
Corporation of the holders of the class of common stock being issued in the
conversion. It could also give holders of shares of the class of common stock
converted a greater or lesser premium than any premium that might be paid by a
third-party buyer of all or substantially all of the assets of the group whose
stock is converted.
HOLDERS OF EITHER CLASS OF COMMON STOCK COULD BE ADVERSELY AFFECTED BY
A DISPOSITION OF THE ASSETS ATTRIBUTED TO THEIR RESPECTIVE GROUPS.
Our board of directors could, in its sole discretion and without
stockholder approval, determine to dispose of all or substantially all the
assets of a group. If a disposition of group assets occurs at a time when those
assets are considered undervalued, then holders of that group's stock would
receive less consideration than they could have received had the assets been
disposed of at a time when they had a higher value.
PROCEEDS OF FUTURE ISSUANCES OF OUR STOCK COULD BE ATTRIBUTED
UNFAVORABLY.
We may in the future issue a new class of stock, such as a class of
preferred stock, or additional shares of AR-CombiMatrix stock or AR-Acacia
Technologies stock. Proceeds from any future issuance of any class of stock
would be attributed among the CombiMatrix group or the Acacia Technologies group
as determined by our board of directors. There is no requirement that the
proceeds from an issuance of AR-CombiMatrix stock or AR-Acacia Technologies
stock be attributed to the corresponding group. Such allocations might be
materially more or less for the respective groups than what might have been
attributed had our board of directors chosen a different allocation method.
Also, any designated preferred class may be designed to reflect the performance
of Acacia Research Corporation as a whole, rather than the performance of the
CombiMatrix group or the Acacia Technologies group.
18
ALLOCATION OF CORPORATE OPPORTUNITIES COULD FAVOR ONE GROUP OVER
ANOTHER.
Our board of directors may be required to allocate corporate
opportunities between the groups. In some cases, our directors could determine
that a corporate opportunity, such as a business that we are acquiring, should
be shared by the groups. Any such decisions could favor one group at the expense
of the other.
OTHER OPERATIONAL AND FINANCIAL DECISIONS WHICH MAY FAVOR ONE GROUP
OVER THE OTHER.
Our board of directors or our senior officers will review other
operational and financial matters affecting the CombiMatrix group and the Acacia
Technologies group, including the allocation of financing resources and capital,
technology and know-how and corporate overhead, taxes, debt, interest and other
matters. Any decision of our board of directors or our senior officers in these
matters could favor one group at the expense of the other.
OUR BOARD OF DIRECTORS MAY CHANGE OUR MANAGEMENT AND ALLOCATION POLICIES WITHOUT
STOCKHOLDER APPROVAL TO THE DETRIMENT OF EITHER GROUP.
Our board of directors may modify or rescind our policies with respect
to the allocation of corporate overhead, taxes, debt, interest and other
matters, or may adopt additional policies, in its sole discretion without
stockholder approval. A decision to modify or rescind these policies, or adopt
additional policies could have different effects on holders of either class of
common stock or could result in a benefit or detriment to one class of
stockholders compared to the other class. Our board of directors will make any
such decision in accordance with its good faith business judgment that the
decision is in the best interests of Acacia Research Corporation and all of our
stockholders as a whole.
19
EITHER GROUP MAY FINANCE THE OTHER GROUP ON TERMS UNFAVORABLE TO ONE OF THE
GROUPS.
We may transfer cash and other property between groups to finance their
business activities. The group providing the financing will be subject to the
risks relating to the group receiving the financing. We will account for those
transfers generally as a short-term or long-term loan between groups or as a
repayment of a previous borrowing.
THERE ARE LIMITS ON THE CONSIDERATION WHICH MAY BE RECEIVED BY THE STOCKHOLDERS
IN THE EVENT OF THE DISPOSITION OF ASSETS OF A GROUP.
Our restated certificate of incorporation provides that if a
disposition of all or substantially all of the properties and assets of either
group occurs, we must, subject to certain exceptions:
o distribute through a dividend or redemption to holders of the
class of common stock relating to such group an amount equal
to the net proceeds of such disposition; or
o convert at a 10% premium such common stock into shares of the
class of common stock relating to the other group.
If the group subject to the disposition were a separate, independent
company and its shares were acquired by another person, certain costs of that
disposition, including corporate level taxes, might not be payable in connection
with that acquisition. As a result, stockholders of the separate, independent
company might receive a greater amount than the net proceeds that would be
received by holders of the class of common stock relating to that group if the
assets of such group were sold. In addition, we cannot assure you that the net
proceeds per share of the common stock relating to that group will be equal to
or more than the market value per share of such common stock prior to or after
announcement of a disposition.
The term "substantially all of the properties and assets" of a group is
subject to potentially conflicting interpretations. Resolution of such a dispute
could adversely impact the holders of either the class of common stock related
to the assets being disposed or the holders of the other class because the
consideration, if any, to be received by the holders of the class related to the
disposed assets may depend on whether the disposition involved "substantially
all" of the properties and assets of that class.
19
HOLDERS OF EITHER CLASS OF COMMON STOCK MAY BE ADVERSELY AFFECTED BY A
REDEMPTION OF THEIR COMMON STOCK.
We are entitled to redeem the outstanding common stock relating to a
group when all or substantially all of that group's assets are sold. We can
redeem the assets for cash, securities, a combination of cash and securities or
other property at fair value. A disposition-related redemption could occur when
the assets being disposed of are considered undervalued. If that were the case,
the holders of our common stock related to that group would receive less
consideration for their shares than they may deem reasonable.
We can also redeem on a pro rata basis all of the outstanding shares of
a group's common stock for shares of the common stock of one or more of our
wholly owned subsidiaries. If this were to occur, the holders of the redeemed
class of common stock would no longer have stockholder voting rights in Acacia
Research Corporation or any other benefits to be derived from holding a class of
stock in Acacia Research Corporation. In addition, if the outstanding shares of
a class of our common stock are redeemed for shares that are not publicly
traded, the holders of such redeemed stock will no longer be able to publicly
trade their shares and accordingly their investment will be substantially less
liquid.
OUR CAPITAL STRUCTURE AND THE VARIABLE VOTE PER SHARE COULD ENABLE A POTENTIAL
ACQUIRER TO TAKE CONTROL OF OUR COMPANY THROUGH THE ACQUISITION OF ONLY ONE OF
THE CLASSES OF OUR COMMON STOCK.
A potential acquirer could acquire control of Acacia Research
Corporation by acquiring shares of common stock having a majority of the voting
power of all shares of common stock outstanding. Such a majority could be
obtained by acquiring a sufficient number of shares of both classes of common
stock or, if one class of common stock has a majority of such voting power, only
shares of that class. Currently, our AR-CombiMatrix stock has a majority of the
voting power. As a result, currently, it might be possible for an acquirer to
obtain control of Acacia Research Corporation by purchasing only shares of
AR-CombiMatrix stock.
20
DECISIONS BY DIRECTORS AND OFFICERS THAT AFFECT DIFFERENTLY ONE CLASS OF OUR
COMMON STOCK COMPARED TO THE OTHER COULD ADVERSELY AFFECT THE MARKET VALUE OF
EITHER OR BOTH OF THE CLASSES OF OUR COMMON STOCK.
The relative voting power per share of our AR-CombiMatrix stock and our
AR-Acacia Technologies stock and the number of shares of one class of common
stock issuable upon the conversion of the other class of common stock will vary
depending upon the relative market values of our AR-CombiMatrix stock and our
AR-Acacia Technologies stock. The market value of either or both classes of
common stock could be affected by market reaction to decisions by our board of
directors or our management that investors perceive to affect differently one
class of common stock compared to the other. These decisions could involve
changes to our management and allocation policies, allocations of corporate
opportunities and financing resources between groups, and changes in dividend
policies.
INVESTORS MAY NOT VALUE OUR AR-COMBIMATRIX STOCK AND OUR AR-ACACIA TECHNOLOGIES
STOCK BASED ON GROUP FINANCIAL INFORMATION AND POLICIES.
