AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 1, 2003
REGISTRATION NO. 333-_____
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________
FORM S-8
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
_______________
ACACIA RESEARCH CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 95-4405754
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
500 NEWPORT CENTER DRIVE
NEWPORT BEACH, CALIFORNIA 92660
(ADDRESS PRINCIPAL EXECUTIVE OFFICES)
2002 COMBIMATRIX STOCK INCENTIVE PLAN
2002 ACACIA TECHNOLOGIES STOCK INCENTIVE PLAN
(FULL TITLES OF THE PLANS)
PAUL R. RYAN
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
500 NEWPORT CENTER DRIVE
NEWPORT BEACH, CALIFORNIA 92660
(NAME AND ADDRESS OF AGENT FOR SERVICE)
(949) 480-8300
(TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
MARK J. KELSON
ALLEN MATKINS LECK GAMBLE & MALLORY LLP
1901 AVENUE OF THE STARS, 18TH FLOOR
LOS ANGELES, CALIFORNIA 90067
(310) 788-2400
CALCULATION OF REGISTRATION FEE
========================================== ==================== ===================== ==================== =====================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED (1) SHARE (2) PRICE REGISTRATION FEE
------------------------------------------ -------------------- --------------------- -------------------- ---------------------
2002 CombiMatrix Stock Incentive Plan 600,000 shares $4.28 $2,568,000 $207.75
Acacia Research - CombiMatrix Common
Stock, $0.001 par value
(options available for future grant) ....
------------------------------------------ -------------------- --------------------- -------------------- ---------------------
2002 Acacia Technologies Stock
Incentive Plan
Acacia Research - Acacia Technologies
Common Stock, $0.001 par value
(options available for future grant) .... 500,000 shares $4.69 $2,345,000 $189.71
------------------------------------------ -------------------- --------------------- -------------------- ---------------------
2002 CombiMatrix Stock Incentive Plan
Acacia Research - CombiMatrix Common
Stock, $0.001 par value
(currently outstanding options).......... 2,568,760 shares $8.26 $21,217,957 $1,716.53
------------------------------------------ -------------------- --------------------- -------------------- ---------------------
2002 Acacia Technologies Stock Incentive
Plan
Acacia Research - Acacia Technologies
Common Stock, $0.001 par value
(currently outstanding options).......... 3,359,800 shares $9.57 $32,153,286 $2,601.20
------------------------------------------ -------------------- --------------------- -------------------- ---------------------
total $58,284,243 $4,715.19
========================================== ==================== ===================== ==================== =====================
(1) In addition, pursuant to Rule 416(c) under the Securities Act of 1933,
this registration statement also covers an indeterminate amount of
interests to be offered or sold pursuant to the employee benefit plans
described herein.
(2) The proposed maximum offering price per share is estimated solely for the
purpose of computing the amount of the registration fee under Rule 457(c)
and (h). With respect to the 600,000 shares of Acacia Research -
CombiMatrix Common Stock reserved for future issuance under the 2002
CombiMatrix Stock Incentive Plan, the proposed maximum offering price per
share is based on the average of the high and low sale price of $4.28 per
share of the Acacia Research - CombiMatrix Common Stock reported on the
Nasdaq SmallCap Market on September 30, 2003. With respect to the 500,000
shares of Acacia Research - Acacia Technologies Common Stock reserved for
future issuance under the 2002 Acacia Technologies Stock Incentive Plan,
the proposed maximum offering price per share is based on the average of
the high and low sale price of $4.69 per share of the Acacia Research -
Acacia Technologies Common Stock reported on the Nasdaq National Market on
September 30, 2003. With respect to the 2,568,760 shares of Acacia
Research-CombiMatrix Common Stock subject to currently outstanding options
under the 2002 CombiMatrix Stock Incentive Plan, the proposed maximum
offering price per share is based on the per share weighted average
exercise price of the stock options. With respect to the 3,359,800 shares
of Acacia Research-Acacia Technologies Common Stock subject to currently
outstanding options under the 2002 Acacia Technologies Stock Incentive
Plan, the proposed maximum offering price per share is based on the per
share weighted average exercise price of the stock options.
