AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 6, 2001
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ACACIA RESEARCH CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 95-4405754
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
55 SOUTH LAKE AVENUE
PASADENA, CALIFORNIA 91101
(626) 396-8300
(Address, including zip code, and telephone number,
including area code, of Registrants' principal executive offices)
VICTORIA WHITE
VICE PRESIDENT, LEGAL AFFAIRS
ACACIA RESEARCH CORPORATION
55 SOUTH LAKE AVENUE
PASADENA, CALIFORNIA 91101
(626) 396-8300
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
COPIES OF COMMUNICATIONS TO:
JOHN A. LACO, ESQ.
O'Melveny & Myers LLP
400 South Hope Street
Los Angeles, California 90071
(213) 430-6000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: At such
time or times on and after the date on which this Registration Statement becomes
effective as the Selling Securityholders may determine.
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If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act") other than securities offered only in
connection with dividend or interest reinvestment plans, check the following
box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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CALCULATION OF REGISTRATION FEE
NUMBER OF
SECURITIES OF EACH PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF CLASS TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) SECURITY(2)(3) PRICE(2)(3) REGISTRATION FEE
Common Stock, $0.001 par value per share.... 2,254,548 $17.11 $38,575,316.28 $9,644.00
(1) Includes a number of shares of Common Stock initially issuable upon exercise
of certain warrants and options held by the Selling Securityholders and,
pursuant to Rule 416 under the Securities Act, an indeterminate number of
shares of Common Stock as may be issued from time to time upon exercise of
such warrants and options by reason of adjustment of the number of shares of
Common Stock to be issued upon such exercises under certain circumstances.
(2) Estimated solely for the purpose of calculating the registration fee.
(3) Pursuant to Rule 457(c), the price of the Common Stock is based upon the
average of the high and low prices of the Common Stock on the Nasdaq
National Market on February 5, 2001.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY
DETERMINE.
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SUBJECT TO COMPLETION, PROSPECTUS DATED FEBRUARY 6, 2001.
THE INFORMATION CONTAINED IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY
BE CHANGED. THE SELLING SECURITYHOLDERS MAY NOT SELL THESE SECURITIES PURSUANT
TO THIS PROSPECTUS UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL
THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN
ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
PROSPECTUS
ACACIA RESEARCH CORPORATION
2,254,548 SHARES OF
COMMON STOCK
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Selling Securityholders who are identified in this prospectus may offer and
sell from time to time up to 2,254,548 shares of common stock of Acacia Research
Corporation by using this prospectus.
The offering price for the common stock may be the market price for our
common stock prevailing at the time of sale, a price related to the prevailing
market price, at negotiated prices or such other price as the Selling
Securityholders determine from time to time.
Acacia Research Corporation's common stock is traded on the Nasdaq National
Market under the ticker symbol "ACRI." On February 5, 2001, the closing sale
price of the common stock, as reported by Nasdaq, was $16.75 per share.
THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD ACQUIRE THESE
SHARES ONLY IF YOU CAN AFFORD A COMPLETE LOSS. SEE "RISK FACTORS" BEGINNING ON
PAGE 6 OF THIS PROSPECTUS.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is February , 2001.
TABLE OF CONTENTS
PAGE
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The Company................................................. 1
Recent Developments......................................... 3
Risk Factors................................................ 6
Forward-Looking Statements.................................. 15
Use of Proceeds............................................. 15
Selling Securityholders..................................... 16
Plan of Distribution........................................ 18
Legal Matters............................................... 18
Experts..................................................... 18
Available Information....................................... 18
Incorporation of Certain Documents by Reference............. 19
SUMMARY
YOU SHOULD READ THE FOLLOWING SUMMARY TOGETHER WITH THE MORE DETAILED
INFORMATION ABOUT OUR COMPANY AND THE COMMON STOCK BEING SOLD IN THIS OFFERING,
INCLUDING "RISK FACTORS" AND OUR CONSOLIDATED FINANCIAL STATEMENTS AND RELATED
NOTES, CONTAINED ELSEWHERE IN THIS PROSPECTUS OR INCORPORATED BY REFERENCE.
THE COMPANY
Acacia Research Corporation develops and operates majority-owned
subsidiaries in the life science and technology industries. Our most important
subsidiary is CombiMatrix Corporation, which is developing a new biochip
technology. Our primary focus is to enhance the value of this technology by
forming and acquiring companies that can utilize this new technology in the
medical, life science and research industries.
Our other majority-owned subsidiaries include: Advanced Material
Sciences, Inc., which holds the exclusive license for CombiMatrix's biological
array processor technology in certain fields of material sciences, Soundview
Technologies Incorporated, which owns a patent for television V-chip technology
and Soundbreak.com Incorporated, a music webcasting company. All of our
subsidiaries are start-up or development-stage ventures with limited or no
operating histories and none of our subsidiaries have generated any significant
revenues to date. Our subsidiaries have primarily relied upon selling equity
securities, including sales to and loans from us, to generate the funds they
need to finance implementation of their operating plans.
We have also acquired minority-ownership positions in Advanced Data
Exchange, which provides an electronic exchange to facilitate business to
business trading relationships; Greenwich Information Technologies, LLC, a
licensing company for an international portfolio of video-on-demand patents; and
Mediaconnex Communications Incorporated, which is developing software products
for inventory and sales management solutions for the television and cable
broadcasting industry.
1
Through our majority-owned subsidiaries, we engage in the following
businesses:
OWNERSHIP % AS OF
SEPTEMBER 30, 2000 ON
COMPANY NAME DESCRIPTION OF BUSINESS AN AS CONVERTED BASIS
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Advanced Material Sciences, Inc..... A newly formed company that holds 66.7%
the exclusive license for
CombiMatrix's biological array
processor technology in certain
fields of material science.
CombiMatrix Corporation............. A biotech company with a proprietary 58.3%
system for the rapid,
cost-competitive creation of DNA and
other compounds on a programmable
semiconductor chip. This proprietary
technology has significant
applications relating to genetics
and DNA.
Soundbreak.com Incorporated......... A new media company featuring 66.9%
24 hour video streaming of music
and live performances hosted by
professional talent targeting a
demographic of viewers under age 35
and including extensive viewer
interaction formats.
Soundview Technologies
Incorporated...................... A technology company that owns 66.7%
intellectual property related to the
telecommunications field, including
a television blanking system, also
known as the "V-chip."
We also hold minority interests in the following businesses:
OWNERSHIP % AS OF
SEPTEMBER 30, 2000 ON
COMPANY NAME DESCRIPTION OF BUSINESS AN AS CONVERTED BASIS
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Advanced Data Exchange (formerly
known as The EC Company).......... A technology company that enables 5.2%
mid-sized companies to streamline
the exchange of business documents
over the Internet with supply chain
partners and emerging digital
marketplaces.
Greenwich Information
Technologies LLC.................. A marketing and licensing agent for 33.3%
several patents relating to
video-on-demand and audio-on-demand
technology.
Mediaconnex Communications, Inc..... A company developing technology that 31.0%
will enable buying and selling of
broadcast media over the Internet.
We were initially incorporated in the State of California on January 25,
1993, and conducted our initial public offering on June 15, 1995. We
reincorporated in the State of Delaware on December 28, 1999.
2
Our common stock trades on the Nasdaq National Market under the symbol "ACRI."
The closing sale price of our common stock on February 5, 2001 as reported on
the Nasdaq National Market was $16.75 per share. The transfer agent and
registrar for our common stock is U.S. Stock Transfer Corporation.
As used in this prospectus, "we," "us" and "our" refer to Acacia Research
Corporation and its consolidated subsidiaries. Throughout this prospectus,
CombiMatrix, Advanced Data Exchange, Greenwich Information Technologies,
Mediaconnex, Soundbreak.com and Soundview Technologies are collectively referred
to as our subsidiary companies; however, we do not act as an agent or legal
representative for any of our subsidiary companies. See "Risk Factors" for
certain risks associated with individual subsidiary companies.