We cannot assure you that investors will value our AR-CombiMatrix stock
and our AR-Acacia Technologies stock based on the reported financial results and
prospects of the separate groups or the dividend policies established by our
board of directors with respect to those groups. Holders of AR-CombiMatrix stock
and AR-Acacia Technologies stock will continue to be common stockholders of
Acacia Research Corporation subject to all the risks associated with an
investment in Acacia Research Corporation as a whole. Additionally, the separate
stockholder rights related to each group are limited and relate to events that
may never occur, such as dividend and liquidation rights and the disposition of
all or substantially all of the assets of a group. Accordingly, investors may
discount the value of AR-CombiMatrix stock and AR-Acacia Technologies stock
because both groups are part of a common enterprise rather than a stand-alone
entity and each class of stock has limited separate stockholder rights.
20
HOLDERS OF AR-COMBIMATRIX STOCK AND AR-ACACIA TECHNOLOGIES STOCK MAY NOT RECEIVE
A PREMIUM FROM AN INVESTOR ACQUIRING CONTROL OF THEIR RESPECTIVE CLASSES OF
STOCK.
Control of AR-CombiMatrix stock or AR-Acacia Technologies stock may not
provide control of Acacia Research Corporation as a whole. Accordingly, unlike
many acquisition transactions, holders of AR-CombiMatrix stock and
AR-Technologies stock may not receive a controlling interest premium from an
investor acquiring control of their respective classes of stock.
THERE ARE CERTAIN PROVISIONS IN OUR TWO-CLASS CAPITAL STRUCTURE THAT COULD HAVE
ANTITAKEOVERANTI-TAKEOVER EFFECTS.
The existence of the two classes of common stock could, under certain
circumstances, prevent stockholders from profiting from an increase in the
market value of their shares as a result of a change in control of Acacia
Research Corporation by delaying or preventing such change in control. The
existence of two classes of common stock could present complexities and could,
in certain circumstances, pose obstacles, financial and otherwise, to an
acquiring person. We could, in the sole discretion of our board of directors and
without stockholder approval, exercise the right to convert the shares of one
class of common stock into shares of the other at a 10% premium over their
respective average market values. This conversion could result in additional
dilution to persons seeking control of Acacia Research Corporation.
Our board of directors could issue shares of preferred stock or common
stock that could be used to create voting or other impediments to discourage
persons seeking to gain control of Acacia Research Corporation, and preferred
stock could also be privately placed with purchasers favorable to our board of
directors in opposing such action.
21
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTSINFORMATION
This prospectus contains forward-looking statements"forward-looking statements" within the
meaning of the federal securities laws. Forward-looking statementsPrivate Securities Litigation Reform Act of 1995 with respect to
the financial condition, results of operations, business strategies, operating
efficiencies or synergies, competitive positions, growth opportunities for
existing products, plans and objectives of management, markets for stock of
Acacia and other matters. Statements in this prospectus that are statements that
predict or describe future events or trendsnot historical
facts are hereby identified as "forward-looking statements" for the purpose of
the safe harbor provided by Section 21E of the Exchange Act and that do not relate solely to
historical matters. You can generally identifySection 27A of
the Securities Act. Such forward-looking statements, as
statements containingincluding, without
21
limitation, those relating to the words "may," "will," "expect," "believe," "estimate,"
"anticipate," "intend," "continue," and other similar expressions or the
negative of these terms. You should be aware that the matters described in our
forward-looking statements are subject to known and unknown risks, uncertainties
and other unpredictable factors, many of which are beyond our control.
Statements regarding the following subjects are forward-looking by their nature:
o ourfuture business strategies;
o market trends and risks;
o assumptions regarding economic conditions;
o circumstances affecting anticipatedprospects, revenues and costs; and
o legislative, regulatory and competitive developments.income
of Acacia, wherever they occur, are necessarily estimates reflecting the best
judgment of the senior management of Acacia on the date on which they were made,
or if no date is stated, as of the date of this prospectus. These
forward-looking statements are subject to various risks and
uncertainties, including those related to:
o the recent slowdown affecting technology companies;
o our ability to successfully develop products;
o rapid technological change in our markets;
o anticipated sources of future revenues;
o changes in demand for our future products;
o our ability to raise capital in the future; and
o the adequacy of our capital resources to fund our operations.
Other risks, uncertainties and factors,assumptions,
including those discussed underdescribed in the section entitled "Risk Factors"Factors," beginning on
page 3 that may affect the operations, performance, development and results of
our business. Because the factors discussed in this prospectus could cause
actual results or describedoutcomes to differ materially from those expressed in reports that we fileany
forward-looking statements made by us or on our behalf, you should not place
undue reliance on any such forward-looking statements. New factors emerge from
time to time, withand it is not possible for us to predict which factors will arise.
In addition, we cannot assess the Securities and Exchange Commission, such asimpact of each factor on our quarterly and
annual reports, couldbusiness or the
extent to which any factor, or combination of factors, may cause our actual results
to differ materially from those projectedcontained in any forward-looking statementsstatements.
You should understand that the following important factors, in addition
to those discussed in the "Risk Factors" section, could affect our future
results and could cause those results to differ materially from those expressed
in such forward-looking statements:
o general economic conditions,
o changes in consumer demand,
o legislative, regulatory and competitive developments in
markets in which we make.and our subsidiaries operate,
o results of litigation and other circumstances affecting
anticipated revenues and costs,
o anticipated trends and conditions in the industry in which we
operate, including regulatory changes,
o our future capital needs and our ability to obtain financing,
and
o other risks and uncertainties as may be detailed from time to
time in our public announcements and filings with the SEC.
We are not obligatedundertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.any other reason. All subsequent forward-looking statements
attributable to Acacia or any person acting on our behalf are expressly
qualified in their entirety by the cautionary statements contained or referred
to herein. In light of these risks, uncertainties and assumptions, the
forward-looking events discussed in this prospectus may not occur.
USE OF PROCEEDS
Unless otherwise indicated in an accompanyingAll of our AR-Acacia Technologies stock being offered under this
prospectus supplement, we
intend to useis being sold by or for the netaccount of the Selling Stockholders. We
will not receive any proceeds from the sale of the securities offered by this
prospectus and the related accompanying prospectus supplement to provide working
capital for our business, including our subsidiaries.
22
DESCRIPTION OF OUR CAPITAL STOCK
Following is a summary of the material terms of the AR-CombiMatrix
stock and the AR-Acacia Technologies stock. The summary is not complete and
should be read in conjunction with our restated certificate of incorporation, or
Restated Certificate, filed as Appendix B to the proxy statement/prospectus
which formed a part of our Registration Statement on Form S-4 (SEC File No.
333-87654), which became effective on November 8, 2002.
AUTHORIZED AND OUTSTANDING SHARES
The Restated Certificate authorizes us to issue 110,000,000 shares of
stock as follows: 50,000,000 shares of a class of common stock, designated as
Acacia Research-CombiMatrix Common Stock (the "AR-CombiMatrix stock"),
50,000,000 shares of a class of common stock, designated as Acacia
Research-Acacia Technologies Common Stock (the "AR-Acacia Technologies stock"),
and 10,000,000 shares of preferred stock. Shares of each class of stock will
have a par value of $0.001 per share. We will be able to issue shares of
preferred stock in series, without stockholder approval.
As of February 12, 2004, a total of 27,618,676 shares of the
AR-CombiMatrix stock and 19,742,067 shares of the AR-Acacia Technologies stock
were issued and outstanding.
DIVIDENDS
Dividends on the AR-CombiMatrix stock and dividends on the AR-Acacia
Technologies stock will be limited to an amount not greater than the Available
Dividend Amount (as defined in the Restated Certificate)by or for the relevant group.
The Available Dividend Amount under our Restated Certificate is essentially the
same as legally available funds under Delaware law, both of which consist of
either the surplus (market value of assets less liabilities and par value) or,
if there is no surplus, the net profits for the fiscal year in which the
dividend is declared and/or the preceding fiscal year.
In addition, Delaware law limits the amount of distributions on capital
stock to legally available funds as defined under Delaware law, which are
determined on the basis of our entire company, and not only the respective
groups. As a result, the amount of legally available funds will reflect the
amount of any net losses of each group, any distributions on AR-CombiMatrix
stock, AR-Acacia Technologies stock or any preferred stock and any repurchases
of AR-CombiMatrix stock, AR-Acacia Technologies stock or certain preferred
stock. Dividend payments on the AR-CombiMatrix stock and on the AR-Acacia
Technologies stock could be precluded because legally available funds are not
available under Delaware law, even though the Available Dividend Amount test for
the particular relevant group was met. We cannot assure you that there will be
an Available Dividend Amount for either group.
