FILED
PURSUANT TO RULE 424(B)(5)
REGISTRATION
NO. 333-133529
PROSPECTUS
SUPPLEMENT
To
Prospectus dated April 25, 2006
710,985 Shares
ACACIA
RESEARCH CORPORATION
Acacia
Research - CombiMatrix Common Stock
$1.13
per share
___________________________________________________________________________________________________________________________________________________________________________________________
|
·
Acacia Research Corporation is offering 710,985 shares
of its Acacia Research - CombiMatrix common stock.
|
·
Trading symbol: Nasdaq National Market --CBMX
|
|
|
·
The last reported sale price of our Acacia Research - CombiMatrix
Common
Stock on September 13, 2006 was $1.10 per
share.
|
________________
This
investment involves a high degree of risk. See “Risk Factors” beginning on page
4 of the accompanying prospectus.
|
Per
Share
|
Total
|
||||||
|
Public
offering price
|
$
|
1.1252 |
$
|
800,000
|
|||
|
Placement
agency fees
|
$ | 0.0457 |
$
|
32,500
|
|||
|
Proceeds,
before expenses, to Acacia Research Corporation
|
$ | 1.0795 |
$
|
767,500
|
Delivery
of the shares will be made on or about September 14, 2006. The cash proceeds
will be delivered to Acacia Research Corporation. All funds received will
be
held in a non-interest bearing account.
Neither
the Securities and Exchange Commission nor any state securities commission
has
approved of anyone’s investment in these securities or determined if this
prospectus supplement and the accompanying prospectus are truthful or complete.
Any representation to the contrary is a criminal offense.
The
date
of this prospectus supplement is September 14, 2006.
TABLE
OF CONTENTS
Page
|
Prospectus
Supplement
|
|
|
About
This Prospectus Supplement
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S-1
|
|
Information
Incorporated by Reference
|
S-1
|
|
Capitalization
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S-1
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|
Dilution
|
S-3
|
|
Plan
of Distribution
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S-3
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|
Legal
Matters
|
S-4
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|
|
|
|
Prospectus
|
|
|
Prospectus
Summary
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1
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|
Risk
Factors
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3
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|
Cautionary
Statement Concerning Forward-Looking Infomation
|
22
|
|
Use
of Proceeds
|
23
|
|
Plan
of Distribution
|
23
|
|
Experts
|
24
|
|
Legal
Matters
|
24
|
|
Where
You Can Find More Information
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24
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Incorporation
of Certain Information by Reference
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25
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Indemnification
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25
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_____________________________
ABOUT
THIS PROSPECTUS SUPPLEMENT
This
prospectus supplement and the accompanying prospectus dated April 25, 2006,
relate to the offer by us of 710,985 shares
of
our Acacia Research - CombiMatrix Common Stock. In the accompanying prospectus,
we provide you with a general description of our securities that we are
offering. These documents contain important information you should consider
when
making your investment decision. This prospectus supplement may add, update
or
change information in the accompanying prospectus. You should read both this
prospectus supplement and the accompanying prospectus as well as the additional
information described under “Information Incorporated by Reference” below
and “Where You Can Find More Information” on page 24 of the accompanying
prospectus before investing in our securities.
You
should rely only on the information contained or incorporated by reference
into
this prospectus supplement and the accompanying prospectus. We have not
authorized any other person to provide you with information different from
that
contained or incorporated in this prospectus supplement and the accompanying
prospectus. We are offering to sell our securities only in jurisdictions
where
offers and sales are permitted. The information contained or incorporated
into
this prospectus supplement and the accompanying prospectus is complete and
accurate only as of the date of such information, regardless of the time
of
delivery of this prospectus supplement and the accompanying prospectus or
of any
sale of our securities.
In
this
prospectus supplement, unless the context otherwise indicates, the terms
“we,”
“our,” “us,” and “the company” refer to Acacia Research
Corporation.
INFORMATION
INCORPORATED BY REFERENCE
The
Securities and Exchange Commission (the “SEC”) allows us to “incorporate by
reference” the information we file with it, which means that we can disclose
important information to you by referring you to those documents. The
information incorporated by reference is an important part of this prospectus
supplement or the accompanying prospectus, and information that we file later
with the SEC will automatically update and supersede this information. We
incorporate by reference the documents listed below and any future filings
we
make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934 until all of the securities that we may offer with this
prospectus supplement and the accompanying prospectus are sold:
Our
Quarterly Report on Form 10-Q for the fiscal quarter ended March 31,
2006;
Our
Current Report on Form 8-K filed on June 15, 2006;
Our
Current Report on Form 8-K filed on June 22, 2006;
Our
Current Report on Form 8-K filed on July 18, 2006;
Our
Current Report on Form 8-K filed on July 20, 2006;
Our
Current Report on Form 8-K filed on July 25, 2006; and
Our
Quarterly Report on Form 10-Q for the fiscal quarter
ended June 30, 2006;
You
may
request a copy of these filings at no cost, by writing or telephoning Chief
Financial Officer, Acacia Research Corporation, 500 Newport Center Drive,
7th
Floor,
Newport Beach, CA 92660, (949) 480-8300.
CAPITALIZATION
The
following table sets forth our actual capitalization as of June 30, 2006,
and
our capitalization as adjusted to give effect to the issuance of
710,985 shares
of our Acacia Research-CombiMatrix common stock in this offering at an assumed
offering price of $1.13 per
share, net of offering costs, plus the issuance of 1,308,661 shares of
Acacia Research-CombiMatrix common stock sold since June 30, 2006, pursuant
to registration statements of which this supplement is a part,
at prices ranging from $1.14 to $1.16 per share, net of offering
costs.
The
information set forth in the following table should be read in conjunction
with,
and is qualified in its entirety by, the financial statements and the notes
thereto included in our Annual Report on Form 10-K for the year ended December
31, 2005, and in our Quarterly Reports on Form 10-Q for the quarter ended
March
31, 2006 and June 30, 2006 which are incorporated by reference into the
accompanying prospectus.
S-1
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AS
OF JUNE 30, 2006
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|||||||
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HISTORICAL
|
AS
ADJUSTED
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||||||
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(dollars
in thousands)
|
|||||||
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REDEEMABLE
STOCKHOLDERS’ EQUITY:
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|||||||
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Preferred
stock -
|
|
|
|
|
|||
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Acacia
Research Corporation, par value $0.001 per
share;
10,000,000 shares authorized; no shares outstanding
|
$
|
- |
$
|
- | |||
|
Common
stock -
|
|||||||
|
Acacia
Research-Acacia Technologies common stock,
par
value $0.001 per share, 100,000,000 authorized;
27,899,920
shares issued and outstanding; 27,899,920
Shares
issued and outstanding, as adjusted
|
28
|
28
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|||||
|
Acacia
Research-CombiMatrix common stock, par value
$0.001
per share, 100,000,000 authorized; 39,336,152
shares
issued and outstanding, 41,355,798 shares issued
and
outstanding, as adjusted
|
39
|
41
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|||||
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Additional
paid-in capital
|
317,716
|
319,800
|
|||||
|
Accumulated
comprehensive loss
|
(56
|
)
|
(56
|
) | |||
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Accumulated
deficit
|
(219,355)
|
(219,355
|
) | ||||
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Total
redeemable stockholders’ equity
|
$
|
98,372
|
$ |
100,458
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|||
S-2
DILUTION
Our
net
tangible book value on June 30, 2006, was as follows:
|
Net
Tangible
Book
Value
(In
Thousands)
|
Shares
of
Common
Stock
Outstanding
|
Net
Tangible
Book
Value
Purchase
|
|
|
CombiMatrix
Group
|
$13,049
|
39,336,152
|
$0.33
|
|
Acacia
Technologies Group
|
$41,399
|
27,899,920
|
$1.48
|
|
Acacia
Research Corporation Consolidated
|
$54,448
|
N/A
|
N/A
|
Without
taking into account any other changes in the net tangible book value for
the
CombiMatrix group after June 30, 2006, other than to give effect to our
receipt of the estimated net proceeds from the sale of the maximum number
of
shares issuable in this offering (710,985 shares
of
Acacia Research-CombiMatrix common stock) at an offering price of $1.13
per
share, less our estimated offering expenses, the net tangible book value
of the
CombiMatrix group as of June 30, 2006, after giving effect to the items above,
would have been approximately $13,809,000
or $0.34 per
share. This represents an immediate increase in the net tangible book value
of
$0.01 per
share
to existing holders of Acacia Research-CombiMatrix common stock and an immediate
dilution of $0.79 per
share to new investors.
The
following table illustrates this per share dilution:
|
Offering
price per share of Acacia Research-CombiMatrix common stock
|
$ | 1.13 | ||
|
Net
tangible book value per share as of June 30, 2006 (1)
|
0.33 | |||
|
Increase
in net tangible book value per share attributable to the offering
(1)
|
0.01 | |||
|
Pro
forma net tangible book value per share as of June 30, 2006, after
giving
effect to the offering (1)
|
0.34 | |||
|
Dilution
per share to new investors in the Offering
|
$ | 0.79 |
(1)
Per share amounts calculated using the net tangible book value of Acacia
Research Corporation's CombiMatrix group.
The
tables above are based on 27,899,920 shares of Acacia Research-Acacia
Technologies common stock and 39,336,152 shares of Acacia Research-CombiMatrix
common stock outstanding as of June 30, 2006, and exclude the shares of Acacia
Research-Acacia Technologies common stock and Acacia Research-CombiMatrix
common
stock that may be issued upon the exercise of outstanding options granted
and
shares reserved for issuance under our 2002 Acacia Technologies Stock Incentive
Plan and our 2002 CombiMatrix Stock Incentive Plan, as of June 30,
2006.
To
the
extent that any Acacia Research-CombiMatrix common stock options outstanding
as
of June 30, 2006, are exercised, new Acacia Research-CombiMatrix common stock
options are issued under our stock incentive plans and exercised, or we issue
additional shares of Acacia Research-CombiMatrix common stock in the future,
there will be further dilution to new investors.