EXPLANATORY NOTE
Acacia Research Corporation, a Delaware corporation (the
"Registrant"), previously filed a Registration Statement on Form S-8
(Registration No. 333-102181) (the "Prior Registration Statement") with the
Securities and Exchange Commission on December 23, 2002, for the purpose of
registering shares of the Registrant's Acacia Research-CombiMatrix common stock,
par value $0.001 per share, issuable upon the grant of awards or the exercise of
options granted pursuant to the 2002 CombiMatrix Stock Incentive Plan (the
"CombiMatrix Plan"), and shares of the Registrant's Acacia Research-Acacia
Technologies common stock, par value $0.001 per share, issuable upon the grant
of awards or the exercise of options granted pursuant to the 2002 Acacia
Technologies Stock Incentive Plan (the "Acacia Technologies Plan"). At the time
of the filing of the Prior Registration Statement, 8,510,315 shares of Acacia
Research-CombiMatrix Common Stock were authorized for issuance under the
CombiMatrix Plan and 5,207,855 shares of Acacia Research-Acacia Technologies
common stock were authorized for issuance under the Acacia Technologies Plan. On
January 2, 2003, (1) the number of shares of Acacia Research-CombiMatrix common
stock authorized for issuance pursuant to the CombiMatrix Plan was automatically
increased by 600,000 shares pursuant to the automatic share increase provisions
of Section V.B of Article I of the CombiMatrix Plan, and (2) the number of
shares of Acacia Research-Acacia Technologies common stock authorized for
issuance pursuant to the Acacia Technologies Plan was automatically increased by
500,000 shares pursuant to the automatic share increase provisions of Section
V.B. of Article I of the Acacia Technologies Plan.
The Registrant hereby files this Registration Statement on Form S-8
for the purpose of registering (1) an additional 600,000 shares of Acacia
Research-CombiMatrix common stock, issuable upon the grants of awards or the
exercise of options granted pursuant to the CombiMatrix Plan, (2) an additional
500,000 shares of Acacia Research-Acacia Technologies common stock issuable upon
the grants of awards or the exercise of options granted pursuant to the Acacia
Technologies Plan, (3) the resale of shares which may be sold following the
exercise of currently outstanding options to purchase 2,568,760 shares of Acacia
Research-CombiMatrix common stock held by current officers and directors of the
Registrant, and (4) the resale of shares which may be sold following the
exercise of currently outstanding options to purchase 3,359,800 shares of Acacia
Research-Acacia Technologies common stock held by current officers and directors
of the Registrant. Pursuant to General Instruction E to Form S-8, the Registrant
incorporates by reference herein the contents of the Prior Registration
Statement, including the information incorporated therein by reference.
This Registration Statement brings the total number of authorized and
registered shares of Acacia Research-CombiMatrix Common Stock under the
CombiMatrix Plan to 9,110,315 and the total number of authorized and registered
shares of Acacia Research-Acacia Technologies Common Stock under the Acacia
Technologies Plan to 5,707,855.
This registration statement contains two parts. The first part
contains a reoffer prospectus prepared in accordance with Part I of Form S-3.
The second part contains information required in the registration statement
under Part II of Form S-8. The plan information specified by Part I of Form S-8
is not being filed with the Securities and Exchange Commission as permitted by
the Note in Part I of Form S-8. This plan information, the statement of
availability of registrant information and any other information required by
Item 2 of Form S-8 will be sent or given to participants of the employee benefit
plans as specified by Rule 428 under the Securities Act of 1933.
REOFFER PROSPECTUS
ACACIA RESEARCH CORPORATION
3,359,800 SHARES OF
ACACIA RESEARCH-ACACIA TECHNOLOGIES COMMON STOCK
AND
2,568,760 SHARES OF
ACACIA RESEARCH-COMBIMATRIX COMMON STOCK
__________________________
This prospectus covers the sale of our Acacia Research-Acacia
Technologies common stock and Acacia Research-CombiMatrix common stock by the
selling security holders identified in this prospectus. We will not receive any
proceeds from the sale of Acacia Research-Acacia Technologies common stock and
Acacia Research-CombiMatrix common stock by the selling security holders. The
selling security holders are current officers and directors who acquired their
shares of Acacia Research-CombiMatrix common stock under our employee benefit
plans prior to the filing of the registration statement of which this reoffer
prospectus is a part.
Our Acacia Research-CombiMatrix common stock is traded on the Nasdaq
SmallCap Market under the symbol "CBMX." On September 30, 2003, the last
reported sale price of a share of our Acacia Research-CombiMatrix common stock
on the Nasdaq SmallCap Market was $4.55.
Our Acacia Research-Acacia Technologies common stock is traded on the
Nasdaq National Market under the symbol "ACTG." On September 30, 2003, the last
reported sale price of a share of our Acacia Research-Acacia Technologies common
stock on the Nasdaq National Market was $4.75.
INVESTING IN OUR ACACIA RESEARCH-ACACIA TECHNOLOGIES COMMON STOCK AND
ACACIA RESEARCH-COMBIMATRIX COMMON STOCK INVOLVES RISKS, SOME OF WHICH ARE
DESCRIBED IN THE "RISK FACTORS" SECTION BEGINNING ON PAGE 3 OF THIS PROSPECTUS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is October 1, 2003
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. THE SELLING SECURITY HOLDERS ARE OFFERING TO SELL,
AND SEEKING OFFERS TO BUY, SHARES OF ACACIA RESEARCH-ACACIA TECHNOLOGIES COMMON
STOCK AND ACACIA RESEARCH-COMBIMATRIX COMMON STOCK ONLY IN JURISDICTIONS WHERE
OFFERS AND SALES ARE PERMITTED. THE INFORMATION 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 THE SHARES.