Subject to the prior payment of dividends on any outstanding shares of
preferred stock and the limitations described above, our board of directors will
be able, in its sole discretion, to declare and pay dividends exclusively on the
AR-CombiMatrix stock, exclusively on the AR-Acacia Technologies stock or on
both, in equal or unequal amounts. In making its dividend decisions, our board
of directors will not be required to take into account the relative Available
Dividend Amounts for the two groups, the amount of prior dividends declared on
either class, the respective voting or liquidation rights of either class or any
other factor.
VOTING RIGHTS
Under our Restated Certificate the entire voting power of the stockholders of Acacia Research is vested in the holders of common stock, who
will be entitledselling stockholders.
SELLING STOCKHOLDERS
On December 15, 2004, we agreed to vote on any matter on which the holders of our stock are, by
law or by the provisions of the Restated Certificate, entitled to vote, except
as otherwise provided by law, by the terms of any outstanding preferred stock or
by any provision of the new certificate of incorporation restricting the power
to vote on a specified matter to other stockholders.
23
Holders of common stock will vote as a single class on each matter on
which holders of common stock are generally entitled to vote.
On all matters as to which both classes of common stock will vote
together as a single class:
o each share of AR-CombiMatrix stock will have one vote; and
o each share of AR-Acacia Technologies stock will have a number
of votes equal to the quotient of the average market value of
a share of AR-Acacia Technologies stock over the 20-trading
day period ending on the 10th trading day prior to the record
date for determining the holders of common stock entitled to
vote, divided by the average market value of a share of
AR-CombiMatrix stock over the same period.
Accordingly, the relative per share voting rights of the AR-CombiMatrix
stock and the AR-Acacia Technologies stock will fluctuate depending on changes
in the relative market values of shares of such classes of common stock. The
purpose of the floating voting power is to link voting power to relative
economic interests in Acacia Research.
EXAMPLES OF THE CALCULATION OF THE NUMBER OF VOTES EACH SHARE OF
AR-ACACIA TECHNOLOGIES STOCK WOULD BE ENTITLED ON ALL MATTERS ON WHICH HOLDERS
OF AR-COMBIMATRIX STOCK AND AR-ACACIA TECHNOLOGIES STOCK VOTE AS SINGLE CLASS
EXAMPLE #1: If the average market values for the 20-trading day
valuation period were $4 for the AR-Acacia Technologies stock and $6 for the
AR-CombiMatrix stock, each share of AR-CombiMatrix stock would have one vote and
each share of AR-Acacia Technologies stock would have 0.67 votes based on the
following calculation:
$4
------ = 0.67 votes
$6
Based on the assumptions in this example, and assuming 20 million
shares of AR-CombiMatrix stock and 20 millionissue 3,938,832 shares of AR-Acacia
Technologies stock were outstanding,to Global Patent Services, LLC, as partial consideration for
the purchase of its subsidiary companies, holding an aggregate of 27 patent
portfolios, which includes 120 U.S. patents. The transaction closed on January
28, 2005. Global Patent Services, LLC, subsequently distributed the shares, of AR-CombiMatrix stock would represent
approximately 60% ofpro
rata, to its members following its dissolution. We have agreed to register for
resale by these former members, now stockholders in our total voting powercompany and who are
listed below (the "Selling Stockholders"), all of the shares of AR-Acacia
Technologies stock would represent approximately 40%we issued to them.
The table below presents information regarding the Selling Stockholders
and the shares of our total voting power.
EXAMPLE #2: If the average market values for the 20-trading day
valuation period were $5 for the AR-Acacia Technologies stock that they may offer and $5 forsell
from time to time under this prospectus.
22
PERCENTAGE OF SHARES OF AR-ACACIA
TECHNOLOGIES STOCK BENEFICIALLY
OWNED
-----------------------------------
SELLING STOCKHOLDERS(1) SHARES OF AR-ACACIA NUMBER OF SHARES OF BEFORE OFFERING AFTER OFFERING
TECHNOLOGIES STOCK TO BE RESOLD AR-ACACIA TECHNOLOGIES OF THE RESALE OF THE RESALE
IN THE OFFERING(2) STOCK OWNED(3) SHARES SHARES(2)
- ---------------------------------------------------------------------------------------------------------------------------------
Anthony O. Brown 1,294,141 1,294,141 5.45% 0%
Richard A. Angell 543,519 543,519 2.29% 0%
Daniel B. Asher 581,522 581,522 2.45% 0%
Scott D. Paseltiner 543,519 543,519 2.29% 0%
Marshall N. Toplansky 22,904 22,904 0.10% 0%
Michael Vender 34,551 34,551 0.15% 0%
James D. Esser 24,687 24,687 0.10% 0%
Richard Taylor 171,302 171,302 0.72% 0%
Thomas Harney 49,374 49,374 0.21% 0%
Jack Lavin 44,426 44,426 0.19% 0%
James C. Cohen 9,875 9,875 0.04% 0%
Patrick J. McGarvey 49,374 49,374 0.21% 0%
Robert A. Krasnow 24,687 24,687 0.10% 0%
KDS LLC 74,061 74,061 0.31% 0%
Thomas Henrich 90,832 90,832 0.38% 0%
Global Patent Holdings LLC 34,546 34,546 0.15% 0%
Dooyong Lee 345,512 345,512 1.45% 0%
--------- --------- ------ ---
Total 3,938,832 3,938,832 16.58% 0%
- -----------
(1) This table is based upon information supplied to us by the AR-CombiMatrix stock, each shareSelling
Stockholders.
(2) Assumes that the Selling Stockholders sell all of AR-CombiMatrix stock would have one vote and
each share of AR-Acacia Technologies stock would have one (1) vote based on the
following calculation:
$5
------ = 1.0 votes
$5
Based on the assumptions in this example, and assuming 20 million
shares of AR-CombiMatrix stock and 20 million shares of AR-Acacia Technologies
stock were outstanding, the shares available for
resale.
RELATIONSHIP OF SELLING STOCKHOLDERS TO THE COMPANY
Anthony O. Brown, a Selling Stockholder, has the right to appoint a
director to any vacancy on our board of AR-CombiMatrix stock would represent
approximately 50%directors as further described in our
Form 8-K filed on February 1, 2005 and incorporated by reference on page 26
below. In addition, we have entered into an agreement with Mr. Brown for
consulting services for two years, at 1200 hours per year, ending on January 27,
2007, and for a non-compete agreement for four years, ending January 27, 2009.
In consideration thereof, we will pay Mr. Brown $2,000,000 in equal bi-weekly
installments over the next two years. The foregoing agreements were entered into
with Mr. Brown as part of our total voting poweracquisition of assets from Global Patent Services,
LLC described above and further described in our Form 8-K filed on February 1,
2005 and incorporated by reference on page 26 below.
Other than as set forth above with respect to Mr. Brown, none of the
other Selling Stockholders listed above has held any position or office, or has
had any material relationship, with our company or any of its affiliates within
the past three years.
PLAN OF DISTRIBUTION
We are registering the shares of AR-Acacia Technologies common stock would represent approximately 50%on
behalf of the selling stockholders. A selling stockholder is a person named in
the section entitled "Selling Stockholders" and also includes any donee,
pledgee, transferee or other successor-in-interest selling shares received after
the date of this prospectus from a selling stockholder as a gift or other
non-sale related transfer.
We do not know of any plan of distribution for the resale of our
total voting power.
24
EXAMPLE #3: If the average market values for the 20-trading day
valuation period were $6 for the AR-Acacia Technologies common stock and $4 forby the AR-CombiMatrix stock, each share of AR-CombiMatrix stock would have one vote and
each share of AR-Acacia Technologies stock would have 1.50 votes based on the
following calculation:
$6
------ = 1.50 votes
$4
Based on the assumptions in this example, and assuming 20 million
shares of AR-CombiMatrix stock and 20 million shares of AR-Acacia Technologies
stock were outstanding, the shares of AR-CombiMatrix stock would represent
approximately 40% of our total voting power and the shares of AR-Acacia
Technologies stock would represent approximately 60% of our total voting power.