Our executive offices are located at 55 South Lake Avenue, Pasadena,
California 91101 and our telephone number is (626) 396-8300. Our website address
is www.acaciaresearch.com. Neither the information contained in our website nor
the websites linked to our website shall be deemed to be a part of this
prospectus.
RECENT DEVELOPMENTS
In January 2000, we acquired a 7.6% interest in Advanced Data Exchange for
$3 million out of a $17.3 million private placement of "non-voting" Series B
Preferred Stock. Advanced Data Exchange is a corporation engaged in
business-to-business Internet exchange transactions that allow mid-sized
companies to exchange purchase orders, purchase order acknowledgements, advance
ship notices, invoices and other business documents over the Internet with
supply chain partners and emerging digital marketplaces.
In February 2000, we issued a 30-day redemption notice for common stock
purchase warrants issued in a December 1999 private placement. As a result, all
of the warrants were exercised prior to the redemption date and we received
proceeds of approximately $14.8 million for the issuance of 578,238 shares of
common stock.
In March 2000, CombiMatrix completed a private equity financing raising
gross proceeds of $17.5 million through the sale of 3.5 million shares of
CombiMatrix common stock. Acacia invested $10 million in this private placement
to acquire 2 million shares of CombiMatrix. As a result of the transaction,
Acacia increased equity ownership in CombiMatrix from 50.01% to 51.8%.
Also in March 2000, Soundbreak.com completed a "non-voting" Series C
Preferred private equity financing raising gross proceeds of $19 million through
the sale of shares of 188,437 Series C Preferred Stock. Acacia invested
$9 million in this private placement to acquire 90,000 shares. As a result of
the transaction, our equity ownership in Soundbreak.com decreased from 73.6% to
66.9%.
In July 2000, we increased our ownership of CombiMatrix from 51.8% to 61.4%.
Acacia acquired the additional ownership position from existing shareholders of
CombiMatrix in exchange for 488,557 restricted shares of its common stock. This
purchase was accounted for as a step acquisition. The purchase price was
allocated to the fair value of assets acquired and liabilities assumed,
including acquired in-process research and development. The amount attributable
to goodwill was $2.9 million which is amortized using the straight line method
over the estimated remaining useful life of five years. The amount attributable
to in-process research and development of $2.5 million was charged to expense
and is included in the statements of operations for the three and nine months
ended September 30, 2000.
In July 2000, we completed a private offering of 861,638 units at $27.50 per
unit for gross proceeds of approximately $23.7 million. Each unit consisted of
one share of common stock and one common stock purchase warrant entitling the
holder to purchase one share of common stock at an exercise price of $33.00 per
share, subject to adjustment, expiring in three years. The warrants are callable
by Acacia once the closing bid price of the Company's common stock averages
$39.60 or above for 20 consecutive trading days on the Nasdaq National Market
System.
3
Also in July 2000, Gerald D. Knudson, the chief executive officer of
CombiMatrix, was appointed to our Board of Directors. Robert L. Harris II, a
director of the Company, was named President of Acacia.
In August 2000, CombiMatrix completed a private equity financing raising
gross proceeds of $36 million through the sale of 4 million shares of
CombiMatrix common stock. We invested $17.5 million in this private placement to
acquire 1,944,445 shares. As a result of the transaction, Acacia's equity
ownership in CombiMatrix decreased from 61.4% to 58.6%.
Also in August 2000, CombiMatrix was granted a U.S. patent for its biochip
micro array processor system, which enables quick and economical turnaround of
custom-designed microarrays for use in biological research. A microarray
consists of a chemical "virtual flask" located on the surface of a
semi-conductor chip containing thousands of microarrays, which are separated
from each other using special solutions instead of physical barriers. Each
microarray has electronic circuitry that may be directed by a computer to
construct a specified compound. The patent covers CombiMatrix's core technology,
which is a method for producing microarrays by synthesizing biological materials
on a three-dimensional, active surface.
During the fourth quarter of 2000, we entered into a licensing and supply
agreement and related registration rights and co-sale agreements with
CombiMatrix pertaining to the use of their technology within the field of
toxicology. Toxicology includes the identification, detection, characterization
and treatment of adverse effects from chemicals, including drugs. The principal
terms of the toxicology agreements and our understandings with CombiMatrix are
as follows:
- a new affiliate engaged in the toxicology field, or Toxco, must be
acquired by us within the next six months or our agreement regarding Toxco
will terminate;
- Toxco will become one of CombiMatrix' initial beta customers, and during
the beta period, CombiMatrix will endeavor to develop a biological array
processor for use in the field of toxicology;
- it is contemplated that Toxco will commence commercialization of a product
within approximately one year;
- if a biological array processor for toxicology has been successfully
developed and becomes available for commercial use, CombiMatrix will
receive a 10% minority equity interest in Toxco and anti-dilution
protection for our interest at least through the first round of outside
financing of Toxco although there is no guarantee that CombiMatrix will
receive this interest;
- CombiMatrix will not sell biological array processors for use in the
toxicology field to specified direct competitors of Toxco for one year
after the first delivery of a commercial product to Toxco, and may extend
such exclusivity period for an additional year at CombiMatrix' discretion;
- at the time of Toxco's first commercial order of biological array
processors, Toxco will pay us a $1 million one-time licensing fee to use
and resell biological array processors for use within the field of
toxicology;
- Toxco will purchase its requirements for biological array processors from
CombiMatrix over the term of the agreement, subject to specified capacity
limitations;
- we expect CombiMatrix to provide commercial biological array processors to
Toxco, at a substantial discount off the price that we expect to charge
third parties, and this discount will increase based upon the number of
units purchased;
- we are under no obligation to make any additional equity investments in
Toxco;
- Toxco's board of directors will have three of our designees and two
designees of CombiMatrix;
- the initial term of the agreement is five years after the completion of a
commercial product for sale;
4
- CombiMatrix will grant Toxco a worldwide, non-exclusive license to use its
technology and to resell biological array processors for use in the field
of toxicology;
- all improvements to CombiMatrix' technology will be owned by CombiMatrix;
- the sequences on our biological array processors used by Toxco and all
related improvements will be owned by Toxco; and
- we and CombiMatrix will be granted registration and co-sale rights in
connection with the investment pursuant to a co-sale agreement and an
investor's rights agreement.
Also in the fourth quarter of 2000, we entered into an exclusive license and
development agreement with CombiMatrix and related co-sale and investor's rights
agreements pertaining to the use and further development of CombiMatrix'
technology within the field of material science. Material science includes fuel
cell catalysts, battery materials, sensor arrays, electronic and electrochemical
materials, and other materials relating to the use, storage, conversion and
delivery of energy, other than those involving living or biologic systems. We
have formed a new subsidiary, Advanced Material Sciences, Inc., or AMS, that
will develop and exploit our technology in material science. The principal terms
of the agreements and our understanding with CombiMatrix are as follows:
- CombiMatrix has acquired a 33 1/3% minority interest in AMS in exchange
for a $1 million capital contribution;
- CombiMatrix will exclusively license its biological array processor
technology to AMS for use in the material science field on a worldwide
basis;
- CombiMatrix will receive a typical royalty on all net sales of AMS
generated from the sale of products in the area of material science;
- CombiMatrix will receive a royalty free, worldwide license to use
improvements to our technology developed by AMS in all fields outside of
material sciences;
- the initial term of the agreement is 20 years;
- We are under no obligation to make any additional equity investments in
AMS;
- AMS's board of directors will have three of our designees and two
designees of CombiMatrix; and
- we and CombiMatrix are granted registration and co-sale rights in
connection with the investment pursuant to a co-sale agreement and an
investor's rights agreement.
In November 2000, CombiMatrix filed with the Securities and Exchange
Commission a registration statement relating to the proposed initial public
offering of its Common Stock. Salomon Smith Barney was named as lead manager for
the proposed offering with J.P. Morgan & Co. acting as co-manager. All of the
shares in the proposed offering are to be sold by CombiMatrix.