PLAN
OF DISTRIBUTION
This
offer by us of 710,985 shares
of
our Acacia Research - CombiMatrix Common Stock is pursuant to a Standby Equity
Distribution Agreement ("SEDA") that we entered into with Cornell Capital
Partners, L.P. on June 14, 2006, as amended. Under the Standby Equity
Distribution Agreement, Cornell committed to purchase up to $50 million of
our
Acacia Research-CombiMatrix common stock, at a discount to fair market value
price of 2.5%. For a period of 24 months from the date of the Agreement,
we may
sell shares to Cornell in maximum single advances of $5,000,000, up to a
total
price of $50,000,000 or up to, but not exceeding, a total of 13,024,924 shares,
which represents less than 20% of the total outstanding shares of Acacia
Research-CombiMatrix common stock on June 14, 2006. Since executing the
SEDA with Cornell, we have sold a total of 1,652,411 shares of our Acacia
Research-CombiMatrix Common Stock for net proceeds of $1,989,000, exclusive
of
this offering.
S-3
Pursuant
to the Standby Equity Distribution Agreement we have made certain covenants,
including that we will use our best efforts to maintain the continuous
effectiveness of our registration statement with the SEC, and that we will
maintain a listing for our shares of Acacia Research-CombiMatrix common stock
on
the Nasdaq National Market, Nasdaq Capital Market, New York Stock Exchange,
American Stock Exchange or the OTC Bulletin Board. We currently anticipate
that
the 710,985 shares
of
our Acacia Research - CombiMatrix Common Stock will continue to be listed
on the
Nasdaq National Market under the trading symbol “CBMX.”
To
date,
we have received a total of $2,050,000 in gross proceeds, exclusive of this
offering. We paid a total of $611,000 in fees to Cornell, exclusive of this
offering, and we are required to pay additional advance fees of 4% of each
future advance up to the first $20 million of advances, and 5% of each future
advance in excess of $20 million.
We
anticipate that the closing of the takedown of 710,985 shares
of
our Acacia Research - CombiMatrix Common Stock in accordance with the Standby
Equity Distribution Agreement will close on or about September 14, 2006.
On the
scheduled closing date, we anticipate receipt of funds in the amount of the
aggregate purchase price, less the advance fees.
LEGAL
MATTERS
Certain
legal matters in connection with the legality of the offering of the securities
hereby will be passed upon for us by Greenberg Traurig LLP, Costa Mesa,
California.
S-4
PROSPECTUS
$75,000,000
ACACIA
RESEARCH CORPORATION
ACACIA
RESEARCH - COMBIMATRIX COMMON STOCK
ACACIA
RESEARCH - ACACIA TECHNOLOGIES COMMON STOCK
WARRANTS
By
this
prospectus, we may offer, from time to time:
|
·
|
shares
of our Acacia Research - CombiMatrix common
stock;
|
|
·
|
shares
of our Acacia Research
- Acacia Technologies common stock;
|
|
·
|
warrants
to purchase shares of our Acacia Research - CombiMatrix common stock
and
our Acacia Research - Acacia Technologies common stock;
or
|
|
·
|
any
combination of the foregoing.
|
We
will
provide specific terms of each issuance of these securities in supplements
to
this prospectus. You should read this prospectus and any supplement carefully
before you decide to invest.
This
prospectus may not be used to consummate sales of these securities unless it
is
accompanied by a prospectus supplement
Our
Acacia Research - CombiMatrix common stock is traded on the Nasdaq National
Market under the ticker symbol “CBMX.” On April 21, 2006, the last reported
sales price of our Acacia Research - CombiMatrix common stock was $2.09 per
share. Our Acacia Research
- Acacia Technologies common stock is traded on the Nasdaq National Market
under
the ticker symbol “ACTG.” On April 21, 2006, the last reported sales price of
our Acacia Research
- Acacia Technologies common stock was $9.98 per share.
INVESTING
IN OUR SECURITIES INVOLVES SUBSTANTIAL RISKS. SEE
“RISK FACTORS” BEGINNING ON PAGE 3
TO READ ABOUT FACTORS YOU SHOULD CONSIDER BEFORE BUYING SHARES OF OUR COMMON
STOCK.
NEITHER
THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION
HAS
APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE
INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED
WITHOUT NOTICE. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PRELIMINARY PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES, AND WE ARE
NOT
SOLICITING OFFERS TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER
OR
SALE OF THESE SECURITIES IS NOT PERMITTED.
The
date
of this prospectus is April 25, 2006
TABLE
OF CONTENTS
|
PROSPECTUS
SUMMARY
|
1
|
|
RISK
FACTORS
|
3
|
|
CAUTIONARY
STATEMENT CONCERNING FORWARD-LOOKING INFORMATION
|
22
|
|
USE
OF PROCEEDS
|
23
|
|
PLAN
OF DISTRIBUTION
|
23
|
|
EXPERTS
|
24
|
|
LEGAL
MATTERS
|
24
|
|
WHERE
YOU CAN FIND MORE INFORMATION
|
24
|
|
INCORPORATION
OF CERTAIN INFORMATION BY REFERENCE
|
25
|
|
INDEMNIFICATION
|
25
|
PROSPECTUS
SUMMARY
THIS
SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS. THIS
SUMMARY DOES NOT CONTAIN ALL THE INFORMATION THAT YOU SHOULD CONSIDER BEFORE
INVESTING IN OUR COMMON STOCK. YOU
SHOULD READ THIS ENTIRE PROSPECTUS CAREFULLY, ESPECIALLY “RISK FACTORS” AND OUR
FINANCIAL STATEMENTS AND RELATED NOTES INCORPORATED BY REFERENCE ON PAGE 25
BELOW.
ABOUT
THIS PROSPECTUS
This
prospectus is part of a registration statement that we filed with the Securities
and Exchange Commission, or SEC, using a “shelf” registration process. Under
this process, we may offer and sell any combination of our Acacia Research
-
CombiMatrix common stock (“AR-CombiMatrix stock”), Acacia Research - Acacia
Technologies common stock (“AR-Acacia Technologies stock”) and warrants to
purchase our AR-CombiMatrix stock or our AR-Acacia Technologies stock in one
or
more offerings for total proceeds of up to $75,000,000. This prospectus provides
you with a general description of the securities we may offer. Each time we
offer to sell securities, we will provide a supplement to this prospectus that
will contain specific information about the terms of that offering. The
prospectus supplement may also add, update or change information contained
in
this prospectus. It is important for you to consider the information contained
in this prospectus and any prospectus supplement together with additional
information described under the heading “Where You Can Find More Information.”
You
should rely only on the information contained in this prospectus or any related
prospectus supplement, including the content of all documents now or in the
future incorporated by reference into the registration statement of which this
prospectus forms a part. We have not authorized anyone to provide you with
different information. We are not making an offer of the shares of our common
stock or warrants to be sold under this prospectus in any jurisdiction where
the
offer or sale is not permitted. You should not assume that the information
contained in this prospectus or any related prospectus supplement is accurate
as
of any date other than the date on the front cover of this prospectus or the
related prospectus supplement, or that the information contained in any document
incorporated by reference is accurate as of any date other than the date of
the
document incorporated by reference. Other than as required under the federal
securities laws, we undertake no obligation to publicly update or revise such
information, whether as a result of new information, future events or any other
reason. We are required to update this prospectus and the registration statement
with a post-effective amendment 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, including this prospectus.
PRIOR
TO MAKING A DECISION ABOUT INVESTING IN OUR COMMON STOCK, YOU SHOULD CAREFULLY
CONSIDER THE SPECIFIC RISKS CONTAINED IN THE SECTION ENTITLED “RISK FACTORS”
BELOW, AND ANY APPLICABLE PROSPECTUS SUPPLEMENT, TOGETHER WITH ALL OF THE OTHER
INFORMATION CONTAINED IN THIS PROSPECTUS AND ANY PROSPECTUS SUPPLEMENT OR
APPEARING IN THE REGISTRATION STATEMENT OF WHICH THIS PROSPECTUS IS A
PART.
BUSINESS
Acacia
Research Corporation is comprised of two operating groups.
Our
life
sciences business, referred to as the “CombiMatrix group,” a division of Acacia
Research Corporation, is comprised of our wholly owned subsidiary, CombiMatrix
Corporation and CombiMatrix Corporation’s subsidiaries, CombiMatrix Molecular
Diagnostics, Inc. and CombiMatrix K.K. and includes all corporate assets,
liabilities and transactions related to Acacia Research Corporation’s life
sciences business. The CombiMatrix group is seeking to become a broadly
diversified biotechnology business, through the development of proprietary
technologies, products and services in the areas of drug development, genetic
analysis, molecular diagnostics, nanotechnology research, defense and homeland
security markets, as well as other potential markets where its products could
be
utilized. Among the technologies being developed by the CombiMatrix group is
a
platform technology to rapidly produce customizable arrays, which are
semiconductor-based tools for use in identifying and determining the roles
of
genes, gene mutations and proteins. This technology has a wide range of
potential applications in the areas of genomics, proteomics, biosensors, drug
discovery, drug development, diagnostics, combinatorial chemistry, material
sciences and nanotechnology. Other technologies include proprietary molecular
synthesis and screening methods for the discovery of potential new drugs.
CombiMatrix Molecular Diagnostics, Inc., a wholly owned subsidiary located
in
Irvine, California, is exploring opportunities for the CombiMatrix group’s
arrays in the field of molecular diagnostics. CombiMatrix K.K., a previously
wholly owned Japanese corporation located in Tokyo, Japan, has existed for
the
purposes of exploring opportunities for CombiMatrix Corporation’s array system
with pharmaceutical and biotechnology companies in the Asian market. In January
2006, CombiMatrix Corporation sold 67% of its ownership interest in CombiMatrix
K.K. to a third party.