____________________________
TABLE OF CONTENTS
Page
----
Summary............................................................... 1
Forward Looking Statements............................................ 3
Risk Factors.......................................................... 4
Use of Proceeds....................................................... 23
Dilution.............................................................. 23
Selling Security Holders.............................................. 23
Plan of Distribution.................................................. 25
Experts............................................................... 26
Legal Matters......................................................... 26
Where You Can Find Additional Information............................. 27
Information Incorporated by Reference................................. 27
SUMMARY
Acacia Research Corporation develops, acquires and licenses enabling
technologies for the life sciences and media technologies sectors, which
comprise our two business groups.
Our life sciences business, referred to as the "CombiMatrix group," is
comprised of our wholly-owned subsidiary, CombiMatrix Corporation and
CombiMatrix Corporation's subsidiaries, Advanced Material Sciences, Inc., or
Advanced Material Sciences, and CombiMatrix K.K. Our core technology opportunity
in the life sciences sector has been developed by CombiMatrix Corporation.
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 significant
applications relating to genomic and proteomic research. Advanced Material
Sciences, a development stage company, holds the exclusive license for
CombiMatrix Corporation's biological array processor technology in certain
fields of material sciences. CombiMatrix K.K., an indirect wholly-owned Japanese
corporation located in Tokyo, is exploring opportunities for CombiMatrix
Corporation's active biochip system with academic, pharmaceutical and
biotechnology organizations in the Asian market.
Our media technologies business, collectively referred to as the "Acacia
Technologies group," owns patented intellectual property in the media
technologies sector. The Acacia Technologies group owns patented digital media
transmission, or DMT, technology enabling the digitization, encryption, storage,
transmission, receipt and playback of digital content. The DMT technology is
protected by five U.S. and seventeen international patents. The DMT technology
is utilized by a variety 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. The Acacia Technologies
group also owns technology known as the V-chip. The V-chip was adopted by
manufacturers of televisions sold in the U.S. 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.
Following is a summary of the principal wholly-owned companies that
constitute our two business groups:
GROUP / COMPANY DESCRIPTION OF BUSINESS
--------------- -----------------------
COMBIMATRIX GROUP:
CombiMatrix Corporation 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 significant
applications relating to genomic and proteomic
research, biological and chemical detection
and combinatorial chemistry markets.
Advanced Material Sciences, a development
stage company and majority-owned subsidiary of
CombiMatrix Corporation, holds the exclusive
license for CombiMatrix Corporation's
biological array processor technology in
certain fields of material sciences.
CombiMatrix K.K., an indirect wholly-owned
Japanese subsidiary of CombiMatrix
Corporation, is exploring opportunities for
CombiMatrix Corporation's active biochip
system with pharmaceutical and biotechnology
companies in the Asian market.
-1-
ACACIA TECHNOLOGIES GROUP:
Acacia Media Technologies A media technology company that owns patented
Corporation digital media transmission technology used to
digitize, encrypt, store, transmit, receive
and playback digitized content sent via
pathways such as cable, satellite and the
Internet, and covering a variety of services
such as those commonly known as
video-on-demand, audio-on-demand and streaming
media.
Soundview Technologies A media technology company that owns
Incorporated intellectual property related to the
telecommunications field, including a
television blanking system, also known as
"V-chip," which it licenses to television
manufacturers.
RECAPITALIZATION AND MERGER TRANSACTIONS
On December 11, 2002, our stockholders voted in favor of a recapitalization
transaction whereby we created two new classes of common stock called "Acacia
Research-CombiMatrix stock," or AR-CombiMatrix stock, and "Acacia
Research-Acacia Technologies stock," or AR-Acacia Technologies stock, and
divided our then-existing Acacia Research common stock into shares of the two
new classes of common stock. AR-CombiMatrix stock is intended to reflect
separately the performance of our CombiMatrix group, and to benefit from its
licensing and research and development efforts. AR-Acacia Technologies stock is
intended to reflect separately the performance of our Acacia Technologies group
and to benefit from the licensing of its technologies. In the recapitalization,
which became effective on December 13, 2002, Acacia Research Corporation
stockholders received 0.5582 of a share of AR-CombiMatrix stock, and one share
of AR-Acacia Technologies stock, for each share of Acacia Research common stock
that they owned. Although our AR-CombiMatrix stock and our AR-Acacia
Technologies stock are intended to reflect the performance of our different
business groups, they are both classes of common stock of Acacia Research
Corporation and are not stock issued by the respective groups.
On December 11, 2002, our stockholders and CombiMatrix Corporation's
stockholders also voted in favor of a merger transaction pursuant to which we
acquired the stockholder interests in CombiMatrix Corporation not already owned
by us (52% of the total stockholder interests in CombiMatrix Corporation). The
acquisition was accomplished through a merger, effective December 13, 2002, in
which stockholders of CombiMatrix Corporation other than Acacia Research
Corporation received one share of our new AR-CombiMatrix stock in exchange for
each share of CombiMatrix Corporation common stock that they owned immediately
prior to the merger.