In January 2001, we announced that our majority-owned subsidiary, MerkWerks
Corporation, had sold its CD-recording software product and the WonderWriter
trademark to NTI Corp. The WonderWriter, which was MerkWerk's sole product, is
user-friendly software designed for use on Mac OS with CD-recordable drives and
allows users to copy and record data, music, video and multimedia information on
CD-R/RW disks.
5
RISK FACTORS
INVESTMENT IN OUR COMMON STOCK IS SPECULATIVE AND INVOLVES A HIGH DEGREE OF
RISK. YOU SHOULD ONLY PURCHASE SHARES IF YOU CAN AFFORD TO LOSE YOUR ENTIRE
INVESTMENT. IN DECIDING WHETHER TO BUY OUR COMMON STOCK, YOU SHOULD CAREFULLY
CONSIDER THE FOLLOWING RISK FACTORS, OTHER INFORMATION CONTAINED IN THIS
PROSPECTUS AND INFORMATION WE HAVE INCORPORATED BY REFERENCE. IF ANY OF THE
FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS COULD BE HARMED, THE TRADING PRICE
OF OUR COMMON STOCK COULD DECLINE, AND YOU MAY LOSE ALL OR PART OF YOUR
INVESTMENT.
BECAUSE OUR BUSINESS OPERATIONS ARE SUBJECT TO MANY INHERENT AND UNCONTROLLABLE
RISKS, WE MAY NOT SUCCEED.
We have significant economic interests in our subsidiary companies. Our
business operations are therefore subject to numerous risks, challenges,
expenses and uncertainties inherent in the establishment of new business
enterprises. Many of these risks and challenges are subject to outside
influences over which we have no control, including:
- our subsidiary companies' products and services face uncertain market
acceptance;
- technological advances may make our subsidiary companies' products and
services obsolete or less competitive;
- competition;
- increases in operating costs, including costs for supplies, personnel, and
equipment;
- the availability and cost of capital;
- general economic conditions; and
- governmental regulation that excessively restricts our subsidiary
companies' businesses.
We cannot assure you that our subsidiary companies will be able to market
any product or service on a commercial scale, that our subsidiary companies will
ever achieve or maintain profitable operations or that they, or we, will be able
to remain in business.
BECAUSE OF THE RISKS INHERENT IN INVESTING IN EMERGING COMPANIES, INCLUDING THE
LACK OF OPERATING HISTORIES AND UNPROVEN TECHNOLOGIES AND PRODUCTS, YOU MAY
INCUR SUBSTANTIAL LOSSES.
Investing in emerging companies carries a high degree of risk, including
difficulties in selecting ventures with viable business plans and acceptable
likelihoods of success and future profitability. There is a high probability of
loss associated with investments in emerging companies. We must also dedicate
significant amounts of financial resources, management attention and personnel
to identify and develop each new business opportunity, without any assurance
that these expenditures will prove fruitful.
We generally invest in start-up ventures with no operating histories,
unproven technologies and products and, in some cases, without experienced
management. We may not be successful in developing these start-up ventures.
Because of the uncertainties and risks associated with such start-up ventures,
you should expect substantial losses associated with failed ventures.
In addition, the market for venture capital in the United States is
increasingly competitive. As a result, we may lose business opportunities and
may need to accept financing and equity investments on less favorable terms.
Also, we may be unable to participate in additional ventures because we lack the
financial resources to provide them with full funding. We, as well as our
subsidiary companies, may need to depend on external financing to provide
sufficient capital.
6
BECAUSE OUR OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY, OUR STOCK PRICE MAY
BE MORE VOLATILE THAN OTHER COMPANIES.
Our operating results may vary significantly from quarter to quarter due to
a variety of factors, including:
- the operating results of our current and future subsidiary companies;
- the nature and timing of our investments in new subsidiary companies;
- our decisions to acquire or divest interests in our current and future
subsidiaries may create changes in losses or income and amortization of
goodwill;
- changes in our methods of accounting for our current and future
subsidiaries may cause us to recognize gains or losses under applicable
accounting rules;
- the timing of the sales of equity interests in our current and future
subsidiary companies;
- our ability to effectively manage our growth and the growth of our
subsidiary companies; and
- the cost of future acquisitions could increase from intense competition
from other potential acquirers of technology-related companies or ideas.
We have incurred and expect to continue to incur significant expenses in
pursuing and developing new business ventures. To date, we have lacked a
consistent source of recurring revenue. Each of the factors we have described
may cause our stock to be more volatile than other companies.
BECAUSE OUR SUBSIDIARY COMPANIES MAY NOT GENERATE ANY REVENUES, AND OPERATING
RESULTS FROM OUR SUBSIDIARY COMPANIES MAY FLUCTUATE SIGNIFICANTLY, OUR OWN
OPERATING RESULTS MAY BE NEGATIVELY AFFECTED.
Our operating results may be materially impacted by the operating results of
our subsidiary companies. None of our subsidiary companies have generated any
significant revenues to date. We cannot assure that these companies will be able
to meet their anticipated working capital needs to develop their products and
services. If they fail to properly develop these products and services, they
will be unable to generate meaningful product sales. We anticipate that these
subsidiary companies operating results are likely to vary significantly as a
result of a number of factors, including:
- the timing of new product introductions by each subsidiary company;
- the stage of development of the business of each subsidiary company;
- the technical feasibility of each subsidiary company's technologies and
techniques;
- the novelty of the technology owned by these subsidiary companies;
- the level of product acceptance;
- the strength of each subsidiary company's intellectual property rights;
- each subsidiary company's ability to exploit and commercialize its
technology;
- the volume and timing of orders received and product line maturation;
- the impact of price competition; and
- each subsidiary company's ability to access distribution channels.
Many of these factors are beyond our subsidiary company's control. We cannot
provide any assurance that any partner company will experience growth in the
future or be profitable on an operating basis in any future period.
7
THE POTENTIAL LACK OF MARKET ACCEPTANCE OF THE PRODUCTS OF EMERGING COMPANIES
MAY RESULT IN OPERATING LOSSES.
Our subsidiary companies are generally emerging companies with little or no
existing revenues. Often, emerging companies have new and unproven business
plans and products for which market acceptance has not been obtained. We can
give you no assurance that our subsidiary companies will ever generate revenues
or achieve profitability. We further describe the risks facing a number of our
subsidiary companies below.
ADVANCED MATERIAL SCIENCES. Although Advanced Material Sciences holds the
exclusive license for CombiMatrix's biological array processor technology in
certain fields of material sciences, it is a developmental stage company without
any significant revenues.
COMBIMATRIX. CombiMatrix is developing a proprietary biochip microarray
processor system that integrates semiconductor technology with new developments
in biotechnology and chemistry. Although CombiMatrix has been awarded three
federal contracts, CombiMatrix is a developmental stage company without any
significant current revenues. Its current activities relate almost exclusively
to research and development.
Because the technologies critical to the success of this industry are in
their infancy, we cannot assure that CombiMatrix will be able to successfully
implement its technologies. If its technologies are successful, CombiMatrix
intends to pursue collaborations with pharmaceutical companies for activities
such as screening potential drug compounds. We cannot assure you that
CombiMatrix, even if successful in developing its technologies, would be able to
successfully implement collaborative efforts with pharmaceutical companies.
SOUNDVIEW TECHNOLOGIES. Soundview Technologies was formed to commercialize
patent rights of a method of video and audio blanking technology, also known as
V-chip technology, that screens objectionable television programming and blocks
it from the viewer. It is uncertain if and to what extent Soundview Technologies
will be able to profitably exploit its technology.
ADVANCED DATA EXCHANGE. Advanced Data Exchange provides a hosted Internet
transaction exchange that manages data standards and facilities trading
relationships within and across communities to enable the exchange of
business-to-business e-commerce transactions. To date, Advanced Data Exchange is
in the development stage and has created a minimal number of relationships with
vendors and buyers for business-to-business e-commerce transactions. Advanced
Data Exchange's business model is new and unproven and we cannot give you any
assurance that vendors and buyers will use its services for Internet
transactions.