These examples, each of which is based on the assumption that the total
number of issued and outstanding shares of each class is 20,000,000, are
summarized in the table below:
ASSUMED RELATIVE
SHARE PRICE VOTING RIGHTS TOTAL VOTES VOTING POWER
----------- ------------- ----------- ------------
EXAMPLE #1:
AR-CombiMatrix $6 1.0 vote/share 20,000,000 60%
AR-Acacia Technologies $4 0.67 votes/share 13,333,333 40%
EXAMPLE #2:
AR-CombiMatrix $5 1.0 vote/share 20,000,000 50%
AR-Acacia Technologies $5 1.0 vote/share 20,000,000 50%
EXAMPLE #3:
AR-CombiMatrix $4 1.0 vote/share 20,000,000 40%
AR-Acacia Technologies $6 1.50 vote/share 30,000,000 60%
IN THESE EXAMPLES WE HAVE PROVIDED A BETTER UNDERSTANDING OF THE
MECHANICS SURROUNDING THE CALCULATION OF VOTING POWER. IT SHOULD NOT BE ASSUMED
THAT THE EXAMPLES USED ARE IN ANY WAY INDICATIVE OF THE RESPECTIVE COMMON STOCK
TRADING PRICES AT ANY TIME BEFORE OR AFTER THE DATE OF THIS PROSPECTUS.Selling Stockholders. We will set forth the number of outstanding shares of AR-CombiMatrix
stock and AR-Acacia Technologies stock in our Annual Reports on Form 10-K and
our Quarterly Reports on Form 10-Q filed under the Securities Exchange Act of
1934, as amended (the "Exchange Act"). We will disclose in any proxy statement
for a stockholders' meeting the number of outstanding shares and per share
voting rights of the AR-CombiMatrix stock and the AR-Acacia Technologies stock.
If shares of only one class of common stock are outstanding, each share
of that class will have one vote. If either class of common stock is entitled to
vote as a separate class with respect to any matter, each share of that class
will, for purpose of such vote, have one vote on such matter.
Fluctuations in the relative voting rights of the AR-CombiMatrix stock
and the AR-Acacia Technologies stock could influence an investor interested in
acquiring and maintaining a fixed percentage of the voting power of Acacia
Research to acquire such percentage of both classes of common stock and would
limit the ability of investors in one class to acquire for the same
consideration relatively more or less votes per share than investors in the
other class.
25
The holders of AR-CombiMatrix stock and AR-Acacia Technologies stock
will not
have any rights to vote separately as a class on any matter coming
before stockholders of Acacia Research, except for certain limited class voting
rights provided under Delaware law. In addition to the approval of the holders
of a majority of the voting power of all shares of common stock voting together
as a single class, the approval of a majority of the outstanding shares of the
AR-CombiMatrix stock or the AR-Acacia Technologies stock, voting as a separate
class, would be required under Delaware law to approve any amendment to the
Restated Certificate that would change the par value of the shares of the class
or alter or change the powers, preferences or special rights of the shares of
such class so as to affect them adversely. As permitted by Delaware law, the
Restated Certificate provides that an amendment to the Restated Certificate that
increases or decreases the number of authorized shares of AR-CombiMatrix stock
or AR-Acacia Technologies stock will only require the approval of the holders of
a majority of the voting power of all shares of common stock, voting together as
a single class, and will not require the approval of the holders of the class of
common stock affected by such amendment, voting as a separate class.
CONVERSION AND REDEMPTION
Our Restated Certificate permits the conversion or redemption of the
AR-CombiMatrix stock and the AR-Acacia Technologies stock as described below.
MANDATORY DIVIDEND, REDEMPTION OR CONVERSION OF COMMON STOCK
IF DISPOSITION OF GROUP ASSETS OCCURS
If we sell, transfer, assign or otherwise dispose of, in one
transaction or a series of related transactions, all or substantially all of the
properties and assets attributed to either group (a "disposition"), we are
required, except as described below, to:
o pay a dividend in cash and/or securities or other property to
the holders of shares of the class of common stock relating to
the group subject to the disposition having a fair value equal
to the net proceeds of the disposition; or
o (A) if the disposition involves all, but not merely
substantially all, of such properties and assets, redeem all
outstanding shares of common stock relating to that group in
exchange for cash and/or securities or other property having a
fair value equal to the net proceeds of the disposition; or
(B) if the disposition involves substantially all, but not
all, of such properties and assets, redeem that number of
whole shares of the class of common stock relating to that
group as have in the aggregate an average market value, during
the period of ten consecutive trading days beginning on the
26th trading day immediately succeeding the consummation date,
closest to the net proceeds of the disposition; and the
redemption price will be cash and/or securities or other
property having a fair value equal to such net proceeds; or
o convert each outstanding share of such class of common stock
into a number of shares of common stock relating to the other
group equal to 110% of the ratio of the average market value
of one share of common stock relating to the group subject to
the disposition to the average market value of one share of
common stock relating to the other group during the 10-trading
day period beginning on the 26th trading day following the
disposition date.
The purpose of this provision is to provide holders of each class of
stock with an economic interest in the proceeds of the disposition of the assets
of the respective group.
Stockholder approval is typically required for the sale of all or
substantially all of a company's assets. However, we may dispose of all or
substantially all of the assets attributed to either group without stockholder
approval provided those assets do not constitute all or substantially all of the
assets of Acacia Research as a whole.
We may pay a dividend or redeem shares of common stock as set forth
above only if we have legally available funds under Delaware law and the amount
to be paid to holders is less than or equal to the Available Dividend Amount for
the group. We are required to pay such dividend or complete such redemption or
conversion on or prior to the 95th trading day following the disposition.
26
For purposes of determining whether a disposition has occurred,
"substantially all of the properties and assets" attributed to either group
means a portion of such properties and assets:
o that represents at least 80% of the then fair value of the
properties and assets attributed to that group; or
o from which were derived at least 80% of the aggregate revenues
of that group for the immediately preceding twelve fiscal
quarterly periods.
The "net proceeds" of a disposition means an amount equal to what
remains of the gross proceeds of the disposition after any payment of, or
reasonable provision is made as determined by our board of directors for:
o any taxes payable by us, or which would have been payable but
for the utilization of tax benefits attributable to the group
not subject to the disposition, in respect of the disposition
or in respect of any resulting dividend or redemption;
o any transaction costs, including, without limitation, any
legal, investment banking and accounting fees and expenses;
and
o any liabilities of or attributed to the group subject to the
disposition, including, without limitation, any liabilities
for deferred taxes, any indemnity or guarantee obligations
incurred in connection with the disposition or otherwise, any
liabilities for future purchase price adjustments and any
preferential amounts plus any accumulated and unpaid dividends
in respect of the preferred stock attributed to that group.
We may elect to pay the dividend or redemption price in connection with
a disposition either in the same form as the proceeds of the disposition were
received or in any other combination of cash, securities or other property that
our board of directors or, in the case of securities that have not been publicly
traded for a period of at least 15 months, an independent investment banking
firm, determines will have an aggregate market value of not less than the fair
value of the net proceeds.
EXAMPLE OF PROVISIONS REQUIRING A MANDATORY DIVIDEND,
REDEMPTION OR CONVERSION IF A DISPOSITION OCCURS
If (1) 20 million shares of AR-CombiMatrix stock and 20 million shares
of AR-Acacia Technologies stock were outstanding, (2) the net proceeds of the
disposition of substantially all, but not all, of the assets of the Acacia
Technologies group equals $80 million, (3) the average market value of the
AR-Acacia Technologies stock during the 10-trading day valuation period was $4
per share and (4) the average market value of the AR-CombiMatrix stock during
the same valuation period was $8 per share, then we could doreceive any of the following:
(1) pay a dividend to the holdersproceeds from the sale by the Selling Stockholders of shares of AR-Acacia
Technologies stock equal to:
Net Proceeds
----------------------------------------------------------- = Amount per share
Number of Outstanding Shares of AR-Acacia Technologies stock
$80 million
----------------------------------------------------------- = $4 per share
20 million shares
27
(2) redeem for $4 per share a number of shares of AR Acacia
Technologies stock equal to:
Net Proceeds
----------------------------------------------------------- = Number of Shares
Average Market Value of AR-Acacia Technologies stock
$80 million
----------------------------------------------------------- = 20,000,000 shares
$4 per share
(3) convert each outstanding share of AR-Acacia Technologies stock
into a number of shares of AR-CombiMatrix stock equal to:
1.1 X Average Market Value of AR-Acacia Technologies stock
---------------------------------------------------------- = Number of Shares
Average Market Value of AR-CombiMatrix stock
1.1 X $4 per share
---------------------------------------------------------- = 0.55 shares
$8 per share
IN THESE EXAMPLES WE HAVE PROVIDED A BETTER UNDERSTANDING OF THE
MECHANICS SURROUNDING THE CALCULATION OF VOTING POWER. IT SHOULD NOT BE ASSUMED
THAT THE EXAMPLES USED ARE IN ANY WAY INDICATIVE OF THE RESPECTIVE COMMON STOCK
TRADING PRICES AT ANY TIME BEFORE OR AFTER THE DATE OF THIS PROSPECTUS.