RECENT EQUITY TRANSACTIONS
In May 2003, we issued 2,416,502 shares, and warrants to purchase 1,208,252
shares (subject to adjustment under certain circumstances), of our
AR-CombiMatrix stock to certain selling security holders in a private placement.
In July 2003, we issued 295,790 shares of our AR-CombiMatrix stock to certain
selling security holders pursuant to a purchase agreement in which the
consideration for the shares consisted of shares of Advanced Material Sciences,
Inc. common stock. The shares described above, including the shares issuable
upon the exercise of the warrants described above, are covered by a registration
statement on Form S-3, filed July 7, 2003.
In July 2003, we issued 200,000 shares of our AR-CombiMatrix stock to
certain selling security holders pursuant to common stock purchase agreements in
which the consideration for the shares consisted of shares of common stock of
CombiMatrix Corporation's CombiMatrix K.K. subsidiary. These shares are covered
by a registration statement on Form S-3, filed August 27, 2003.
We were incorporated in California in January 1993, and we reincorporated
in Delaware in December 1999. We maintain our executive offices at 500 Newport
Center Drive, 7th Floor, Newport Beach, California 92660, and our telephone
number is (949) 480-8300.
-2-
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements within the meaning of
the federal securities laws. Forward-looking statements are statements that
predict or describe future events or trends and that do not relate solely to
historical matters. You can generally identify forward-looking statements as
statements containing 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 our business strategies;
o market trends and risks;
o assumptions regarding economic conditions;
o circumstances affecting anticipated revenues and costs; and
o legislative, regulatory and competitive developments.
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, including those discussed under
"Risk Factors" in this prospectus or described in reports that we file from time
to time with the Securities and Exchange Commission, such as our Forms 10-K and
10-Q, could cause our actual results and those of our industries to differ
materially from those projected in any forward-looking statements we make. We
are not obligated to publicly update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise.
-3-
RISK FACTORS
AN INVESTMENT IN OUR STOCK INVOLVES A NUMBER OF RISKS. BEFORE MAKING A
DECISION TO PURCHASE OUR STOCK, YOU SHOULD CAREFULLY CONSIDER ALL OF THE RISKS
DESCRIBED IN THIS PROSPECTUS. IF ANY OF THE RISKS DISCUSSED IN THIS PROSPECTUS
ACTUALLY OCCUR, OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS
COULD BE MATERIALLY AND ADVERSELY AFFECTED. IF THIS WERE TO OCCUR, THE TRADING
PRICES OF OUR 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, and recent international conflicts and 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. In addition, the events of September 11, 2001 and
subsequent international conflicts and terrorist acts can be expected to place
further pressure on economic conditions in the United States and worldwide.
These conditions make it extremely difficult for us to accurately forecast and
plan future business activities. 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 June 30, 2003, of $172.4 million (including a
reclassification of accumulated deficit in the amount of $21.7 million to
permanent capital representing the fair value of the ten percent (10%) stock
dividend paid in 2001) 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
expenses. As a result, we expect to incur significant losses for the foreseeable
future.
-4-
BECAUSE OUR OPERATING RESULTS HAVE FLUCTUATED SIGNIFICANTLY AND MAY CONTINUE TO
DO SO IN THE FUTURE, OUR STOCK PRICES MAY BE VERY VOLATILE.
Our operating results may vary significantly from quarter to quarter due to
a variety of factors, including:
o the operating results of our current and future subsidiary
companies;
o the nature and timing of our investments in new subsidiary
companies;
o our decisions to acquire or divest interests in our current and
future subsidiaries, which may create changes in losses or income
and amortization of goodwill;
o changes in our methods of accounting for our current and future
subsidiaries, which may cause us to recognize gains or losses
under applicable accounting rules;
o the timing of the sales of equity interests in our current and
future subsidiary companies;
o our ability to effectively manage our growth and the growth of our
subsidiary companies;
o general economic conditions; and
o the cost of future acquisitions, which may increase due to intense
competition from other potential acquirers of technology-related
companies or ideas.
We have incurred and expect to continue to incur significant expenses in
pursuing and developing new business ventures. To date, we have lacked a
consistent source of recurring revenue. Each of the factors we have described
may cause our stock to be more volatile than the stock of other companies.
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;
-5-
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
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 June 30, 2003, we had cash and short-term investments of $55.1
million on our consolidated financial statements.
To date, our subsidiary companies have relied primarily upon selling equity
securities, including sales to and loans from us, to generate the funds needed
to finance implementing their plans of operations. 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.
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 significant
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.
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.
-6-
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.
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.
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 or operations and have limited operating histories.
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.