GREENWICH INFORMATION TECHNOLOGIES. Greenwich Information Technologies is
the exclusive marketing and licensing agent for a number of domestic and
international patents pertaining to information-on-demand systems. To date,
Greenwich Information Technologies has yet to license any of its patents. It is
uncertain if and to what extent Greenwich Information Technologies will be able
to profitably market and license its rights to the information on-demand
technology.
MEDIACONNEX. Mediaconnex develops software that performs inventory and
sales management functions for television and cable broadcasters using the
Internet. To date, Mediaconnex has not generated any revenues nor signed
contracts with significant customers. We cannot provide assurance that
Mediaconnex will ever be able to successfully market its services.
SOUNDBREAK.COM. Soundbreak.com is a 24-hour worldwide web-cast site
providing music programming, user participation and music-related e-commerce.
Soundbreak.com is in the developmental stage and market acceptance for
Soundbreak.com is uncertain. Soundbreak.com's success depends on its ability to
develop or obtain sufficiently compelling content to attract and retain an
audience, its ability to form
8
partnerships for music and merchandise fulfillment and distribution, and its
ability to successfully market and establish its presence on the Internet.
IF WE ENCOUNTER UNFORESEEN DIFFICULTIES AND CANNOT OBTAIN ADDITIONAL FUNDING ON
FAVORABLE TERMS, OUR BUSINESS MAY SUFFER.
As of September 30, 2000, we had working capital of $81.8 million and
stockholders' equity of $78.2 million based on our consolidated financial
statements. However, a portion of these funds were held by our consolidated
subsidiaries and thus are restricted to use in the business of the particular
subsidiary.
To date, our subsidiary companies have primarily relied upon selling equity
securities, including sales to and loans from us, to generate the funds they
needed to finance implementing their plans of operations. Our 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 interest.
We cannot assure that we will not encounter unforeseen difficulties that may
deplete our capital resources more rapidly than anticipated. Any efforts to seek
additional funds could be made through equity, debt, or other external
financings; however, we cannot assure that additional funding will be available
on favorable terms, if at all. If we fail to obtain additional funding when
needed for ourselves and our subsidiary companies, we may not be able to execute
our business plans and our business may suffer.
BECAUSE EACH SUBSIDIARY COMPANY'S SUCCESS GREATLY DEPENDS ON THEIR ABILITY TO
DEVELOP AND MARKET NEW PRODUCTS AND SERVICES AND TO RESPOND TO THE RAPID CHANGES
IN TECHNOLOGY AND DISTRIBUTION CHANNELS, WE CANNOT ASSURE THAT OUR SUBSIDIARY
COMPANIES WILL BE SUCCESSFUL IN THE FUTURE.
The markets for each subsidiary company's products are marked by extensive
competition, rapidly changing technology, frequent product and service
improvements, and evolving industry standards. We cannot assure you that our
subsidiary company's existing or future products and services will be successful
or profitable. We also cannot assure you that competitor's products, services or
technologies will not render our subsidiary companies' products and services
noncompetitive or obsolete.
Our success will depend on our subsidiary companies' ability to adapt to
this rapidly evolving marketplace and to develop and market new products and
services or enhance existing ones to meet changing customer demands. Our
subsidiary companies may be unable to adequately adapt products and services or
acquire new products and services that can compete successfully. In addition,
our subsidiary companies may be unable to establish and maintain effective
distribution channels.
THE FUTURE PLANS OF A NUMBER OF SUBSIDIARY COMPANIES DEPEND ON INCREASED USE OF
THE INTERNET BY BUSINESSES AND INDIVIDUALS AND THUS OUR BUSINESS MAY SUFFER IF
USE OF THE INTERNET FAILS TO GROW IN THE FUTURE.
Commercial use of the Internet is currently at an early stage of development
and the future of the Internet is not clear. Because a significant amount of our
resources will be allocated to our existing and future Internet companies,
including Advanced Data Exchange, Mediaconnex, and Soundbreak.com, our business
may suffer if commercial use of the Internet fails to grow in the future.
Because of the Internet's popularity and increasing use, new laws and
regulations may be adopted. These laws and regulations may cover issues such as
privacy, pricing, content and taxation of Internet commerce. If the U.S. or
other governments enact any additional laws or regulations it may impede the
growth of the Internet and our Internet-related businesses and we could face
additional financial burdens.
9
OUR BUSINESS MAY BE HARMED IF MARKET AND OTHER CONDITIONS ADVERSELY AFFECT OUR
ABILITY TO DISPOSE OF CERTAIN ASSETS AT FAVORABLE PRICES.
An element of our business plan involves disposing of, in public offerings
or private transactions, our subsidiary companies and future partner companies,
or portions thereof, that we have acquired and developed, to the extent such
assets are no longer consistent with our business plan. If we sell such assets,
the price we receive for these assets will be dependent upon market and other
conditions. Market and other conditions largely beyond our control affect:
- our ability to effect these sales;
- the timing of these sales; and
- the amount of proceeds from these sales.
We may not be able to sell some or any of these assets due to poor market
and other conditions. In addition, even if we are able to sell, we may not be
able to sell at favorable prices. As a result, we may be adversely affected
because we will be unable to dispose of assets or may receive a lesser amount
for our assets than we believe is favorable.
OUR GROWTH PLACES STRAINS ON OUR MANAGERIAL, OPERATIONAL, AND FINANCIAL
RESOURCES.
Our growth has placed, and is expected to continue to place, a significant
strain on our managerial, operational and financial resources. Further, as the
number of our subsidiary companies and their respective businesses grow, we will
be required to manage multiple relationships. Any further growth by us or our
subsidiary companies or an increase in the number of our strategic relationships
will increase this strain on our managerial, operational, and financial
resources. This strain may inhibit our ability to achieve the rapid execution
necessary to successfully implement our business plan. In addition, our future
success depends on our ability to expand our organization to match the growth of
our business and our subsidiaries.
IF OUR BUSINESS AND OUR SUBSIDIARY COMPANIES ARE TO SUCCEED, WE WILL NEED TO
ATTRACT AND RETAIN QUALIFIED PERSONNEL. WE CANNOT ASSURE THAT WE WILL BE ABLE TO
ASSEMBLE AND RETAIN THE NECESSARY MANAGEMENT AND MARKETING TEAMS.
CombiMatrix currently intends to develop, market, sell and license its
products and services directly to customers. Because CombiMatrix has not
completed research and development of its products, it has not hired marketing
and sales personnel or finalized strategic marketing plans. We cannot assure you
that CombiMatrix will be able to attract and retain qualified marketing and
sales personnel or that any marketing efforts undertaken by it will be
successful.
We believe that our success will depend on continued employment by us and
our subsidiary companies of senior management and key technical personnel. Our
subsidiary companies will need to attract, retain and motivate qualified
management personnel to execute their current plans and to successfully develop
commercially viable products and services. Competition for qualified personnel
is intense and we cannot assure you that we will successfully retain our
existing key employees or attract and retain any additional personnel we may
require.
Each of our subsidiary companies has key executives upon whom we
significantly depend and the success of those subsidiary companies depends on
our ability to retain and motivate those individuals.
OUR SUBSIDIARY COMPANIES FACE INTENSE COMPETITION AND WE CANNOT ASSURE THAT THEY
WILL BE SUCCESSFUL.
Each of our subsidiary companies faces intense competition. Many of the
competitors to our subsidiary companies have greater financial, marketing, and
other resources. In addition, a number of
10
competitors may have greater brand recognition and longer operating histories,
than our subsidiary companies. Our subsidiary companies also face the risks
described below.
ADVANCED MATERIAL SCIENCES. The material sciences industry is subject to
intense competition and rapid change. Many competitors have more experience in
research and development than Advanced Material Sciences.