EXCEPTIONS TO THE DIVIDEND, REDEMPTION AND CONVERSION REQUIREMENT
IF A DISPOSITION OCCURS
We are not required to take any of
the above actions for any
disposition of allresale shares.
We expect that the Selling Stockholders or substantially all oftransferees may sell the
properties and assets attributedresale shares from time to either group in a transaction or series of related transactions that results
in our receiving for such properties and assets primarily equity securities of
any entity that:
(1) acquires such properties or assets, succeeds to the business
conducted with such properties or assets, or controls such
acquirer or successor; and
(2) engages primarily or proposes to engage primarilytime in one or more businesses similartransactions on Nasdaq or complementary toany
other exchange upon which the businesses
conducted by that group prior to the disposition, as
determined by our board of directors.
The purpose of the exception is to enable us technically to "dispose"
of propertiescompany may become listed, in privately negotiated
transactions, through put or assets of a group to other entities engaging or proposing to
engage in businesses similar or complementary to those of that group without
requiring a dividend on, or a conversion or redemption of, the class of common
stock of that group, so long as we hold an equity interest in that entity. A
joint venture in which we own a direct or indirect equity interest is an example
of such an acquirer. We are not required to control that entity, whether by
ownership or contract provisions.
We are also not required to effect a dividend, redemption or conversion
if the disposition is:
o of all or substantially all of our properties and assets in
one transaction or a series of relatedcall option transactions in
connection with our dissolution, liquidation or winding up and
the distribution of our assets to stockholders;
o on a pro rata basis, such as in a spin-off, to the holders of
all outstanding shares of the class of common stock relating to the group subject to the disposition;shares, or
28
o made to any person or entity controlled by us, as determined
by our board of directors.
NOTICES IF A DISPOSITION OF GROUP ASSETS OCCURS
Not later than the 20th trading day after the consummation of a disposition, we will announce publicly by press release:
o the estimated net proceeds of the disposition;
o the number of shares outstanding of the class of common stock
relating to the group subject to the disposition; and
o the number of sharescombination of such classmethods of common stock into or for
which convertible securities are then convertible,
exchangeable or exercisable and the conversion, exchange or
exercise price thereof.
Not earlier than the 36th trading day and not later than the 40th
trading day after the consummation of the disposition, we will announce publicly
by press release whether we will pay a dividend or redeem shares of common stock
with the net proceeds of the disposition or convert the shares of common stock
of the group subject to the disposition into the other class of common stock.
We are required to cause to be mailed to each holder of shares of the
class of common stock relating to the group subject to the disposition the
additional notices and other information required by the Restated Certificate.
DESCRIPTION OF WARRANTS
We have warrants to purchase 358,410 shares of our AR-CombiMatrix
stock outstanding and no warrants to purchase our AR-Acacia Technologies stock
outstanding, other than options issued under our 2002 CombiMatrix Stock
Incentive Plan and our 2002 Acacia Technologies Stock Incentive Plan, as
applicable. We may in the future issue warrants for the purchase of our
AR-CombiMatrix stock or our AR-Acacia Technologies stock. Warrants may be issued
independently, together with any other securities offered by any prospectus
supplement or through a dividend or other distribution to our stockholders and
may be attached to or separate from the related securities. Warrants may be
issued under a warrant agreement to be entered into between us and a warrant
agent specified in the applicable prospectus supplement. The warrant agent will
act solely as our agent in connection with the warrants of a particular series
and will not assume any obligation or relationship of agency or trust for or
with any holders or beneficial owners of warrants. The following sets forth
certain general terms and provisions of the warrants that may be offered under
this prospectus. The applicable warrant agreement and form of warrant
certificate will be filed as exhibits to or incorporated by reference in the
registration statement. Further terms of the warrants and the applicable warrant
agreement will be set forth in the applicable prospectus supplement.
The applicable prospectus supplement will describe the terms of the
warrants in respect of which this prospectus is being delivered, including,
where applicable, the following: (a) the title of the warrants; (b) the
aggregate number of the warrants; (c) the price or pricessale, at which the warrants
will be issued; (d) the designation, number and terms of the shares of our
AR-CombiMatrix stock or our AR-Acacia Technologies stock purchasable upon
exercise of the warrants; (e) the designation and terms of the other securities,
if any, with which the warrants are issued and the number of the warrants issued
with each security; (f) the date, if any, on and after which the warrants and
the related AR-CombiMatrix stock or AR-Acacia Technologies stock, if any, will
be separately transferable; (g) the price at which each share of AR-CombiMatrix
stock or AR-Acacia Technologies stock purchasable upon exercise of the warrants
may be purchased; (h) the date on which the right to exercise the warrants will
commence and the date on which that right will expire; (i) the minimum or
maximum amount of the warrants which may be exercised at any one time; (j)
information with respect to book-entry procedures, if any; (k) a discussion of
federal income tax considerations; and (l) any other terms of the warrants,
including terms, procedures and limitations relating to the transferability,
exchange and exercise of the warrants.
29
PLAN OF DISTRIBUTION
We may sell the securities offered pursuant to this prospectus and any
accompanying prospectus supplements to or through one or more underwriters or
dealers or we may sell the securities to investors directly or through agents.
Each prospectus supplement will describe the number and terms of the securities
to which such prospectus supplement relates, the name or names of any
underwriters or agents with whom we have entered into arrangements with respect
to the sale of such securities, the public offering or purchase price of such
securities and the net proceeds we will receive from such sale. Any underwriter
or agent involved in the offer and sale of the securities will be named in the
applicable prospectus supplement. We may sell securities directly to investors
on our own behalf in those jurisdictions where we are authorized to do so.
Underwriters may offer and sell the securities at a fixed price or prices which may be changed, at
market prices prevailing at the time of sale, at prices related to thesuch
prevailing market prices or at negotiated prices. We
alsoThe Selling Stockholders may
from timesell the resale shares to time, authorize dealers or agents to offerthrough broker-dealers, and sell these
securities upon such terms and conditions as may be set forth in the applicable
prospectus supplement. In connection with the sale of any of these securities,
underwritersbroker-dealers may
receive compensation from us in the form of underwriting
discountsSelling Stockholders or commissions and may also receive commissions fromthe purchasers of the
securities for whom theyresale shares, or both.
23
The selling stockholders may act as agent. Underwritersalso enter into hedging transactions,
options or other transactions with broker-dealers or other financial
institutions that require the delivery to these broker-dealers or other
financial institutions of shares offered by this prospectus, which shares these
broker-dealer or other financial institution may sell the securitiesresell pursuant to this
prospectus (as amended or through dealers, andsupplemented to reflect such dealerstransaction). These
broker-dealers may receive compensation in the form of discounts, concessions or
commissions from the underwriters selling stockholders and/or commissions from the purchasers of shares for which theywhom
these broker-dealers may act as agents. The maximum compensationagents or discount to bewhom they sell as principal, or
both. For example, the Selling Stockholders may:
o enter into transactions with a broker-dealer or affiliate of a
broker-dealer or other third party in connection with which
that other party will become a Selling Stockholder and engage
in short sales of securities under this prospectus, in which
case the other party may use securities received from the
Selling Stockholders to close out any short positions;
o sell short the securities under this prospectus and use the
securities held by it to close out any member ofshort position;
o enter into options, forwards or other transactions that
require the National Association of Securities
Dealers or any independent broker-dealer will not be greater than 8% for the
sale of any securities registered pursuant Rule 415Selling Stockholders to deliver, in a transaction
exempt from registration under the Securities Act, the
securities to a broker-dealer or an affiliate of 1933.
Sharesa
broker-dealer or other third party who may alsothen become a
Selling Stockholder and publicly resell or otherwise transfer
the securities under this prospectus; or
o loan or pledge the securities to a broker-dealer or an
affiliate of a broker-dealer or other third party who may then
become a Selling Stockholder and sell the loaned securities
or, upon an event of default in the case of a pledge, become a
Selling Stockholder and sell the pledged securities, under
this prospectus.