1
The
Acacia Technologies group, a division of Acacia Research Corporation, develops,
acquires and licenses patented technologies. The Acacia Technologies group
is
primarily comprised of a number of Acacia Research Corporation’s wholly owned
subsidiaries and limited liability companies. The Acacia Technologies group
also
includes all corporate assets, liabilities, and related transactions of Acacia
Research Corporation attributed to Acacia Research Corporation’s intellectual
property licensing and enforcement business. The Acacia Technologies group
currently controls 42 patent portfolios, which include over 160 U.S. patents,
and certain foreign counterparts, covering technologies used in a wide variety
of industries, including the following:
|
· Audio/Video
Enhancement & Synchronization
· Broadcast
Data Retrieval
· Compact
Disk Technology
· Computer
Memory Cache Coherency
· Computing
Device Performance Technology
· Continuous
Television Viewer Measuring Technology
· Credit
Card Fraud Protection
· Data
Encryption
· Digital
Media Transmission, or DMT®
· Dynamic
Manufacturing Modeling
· Enhanced
Internet Navigation
· Hearing
Aid ECS
· High
Quality Image Processing
· High
Resolution Optics
|
· Image
Resolution Enhancement
· Information
Monitoring Technology
· Interactive
Television
· Laptop
Connectivity
· Microprocessor
Enhancement
· Multi-Dimensional
Bar Codes
· Network
Data Back-Up
· Picture
Archiving & Communication Systems
· Product
Activation
· Resource
Scheduling
· Rotational
Video Imaging
· Spreadsheet
Automation
· User
Activated Internet Advertising
· Web
Conferencing & Collaboration Software
Technology
|
On
December 11, 2002, our stockholders voted in favor of a recapitalization
transaction, which became effective on December 13, 2002, whereby we created
two
new classes of common stock called Acacia Research-CombiMatrix common stock,
or
AR-CombiMatrix stock, and Acacia Research-Acacia Technologies common stock,
or
AR-Acacia Technologies stock, and divided our existing Acacia Research
Corporation common stock into shares of the two new classes of common stock.
AR-CombiMatrix stock is intended to reflect separately the performance of Acacia
Research Corporation’s CombiMatrix group. AR-Acacia Technologies stock is
intended to reflect separately the performance of Acacia Research Corporation’s
Acacia Technologies group. Although the AR-CombiMatrix stock and the 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. As a result,
holders of Acacia Research-Acacia Technologies stock and Acacia
Research-CombiMatrix stock continue to be subject to all of the risks of an
investment in Acacia Research Corporation and all of its businesses, assets
and
liabilities. The assets Acacia Research Corporation attributes to one group
could be subject to the liabilities of the other group. Included in the
CombiMatrix group and the Acacia Technologies group are certain wholly owned
subsidiaries that are not material, quantitatively or qualitatively, either
individually or in the aggregate, to either group, or to Acacia Research
Corporation as a whole.
In
January 2006, our
board of
directors approved a plan for our wholly owned subsidiary, CombiMatrix
Corporation, to become an independent public company. We expect to complete
the
transaction in the third quarter of 2006, subject, however, to determining
that
there are no significant negative tax consequences to our company or our
shareholders and completing the required filings with the Securities and
Exchange Commission, or SEC. If the conditions are met, Acacia Research
Corporation will redeem all of the issued and outstanding shares of
AR-CombiMatrix common stock for all of the common stock of CombiMatrix
Corporation, which will register its common
stock
under the Securities and
Exchange Act
of
1934.
Following the redemption, CombiMatrix Corporation will apply to list its shares
for trading on a
national
exchange.
Acacia
Research Corporation, a Delaware corporation, was originally incorporated in
California in January 1993 and reincorporated in Delaware in December 1999.
Our
website address is www.acaciares.com. Our principal executive office is located
at 500 Newport Center Drive, 7th Floor, Newport Beach, California 92660. Our
telephone number is (949) 480-8300.
2
RISK
FACTORS
An
investment in our stock involves a number of risks. Before making a decision
to
purchase our securities, 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 adversely affected. If this were to occur, the trading
price
of our securities could decline significantly and you may lose all or part
of
your investment.
GENERAL
RISKS
We
have a history of losses and will probably incur additional losses in the
future.
We
have
sustained substantial losses since our inception resulting in an accumulated
deficit, as of December 31, 2005, of $206.9 million on a consolidated basis.
We
may never become profitable, or if we do, we may not be able to sustain
profitability. We expect to incur significant research and development,
marketing, general and administrative and legal expenses. As a result, it is
more likely than not that we will incur losses for the foreseeable
future.
If
we, or our subsidiaries, encounter unforeseen difficulties and cannot obtain
additional funding on favorable terms, our business may
suffer.
Acacia
Research Corporation's consolidated cash and cash equivalents along with
short-term investments totaled $59.2 million at December 31, 2005.
To
date,
the CombiMatrix group has relied primarily upon selling equity securities,
as
well as payments from strategic partners, to generate the funds needed to
finance the implementation of the CombiMatrix group’s business strategies. To
date, the Acacia Technologies group has relied primarily upon selling of equity
securities and payments from our licensees to generate the funds needed to
finance the operations of the Acacia Technologies group.
We
cannot
assure you that we will not encounter unforeseen difficulties, including the
outside influences identified above, that may deplete our capital resources
more
rapidly than anticipated. As a result, 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. Any efforts to seek additional
funds
could be made through equity, debt or other external financings. Nevertheless,
we cannot assure that additional funding will be available on favorable terms,
if at all. If we fail to obtain additional funding when needed for our
subsidiary companies and ourselves, we may not be able to execute our business
plans and our business may suffer.
Because
we have a limited operating history, we cannot assure that our operations will
be profitable.
We
commenced operations in 1993 and, accordingly, have a limited operating history.
In addition, certain of our subsidiary companies are in the early stages of
development and/or operations and have limited operating histories. We also
recently acquired eleven (11) new subsidiaries, and although we conducted
customary due diligence before completing the acquisition, we cannot assure
that
our projections for profitability will be accurate because of our limited
history with these new companies. You should consider our prospects in light
of
the risks, expenses and difficulties frequently encountered by companies with
such limited operating histories. Since we have a limited operating history,
we
cannot assure you that our operations will be profitable or that we will
generate sufficient revenues to meet our expenditures and support our
activities.
We
have
sustained substantial losses since our inception resulting in an accumulated
deficit as of December 31, 2005, of $206.9 million on a consolidated basis.
If
we continue to incur operating losses in future periods, we may not have enough
money to expand our business and our subsidiary companies’ businesses in the
future.
Failure
to effectively manage our growth could place strains on our managerial,
operational and financial resources and could adversely affect our business
and
operating results.
Our
growth has placed, and is expected to continue to place, a strain on our
managerial, operational and financial resources. Further, as our subsidiary
companies’ businesses grow, we will be required to manage multiple
relationships. Any further growth by us or our subsidiary companies or an
increase in the number of our strategic relationships will increase this strain
on our managerial, operational and financial resources. This strain may inhibit
our ability to achieve the rapid execution necessary to successfully implement
our business plan.
3
Our
future success depends on our ability to expand our organization to match the
growth of our subsidiaries.
As
our
subsidiaries grow, the administrative demands upon Acacia Research Corporation
will grow, and our success will depend upon our ability to meet those demands.
These demands include increased accounting, management, legal services, staff
support, and general office services. We may need to hire additional qualified
personnel to meet these demands, the cost and quality of which is dependent
in
part upon market factors outside of our control. Further, we will need to
effectively manage the training and growth of our staff to maintain an efficient
and effective workforce, and our failure to do so could adversely affect our
business and operating results.
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 our company 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
the
following more difficult: the acquisition of our company by means of a tender
offer, proxy contest or otherwise, and the removal of incumbent officers and
directors. These provisions include:
| · |
section
203 of the Delaware General Corporation Law, which prohibits a merger
with
a 15%-or-greater stockholder, such as a party that has completed
a
successful tender offer, until three years after that party became
a
15%-or-greater stockholder;
|
| · |
amendment
of our bylaws by the stockholders requires a two-thirds approval
of the
outstanding shares;
|
| · |
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;
|
| · |
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
|
| · |
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.
We
may incur increased costs as a result of recently enacted and proposed changes
in laws and regulations relating to corporate governance
matters.
Recently
enacted and proposed changes in the laws and regulations affecting public
companies, including the provisions of the Sarbanes-Oxley Act of 2002 and rules
adopted or proposed by the Securities and Exchange Commission and by NASDAQ,
will result in increased costs to us as we evaluate the implications of any
new
rules and respond to their requirements. New rules could make it more difficult
or more costly for us to obtain certain types of insurance, including director
and officer liability insurance, and we may be forced to accept reduced policy
limits and coverage or incur substantially higher costs to obtain the same
or
similar coverage. The impact of these events could also make it more difficult
for us to attract and retain qualified persons to serve on our board of
directors, our board committees or as executive officers. We cannot predict
or
estimate the amount of the additional costs we may incur or the timing of such
costs to comply with any new rules and regulations.
4
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 also a holder of the
common stock of one company, Acacia Research Corporation, the risks associated
with the Acacia Technologies group could affect our AR-CombiMatrix stock. As
such, we urge you to read carefully the section “Risks Relating to the Acacia
Technologies Group” below.
Because
our CombiMatrix group business operations are subject to many uncontrollable
outside influences, it may not succeed.