COMBIMATRIX. The pharmaceutical and biotechnology industries are subject to
intense competition and rapid and significant technological change. CombiMatrix
anticipates that it will face increased competition in the future as new
companies enter the market and advanced technologies become available. Many of
these competitors have more experience in research and development than
CombiMatrix. Technological advances or entirely different approaches developed
by one or more of CombiMatrix's competitors could render CombiMatrix's processes
obsolete or uneconomical. The existing approaches of CombiMatrix's competitors
or new approaches or technology developed by CombiMatrix's competitors may be
more effective than those developed by CombiMatrix.
ADVANCED DATA EXCHANGE. Competition for Internet products and services is
intense. Advanced Data Exchange competes for a share of a customer's purchasing
budget for services, materials and supplies with other online providers and
traditional distribution channels. Several companies offer competitive solutions
that compete with Advanced Data Exchange. We expect that additional companies
will offer competing solutions on a stand-alone or combined basis in the future.
Furthermore, competitors may develop Internet products or services that are
superior to, or have greater market acceptance than, the solutions offered by
Advanced Data Exchange. Advanced Data Exchange may be at a disadvantage in
responding to their competitors pricing strategies, technological advances,
advertising campaigns, strategic partnerships and other initiatives.
SOUNDVIEW TECHNOLOGIES. We believe that Soundview Technologies' V-chip
technology is protected by enforceable patent rights. However, other companies
may develop competing technologies that offer better or less expensive
alternatives to those offered by Soundview Technologies. Many potential
competitors, including television manufacturers, have significantly greater
resources
GREENWICH INFORMATION TECHNOLOGIES. Although we believe that Greenwich
Information Technologies has marketing and licensing rights to enforceable
patents and other intellectual property relating to video and audio on demand,
we cannot assure you that other companies will not develop competing
technologies that offer better or less expensive alternatives to those offered
by Greenwich Information Technologies. In the event a competing technology
emerges, Greenwich Information Technologies would expect substantial
competition.
MEDIACONNEX. The market for the sale of commercial inventory for television
and cable broadcasters is highly competitive and rapidly changing. In addition
to the long-standing traditional sales channels, there are a number of newly
created Internet-based sites competing for market acceptance among the
broadcasters and media buyers. Because Mediaconnex's software is not yet
complete, acceptance of its software and business model in the market is
unproven and speculative. Moreover, because there are few barriers to entry,
competition is likely to increase, including the probability of established
competitors expanding their current offering of services.
SOUNDBREAK.COM. The number of websites competing for the attention and
spending of consumers, advertisers and users has increased, and we expect it to
continue to increase because there are few barriers to entry to Internet
commerce. Competition is likely to increase significantly as new companies enter
the market and current competitors expand their services. Certain companies have
announced agreements to work together to offer music over the Internet, and
Soundbreak.com may face increased competitive pressures as a result. Many of
Soundbreak.com's current and potential competitors in the Internet and music
entertainment businesses may have substantial competitive advantages, including
customer bases
11
and more popular content. These competitors may be able to respond more quickly
to new or emerging technologies and changes in customer requirements and devote
greater resources to develop, promote and sell their products or services than
Soundbreak.com. Websites maintained by existing and potential competitors may be
perceived by consumers, artists, talent management companies and other music-
related vendors or advertisers as being superior to Soundbreak.com's website.
WE CANNOT ASSURE THAT WE WILL BE ABLE TO EFFECTIVELY PROTECT OUR SUBSIDIARY
COMPANIES' PROPRIETARY TECHNOLOGY AND WE COULD ALSO BE SUBJECT TO INFRINGEMENT
CLAIMS.
The success of our subsidiary companies relies, to varying degrees, on
proprietary rights and their protection or exclusivity. Although reasonable
efforts will be taken to protect their proprietary rights, the complexity of
international trade secret, copyright, trademark and patent law, and common law,
coupled with limited resources and the demands of quick delivery of products and
services to market, create risk that these efforts will prove inadequate. From
time to time, we may be subject to third party claims in the ordinary course of
business, including claims of alleged infringement of proprietary rights by us
and our subsidiary companies. Any such claims may damage our business by
subjecting us and our subsidiary companies to significant liability for damage
and invalidating proprietary rights, with or without merit, could subject our
subsidiary companies to costly litigation and the diversion of their technical
and management personnel.
CombiMatrix, Greenwich Information Technologies and Soundview Technologies
depend largely on the protection of enforceable patent rights. They have
applications on file with the U.S. Patent and Trademark Office seeking patents
on their core technologies and/or have patents or rights to patents that have
been issued. We cannot assure you that the pending patent applications will be
issued, that third parties will not violate, or attempt to invalidate these
intellectual property rights, or that certain aspects of their intellectual
property will not be reverse-engineered by third parties without violating the
their patent rights. For certain partner companies, such as Greenwich
Information Technologies and Soundview Technologies, proprietary rights
constitute the only significant assets of such company.
Many of our subsidiary companies also own licenses from third parties and it
is possible that they could become subject to infringement actions based upon
such licenses. Our subsidiary companies generally obtain representations as to
the origin and ownership of such licensed content; however, this may not
adequately protect them.
Our subsidiary companies also enter into confidentiality agreements with
third parties and generally limit access to information relating to their
proprietary rights. Despite these precautions, third parties may be able to gain
access to and use their proprietary rights to develop competing technologies
and/or products with similar or better features and prices. Any substantial
unauthorized use of our subsidiary companies' proprietary rights could
materially and adversely affect their business and operational results.
Soundview Technologies has filed a patent and antitrust lawsuit against
television manufacturers, the Consumer Electronics Manufacturers Association,
and the Consumer Electronics Association in the federal district court alleging
that television sets fitted with "V-chips" infringe Soundview Technologies'
patent. However, no assurance can be given that Soundview Technologies will
prevail in that action or that the television manufacturers will be required to
pay royalties to Soundview Technologies. In December 2000, Soundview
Technologies and Philips Electronics North America Corporation reached a
confidential settlement agreement whereby Soundview Technologies will receive
payment and grant a non-exclusive license of its V-chip patent to Philips
Electronics North America Corporation. In January 2001, Soundview Technologies
entered into a separate confidential settlement agreement with Hitachi
America Ltd., whereby Soundview Technologies will receive payment and grant a
non-exclusive license of its V-chip patent to Hitachi. Also in January 2001,
Soundview Technologies reached a confidential settlement agreement with Pioneer
Electronics (USA) Inc., an affiliate of Pioneer Corporation.
12
On November 28, 2000, Nanogen, Inc. filed, but did not serve, suit against
CombiMatrix and Donald D. Montgomery, Ph.D., a former employee of Nanogen and an
officer and director of CombiMatrix, in the United States District Court for the
Southern District of California. Nanogen alleges, among other breach of contract
and trade secret misappropriation claims, that United States Patent
No. 6,093,302 and other proprietary information belonging to CombiMatrix are
instead the property of Nanogen. CombiMatrix and Dr. Montgomery both deny, and
intend to vigorously defend against, the claims in the lawsuit. Accordingly, on
December 15, 2000, and without waiting for service, CombiMatrix and
Dr. Montgomery filed a motion to dismiss the lawsuit. Concurrently, we notified
Nanogen of our intent to bring an action against Nanogen and Nanogen's counsel
to recover damages resulting from any meritless claims by Nanogen. We also
notified Nanogen that we would seek punitive damages in such a proceeding. On
December 18, 2000, Nanogen served CombiMatrix and Dr. Montgomery.
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, many of our subsidiary companies are in the early stages
of development and have limited operating histories. You should consider our
prospects in light of the risks, expenses, and difficulties frequently
encountered by companies with such limited operating histories. Since we have a
limited operating history, we cannot assure you that our operations will be
profitable or that we will generate sufficient revenues to meet our expenditures
and support our activities.