The Selling Stockholders have advised us that they have not entered
into any agreements, arrangements or understandings with any underwriter,
broker-dealer or agent regarding the sale of their securities.
The selling stockholders and any broker-dealers that act in connection
with the sale of shares may be sold in one or more"underwriters" within the meaning of Section
2(11) of the following transactions:
(a) block transactions (whichSecurities Act, and any commissions received by these
broker-dealers or any profit on the resale of the shares sold by them while
acting as principals might be deemed to be underwriting discounts or commissions
under the Securities Act.
Because selling stockholders may involve crosses) in which a broker-dealerbe "underwriters" within the meaning
of Section 2(11) of the Securities Act, the selling stockholders may sellbe subject
to the prospectus delivery requirements of the Securities Act. Furthermore,
selling stockholders also may resell all or a portion of the shares as agent butin open
market transactions in reliance upon Rule 144 under the Securities Act, provided
they meet the criteria and conform to the requirements of Rule 144. We have
informed the selling stockholders that the anti-manipulative provisions of
Regulation M promulgated under the Exchange Act may positionapply to their sales in the
market.
In addition, if we are notified by a selling stockholder that a donee,
pledgee or transferee or other successor in interest intends to sell more than
500 shares, a supplement to this prospectus will be filed.
At any time a particular offer of resale shares is made, to the extent
required, a supplemental prospectus will be distributed which will set forth the
number of resale shares offered and resell all or
a portionthe terms of the block as principal to facilitateoffering including the transaction; (b) purchasesname
or names of any underwriters, dealers or agents, the purchase price paid by a broker-dealer as principalany
underwriter for the resale shares purchased from the selling stockholders, any
discounts, commission and resale by the broker-dealer for its own
account pursuant to a prospectus supplement; (c) a special offering, an exchange
distribution or a secondary distribution in accordance with applicable Nasdaq
National Market or other stock exchange rules; (d) ordinary brokerage
transactions and transactions in which a broker-dealer solicits purchasers; (e)
sales "at the market" to or through a market maker or into an existing trading
market, on an exchange or otherwise, for shares; and (f) sales in other ways not
involving market makers or established trading markets, including direct sales
to purchasers. Broker-dealers may also receiveitems constituting compensation from purchasers of
the shares which is not expected to exceed that customary in the types of
transactions involved.
Any underwriting compensation paid by us to underwriters or agents in
connection with the offering of these securities,selling
stockholders and any discounts, or concessions or commissions allowed by underwritersor paid to
participating dealers,
will be set forth in the applicabledealers. We do not presently intend to use any forms of prospectus supplement. Dealersother than
print.
24
The Selling Stockholders and agentsany other persons participating in the
sale or distribution of the resale shares will be subject to the federal
securities may be deemed to be
underwriters,laws and any discounts and commissions received by them and any profit
realized by them on resalemust comply with certain terms of the securities may be deemed to be underwriting
discounts and commissions.
Underwriters, dealers and agents may be entitled, under agreements
entered into with us, to indemnification against and contribution toward certain
civil liabilities, including liabilities underrequirements of the
Securities Act and the Exchange Act, including Rule 10b-5 and Regulation M under
the Exchange Act. These rules and regulations may limit the timing of 1933.
Unlesspurchases
and sales of shares of our AR-Acacia Technologies common stock by the Selling
Stockholders or other persons. Under these rules and regulations, generally,
except as otherwise set forthpermitted the thereby, Selling Stockholders and other
persons participating in the accompanyingsale or distribution:
o may not engage in any stabilization activity in connection
with our AR-Acacia Technologies common stock,
o must furnish each broker which offers resale shares covered by
this prospectus with the number of copies of this prospectus
and any supplement which are required by the obligationsbroker, and
o may not bid for or purchase any of our AR-Acacia Technologies
common stock or attempt to induce any underwritersperson to purchase any
of these securitiesour AR-Acacia Technologies common stock other than as
permitted under the Exchange Act.
We will be
subjectmake copies of this prospectus available to certain conditions precedent,the Selling
Stockholders, and we have informed the underwriters will be obligated
to purchase allSelling Stockholders of the seriesneed for
delivery of securities,a copy of this prospectus to each purchaser of the resale shares
prior to or at the time of any sale of the resale shares offered hereby.
We may suspend the effectiveness or use of, or trading under, the
registration statement if any are purchased.
Underwriters, dealers and agents may engage in transactions with, or
perform services for, us and our affiliates inwe determine that the ordinary coursesale of business.
In connection with offeringany securities pursuant
to this prospectus,
certain underwriters, and selling group members and their respective affiliates,
may engage in transactionsthe registration statement would:
o materially impede, delay or interfere with any material
pending or proposed financing, acquisition, corporate
reorganization or other similar transaction involving the
company for which we have authorized negotiations; materially
adversely impair the consummation of any pending or proposed
material offering or sale of any class of securities by the
company, or
o require disclosure of material nonpublic information that, stabilize, maintain or otherwise affectif
disclosed at such time, would be materially harmful to the
market priceinterests of the applicable securities. These transactions may include
stabilization transactions effected in accordancecompany and our stockholders.
We will pay all costs and expenses associated with Rule 104 of Regulation M
promulgated byregistering and
qualifying the resale shares being offered hereunder with the SEC pursuantand any state
securities agencies. The selling stockholders will bear their own legal fees and
costs and all commissions, discounts and expenses of underwriters or brokers, if
any, attributable to which these persons may bid for or purchase
securities for the purpose of stabilizing their market price.
30
The underwriters in an offering of securities may also create a "short
position" for their account by selling more securities in connection with the
offering than they are committed to purchase from us. In that case, the
underwriters could cover all or a portionsales of the short position by either
purchasing securities inshares.
We and the open market following completionselling stockholders have agreed to indemnify each other
against certain liabilities that could arise from the registration and sale of
the offering of
these securities or by exercising any over-allotment option granted to them by
us. In addition, the managing underwriter may impose "penalty bids" under
contractual arrangements with other underwriters, which means that they can
reclaim from an underwriter (or any selling group member participating in the
offering) for the account of the other underwriters, the selling concession for
the securities that are distributed in the offering but subsequently purchased
for the account of the underwriters in the open market. Any of the transactions
described in this paragraph or comparable transactions that are described in any
accompanying prospectus supplement may result in the maintenance of the price of
the securities at a level above that which might otherwise prevail in the open
market. None of the transactions described in this paragraph or in an
accompanying prospectus supplement are required to be taken by any underwriters
and, if they are undertaken, may be discontinued at any time.
The AR-CombiMatrix stock is listed on the Nasdaq SmallCap Market under
the symbol "CBMX". The AR-Acacia Technologies stock is listed on the Nasdaq
National Market under the symbol "ACTG". Any underwriters or agents to or
through which securities are sold by us may make a market in the securities, but
these underwriters or agents will not be obligated to do so and any of them may
discontinue any market making at any time without notice. No assurance can be
given as to the liquidity of or trading market for any securities sold by us.shares.
EXPERTS
The financial statements of Acacia Research Corporation incorporated in
this prospectus by reference to the Annual Report on Form 10-K of Acacia
Research Corporation for the year ended December 31, 2002,2003, have been so
incorporated in reliance on the report of PricewaterhouseCoopers LLP, an
independent accountants,registered public accounting firm, given on the authority of said
firm as experts in auditing and accounting.
The financial statements of Acacia Technologies Group incorporated in
this prospectus by reference to the Annual Report on Form 10-K of Acacia
Research Corporation for the year ended December 31, 2003 have been so included
in reliance on the report (which contains an explanatory paragraph relating to
Acacia Technologies Group being a division of Acacia Research Corporation as
described in Note 1 to the Acacia Technologies Group financial statements) of
PricewaterhouseCoopers LLP, an independent registered public accounting firm,
given on the authority of said firm as experts in auditing and accounting.
The financial statements of CombiMatrix Group incorporated in this
prospectus by reference to the Annual Report on Form 10-K of Acacia Research
Corporation for the year ended December 31, 2003 have been so included in
reliance on the report (which contains an explanatory paragraph relating to
CombiMatrix Group being a division of Acacia Research Corporation as described
in Note 1 to the CombiMatrix Group financial statements) of
PricewaterhouseCoopers LLP, an independent registered public accounting firm,
given on the authority of said firm as experts in auditing and accounting.