Our
CombiMatrix group's business operations are subject to numerous risks from
outside influences, including the following:
| · |
Technological
advances may make our CombiMatrix group semiconductor based array
technology obsolete or less competitive, and as a result, our revenue
and
the value of our assets could become obsolete or less
competitive.
|
Our
CombiMatrix group products and services are dependent upon our semiconductor
based array technology. The semiconductor based array technology is an
advancement in conventional arrays that are used for the same purpose. Current
array technologies have revolutionized drug discovery and development, and
we
believe that our CombiMatrix group's array technology provides characteristics,
including flexibility, superior cost metrics, and performance, which address
certain needs of the life sciences market which are not addressed by
conventional arrays and offers the latest in technological advances in this
area. Our products and services are substantially dependent upon our ability
to
offer the latest in semiconductor based array technology in the SNP genotyping,
gene expression profiling and proteomic markets. We believe technological
advances of conventional arrays and semiconductor based arrays are currently
being developed by our existing competition and potential new competitors in
the
market, including Affymetrix, Inc., Agilent Technologies, Inc., Applera
Corporation, Becton, Dickinson and Company, Ciphergen Biosystems, Inc., Gene
Logic Inc., Illumina, Inc., Johnson & Johnson, Nanogen, Inc., Orchid
Biosciences, Inc., Roche Diagnostics GmbH and Sequenom, Inc. We also expect
to
face additional competition from new market entrants and consolidation of our
existing competitors. Many of the CombiMatrix group's competitors have existing
strategic relationships with major pharmaceutical and biotechnology companies,
greater commercial experience and substantially greater financial and personnel
resources than we do. We expect new competitors to emerge and the intensity
of
competition to increase in the future. If these companies are able to offer
technological advances to conventional arrays or semiconductor based arrays,
our
products may become less valuable or even obsolete. While we continue to invest
resources in research and development to enhance the technology of our products
and services, we cannot provide any assurance that our competitors or new
competitors will not enter the market with the same or similar technological
advances before we are able to do so.
| · |
New
environmental regulation may materially increase the net losses of
our
CombiMatrix group
|
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. Any changes in these laws and
regulations could increase the CombiMatrix group's compliance costs, and as
a
result, could materially increase the net losses of our CombiMatrix
group.
| · |
Our
technologies face uncertain market
value
|
Our
CombiMatrix group includes the following technologies and products that were
recently introduced into the market: CustomArrayTM,
DNA
Microarray, 12K DNA expression array and related products,
Design-on-DemandTM
Arrays,
and NanoArrayTM
technology and our Bench-Top DNA Microarray Synthesizer for
CustomArrayTM.
These
technologies and products have not gained widespread market acceptance, and
we
cannot provide any assurance that the increase, if any, in market acceptance
of
these technologies and products will meet or exceed our
expectations.
Further,
our CombiMatrix group is currently developing the following technologies and
products that have not yet been introduced into the market: (a) microarray
technology for the detection of biological threat agents, (b) molecular
diagnostics drug discovery and development using the CustomArrayTM
platform, and (c) additional products for the research and development and
diagnostics markets including higher density arrays. The level of market
acceptance of these technologies and products will have a significant impact
upon our results of operations, and we cannot provide any assurance that the
increase, if any, in market acceptance of these technologies and products will
meet or exceed our expectations.
5
| · |
The
foregoing outside influences may affect other risk factors described
in
this Prospectus
|
Any
one
of the foregoing outside influences may cause our company to need additional
financing to meet the challenges presented or to compensate for a loss in
revenue, and we may not be able to obtain the needed financing. See the heading
“If we, or our subsidiaries, encounter unforeseen difficulties and cannot obtain
additional funding on favorable terms, our business may suffer” below. Further,
any one of the foregoing outside influences affecting the CombiMatrix group
could make it less likely that our CombiMatrix group will be able to gain
acceptance of its array technology by researchers in the pharmaceutical,
biotechnology and academic communities. See the heading “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” 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 losses for
the
foreseeable future.
The
CombiMatrix group must enter into new strategic partnerships to generate revenue
consistent with its operating history as a result of the completion of the
relationship with Roche Diagnostics GmbH.
In
March
2004, the CombiMatrix group completed all phases of its research and development
agreement with Roche Diagnostics GmbH (“Roche”). As a result of completing all
of its obligations under this agreement and in accordance with the CombiMatrix
group's revenue recognition policies for multiple-element arrangements, the
CombiMatrix group recognized all previously deferred Roche related contract
revenues totaling $17,302,000 during the first quarter of 2004. To date, the
CombiMatrix group has relied primarily upon selling equity securities, as well
as payments from strategic partners, to generate the funds needed to finance
the
implementation of the CombiMatrix group's business strategies. The CombiMatrix
group has historically been dependent on its arrangements with Roche, and has
relied upon payments by Roche and other partners for a majority of its working
capital. The CombiMatrix group intends to enter into additional strategic
partnerships to develop and commercialize future products. The CombiMatrix
group
is deploying unproven technologies and continues to develop its commercial
products. There can be no assurance that the CombiMatrix group will be able
to
implement its future plans. Failure by management to achieve its plans would
have a material adverse effect on the CombiMatrix group's and Acacia Research
Corporation's ability to achieve its intended business objectives.
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:
| · |
its
unpredictable revenue sources, as described
below;
|
| · |
the
nature, pricing and timing of the CombiMatrix group's and its competitors'
products;
|
| · |
changes
in the CombiMatrix group's and its competitors' research and development
budgets;
|
| · |
expenses
related to, and the CombiMatrix group's ability to comply with,
governmental regulations of its products and processes;
and
|
| · |
expenses
related to, and the results of, patent filings and other proceedings
relating to intellectual property
rights.
|
6
The
CombiMatrix group anticipates significant fixed expenses due in part to its
need
to continue to invest in product development. It may be unable to adjust its
expenditures if revenues in a particular period fail to meet its expectations,
which would harm its operating results for that period. As a result of these
fluctuations, the CombiMatrix group believes that period-to-period comparisons
of the CombiMatrix group's financial results will not necessarily be meaningful,
and you should not rely on these comparisons as an indication of its future
performance.
The
CombiMatrix group's revenues will be unpredictable, and this may harm its
financial condition.
The
amount and timing of revenues that the CombiMatrix group may realize from its
business will be unpredictable because:
| · |
whether
products and services are commercialized and generate revenues depends,
in
part, on the efforts and timing of its potential customers;
and
|
| · |
its
sales cycles may be lengthy.
|
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. In addition, our stock has historically experienced greater
price fluctuations than the biotechnology index of other Nasdaq listed stock.
We
believe that various factors may cause the market price of our AR-CombiMatrix
stock to fluctuate, perhaps substantially, including, among others,
announcements of:
| · |
its
or its competitors' technological
innovations;
|
| · |
developments
or disputes concerning patents or proprietary
rights;
|
| · |
supply,
manufacturing or distribution disruptions or other similar
problems;
|
| · |
proposed
laws regulating participants in the biotechnology
industry;
|
| · |
developments
in relationships with collaborative partners or
customers;
|
| · |
its
failure to meet or exceed securities analysts' expectations of its
financial results; or
|
| · |
a
change in financial estimates or securities analysts'
recommendations.
|
In
the
past, companies that have experienced volatility in the market price of their
stock have been the objects of securities class action litigation. If our
AR-CombiMatrix stock was the object of securities class action litigation,
it
could result in substantial costs and a diversion of management's attention
and
resources, which could materially harm the business and financial results of
the
CombiMatrix group.
The
CombiMatrix group is deploying new and unproven technologies which makes
evaluation of its business and prospects difficult, and it may be forced to
cease operations if it does not develop commercially successful
products.
The
CombiMatrix group has not proven its ability to commercialize products on a
large scale. In order to successfully commercialize products on a large scale,
it will have to make significant investments, including investments in research
and development and testing, to demonstrate their technical benefits and
cost-effectiveness. Problems frequently encountered in connection with the
commercialization of products using new and unproven technologies might limit
its ability to develop and commercialize its products. For example, the
CombiMatrix group's products may be found to be ineffective, unreliable or
otherwise unsatisfactory to potential customers. The CombiMatrix group may
experience unforeseen technical complications in the processes it uses to
develop, manufacture, customize or receive orders for its products. These
complications could materially delay or limit the use of products the
CombiMatrix group attempts to commercialize, substantially increase the
anticipated cost of its products or prevent it from implementing its processes
at appropriate quality and scale levels, thereby causing its business to
suffer.
7
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.
Historically,
the CombiMatrix group was substantially dependent on its arrangement with Roche.
The CombiMatrix group relied on payments by Roche to fund the majority of its
resources engaged in fulfilling its contractual obligations to Roche. Roche's
primary service to the CombiMatrix group is to distribute its technology
platform. If the CombiMatrix group were to lose its relationship with Roche,
the
CombiMatrix group would continue to distribute its technology platform itself
or
be required to establish a distribution agreement with other partners. This
could prove difficult, time-consuming and expensive, and the CombiMatrix group
may not be successful in achieving this objective.
The
CombiMatrix group has limited experience commercially manufacturing, marketing
or selling any of its potential products, and unless it develops these
capabilities, it may not be successful.
Even
if
the CombiMatrix group is able to develop its products for commercial release
on
a large-scale, it has limited experience in manufacturing its products in the
volumes that will be necessary for it to achieve commercial sales and in
marketing or selling its products to potential customers. We cannot assure
you
that the CombiMatrix group will be able to commercially produce its products
on
a timely basis, in sufficient quantities or on commercially reasonable
terms.
The
CombiMatrix group faces intense competition and we cannot assure you that it
will be successful.
The
CombiMatrix group expects to compete with companies that design, manufacture
and
market instruments for analysis of genetic variation and function and other
applications using established sequential and parallel testing technologies.
The
CombiMatrix group is also aware of other biotechnology companies that have
or
are developing testing technologies for the SNP genotyping, gene expression
profiling and proteomic markets. The CombiMatrix group anticipates that it
will
face increased competition in the future as new companies enter the market
with
new technologies and its competitors improve their current
products.
The
markets for the CombiMatrix group's products are characterized by rapidly
changing technology, evolving industry standards, changes in customer needs,
emerging competition and new product introductions. One or more of the
CombiMatrix group's competitors may offer technology superior to those of the
CombiMatrix group and render its technology obsolete or uneconomical. Many
of
its competitors have greater financial and personnel resources and more
experience in marketing, sales and research and development than it has. Some
of
its competitors currently offer arrays with greater density than it does and
have rights to intellectual property, such as genomic information or proprietary
technology, which provides them with a competitive advantage. If the CombiMatrix
group were not able to compete successfully, its business and financial
condition would be materially harmed.