During the six months ended June 30, 2003 and the fiscal year ended
December 31, 2002, we had operating losses of approximately $13.8 million and
$80.3 million, respectively, and net losses of approximately $13.4 million and
$59.0 million, respectively. If we continue to incur operating losses, we may
not have enough money to expand our business and our subsidiary companies'
businesses in the future.
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 Corporation 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;
-7-
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.
RISKS RELATING TO A CAPITAL STRUCTURE WITH
TWO SEPARATE CLASSES OF COMMON STOCK
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.
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.
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:
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).
We will not hold separate stockholder meetings for holders of
AR-CombiMatrix stock and AR-Acacia Technologies stock.
-8-
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.
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.
-9-
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.
As of September 15, 2003, our executive officers, directors and their
affiliates beneficially owned approximately 8.4% of the outstanding
AR-CombiMatrix stock and 14.9% of the outstanding AR-Acacia Technologies stock.
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
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.
-10-
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.
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.
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.
-11-
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.
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.
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.
-12-
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 acquiror to obtain
control of Acacia Research Corporation by purchasing only shares of
AR-CombiMatrix stock.
DECISIONS BY DIRECTORS AND OFFICERS THAT AFFECT ONE CLASS OF OUR COMMON STOCK
DIFFERENTLY 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.
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
ANTITAKEOVER 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.
-13-
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.
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-CombiMatrix stock is 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.
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;
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.
-14-
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.
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
-15-
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.
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.
-16-
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.
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;
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.
-17-
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.
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.
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 two
patents issued in the United States, one patent issued in Europe and more than
44 patent applications pending in the United States, Europe and elsewhere. The
patent application process before the Unites 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.
-18-
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.
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.
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
-19-
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.
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, and
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 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.
-20-
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.
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.
-21-
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.
-22-
USE OF PROCEEDS
We will not receive any proceeds from the sale of the shares by the selling
security holders except to the extent that we will receive proceeds upon the
exercise of the options held by certain of the selling security holders for an
amount equal to the product of the number of shares purchased and the per share
exercise price of each option. We intend to use any proceeds received from the
exercise of options for general corporate purposes. All proceeds from the sale
of the shares will go to the selling security holder who offers and sells the
shares.
DILUTION
Because the selling shareholders will offer and sell the common stock
covered by this reoffer prospectus at various times and at prices and terms then
prevailing or at prices related to the then current market price or in
negotiated transactions, we have not included in this reoffer prospectus
information about the dilution, if any, to the public arising from these sales.
SELLING SECURITY HOLDERS
The shares of AR-Acacia Technologies stock and AR-CombiMatrix stock offered
by this prospectus have been or will be issued to the selling security holders
(or their assignees) directly by us. Each of the selling security holders is an
employee or director of Acacia Research and is registering the shares reserved
for issuance upon the exercise of stock options outstanding under our equity
compensation plans.
The following table sets forth the number of shares of AR-Acacia
Technologies stock beneficially owned by each of the selling security holders.
Each of the selling security holders is an employee or director of Acacia. We
calculated beneficial ownership according to Rule 13d-3 of the Exchange Act as
of September 15, 2003. The shares are being registered to permit public
secondary trading of the shares, and the selling security holders may offer the
shares for resale from time to time.
NUMBER OF
AR- ACACIA TECHNOLOGIES SHARES AR- ACACIA TECHNOLOGIES
SHARES BENEFICIALLY OWNED BEING SHARES BENEFICIALLY OWNED
NAME PRIOR TO OFFERING OFFERED(1) AFTER OFFERING(2)
----------------------------------------- -------------------------- ------------ -------------------------
NUMBER PERCENTAGE(3) NUMBER PERCENTAGE(3)
------ ------------- ------ -------------
Paul R. Ryan 1,259,118 6.2% 1,102,963 442,987 2.2%
Robert L. Harris II 670,667 3.3% 960,001 20,000 *
Clayton J. Haynes 61,665 * 131,830 0 *
Robert A. Berman 313,488 1.6% 467,603 0 *
Thomas B. Akin 150,394(4) * 93,100 83,044(4) *
Rigdon Currie 15,000 * 20,000 0 *
Fred A. de Boom 68,550 * 51,300 23,200 *
Edward W. Frykman 79,340 * 68,900 14,190 *
G. Louis Graziado III 33,250 * 37,000 0 *
Amit Kumar 367,919 1.8% 427,103 1,100 *
TOTAL.......................................3,019,391 14.9% 3,359,800 584,521 2.6%
* Less than 1%.
(1) Represents all shares subject to options held by such selling security
holder and which may be sold pursuant to this prospectus, whether or
not such shares are deemed to be beneficially owned pursuant to Rule
13d-3 of the Exchange Act.
(2) We have assumed for purposes of this table that all of the shares
offered by the selling security holders have been sold pursuant to this
prospectus.
(3) Percentages are computed on the basis of 19,640,808 shares of AR-Acacia
Technologies stock outstanding as of September 15, 2003.