During the fiscal year ended December 31, 1999, we had an operating loss of
approximately $9.6 million and a net loss of approximately $8.2 million. During
the nine months ended September 30, 2000, we had an operating loss of
approximately $17.0 million and a net loss of approximately $10.9 million. If we
continue to have operating losses, we may not have enough money to expand our
business and our subsidiary companies' businesses in the future.
THE LACK OF CONTROL OVER DECISION-MAKING AND DAY-TO-DAY OPERATIONS AT CERTAIN
SUBSIDIARY COMPANIES MEANS THAT WE CANNOT PREVENT THEM FROM TAKING ACTIONS THAT
WE BELIEVE MAY RESULT IN ADVERSE CONSEQUENCES.
ADVANCED DATA EXCHANGE. We currently own a 5.2% interest in Advanced Data
Exchange and have no board representation. Additional rounds of equity financing
may further dilute our interest in Advanced Data Exchange. We do not have the
ability to control decision-making at Advanced Data Exchange.
GREENWICH INFORMATION TECHNOLOGIES. We currently maintain a membership
interest of 33.3% in Greenwich Information Technologies. Although we are a
senior member of Greenwich Information Technologies, we do not hold a majority
of the board of three senior members, and we have no control over its day-to-day
operations.
MEDIACONNEX. We currently own 73.77% of the outstanding Series A Preferred
Stock of Mediaconnex. The holders of the Series A Preferred Stock, voting
together as a class, have the right to designate two members to the board of
directors of Mediaconnex, giving us the right to control 40% of the board. To
date, Paul Ryan, our Chief Executive Officer, and Amit Kumar, Vice President,
Life Sciences, have been appointed to the board of directors of Mediaconnex.
This minority position and board representation gives us influence over, but not
the ability to control, decision-making at Mediaconnex.
BECAUSE SOME OF OUR FACILITIES ARE LOCATED NEAR MAJOR EARTHQUAKE FAULT LINES, WE
COULD BE MATERIALLY AFFECTED IN THE EVENT OF A MAJOR EARTHQUAKE.
Our facilities and the facilities of a number of our subsidiary companies,
including CombiMatrix, Advanced Data Exchange, Mediaconnex and Soundbreak.com,
are located near major earthquake fault lines. In the event of a major
earthquake, these facilities could be significantly damaged and/or destroyed,
13
and result in a material adverse loss to us and some of our subsidiary
companies. We have not obtained and do not presently intend to obtain earthquake
insurance or business interruption coverage.
WE MAY INCUR SIGNIFICANT COSTS TO AVOID INVESTMENT COMPANY STATUS AND MAY SUFFER
ADVERSE CONSEQUENCES IF DEEMED TO BE AN INVESTMENT COMPANY.
We may incur significant costs to avoid investment company status and may
suffer other adverse consequences if deemed to be an investment company under
the Investment Company Act of 1940. Some of our equity investments may
constitute investment securities under the Investment Company Act. A company may
be deemed to be an investment company if it owns investment securities with a
value exceeding 40% of its total assets, subject to certain exclusions.
Investment companies are subject to registration under, and compliance with, the
Investment Company Act unless a particular exclusion or regulatory safe harbor
applies. If we are deemed an investment company, we would become subject to the
requirements of the Investment Company Act. As a consequence, we would be
prohibited from engaging in business or issuing its securities as it has in the
past and might be subject to civil and criminal penalties for noncompliance. In
addition, certain of our contracts might be voidable, and a court-appointed
receiver could take control of us and liquidate our business.
Although we believe our investment securities currently comprise less than
40% of its assets, fluctuations in the value of these securities or of our other
assets may cause this limit to be exceeded. This would require us to attempt to
reduce its investment securities as a percentage of its total assets. This
reduction can be attempted in a number of ways, including the disposition of
investment securities and the acquisition of non-investment security assets. If
we sell investment securities, we may sell them sooner than we otherwise would.
These sales may be at depressed prices and we may never realize anticipated
benefits from, or may incur losses on, these investments. Some investments may
not be sold due to contractual or legal restrictions or the inability to locate
a suitable buyer. Moreover, we may incur tax liabilities when we sells assets.
We may also be unable to purchase additional investment securities that may be
important to our operating strategy. If we decide to acquire non-investment
security assets, we may not be able to identify and acquire suitable assets and
businesses.
THE AVAILABILITY OF SHARES FOR SALE IN THE FUTURE COULD REDUCE THE MARKET PRICE
OF OUR COMMON STOCK.
In the future, we may issue securities to raise cash for acquisitions, and
we may also pay for interests in additional subsidiary companies by using a
combination of cash and our common stock, or just our common stock. We may also
issue securities convertible into our common stock. Any of these events may
dilute your ownership interest in us and have an adverse impact on the price of
our common stock.
In addition, sales of a substantial amount of our common stock in the public
market, or the perception that these sales may occur, could reduce the market
price of our common stock. This could also impair our ability to raise
additional capital through the sale of our securities.
THERE MAY BE VOLATILITY IN OUR STOCK PRICE.
Our common stock, which is quoted on the Nasdaq National Market, has
experienced significant price and volume fluctuations. These fluctuations are
likely to continue in the future. The market price of our common stock may
decline below the price of the stock sold in this offering. The market prices of
the securities of technology and Internet-related companies have been especially
volatile.
14
DELAWARE LAW AND OUR CHARTER DOCUMENTS CONTAIN PROVISIONS THAT COULD DISCOURAGE
OR PREVENT A POTENTIAL TAKEOVER OF OUR COMPANY THAT MIGHT OTHERWISE RESULT IN
OUR STOCKHOLDERS RECEIVING A PREMIUM OVER THE MARKET PRICE OF THEIR SHARES.
Provisions of Delaware law and our certificate of incorporation and bylaws
could make more difficult the acquisition of our company by means of a tender
offer, proxy contest or otherwise, and the removal of incumbent officers and
directors. These provisions include:
- Section 203 of the Delaware General Corporation Law, which prohibits a
merger with a 15%-or-greater stockholder, such as a party that has
completed a successful tender offer, until three years after that party
became a 15%-or-greater stockholder;
- amendment of our bylaws by the shareholders requires a two-thirds approval
of the outstanding shares;
- the authorization in the certificate of incorporation of undesignated
preferred stock, which could be issued without stockholder approval in a
manner designed to prevent or discourage a takeover;
- provisions in our bylaws eliminating stockholders' rights to call a
special meeting of stockholders, which could make it more difficult for
stockholders to wage a proxy contest for control of our board or to vote
to repeal any of the anti-takeover provisions contained in our certificate
of incorporation and bylaws; and
- the division of our Board of Directors into three classes with staggered
terms for each class, which could make it more difficult for an outsider
to gain control of our Board of Directors.
FORWARD-LOOKING STATEMENTS
This prospectus and the documents it incorporates by reference contain
forward-looking statements within the meaning of the "safe harbor" provisions of
the Private Securities Litigation Reform Act of 1995. In particular, these
statements include the description of our plans and objectives for future
operations, assumptions underlying such plans and objectives, and other
forward-looking statements. These statements may be identified by the use of
forward-looking terminology such as "may," "will," "expect," "believe,"
"estimate," "anticipate," "intend," "continue," or similar terms, variations of
such terms or the negative of such terms. These statements are based on
management's current expectations and are subject to a number of factors and
uncertainties, which could cause actual results to differ materially from those
described in the forward-looking statements. These statements address future
events and conditions concerning product development, capital expenditures,
earnings, litigation, regulatory matters, markets for products and services,
liquidity and capital resources, and accounting matters. Actual results in each
case could differ materially from those anticipated in these statements by
reason of the factors described under the caption "Risk Factors" and such other
factors such as future economic conditions, changes in consumer demand,
legislative, regulatory and competitive developments in markets in which we and
our subsidiaries operate, and other circumstances affecting anticipated revenues
and costs. We expressly disclaim any obligation or undertaking to release
publicly any updates or revisions to any forward-looking statements contained in
this prospectus to reflect any change in our expectations with regard to those
statements or any change in events, conditions or circumstances on which any
such statement is based.