25
LEGAL MATTERS
The validity of our securities offeredCertain legal matters in connection with this prospectus will be passed
upon for us by Allen Matkins Leck Gamble & MalloryGreenberg Traurig, LLP. Greenberg Traurig, LLP Century City,
California.and its attorneys
hold no shares of our AR-Acacia Technologies stock or other securities.
WHERE YOU CAN FIND MORE INFORMATION
We electronically file annual, quarterly and special reports, proxy and information statements and
other information with the SEC. YouSecurities and Exchange Commission. The public may
read and copy theany materials we file with the SEC at the SEC's Public Reference
Room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for furtherThe public may obtain
information on the operation of the Public Reference Rooms. OurRoom by calling the SEC filings areat
1-800-SEC-0330. The SEC also available to
the public from the SEC's World Wide Webmaintains an Internet site on the Internet at
http://www.sec.gov. This sitethat contains reports,
proxy and information statements, and other information regarding issuers that
file electronically with the SEC. You may also read and copy this information at the National AssociationThe address of Securities Dealers, Inc., 1735 K Street, N.W., Washington D.C. 20006.
We maintain athat site on theis
http://www.sec.gov. Our Internet ataddress is http://www.acaciaresearch.com.
MATERIAL CHANGES
The information contained in our website is not partcondensed consolidated pro forma financial statements that give
effect to the company's acquisition of this prospectuscertain subsidiary companies of Global
Patent Holdings, LLC as of December 31, 2004 and you
should not rely on it in deciding whether to invest in our common stock.
We have filed a registration statement, of which this prospectus is a
part, coveringfor the offered securities. As allowed by SEC rules, this prospectus
does not include allyear then ended and the
audited financial statements of the information contained inbusinesses acquired from Global Patent
Services, LLC as of December 31, 2004 and for the registration statement
and theyear then ended, will be
included exhibits, financial statements and schedules. We refer youas an amendment to the registration statement, the included exhibits, financial statements and
schedules for further information. This prospectus is qualified in its entirety
by such other information.
31
INFORMATION INCORPORATED BY REFERENCE
The SEC allows us to "incorporate by reference" the information that we
file with the SEC. This means that we can disclose important information to you
by referring you to another document filed separately with the SEC under the
Exchange Act. The information incorporated by reference is deemed to be part of
this prospectus, except for any information superseded by information in this
prospectus. We haveour Form 8-K filed with the SEC and incorporateis incorporated
by reference:
o our annual reportreference below, on February 1, 2005.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents are specifically incorporated by reference into
this prospectus:
(1) Our Annual Report on Form 10-K for the fiscal year ended December 31, 2002;
o our quarterly reports2003,
filed with the SEC on March 3, 2004;
(2) Our Quarterly Reports on Form 10-Q for the quarters ended March 31,
2003, June 30 2003, and September 30, 2003,2004, filed with the SEC on May 4, 2004,
August 5, 2004 and November 5, 2004, respectively;
(3) Our Proxy Statement on Form DEF 14A filed with the SEC on April 1,
2004, for our annual meeting of stockholders held on May 11, 2004;
(4) Our Current Reports on Form 8-K filed with the SEC on March 12, April
14, April 21, July 13, July 14, July 22, August 12, September 9,
October 4, October 7, October 21, December 17 and o theDecember 21, 2004,
and February 1, 2005;
(5) The description of the AR-CombiMatrix stock and the AR-Acacia Technologies stock included in our
registration statement on Form 8-A.
Any8-A, filed with the SEC on December 19,
2002; and
(6) All documents that we file pursuant to Sectionwith the SEC under Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act after the date of this prospectus and prior to the termination of the offeringoffering.
We will provide each person, including any beneficial owner, to whom a
prospectus is delivered, a copy of any or all of the securities to which this prospectus relates will
automatically be deemed to beinformation that has been
incorporated by reference in this prospectus and
to be part hereof frombut not delivered with the
date of filing those documents. Any statement
contained in this prospectus or in a document incorporated by reference shall be
deemed to be modified or superseded for all purposes to the extent that a
statement contained in this prospectus or in any other document which is also
incorporated by reference modifies or supersedes that statement.prospectus. We will provide without charge to each person to whom a copy of this prospectus is delivered,information 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 directedat no
charge to the Secretary atrequester. The request for this information must be made to the
following:
Investor Relations
Acacia Research Corporation
500 Newport Center Drive
7th Floor, Newport Beach, California 92660
telephone: (949) 480-8300.
32480-8300
26
============================================ ===================================
YOU SHOULD RELY ONLY ON THE INFORMATION
CONTAINED IN THIS PROSPECTUS. WE HAVE NOT 3,938,832 Shares
AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION DIFFERENT FROM THAT CONTAINED IN
THIS PROSPECTUS. THE SELLING STOCKHOLDERS [ACACIA RESEARCH CORPORATION LOGO]
ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, SHARES OF OUR AR-ACACIA TECHNOLOGIES
STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND
SALES ARE PERMITTED. THE INFORMATION AR-ACACIA TECHNOLOGIES STOCK
CONTAINED IN THIS PROSPECTUS IS ACCURATE
ONLY AS OF THE DATE OF THIS PROSPECTUS,
REGARDLESS OF THE TIME OF DELIVERY OF THIS
PROSPECTUS OR OF ANY SALE OF OUR AR-ACACIA
TECHNOLOGIES STOCK.
______________
____________________
PROSPECTUS
______________
TABLE OF CONTENTS
PAGE
----
Prospectus Summary..........................1
Risk Factors................................3
Cautionary Statement Concerning
Forward-Looking Information.............21
Use of Proceeds............................22
Selling Stockholders.......................22
Plan of Distribution.......................23
Experts....................................25 ACACIA RESEARCH CORPORATION
Legal Matters..............................25
Material Changes...........................25 __________________
Where You Can Find Additional Information..25
Incorporation of Certain Information by
Reference.............................25
____________________
============================================ ===================================
PART II
INFORMATION NOT REQUIRED IN PROSPECTUSInformation Not Required in Prospectus
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.DISTRIBUTION
The following table sets forth ourthe various costs and expenses payable
by the registrant in connection with the registrationsale of our securitiesthe AR-Acacia Technologies
stock being registered. AllAny broker-dealer discounts and commissions will be
payable by the Selling Stockholders. Except for the SEC registration fee, all
the amounts shown are estimates except the Securitiesestimates.
SEC registration fee.............................................. $ 2,670.34
Legal fees and Exchange Commission registration fee.
DESCRIPTION AMOUNT
- --------------------------------------------------------------------------------
Securitiesexpenses........................................... 150,000.00
Accounting fees and Exchange Commission Registration Fee $ 6,335
Nasdaq National Market Fees 45,000expenses...................................... 15,000.00
Printing and Engraving 50,000
Legal Fees and Expenses 125,000
Accountants' Fees and Expenses 25,000
Miscellaneous 23,665
----------
Totalrelated expenses..................................... 1,000.00
Miscellaneous..................................................... 250.00
-----------
Total.......................................................... $ 275,000
==========168,920.34
============
ITEM 15. INDEMNIFICATION OF DIRECTORSOFFICERS AND OFFICERS.DIRECTORS
Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify directors and officers as well as other employees and
individuals against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement in connection with specified actions, suits or
proceedings, whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation - a derivative action), if
they acted in good faith and in a manner they reasonably believed to be in or
not opposed to the best interests of the corporation and, with respect to any
criminal action or proceedings, had no reasonable cause to believe their conduct
was unlawful.
A similar standard is applicable in the case of derivative actions,
except that indemnification only extends to expenses (including attorneys' fees)
actually and reasonably incurred in connection with the defense or settlement of
such action, and the statute requires court approval before there can be any
indemnification where the person seeking indemnification has been found liable
to the corporation. The statute provides that it is not exclusive of other
indemnification that may be granted by a corporation's certificate of
incorporation, bylaws, disinterested director vote, stockholder vote, agreement
or otherwise.