8
If
the CombiMatrix group's new and unproven technology is not used by researchers
in the pharmaceutical, biotechnology and academic communities, its business
will
suffer.
The
CombiMatrix group's products may not gain market acceptance. In that event,
it
is unlikely that its business will succeed. Biotechnology and pharmaceutical
companies and academic research centers have historically analyzed genetic
variation and function using a variety of technologies, and many of them have
made significant capital investments in existing technologies. Compared to
existing technologies, the CombiMatrix group's technologies are new and
unproven. In order to be successful, its products must meet the commercial
requirements of the biotechnology, pharmaceutical and academic communities
as
tools for the large-scale analysis of genetic variation and function. Market
acceptance will depend on many factors, including:
| · |
the
development of a market for its tools for the analysis of genetic
variation and function, the study of proteins and other
purposes;
|
| · |
the
benefits and cost-effectiveness of its products relative to others
available in the market;
|
| · |
its
ability to manufacture products in sufficient quantities with acceptable
quality and reliability and at an acceptable
cost;
|
| · |
its
ability to develop and market additional products and enhancements
to
existing products that are responsive to the changing needs of its
customers;
|
| · |
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
|
| · |
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 gene expression profiling. These markets
are new and emerging, and they may not develop as the CombiMatrix group
anticipates, or at all. Also, researchers may not seek or be able to convert
raw
genomic data into medically valuable information through the analysis of genetic
variation and function. If genomic data is not available for use by the
CombiMatrix group's customers or if its target markets do not emerge in a timely
manner, or at all, demand for its products will not develop as it expects,
and
it may never become profitable.
The
CombiMatrix group's future success depends on the continued service of its
engineering, technical and key management personnel and its ability to identify,
hire and retain additional engineering, technical and key management
personnel.
There
is
intense competition for qualified personnel in the CombiMatrix group's industry,
particularly for engineers and senior level management. Loss of the services
of,
or failure to recruit, engineers or other technical and key management personnel
could be significantly detrimental to the group and could adversely affect
its
business and operating results. The CombiMatrix group may not be able to
continue to attract and retain engineers or other qualified personnel necessary
for the development of its products and business or to replace engineers or
other qualified personnel who may leave the group in the future. The CombiMatrix
group's anticipated growth is expected to place increased demands on its
resources and likely will require the addition of new management
personnel.
9
The
expansion of the CombiMatrix group's product lines may subject it to regulation
by the united states food and drug administration and foreign regulatory
authorities, which could prevent or delay its introduction of new
products.
If
the
CombiMatrix group manufactures, markets or sells any products for any regulated
clinical or diagnostic applications, those products will be subject to extensive
governmental regulation as medical devices in the United States by the FDA
and
in other countries by corresponding foreign regulatory authorities. The process
of obtaining and maintaining required regulatory clearances and approvals is
lengthy, expensive and uncertain. Products that CombiMatrix Corporation
manufactures, markets or sells for research purposes only are not subject to
governmental regulations as medical devices or as analyte specific reagents
to
aid in disease diagnosis. We believe that the CombiMatrix group's success will
depend upon commercial sales of improved versions of products, certain of which
cannot be marketed in the United States and other regulated markets unless
and
until the CombiMatrix group obtains clearance or approval from the FDA and
its
foreign counterparts, as the case may be. Delays or failures in receiving these
approvals may limit our ability to benefit from new CombiMatrix group
products.
As
the CombiMatrix group's operations expand, its costs to comply with
environmental laws and regulations will increase, and failure to comply with
these
laws and regulations could harm its financial results.
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 four patents issued
in the United States, three patents issued in Europe and 80 patent applications
pending in the United States, Europe and elsewhere. The patents covering the
CombiMatrix group's core technology begin to expire January 5,
2018.
The
patent application process before the United States Patent and Trademark Office
and other similar agencies in other countries is initially confidential in
nature. Patents that are filed outside the United States, however, are published
approximately eighteen months after filing. The CombiMatrix group cannot
determine in a timely manner whether patent applications covering technology
that competes with its technology have been filed in the United States or other
foreign countries or which, if any, will ultimately issue or be granted as
enforceable patents. Some of the CombiMatrix group's patent applications may
claim compositions, methods or uses that may also be claimed in patent
applications filed by others. In some or all of these applications, a
determination of priority of inventorship may need to be decided in a proceeding
before the United States Patent and Trademark Office or a foreign regulatory
body or a court. If the CombiMatrix group is unsuccessful in these proceedings,
it could be blocked from further developing, commercializing or selling
products. Regardless of the ultimate outcome, this process is time-consuming
and
expensive.
Any
inability to adequately protect the CombiMatrix group's proprietary technologies
could materially harm the CombiMatrix group's competitive position and financial
results.
If
the
CombiMatrix group does not protect its intellectual property adequately,
competitors may be able to use its technologies and erode any competitive
advantage that it may have. The laws of some foreign countries do not protect
proprietary rights to the same extent as the laws of the United States, and
many
companies have encountered significant problems in protecting their proprietary
rights abroad. These problems can be caused by the absence of rules and methods
for defending intellectual property rights.
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.
10
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 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.
If
we encounter unforeseen difficulties and cannot obtain additional funding on
favorable terms, our business may suffer.
Our
CombiMatrix group’s cash and cash equivalents along with short-term investments
totaled $20.2 million at December 31, 2005.
To
date,
the CombiMatrix group has relied primarily upon selling equity securities,
as
well as payments from strategic partners, to generate the funds needed to
finance the implementation of its business strategies. We cannot assure you
that
the CombiMatrix group will not encounter unforeseen difficulties, including
the
outside influences identified above, that may deplete its capital resources
more
rapidly than anticipated. As a result, the CombiMatrix group 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. 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 the CombiMatrix group fails
to
obtain additional funding when needed for its subsidiary companies, the
CombiMatrix group may not be able to execute its business plans and its business
may suffer.
Because
we have a limited operating history, we cannot assure that our operations will
be profitable.
The
CombiMatrix group commenced operations in 1996, and accordingly, have a limited
operating history. In addition, the CombiMatrix group is still in the early
stages of development and/or operations of much of its business and have a
limited operating history. You should consider the CombiMatrix group’s prospects
in light of the risks, expenses and difficulties frequently encountered by
companies with such limited operating histories. Since the CombiMatrix group
has
a limited operating history, we cannot assure you that its operations will
be
profitable or that it will generate sufficient revenues to meet its expenditures
and support its activities.
11
The
CombiMatrix group has sustained substantial losses since its inception. If
the
CombiMatrix group continues to incur operating losses in future periods, it
may
not have enough money to expand its business and its subsidiary companies’
businesses in the future.
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
CombiMatrix group’s growth has placed, and is expected to continue to place, a
strain on its managerial, operational and financial resources. Further, as
its
subsidiary companies’ businesses grow, the CombiMatrix group will be required to
manage multiple relationships. Any further growth by the CombiMatrix group
or
its subsidiary companies or an increase in the number of our strategic
relationships will increase this strain on the CombiMatrix group’s managerial,
operational and financial resources. This strain may inhibit the CombiMatrix
group’s ability to achieve the rapid execution necessary to successfully
implement its business plan.
Our
future success depends on our ability to expand our organization to match the
growth of our subsidiaries.
As
the
CombiMatrix group subsidiaries grow, the administrative demands upon its
management will grow, and its success will depend upon its ability to meet
those
demands. These demands include increased accounting, management, legal services,
staff support for the CombiMatrix group’s board of directors, and general office
services. The CombiMatrix group may need to hire additional qualified personnel
to meet these demands, the cost and quality of which is dependent in part upon
market factors outside of the CombiMatrix group’s control. Further, the
CombiMatrix group will need to effectively manage the training and growth of
its
staff to maintain an efficient and effective workforce, and its failure to
do so
could adversely affect its business and operating results.
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
also
a holder of the common stock of one company, Acacia Research Corporation, the
risks associated with the CombiMatrix group could affect our AR-Acacia
Technologies stock. As such, we urge you to read carefully the section “Risks
Relating to the CombiMatrix Group” above.
Because
our business operations are subject to many uncontrollable outside influences,
we may not succeed.
Our
Acacia Technologies group’s business operations are subject to numerous risks
from outside influences, including the following:
|
·
|
New
legislation, regulations or rules related to obtaining patents or
enforcing patents could significantly increase Acacia Technologies
group’s
operating costs and decrease its
revenue.
|
Our
Acacia Technology group acquires patents with enforcement opportunities and
is
spending a significant amount of resources to enforce those patents. If new
legislation, regulations or rules are implemented either by Congress, the United
States Patent and Trademark Office, or the courts that impact the patent
application process, the patent enforcement process or the rights of patent
holders, these changes could negatively affect our expenses and revenue. For
example, new rules regarding the burden of proof in patent enforcement actions
could significantly increase the cost of our enforcement actions, and new
standards or limitations on liability for patent infringement could negatively
impact our revenue derived from such enforcement actions. While we are not
aware
that any such changes are likely to occur in the foreseeable future, we cannot
assure you that such changes will not occur.
| · |
Trial
judges and juries often find it difficult to understand complex patent
enforcement litigation, and as a result, we may need to appeal adverse
decisions by lower courts in order to successfully enforce our
patents.
|
It
is
difficult to predict the outcome of patent enforcement litigation at the trial
level. It is often difficult for juries and trial judges to understand complex,
patented technologies, and as a result, there is a higher rate of successful
appeals in patent enforcement litigation than more standard business litigation.
Such appeals are expensive and time consuming, resulting in increased costs
and
delayed revenue. Although we diligently pursue enforcement litigation, we cannot
predict with significant reliability the decisions made by juries and trial
courts.