(4) Includes 83,044 shares held by Talkot Crossover Fund L.P. of which Mr.
Akin serves as managing general partner.
-23-
The following table sets forth the number of shares of AR-CombiMatrix stock
beneficially owned by each of the selling security holders. Each of the selling
security holders is an employee or director of Acacia. We calculated beneficial
ownership according to Rule 13d-3 of the Exchange Act as of September 15, 2003.
The shares are being registered to permit public secondary trading of the
shares, and the selling security holders may offer the shares for resale from
time to time.
NUMBER OF
AR-COMBIMATRIX SHARES SHARES AR-COMBIMATRIX SHARES
BENEFICIALLY OWNED PRIOR BEING BENEFICIALLY OWNED AFTER
NAME TO OFFERING OFFERED(1) OFFERING(2)
---------------------------------------- ------------------------ ------------- ------------------------
NUMBER PERCENTAGE(3) NUMBER PERCENTAGE(3)
------ ------------- ------ -------------
Paul R. Ryan 690,387 2.6% 584,978 184,881 *
Robert L. Harris II 403,146 1.5% 528,671 0 *
Clayton J. Haynes 30,700 * 36,840 0 *
Robert A. Berman 176,620 * 227,889 0 *
Thomas B. Akin 116,748(4) * 113,594 34,184(4) *
Rigdon Currie 77,500 * 97,500 0 *
Fred A. de Boom 44,462 * 35,262 14,178 *
Edward W. Frykman 49,257 * 45,086 7,921 *
G. Louis Graziado III 23,530 * 27,280 0 *
Amit Kumar 617,672 2.3% 871,660 10,614 *
TOTAL...........................................2,230,022 8.4% 2,568,760 251,778 *
* Less than 1%.
(1) Represents all shares subject to options held by such selling security
holder and which may be sold pursuant to this prospectus, whether or
not such shares are deemed to be beneficially owned pursuant to Rule
13d-3 of the Exchange Act.
(2) We have assumed for purposes of this table that all of the shares
offered by the selling security holders have been sold pursuant to this
prospectus.
(3) Percentages are computed on the basis of 25,989,691 shares of
AR-CombiMatrix stock outstanding as of September 15, 2003.
(4) Includes 34,184 shares held by Talkot Crossover Fund L.P. of which Mr.
Akin serves as managing general partner.
-24-
PLAN OF DISTRIBUTION
The shares of AR-Acacia Technologies stock and AR-CombiMatrix stock offered
by this prospectus may be sold by the selling security holders or by their
respective pledgees, donees, transferees or other successors in interest. Such
sales may be made at fixed prices that may be changed, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices, or at negotiated prices, and may be made on the Nasdaq National Market
or the Nasdaq SmallCap Market, or any exchange on which our AR-Acacia
Technologies stock and AR-CombiMatrix stock may then be listed. The shares may
be sold by one or more of the following:
o ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
o one or more block trades in which a broker or dealer so engaged
will attempt to sell all or a portion of the shares held by the
selling security holders as agent but may position and resell a
portion of the block as principal to facilitate the transaction;
o purchase by a broker or dealer as principal and resale by such
broker or dealer as principal and resale by such broker or dealer
for its account under this prospectus;
o an exchange distribution in accordance with the rules of the
applicable exchange;
o privately negotiated transactions between the selling security
holders and purchasers without a broker-dealer.
o underwritten offerings;
o agreements by the broker-dealer and the selling security holders
to sell a specified number of such shares at a stipulated price
per share;
o a combination of any such methods of sale; and
o any other method permitted by applicable law.
The selling security holders may effect such transactions by selling shares
to or through broker dealers, and such broker dealers will receive compensation
in negotiated amounts in the form of discounts, concessions, commissions or fees
from the selling security holders and/or the purchasers of the shares for whom
such broker dealers may act as agent or to whom they sell as principal, or both
(which compensation to a particular broker dealer might be in excess of
customary commissions). Such brokers or dealers or other participating brokers
or dealers and the selling security holders may be deemed to be "underwriters"
within the meaning of the Securities Act, in connection with such sales. Except
for customary selling commissions in ordinary brokerage transactions, any such
underwriter or agent will be identified, and any compensation paid to such
persons will be described, in a prospectus supplement. In addition, any
securities covered by this prospectus that qualify for sale under Rule 144 might
be sold under Rule 144 rather than under this prospectus.
We will file a supplement to this reoffer prospectus, if required, under
Rule 424(b) under the Securities Act upon being notified by a selling security
holder that any material arrangement has been entered into with a broker-dealer
or financial institution for the sale of shares through a block trade, special
or underwritten offering, exchange distribution or secondary distribution or a
purchase by a broker, dealer or financial institution. Such supplement will
disclose:
o the name of each selling security holder and of the participating
broker-dealer(s) or financial institution(s);
o the number of shares involved;
-25-
o the price at which such shares were sold;
o the commissions paid or discounts or concessions allowed to such
broker-dealer(s) or financial institution(s), where applicable;
o that such broker-dealer(s) or financial institution(s) did not
conduct any investigation to verify the information set out or
incorporated by reference in this reoffer prospectus; and
o other facts material to the transaction.