As permitted by Section 145 of the Delaware General Corporation Law,
Article VII of Acacia's restated certificate of incorporation provides:
No"No person shall be personally liable to the Corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director, including without limitation for serving on a committee of
the Board of Directors, except to the extent such exemption from
liability or limitation thereof is not permitted under the DGCL as the
same exists or hereafter may be amended. If the DGCL is amended after
the date of the filing of this Certificate of Incorporation to
authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director of the
Corporation shall be eliminated or limited to the fullest extent
permitted by the DGCL as so amended. Any amendment, repeal or
modification of this Article VII shall not adversely affect any right
or protection of a director of the Corporation existing hereunder with
respect to any act or omission occurring prior to such amendment,
repeal or modification.
Acacia Research has"
We have purchased insurance on behalf of any person who is or was a
director, officer, employee or agent of Acacia Research,the Company, or is or was serving at the
request of Acacia Researchthe Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against any
liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not Acacia
Researchthe Company would have the
power to indemnify him against such liability under the provisions of Acacia Research'sthe
Company's restated certificate of incorporation.
II-1
ITEM 16. EXHIBITS.
The following exhibits are partEXHIBITS
EXHIBIT NO. DESCRIPTION
2.1 Member Interest Purchase Agreement (1)
3.1 Restated Certificate of this Registration Statement on Form
S-3 and are numbered in accordance with Item 601 of Regulation S-K.
EXHIBIT
NUMBER DESCRIPTION
- --------- ------------------------------------------------------------------Incorporation (2)
3.2 Bylaws (3)
4.1 Restated Certificate of Incorporation (1)
4.2 Form of Warrant Agreement(2)included as Exhibit 3.1
to this Registration Statement
5.1 Opinion of Allen Matkins Leck Gamble & MalloryGreenberg Traurig, LLP
10.1 Membership Interest Purchase Agreement (1)
10.2 Registration Rights Agreement (1)
10.3 Consulting Agreement (1)
10.4 Goodwill Purchase Agreement (1)
23.1 Consent of Greenberg Traurig, LLP (included in Exhibit 5.1
hereto)
23.2 Consent of Independent AccountantsRegistered Public Accounting Firm
regarding Acacia Research Corporation
23.2 Consent of Independent Accountants regarding Acacia Technologies
Group
23.3 Consent of Independent AccountantsRegistered Public Accounting Firm
regarding CombiMatrixthe Acacia Technologies Group
23.4 Consent of Allen Matkins Leck GambleIndependent Registered Public Accounting Firm
regarding the CombiMatrix Group Resolutions authorizing
signature of Chief Executive Officer and Mallory LLP (included in
the opinion filed as Exhibit 5.1)Chief Financial
Officer by power of attorney
24.1 Powers of Attorney (included on page II-4)
- -------------------------------------------------------------------------------------------
(1) Incorporated by reference to the Company's Current Report on Form 8-K,
filed on February 1, 2005 SEC File NO. 000-26068.
(2) Incorporated by reference from Appendix B to the Proxy Statement/Prospectus
which formed part of Acacia Research'sthe Company's Registration Statement on Form S-4 (SEC
File No. 333-87654) which became effective on November 8, 2002.
(2) To be filed as an exhibit(3) Incorporated by reference to a Currentthe Company's Quarterly Report on Form 8-K and incorporated
herein by reference.10-Q
filed on August 10, 2001 (SEC File No. 000-26068).
ITEM 17. UNDERTAKINGS.
A.UNDERTAKINGS
The Registrantundersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration
Statement:registration
statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the Registration
Statement (or the most recent post-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 the 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 end 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 a 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
this Registration Statementthe registration statement or any material change to
such information in this Registration Statement;
provided, however, that paragraphs (A)(1)(i) and (A)(1)(ii) 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 Exchange Act that are incorporated by reference in this
Registration Statement;registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be
deemed to be a new registration statement relating to the
securities offered therein,herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide
offering thereof; andthereof.
(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.
II-2
B. The undersigned Registrant hereby undertakes that,(4) That, for purposes of determining any liability under the
Securities Act, each filing of the Registrant'sregistrant's annual report
pursuant to Section 13(a) or Section 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 thisthe Registration
Statement shall be deemed to be a new registration statement
relating to the securities offered therein,herein, and the offering of
such securities at that time shall be deemed to be the initial
bona fide offering thereof.
C.II-2
(5) The undersigned registrant hereby undertakes to deliver or
cause to be delivered with the prospectus, to each person to
whom the prospectus is sent or given, the latest annual
report, to security holders that is incorporated by reference
in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities
Exchange Act of 1934; and, where interim financial information
required to be presented by Article 3 of Regulation S-X is not
set forth in the prospectus, to deliver, or cause to be
delivered to each person to whom the prospectus is sent or
given, the latest quarterly report that is specifically
incorporated by reference in the prospectus to provide such
financial information.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrantregistrant pursuant to the foregoing provisions, or otherwise, the Registrantregistrant
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 Registrantregistrant of expenses
incurred or paid by a director, officer or controlling person of the Registrantregistrant
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 Registrantregistrant will, unless in the opinion of itsour counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by itus is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
D. The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, 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
(2) For the purpose of determining any liability under the
Securities Act, 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 fide offering thereof.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Acacia
Research Corporationas amended,
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 Newport Beach, State of California, ason the 1st
day of February 13, 2004.2005.
ACACIA RESEARCH CORPORATION
By: /s/ PaulPAUL R. RyanRYAN
------------------------------------
Paul R. Ryan,
Chairman and Chief Executive Officer and Chairman
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Paul R. Ryan and Clayton J. Haynes, and
eachor
either of them, as his true and lawful attorneys-in-factattorney-in-fact and agents, willagent, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign (1) any and all amendments (including
post-effective amendments) to this registration statement,
and (2) any registration statement or post-effective amendment thereto to be
filed with the Securities and Exchange Commission 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
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, or their or his substitutesubstitutes or substitutes,substitute, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ----------------------------- --------------------------------------------------- --------------------------- ----- ----
/s/ Paul R. Ryan Chief Executive Officer and Chairman
of the Board February 13, 2004
- ----------------------------------------------------------- (Principal Executive Officer) PAULFebruary 1, 2005
Paul R. RYANRyan
/s/ Clayton J. Haynes Chief Financial Officer (Principal
- ------------------------------ Financial and February 13, 2004
- ----------------------------- Accounting Officer) CLAYTONFebruary 1, 2005
Clayton J. HAYNESHaynes
/s/ Robert L. Harris, II President and Director February 13, 20041, 2005
- -----------------------------
ROBERT------------------------------
Robert L. HARRISHarris, II
/s/ Thomas B. Akin Director February 13, 20041, 2005
- -----------------------------
THOMAS------------------------------
Thomas B. AKIN
/s/ Rigdon CurrieAkin
Director February 13, 20041, 2005
- -----------------------------
RIGDON CURRIE------------------------------
Rigdon Currie
/s/ Fred A. de Boom Director February 13, 20041, 2005
- -----------------------------
FRED------------------------------
Fred A. DE BOOMde Boom
/s/ Edward W. Frykman Director February 13, 20041, 2005
- -----------------------------
EDWARD------------------------------
Edward W. FRYKMANFrykman
/s/ G. Louis Graziadio, III Director February 13, 20041, 2005
- -----------------------------------------------------------
G. LOUIS GRAZIADIOLouis Graziadio, III
/s/ Amit Kumar Director February 13, 20041, 2005
- -----------------------------
AMIT KUMAR------------------------------
Amit Kumar
II-4
EXHIBIT INDEX
Pursuant to Item 601(a)(2) of Regulation S-K, this exhibit index
immediately precedes the exhibits.
EXHIBIT
NUMBER DESCRIPTION
- ---------- ------------------------------------------------------------------
4.1 Restated Certificate of Incorporation (1)
4.2 Form of Warrant Agreement(2)
5.1 Opinion of Allen Matkins Leck Gamble & Mallory LLP
23.1 Consent of Independent Accountants regarding Acacia Research
Corporation
23.2 Consent of Independent Accountants regarding Acacia Technologies
Group
23.3 Consent of Independent Accountants regarding CombiMatrix Group
23.4 Consent of Allen Matkins Leck Gamble and Mallory LLP (included in
the opinion filed as Exhibit 5.1)
24.1 Powers of Attorney (included on page II-4)
(1) Incorporated by reference from Appendix B to the Proxy Statement/Prospectus
which formed part of Acacia Research's Registration Statement on Form S-4
(SEC File No. 333-87654) which became effective on November 8, 2002.
(2) To be filed as an exhibit to a Current Report on Form 8-K and incorporated
herein by reference.