12
| · |
More
patent applications are filed each year resulting in longer delays
in
getting patents issued by the United States Patent and Trademark
Office.
|
Our
Acacia Technology group holds and continues to acquire pending patents. We
have
identified a trend of increasing patent applications each year, which we believe
is resulting in longer delays in obtaining approval of pending patent
applications. The delays could cause delays in recognizing revenue from these
patents and could cause us to miss opportunities to license patents before
other
competing technologies are developed or introduced into the market. See the
subheading “Competition
is intense in the industries in which our subsidiaries do business and as a
result, we may not be able to grow or maintain our market share for our
technologies and patents,” below.
| · |
Federal
courts are becoming more crowded, and as a result, patent enforcement
litigation is taking longer.
|
Our
patent enforcement actions are almost exclusively prosecuted in federal court.
Federal trial courts that hear our patent enforcement actions also hear criminal
cases. Criminal cases always take priority over our actions. As a result, it
is
difficult to predict the length of time it will take to complete an enforcement
action. Moreover, we believe there is a trend in increasing numbers of civil
lawsuits and criminal proceedings before federal judges, and as a result, we
believe that the risk of delays in our patent enforcement actions will have
a
greater affect on our business in the future unless this trend
changes.
| · |
Any
Reductions in the funding of the United States Patent and Trademark
Office
could have an adverse impact on the cost of processing pending patent
applications and the value of those pending patent
applications.
|
The
assets of Acacia Technologies group consists of patent portfolios, including
pending patent applications before the U.S. Patent and Trademark Office (USPTO).
The value of our patent portfolios is dependent upon the issuance of patents
in
a timely manner, and any reductions in the funding of the USPTO could negatively
impact the value of our assets. Further, reductions in funding from Congress
could result in higher patent application filing and maintenance fees charged
by
the USPTO, causing an unexpected increase in our expenses.
| · |
Competition
is intense in the industries in which our subsidiaries do business
and as
a result, we may not be able to grow or maintain our market share
for our
technologies and patents.
|
Our
Acacia Technologies group expects to encounter competition in the area of patent
acquisition and enforcement as the number of companies entering this market
is
increasing. This includes competitors seeking to acquire the same or similar
patents and technologies that we may seek to acquire. Companies such as British
Technology Group, Rembrandt Management Group, and Intellectual Ventures LLC
are
already in the business of acquiring the rights to patents for the purpose
of
enforcement, and we expect more companies to enter the market. As new
technological advances occur, many of our patented technologies may become
obsolete before they are completely monetized. If we are unable to replace
obsolete technologies with more technologically advanced patented technologies,
then this obsolescence could have a negative effect on our ability to generate
future revenues.
| · |
Our
patented technologies face uncertain market
value.
|
Our
Acacia Technologies group has acquired patents and technologies that are at
early stages of adoption in the commercial and consumer markets. Demand for
some
of these technologies is untested and is subject to fluctuation based upon
the
rate at which our licensees will adopt our patents and technologies in their
products and services. See the related risk factor below.
| · |
As
patent enforcement litigation becomes more prevalent, it may become
more
difficult for us to voluntarily license our
patents.
|
We
believe that the more prevalent patent enforcement actions become, the more
difficult it will be for us to voluntarily license our patents. As a result,
we
may need to increase the number of our patent enforcement actions to cause
infringing companies to license the patent or pay damages for lost royalties.
This may increase the risks associated with an investment in our company.
13
| · |
The
foregoing outside influences may affect other risk factors described
in
this prospectus.
|
Any
one
of the foregoing outside influences may cause our company to need additional
financing to meet the challenges presented or to compensate for a loss in
revenue, and we may not be able to obtain the needed financing. See the heading
“If we, or our subsidiaries, encounter unforeseen difficulties and cannot obtain
additional funding on favorable terms, our business may suffer”
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 legal, marketing,
general and administrative expenses. As a result, we expect the Acacia
Technologies group to incur losses for the foreseeable future.
The
Acacia Technologies group may fail to meet market expectations because of
fluctuations in its quarterly operating results, which could cause the price
of
AR-Acacia Technologies stock to decline.
The
Acacia Technologies group’s revenues and operating results have fluctuated in
the past and may continue to fluctuate significantly from quarter to quarter
in
the future. It is possible that in future periods the Acacia Technologies
group’s revenues could fall below the expectations of securities analysts or
investors, which could cause the market price of our AR-Acacia Technologies
stock to decline. The following are among the factors that could cause the
Acacia Technologies group’s operating results to fluctuate significantly from
period to period:
| · |
the
performance of our third-party
licensees;
|
| · |
costs
related to acquisitions, alliances, licenses and other efforts to
expand
our operations;
|
| · |
the
timing of payments under the terms of any customer or license agreements
into which the Acacia Technologies group may enter;
and
|
| · |
expenses
related to, and the results of, patent filings and other enforcement
proceedings relating to intellectual property rights, as more fully
described in this section.
|
The
Acacia Technologies group’s revenues will be unpredictable, and this may harm
its financial condition.
Acacia
Global Acquisition Corporation's acquisition of the assets of Global Patent
Holdings, LLC in 2005, provided the Acacia Technologies group with ownership
of
companies that control 27 patent portfolios, which include 120 U.S. patents
and
certain foreign counterparts. Rights to additional patent portfolios were
acquired subsequent to the acquisition of the assets of Global Patent Holdings,
bringing the total number of patent portfolios controlled by the Acacia
Technologies group to 42, covering technologies used in a wide variety of
industries. The acquisitions expand and diversify the Acacia Technologies
group's revenue generating opportunities. The Acacia Technologies group believes
that its cash and cash equivalent balances, anticipated cash flow from
operations and other external sources of available credit, will be sufficient
to
meet its cash requirements through June 30, 2007. However, due to the nature
of
our licensing business and uncertainties regarding the amount and timing of
the
receipt of license fees from potential infringers, stemming primarily from
uncertainties regarding the outcome of enforcement actions, rates of adoption
of
our patented technologies, the growth rates of our existing licensees and other
factors, we cannot currently predict the amount and timing of the receipt of
license fee revenues with a sufficient degree of precision.
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, the
following:
14
| · |
announcements
of developments in our patent enforcement
actions;
|
| · |
developments
or disputes concerning our patents;
|
| · |
our
or our competitors’ technological
innovations;
|
| · |
developments
in relationships with licensees;
|
| · |
variations
in our quarterly operating results;
|
| · |
our
failure to meet or exceed securities analysts’ expectations of our
financial results; or
|
| · |
a
change in financial estimates or securities analysts’
recommendations;
|
| · |
changes
in management’s or securities analysts’ estimates of our financial
performance;
|
| · |
changes
in market valuations of similar
companies;
|
| · |
announcements
by us or our competitors of significant contracts, acquisitions,
strategic
partnerships, joint ventures, capital commitments, new technologies,
or
patents; and
|
| · |
failure
to complete significant
transactions.
|
For
example, the Nasdaq Computer Index had a range of $842.8-$1,037.2 during the
52-weeks ended December 31, 2005. Over the same period, our AR-Acacia
Technologies stock fluctuated within a range of $4.38- $7.83. We believe
fluctuations in our stock price during this period could have been caused by
court rulings in our patent enforcement actions. Court rulings in patent
enforcement actions are often difficult to understand, even when favorable
or
neutral to the value of our patents, and we believe that investors in the market
may overreact, causing fluctuations in our stock prices that may not accurately
reflect the impact of court rulings on our business operations and
assets.
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
markets served by the Acacia Technologies group are subject to rapid
technological change, and if the Acacia Technologies group is unable to develop
and acquire new technologies and patents, its revenues could stop growing or
could decline.
The
markets served by the licensees of Acacia Technologies group frequently undergo
transitions in which products rapidly incorporate new features and performance
standards on an industry-wide basis. Products for communications applications,
high-speed computing applications, as well as other applications covered by
the
Acacia Technologies group’s intellectual property, are based on continually
evolving industry standards. 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. This will require our continued
efforts and success of acquiring new patent portfolios with licensing and
enforcement opportunities. However, we expect to have sufficient liquidity
and
capital resources for the foreseeable future in order to maintain the level
of
acquisitions we believe we need to keep pace with these technological advances.
However, outside influences may cause the need for greater liquidity and capital
resources than expected, as described under the caption “Because our business
operations are subject to many uncontrollable outside influences, we may not
succeed” above.
The
success of our Acacia Technologies group depends in part upon our ability to
retain the best legal counsel to represent us in patent enforcement
litigation.
In
addition, the success of the Acacia Technologies group depends upon our ability
to retain the best legal counsel to prosecute patent infringement litigation.
As
our patent enforcement actions increase, it will become more difficult to find
the best legal counsel to handle all of our cases because many of the best
law
firms may have a conflict of interest that prevents its representation of our
company.
15
RISKS
RELATING TO OUR CAPITAL STRUCTURE
If
we complete the spin
off of CombiMatrix Corporation, holders of AR-CombiMatrix stock will no longer
be shareholders of our company and may not be able to trade their stock on
Nasdaq or a national exchange.
In
January 2006, our board of directors approved a plan for our wholly owned
subsidiary, CombiMatrix Corporation, to become an independent public company,
subject to our Board and the directors of CombiMatrix Corporation determining
that there will be no significant negative tax consequences to either company
or
the shareholders and completing the required filings with the SEC. If the
conditions are met, we will redeem all of the issued and outstanding shares
of
AR-CombiMatrix stock, including any shares of AR-CombiMatrix stock sold pursuant
to this prospectus, for all of the common stock of CombiMatrix Corporation.
Although AR-CombiMatrix stock is currently traded on Nasdaq, CombiMatrix
Corporation will need to apply for a new listing of its common stock following
the redemption. There
can
be no assurance that CombiMatrix Corporation’s common stock will be accepted for
listing on Nasdaq or any national exchange. CombiMatrix Corporation’s
failure
to
establish a market for its common stock on Nasdaq or another national exchange
could significantly reduce the value of CombiMatrix Corporation’s 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 the Acacia Technologies group could be subject to
the
liabilities of the CombiMatrix 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. However, our business is conducted by our
operating subsidiaries. Creditors of one subsidiary may not make claims against
the assets of another subsidiary, absent a separate guaranty from the other
subsidiaries. None of our subsidiaries currently guaranty the obligations of
other subsidiaries.