In addition, upon being notified by a selling security holder that a
donee or pledgee intends to sell more than 500 shares, we will file a supplement
to this reoffer prospectus.
We will not pay any of the expense associated with sales by the selling
security holders. The selling security holders may agree to indemnify any
broker-dealer or agent that participates in transactions involving sales of the
shares against certain liabilities in connection with the offering of the shares
arising under the Securities Act of 1933.
The selling security holders and any underwriters, brokers, dealers,
financial institutions or agents that participate in the distribution of the
common stock may be deemed to be "underwriters" under the Securities Act, and
any profit on the sale of the common stock by them and any discounts,
commissions or concessions received by any such underwriters, dealers, financial
institutions or agents might be deemed to be underwriting discounts and
commissions under the Securities Act of 1933.
The selling security holders and any other person participating in the
distribution will be subject to the applicable provisions of the Securities
Exchange Act of 1934 and the rules and regulations under the Exchange Act. The
Exchange Act rules include, without limitation, Regulation M, which may limit
the timing of any other person participating in the distribution. In addition,
Regulation M of the Exchange Act may restrict the ability of any person engaged
in the distribution of the common stock to engage in market-making activities
with respect to the particular shares of common stock being distributed for a
period of up to five business days prior to the commencement of the
distribution. This may affect the marketability of the shares of common stock
and the ability of any person or entity to engage in market-making activities
with respect to the shares of common stock.
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 have been so
incorporated in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
The financial statements of Acacia Technologies Group (a division 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 have been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The financial statements of CombiMatrix Group (a division 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 have been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
LEGAL MATTERS
The validity of the shares of our AR-CombiMatrix stock and AR-Acacia
Technologies stock offered hereby has been passed upon for us by Allen Matkins
Leck Gamble & Mallory LLP, Century City, California.
-26-
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission, referred to as the SEC.
You may read and copy any document we file at the SEC's Public Reference Room
1034, 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for further information on the public reference room. Our SEC
filings are also available to the public at the SEC's web site at
HTTP://WWW.SEC.GOV. You may also read and copy this information at the National
Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C.
20006.
We maintain a site on the Internet at HTTP://WWW.ACACIARESEARCH.COM. The
information contained in our website is not part of this prospectus and you
should not rely on it in deciding whether or not to purchase our securities.
We have filed with the SEC a registration statement on Form S-8, of
which this reoffer prospectus is a part, under the Securities Act of 1933 with
respect to the securities being offered. This reoffer prospectus does not
contain all of the information set forth in the registration statement. We have
omitted information as permitted by the rules and regulations of the SEC.
Statements contained in this reoffer prospectus as to the contents of any
contract or other document are not necessarily complete, and in each instance we
refer you to the copy of the contract or other document filed as an exhibit to
the registration statement. Each statement made in this reoffer prospectus is
qualified in all respects by the contents of the exhibits and schedules to the
registration statement.
INFORMATION INCORPORATED BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be a part of this prospectus, and later information that we file
with the SEC will automatically update and supersede this information. This
prospectus incorporates by reference the documents listed below, and any future
filings made with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934, as amended, (the "Exchange Act") until the
selling security holders sell all of the shares offered herein. This prospectus
is part of a registration statement we filed with the SEC. The documents we
incorporate by reference are:
1. Our Annual Report on Form 10-K for the fiscal year ended December
31, 2002, filed March 27, 2003;
2. Our Quarterly Report on Form 10-Q for the fiscal quarter ended
March 31, 2003, filed on May 9, 2003;
3. Our Quarterly Report on Form 10-Q for the fiscal quarter ended
June 30, 2003, filed on August 12, 2003;
4. The description of our AR-CombiMatrix stock and AR-Acacia
Technologies stock contained in our Registration Statement on
Form 8-A, filed December 19, 2002; and
5. All documents filed by us pursuant to Sections 13(a), 13(c), 14
and 15(d) of the Exchange Act, after the date of this
Registration Statement and prior to the filing of a
post-effective amendment to this Registration Statement which
indicates that all securities offered hereunder have been sold,
or which deregisters all securities then remaining unsold under
this Registration Statement, shall be deemed to be incorporated
by reference in this Registration Statement and to be a part
hereof from the date of filing of such documents.
We will provide without charge a copy of these filings or, to each person,
including any beneficial owner, to whom a copy of this prospectus is delivered,
upon such person's written or oral request, a copy of any and all of the
information incorporated by reference in this prospectus, other than exhibits to
such documents, unless such exhibits are specifically incorporated by reference
into the information that this prospectus incorporates. Requests should be
directed to the Secretary at Acacia Research Corporation, 500 Newport Center
Drive, 7th Floor, Newport Beach, California 92660, telephone (949) 480-8300.