USE OF PROCEEDS
We will not receive any proceeds from the sale of the shares of common stock
offered by the Selling Securityholders under this prospectus. We will receive
proceeds if Selling Securityholders exercise their warrants or options to
purchase shares of common stock. If all of the Selling Securityholders were to
exercise their warrants and options, we would receive gross proceeds of
$23,672,754. When and if we receive these funds, they will be used for general
corporate purposes.
15
SELLING SECURITYHOLDERS
The shares of common stock offered by this prospectus have been or will be
issued to the Selling Securityholders (or their assignees) directly by our
company. Of the shares of our common stock covered by this prospectus, 1,127,274
shares were issued to certain Selling Securityholders in a private placement
completed in January 2001 under an exemption from registration contained in
Regulation D and Section 4(2) of the Securities Act. An additional 1,127,274
shares of common stock (subject to adjustment under certain circumstances)
covered by this prospectus are issuable upon the exercise of common stock
purchase warrants issued to certain Selling Securityholders in that private
placement.
The following table sets forth certain information with respect to the
beneficial ownership of shares of our common stock by the Selling
Securityholders as of January 22, 2001 and the number of shares which may be
offered under this prospectus for the account of each of the Selling
Securityholders or their transferees from time to time. Except as described in
the footnotes to the table, to the best of our knowledge, none of the Selling
Securityholders has had any position, office or other material relationship with
our company or any of our affiliates.
NUMBER OF SHARES MAXIMUM NUMBER NUMBER OF SHARES PERCENT OF CLASS
BENEFICIALLY OF SHARES WHICH BENEFICIALLY BENEFICIALLY
OWNED PRIOR MAY BE SOLD IN OWNED AFTER OWNED AFTER
SELLING SECURITYHOLDERS TO OFFERING(1) THIS OFFERING(1) THE OFFERING(2) THE OFFERING(2)
- ----------------------- ---------------- ---------------- ---------------- ----------------
Balboa Fund L.P................. 106,422 106,422 0 0
Balboa Fund Ltd................. 276,458 256,458 20,000 *
Balmore S.A..................... 85,714 85,714 0 0
Ben Joseph Partners............. 34,286 34,286 0 0
Chelonia Fund L.P............... 123,000 123,000 0 0
Cranshire Capital, L.P.......... 354,286 354,286 0 0
EDJ Limited..................... 68,572 68,572 0 0
Euram Cap Strat. "A" Fund,
Ltd........................... 45,714 45,714 0 0
Lyxor Asset Management.......... 128,670 128,670 0 0
Managed Risk Trading, L.P....... 34,286 34,286 0 0
Montrose Investments Ltd........ 114,284 114,284 0 0
Otato L.P....................... 40,000 40,000 0 0
Porter Partners L.P............. 68,572 68,572 0 0
Pro Capital, Inc.(3)............ 40,000 40,000 0 0
Ram Trading Ltd................. 142,856 142,856 0 0
Redwood Partners LLC............ 11,428 11,728 0 0
Royal Bank of Canada............ 436,754 228,572 208,182 1.21%
Seneca Capital, L.P............. 349,539 111,172 118,455 *
Seneca Capital International
Ltd........................... 174,536 231,084 62,764 *
ZLP Master Fund Ltd............. 28,572 28,572 0 0
- ------------------------
* Less than 1% of class
(1) Assumes exercise of all common stock purchase warrants or options
beneficially owned by the Selling Securityholder at the exercise price and
for the maximum number of shares permitted as of the date of
16
this prospectus. Share figures include shares of our common stock issued in
the private placement and underlying the common stock purchase warrants as
follows:
SHARES
SHARES OF COMMON STOCK UNDERLYING
SELLING SECURITYHOLDERS ISSUED IN PRIVATE PLACEMENT WARRANTS
- ----------------------- --------------------------- ----------
Balboa Fund L.P............................ 53,211 53,211
Balboa Fund Ltd............................ 128,229 128,229
Balmore S.A................................ 42,857 42,857
Ben Joseph Partners........................ 17,143 17,143
Chelonia Fund.............................. 61,500 61,500
Cranshire Capital L.P...................... 177,143 177,143
EDJ Limited................................ 34,286 34,286
Euram Cap Strat. "A" Fund, Ltd............. 22,857 22,857
Lyxor Asset Management..................... 64,335 64,335
Managed Risk Trading, L.P.................. 17,143 17,143
Montrose Investments Ltd................... 57,142 57,142
Otato L.P.................................. 20,000 20,000
Porter Partners L.P........................ 34,286 34,286
Pro Capital, Inc........................... 20,000 20,000
Ram Trading Ltd............................ 71,428 71,428
Redwood Partners LLC....................... 5,714 5,714
Royal Bank of Canada....................... 114,286 114,286
Seneca Capital, L.P........................ 55,886 55,886
Seneca Capital International Ltd........... 115,542 115,542
ZLP Master Fund, Ltd....................... 14,286 14,286
(2) Assumes that each Selling Securityholder will sell all shares of common
stock offered under this prospectus, but not any other shares of common
stock beneficially owned by such Selling Securityholder.
(3) Pro Capital, Inc. acted as a finder in connection with the January 2001
private placement.
17
PLAN OF DISTRIBUTION
The shares of common stock offered by this prospectus may be sold by the
Selling Securityholders or by their respective pledgees, donees, transferees or
other successors in interest. Such sales may be made at fixed prices that may be
changed, at market prices prevailing at the time of sale, at prices related to
such prevailing market prices, or at negotiated prices. The shares may be sold
by one or more of the following:
- one or more block trades in which a broker or dealer so engaged will
attempt to sell all or a portion of the shares held by the Selling
Securityholders as agent but may position and resell a portion of the
block as principal to facilitate the transaction;
- purchase by a broker or dealer as principal and resale by such broker or
dealer as principal and resale by such broker or dealer for its account
under this prospectus;
- ordinary brokerage transactions and transactions in which the broker
solicits purchasers; and
- privately negotiated transactions between the Selling Securityholders and
purchasers without a broker-dealer.
The Selling Securityholders may effect such transactions by selling shares
to or through broker dealers, and such broker-dealers will receive compensation
in negotiated amounts in the form of discounts, concessions, commissions or fees
from the Selling Securityholders and/or the purchasers of the shares for whom
such broker-dealers may act as agent or to whom they sell as principal, or both
(which compensation to a particular broker-dealer might be in excess of
customary commissions). Such brokers or dealers or other participating brokers
or dealers and the Selling Securityholders may be deemed to be "underwriters"
within the meaning of the Securities Act, in connection with such sales. Except
for customary selling commissions in ordinary brokerage transactions, any such
underwriter or agent will be identified, and any compensation paid to such
persons will be described, in a prospectus supplement. In addition, any
securities covered by this prospectus that qualify for sale under Rule 144 might
be sold under Rule 144 rather than under this prospectus.
LEGAL MATTERS
The validity of the shares of common stock intended to be sold under this
prospectus will be passed upon for the Company by O'Melveny & Myers LLP.
EXPERTS
The consolidated financial statements incorporated in this Prospectus by
reference to the Annual Report on Form 10-K of Acacia Research Corporation for
the year ended December 31, 1999 have been so incorporated in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of that firm as experts in auditing and accounting.
AVAILABLE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-3 under the Securities Act with respect to the shares of
common stock offered by this prospectus. This prospectus does not contain all
the information set forth in the registration statement and the exhibits and
schedules to the registration statement. For further information about us and
the shares of common stock, we refer you to the registration statement and to
the exhibits and schedules filed with it. Statements contained in this
prospectus as to the contents of any contract or other documents referred to are
not necessarily complete. We refer you to those copies of contracts or other
documents that have been filed as exhibits to the registration statement, and
statements relating to such documents are qualified in all aspects by such
reference.