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
elsewhere in this prospectus.
The
market price of either class of our common stock may not reflect the separate
performance of the group related to that class of common
stock.
The
market price of our AR-CombiMatrix stock or AR-Acacia Technologies stock may
not
reflect the separate performance of the business of the group relating to that
class of common stock. The market price of either class of common stock could
simply reflect the performance of Acacia Research Corporation as a whole, or
the
market price of either class of common stock could move independently of the
performance of the business of either group. Investors may discount the value
of
either class of common stock because it is part of a common enterprise rather
than a stand-alone company.
The
market price of either class of our common stock may be affected by factors
that
do not affect traditional common stock.
| · |
The
complex nature of the terms of our AR-CombiMatrix stock and AR-Acacia
Technologies stock may adversely affect the market price of either
class
of common stock.
|
The
complex nature of the terms of our two classes of common stock, such as the
convertibility of AR-CombiMatrix stock into AR-Acacia Technologies stock, or
vice versa, and the potential difficulties investors may have understanding
these terms, may adversely affect the market price of either class of common
stock.
16
| · |
The
market price of our AR-Acacia Technologies stock may be adversely
affected
by the fact that holders have limited legal interests in the group
relating to the class of common
stock.
|
For
example, as described in greater detail in the subsequent risk factors, holders
of either class of common stock generally do not have separate class voting
rights with respect to significant matters affecting either group. In addition,
upon our liquidation or dissolution, holders of either class of common stock
will not have specific rights to the assets of the group relating to the class
of common stock held and will not be entitled to receive proceeds that are
proportional to the relative performance of that group. The voting rights of
the
AR-Acacia Technologies stock fluctuates based upon the relative market prices
of
the AR-CombiMatrix stock and the AR-Acacia Technologies stock. The record date
for our last stockholder meeting was March 14, 2005, and holders of AR-Acacia
Technologies stock had 1.665 votes per share, and holders of AR-CombiMatrix
stock had one vote per share.
| · |
The
market price of our AR-Acacia Technologies stock may be adversely
affected
by events involving the CombiMatrix group or the performance of the
AR-CombiMatrix stock.
|
Events,
such as earnings announcements or other developments concerning one group that
the market does not view favorably and which thus adversely affect the market
price of the class of common stock relating to that group, may adversely affect
the market price of the class of common stock relating to the other group.
Because both classes of common stock are common stock of Acacia Research
Corporation, an adverse market reaction to one class of common stock may, by
association, cause an adverse reaction to the other class of common stock.
This
reaction may occur even if the triggering event was not material to us as a
whole.
The
holders of AR-CombiMatrix stock and the holders of AR-Acacia Technologies stock
have only limited separate stockholder rights.
Holders
of AR-CombiMatrix stock and AR-Acacia Technologies stock have the rights
customarily held by common stockholders. They also have these specific rights
related to their corresponding group:
| · |
certain
rights with regard to dividends and
liquidation;
|
| · |
requirements
for a mandatory dividend, redemption or conversion upon the disposition
of
all or substantially all of the assets of their corresponding
group;
|
| · |
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);
and
|
| · |
we
will not hold separate stockholder meetings for holders of AR-CombiMatrix
stock and AR-Acacia Technologies
stock.
|
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.
17
The
last
time we determined the floating voting power of our AR-Acacia Technologies
stock
was for our annual meeting to be held on May 16, 2006,
and our
record date for voting purposes was March 27, 2006. As
of
March 27, 2006, the record date for the Annual Meeting, 27,766,909 shares of
AR
- Acacia Technologies stock and 38,992,402 shares of AR - CombiMatrix stock,
the
only outstanding voting securities of the Company, were issued and outstanding.
At the meeting, each outstanding share of AR - Acacia Technologies stock will
be
entitled to 4.043 votes,
and each outstanding share of AR - CombiMatrix stock will be entitled to one
vote. The voting rights of the AR - Acacia Technologies stock have been
determined based on the market values of each class of Acacia common stock
in
accordance with the formula set forth in our Restated Certificate of
Incorporation. The holders of AR - Acacia Technologies stock and AR -
CombiMatrix stock will vote together as a single class at the meeting.
Collectively,
holders of AR-Acacia Technologies stock had a total of 112,261,613
potential
votes, or approximately 74.22% of the total available votes. As the number
of
issued and outstanding shares of each class of stock increases, and as the
market price of each class of stock fluctuates, the relative voting power
between the classes of stock could change significantly.
| · |
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.
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.
18
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:
| · |
pay
or omit the payment of dividends on AR-CombiMatrix stock or AR-Acacia
Technologies stock ;
|
| · |
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;
|
| · |
convert
one class of common stock into shares of the other; approve certain
dispositions of the assets of either
group;
|
| · |
allocate
the proceeds of future issuances of our stock either to the Acacia
Technologies group or the CombiMatrix group;
|
| · |
allocate
corporate opportunities between the
groups;
|
| · |
make
other operational and financial decisions with respect to one group
that
could be considered detrimental to the other group;
and
|
| · |
Acacia
Technology group may seek to license and enforce its patented technologies
against companies that have business relationships or potential business
relationships with CombiMatrix
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.
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.
19
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.
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.
20
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:
| · |
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
|
| · |
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.
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-Acacia Technologies stock has a majority of the
voting power. As a result, currently, it might be possible for an acquirer
to
obtain control of Acacia Research Corporation by purchasing only shares of
AR-Acacia Technologies stock.
Decisions
by directors and officers that affect differently one class of our common stock
compared to the other could adversely affect the market value of either or
both
of the classes of our common stock.
The
relative voting power per share of our AR-CombiMatrix stock and our AR-Acacia
Technologies stock and the number of shares of one class of common stock
issuable upon the conversion of the other class of common stock will vary
depending upon the relative market values of our AR-CombiMatrix stock and our
AR-Acacia Technologies stock. The market value of either or both classes of
common stock could be affected by market reaction to decisions by our board
of
directors or our management that investors perceive to affect differently one
class of common stock compared to the other. These decisions could involve
changes to our management and allocation policies, allocations of corporate
opportunities and financing resources between groups, and changes in dividend
policies.
21
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-Acacia 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
anti-takeover effects.
The
existence of the two classes of common stock could, under certain circumstances,
prevent stockholders from profiting from an increase in the market value of
their shares as a result of a change in control of Acacia Research Corporation
by delaying or preventing such change in control. The existence of two classes
of common stock could present complexities and could, in certain circumstances,
pose obstacles, financial and otherwise, to an acquiring person. We could,
in
the sole discretion of our board of directors and without stockholder approval,
exercise the right to convert the shares of one class of common stock into
shares of the other at a 10% premium over their respective average market
values. This conversion could result in additional dilution to persons seeking
control of Acacia Research Corporation.
Our
board
of directors could issue shares of preferred stock or common stock that could
be
used to create voting or other impediments to discourage persons seeking to
gain
control of Acacia Research Corporation, and preferred stock could also be
privately placed with purchasers favorable to our board of directors in opposing
such action.
CAUTIONARY
STATEMENT CONCERNING FORWARD-LOOKING INFORMATION
This
prospectus contains forward-looking statements within the meaning of the “safe
harbor” provisions of the Private Securities Litigation Reform Act of 1995.
Reference is made in particular to the description of our plans and objectives
for future operations, assumptions underlying such plans and objectives, and
other forward-looking statements included in this prospectus. Such statements
may be identified by the use of forward-looking terminology such as “may,”
“will,” “expect,” “believe,” “estimate,” “anticipate,” “intend,” “continue,” or
similar terms, variations of such terms or the negative of such terms. Such
statements are based on management’s current expectations and are subject to a
number of factors and uncertainties, which could cause actual results to differ
materially from those described in the forward-looking statements. Such
statements address future events and conditions concerning product development,
capital expenditures, earnings, litigation, regulatory matters, markets for
products and services, liquidity and capital resources and accounting matters.
Actual results in each case could differ materially from those anticipated
in
such statements by reason of factors such as future economic conditions, changes
in consumer demand, legislative, regulatory and competitive developments in
markets in which we and our subsidiaries operate, and other circumstances
affecting anticipated revenues and costs,
as more
fully disclosed in our discussion of risk factors beginning on page
3.
We
expressly disclaim any obligation or undertaking to release publicly any updates
or revisions to any forward-looking statements contained herein to reflect
any
change in our expectations with regard thereto or any change in events,
conditions or circumstances on which any such statement is based. Additional
factors that could cause such results to differ materially from those described
in the forward-looking statements are set forth in connection with the
forward-looking statements.
22
As
used
in this prospectus, “we,” “us” and “our” refer to Acacia Research Corporation
and its subsidiary companies.
USE
OF PROCEEDS
Unless
otherwise indicated in an accompanying prospectus supplement, we intend to
use
the net proceeds from the sale of the securities offered by this prospectus
and
the related accompanying prospectus supplement to provide working capital for
our businesses, including our subsidiaries.
DESCRIPTION
OF WARRANTS
We
may in
the future issue warrants for the purchase of our AR-CombiMatrix stock or our
AR-Acacia Technologies stock. Warrants may be issued independently, together
with any other securities offered by any prospectus supplement or through a
dividend or other distribution to our stockholders and may be attached to or
separate from the related securities. Warrants may be issued under a warrant
agreement to be entered into between us and a warrant agent specified in the
applicable prospectus supplement. The warrant agent will act solely as our
agent
in connection with the warrants of a particular series and will not assume
any
obligation or relationship of agency or trust for or with any holders or
beneficial owners of warrants. The following sets forth certain general terms
and provisions of the warrants that may be offered under this prospectus. The
applicable warrant agreement and form of warrant certificate will be filed
as
exhibits to or incorporated by reference in the registration statement. Further
terms of the warrants and the applicable warrant agreement will be set forth
in
the applicable prospectus supplement.