-27-
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 3. INCORPORATION OF DOCUMENTS BY REFERENCE
The Registrant hereby incorporates by reference into this Registration
Statement the following documents previously filed with the Commission:
(a) The Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 2002, as filed with the Commission on March 27,
2003;
(b) The Registrant's Quarterly Report on Form 10-Q for the quarter
ended March 31, 2003, as filed with the Commission on May 9, 2003;
(c) The Registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 2003, as filed with the Commission on August 12,
2003; and
(d) The description of the Registrant's Acacia-Research-CombiMatrix
common stock and Acacia Research-Acacia Technologies common stock
contained in the Registration Statement on Form 8-A as filed with
the Commission on December 19, 2002 and any amendment or report
filed with the Commission for the purpose of updating such
description.
All documents that we subsequently file under Sections 13(a), 13(c), 14
and 15(d) of the Securities Exchange Act of 1934 before we file a post-effective
amendment which indicates that all securities offered have been sold or which
deregisters all securities then remaining unsold, shall be deemed to be
incorporated by reference in this registration statement and to be a part hereof
from the date of filing of such documents.
Any statement contained in a document incorporated or deemed to be
incorporated herein by reference shall be deemed to be modified or superseded
for purposes of this registration statement to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this registration
statement.
ITEM 4. DESCRIPTION OF SECURITIES
Not applicable.
ITEM 5. INTERESTS OF NAMED EXPERTS AND COUNSEL
Not applicable.
ITEM 6. INDEMNIFICATION OF DIRECTORS AND OFFICERS
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.
28
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 certificate of incorporation provides:
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 has purchased insurance on behalf of any person who is or was a
director, officer, employee or agent of Acacia, or is or was serving at the
request of Acacia 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 would have the power to
indemnify him against such liability under the provisions of Acacia's
certificate of incorporation.
ITEM 7. EXEMPTION FROM REGISTRATION CLAIMED
Not applicable.
ITEM 8. EXHIBITS
EXHIBIT
NUMBER EXHIBIT
-------------- --------------------------------------------------------------
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 & Mallory LLP (contained
in Exhibit 5.1)
24.1 Power of Attorney (contained on page II-2 of this registration
statement)
99.1 2002 CombiMatrix Stock Incentive Plan*
99.2 2002 Acacia Technologies Stock Incentive Plan*
___________
*Incorporated by reference from Acacia Research's Registration Statement on Form
S-8 (File No. 333-102181).
29
ITEM 9. UNDERTAKINGS
(a) The undersigned 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:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Securities and Exchange 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;
and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
PROVIDED, HOWEVER, 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 with or furnished to the
Securities and Exchange Commission by the registrant pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial BONA FIDE offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933 and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
30
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-8 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, on the 30th day
of September, 2003.
ACACIA RESEARCH CORPORATION
By: /s/ Paul R. Ryan
------------------------------------
Paul R. Ryan
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
The undersigned directors and officers of Acacia Research Corporation
hereby constitute and appoint Paul R. Ryan and Clayton J. Haynes and each of
them, as his true and lawful attorneys-in-fact and agents, with full power to
act without the other and with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities to sign any
and all amendments (including post-effective amendments) to this registration
statement, and new registration statements relating to this Form S-8, 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
and about the premises, 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 either of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the date indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Paul R. Ryan Chief Executive Officer and Chairman September 30, 2003
----------------------------- (Principal Executive Officer)
Paul R. Ryan
/s/ Clayton J. Haynes Chief Financial Officer (Principal September 30, 2003
----------------------------- Financial and Accounting Officer)
Clayton J. Haynes
/s/ Robert L. Harris, II President and Director September 30, 2003
-----------------------------
Robert L. Harris, II
/s/ Thomas B. Akin Director September 30, 2003
-----------------------------
Thomas B. Akin
/s/ Rigdon Currie Director September 30, 2003
-----------------------------
Rigdon Currie
/s/ Fred A. de Boom Director September 30, 2003
-----------------------------
Fred A. de Boom
/s/ Edward W. Frykman Director September 30, 2003
-----------------------------
Edward W. Frykman
/s/ G. Louis Graziadio, III Director September 30, 2003
-----------------------------
G. Louis Graziadio, III
/s/ Amit Kumar Director September 30, 2003
-----------------------------
Amit Kumar
31
EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT
------------ --------------------------------------------------------------
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 & Mallory LLP (contained
in Exhibit 5.1)
24.1 Power of Attorney (contained on page II-2 of this registration
statement)
99.1 2002 CombiMatrix Stock Incentive Plan*
99.2 2002 Acacia Technologies Stock Incentive Plan*
___________
* Incorporated by reference from Acacia Research's Registration Statement on
Form S-8 (File No. 333-102181).