18
We are subject to the information requirements of the Securities Exchange
Act of 1934 and therefore we file reports, proxy statements and other
information with the Commission. You can inspect and copy the reports, proxy
statements and other information that we file at the public reference facilities
maintained by the Commission at the Public Reference Room, 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the Commission's regional offices at 7 World
Trade Center, Suite 1300, New York, New York 10048 and 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. You can also obtain copies of such material
from the Commission's Public Reference Room, 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates. You may obtain information on the operation of
the Public Reference Room by calling the Commission at 1-800-SEC-0300. The
Commission also makes electronic filings publicly available on its Web site at
http://www.sec.gov. Our common stock is traded on the Nasdaq National Market
under the symbol "ACRI" and reports, proxy and information statements and other
information about us may be inspected at the National Association of Securities
Dealers, Inc. at 1735 K Street, N.W., Washington, D.C. 20006.
INFORMATION INCORPORATED BY REFERENCE
The following documents, which we have filed with the Commission under the
Exchange Act (SEC File No. 0-26068), are incorporated by reference into this
prospectus:
- our annual report on Form 10-K, as amended for the fiscal year ended
December 31, 1999;
- our quarterly reports on Form 10-Q for the fiscal quarters ended
March 31, 2000 (as amended), June 30, 2000 (as amended), and
September 30, 2000;
- our current reports on Form 8-K filed on February 24, 2000 and April 7,
2000; and
- the description of our common stock contained in Amendment No. 2 to our
registration statement on Form 8-A/A dated December 30, 1999.
All documents that we file with the Commission under Section 13(a), 13(c),
14 or 15(d) of the Exchange Act after the date of this prospectus and before the
termination of the offering of the shares of common stock shall be deemed
incorporated by reference into this prospectus and to be a part of this
prospectus from the respective dates of filing such documents.
We will provide without charge to each person to whom a copy of this
prospectus is delivered, upon such person's written or oral request, a copy of
any and all of the information incorporated by reference in this prospectus,
other than exhibits to such documents, unless such exhibits are specifically
incorporated by reference into the information that this prospectus
incorporates. Requests should be directed to the Secretary at Acacia Research
Corporation, 55 South Lake Avenue, Pasadena, California 91101, telephone number
(626) 396-8300.
Information in this prospectus supersedes information incorporated by
reference that we filed with the Commission before the date of this prospectus,
while information that we file later with the Commission will automatically
update and supersede prior information.
19
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You should rely only on the information incorporated by reference, provided in
this prospectus or any supplement or that we have referred you to. We have not
authorized anyone else to provide you with different information. You should not
assume that the information in this prospectus or any supplement is accurate as
of any date other than the date on the front of those documents. However, you
should realize that our affairs may have changed since the date of this
prospectus. This prospectus will not reflect such changes. You should not
consider this prospectus to be an offer or solicitation relating to the
securities in any jurisdiction in which such an offer or solicitation relating
to the securities is not authorized, if the person making the offer or
solicitation is not qualified to do so, or if it is unlawful for you to receive
such an offer or solicitation.
ACACIA RESEARCH CORPORATION
2,254,548 SHARES OF
COMMON STOCK
---------------------
PROSPECTUS
---------------------
February , 2001
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PART II
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses in connection with the registration of shares of the Selling
Securityholders will be borne by the Company and are estimated as follows:
Commission registration fee................................. $ 9,644
Printing and engraving...................................... 3,500
Accounting fees and expenses................................ 6,000
Legal fees and expenses..................................... 15,000
Miscellaneous expenses...................................... 5,000
-------
Total................................................... $39,144
=======
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation provides for the elimination of
personal monetary liability of directors to the fullest extent permissible under
Delaware law. Delaware law does not permit the elimination or limitation of
director monetary liability for: (i) breaches of the director's duty of loyalty
to the corporation or its stockholders; (ii) acts or omissions not in good faith
or involving intentional misconduct or knowing violations of law; (iii) the
payment of unlawful dividends or unlawful stock repurchases or redemptions or
(iv) transactions in which the director received an improper personal benefit.
The Company's Bylaws provide for the indemnification to fullest extent
permitted by applicable law of any person who was or is made or is threatened to
be made a party or is otherwise involved in any action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of his or
her current or past service to the Company, against all liability and loss
suffered and expenses (including attorney' fees) reasonably incurred by such
person.
The Company plans to enter into agreements (the "Indemnification
Agreements") with each of the directors and executive officers of the Company
under which the Company has agreed to indemnify such director or executive
officer from claims, liabilities, damages, expenses, losses, costs, penalties or
amounts paid in settlement incurred by such director or executive officer in or
arising out of such person's capacity as a director or executive officer of the
Company or any other corporation of which such person is a director at the
request of the Company to the maximum extent provided by applicable law. In
addition, such director or executive officer will be entitled to an advance of
expenses to the maximum extent authorized or permitted by law.
To the extent that the Board of Directors or the stockholders of the Company
may in the future wish to limit or repeal the ability of the Company to provide
indemnification as set forth in the Certificate of Incorporation, such repeal or
limitation may not be effective as to directors and executive officers who are
parties to the Indemnification Agreements, because their rights to full
protection would be contractually assured by the Indemnification Agreements. It
is anticipated that similar contracts may be entered into, from time to time,
with future directors of the Company.
ITEM 16. EXHIBITS
See the attached Exhibit Index that follows the signature page.
II-1
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales ar being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
PROVIDED, HOWEVER, that paragraphs (1)(i) and (1)(ii) above do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") that are incorporated by reference in the Registration
Statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial BONA
FIDE offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) That, for purposes of determining any liability under the Securities Act
of 1933, each filing of the registrant's annual report pursuant to
Section 13(a) or 15(d) of the Exchange Act (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to Section 15(d) of the
Exchange Act) that is incorporated by reference in the registration statement
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial BONA FIDE offering thereof.
(5) That, for purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(6) That, for the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial BONA FIDE offering thereof.
(7) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 6
II-2
above, or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Pasadena, State of California, on the 5th day of
February 2001.
ACACIA RESEARCH CORPORATION
By: /s/ PAUL R. RYAN
-----------------------------------------
Paul R. Ryan
CHAIRMAN OF THE BOARD
AND CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
We, the undersigned officers and directors of Acacia Research Corporation,
hereby severally constitute and appoint Paul R. Ryan, Robert L. Harris II and
Victoria White, and each of them singly, our true and lawful attorneys-in-fact,
with full power to them in any and all capacities, to sign any amendments to
this registration statement on Form S-3 (including any post-effective amendments
thereto), and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact may do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ PAUL R. RYAN Chairman of the Board and Chief February 5, 2001
------------------------------------ Executive Officer
Paul R. Ryan (Principal Executive Officer)
/s/ ROBERT L. HARRIS II Director and President February 5, 2001
------------------------------------ (Principal Financial Officer)
Robert L. Harris II
/s/ MARY ROSE COLONNA Vice President, Finance and February 5, 2001
------------------------------------ Controller
Mary Rose Colonna (Principal Accounting Officer)
/s/ THOMAS B. AKIN Director February 5, 2001
------------------------------------
Thomas B. Akin
/s/ FRED A. DE BOOM Director February 5, 2001
------------------------------------
Fred A. de Boom
/s/ EDWARD W. FRYKMAN Director February 5, 2001
------------------------------------
Edward W. Frykman
/s/ GERALD KNUDSON Director February 5, 2001
------------------------------------
Gerald Knudson
S-1
EXHIBIT
NUMBER DESCRIPTION
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4.1 Form of Subscription Agreement (including form of Common
Stock Purchase Warrant) used for the January 2001 private
placement
4.2 Form of Specimen Certificate of Company's Common Stock(1)
5.1 Opinion of Counsel re: legality of securities being
registered
23.1 Consent of Independent Accountants
23.3 Consent of Counsel (included in Exhibit 5.1)
24.1 Powers of Attorney (included on page S-1)
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(1) Previously filed by Registrant with Amendment No. 2 on Form 8-A/A on
December 30, 1999 (SEC File No. 000-26068).