The
applicable prospectus supplement will describe the terms of the warrants in
respect of which this prospectus is being delivered, including, where
applicable, the following: (a) the title of the warrants; (b) the aggregate
number of the warrants; (c) the price or prices at which the warrants will
be
issued; (d) the designation, number and terms of the shares of our
AR-CombiMatrix stock or our AR-Acacia Technologies stock purchasable upon
exercise of the warrants; (e) the designation and terms of the other securities,
if any, with which the warrants are issued and the number of the warrants issued
with each security; (f) the date, if any, on and after which the warrants and
the related AR-CombiMatrix stock or AR-Acacia Technologies stock, if any, will
be separately transferable; (g) the price at which each share of AR-CombiMatrix
stock or AR-Acacia Technologies stock purchasable upon exercise of the warrants
may be purchased; (h) the date on which the right to exercise the warrants
will
commence and the date on which that right will expire; (i) the minimum or
maximum amount of the warrants which may be exercised at any one time; (j)
information with respect to book-entry procedures, if any; (k) a discussion
of
federal income tax considerations; and (l) any other terms of the warrants,
including terms, procedures and limitations relating to the transferability,
exchange and exercise of the warrants.
PLAN
OF DISTRIBUTION
We
may,
from time
to time,
sell any or all of our shares of common stock on any stock exchange, market
or
trading facility on which the shares are traded or in private transactions,
up
to a maximum aggregate sale price of $75,000,000. These sales may be at fixed
or
negotiated prices. Underwriters may offer and sell the securities at a fixed
price or prices, which may be changed, at market prices prevailing at the time
of sale, at prices related to the prevailing market prices or at negotiated
prices. We may also, from time to time, authorize dealers or agents to offer
and
sell these securities upon such terms and conditions as may be set forth in
the
applicable prospectus supplement. In connection with the sale of any of these
securities, underwriters may receive compensation from us in the form of
underwriting discounts or commissions and may also receive commissions from
purchasers of the securities for whom they may act as agent. Underwriters may
sell the securities to or through dealers, and such dealers may receive
compensation in the form of discounts, concessions or commissions from the
underwriters or commissions from the purchasers for which they may act as
agents. The maximum compensation or discount to be received by any member of
the
National Association of Securities Dealers or any independent broker-dealer
will
not be greater than 8% for the sale of any securities registered pursuant Rule
415 under the Securities Act of 1933.
Shares
may also be sold in one or more of the following transactions: (a) block
transactions (which may involve crosses) in which a broker-dealer may sell
all
or a portion of the shares as agent but may position and resell all or a portion
of the block as principal to facilitate the transaction; (b) purchases by a
broker-dealer as principal and resale by the broker-dealer for its own account
pursuant to a prospectus supplement; (c) a special offering, an exchange
distribution or a secondary distribution in accordance with the rules of the
American Stock Exchange or other applicable stock exchange rules; (d) ordinary
brokerage transactions and transactions in which a broker-dealer solicits
purchasers; (e) sales “at the market” to or through a market maker or into an
existing trading market, on an exchange or otherwise, for shares; and (f) sales
in other ways not involving market makers or established trading markets,
including direct sales to purchasers. Broker-dealers may also receive
compensation from purchasers of the shares which is not expected to exceed
that
customary in the types of transactions involved.
23
Any
underwriting compensation paid by us to underwriters or agents in connection
with the offering of these securities, and any discounts or concessions or
commissions allowed by underwriters to participating dealers, will be set forth
in the applicable prospectus supplement. Dealers and agents participating in
the
distribution of the securities may be deemed to be underwriters, and any
discounts and commissions received by them and any profit realized by them
on
resale of the securities may be deemed to be underwriting discounts and
commissions.
Underwriters,
dealers and agents may be entitled, under agreements entered into with us,
to
indemnification against and contribution toward certain civil liabilities,
including liabilities under the Securities Act of 1933. Unless otherwise set
forth in the accompanying prospectus supplement, the obligations of any
underwriters to purchase any of these securities will be subject to certain
conditions precedent, and the underwriters will be obligated to purchase all
of
the series of securities, if any are purchased.
Underwriters,
dealers and agents may engage in transactions with, or perform services for,
us
and our affiliates in the ordinary course of business.
In
connection with offering securities pursuant to this prospectus, certain
underwriters, and selling group members and their respective affiliates, may
engage in transactions that stabilize, maintain or otherwise affect the market
price of the applicable securities. These transactions may include stabilization
transactions effected in accordance with Rule 104 of Regulation M promulgated
by
the SEC pursuant to which these persons may bid for or purchase securities
for
the purpose of stabilizing their market price.
The
underwriters in an offering of securities may also create a “short position” for
their account by selling more securities in connection with the offering than
they are committed to purchase from us. In that case, the underwriters could
cover all or a portion of the short position by either purchasing securities
in
the open market following completion of the offering of these securities or
by
exercising any over-allotment option granted to them by us. In addition, the
managing underwriter may impose “penalty bids” under contractual arrangements
with other underwriters, which means that they can reclaim from an underwriter
(or any selling group member participating in the offering) for the account
of
the other underwriters, the selling concession for the securities that are
distributed in the offering but subsequently purchased for the account of the
underwriters in the open market. Any of the transactions described in this
paragraph or comparable transactions that are described in any accompanying
prospectus supplement may result in the maintenance of the price of the
securities at a level above that which might otherwise prevail in the open
market. None of the transactions described in this paragraph or in an
accompanying prospectus supplement are required to be taken by any underwriters
and, if they are undertaken, may be discontinued at any time.
Our
AR-CombiMatrix stock is listed on the Nasdaq National Market under the symbol
“CBMX.” Our AR-Acacia Technologies stock is listed on the Nasdaq National Market
under the symbol “ACTG.” Any underwriters or agents to or through which
securities are sold by us may make a market in the securities, but these
underwriters or agents will not be obligated to do so and any of them may
discontinue any market making at any time without notice. No assurance can
be
given as to the liquidity of or trading market for any securities sold by us.
EXPERTS
The
financial statements of Acacia Research Corporation and management’s assessment
of the effectiveness of internal control over financial reporting (which is
included in Management’s Report on Internal Control over Financial Reporting)
incorporated in this Prospectus by reference to the Annual Report on Form 10-K
for the year ended December 31, 2005 have been so incorporated in reliance
on
the report of PricewaterhouseCoopers LLP, an independent registered public
accounting firm, given on the authority of said firm as experts in auditing
and
accounting.
LEGAL
MATTERS
Certain
legal matters in connection with this prospectus will be passed upon for us
by
Greenberg Traurig, LLP.
WHERE
YOU CAN FIND MORE INFORMATION
We
electronically file reports, proxy and information statements and other
information with the Securities and Exchange Commission. The public may read
and
copy any materials we file with the SEC at the SEC’s Public Reference Room at
100 F Street, N.E., Washington, D.C. 20549. The public may obtain information
on
the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
The SEC also maintains an Internet site that contains reports, proxy and
information statements, and other information regarding issuers that file
electronically with the SEC. The address of that site is http://www.sec.gov.
Our
Internet address is http://www.acaciares.com.
24
INCORPORATION
OF CERTAIN INFORMATION BY REFERENCE
The
following documents are specifically incorporated by reference into this
prospectus:
|
(1)
|
Our
Annual Report on Form 10-K for the year ended December 31, 2005,
filed
with the SEC on March 16, 2006;
|
|
(2)
|
Our
current report on Form 8-K filed with the SEC on January 9,
2006;
|
|
(3)
|
Our
current report on Form 8-K filed with the SEC on January 26,
2006;
|
|
(4)
|
Our
current report on Form 8-K filed with the SEC on February 13,
2006;
|
|
(5)
|
Our
current report on Form 8-K filed with the SEC on February 21,
2006;
|
|
(6)
|
Our
current report on Form 8-K filed with the SEC on April 20,
2006;
|
|
(7)
|
The
description of our AR-CombiMatrix stock and AR-Acacia Technologies
stock
contained in the Registration Statement on Form 8-A as filed with
the
Commission on December 19, 2002;
|
|
(8)
|
All
documents that we file with the SEC under Sections 13(a), 13(c),
14 or
15(d) of the Exchange Act after the date of the initial registration
statement and prior to effectiveness of the registration statement;
and
|
|
(9)
|
All
documents that we file with the SEC under Sections 13(a), 13(c),
14 or
15(d) of the Exchange Act prior to the termination of the
offering.
|
We
will
provide each person, including any beneficial owner, to whom a prospectus is
delivered, a copy of any or all of the information that has been incorporated
by
reference in this prospectus but not delivered with the prospectus. We will
provide this information upon written or oral request at no charge to the
requester. The request for this information must be made to the
following:
Acacia
Research Corporation
500
Newport Center Drive, 7th
Floor
Newport
Beach, California 92660
INDEMNIFICATION
Our
officers and directors are required to exercise good faith and high integrity
in
the management of our affairs. Our charter documents provide, however, that
our
officers and directors shall have no liability for losses or liabilities
incurred, except as such losses or liabilities relate to a violation of the
duty
of loyalty, a breach of good faith, intentional misconduct or knowing violation
of law, approval of an improper dividend or stock repurchase or receipt of
an
improper benefit, in accordance with Delaware law, and they may be indemnified
by us to the maximum extent permitted by the Delaware General Corporation
law.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933
(the
“Act”) 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 Act and is,
therefore, unenforceable.
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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. WE
ARE OFFERING TO SELL, AND SEEKING OFFERS TO BUY, SHARES OF OUR
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 OUR COMMON STOCK.
___________________
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$800,000
ACACIA
RESEARCH CORPORATION
Acacia
Research-CombiMatrix Common Stock
________________
PROSPECTUS
SUPPLEMENT
________________
September
14, 2006
_________________
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